Reference no: EM131703116

Case Scenario: Ford's CEO Designs a New Global Structure

Designing a global organization structure to operate efficiently across many countries is a critical issue for multinational companies, as Ford has discovered over time. Ford realized early in its history that a major opportunity to increase its profitability was to take its American car-manufacturing skills and apply them in countries abroad. Over time, it established car-manufacturing divisions in different countries in Europe, Asia, and Australia. Ford decentralized decision-making authority to each global division, which controlled its own activities and developed cars suited to the local market. The result was that each division came to operate independently from its United States parent company. Ford of Europe, for example, became the largest and most profitable carmaker in Europe. Ford remained a highly profitable company until Japanese carmakers began to flood the world with their small, reliable, low-priced cars in the 1980s. As car buyers began to buy the Japanese imports in large numbers, Ford tried to draw on the skills of its European unit to help build smaller, more fuelefficient cars for the United States market. But it had never before tried to get its United States and European design and manufacturing units to cooperate; this proved difficult to achieve because its decentralized global organizational structure did not encourage them to cooperate.

In the 1990s, Ford embarked on a massive project to create a new global-matrix structure that would solve the decentralized task and authority problems that were preventing it from utilizing its resources effectively. In the 2000 plan, Ford laid out a timetable of how all its global car making units would learn to cooperate using one set of global support functions, such as design, purchasing, and so on. Country managers continued to resist the changes, however, to preserve their country empires and forced Ford to redesign its proposed global structure again and again. By the mid-2000s, Ford's United States, European, and Asia/Pacific divisions were still operating as a collection of different autonomous "empires." Ford had failed to lower its cost structure or design and make a profitable "world car" that could be sold to customers around the globe. Once again, Ford decided to restructure itself. It moved to a "world structure," in which one set of managers was given authority over the whole of a specific global operation such as manufacturing or car design. Then Ford began to design cars for the global market. Its new structure never worked to speed car design and production, even as it constantly changed global lines of authority and the locations in which it operated to increase profitability. Ford went through multiple reorganizations to try to meet the Japanese challenge, but nothing worked. Losing billions of dollars, Ford announced in 2006 a revamped "Way Forward" plan to turn around its United States and global operations, a plan that called for cutting 44,000 jobs; closing 16 plants; and freshening 70% of the company's Ford, Mercury, and Lincoln car lineup.

In October 2006, Ford also appointed a new president and CEO, Alan Mulally, an expert in organizational design, to help turn around its operations. Mulally, a former Boeing executive, had led that company's global reorganization effort. He began to work out how to change Ford's global structure to reduce costs and speed product development. In the structure Mulally inherited, Ford's American unit reported to the CEO, but its other global and functional operations reported to the next two most senior executives, Mark Fields, president of Ford's Americas operation, and Mark Schulz, president of international operations. Mulally decided that Ford's downsizing should be accompanied by a major reorganization of its hierarchy, and he decided to fl atten Ford's structure and recentralize control. At the same time, however, he put the focus on teamwork and adopted a cross-functional approach to handling the enormous value chain challenges that still confronted the organization. The position of president of international operations was eliminated, and Mark Fields continues to report to Mulally but so also do the heads of the other two world regions: Lewis Booth, head of Ford of Europe, and John Parker, head of Ford of Asia Pacifi c and Africa and Mazda. Two levels in the hierarchy are gone, and Mulally's new organizational design clearly defines each global executive's role in the company's hierarchy. Ford can begin acting like one company instead of separate global units, each with their own interests.33 In addition, the heads of its global value chain functions also now report directly to Mulally, not to Fields.

These heads include Tony Brown, global head of purchasing; Nick Smither, head of IT; Richard Parry-Jones, chief technical offi cer; and Bennie Fowler, head of quality and advanced manufacturing engineering. Mulally's goal is to provide a centralized focus on using the company's global functional assets to better support its carmaking business units. At the same time, Mulally also took a major restructuring step, announcing the creation of a new position, global product development chief, who is responsible for overseeing the development of Ford's entire global lines of vehicles. He appointed Derrick Kuzak, head of product development in the Americas, to head Ford's new global engineering design effort, and he also reports directly to Mulally. Kuzak oversees efforts to streamline product development and engineering systems around the world. As Mulally commented, "An integrated, global product development team supporting our automotive business units will enable us to make the best use of our global assets and capabilities and accelerate development of the new vehicles our customers prefer, and do so more efficiently."34 Mulally's goal was to force a cross-functional app roach on all his top managers-one that he will personally oversee-to standardize its global car making and allow functional units to continuously improve quality, productivity, and the speed at which new products can be introduced. But beyond streamlining and standardizing its approach, its new- product development group must also ensure that its new vehicles are customized to better meet the needs of regional customers. All Ford's executives now understand the company's very survival was at stake; they had to work together to accelerate efforts to reduce costs and catch up to more efficient competitors such as Toyota. Despite the fact that in 2009 Ford was still losing billions of dollars as the 2008 recession continued, its new global organizational structure did seem to be working. Ford was in the best competitive position of any United States carmaker, and it had not needed to borrow billions of dollars from the United States government so that it could continue to operate. Only time will tell, but Mulally remains confident.

Case Discussion Questions

1. What kind of global strategy did Ford pursue at the beginning? What kind of global strategy does it pursue now?

2. In what main ways has Ford changed its global structure to allow it to coordinate the production and sale of its products more effectively around the world? In particular, what different forms of organizational structure has it adopted?