Interesting article on Ford

[Byteme]

Kind of makes me feel better about Ford's future.

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BusinessWeek
Alan Mulally: The Outsider at Ford
Friday March 6, 8:08 am ET
By David Kiley


Almost 30 months after Alan R. Mulally left Boeing (NYSE:BA - News) to become chief executive of Ford Motor (NYSE:F - News), it's still easy to peg him as an industry outsider. Talking to Wall Street analysts in November, Mulally described the debut of the tiny, fuel-sipping Ford Ka at the "Paris Air Show" when he meant the "Paris Motor Show." Earlier this year, Mulally showed how he'd tried to stop appending an airplane doodle to his signature, but struggled to ink a car instead. "Rats. I still haven't got the car down," he said, in the "aw shucks" Kansas delivery that has become as familiar in Detroit as his off-the-rack blazers and shirts.

Outsider CEOs have a decidedly varied track record. Some bring in their own people and impose a jarring management philosophy on a corporate culture, as Robert Nardelli did at Home Depot with such mixed results that the board pushed him out. Some are unsuited to running an unfamiliar business. Former S.C. Johnson CEO William Perez's 13-month stint at Nike (NYSE:NKE - News) comes to mind. Others tread more softly and succeed, like Eric Schmidt, the former Novell (NasdaqGS:NOVL - News) guy who runs Google (NasdaqGS:GOOG - News). Mulally arguably falls into the latter category. Since arriving he has left most of the team he inherited in place and quieted talk that an aerospace guy couldn't run an automaker.

Of course, Ford remains a very sick company. It lost $14.8 billion in 2008, the most in its 105-year history, and burned through $21.2 billion, or 61%, of its cash hoard. Tanking car sales have made scrap metal of Mulally's 2006 vow to make money this year, and he acknowledges that the best he can hope for is to break even in 2011.

But the man who chose Mulally, Chairman William Clay Ford Jr., says his CEO's progress in shaking up a calcified culture has thus far kept Ford independent and away from the U.S. Treasury's loan window. Under Mulally, decision-making is more transparent, once-fractious divisions are working together, and cars of better quality are moving faster from design studio to showroom. John Casesa, whose Casesa Shapiro consulting firm advises the industry, is impressed, too. "The speed with which Mulally has transformed Ford into a more nimble and healthy operation has been one of the more impressive jobs I've seen," he says. "It probably would have been game over for Ford already but for the changes he has brought."

That Mulally, 63, is the only Big Three CEO who hasn't begged Washington for money is evidence that Ford is better positioned than General Motors (NYSE:GM - News) and Chrysler to survive and even prosper. So is the fact that Consumer Reports this month recommended 70% of Ford's vehicles, vs. 19% of GM's and none of Chrysler's. The danger is that forces beyond Mulally's control will wash away the progress he has made so far. Mulally, whose optimism can verge on corny, won't countenance negativity. "It's the toughest environment I've ever seen," he says. "But we will make it through if we stick to the plan."


A History Of "Organ Rejection"
When Mulally was tapped as Ford CEO in the spring of 2006, reaction inside the company ranged from suspicion to outrage. What did an airplane guy know about the car business? "There were lots of raised eyebrows," recalls Bill Ford. The management team was particularly rattled, especially those who were hoping to fill the job themselves. One by one they stopped by Ford's office to ask him what the heck he was doing. Ford told them the company needed fresh perspective.
No one understood the travails of running the automaker better than Henry Ford's great-grandson. The company was bureaucratic and hostile to new ideas. And below the C-suite, it hadn't yet sunk in that Ford was fighting for its life. The chairman also knew his company had a history of "organ rejection," or spurning outsiders. He had watched executives from outside arrive at Ford only to be isolated and even hazed. He resolved to give Mulally all the help and advice he needed.

Even before Mulally accepted the job, the two men had candid exchanges about Ford's problems. One time, at Ford's Ann Arbor home, Mulally wanted to know why the company had allowed forays into luxury makes such as Jaguar, Land Rover, and Aston Martin to distract it from the Ford brand. Bill Ford told Mulally it was worse than that: Executives had come to view working on Ford, rather than the luxe brands, as a "career problem." Mulally's biggest challenge, Ford said, would be breaking down silos, specifically the operating regions around the world -- Europe, Asia, South America, and Australia -- that were more interested in defending their turf than working together. It was a culture, Ford explained, where one's career had come to mean more than the company.

If Ford had one key insight to share, it was this: "Ford," he told Mulally, "is a place where they wait for the leader to tell them what to do." His point was that Ford staffers below the top echelon weren't sufficiently involved in decision-making. That resonated with Mulally. At Boeing, he hadn't always been the most inclusive manager -- until then-CEO Phil Condit told Mulally he needed to broaden his view to running an entire company rather than just a division and hooked him up with executive coach Marshall Goldsmith.

Goldsmith's team interviewed some 25 of Mulally's subordinates and peers to pinpoint what needed work. Mulally got high marks for coordinating Boeing's global supply chain and hitting production targets. But he was criticized for leaving too much of his team out of the loop. Mulally, they said, needed to check in more often to let his reports know if they were headed in the right direction. Mulally included more people in the decision-making process -- and asked that they be coached as well. "It would be far less effective for this process to be just about me," he says. "I wasn't going to succeed if my team didn't succeed."

By the time Mulally took Ford's helm, he had met with every senior staffer and asked a trunkful of questions. "Alan said there was a lot he didn't know, but that he was a quick study," says Ford. But once he settled in, Mulally began providing the answers, meeting with employees in groups ranging from 25 to several hundred. No speeches. Just off-the-cuff remarks followed by 45 minutes or so of Q&A.


Meetings About Meetings
Mulally told employees Ford's existing turnaround blueprint was essentially sound. Besides dramatically reducing head count and closing factories, the "Way Forward Plan" called for Ford to modernize plants so they could handle multiple models rather than just one. A second piece of the plan was more controversial: a switch to vehicles that could be sold in several markets. This required a centralization that was anathema to the divisions around the world -- fiefdoms used to developing cars themselves. This was the part of the plan that Mulally wanted to accelerate. Some executives sought meetings with Bill Ford to complain. "I didn't permit it," he says.
Mulally knew that to get his way, he would have to change Ford's culture. In the coming months, Ford employees would hear him say, over and over: "That doesn't work for me." This included Ford's penchant for cycling executives into new jobs every few years. The idea was to groom well-rounded managers. But no one was in a job long enough to make a difference or feel accountable. In the five years before Mulally arrived, executive Mark Fields ran the Mazda Motor affiliate, Ford Europe, the luxury Premier Auto Group, and the North and South American businesses. "I'm going into my fourth year in the same job," says Fields, still president of the Americas. "I've never had such consistency of purpose before."

Another thing that had to change: a culture that "loved to meet," as Bill Ford puts it. Managers commonly held "pre-meetings," where they schemed how to get their stories straight for higher-ups. It was a classic CYA maneuver and antithetical to problem-solving. Mulally had seen this kind of thing before when he was running engineering at Boeing's commercial plane division. In 1997, Boeing took a $2.7 billion charge when commercial suffered a communications breakdown and failed to match production to rising demand; two assembly lines closed down for a month. When Mulally became CEO of the commercial plane division in 1999, he kicked off a new era of radical transparency that made it harder to hide problems.

He took that philosophy to Ford. As at Boeing, Mulally was determined to have a constant stream of data that would give his team a weekly snapshot of Ford's global operations and hold executives' performance up against profit targets. Constantly updated numbers -- later validated by pre-earnings quarterly audits -- would make it impossible for executives to hide unpleasant truths. But that wasn't the only objective. "Information should never be used as a weapon on a team," says Mulally. Rather, the numbers would help executives anticipate problems and tweak strategy accordingly.

The heart of Mulally's data operation is located in the Taurus and Continental rooms (named after the cars). They are beige and white spaces, about 10 foot by 20, down a flight of stairs from his 12th-floor office. The walls are covered with color-coded tables, bar charts, and line graphs. They represent what's going on in every corner of Ford's operation -- China, Russia, South America, Ford Motor Credit, and so forth. Divisions that aren't living up to profit projections on a given week are red. Those that are hitting their numbers are green. Yellow means the results could go either way at the next meeting.

When Mulally first instituted the weekly Business Plan Review system, it was viewed not only as a pain in the neck but also like playing poker with all your cards showing. James Farley, a former Toyota (NYSE:TM - News) hand Mulally hired as his chief global marketing executive, had his own reasons to be uncomfortable. In 22 years at Toyota, Farley had experienced uninterrupted growth. So it was a blow when his key metric, market share, turned red last September. GM was heavily discounting its pickups, making it tough for Ford to clear out its 2008 trucks before an all-new F-Series arrived in October. "I am my market share," Farley recalls. "So I didn't like it one bit."

But when he saw how Mulally used the data, he became a believer. The team agreed to delay the launch of the F-Series truck by about six weeks, dial down fourth-quarter production by 40%, and focus on clearing out the '08 trucks that had piled up when gas prices soared last summer. The team swallowed hard because delaying the new F-Series, Ford's biggest moneymaker, would worsen already dismal yearend losses. But, says Farley, "we had total consensus that it was the right thing to do."

In November, Mulally decided that the dire business conditions, and Ford's new ability to react to rapidly changing circumstances, warranted daily meetings with the global team. Insiders say these led Ford to strike a new deal with the union on retiree health care before GM and Chrysler, and helped it price discounts and boost market share four months in a row.


Coherence And Cooperation
Two and a half years after taking the reins at Ford, Mulally certainly can't point to the conventional measure of corporate success: profits. So what has he achieved so far?
Within three months of his arrival, Mulally sold Wall Street on a $23 billion recapitalization, one that Ford had been working on but about which investors had been lukewarm before Mulally's arrival. That has meant the difference between death and just being sick. Because he had no loyalty to Ford's luxury brands, Mulally overrode internal opposition and sold Jaguar, Land Rover, and Aston Martin before buyers became scarce.

Mulally has imposed discipline on a company that veered from one strategy to the next. Brands such as Lincoln and Mercury changed their positioning every year. Today the plan, hashed over with dealers who have been given more say, is locked: Lincoln will focus on premium sedans and SUVs, while Mercury will sell premium small cars and crossovers.

Now that Ford's far-flung fiefdoms are starting to collaborate, a once wasteful and balkanized vehicle development system is beginning to cohere. To make sure it all runs smoothly, Mulally tapped a Ford veteran, Derrick Kuzak, as his global car development chief, a first for Ford. Kuzak has pushed his people to improve interiors, sold management on small gas-sipping engines that won't cost consumers as much as hybrids, and created huge cost savings by making sure SUVs and trucks share more parts. "He has the confidence of management and people working for him, so he gets the right projects through and the wrong ones stopped," says design consultant Jim Hall of 2953 Analytics. Kuzak's big test comes next year, when the U.S. starts getting the same acclaimed Ford vehicles sold in Europe, rather than the dumbed-down versions of the past.

Ultimately, it's the cars that Mulally will be judged on.

Mulally, in part, has staked his reputation on the 2010 Taurus sedan. When he became CEO, the Taurus name had been relegated to the museum of dead brands. Ford had so botched successors to America's best-selling car of the 1980s that it had decided it was a lost cause. Mulally saw things differently. He believed the Taurus name had value and before long challenged his team to deliver a new car in 24 months using the existing platform but with a whole new look.

The Taurus that will roll into showrooms this summer looks nothing like the old model, which Mulally compared to "a deflated football." Sleek and chiseled like Ford's European sedans, it already has wowed critics. The question is whether $35,000 for a fully loaded model will fly in a recession. After all, the previous incarnation sold for a discounted 16 grand.

Before the downturn upended many assumptions, Team Mulally figured Americans would buy 14.5 million cars this year and that Ford would sell 15% of them. Now, as it idles factories and contemplates more employee buyouts, Ford has cut its estimate to a worst-case 10.5 million. JPMorgan analyst Himanshu Patel believes Mulally may have to tap a $13 billion government credit line by Christmas. That wouldn't be fatal -- but it would be a setback for the outsider who has fought so hard to distance Ford from its Detroit rivals.

[Nethead]

Byteme:  Thanks for posting this article, ByteDude!  I hope things get better, but I'm hardly alone in thinkin' that that won't happen soon--and that the likelihood that things will get worse in the short term is far greater than the likelihood that things will get better in the short term. 

If things started getting better next week, Ford would definitely survive, GM would likely survive, and it's faintly possible that even Cerberus/Chrysler would survive.  If things don't get better until two months hence, Ford might survive, it's faintly possible that GM would survive, but Cerberus/Chrysler would definitely be history.  If things don't get better until four months hence, Ford might not survive and GM would be history.  The concern here is that the failure of GM might take so many suppliers into the toilet with them that then even Ford could not survive because of the cost of providing for itself the many items that are no longer available from those defunct suppliers...That's what can happen when you subcontract out too many essential (needed for survival) parts & services...

At least Ford comes into these tumultuous times with lots of new/updated products: recently modernized V8s & V10s (the 3-valvers & 4-valvers as opposed to the earlier 2-valve versions of these engines), a brand-new V6, and soon-to-be-available new I4s and even newer  V8s.  A new 6-speed automatic that's getting upgraded even as I type, a highly-praised hybrid program in place and getting very positive press, numerous new/significantly upgraded vehicles, and a pipeline being developed for introducing its acclaimed European products into the US market within two years.  Production has already been scaled back in anticipation of the worst-case domestic marketplace, and a lot of Jac Nasser acquisitions were sold off before the economic collapse.  Despite all that, things are still bad--but infinitely less disheartening than the situation confronting the leadership () of Cerberus/Chrysler and GM.  Frankly, I don't envy any automotive CEO's job in these difficult times.  

[Byteme]

Byteme:    Frankly, I don't envy any automotive CEO's job in these difficult times.  

The more I think about it the more I think Lutz saw the writing on the wall and bailed before the collapse.  That way his "sterling reputation" would remain intact. 

As you can tell I'm not a fan of his.

[the Teuton]

The more I think about it the more I think Lutz saw the writing on the wall and bailed before the collapse.  That way his "sterling reputation" would remain intact. 

As you can tell I'm not a fan of his.

I believe I said this last year after having lunch with the president of Ford de Mexico and I will say it again:  Alan Mulally is a pretty kickass CEO.

Also, I don't think it's in Lutz's control at GM what happens beyond product development.  Sure, not all of his ideas have been successes, but compared to where GM was before he got there, I don't really think anyone can complain at the work he's done too much.

[Byteme]

I believe I said this last year after having lunch with the president of Ford de Mexico and I will say it again:  Alan Mulally is a pretty kickass CEO.

Also, I don't think it's in Lutz's control at GM what happens beyond product development.  Sure, not all of his ideas have been successes, but compared to where GM was before he got there, I don't really think anyone can complain at the work he's done too much.

He was also Vice Chairman.  I suspect his reach exceed new product.

[FoMoJo]

Good article.

Mulally, with his management acumen, has given Ford a good chance at survival.  It helped that they had a pretty good compliment of people already on board; the likes of Mark Fields, Peter Horbury, etc.  Cudos as well, to Bill Ford; for realizing that he couldn't do the job on his own.

[Nethead]

And did I mention that Ford builds Aston Martin's Vanquish/Vantage 6.0L V12?  Now that Aston has been sold, there's a thoroughly modern V12 that fits into the Mustang engine compartment without need of a Sawzall on the firewall and/or a sledgehammer on the inner fenderwells?  I mean, once they sold AM there's no longer an impediment to using the hardware that produced the V12s for Vanquishes and Vantages to produce V12s for your own vehicles, eh?

Talk about  the killer engine option of all time  (without having to do squat other than to possibly fabricate the appropriate engine mounts and to drill the necessary boltholes to match the V12 block to a Tremec 6060)!  WooHoo!!

[Nethead]

Good article.

Mulally, with his management acumen, has given Ford a good chance at survival.  It helped that they had a pretty good compliment of people already on board; the likes of Mark Fields, Peter Horbury, etc.  Cudos as well, to Bill Ford; for realizing that he couldn't do the job on his own.

[the Teuton]

And did I mention that Ford builds Aston Martin's Vanquish/Vantage 6.0L V12?  Now that Aston has been sold, there's a thoroughly modern V12 that fits into the Mustang engine compartment without need of a Sawzall on the firewall and/or a sledgehammer on the inner fenderwells?  I mean, once they sold AM there's no longer an impediment to using the hardware that produced the V12s for Vanquishes and Vantages to produce V12s for your own vehicles, eh?

Talk about  the killer engine option of all time  (without having to do squat other than to possibly fabricate the appropriate engine mounts and to drill the necessary boltholes to match the V12 block to a Tremec 6060)!  WooHoo!!

BMW never used the S70/2 in any road car but the McLaren F1.  I think that was a mistake, as they considered shoving it into the 8er for the M8 and they did shoehorn it into the X5 for the LeMans concept.  But I think you're right.  Ford shouldn't make the same kind of mistake.  We need a $100k Mustang special edition with that engine.  It would be insane.

[sportyaccordy]

BMW never used the S70/2 in any road car but the McLaren F1.  I think that was a mistake, as they considered shoving it into the 8er for the M8 and they did shoehorn it into the X5 for the LeMans concept.  But I think you're right.  Ford shouldn't make the same kind of mistake.  We need a $100k Mustang special edition with that engine.  It would be insane.

Hell, they could have thrown a few in some 3s.

[NomisR]

Hell, they could have thrown a few in some 3s.

1 series hatchback.. talk about hot hatches..  M1 with a V12!

[Catman]

I think Ford will emerge a dominant force when the economy turns around.

[SVT666]

I think Ford will emerge a dominant force when the economy turns around.

I do too.

[dazzleman]

Great article John.  Thanks for posting it.

I'm a bit less optimistic than Greg.  I certainly hope Ford does well in the future, and I think they have the best shot out of the B3.  But the question is, are they strong enough to survive the terrible environment we currently have until it improves?

[Catman]

Great article John.  Thanks for posting it.

I'm a bit less optimistic than Greg.  I certainly hope Ford does well in the future, and I think they have the best shot out of the B3.  But the question is, are they strong enough to survive the terrible environment we currently have until it improves?

I think they seem to have in place the management now to see it through and it seems they are getting some key concessions from labor.  The fact that they are continuing to push development of new models in short time spans is very encouraging. 

[SVT666]

BMW never used the S70/2 in any road car but the McLaren F1.  I think that was a mistake, as they considered shoving it into the 8er for the M8 and they did shoehorn it into the X5 for the LeMans concept.  But I think you're right.  Ford shouldn't make the same kind of mistake.  We need a $100k Mustang special edition with that engine.  It would be insane.

Hell, they could have thrown a few in some 3s.

There's a reason it was never used in anything else...beyond any contractual agreements with McLaren.  It was too expensive.  For example, there are four exhaust headers on the S70/2 (one header for every 3 cylinders) ad each one of those headers cost more to manufacturer then the entire V12 engine from the 7 Series.  The engine would have doubled the price of whatever car got it.

[dazzleman]

I think they seem to have in place the management now to see it through and it seems they are getting some key concessions from labor.  The fact that they are continuing to push development of new models in short time spans is very encouraging. 

I agree, but I think there's still a danger that they'll get pulled under by overall economic conditions, no matter how many right moves they make.  In retrospect, we'll find out whether they let things slide too far before taking action.  With GM and Chrysler, we pretty much already know the answer to that.

[FoMoJo]

I agree, but I think there's still a danger that they'll get pulled under by overall economic conditions, no matter how many right moves they make.  In retrospect, we'll find out whether they let things slide too far before taking action.  With GM and Chrysler, we pretty much already know the answer to that.

Perhaps I'm a little more hopeful for the economy than some.  Indications are -- at least from those I listen to -- suggest that those with capital are being cautious and are looking more to the long term rather than making a fast buck; as in the recent past.  Companies that can sustain through the present downturn and bottoming process, will attract capital as long as they present a viable, transparent plan that includes technological innovations that give them a competitive edge in the future market.  I believe Ford (Mulally) is doing this and, at a $1.70, the price is a real bargain now. 

[SVT666]

Perhaps I'm a little more hopeful for the economy than some.  Indications are -- at least from those I listen to -- suggest that those with capital are being cautious and are looking more to the long term rather than making a fast buck; as in the recent past.  Companies that can sustain through the present downturn and bottoming process, will attract capital as long as they present a viable, transparent plan that includes technological innovations that give them a competitive edge in the future market.  I believe Ford (Mulally) is doing this and, at a $1.70, the price is a real bargain now. 

I was thinking of buying a bunch of Ford stock.  If it tanks, I haven't lost much, and when the economy rebounds, it could very well skyrocket.

[dazzleman]

Perhaps I'm a little more hopeful for the economy than some.  Indications are -- at least from those I listen to -- suggest that those with capital are being cautious and are looking more to the long term rather than making a fast buck; as in the recent past.  Companies that can sustain through the present downturn and bottoming process, will attract capital as long as they present a viable, transparent plan that includes technological innovations that give them a competitive edge in the future market.  I believe Ford (Mulally) is doing this and, at a $1.70, the price is a real bargain now. 

The problem is that their sales have fallen so much that they're burning through cash at an alarming rate.  Will sales rise enough, soon enough, to slow the cash depletion before they hit the wall?  That's really the question.

Ford is unquestionably healthier than GM or Chrysler, but it's still a very sick company.  If Ford survives, it will be because it recognized its problem sooner than either GM or Chrysler, and started to deal with it sooner.

While all auto companies are suffering now, the sick ones are the ones that will be killed off, just as pneumonia kills off people who were already sick, but allows the healthy to survive generally.  The question is, was Ford healthy enough going into this brutal downturn to survive?  I think and hope that they will, and those who do survive will be poised to pick up market share and thrive in the future.

[dazzleman]

I was thinking of buying a bunch of Ford stock.  If it tanks, I haven't lost much, and when the economy rebounds, it could very well skyrocket.

I'm going to think about that too.  That's an interesting proposition.

[FoMoJo]

Is it worth waiting until after the G20 to see what mood develops?  Politicians are 'talking up' the market now, not that they have any expertise except for their self-interest in trying to get the market moving by trying to reach past the big players to the general public to get them to start investing.  Not that I have any specific knowledge but it seems that once the market starts to move, it will move rather quickly.

[280Z Turbo]

I was thinking of buying a bunch of Ford stock.  If it tanks, I haven't lost much, and when the economy rebounds, it could very well skyrocket.

I was thinking the same thing.

[Soup DeVille]

I like seeing the validation (in Mullaly's opinion) that things that I saw as problems at the auto companies, from my limited, low level dealings with them in the past, are the exact things that I and many others have said all along.

[TBR]

Good article.

Mulally, with his management acumen, has given Ford a good chance at survival.  It helped that they had a pretty good compliment of people already on board; the likes of Mark Fields, Peter Horbury, etc.  Cudos as well, to Bill Ford; for realizing that he couldn't do the job on his own.

Oh I am sure GM and Chrysler have some superb managers as well, it's just a matter of finding them, promoting them, and energizing them, that's the difference good management at the very top makes.

[TBR]

I agree, but I think there's still a danger that they'll get pulled under by overall economic conditions, no matter how many right moves they make.  In retrospect, we'll find out whether they let things slide too far before taking action.  With GM and Chrysler, we pretty much already know the answer to that.

I agree, I wouldn't be overly optimistic. Look at how Toyota is doing, somehow it hasn't gotten much news, but the Japanese government just gave them a crapload of money too.

So, that would mean Nissan, Honda, and Ford are the only major car companies that haven't been bailed out (though that's probably to severe of a term to use in Toyota's case).

[Nethead]

The Nethead here shares the concerns so well expressed in each of dazzleDude's postings--good work there, Buddy ! 

Making wise decisions even before it was so fashionable to do so may not be enough for Ford to survive calamities that may yet befall The Economy.  I hope they can pull it off without the groveling before Congress that is so prevalent in the recovery efforts of Cerberus/Chrysler and GM.

Sadly, it's no longer just about the vehicles you build in these troubled times.   Who would have thought that shoddy fiscal policies by the mortgage industry would have caused automakers the losses they are suffering today?  If someone throws a cinder block into the other end of the pond, the ripples are still gonna rock your boat when they reach this end of the pond--especially if those ripples capsize some of your major subcontractors too close to the original splash.

Good luck, Alan...