Summary of the required case material for Lecture 6 of Innovation in the Digital Age: BerkeleyHaas "Disruption in Detroit: Ford, Silicon Valley, and Beyond" case.
Lecture 6 | Case Summary | Disruption in Detroit: Ford, Silicon Valley, and Beyond (A)
- Introduction:
• 2016: M. Fields, CEO of the Ford Motor Company was thinking about new challenges the 113-
year old automaker was facing. Fields had started his automotive career at Ford in 1989 and had
steadily worked his way up through the company's executive ranks, previously serving as the
automaker's COO between 2012-2014.
• 2014: Fields became Ford's CEO, a firm that had seen a dramatic turnaround. Before the
economic downturn in 2008, Ford's vehicle sales hit their lowest total in decades. A. Mulally
(Fields' predecessor) and his CFO, D. Leclair, had presciently raised almost $24bn in cash
(avoiding the need for a gov. bailout) by mortgaging all Ford's key assets, including its blue oval
trademark. Under Mulally's leadership since the recession, Ford's sales recovered and the firm
returned to growth through the production of attractive vehicle models.
• Fields' vision was disruptive innovation. The challenges that Ford overcame under Mulally
during the steep automotive industry recession were clear and 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. However, Field believed that there were more
difficult challenges that posed a greater threat to Ford's business model than the prior recession,
including, new competitors/technologies that brought sophisticated capabilities in many areas.
• Field knew that Ford had to focus on shifting consumer preferences in Ford's different market
segments and geographies; the significance of new industry entrants and technology; and
how much the automaker should bet on these technologies.
→ How could Ford's executive team continue to run its current automotive business effectively
while also positioning itself for the future?
- Ford Motor Company:
• 1903: Launched as an innovative automotive technology enterprise, in Detroit, in attempt to
displace horse-drawn carriages, which was the previously dominant mode of transportation.
Many automakers were learning from each other and vying for supremacy. Henry Ford, founder,
implemented an assembly line process for building vehicles. Mass production on an assembly
line provided efficiencies and economies of scale superior to other firms, enabling him to offer a
good enabled "Model T" vehicle at a radically lower price point.
• H. Ford's vision was to create transportation for the masses. He accomplished this by offering a
reasonably priced, durable vehicle while also raising wages for his own workers to make the car
affordable to them. His vision resonated with his era and was embraced by consumers.
- From the Model T to Rosie the Riveter:
• Ford had nationwide success with the Model T, which made H. Ford one of the richest people
in the US and led to international fame and business expansion.
• 1920s: Period of changing consumer tastes as the market became fragmented with other types
of styling/function such as General Motors's Chrevolet.
• Initially, Ford was low to follow these trends, but eventually broadened the product line,
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, Innovation in the Digital Age
survived the depression, and became part of President Franklin D. Roosevelt's arsenal of
democracy during WWII, 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 women who laboured in factories during the war; this plant was famous for turning out
one bomber each hour with its assembly line process.
- Post WWII:
• Ford served a public hungry for consumer goods and a return to civilian jobs and families after
WWII. It expanded with brands to revitalise the firm's iconic status in the US.
• Ford also broadened its reach in Europe/other regions. It was recognised for its tough,
workhorse trucks, which formed part of the US landscape and urban factory/construction sites.
- 1970s and 1980s:
• Last decades of the 20th century were challenging with corporate restructuring throughout the
US automotive industry. Two oil crises made fuel mileage important to consumers.
• Japanese car-markers gradually earned increasing market share with low-cost, fuel-efficient,
high-quality vehicles.
• Ford suffered from quality and safety issues such as the large-scale recall in 1978 of its Pinto
model, which had been designed to combat imports, and opposition to proposed new airbag
regulations.
• Over time, Ford absorbed useful quality lessons from Japanese manufacturing practices,
benefiting from its alliance with Mazda (a Japanese manufacturer).
- Late 20th Century:
• Good time returned when Sport Utility Vehicles became a highly profitable line of business.
These provided profit margins of well over $5,000 per sale at a point when the company was
losing money on each small and compact car it sold.
• Despite Ford's the disadvantages in terms of fuel economy, SUV sales mesmerised Ford
executives and continued to absorb much of their attention for over a decade. This focus
allowed the overall erosion of Ford's market share to continue as Japanese makers (e.g., Toyota,
Honda, and Nissan) came to dominate the lower end of the US market, but also to move upscale
into higher-end models, meanwhile expanding their own presence in EU and other parts of Asia.
- Turnaround:
• Former CEO J. Nasser directed an ill-fated diversification/acqusition phase and ended his
tenure.
• A. Mulally led to the company's admirable recovery from near-bankruptcy during the recession
by focussing the efforts of employees on its core automotive business and setting the tone for a
more collaborative organizational culture. He focused on creating a "One Ford".
- Present:
• Fields has been groomed for his role for decades with prior leadership roles as well as running
the core Americas operation.
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