MAJ Matt Tillman

Army Baylor 2016

EXSUM Porters Five Forces Case Study of the Ford Motor Company (Adapted from Rob
Webers EXSUM)
Question: Analyze Ford Motor Company using Porters Five economic Forces
Top Domain: Leadership and Organizational Management
Method of Research / Model: Case Study / Porters 5 Forces Model
Overview:
Working with Rob Weber, we analyzed the Ford Motor Company using Michael Porters
Five economic Forces that were first published in 1979 in the Harvard Business review. We used
multiple open sources to analyze and determine the relative strength of the company in relation
to the five forces listed below.
Buyers Power Ford first sold the model T in 1908. In the 100+ years, Ford has
become a household name and Henry Fords legacy is now an American industrial institution
with a loyal and dedicated customer base. However, that power of this iconic company is
shrinking due partially to the power of automobile buyers worldwide who demand quality and
are very price sensitive. There are many alternatives to Ford and switching costs are almost nonexistant. To mitigate this power, we recommended that Ford should differentiate its product,
reduce manufacturing sensitivity, and capitalize on consumers price sensitivity to create
switching costs.
Power of Substitutes Next, we looked at direct substitutes for automobile
transportation, alternative fuel, and changing lifestyles of the millennial generation
(reurbanization). In similar fashion to our recommendations to combat the power of buyers, we
recommended that Ford continue to differentiate its products based on brand, and to further
develop / refine its alternative fuel offerings. These recommendations would help to develop
switching costs
Power of Suppliers We evaluated the automobile industrys supplier concentration to
assess the importance of Ford to the component suppliers of steel and aluminum. We also
evaluated the power of labor on Fords production process. We found that component costs,
including steel, aluminum, and semiconductors, account for 66% of the direct manufacturing
costs associated with vehicle production. Steel is a very concentrated industry with 2/3 of the
production made by the top 50 suppliers worldwide which gives power to the supplier. This was
similar with aluminum. Labor is also a major supplier to the auto industry and 99% of Fords
North American employees are represented by multiple unions. This indicated that collective
bargaining adds significant strength to employees and further strengthens their position as a
supplier to Ford. Overall we assess that suppliers have substantial power over the automobile
manufacturing industry and suggested that Ford should limited the forward integration of its
suppliers, limit the amount of specialized equipment it uses based on supplier and thus limit
switching costs, and increase its market share to increase bargaining power with suppliers.

MAJ Matt Tillman

Army Baylor 2016
Threat of Entry - We analyzed this economic force by evaluating the industry
economies of scale, and incumbent advantage independent of size, specifically the experience
curve. The economies of scale where obvious with the amount of capital required in
manufacturing. The brands found in the industry also served as strong barriers to entry. The
barriers to entry we found were substantial but with a lucrative market, the threat still remains.
Threat of Rivals In our final paper, we assessed three major players who not only
share similar products at comparable price points, but who also actively compete against Ford
and constitute a total of 61% of the domestic market share. This evaluation served as a
summation of the previous points and helped us to frame the market for the industry.
Lessons Learned: This was a great vehicle to help me understand the interconnected
nature of economics and to understand the principles of this seminal model. Overall, product
differentiation seems to be the biggest trend that can separate a firm from the threats in the
market place.