Case Study 2

OUR CHANGING WORLD: BACK TO BASICS AT FORD MOTOR The Ford Motor Company is no longer a U.S. company with international operations. For many years it has had worldwide production and sales. But now it is depending on its European operations to serve as a model for Ford in North America. IMPLOSION As late as 2000 Ford was hailed by Wall Street as the best-managed of the Big Three auto-makers. It earned an adjusted profit of $2,032 per vehicle in North America. By mid-2002, however, Ford was losing $190 per vehicle. As recently as 1998 Ford had reported profits of $21.3 billion, but in 2001 it lost $5.5 billion. "It wasn't a gradual decline," CEO Bill Ford says. "It was a massive implosion. "What has happened to them is amazing," says a top General Motors executive. "Nobody saw it coming." Most of the problems occurred under Jacques A. Nasser, Ford's former CEO. Nasser diversified Ford into areas like e-commerce, parts recycling, and repair shopswith bad results. Ford invested tens of millions in new ventures with Microsoft, Yahoo, Qualcomm, and others to market cars on the Web or to bring Internet services into Ford cars. Ford had fallen into a sorry state of disrepair. Its profits, market share, quality, and morale were spiralling downward as Nasser tried to turn Ford into something, anything, other than a traditional car company. His willingness to squeeze suppliers, upset dealers, and shed experienced employees in his rush to remake Ford as a consumer company made him a lightning rod. THE NEW CEO In 2001, the board appointed William C. Ford Jr., the well-liked great-grandson of founder Henry Ford, to replace Jacques Nasser. Bill Ford shed the ancillary businesses, dubbed his turnaround plan "back to basics," and declared a focus on automobiles. Ford is already warning that it will take at least three to five years to fix its deep problems. Last year, the auto maker cut 350,000 vehicles from production by slowing assembly-line speeds, eliminating most overtime, and cutting shifts at several plants and even cutting 35,000 jobs and closing factories. The CEO said. "You have to lay out your vision." THE EUROPEAN MODEL There is one bright spot for the company: Ford of Europe. The European unit racked up $2.5 billion in losses through the 1990s. To correct the problem, Ford Motor put Nicholas V. Scheele along with his number-two man, David W. Thrusfield, in charge of bringing about change. "It was a broken business," says Thrusfield.

The two closed three plants and reduced production capacity by 25 percent. The four big car-assembly plants were overhauled so that they could produce more than one model on the same line. These "flex factories" saved the company hundreds of millions of dollars it otherwise would have had to spend on separate assembly lines. "Ford did it right in Europe," says J. P. Morgan Securities analyst Himanshu Patel. Thrusfield and Scheele also went to work on the uninspiring line-up of models. More new cars are now rolling out and faster. Says one Ford official: "The trick is to look at everything." Scheele is now Ford president and right-hand man to Bill Ford. Europe isn't just a bright spot for Fordit's the model for the entire turnaround effort in North America. "Ford of Europe was the biggest turnaround of any unit in Ford's history," Bill Ford says. "In many ways, it's the template for what to do here." Many of the measures implemented in Europe are being adopted even before it's clear whether they are working there. Although this is a gamble, Ford Motor may not have much of a choice, because there is talk on Wall Street of Ford's demise. If the changes at Ford of Europe stall, then doubts about Ford's overall strategy will quickly multiply. Bill Ford can learn some lessons from Europe. He just has to make sure they're the right ones.

QUESTIONS 1. Using a systems approach, identify the various problems at Ford Motor. 2. Of the four orientations managers have to change (sluggish-thermostat, satisficing, reactive, renewing/transformational), which is most apparent at Ford?