Unaffording The Affordable Jacques Nasser

Unaffording The Affordable Jacques Nasser

Despite his early stumbles with ebusiness strategies, Ford’s iron-willed CEO is determined this time around to make the Net pay off.

Deborah Swan, William Scoffman

Talk about your New Economy odd couples: Jacques Nasser, chief executive of Ford Motor, standing arm-in-arm with onetime-billionaire Jerry Yang of Yahoo!, TV cameras rolling, photographers’ flashes pinging off their faces. The unlikely duo stood and beamed before a crowd at the Detroit auto show early last year to announce a grand alliance between the century-old automaker and Yang’s kindergarten-age Web portal. They promised to build every Ford customer a homepage for his or her car, packed with owners’ manuals, service reminders, recall notices, credit information, and other goodies. Minutes later and with comparable fanfare, General Motors broke news of its Web portal partnership with America Online.

That neither deal amounted to much-fewer than 150,000 signed up for the Ford Webpage-should surprise few these days. Least of all Nasser, who took the plunge into the brave new world of Internet deal-making as much to defend his turf as to truly explore new technological ground. Back then, Michael Dell was still preaching the virtues of making cars as easily as Dell Computer makes PCs. Dot-coms like CarsDirect.com were proclaiming they would transform the cumbersome sales process by steering clear of irritating, inefficient dealers. Something big was happening-and the Net promised to either cripple a company like Ford or give it powerful new tools.

So Nasser hedged his bets.

He hired a boyish, gadget-happy executive from General Electric’s appliance division, Brian Kelley, and made him the company’s new e-czar. He green-lighted a program to offer all 340,000 employees PCs for their homes and cheap Internet access (see “A Truly PC Company,”). He invested in Microsoft’s CarPoint and announced a joint venture with Austin, Texas-based Trilogy-whose software helps power the Dell build-to-order system-to manage Ford’s consumer Websites. And he joined hands with GM to invest in a giant business-to-business marketplace, later given the improbable name Covisint, that promised an overhaul of auto-parts purchasing for the entire industry. (See “Some Assembly Required,” February 20, 2001 issue)

No Quick Fix

A brief history of innovation in the auto industry:

1970s
Materials Requirements Planning
Automakers figured they could save billions by automating their systems and linking together various steps of their supply chain. Companies such as Burroughs, now part of Unisys, sold production control systems linking bills of materials to inventory to purchasing.
Score: B +

Robotics
Manufacturers began to believe that the key to responding to Japanese competition was increased use of robots. GM, in particular, spent billions. But many of those gains proved illusory.
Score: C

1980s
Electronic Data Interchange
Automakers established a consortium in 1982 called the Automotive Industry Action Group to set standards for linking themselves with top suppliers. The system required dedicated lines and was expensive, but it worked.
Score: A –

Lean Manufacturing
As Toyota and other Japanese companies established factories in the United States, Detroit realized that lean manufacturing techniques, including just-in-time delivery, were important and moved to embrace those systems.
Score: B +

1990s
Enterprise Resource Planning
The car companies began trying to tie together more of their systems using products from the likes of SAP, PeopleSoft, and Baan. But it wasn’t possible to eliminate legacy systems, and the new software failed to create fully integrated companies.
Score: D +

Computer-Aided Design and Computer-Aided Manufacturing (CAD-CAM)
The automakers were able to use these technologies to greatly improve the speed with which they introduced new mockups, eliminating clay and wooden models.
Score: A

The Internet
Automakers begin using the Internet in an attempt to link their customers and dealers with much-improved internal systems and with an Internet-enabled supply chain.
Score: ?

-WJH

Nasser learned a few lessons the hard way.

First, Ford had assumed that with Wall Street applauding all things dot-com, ventures such as those with Covisint and Trilogy would eventually go public and generate billions in new capital. Bad call. Today, Covisint is still struggling to become fully operational, and, after Nasdaq’s winter plunge, Ford finally pulled the plug on the Trilogy venture in March. Second, its embrace of online sales only embittered its network of 4,100 dealers, whose clout Ford, as well as the dot-coms, seriously underestimated (see “Death of the Salesmen? Hardly,”). Third, Nasser’s early e-wheeling and dealing ignored one of the company’s most intractable and costliest problems: the profound technological and cultural walls that stand between each of the company’s divisions-manufacturing, engineering, sales, and customer service-and prevent the kind of information flow and swift decision-making the Net can provide to global operations such as Ford’s.

Despite it all, Nasser and Ford have come charging back to the Net. Longtime Ford executives knew big-time change was in store when Nasser handpicked a new generation of top managers who embrace his Net vision. Gone are many of the 30-year veterans such as Bob Rewey and other hard-core “car guys.” Heeding advice from Cisco Systems that Internet-savvy executives have to be involved in the heart of the business, Nasser catapulted Kelley into Rewey’s old position, one of the top jobs at the company: Kelley is responsible for global sales and service. The symbolism of naming a 40-year-old outsider to that position with less than two years’ tenure at Ford is profound. It means there are no rewards for playing the game the old way, and that Internet advocates aren’t limited to the sidelines. “This is putting a believer in place,” says Michael Flynn, a University of Michigan auto guru.

Two other executives from outside the company caught Nasser’s eye: Karen Francis, 38, who ran GM’s Oldsmobile brand until she bolted a year ago to join the Internet Capital Group; and Marv Adams, 43, who was in charge of consolidating Bank One’s IT infrastructure, data centers, and networks of banks. Adams is now the chief information officer trying to do much the same with Ford’s internal systems. Each of the new lieutenants-insiders call them “the triad”-report directly to Nasser, giving them serious clout.

Ford’s tech strategy is also coming into sharp focus after a long trial-and-error period.

The company is concentrating on real-world achievable solutions, not pie-in-the-sky schemes such as the Yahoo! venture. Recent but little-noticed deals with the likes of e-Steel, IBM, TeleTech, and Information Builders may prove more significant than the overhyped 2000 press releases because they blend new Internet-based technologies with Ford’s older systems-a decidedly unsexy but critical challenge. And Nasser is spending between $2 billion and $3 billion this year on information technologies, including Net initiatives-roughly on par with last year.

Traditionally, it has taken years for auto companies to make major decisions and introduce new vehicles, partly because of the huge waste and inefficiency in how separate company divisions made decisions. But now Nasser thinks top management can obtain a much clearer view of what the company is doing, strip out billions of dollars of costs, create nimbler decision-making, and boost profits along the way.

DaimlerChrysler is ahead on using the Net to speed up the way it designs cars, and GM leads in developing ways to bring the Net inside the car. But many believe Ford has the best chance to fully integrate the Net into how it does business, from design all the way to point of sale, thanks to Nasser’s single-minded focus.

“Ford has done the best job overall of doing the integration. They are the closest,” says Ron Pepper, a veteran of 25 years in the auto business and head of the Detroit office of software firm Information Builders. “GM and DaimlerChrysler are playing catch-up.” And there’s no relaxing the pressure on Ford’s Net initiatives these days. Like General Electric’s Jack Welch, Nasser believes that companies must keep spending on Internet strategies despite economic uncertainty-and the bureaucratic hurdles that still stand in the way.

“We made a lot of mistakes,” Nasser says, sitting in his sleek, candle-scented office on the 12th floor of Ford’s world headquarters in Dearborn, the so-called glass house built in the 1950s. “But I don’t think it’s time to ease up. To back off on our e-initiatives is to basically back off on the business. It’s everything we touch now. You can’t retreat.”

REWIRING THE FRONT END

EXPLANATION
Pre-Internet, Ford had little direct knowledge of what customers wanted.

Jac be nimble; dealers be quick

One mistake Nasser fesses up to: underestimating dealer resistance to grand new technology schemes. The traditional Big Three and their dealers have not trusted each other for decades, maybe never. And Ford and GM did not exactly create warm and fuzzy feelings when they experimented recently with buying dealers outright and running them from Detroit. But those trials basically flopped. After the Net frenzy broke, it took more than a year for Ford and its dealers to understand the power of Internet-based tools and to come up with a win-win arrangement that links customers, dealers, and Ford itself. The answer is FordDirect.com, a portal formed last August that has gone live in nine states, including California and New Jersey.

After a few misstarts, this is where Ford is going to concentrate its focus.

Part of the reason is that simply getting a car from the plant to the consumer accounts for up to 35 percent of its sticker price. Unlike the Yahoo! venture’s fuzzy aim of handholding consumers after a car purchase, FordDirect is designed with one simple, concrete goal: Use the Net to sell cars and trucks more efficiently. A group of dealers from the Ford Dealer Council even took the initiative to create the Web program. Their participation was critical, and it turns out because no Net-enabled buying or locating scheme can work if the dealers fear being cut out. “We were concerned we were one click away from extinction,” says Bill Keith, a Ford dealer with franchises in New Jersey and Colorado and the chairman of FordDirect.

FordDirect’s champion back in Detroit?

Brian Kelley. Keith and other like-minded dealers approached Kelley last year with their idea. Kelley rallied Nasser’s support, and FordDirect was founded as a stand-alone company, with the automaker investing more than 50 percent of the equity while the dealers hold 80 percent voting control in the Detroit-based venture. (And despite the demise of its joint venture with Ford, Trilogy remains the software supplier for FordDirect and other internal projects.)

Don’t expect Dell-like custom ordering at FordDirect, though.

For now, it’s primarily a “locate-to-order” service, meaning the FordDirect site in Freehold, N.J., has completely different content-local vehicles and dealerships-than the site in Irvine, Calif. A consumer shopping for a blue Ford Explorer with a leather interior, four-wheel drive, and side-impact airbags hops on the site and looks for the model. FordDirect returns a list of the dealerships nearby that carry it. If the customer clicks on a dealer’s vehicle, the Website sends the request to the dealer, which then has the option of contacting the customer via email and proposing a sale. In some instances, customers can buy the car outright over the Web, and in some states, dealers will deliver the Explorer to your door. If build-to-order eventually comes to the auto business (and Nasser thinks only small number of buyers will want it), FordDirect will have been a building block.

FordDirect still faces some real-world hurdles, such as state advertising laws restricting dealer flexibility in setting new car prices on their Websites. But Ford is convinced it’s a powerful way to reach car shoppers and that it’s key to bringing Ford closer to its dealers and customers. FordDirect can, for example, produce valuable predictive data about the kinds of options and colors customers are looking for in a given model. Dealers then pass that on to Ford to build inventories better suited to car buyers’ tastes. It’s too early for Ford to say that FordDirect has definitely produced results, but the business model is the most compelling to come along because it manages the tensions between dealers and the company. The goal is to roll out FordDirect in all 50 states.

Is Ford making a mistake by not going for a more sweeping Dell-like custom-ordering model?

Nasser doesn’t think so. The company estimates that 80 percent of buyers want to walk into a dealership and drive a new car away that day. “It depends on the model and the product and the brand,” Nasser says. “Some customers will want to customize their vehicle in some way. That’s probably a relatively small percentage. If it’s an Aston Martin, that’s maybe 100 percent. For that group, they’re not that sensitive to whether it’s 15 days or 25 days [for delivery]. They are very sensitive to the accuracy of that prediction, however. There has to be pretty good information coming back to the customer. It has to be a dialogue rather than a surprise.”

THE INTERNAL MAKEOVER

The Triad
Nasser’s new Net-driven lieutenants:
Karen Francis, Brian Kelley, Marv Adams

Battling the big bureaucracies

Nasser says it took time for Ford to realize that the real effect of Net-based technologies would be on the company’s internal operations. Many top Ford executives thought that when Nasser talked about “e-initiatives,” he was talking about initiatives Kelley and the information technology staff were working on and that other managers need not bother with.

To get their attention, Nasser took his top management team to visit Cisco in Silicon Valley last summer. During a two-day meeting with Cisco CEO John Chambers and others, Ford managers began to understand how a company’s entire operation could be built around the Net. Martin Inglis, who runs the Ford Division’s North American operations, for example, says he had a “wow moment” when Cisco’s head of manufacturing, Carl Redfield, explained how he used the Net to run the company’s assembly operations on a build-to-order basis. “It was so fundamentally different than our business,” Inglis says. “I got it.”

Although some managers have bought into Nasser’s Net strategy, he and his triad are waging a kind of cultural revolution against decades of Ford culture. “There’s a little bit of a Whiz Kid flavor to them,” says Flynn, referring to Robert McNamara and other financially oriented managers who made a splash at Ford in the 1950s. “That gets a few hackles up.” Internet-based systems that allow instant decision-making clearly threaten sequential ways of routing a decision, first to engineering then to manufacturing then to marketing, and so on. Clearly, some people’s jobs and careers are on the line. But Nasser, who has spent most of his career outside of Dearborn, has little regard for long-standing bureaucracies at headquarters. Despite reports of friction with family scion Bill Ford, whose office is across the hall from Nasser’s, it is Nasser who runs the company with an iron will. When Nasser says he wants something done, either it happens, or there must be a very good reason why it did not.

Beneath the bureaucracy are technological tangles screaming to be straightened out.

Ford maintains hundreds of disparate data and communications systems, as do GM, DaimlerChrysler, and every other major industrial company. Ford can’t, or won’t, say exactly how many; the suspicion is that no one really knows since many “systems” are actually umbrellas for dozens of subsystems. They use different hardware (mainframes, client-server architecture, or PCs) and different software (best-of-breed tools customized for an exact purpose), and many are a decade old.

Some 70 percent to 80 percent of Ford’s data sit on mainframes, while databases configure the information in different ways, says Information Builder’s Pepper. Data sometimes flow in batches on a daily or weekly basis, and only occasionally in real time. Sometimes Ford employees have to print out information from one database and manually re-key it into another. “You’ve got all this data out there,” Pepper says. “Somebody is accessing some of it, but no one is accessing all of it. You’re just getting 10 percent utilization of the data.”

Such glitches help explain why Ford has never really known its customers.

Incredible but true: For years it has shipped cars to dealerships, while salespeople sold the cars and kept greasy index cards about who bought what. While Ford Credit financed the cars, and Ford’s customer service division tracked warranty information, Ford had no institutional memory, no central way to capture details of the relationship with a customer.

Enter Kelley, again, and another of Nasser’s top-priority e-initiatives.

This one, called the Customer Knowledge System, promises to create a profile of each customer, as American Express has long done. As part of a joint venture with TeleTech Holdings called Percepta, the system culls consumer data from Ford’s 250 Websites, its dealer network, and other sources and organizes the information in a central database. When car owners call about a loan or a recall or a new model, Ford now has a means to capture that information and log it into a “datamart” accessible from all points in the company: marketing executives, designers, finance managers, and Nasser himself. All that might be old hat in some newer industries, but it has never been done in Detroit. Segments of the new system are already running.

Customized car-ordering also requires better-connected internal systems.

And consider the powerful way Ford could use warranty information generated by the dealers. Firestone-like crises could be greatly reduced, if not avoided altogether. If data from dealers reveal a pattern of problems with a certain kind of vehicle, that information could flow back to customer service to engineering to manufacturing and into the plants fast enough to correct the problem. If each auto part carried a number that could be tracked, Ford could pinpoint manufacturing problems or supplier defects in something approaching real time.

Those are precisely the kind of solutions that Nasser’s new CIO is working on.

Adams spent seven years at Bank One and ten years at IBM building some of Ford’s older systems. He’s clearly another Net “believer,” and Ford is giving him far more external visibility than previous CIOs.

Adams, who expects to complete a major round of integration within three years, will be busy fitting Ford’s older systems with new front ends like the Automated Claim Entry System and the Part Evaluation and Recall System. Those front ends consist of middleware-software that takes data from legacy systems and translates the information into open-standard, Internet-based data. When older databases are linked this way, they can be updated simultaneously, a vast improvement over nightly or weekly updating.

Since so many of Ford’s legacy systems are from IBM, guess what company has an edge in helping to improve the way they talk to each other? Big Blue. In a little-noticed deal, IBM and Ford have opened an Accelerated Solutions Center in Dearborn where hundreds of IBM and Ford specialists are working together to develop new software to better integrate Ford’s systems.

“We’ve been able to cut in half the time it takes to develop new applications,” says Bill Lang, IBM’s executive in charge of selling to the auto industry. Neither GM nor Chrysler has followed suit. New York-based Information Builders, meanwhile, is helping Ford to “migrate” data from older databases to places where the information is more accessible. Adams wants to use all these techniques to “mine” the data that Ford captures and sort out “noise.” Ford appears to be ahead on making it happen.

BACK TO THE BACK END

EXPLANATION
Net-enabled, Ford’s customers could track their car from the assembly line to their driveway.

Greater than the sum of the parts?

Even if the information flows from dealers and customers through Ford’s ever-better internal systems, it won’t mean much if it doesn’t affect the way the company makes cars.

Help is sorely needed because the way Ford (and its rivals) purchases parts remains a fax-and-paper nightmare. Starting in the 1980s, Ford and other automakers began using Electronic Data Interchange to connect with their biggest suppliers, using expensive, fixed communications lines. If Ford needed a seat assembly with seat belts and lumbar control, it could transmit the necessary data to one of its Tier One suppliers. But the smaller part makers-those making the fabric for the seats or the sensors in the lumbar control-relied then, and still do, on faxes, phone calls, and even telex machines.

Covisint was supposed to solve all that, as if with a magic wand. But the exchange, which Kelley set up in cooperation with GM, ran into a lengthy federal antitrust review, and into rivalries among the auto companies and between their key technology partners in the venture, Commerce One, and Oracle. Nasser admits today that the companies that set up Covisint underestimated the complexity of their own buying patterns and the resistance of suppliers to a system they feared was aimed at squeezing their profits.

Even so, Kelley is moving ahead with other projects on the back end. In March, New York-based software provider e-Steel flipped the switch on a new system that will help Ford buy $1 billion worth of steel this year, about a third of its total. If Ford buys, say, 10,000 tons of steel, it has to go through a maze of processes before it winds up on the assembly line-including specifications, bids, purchase orders, releases, and payments.

Ford’s purchase of steel involves 170 different steps, according to e-Steel. But what used to require a blizzard of slow-moving paperwork now only requires e-Steel software that tracks steel movements on a Net-based open-standard system. “The product is traceable,” says e-Steel Chairman Michael Levin. “And there’s a protocol for dealing with problems,” like defects. Neither GM nor DaimlerChrysler uses e-Steel’s system.

Deals like that don’t mean Ford has given up on Covisint. When and if it gains traction, purchases now made through e-Steel’s tools will come through Covisint; the standards will mesh. While dreams of an IPO went the way of Nasdaq nightmare’s, Nasser is still betting on the exchange to squeeze out tens of billions of dollars worth of potential waste in the system.

It will, he says, allow Ford to optimize the inventory and capital requirements in a supplier plant or all the way back to a commodity mill. In the past, “everyone would overcompensate with a little bit of inventory because you never want to close a plant,” he says. “Everyone would be buying their own materials. There were heaps of inventory. Now you have a technology that can see through this.” Ford has traditionally looked at its supply chain as very segmented. But now for the first time, Nasser hopes to be able to look at his entire “value chain.” Another buzzword, sure, but still a powerful concept.

BETTER, NOT FASTER

Add it all up, and Ford hardly stands at the brink of dot-com transformation. Many of those expectations were wildly inflated for laughably simple reasons: A car has 12,000 moving parts and cannot be as easily tailored to customer demand as a PC. Cars also have to be serviced. The buying process is also more multifaceted, and always will be, thanks to a network of dealerships that have roots in every state. Buyers need to trade in old vehicles and get registration and license plates. A box just can’t arrive on their doorstep.

If it takes another one to three years to complete the retrofitting of Ford’s systems, that doesn’t necessarily mean the company has missed out on the Internet opportunity. “Internet time is not a race of time,” Kelley says. “It’s a race to see who can use it better. The hype of the Internet was how fast things were going to change. It doesn’t happen overnight in an industry this complex.”

Those building blocks that Ford is putting into place-from FordDirect to the Customer Knowledge System to Covisint-will be hugely powerful if and when they’re all in place. “Benefits will come in chunk-sized pieces,” Nasser says. “Taking inventory out of the system, making decisions more quickly, getting economies of scale in how the total value chain orders material.”

What Nasser is doing at Ford perhaps shapes up as a test of whether the auto industry and indeed the traditional U.S. economy, can reap the productivity gains and competitive leaps that pundits have long claimed the Net can generate. Because of decades of investment, Ford can’t push through a sweeping overnight transformation of its information systems. Instead, the process of change resembles the way the Big Ten plays football-three yards and a cloud of dust.

Away from the klieg lights and cameras, Nasser’s at least making it clear: Embracing the Net is now Job 1.

Posted by on May 29, 2001