In September 2006, William Clay Ford, Jr., the Board Chairman of Ford Motor Comp
ID: 424337 • Letter: I
Question
In September 2006, William Clay Ford, Jr., the Board Chairman of Ford Motor Company and great- grandson of Henry Ford, the company’s founder, hired Alan Mulally away from the Boeing Company to be Ford’s President and CEO and to oversee the restructuring of the company. In his first few months as President and CEO, Mulally’s efforts were “focused on getting Ford leaner. He sold its Aston Martin division and announced a series of plant closures and layoffs that he says [would] return the company, which lost a staggering $12.7 billion in 2006, to profitability.”
Shortly after taking over as Ford’s President and CEO, Mulally delivered “a Vince Lombardi ‘What are we made of?’ speech [to his top management team]. It wasn’t good enough just to say we’re going to cut costs and speed up product development; we also have to say we cannot keep going the way we’re going. Continuing to do what we’ve been doing is not going to create a viable Ford.” In late 2006, Robert Barry, an analyst with Goldman Sachs, argued that Ford’s restructuring would be a mammoth, multiyear effort; and he expressed doubt that Ford could be successful given relentless competition; a depleted pool of managerial talent; large cash-burn rates; and severe pressures on product mix, product prices, and sales volume.
However, writing in Bloomberg BusinessWeek in June 2007, David Kiley observed, “[j]ust eight months into the job, Mulally is working hard to change institutional work habits that took years to develop. He wants managers to think more about customers than their own careers. He has made it a top priority to encourage his team to admit mistakes, to share more information, and to cooperate across divisions. He’s holding everybody’s feet to the fire with tough operational oversight and harsh warnings about Ford’s predicament.”
In commenting on plans for Ford’s future in a June 2007 interview with a reporter from Institutional Investor magazine, Mulally said: “We want to aggressively restructure the entire business to be profitable in the face of lower demand and a changing model mix. That means accelerating the development of products and services that customers really want especially smaller and more fuel- efficient vehicles. We’ve secured financing that will help us achieve those goals, and we are further developing relationships with our dealer and supplier network. The whole value chain needs to be restructured in the same way and be prepared for the new products and services.”
In the summer of 2010, James Tetreault, Vice President of Ford’s North American manufacturing, spoke about the restructuring of the company under Mulally’s One Ford plan. Tetreault “noted that the company previously lacked commitment to a strategy, illustrated by the fact that ‘One Ford’, the automaker’s plan to transform its business to deliver profitable growth, ‘is the first three-and-a-half year plan I’ve been on.’ That’s because in the past there had always been another plan rapidly coming down the line.” Tetreault also said that a key to the success of the One Ford plan was to overcome the hyper- competitive atmosphere at the corporate level people had to change and figure out how to work together; they had to become more collaborative to be successful.
The One Ford plan also addressed a significant structural problem associated with the production of cars for the U.S. and European markets. “[U]ntil very recently Ford cars produced for Europe were entirely different than U.S. cars different platform, different suppliers, ‘different everything,’ and [it was] expensive to maintain these separate product and supply chains.” Under the One Ford plan the company is now working toward building a high level of flexibility into its assembly operations. This flexibility will be driven by global car platforms and “an emphasis on transforming plants to quickly switch model mixes to better react to customer preferences.” This reflects the key One Ford planning premise of: “People working together as a lean, global enterprise for automotive leadership, as measured by: customer, employee, dealer, investor, supplier, union/council, and community satisfaction.”
In less than four years as President and CEO, Mulally steered Ford away from the brink of disaster, rallying the company around a four-point mantra printed on a card that Ford employees can carry in their wallets, cutting labor costs by 22 percent, and slashing the number of vehicle models Ford produced from 97 to 20. “The moves paid off. In 2009, Ford made a $2.7 billion profit; by early 2010, the company had earned ‘car of the year’ and ‘truck of the year’ awards from the auto press and its stock price rose 700% from its 52-week low.”
DISCUSSION QUESTIONS
1. What are the key structural issues that Alan Mulally encountered as the incoming President and CEO of Ford Motor Company?
2. How has Alan Mulally addressed the structural issues identified in the previous question?
3. Explain the context that Ford’s strategic goals provide for the design of its organization structure.
4. Explain the context that Ford’s external environment provides for both its strategic goals and the design of its organization structure.
5. Would a network (or lattice) organization be a viable structural alternative for Ford Motor Company? Explain your answer.
Explanation / Answer
1. The key structural issues encountered by Alan were:-
2.He developed the One Ford Plan which helped to address the structural issues discussed above.Ford used to manufacture cars which were very different in design for each of the markets that it operated in, for instance, they have different platforms, engines, interiors etc. This made management of the different types of supply chain costly for Ford and was, therefore, hampering its competitiveness.The One Ford Plan made sure that the product was consitent across markets and also aligned to the needs of the customers.
3. Explain the context that Ford’s strategic goals provide for the design of its organizational structure.
Answer-The strategic goal of having a uniform platform and product across markets led it to redesign its organizational structure to ensure competitiveness.
4.4. Explain the context that Ford’s external environment provides for both its strategic goals and the design of its organization structure.
Answer- Ford realized that it had to scan the external environment to identify supply partners in such a way that it was diversifying its supply partners and reducing the risk to its operations. There were 94 car models offered from Ford. This made it ver difficult to manage the supply chain and in order to cater to the growing consumer needs, tackle global competition and the entry of new players helped set up the external environment for FORD to undergo the change. In order to emerge as a global leader, it had to rethink the way it did business and managed its operations.
Answered the first four parts as per guidelines.
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