The Biggest Transformation of the Auto Industry in the Last Century — Mark Fields, CEO Ford

The Industrialist’s Dilemma — February 25, 2016

We had hoped that when we arrived to this section of the course we would get to see differences between “disruptors” and “disruptees” that were simultaneously substantive and subtle in nature. However, after analyzing the automotive industry and chatting with Ford CEO Mark Fields about the multi-pronged changes his company is confronting, we were surprised at both the extreme level of complexity and also the quantity of issues with which he is wrestling.

We level-set with the students at the beginning of the class session by pointing out that with annual sales of over $150B, Ford would be approximately the 57th largest country in the world — right up there with Kuwait, Bangladesh and Hungary. The firm sold over 6.6 million trucks and automobiles globally last year, and has approximately 200,000 employees worldwide. Moving a company of that size and scale is never easy, and given the complications of the situation and the nature of the new entrants that Ford is confronting, it almost “hurts the brain” to get one’s head around all of the issues Mark and his team face.

Mark discussing the changing nature of the automotive industry

The Leaders Get It, But Where to Focus?

Mark started off by saying that this is the most transformational time in the auto industry in the last 100 years — which identically echoed the messages of Bernard Tyson about the healthcare industry and Charlie Scharf’s view of the payments industry. The leaders of these three businesses are well aware that they are confronting unparalleled technological change, diverging customer preferences and new entrants into their markets who face substantively lower barriers to entry than at any time in their companies’ histories.

Across all aspects of Ford’s value chain — from changes in manufacturing with connected robotics, to the increased level of software required to run the newest cars and trucks, and even to how products are delivered to end-customers — the level up upheaval is frame-breaking on each vector. We asked the students what should be the one greatest thing keeping Mark up at night in worrying about his business, and the students came up with 11 different potential threats. What fascinated me is that when we normally ask this question in the classroom, inevitably one or two items bubble to the top as being the biggest threat. In this instance, no single item received more than 12% of the classes’ vote as the biggest peril facing Ford.

In over a decade of teaching I’ve never seen anything like this — even when I might disagree with students on what might be the biggest challenge that a company faces, inevitably there has always been consensus on 1–2 items that are more formidable than the others.

Not this time.

This lack of a belief in a “single greatest enemy” around which Ford should be worried greatly exemplified why Mark’s comment about this being the most intense time of change in the industry is much more than hyperbole — it is Ford’s reality.

Mark discussing the challenges and opportunities facing Ford

Don’t Throw Out the Baby With the Bath Water

Mark stressed that in his view Ford has always been a mobility company — not just a firm that sells cars and trucks. In fact, even if the company used to measure itself on vehicle units sold, this really is not the value that they have historically delivered to their customers. In Mark’s mind, as they look to how they measure success, changing the figure of merit from celebrating units sold to measuring annual miles driven with Ford vehicles creates a new way to look at Ford’s opportunities going forward.

In Mark’s mind, Ford started as a manufacturing company, became a manufacturing and technology firm, and now needs to become an organization that is a manufacturing, technology and information company.

In stressing this additive nature of the firm’s competencies, Ford seeks to lever its incumbency and DNA to be used as a competitive advantage in the new world order of the automotive industry. Even if Mark wanted to completely move the company towards an era of ride sharing, autonomous driving vehicles, etc. (as some of the new entrants in this space are doing), Ford still sells millions of cars and trucks annually in a market that is growing due to the rise of an increasing middle class, additive wealth, etc., which will enable large numbers of people to still want to own their own new vehicles.

Mark stressed a theme that has come out with all of our industrial guests who are confronting The Industrialist’s Dilemma — how to use one’s incumbency as a strength and not a boat anchor to compete. In the case of Ford, Mark is very well aware of ensuring that existing corporate antibodies can kill new initiatives, and his role as the CEO is to protect, encourage and force needed change. He also stressed, similar to how Charlie did for Visa, that his “old line” and “innovation” teams need to be integrated and not separate if new initiatives will be able to have long-term impact to the organization.

This reminded me of a framework for corporate entrepreneurship developed by my colleague and mentor, Robert Burgelman, at Stanford. Robert’s tool shows how to organize new initiatives in a corporation depending on how the activity is both strategic to and related to a company’s core business.

This is strongly related and important

What is happening at Ford, Visa and Kaiser Permanente at this moment in time is upheaval that is highly strategically important and strongly related to their core businesses, and as such these new initiatives must be integrated into the main organizations sooner rather than later. When Tony Fadell talked about entrepreneurship in a corporation needing to be separate and protected in its nascent stages in our third session, his insight works best when the strategic importance or operational relatedness to the core business is limited or unknown to start. Fundamentally, however, as an initiative becomes more relevant to a firm’s core business, it must be integrated in to the main organization quickly and prudently.

This made me realize that what makes The Industrialist’s Dilemma such a challenge is that the assaults on the industrialists are coming right at the core of what is both strategic and related to these firms at an unprecedented pace — and are not just dancing around the edges of their industries.

Mark also highlighted how Ford needs to think about how some of its current assets (e.g. it’s 10,000+ dealer network) can be used as a point of advantage for customer engagement and relationships, and how customer experiences need to change as things go through the current upheavals. None of the potential new entrants into the automotive industry have such a large footprint for engaging customers; Ford needs to work with its dealer network to make the dealer experience a feature (and not a bug) in the new world order.

User Experience matters in the auto industry (and in classroom note taking , too— thanks Alli McKee)

The Ecosystem Needs to Change, Too…

Mark highlighted that Ford needs to deliver vehicles that are fun to drive for some customers, and vehicles that are fun in which to ride for other customers. In dealing with these changing customer requirements, the company needs to not only change its own behaviors, but they also need to bring along many of their current fellow travelers (e.g. suppliers, partners, etc.). Firms that historically did not have to think about UX and customer experiences need to do new things which were previously not required to be a supplier to the auto industry.

When we asked how he works with his existing key suppliers such as Bosch and how these suppliers need to change to serve the new automotive industry, Mark shared how companies like these have moved to thinking about selling systems to Ford vs. selling components since vehicles are increasingly becoming mixes of hardware and software.

As we thought about this after the class session ended, our conclusion is that this is going to be one of the biggest strategic challenges for Ford as they ponder how to run their business for the next decade. Where will they be able to lever existing partners and relationships and where will they need to find new partners? What parts of the value chain will Ford need to own in these new system and data/information stacks? How will they choose with whom to partner and from whom they may need to move away?

It is hard enough to wrestle with changing products, changing technologies, changing customer needs, changing internal organizations, etc., but figuring out which critical fellow travelers will make the leap to the “other side” — and which ones won’t — is part of what Mark and his team need to discern quickly.

And it is one area where Ford has the least amount of control.

To us, this session greatly exemplified The Industrialist’s Dilemma — these large firms have never confronted so many challenges on so many fronts at one time. And if they are unable to execute on how to lever their existing positions while simultaneously changing how they do business, the results will be existential for employees and shareholders.