By Jane Edison Stevenson and Bilal Kaafarani
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(!" $%&' !"#$"!"#"! By Jane Edison Stevenson and Bilal Kaafarani he power to innovate, like many other kinds of power, is fraught with paradoxes. It must start at the top but be disseminated widely; it must be part of the CEO’s vision, but the vision must be shared; the CEO must lead, but buy-in from oth- ers is required. And while innovation often requires extra hours of work — not to mention a deeper, more perceptive way of thinking — if the CEO does not prod the group into moving in this direction, the organization will demand it. The happy truth is, people want to work for innovative firms. And yet, too many CEOs fail to grasp the degree to which their organizations look to them for guidance. Even worse, some CEOs fail to understand their role in the innovation process, which can retard or even stop progress. Approaching innovation correctly is not easy. It requires the right ideas, the right culture, the right people and the right leadership to bring it all together. Let’s face it, innovation fuels the engine of growth, but leadership gets the fuel to the engine. This leadership is driven from the top and requires that CEOs have both the organizational credibility and emotional capital for a successful innovation agenda. The most success- ful CEOs recognize that a hard-driving strategic agenda isn’t enough. Innovation requires capturing people’s hearts as well as their minds. If the organization has been alienated, the risk factor goes up exponentially. Here’s an illustration of why this is so important. When Jacques Nasser became CEO of the Ford Motor Company in 1999, he already had a distinguished career at the company spanning 33 years. At the time he took over, Ford was in excellent shape. It had $143 billion in revenue, strong earnings of about $6.6 billion, and a share price of around $65 (a level it has not reached since). It had several highly profitable category Chris Whetzel (all) 58 ./.01/0 !"# $%&'()#&&* +',!+!- ! # leaders, including SUVs and light trucks in the in the mainstream organization, which prevented United States, and a number of well-designed those innovations from being shared. smaller cars aimed at Europe, Asia and Brazil. It Nasser’s dreams were big. He projected that also had 370,000 motivated employees. PAG would be earning up to 80 percent of Ford’s Nasser’s vision, however, was not to build on profit within a decade, and he projected wildly Ford’s impressive base through an intense focus optimistic sales figures. Jaguar’s sales were pegged on product innovation — new models, new de- at 800,000 cars a year, from about 100,000 in 1999. signs, new technologies, new features. Rather, it (In reality, Jaguar’s 2011 sales are expected to be was to focus on some key acquisitions, like Land just under 200,000.) Volvo’s sales were pegged at Rover, the luxury o!-road vehicle brand. It was 650,000 cars in the United States alone (double also to put Ford’s high-end portfolio of cars — Jag- Volvo’s actual 2011 projected global sales figure). uar, Aston Martin, Volvo and Land Rover — into At the same time that he was investing in PAG, a distinct entity, the Premier Auto Group (PAG). Nasser was looking at Ford’s core business as a cost PAG was Nasser’s baby. There were glamorous cutter. In the first year, he closed money-losing regional o"ces in Berkeley Square in London and plants, discontinued models that didn’t generate an imposing new headquarters building for the desired profits, sold losing operations and weeded group in Irvine, Calif., distinct from the company’s out executives. Not unneeded activities, but di"- headquarters in Dearborn, Mich. Though the PAG cult to do when you’re aggressively investing in group was run as a business unit, its existence was areas of the company that the work force views as downplayed so that the individual brands would only tangential to the company’s core mission. be seen as independent, and not as units of mass- Nasser also put new human resources policies market Ford. in place, mandating that 10 percent of workers When the intention at the top is to build a sustainable company that benefits all, decisions are made to further that intention. As PAG grew ever more exclusive, it became receive a “C” grade, which could lead to termination. more expensive to operate. It populated its adver- Nasser’s justification for this was that new people, tisements not with Ford’s cadre of “regular people,” new philosophies and new technologies were re- but with “beautiful people.” To demonstrate that it quired to assure Ford’s success in the new economy was hip, it even installed fuel cells to heat and cool — all reasonable assumptions, but with a price tag its Irvine headquarters. in terms of employee engagement. While other But while it concentrated on luxury, it also CEOs of his day, most notably Jack Welch at G.E., distanced itself from the rest of the company. Re- used this approach, the changes further alienated member that Ford began in 1903, with a mission of Ford’s employee base and lowered their willing- fulfilling the transportation needs of ordinary peo- ness to stand behind the company’s leadership. ple. This was one of Henry Ford’s most innovative So in 2000, when Ford’s flagship four-wheel- ideas. But now, under Nasser’s leadership, it was in drive sport utility vehicle, the Explorer, was in- the business of selling high-priced cars, like Vol- volved in numerous rollover accidents, the moral vos, and ultra-high-priced cars, like Aston Martins. support that Nasser needed to survive the crisis Rather than being seen as innovating, PAG was gone, and his vision would never be realized. was viewed by the rest of the company as distanc- As the disaster unfolded, employee morale was ing itself from the company and its roots. Instead shaken, and Ford’s famous quality image was tar- of having people in the company buy in to Nass- nished. Ford reported its first consecutive quar- er’s goals for the group, PAG was increasingly terly losses in nearly a decade, and stock prices thought of as a diversion, with many worrying plummeted. that Nasser was taking his attention away from The Explorer incident soured Ford’s fortunes what really mattered. But there was another prob- and contributed to Nasser’s removal in October lem. Even if innovations emerged at PAG, its inde- 2001. By the end of the decade, all of the car brands pendence and isolation were creating resentment within PAG had been sold. When Bill Ford replaced 60 ./.01/0 !"# $%&'()#&&* +',!+!- ! # Nasser as CEO, he announced that his first task stabbing executive culture, with fiefs spread would be repairing stakeholder relationships and around the globe that paralyzed the company’s going back to the basics of the car and truck busi- decision making. Mulally managed to unite (or ness. He also made it clear that his intention for send packing) these competing factions and estab- the automaker was innovation and growth. lish an executive team whose members actually This is an important point — intention is a work together for a common purpose. Ford Motor powerful force in both leadership and innovation. also began leveraging its worldwide capabilities, When the intention at the top is to build a sustain- bringing the cool Ford Fiesta and the new global able company that benefits all, decisions are made Focus to America. to further that intention. When it’s about power All of what Mulally did to move the company or beating the competition or even maintaining forward would be impressive at any time, but it’s the status quo instead of winning for customer, nearly miraculous today. Unlike its two Detroit company and stakeholders, decision making is rivals, Ford didn’t declare bankruptcy and didn’t completely di!erent. request emergency United States government After his tenure as CEO, when Bill Ford worked funds during the recent financial crisis. And while to build an innovation culture throughout the the company is not fully out of the woods, by entire organization, finding someone who could mid-2010 Ford had posted a $4.7 billion profit and carry on his vision of sustainable growth was at began reducing its debt. the top of Ford’s mind. If he had learned one thing Ford and Mulally are proof that extraordinary in running the company, it was that innovation leaders with vision and determination really can too often was lost in the day-to-day drama, and it make the di!erence in an organization. This is When it’s about power or beating the competition or even main- taining the status quo instead of winning for customer, company and stakeholders, decision making is completely di%erent. seldom survived internal politics. So when he especially true when a leader has the support of the went looking for a new leader, he wasn’t looking board. The Ford Motor Company is now in a posi- just for a talented executive but a partner in spirit tion to succeed, not only because of the company — someone who could reinvent and reimagine an Mulally has rebuilt, but the one that Chairman Bill entire corporate culture focused on innovation. Ford has envisioned. The chairman is passionate Bill Ford found his man in the No. 2 chair at an air- about innovation and making its vehicles more craft manufacturer, Boeing. fuel-e"cient. By investing in a number of technol- The choice of Alan Mulally shocked industry ogies, including electrification, biofuels, fuel cells observers.