Essay details:

  • Subject area(s): Marketing
  • Price: Free download
  • Published on: 14th September 2019
  • File format: Text
  • Number of pages: 2

Text preview of this essay:

This page is a preview - download the full version of this essay above.

Disruptive Industry Trends that are Influencing New-Product Development Within the Global Automotive Industry

With the rise of car culture worldwide, the global automotive industry has shaped the global economy and is responsible for the creation of millions of jobs in various countries (2). Along with its increasing impact, the industry witnesses constant change in terms of automobile trends (1). These changes, which are linked to other industries as well as consumers, have allowed a revolutionized automotive industry, allowing for new models to meet consumer preferences and go beyond the satisfaction of their needs (5). The main industry trends observed that have influenced these new products are the advances in technology, modifications in mobility behaviour, as well as the development of new materials.

Since the conclusion of the Second World War, there have been some major advances in telecommunications and transportation technology. This has resulted in what we call a “shrinking globe” due to the communications becoming quite immediate and trends being shared globally (4, p.13). The advancements in technology that are integrated into vehicles has encouraged the trend of autonomous vehicles, and therefore self-driving cars are anticipated to be presented within a decade. With this technology, road capacities will increase and allow a more efficient commute for consumers (6). Beyond the self-driving car, advances in technology has brought to reality the electric car. Since Tesla Motors' foundation in 2003, the electric vehicles now have widely accessible charging stations, decreased battery charging times, and increased consumer acceptance. With stricter emission regulations, the electric vehicle is on its way into the mainstream as it is more environmentally friendly (5).

Another trend affecting the automotive industry is the alteration in mobility behaviour, which would allow the relationship between users and automobiles to change (7). Change in consumer preference, advances in technology, tighter regulations modify the motives for individuals to use their vehicles. In the past 50 years, technology has allowed new methods of transportation, such as airplanes and trains, to become more efficient in certain situations (4, p.14). Therefore, the consumer's decision to use a private car may be oriented towards a specific situation instead of their all-purpose use they currently possess. Moreover, the market segmentation will have to be more city-oriented. Currently, the automotive market is segmented according to countries or regions, for the most part. For example, “a Ford car can cost up to $3000 more in Great Britain than in Belgium. […] Because there is no market for left-hand-drive cars in Great Britain, Ford has been able to keep the markets separate” (ch.14, page 476)(4). However, markets will soon be necessarily segmented according to their population density, economic development, and prosperity because their citizens possess different needs than others within the country. This occurs as consumers prefer vehicles that are tailored to their needs and desires (5).

The final trend disrupting the automotive industry is the heating up of new materials race. In Formula One, materials are developed to become ultra-light-weight, tough, and crash resistant. These materials have started to become introduced to the production of serial vehicles. These represent aa serious comparative advantage in 2017 and beyond (8).

Detailed Stakeholder Analysis

In an article published by The Globe and Mail, Ford Motor Company will invest $ 1.2-billion with the intention of establishing a research and development centre in Ottawa. This would also provide funding for an additional 295 software and hardware engineers, which would increase the connectivity team's size by over 200% for the next four years (9). On Ford's website, it is stated that this would all be done with the intention to “accelerate its pace of innovation, expand services to leverage the potential of the connected vehicle ecosystem and extend its connected vehicle technology leadership” (10).

Ford's Objectives

Raj Nair, who's role at Ford Motor Company is executive vice president, global product development, and chief technical officer, has shared a few words regarding the company's objectives:

Connectivity is the critical component to the future of mobility. Whether its providing information to help reduce congestion in cities, allowing vehicles and infrastructure to communicate to keep us safer on the road or simply knowing all your personal settings when you enter a self-driving vehicle, connectivity is the key. By more than doubling our connectivity talent and establishing a research centre, we can innovate faster and deliver more software and services to exceed our customer's expectations” (10).

The company has already demonstrated their commitment to these objectives as the new research and development centre in Ottawa “will focus on developing autonomous driving technology as part of Ford's mobile connectivity team. Infotainment, driver-assist and other connected car modules are among the technologies slated for development in the centre” (11). Moreover, BlackBerry is transferring 400 workers to Ford to provide support in the development of autonomous car efforts. Their focus will be geared towards the mobility and using wireless communications to maintain a connection between cars (12).

Ford's Advantageous Core Competencies

A firm's core competence “refers to the skills that competitors cannot easily match or imitate” (13). These are found to be often linked to the company's activities that create value. These allow a firm to lower their costs related to value creation and/or increasing the value perceived by the customer, making premium pricing acceptable to the public and, by extension, maximizing profitability (4, p.383). When Henry Ford first started his company, it was known as the place of origin for the mass production system. The moving assembly line was designed in 1913, and a lot has changed in over a century (14). Its core competencies have shifted over to brand recognition, global supply chain, and research and development (15).

Brand Awareness Towards Ford

Brand awareness refers to the target market's ease of recall or recognition of the brand within the product category when contemplating on making a purchase (16, p.105). The difference between brand recollection and brand recall, both being types of brand awareness, is that the first brand is only recognized by the consumer when the brand name and/or logo is prominently displayed, while a brand that is recalled is remembered when the consumer is remembering a brand which could satisfy the product category need it identified (16, p.126). Being an effect of marketing communication, this form of consumer knowledge is what enables them to have confidence in the brand when making a purchase decision. For this to happen, consumers must be informed through marketing communications of extensive details regarding the brand and their products. The consumers' recollection time of the brand name would then decrease, providing a superior advantage to the companies that are only recognized by consumers (16, p.127).

When it comes to the automotive industry, Ford's brand recall is present on a global scale. It has a well-known vehicle model that can be easily recalled for most body style categories: the Explorer SUV, the Focus hatchback, the Mustang muscle car, the F-150 truck, and the Taurus sedan to name a few (17). The results of the 2012 Car Brand Perception Survey indicated that Ford was in the lead for brand awareness at 87% (18).

In 2013, Ford invested in a Super Bowl ad for its Lincoln brand after kickoff. In 2017, instead of advertising a specific brand or model, it advertised Ford Motor Company and its “expansion to an auto and a mobility company is helping change the way the world moves” (19). The 90-second advertisement's main message was that Ford provides a certain freedom by making consumer lives easier and better. It displayed multiple vehicle models, including electric and self-driving ones (20). There is a glimpse of a bike with the brand name written on it: this was providing awareness towards a Ford-sponsored bike-sharing program available in the Bay Area (21). It also featured a Ford-branded shuttle, referencing the acquisition of a San Francisco-based shuttle service named Chariot, a service that Ford plans to expand to another six markets (22). An AutoTrader senior analyst, Michelle Krebs, stated “the focus at Ford has been not only on selling vehicles for today, but setting the company up as a mobility company of the future” (23).

However, Ford was not just telling its brand's story: it was also extending its story to what the future of the company has to offer. At the end of the advertisement, the following words were displayed: ride sharing, electric vehicles, bike sharing, and self-driving cars (20). Ford is demonstrating a “transportation ecosystem” that could potentially occur in the future (19). The research and development of self-driving cars is already taking place, so it's just a matter of time before they become part of the mainstream. By releasing this Super Bowl advertisement in 2017, Ford was not only increasing its brand awareness, but it was using it to promote yet-to-be-released self-driving cars before its competitors have the chance to do so.

General Motors (GM) and Fiat Chrysler Automobiles (FCA) being its major North American competitors in the industry, they need to increase their efforts in order to perform better. The 2012 Car Brand Perception Survey evaluated GM's brands between 32% and 76% for brand awareness, Chevrolet being the only one above 50 %. When it came to FCA, it did not perform as well, with a mere 45 % in brand awareness (18). GM recently used Facebook Live to offer consumers' first opportunity to view its newest electric vehicle. This reached the brand's most loyal customers, with limited views from non-customers, demonstrating a marketing strategy that does not prioritize brand awareness (32). Meanwhile, FCA typically hires celebrities or uses songs in their advertisements to attract the attention of non-consumers, which does have a positive impact on brand awareness. However, they recently are accenting the vehicles' features, which targets more their current consumers looking for a new car (33). Both competitors don't seem to be focusing on brand awareness, and Ford had potential to use this with the release of their autonomous vehicles.

Ford's Global Supply Chain

The term supply chain refers to a network created between a firm and its suppliers to get a product produced and distributed to the customer. This includes suppliers, manufacturers, retailers, and any business that contributes to the creation or delivery of the product (24). The management of this supply chain is crucial to the company because if it is optimized, it can accelerate the production cycle and increase profitability. The opportunity for cost reduction lies within the intermediaries: how many there are, their price, the efficiency of their work, and how well they work together. If there are too many intermediaries, not only must they all be paid, which would increase the price of the product and potentially affect sales, but it could slow down the production time, and the increased communication channels enlarges risk of miscommunication and potential disasters derived from it. With this lack of communication between intermediaries, the supply chain becomes less efficient as there could be extra fees, storage fees for example, that could be avoided. Moreover, the time and resources they use can affect profitability because if the manufacturer is inefficient in its use of resources, this would increase costs for the suppliers (25).

As mentioned earlier, in 1913, the moving assembly line was first designed by Henry Ford (14). Products used to be made one at a time, and his idea was to have each part made separately and have them all assembled together and the end of the line. Each worker had one simple very repetitive job, whether it was making wheels or building the Model T's. The efficiency of such system has allowed Ford to increase its sales and paying their employees very well by making a car that is affordable to most Americans. “In 1908, it was $ 850. In 1914, after the assembly line, it was $ 650. The price continually dropped to $ 265” (26). While its competitors sold their cars at over $ 1000, the Ford Model T had the competitive advantage of a $ 189 price tag. The vehicle was significantly cheaper than a horse buggy, as well as a lot sturdier and could manoeuver through areas that horses could not (27).

After a revision of their supply chain, General Motors and Ford Motor Company were identified as having the worst supplier relationships in all industries. They were perceived as being focused exclusively on profitability, and disregarding supplier survival and intellectual property. Suppliers were considering having Japanese automakers as customers instead of the American ones. Since then, Ford has reinvented its supply chain management and its efforts have been recognized by its suppliers and the general public, increasing share value. With long-term strategic partnerships in mind, Ford adopted the Aligned Business Framework, which included paying upfront for development and engineering costs, extending relationships with suppliers for the life of a vehicle, supplier commitment to accelerate attainment of competitive cost and introduction of technological advances, as well as an increased consistency in terms of parts used globally. Ford also adopted the Matched Pairs initiative which pairs design engineers with procurement people to represent the company when dealing with suppliers, presenting a “united front” with common objectives to the supplier. Within five years, Ford earned 7th place in a survey concerning global suppliers' opinions (28).

GM and FCA have been following Ford's example and working on their supply chain as well. GM noticed that only their Vice-President of purchasing and their buyers were cooperating to build trusting relationships. It then launched the Strategic Supplier Engagement initiative to improve its vehicles' performance as well as their financial performance. By extension, the communications between the firm and its suppliers built a foundation of transparency and trust. With all this success, the firm remains at the bottom of Henke's Supplier Working Relations Index (29). On the other hand, FCA adopted works with the Supplier Sustainability Panel, a forum revising and redesigning the supply chain when needed. It addresses any issues impacting the supply base and allows supplier companies to contribute to discussions regarding risk management and engagement opportunities. This lead to the FCA's efficient communication with its suppliers, and the introduction of sub-tier suppliers for added engagement from experts (30). However, their efforts were unfruitful. A survey measuring the quality of cooperation between automakers and suppliers, the firm's results are inferior to its top competitors. This affects their cost reductions and their quality, encouraging suppliers to bring their technological advances to other automakers (31).

With its competitors' supply chain lagging, Ford's competitive supply chain appears to be that much more appealing to stakeholders and potential suppliers. With its investment in research and development for the future release of self-driving cars, its good reputation will allow suppliers to be interested in creating partnerships. For example, Ford's new investment in research and development requires the employment of connectivity software and hardware engineers within Canada and the United States. With its new Research and Development centre in Ottawa, BlackBerry agreed to transfer 400 workers to accelerate the efforts into self-driving vehicles. Ford's reputable supply chain has enticed the world's top automobile software developer to work on the engineering aspect of it, and will encourage other firms to combine their efforts in the conception of this futuristic vehicle (12).

Ford's Research and Development

“Research and development (R&D) refers to the investigative activities a business conducts to improve existing products and procedures or to lead to the development of new products and procedures” (34). It is a combination of basic and applied research with the intention to discover solutions and/or being innovative. Basic research is geared towards attaining a better understanding on a topic. Applied research is the analysis of the basic research to provide a more practical application of the results (35). Its focus is geared towards the long-term profitability of the company, which represents capital risk as it is costly to build such a department, the return on investment (ROI) is uncertain, and any profits coming from this would be unavailable for years (34).

Since 2007, ignoring the recession of 2008, Ford's ROI has been positive, which is a good indicator of its R&D department's success (36).  Ford is currently investing a lot in R&D with the approach of autonomous cars. With a total of $1.2 billion to build a new R&D centre in Ottawa, this “development hub” will help engineer “connected car technology”, and the feedback is quite positive (11). With a self-driving car featured in their 2017 Super Bowl advertisement, Ford demonstrates that this will be one of their points of focus as this technology is becoming more current and the release of such vehicles is not far in the future (20).

With similar intentions, GM and FCA are also investing in R&D. GM is anticipating hiring 1,000 engineers to develop self-driving software, connected-vehicle technology, and newer safety features. This new R&D centre will be built in Markham, Ontario, but a $10 million upgrade of its facility to test cold-weather conditions in Kapuskasing, Ontario will also be taking place. Since their focus lies on inventing new products, the union for the manufacturing plant situated in Oshawa threatens to go on strike if the production of these new vehicles (37). With a positive but unstable ROI fluctuating between 3% and 7% for the past five years, GM's R&D department needs to deliver in order to remain competitive, and it currently seems to be on track for success (38). FCA has invested over $900 million on R&D for the past year, demonstrating its dedication towards it (39). The firm is joining a partnership between Intel, Mobileye, and BMW for the development of self-driving technology (40). This would make them benefit from the resulting economies of scale, which are “cost advantages associated with large-scale production” (4,p.184). Evidently, all three North American companies seem to be headed in the right direction, all three investing in R&D with the purpose of following the development trend of autonomous vehicles. Despite this, Ford's previous success in R&D ROI indicates that they have the upper hand and that imitating their level of accuracy would be very challenging (41).

Ford's Barriers to Success

As previously discussed, Ford's barriers to success are its competition and its alliances. With its objectives being the development of self-driving cars and connectivity between them, the competitor's objectives are quite similar, and may therefore interfere with Ford's success. Ford can control this by using its core competencies to its advantage (10). Also, despite it being one of its strengths, its partnerships can also represent a weakness. Ford can only be as strong as its partners because if one is inefficient or does not perform to par, the global supply chain cannot be efficient. That is why partnerships are so risky (42). Despite its agreement with BlackBerry to transfer 400 engineers to develop the newest car technology regarding self-driving and connectivity, if the employees transferred are not experts in their domain or are inefficient in their work, Ford's R&D competitive advantage will disappear and will fall behind its competition (12).

Other Relevant Stakeholders

Named after Michael E. Porter, Porter's Five Forces “identifies and analyzes five competitive forces that shape every industry, and helps determine an industry's weaknesses and strengths” (43). Potential of new entrants, power of suppliers, power of customers, competition and threat of substitute products aide in establishing the industry's structure to determine a firm's corporate strategy in its search for attractiveness and profitability (43).

Since the cost of entering the global automotive industry is so high, the threat of new entrants is fairly low. Small companies would have difficulty reaching the level of mass production its competitors are at. The government could also have established regulations that could add further difficulty to their entry (15). The power suppliers possess is minimal; they are present in an abundant amount and, therefore, if one is not to par, the supplier can very easily be replaced for a competitive price (44). Despite the limits of where one can travel with trains and busses, public transportation represents a threat of substitute products/services. Its affordable to most people as well as encouraged to limit the amount of exhaust released into the atmosphere, and therefore becomes a moderate threat (15). The power of customers can be evaluated as moderately-strong. With various vehicles of different fuel efficiency, service, price, and quality, consumers can leverage themselves based on the information available to them on the firm's products. Buyers' expectations and demands go as far as to encourage firms to find innovative ways to meet these (45). The competition is very strong among existing firms. This is affected by increasing consumer expectations, increasing market growth, and certain firms having a competitive advantage (15).

Ford's Network

A firm's network is composed of any entity affecting the company, from suppliers to the consumer. Ford's main suppliers are Flex-N-Gate Seeburn, NHK Spring, and Valeo Electric and Electronic Systems, although 80% of Ford's parts originate from 100 suppliers. Since its entry into emerging market countries, such as Russia and China, Ford has established partnerships with Ford Sollers and Changan Ford Mazda. It also owns Troller, a Brazilian auto manufacturer, and has demonstrated serious interest in Mazda and Aston Martin (46). Although Ford has created common designs to satisfy various continental tastes, it has built identical factories throughout the world to save on shipping costs while also saving on design and engineering fees (4, p.369). Automotive Industry Action Group (AIAG), European Automotive Working Group, United Nations Global Compact (UNGC) and Electronic Industry Citizenship Coalition (EICC) are “multi-sector initiatives [that allow Ford] to explore ways to strengthen [their] supply chain and combat human rights violations” (47). In business, showing interest in social and environmental responsibility, ethical sourcing, human rights, and sustainability can lead to some major benefits, including attracting consumer interest (48). Another aspect of Ford's network are its competitors, such as GM and FCA, which attempt to attract their consumers in their efforts to expand their market shares (49). Finally, its consumers have a major impact on the company's profitability since its survival is dependent of consumer interest and action (50).

Ford's R&D Centre in Ottawa

Ford is investing $1.2 billion over the next four years in its Canadian operations to build a research and development centre in Ottawa. Its partnership with BlackBerry to transfer 295 engineers, the center's main focus will be on vehicle connectivity, which plays a major role in self-driving vehicles' collection of data. Traditionally, the “Big Three's” North American R&D is performed almost completely in Michigan, leaving Ontario as a location for manufacturing vehicles and its parts (9). This leads to the following question: what inspired Ford's decision to choose Ottawa, a city not very involved in the automotive industry?

BlackBerry QNX, the developer of automotive software that is leading the industry globally, announced in December of 2016 the establishment of a research facility in Kanata for autonomous vehicles. Considering its partnership with Ford for the development of such software, it is quite logical for the automotive firm to establish its own R&D centre at proximity of its partners'. Moreover, with 48,900 people working in the technology industry in Ottawa, its R&D industry augmented by 40,000 employees within the last year, demonstrating its rapid growth (12).

...(download the rest of the essay above)

About this essay:

This essay was submitted to us by a student in order to help you with your studies.

If you use part of this page in your own work, you need to provide a citation, as follows:

Essay Sauce, . Available from:< > [Accessed 06.06.20].