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Digital Case Study – Ford will also make cars!

In October 2017, Ford Motor Co., one of the largest automakers in the world and the pioneer in assembly line manufacturing, made a major announcement. The new CEO Hackett announced its digital transformation plan centered on smart connected vehicles, fast-tracked product development, and cost-cutting measures to become fitter. It is common knowledge that the automobile industry is at a crossroads, with the world turning away from oil-led growth and IC Engine-powered transportation, and that the automobile manufacturers have to reinvent themselves to stay relevant. But what made Ford choose the path it did?

Ford said it would continue to be in the vehicle business, moving both people and goods, but it foresaw major and disruptive changes in the transportation ecosystem. More specifically, it said that it saw a dawning of a new transportation operating system for cities that are dealing with the fact that they’re becoming more congested as more people move to cities, and yet, they need more capacity. It saw that the future belonged to smart connected vehicles, which will pair or thrive with the new transportation operating system. It also saw greater value in developing strategic partnerships with diverse companies sharing its vision, such as Lyft and Domino’s Pizza for autonomous vehicles and, more recently, with Google for its Android Auto. With this vision of the future, Ford has set out to establish itself as a technology company and focus on integrating hardware and software in complex devices. With this shift in focus, Ford has moved into the league of Apple, Tesla, Uber, etc., and has more than symbolically stepped up its presence in Silicon Valley.

What this all means is that Ford is not just producing and selling cars and trucks but is positioning itself as a provider of customer solutions such as Fleet Management, Ford Pass (access to remote features), Dynamic Shuttle, Transportation as a Service, Micro Transit, Digital Services, etc. As direct ownership of cars and trucks is not likely to increase over the years, Ford seeks to tap into the expanded solutions market to retain a significant position in the transportation market, where the real competition will be coming from technology companies and not the current auto manufacturers. Ford is also investing massively in Electric Vehicles technology to drive the smart and connected cars of the future. It is indeed a happy coincidence that the push towards smart, connected, and highly automated vehicles is aided by the move towards Electric Vehicles technology! Ford has started introducing all-electric vehicles now and has ambitiously stated that all its vehicles will go electric by 2030.

To cement its position as a putative technology company Ford has invested in these two early initiatives:

  1. Employing the latest in Human Machine Interaction (HMI) technology to reinvent the vehicle dashboard to enhance user experience and customization, starting with their latest models of F-150 trucks
  2. Defining a Technology Stack that will help differentiate Ford from its competitors and establish a platform that enables software for commercial and retail products, services, and experiences that For intends to offer

Now all this will cost Ford a lot of money, estimated to be nearly $10Bn over the next decade. Ford is again partly banking on digital technologies to reduce the cost of operations to fund their digital transformation strategy. Ford is establishing so-called factories of the future, leveraging 3D printing, robotics, big data, and virtual reality to effect savings in the cost of manufacturing by reducing the manufacturing footprint. Additionally, by decreasing the customization options currently available in their models and outsourcing manufacturing to China, they intend to generate savings that will fund their new strategy.

Ford was one of several major companies like GE that embarked on an ambitious digital transformation program in the last few years. These industry leaders saw an emerging threat to their pre-eminent position in their markets from technology companies and disruptive startups employing digital technologies. Despite having a well-detailed and pragmatic approach to Digital Transformation, Ford and 70% of all companies that launched these initiatives were deemed to have failed in their mission by the experts. As Ford dumped vast amounts of money into its new venture, it faced quality concerns in other areas of the company. Ford’s stock price dropped dramatically, and Hackett, the CEO who rang in the changes, stepped down a few years later. But the new CEO Jim Farley, whose photo can be seen in this post, is a Ford insider and has reiterated Ford’s commitment to smart, connected, and highly automated vehicle solutions for the future. What went wrong? Some experts say the issues arose when the new segment wasn’t integrated into the rest of Ford. Not only was it headquartered far from the rest of the company, but it was seen as a separate entity with no cohesion to other business units. Others have said that problem was the organization’s failure to communicate effectively with its people, which set them up for digital transformation trouble from the start. Whatever the reasons, it is a foregone conclusion that these companies will need to complete their digital transformation journeys by taking the right lessons from their past.

The takeaways from this story for the industry as a whole, I believe are the following:

  1. Companies need to prepare for the digital-led future changes in their markets to stay relevant.
  2. When industry leaders shift gears, it will cause disruptions in the upstream supply chain, and new players will replace traditional vendors reluctant to make the change.
  3. While digital transformation may be challenging, it is also gratifying, opening your company to larger market spaces, diverse solutions, and exciting partnership-driven opportunities.
  4. Halfway measures, such as running parallel streams of traditional and new solutions, may not work as intended.
  5. The transformation requires bringing all your employees on board, a high level of communication on the changes envisaged, and proper governance of transformation activities to succeed.

I hope you found this case study useful. Please watch this blog for updates, or write to me if you want to ask me or share something with me on the subject. See you next time!