Thesis on "Fiat's Fall From Grace Can Fiat Turn"

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Beginning with the macro-environment, Fiat has in many critical areas of their value chain become very uncompetitive relative to other global auto manufacturers. While labor unrest, the continual Italian subsidies and barriers to competitors that its native nations' government provided, and its eventual privatization combined to leave the company without consistency around its most vital processes. All these macro-environmental factors combined in effect robbed the company of one of its core differentiators and that was the knowledge of its employees and production workers. As Dr. Micheal Porter, Harvard Business School often has mentioned in his analysis, the greatest indicator of a nation's competitiveness is personal productivity, especially in manufacturing-centric industries (Porter, 2008). Fiat has squandered this primary competitive strength away through the many interruptions, some minor as is the case with a brief strike, many major, including trade barriers, tariffs and the privatization of the company, which together have led to Fiat being continually in a state of process disorientation to their industry. Their product line successes, attributable to significant sales of specific compact and subcompact models each decade as the case points out is more of a function of the product life cycles of the company and less by deliberate design (Caputo, Zirpoli, 2001). This progression of model designs has succeeded despite the Italian government socializing the entire company at one point (Calabrese, 2000).

In conjunction with all these factors, Fiat also suffered from what many European auto manufacturers continually were challenged with, and that was being able to successfully sell globally, taking into account the variations in demand by country or region. This was a significant weakness on a macro-environmental level of Fiat, as many of its product divisions did not scale globally into new markets effectively (Roegner, 1994). As a result, the company continually faced the challenge of how to develop business in new markets without just relying on cash or pricing incentives to achieve their goal, a challenge nearly every European automaker trying to sell into the U.S. market continually faced (Roegner, 1994). This was partially attributable to the exchange rates of the Italian currency relative to those of nations the company was attempting to sell into, and across Europe this especially became an issue for the British firms also pursuing the same expansion strategy (Roegner, 1994). The Italian government would at times subsidize new market development in other nations specifically with the goal of assisting Fiat gain greater market share yet this rarely worked as the company's internal processes were not at a globally competitive enough level of market leaders Toyota, Honda, Ford or the Big Three American automakers where they were more competitive.

These internal sourcing, supply chain, procurement, lean manufacturing and quality management (Ktyzkowski, 2009) however languished and often become deficient as a result of the many macro-environment distractions the company and European segments of the industry faced. In addition to these process-based deficiencies that became more prevalent over time, Fiat was gradually falling behind the global leaders in lean manufacturing, supply chain management, supply chain collaboration and the build-out of what would eventually become a global supplier quality management initiative for Toyota called the Toyota Production System (TPS). While Fiat was contending with massive change at the most fundamental levels of their business models, Toyota and competitors who were embracing more of a concept of creating supply chains that were highly collaborative, informed and knowledge of each other became a global priority (Dyer, Nobeoka, 2000). Starting in the 1960s and progressing to today, Toyota had been working extensively to create collaborative workflows with suppliers to better manage the new product introduction process, and the outgrowth of these partnerships was the supplier-manufacturer relationships became more anticipatory of future needs. In other words, Toyota was teaching it suppliers how to think ahead on product lines' needs and also internalize quality performance measures (Dyer, Nobeoka, 2000). Supply chains globally as a result were becoming significantly more streamlined while Fiat did not strive to improve this area of their business to the extent Japanese manufacturers did (Roegner, 1994).

At the micro-environment level competitors concentrated on creating more role-based factories than relying on purely process-based ones that had dominated auto manufacturing globally for decades (Ferdows, 2006). Fiat completely missed this competitive dynamic as the Italian government sough to protect the industry from competitors while also ensuring a highly egalitarian level of workers' rights. Despite these shortcomings the company did manage to create more effective uses of knowledge in their new product development process by including service lifecycle management data from repairs and returns (Becker, Zirpoli, 2003). At a micro environment level the company also struggled with the consistency of its partnerships. The allure of small car manufacturing expertise serves as the catalyst of several partnerships mentioned in the case including GM and Chrysler yet failed to materialize any long-term benefits. The acquisition of Chrysler, partially underwritten by the U.S. government, is one that relies heavily on new market development on BRIC nations (Simon, 2009). From Fiats' track record at partnerships however it is questionable whether their participatory ownership of Chrysler will be successful or not. In addition to these micro environment factors there are many different businesses Fiat has entered as part of their portfolio approach to managing investment. Many of these were distractions to their core car business and would be sold off by the employee-based ownership teams (Calabrese, 2000). With all of these micro environment factors, the company continued to seek new product development as a means to generate increased revenue growth, relying on knowledge management systems to do this Becker, Zirpoli, 2003). This strategy of automating the new product development process was successful in streamlining what had been a very manual process and making it more efficient. Because if this, Fiat was able to continue to refresh their line of autos yet lacked the growing expertise of supplier relationship management, supplier quality management and supplier collaboration and performance management that their leading global competitors had (Caputo, Zirpoli, 2001). Because of these shortcomings from a micro environment standpoint, the company continued to struggle from a macro environment standpoint over time. An analysis of the company using the SWOT analysis framework is next presented.

Fiat SWOT Analysis

The foundation of Fiat's strength is their ability to manage a broad portfolio of products and divisions. As the case study has shown however, this strength can lead to the company to over-extend itself into completely unrelated businesses relative to its core competency of auto manufacturing. Product portfolio management has also led Fiat to also develop its second major strength, which is strategic acquisition expertise. Despite being over-extended with its many completely unrelated product strategies, Fiat has shown the ability to quickly define acquisition targets and then go after companies that meet their criteria. That said this is a strength in itself yet only in the context of an effective strategic direction.

The weaknesses of Fiat emanate paradoxically from their strengths. They lack scale compared to competitors, both in the supply chain (Caputo, Zirpoli, 2001) and quality management (Simon, 2009) yet this is due to being in too many time-intensive businesses that divide their expertise. The second major weakness is in their product divisions, where the lack of knowledge management led to major changes in it systems (Becker, Zirpoli, 2003) yet the company still lags its competitors by a wide margin in this area. Toyota's Production System (TPS) is an example of how far competitors have surpassed Fiat… READ MORE