When Mulally took over as Ford’s CEO in September 2006, the company was in a very bad shape. Its stock price had fallen sharply, its debt was at “junk” status, and it was about to record its worst loss in its entire history (of $12.7 billion). It was widely expected that Ford would eventually file for bankruptcy.
However, by the time Mulally retired (July 2014), Ford had achieved a historical turnaround: It had posted an annual profit every year since 2009 and its stock price had rebounded.
The aim of this post
This post is not a detailed account of Ford’s turn around. For that the reader should consider reading the book (Source 1 below). This post is about Alan Mulally and how he could turn Ford around, when others could not. My aim is to give insights on 4 basic questions:
- What got Ford into such a bad situation?
- What strategic insight made Ford turn around?
- How Alan was the able to pull the turnaround off?
- Why a few others before Alan were not able to do it?
What got Ford into such a bad shape
The internal ailments of business are the ones that require most attention. – Henry Ford
It would be a mistake to consider that Ford’s problems were only due to external factors (e.g. competition from Japanese cars). The company had several internal issues that were the biggest cause of worry.
But, the basic issue was that it simply had dozens of automobile brands around the world. Not all of these brands were profitable, and they all competed for scarce resources and management time.
This problem was known to a lot of people at Ford. But they were not able to do anything. Bill Ford himself had wanted to cut brands as well as a part of the dealer network, but was getting strong push back from his executives, who saw it as a threat to their regional fiefdoms.
What made Ford turn around
Until Mulally came, the turnaround efforts were largely around cutting costs and did little to address the core problem highlighted above. But, Mulally insisted on executing his central insight that Ford needed to radically simplify its global product lineup, and focus its investment on a few key vehicles and make those products truly world class.
“We have a lot of brands. We have a lot of nameplates. We’re known in the U.S. as a big truck and SUV company— and for the Mustang. We have very complex product offerings. I think there is a tremendous opportunity to simplify, consolidate, and focus Ford.”
Turnarounds often rest on such simple insights!
A similar approach had paid off for Mulally earlier at Boeing. In fact, this was the same approach that Steve Jobs used when he came back to Apple. Simplification (of corporate portfolio as well as management layers) was also the approach that Jack Welch followed when he became the CEO of GE.
Simplifying and focusing Ford. That was it! That was the central theme around which our guy turned Ford around.
But, why did it become so difficult for others to achieve such a turnaround? Why did it take an Alan Mulally?
Well, in my view, there are 3 basic challenges that come in the way of people who want to drive turnarounds:
- Diagnostic challenge: Few people have the synthesis skills to get to the heart of the matter and accurately diagnose the nature of the ailment
- Know-how challenge: Accurate diagnosis is just the first step. One also needs the general management know-how to be able to solve the diagnosed problem
- People challenge: Turnaround requires big changes. Hence, people issues always crop up. A leader cannot be successful until he can can navigate this ‘people’ aspect well
I am now going to describe how Alan was good on all 3 counts, and how some others were not.
How Alan was the able to meet the Diagnostic challenge
Alan was able to develop a neat diagnosis pretty early on, which was:
The company needed to focus on the things its customer really wanted, not what the engineers or bean counters wanted. And Ford needed to develop a point of view about the future instead of just reacting to its competitors.
After developing this diagnosis, Alan was also able to cut through the noise and unnecessary details, and put some meat around his hypothesis as well as resolution plan–by picking the brains of carefully selected people. Often he would select people who knew a lot, were no-nonsense guys, but had been sidelined due to office politics. A few examples being:
- Don Leclair. He was the CFO, and he was not convinced anybody could save Ford. He also did not gel well with the rest of the leadership team. But, as per Alan’s judgment, he knew the business better than anybody else. So, Alan worked very closely with Don for the next few months. The two men would spend hours together in Alan’s office—going over the books, dissecting each line item, and stress-testing each projection. Everything Mulally heard confirmed his worst suspicions about the state of the company and reaffirmed the underlying theses of his preliminary plan.
- George Pipas. He was a veteran sales analyst and forecaster who was getting ready to retire. Mulally roped him in to understand every aspect of the automobile business–vehicle segments, competitive landscape, seasonality of demand, Ford’s addiction to pickups and sport utility vehicles, its failure to maintain investment in key products like the Ford Taurus, and its confusing array of nameplates and options. Pipas held nothing back.
Thus due to his ability to accurately judge people and situations, Alan was able to successfully able to meet the Diagnostic challenge well.
How Alan was the able to meet the Know-how challenge
Before joining Ford, Alan had turned around Boeing. So, he had the turnaround know-how.
His know-how manifested in one key management tool–weekly leadership meetings known as BPRs and SARs.
- The “business plan review,” or BPR was to be held every week on the same day, at the same time, in the same place. Attendance was mandatory for all senior executives. All of them were expected to personally deliver succinct status reports and updates on their progress toward the company’s turnaround goals.
- Issues that required more in-depth consideration by the entire leadership team were be taken up in a “special attention review,” or SAR, immediately following the BPR. Mulally stressed that, when there was discussion and debate in the SAR, it would be based on business realities, not politics or personality. That was the old Ford, he said. The new Ford was all about the numbers.“The data sets you free,” he would say with a smile.
All of the data from every business unit and function was distilled down to a set of tables, charts, and graphs and presented in a series of PowerPoint slides, in these meetings. Mulally also made it clear that executives were responsible for their own presentations (instead of deferring tough questions or demands for details to their subordinates).
Therefore, these meetings proved to be very effective in bringing key challenges to the fore, in pushing the executive to think big-picture, to generate data-driven transparency as well as accountability. According to Mulally:
This approach left no hiding place for anyone who was not entirely committed to executing his part of the business plan.
Over the next months, executives began holding weekly BPRs in their own departments and business units. Some did it to score points with the new boss, at least initially. But most of them quickly saw the value of it.
How Alan was the able to meet the People challenge
Before reading on, please just look at the face of the guy once. He is an ever-smiling gentleman!
Now, below are some ways in which he developed a great rapport with his people:
- Stopping people in the hallway and asking them what they did and what he could do to improve the company
- Taking lunch in company cafeteria, instead of the posh executive dining room. Standing in line like everyone else with his plastic tray. Chatting freely sitting on the lunch table with accountants, sales analysts, etc.
- Popping casually into meetings , asking what that meeting was about, shaking hands and squeezing shoulders, listening in for a few minutes, and then continuing on to wherever he was going, leaving behind a roomful of open-mouthed employees.
- Responding personally to every email message from employees. If an e-mail really caught his eye, he even followed up with a telephone call.
All these steps drew people closer to him. He exuded genuine charisma and warmth. Just look at his YouTube video (source 2 below) to get a sense. Ford were full of people who had great ideas on how to improve the company. Now they found somebody who was willing to listen!
But he was not a too-nice people-person who would tolerate people who were unfit or redundant.
Steve Hamp was such an example. He was the brother-in-law of Bill Ford, and has deep connections within the Ford family. He was pessimistic about Ford’s future and missed no opportunity to share his views. Also, Hamp’s role as the chief of staff added an unnecessary layer of insulation between a CEO and his executive team. Even Bill had struggled to get him removed. But, Alan was assertive and persistent enough to get Hamp eventually removed.
Therefore, Alan passed on all 3 counts and that was why he was able to turn Ford around!
Why others before Alan were not able to turn Ford around
Jacques Nasser was Ford’s CEO from 1999 to 2001.
He was not able to save Ford because he erred on at least 2 counts: Diagnostic challenge and the People challenge.
His diagnosis was:
Ford needed to diversify into non-auto businesses (just like what GE had done for its own corporate portfolio)
So, he diversified Ford’s businesses to include e-commerce, junkyards, auto-repair shops, car distribution, consumer finance, etc. This diversification was an attempt to increase profit margins, because while car makers make operating margins of ~5% from actually making cars, other businesses such as leasing, renting, insurance, finance and car repair, can all achieve margins of 10-15%.
This diagnosis may have worked out. But, given the fact that Ford’s auto business was bloated and the company culture was bureaucratic and political, I doubt if this strategy would have worked. It worked at GE because Jack Welch also simultaneously worked on fixing GE’s bureaucracy, its corporate portfolio, and cost efficiency.
Moreover, Nasser was not good on the people side too. For instance, he traveled with a large entourage and constantly upstaged lesser executives at public events. Once when his subordinates poked holes in his marketing plan, he remarked:
“This is our new marketing strategy. If you don’t agree with it, I’ve got somebody from HR who will work out your retirement.”
In October 2001, Bill Ford got Nasser fired and took the responsibility of turning Ford around on himself.
Bill focused a lot on cost-cutting. He also refocused Ford on its core business of building and selling cars and trucks. He increased product spending. He also ordered a new push to improve quality. By the end of 2002, Ford was back in the black.
Ford was also a people person, by the way. But, still he was not able to fully turn Ford around. Why?
Because, he was not assertive enough when needed. For instance, as discussed above, he could not get Steve Hamp removed. Also, he lacked the crucial turnaround know-how. As a result, when he made decisions, he had a tough time getting his subordinates to implement them. They would agree with whatever he suggested, then do whatever they wanted. If Ford pressed them, they offered complicated excuses that he lacked the data to refute. But he was not able to challenge them.
Business turnaround rests on 3 basic things:
An accurate diagnosis of the situation, the know-how to fix the problems identified as per the diagnosis, and an ability to take people along on the way to fixing those problems.
Alan Mulally had all these 3 things in him. And that was why he succeeded.
Others failed because they were wanting on 1 or more of these 3 dimensions!