Why Ford’s Alan Mulally is an Innovation CEO For The Record Books | 2016 GLS Faculty Spotlight
We couldn’t be more thrilled to announce that Alan Mulally will be joining us for the 2016 Summit. He oversaw one of the most impressive corporate turnarounds of the last decade, taking Ford from billion dollar deficits to profitability, while other U.S. automakers were on the brink of bankruptcy. This article, by Sarah Miller Caldecott, describes the ingredients he assembled for a successful turnaround. It originally was published in Forbes, on June 25, 2014.
In less than one week, Alan Mulally will resign as CEO of Ford Motor Company after an eight-year run packed with achievements and an innovation track record that should be the envy of every executive today. When Mulally steps down, Detroit will lose a true innovation leader. Mulally’s turnaround of Ford will likely be studied by business students for years to come as an artful combination of needed financial belt-tightening, plus a cultural change that took the car and truck maker from the brink of bankruptcy to the forefront of growth in the U.S. auto industry.
The cultural shifts Mulally put in place impacted how Ford’s teams were structured, how collaboration was fostered and how innovation itself ultimately came to flourish under his guidance. From my perspective, Mulally joins top innovation CEOs AG Lafley (P&G), Jeff Bezos (Amazon), Steve Jobs (Apple) and Howard Schultz (Starbucks) as the five most significant corporate leaders of the last decade.
Ford In Tough Shape Long Before the Great Recession
When Mulally took over as CEO in 2006, Ford was in tough shape. It had lost a whopping 25% of its market share since 1990. The company held a huge portfolio of brands including Jaguar, Land Rover, Aston Martin, and Volvo. But none of these brands was faring well, and each required major capital infusions to compete. Ford’s cycle time for the development of new automobiles lagged Japanese automakers by months. Adding to Mulally’s woes were labor costs as high as $76/hour within Ford’s unionized workforce, making the company’s operating margins uncompetitive at home and overseas.
Mulally’s Innovation Plan: One Ford
Mulally’s solution to restore a leadership position to the company was laid out in a plan he called ‘One Ford.’ While on its face the title may not scream ‘innovation,’ One Ford integrated all the components that are necessary in any major enterprise-wide innovation effort. This type of integration is sometimes called a ‘sponsor spine.’ It depends not only on visionary thinking and new products, but the ability of an entire enterprise to propel new thinking from team to team, function to function, and partner to partner.
Mulally’s One Ford innovation platform consisted of four main points: 1) bring all Ford employees together as a global team; 2) leverage Ford’s unique automotive knowledge and assets; 3) build cars and trucks that people wanted and valued; and 4) arrange the significant financing necessary to pay for it all. From any angle, this was a plan that required the company to fire on all cylinders – strategic vision, financial health, workforce competitiveness, and product development. No small task.
There are three factors that I believe distinguish Mulally as a top innovation CEO during his tenure at Ford.
1 – Mulally Created a Compelling Vision for Ford As a ‘Mobility Company’
Mulally realized the future of Ford didn’t just rest with cars and trucks, but also with the technology inside them. Ford developed products and partnerships with powerhouses in the consumer electronics industry – turning cars and trucks into mobile centers of entertainment and communication that paralleled the fast growth of smartphones and social media. The company’s MyFord Touch entertainment panel – housed in the central dashboard location where cars used to have a ‘radio’ – served as an innovation widely imitated by other auto industry players. The MyFord Touch offered the first system that allowed a driver to safely engage with technology through verbal commands, syncing with smart phones, unique apps and music systems that aligned with the wants and needs of today’s consumers. Today, all major automakers are following Ford’s lead making personal technologies a core component of automobiles as mobile entertainment and information centers.
2 – Mulally Created Accountability and Collaboration Across Leadership Structures
Perhaps the most interesting of all Mulally’s changes is the corporate culture transformation that laid the foundation for the company to innovate. Early in his tenure, Mulally made a shocking but accurate statement: “We have been going out of business for 40 years.” This statement put forward a burning platform that every Ford employee could relate to. It allowed Mulally to change the cost structure of the company by negotiating lower labor rates with the United Auto Workers, knocking off roughly $20/hour from its base costs, yielding a $55/hour rate.
Significant as this was, it would have been a moot victory had Mulally not also changed the way meetings were conducted, the way supplier agreements were developed, and the way people treated each other day-to-day. It has been reported that before Mulally took over, internal meetings at Ford were like mortal combat. Executives regularly looked for vulnerability among their peers and practiced self-preservation over collaboration. Mulally changed all that, making executive meetings a safe environment where data could be shared without blame, improving collaboration and setting the stage for innovation success. (As I wrote in a recent Forbes post, CEO Mary Barra is wrestling with this cultural combat at GM right now.)
I had a rare opportunity to meet Alan Mulally in person in 2010 at an event honoring the legacy of world-famous innovator Thomas Edison. I was so impressed by Mulally’s calm demeanor as a leader that I wrote about it in Chapter 6 of my book, Midnight Lunch. One distinguishing difference between leaders that succeed at driving collaboration and innovation versus those who fail is their ability to grasp Complexity. This skill set involves framing difficult concepts quickly, synthesizing data in a way that drives new insight, and building teams that can generate future scenarios different from the world they see today. Complexity is a fundamental aspect of collaboration and innovation that eludes many C-suite executives, who often rely on checklists and time efficiency metrics alone.
Not Mulally. As a first step in building his teams’ ability to navigate Complexity, Mulally instituted a ‘traffic light’ system at his weekly management meetings, held Thursday mornings at 7 a.m. At these sessions, direct reports would indicate their progress on key initiatives. A green light meant all was well, a yellow light that some attention was needed and a red light that a situation was critical. At his very first weekly session, Mulally’s direct reports showed green lights with just a few yellow lights sprinkled in. Mulally calmly indicated that this could not be possible; the company was in a financial straight jacket and steadily losing market position. He urged them to roll up their sleeves and ask new questions, putting away their boxing gloves. Lots of red lights showed up at the next Thursday morning meeting. By personally modeling candor and a willingness to openly speak about complex, taboo subjects, Mulally built a safe operating environment for his direct reports.
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Alan Mulally led Ford’s transformation into one of the world’s leading automobile companies and the #1 automobile brand in the United States – returning it to profitability and changing the way the organization works. Prior to joining Ford, he served as executive vice president of The Boeing Company. Mulally has been named No. 3 on Fortune’s “World’s Greatest Leaders” list and one of “The World’s Most Influential People” by TIME magazine.