Henry Ford’s Business Formula
March 26th 2007 11:31
Henry Ford’s business formula, as it’s depicted from his book “Today and Tomorrow” is simple, which is just in his typical style. It is based in obtaining economies of scale, to use today’s terminology, therefore reducing production input and processing costs and then selling his product at a low price.
This low price then attracts a large quantity of sales. Naturally, your product must be commoditising and mass producible, such as the model T was.
Growth for Ford is based in further reducing input costs through the acquisition of some sector in the chain of production or improving one or another method of production. Reducing production costs allowed Ford to frequently lower the final price to the consumer therefore attracting greater sales quantities.
Obviously, increased sales bring increased gains.
Ford notices that there are three motives for business: the profit motive, which is just the capitalist trying to gain as much as possible; the wage motive, which is based in the worker trying to divert as much money as possible in the form of wages for himself; and the public motive. This one is achieved by being able to offer a commodity at a low price and with enough quality.
To Ford this – the public service – is the true motive of business.
Ford notices that the method of production is not the key. The purpose of the business is. Once you know the purpose of your business, you then adapt the production method to serve it. This clears the idea that the moving production line is the secret of Ford’s success.
Ford also notes that the size of a business is your choice. He says that if you are happy with having a shop with 25 workers you must not be surprised if someday someone opens a shop next to you with 100 employees and, using reduced costs deriving from economies of scale, will put you out of business.
He adds that size is necessary if you want to achieve something. When Ford could not find steel plates with the controlled quality he required he built smelters and bough his own iron ore. On the other hand, Ford’s employees were constantly searching for better methods to produce something so as to lower its product cost and increase its quality.
This low price then attracts a large quantity of sales. Naturally, your product must be commoditising and mass producible, such as the model T was.
Growth for Ford is based in further reducing input costs through the acquisition of some sector in the chain of production or improving one or another method of production. Reducing production costs allowed Ford to frequently lower the final price to the consumer therefore attracting greater sales quantities.
Obviously, increased sales bring increased gains.
Ford notices that there are three motives for business: the profit motive, which is just the capitalist trying to gain as much as possible; the wage motive, which is based in the worker trying to divert as much money as possible in the form of wages for himself; and the public motive. This one is achieved by being able to offer a commodity at a low price and with enough quality.
To Ford this – the public service – is the true motive of business.
Ford notices that the method of production is not the key. The purpose of the business is. Once you know the purpose of your business, you then adapt the production method to serve it. This clears the idea that the moving production line is the secret of Ford’s success.
Ford also notes that the size of a business is your choice. He says that if you are happy with having a shop with 25 workers you must not be surprised if someday someone opens a shop next to you with 100 employees and, using reduced costs deriving from economies of scale, will put you out of business.
He adds that size is necessary if you want to achieve something. When Ford could not find steel plates with the controlled quality he required he built smelters and bough his own iron ore. On the other hand, Ford’s employees were constantly searching for better methods to produce something so as to lower its product cost and increase its quality.
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