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Ford Motor Company: An Atypical Case In 2006, the FordMotor Companywas chalking up a $13 billion loss and expected to lose even more the following year. Chairman William Ford III reluctantly concluded that his best efforts were no match for the executive in!ghting and entrenched mind-sets that were dragging the company down. His search for a tougher successor yielded Alan Mulally, the number two executive at Boeing.Mullaly had beenpassed over for the top job in favor of James McNerney, who had left 3Mwithmixed reviews. Ford convincedMulally that Ford could give him what Boeing wouldn’t. Mullaly accepted what he knew would be a formidable challenge.
To begin with, deteriorating political dynamics needed attention. First up was the media, who would give the public its !rst impression of the new Ford chief. Step one was leaked memos from Bill Ford bemoaning the lack of honesty at the top of the company and calling for immediate and dramatic change. Mullaly and his media staff cultivated key news sources and carefully staged the public announcement of his selection to assure that the new show opened to mostly rave reviews.
A second challenge was to make sure employees came aboard for a new direction. On his second day of work Mullaly and Bill Ford led a joint town hall meeting in Detroit that was broadcast to workers around the world. After Ford introduced him, Mullaly said he was honored to be asked to join such a storied organization. Then he opened the “oor to questions and gave upbeat but honest answers.Would he bring in a new executive team?No, he said, his teamwas right there.When the head of a strategic planning group asked if her unitwould have a bigger role, he told her no, strategy is a job for “our team,” not a staff group.
Two weeks later, Mullaly sent a frank e-mail message to everyone at Ford that described his “!rst impressions.” He was upfront about some bad news: Ford’s “gut-wrenching” circumstances meant that “some very good and loyal people are going to leave this company” in the months to come. But, he added, he was excited about the many people who were “bursting with ideas” and wanted to share them in e-mails, hallways, or the cafeteria. He ended on an upbeat note: “Everyone loves a comeback story. Let’s work together to write the best one ever.”
Two more key constituencies were the board of directors and the Ford family. Mulally tested the same message with both groups: Ford needed to simplify its product line, produce cars that customers wanted, and develop a clear view of the future. Both groups responded enthusiastically, and many of Henry Ford’s descendants happily signed their names on a diagram of the family tree that Mulally had brought with him to their !rst meeting.
Mulally also understood that Ford needed help from the United Automobile Workers (UAW). Both company and union were in a tough spot. Ford’s survival depended on negotiating a lower cost structure in its UAW contracts. The autoworkers’ leadership
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knew that Ford was in deep trouble and feared a disaster for its members if the company failed. Top leadership from both company and union held many meetings, at which Mulally promoted his mantra of “pro!table growth for all.” His case centered on the fact that Ford was losing money on every car it made in North America. He argued that Ford had only three options: keep losing money and go out of business, move production offshore, or get a union contract that would let them build cars in the United States. The union reluctantly bought the argument, and after many rounds of bargaining and some last-minute high drama, company and union agreed on a deal that enabled Ford to build more cars in America.
Still another critical political challenge was getting the support of Ford’s senior executives, including some who had hoped to become CEO. The proud, intensely competitive group of longtime Ford veterans was initially unimpressed with the new chief. To some, Mulally seemed like a smiling, overgrown Boy Scout who lacked the smarts, toughness, and gravitas to run Ford. He apparently didn’t even know how to dress, showing up in a dark-suit culture wearing a sport coat and olive pants. Many in the room felt that the auto industry was too tough for Mulally to understand, and Ford’s technical of!cer put it to him directly: “We appreciate you coming here from a company like Boeing, but you’ve got to realize that this is a very, very capital-intensive business with long product development lead times. The average car is made up of thousands of different parts, and they all have to work together “awlessly.”
“That’s really interesting,” Mulally replied, with his usual genial smile and un”appable aura. “The typical passenger jet has four million parts, and if just one of them fails the whole thing can fall out of the sky. So I feel pretty comfortable with this.” This quieted naysayers for the moment, but Mulally knew that much of his team still wondered if he could do the job. Instead of trying to convince them directly, he turned to structural changes to bring clarity and focus to the top team as well as Ford’s global operations.
Mulally quickly concluded that Ford needed a major overhaul of a “convoluted management structure riddled with overlapping responsibilities and tangled chains of command.” He implemented what had worked for him at Boeing, a matrix structure that crisscrossed the strong regional organizations with upgraded global functional units (as described in Chapter 4).
Mulally knew that the structure would work only if the top executives came together as a team. He pulled out another structural device he had developed at Boeing: the Business Plan Review (BPR). He replaced dozens of high-level gatherings with one key meeting— same time, same place, every week. Attendance was required, in person or via video hookup, for everyone who reported to him. He put in new rules. In the old days, no one
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wanted to admit that anything was going wrong, so executives ritualistically came to meetings with thick binders and a bevy of assistants to help them hide problems under a blizzard of details. Executives now had to make their own 5-minute reports, using a standard format, on progress against plan. Mulally asked lots of questions but told them it was okay if someone didn’t know an answer. “Because we’ll all be here again next week, and I know you’ll know by then.” Every item in each report had to be color coded: green for on track, yellow for needs attention, and red for anything that was off plan or behind schedule. “This is the only way I know to operate,” he told them. “We need to have everybody involved. We need to have a plan. And we need to know where we are on the plans.”
The head of Ford’s international operations, Mark Schultz, had hoped to be CEO himself and didn’t like the new rules. He dug in his heels. At the !rst BPRmeeting, he said he wanted his chief !nancial of!cer to report for him. When Mulally told Schultz to do it himself, he tried, but was obviously unprepared. After a few minutes, Mulally had heard enough and tried to cut him off, but it took four tries before Schultz got the hint. After the meeting an angry Schultz told Mulally that he would not be able to attend all the BPR meetings because he had important work to do in Asia. With his usual smile, Mulally told him he didn’t have to come to meetings—but couldn’t stay on the team if he didn’t. Schultz !gured he could play by his own rules because his longtime !shing buddy, Bill Ford, would protect him. That was a misjudgment.WhenMulally eliminated his job and offered him a smaller one, Schultz retired rather than accept the demotion.
Other executives got the message: Mulally was in charge, and Bill Ford was solidly behind him. As executives began to fall in line, Mulally was able to turn his attention to two pressing human resource issues: talent at the top and morale throughout the company. He respected Ford’s executive talent and felt that the company needed continuity rather than massive turnover in the senior leadership. He asked his HR chief to develop retention plans for all key executives. If Mulally heard that one of them was thinking about leaving, he would drop by his or her of!ce to ask directly, “Are you going to stay?” Usually the executive did.
Mulally’s major HR challenge was rebuilding the commitment and morale of Ford’s workforce in a time of downsizing and dismal business results. At headquarters, he was a master of leading by wandering around. He often skipped the executive dining room to eat in the company cafeteria, standing in line with his tray and chatting up accountants or sales analysts. He popped into meeting where he wasn’t expected, asking, “What are you guys talking about?” Lifers who had waited forever for a CEOwho would listen started sending e- mails to Mulally. He answered them all and sometimes followed up with a telephone call.
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One engineer showed up at Mulally’s of!ce with a pile of schematics, including drawings for more than a dozen different hood structures. He wanted to show the new chief just how muddled Ford’s design and engineering were. The drawings con!rmed what Mulally already suspected. He asked if there was a way to reduce the complexity. When the engineer said yes, Mulally put him in charge of the effort.
To reach the thousands of employees beyond Detroit, Mulally traveled to locations around the world, asking questions and reinforcing the message that Ford was coming back. He issued every employee a wallet card that carried the essence of the plan going forward: “One Ford. One Team. One Plan. One Goal.”
