E-Ford Argentina



Expanding a Global Vision in a Local Market: The E-Transformation of Ford-Argentina[1]

In early July 2001 Richard Canny, two months into his new post as president of Ford-Argentina, was driving to his office and thinking about a report soon to be presented at the Ford Motor Company’s South American e-Board meeting and distributed throughout his company. The report would state his policies and priorities for Ford-Argentina’s progress in the use of web technologies to communicate with customers (internet); with suppliers, dealers, stockholders and others outside the company (extranets); and internally, within Ford itself (intranet).

Ford Motor Company, the world’s second largest motor vehicle manufacturer, with revenues approaching $15 billion in 2000, had operations in 200 markets and approximately 345,000 employees on six continents. Immersed in a fiercely competitive, global industry, it was faced with the need to continue to improve quality and shorten development cycles while dramatically lowering the costs of developing and building vehicles. In the late 1990s, looking for ways to take advantage of its size and multi-country presence, Ford embarked on an ambitious process of reinventing itself as a global organization with two major strategic foci: customer satisfaction and e-business.

With these ambitious plans came big challenges. Ford’s new global approach to business required using technology to overcome the constraints usually imposed by geography on information flow within the organization. Teams on different continents needed to be able to work together as if they were in the same building. The vision was based on tailoring products and services to individual markets by levering technology, particularly web technologies, and efficiencies around the world.

At Ford-Argentina, as its marketing manager recalled,

Our obligation was to crystallize Ford’s objectives [customer satisfaction and e-business] in Argentina. Yet we also knew that we couldn’t wait to have corporate priority to engage in these initiatives. There are important differences between working at Ford’s headquarters in Dearborn, Michigan, and in its subsidiary in Buenos Aires, Argentina. In Michigan, they began by setting an organizational unit and assigning resources, all dedicated to develop an e-business mega-plan. Here, we were forced to improvise. We really didn’t begin with objectives, but with broad expectations. We wanted to associate the Internet with our branding to help us position as technology focused innovators and provide us with visibility.

We have moved further than we initially anticipated. We experimented and learned. Our initial approach was business-to-consumer. But in Argentina there are only 2 million Internet users, and of these only 37 percent are interested in topics related to vehicles. Now we are improving our internal administrative processes. We are getting better and more up-to-date information about our customers. We are making our processes more transparent from the factory to the dealership, and from the dealership to the customer. We are giving our clients the opportunity not to feel cheated. But we are still trying to understand the potential of the Internet in adding value.

Since Ford-Argentina’s public web site (.ar) was launched in October 1998, progress had been rapid. Coordinated initially by the marketing division, the subsidiary’s Internet presence was used to reinforce customers’ awareness of and regard for the brand. The company quickly learned to take advantage of the Internet to supplement its sales efforts. However, rather than aiming at selling over the Internet, Ford-Argentina aimed to make its site “drive and feel like a Ford”—and use it to steer potential new-car owners to a traditional dealer. By doing so, it preserved its traditional face-to-face interaction with customers and avoided conflict with its dealers. Furthermore, Ford-Argentina also used the Internet to launch and position new vehicle models, and was beginning to take advantage of the data gathered about customers to provide them with information on their own terms. The company was using that information in adaptive profiling, mass customization, and one-to-one marketing. Ford-Argentina was beginning to apply customer life-cycle analysis and was focusing on customer retention.

By the end of 1999, Ford Motor Company realized the need to have consistent e-business policies and practices worldwide. However, its management was also conscious that different regions of the world have different realities with respect to Internet adoption and e-business (and different attitudes toward the balance between electronic and physical contact). In South America, a regional e-board, constituted by the various presidents of Ford’s South American subsidiaries, and a regional e-business executive committee were established to make all major decisions about brand positioning and technology. The execution was to be local and flexible enough to ensure that local differences were accounted for. However, very soon well-defined goals and a detailed plan with clear deadlines were required to be laid out. Resources were provided, but with very specific purposes, and not to be squandered on competing projects. And broader cross-functional committees, with goals attached to the annual performance evaluation of each member, were assigned to keep the e-projects moving. Another director of Ford-Argentina reflected,

Given the economic situation of Argentina [which had had more than two years of recession and stagnation], receiving this funds infusion from the corporation was helpful. Otherwise we probably would have had to cut our Internet initiatives. For our e-business budget for 2001, 70 percent is from the corporation, and 30 percent is local. But how much of this budget will be available next year? That’s not clear at this point.

Until then, it appeared that Ford was betting on the web, without debating about the relevance of technology itself or about spending money on e-initiatives. However, as the motor vehicle industry became ever more competitive and Ford continued its quest for ever lower costs, the watchword for web use in Ford would be focus on value to the core business, focus on management of information content to make it most useful.

Canny, who became president of Ford-Argentina after his predecessor was named director of global marketing and relocated in Dearborn, Michigan, joined Ford in 1983 in his home nation, Australia. He served in different positions in manufacturing, quality, marketing and sales, customer relations, and finances. In 1994, Canny was relocated to the United States, where he spent two and a half years as part of the company’s international marketing task force “Ford 2000.” As part of this initiative he went to India and China in support of Ford’s marketing strategic planning group. From 1997 to 2001, he was the Operations Director of Ford-Malaysia.

Upon his arrival in Argentina, in May 2001, Canny reviewed the achievements of the e-initiatives in Argentina in the past few years. The results to date seemed to show that web technologies could contribute value to Ford-Argentina’s core business. More importantly, he felt that the initial results had created excitement within the organization about this new technology. The use of these tools was spreading gradually to other parts of the company. At the same time, he feared that if employees were stretched too thin in adapting a host of e-business initiatives to make the “e” part of the organizational culture, Ford-Argentina could lose sight of its fundamental mission: building quality vehicles as efficiently as possible. He reflected,

When you are working on all these initiatives, who’s working on the product? Therefore now is more about priorities on what initiatives to embark in. Maintaining focus is critical. Extracting maximum business value in accordance to the specific business environment is the central challenge of this ongoing deployment of web technologies.

As Canny entered the last segment of the highway to his office, he was stopped by a group of activists who were striking to demand new economic policies on the part of the Argentine government. As his car was stopped, his surroundings reminded him of a fact to be kept in mind as Ford Argentina implemented this and other technologies: Ford-Argentina was part of Ford Motor Company and was in the business of building, selling, and servicing automobiles, but in Argentina.

Background

The Motor Vehicle Industry

Since the 1970s, the big three motor vehicle manufacturers in the United States—General Motors, Ford, and Chrysler—had seen their marker encroached upon by the expansion of foreign-based auto manufacturers, such as Toyota and Honda. By 2001 the motor vehicle industry worldwide was highly competitive. Its main trends included

• Highly globalized production. Although manufacturers varied in their degree of market presence in different geographical regions, the battle for advantage in the industry was fast becoming global in character. On average 41 percent of the motor vehicles sold in the world were going outside the country where they were produced. (U.S. 37 percent, Europe 39 percent, Asia 53 percent). In addition, the motor vehicle part suppliers were also becoming more international by joint venture and agreement among companies. This had resulted in the sprouting of mega suppliers (such as Valeo y Magnetii Marelli) and in merges among regional suppliers. The number of direct suppliers had dropped as many suppliers with limited national capital disappeared or were relegated to be part of a second or third supply chain strata.

• Highly concentrated production. There had been merges between General Motors, Isuzu Motors, Fuji Heavy Industries (Subaru), Suzuki Motors, and Fiat Auto; Ford, Jaguar, Land-Rover, Lincoln, Mazda, Mercury, and Volvo; Daimler-Benz AG and Chrysler; and Volkswagen AG and Audi AG.

• High price-competition. The accumulated investments and improvements in productivity had increased until world motor vehicle production capacity exceeded demand by over 30 percent. The result was strong competition, reflected mainly in lower prices.

• Exploitation of economies of scale. Most motor vehicle manufacturers were using the same platform[2] to create different models. In 1997 there were 100 platforms; it was expected that by 2002 there would be only 60. There was a corresponding decrease in differentiation among vehicles. In addition, manufacturers were sharing components among plants located in different regions of the world. In this rationalization process the most modern versions of the basic vehicles developed in developed countries were being introduced in emerging markets.

• Saturation of traditional markets, such as the United States and Japan. Emerging markets displayed a more dynamic performance and better possibility for growth in the near future, but developing nations, eager to create wealth and job-producing sectors, were encouraging development of their own export-oriented auto industries.

• High speed to market on new product development. The life cycle of a model had been reduced from seven years to four.

• Reduction of distribution cost. Because dealers’ cost structure was typically heavily loaded by personnel cost, the low margins and high distribution costs had encouraged concentration and consolidation of dealers, squeezing the “mom and pops” and shifting to a wholesale/retail format focused on customer convenience.

• Technology adoption. Technology was being adopted specially to manage branding (to inform, educate, and entertain), customers (providing fast, convenient, and tailorable access to a vast source of information, and the analysis of point of sale data for improved customer understanding), and logistics and distribution cost (providing information about vehicles, rather than the vehicles themselves, thus permitting lower inventories).

In this context, motor vehicle manufacturers were adopting strategies that combined (a) reorganizing their value chain to make it more suitable to the new conditions of competitiveness and profitability; (b) internationalizing production so as to strengthen market share in greater potential markets; (c) adjusting production structures to better serve the various great commercial blocks or regions in the worldwide economy; and (d) developing an international network of integrated production that would link regional providers of vehicle parts. Many of the motor vehicle manufacturers felt that it was crucial to establish a base of production in each region of the world in order to ensure a tight bond with the market and better satisfy local demand.

The Motor Vehicle Industry in the Mercosur Region

In the early 1990s, the Mercosur free trade agreement among Argentina, Brazil, Paraguay, and Uruguay strengthened the development of the regional motor vehicle industry and helped it attract new investors. The benefits granted by the governments of the region to the manufacturers, by means of norms and political promotions, lowered prices and reduced the risks of the investments. In addition, the concept of Mercosur was in alignment with the new pattern of globalization, in which a regional presence was being perceived as fundamental. Thus, the region was able to capture a great inflow of capital investment from American and European companies already established there and from newcomers, as well as from companies that had stopped doing business in South America in the late 1980s.

The potential size of the Mercosur market—more than 200 million inhabitants and a combined gross domestic product (GDP) of around one trillion dollars in 2001—and the potential for expansion to other Latin American markets influenced a strategic change in the perspective of the region’s motor vehicle companies. In the early 1990s, motor vehicle manufacturers simply adapted to the growth of demand by taking advantage of established capacity and making partial improvements to solve critical supply problems. However, by 1994, they began to build “state of the art” plants for the production of new models. These investments were carried out within a frame of specialization and supplemented profitability of the region by the implementation of the program of Mercosur’s economic integration policies and protections. Productivity made a spectacular jump (157 percent and 127 percent in Argentina and Brazil respectively), with an average of 15 cars per plant (see Exhibit) per worker—still low compared to the average of the Japanese plants (50 vehicles per worker). Mercosur exports tripled in the 1990s compared to the average for the 1980s. The Mercosur market was the main destiny for two-thirds of the vehicles produced in the region. Imports doubled compared to the previous decade. The regional commerce of the automotive sector in the Mercosur was of less than 9 percent in 1986 to near 58 percent in 1996.

The Motor Vehicle Industry in Argentina

Early in the 1990s, the motor vehicle industry in Argentina began to experience an important transformation. A group of international motor vehicle manufacturers located projects in Argentina, aiming to expand their regional market operations, especially in Brazil. Two phases can be distinguished in this process: from 1991 to 1994 and from 1995 to 2001.

First Phase: 1991 to 1994. This phase was characterized by expanding production in a context of strong economic growth. At the beginning of the 1990s there were only six motor vehicle companies in Argentina: Autolatina (manufacturing Ford and Volkswagen vehicles), CIADEA (manufacturing Renault vehicles), Sevel (manufacturing Fiat and Peugeot vehicles), Iveco, Mercedes Benz, and Scania. Of these companies only the first three manufactured vehicles within the country. During this period the production of motor vehicles increased more than 190 percent (See Exhibit). Vehicle importation also grew, reaching almost $850 million by 1994. Sales grew from 96,000 units in 1990 to 508,000 units in 1994. To satisfy the manufacturers’ needs, the motor vehicle parts industry also drastically increased production. Most manufacturers began to focus on small and medium vehicles while discontinuing the production of their largest models; by 1994, small and medium vehicles represented 73 percent of the total national production, up from 69 percent in 1992.

The end of this period saw many of the motor vehicle companies that had left the country during the 1980s returning. Volkswagen and Ford, for example, which had once had independent presences in Argentina, had joined efforts in 1985 to create Autolatina. In 1995 Autolatina was dissolved, and Volkswagen and Ford once again adopted independent plans. Meanwhile General Motors, Toyota, and Chrysler, which had never done business in Argentina, initiated exploratory actions there. Between 1992 and 1994, estimated total invesements in the industry reached $700 million.

Second Phase: 1995 to 2001. This second phase began with a fall in the local demand for motor vehicles in 1995, owing to a recession caused by the Mexican devaluation of December 1994. Between 1994 and 2001, national sales and production decreased 35.5 percent and 30.2 percent, respectively. In addition, given that the focus was on new and small and medium size models, the demand for old models fell, triggering a consolidation of suppliers of parts and components to no more than 130 companies.

By 2001, motor vehicle production and commerce in Argentina had the following characteristics:

• By 2001, 32 percent of households had a motor vehicle; only 5 percent had more than one. Since 1998 the ratio of inhabitants per motor vehicle had held constant at 5.5, the lowest in all Latin America, but substantially higher than ratios in the United States (1.3) and Japan (1.9).

• Motor vehicles paid 47.31 percent of their value in taxes.

• Each manufacturer produced only one or two models, but from each model’s platform of production derived numerous versions directed toward different market segments, allowing economies of scale.

• In 1990, models offered in Argentina had been launched in the country of origin 15 years earlier. By 2001, this lag time had decreased to 3 years or less.

• Since 1990, the prices of motor vehicles had decreased 30 percent.

• On average, a vehicle was delivered within 10 days of purchase—a time shorter than in most European countries.

• Production was supplementing Brazilian branches’ supply to capture economies of scale by increasing exportations to that country.

• Export agreements were in place with other Latin American countries. For example, in 2001, the governments of Mexico and Argentina signed an agreement allowing companies that had manufacturing plants in both countries to import or export 18,000 units, paying 8 percent of the vehicle’s value in taxes, whereas companies that carried out business in only one of the countries were given a quota of only 1000 units.

• In 2000 there were over 700 vehicle dealers, down form 1,200 in the early 1990s.

Ford Motor Company and Its Internet Strategy

Since Henry Ford had incorporated in 1903, Ford Motor Company had been headquartered in Dearborn, Michigan. In January 1999, when Jacques Nasser was appointed chairman and CEO of Ford, the company had produced more than 250 million vehicles. Its brands included Aston Martin, Ford, Jaguar, Lincoln, Mazda, and Mercury, and its vehicle-related services included Ford Credit and Quality Care. Although Ford obtained significant revenues and profits from its financial services subsidiaries, the company’s core business had remained the design and manufacture of vehicles for sale on the consumer market.

Nasser understood that markets were increasingly valuing a global approach to business—an approach in which a company’s units, divisions, teams, functions, and regions are all tightly integrated and synchronized across borders. He also understood that to compete in a global world, Ford needed to better satisfy increasingly demanding customers and pay attention to capital markets (shareholder value). Thus, almost as soon as he ascended to the main office, Nasser began overhauling Ford, unveiling one initiative after another. He signed agreements to partner with Microsoft Corporation and Yahoo! Inc. He pushed out Ford’s old guard and brought in talented young stars from the motor vehicle industry and beyond. He flattened Ford’s bureaucracy, giving more autonomy to regional executives, and shook up senior managers by tying their bonuses to gains in customer service. He bought Volvo and Land-Rover, and then shops, a driving school, the Hertz car-rental agency, and even a junkyard.

The process of reinventing Ford as a global organization was ambitious. It required integrating 345,000 employees separated by fiercely independent fiefdoms spread across 200 countries. Nasser wanted to synchronize all teams, divisions, and regions into a global entity with a single strategic focus on consumers and shareholder value:

That’s not to say you wipe out national cultures or eliminate the idea that it makes sense to have people with expertise in one function or another, but it does mean you strive for some sort of Ford-wide corporate DNA that drives how we do things everywhere. That DNA has a couple of key components: a global mind-set, an intuitive knowledge of Ford’s customers, a relentless focus on growth, and the strong belief that leaders are teachers. [hbs interview].

Key to Nasser’s vision was the transformation of the business using web technologies. In September 1999, Ford announced strategy that Nasser often referred as “Internet inside,” meaning a fully web-enabled company using virtually no paper.

ConsumerConnect was created to leverage the Internet and e-commerce tools, and to help Ford “to look at our core business process to make them more efficient, faster, less legacy-based, and less complicated.” The e-strategy, which was to help Ford build and deliver products to customer specifications, would affect all activities parts procurement to vehicle design and manufacture through sales and distribution.

Customer Assistance Centers and In-Vehicle Communication

The first component of the e-strategy included a futuristic build-to-order system. Nasser talked about a day when a buyer would hit a button to order a custom-configured Ford on-line, transmitting information to the dealer who would deliver it, the finance and insurance units that would underwrite it, the factory that would build it, the suppliers that would provide its components, and the Ford designers who would be planning future models.[3] Three new consumer web sites were developed: FordDirect, a retail site where buyers could find Ford vehicles at fixed prices among $4,200 dealers nationwide (custom order a vehicle, receive a quote from a local dealer) and apply for financing and insurance (the first national on-line “request a quote” system); DealerConnection, where buyers could find a dealer, review dealer inventories of new and used vehicles, see dealer service specials, and make appointments for service; and OwnerConnection, which was a virtual community of vehicle-owners providing forums, maintenance schedules, and special offers from Hertz. Ford was the first automotive manufacturer to include its family of brands on a single home page, allowing consumers single-click access to the Aston Martin, Jaguar, Volvo, Range-Rover, Lincoln, Mercury, Ford, and Mazda brands. By 2000, was a leading automotive destination, with more monthly “hits” than any other manufacturer according to the media metrics. DealerConnection was giving 35,000 quotes a month to dealers.

The second major component of Ford’s e-strategy was its line of in-vehicle communication products. Ford’s in-dash computer project, ICES (information, communications, entertainment, and safety) was a cornucopia of high-tech devices and services: voice-activated access to concierge services (directions or a hotel reservation); turn-by-turn navigation systems; satellite radio; Internet access for news, stock quotes, and weather; collision notification; traffic information, hands-free phones; remote vehicle monitoring; and wireless synchronization with blue-tooth technologies. ICES was targeting large groups of customers regardless of vehicle choice, not just buyers of luxury models. Monthly fees for the ICES telemetrics were expected to range from $9 to $30.

Supply-Chain Integration: The Trading Hubs

The transformation of Ford, executives announced, would start with business-to-business supply-chain initiatives at the “back end” of the chain, connecting the manufacturer with its thousands of suppliers. Moving suppliers away from their EDI systems onto the web would dramatically reduce back-end supply-chain costs. Web-enabled forecasting, planning, and scheduling could drive out work-in-process inventory at both suppliers and manufacturer; manufacturing productivity would also rise through improved asset utilization and reduced overtime. On-line procurement could eliminate much of the low-value-added administrative work now associated with purchasing. A rich data base of on-line material requirements and transactions could reduce materials costs by aligning material specifications and consolidating purchases from the cheapest suppliers.

In November 1999, Ford announced the formation of AutoXchange, an automotive e-business integrated supply chain to be created and run by a newly formed joint venture with Oracle corporation. The venture would initially organize Ford’s $80 billion in annual purchasing transactions with its more than 30,000 suppliers and $300-billion extended supply chain. The two companies were to create the world’s first automotive on-line network, and the world’s largest business-to-business electronic network. It would also be the e-business backbone for warranty transactions and design collaboration. AutoXchange was to use catalogs as well as on-line auctions for components and materials. Early applications were to be the purchasing of production parts and nonproduction goods and services; next would be order tracking, financial services, and access to CAD (Computer Aided Design) drawings; later was to come status of payments, a top priority for suppliers. AutoXchange was to take a “small fee” from every transaction; first-year-revenue forecasts were $200 million, and revenues were expected to reach $5 billion by 2005.

In February 2000, just as the dust was the settling on Ford’s AutoXchange plans and General Motors was cranking up its plans for TradeXchange, the two companies, together with DaimlerChrysler, announced that they were combining their efforts to form an even bigger business-to-business supplier exchange, Covisint. The new enterprise was to operate as an e-commerce company providing web-based supply-chain management and procurement services to the entire motor vehicle industry as well as to each company’s suppliers, partners, and dealers. Covisint was to be the world’s largest virtual marketplace. The three companies would have equal ownership in the new venture.

To improve the “front end” of the chain, Ford announced its Dealer Web Hub, a centralized communications center for dealers that would let them log on to a single site and instantly obtain whatever they needed, from recall notices to sales programs to training. Dealers could also communicate with each other and provide feedback to dealer council reps.

Business-to-Employees

In February 2000, Ford announced it was purchasing personal computers with Internet access for all employees, “to reach its vision of being on the leading edge of technology and connect more closely with its customers.” The Washington Post quoted Nasser as saying, “We’re committed to serving consumers better by understaning how they think and act. Having a computer and Internet access in the home will accelerate the development of these skills, provide information across business and offer opportunities to streamline our processes.” Nasser added,

we want to be able to improve communications—two way communications—and make sure that our employees—every one of us—is connected to what’s going on in the marketplace, so that we know where consumers are heading, what’s happening to market trends, what’s happening to product trends, and make it easier for our employees to have a better understanding of the shift that’s happening out there. [Gonzo, 10]

The real deal here is that Ford was unleashing 345,000 independent—and genuinely intelligent—agents to fan out online and listen carefully.

Ford-Argentina and Its Internet Strategy

Ford-Argentina, founded in 1913, was Ford Motor Company’s second branch outside the U.S. By 1926, its Buenos Aires factory employed 1,500 workers to build the model T, which sold for only $290. In 1959, Henry Ford II visited Argentina to announce Ford’s largest capital investment outside the U.S.: $70 million to build a new factory, which opened in 1961. Between 1977 and 1984 Ford led the Argentine, with a market share of 38 percent in 1982. At the end of 1986, the merger of Volkswagen and Ford created a new company, Autolatina, but this joint venture was dissolved in 1995. From January to June of 1997, Ford once again led the automotive market, with 36,735 units and 19 percent of market share. It also led in exports, with a total of 29,771 units, or 38 percent of the total units exported by the whole industry during the first half of 1997. By 1999 Ford still led in vehicle exports.

The Early Years of the Internet at Ford-Argentina

Although Ford Motor Company had a clear mandate from its chairman and CEO to become the e-business leader in the motor vehicle industry worldwide, in mid-1998 its managers at headquarters were still busy trying to figure out how to embark on this initiative in the United States. Ford-Argentina’s top managers were feeling the pressure from headquarters as well as from the industry to begin adopting web technologies. They were aware of some of the ways Ford was planning on using these technologies, and understood the potential business benefits that these technologies could provide to Ford-Argentina, both in marketing products and improving internal processes. They knew that they could not wait for a corporate priority to engage in e-business initiatives.

Ford-Argentina did not have a specific budget or a business unit in charge of e-business initiatives. The marketing division was given the task of developing the first public website for the subsidiary. In June 1998 Gabriel Gimenez, who was responsible for dealer relationship management and training within the Marketing Division, was given two assignments: to lead this initiative and to investigate other uses of web technologies. Gimenez had no prior experience with the Internet, but he had a clear understanding of Ford-Argentina. He had joined the company in 1980 and had held numerous positions within customer services, sales operation, and marketing. He immediately sought support from the company’s advertising agency, J. Walter Thompson. Although at that time J. Walter Thompson did not have an internal division to support website developments, it understood that it must satisfy the needs of one of its major clients. It subcontracted a group of four free lancers who were experts in developing websites and were creating a company named Collective Mind.

Much of the effort during this early phase can be characterized as experimenting and learning. The observability of Internet technology allowed Ford-Argentina to inspect not only the websites provided by Ford Corporation but also other vehicle websites that were being developed in Argentina and the rest of Latin America, and to model its own site accordingly.

In October 1998 the first website of Ford-Argentina was launched: .ar. It was developed by the marketing division and J. Walter Thompson; other divisions of the company, including the information systems group, did not participate. The site provided institutional information about the company, various vehicles, and services. The only interaction that it allowed was the exchange of emails, which were answered by J. Walter Thompson, not by Ford-Argentina. It was hosted in servers located in the United States. Therefore, every time a change was made to the site (in format or content), a request for change had to be submitted to the office in the United States, and there was usually a wait until the change was made. Early in 1999, a web-based system in Ford-Europe suffered the attack of computer hackers. Ford began to pressure its subsidiaries worldwide to provide standardized proceedings, secure systems, and disaster recovery plans in developing their own websites. When Gimenez received all these new requirements, he approached to the information systems group for the first time for help.

Something that Gimenez learned quickly was that interaction among the various business units that needed to keep the company website updated was not easy, because of the formal structure of the company. Ford-Argentina was structured relatively autonomous business units, each with its own manager and its own communication style. Getting all the information inputs for the site in standard form was not a simple task. On July 29, 1999, Rogelio Goldfarb, then marketing director, announced in an internal memorandum that Gimenez was the coordinator for e-commerce in marketing, but explained that this initiative required support and input from many sectors in the company. He asked all other managers/directors to appoint an e-commerce/Internet coordinator for each area to liaise with Gimenez. Meetings were set with each group and its director to develop a work plan and talk about the possibilities of the Internet and e-commerce for Ford-Argentina (Exhibit X presents the first e-commerce organization chart). In addition, Gimenez assigned a website coordinator from Collective Mind to each business unit. This helped not only to coordinate the information content of the site, but more importantly, to make sure that every unit was involved in the development of this e-initiative. Having Collective Mind track each business unit enabled Gimenez to keep the project advancing according to the scheduled times and goals, while avoiding internal conflicts at Ford. By October 1999, Ford-Argentina had developed a procedures manual describing how to publish on the website.

To emphasize its industry leadership in e-business, Ford-Argentina launched the “Ford Focus” automobile via the Internet in October 1999. Fifteen days before its launching, all the “Ford Focus” vehicles in stock at every dealer were covered. The vehicle covers stated “Look for the Ford Focus at .ar.” At the site, the user was able to move around the car in 360 degrees, choosing on the angle and zooming to see the inside and outside details. This was the very first time in Argentina that an automotive company launched a new product in the market via the Internet. In addition to a massive media campaign, Ford-Argentina programmed several events on it website during the week of the launch: 45minute online-chat sessions with Ford executives, story-telling about the history of the Focus development, daily raffles among site visitors, online broadcasting of the press conference introducing the vehicle at the Buenos Aires speed-racing track, and online broadcasting of the introduction celebration at the prestigious Buenos Aires discotheque El Divino.

Growing the E-Business Initiative

In July 1999, as Ford-Argentina was working on improving its website, Ford-Brazil launched on its own website a pre-sales online application. This application allowed visitors to browse the site in search of specific information about Ford vehicles, to select basic characteristics, features, and options of the vehicle, to understand how each feature or option affected the final price, and to view the vehicle in the selected color. Then the visitor could select a financial plan, with an option to apply online for credit pre-approval. Once this process was completed, the visitor could set an appointment with a specific dealership. The system would send an automatic message to the dealership, which was then responsible for sending an email to the potential customer stating the date and hour of a scheduled meeting at the dealership. In addition, the visitor could at any time save his/her selections for future review.

Gimenez and his working group were not only invited to the launch of the Brazilian website, but also invited to evaluate the possibility of using this application for Argentina. There seemed to be several benefits to building upon the digitalized catalogs and procedures developed by Ford-Brazil. The Argentine team proceeded to evaluate not only the application’s interface, but also the infrastructure, the data base and system structure, and the organization needed to keep the site fresh and updated. However, Hidalgo, from Ford-Argentina’s information systems group, recalled:

We didn’t like three aspects of the Brazilian system: (1) the slow response time, (2) the system interfaces, and (3) the number of people involved in running this system. In Brazil and Venezuela users like very dynamic online interfaces and with a lot of colors, specially using the colors of their national flags. Argentine users prefer less dynamic website interfaces… We felt that the Brazilian system required too many people throughout the process. Some 22 individuals were involved… Some were re-entering data from one system to another system, others were changing codes and labels, other were continually controlling emails, filling information into the website, sending information to dealerships, managing the data base, proving system support, or developing programs.

After we came back from Brazil, however, we kept thinking about how we could develop a system like the one we saw in Brazil, but we wanted it to be more automated. By September we took the decision not to acquire the Brazilian system, but to develop our own system. Our goal was to have the system up and running by November 1999. We also began to understand that an initial step was to host our own website. Thus, we proceeded to relocate it from the U.S. servers to our own servers.

To develop Ford-Argentina’s pre-sales online web-based application a team was formed with members from the marketing division and the information systems group as well as representatives of J. Walter Thompson and Collective Mind.[4] The representatives of Collective Mind working with J. Walter Thompson focused specially on the online interface development. The Ford information systems group, on the other hand, focused on the creation of a computerized system, called the window sticker system, which was be used to collect information about every vehicle from the moment it was produced until it was sold, including information about the final purchaser.

Another critical component of the pre-sales online application was the integration with dealers. In the mid 1990s—in a move that would prove prescient—Ford-Argentina had invested in planning and other groundwork necessary to implement the TCP/IP standard to connect with dealers and suppliers. Although at that time this infrastructure was mainly used only for transferring files, mostly orders and electronic mails, between dealers, sales and marketing, and manufacturing groups, it became the backbone for the new web-based application, which was named “Arma tu Ford” (Build your own Ford).

In order to have a better understanding of the information needs of “Arma tu Ford” at a dealership, the development team worked with various dealerships in six Argentine cities: Buenos Aires, Cordoba, Mar del Plata, Mendoza, Santa Fe, and Tucuman. The application was designed to make use at the dealership very simple, so as to avoid requiring specialized technical staff on site. The system was capable of automatically updating itself from any new application that was required. In fact, the complete system required only eight people to operate it.

Although the launching of “Arma tu Ford” was initially planned for November 1999, the first pilot version of the application was not ready until December. At that time, the pilot was presented in a two-hour meeting to the all the top and middle managers of Ford-Argentina, plus five dealership owners. At that meeting some suggestions for improvement were made.

Until then knowledge about the “Arma tu Ford” application had been held within the development group. Yet as Gimenez acknowledged, “we [the development team] knew that for this application to be successful, it required a buy-in and an adequate support from the company. It required a full support group to keep the data updated and follow up on any changes in our products or services. But more importantly, it required to be integrated with the rest of the organizational processes.” Thus, knowledge about the application had to be spread quickly and efficiently throughout the organization. Starting in February 2000, Gimenez gave Ford-Argentina employees access to the pilot application and requested suggestions. Information about the website was given in flyers at the company dining rooms. Gimenez reflected, “This initiative not only helped us in detecting errors, but also provided us with good ideas for the next version of the application.”

The first half of March was devoted to presenting the new application to all the dealers in the country. The fast-paced sessions included live online tours and demos showing how Ford websites were operating in other Latin American countries, and explaining the new requirements for the application to be used in Argentina. The presentations highlighted the benefits of helping customers to locate the vehicle of their choice, the potential additional sales to the dealership, the improvement to their customer management process, and the cost savings involved in a more efficient communication with the factory. One of the members of the development team recalled,

Most owners of the dealerships were impressed that Ford was providing this application at no cost to them. They were also happy to learn that no specialized staff was required for its operation. These were individuals that were well aware, from the general media, of the effects that the Internet was having on the buying behavior of customers in other parts of the world. Many of them were already paying independent designers to develop their own dealership website.

At the end of each session, the development team challenged the dealerships to develop their own webpages by the end of the year. Ford was willing to host them at zero cost to the dealership, as long as the dealers: (1) followed professional standards in responding to the leads generated by the web-based applications in order to create trust in the system, and (2) provided Ford with complete and timely information about vehicle sales in order to keep the inventory information updated.

On March 20, 2000, after all these efforts, the “Arma tu Ford” application was launched at the Buenos Aires sports bar “Locos por el Futbol” (Crazy for Soccer), in the trendy Recolecta district, with a famous television actor as master of ceremony. In addition, to attract more visitors to the website, Ford-Argentina partnered with America Online and Yahoo en Español, and the event was announced not only in the two major Argentine newspapers, Clarin and Nacion, but also in four specialized publications: Rollingstones, TV guide, Wipe, and Subway Schedule. Ford-Argentina spent $56,000 in marketing the launch. Francisco Codina, then president of Ford-Argentina, explained,

The development of this website is an improvement over what already existed in the United States and Brazil. In developing the website and the technological support to integrate the network, we invested over $300,000…. This initiative will allow us to open a new sales channel, and be part of today’s changes in the way that we communicate and that for sure is transforming our industry. In the U.S., for example, it is estimated that 40 percent of the vehicle buyers are using the Internet in some manner during the buying process, and that percentage is fast increasing…. In Argentina, in spite of the economic crisis that we are experiencing, if we want to survive in this industry, we cannot fold our arms, that’s why we keep investing in improving our production and in incorporating new working methods. (La Prensa, Pagina 1, March 27, 2000.)

At the end of March, a Ford dealership made the first sale based on a lead provided by “Arma tu Ford.” By the end of 2000, the company had sold 76 vehicles using this application. Exhibit X lists some of the results and statistics on the usage of the application. Ford-Argentina kept improving its website, and by August 2001, the company decided to offer for the first time a promotion to sell its “KA Black” model online at a discounted price. Exhibit X summarizes the results of this initiative.

Integrating E-Business Initiatives in Argentina and the Rest of South America

Ford Motor Company wanted to become the e-business leader in the motor vehicle industry worldwide, but during the initial exploratory phase it didn’t have the resources to help every subsidiary in the world. It didn’t even try to standardize initiatives. In Argentina, for example, all the e-business initiatives described above were funded by Ford-Argentina, particularly from the annual budgets of the marketing division and the information systems group. At this subsidiary not a single person was fully dedicated to Internet initiatives. The monthly payments to Collective Mind lessened the need to assign Ford employees to work on developing, upgrading, and maintaining the website. By the end of 1999, however, Ford Motors began to examine its worldwide resources/organizations available for the Internet. As Exhibit x shows, there seemed to be clear opportunities for synergy between the global e-consumer team and the various local e-business teams. In South America, Jeniffer Beindorf, from the Brazilian office, was assigned to coordinate the e-initiatives in the region.

Beindorf soon began to find out that Ford’s vision of transforming the company and accelerating profitable growth through e-business had stopped short in the South American subsidiaries. At the subsidiary level the use of the Internet had focused exclusively on enhancing the current distribution channels by strengthening the pre-sales and financing experience. Her initial efforts, she reported, were directed toward “maximizing commonalities without sacrificing unique country online presence.”

In August 2000, Beindorf organized the first Ford E-business Congress for Latin America, which was held in Sao Paulo, Brazil. This event was an opportunity for all who were involved in e-business initiatives to share their experiences and projects. In addition to the teams from each country, this meeting involved people from the Ford Global ConsumerConnect team, and from the business-to-business AutoXchange team, as well as speakers from outside Ford, such as Yahoo Latin America, Submarino, and . Issues discussed included Internet and e-commerce trends in Latin America, online advertising strategies, country best practices, CRM online strategies, FordDirect strategy, Ford Global ConsumerConnect, and Ford Credit Global strategy. At this meeting, the decision was made to create an e-business committee for the Latin American region, to establish monthly teleconferences among individuals involved in e-initiatives, and to pursue a regional strategy with Yahoo. The results of this event were sent to the headquarters of Ford Motor Company.

At the end of 2000, Jeniffer Beindorf was transferred to ConsumerConnect in the United States. Jorge Stelmach became the e-business coordinator for South America. At this time, Ford Global ConsumerConnect began to pressure each subsidiary, as a memo from Scott Graham, coordinator of Ford South America, stated “to calculate wherever possible, the profit impact of every e-project so we can support a business case.”

In January 2001, a second Ford E-Business Congress for Latin America took place in Mexico City. This time, the congress was organized by the U.S. headquarter office, and was much smaller. From Ford-Argentina, for example, only Gimenez, the marketing division director, one representative from J. Walter Thompson, and one from Collective Mind were invited—no one from the information system group. As part of this event, a web design consultant provided useful feedback on the strengths and weaknesses of every Ford South American subsidiary’s website. It became clear at this meeting that the focus of the regional coordination was going to be not only on developing standard procedures for website development and metrics, but also on defining adequate level of resources including budget, people, and coordination of information and experiences. The idea was to support a regional e-initiative to include business-to-consumer systems (building a common identity based on technology with unique site look and feel, as well as customer relationships online), intranet systems (building a common view of the business among employees), and business-to-business systems (integrating businesses with suppliers as well as dealers). At the end of this meeting, a regional e-business steering committee was formed with representatives from each country. Gimenez, as the representative for Ford-Argentina, was assigned to coordinate all Ford-Argentina’s e-business initiatives and capabilities. Exhibit X presents the composition of the steering committee. Notice that the Ford presidents in each country of the region became the individuals ultimately responsible for the implementation of the e-business initiative of each subsidiary.

According to Stelmach, one of the steering committee’s first tasks was to develop a strategic plan. Right after the second congress, he wrote in a memorandum to the members of this committee, “based on this plan we will develop further discussions, on whether we tackle some initiatives or find some creative ways to fund Ford’s e-business transformation in South America. I know that e-business is only a highlight in each country budget, so please indicate what we had approved already for the Internet coming from marketing, information systems, process leadership, purchase, etc.” The plan was completed in March 2001, and presented to the regional e-business director for approval and assignment of resources. The plan included initiatives for business to supplier, business to employee, and business to dealer communication (Exhibit X shows the goals for the end of 2001.)

On the basis of this strategic plan, Ford Global ConsumerConnect assigned $4.5 million to support ConsumerConnect South America. Argentina was to receive $1.16 million, but that subsidiary would still have to decide jointly with Stelmach how exactly to spend this money.

The first South America e-Board conference call took place on May 2, 2001, with a threefold purpose: (1) review and commit to the project contained within the e-plan, (2) review and agree on the governance process, and (3) commit to the budget, expected business impact, and team leadership. Officially this meeting started the e-business governance process in this region. At this meeting the e-Board and country review were collapsed into a single meeting to be held monthly. The presidents agreed to have three stakeholder reviews (consumer/dealer on a country basis, and business-to-suppliers and business-to-employees on a regional level). In addition, project team meetings to manage each initiative were to be held regularly.

Given that Ford Motors had hired Cisco as its international consultant for e-business, a Cisco representative and the IT director were to be invited to attend the e-Board reviews. Dealer participation in the e-governance process was to be defined country by country, although it was suggested that the business-to-consumer/business-to-dealer stakeholder group include one dealer council representative or that there be an additional meeting between a Ford group and the Dealer Council Team, according to the project needs. A specific website (or e-room) was also made available as a repository of e-plan roles, responsibilities, metrics, deliverables, milestones, and status in order to provide up-to-date information to the e-board and operational teams.

Current Issues

Ford Motor Company Facing Major Problems

The expansion of Ford-Argentina’s e-plan came as the parent company was struggling with a host of troubles. Suddenly, in 2001 Ford’s outlook was much cloudier.

An ongoing tire-safety crisis involving Bridgestone/Firestone Inc. had taken a steep toll on the company. A first recall of Firestone tires cost Ford about $500 million in 2000. In May 2001, Nasser announced that Ford was to replace an additional 13 million Firestone tires on its pickups and sport-utility vehicles—the biggest product recall in automotive history. The cost: a staggering $3 billion. This crisis also affected vehicle sales, particularly of Ford’s Explorer sport utility vehicle (SUV), and its rivals ratcheted up the competition. Ford’s market share slid 1.7 points, to 23.1 percent of U.S. light-vehicle sales in the first half of 2001.

Ford also suffered from a series of self-inflicted wounds, from embarrassing quality glitches and costly product delays to declining productivity. Harbour & Associates’ annual ratings of auto-factory efficiency, released on June 14, 2001 showed labor productivity at Ford falling 7 percent in 2000, while that of its rivals rose. A 2001 survey by J.D. Power & Associate Inc., ranked Ford worst of the top seven global vehicle companies in quality, with 162 problems per 100 vehicles, compared with just 115 for Toyota. Quality glitches led to a string of recalls—the Focus compact car had six recalls, the Escape, a small SUV, had five, and Explorer was recalled twice. The economy in general was slowing, and Ford’s share of the U.S. truck market—its main source of profits—was dwindling.

Certainly, many of Ford’s problems were the result of industry trends. But underlying some of Ford’s troubles were the wrenching cultural changes mapped out by Nasser as part of his bold attempt to transform an Old Economy auto manufacturer into a nimble, Net-savvy, consumer powerhouse. Critics were saying that Nasser had stretched himself too thin with dozens of new initiatives and acquisitions between 1999 and 2001. While Nasser had roared ahead, observers inside and outside Ford reported the rest of the company was not following. Insiders also commented that employee morale had been eroded by strict management evaluation practices that Nasser initiated—and had recently rescinded.

And the pressure was only going to increase. With a revamped truck lineup that included the Chevrolet Tahoe and Silverado pickup and an aggressive pricing strategy, General Motors had already displaced Ford as the market leader in large pickups and SUVs. Japanese manufacturers, too, were going full throttle for the SUV market with new entrants such as Toyota’s Highlander and Sequoia.

The combined effect of these problems had slashed first-half profits by 91 percent to $307 million in July 2001, from $3.4 billion a year earlier. Most analysts had downgraded the company stock. In addition to the 5,000 layoffs announced in the United States in July 2001, the company was studying plant closures and other restructuring measures in North America. Nasser explained,

From a macro perspective, there is too much excess capacity. If one is not efficient and is not in shape, and has a high excess of assets that are not well utilized, it is not fair to the customers, employees, and shareholders. I am sure that we will find a fair balance.

Argentina’s Depression

During the 1990s Argentina virtually eliminated the problems arising from the chronic inflation of the past, particularly currency instability, by implementing a currency board exchange-rate regime. As a result, Argentina traded price instability problems for output volatility problems, as was evidenced by the two deep recessions that it imported between 1995 and 1998. The rigidity of its exchange-rate mechanism placed it at a severe cost disadvantage vis-a-vis neighboring Brazil, a situation that led to a wave of relocations by automakers.

In 2000, the Argentine economy suffered further from weakening commodity prices for wheat and soy, a strengthening U.S. dollar, a weakening euro, high oil prices, and rising international interest rates. The growth rate of public debt also increased considerably, with debt levels of less than one-third of GDP in 1994 growing to nearly half of GDP in 2000. The economy’s lackluster performance pushed financing costs higher, leading to a liquidity problem and fears of default. The economy contracted 0.5 percent, and industrial production continued to decline, while domestic demand remained weak.

In 2001, the government’s proposal for a new series of austerity measures resulted in strong political opposition, including strikes by disgruntled unions and the resignation of the cabinet members. President Fernando de la Rua appointed Domingo Cavallo (founding father of convertibility) to be the new economy minister, following Lopez Murphy’s resignation after just sixteen days in office. The interbank peso interest rate jumped to 30 percent and the country risk rating soared to 900 points. Constrained by an economy that had endured more than thirty months of recession and by financial obligations of nearly $27 billion in 2001, Congress approved Cavallo’s measures to implement a 0.6 percent tax on financial transactions, eliminate import tariffs on capital goods, and raise import duties on consumer goods. In addition, Cavallo was granted the power to bypass Congress to reform Argentina’s tax structure and streamline state-owned agencies.

Given Argentina’s economic situation in July 2001, there were two potential scenarios. The government could hold fast to the dollar-parity rule, in which case the economy would continue to erode slowly, with many companies moving to Brazil or other locations for cost reasons. Or the government could remove the dollar peg, and the economy would undergo a short contraction—primarily as foreign investors stampeded out of the stock markets.

Given this bleak outlook for the near future, Argentine consumers were reticent about spending. It was expected that total motor vehicle sales would contract an additional 19 percent in 2001 to close at just under 250,000 units. To adjust for this contraction, motor vehicle production at the end of July 2001 was reduced 37.4 percent from the previous year. DaimlerChrysler closed its production plant in January. Renault halved workdays for all employees at its plant to avoid firing more than 400 workers. It was expected that Argentina would not return to its 1998 sales levels until 2005.

Nasser, re-evaluating operations throughout South America, noted, “the economic situation is worse than anyone could have imagined in Argentina and Brazil.” In the first six months of 20001 Ford lost $123 million in South America—which was less than the $145 million lost in the same period in 2000.

Growth of Vehicle Sales on the Internet

On line competition in the $350-billion new-vehicle market was fierce. Companies like AutoWeb, CarPoint (Microsoft), , , and Autobytel had built substantial dealer networks that attracted millions of visitors. , for example, claimed to be the first site “where consumers can research, price, design, order, and arrange for delivery for a new vehicle at their home or the office.” In January 2000, joined the fray by purchasing a stake in , a network of dealers offering local customer service. The deal would introduce Internet car buying to ’s 16 million savvy Internet shoppers and create serious competition for auto manufacturers. [Fuente: Caso Ford/Harvard Business School]. Companies like General Motors and Fiat were also operating on line, sometimes even paying lower commissions to virtual intermediaries than to local dealers. Furthermore, there were now websites in Mexico, Brazil, and Argentina, among other Latin American countries: , Autocosmos Holding (the merge of Autocompra in Argentina, Autologia from Venezuela, and Autocosmos in Mexico), , and .

In Argentina, total Internet sales in 1999 had reached $50 million and that amount was expected to triple every year. All companies involved in the manufacturing, selling, and distribution of motor vehicles began to explore the possibilities of the new medium. Some of the most visited vehicle-related websites included .ar, , Fiatenter, , , , , , and . Although each site had unique features, they all provided access to vehicle information, auto parts, news, debate forums and opinion chats, presentations, shows, and list of vehicles available at the various dealers.

Challenges Ahead

Canny knew that his July communication at the South American e-Board meeting and within the company would set the tone for continued development of e-business at Ford-Argentina. Ford-Argentina, as a subsidiary of a multinational, was facing a delicate challenge: to balance the needs of the present with the needs of the future, local with global systems, and focus with diversification.

• Present vs. future. The case for continuing to deploy web technologies was strong. The past year had shown that web technologies could better serve consumers. In addition, most of the infrastructure investment needed to support the web was being made (or already had been made for non-web-related reasons). To date, however, e-initiatives had not generated profits or increased market share. How could the company extract maximum business value in order to justify new e-initiatives?

• Focus vs. diversification. Until now, Ford-Argentina had been able to invest in key technological developments because it leveraged its own resources by co-opting resources available within the parent corporation. However, with all the turmoil that Ford Motor Company was facing, Canny realized that the funds for e-initiatives might not be there the following year. How could he reinforce the core business and avoid locking the company into an investment path unsuitable to the current unstable economic climate?

• Local vs. global systems. In the effort to position itself as the leading e-business motor vehicle company in the world, Ford was setting regional e-business policies and practices. In this context, how could Canny ensure that Ford-Argentina kept the agility and responsiveness to pursue its own strategic e-initiatives? What organizational structures, control system and incentives were appropriate?

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[1] Professor Ramiro Montealegre of the University of Colorado at Boulder, Professor Laureano Berasategui of IAE—Escuela de Dirección y Negocios from Universidad Austral (Argentina)—and Research Assistant Paula Rodriguez prepared this case as the basis for the class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

[2] A platform is a set of technical solutions that allows the production of different models based on common components. The differentiation among the finished models is the result of changes in the motor size, vehicle body, optional equipment, and interior finishes.

[3] Jennifer Reingold, Marcia Stepanek, and Diane Brady, “Ford: Accelerating into the On-line Age, Computing,” March 9, 2000.

[4] Collective Mind, which had 4 people when it began to work with J. Walter Thompson and Ford-Argentina in 1998, took advantage of the “dot com fever” in Latin America. By the end of 2000, it had 230 employees in seven different countries. It also became a victim of the “dot com crash,” however, and by June 2001 it was filing for bankruptcy. J. Walter Thompson absorbed what was left of Collective Mind to create its own division of digital technologies.

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