Disruption in Detroit What type of industry change(s) are being observed in the automobile industry? Explain. What form(s) of innovation strategy do you believe is/are required as an effective response? Give an example of a possible new strategy Ford could effectively deploy.
I-Iaas School of Bt1si11ess. University of California Bcrkclc,, . .. ERNEST GUNDLING II r Date: January 1, 2018 Disruption in Detroit: Ford, Silicon Valley, and Beyond (A) If I had asked people what they wanted, they would have said faster horses. -HENRY FORD As the early morning sunlight beamed upon the World Headquarters building of the Ford Motor Company in Dearborn, Michigan, on a war1n spring day in May 2016, CEO Mark Fields was already in his 12th floor office thinking about new challenges the 113-year old automaker was facing. Since starting his automotive career within the marketing, sales and service organization at Ford in 1989, the energetic 55-year old Fields had steadily worked his way up through the company's executive ranks, previously serving as the automaker's COO between 2012 and 2014. When he became Ford's CEO in July of 2014, Fields stepped into the enviable role of running this iconic company, which had seen a dramatic turnaround under his predecessor, Alan Mulally. Just prior to the 2008-09 economic downturn, during which Ford's worldwide vehicle sales hit their lowest total in decades, Mulally and l1is CFO, Don Leclair, had presciently raised almost $24 billion in casl1-avoiding the need for a government bailout-by 1nortgaging nearly all of Ford's key assets, including its blue oval trademark. 1 Under Mulally's leadership since the recession, Ford's sales recovered and the company returned to growth through the production of attractive vehicle models such as the Ford Fusion and Ford's refurbished F-150 truck line. With the automaker now leaner but profitable again, Fields' vision for the future direction of the automobile industry highlighted what he called ''disruptive innovation." The challenges that Ford overcame under Mulally during the steep automotive industry recession were clear and 1 Dorin Levin, "Ford's Forgotten Man," Fortitne, May 25, 2011. Lecturer Ernest Gundling prepared this case study with Case Writer Dickson L. Louie of the Clear Lake Group as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. The autl1or would also like to gratefully acknowledge the support of Audrey Zavodsky, Ph.D., and Richard Zavodsky, Ph.D., both at Ford. Copyright© 2018 by The Regents of the University of California. All rights reserved. No part of this publication may be reproduced, stored, or transmitted in any form or by any means witho·ut the express written permission of the Berkeley-Haas Case Series. DISRUPTION IN DETROIT: FORD, SILICON VALLEY, AND BEYO1\'D (A) 2 compelling: declining sales, multi-billion dollar losses, ailing suppliers, and the need to cut manufacturing and employee headcount while still investing to build new cars. Fields, however, now believed that there was a. fresh set of challenges that a1·e more difficult to quantify and yet could pose an even greater existential threat to Ford's business model than the prior recession. These threats include a host of new co1npetitors and technologies. Several of Silicon Valley's largest companies:-Google, Apple, Tesla-as well as other well-financed newcomers such as China's BYD and LeEco have plunged into the automotive industry. These competitors brought with them sophisticated capabilities in areas such as autonomous driving, electric batteries, and entertainment that are beco1ning increasingly relevant to changing market demands. As Fields rose from his desk and looked out of his comer office window toward the morning rusl1 hour traffic on the S011thfield Freeway below, he knew that botl1 he and his executive team faced a number of questions and that their decisions would shape the future of one of the world's best known brands. These questions centered on the shifting consumer preferences in Ford's different market segments and geographies; the significance of new industry entrants and technologies; and how much the automaker should bet on these new technologies. With Fields already running a very large and complex business, these decisions made tl1e task of reinventing Ford even more daunting. How could Ford's executive tea1n continue to run its current automotive business effectively while also positioning itself for the future? Ford Motor Company Be ready to revise any system, scrap any method, abandon any theory, if the success of the job requires it. -HENRY FORD 2 Ford had a long and storied history of innovation (Exhibit 1). Detroit in the early 1900s, where the enterprise made its start, was a hotbed of new automotive technology and entrepreneurship in the process of displacing horse-drawn carriages, the previously dominant mode of transportation. More than eighty different automakers, 1nany headquartered in Detroit, were learning quickly from each other and vying for supremacy, experimenting with new kinds of engines and creating the frrst trucks, snowmobiles, and motorized postal vans. Henry Ford, the company's primary founder, implemented an assembly line process for building vehicles, reportedly inspired by his observation of a Chicago meat-packing plant. Mass production on an assembly line provided efficiencies and economies of scale superior to other firms, enabling him to offer a ''good enough'' Model T vehicle at a radically lower price point, and to gradually win out in his struggle with a swarm of hard-working competitors. Henry Ford was a polymath who befriended Thomas Edison and had other interests in power plants and airplanes as well as controversial political views, but his most durable vision was to create transportation for the masses. He acco1nplished this by furnishing consumers with a reasonably priced, durable vehicle while also raising wages for his own workers to make the car affordable to them. Henry Ford's vision resonated with the expansive spirit of his era and was enthusiastically embraced by consumers. Ford declared in 1913: I will build a 1notor car for the great 1nultitude ... constructed of the best materials, by the best men to be hired, after the si1nplest designs that modem engineering can devise ... so low in price that no man making a 2 Ford News, Page 2, January 15, 1923. . . DISRUPTION IN DETROIT: FORD, SILICON VALLEY, AND BEYOND (A) 3 good salary will be unable to own one,-a11d enjoy with his family the blessing of hours of pleasure in God's great open spaces 3. From the Model T to Rosie the Riveter. Since Ford's founding in 1903, the company has been· through many stages. Its initial nationwide success with the Model T made Henry Ford one of the richest people in the United States and led to international fame and business expansion. The Model T era was followed by a period of changing tastes in the 1920s, during which the market fragmented and consumers began to favor vehicles with other types of styling and function such as General Motors's new Chevrolet. Ford and his namesake company were initially slow to follow these trends (''Any customer can have a car painted any color ... so long as it is black''), but eventually broadened their product line, survived the depression, and became part of President Franklin D. Roosevelt's ''arsenal of democracy'' during World War II, mass-producing jeeps and planes for the military. Ford's Willow Run aircraft plant in Michigan was the workplace of the original ''Rosie the Riveter," a representative of the many thousands of women who labored in facto1ies during the war; this plant was justifiably famous for turning out one bo1nber each hour with its assembly line prowess. Post World War II. In the prosperous era that followed the war during the mid 20th century, Ford served a public hungry for consumer goods and a return to civilian jobs and families. It expanded with brands such as Thunderbird and the fabled Mustang, which was first introduced in 1964, revitalizing the company's iconic status in American foll