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Reinventing America with Ford Executive Chairman Bill Ford

April 8, 2014 in
Networking
Chicago
Business Talk

Last week I was at the Forbes Reinventing America Summit here in Chicago. There were some amazing speakers, including Rahm Emanuel (Mayor of Chicago), Jack Dalrymple (Governor of North Dakota), Michael Pence (Governor of Indiana), Rick Snyder (Governor of Michigan), Thomas Vilsack (Secretary of U.S. Department of Agriculture), Lou Anna K. Simon, Ph.D. (President of Michigan State University), David Cote (Chairman & Chief Executive Officer of Honeywell), Sam Zell (Chairman of Equity Group Investments), Shahid Khan (Founder & Chief Executive Officer of Flex-in-Gate and Owner of the Jacksonville Jaguars and Fulham Football Club) and many, many others. It was a tremendous event that focused largely on what businesses can do to keep America competitive and moving forward. I want to share what I learned with the wider world, so I will be putting together a couple blog posts over the coming weeks. One of my favorites was Steve Forbes interviewing Bill Ford, the Executive Chairman of Ford, so that is where I will begin.

I'm not always a fan of the way many big business operate, but Bill Ford covered many of the things I feel are so critical in every business: believe in your company and take calculated risks based on that belief; invest in the long-term success of your own company and never lose focus on the long game; and improving your suppliers is critical to your own success.

Bill Ford and Steve Forbes

Steve Forbes, Editor-in-Chief of Forbes Media, and Bill Ford, Executive Chairman of Ford Motor Co., at the inaugural Forbes Reinventing America Summit held in Chicago, IL, March 26-March 28, 2014 (Credit: Glen Davis/Forbes)

Believe in Your Company, Take Risks

In 2006, the Ford Motor Company was not doing very well ($12.6 billion loss), and things clearly weren't going in the right direction. Instead of just trying to cut costs, Bill Ford took decisive action and some huge risks -- because he believed in Ford and what it could do. Not only did he give up his CEO duties to an automotive outsider, Alan Mulally, but he essentially mortgaged all the assets of Ford, including his own family name. He believed that given the right resources, Ford and its employees would be able to turn things around.

This change at the top and cash infusion was a huge risk, but it worked. This capital gave Ford the cash it needed to invest internally, and gave the new CEO the resources he needed to turn things around. In the end, this turned out to be an even bigger success. The 2008 financial crisis loomed around the corner, and Ford was the only one of the three major U.S. automakers to avoid bankruptcy and government financing.

Invest in the Long Term

When Ford turned a $12.6 billion loss, they could have followed advice from Wall Street, reducing their research and development spending and cutting costs as much as possible. Instead, as noted above, Bill Ford took a risk and invested in the future, with a "double down" on research and development spending. While others in the industry were reducing their research and development costs, Ford continued to invest more. Research and development investment is critical in all industries, not just tech companies. Nearly 90% of patents still come from manufacturing companies like Ford; if you're not looking to the future, your competitors are... which means you're falling behind.

Bill Ford said that as the Chairman, it was his job to be the "institutional memory" of the company. He recalled how bad things were in the 70's, and how Ford addressed the problems. They remedied issues by focusing on improving their product, and delivering better quality products the customers wanted. He indicated that you can never take a step backward because of short term circumstances, you always need to be focused on the long term. You build your long term business on the quality of the product, your employees, and the relationships with your customers and vendors.

Invest in Your Vendors

Most businesses know, or at least they think they know, that they need to focus on the quality of the product, employees, and customer relationships. Many companies forget how dependent they are on their suppliers and vendors, and the importance of those relationships. They may take the care and effort in making initial vendor selections, but then do not make any further effort to improve the vendor relationship. As Bill Ford said, this is becoming even more and more important as product release cycles are speeding up to meet the faster software release cycles of this software centered world.

When your vendor has an issue, you and your business will be affected. A poor or unreliable vendor prevents you from releasing a product on time, can force you to deliver a poor product to your customers, and prevents you from building efficient internal processes. While it may be a problem on the vendor side, it doesn't matter to your customers, or to your bottom line. Take the time and effort to build relationships with your vendors, give them regular feedback and input, make sure they're aware of what your needs are, and when your needs are not met. Select one vendor for a given item where possible, then invest in the vendors you select. Give them firm commitments and live up to those commitments, help them with their own research and development, and look at making direct financial investments. If you can trust and rely on your vendors to always deliver what you need, when you need it, it empowers you to deliver a superior product to your own customers, while simplifying the process for your staff.

The Results

With these lessons, Ford turned around very quickly. After their $12.3 billion loss in 2006, they astounded Wall Street and made a $750 million profit in the 2nd quarter of 2007. While they were hurt badly by the recession, with losses of $14.5 billion in 2008, they kept afloat and again turned things around with a $3 billion profit in 2009. The success stayed with continuing high profits ($7.1B in 2010, $8.6B in 2011, $7.7B in 2012, and $7B in 2013). This success didn't come from cutting employee benefits, or slashing research and development costs: it came from improving their product and relationship with their customers by taking risks on their company, focusing on the long term, and investing in their vendors.

 

- Karl Zimmerman, President

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