Archive for the ‘Automotive Industry’ Category

4 rules for running a business

Many companies in mature sectors have been known to embrace the latest management thinking (or fad) to help cope with low market growth, margin compression and lack of differentiation. Examples of these “big ideas” include lean management, outsourcing, business process re-engineering, offshoring and, lately, social business and cloud computing. Despite considerable effort and investment, most of these firms have been unable to outperform their peers over the long term, often due to weak strategic fit, poor planning or flawed execution.

In fact, only 344 of 25,000 public companies analyzed in the Harvard Business Review by Michael Raynor and Mumtaz Ahmed of Deloitte consistently produced above average return on assets from 1966 to 2010.

What made these firms special? Two rules identified in the study — noteworthy for their simplicity, reliability and practicality — helped drive the extraordinary business performance. Below them, I’ve included two other rules for achieving exceptional performance well worthy of consideration.

Better before cheaper

Companies need to focus first on service, quality, design or distribution — not on being the lowest-price competitor. Non-price differentiated brands tend to command richer margins, which can support further product and marketing investments, which, over time, further sustain the firm’s competitive position and profitability.

Revenue growth before costs

Leaders should prioritize top-line revenue by driving volume gains, competing in growing categories and taking advantage of every opportunity to maximize pricing. Volume increases also bring other benefits, including scale economies and channel optimization, which help drive down operating costs and block out competition.

Brands matter

“Brand equity might be the only asset that consistently generates differentiation, higher margins and long-term revenue streams,” says Jerry Mancini, president, Dole Packaged Foods Company. “Dole’s focus on value, quality and brand-building has helped deliver almost 100% brand awareness in close to 100 countries. This allows us, for example, to provide transient consumers around the world with the same quality and unique products they are familiar with, wherever they go.” This strong brand equity has enabled Dole to more easily tap new markets and categories — and drive higher volumes.

Maximize human capital

“Competition, technology and customers are never static,” says Paul Bruner, a partner with McCracken Executive Search. “The key to long-term success is attracting and developing leaders of exceptional character, with the brains, passion and resourcefulness to adapt to and lead through changing circumstances.” Organizations need to focus on recruiting and training the right employees and reinforcing positive behaviours through innovative training and compensation programs.

To be clear, the above four rules suggest a direction, not specific strategies and tactics; it is up to management to make the tough strategic choices and back them up with good plans and sufficient investment. Leaders still need to understand where they should compete (i.e., which markets with which value proposition) and what they are especially good at (i.e., organizational and asset fit). They’ll also need to support their mission by assembling the right capabilities and cultivating them through a culture of continuous improvement and adaptability. Finally, the company and shareholders must recognize they are playing the long game — they will need patience and resilience as well as management systems that reinforce long-term thinking.

For more information on our services or work, please visit the Quanta Consulting Inc. web site.


Fixing strategic procurement

The current approach to strategic procurement (or sourcing) might be outliving its usefulness in many companies. The original idea was to bring disciplined buying policies and formalized supplier management to the procurement function in order to improve operational and financial results. Like many well-meaning initiatives, however, its implementation has been a mixed blessing. To achieve its potential, managers should rethink and enhance how strategic procurement is executed.

Penny wise, pound foolish

The promise behind strategic procurement was to reduce input and administrative costs, minimize risk and increase supplier collaboration by employing a variety of practices, including: reducing the number of vendors to maximize negotiating leverage and cut the cost of procurement; insisting that suppliers pitch their services through formal request for proposal (RFP); and centralizing buying authority to prevent ad hoc purchases. For numerous firms, the reality has not met expectations, for many reasons:

1.  Barriers to cost reduction

Many private and public sector organizations have not realized long-term cost savings and, in fact, are seeing higher costs. Cost stickiness traces to numerous factors, many of which were unanticipated: using a small number of approved vendors can incite them to engage in oligopolistic pricing behaviour; suppliers end up passing along their higher administrative and pitching costs, and; excluding lower cost providers from an approved vendor list limits price competitiveness.

2.  Reduced innovation & choice

The initial approach to strategic procurement was developed for a relatively stable business world. Yet, today’s economy is anything but that. Yesterday’s approved vendors (chosen because of their size, pedigree etc.) may not be the highest value suppliers today if they have not kept pace with new technological and business model developments. As a result, the client may not be exposed to cutting edge insights and technology. Moreover, incumbent vendors have a vested interest in restricting the amount of innovation that drives down pricing (read: their profits) or is outside their core competence. One of our packaged goods clients revamped their entire strategic procurement strategy after they got tired of watching their competition get to market first with new technologies and a steadily improving cost structure, all generated within their supplier network.

3.  Hamstringing operational performance

Forcing suppliers to engage through a poorly crafted statement of work or bidding process can inadvertently increase the risk of bad operational performance. In one high-profile example, many of the problems with the launch of the portal were blamed on the U.S. government’s procurement processes as well as requirements definitions. This is not solely a public sector concern. We have seen many expensive initiatives go off the rails because the original RFPs were focused more on satisfying the requirements of the procurement team than with meeting critical business needs like quickly getting to market or maximizing quality.

Gaps in implementation

According to our experience and research, procurement problems trace to missteps in program execution rather than business model design. The issues vary and could include: focusing on purchase price rather than total, long-term cost; relying on negotiations and supplier leverage strategies rather than broader ‘win-win’ collaboration opportunities; under-investing in procurement capabilities, and; over-involving purchasing in every supplier interaction.

Reinvigorating the model

Strategic procurement needs to evolve into a more bespoke capability. “Historically, strategic purchasing has been used to drive costs down by leveraging economy of scale along with the hope that being a significant customer carries clout,” says Mitchell Lipton, operations manager at auto parts supplier CTS. “In today’s economy there is still a place for strategic purchasing but it is no longer a one-size-fits-all solution.”

Senior leaders should realign their procurement organization to business needs and look for opportunities to add value across the entire design-sourcing-manufacturing continuum. They can do this by asking four important questions:

  1. Where can procurement work more effectively with other key functions — without getting in the way — to ensure strategic alignment?
  2. How can buyers expand beyond a short-term cost-savings mindset to include an emphasis on long-term value such as greater collaboration, continuous learning and innovation creation?
  3. What is the right mix of local and specialized versus national and generalist suppliers?
  4. What tools, processes and skills are needed by the buying organization to improve its performance?

Twenty-first century procurement is no longer just focused on cost or guaranteed delivery. According to Lipton, “In business today the key is speed and staying ahead of the value curve. When dealing with suppliers the most important attribute is flexibility and a philosophy of continuous improvement. You need a supplier that can respond to your changing needs plus has a culture of finding how to do it better.”

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Choice Modeling: Polishing the Crystal Ball

When it comes to designing products that customers will buy in droves, the stakes have never been higher.  Despite billions of dollars of investment and countless hours of R&D, 90% of all new product launches will fail within 3 years of hitting the market. Furthermore, many products live as ‘walking wounded’, suffering from low market share, profitability and market differentiation.  The challenge is deceptively simple:  what is the ideal product that balances customer appeal, product profitability and supply chain fit?  The answer can be devilishly complicated, given the myriad of product combinations that could be delivered through different supply chains and sold in a range of markets.  

Fortunately, there are powerful, new analytical tools and methodologies that can help.   One of these techniques, Choice Modeling (CM), can improve new product success rates,  reduce business risk, increase customer knowledge and help define the optimal combination of features, services and prices for existing products. (Another powerful tool is CRM-driven data analytics)

Choice Modeling

As an approach, CM is part science and part art.  CM uses high-performance computer simulations and econometrics to understand and predict customer choice under various product configurations, market and environmental conditions.  In the past, marketers could only rely on simple statistical tools like regression analysis to understand a small set of cause and effect relationships between variables.  Thanks to CM, a firm can now dramatically accelerate the scope, depth and speed of their product analytical capabilities.

CM is being used to design products, services and supply chains in a wide variety of industries including consumer & industrial goods, financial services, hospitality, telecom and retail.

Using Choice Modeling

There are 3 basic steps to utilizing CM:

  1. The first step identifies the number of possible product, service or experiential features  (choices) that could influence a customer’s preference for your offering.  For a new car, the choices would include color, engine size, sales experience and options.  Information on choices can be gleaned from many sources including current product information, customer interviews, surveys and industry data.
  2. The second step is where the art comes in.  Marketers would design a series of simulations that ask customers to choose between a small number of choice options within a series of choice sets.  Using the car example, a simulation could be designed that asks customers to make choices between 2 different luxury packages (choice options) within a series of different feature collections (choice sets).
  3. The final step is where the science takes over.  Powerful econometric models are applied to a representative sample of respondents to identify empirical relationships between their selections of choice options and choice sets.  Unlike traditional tools, CM allows marketers to rapidly model and understand the relationships between hundreds of choices in hundreds of scenarios. Back to the car analogy, analysts would be able to test the impact of various option packages with different features on market share, segment profitability and customer satisfaction, before finalizing the product design and without guessing.

Poised for Growth

With the penetration of Web 2.0 technologies and higher bandwidth, it is now feasible to quickly gather key data and run simulations across multiple geographies, regulatory environments and customer segments.  Importantly, designers can now model unique and customized solutions to individual respondents or micro-segments using new advances in Bayesian statistics.

A Final Caveat

Like other analytical tools, CM is susceptible to “garbage in, garbage out” effects.  Problematic data, shaky assumptions and poorly designed simulations will inevitably lead to misleading results.  Furthermore, the most powerful CM models will not overcome incorrect findings arising from organizational effects like management bias or cultural influences.

 For more information on services and work, please visit the Quanta Consulting Inc. web site.

Toyota’s Quality Troubles: Blame it on Complexity

Toyota’s recent quality problems and clumsy attempts at managing them stand as one of the most notable corporate stories of the past year.  The Company has faced a barrage of criticism over everything from product design to the failure of company executives to publicly acknowledge the issue head on.  The most damaging indictment may be to the famed Toyota reputation for quality.  Not surprisingly, this story has many lessons for other companies in terms of operational strategy, process design and culture.   

Recently K@W, a newsletter published by The Wharton School of Business, conducted an interview with Professor Takahiro Fujimoto, a leading authority on the automotive industry and the famous Toyota Production System.

Some of his conclusions on the Toyota saga include:

  • Excessive operational and product complexity were the root cause of Toyota’s quality troubles.
  • Historically, Toyota was very good at managing the complexity required to deliver industry-leading quality.  However, the company has reached a point where rapid growth, challenging product requirements and multifaceted operations have combined to raise the complexity level to a point where traditional strategies and norms are no longer as effective.
  • Some of the sources of Toyota’s complexity includes: large numbers of product configurations, intricate production systems and convoluted processes & structures.
  • Company executives were previously aware of the problems but were unable to prevent them.
  • Delays in responding to the crisis were exacerbated by management hubris, flaws in customer feedback mechanisms and a lack of clear ownership over the “complexity” problem.
  • Toyota’s problems are such that they could happen to any large company 

A challenge of any large organization regardless of sector, high operational and product complexity leads to lower productivity, increased duplication, resource misalignments, customer & partner confusion and unwarranted error rates.  

Tackling complexity in a large, multinational enterprise like Toyota is not easy given arduous consumer demands, a lack of quality data, competing stakeholders and implementation difficulties.  A variety of top-down and bottom-up approaches can be used to understand what needs to be cut, reengineered or enhanced without increasing revenue risk. This link outlines a product-focused methodology we have used to reduce complexity in a global B2B company. In this project, we dramatically reduced the number of product SKUs by over 60% leading to major cost reductions and indirect payoffs such as enhanced resource allocation and improved decision-making.

Many firms such as Unilever, P&G and Diageo have successfully undertaken complexity reduction initiatives that have saved millions of dollars.  The Toyota case will serve as a clarion call for other large firms (and not just automakers) who seek to grow profitably while ensuring high levels of customer satisfaction and scalability.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Two More Industries under the Gun: Packaged Goods & Engineered Products

A short time ago, we reviewed the prospects of two North American industries, IT and Retail Banking.  These sectors have had their share of challenges but can look to the future with some optimism.  Today, we look at the fortunes of two more global businesses with input from Booz & Co.

Packaged Goods – Retool Supply Chains

This industry faces a challenging future due to a confluence of factors.  On the delivery side, many firms will face increased cost and product pressures due to their supply chain’s inflexibility and uncertainty.  Simply put, current supply chains were built on yesterday’s blueprints.  They did not have to cope with high energy & transportation costs, expensive labor and raw materials, volatile exchange rates (which impact production economies) and uncertainty around environmental regulations. Environmental pressures may increase even further as governments around the world put a price on carbon emissions and establish new regulations on waste by-products.   Additionally, cross-market shifts in consumer behavior are making it harder to satisfy an increasingly fragmented customer base without reengineering the supply chain.  On the demand side, continued slow growth is forecasted due to shifting consumer needs brought about by demography and the appeal of lower cost value and private label brands. 

Going forward, firms will need to reengineer their supply chains to make them leaner, greener, and more adaptable to managing increasing fragmentation and complexity.  Production flexibility will need to improve in order to respond to sudden changes in demand and more efficiently deliver low volume brands. Moreover, firms will need to be ahead of the demographics and environment curve in order to quickly capitalize on rapid changes in consumer tastes and to deliver on the needs of an ageing population.  Finally, companies will seek to drive growth by:  increasing penetration of emerging markets; improving their product’s value proposition versus ‘good enough’ private label brands and;  continuing investments in brand-building activities.

Engineered Products – Globalization bites back

The recent recession has battered every company in engineering-focused industries such as aerospace, defense, automobiles and transportation.  A rapid, cyclical rebound may not be in the cards this time.  To deal with demand contractions, North Americans firms followed a survival strategy i.e. maintaining liquidity, structural cost reduction and portfolio pruning at the expense of sustained product and technology investment.  At the same time, recessionary effects were more modest in emerging markets.  For the first time, a significant amount of investment and household spending was directed towards lower cost, homegrown providers. As a result, these firms were able to build market share while continuing to invest in R&D, product development and supply chain capabilities.

Until now, many domestically focused NA engineered products companies did not have to compete hard for global business.  Now, NA firms will begin facing serious competition from EM companies.  For example, three of the world’s top five automobile-producing countries are in Asia (Japan, China, and South Korea). The Commercial Aircraft Corporation of China is developing an airliner to rival planes from Boeing and Airbus.

As slimmer and more focused NA firms emerge from their slumber, they will quickly need to figure out how to protect their home market against hungry, lower cost and increasingly more capable EM competitors.  No longer can NA companies claim superiority in areas like management expertise, manufacturing excellence or engineering skills.  In any event, these areas will not be sufficient by themelves to differentiate any firm in today’s global marketplace. As well, NA companies will need to improve their ability to penetrate growing yet unique foreign markets that now feature significant local competitors.  In these markets, decisions to outsource, partner or share technology will becomes much more more complicated.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Will Toyota’s Stumble Trigger a GM and Ford Comeback?

The planets GM and Ford may be perfectly aligned for a startling comeback.  Toyota, long considered best in class for quality and manufacturing, is staggering from major product recalls of 8 million vehicles.  Their recent results are bleak; Toyoya has been hit by double-digit declines in market share and profitability not to mention serious reputational damage.

At the same time, GM and Ford have been slowly emerging from the throes of a near-death experience.   GM has been bolstered by government funds, the culling of redundant brands and union concessions.  Ford has benefited from early moves to improve quality, divest weak divisions and raise debt.   Both firms have been handed a once-in-a-generation chance to improve their image and recapture 20 years of lost market share.  Can they pull it off?

Much will depend on if GM and Ford 1) can continue the substantial improvements made over the past 3 years in reliability, design and production efficiency (according to analysts and consumer surveys) while 2) still hoping Toyota continues its rocky ride.

Like Toyota, Detroit has belatedly discovered the religion of reliability.  In the past, passenger car reliability was ignored as GM and Ford relied heavily on highly profitable (albeit gas guzzling) Pick Ups and SUVs.  Reliability only mattered until the warranty period ended. However in 2008, GM and Ford’s vulnerable product portfolios were hit by the double sales whammy of a harsh recession and $140+ per barrel oil pricing.  Consumers either stopped buying altogether or quickly shifted to less expensive, value-driven passenger cars.   As a result, corporate profits and overall market share plummeted, threatening the viability of each producer.

This shock triggered a rapid reassessment of the business from executive management down to the line worker. No longer could they ignore the cost, brand and pricing implications of poor quality.   Detroit’s culture changed because it had to.  The core mission of both firms went back to their roots: build attractive, interesting and reliable cars that address current and emerging consumer needs for the markets that matter. The longer term focus these days are on achieving high ratings on independent benchmarks such as Consumer Reports magazine and J.D. Power Associates.

Once attitudes change, better quality-focused processes and reporting systems must follow.  GM and Ford understand that if they wanted to emulate Toyota, it isn’t good enough talking about quality; you have to develop new design, purchasing and production competencies that built long term reliability into every vehicle.   So far, they are making significant strides.  As an example, at Ford it now takes 72 hours (versus 30 days in the past) for a warranty claim problem to get back to the design engineers and suppliers for troubleshooting. In other case, GM vastly increased the amount of punishment each model is designed to endure.  GM used to build vehicles to a certain mileage requirement. Now, they’re built not to fail.

Because so much of a car’s value is delivered by external suppliers, achieving systematic change would be next to impossible if there were not improvements in the traditional manufacturer-supplier relationship.  Until recently, GM and Ford pursued an adversarial, almost cutthroat relationship with their suppliers, usually purchasing exclusively on price.  In contrast, Toyota views their suppliers as partners in the business and work together in many areas including shared R&D and training. 

Of late, GM and Ford are working hard to redefine the way they works with many suppliers.  For example, they now require collaboration between engineers and parts makers; new, jointly-managed troubleshooting processes have been set up and; both stakeholders now work towards shared long term goals around reliability and innovation.

It is too early to assert that GM and Ford will regain their lost glory.  Toyota’s setback may not be anything more than a clumsy misstep.  The next 12 months will be crucial to see if there will be a paradigm shift in the highly competitive automotive sector.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Backshoring: Which Manufacturing Should Return to North America?

Do a few high-profile decisions to bring manufacturing back to North America, known as Backshoring, mark the beginning of a new trend?  It may be according to strategy+business, a Booz&Co. newsletter, and some savvy firms are leading the way. For example, NCR has decided to return production of its most sophisticated ATMs from Asia to Georgia, citing the need for production to be closer to its innovation center and customers.  In another decision, GE CEO Jeffrey Immelt recently announced that his firm will be repatriating production of hybrid batteries and advanced water heaters from China back to the US. 

Some modest corporate moves do not herald a reversal of offshoring, one of the most popular corporate strategies of the last 20 years. However, the business case for offshoring has changed and recent developments should catalyze executives to consider backshoring for high value products.  Here’s why.

Labor cost is not as critical as it used to be.   In many capital & innovation intensive industries like cars, healthcare and aerospace, the proportion of labor to total costs has been steadily decreasing to, in some cases, no more than 10% of total delivered cost.  As a result, the need to produce in the least expensive labor market has ebbed. 

Asia is not as inexpensive as it once was.  Due to rising compensation rates and exchange rate changes, many regions of China and India now feature similar labor rates to what you would find in many parts of North America.  Moreover, skilled worker turnover rates and labor productivity in many Asian regions are often worse than what you will find in North America.

North American manufacturing continues to maintain some natural advantages versus Asia.  Backshoring allows manufacturers to improve product delivery times (by shrinking transit distance), minimize management costs (by reducing travel expenses) and cut transportation charges (by eliminating oceanic transit).  

Other Asia-related costs have risen dramatically.  Key input costs like transportation, office and insurance have increased substantially due to oil price increases, soaring real estate and piracy risks.  Furthermore, key raw material costs (e.g., plastic, steel) have risen precipitously over the past couple of years.  Finally, the reliance on a few Asian and North American transport hubs has multiplied supply chain vulnerability due to potential security concerns, union problems and capacity constraints.

Tight links between customers, R&D and production is more crucial today.  As was the case with NCR, designers and customers in industries such as medical diagnostics, telecom and IT want manufacturing close by so they can more easily collaborate on product design, testing and integration. For perspective, leading Japanese manufacturers learned this lesson early in the 1990s and now rarely offshore anything but commodity products.  

Offshoring remains difficult.  After many years of offshoring, savvy executives have discovered that for many products, the drawbacks of outsourcing outweigh the benefits.  For example, certain issues like IP protection, management control and organizational integration are often too problematic with offshore production.  For low revenue products or with smaller firms, it may simply be less hassle in the long term to backshore.

There is no doubt that overseas production will continue to deliver superior savings for many labor intensive, low value-add products, especially when companies are manufacturing for the local market.  However, when considering where to manufacture high-value, innovation-driven products, the business case for backshoring is looking increasingly more compelling.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Acquisition Lessons from the 2009 GM & Ford Fire Sale

The Big 3 automotive unbundling is underway. In short order, GM will be shedding its Saab & Hummer niche brands while Ford will sell off its premium Jaguar and Volvo divisions.  These divestitures bring full circle a failed acquisition strategy that begun over a decade ago with great promise, fanfare and investment.  What can executives considering acquisition opportunities learn from this tale?

Realizing post-acquisition synergies is the sine non qua of acquiring new brands

In hindsight, cash-flush GM and Ford overpaid for their marquee brands and then failed to leverage their scale economies and expertise. Often, there are good strategic reasons to acquire niche brands.  However, making the investment pay out is dependant on the tricky business of getting certain things right such as operational integration, portfolio marketing and technology sharing.  After 10+ years of trying, GM and Ford never did exploit potential synergies across the company – if they were there in the first place – or improve each brand’s competitiveness and profitability.

Understand what needs fixing and leave the rest alone

GM and Ford did not seem to understand what they were buying or the importance of “strategic fit.”  They offered the niche brands a lot of what they really didn’t need at the time (e.g., distribution, strategic procurement) and little in terms of what they did need to accelerate their business (new technology, manufacturing etc.).  Complicating  integration and product planning was the challenge of getting high volume Middle America manufacturers to understand the culture and the nature of lower volume, craft-oriented European producers.

Reinforcing and leveraging unique brand positioning is critical

GM never did figure out what the Saab stood for other than being different and quirky. For example, when GM attempted to expand the Saab franchise by putting its nameplate on a Subaru – known  as “badge engineering” in industry parlance – consumers saw right through the gimmick and shunned the product.  Jaguar, plagued by quality issues, never regained its historical brand strength, falling further behind Mercedes and Lexus. Despite recently building some stylish cars, Volvo was unable to expand beyond its core safety positioning.  Meanwhile, others like BMW and Mercedes successfully encroached upon it. 

Build and design where you sell

Mercedes, BMW and Lexus build cars in North America, the largest premium car market in the World, in order to minimize the impact of currency fluctuations, improve delivery and design cars to suit local tastes. Strangely, Jaguar, Volvo or Saab never shifted significant operations to the US. When the US dollar weakened versus European currencies, GM and Ford ended up losing money on every car it sold in North America.  Furthermore, Saab, Volvo and Jaguar’s design and build quality never approached the appeal of equivalent North American models sold by German and Japanese producers.

Be wary of smaller but focused foes

This old adage has been said many times but is worth repeating.  Diversified producers like Ford and GM, challenged by competing portfolio demands, will often have difficulty competing against focused smaller players like BMW who can devote resources and management time to a few product areas.  Furthermore, neither GM nor Ford was able to fully leverage their considerable resources or expertise to improve the competitiveness of their acquired brands.

Hindsight is always 20/20 and it’s easy to be an armchair quarterback today.  Ford and GM’s acquisitions were not destined to fail.  However, the likelihood of a successful acquisition can be improved through better acquisition integration as well as less strategic hubris.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Better Benchmarking

Benchmarking is not all its cracked up to be according to an excellent 2006 Harvard Business Review article by Jeffrey Pfeffer and Robert Sutton.

Benchmarking is one of the most common analytical tools used across all industries.  Its premise is relatively straightforward:  compare yourself against your peers, identify your weaknesses and adopt the industry’s best practices.  However, improperly practiced, benchmarking does not work and could end up compromising your performance.

A good example of this is the U.S. automobile industry.  The Big 3 benchmarked Toyota’s production system for decades.  In particular, they studied and adopted innovations like Kaizen, just-in-time inventory and statistical process control systems.  While benchmarking did help them improve performance, the U.S. firms were never able to catch up in terms of productivity, quality and production cost.  The Big 3 continued to lose market share, not only because of weakeness on the factory floor, but also as a result of other non-benchmarked factors including design, service and branding.

The Big 3’s benchmarking initiatives fell prey to some common pitfalls. For example, people mimic the most obvious , most measurable, and, frequently, the least important practices. The secret to Toyota’s success is not a set of techniques per se, but a culture that preaches total quality management, continuous improvement and employee engagement.  Second, companies have different strategies, cultures, workforces, and competitive environments.  What one of them needs to do to be successful is usually different from what others need to do. It is questionable whether the U.S. firm’s individual-centered (and at many times confrontational) style would ever have provided the same fertile soil to fully embrace and leverage Toyota’s culture-based best practices.

How can your benchmarking initiatives avoid these traps?  My experience suggests the following-

  1. Avoid the trap of only benchmarking to market share or profitability leaders.   Best practices often come from firms whose strategy dictates they “try harder” or be more innovative;
  2. Only compare and analyze variables that drive your firm’s key performance indicators and that can be linked to employee evaluation systems;
  3. For each variable, look beyond the ranking to truly understand the cause for the target’s strength or weakness; 
  4. Compare your firm to other relevant industry and non-industry firms who share similar internal and external conditions to yours;
  5. Considers the strategic, skill and cultural fit of the ‘best practice’ before you commit to adopting and implementing it;

Properly done, benchmarking is an extremely valuable exercise.  However, use the results with caution.

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Ford’s Strategic Choices

I recently took delivery of a new Ford SUV.  Apparently I am not alone.  Ford has registered solid market share gains in 2009 driven by new competitive products and pricing plus attracting the “Loyal Domestic” segment from GM (Government Motors) and Chrysler. Many of these customers share a newfound respect for Ford, given that did not take any government bail-out money or seek bankruptcy protection. 

So things are looking up for Ford, or are they?  In the short term, Ford is caught between an automotive rock and a capital hard place.    One threat is their newly streamlined Big 2 rivals, recently retooled from a $62B bailout and bankruptcy protection.  On the other side are the more financially secure (yet also challenged) Japanese, South Korean and German competitors who continue to deliver excellent products and are now are also expanding their distribution and marketing footprints. Worryingly, the German and French governments have identified Fords’ main competitors as “national champions” worthy of strategic support.  Finally, the entry of some new  players like Tata (India) and Cherry (China) with new, low cost models could pose significant market share and margin risks to Ford’s core North American market.  Overlying all of this is an estimated 10-15% in excess capacity globally and the continued recessionary impact on consumer spending.

There are a number of strategic options for Ford, some of which are-

  1. Reposition the company & brands away from the wreckage of the Big 2, as a revitalized green, design and technology-focused car company. Ford’s latest ads seem to be signaling this.
  2. Mimic the successful Renault-Nissan tie up by seeking strategic partnerships with complementary firms to secure greater scale, technology and market access. Potential partners include PSA Peugeot Citroen, Mitsubishi or Hyundai;
  3. Build some “home field advantage” in Europe to secure strategic government assistance. The UK could serve as a home base as Ford already is number 1 in market share and has been operating there for over 90 years;
  4. Do a better job of leveraging European technology and design into North and Latin American models.  Traditionally, Ford has been very poor at this.  

So far, Ford has won some key battles but will they win the war?

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