The Turnaround at Ford

      

Case Study: The Turnaround at Ford

 
 Review/Analysis of Findings

            Ford Motor Company is an American multinational corporation and the world's third largest automaker based on worldwide vehicle sales. In the past the ford sold large number of vehicles that are fuel efficiency. In 2007 ford receive the severally awards and its revenues increased to $173.9 billion, while producing over 6.5 million automobiles. By 2005 ford losses the market share and due to high labor cost and high price of gasoline the ford company lost $ 12.6 billion in 2006. The demand of ford automobile is decreased in the market and the labor cost is increased furthermore the company was suffered from labor surplus

In order to control it’s ever expanding labor costs the company and the United Auto Workers, agreed to a contract to early retirement and buyouts by providing health care costs and other economic issues. Ford offered different eight package for employee. The ford make a policy to retire the old worker and other maintenance worker and young high paid worker by providing them the compensation and several health care. The ford company try to make a balance between the labor demand and supply.  The strategy worked. Most of the employee leaved the company. After that ford company requite the new employee with low work wage then compare to previous worker. The ford company make a balance between the work demand and number of employee. Alan Mulally, the new CEO of Ford believed that the company was overcome from such a hard time through attrition but possible also through the layoffs. Ford announced its new business strategy, "The Way Forward" to increase the market share, the strategy works well and the company makes profit of $750 million in the second quarter of 2007.

Contribution Factors to Ford’s Large-Scale Labor Surplus

During the twentieth century ford is one of the successful company in the automobile industry. Ford introduced the assembly line to reduce the price of the automobile. In 2006 the company was suffered from the labor surplus. The demand of the ford automobile is decreased so the company cannot afford to produce more automobile. The profit is decreased and further more they gone on debt.  There was 54, 000 US employee, 23,900 salaried workers in North America and about 12,000 US worker eligible for retirement. The company was paying them their salary and other benefit. The labor cost has increased but the value added in the company by those employee is decreased. There is no match between the organization demand and the labor they had. Ford Company cannot afford the same number of employee even they did previously because the work is decreased then previous.

The cost structure of Ford Company has contributed to financial lost. The company pays a lot of money to their employee but the demand of automobile continues shrink. In this case the company even there is no productivity in the company the ford company has to pay salary for large number of employee. The greater the labor cost the lower the profittabilty of the company. Ford Company faced the labor surplus because of its high cost structure and decreased in the demand of automobile. There is no work for all employee in the company but the ford paid salary and other benefit to all employee even there are not contributing and involving in the production. So the HR manager must reconstruct the workforce planning according to the demand of the organization. Ford Company decided to go smaller and applied “one way strategy” to reduce the number of the employee.

Tactics to Pursue Employee Buyouts and Attrition

The demand of the ford company automobile is decreased. The company faced the labor surplus. The company must make balance between its workforces to its productivity demand. The new vice president and chief executive Alan Mulally bought buyouts and early retirement package to its 54,000 U.S. hourly worker. The company offered different eight package to the employee who want retirement and buyouts from the company. The company was ready to pay the amount of money according to the agreement. The ford company strategy called “one way strategy” suggested that they are going to reduce the huge number of worker. For this purpose they used buyouts along with the attrition. The company announced they will not hire any employee more. They will not fill the vacant position and try to convince large number of worker to get retire from work.

The ford company is using this buyouts and attrition tactics because to reduce the labor surplus. They decided to go smaller, for this purpose they must reduce the number of the employee, and the ford company cannot fired the employee directly from the company. Even there is no balance between the work and demand, the company have to pay them for long time. So the company decided to give buyouts for the worker who are eligible for retirement and also for many worker. The company did not open vacancy for the new employee. They decided to dissolve the vacant position. The productivity demand of the company is decreased but the worker remain same as in previously so the ford company must match between the workforce and organization demand. For this purpose the company use buyouts and attrition technique.

I think these buyouts and attrition are best option for ford to achieve their goal. The goal of the company is to go smaller and to achieve long term success in the automobile industry. In the past year there is huge number of the employee in the company. But the situation has been changed the company have to make balances between the workforce and demand. The demand is decrease that’s mean there is no more work than before. The company have to reduce their employee for long time. For this purpose it is best to use buyouts and attrition because in this strategy the employee have to leave the company for ever, there will not direct relationship between the company and employee, employee have no right to reapply later in the company.. Also In buyouts Workers are given a choice and financial incentives, they often feel like participants in job cuts rather than victims.

Downsides of Fords Proposed Tactics and Strategy Forward

The buyout offer and attrition has been a popular corporate strategy to reduce the labor surplus in the company.  In the process of buyouts the company offer workers relatively different packages and give them the choice of leaving their jobs or staying put. The employee have a right to choose what they want. Most of the employee who are in the process of retirement and who have high probability of chance to get job in another company they will accept the buyout.

Buyouts used to reduce the employee permanently. Workers who take buyouts sometimes lose the right to reapply for their jobs if the economy picks up. There is chance of losing the high skilled employee from the company. Once the company lose the skilled employee it’s very hard and costly to produce the same level of employee. The buyouts is generally expensive. They have to give huge amount of money to them and to achieve and regain those money and value it takes more time for company. The ford company also used attrition to decrease the labor surplus in the company. The company did not recruit new people for vacant position. The down side of attrition is that, the employees who are not laid off often find themselves performing extra duties to make up for staffing shortages. Once an attrition period is over, it takes a long time to rich a firm’s desired employment levels. So the company has to think twice, thrice which tactics shoud be used to overcome from labor surplus.

Other common tactics to address labor surplus are layoffs, hiring freeze, movement of employee, early retirement. Layoff involves quickly reducing the number of the employee. It is the tactics that can be used easily to adjust the workforce in the company. But layoffs do not always generate future improvements. Other tactics is hiring freeze, the company can use it not to hire new employees in the company, when the old employee are retire then company may decide to stop the recruit new employee. It is a long term objective. The movement of employee is another tactics that used to minimize the labor surplus. The labor can promoted or demoted to another department where there is a lot of work. The company may transfer their worker to another company where there is labor shortage. The company may use one or more tactics to reduce the labor surplus in the company

Recommendations

            Recommendation 1. The ford company can use the layoff tactics to retire the employee. the company have right to choose the employee who are not performing well as the expectation of the company further more it is fast and less expensive. If Ford Company used the layoff tactics the skilled labor who quite the job have right to reapply for the post in the future if company takes place in high position.

Recommendation 2. The ford company can produce different variety of product by using those employee. They can setup new factory that may different from the automobile and they may shift their employee in those company for work.  If the company takes pick up in following year they can recruit their skilled employee from there. Also they can contact with another company, who are suffered from labor shortage.

Summary and Conclusions

Companies engage in workforce planning to ensure that right number of employees with the right skills are where they need to be at the right time, to meet the company current and future needs and demands. The overall demand of the ford company is decreased and they have to make workforce planning according to the demand by consumer. The company decided to reduce the size of its workforce through buyouts and attrition. They decided to go small and make long term approach. They retire many employee which labor cost is very high and make a tactics to recruit low cost labor if needed in the future.

Ford president and chief executive Alan Mulally uses buyouts attrition and layoffs technique to make balance between labor supply and demand of the company. These tactics is worked and many employee left the company. Once there is balance between workforce and the demand in the company, the company rises. Today the ford company becomes one of leading automobile industry because of going smaller in a turnover situation and they are able to make balance between workforces and demand to meet long term goal.

References

Lepak, D., & Gowan, M. (2010).  Human resource management: workforce planning. Upper Saddle River, NJ: Pearson Prentice Hall

Fields, F. (2013, 8 2). (Group Vice president,Human Resources and Corporate Services, Ford Company) Retrieved from corporate.ford.com: http://corporate.ford.com/microsites/sustainability-report-2011-12/people-voice-fields

Magee, D. (2013, 8 2). Retrieved from www.ibtimes.com: http://www.ibtimes.com/ford-motor-company-turnaround-5-lessons-emerging-hard-times-212580

 (2013, 8 2). Retrieved from www.workforce.com: http://www.workforce.com/articles/ford- expected-to-make-more-buyout-offers

(2013, 8 2). Retrieved from www.startribune.com: http://www.startribune.com/lifestyle/36250584.html

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