The Lean Way Forward at Ford
I’ve been reflecting on today’s remarkable headlines about the latest retreat by the Ford Motor Company as part of its “Way Forward” campaign. While reflecting, I have found it useful to think about the history of lean thinking at Ford, going back nearly 100 years. I believe it offers many useful lessons for our current-day lean journey and Ford’s immediate choices.
The historical record is clear. Henry Ford was the world’s first systematic lean thinker. His mind naturally focused on the value creation process rather than assets or organizations. And he was the first to see in his mind’s eye the flow of value from start to finish, from concept to launch and from raw material to customer. In addition, Ford was history’s most ferocious enemy of waste. (Except, possibly, Taiichi Ohno at
Ford relentlessly emphasized the need to analyze every step in every process to see if it created value before finding a way to do it better. Otherwise the step should be eliminated. (This was Ford’s greatest criticism of Fredrick Taylor and Scientific Management. Why, asked Ford, was Taylor obsessed with getting people to work harder and more efficiently to do things that actually didn’t need to be done if the work was organized in the right sequence and location?) Then, when the wasteful steps had been eliminated, it was time to put the rest in continuous flow.
By 1914 at his
Equally remarkable, Ford had designed his Model T in only three months in one large room with a small group of engineers under his direct oversight. This surely was a
Then it gradually fell apart. Ford’s span of management control at
However, as the company grew Ford’s personal management method became impractical. But what to replace it with? Ford himself seems not to have had an answer except to link every step by conveyors – as he attempted to do at the massive Rouge complex completed in the late 1920s. By the 1930s the whole Ford Motor Company was in a sense one linked process. (Ohno, of course, realized that lengthy conveyors governed by a central schedule are a push not a pull system, but this was much later.) Did this mean that in the founder’s mind that the company needed only one manager -- Ford himself -- even as it became the world’s largest industrial enterprise?
In any case, the system came crashing down in the 1930s as Ford tried to produce multiple products with multiple options in wildly gyrating markets. Only the staggering cash reserves from retained profits during the Model T era kept the company going until Henry Ford II was able to take over in 1945.
But what management system should he impose on the chaos? Henry Ford II read Peter Drucker’s 1946 classic, The Concept of the Corporation, praising the General Motors management system and quickly remade Ford in the image of GM.
What a different system it was! Henry Ford had managed by going to the gemba to inspect the value creation process. General Motors executives managed by analyzing financial abstractions. For example, asset utilization (normalized for sales volume), days of inventory, cost of scrap, etc. in the factory. Available engineering hours utilized in product design. Managers were then rewarded for making numerical targets using methods developed by staff experts that managers rarely understood. A good way to make many of these numbers was to make products in large batches in order to achieve high asset utilization and low cost per individual step. The total value creation process from end to end -- which had been so clear to Henry Ford -- was gradually lost from view.
Soon Ford executives using the financial measures developed by finance czar J. Edward Lundy were even more rigorous in analyzing the performance of their area of control than GM executives. Robert McNamara and the Whiz Kids were the exemplars. And Ford did regain competitiveness as a GM clone, claiming a stable second place in the auto industry.
In addition, by the late 1940s Ford was one of three
When it suddenly became apparent at that point that the leading Japanese companies --
In the late 1980s, as
What we couldn’t report, because we had no way to measure it, was the status of the management system. And this was largely unchanged. Ford managers were still manipulating abstractions because the gemba consciousness of the early Ford Motor Company had been lost. Even worse, in the product development and supplier management processes, no change had occurred at all.
But Ford could still be successful in its home market for another 20 years by developing large pickups and SUVs. These were essentially America-only vehicles, suited to wide roads and low energy prices. They could only be challenged by
In 1997 I got a call from Jac Nasser, who had just taken over Ford’s North American Automotive Operations on his way to becoming CEO of Ford. He matter-of-factly told me that Ford’s Explorer and F100 pickup series were the only Ford products that made serious money and that he calculated that he had four years to become as efficient and effective as
We sat down to talk over just what this would mean -- dramatically changing the supplier management system, dramatically changing the product development system, dramatically changing the production management system, dramatically changing what managers do -- and he quickly concluded that it was just too hard. So he changed the management metrics, purged the poorest managers according to the metrics, and experimented with selling cars on the web! I was not asked back and had no desire to go back.
Ford actually survived for five years beyond Nasser’s projected meltdown date – although
In addition, finish rethinking the social contract as Ford becomes a normal company (not an oligopolist) in a normal town (where labor doesn’t come from one supplier) that must live in a global market. Finally, rethink brand strategy to get rid of hopeless makes that can never make money – Mercury, Jaguar,
Who knows whether this is doable in the time still available but it is the lean way forward. It will be tragic if the originator of lean thinking is crushed in the end by failing to learn lean lessons from its most earnest pupil.
Chairman and CEO
Lean Enterprise Institute (LEI)
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