Organizational Culture Change Example – Alan Mulally Ford Turnaround Story

Organizational Culture Change Example – Alan Mulally Ford Turnaround Story

 

Alan Mulally’s Ford turnaround is an amazing example of organizational culture change. How do you change the culture of an organization to a high-performance culture? How can leadership contribute to organizational culture change? The Alan Mulally Ford turnaround story is the best example of leadership and organizational culture change.  Read how Alan Mulally not only transformed the organizational culture but also orchestrated one of the most spectacular turnarounds in business history.  Learn how you can transform the culture at your company into a high-performance culture.

Henry Ford, the assembly line, and the American Icon

 

Assembly Line Henry Ford

 

Ford motor company is the American icon that Henry Ford started in the early 1900s.  In the year 1913, Ford was the first company to start cars’ mass production through the assembly line process.  The assembly line manufactured model T car was priced affordably for an average American, and it became an instant success.  By 1925, Ford had a 56% market share in automobiles, and it became one of the most successful car companies in the world.

 

Click below to read an equally spectacular failure story

The FAILURE story of the legendary Henry Ford and the lesson for leaders

 

The American icon in trouble

 

Fast forward to 2006, just about 100 years later – Ford Motor Company, the American icon, was about to lose $17 billion that year.  The company’s debt was rated at “junk” status, and the stock had halved in value from $17 in 2004 to about $8 in 2006. Bill Ford, the great-grandson of the legendary Henry Ford, had taken over the company’s helm for the previous five years but was unsuccessful in turning the company around.  If things didn’t change drastically, Ford was on the verge of bankruptcy.

 

The call for help from Bill Ford to Alan Mulally for organizational culture change and to save Ford

 

Bill Ford called Alan Mulally to take charge of the troubled company and turn it around.  Bill Ford knew that Alan had pulled a similar feat at Boeing and figured that Alan Mulally’s leadership genius was his last chance to save the iconic company from bankruptcy.  Alan had successfully maneuvered Boeing through the Asian financial crisis of the early nineties and the catastrophic events of 9/11 when they had to reduce their production of airplanes from 620 a year to just 280.  Boeing survived and thrived through it all, under the stewardship of Alan Mulally and his leadership skills.  In fact, Boeing had launched the 777 airplanes that allowed it to sprint ahead of the archrival Airbus.  In 2006, when Bill Ford called him to take the helm at Ford, Alan was in the middle of developing the 787 Dreamliner airplane.

 

Alan didn’t want to leave Boeing.  He had joined Boeing as a fresh graduate engineer and risen to the level of CEO.  It was the only company he had worked for in his entire 37-year career. Alan had successfully maneuvered Boeing through the unprecedented crisis of the terrorist attacks on September 11, 2001.  Overnight, Boeing’s orders halved. Alan’s leadership helped Boeing survive and thrive.

On top of it, Alan knew very little about the automobile industry. Leaving Boeing to come to Ford was not a consideration.  Bill Ford pleaded his case with the loss of countless people’s jobs if Ford were to go under.  Alan Mulally agreed to lead Ford, the American icon, in an attempt to save it from going under and turn it around.

 

 

image Source – Ford Motor Company, CC BY 3.0, via Wikimedia Commons

 

Bad times for American auto manufacturers

 

2006 was a bad time for American automobile companies.  Japanese companies like Toyota and Honda were making better cars at a lower cost and steadily taking market share.  But that was not all.  Ford had a lot of internal problems.  The once glorious company was now plagued with regionalism and fiefdoms, too many low-quality products, and a culture that stifled any change or innovation.  If Alan were to be successful in turning Ford around, he would have first to transform Ford’s culture.  Without a drastic change in culture, any attempt at turning the company around would likely fail miserably.

 

Winning over the board and the team at Ford

 

Bill Ford wanted to ensure that the Board of directors was OK with appointing Mulally as the CEO. The board at Ford had already decided to hire an outsider as the CEO as they didn’t see anyone within Ford that was fit for the CEO’s role.  Once he convinced Alan Mulally to take over as the CEO, Bill Ford arranged a meeting of the board with Alan.  The board assured Alan that he could reappoint or fire anyone he thought was unfit – even if that person was close to Bill Ford himself.  Alan smiled and assured them that he wasn’t going to fire anyone.  He had better ideas in mind to turn the company around.

 

How did Alan Mulally turnaround, Ford? Through Organizational Culture change!

 

Here is how Alan Mulally orchestrated the organizational culture change and a spectacular business turnaround

 

Changing the status quo at Ford

 

During his first few weeks at Ford, Alan attended too many meetings for his comfort.  He found that many things were discussed in the meetings, but little seemed to get done.  He quipped – If we spend all our time attending meetings, when will we have time to think about our customers?  He then introduced the concept of Business Plan Review (BPR) meetings that Alan had successfully used at Boeing.  Alan and the entire leadership team at Boeing met every Thursday for BPR or Business Plan Review.  At the weekly BPR meeting, each leader had to deliver a brief status update on their top 4-5 priorities.  He used a simple red-yellow-green indicator to show whether the plan was on track or not.  Green meant that things were going as per plan.  Yellow meant that there were challenges to achieve the plan, but there are measures in place to get things back on track.  Red meant that the plan was off track and needed urgent attention.

 

Alan’s first BPR at Ford

 

At his first BPR  (Business plan review) meeting at Ford, Alan Mulally asked the 16 top leaders at Ford if they were in green, yellow, or red on their top 5 priorities.  To Alan’s surprise, almost everyone responded by saying that everything was OK, and everything was green! 

Alan responded – We are about to lose $17 billion this year, and you are saying that everything is OK?  Did we plan last year to lose $17 billion this year?  If the answer to that question is yes, then we are in the green. Otherwise, we are not!  Eventually, one leader admitted that he was in red.

Alan Mulally thanked the leader for his honesty, stood up, and applauded the leader.  He said thank you for having the courage, telling the truth, and admitting that you have a problem and don’t have all the answers, and are unsure how to get things back on track. 

What he said next was simply amazing.  I am Alan Mullaly.  I am the CEO of Ford.  I know very little about making and selling cars.  I definitely know a lot less than you guys do about making and selling cars.  And it is OK!  He said – “We just need to act on reality. Then we’ll be back making the best cars in the world. I know nothing about building cars.  It is ok to admit that.  We have to be completely honest, accept reality, and then decide further course of action.”

 

A dose of radical transparency was delivered

 

That was a dose of radical candor and transparency.  Usually, the opposite happens in organizations.  Leaders often don’t know the answers but are afraid to admit them. Team members are afraid to call out the leader on such issues.  Meeting after meeting, leaders talk about all kinds of issues but avoid talking about the proverbial – “elephant in the room.”  Leaders pretend to know things and posture to others that they know, even when the truth is that they are unsure and need help. A culture of honesty and transparency allows issues to be brought out in open.  Without admitting the problems, without facing the reality, there was little chance Alan, or anyone could turn a company around.

 

Billionaire Ray Dalio calls this radical transparency.  In his famous TED talk, Ray Dalio openly shared an email that his subordinate had written to him.  It was candid feedback on his own performance.  In a normal organization, anyone giving such feedback to the CEO would probably get fired.  But Ray not only welcomed such radical transparency, but he was also happy to share it with ALL the employees in his company and the entire world through his TED talk.  Ray Dalio credits his success to the principle of radical transparency.  Transparency allows discussion of problems and their solutions.

Read the article on Ray Dalio and radical transparency here – Creating a team culture where the best ideas win.

 

Alan had the courage and the humility to admit openly that he didn’t know the answers.  Can you guess what would have happened if Alan, instead of admitting that he didn’t know, would have postured to know the answers?  When the idea comes from the boss, people just jump on the idea.  Instead of fixing the real problem, chances are that the team would implement the boss’s idea to please him and get on his good side!  Alan had the discipline and the courage to say – “I don’t know” openly so the people who really know can start working on the problem!

Patrick Lencioni defines this leadership quality as vulnerability-based trust.  What is vulnerability-based trust?  It is a place where leaders comfortably and quickly acknowledge their mistakes, weaknesses, failures, and the need for help. These leaders also recognize the strengths of others, even when those strengths exceed their own.

 

A culture of Psychological Safety

Extensive research by Amy Edmondson shows that psychological safety is essential for high-performing teams.  She defines Psychological safety as a belief that one will not be punished or humiliated for speaking up with ideas, questions, concerns, or mistakes.  When the leader exhibits humility, it increases the psychological safety of the team.  This allows the team to discuss problems, brainstorm solutions, try various options, learn from mistakes and find innovative solutions.

 

Coming back to the BPR at Ford,  Alan Mulally said we have brilliant people working in this organization.  Let us ask for help from them.  And they did! Alan recalls that 10 minutes later, the leader and the team were well on their way to solve the problem.  The right people were called in to help, and they would take the discussion offline to make a plan to get back on track.  Alan called these meetings SAR (Special attention review) meetings.

 

Discipline to stay the course. 

 

A normal CEO would have been extremely tempted to add their “two cents” worth to solve the problem.  They would say – “Have you tried this or have you tried that?”  What would have been the result if Alan did that?  I guess some or all of the leaders would immediately jump on the idea to impress the new boss!  What would have been the result, knowing the fact that Alan didn’t actually know much about a car company?  Alan had the discipline to keep his mouth shut, honesty to admit he didn’t know, and the courage to ask others for help.

 

How do you get your leadership team to a much higher level of honesty and transparency?  Continue to the end of the article, and I will answer this question.

 

alan mulally coaching
What is the ultimate calling of a good leader?

 

Dr. Marshall Goldsmith quotes Peter Drucker – Our mission in life is to make a positive difference.  It is not to prove how smart we are, and it is certainly not to prove how right we are!  Leaders often get lost trying to prove how smart we are and how right we are.  Alan Mulally said clearly with his words and his action that he was not there as the Ford Motor Company’s CEO to prove how smart he was and not there to prove how right I’m here he was.  His job was to turn the company around and make a positive difference in the lives of people.

That was the first major step towards the organizational culture change that Alan Mulally orchestrated at Ford. Can you imagine the impact of Alan’s candor and transparency on the 16 top leaders at Ford who was present in the first BPR?  Alan didn’t just offer a new way to conduct meetings or solve problems, but showed a completely new way of interacting with the team members – a major step towards creating a culture of honesty, transparency, and accountability.

Read the article: Psychological safety at work – Why you need it and how to develop it.

Zero tolerance for bad leadership behaviors

 

A second major step towards organizational culture change

 

The other major step towards the organizational culture change that Alan Mulally implemented at Ford was zero tolerance for bad leadership behaviors.

 

What are some of the bad leadership behaviors, and what is the impact on employee engagement, performance, and culture?

 

Read my article:  Poor leadership behaviors and their collateral damage

top 20 leadership growth areas
Egos, politics, silo mentality

 

Egos, politics, silo mentality are just the side effects of poor leadership behaviors.  Poor leadership behaviors leave significant collateral damage to trust, relationships, accountability, and focus on results.  This drastically reduces performance.

 

No bad leadership behaviors tolerated

 

Alan Mulally had zero tolerance for bad behaviors as well as any deviation from established norms. 

No sarcasm or jokes at the expense of other team members. There was no gossip and no talking behind the back.  Any feedback had to be delivered directly to the person and his/her face.  Everyone had to pay attention during the meetings: no cross-talk, no checking on emails, and no phone calls.  Alan clearly led by example.  He would stop the meeting and ask the person to use the phone or check emails if it was more important than attending the meeting.  Discuss issues and suggest ideas based on merit: no ego pampering, no silo mentality, no individual goals at the expense of team results. 

 

Ten norms (rules) imported from Boeing.

 

Alan Mulally also imported 10 rules from when he had worked at Boeing:

 

1. People first
2. Everyone is included
3. Compelling vision
4. Clear performance goals
5. One plan
6. Facts and data
7. Propose a plan, “find-a-way” attitude
8. Respect, listen, help, and appreciate each other
9. Emotional resilience … trust the process
10. Have fun … enjoy the journey and each other

 

Accountability for results. 

 

As a leader at Ford, if you had promised to do something, as per the BPR, you’d better have a good reason if there was any deviation!  Alan’s key ingredient for success was “tough love.”  He held everyone accountable, and he started with himself.

A gut check moment happened when one of the senior leaders went to Alan’s office to talk to him about his policy of zero tolerance.  He said – what is this boy scout stuff of being a “good boy”.  We are all adults and we don’t need a babysitter to tell us how to behave.  Alan listened to him patiently.  Then he replied – Yes we are all adults.  I made a choice to create this culture at Ford.  You can make a choice too.  Stay here and be a part of it, or go somewhere else where you can behave the way you like.  This was one of the board members Alan was speaking to.  He was stunned!  He decided to leave Ford.

One more board member approached Alan with a similar issue.  Alan absolutely insisted that no bad behavior will be tolerated anymore at Ford.  This board member also decided to leave Ford. The rest of the board members decided to work on changing.  Alan provided them help – in the form of stakeholder-centered coaching.  He gave them all the support and encouragement.  But there was zero tolerance for bad behaviors.

Alan said that no individual, however brilliant, should not be allowed to create a toxic culture.

Alan turned Ford around working with the same 14 of the 16 board members, who had taken Ford to a $17 billion loss!  That is the power of organizational culture change.  It is not the people, but the culture!

 

Alan had promised the board of directors at Ford that he would implement BPR at Ford but had no intention of firing anyone. It was possible that a few people may leave because of the transformation in culture and not being able to cope up with the new culture of accountability.  And he kept that promise.  Unlike many CEOs who start their tenures with mass layoffs, Alan did not fire any senior leader.  Some people left on their own because they didn’t want to fit into the new culture.  That is a testament to Alan Mulally’s leadership and his ability to implement organizational culture change successfully.

Read the article: Team coaching – Everything you wanted to know about it.

 

Maneuvering the long road to success through organizational culture change

 

Over the years, there were a lot of ups and downs.  The worst was yet to come.  At the height of the 2008 financial crisis, Ford’s stock went down to just $1.  Analysts questioned the appointment of an outsider as the CEO of the big three American auto companies. A local reporter asked how he could be successful as a CEO when he knew nothing about cars.  Alan quipped that an average car has 30000 parts. A Boeing 777 has over 3 million parts. Plus, an airplane has to stay up in the air, so the margin of error in building an airplane has to be zero! The reporter was speechless.

Alan had to make some tough decisions.  He had to sell many of Ford’s luxury brands like Jaguar, Land Rover, Volvo, and Aston Martin. He had to renegotiate the unreasonable union contracts.  Internally, he had to break down the silos and remove the fiefdom mentality through his “One Ford” plan.  Despite staggering losses, Alan borrowed $23 billion to restructure the company.  These once controversial decisions turned out to be brilliant moves over the long term.  Alan Mulally’s leadership genius saw things ahead of time.

 

Alan Mulally’s Ford turnaround – delivered through organizational culture change

 

Business Turnaround

 

In 2014, when Alan Mulally retired, he had successfully turned Ford around – pulling off one of the biggest and most difficult turnarounds in the business history, and a testament to Alan Mulally’s leadership.  After the financial crisis of 2008, when General Motors had to be bailed out by a Government loan, Ford refused help from the Government, as Ford had secured money years in advance and was on the road to recovery.

 

In 2010, the net income at Ford had shot up to $6.6 billion. Ford had delivered 16 consecutive quarters of profitability and was well on track to return to its former glory days. Also, in a company driven by labor unions, Alan Mulally’s approval rating was unbelievable at 97%.  That is the power of Alan Mulally’s leadership and his ability to orchestrate organizational culture transformation.

 

P.S.  Alan Mulally was and the leadership team at Ford were coached by the same process that we offer for your leaders.  Read about the process at the end of the article.

Get the same coaching process for your leaders to create a culture of high performance.

 

How to implement an organizational culture transformation at your company

 

Want to transform the culture at your company into a high-performance culture?  Then get the Alan Mulally leadership plan for your organization!

Alan Mulally supported the leaders with a team-centered coaching process.  We offer the exact same process for your leaders! 

Take your top leadership team through the stakeholder-centered coaching process and change your organization’s culture.

Create a culture of openness, transparency, feedback, and accountability – just like Alan Mulally did at Ford.  Identify and rectify poor leadership behaviors with guaranteed and measurable results.

  • As Marshall Goldsmith used to develop leaders at 150 of the Fortune 500 companies, we offer the same coaching process.
  • Our leadership coaching using a stakeholder-centered coaching process – delivers guaranteed and measurable results.
  • Do you want to transform the culture of your organization?  Do you want to develop effective leaders who deliver results?
  • Connect with a leadership advisor to find out how our individual and team coaching can help you develop leaders, transform organizational culture change, and deliver high performance.

 

 

We offer our New Age Leadership – NAL Triple Advantage Leadership Coaching

that delivers guaranteed and measurable leadership growth.  It is based on a stakeholder-centered coaching process with a 95% effectiveness rate (in a study or 11000 leaders on 4 continents).  It is used by companies ranging from startups to 150 of the Fortune 500 companies to develop their leaders.

 

Here are some of the salient benefits of NAL Triple Advantage Leadership Coaching

 

Time and resource-efficient: The leader does not have to leave work to attend training programs.  We go to the leader and her team.  And it only takes 1.5 hours per month. The rest of the time, the leader is working to implement with her team.

Separate and customized improvement areas for each leader: Every leader is different.  One size fits all approach doesn’t work.  Individual development areas for each leader aligned to the business strategy.

Involves entire team: Unlike most leadership programs, NAL Triple Advantage Leadership Coaching involves the leader’s entire team, and it has a cascading effect – increasing the team effectiveness and improving organizational culture.

The leader becomes the coach: for continuous improvement for leaders themselves and their teams. It is like kaizen for your leadership development.

Cost-Effective: Our entire one-year coaching engagement often costs less than sending the leader to a short-duration leadership program at any reputed B school.

Guaranteed and measurable leadership growth: as assessed – not by us – but anonymously rated by the leader’s own team members.

Pay us only after we deliver results! : We work with many of our clients on a pay for results basis.  What does it mean?  If the leaders don’t improve, you simply don’t have to pay us.

 

Schedule an exploratory 15-minute conversation with our leadership adviser today

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References:

American Icon – Book by Bryce G. Hoffman

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