I Situation Analysis:

A. Industry:

Fiat Group Automobiles SpA (Fiat) was founded at the end of the 1800s destined to become rapidly one of the worlds leading industrial groups in the automotive sector. With 16 brands, 77 R&D Centers, 155 plants and 197,000 employees worldwide, Fiat had reached a status of worldwide excellence. Their success is known by their abundant cash flow, cost efficiency and fuel-efficient engine technology of their production system. This company was able to pass the economic crisis of the 90s by moving forward with their expansion plans and their partnership with Chrysler. In present time, Fiat has enhanced the integration with Chrysler with the objective of creating a strong and competitive global automotive industry. With more than 4 million vehicles sold in 2011, the combined group, Fiat-Chrysler, ranks 7th as the largest automaker worldwide.

Their joint ventures around the globe have given Fiat the opportunity to work with some of the most innovative and advanced technologies in the world. Also this greater geographic diversification gives them the opportunity to manage instability in individual markets. As shown on figure 2, their revenues by destination worldwide exceed

$76,931 in total by 2011 (Fiat, 2012). Fiat Company, excluding Chrysler had increased their revenues from $42,278 million in 2009 to $48,286 in 2011, making the Fiat Company itself more profitable and sustainable each year.

Figure 1: Revenues: $42,278(US Dollars in 2009),$48,286(US Dollars in 2011)

(Source: Fiat Annual Report 2011)

Figure 2 : Revenues by destination

(Source: Fiat Annual Report 2011)

The Fiat and Chrysler global alliance became one of Fiats major market strategies in order to minimize their barrier of entries to the NAFTA group (United States, Canada & Mexico). In this alliance, Fiat would take a 20% in Chrysler and gain access to its North American distribution network. In exchange, Fiat will provide

Chrysler with technology and platforms to build smaller, more fuel-efficient cars in the United States and provide equivalent access to Fiat's global distribution network.(Fiat 2012).The principal objective of the partnership was to provide both groups with significantly higher economies of scale and geographical reach at a time when they were struggling to compete with larger and global competitors such as Volkswagen, BMW and Nissan with market shares of 4.1%,2.9%, 7.8% respectively (Figure 3).

Figure 3

(Source: Good Car Bad Car, 2011)

Now days, most of Fiats competitors are focusing more on the environmental and profitability of their vehicles. Along with the Chrysler Group, the Fiat Company since the 1900s, started developing projects, as their new strategy, to significantly reduce fuel consumption and energy emission based on the high needs of the consumers of acquiring more fuel efficient cars at a lower price. As it was mentioned before, the joint ventures around the world with other automotive companies had allowed Fiat to extend their manufacturing plants and technologies to supply the customers needs. On the supplier side, Fiat Company needs to acquire a significant amount of raw material to produce their vehicles. A substantial increase in price of raw material due to economic changes, will also increase the operating cost and could reduce the profitability of the company.

In the Fiat case we can see that the Industry at that time was striving with a global economic crisis. As the case states, for most carmakers, sales decreased by 30% during 1992 & 1993. For the Fiat Company this was a main issue because they had 43% shares of the internal market and 12% of the European Market. But this crisis was seen more like an opportunity of innovation for the CEO of the R&D Center, Mr. Michellone. He had radically turn around the CRFs organization and innovation strategy by reinforcing their R&D activities and completed the development of the fuel-efficient engine technologies.

B. Environment

It is important to consider the environment in which the company is operating. In the Fiat case, the economic crisis during the 1990s played an important role in the companys opportunity for success. After the company struggles with the economic changes in the early 90s, the group management believed that this recession could be worked by lay off 12,000 employees in Italy and to restructure worldwide. As is referred in the case, Mr. Michellone believed that using this strategy, would bring a loss of most of CRFs states-of the art-competences and technology with significant effects on the competitiveness of the Fiats Group subsidiaries after the end of the crisis. Therefore, he decided to change the management style and introduce his ambitious industrial plan which differed from the traditional closed innovation model employed since its founding (Minin,2010).

Another trend that has to be considered is the cultural and social values. At it is stated in the Fiat case, as part of their innovation plan for the CRF was to transfer technologies to their external customers allowing the company to have more diversification in international markets. Although the methodology might be standard for any of their processes, they had to adapt to the language and culture of the place of their external customer to allow a more effective communication between them.

Also because the Group operates in a number of emerging markets through joint ventures they are subject to risks inherent to operating globally, including: import and export restrictions, trade restrictions or requirements, foreign exchange controls, among

others. These issues could affect and have effect on the Groups Business prospects, earnings and financial position (Fiat annual report, 2011).

C. Organization:

This case specifically is directed to Fiats Research & Development Center (CRF). This center is responsible for the applied research and technology development activities of all its controlled companies. During their restructuration, they develop a new objective and strategic approach defined as competitiveness for customers at competitive prices(Minin, 2010). With this new approach an orientation to the market was more structured than before.

Since the early 1990s, the CRF was rearrange to a Matrix Structure changing the traditional formal structure implemented before. As Acona et al. states, a matrix organization picks two strategic grouping dimensions and gives them equal weight in the organizational structure, making people with similar skills, work on projects teams making it more dynamic and effective. Traditionally, CRF had a functional oriented organizational structure but it proved to be rigid and distant from the needs of CRF external clients under the open innovation model(Minin,2010). Also by introducing a horizontal dimension in this matrix structure, help improve the research center ability to quickly respond to external clients requests.