Introduction
Digital strategy is a topic of increased attention among entrepreneurs from different industries. However, despite the popularity of the topic, research demonstrates that it is still in its infancy, as there is no universal understanding of the process of digital strategy development (Schallmo et al., 2019). As a result, the implementation of a digital strategy often leads to tensions due to misalignment between the emergent strategy and resources (Yeow et al., 2018). Researchers conducted numerous studies in an attempt to close the gap in knowledge concerning digital strategy development to improve the outcomes. Schallmo et al. (2019) developed an integrated approach to the development of a digital strategy, which includes six stages: external strategic analysis, strategic forecast, internal strategic analysis, strategic principle, strategic options, and strategy formulation. Yeow et al. (2018) offered an aligning process model, which consisted of three stages, including the exploratory phase, building, and extending. The present paper proposes a digital strategy for Ford Motor Company using the suggestions of recent research and the strengths and weaknesses of the company. Four central recommendations are given to modify the current digital strategy of the company.
Background Information
Ford Motor Company
Ford Motor Company is one of the leaders among automobile manufacturers with a long history of striving for innovation, cost reduction, and customer satisfaction. Currently, the company operates in the automotive, mobility, and credit segments (Ford Motor Co, 2021). The automotive segment includes the selling of legacy automobiles with internal combustion engines. The company’s vehicle brands are Ford and Lincoln. In 2020, the company experienced a significant decrease in sales of legacy vehicles 2020 due to the pandemic. In particular, the sales dropped from 5,386 thousand to 4,187 thousand worldwide (Ford Motor Co, 2021). The majority of vehicles are sold in the US and in the 20 largest EU countries; however, China should also be considered a crucial emerging market (Ford Motor Co, 2021). In 2020, all markets experienced a decline in sales, while the sales in China grew by 15% (Ford Motor Co, 2021). However, the company acknowledges that legacy vehicle sales will continue to drop in the future (Dignan, 2017). This prognosis encourages the company to shift its strategic priorities to other segments.
The mobility segment includes development costs for Ford’s autonomous vehicles and related businesses, Ford’s equity ownership in Argo AI, and other mobility businesses and investments (Ford Motor Co, 2021). Currently, the segment is not associated with any significant sales (Ford Motor Co, 2021). The credit segment includes vehicle-related financing and leasing activities. The segment aims at supporting the sales of Ford and Lincoln vehicles around the globe. Currently, the company is to find a balance between trying to capture a significant market share in the legacy vehicle industry and secure its future development through investment in the innovative mobility segment.
Current Digital Strategy
Ford’s current digital strategy is based on developing electric vehicles (EVs), autonomous vehicles, and mobility services. According to Shields (2018), the company planned an investment of $11 billion to restructure and digitally transform the company. The center of this investment is the establishment of a new self-driving automobile business by 2023, called Ford Autonomous Vehicles LLC (Shields, 2018). Additionally, it plans to invest in mobility services, such as Chariot, a shuttle-based ride-sharing service (Shields, 2018). The mobility services are to be upgraded using self-driving technologies, which work best with EVs (Shields, 2018). In summary, Ford’s digital strategy appears to be logically structured.
However, while the EV and mobility markets are growing, the legacy vehicle market is expected to generate sales in the nearest future. According to Bloomberg, the market share of legacy automobiles will decrease from 70% in 2015 to 50% in 2030 of all the vehicles sold (Shields, 2018). Thus, it is crucial that Ford ensures a stable market share and revenue inflow from the sales of legacy automobiles to finance the R&D for AVs, EVs, and the mobility segment. Thus, the current digital strategy lacks a comprehensive plan for developing legacy automobile production, marketing, and distribution.
Digital Strategy Development
Porter’s Five Forces
The present section provides an analysis of the automotive industry using Porter’s Five Forces framework. Schallmo et al. (2019) stated that a successful digital strategy could be formulated only after industry analysis is performed. Porter’s Five Forces is one of the most commonly used frameworks that help to evaluate the current condition of the industry, which include competition, bargaining power of suppliers, bargaining power of customers, the threat of substitution, and the threat of new entrants (Bruijl, 2018). Despite being developed in the 1970s, it remains relevant even in today’s innovative and changing business environment (Bruijl, 2018). The analysis of the automotive industry is provided below.
Competitive Rivalry: Strong Force
Ford operates in a highly competitive market of the global automotive industry. While the number of competitors is relatively low (the company operates in an oligopoly), the companies compete aggressively with each other to improve their market share, sales volume, revenue collection, and profitability (Enkhbayar, 2018). The intensity of competition can be measured by the volume of investments in R&D. AlixPartners estimates that the companies in the industry will invest up to $255 billion in the development of EVs and around $61 billion in AV technologies between 2108 and 2023 (Shields, 2018). Thus, Ford needs to take careful consideration of the actions of the competitors to align its digital strategy appropriately.
Bargaining Power of Suppliers: Weak Force
The bargaining power of suppliers is low for Ford due to its internal structure. Ford conducts vertical backward integration, which is associated with low dependency on external suppliers. However, due to the development of AV technologies and EVs, the company may increase its dependency on suppliers, such as battery producers or software for AVs from Android Automotive (Lardinois, 2021). Thus, Ford needs to ensure that the bargaining power of suppliers does not increase.
The threat of Substitutes: Strong Force
Ford experiences the significant threat of substitutes from different products, including public transportation and mobility services. Additionally, an analysis of the market demonstrates that legacy vehicles can be replaced by EVs (Shields, 2018). Thus, Ford needs to address this threat through its digital strategy.
The threat of New Entrants: Low
The threat of new entrants in the automotive industry is rather low due to high barriers to entry. In particular, a company would need to make large investments in equipment, brand development, and marketing to start manufacturing vehicles. Thus, the digital strategy does not need to address the threat of new entrants.
Bargaining Power of Buyers: Moderate
The industry is characterized by the moderate power of buyers for three major reasons. First, the switching cost is moderate, as cars are “big-ticket” items. Second, the availability of substitutes is moderate, as the company operates in an oligopoly and the options for other car brands are limited. Finally, the size of individual purchases is moderate, which implies that even a small shift in demand may have a significant effect on the company. Thus, the digital plan needs to consider the needs and wants of buyers, especially since customer satisfaction is one of the major priorities of the company.
Recommendations for Future Strategy
Recommendation 1: Focus on the development of AV, EVs, and mobility services
This part of the digital strategy should remain the priority for the company, as it helps to address the threat of substitution. Porter’s Five Forces analysis revealed that the major sources of substitution are public transportation, mobility services, and EVs. Thus, Ford needs to penetrate into those markets, which requires significant investment in R&D. Much of these investments, have already been allocated by the company in 2018, including $4 billion in the establishment of the new business entity for AV production, purchase of Argo AI (the developer of AV driving system), and the development of EVs (Shields, 2018). The company still needs to incorporate Big Data analysis to optimize the routes for AVs.
The company should also invest in the development of mobility services, such as Chariot. Johnson (2018) claims Ford has created a formula for the success of mobility services, which consists of five aspects. The service needs to be ambitious but start small, it should satisfy social, emotional, and functional needs, examine the profit formula, establish rules, norms and metrics, and develop a portfolio for new business models (Johnson, 2018). This formula should be used to start new mobility services, such as electro scooter sharing and car-sharing.
Recommendation 2: Control the market share in the legacy vehicles industry
While the focus on innovation is crucial, the company should control the current market share in the legacy vehicle market. Experts say that Ford does not lead the race in EV and AV segments (Shields, 2018). Additionally, Porter’s Five Forces analysis revealed that the competition in the industry is fierce, which implies that Ford can lose its revenue inflow from legacy vehicles if it overconcentrates on innovative products. At the same time, Bloomberg predicted that the demand for legacy vehicles would continue to decline, which means that Ford should be aware of the possibility of overproduction.
One of the most innovative solutions for the issue is the utilization of Big Data. Fan et al. (2017) suggest that sentiment analysis together with the Bass model can help to improve sales forecasts drastically. In other words, mixing structured data analysis with unstructured data analysis, such as product reviews, tweets, and social media posts, is associated with a significant rise in the accuracy of demand forecasting (Fan et al., 2017). Knowing the demand can help to adjust the production volumes, which will decrease costs associated with materials, inventory management, and transportation. Decreased costs are expected to help keep high-profit margins.
Recommendation 3: Maintain low dependency on outside suppliers
Porter’s Five Forces analysis demonstrated that while Ford’s dependency on outside suppliers is currently low, it may increase in the nearest future as the company shifts its priority to the EV market. Bloomberg reports that the demand for EV batteries more than doubled during the first four months of 2021 (Park, 2021). This implies that Ford will be highly dependent on the suppliers of the EV batteries, which may negatively impact the company. In particular, it may cause supply chain problems and increased cost of production. Thus, Ford is recommended to invest in producing EV batteries for its own cars, which will be coherent with the vertical backward integration the company uses. Ford has already purchased Argo AI, which allowed the company to be independent of the developments of other companies concerning AI. This strategy is recommended to be used for EV batteries as well.
Recommendation 4: Manage customer satisfaction closely
Ford views customer satisfaction as one of the central values of the company. Moreover, Porter’s Five Forces analysis revealed that buyers’ bargaining power is moderate, which implies that it should be carefully managed. Zhao et al. (2019) suggest that using Big Data technologies for analyzing reviews of the products can be helpful for understanding factors that drive customer satisfaction. This information can be valuable for adjusting marketing and production strategies to meet the needs of customers. In summary, Ford Motor Company is recommended to develop a protocol for analyzing reviews of the products to improve customer satisfaction.
Conclusion
The present paper aimed at developing a digital strategy for Ford Motor Company. The company’s background information, analysis of current digital strategy, and Porter’s Five Forces analysis were used to form four central recommendations for improvement. First, the company was recommended to continue to invest in the development of EVs, AVs, and mobility services, as the demand for them is growing. Second, Ford should utilize sentimental analysis to predict demand in the legacy vehicle market to control the production volumes. Third, Ford was found to gain significant benefits from establishing the production of EV batteries. Finally, the company is encouraged to use Big Data analysis to improve customer satisfaction.
References
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