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Meritor can develop certain new equipment and products for the sustainable transport market that will lead the way for future prosperity. It has to partner up with other complementary companies and work on the principle of Synergy. By pooling up resources and coming up with the best solution to meet customer needs, Meritor has a chance of revitalising the past history of the company. They can engage in joint venture with other complementary car product manufactures and embark on an industry wide cost reduction strategy. It has to be based on the motive of benefit for all stakeholders rather than only themselves. This is the unique way in which the output of the combined can be greater than the output of all companies combined.
I believe Meritor is in dire need of divestiture or reorganisation that will bring a new image for the company. Its long history is very significant but little could be said about it standing at this point in time. The development of new strategies has been a growing concern for the company, and even as it has used all its brightest and effective resources to develop a sustainable strategy, the result of such a strategy will only be as good as the people who implement it. The company needs strict adherence to implementation and a strong dependence on its new leader who set the path straight for their followers. This entire process of strategic management revolves around the core concept of PDSA and learning by doing. The company needs to give special emphasis on the change process and closely monitor it. No matter how much planning has been done, something always deviate from the ideal plan. Therefore, by keeping eyes at the change process, the company would be able to alter or manage things as they happen. A contingency plan would go a long way in saving the company from any unforeseen and unavoidable situations.
The company has to take personal responsibility for wrong decisions it has made in the past and the only way to learn from them is to be confident of what they are doing. By incorporating the mistakes, new leaders can take the company to new heights, something Meritor has been craving for since a long time now. As the company carries on operating in the future, it needs to empower its employees and bring in them a sense of belonging to the company so that each and everyone of them work tirelessly on both an individual and organisational level to bring about the required change. Employee development programs can help immensely in bridging the Knowing-doing gap. This simple activity can go a long way in transferring the knowledge from the academic side to the practical side of the business. The significance of this can be judged from the fact that employees who understand what they are supposed to do at work often tends to produce the best results exceeding expectations at many times. Meritor is a name that everyone in the car industry is well aware of, they need to revamp their operations and make use of their best practices to enhance efficiency. The resource utilisation will lead to a higher yield given the same set of resources. On a larger scale, the company can initiate a new market development program, as its scope is much larger than the scope of the product development program. This would coincide with their diversification strategy in which they form alliances in new industries that make use of existing benefits the company has already acquired. Meritor has already pledged to support the Henry Ford's Innovation Education Incubator (IEI), that was successfully launched in April 2011. Its main aim is to build momentum among educators nationwide byÂ bringing innovative digital education resources and game-changing teaching strategies into K-12 classrooms. This is just one instance of how in the recent past Meritor has associated itself with new and completely diversified projects. This portrays a positive image of the company and brings in more customer mileage by attracting attention of potential customers. In such projects, the impact is usually long term as the direct benefit is difficult to calculate. Nonetheless, they are equally important for the stability of the company as it progress into the optimistic future. Meritor has to stand up to take back the place that it once used to enjoy and only through dedicated strategy that aims to revolutionise the company, such a turnover is possible.
Historical Background and Present Context
The Meritor Company originated in 1909 and is still going strong today. They first set up production with the Timken Detroit Axle right here on Clark st. Detroit, Michigan. The famous Willard Rockwell became president of the company just shortly in 1929 coining the phrase "A big wheel is nothing without an axle". Their company's vision is "to be the recognized leader in providing advanced drive train, mobility, braking and aftermarket solutions for the global commercial vehicle and industrial markets".
Meritor Inc. is a leading global supplier of drive train, mobility, braking and aftermarket solutions for commercial vehicles and industrial markets. Meritor is currently located on 5 different continents in 20 different countries with 65 locations. This is an impressive stance with global outreach. They are also very active within the surrounding communities of their locations with volunteer work and giving back to the communities. The company also works towards keeping sustainability in three primary areas: Social Responsibility and Governance; Excellence in Environmental Protection and Safety; and Innovative Product Design and Processes.
Meritor has been in business for more than 100 years. The company achieved its first major milestone when it openedÂ Timken Detroit Axle which was formed in 1909. In 1929,Â Timken Detroit Axle acquired Wisconsin Parts to form Timken-Detroit AxleÂ and Wisconsin Axle. Between 1929 and 1951, company grew rapidly with Â operations inÂ Detroit and Jackson, Michigan, Oshkosh, Wisconsin, Utica, New York, Â Ashtabula and Kenton, Ohio and New Castle, Pennsylvania. In 1953,Â Willard Rockwell merged Wisconsin Parts and Timken Detroit Axle to form Rockwell Spring and Axle Company. The company went through series of mergers andÂ acquisitions between 1953 and 1997. In 1997,Â Rockwell International decided to separate its automotive business and created Meritor Automotive. In 1998,Â Meritor acquired Volvo Trucks' heavy vehicle manufacturing operation, Euclid Industries, and Lucas Varity's Heavy Vehicle Braking Systems businesses. In 2000, Meritor Automotive and Arvin Industries merged to form ArvinMeritor, Inc.
Company Mission, Vision, and Other Guiding Stars
Meritor's vision is "To be the recognized leader in providing advanced drivetrain, mobility, braking and aftermarket solutions for the global commercial vehicle and industrial markets" (Meritor vision, 2011)
1)Â Â Â To develop innovative products that provide superior performance, energy efficiency and reliability.Â
2)Â Â Â To provide a leading portfolio of differentiated services supporting customers' products throughout their lifecycle.Â
3)Â Â Â To deliver on our commitments while maximizing value for our shareholders, customers, and employees (Meritor Mission, 2011).
Meritor Core Values:
1)Â Â Â Pursuit of Excellence
2)Â Â Â Integrity
3)Â Â Â Teamwork and Respect
Meritor Executive Management Team:
Charles G. McClure - Chairman of the Board, CEO and President
Vernon G. Baker II - Senior Vice President and General Counsel
Timothy E. Bowes - Vice President and President, Commercial Truck & Industrial
Jeffrey A. Craig - Chief Financial Officer
Pedro Ferro - Vice President and President, Aftermarket & Trailer
Barbara G. Novak - Vice President and Corporate Secretary
Larry E. Ott - Senior Vice President, Human Resources
External Environment Assessment
In order to enhance its presence and reduce costs, ArvinMeritor has increased its focus on the emerging Asian markets including India, China and Korea over the past few years. For example, in 2005, the company established a joint venture with China-based First Auto Works (FAW) Sihuan Axle Brake Group for the manufacture of air brakes, automatic slack adjusters and air disc brakes for commercial vehicles. Furthermore, in August 2005, ArvinMeritor entered into a joint venture with Korea-based DongWon Precision Industrial Co Ltd for the supply of DPFs and exhaust systems and components. ArvinMeritor plans to triple its sales in Asia in the next five-year period. In the Asia Pacific region, the company will focus on higher margin product lines. Its strategy for the Asia Pacific region includes optimising its sourcing activities and localising design and engineering activities.
ArvinMeritor announced in January 2007 that a long-term supplier partnership was formed with the US-based Trailmobile Corporation to make Meritor trailer axles, air suspensions and brakes as a standard offering on all Trailmobile Trailers. In addition, the company has plans to open a manufacturing facility in Wuxi, China. The company anticipates these initiatives to help increase its sales and market position.
ArvinMeritor operates in an industry where emissions and environmental regulations are becoming increasingly stringent. Compliance with the new emissions standards has become mandatory in both the US Â and Europe. Non-compliance with these standards might affect the demand for the vehicles, thereby affecting the demand for the company's products as well. For example, the company expects heavy truck demand in the North American region to decline in 2013, after the new standards are implemented. The company depends on a limited supplier base for raw materials. A default by any of these suppliers might have an adverse impact on the company's performance. Moreover, the increasing costs of raw materials, steel and oil continue to threaten the company's margins.
Internal Environment Assessment
Asset Turnover - Meritor's ratio is 1.70 compared to the industry which is 1.40. This shows the company is more efficient and using its available capital resources to get a higher degree of output compared to its competitors.
Pre-Tax Margin - Meritor's ratio is 3.1 which is substantially below the industry average of 5.8. This gives an indication that the company has been struggling to convert Sales into Net profits and its competitors in the industry have taken better measures to reduce operating costs and other financial charges to increase their pretax profits. The higher the pretax profits the more the company will become financially strong
Interest Coverage Ratio - Meritor's TIE ratio is a mere 2.4 compared to the industry's huge 6.8. Meritor has no doubt been struggling the recent years to pay off its debts and meet its obligations. As new investors look at these figures, a somewhat dismal sign of its future potential surfaces. Although Meritor has done everything possible, but its future looks bleak.
P/E Ratio - Meritor's ratio in this head is 8.30 compared to the industry's 14.80. Most of its competitors have grown, especially in their trading price. Whereas Meritor's stock price has substantially in the past 3-4 years, and stands at a low value of $4.66 as of 2/1/2013. The company needs to revamp its operations if it wants to have a positive impact on investors.
Sales (5 yr growth rate) - Meritor has struggled to expand as we mentioned in earlier weeks that it is trying to expand into new business as existing clients are shifting to competitors or closing down altogether. Meritor has seen a negative growth rate of 8.47, while during the recession the industry has still managed to pull out a modest growth rate of 3.67%. Meritor compared to its competitors surely gives a poor indication of what future lies ahead of it.
Meritor, one of the leading automotive parts manufacturers in the world, is involved in the manufacture and supply of a diverse range of components and systems. It has a diversified product portfolio, which includes products like exhaust systems and components, roof systems, suspension systems, braking systems and the like. It derives above average margins in the wheels and door systems businesses. Many of Meritor's key brands, including Gabriel, Meritor, Ryde FX and Euclid, have been commercially successful worldwide.
The company has a wide customer base comprising major OEMs including GM, Ford, Daimler, Chrysler, Volkswagen, BMW, fiat and Asia-based OEMs. Meritor also has a wide geographic coverage with 112 manufacturing facilities across 26 countries. The company generates nearly 50% of its sales outside the North American region. Thus, the company is able to balance risks efficiently in spite of the turbulent nature of the North American automobile industry.
The softening of global financial markets has weakened Meritor's ability to access credit markets. Further poor financial health of North American OEMs also forced ArvinMeritor to repatriate significant earnings from its international operations. The company has been allotted a corporate credit rating of 'B+' by S&P and 'B' by Fitch which connotes a negative outlook. Delays in implementation of strategic plans could further lower these ratings and hence affect Meritor's ability to access credit markets, capital markets and increase borrowing costs for the company.
The company also continues to suffer from rising cost of pension and postretirement benefits. Meritor uses forecast and trend data to plan its healthcare and pension obligations. To partially address these concerns ArvinMeritor had amended certain retiree medical plans and phased out certain plans. This also included elimination of Medicare benefits for eligible retirees starting January 2006. These initiatives were challenged by United Auto Workers is presently under litigation. In another case, Meritor settled a case with USW by committing to pay US$28m in a settlement reached with medical beneficiaries over a ten year period.
Strategies in Action at [Meritor]
Supplier Diversity as a Core Business Strategy:
Corporations that embrace diversity will have a competitive edge over those that do not.Â Supplier Diversity is a business imperative.Â Companies that want to grow their businesses, increase revenues and solidify their customers and supply base, must focus on diversity. With increased emphasis on supplier diversity initiatives and corporate pressures to boost MBE purchases, it is time to treat supplier diversity as a core business strategy and not as a socially responsible activity.Â
The company focuses on meeting its orders and minimizing its costs to expand its profits. The growth in revenue is accompanied with a subsequent growth in profits.
Product and Technology Focus:
Meritor focuses on its products and use technology to produce products that enhance the overall experience for a customer. this consumer centric policy of Meritor distinguishes it from many of its competitors.
Strategy Analysis and Choice
Meritor should pursue the Leverage Strategy, where the environment is mostly volatile pertinent to the industry conditions in the last few years. Moreover, the company has to deploy the available scarce resources to develop new markets, or at the same time improve existing products in the already existing markets. To sustain the competitive advantage, they have to develop a factor that will serve their business as a leverage and act as a driver of growth.
In order to determine the leverage factor, strategic creativity comes into play. For this the organization has to dedicate special attention and resources in developing the strategy, only after a successful and relevant formulation, the effectiveness of the implementation stage will substantially improve.
It is also favorable for Meritor to strengthen its financial ratios and bottom-line by forming strategic alliances, like the one Meritor Wabco. These alliances will give it competitive advantage over competitors that will be sustainable and difficult to imitate. The strength of the other business can be used for Meritor's own advantage, by synergizing its opportunities with the available resources (Meritor Wabco, 2012)
In addition to this, the recent re-organization strategy that we discussed in the previous weeks in which Meritor restructured its business segments, shows Meritor's long term commitment to adapt to changes in the environment. Both the management and the employees are willing to reshape the organizational structure to align it with the recent business segment consolidation.Â
Strategy Implementation: Alignment
The company frequently sells off the segments that are not in line with the core strategic objectives of the company. The following segments were divested recently (Proxy Statement, 2012):
Â In fiscal year 2009, we completed the sale of our 51 percent interest in Gabriel de Venezuela to the joint venture partner.
â€¢ In fiscal year 2009, we completed the sale of our Gabriel Ride Control Products North America business to an affiliate of OpenGate Capital.
â€¢ In fiscal year 2009, we completed the sale of our Wheels business to Iochpe-Maxion S.A., a Brazilian producer of wheels and frames for commercial vehicles, railway freight cars and castings.
â€¢ In fiscal year 2010, we completed the sale of our 57 percent interest in Meritor Suspension Systems Company ("MSSC") to the joint venture partner, a subsidiary of Mitsubishi Steel Mfg. Co., LTD.
â€¢ In fiscal year 2010, we completed the sale of our module assembly operations in Belvidere, Illinois.
â€¢ In fiscal year 2011, we completed the sale of our Body Systems business to Inteva Products Holding Coöperatieve U.A., an assignee of 81 Acquisition LLC and an affiliate of Inteva Products, LLC.
â€¢ In fiscal year 2011, we completed the sale of Gabriel Europe (Bonneval) facility to TRW Automotive Holdings France. In addition, in September 2011, we closed our EU Trailer operations in Cwmbran, U.K. and related warehouses in Spain and Italy.
The company implemented a Performance Plus, a long-term profit improvement and cost reduction initiative, in FY07. Significant restructuring actions intended to improve the global footprint and cost competitiveness were identified by eliminating up to 2,800 positions in North America and Europe and consolidating and combining certain global facilities, with costs to be incurred over several years (Glassdoor, 2012) .
Strategy Implementation: Action Plan
The unprecedented challenges in the last few years in the credit markets, deterioration and then rapid upturn in the commercial vehicle market and a worldwide recession have forced Meritor to sharpen its business and operating strategies to align to these new business conditions and to better position company for the future. The company is facing several key challenges which may impact its overall profitability and competitive edge.
The worldwide production volumes in 2013 remains as one of the biggest challenges for Meritor. In 2013, the production volumes in North America and Europe are expected to soften compared to the levels in 2012. The production volumes in South America has declined significantly in 2012 as the industry has transitioned to tighter emission standard requirements for commercial vehicles. The recovery of production volumes has been slower than previously expected in South America and demand for parts is expected to remain soft during the first half of fiscal year 2013. The production volumes in China and India have decreased compared to levels in 2011. These volumes are not expected to return to the levels previously experienced in near future due to current economic conditions.
Meritor's Industrial Segment profitability and growth remains one of the key concern for the company's leadership team. Meritor's military programs were at their peak in 2012. However, these programs are expected to wind down as old military contracts are at the verge of expiration in next few years. Failure to secure new military contracts may have long term impact on Industrial Segment. Furthermore, new contracts may not prove to be as profitable when compared to what Meritor has recognized in recent periods.
Other challenges such as uncertainty around global market outlook, volatility in price and availability of steel, components and other commodities, disruptions in the financial markets and their impact on the availability and cost of credit, higher energy and transportation costs, impact of currency exchange rate volatility, consolidation and globalization of OEMs and their suppliers, and significant pension and retiree medical health care costs are also expected to impact Meritor's bottom and top line results.
In 2013, the company may struggle to meet analyst expectations due to losses of existing contracts or failure to negotiate acceptable terms in contract renewal negotiations, European Union turmoil, rapidly changing production volumes, recovery of steel price and other cost increases from customers, unplanned extended shutdowns or production interruptions, significant deterioration or slowdown in economic activity in the key markets, higher than planned price reductions to the customers, price increases from suppliers, restructuring charges, higher than planned warranty expenses, and government regulations.Â Â Â Â
Strategy Review, Evaluation, and Control
In 2012 Meritor Inc. revised its reporting structure to enhance efficiency. They have created two areas now for reporting Commercial Truck and Industrial and Aftermarket & Trailer. At this same time they announced executive level changes associated with this change in reporting. This gave the company a smaller sections to manage, creating a better environment for their employees.
I believe that Meritor needs to implement three step review processÂ to track progress of its new strategy implementation. The first step of this review process would take place at team or unit level on weekly basis. During this review process, team members would get together to discuss the progress of their individual assignments or objectives. They would discuss any roadblocks, resource constraints, other concerns that needs to be communicated to the upper management for immediate resolution. During this meeting, team would also discuss upcoming milestones for the project, pending deliverables from other cross functional team members and other design and development changes/issues that needs to be communicated to the cross functional teams.
The second step of this review process would take place on bi-weekly basis where all cross functional team members (Finance, Marketing, Engineering, HR, Manufacturing etc.) would be invited to discuss the results or meeting minutes from their team meeting at the unit level (step one). This meeting will serve as platform to communicate messages, decisions, changes, and other important information that needs to be communicated to entire organization. During this meeting, the team would review and track milestones for the project and discuss any deviations from the plan.
The third step of this review process would take place on monthly basis with directors of the each cross functional organization. During this review, one representatives from all cross functional teams (Finance, Marketing, Engineering, HR, Manufacturing etc.) would provide 10 min status update on their department progress. This meeting will also sever as a platform to escalate issues to upper management. There are several different ways Meritor can evaluate strategy implementation and root causes of the gaps between the plan and the actions and results. One of the best way to identify this gap is by having unit level and cross functional team level milestones with specific deadlines. As discussed above, these milestones can be reviewed during weekly, by-weekly, and monthly meeting to ensure that everything is on track.
It is highly essential for Meritor to ensure that it is following the path that will result in the successful implementation of its strategy. In this journey of new or old strategy implementation, such as the major restructuring of the business model or the organizational hierarchy, it is vital to not lose sight of the end. By always keeping the end in mind, we can better plan today and reach our objectives. Likewise, to ensure achievement of its long term strategic goals, Meritor needs to put in place a system of continuous review and control whereby if the division or business segment detracts from the intended path, corrective action can be taken against it.
In order to review the progress, a separate committee or group of individuals can be given the responsibility to see the work done by individual departments. They can analyze the alignment of the goals within different departments with the overall corporate goals and try to point out places where it has deviated from the initial intended alignment. These reviews although continuous have to be carried out on a quarterly basis to ensure rigorous check on the direction of the strategies that have been implemented. If duration longer than this is allowed, then companies might steer away from their respective target. The primary objective of the review process in any firm should be to focus on the areas which the company wants to improve through its new strategy that has been implemented. The review process gives a reality check of whether the organization has been successful in effectively carrying out its strategy amidst the uncertainty that exists in the real world. Another important point is to enforce corrective action in the best possible manner by altering the strategy to best incorporate the changing trends or any new factors that have developed since the time the actual strategy was devised. In the case of Meritor, although it has revamped its structure and streamlined its process, the financials of the company are still below the industry average and indicates the need for further measures to be undertaken to ensure that something positive is seen on the company's bottom-line. As we have discussed throughout the course in our journal notes, the PDSA cycle, can easily be incorporated into the review process, as the basic underlying element here is to critically analyze the progress made since the implementation of the strategy and how successful the strategy has been in achieving its desired outcomes. The PDSA cycle helps us implement a continuous cycle, using which we can continuously monitor the performance of the company, where it be financial or operational and highlight areas where is has seen progress and areas where it is struggling. The importance of PDSA cycle can be judged from the fact that our course resolves around it, from the start to the end. Therefore, every organization at the strategy evaluation stage can make use of the PDSA cycle to utilize its resources effectively and see where it lacks and which strategy would best serve its purpose.
It is obvious that some of the times strategy implementation stage faces certain unknown forces that are eroding the potential of the superb strategy that has been developed. In order to come out of it as a successful organization or department, the people who are in charge of it, should make every conscious effort to dedicate manpower and resources for evaluation. Only after careful assessment, the true success is measured. One threat strategy implementation is prone to is the backing out of potential suppliers or third party vendors who agree to be a part of your expansion strategy. To avoid such unforeseen circumstances, the company should always have a contingency plan. The supervisors or departmental heads are responsible for exercising the option of having a second supplier or contractor on board as soon as the first one backs out for whatever reason. In any expansion or business restructuring process, support of all the stakeholders such as suppliers, customers and so on is equally significant. Consequently, Leaders at Meritor should be aware of this fact and keep a check on these plans to ensure no setback thwarts the recovery of the company.
Synthesize, Integrate, Summarize: Conclusion:
Meritor needs to establish a separate and highly dedicated team that will oversee the change process as it occurs in a step by step sequence. The company needs to find ways to improve the monitoring and ensure the deviation from the leading path is minimised. As we have discussed in this entire semester, the successful implementation of the strategy is the key to success that differentiates a failing company from a shining one. Meritor needs to identify its core advantages using the SWOT analysis, and see what opportunities lie ahead of it.