How Alan Mulally Transformed The Ford Motor Company

Under Mulally, Ford transformed from an almost bankrupt Company with ~USD 17 billion annual losses to a healthy company with USD 6.3 billion pretax profit (in just 8 years) Note: He just used three colours to do so.

Just two days ago, Ford announced that it was finally pulling out of the Indian market. That makes Ford the second US Auto company after General Motors to pull the plug from India. Having read about Ford Motors amazing transformation under the leadership of Alan Mulally, it was disheartening to read this news.

However, as the news reports suggest, with a market share of less than 2% in India (which is dominated by the Japanese and the Korean Auto makers), and with an accumulated loss of more than USD 2 billion over the past decade, probably even Alan Mulally might have done the same thing. Who knows, he may have done that sooner! After all, back in 2007-08, it was Mulally who oversaw the sale of marquee brands (that Ford owned) such as Jaguar Land-Rover, Volvo and Aston Martin, all at a substantial loss, just to focus on Ford’s core offerings.

In 2006, Mulally had his hands full at Boeing, where he was the Executive Vice President of The Boeing Company, and President and Chief Executive Officer of Boeing Commercial Airplanes. That’s when Bill Ford, the great grandson of Henry Ford, approached Mulally asking him to take over the reins at Ford Motors.

Mulally had successfully navigated Boeing from the aftershocks in the aviation industry after the fateful events of 9/11, and Bill Ford wanted someone with a fresh perspective to nurture Ford back to good health. By hiring Mulally from Boeing, Bill Ford was defying an established practice of hiring from only within the Automotive Industry. However, as the saying goes, “Desperate times call for Desperate measures”.  

When Mulally joined Ford, Ford Motors was in a pretty bad shape and was about to lose USD 17 billion that year. Years of poor management and lack of focus had made the company directionless, and sent it deep in the red.

As any organization that grows too big, Ford Motors also developed multiple power centers, and different teams worked in silos. These teams had little coordination and hardly any collaboration. Additionally, the work culture was toxic, muddled with office politics, and veterans were ruthless towards outsiders.

Naturally, employees were not encouraged to admit problems which were not immediately “fixable”. Issues got swept under the carpet and did not get the quick attention of the top management, leading to delayed responses. People never talked about problems since it was seen as a sign of weakness.

Ford’s woes did not end there. its product line up was outdated, and Ford had no money to develop new cars that the customers would like. In short, Mulally had just accepted a huge challenge. His name was surely to be recorded in history books.  Either as the man who saved Ford, or the man who sunk with the ship.

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Immediately upon his appointment, Mulally started to acquaint himself with the problems that the company faced. With the Board’s complete faith in him, Mulally was free to fire anyone who he thought was a misfit.  The Board had already told him that there were no sacred cows.

However, Mulally was of the belief that he may not need to fire anyone, since the misfits would ‘self-select out’. For the system that he was about to put in place enforced extreme accountability. And that too on a weekly basis. It would mean there would be no hiding place for those not committed to executing their part of the business plan to turnaround the Company.

The system, called Business Plan Review, or a BPR, involves only three colours – Red, Yellow and Green – and it takes place every week. In Ford’s case, a BPR took place at 7.30 am every Thursday, with mandatory attendance for all senior executives.

During such meetings, each executive was to deliver precise status reports on his (or her) part of the puzzle to turn around the company. And to bring transparency around data and projects, the executives were to use specific colour coding to signify the status. As such, a “Green” meant that the development was going well, a “Yellow” signified that there were some issues, while a “Red” meant there were problems where there was no immediate solution and needed urgent attention.

Issues requiring a more in-depth review were to be taken separately in a “special attention review,” or SAR, which immediately followed the BPR. Thus, the BPR never lost its focus from the big picture. And this was to happen every Thursday.

It was a culture shock at Ford. The senior leadership was expected to solve problems. No more passing the buck.

However, years of conditioning to “not” report on failures, and a fear of a strong reprimand by the new CEO (who had the power to fire anyone he didn’t seem ‘worthy’) meant that the first meeting saw all greens. This prompted Mulally to express his surprise that there is no issue in “Red” for a company about to lose $ 17 Billion, unless of course, the official plan was to lose that much money!

After a few such meetings with all greens, Mark Fields, the then business unit chief for Ford’s Americas operation, had an issue with the launch of Ford Edge, for which Fields had to reluctantly stop production. In the Thursday BPR that followed, Fields sheepishly presented a launch chart with three columns in red. He explained that he did not know what the issue was, but he was working on it.

People thought that Fields may be thrown out, but Mulally was waiting for just this opportunity. He publicly applauded Fields for pointing out the issue, and asked others in the meeting to help. Soon, colleagues reported facing a similar problem elsewhere, and someone even informed they may have a potential solution already developed within the Ford network. Unbeknownst to them, Mulally was getting his team to collaborate.

And then what Mulally said next drew home the point.  He said, “I am Alan Mullaly.  I am the CEO of Ford.  I know very little about making and selling cars.  I definitely know a lot less than you guys do about making and selling cars.  And it is OK!  We just need to act on reality. Then we’ll be back making the best cars in the world. I know nothing about building cars.  It is ok to admit that.  We have to be completely honest, accept reality, and then decide further course of action.”

With their confidence restored in their new leader, within just a few weeks, the charts presented at the BPR looked like a rainbow of greens, yellows and reds.  “At that moment, we all knew that we were going to trust each other,” Mulally said. “We were going to share everything about the plan, and we were going to help each other to turn the reds to yellows to greens.”

The system implemented for the top leadership was so effective, that it soon spread throughout the organization.

Concluding Thoughts

Mulally of course had to take some tough decisions when he took the Top Job. These decisions included a sale of JLR and Volvo, and mortgaging all of Ford’s assets to borrow USD 23 billion to finance a major overhaul to its business. While these decisions were interpreted as a sign of desperation, in hindsight, these were the very decisions that helped Ford to weather the financial crisis of 2008 (without a Government bailout) and to come out stronger on the other side.

While all the decisions contributed to Ford’s turnaround, it will not be incorrect to say that the new culture imbibed by Mulally complete with the weekly BPR and its colour coding were its key enablers.

Ford had an employee satisfaction of just about 40% when Mulally took over which jumped to more than 90% when he retired, 8 years later. It is a remarkable achievement for any leader. If you have forty minutes to spare, do watch this impressive presentation delivered by Alan Mulally himself.

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