Ford and GM A Comparison of 2 Fortune 500 Companies

IST 614 – Ford and GM Final Project Leo de Sousa

Comparison Study of Two Fortune 500
Companies

Ford Motor Company and General Motors
Corporation

Leo de Sousa – IST 614

December 9, 2011

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Abstract

This paper compares and contrasts two top ten Fortune 500 automotive companies: Ford

Motor Company (Ford) and General Motors Corporation (GM). Through a series of strategic

decisions and initiatives, Ford was able to survive the 2008-2009 global economic crisis.

General Motors had similar opportunities to make strategic changes but remained entrenched

in their approaches and strategy. The result was General Motors filed for bankruptcy, and had

to ask the US and Canadian governments for loans in order to restart business. The “new” GM

is now owned mostly by the governments of the United States and Canada and the United Auto

Workers Pension Trust; essentially GM is a division of the US Department of the Treasury and

being run by a government appointee. Ford remained independent, survived the crisis and is in

control of its own destiny with profitable plan for the future. Ford is led by a forward thinking

leaders in Bill Ford Jr and Alan Mulally. This paper explores the differences between the

companies and draws some conclusions about why Ford survived and why GM failed.

The paper begins by introducing each company, providing basic corporate information, some

details about the industry they operate in, their customers and what resources they rely and

compete for. The subsequent chapters describe each company’s approach to Strategic

Planning, Organizational Design, Finance, Social Responsibility and Innovation.

The conclusion summarizes the key points in each chapter and presents some differences that

may have contributed to the very different outcomes as each company worked through the

global economic crisis of 2008-2009 and looks towards the future.

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Chapter 1 – An Introduction to Ford and General Motors

Ford was founded by Henry Ford in 1903 and became the number one US automaker with the

production of the Ford Model T car in 1908. General Motors was founded by William “Billy”

Durant in 1908. GM added many other auto brands over time and became the largest

automotive company in the world. Ford began public trading in 1956 on the New York Stock

Exchange and ranked third on the Fortune 500 in the same year. In 1956, General Motors was

the number one ranked company on the Fortune 500 and traded on the New York Stock

Exchange. (CNN Money, 2011) In the most recent publication of the Fortune 500 for 2011, Ford

ranked tenth and General Motors ranked eighth.

Below are descriptions of each company from their respective 2010 Annual Reports. “Ford

Motor Company, a global automotive industry leader bases in Dearborn, Michigan,

manufactures or distributes automobiles across six continents. With about 164,000 employees

and about 70 plants worldwide, the company’s automotive brands include Ford and Lincoln.

The company provides financial services through Ford Motor Credit Company.” (Ford Motor

Corporation, 2010, p. 1)

“The new General Motors has one clear vision: to design, build and sell the world’s best

vehicles. Our new business model revolves around this vision, focusing on fewer brands,

compelling vehicle design, innovative technology, improved manufacturing productivity and

streamlined, more efficient inventory processes. The end result is products that delight

customers and generate higher volumes and margins – and ultimately deliver more cash to

invest in our future vehicles.” (General Motors Corporation, 2010, p. 6)

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Comparison Table: Ford Motor Company and General Motors Corporation

Corporate Information Ford Motor Company General Motors Corporation

Founder Henry Ford William “Billy” Durant
Year Founded June 16, 1903 Sept 16, 1908
Headquarters Dearborn, Michigan, USA Detroit, Michigan, USA
CEO Allan Mulally Daniel F. Akerson
Divisions Automotive and Financial Automotive and Financial
Services Services
Global Reach North America, South North America, South
America, Europe, Asia Pacific, America, Europe, Asia Pacific,
Africa Africa
Brands Ford and Lincoln (minor Cadillac, Chevrolet, Buick and
ownership in Mazda) GMC, Opel, Vauxhall,
Daewoo, Izuzu, Holden, FAW,
GMC, Jiefang, Wuling, Baojun
Number of Employees 164,000 202,000
Worldwide Wholesale Unit 5,524 8,390
Volume (thousands)
Sales and Revenues (millions) $128,954 $135,592
Net Income/(Loss) (millions) $6,561 $4,668
Diluted Net Income/Share $1.66 $2.89
Debt (millions) $19,100 $17,018
Publicly Traded On New York Stock Exchange: F New York Stock Exchange: GM
Toronto Stock Exchange:
GMM
Publicly Traded Date June 1, 1955 June 10, 2009*
Outstanding Shares (millions) 3,707 1,600
Fortune 500 Rank 10 8
* General Motors Corporation declared bankruptcy and was reformed as a division of the US Department of the
Treasury

Both Ford’s and General Motors’ main business is building automobiles for a global

marketplace. Both companies forecast over 70% of sales coming from global markets versus

North America. Their product mix includes electric cars, hybrid vehicles, automobiles, light and

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heavy duty trucks. Both companies also have financial services that provide loans for

purchasing automobiles as well as extensive lease services for corporate automobile fleets.

On June 1, 2009, General Motors Corporation filed for bankruptcy. A “new” General Motors

Corporation was formed with the US Treasury, the Canadian Federal Government and the UAW

Retiree Medical Benefit Trust as the major shareholders. The “new” GM founding date was

June 10, 2009. Ford Motor Company was able to weather the economic crisis and did not have

to ask for government bailouts to continue their over 100 years of business.

The contrasting outcomes are a result of how each company positioned themselves in the years

leading up to the significant environmental change caused by the 2008-2009 global economic

crisis. Both companies compete for customers, employees, suppliers, financing and resources

for manufacturing. Ford specifically cites the following competition factors: excess capacity,

pricing pressure, commodity and energy price increases, consumer spending and credit,

increasing sales of smaller vehicles, currency exchange rate volatility and other factors like

government debt and interest rates. (Ford Motor Corporation, 2010, p. 24) Similarly, the “new”

GM notes the following competition factors: instability in the global economic environment,

automotive price competition, relatively high cost structure, unfavorable commodity prices,

unfavorable regulatory and tax environments and a challenging foreign currency exchange

environment. (General Motors Corporation, 2010, p. 241)

Ford made four key strategic decisions leading up to the 2008-2009 economic crisis. Former

CEO and Chairman Bill Ford Jr. brought in an outsider to lead the company with no experience

in the automotive industry. Ford mortgaged all its assets to secure a large cash cushion to fund

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the redesign of the company while interest rates were low. Ford renegotiated its contracts

with its union workers reducing labor costs significantly. Finally, Ford took a consolidation

approach by selling off non-core brands. “In recent years, we have eliminated a number of

brands from our portfolio in order to devote fully our financial, product development,

production and marketing, and sales and services resources toward further growing our core

Ford brand and enhancing Lincoln. We have sold Aston Martin, Jaguar and Land Rover and

most recently Volvo.” (Ford Motor Corporation, 2010, p. 25)

General Motors had similar opportunities to get advice from outside of their entrenched

automotive industry, executive culture. GM chose not to accept or follow the advice. GM

insisted that their large number of automotive brands was the correct mix for the company

while every other automotive maker was consolidating brands. Finally, GM relied on zero

percent financing and cash incentives to boost sales levels due to stagnant wages since 2001.

The result for automakers is to “sell vehicles only by luring individuals into their showrooms

with near suicidal incentives.” (Bloomberg, 2009) All the above practices were done away with

when GM moved into bankruptcy. General Motors was forced to make the changes that Ford

did in order to gain government loans to restructure and restart their business.

Ford continues to capitalize on its success by incorporating their ability to survive with no

government help into their marketing campaigns. They appeal to American patriotism.

General Motors will continue to have the stigma of failing as a corporation and causing

significant damage to the US economy, people’s lives and requiring tax payers to bail them out.

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Chapter 2 – Strategic Planning

Strategic Plans are “overall company plans that clarify how the company will serve customers

and position itself against competitors over the next two to five years.” (Williams, 2011, p. 86)

Both Ford and GM have strategic plans that arose from the challenges of the 2008-2009

economic crisis. Strategic plans incorporate vision, mission, tactical plans, and management by

objectives, operational plans, standing plans and single use plans. (Williams, 2011, p. 86)

Ford’s strategic plan is branded “One Ford – One Team, One Plan, One Goal. One Ford expands

on the company’s four-point business plan for achieving success globally. It encourages focus,

teamwork and a single global approach, aligning employee efforts toward a common definition

of success and optimizing their collective strengths worldwide.” (Ford Motor Corporation, 2010)

“One Team – people working together as a lean, global enterprise for automotive leadership, as

measured by: Customer, Employee, Dealer, Investor, Supplier, Union/Council and Community

Satisfaction. One Plan – aggressively restructure to operate profitably at the current demand

and changing model mix, accelerate development of new products our customers want and

value, finance our plan and improve our balance sheet, work together effectively as one team.

One Goal – an exciting viable Ford delivering profitable growth for all.” (Ford Motor Company,

2011) The key observation is that Ford is the maker of their own destiny and that they continue

to focus on people first in their strategic thinking. Ford’s approach matches Drucker’s concept

of Management by Objectives guidance of “each manager, from the “big boss” down to the

production foreman or the chief clerk, needs clearly spelled-out objectives.” (Drucker, 2001, p.

115) Ford’s message is clear that there is one team that will execute one plan to achieve one

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overall company goal. Ford’s ability to fund their way through the economic crisis places it in a

strong strategic position in the market place.

General Motors articulates its strategic plan as “the strength of the new GM: a new business

model centered on our vision of designing, building and selling the world’s best vehicles; a

leader’s leverage to economic growth in key mature and emerging markets worldwide; and a

new balance sheet with a significantly improved risk profile.” (General Motors Corporation,

2010, p. 3) One other key document from the “new” GM is the General Motors Corporation

2009-2014 Restructuring Plan from Feb 17, 2009. The plan articulates how GM will manage its

path out of bankruptcy. Some of the key requirements are: “product mix and cost structure

competitiveness, competitive labor cost agreement, compliance with federal fuel efficiency and

emission regulations, domestic manufacture of Advanced Technology Vehicles, rationalization

of cost, capitalization and capacity, financial viability (positive NPV) and repayment of federal

loans.” (General Motors Corporation, 2009, p. 6) In comparison to Ford, GM’s strategic plan

approach resembles what Drucker calls “Management by Drives”. GM is mandated to focus on

improving its bottom-line as a condition of being able to restructure with federal loans.

General Motors was forced to adopt the strategies outlined above due to its failure to remain

profitable. Until all conditions of the restructuring agreement are complete in 2014, GM will be

forced to struggle with “all emphasis on one phase of the job to the inevitable detriment of

everything else.” (Drucker, 2001, p. 117)

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Overall the automotive industry continues to face significant threats and risks to profitability.

The table below contains both threats and opportunities from both company’s 2010 Annual

Reports. (Ford Motor Corporation, 2010, p. 24) (General Motors Corporation, 2010, p. 241)

Threats Opportunities Commentary
Excess Capacity Increasing Sales of Smaller Cars Both Ford and GM were caught
over producing trucks
Automotive Pricing Pressure Concentrate on Fewer Brands Ford did this sooner and GM was
forced to do this
Commodity and Energy Prices Energy Diversity and Efficiency GM killed its electric car program
in mid 2000’s and is playing
catch up
Consumer Spending and Credit Manufacture and Sell Vehicles Both companies recognize
Globally growth of 70% in global sales
Currency Exchange Rates Review of business practices Ford is focusing on this for
business planning
Global Economic Instability – Use of facts and data to make Ford explicitly references this
Debt and Interest Rates decisions capability
High Cost Structures Partnership and People Focus Ford specifically mentions
engagement with customers
Unfavorable Regulatory/Tax Bottom-line focus GM is specifically tasked to
Environments accomplish this
Introduction of Cheap Cars from Both companies are watching
China this closely for impacts

While both automotive manufacturer’s describe optimism for the coming few years, there are

significant challenges. Based on a Bloomberg Businessweek report, the automotive industry is

facing two opposing factors. There are approximately 250 million cars on the road in North

America today and they will need replacing at some point. This suggests that there will be an

upturn in new automobile purchases. High unemployment, stagnant and falling wages and

poor consumer credit continue to plague the economy and automobile sales. “When income

disappears as quickly as it has in the last eight years, one of the first purchases to be deferred is

a new automobile.” (Bloomberg, 2009)

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Chapter 3 – Organizational Design

Organizational Structure defined as “the vertical and horizontal configuration of departments,

authority and jobs within a company”. (Williams, 2011, p. 159) Geographic

departmentalization structures a company into separate work units who do business in

particular geographic areas. (Williams, 2011, p. 163) Functional departmentalization organizes

work into units that are responsible of business functions. (Williams, 2011, p. 161) Product

departmentalization organizes work into units responsible for producing a particular product or

service. (Williams, 2011, p. 162)

Ford Motor Company is organized in a combination of geographic, functional and product

departmentalization. Ford’s two operating sectors are Automotive and Financial Services. The

Automotive sector is divided into the following segments: Ford North America, Ford South

America, Ford Europe and Ford Asia Pacific Africa. Each segment contains all functions of

development, manufacturing, distribution, service and parts. Until recently (when Ford

divested these segments), Ford also had product departments for Mazda, Volvo and Jaguar

Land Rover. The Financial Services sector has two segments: Ford Credit and Other Financial

Services. These two segments demonstrate functional departmentalization. William Ford Jr is

the Chairman of the Board and Alan Mulally is the President, CEO and Director. Each segment

(geographic, functional and product) has a Vice President who reports up to the President and

CEO. There are 19 people in the Ford Executive Officer Group. (Ford Motor Corporation, 2010,

p. 5)

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General Motors has a very similar organizational structure as Ford. GM is also organized in a

combination of geographic, functional and product departmentalization. Unlike Ford, GM

reports all 5 of its segments together, mixing automotive and financial segments of the

company. The four automotive segments are: GM North America, GM Europe, GM

International Operations, and GM South Americas. Each automotive segment is responsible for

all operations in their geography. General Motors Financial Company handles the financial

business for GM. GM has one product segment focusing on GM Daewoo. This segment

reports up through GM International Operations. GM is led by Daniel Akerson who holds the

joint roles of Chairman and CEO. This differs from the split leadership at Ford between Bill Ford

and Alan Mulally. There are 18 people on General Motors’ Management team.

With each company having very similar organizational structures, we can infer that this was not

a contributing factor to explain why GM went bankrupt and Ford did not. One significant

difference between the companies is at the senior leadership level. In 2006, Bill Ford decided

to break from conventional automotive industry practice and hired Alan Mulally from Boeing.

Mulally is an engineer by training and had a long and successful career at Boeing. (US News,

2010) He left Boeing as the Executive Vice President of The Boeing Company and the President

and CEO of Boeing Commercial Airplanes where he is credited for BCA’s turnaround. (Ford

Motor Company, 2011) Bill Ford commented on the collaborative relationship he has with

Mulally. “I talk to Alan many times a day, every day. The way we like to work, our styles are

very similar, we don’t have formal meetings, we bounce back and forth between each other’s’

offices … The other thing is that it gives each of us someone to talk to.“ (The Urban WallStreet,

2011) In November, 2006 Mulally is credited with the bold move of mortgaging all of the

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company’s assets to give Ford “a cushion to protect for a recession or other unexpected event.”

(Vlasic, 2009) This cushion proved to be the saving grace for Ford when GM had to declare

bankruptcy. This action fits with Collins and Porras’ view of Ford as a “visionary” company and

their definition of a “Big Hairy Audacious Goal – BHAG” (Collins & Porras, 2002, p. 94)

Meanwhile, GM needed the Federal government to fire the “old guard” GM Executives

including then CEO Rick Wagoner. (US News, 2010) At the time of the GM restructure, Daniel

Akerson was appointed to the board of directors representing the US Treasury department. In

September 2009, Akerson was named CEO and became Chairman of the Board in January 2011.

Akerson has an expertise in finance with a diverse background in telecommunications,

government and consulting but no experience in the automotive industry. Interestingly, GM

had a similar opportunity to take advantage of an outsider’s view in 2005, when Jerry York was

appointed to the GM Board. In 2006, York detailed a list of fixes that he felt were necessary for

GM to remain competitive. He called it a “clean sheet approach to the business”. (Carty, 2009)

York was ignored and ironically, the bankruptcy proceedings implemented the changes he

recommended three years earlier. Perhaps this would have saved GM from bankruptcy.

Peter Drucker provides some insight into GM’s failure to heed Jerry York’s advice. “Basic

assumptions about reality are the paradigms of social science, such as management.” and “The

discipline’s basic assumptions about reality determine what it focuses on.” (Drucker, 2001, p.

69) These quotes describe the mindset of GM executives who stuck to their assumptions

about their industry and in the economy they worked, in spite of evidence that their business

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models were not sustainable. “The assumptions also largely determine what is being

disregarded or is being pushed aside as an “annoying exception”.” (Drucker, 2001, p. 69)

In GM’s case, they focused on sales volumes without realizing that each sale was at a loss due

to the zero percent financing and cash incentive schemes used. They insisted their large

number of brands was appropriate. This quote is an example of GM’s entrenched mindset “The

symbol of GM's swing too far toward trucks is the high-end Hummer. GM launched the big SUV

in 2003, the compact H3 in 2005. As buyers edged away from trucks, then fled as fuel prices hit

records in 2008, GM wound up with pricey models that not only didn't sell, but also gave it an

environmental black eye. Some of the heftiest Hummer H2s barely managed 10 miles per

gallon.” (Carty, 2009)

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Chapter 4 – Finance

This section analyzes Ford and General Motors’ 2010 consolidated balance sheets based on four

types of key ratios: liquidity, debt, profitability and investment. This report does not make any

recommendations about whether Ford or General Motors is a better investment. Investing in

companies is a personal decision based on the investor’s personal risk and investment profile.

The financial ratios listed in the table have commentaries that explain the differences between

Ford and General Motors.

Table of Values from Ford and GM 2010 Financial Statements (Ford Motor Company, 2010)

(General Motors Corporation, 2010)

Ford Financial = 76%, GM
135,555 63,985
Ford General Motors Commentary

Financial = 17%
GM has higher current liabilities
Current Assets

40,935 54,516
than Ford
Current Liabilities

113,028 45,842
Financial = 20%
35,771 26,616 Ford has more cash than GM
Cash + Receivables

Cash

102,140 4,630 Financial = 65% *GM's debt was
forgiven in bankruptcy
Total Debt

165,793 138,898 Ford has more assets than GM
166,435 101,739 Ford has more liabilities than GM
Total Assets

(642) 36,180 Ford Liab>Assets, GM Assets>Liab
Total Liabilities

6,561 4,668 Ford more profitable
Shareholder Equity

3,449 1,500 Ford has 2x as many shares
Net Income

1.90 3.11 GM has fewer shared = higher EPS
Number of Shares

Earnings per Share

1.57 21.96 GM has less debt than Ford
Book Value per

11.74 25.39 GM has higher share price
Share
200 Day Moving

Ford has larger Market
40,491 38,085
Average Price

Capitalization
Market Cap

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Table of Financial Ratios Calculated from Ford and GM 2010 Financial Statements (Ford

Motor Company, 2010) (General Motors Corporation, 2010)

Ford General Motors Commentary

Ford has more cash to pay down
Liquidity

3.311 1.174
debt
Current Ratio =
Current Assets/

Current Liabilities

2.761 0.841
debt
Quick Ratio = Cash
+ Receivables /

Current Liabilities

0.874 0.488
debt
Cash Ratio = Cash /
Current Liabilities

Ford is more financially leveraged
Debt Ratios

1.004 0.732
than GM
Debt Ratio = Total
Liabilities / Total

Assets

0.616 0.033
than GM
Long Term Debt
Ratio = Total Debt
/ Total Assets

-259.245 2.812
Debt to Equity

than GM
Ratio = Total
Liabilities /
Shareholder Equity

Ford earned more income per
Profitability

0.040 0.034
asset
Return on Assets =
Net Income / Total
Assets

GM has a positive ROE, Ford had
-10.220 0.129
negative Shareholder Equity
Return on Equity =
Net Income /
Shareholder Equity
Investment

Investors are willing to pay more
6.172 8.159 for $1 of GM earnings than they are
Price Earnings

of $1 of Ford earnings
Ratio = Market
Value Per Share /
Earnings per Share

Ford and GM do not offer
0 0
dividends
Dividend Yield =
Dividends /
Earnings per Share

Indicates that the market considers
Price to Book Ratio

7.478 1.156 Ford overpriced compared to its
= Market Value Per

book value compared to GM
Share / Balance
Sheet Value Per
Share

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In the liquidity category, Ford has more debt than GM because Ford chose to mortgage their

assets to create a cash cushion which helped them survive the 2008-2009 economic crisis. The

financial ratios show that Ford has more liquidity than GM and is better able to pay down its

debt. In the debt category, General Motors has very little debt as they were forgiven their debt

when during the bankruptcy. There will be tight restrictions on GM in the next few years as

they must meet their restructuring plan with the federal governments of the United States and

Canada. In the profitability category, Ford has more income than GM but GM had a higher

positive return on equity. Ford’s return on equity is negative as they have more liabilities than

assets. This fits with Ford working to pay down its “mortgage the company” strategic plan. In

the Investment category, investors are willing to pay more per dollar of GM earnings over Ford.

Neither company currently offers dividends to investors. The price to book ratio indicates that

the market believes Ford to be over priced per share compared to GM. Conservative investors

may see General Motors as the safer investment (lack of debt) and perhaps that is why they are

willing to pay more for their shares. Value investors may choose Ford as they have a strong

cash flow, have significantly reduced costs and are actively paying down their debt which will

free up more capital to invest in the company.

Finally, if the analysis done by Jim Collins and Jerry Porras holds true then visionary companies

like Ford Motor Company will continue to outperform comparison companies like General

Motors over the long term by six times. (Collins & Porras, 2002, pp. 5-6)

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Chapter 5 – Social Responsibility

Social responsibility is “a business’s obligation to pursue policies, make decisions, and take

actions that benefit society”. (Williams, 2011, p. 72) Social responsibility may arise from social

impacts of the institution and “deals with what an institution does to society”. (Drucker, 2001,

p. 51) Or they may arise from existing societal problems and “is concerned with what an

institution can do for society”. (Drucker, 2001, p. 51) Another way to look at this involves two

perspectives of social responsibility. The first is the Shareholder model where “the

organization’s overriding goal should be to maximize profit for the benefit of shareholders”.

(Williams, 2011, p. 73) The second model is the Stakeholder model where “management’s

most important responsibility, long-term survival, is achieved by satisfying the interests of

multiple corporate stakeholders.” (Williams, 2011, p. 74) Most successful companies blend

these two approaches as they conduct business.

Ford creates an annual Sustainability report and has Susan M. Chischke, Ford’s Group Vice

President, Sustainability, Environment and Safety Engineering appointed to oversee these

functions. Ford focuses on three areas: Economy, Environment and Society. (Ford Motor

Company, 2011) Bill Ford Jr. states “Creating a strong business and building a better world are

not conflicting goals – they are both essential ingredients for long-term success.” (Ford Motor

Corporation, 2010, p. 19) Ford Volunteer Corps is a permanent part of the Ford Fund and

Community Services. The Corps is made up of employees and retirees and in 2010, they

volunteers over 112,000 hours. Ford has been a national sponsor for breast cancer prevention

and research for 16 years and raised over $100M of the cause. Ford tried to live up to its

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Stakeholder Model in the late 1940’s and early 1950’s by introducing seatbelts in their cars.

Unfortunately, sales dropped and they reverted to the Shareholder Model and pulled the cars

from production. (Drucker, 2001, p. 52) Another Ford example, demonstrates that focusing on

the Stakeholder Model actually provided Stakeholder benefits. In 1913, Ford announced that

they would pay $5 per day wage for skilled workers. This tripled their salary costs overnight.

After implementing this program, Ford actually saw labor costs go down as they were able to

retain skilled workers (they used to have to hire 6 workers for every 1 job annually due to

turnover). This established Ford as the dominant automaker and allowed them to deliver more

profit per car sold. (Drucker, 2001, pp. 56-57)

General Motors created the GM Foundation as the source of their social responsibility work.

GM focuses on Education, Health and Human Services, Environmental and Energy and

Community Development. (General Motors Corporation, 2011) The GM Foundation has

donated more than $350M to their programs. Unlike Ford, GM does not appear to put as much

focus on social responsibility. There is no Vice President position and unlike Ford they do not

link the economy into their plan for corporate responsibility. (General Motors Corporation,

2011) With the new restructuring of General Motors, it will be interesting to observe if there is

more emphasis on the Shareholder model (short term) over the Stakeholder model (long term).

The company is being run by a political appointee and is essentially a division of the US

Department of the Treasury. This puts significant oversight and focus on repaying the

government loans given to General Motors over planning the company’s future.

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Drucker wrote that management’s social responsibility was to “not knowingly to do harm.”

(Drucker, 2001, p. 65) In the years leading up to the 2008-2009 economic crisis, Ford and GM

behaved in two very different ways in responding to the expectations of their stakeholders.

Social responsiveness strategies can be placed on a continuum from doing nothing to doing

much. There are four main strategies – reactive, defensive, accommodative and proactive.

(Williams, 2011, pp. 77-78)

Ford, under Mulally’s leadership, put itself in a position to weather the economic crisis by

ensuring it had secured funds in advance. They took a proactive strategy by looking at their

business, identifying which areas were harming long-term success and came up with proactive

approaches like reducing the number of automotive brands, selling off ownership in non-core

assets and making good deals with their unions. (Bloomberg, 2007) Ford is a clear example of

taking a proactive social responsiveness strategy and succeeding.

General Motors, on the other hand, continued to insist its business model was sound including

keeping all its automobile brands while other manufacturers were rapidly downsizing. (Vlasic,

2009) GM killed its electric car program and sold off its financial unit GMAC (which brought in

more profit than the automotive segment). (Carty, 2009) These actions cause significant harm

to GM stockholders, employees and the US and Canadian taxpayers. The actions of the GM

executive team demonstrate a reactive social responsiveness strategy which ultimately ended

in bankruptcy.

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Chapter 6 – Innovation

Organizational innovation is defined as “the successful implementation of creative ideas in

organizations.” (Williams, 2011, p. 119) Both Ford and General Motors have a history of

innovation. Henry Ford’s integration of the assembly line, interchangeable parts to create a low

cost automobile, the Model T was the first in a long history of innovations. Unfortunately for

Ford, the success of the Model T led to complacency within the company and by Henry Ford.

General Motors was able to capitalize on Ford resting on their success. GM introduced

installment selling, used car trade-ins, closed car models and annual model changes – and

colors other than black! (Harvard Business Review, 2011) Throughout their shared histories,

each company followed S-curve patterns of innovation. The S-curve pattern of innovation is a

pattern of technological innovation characterized by slow initial progress, then rapid progress

and then slow progress again as a technology matures and reaches its limits.” (Williams, 2011,

p. 120)

Research and Development Spending (millions of USD)

Company 2008 2009 2010

Ford $7,100 $4,700 $5,000

General Motors $8,012 $6,051 $6,962

Both companies also struggled with introducing innovation into their products. Ford tried, in

the late 1940’s and early 1950’s, to introduce seatbelts in their cars. Unfortunately, sales

dropped and they pulled the cars with seatbelts from production. (Drucker, 2001, p. 52)

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General Motors started a small electric car program in the late 1990’s called the EV1. “It was a

public relations debacle when the test cars had to be reclaimed and GM then scrapped them.”

(Carty, 2009) GM CEO Wagoner killed the program and set GM back almost 10 years. Finally in

December 2010, GM launched the Chevy Volt electric car. “Al Benchich, a retired union

president, says with the failure of the EV1, GM squandered the opportunity to keep the U.S. a

dominant manufacturing force in a green era.” (Carty, 2009)

Ford specifically mentions innovation as part of their “improved safety and quality” focus. Ford

introduced inflatable seat belts and curve control as new innovations in the Explorer. Ford also

uses simulation technology to simulate employees on the assembly line to provide data to

predict and eliminate issues. (Ford Motor Corporation, 2010, p. 11)

General Motors mentions innovation in their description of “The Road Ahead”. They

specifically mention the Volt, electric car, and the innovations in the automotive battery,

electric power control as well as in “processes to accelerate the pace of innovation across the

company.” (General Motors Corporation, 2010, p. 4)

Drucker details four entrepreneurial strategies. The first “Being fustest with the mostest”

describes how GM took the lead in introducing information technology into their vehicles over

15 years ago. (Drucker, 2001, p. 161) This strategy is also known as “first to the market”.

OnStar provides “in-vehicle safety, security, communication and convenience services … to over

six million subscribers” globally. OnStar is an added cost, bolt-on feature available for GM

vehicles. (General Motors Corporation, 2011) GM pioneered this technology and is the industry

leader.

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Ford used a different strategy that Drucker calls “Hit them where they ain’t”. (Drucker, 2001, p.

165) Ford is demonstrating being a “conservative innovator” and a “creative imitator” with its

partnership with Microsoft Corporation to create “Sync” and MyFord Touch Smart

Technologies. A “conservative innovator” is conservative and “they are not risk-focused; they

are opportunity-focused”. (Drucker, 2001, p. 279) Creative imitation “describes a strategy that

is “imitation” in substance. What the entrepreneur does is something somebody else has

already done. But it is “creative” because the entrepreneur applying the strategy …

understands what the innovation represents better than the people who made it and who

innovated”. (Drucker, 2001, pp. 165-166) Ford took the features of OnStar, enhanced them

with newer technology from Microsoft and made changes to their vehicle design to make the

technology a “part of the car” instead of a bolt-on. (Ford Motor Company, 2010, p. 12) Ford

has been successful in imitating and improving on GM OnStar’s leadership position.

22


Conclusion

Ford Motor Company and the “new” General Motors Corporation will continue to be large

drivers of the economy especially in North America. Both companies employ large numbers of

people, conduct business globally and are looking at alternative sources of fuel to power the

cars of the future. Ford made four key decisions that contributed to helping them survive the

economic crisis in 2008-2009. They first brought in an outsider to lead the company as CEO.

Alan Mulally came from Boeing and was able to make changes that Chairman Bill Ford Jr could

not. Mulally implemented a BHAG by mortgaging the assets of the company to build a $23B

cash cushion to restructure and help the company survive the downturn. This proved to be a

stroke of genius even when industry analysts saw it as a sign of desperation. Mulally also

renegotiated the union labor agreements and was able to significantly reduce labor costs.

Finally, Ford implemented a consolidation program of their brands by selling non-core brands

so that they could focus on the Ford and Lincoln brands leading to cost savings and positioning

the company to more agilely respond to changing markets and economies. Ford’s Stakeholder,

long term approach makes them a visionary company that determines its own future.

General Motors was not nearly as foresighted in their approach. They chose to ignore advice

from a member of their board, who was not part of the automotive industry, to consolidate

their brands. GM stayed entrenched in their belief that keeping many brands would be the way

to succeed. They failed to consider the high cost of labor in their factories and did not work to

renegotiate labor contracts. Finally, the implemented zero percent loans and huge cash

incentives that resulted in selling vehicles for a loss. These failures led to GM declaring

23


bankruptcy in June 2009. The “new” GM is a division of the US Department of Treasury and

also answers to the Government of Canada and a UAW Pension trust. GM’s new CEO is a

political appointee from the Department of the Treasury. General Motors was forced to

significantly downsize and to implement the changes Ford had started over 3 years earlier. It

will be difficult for GM to take full control of their strategy and future direction as long as they

are beholden to the parties that rescued the company from bankruptcy. General Motors will

continue to take a Shareholder, short term approach for the future as they pay down their

debt. Ford on the other hand, actively manages its debt burden with a strong cash flow and

does not have the constraints of being a pseudo-government company.

Ford has the edge from a customer perspective particularly in the United States. They can

rightly point to their ability to survive and now thrive as a company without taking one cent

from the tax paying public. Ford’s focus on quality and innovation is showing in the new

vehicles and features they bring to the market. The leadership of Ford blends a long history of

automotive industry experience in Bill Ford Jr with the innovative leadership of Alan Mulally.

Looking over the long history of the company should give customers and investors confidence

that Ford will continue to be a visionary company. The “new” General Motors is not the same

company that went bankrupt. Going through bankruptcy, badly damaged GM’s reputation and

created internal turmoil that will take years to recover from. Daniel Akerson, GM’s CEO is a

political appointee from the Department of the Treasury. He has a mandate to lead the

company out of bankruptcy and ensure the government loans are paid back. This focus puts

GM years behind Ford. The focus on consolidating brands and cutting costs will hamper their

ability to innovate.

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From a CEO perspective, Ford seems to be doing all the right things. They proactively

recognized the problems with their business model and secured funding in a low interest

environment to allow them to restructure early and more importantly survive. The company’s

focus on people comes through in their strategy and their product delivery. Ford leadership

must continue to focus on paying down its debt especially as they continue to benefit from

being profitable. Building strategic partnerships with industry leaders like Microsoft will allow

Ford to share the costs of innovation and continue to deliver features customers demand for

many years to come. Ford cannot rest on their success and they need to keep a Shareholder

model focus to remain a visionary company.

General Motors needs to find a way to look past their restructuring plan that ends in 2014.

Some key areas to focus on are managing the organizational impacts of consolidating their

brands. It is not clear today what damage was done to the culture of the organization from the

bankruptcy and forced restructuring process. GM needs to look at their strategy and find a way

to focus on people. The current strategy is very much focused on loan repayment and

restructuring. A serious marketing effort should be implemented to communicate to the public

(particularly in the US and Canada) that their ability to pay back all the government loans is on

track. Now that GM has launched their Chevy Volt electric car, they need to invest more in

research to gain back a leadership position in that area of sustainability. Current CEO Akerson

should begin to look for a successor with the right blend of automotive experience and

innovative leadership style. This is not a simple task and may require several years to cultivate.

If a group of leaders can be cultivated then GM will be in a position to move the company

forward after the restructuring period is over.

25


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