Henry Ford’s Management Style & Leadership: Introduction
Management practice is an important aspect of a successful organization. Leadership and management style determine the base on which the whole organization rests. When a leader evaluates his/her options to choose a management or leadership style to apply on his organization, he/she cannot simply choose one. Instead, the leader must adapt with more than one option in order to be compatible to the demands of the external environment. Peter Drucker points out that careful planning is necessary to choose a leadership and/or management style:
The responsibility of management in our society is decisive not only for the enterprise itself but for management’s public standing, its success and status, for the very future of our economic and social system and the survival of the enterprise as an autonomous institution. (1954, p. 383)
Literature of leadership shows that there exists a definitive relationship between leadership and performance of the organization (Ogbonna & Harris 2000). Leadership studies may be segregated into a few stylistic schools: trait theory, style and behavioural theories, situational theory, contingency theory, and more recently transactional and transformational leadership theory (Judge & Piccolo 2004). Researchers have established a strong direct relationship between leadership and performance of a company and so has business practice. One such example is Ford Motors under the leadership of Alan Mulally or that of Steve Jobs at Apple. This section studies the different leadership styles adapted in the company over the years.
Background of Henry Ford’s Leadership Style
In 2006, Ford Motors posted a multibillion-dollar loss when Alan Mulally took over the reigns of the company. Since then, the company has posted profits for five years consecutively. The company had undergone enormous changes since its modest beginning in 1903. Henry Ford started the company with 11 business associations and a capital of $28000 (Hitt, Ireland & Hoskisson 2009). Ford Motor did not face any problems until the death of Edsel Ford in 1943. After Edsel’s death, there was severe problem as to who would lead the company and Henry Ford had to return from retirement to lead the company.
The company faced massive losses under Henry Ford for the next two years and in 1945, the reign of the company went to Henry Ford II. It was Ford II who steered the company back to profitability, and empowered Robert McNamara from the planning and financial analysis department, to transform the leadership and management style at Ford (Hitt et al. 2009). It was then that the leadership style at Ford was changed from a tyrannical, autocratic rule to a professional oligarchy (Hitt et al. 2009). The leadership of ford changed 11 times before Alan Mulally became the CEO of the company.
Ford Motor Company Leadership Style
In the present case, we will discuss the case of Alan Mulally who had headed Ford since 2006. Mulally is also a member of the board of directors of Ford Motors. Before joining Ford, Mulally was president at Boeing and CEO of the commercial airline division of Boeing. In 2005, Mulally had been named one of the best leaders of 2005 by Business Week magazine and had received various accolades for his leadership quality (Hitt et al. 2009).
At Boeing, Mulally’s best-known contribution was streamlining the production process of the company and transformation of the commercial airlines division of the company. Despite all his qualities as a leader, the one character that Ford was seeking in a leader was present in Mulally, i.e. transformation of a commercial division of a company. Mulally has been hailed for his contribution in turning around a sinking ship to a profitable company. It is undeniable, that a lot has to be due to his leadership quality. In an interview with Rik Kirkland of McKinsey, Mulally discusses his approach as a leader for such a large global company (Kirkland 2013).
When asked about his leadership style Mulally reflects that he believes “positive leadership” is the key to his success:
At the most fundamental level, it is an honor to serve—at whatever type or size of organization you are privileged to lead, whether it is a for-profit or nonprofit. It is an honor to serve. Starting from that foundation, it is important to have a compelling vision and a comprehensive plan. Positive leadership—conveying the idea that there is always a way forward—is so important, because that is what you are here for—to figure out how to move the organization forward. (Kirkland 2013)
By positive leadership, Mulally implied a leadership style that was inclusive and open. For instance, if an employee decides that the production of a particular car is unnecessary and decides to stop production, previously, one among the many senior leaders would have hounded him for his unilateral and unauthorized decision. Mulally believes that instead of interrogating the employee for his decision to stop production, he should be asked how the leadership could help the situation. Mulally points out that employees would be more at ease at work, if a “safe environment” is created for them at work (Kirkland 2013).
The leadership style that Mulally presents is “positive leadership”. A self-coined leadership style that ensures that he is focused, looking solutions for any problem, and recognizing wins. Since his appointment as the CEO of Ford, Mulally has not designed or devised any new cars or products for the company. Instead, he sets goals for the company and makes these goals universally known among the employees to follow them unequivocally. Mulally is relentless as a leader who begins his day at 5 am in the morning and works until 5:30 pm in the evening (Reynolds 2014). Mulally holds meetings almost regularly demanding updates on every aspect of the business.
Mulally started a system of Business Plan Review (BPR) at Ford, followed and adapted by all the functional and business leaders of the company. All these leaders attend the BPR. The agenda of such meetings are to discuss the global financial and economic condition. They discuss condition of the global labour, energy, technology, demographic trends, etc. this discussion helps in making the leaders clear about the external situation and what can be expected of the global market in future. BPR enables the leaders to make clear decisions as to what the customers are going to expect and accept. The aim of the BPR is to discuss the predominant global economic and market developments and discuss how these trends will evolve in future.
Mulally’s leadership style is no doubt transformational for he enabled a havoc change in the performance and the culture of Ford Motors. The leadership style of Mulally can be explained through the leader-member exchange (LMX) theory. The basic principles of LMX theory is based on the fact that leaders develop a different kind of exchange relation with the employees and success of the group or the organization is based on the quality of the exchange that they hold (Ilies, Nahrgang & Morgeson 2007).
The basis of LMX theory is the social exchange theory and borders on the leadership style approach. In essence, social exchange theory explains that in a didactic relationship between a leader and the subordinate there is an obligation on part of the latter to reciprocate a high-quality relationship (Ilies et al. 2007). The work relation is developed through a series of dialogues in the didactic relation (Janssen & Yperen 2004).
Goal orientation was an essential aspect under Mulally’s leadership. Goal orientation emphasizes on the fostering of self-theories and etching the belief among employees, that positive effort always leads to improvement of performance (Nemanich & Keller 2007). Mulally believes that the most important thing is to make people work together as a team. The main strategy that Mulally employed as a leader was to express the plan the company has to all its employees:
Staff carry the Ford business plan on a card. Four main points. The entire company’s performance is put up on the walls of two rooms – 280 charts that outline all key results vs. projections. (Reynolds 2014)
The whole company is aware of the plans and goals of the company. This helps in increasing the association of the employees with the other members of the company. Performance orientation was one of the main priorities of Mulally at Ford. He insisted on results and the hanging of the past performance and projects side by side showed his emphasis on the performance of the company which had to be aligned to the individual performances of each employee. Mulally showed extreme trust on his subordinates that helped to boost motivation and develop the quality of their relation. Research has shown that quality of LMX improves if there is a higher degree of managerial trust and employee empowerment (GĂłmez & Rosen 2001; Spreitzer & Quinn 1996).
The management style of Mulally is unique which keeps the teams oriented and delivers a positive source of energy. In the interview with McKinsey, Mulally was asked where did he get the energy to do all the work he does. Mulally’s answer was simple:
Everybody always talks about how you need to manage your time. You need to manage your energy as well. You first have to ask, “What gives me energy?” There can be lots of sources: your family, exercise, your spiritual well-being. (Kirkland 2013)
The management style of Mulally entails involvement with his subordinates. He insists on meeting the business and division heads constantly, demanding updates, which helped keep them increasingly involved and committed. His leadership style increased the commitment of the employees (Herold et al. 2008). Mulally never interfered in their job, and instead, discussed possible ways to get out of the problem. One of his favorite phrase is “What can we do to help you out?” (Kirkland 2013). Further, communication of the plan throughout the company is essential: “Everyone has to know the plan, it’s status and areas that need attention”. (Hoffman 2012, p. 157)
Hence, the leadership style at Ford transformed drastically from an autocratic dictatorship to a participatory, high quality leader-member exchange based leadership style. The transformation had changed the performance of the overall company and had turned a loss making company to a profitable company (Hoffman 2012). Presently the leadership style of Mulally is alarmingly direct equipped with honesty and positive vibe. Mulally himself has pointed out, one of the key aspects of being a leader was to be true to “who you are” and focusing on “what you believe in” (Kirkland 2013). Hence, at Ford, all employees have a card with the business plan on one side and the expected behaviors on the other to ensure transparency of expectation on either side (Kirkland 2013).
Leadership Style of Henry Ford: Key Setbacks
This section will discuss the internal and external setbacks of the company that Ford has faced in recent years.
Company’s External Setbacks
The financial volatility is a major setback for Ford Motors. The automobile sector has been negatively affected by the recession (Smith 2011). The recession of 2008 had hit the automakers in the US very hard and so Ford was no exception: “The big three Detroit car makers – Ford, Chrysler and GM – have been hit even harder than most.” (Arnott 2009) Fortunately for Ford, Mulally sensed the incumbent recession and took appropriate measures to counter it: “Sensing a recession in 2006, Mulally decided to borrow $23.6 billion against Ford’s assets” (TaylorI II 2009, p. 40).
Increasing the company’s coffers with extra cash borrowed in advance from the market allowed the company to have a cash cushion and when the recession hit the economy, the company did not require borrowing government loans. Mulally, once appointed to the office of CEO, aimed at integrating the company’s geographically spread offices worldwide under one umbrella.
Further, the increasing price rise of fuel has stressed on making smaller, economic cars that are more fuel-efficient. Further, R&D investment on alternative sources of energy is also important for the automakers of future. Japanese and Korean automakers are gaining market worldwide compared to Ford and other American automakers as they are producing fuel efficient smaller cars that have higher demand for two reasons – first, they are cheaper and are more fuel efficient. Hence, the intensifying competitive environment from competitors and increasing price of car components worldwide exerts immense pressure on the company from its external environment.
Company’s Internal Environment
The culture of Ford was disintegrated to divisions and geographic proximity. When Mulally was appointed the CEO of the company, the old loyalty base of the senior members of the company was shaken, and there were unavoidable cases of insubordination and politicking (Schein 2010). The management culture at Ford was one of its biggest hurdles (LaRocco 2014).
However, the openness with which Mulally handled the board was easy and simple (Durbin & Krisher 2011). His mantra was to communicate everything to everyone. He transformed the whole culture of the company, making it a more open organization. One of the main issues in Ford was its age-old bureaucratic structure that made the walls impermeable and hence transparency and percolation of information as impossible (Berson 2008).
However, Mulally brought in openness and energy with him. One of the manufacturing heads at Ford commented, “Alan brings infectious energy. This is a person people want to follow.” (TaylorI II 2009, p. 40). Hence, the main internal problem of Ford was with the impermeable culture that did not allow information flow in ascending or descending order. The other internal problems with the employees and orientation were evident and lack of trust was apparent, as there was no clear communication of the plans of the company in tumultuous times.
Henry Ford’s Leadership Style: Conclusion
In tracing the evolution of Ford Motor Company’s leadership style and management practices, it’s evident that its journey has reflected its historical context and the changing demands of the modern business landscape. From Henry Ford’s paternalistic control to embracing collaborative and innovative approaches, Ford’s adaptation has shaped its enduring legacy. As the company strides forward, the lessons from its past underscore the necessity of a balance between employee welfare, operational efficiency, and adaptability. The synthesis of tradition and modernity guide Ford’s ongoing success story, providing a template for sustainable leadership in a dynamic marketplace.
Characteristics of Henry Ford’s Paternalistic Leadership Style
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