Lessons In Change From Ford Motor Company

Edsel Convertable.

I probably spend too much time considering competition and change management, but just as I figured I was done with it for the week, a comment from Kathryn Greenhill regarding Model Ts got me going again.

Just like railroads, those “any color as long as it’s black” Model Ts looked like freedom, until General Motors showed the world they could get their cars in color and with curves. Every car came with four wheels and an engine, and they’d drive you down the block and around town, but the moldy Model T suddenly looked pretty old next to a sleek green Chevrolet.

By the end of 1919, Ford was producing 50 percent of all cars in the United States, and by 1920 half of all cars in the country were Model Ts. #

By the mid-1920s, sales of the Model T began to decline due to rising competition. Other auto makers offered payment plans through which consumers could buy their cars, which usually included more modern mechanical features and styling not available with the Model T. Despite urgings from Edsel, Henry steadfastly refused to incorporate new features into the Model T or to form a customer credit plan.

After becoming president of Ford, Edsel long advocated the introduction of a more modern automobile to replace the Model T, but was repeatedly overruled by his father. Flagging sales and dwindling market share for the company, however, finally made introduction of a new model inevitable. #

By 1926, flagging sales of the Model T finally convinced Henry to make a new model car. The result is the Edsel-designed Model A, which sold 4 million units from 1927-31. #

But that’s all old news. This is today:

1999: Bill Ford becomes Chairman of the Board. #

Bill Ford is known to be a conscientious environmentalist. In 2000, he announced that the Company would achieve a 25% improvement in fuel efficiency in the company’s light truck fleet, including SUVs, by mid-decade. That commitment proved to be impractical, given consumer preference for heavy towing capacity, and large powerful engines in their trucks. The company then announced in 2003 that competitive market conditions and technological and cost challenges would prevent it from achieving the goal. Ford also terminated its ongoing electric vehicle program as impractical and unaffordable from a profitable business standpoint. #

September 2003: The price of crude oil is under $25 a barrel; August 11, 2005: $60 a barrel; July 13, 2006: a record price of $78.40 per barrel. In the United States, gasoline prices reached an all-time high during the first week of September 2005 in the aftermath of Hurricane Katrina. The average retail price was nearly $3.04 per US gallon. #

2006: Bill Ford steps down as CEO. Ford mortgages all assets to raise $23.4 billion cash in secured credit lines, in order to finance product development during restructuring through 2009. #

These may appear contradictory, at one moment Ford is refusing the chase the market while it’s once mighty Model T falls, and in another the company gives up fuel efficient cars to chase the SUV market and suffers. But in both you’ll find Ford’s failure to innovate at the core.

A story, possibly apocryphal (i.e. I can’t find the source), tells of electronics manufacturers asking customers what features they wanted in their home video equipment. “VCRs that rewind faster,” they cried. Instead they got DVDs that didn’t need rewinding. Henry Ford responded to apparent customer demands for more, cheaper Model Ts, but customers quickly moved elsewhere when other manufacturers offered variety and style.