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Alan Mulally: The Man Who Saved Ford

ALAN MULALLY: THE MAN WHO SAVED FORD

Alan Mulally hands us a piece of paper with the points about leadership he wants
to cover during our time together.

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AUTHOR

Michael Distefano

Chief Executive Officer, Professional Search & Interim

View Bio

Alan Mulally hands us a piece of paper with the points about leadership he wants
to cover during our time together. The note is handwritten and, unusual for a
CEO of a Fortune 10 company, he’s drawn a heart around the words Korn Ferry on
the note. A heart!

You don’t think of engineers as people who draw hearts on notes and memos, and
there is nothing in his 12th-floor office at Ford’s sleek Dearborn headquarters
that betrays sentimentality. Engineers are tough-minded analytical types who
live their lives curled up on the left side of their brains. And while Mulally
is definitely familiar with the left side — bachelor’s and master’s degrees in
aeronautical and astronautical engineering from the University of Kansas and a
master’s in management from M.I.T.’s Sloan School of Management — he’s also a
right-brain guy, a genuine people person.

We, but not Mulally, sometimes forget that the tools of modern companies —
computers, management systems, charts, tables, spreadsheets — don’t get things
done; people do, which is why his people-person style works so well.

On June 30, 2014, Mulally completed his latest “big thing,” the transformation
of the Ford Motor Company from a money-losing behemoth with an iconic legacy, a
patchwork of competing (some would say warring) fiefdoms, and a large, diffuse
set of brands, into a globally integrated, single-team company with a smaller,
more profitable and focused catalog of brands, a set of highly touted processes
and 19 profitable quarters in a row. Mulally masterminded this transformation
during one of the grimmest periods of global economic and automobile history, in
the midst of the worst and longest financial and economic crisis since the Great
Depression.

Mulally, who at 68 is ginger-haired and brimming with as much energy as Saudi
Arabia, Texas and North Dakota, managed the transformation by getting the best
out of the people already working at Ford, not by letting them go. Weeks after
he left Ford, Mulally joined the board of directors of Google Inc.

Even before Ford, Mulally’s platform was global, complex and massively
capital-intensive. He spent 37 years at Boeing designing, then serving on, every
one of its “bet-the-company” airliner programs. He then became lead designer,
director of engineering and finally general manager for the 777 — an extremely
intricate machine with 3 million parts and a global supply chain. The 777 has
been the subject of documentaries, articles and business school case studies
because it was the first commercial airliner to be built using computer-aided
design techniques. And when he became president and chief executive officer of
Boeing Commercial Airplanes, Mulally oversaw an even more difficult project —
the design and development of the 787 Dreamliner, the most complex,
technologically sophisticated and fuel-efficient jet airliner ever built.

And yet, Mulally draws hearts on his memos.

Dearborn

We met at Mulally’s office at Ford’s headquarters in Dearborn, Mich., just
outside of Detroit. It was late spring as we drove through the city of 100,000,
and we could not help noticing the thick, green lawns, leafy trees, and wide,
uncongested streets. It was an impeccably manicured Midwestern town with a lot
of charm. If Henry Ford had not located his automobile company here, it might
still be prairie farmland with rows of corn and hay, and milk cows dotting the
horizon. But now it is Ford country, and Ford is everywhere.

From where one of us stayed — a hotel built by Henry Ford decades ago and filled
with photos from that era — you could see the company’s sprawling engineering
and development center and — behind a high fence — one of its proving grounds.
From where the other one of us stayed, a more modern hotel from an upscale
chain, you could see the company’s headquarters and — if you looked even farther
— the old River Rouge Complex. At one time, the complex had been the largest and
most integrated factory in the world, with 1.5 miles of buildings. Truck- and
trainloads of raw materials would enter the factory at one end, people used to
say with only modest exaggeration, and shiny new Fords by the millions would
come out the other end.

Mulally, whose roots are in Kansas, another earnest, corn-growing, Midwestern
state, presided over the successful transformation of Ford for eight years.

Vision

Transforming a legendary company like Ford requires “vision,” Mulally told us in
his intense style, sometimes touching our arms or shoulders, and always leaning
in to drive home his points. But what does he mean by that well-worn word?

In another handwritten note, Mulally gave us his and William Clay “Bill” Ford’s
visions for the company. The notes were surprisingly brief. Bill Ford’s vision
was “Great products, strong business, better world.” Mulally’s vision was
“People working together as a lean global enterprise for automotive leadership.”

But even more telling, Mulally wrote these words with precise penmanship on an
old Ford advertisement titled, “Opening the Highways to All Mankind.” It ran in
the Jan. 24, 1925, issue of the Saturday Evening Post, a defunct magazine from a
bygone era. That message was the reason Henry Ford started the company, and by
placing his and Bill Ford’s words on that sheet of paper, Mulally was
demonstrating respect for the man and the sentiment that started it all. Ford
was always about producing cars with value for the masses.

It also demonstrates something else. “Leadership is having a compelling vision,
a comprehensive plan, relentless implementation and talented people working
together,” he said. “People also want meaning. All of us want to know that we
are doing great things, that we are touching a lot of people, and that what we
are doing is about something bigger than ourselves. The truth is, you can only
do that if you are growing, if your margins are improving, if you make products
that people want and value, and you do it more efficiently with regard to time
and resources than the competition,” he said. Henry Ford couldn’t have provided
the average consumer with mobility, thereby changing the world, unless he made a
profit. In Mulally’s view, a vision is not a hope. It is an action plan.

Fixing Ford

When Mulally entered Ford’s blue-glass headquarters building for the first time
in September 2006, the company was deteriorating rapidly. It was losing money,
and some investment analysts and industry pundits wondered whether the company
that was the first to harness mass production would be able to remain in
business. The company’s debt was “junk,” and its stock, which had been as high
as $17.34 in 2004, had fallen to $8.39 when Mulally joined, before plummeting to
$1.01 in 2008, as the world plunged into the financial crisis.

On the day he joined the company, the internal forecasts were bleak. “The
forecast for profits for 2006, for automotive, was for a $17 billion loss,” he
told us. “And at the end of the year, we achieved that loss.”

Mulally does not believe you can achieve greatness or growth simply by cutting
costs and streamlining processes. True, you can’t ignore costs and processes,
and they have to be tightly managed. But what you really need is to invest in
the future. He did this at Boeing, and under his leadership, the commercial
airplane division regained its No. 1 sales position for large airliners.
Investment, by definition, takes money, which Ford didn’t have. Just as
significantly, investment requires focus, especially in times of scarcity. In
Mulally’s vocabulary, “focus” means “plan.”

As we sat around a small table in his office, which also had a view of the River
Rouge Complex, Mulally explained that he had been methodically studying Ford
well before his first day on the job. Part of this was interviewing dozens of
Ford insiders, including the board. In addition, he interviewed professionals
from the automobile industry, finance, business and consulting. Mulally created
summaries of all these interviews and put them in a thick set of binders, which
he kept in his office. He used the insights contained in these books, plus “what
I learned during my nearly 40 years at Boeing,” to write Ford’s plan.

The plan was about numbers — as all business plans ultimately are — but it was
even more about people — what else would you expect from a man who draws hearts?
Specifically, it was about getting Ford’s employees — with their reputation for
infighting and for sharp elbows — to work together constructively and to help
each other. It was about changing how people at Ford interacted.

Mulally called his plan to get people to work together across the company “One
Team.” He called the goal of getting people to work together across the
company’s vast global ecosystem “One Ford.” Then he set a simple goal for the
company. He wanted “an exciting, viable Ford delivering profitable growth for
all.”

To accomplish this, he added to the plan a set of behaviors he expected
employees to follow, such as “foster functional and technical excellence,” “own
working together,” “role model Ford values” and so on. Though these changes
would alter the company’s culture, Mulally felt they were needed to make the
company profitable over the long run.

Operations

Operationally, Mulally explained in his unostentatious office, the plan wiped
out Ford’s old fiefdoms and created a new, simplified leadership structure made
up of the heads of the company’s profit centers — its major geographies, plus
Ford Credit. The leadership structure also included heads of Ford’s 12
functional areas, some of whom, like the heads of communications and technology,
had never been part of the leadership. Each of these individuals, plus Mulally,
Bill Ford and Mark Fields, chief operating officer and Mulally’s successor, were
at the top of Ford’s One Team. With amazing economy, Mulally was able to fit the
plan, and some added details, on two sides of a single card, which was given to
every employee and to everyone doing business with the company. The plan, along
with its expected behaviors, might as well have been carved in stone.The plan
began working almost immediately. It did so because Mulally connected it to
operational targets dealing with profitable growth. Everything that contributed
to, delayed, or cost the company profitable growth was measured, mapped and
color-coded — green for projects going well and on plan, yellow for areas
needing attention and red for the most urgent situations.

During our conversation, Mulally stopped, smiled slyly and invited us to “see
where it all happens.”

Mulally, a compact former gymnast, is in excellent shape. We learned that when
he raced us down the 12th-floor hallway to the elevator, and then into a large
conference room with a massive round table suitable for Arthur and his knights.
There were video screens on the walls and microphones on the table. This was a
room where big things happened. It was where Mulally’s weekly business plan
review took place, where the managers at the top of Ford’s One Team got together
to make decisions that led to Ford’s 19 consecutive quarters of profitable
growth. Though it was empty, you could feel it hum.

A moment later, Mulally whisked us down the hall and into another room, this
time a nondescript, barebones conference room almost directly underneath
Mulally’s office. In this room, on the walls, were some 320 color-coded charts
laying out goals and progress toward those milestones for each profit center and
function. Above each set of charts was a photo of the leadership team member
responsible for the results. “We are all sitting around the table, and the
charts are all color-coded,” Mulally explained. “Can you imagine the
accountability? You come to the table and you were red on the launch of
something last week, and you say to the rest of the team, ‘I’m really sorry. I
was really busy last week. I didn’t have time to work on that.’ The
accountability and the responsibility here is to help everybody on the team turn
reds into yellows and greens, and to deliver increasing earnings and increasing
cash flow every year.”

There was another interesting dimension to these meetings. “We invite guests
every week to sit in on the meeting in Dearborn,” Mulally said. “We introduce
the guests, who sit behind the team member that invited them, and we ask them
for their reflections and thoughts. The guests might be an engineer or someone
from down on the factory floor. So, all this data is flowing up, but then all
the results are also flowing down. It is going back and forth every week at
these meetings. And at the end of the meeting, the comments you hear from the
guests make your eyes water. They say, ‘My gosh, this is so big, so vast. We’re
in every country. I want to contribute to the plan as soon as I get back.’ I
have heard many guests say that.”

Raising money

Mullaly knew Ford needed new products to survive. Its lineup was tired, in
places, and some of Ford’s product decisions had been shortsighted, in Mulally’s
view. Take the Ford Taurus, a car that revolutionized the automobile design
process in the late 1980s when it was developed. When the car was launched, it
was to almost universal acclaim and went on to become the No. 1-selling car in
the United States.

But the Taurus suffered from a lack of attention inside Ford that resulted in
years of uninspired designs. Initially, the Taurus blended rounded edges with
sleek styling in a package that was futuristic, aerodynamic, confident and warm.
Toward the end, the Taurus resembled an oblong American football, albeit one
that looked a little deflated in the middle. Sales plummeted and it became a
fixture of rental fleets.

In his first week at Ford, when he was reviewing the company’s product plans,
Mulally asked where the Taurus was in the lineup. He was surprised that it had
been discontinued.

“Why?” he asked, dumbfounded.

“Well, we made a couple that looked like jelly beans and didn’t sell, so we
stopped it,” he was told.

Mulally looked at the product team. “You guys sold nearly 7 million Taurus cars.
Talk about a brand!” he said. “Why don’t you just make a new one, and get it
going again? How long would it take to make a new one?” The team told him it
would take four years. “How about doing it in two years? And make it the best
Taurus you can. A brand like that would cost billions of dollars to create from
scratch,” he told them.

From that moment forward, Mulally understood Ford’s development of new cars had
to be accelerated, a capital-intensive task. In his first weeks at Ford, he
understood the company would have to raise money if the automaker was to have a
future. “We decided to take out a $23.6 billion home-improvement loan,” Mulally
said, joking.

Given his experience at Boeing, Mulally expected that once the loan amount was
determined, Ford’s finance team would be able to raise the money. “I said to the
team, ‘Good luck. Let me know how it goes,’ and it got quiet. Then I said,
‘What’s wrong?’ And they said, ‘We can’t make this presentation. We can’t raise
this money, because we’ve told them all this before — how Ford has a great
plan.’ They said, ‘You have to do it, Alan, because you’re the only new model we
have.’ So I stood up the next day and presented the plan, and 10 days later we
had raised $23.6 billion, based on the strength of the plan we devised to work
together.”

The decision to raise $23.6 billion before the onset of the financial crisis was
prescient. With its bank account full, Ford had sufficient capital to invest,
even as automobile sales collapsed around the world and the capital markets
froze during the worst of the crisis and recession. Ford’s domestic rivals, G.M.
and Chrysler, hadn’t raised money and were not so lucky. They were forced to go
to Washington to ask the federal government for emergency loans. The government
granted the request at the cost of filing for bankruptcy, forced reorganizations
and the loss of each CEO’s job.

Though few industries have more entrenched rivalries than the automobile
business, Mulally went to Washington to testify on behalf of bailing out his
biggest competitors. He did it, he explained to us, because the death of G.M.
and Chrysler would have meant the demise of the industry’s network of suppliers,
which would have severely damaged Ford. The demise of these companies could have
plunged the United States into depression.

Focus

When Mulally joined Ford, it had dozens of automobile brands around the world,
and while not all of them were profitable, they all competed for scarce
resources and management time. Buying these brands was part of a plan to create
a premium group within Ford, capable of earning premium profits. Unfortunately,
the costs were high and the profits never materialized. The brands — Aston
Martin, Land Rover, Jaguar and Volvo, plus some other investments, such as Mazda
— were an expensive drag on a company, and the decision was made to sell these
assets.

Mulally did not regret selling these assets. Once more, his timing was
impeccable. Ford sold Aston Martin to an investment group in 2007, and Land
Rover and Jaguar to India’s Tata Motors in 2008, just before the financial
debacle. The timing of Ford’s sale of Volvo to China’s Geely was not so lucky,
since it didn’t happen until 2010. And, while Ford lost money on each of these
deals, when measured against the cost of buying the assets in the first place,
selling these companies stanched the financial bleeding and added to Ford’s cash
reserves.

There was more to the decision than raising cash. “The company had to have
focus,” Mulally said. “Can you imagine working on the Ford Fiesta from 8 a.m. to
8:15 a.m., then on a new Jaguar from 8:15 a.m. to 8:30 a.m.? We needed a
different plan to be world-class.” Just as importantly, Mulally said, “It was a
question of ‘What did Ford stand for?’ What do people think when they see Ford’s
blue oval? Do they think of us as a house of brands, or do they understand that
they are going to get a complete family of best-in-class vehicles that are also
affordable?”

Mulally’s method

Mulally is a leader with a method that works, especially when applied to big
projects, like designing and building a new generation of airliners, or
transforming a great-but-teetering automaker like Ford.

Mulally’s method is straightforward. It begins with understanding the problem
and how it came about, then determining what to do about it. Next, leaders have
to “pull everybody together around a compelling vision, a comprehensive strategy
and a plan aimed at achieving your goals,” he said. “We developed a plan to go
forward, after selecting the entire team of the leaders worldwide and also the
leaders with skills needed going across the world,” he said. Once you have the
people and the plan, you have to stick with both.

“After a couple of years at Ford, journalists would come in here and ask, ‘Does
Alan have a new card with a new plan on it?’ My answer was always ‘No.’ Stick
with what works.”

Many companies less successful than Ford, and many executives less successful
than Mulally, have written bold, comprehensive plans. But what they lack is a
leader who cares as deeply about people as Mulally does. What they don’t have is
a leader who draws hearts on his memos and notes.

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