Ford Motor Company's acquisition of Volvo Cars : the R&D integration process problems and problem areas

Abstract: It is of great importance for automobile companies to achieve benefits of scale in the development of new products because of the high costs involved. During the 1990s the probability of achieving benefits of scale, in order to make the needed savings, has changed dramatically. Model volumes have dropped, resulting in difficulties in obtaining economies of scale within the company limits. This change, together with the already high and still growing costs involved in the development of new technology, has forced the industry to form strategic alliances and acquire or merge with competitors to be able to develop models and brands as derivatives of product platforms and thereby achieve cost-effective solutions. Despite the aforementioned changes, previous research has not specifically focused on areas that must be identified when integrating R&D processes in order to achieve benefits of scale and costeffective solutions in acquired or merged companies. The aim of this licentiate thesis is to identify R&D integration process problems and integration process problem areas that prevent companies from reaching cost-effective solutions and economies of scales in the merged R&D process. One of the most recent acquisitions in the automobile industry, Ford Motor Company's acquisition of Volvo Cars in 1999, has been studied in the first years following Ford's acquisition, and constitutes the empirical base for this thesis. The R&D integration process has been followed, and data for the integration process was gathered between 1999 and 2001. Structured interviews were conducted and triangulation techniques have been used to verify the findings from these interviews. Data on the product development organization, such as project documentation, financial reports, implementation strategies etc., has then been used to supplement data from the observations and interviews. The results indicate how company differences in the R&D process require specific production systems, organizations and responsibilities, which are difficult to sort out without specialized support and tight control during the early stages of the integration process. Furthermore, areas such as engineering standards, product architecture and release systems need to be synchronized right at the start of the integration process, in order to be able to optimize the R&D processes. From the acquiring company's point of view it has been easy to carry out advanced engineering projects, in contrast to product platform projects. In the acquired company, however, problems due to differences in accounting principles occurred, resulting in an inadequate basis for decision-making, which in turn results in product project cancellation due to inadequate financial arrangements.