How a Global IT Revamp Is Fueling Ford’s Turnaround
When Ford unveiled its re-engineered Explorer in July, the buzz focused on its new options--an engine promising 30 percent better fuel economy, a touch-screen multimedia system, intelligent four-wheel drive, in-vehicle Wi-Fi and inflatable seat belts.
But what's missing may make all the difference to the automaker's survival. Two years ago, a shopper could purchase Ford's full-size SUV in any one of 76,000 configurations. This year, Ford will offer just 1,500. It's not exactly Model T simplicity. ("Any customer can have a car painted any color that he wants so long as it is black," founder Henry Ford once wrote of the Tin Lizzie.) But it is a step back to basics for the 107-year-old company and--according to its senior leadership--the key to its future.
When CEO Alan Mulally took over Ford in the midst of a turnaround four years ago, he brought a singular focus to its Dearborn, Mich., headquarters: creating one Ford worldwide. For a company in which each brand, each region, each business unit ran independently for decades, Mulally's "One Ford" plan is an extreme makeover. Even more challenging, the company has had to retool itself amid an auto industry depression and a broad economic meltdown.
"All the car companies dug themselves into such a hole that they face a humongous challenge," says John Kotter, chief research officer with consultancy Kotter International and author of the bestselling book Leading Change. "But Ford is doing more smart things than the other American car manufacturers, and that seems to coincide with their new leadership."
Since 2005, Ford has cut costs by more than $10 billion and shed nearly half its brands; it offers 45 models this year compared to 97 in 2006. By 2012, the company plans to center its manufacturing efforts on 15 vehicle platforms, down from 27 three years ago. The goal: design cars globally for global consumption.
IT is at the heart of the corporate U-turn. Nick Smither, who became Ford's CIO five months before Mulally arrived, has mirrored the CEO's strategy with a plan for "One IT." To cut operational costs by more than 30 percent, IT eradicated duplicate applications, eliminated excess infrastructure capacity, united autonomous IT shops and trimmed its staff. The slimmed-down team of 3,400 is reinvesting that savings, plus more, in new technology--such as collaboration tools for designing and building its revamped fleet, and in-vehicle IT that attracts buyers and generates revenue.. "
The importance of technology to Ford's 180 is reflected in IT's elevated profile. Smither reports to the CEO and is part of the executive team that meets weekly to lead the transformation. And senior IT leaders are integrated into every new global function at the company.
IT has evolved from order taker to integrated business partner and innovator, says Smither. As Ford, perennially the number two U.S. automaker, attempts to move ahead of the competition and stay there, the tech team is critical. "Every vehicle manufacturer understands the importance of technology--not just for business operations but for its products, whether it's digital convergence, environmental sustainability, even how you communicate with customers," says Thilo Koslowski, Gartner vice president of automotive and vehicle information and communication technologies. "Ford is moving in that direction quicker than any other vehicle manufacturer."
Eliminating excess capacity and inefficiency within the IT organization and the company is supposed to enable Ford to return to--and sustain--profitable growth. Last year, even as American auto sales slumped to their lowest level in decades, Ford surprised the industry with a $2.6 billion profit and gained U.S. market share for the first time since 1995. General Motors and Chrysler, meanwhile, filed for bankruptcy and federal bailouts.
"It was a significant change-management challenge, but two things helped us," Smither says. "We were aligned to the One Ford plan, so as we were integrating IT operations, business operations were doing the exact same thing. And a year in, the economic meltdown hit, which became a motivator in enabling the change."
One Way Forward
"Ford has talked about this idea of One Ford for 30 years now," says David Cole, chairman of the nonprofit Center for Automotive Research (CAR) in Ann Arbor, Mich. "But there was never the discipline or the organizational structure to make it happen."
By the time the recession hit in December 2007, however, everyone from executives to assembly-line workers had a personal stake in restructuring. The U.S. auto industry was crashing; Ford alone would lose $30 billion and cut half its workforce between 2006 and 2008. Unemployment in Michigan rose to record levels and the Detroit area reported the highest home-foreclosure rate in the country. "It became very clear to everyone here that business as usual wasn't going to get us where we needed to go," says Smither.
But it was Ford's action before the financial crisis that enabled a sharp turn in the right direction. Call it prescience or desperation--no one can say for sure--but in 2006, before credit evaporated, the company had borrowed $23.6 billion in private loans. "Ford mortgaged the entire company--right down to the blue oval, they like to say--and it kept them out of bankruptcy," says Cole.
Mulally unveiled his unifying vision: The roles, processes and products at Ford should be more alike than different, and there needed to be fewer of each if the company was ever to be profitable again. "There was a high degree of duplication," says Smither. No common systems meant no common processes, insufficient collaboration, and little data sharing. The discord between regions was so bad, according to a 2006 Fortune magazine article, that the "joke around the company a few years ago had it that if the head of Ford Europe said it was snowing out, the head of North America would put on his bathing suit."
Ford's new CEO decreed that groups such as product development, engineering and IT in each of the company's four regions be consolidated via shared services. Every business function would have one global organization, not multiple sovereign and superfluous regional functions and business units. Mulally "sealed off the escape hatches that would allow Ford employees to say, 'But we're different. We do it this way,'" says Cole.
Smither and his team created a shared-services model for infrastructure, applications support and new-systems development. In addition to cutting staff, the IT group decreased its global application portfolio by 40 percent and consolidated six enterprise data centers into four. Resources are now managed globally.
So IT could contribute to global business initiatives such as product development, Smither assigned senior IT leaders to each of Ford's functional and business units. He also invested in new capabilities, such as common marketing, purchasing, manufacturing and communication tools.
A leaner organization has reduced bureaucracy, Smither says. Employee morale also went up, according to internal surveys. "When you go through valley of death and come out the other end, you say, 'Wow I didn't think we could do that but I guess we can,'" says CAR's Cole.
Hot Seat at the Table
Smither may not have fully appreciated what he was in for when he agreed to be CIO. "I had a sense that there were going to need to be some changes and a need to attack complexity," he recalls. "But, at that point, no one anticipated the enormity of the economic downturn" or how big a change adapting to the new strategies would be.
Yet Smither--British by birth, a Ford man by training--may be uniquely suited to the role he accepted. An automotive engineer, he graduated from college into a job working on power train development for the Ford Transit, a popular commercial van in Europe. In the 30 years since, Smither has worked in just about every function and region in the firm.
Smither replaced Marv Adams, who for a time reported to Ford's COO and, for five and a half years, focused on improving IT service levels. "Marv did a great job of addressing the fundamentals of IT," says Smither, who worked under him as director of product-development systems. Without the technical capabilities and IT-quality initiatives Adams put in place, One IT would be inconceivable. But requirements for IT have shifted at Ford, which under Adams and his two predecessors was acquiring global brands and diversifying into new transportation-related businesses. "It's a different company now," Smither says. "My work is focused around making sure we integrate Ford globally so that we're profitably moving forward."
Mulally recognized IT's importance in Ford's overhaul. "There aren't that many automotive CEOs that highlight the role of IT in their public statements. Alan does," says Gartner's Koslowski. Mulally elevated Smither to group vice president (and an office on the top floor at headquarters).
Every Thursday at 7 a.m., Smither heads to a conference room for Mulally's two-and-a-half hour business plan review (BPR). Each direct report delivers a status update on his function's contribution to the turnaround and its performance against corporate profit targets. Some weeks Smither takes five minutes; others he has the floor for half an hour.
The purpose of the BPR is not to highlight success but to provide an accurate picture of the company's progress toward One Ford so it can make course changes if need be. It's fitting that these meetings take place in the "glass house," as Ford's windowed headquarters building is informally known, but this level of openness and accountability is foreign to legacy employees.
To jump start these frank discussions, Mulally insisted that Smither and his fellow executives label each slide they present as green, yellow or red. Initially, the presentations were all green. "There was hesitance to show a yellow or red slide. Historically, that would have been taken as a sign of weakness," says Todd Nissen, a company spokesman. So when Mark Fields, Ford executive vice president and president for the Americas, was the first to brave a red slide, "Alan called him out on it, in a good way," Nissen says.
Those meetings helped Smither figure out the best way to cut IT costs and set expectations about how those reductions would affect the business. Function and business-unit heads participated in figuring out which applications might not need an upgrade and where investments were required to support key business objectives. "It's a very transparent process," says Smither. "Whenever there's an issue, whether it's in IT or another functional skill team, there's almost always a better plan for moving forward when we come out of the discussion."
The executive team helped evaluate both the value and the risk in IT's cost-cutting plan, including deferring PC renewals through hardware redeployment, delaying increases in network bandwidth in some areas, and postponing the renewal of some noncritical applications. BPR participants also helped to confirm the best areas for IT investment.
"That understanding of the business from a functional and global perspective has given us a huge opportunity to drive efficiency and helped us to focus on innovation," says Smither, "which had not historically been the case for Ford IT."
Global I.T. for Global Vehicles
In 1995, Ford's then-chairman and CEO Alex Trotman announced a grand integration plan to "combine the power, resources and reach of a world company." Symbolizing the new world order would be a new world vehicle, a four-door sedan sold in the United States as the Contour and in Europe as the Mondeo. But--as CAR's Cole relays the story--when the resulting vehicles hit cross-continental car lots, the only thing the American and European versions had in common was the cigarette lighter.
When the 2012 Focus goes into production later this year, company executives say it really will be a global car and, they hope, a hot seller worldwide. Approximately 80 percent of its parts will be the same no matter where the vehicle is made. It will feature the same brake and tail lights in South Africa and Singapore, use the same design and engineering standards in Germany and the United States, and be marketed and sold using global processes and pricing data that stay the same in China and the Czech Republic.
"We have to have a strong focus on IT integration to support that new global product," says Smither. Ford employees will be able to build, sell and support the same Ford Focus in the same way despite remaining differences in plants, people and equipment around the world, due in large part to new common IT systems, processes and data.
As the company's manufacturing hubs in Dearborn and Cologne, Germany, prepare to assemble the car, Ford employees are logging in to a global commodity hub, which allows engineers and designers to share information with the company's purchasing agents. Before this hub existed, each region used unique, sometimes ad-hoc, databases. Processes and systems for soliciting quotes and preparing purchase orders from suppliers once varied by part, region, vehicle, even buyer in some cases. Now the WebQuote system connects every corner of the company with its 1,600 suppliers using standard procedures.
Meanwhile, IT is rolling out a suite of 20 order-to-delivery applications that track a car order from the sale at the dealership through production to shipping and delivery to the customer. The suite incorporates the best features from applications used by different regions. It will be used first in India to introduce the newest Figo, a top-selling subcompact on the subcontinent that Ford thinks could succeed elsewhere in Asia and in Africa.
IT has also unveiled a suite of Digital Worker tools to improve employee communication and collaboration across continents. These include unified communications, WebEx videoconferencing and SharePoint-based social networking. The company is expanding access to e-mail on personal devices and experimenting with emerging social media tools such as the microblogging service Yammer.
One day soon, we'll approach car shopping the way we do choosing a new cell phone, says Gartner's Koslowski. The decision won't be based solely on the product's core functionality--making calls or getting us from point A to point B--but also on the high-tech bells and whistles baked into it.
At Ford, the key to developing those IT-based features is having a high-level technology executive located with every business and functional unit of the company. "The idea of placing senior IT executives in the business isn't new," Koslowski says. "But Ford demonstrated how successful this strategy can be if you prove that IT is a credible resource and make it clear to the business how they can benefit from it."
For example, in product development, IT is contributing directly to the top line. Smither's In-Vehicle Systems team is performing advanced proof-of-concept work with product-development engineers on the next generation of IT for Ford drivers.
The highest profile project to come out of this IT-business collaboration is Sync, Ford's award-winning in-car communications and entertainment system. Introduced in 2007, Sync enables drivers to control stereos, smartphones, seat controls and much more with a voice command-operated system. The company is now developing Sync application programming interfaces for Google Maps, Stitcher smart radio and the Twitter client OpenBeak.
After three years--and two million Sync systems--Ford says car buyers are more likely to purchase a Ford with Sync. And they have paid a $400 premium for it. In a 2010 Ford survey, 80 percent of potential customers said Sync improves their overall image of Ford, 70 percent said it makes them more likely to purchase a Ford, Lincoln or Mercury, and 88 percent would recommend others purchase a Sync-equipped vehicle. The technology has, "for the first time, created a new value proposition for an automotive company beyond the transportation benefit of an automobile," Koslowski says. "It's a competitive differentiator."
Back to the Future
If financial results are any indication, the One Ford strategy is moving the company in the right direction. Despite continued economic uncertainty, Ford predicts, and analysts agree, it will be solidly profitable in 2010--a year earlier than anticipated.
If all goes as planned, Ford will be able to build each of its cars for several thousand dollars less than its international competitors, says Cole, a reversal of fortune that will enable it to offer features and amenities others can't.
Ford needs all the profit margin it can get. The billions it borrowed in 2006 enabled it to avoid bankruptcy and a federal bailout, but it still has a mountain of debt to pay down.
Although Smither says Ford's IT department revamp is "well progressed," full global integration will take another two to three years. Beyond that, IT has truckloads to do. Global collaboration has, for one thing, doubled network traffic and strained Ford's consolidated infrastructure. "We need to make big investments in ensuring our network is resilient and improve capabilities in our hosting environment," says Smither. Savings from data center consolidation must be reinvested in infrastructure improvements, like re-architecting Ford's WAN. New consumer technologies will demand more from IT as well. "In terms of areas where technology is rapidly advancing--mobility, social networking internally and externally--we're just in the infancy of that," says Smither.
Accordingly, IT will need professionals with emerging technology experience--a skill set in high demand. Cole says employers are already experiencing shortages of workers with critical skills, and if Ford waits too long to staff up, it could have a hard time finding professionals with the right knowledge. Ford's Nissen says IT staffing is under constant evaluation, and that Ford has deals with third-party IT service providers capable of staffing up when necessary.
There's also the question of whether the changes Ford is making will stick. "Your strategic planning or your product portfolio or your leadership--if any of that derails, then your whole attempt to change the organization and to change IT can get derailed," says Koslowski. Ford faced similar challenges during the auto recession of the 1980s--losing billions, squandering market share. Corporate leaders avoided bankruptcy through cost cutting, a focus on quality and introduction of the best-selling Taurus. The changes didn't last; after a few years, Ford returned its roots.
"The forces of tradition are like 500-mile-per-hour headwinds," says Kotter. "Often what happens is a new CEO comes in and makes what seems to be a huge change in a gigantic company over four or five years," says Kotter. "But if it hasn't been made to stick, guess what? Everyone starts slipping back into the old ways of doing business and the great turnaround doesn't last."
Cole, however, believes Ford is unlikely to backtrack this time. "It's like surviving a near-death experience. It's focused them on what they should do," he says.
Smither isn't worried. "I think staying focused on the One Ford plan, and taking decisive action to make sure we matched capacity with demand while leveraging our global scale, is what allowed us to survive," says Smither. "And the same is true for IT. At this point we continue to be laser focused not just on integrating Ford but figuring out how we can continue to grow profitably in the future."
The restructuring process, he says, has been invigorating. "I have always told people that a career in IT is a career in change management. But no one--no one--could have anticipated this level of change," he says.
"I know people massively fear change, and it's been challenging. But I also think it's been motivating and constructive, and I think my team would view it the same way. You always see it differently coming out than you do going in."