Question

Case Study 2: The Turn Around at Ford Ford has been going through difficult times and recovered more than once. The company’s share of the automobile market continues to shrink, and its cost structure has contributed to financial losses. In 2006, Ford lost $12.6 billion. In 2007, Ford did better, posting losses of only $2.7 billion. At the same time, however, Ford’s market shares dwindled and in 2007, its share was 14.8%—down from 26% in the 1990s. In an effort to match its production with the demand for its products, as well as address concerns with its high labor costs, Ford has focused on trying to get smaller to achieve long-term success in the automobile industry. One of the primary ways for Ford to achieve this goal is to take further steps to reduce the size of its workforce. Ford’s workforce went from 283,000 employees in 2006 to 171,000 in 2013. Ford then announced a new round of buyouts and early-retirement packages to its workers in an effort to cut costs and replace those leaving with lower-paid workers. Some of the offers made to reduce the labor supply in 2013 included: Workers who were eligible for retirement would receive a $50,000 offer, higher than the $35,000 in the previous round of buyouts. Skilled-trade workers, such as maintenance workers, will get an additional $20,000, bringing the total potential payout for such a worker to $70,000. Following the 2013 round of buyouts, Ford extended its tactics to reduce the size of its workforce and ongoing expenses further through means such as the following: Extending a buyout option for its 78,000 employees and special incentives for its 40,800 workers who are eligible for retirement to retire sooner rather than later. Offering a lump sum payment for 90,000 retired engineers and office workers to forgo their regular monthly pension check for the rest of their lives. The automaker’s goal in offering the company-wide buyouts was to cut jobs, reduce its ongoing pension expenses, to position itself to be more competitive in the market, and to align its labor capacity with the demand for its products. In 2018, Ford announced that by 2020 around 90% of Ford’s sales in North America would be trucks, SUVs and commercial vehicles. The only two cars to be manufactured in North America would be the Mustang and the Focus Active Crossover. The company has reallocated $7 billion of its research funds from cars to trucks and SUVs.

Questions

What factors have contributed to the large-scale labor surplus at Ford?

What impact is the most recent strategic plan at Ford likely to have on the company’s labor supply?

Over the years, Ford has decided to pursue employee buyouts and attrition in an attempt to shrink its workforce to match its productivity demands. Why do you think Ford uses these two tactics? Do you think these are the best options for Ford to achieve its goals?

What are the downsides of these two approaches? Are there any other approaches you might recommend addressing its labor surplus?

Answer 1

Name of the Company : Ford

Findings of the Case Study :

Ford is one of the renowned company of an automobile industry but has been going through a tough time due to the shrinkage of company's share in the automobile market. The Company used to cover 26% of market share in the late 90's and has a very large workforce. But gradually things changed and the market share dropped to 15% in 2007.

It was a time for ford to reframe its strategies and policies and they came out with an idea of downsizing the workforce.

And company also diverted its research funds from cars to trucks and SUV.

Factors contributing Large Scale Labor Surplus :

Ford was a big name in early 90's for an automobile industry and had a very large market chunk under its belt.Each motor lover use to opt for ford but with the entry of new market players and some other factors the hold of ford began to loose and the share decreased with time.They saw a drop of around 11 % in 2006 compared to 90's.Ford had around 283000 employees in 2006, that was too much in surplus according to the production.There was a drop in production as the demand decreased but the number of laborers remain the same.Also technological advancement reduced human intervention which also led to labor surplus.

Impact of new strategy adopted on company's labor supply :

To stay competitive in the market company adopted some strategies and the most recent one was focus shift from cars to trucks and SUV's' as they had more demand and better profitability. Company had already announced buyout and early retirement packages which brought the number of employees to perfect and equal to what exactly is the need of the business. Labor will be used in the most effective manner and optimum utilization of available resources will be there.

Analysis of Tactics used by Ford to match its productivity demands :

In order to meet its productivity needs and decrease labor costs ford decided to pursue employee buyouts and attrition. Employee buyout is when an employer offers selected labor to voluntary buyout a share in the company. This was a very brave move by ford as it promotes employee efficiency and loyalty . It will also change the corporate structure of company and reduction in overall labor costs.A buyout was a saver for a company which is struggling with its management and losses were increasing with time.

Another strategy adopted was Attrition. It means lay off of employees through natural process like Voluntary retirement. Workers who were eligible for voluntary retirement were given $50,000 offer instead of $35000.

This will definitely help the company to make its workforce more productive as most of them will be young minds and unessential departments and positions will be disposed which will lead to reduction in cost and increased production and productivity.New talent will be prospered and may be some great decisions will be taken by people who didn't got any chance earlier.

The tactics used by ford were best for the ford to achieve its goals .It helped them to sustain in ongoing competitive market and maintain the reputation they have. It strike a correct balance between workforce and customer's demands which is must for an organization

Downsides of these two approaches :

Every coin has two sides. Similarly these approaches had a downside too.We will discuss them one by one.

Downsides of Employee buyouts :

• Employee buyout major risk was Bankruptcy as solid financial back up was missing. In case the revenues declines company could be broken up and sold off to satisfy creditor;s dues.Any unforeseen challenges like recession, expensive litigation can cause serious damage to company's financial position and can restrict earnings .
• Another downside of buyout is that it can create conflict of interest between management,employees and shareholders. To reach out to an unanimous decision will always be a tough task.
• It will also be a high expense for the company as the offer for voluntary retirements was increased by $15000.

Downsides of Attrition :

• Ford will loose the trust and loyalty of employees .
• Employee who knows the process and strategies of ford can join some competitor and disclose them about those.
• Well trained employees and efficient employees can also leave the organization because of job insecurity.
• There are chances that major chunk of employee involved in particular section of production will leave the organization which will create problem in day to day operations.

Other approaches that should have been adopted :

The tactics used by ford were good but not appropriate. Here is a list of alternate tactics.

• Freeze hiring for non essential positions
• Reducing salary and wages of current employees
• Reduce pay rates,fringe benefits for some time
• Adopting Lean and six sigma techniques to effectively manage the workforce