In 2009, General Motors and Chrysler went bankrupt and required a government bailout to stay in business after U.S. auto and truck sales plunged 37 percent in 2008. The initial cost of the auto bailout was $60 billion—$49.5 billion to General Motors and $10.5 billion to Chrysler. GM emerged from bankruptcy after wiping out its investors and shedding debt by forming a new company with the U.S. government owning the majority of its shares. Chrysler emerged from bankruptcy after the U.S. government arranged for Fiat SpA to become the majority owner.
Ford Motor Company survived without a government bailout and in April 2013 reported first quarter pre-tax profit of $2.1 billion, driven by the highest North American profit in more than a decade. April 2013 sales were up 18 percent, with car sales up 21 percent, amounting to the best sales performance since April of 2007. Its F-150 pickup, the best-selling pickup for 36 years, posted a 24 percent increase.
How did Ford avoid bankruptcy when GM and Chrysler bit the dust? The answer is as simple as it is profound and offers an important lesson for every business owner. It took a candid self-assessment to show the CEO that he was wearing too many hats to manage his business effectively. This realization caused Bill Ford to search for a new CEO to come into Ford with an outside, fresh perspective.
Bill Ford told CNBC that in 2006 he performed a painful self-assessment when Ford was facing a $12.6 billion loss a full two years before investment firms on Wall Street collapsed, major banks failed and the Great Recession began. He stated, “At the time, I was chairman, I was CEO, I was COO and I was president. I was wearing all the hats.” When Ford told this to the board of directors, they asked him what he needed, a new CEO or a new COO? Bill Ford responded, “I really don’t much care. What I want is the right person.” Bill Ford, head of one of the largest corporations in the world—which is also one of the best-known “family” businesses whose name still adorns the company headquarters in Dearborn, Michigan—was floundering because he was wearing too many hats in the business.
So the board began a search for the right person—a search for an outsider with CEO level experience to bring in a fresh perspective, someone who knew the “business of the business” but not necessarily the car business. They found that person in Alan Mulally, Boeing executive vice president and the CEO of Boeing Commercial Airplanes, who had largely been credited with engineering Boeing’s resurgence against Airbus.
Bill Ford’s hiring of Alan Mulally, an outsider, was met with resistance inside Ford’s executive ranks. During Mulally’s first meeting with Ford’s top executives, several Ford execs pushed back against their new boss and challenged his outsider’s point of view. Ford’s top executives, most of whom had spent decades in the auto business at Ford and other auto companies, bluntly told Mulally that building cars was very complex, that he didn’t know much about them and that the auto industry was much different than the commercial aircraft business. Bill Ford, in recounting the story on CNBC, told how Mulally responded by explaining, “Alan said, ‘I think I do have a sense of how complex it is. You make a vehicle that has 3,000 moving parts. I make one that has 30,000 moving parts and has to stay up in the air. So talk to me about difficulty and complexity.’ And that kind of shut everybody up.”
So how did Mulally save the “Blue Oval” with his third-party, objective perspective and accomplish what has been deemed as one of the greatest turnarounds in business history? Mulally, who was a fast-rising engineer at Boeing with proven project management skills, led the development of the widely successful “Triple 7” aircraft while fighting back against the government-funded competition of the Airbus consortium. Mulally brought to Ford a unique combination of the attention to detail skills of an engineer and the invaluable perspective of a third-party, objective point of view of Ford’s business operations.
In writing about Mulally’s unexpected success, Hoffman wrote, “Mulally ripped off the bandage, cauterized the wound and cured the disease.” The author concluded, “Only an outsider could do that.” Mulally made the difficult decisions which only a “non-car guy” could—generating needed capital by selling off Ford’s stake in Mazda and its prestige European luxury brands of Volvo, Jaguar, Land Rover and Aston Martin so that the company could focus on the core “Blue Oval” brands. Mulally said Ford had over 90 car models and it was hard to produce that many models at a worldclass level.
In 2006, Mulally’s foresight to secure needed capital so Ford could invest in product development and protect the company from a downturn in the economy (two full years before the start of the Great Recession) resulted in the company mortgaging all its assets, including the famed “Blue Oval” logo, for a credit line of $24 billion. Mulally’s eye on planning for the future allowed Ford to avoid the bankruptcy fate of its cross-town rivals GM and Chrysler to save the Ford “family business.”
As an outsider, Mulally saw a corporate structure that didn’t make economic sense. There were four different regions—The Americas, Europe, Australia and Asia Pacific— each with their separate vehicles for each market on the long held belief that consumers in each of those markets wanted different types of vehicles. Moreover, these regions within the company created a management system, which some industry observers said was fraught with a “dysfunctional culture of infighting, backstabbing and excuses.” The development, engineering and manufacturing costs for such duplication was a heavy cost burden on the company.
Mulally’s solution, called “One Ford,” was to build future products on a limited number of platforms to dramatically reduce costs. Mulally said, “It costs so much to engineer a vehicle. If you can do that and you can then provide that vehicle to all four regions of the world and everyone is sharing in that engineering expense, clearly all parts of the business are benefiting. We actually can more rapidly and more realistically expand our offerings around the world to a degree that we never have been able to do in the past.” In addition, Mulally put new systems in place, including weekly meetings for top management, to foster a new culture of teamwork as part of his “One Ford” plan.
In an article published in Directors & Boards, authors Dennis Carey and John J. Keller, wrote, “Given Ford’s turnaround, it’s amusing to recall the skepticism that greeted Mulally’s hiring. Could a guy who has never worked in the auto industry or run a car company ever be able to handle the complexity of Ford and the auto industry?” The results speak for themselves, and it was Mulally’s outside, objective perspective that gave him the critical ideas needed to save the future of Ford. No insider could have done it.
Mulally’s perspective not only was evident in reducing costs, but also in creating a new management system centered around a weekly management meeting and a wall full of charts to mark the progress of every critical element in the company’s performance and product development. Mulally was not only the CEO, but he also became the project manager in chief.
Mulally established a weekly Thursday meeting for all top managers, including managers overseas via video conferencing, to keep track of every critical business variable. According to an article in the Los Angeles Times, “He introduced weekly meetings that were mandatory for all senior managers. Executives were barred from using BlackBerrys or belittling one another; they were required to grade their own progress on targets truthfully and to confront problems head on. Initially, Mulally faced resistance in a company—indeed, an industry—that has always viewed outsiders with suspicion.”
An article in Fortune described the Thursday meetings by stating, “He drives performance the way he did at Boeing, with a business plan review, a meeting with his direct reports, held every Thursday.”
At one of his early meetings with employees upon joining Ford in 2006, Mulally was asked whether Ford would be able to remain in business: “Was Ford going to make it? I don’t know,” Mulally replied. “But we have a plan and the plan says we are going to make it.”
The world of business today is celebrating how Mulally has brought Ford back from the brink of failure to a profitable present and a promising future. The “Mulally Magic” can be replicated by every business owner who brings in a reputable business analytical and consulting services company to improve its operations by:
- Bringing in an objective, third-party perspective
- Creating a strategic business plan
- Focusing on the long-term cash flow needs of the company
- Creating new systems to lower costs
- Developing a new system for management accountability
- Improving the profitability of the company
- Securing the long-term sucess of the“family” business
What may be a surprise is that what Mulally did at Ford can be done by any business.
“Bryce Hoffman has done a stellar job of capturing the Ford story—and more to the point showing us how Mulally did it. American Icon is a story of leadership that offers valuable lessons for organizations of all sizes,” says Lee Iacocca, former CEO of both Ford (where he was the brilliant mind behind the development of the iconic Mustang in the 1980’s) and CEO of Chrysler where he rescued it from collapse in the 1980s. This is a lesson business owners not only should read about but also should learn.
Bill Ford had the business sense to look outside his company to save the family business. Now it’s up to every business owner to drive home the same results by seeking out an objective, third-party point of view to ensure the long term success of the business.
Success is a thing that sometimes just happens, but in the case of Ford it did not just happen. Yes an outer fresh eye is what every company needs, at least from time to time.