[MBA] Case Study : The Turnaround At Ford
For the past several years, Ford has been going through difficult times. 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 share continues to dwindle. 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 decided that smaller is better--and necessary--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. As of 2008, Ford employed about 54,000 U.S. union workers. It had about 23,900 salaried workers in North America and about 12,000 U.S. workers eligible for retirement, or about 22% of its hourly workforce. Ford has announced a new round of buyouts and early retirement packages to all of its 54,000 U.S. hourly workers in an effort to cut costs and replace those leaving with lower-paid workers. Ford is offering eight different packages for employees. Some of the features of these plans are:
- Workers who are eligible for retirement will get 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. Other packages will follow the basic pattern of buyouts Ford offered in late 2006.
- Younger workers could leave for a $100,000 lump-sum payment and receive health care benefits, for a limited time.
- Older workers could get $140,000 and receive pension benefits if they retire immediately, but they would forfeit future health care benefits.
The automaker's goal in offering the companywide buyouts is to cut as many as 11,000 hourly jobs and as many as 2,000 salaried positions. One of Ford's goals with these buyouts is to replace many workers with new employees who will earn a lower wage under the terms of its recently negotiated labor agreement. New hires will earn a little more than $14 per hour, about half of what current union workers earn. The number of these so-called second-tier wage workers is capped at 20% of Ford's workforce under terms of a new pact with the UAW (formerly the United Auto Workers union). Ford President and Chief Executive Alan Mulally said the automaker will also trim salaried staff, mostly through attrition but possibly also through layoffs, as it tries to adjust to the slumping U.S. market.
Answer the following questions by applying the concepts learned in Chapter 5. Also, conduct literature reviews on the subject of discussion and use to support your case study answers:
1. What factors have contributed to the large-scale labor surplus at Ford?
2. 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 is using these two tactics? Do you think these are the best options for Ford to achieve its goals?
3. What are the downsides of these two approaches? Are there any other approaches you might recommend to address its labor surplus?
Review/ Analysis and Findings
Ford is one of the most popular brand on automobiles which covered 26% market on late 90's. Ford employed a large workforce on both salaried and hourly paid. But the market coverage dropped to around 15% only on 2007. Ford analyzed and come to the conclusion of small but efficient task for is far better. So it offered eight different packages for retirement plan. Which covered young, old, hourly paid and salaried staffs too. It targeted to drop its workforce by 11000 on hourly job and 2000 on salaried positions. Because when employees live long their scale goes higher, so Ford decided to hire fresh ones from market who deserve lower pay scale.
Factors contributing Large Scale Labor Surplus
Ford was very successful on automobile on 20th century. Most automobile fans go for Ford. As the market share it have is more than one quarter of entire automobile sector the workforce it require was high enough. As the demand dropped from about 26% to less than 15% the production of Ford is obvious to drop. So drop in production scale contributed to large scale labor surplus on Ford. Moreover when more employees are engaged on production, the old aged ones are less efficient than newer ones that led to replace those with fresher. As production process and technology too changed on those time period the production process got more automation and less human intervention. So technology also contributed on labor surplus.
Tactics of employee buyouts and attrition
The Ford Company employed 54000 US union workers and a large number of hourly workers too. This large scale of workforce is no more needed when the market demand dropped to almost 50% than its demand on 1990s. New vice president Alan Mulally brought packages that attracts employees for volunteer retirement. Employees how are working hard and receiving living wage will be attracted once they get a big sum. Old employees on their near retirement period once get such attractive offer they will obviously accept the proposal.
I think fords "one way strategy" of workforce reduction is to decrease the workforce heads. Moreover having old aged people is not as beneficial as having new fresher guys. Although Ford stated it will leave some position vacant but later on it will fill some vacancies with new workforce. Employee buyout and attrition will replace old employees and the liabilities of Ford will also drop highly. Ford found that "Smaller is better". Having crowd of employees doesn't mean company is performing sharp. But it only adds more expense and overhead on HR management. So rather than other plan that compel employees to retire or forcefully kick out. Company like Ford having good social belief tried keeping its esteem high by facilitating employees. The single technique of workforce dropping by this technique will neither harm employees not company itself. So it choose employee buyout and attrition.
Having a large workforce and proper management will give a best result. But when the market demand is decreasing so does the production rate, having crowd of people will make no sense. Employees who spent their life working for Ford also expect respect from employer too. They stayed so long on the company because of its facilities. Company facilitated them and they enhanced company. They worked hard enough to let the company market share rise and stay intact on company's good days. Once the demand dropped and drop in production will lead to employee cutting. So, company have to choose for way cut the employee without harming employees expectations, social values and also keep social belief toward company intact. SO the plan it proposed of providing good figures employees will not harm staffs. So I think the way Ford brought eight different plan including health facilities, round of buyouts, lifetime pension and packages of benefits is best. Although company should be aware some good and very competent employee stay in the company. The technique of buyout and attrition is good option for Ford to achieve its goals and findings "Smaller is better".
Downsides and alternative approaches
When company offers for buyout and attrition might help achieve their goal and keep workforce sharp enough. The way will benefit both employee and company. But this technique will make high expense on short term and pension/health facility plan will cause long term liability for the company. On the other hand losing employees who worked long time will cause many lead and lags, ditches on company structure. One the experienced and good one staffs go out and join another competitor company Ford will again lose its market share because those employee are aware of technology it follows and strategies too. Moreover being attracted with this plan if very experienced, capable and well trained employees might also leave the company. This will cause investments on training those employees go vain. Company cannot limit number of employees to apply for the plan and also cannot bar for any people. If all employee of same division and section apply for this plan and go out then company is no longer able to run its daily operation.
Tactics of Buyout and Attrition is a good option to address labor surplus. But there are other options too that might also help Ford achieve "Smaller and better" goal and meet market demand. Other ways are Layoffs, movement of employees, retiring employees early and stopping new recruitment. Moreover Ford can move their efficient task force to other type of industries if any. Plans of stopping new hire and early retirement also help.
Summary and Conclusions
Ford Company once lost market share from around 26% to only 15% or less is forced to drop its large number of employees. The new chief executive Alan Mulally proposed buyouts and attrition technique to balance employee crowd.Proposal of providing short term, long term monetary benefits, pension and health facilities too might attract employees choose volunteer retirement. Successful implementation of this technique will reduce crowd and production process goes efficiently and effectively.
Forbes.com,. (2015). Forbes Welcome. Retrieved 20 September 2015, from http://www.forbes.com/sites/joannmuller/2014/05/02/the-simple-management-secrets-behind-mulallys-ford-turnaround/
Lepak, D. &Gowan, M. (2010). Human resource management: Managing employees for competitive advantage. Upper Saddle River, NJ: Pearson/Prentice Hall