Systems Approach and Cybernetics

MIS Assignment
Prof HK Misra

Group -11
Section-D

Submitted By : -
Mrityunjay Panday (P39208)
Preeti Verma (P39216)
Satya Prakash (P39221)
Type of structure organisation
The organisation is multinational with divisionalised structure. Each division of the company
is replica of organisation. The information flow across the system was highly obstructed. Each
division was running independently and there was a corporate culture where people was
hesitant to deliver bad news prevailed.

Is it appropriate to apply system thinking?

Systems thinking provides a holistic approach to analyse the pattern of behaviour, to seeking
underlying interrelationships, which are responsible for the patterns of behaviour and the
events. The issue that was reoccurring repeatedly was that the company was taking its decision
in spree and a pattern of sluggish sales, intense competition, quality and employee morale was
marring the organisation. The organisation worked as a system where its components was
working together to meet the objectives. However, the main issue was that they were not taking
input from the environment (i.e. market) and were just focused internally. This created a kind
of negative entropy, which was not checked and balanced properly. They were taking all the
decisions on their own whims and desires.

What is changing?
There is a pattern in the change in net income from 2005 (refer Exhibit 2) and various events
and interrelationships between them are responsible for this change.

How and Why is it changing?

During inception, the company adopted low cost leadership strategy which changed over time
due to numerous vehicle platforms and configurations. Each division, brand and region
operated independently adding to the further cost and decreased net income. The net income
continuously decline starting from the period 2005 until 2008 and it began to achieve a positive
figure from 2009. The graph is fluctuating (Refer Graph 1) because at the end of 2006, the
new CEO, Mulally joined Ford and took great efforts to cut costs and improve the net income.

Graph 1:
BOT Graph
This can be understood from the case facts such as the launch of Sync infotainment suite
which helped to grow its margin with less investment cost. He also closed considerable
manufacturing plants and laid off workers which further added to the reduction in costs
which can be seen in the reduction in net losses in 2007. In 2007, he also divested major
brands such as JLR, Volvo etc which further reduced its costs. In 2008, despite reducing the
platforms, models and configurations the net losses increased compared to the previous year
due to the global recession. In 2009, Mulally reduced cost by standardizing the components for
the cars manufactured across the globe. This contributed to the positive net income by 2009.
He also reduced the supplier base less than half to 1600 from 3300 which contributed to the
major cost cut for the company. In 2010, variations in metals used for the car production was
also reduced which led to the cost reduction and increased income.

BOT Graph
5000

1212 1313

0
2004 2005 2006 2007 2008 2009 2010 2011
-3899
Net Income ($ in millions)

-5081
-5000
(Behaviour)

-10000
-11917

-15000
-17040

-20000
Years
(TIme)

Cause Effect
The organisation was facing multidimensional challenges that cannot be seen in isolation from
one another. Various causes have led to the effect of decreasing revenue. All these causes are
within itself an effect dependent on various other causes. Along with it the reason causing the
problem are in itself reason. The whole issues are cyclically linked with each other. Poor need
assessment leads to not meeting consumer expectation leading to profit loss, further poor
information from customer causes information asymmetry leading to regular quality issue and
detachment from brand so lessening profit. Thus none of the problem can be seen in isolation
all problem are interlinked with each other causing a greater problem which is reoccurring that
is net profit.
The fish bone diagram in next page shows such relation all factors are interlinked with each
other.
Diagram – 01
 Cause Effect

Poor High No. of Infromation

Marketing configuration Assymetry

Consumer need for fuel efficint vehicle not addressed Too many configuration of cars and wider variety Market information not processed properly

High projected growth shown for feel good The varitied are highly complicated & sophisticated Employee afraid to share bad information

Competitor POP & POD was not assessed Consumer deliverable not taken into account Each division Brand running independent

Loosing
Profit

Poor designing USP of simple product discarded. Low safety ratings

No strategy developed problem reoccurs High varient of technical product launch continuous Poor designing and safety feature

Too many product variety Uninteresting product to consumer Multiple production line

Safety Complex
Poor Quality
Problem Product
Complexity :-
The problem was so complex in the Ford that not any fix solution pre-existed. Also these
problem were so intermingled that addressing them in totality was required. There was also no
obvious solution to these issues. Any solution if would have turned wrong have collapsed the
organisation. There was not a single angle from which the problem needed to be addressed. A
wholesome approach keeping in view strategies was needed.

How Mullaly saw the big part :-

Mullaly took and approached whole problem in holistic manner. From simplifying the
production line to reducing the units of production, he took broad strategic decision taking into
account worldview. He also reduced information asymmetry and gave a slogan of one ford to
reduce information asymmetry and separate working culture across the division. He also took
personal care to take into account consumer needs and focused on the Ford strategy of low cost
leadership with simple product. Many retrenchment and downsizing was done. The overall
strategy was not just holistic in nature but was taken taking into account environmental factor
of the industry and also the future strategy.

Entropy
There existed high amount of negative entropy prior to Mullay joining the FORD. The safety,
quality issues were pervasive. The new product were delivered repeatedly to the market without
taking into account consumer needs. The competitors were delivering simplified products and
were capturing market of Ford. Only the reactive action was taken in case of any quality issue
or any issues in the organization. System was resisting the entropy but corrective action was
not taken on time. This was disturbing steady state and equilibrium of the organization. After
Mullaly joined he introduced simplified and consumer based product. He personally monitored
any changes in the environment a proactive approach was established and the negative entropy
was catered on regular and time bound basis.
Cybernetics
Diagram 02
The Ford was trying to interact with outer environment through different ways and getting feedbacks.
But somewhere in the system these feedback were not getting reflecting as input and decision was not
taken to input side of the organization causing reoccurrence of the same events that causes ford to bog
down.

Competitor: In case of Ford competitor like GM, Toyota and Chrysler played a critical role. With
continuous technical advancements, Toyota continued to grow achieving 8 percent increase share. GM
was slow to respond to changing environment as compare to Ford, but it is still the greatest carmaker
in the earth. All these factors were motivating Ford to work more to perform better in the market.
However, they were not taking market feedback correctly and were in a spree to just launch more
complex product irrespective of people expectation from Ford.

Customer: Later however when cybernetics was introduced by Mulally, he focused highly on market
needs and accordingly developed strategy for simplicity and brought car manufacturing as per customer
demand which was missing earlier. In J.D Power and Associates’ annual study Ford made its way into
the top ten, which measures customer complaints in the first ninety days of vehicle ownership. In 2010,
80 percent of customer responded in favour of Sync infotainment suit.

Supplier: Ford was trying to help suppliers to stay in business through cross-functional teams because
without parts ford will also be out of business. The simplicity approach and commonality in production
by Mullaly taking a cue from the feed back reduced number of supplier from 3300 to 1600.

Media: Media also gives lot of feedback from market. In this case Ford won Motor Trend magazine’s
2010 Car of the year and Truck of the year award which indicated that decisions taken by Mulally has
resulted into positive results.
Inside the organization, there are some mechanism, which are helping in giving feedbacks:

Employer: Balance sheet and different financial statements are clearly directing towards the bad
performance of Ford in period of 2007-2009. The other factor such as overestimated sales and then not
able to meet them are indicating towards the entropy in organization in that period.

Employee: To maintain the feedback mechanism between employer and employee there are several
meetings, which were being conducted like business plan review, key performance metrics review.