Ford abruptly changed CEOs on Monday. Mark Fields, who had run the company since 2014, is out. The new CEO, Jim Hackett, comes from Ford Smart Mobility, a subsidiary focused on next-generation technologies like autonomous cars and ride-sharing.
Three big technological changes — autonomy, electric power, and ride-hailing — are about to hit the car industry. The big question is whether these changes pose an existential threat to incumbent car companies, or whether they can muddle through with modest changes to their core car manufacturing business.
On the surface, picking a new CEO who comes from Ford's advanced technology group might seem like a sign that Ford was taking the dangers of disruption seriously.
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"This transition here is totally out of character for them," says industry analyst Edward Niedermeyer, who adds that leadership changes at the company are normally carefully planned. "Clearly there was some need for some symbolism in terms of emphasizing how important these future technologies are to the business," according to Niedermeyer.
But when you dig into the details, it doesn't seem like Ford is actually doing much to change its strategy. For example, the company's press release announcing Hackett's selection says, rather blandly, that it will help Ford "further strengthen its core automotive business and accelerate a strategic shift to capitalize on emerging opportunities." That's not exactly a call to arms.
If Ford wanted to focus more on emerging technologies, it might have chosen someone with a technology background. That's not Hackett. He made his reputation as the CEO of the furniture maker Steelcase.
A basic problem incumbents often face is that they become addicted to profits from their existing markets. In Ford's case, for example, gas-guzzling pickup trucks are a huge moneymaker. It would take tremendous discipline for a CEO to put that business on the back burner and focus on developing a much smaller market that might not become profitable for years.
And in the Monday morning press conference following the announcement, Hackett was cagey about whether Ford was still committed to his predecessor's oft-stated goal to have a fully self-driving car on the road — one with no steering wheel and no pedals — by 2021.
In short, if Ford has a plan to redouble its investments in new technologies, there was little sign of it in Monday's announcement. Indeed, one industry analyst I spoke to argued that Ford should move in the opposite direction, focusing on fine-tuning its lucrative pickup truck business. That would likely bolster Ford's profits in the short run, but it could leave Ford flat-footed if rivals widen their lead on autonomy, ride-hailing, and electric vehicles.
Autonomy could pose an existential threat to Ford
Over the past two decades, we've seen example after example of technology companies entering new industries with devastating effect. Digital cameras drove Kodak into bankruptcy. Record labels saw their revenue plunge after the emergence of file-sharing and the invention of the iPod. Online news has decimated many newspapers. Even technology companies like Nokia and BlackBerry were caught flat-footed by the invention of the iPhone.
The obvious question is whether the car industry is next. Companies like Google, Tesla, and Uber are aiming to disrupt conventional car companies from three different directions, and history suggests that even very well-managed companies struggle to cope effectively with this kind of threat.
A basic problem incumbents often face is that they become addicted to profits from their existing markets. In Ford's case, for example, gas-guzzling pickup trucks are a huge moneymaker. It would take tremendous discipline for a CEO to put that business on the back burner and focus on developing a much smaller market that might not become profitable for years.
And many people connected to the car business don't believe that car companies are facing the kind of threat photography companies and record labels faced 20 years ago. Dave Sullivan, an industry analyst and Ford veteran, is one of them.
"Making cars is hard," he argues. "I would argue that making a CD is not very hard." Sullivan expects that Silicon Valley companies like Tesla will struggle to produce cars at the scale of a big car company like Ford.
There's certainly some evidence for this view. A few years ago, Google designed a pod-like prototype of a self-driving car with no steering wheel or pedals. But more recently, Google seems to have decided that designing its own cars is too much work; it signed a deal with Chrysler to supply hundreds of Pacifica minivans that it fitted with Google's powerful sensors.
So it might not matter that much if Ford develops its own self-driving software. There are now a number of companies creating self-driving car software. As they mature, Ford may be able to play them against each other to get favorable terms.
The problem is that software is often a winner-take-most market — think about Microsoft's dominance of PC software or Google's dominance of search. If that happened in the car business, most of the power and profits would shift to the dominant software maker, leaving car companies with scraps.
That's especially true because many experts believe ride-hailing will become the dominant business model in the self-driving age. Your typical Uber customer doesn't care what model of car comes to pick them up. If this becomes the default way people get around, car companies could lose their direct relationships with customers and the clout and profits that come with it.
Mark Fields failed to communicate a clear strategy
Ford's previous CEO, Mark Fields, certainly didn't talk like he was taking the risk of technological disruption for granted. To the contrary, he talked incessantly about the need for Ford to be at the forefront of self-driving car technology and deliver a fully autonomous vehicle by 2021. In 2016, he created Ford Smart Mobility to pioneer autonomous and ride-hailing technologies, and in February 2017 he invested a billion dollars in Argo AI, a Pittsburgh self-driving car startup.
But Fields never really explained how all these disparate initiatives — Ford Smart Mobility's portfolio included a shared shuttle service called Chariot and a bike-sharing business — added up to a coherent plan to prepare Ford for a disruptive future.
"They're behind," Niedermeyer says. Ford has not pushed as hard as rivals — like GM, with its Maven car-sharing service — to get actual customers using the cutting-edge products they're working on. And Fields never laid out a clear vision for how it would eventually transfer the technologies it is trying to develop within the Smart Mobility unit into its mainstream car business.
At the same time, argues Sullivan, Fields didn't articulate a clear strategy for its core carmaking business either. "Ford is first and foremost a vehicle manufacturing company," Sullivan tells me. "It looks to me like Mark Fields put that part of the business on cruise control."
He pointed to a string of recent recalls — including defects in millions of door latches over the past three years — that have cost the company hundreds of million dollars.
"You didn't hear management discussing how they were going to not let that happen gain," he says. "The message wasn't really communicated on how they were going to fix the day-to-day operations of the business."
One sign Ford's board shares this assessment: The company is also replacing its vice president for communications. The new pick for the job, ex-journalist Mark Truby, will report to Bill Ford, Ford's executive chair and an heir to the Ford family fortune.
That's significant because it suggests that Ford himself believes poor messaging has been a significant factor in Ford's weak performance and sagging stock price.
All of which suggests that that the choice of Hackett doesn't necessarily signal any dramatic changes for the company's strategy. Indeed, Sullivan argued that Ford should move in the opposite direction. Car sales are near a cyclical peak, he pointed out, which means that Ford may have a lot of room to make lavish investments that don't pay off for years.
"Now is a time when the company needs to be more cognizant of what's going on on the manufacturing side of the business," he said, "especially as people shift from cars to crossovers and SUVs."