April 24th 2003 notes on leadership, business and economics
From Dieter Zetsche at Chrysler to Phil Martens at Ford (and Mazda), come fundamentally the same realization and approach to business management: You don’t have to keep reinventing yourself, and in fact your efforts to do so is not helping the business succeed.
Martens woke up, jet lagged, in the middle of the night in a hotel in February 2002, and scribbled a diagram that was to represent a way for Ford to streamline its vehicle development… and thus reduce development time and reduce production costs.
One problem was its “internal fiefdoms” organized around vehicle types: Tough Trucks, Outfitters, Ford Family Vehicles, Ford Living Legends, and Lincoln-Mercury. These teams made few efforts to share resources or information, resulting in overlaps in design.
In the early 1990s, Ford’s big SUVs shared many components with the their large pickups, so they were able to reap the benefits of economies of scale to reap huge profits. But in the late 1990s, as it came time to redesign these vehicles, apparently each engineering group took steps to improve their respective vehicles.
For example, one group redesigned the truck frame to give it a smoother ride and better crash-worthiness. They definitely got what they wanted, and indeed got the government five-star rating. But this much re-engineering was not quite necessary to get sufficient crash-worthiness and five-star rating. What is more, it was as much as $2000 in cost overrun per truck.
Essentially, you had bright, well-intentioned engineers and managers who forged ahead with a better product, but without sufficient attention to the impact on process, numbers, and other vehicle designs. They lost a key part of founder Henry Ford’s emphasis: “low-cost high-quality engineering and manufacturing.”
So, enter stage right: Martens scraps the internal teams, and creates new R&D ones around the vehicle’s basic platform: its chassis, engine, and transmission. Ford now emphasizes sharing parts, systems, and engineering around vehicle teams. By 2020, this should reduce the platforms that Ford uses by 33%: from 18 to 12.
Even now, Ford is already developing as many as 10 cars and car-SUV hybrids based on the existing Mazda6, thus allowing them to tap the same Mazda suppliers and consequently cutting overall engineering and production time and costs.
Toyota is considered the industry leader in time of vehicle development: routinely under two years. Ford is about three years.
Martens has identified the source of the problem, and should make drastic reductions in this three-year timeframe as well as drastic reductions in costs and ultimately clear improvements in profit.
Sometimes organizations fall easily into silos and Us-vs-Them mindsets and practices. They require mindful, tough CEOs to pull them out.
Reference: Ford’s new development plan: To stop reinventing its wheels, by Norihiko Shirouzu (April 16th 2003).