Last September, the automotive industry watched with bated breath as an ex-Boeing executive took over the helm of the venerable Ford Motor Company. Alan Mulally, who is credited with turning around the Commercial Airplanes business of the Boeing Company, took over as president and chief executive officer of Ford at a time when the company posted a mind-boggling USD 5.8 billion third-quarter loss.
One of the biggest challenges facing Ford is that it has been losing US market share for over a decade. Nearly all agree that Ford needs to cut costs, roll out new products faster and streamline operations. In April this year, Mulally told reporters at the New York International Auto Show that Ford’s restructuring was going well. His four-point restructuring plan goes something like this – lay-offs (nearly a third of Ford’s white collar workforce were shown the door), divesting non-core manufacturing, speed up product development and get financi! ng. According to Mulally, by 2010, Ford’s product line would be completely refurbished.
Ford is shaking off its dependency on trucks and SUVs and looking to introduce more hybrids. A luxury hybrid is reportedly on the cards. Cars used to contribute 30 per cent of Ford’s business a few years ago but today account for nearly half the company’s sales.
Mulally took over the leadership of Ford while the company was restructuring its operations. The restructuring involved slashing 30,000 jobs and close 14 factories by 2012. Under the first restructuring exercise, Ford shut down five factories and cut 35,000 jobs but its US operations continued their downward spiral. So Mulally’s entry was particularly fortuitous as he was the architect of Boeing’s successful turn-around of its commercial airplanes unit.
Mulally, 61, worked for 37 years at Boeing. His last position at Boeing was as executive vice president. In addition, he was also been president a! nd chief executive officer of Boeing Commercial Airplanes since 2001. In that position he was responsible for all of the company’s commercial airplane programs and related services, which in 2005 generated record orders for new business and sales of more than USD 22.6 billion. Mulally was named president of Commercial Airplanes in September 1998. The responsibility of chief executive officer for the business unit was added in March 2001.
Mulally has gone on record that he had applied many of the lessons from Ford’s success in developing the Taurus to Boeing’s creation of the revolutionary Boeing 777 airliner. That experience, chronicled in the book, “Working Together,” by James P. Lewis, tells how the leadership principles Mulally learned from Ford and developed at Boeing may be applied to other businesses.
“One of the three strategic priorities that I’ve focused on this year is company leadership. While I knew that we were fortunate to have outstanding leaders driving our operations around the world, I also determined t! hat our turnaround effort required the additional skills of an executive who has led a major manufacturing enterprise through such challenges before,” said Bill Ford, the ex-CEO of Ford to employees during the announcement of Mulally’s appointment.
At the time, Alan Mulally noted that many of the challenges he encountered in commercial airplane manufacturing were similar to the issues at Ford. “Just as I thought it was appropriate to apply lessons learned from Ford to Boeing, I believe the reverse is true as well. I also recognize that Ford has a strong foundation upon which we can build. The company’s long tradition of innovation, developing new markets, and creating iconic vehicles that represent customer values is a great advantage that we can leverage for our future,” he said.
As Mulally was breaking into his new job at Ford, the company was bleeding cash and in danger of having to borrow money against its factories and other assets for operations. Senior personnel were leaving in droves and its high research and development spend was not translating into new products. Another problem that has been dragging Ford down is that it is the least globally integrated automotive major which means that its sheer size proves to be a handicap.
When Mulally took over at the helm of Ford, industry experts predicted that Ford’s woes were unlikely to disappear. In fact, most experts said that someone from outside the automotive industry would never understand the complexities of the sector. However, too much complexity and not enough transparency is what Mulally blames for many of Ford’s problems. Ford is known for its counter-productive culture that sees executives guarding their territories with little concern for the overall good of the company.
Automotive Industries spoke to Alan Mulally, president and CEO of the Ford Motor Company.
AI: How challenging have the last six months been for you?
It’s been challenging, but we have accomplished quite a bit. In f! act, I am even more optimistic now than when I got here.
First, we had to sit down and decided to deal with reality. We needed to look at the world through clear glasses, look at the business situation, look at the competition and deal with that. We are where we are. In recent years, we had a strategy to focus on the larger SUVs and wonderful trucks, but now the world is changing on us. The fuel prices are up and have stayed up. The consumer demand has shifted to more fuel-efficient vehicles and smaller cars. And what we need to do is to deal with that. So, out of that, came the fundamental four-point plan that we are focused on. It came from dealing with our business realities – being real about the situation and acting on it decisively.
The four points of the plan: One we need to restructure ourselves to this lower demand in the near term and the changing model mix. And we need a leadership structure to help implement the strategy. That’s why we changed our organization to focus on our customers around ! the worl d even more closely, and to utilize and leverage our assets. The result is leaders leading, from the market and representing the customers, but also working together with the functions like product development, IT, purchasing and manufacturing, to leverage those great assets that Ford has around the world.
Then, the second priority is to accelerate the product development to make cars and the trucks that people really are valuing now, especially with the desire for smaller SUVs, crossovers and cars that are more fuel efficient. We also must deliver those products more productively. So, we are accelerating not only the product development, but also the production system to give us productivity improvements.
The third priority was to secure the financing so we could implement the first and second priority. And we did that. Now, we are focused on spending the money wisely and being in a position to pay it back.
Finally, the fourth priority is to take working together to another level to performance. And I think, when it comes to working together, we’re 12-18 months ahead of where I thought we’d be.
AI: Was it difficult for an ex-Boeing executive to take over an ailing giant like Ford?
The day I arrived you could just feel the similarities between Ford and Boeing. Ford was started in 1903 to provide safe and efficient transportation for everybody. Boeing was started in 1916 as a very safe and efficient transportation for people around the world. Both are American icons. They stand for innovation. They have innovated over the years to transform themselves over and over again. It felt familiar coming to Ford from Boeing.
And I think the similarities are striking. It first starts with the product itself, because they are similar products with aviation and in automobiles. And the customers are similar also. Both companies require you to have a point of view about the future. What people really want as far as airplane travel and what they want for automobiles is very similar, especially in the areas of safety and efficiency.
The second similarity is the cyclical nature of the business. Both industries are global and usually they are growing or slowing down in different parts of the world. So having a business plan that deals with that cyclicality is really important.
I think a third is the technology. And what I mean by that is that because we are always looking for improvement in airplanes and in automobiles, especially when it comes to quality, efficiency and reliability. We are always looking at advanced technologies.
And I think a fourth similarity is the quality of the talent, because it is a manufacturing business with a big “M”. The design, engineering, manufacturing, finance, and communication – everybody must be working together to create this kind of a business.
AI: When you first took over as head of Ford people questioned your credentials for the job – w! hat would you say to them today?
I would say the same thing Bill Ford and I said to them the first day. The challenges Ford Motor Company faces are very similar to the challenges I faced and overcame at Boeing.
Again, let’s talk about the similarities. Boeing and Ford are both consumer companies. They are both manufacturing companies. We both design, engineer, manufacture and innovate. Both companies require detailed customer knowledge and focus to actually make products that people really do want and value. Both companies require their leaders to be comfortable with large-scale system integration, meaning these are sophisticated, complex vehicles and we manage the creation of them, the design, the manufacturing, the management of the supply chain worldwide. This large-scale system integration using lots of partners and suppliers around the world. Both Boeing and Ford require a lean global enterprise, meaning that we are a global enterprise when we lo! ok at ourselves and our footprint and all of our partners and suppliers. And finally, we both require a team operating in a working together way. You must have a plan, include everybody, consistently share the status of delivering on the plan and then work together to deliver even a better plan the following year. Those fundamentals are exactly the same between the companies.
AI: How is the Way Forward restructuring plan going? Is it going according to plan?
Mark and his team are focusing on all the right things, they have had to make some tough decisions, they are working hard to deliver the plan and they are hitting most of their targets.
AI: How are you tackling the issue of quality?
I am very encouraged by what the team is accomplishing. Thank goodness they got to work on this a few years ago and we are really seeing the results now. JD Power is showing that we are beating the perennial leaders, Toyota and Honda, when it comes to initial quality now. Consumer Reports is recommending our vehicles ab! ove the competition. We are hitting our targets for quality and we are determined to stay focused.
When it comes to quality, what we actually have is a consumer perception problem. I think if you talk to the older people today, they will tell you that Ford has come a long way, that our quality today is phenomenal because it is what they remember. Now if you talk to some of the younger customers who have been making decisions between Japanese cars and American cars, then they have a little bit more recent history. The Japanese cars have been selling for years based on being more reliable and easier to maintain. So, those customers think that is still the case.
If you look at the data, the data says that Ford is very, very competitive now in quality and reliability. So we are working on that issue too. What is that neat expression Ford had at one time: Have you tried a Ford lately? It is like we need to dust that off again because not everybody knows about our products today. We have got to get them back into the showroom.
AI: Will Ford be able to churn out new products faster? And how will you manage to effect this change?
As I mentioned, our second priority is to accelerate the development of new cars and trucks that customers really do prefer and that reflects today’s wants and needs, addressing higher fuel prices and even better value.
Derrick and I, as we get going down this road, we are really driving this from the customer. That said, if you look at that portfolio, it really is a good basis for going forward. I was gratified about the fact that not only has Ford been the leader in big SUVs and trucks for 35 years, but also that they chose to start investing again in a full family of vehicles and to start making some good cars. The Focus, Fusion, the new Taurus — great cars, good lineup. Then you go above the Taurus and then you move into the crossovers and the SUVs. The new Taurus X is really terrific. The Ford Edge and its Lincoln version, the MKX,! are fabulous. The Flex next year will be phenomenal. Then, you move up to the Explorer and the Excursion, and then the F-Series.
We just need to focus on having a consistency of purpose around these vehicles. Every year, year after year, continue to improve them as opposed to waiting for the next big breakthrough. When you toss one out and bring another one in, you don’t get that wonderful brand loyalty and you don’t get the continuous improvement in the quality and reliability. So, I think we’re moving to a very good lineup. Now we’re going to stay focused on the product line and we will continuously improve it every year.
We also will better leverage our global assets. You can imagine more models, more flexible manufacturing in each facility. This is exciting!