Six Things All CEOs Can Learn From Mulally

  1. Display courage in the face of adversity. When he arrived on the job in September 2006, Mulally realized that the Ford line-up was in disarray and that transformation would take time. He took a lot of heat for mortgaging all of Ford’s assets for $23.6 billion to protect the company from “unexpected events.” When the Great Recession hit, GM and Chrysler extended their hats in desperation for government bailouts. Ford toughed it out. It’s now a badge of honor.
  2. Focus is everything. Ford had dissipated its effort across too many non-core nameplates. (“Nobody buys a ‘house of brands.’”) The decision to sell Jaguar, Land Rover, and Aston Martin, fold Mercury and concentrate on the Ford brand—the One Ford strategy—allowed everyone to direct their energies to what was truly important.
  3. Simplify. Mission statements are pretty useless and besides, no one reads them. To let everyone know what he expected Mulally had plastic cards printed and distributed to everyone, headlined “One Ford” with four expected behaviors on one side and a revised definition of the company on the other (One Team. One Plan. One Goal.). Mulally carries spares in his wallet in case you can’t produce yours.
  4. Use the Outsider Advantage. Outsiders often have a mixed track record, especially when confronting a calcified corporate structure like Ford’s, but even insiders when they step outside the box can start to see the business as an outsider would. Mulally discovered early in his tenure that Ford had a culture that indulged in “meetings about other meetings.” It was classic CYA. He insisted on a weekly Business Plan Review System where it was harder to hide unpleasant truths. Executives were held accountable for their performance against a constant stream of data that gave the team a strategic snapshot of where everything stood.
  5. Reward transparency and collaboration. Early in his job, Mulally held a meeting of senior managers who were asked to report on how business was going. Most said everything was fine. Some held their breath when Mark Fields, operations chief of the Americas, raised his hand in what might have been an act of career seppuku, saying a defective part threatened to delay the launch of an important vehicle. The room fell deathly silent. Mulally looked at Fields and then to the others around the room and started to clap his hands. Once rivals, executives began sharing sensitive information and helping one another.
  6. Stay inventive during tough times. In an industry often slow to embrace new developments or cutting edge technology, the company introduced MyFord Touch, a sweeping redesign in the way drivers interact with their vehicles using graphic display screens, user-friendly controls and expanded voice commands. Its SYNC communications system makes additional vehicle controls voice accessible without the driver having to take her eyes off the road. Premium technology made available to non-premium products.

Ford by the Numbers

Ford’s strong return on capital and its outstanding EVA profit trend combine for a first rate, 87th percentile profit score.

2006 Q3 2011* Average
Sales $148,009 $121,716 $135,499
EBITDAR $10,656 $18,416 $14,272
NOPAT -$6,737 $2,435 -$3,895
Capital $20,707 $22,580 $26,505
Return on Capital -25.20% 9.80% -14.10%
Cost of Capital 7.50% 6.30% 6.80%
EVA -$8,655 $922 -$5,694
EVA Spread -32.40% 3.70% -20.80%
EVA Margin -5.9% 0.80% -4.30%
EBITDAR Margin 7.2% 15.10% 10.70%
Sales Growth -2.4% 25.40% -1.70%
EVA Momentum
-4.60% 8.40% 0.50%
EVA Momentum
-24.00% 31.30% -7.40%
3 Year Trend
-77.20% 9.60% -15.00%

Source: EVA Dimensions LLC

Term definitions: EBITDAR is EBITDA+Rent+R&D+Ad+Etc.; NOPAT is Net Operating Profit After Tax; Capital – Net Operating Assests; Return on Capital is (NOPAT/Capital); EVA is (ROC-COC) x Capital; EVA Spread is (EVA/Capital = ROC-COC); EVA Margin is EVA/Sales; EBITDAR Margin is EBITDAR/Sales; EVA Momentum is Δ EVA/Sales; EVA Momentum is Δ EVA/Capital

*As of 2/2011