With companies like Uber transforming the way people travel, it is more important than ever for car-makers to innovate.
Ford is an interesting case, representing the dynamics of business transformation in the rapidly-changing automotive industry. In this article, we examine Ford’s innovation shift, particularly the turnaround efforts that followed the economic crisis of 2008. These strategies include the a focus on “One Ford”, led by newly-appointed CEO Alan Mulally.
The Beginnings of Innovation at Ford Motor Company
In 1903, Henry Ford launched the Ford Motor Company. Henry Ford soon became an innovation pioneer, bringing his company to the center of what would be a very profitable automotive industry. One important driver of Ford’s success was the development of the first moving assembly line in 1913, which turned out new cars faster and at a far lower cost. Ford’s groundbreaking innovation set the standard for how automakers managed mass production thereafter.
Ford began with a vision: affordable cars for the masses. The rise of Ford depended on its ability to achieve this unique value proposition, appealing to working class families, not just the affluent. The assembly line innovation made the vision a reality, reducing Model T production time from 12 hours to just 30 minutes.
Henry Ford’s company built a winning business model through its dedication to finding and implementing a more efficient means of building cars. For decades, Ford remained one of the most profitable automobile companies in the United States and has led innovation within the industry since its debut more than a century ago.
Why did Ford Need a Turnaround?
Ford enjoyed decades of high profits, but success is never guaranteed. By 2006, signs of changing tides were unmistakable. The company was struggling, thanks to rising labour costs, declining market share, and a host of other problems. In that year, Ford reported a loss of $12.7 billion, the largest in the company’s history. Alan Mulally began his tenure as CEO in September of that same year, indicating immediately that turnaround plans were already in the works.
A difficult road became even more unforgiving in 2008, when the financial crisis brought the company to the brink of bankruptcy. But the “One Ford” plan was in motion, and over the next three years, returned the company to profitability.
So how did Mulally create this shift?
Finding Unity through the “One Ford” Strategy
On its face, “One Ford” sounds simple enough. The memo Mulally sent to employees broke it down into four easy objectives:
- Bring all Ford employees together as a global team.
- Leverage Ford’s unique automotive knowledge and assets.
- Build cars and trucks that people wanted, and valued.
- Arrange the significant financing necessary to pay for it all.
Bringing Ford together was a monumental undertaking. Over 100 years, the company had expanded globally. With soaring profits, efficiency took a backseat to growth. By 2006, the company was organized into disparate global divisions, with semi-autonomous management and even different product platforms. Company assets and supply chains were scattered and full of duplicate effort.
“We have been going out of business for 40 years”
Mulally started with a bold move, mortgaging almost $25 billion in assets. At the time, he took criticism for the decision, but the working capital carried Ford through the recession and gave Mulally the leeway to execute his plan.
Mulally returned to the company’s efficiency roots, mirroring Henry Ford’s original innovations. He spun off secondary brands like Volvo, Jaguar, and Mercury, and brought the company’s 27 different product platforms down to nine. Today, every Ford model is built on one of these nine platforms. Increased sales combined with fewer disparate platforms meant greater efficiency and greater margins.
But the turnaround wasn’t just financial, and wasn’t just about efficiency. “One Ford” also meant creating a culture of innovation. Mulally established cross-functional teams and a culture of open collaboration. To drive home his point, he stood up at a town hall meeting and famously claimed “We have been going out of business for 40 years.” Spurred on by bold decisions and and an open culture, employees rallied around the turnaround effort. The union negotiated much lower rates, which reduced pay but saved the jobs of over 45,000 employees.
The culture of collaboration and innovation led to important product changes that led the industry, from Aluminum truck bodies to EcoBoost engines. SYNC was the first hands-free system of its kind, and gave Ford an opportunity to drive open innovation, inviting outside developers to build on its platform.
Ford still continues to overhaul its business and build on the work Mulally put in place. By re-focusing efforts and establishing a culture of innovation, Mulally put Ford in a strong strategic position for years to come.