How CEO Donald Petersen Turned Third-Ranked Ford Into a Sales Powerhouse

During the 1980s, Ford Motor Co., headed by Donald Petersen, became the U.S. auto industry’s miracle story. Petersen turned around Ford’s 1980 $1.5 billion one-year loss – the second highest in U.S. corporate ;history to that date. With a record breaking series of new designs and revamped thinking that took the company into black ink and end-of-the-decade record sales, Petersen managed to increase Ford’s U.S. car market share nearly 25 percent, from 17 percent in 1980 to 21 percent nine years later.

Ford Motor Company’s painful costcutting of the early 1980s, which included massive layoffs and plant closings paid off. Ford captured the title of lowest cost producer among the Big Three U.S. auto companies. Some of its plants, including those that manufacture the Fore Taurus and Mercury Sable, were ranked among the most efficient in the world, including those in Japan. Record profits followed. For two consecutive years – 1986 and 1987 – Ford earned more money than its giant rival, GM. It marked the first time since 1924 that Ford beat GM’s profits.

Credit for Ford’s success showered on Donald E. Petersen, who served as Ford president from 1980 to 1985 and chairman and chief executive officer form 1985 until his retirement in 1990. In his new book, A Better Idea: Redefining the Way Americans Work (Houghton Mifflin Co., 1991), Petersen provides a how-to on transforming a corporate culture.

The Golden Rule

In his 40 years at Ford, Petersen, a Stanford University-trained engineer, saw it all. He had great bosses; he had bad bosses. He saw employees who worked well together; he saw workers who yelled at each other and bosses who ordered their subordinates around.

In discouraging times, he considered quitting. But, instead he held on until, as head of Ford, he was able to put into place his own management philosophies which extend The Golden Rule to the work place.

He gently but passionately advocates the well-worn themes of teamwork power to the people, participative management and continuous improvement to create better morale and improve productivity and quality “When you get right down to it, where is the starting point for my ideas?’ asks Petersen. “They’re in the writings of just about any great philosopher. I haven’t created new ideas. If it wasn’t Jesus, it was Mohammed. If it wasn’t Mohammed, it was Buddha. The Golden Rule. The fact is we haven’t lived by it.”

The Impetus For Change

“A crisis makes it easier to effect change. It’s more broadly obvious that something has to happen,” Petersen says. In the early 1980s, Ford’s dire financial situation and uncertain future led both management and workers to question why Ford was in its predicament. But a crisis isn’t an absolute requirement, says Petersen. Other companies, including Hewlett-Packard and Unilever, for which Petersen serves as an advisory director, are accomplishing change without such a crisis. They simply want to get the job done better.

“It’s rare when there isn’t someone doing better than you are and that gnaws at you,” says Petersen. “That should prompt you to say ‘They’re better. Why can’t we be the best there is?”

“The worst thing in the world,” he warns, “is to try to force change. That’s where leadership enters the picture – finding ways to build enough of a consensus so that you can make changes without creating resentment.”

Creating Change

Begin by listening. In his early days as president of Ford, Petersen visited plant after plant, department after department. He held informal breakfasts and lunches with diverse groups of people from a variety of locations. Sometimes their jobs would be similar but in different locations. Some would have different jobs but be working on the same project. Wherever he went, he listened.

“Inevitably, the first things that came up were minor gripes about things that affected them in their daily jobs. Soon they moved from that to bigger issues,” Petersen said. Petersen never told the workers’ bosses anything that was discussed. Eventually, he says, he developed a trust with the workers and could tell when there was a problem.

“It’s interesting how you can sense a problem. You can’t if you’ve never done a lot of visiting. But if you make a lot of visits, you can see what’s natural and what’s unnatural.” Petersen says. From Petersen’s conversations with the workers, Ford developed a broad statement of the company’s missions, values and its guiding principles. Ford executives – and Petersen – continue to carry the plastic-laminated card with Ford’s mission statement on it in their pockets. In addition to starting Ford’s goals for product quality and profits, the mission statement talks about Ford’s goals for the treatment of its employees, customers and suppliers. Petersen also recommends listening to experts. One of the experts Petersen heeded was W. Edwards Deming, world-famous efficiency expert who taught the Japanese how to build quality into their cars.

Don’t Change Everything At Once

Because the external environment, particularly with the onslaught of Japanese competition, was changing so quickly, Petersen decided to give Ford’s people the most stable environment possible. Top management remained intact. “We didn’t change our organization as to who was on what jobs in any dramatic way,” recalls Petersen. “We succeeded in getting people to accept that they didn’t have to be looking around for how the organization was going to change or who their next boss was going to be. We said, ‘We’re it. We’re on our jobs. Let’s set about doing some very difficult work.'”

Some industry analysts argue Ford didn’t change and update its manufacturing facilities because it was short of cash. But Petersen insists cash didn’t hold back Ford form the massive physical changes its rival was making; it was a difference in philosophy.

Accomplishing Change

After listening and establishing a direction, Ford launched an employee involvement program as a way to get its 370,000 employees thinking and contributing suggestions as to how Ford could improve. Ford opened the books to groups of workers, mostly union leaders, to let them know where Ford stood versus the competition. Committees were established to oversee the employee involvement process.

Outside experts were brought in to help the employee teams get started. Instead of tackling every item within an operation, the teams selected smaller projects to experiment in making productivity and quality improvements. Word of the success of the pilot projects spread, and more projects cropped up.

“I think a lot of people get the impression I was advocating an organization of teams. I wasn’t,” says Petersen. “I advocated a frame of mind. this is what needs to be done. Now how do we get it done? The answer is let the team do it in the most effective way.” No hard and fast rules apply as to how teams should work. How long a team works together depends on the complexity of the job at hand and how long it takes to get it done. Some last a day; others years.

Sales And Marketing

“The principles all apply in the sales and marketing fields.” says Petersen. “The opportunity for improving the environment is at least as good in a sales district or sales organization or marketing organization as it is in manufacturing and engineering.”

But to do it, a company has to throw away long-standing ways of measuring the sales and marketing force and revamp the way it does business. It has to eliminate the uncooperative, tension-filled environment of sales and marketing.

Many Ford dealers have put to use the principles he advocates. Says Petersen, “They’ve established quality as their No.1 priority with an emphasis on people – both the customer and people within the organization. That’s going to establish the winners and losers in the future. For quite a few years, there’s been steady but modest improvement in indicators of satisfaction of Ford dealers. I don’t think we’ve had a down dip since dealers started using this.”

Putting It All Together

Petersen suggests, as the changes begin to take hold, put them all together into one project. Ford did just that in the development of the Taurus and Sable. A team with a strong team leader was put into place. The team was given extensive authority to make decisions. Suppliers and employees were involved. The result was a resounding success.

“One of the things you have to be careful of,” warns Petersen, “is the urge to do dramatic things just for the sake of being dramatic.” Petersen points out that Ford’s recent success with its Explorer sport-utility vehicle is proof that Ford can still put it all together as it did with the Taurus/Sable. The Explorer is Ford’s first attempt to build a four-door sport-utility vehicle. In a bad economic year, the Explorer has been one of the few hot sellers, becoming No. 1 in its first year in a market segment in which Ford had never competed.

Sustaining Change

Petersen acknowledge that sustaining transformation is a challenge. ‘First it is critically important that the leader or leadership, principally the top person be absolutely consistent and steady in their convictions,” Petersen recommends. “Second, because of constant change, there has to be something build into the enterprise’s system or process so that there is repeat education.”

Ford has established a senior executive program that teaches the basics of participative management. Periodically it rotates the top 2,000 individuals within Ford in groups of 50 at a time. The sessions provide an opportunity to obtain everyone’s opinions and suggestions for meeting strategic challenges.

Today, Ford faces hard times. Sales and market share in North America and Europe have slid. Profits are non-existent. Last winter’s Persian Gulf crisis and the recession have devastated the auto industry. Vehicle sales for the industry in general in 1991 were the worst since 1983. All of the big three automakers are spewing red ink. Industry analysts note that not all of Ford’s problems can be blamed on the Persian Gulf crisis and the economy. some experts say Ford’s market share loss is triggered by a drought in new product.

Ford, though it was sitting on cash reserves of more than $10 billion, introduced fewer new models in the last half of the 1980s than did its major competitors. Some products in Ford’s line-up will be a decade old by the time they undergo redesigns, while Japanese automakers churn out new models every few years.

In the midst of the economic downturn, Ford is committed to a $23 billion, five-year spending program to update its facilities, draining Ford’s once massive war chest. Petersen strongly believes had Ford not made the massive transformation in its culture that it did during his tenure that it would be in far worse condition today than it is. “It takes a lot of hard work to get thorough difficult times,” Petersen admits. “I certainly don’t know of any approach to operating an enterprise that can overcome major events like the Persian Gulf conflict or a recession.

“You will have ups and downs caused by business cycles, periods when temporarily the competitor has something in the market doing better than what you have. the relative success or lack of success is a dynamic thing. The belief I have is that this set of ideas – of getting people involved through employee involvement, giving managers as wide as possible input in the decision making process, teaming appropriate people to address issues are going to help you deal with whatever you have to confront- better.”

Change Is Constant

“It’s one of the dilemmas in life. People don’t like change. Yet change is a constant factor,” Petersen says. while some auto industry observers believe Ford’s new management, headed by Chairman Harold Poling, is undoing some of what Petersen did, Petersen insists Ford is fine-tuning the changes it made in the 1980s.

“I think the ethic of this card is very much alive, despite another prolonged, very difficult time,” says Petersen, as he pulls the plastic card stating Ford’s mission and goals from his shirt pocket. “The relations with the company and union are by far the best that exist in the industry. The level of cooperation is very good. They are working on the right things, in my opinion.”

Petersen points to examples as proof that what was set in place in the 1980s is continuing into the 1990s. Ford has established a team of people, most of them young, to work on the next-generation Mustang, which will be out in the mid 1990s. Ford has committed resources to locating the entire team together, an ideal situation in Petersen’s opinion. He recalls the comments of former UAW President Douglas Fraser who said eight years ago that Ford couldn’t go back to its old ways. The workforce wouldn’t allow it.

Petersen remembers one worker form a stamping plant in Buffalo, N.Y., who told him he hated coming to work for 26 years. But now he enjoys coming to work because people care about what he thinks.