Introducing change and improvements regularly in various business processes has become one of the basic conditions of survival in a competitive global marketplace of today. However, even when the importance and necessity of change is understood by many its implementation in practice is associated with a set of substantial challenges caused by a range of reasons such as loss of power, fear of unknown, job security, economic factors etc. (Zimmerman, 2011).
This article analyses and evaluates diversification strategies implemented in Ford Motor Company by its President and Chief Executive Officer (CEO) Alan Mulally. Ford Motor Company is global auto manufacturer that employs about 164,000 members of workforce in about 70 plants worldwide (Annual Report, 2011). The article covers three main themes: main drivers of change in Ford, key changes introduced by Alan Mulally, and an analysis of change management style of Alan Mulally.
Main Drivers of Change in Ford Motor Company
By 2006 when Alan Mulally was appointed Ford President and CEO there were a set of stark drivers of change. Specifically, at the time among other issues “Fords major problems was consensus management in the process of designing automobiles” (Herbold, 2011). For example, Ford Fusion sedan introduced in the same year was not equipped with navigation and side air bags, despite the fact that most of the competitor cars of the same class were equipped with such accessories.
Analysis conducted by Mulally has identified that the main reason behind such a practice was high level of involvement of finance department over the design and functionality of cars (Fuller, 2011). In other words, in order to bring down the costs of manufacturing, finance department have been asking engineers and designers to be engaging in excessive cost saving when designing cars and equipping them with technological gadgets and functionalities. Thus, the quality, innovativeness and ultimately overall competitiveness of Ford cars have declined.
All of these inefficiencies have caused Ford Motor Company to lose $17 billion in 2006. Nevertheless, despite the difficult situation the company was in, the senior level management and heads of regional and other divisions were hesitant in delivering bad news during meetings because it was not a part of their corporate culture at that time (Gallo, 2012) and this fact can be specified as another driver of change for Ford in 2006.
Moreover, additional driver of change relates to the loss of market share to rivals from Asia due to losing focus on brand core identity. In other words, while Ford possessed several brands such as Jaguar, Land Rover, Aston Martin, and Volvo in 2006, core identities and value proposition of each of these brands were fading and their revitalisation would require huge financial investments that Ford did not possess.
In summary, in 2006 Bill Ford, then CEO of Ford and great-grandson of founder of the company decided to hand over the top job to Alan Mulally for urgent and pressing reasons i.e. the company performance was spiralling downwards failing to meet the challenges of the market, and the improvement of situation would require significant and systematic changes to be introduced in relation to various business practices.
Key Changes Introduced by Alan Mulally
Decisive and significant changes have been introduced by Alan Mulally in order to improve the complex situation for Ford . ‘The Way Forward’ restructuring plan has been introduced that focused on the idea of ‘One Ford’, meaning that the company should focus on the core brand, and accordingly Jaguar, Land Rover, Aston Martin, Volvo brands acquired by Ford few years earlier were promptly sold Hoffman (2012).
Mulally’s initial initiatives as head of Ford included borrowing $23.6billion in the end of 2006 through mortgaging the company assets as a ‘cushion’ for unexpected events and stabilisation fund. The initiative has proved to be appropriate and timely when the global economic crisis the started the following year made its major US competitors General Motors and Chrysler to appeal for government bailout, whereas Ford already possessed necessary cash to deal with the crisis.
Moreover, changes also included massive cost-cutting initiatives that included suspension of dividends to shareholders, closure of 17 plants and downsizing 54,500 jobs that accounted for 43 per cent of total workforce at the time by 2009 (Reed, 2011).
Substantial changes were also introduced in Ford’s corporate culture with the aim of promoting greater level of transparency and accountability. Specifically, Mulally has started weekly meetings with his deputies and top executives every Thursday at 7am during which operations are reviewed and issues are identified.
Allan Mulally’s Change Management Style
Change management style of Alan Mulally is closely associated with the concept of visionary leadership. From the initial points in his leadership at Ford, Mulally has invested much effort in formulating clear vision for the Ford brand and getting company stakeholders in general, and members of workforce in particular to be sharing the vision.
Effective communication with employees and high level of personal engagement in dealing with change can be specified as another important aspect of Mulally’s change management style. One of the most notable illustrations of this point may relate to the fact that Mulally had managed to move his office from top floor to floor four in head office, where engineers were based (Griffin, 2011) in order to be available for communication and practice ‘hand-on’ approach.
During the change implementation period there were frequent occasions when Mulally would respond to e-mails from employees by attending their offices in person or calling them in order to discuss relevant issues (Hoffman, 2012).
Mulally was always equipped with his optimism and smile throughout the difficult period Ford had to experience and this fact had proved to be instrumental in terms of improving employee morale and productivity.
Moreover, Mulally has effectively served as the main change agent for Ford Motor Company by communicating the reasons and benefits of each change proposal to company stakeholders. Selling all company corporate jets but one and minimising other perks for top executives including himself during cost saving initiatives (Gallo, 2012) illustrates Mulally’s strong commitment to changes that were being implemented.
Importantly, change proposals drafted and implemented by Mulally met minimum resistance from employees at all levels (Herbold, 2011) even though sizable members of workforce were greatly disadvantaged because of these changes. This achievement can be explained through the display of charisma, outstanding leadership skills, and understanding by Mulally in effective communication of the necessity of changes being proposed and implemented.
Ford Motor Company has been able to record a net profit of $2.7 billion for 2009, despite the fact that the company had a loss of $12.7 billion only three years earlier in 2006 (Reed, 2006) when Alan Mulally assumed leadership and had to deal with the consequences of global financial crisis in between.
This remarkable achievement is the result of introducing large scale effective changes in the company in an efficient manner. At the same time, it is important to stress that changes implemented by Mulally at Ford Motor Company were justly perceived as risky gamble during the period of 2006-2009. Nevertheless, the positive development of events for the company in following years and, above all, its impressive financial performance justify appropriateness of those changes, as well as, indicating to effective business intuition and strategic acumen of Alan Mulally.
Mulally has been able to achieve effective turnaround at Ford Motor Company partially because he was able to offer fresh insight into the company’s complex problems. Specifically, having worked for aircraft manufacturing company, Boeing for 37 years, Mulally had no previous experience in auto manufacturing when he assumed the top job in 2006 (Hoffman, 2012). Thus, Mulally has been able to assess the issues faced by Ford from new perspective and devise relevant solutions and ensure their effective implementation.
To summarise, the case of Alan Mulally’s change management at Ford Motor Company illustrates the importance of strong leadership, taking calculating risks, boldness and effective implementation of change in terms of achieving long-term growth of the business. However, it is important to note that the current position of Ford in the marketplace cannot be taken for granted and the company management need to continue with introducing changes in order to achieve long-term growth.
Annual Report (2011), Ford Motor Company
Gallo, C. (2012) “Alan Mulally, Optimism, and the Power of Vision” Forbes, April 25, 2012
Griffin, R.W. (2011) “Fundamentals of Management” Cengage Learning
Herbold, R.J. (2011) “What’s Holding You Back: 10 Bold Steps that Define Gutsy Leaders” John Wiley & Sons
Hoffman, B.G. (2012) “American Idol: Alan Mulally and the Fight to Save Ford Motor Company” Crown Publishing Group
“Meet the 2020 Chinese Consumer” report (2012) McKinsey
Mongay, J. (2012) “Business and Investments in Asia: New Challenges, New Opportunities” ESIC Editorial
Reed, J. (2011) “Alan Mulally: in the driving seat at Ford” Financial Times, March 2011
Zimmermann, N. (2011) “Dynamics of Drivers of Organisational Change” Springer Publications