Is this the Toughest Job in America?

As ailing automaker Ford looks to claw back lost market share and reconnect with its customers, analysts are betting that new chief Alan Mulally’s unique brand of charismatic toughness could be just what the company needs. Business Management’s Ben Thompson looks at the road ahead for Ford and examines the challenges facing its new CEO as he begins his first 90 days in charge.

They say that desperate times call for desperate measures – and in the eyes of many battle-scarred veterans of America’s notoriously tough automotive sector, Ford is suffering the most desperate of times and taking the most desperate of measures. The view from Detroit is that the car giant’s costs are too high and its product-range both too wide and too mediocre. Ford has too many non-performing brands, say the experts, a suspicion that is backed up by cold hard facts: the automaker’s stock price has fallen nearly 40 percent in the last five years and its share of the US and global car market continues to drop. To put things in perspective, the company has suffered more than US$9 billion in losses from its North American auto operations during this period and, perhaps more painfully for a company so closely tied to ideas of US industrial supremacy, is about to cede its spot as North America’s number-two automaker to Japanese rival Toyota.

The company’s problems are numerous, but essentially boil down to two key concerns: its high legacy costs (Ford pays out a small fortune on health and retirement benefits for former employees) and, more crucially, its product offerings, which generate problems in terms of falling market share, loss of sales and over-capacity. As George Magliano, senior automotive analyst at research firm Global Insights puts it: “I don’t think they have enough good products. They don’t have enough new products coming down through the system, and what they do have is not really quite as good as the competition.”

So what do you do when your share price is falling and the public is ambivalent about your product line? Chairman Bill Ford, great-grandson of the firm’s legendary founder, responded earlier this year by announcing a raft of cost-cutting measures (including plant closures and staff contract buyouts) designed to turn things around. His Way Forward initiative, developed in concert with North American President Mark Fields, hopes to reduce operating costs by approximately US$5 billion and promises to revitalize Ford products across the board. This focus on new products and a leaner structure is a well-trodden path in the automotive sector, and commentators have been quick to dismiss the initiative as too little too late. Where Ford has got them to sit up and take notice, however, is in his choice of personnel to lead the company out of these troubled times: in an industry famed for hiring from within, Ford has looked beyond the borders of motor city for help.

New blood

Right up until the point in early September when Ford approached him to take over the reins, Alan Mulally –¬ a 37-year veteran of the Seattle aviation scene – was not especially well-known in Detroit. He admits he’s not a car man and up until recently drove a Lexus – a great car, to be sure, but hardly the sort of ride that would endear him to Dearborn’s finest. What little information the industry did have on him centered round one key fact: that he knows a thing or two about turning around a company on the edge of the abyss.

As head of Boeing’s commercial airplane division, Mulally led a transformation at the struggling aerospace company that took it from a position where it was fast losing market share to a major rival and wallowing in efficiencies, production delays and poor public perception, to one where it is now held up as a model of what can be achieved through good management and a focus on the product. When Mulally took over, the division was in chaos as a result of a price war with Airbus. One of his first moves was to scale back the company’s product range from 14 planes to just four, ensuring a tighter focus on what customers really wanted. He also set up weekly meetings, which he ran from a videoconference suite next to his office. It was like a war-room, with all the division’s main operating data projected on screens. Every week Mulally painstakingly took his executives through every line of figures, and maintained this ritual throughout his tenure so that he always knew exactly what was going on. An enthusiastic team player and a charismatic leader, Mulally was also regarded by his colleagues as an engineers’ engineer, since he based his decisions on hard data rather than vague hunches.

The bottom line is that Boeing’s commercial aircraft division generated US$22.6 billion in sales last year, and with orders at record levels in 2005 and the much-anticipated 787 ‘Dreamliner’ now in production, Boeing is on track to win back its No. 1 ranking from Airbus.

With this in mind, it must have been hard to leave the comfort zone of Boeing for one of the toughest jobs in American industry. “On the one hand it was hard; I was at Boeing for 37 years and was lucky enough to have a hand in developing a great product range there,” admits Mulally. “On the other hand, the parallels between Boeing and Ford are incredible – the innovation that these two American icons have brought to safe and efficient travel have been really significant, so in that respect it was a very exciting opportunity for me and an easy decision to make. The opportunity to work with Bill Ford and Ford Motor Company is the only thing that could have attracted me to a job other than Boeing, where I have so many great friends and memories.”

Lessons learned, lessons shared

Indeed, it’s not the first time that Mulally has noticed the similarities between the two manufacturing giants. It was his study and application of the way Ford developed and produced its Taurus model – at one time the best-selling car in the United States – that kick-started his own revolution at Boeing when he was revamping the company’s 777 program back in the 1990s. According to James Lewis’ 2001 book Working Together, Taurus team leader Lew Veraldi told Mulally how the company sounded out dealers, workers and insurance companies, asking them how to make a car that would be easy to build, appeal to customers and cost less to repair – ideas Mulally later incorporated into the 777 project.

Just as he did all those years ago, Mulally still believes that many of the challenges he encountered in commercial airplane manufacturing are analogous to the issues at Ford and can help him make a success of his new role. “Just as I thought it was appropriate to apply lessons learned from Ford to Boeing, I believe the reverse is true as well,” he says. “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.”

It is this love of a challenge and his understanding of the potential of Ford’s unique heritage that provides the first insight into the qualities that attracted Ford to Mulally in the first place. But what exactly does he bring to the table in terms of skills, style and relevant experience? A quick look at his CV shows he has a record of success in customer satisfaction, manufacturing, product development, labor relations and supplier management, but this doesn’t necessarily tell the whole story. It is his experience in transforming the fortunes of Boeing that really stand out. “After dealing with the troubles at Boeing in the post-9/11 world, Alan knows what it’s like to have your back to the wall – and fight your way out with a well-conceived plan and great execution,” says Bill Ford. “He also knows how to deal with long product cycles, changing fuel prices and difficult decisions in a turnaround.

“Alan has deep experience in customer satisfaction, manufacturing, supplier relations and labor relations, all of which have applications to the challenges of Ford, and has the personality and team-building skills that will help guide our company in the right direction.”

Magliano agrees, and recognizes qualities in Mulally that could prove valuable in both the short and long-term. “He has two particular sets of skills. First, he has a reputation as a cost-cutter; second, he comes from Boeing with a great reputation for developing the products needed by that company to see off competition from their big rival, Airbus. Whether he can do the same for Ford remains to be seen, but this reputation gets him off to a good start.”

Winning over the doubters

However, he has some way to go yet to win over the skeptics. Many in the industry believe that it is impossible for an outsider to come in and have an impact at one of the big firms ¬– particularly when stella contenders such as Renault-Nissan’s Carlos Ghosn and DaimlerChrysler’s Dieter Zetsche reportedly declined to take on the task. Many question whether his experience at Boeing is even relevant to Ford – a claim disputed by Bear Stearns analyst Peter Nesvold. “If there is an obvious question about the appointment, it’s probably whether Mulally’s aerospace experience is transferable to the automotive industry,” he says. “We think it is – direct turnaround experience in an industry with long product lead times, deeply cyclical demand, extensive union involvement and an interconnected supply chain.”

Magliano is also adamant that such considerations are irrelevant. “The first thing to say here is that the auto industry cannot continue to do things the way they have in the past; everyone in Detroit realizes that the situation has got to a point where new solutions to old problems need to be found. It’s true that outsiders have traditionally withered on the vine in the auto industry because of the corporate culture, but I think people are slowly coming to accept the fact that if someone comes in and they’re good, the industry is going to have to work with them.”

The advantage Mulally has is that he comes to Ford with very high marks already. “People say he’s a great manager, he can work with people and that he has the ability to sort his way through situations and come up with great solutions – and that’s what he’s going to have to do,” continues Magliano. “Because he’s not an auto man, he’ll need to rely on other people to help him and hopefully his good judgement will lead him to the right decisions.”

And Earl Hesterberg, former marketing chief at both Ford Europe and Ford North America and now CEO of auto retailer Group 1 Automotive, says: “Turning it over to an outsider and getting a fresh perspective are both good things. An outsider may have more success in aggressive cost cutting, but at the end of the day, Ford needs to revitalize its product offering and brand image.”

Perhaps the key quality that sets him apart is that for all his undoubted charisma, Mulally is not afraid to take the tough, unpopular decisions. He has a proven track record at being able to cut jobs, tens of thousands at a time, and a knack for showing empathy even as he shows workers the door. He can also be ruthless with his own creations. At Boeing he killed off the Sonic Cruiser plane only 18 months after it had been unveiled in a blaze of publicity. Airlines told him they wanted economy and comfort, not more speed, so Mr Mulally went back to the drawing board to produce something more to their liking: the result was the 787 Dreamliner, Boeing’s
runaway bestseller.

The way forward?

Mulally joins Ford at a time when the company has already made a number of moves to turn things around – which will mean that to some extent, he will be stuck with the Way Forward initiative for the time being – something he recognizes and acknowledges. “My approach will be to build on the strengths of the Ford Motor Company and the actions that Bill Ford and his team have already put in place,” says Mulally. “Even though I’m relatively new to this, I’ve had a chance to review the Way Forward plan, the product strategy for new automobiles and the production plan that will help us meet demand, and I think the actions that have already been put in place are headed in the right direction. We aim to make automobiles that people will love and have a production system that will allow us to increase productivity and quality year after year.

“Turnarounds of this magnitude succeed when capacity and costs are aligned with a realistic expectation of demand,” Mulally continues. “These actions are certainly consistent with that goal. We will focus intensely on the needs of our customers in North America, and around the world, by pulling forward new products and creating new markets. We are a team united by a shared vision to build the best automobiles in the world at Ford Motor Company.”

The question on everyone’s lips, though, is was the decision to hire Mulally the right one? Magliano certainly believes it was ¬– but admits he didn’t see it coming. “I think they made the right choice. I didn’t know it until I saw it, but once the announcement was made my gut instinct was that it was a good decision.” However, he also concedes that Mulally faces some tough challenges ahead. “The first issue he faces is that he’s got a very short time horizon in this job,” he explains. “While he starts off with very high marks because of his work at Boeing, people will turn sour on him very quickly if he doesn’t make some short-term progress. He’s got to show an immediate grasp of the situation, show that he understands the problems facing Ford and he’s got to be able to communicate that to people. He’s not going to be able to turn things around overnight – but he certainly has to project that image.”

So as Mulally starts out on the road to what will hopefully be another success story for another iconic American company, what does he envisage his first 90 days will involve? “The first step will be to join the team, understand everything I possibly can, and focus on the areas we need to pay special attention to,” he asserts. “I think we need to pull everybody together and sharpen the focus and I’m really excited about the challenge. I’m looking forward to working closely with Bill in the ongoing turnaround of this great company, and I’m also eager to begin engagement with the leadership team. I believe strongly in teamwork and I fully expect that our efforts will be a productive collaboration.”

Aside from his need to revamp the product range, perhaps his most pressing task will be to restore confidence and actually convince people that Ford can be rescued. With some analysts predicting the company will be bankrupt inside five years, Mulally’s first 90 days could be critical not just to his own future, but the future of the company itself.

Mulally the cost-cutter

“Mulally has a reputation as a cost-cutter, but to be honest I think Ford has done a lot in this regard already, especially with the new announcements around the Way Forward program,” says Global Insight’s George Magliano. “Ford’s typical response to shrinking market share over the years has been to cut costs; they’ve been very aggressive and way ahead of the curve in terms of cutting costs, and I don’t see Mulally doing anything more in this regard. In fact, if they continue to try and slash costs they’re going to run into further difficulties.”