The Blue Oval is riding high these days, buoyed by fat North American profits and the luster of CEO Alan Mulally’s star power with investors.
But neither of those pillars is guaranteed to last in perpetuity, whether the former Boeing Co. exec retires from Ford Motor Co. at the end of next year or leaves sooner to engineer a turnaround trifecta at Microsoft Corp. in his adopted hometown of Seattle.
The prospect of his departure raises two important questions for the rehabilitated Dearborn automaker: Is the Mulally Way now sufficiently embedded in Ford’s operations and culture to endure after he’s gone? And can its leaders, executive and union alike, manage prosperity?
“It’s one of the most important challenges we face,” Joe Hinrichs, president of Ford-Americas, said in an interview. “You can look back about every decade and find a book about Ford’s turnaround.”
Exactly right. Seven years into the Mulally era, Ford faces a critical test as speculation mounts that The Architect could be headed to Microsoft to work his managerial magic a third time. Can the discipline inherent in Ford’s remarkable revival be sustained as it reaps billions in pre-tax profits and expands its global footprint?
Can the leadership team schooled in the art of the Mulally’s method, embodied by the weekly Thursday rite now run by Chief Operating Officer Mark Fields, maintain its focus on the world as it is, not as they want it to be at the Glass House? And can they find a credible way to share prosperity with the United Auto Workers without compromising the company’s hard-won competitiveness?
If history is any guide, none of that will be easy. Mulally’s successor — widely expected to be Fields — likely won’t have a powerful partner in another existential crisis threatening the viability of the company, the jobs of its employees and the fortune of the founding family. He’ll have the curse of better times and dramatically lower break-even points.
Nor will he and his team have the comparatively easy marks of indefensible, pre-crisis labor contracts to attack. Instead, a rejuvenated and wealthy Ford will face competitive union ranks eager to share more broadly in the profits generated mostly from their own plants, not faraway sites in Europe, Asia and Latin America.
Who could blame the UAW? An enduring truth of the Ford’s turnaround, and the revival of Detroit’s automakers generally, is that restructured union contracts and leaner manufacturing footprints make union plants in the United States and Canada the hometown industry’s primary profit drivers.
Meaning union bargainers are almost certain to press for the first across-the-board base wage increases in years, even as management points to record profit-sharing payouts last year, this year and perhaps next year as proof that the wealth really is being shared — without inflating fixed costs that are so critical to remaining competitive.
That discussion, important though it will be, is almost two years away. Meantime, Ford will have ample opportunity to show the discipline and teamwork demonstrated over much of the past seven years has supplanted the Byzantine back-stabbing too often run amok in the upper reaches of Ford management.
The cycle of history is not necessarily on Ford’s side. When things get better, constituencies want more. Labor wants richer contracts; dealers want fatter margins; suppliers want better terms; executives want bigger bonuses; shareholders want larger dividends; communities and non-profits want more philanthropy.
“We need to have the discipline to stay competitive” amid prosperity, Hinrichs says. Yes, but how?
Potential strength resides in a leadership team that gutted through together the tough restructuring of ’07, the global financial meltdown of ’08, the harrowing bankruptcies of cross-town rivals in ’09. In short, leadership continuity and the shared experience of tough times should be assets in the challenges of prosperity and change, not liabilities.
Second, Mulally’s Business Plan Review is embedded deeply in Ford operations around the world, not just among top-level executives. A process, yes. But it’s one that has proven effective because it guards weekly against insularity, demanding continual comparison of internal business metrics to change occurring outside the walls of Ford’s empire.
In its purest form, the so-called BPR constantly reassesses the competition, charts macro-economic strength or weakness, tracks government policy and its potential effect on the business. Anything beyond the control of people running the company or their own function within it is fair game.
Third, the Ford enterprise increasingly is coalesced around two complementary strategic priorities. It maximizes existing facilities by matching production capacity to consumer demand for cars, trucks and crossovers around the world. That’s new Detroit, not old.
And it focuses the company around growing the Blue Oval brand globally and making Lincoln a credible luxury player in North America and China, where it will be slowly introduced. Emphasis is on managing Ford’s global footprint to offer a balanced portfolio worldwide, not just in North America and Europe.
That’s a long way from the tangled morass of volume and luxury brands based on three continents Mulally inherited when he arrived in Dearborn seven years ago. Today’s Ford is leaner, more focused, more profitable and operating in a way that gives new meaning to the phrase “American manufacturing revival.”
The challenge now is not to screw it up.
Daniel Howes’ column runs Tuesdays, Thursdays and Friday.