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The 'Ford' test of CEO success

April 30, 2009 15:43 IST

Few people are likely to take issue with last week's ranking in business magazine Conde Nast Portfolio of the world's worst-ever CEOs.

Lehman Brothers' Dick Fuld, Enron's Ken Lay and even Citibank's Vikram Pandit deserve to be there (some may disagree on Pandit -- his ranking was admittedly low -- given the mess he inherited from the inept Chuck Prince).

The surprise was Conde Nast Portfolio's topper for the world's best-ever CEO. It was Henry Ford, founder of Ford Motors. There is no doubt that Ford was a great entrepreneur and business visionary. But, with the hindsight of almost a century, it is worth questioning whether he was a good CEO.

Ford could easily have won the accolade in his lifetime for revolutionising the personal transportation industry with the Model T.

Affectionately called Tin Lizzie, the Model T was among the first mass-produced items to be manufactured on a moving assembly-line -- a rudimentary conveyor belt -- the basics of which endure even in the most modern car today (though Toyota uniquely revolutionised that concept much later with Just-in-time).

Tin Lizzie was famously available in 'any colour so long as it is black', a light-hearted reference to the uniformity of mass production techniques.

Ford understood that the innate cost-effectiveness of the assembly line could be leveraged to deliver a value-for-money product that could generate large sales volumes, a contrarian concept to the opulence and custom-made values of other cars of the era.

Only the rich could afford the latter; long before C K Prahalad coined the term, Ford turned to the bottom of the pyramid. Or, as he put it, he wanted to produce a car even his workers could afford.

The result: by the time he retired in 1918, Ford's cars accounted for more than half the cars sold in the US (most models were considerable advancements on Tin Lizzie) and were leaders in other significant world markets.

And Ford Motor Company was among the world's most profitable companies with cash reserves of a billion dollars (a triumph even by today's standards).

Given all this, why should there be doubts about his status as an iconic CEO? The Condé Nast Portfolio survey asked a panel of B-school professors to consider each CEO's record of creating or destroying value, innovation and management skills or lack thereof. Ford certainly qualifies for creating value and innovation.

But on management skills, his record is poor, and on that ground alone, he does not merit his position as the best-ever CEO.

The real success of a CEO lies not just in building an innovative and successful organisation but also creating a sustainable institution. Ford willfully ignored the latter requirement, preferring to run the business as an autocracy and, when he retired, by proxy through his incompetent son Edsel.

The transition couldn't have come at a worse time. As assembly line production lowered the entry barriers, competition accelerated, mainly from General Motors. A decade after he retired, Ford was deep in losses and had slipped to a distant number three in the US automobile market.

Ford's business slipped as rapidly as it rose because the size of the business had outgrown the family-style management with which its founder persisted. It is difficult to believe in this day and age, but Ford did not think a business needed managers and management. As he saw it, a business was run by the owner with 'helpers'.

These 'helpers' were merely executors of Ford's decisions. Like a capricious potentate he fired or sidelined managers who took decisions unilaterally.

Peter Drucker described the arrangement as "a controlled experiment in mismanagement". As he wrote, "Henry Ford failed to see the need to change to managers and management because he believed that a large and complex business enterprise 'evolves' organically from the small one-man shop."

It is no coincidence that in the early twenties, Alfred P Sloan of General Motors, an amalgamation of small companies that could not withstand Ford, streamlined his organisation into a coherent management team that overtook the market leader and stayed the leader forever after (Sloan is number 4 on Condé Nast Portfolio's list). And it is no coincidence that, 20 years later, Ford's grandson, Henry Ford II, hoofed out his grandfather's "helpers" and put in place a management team that pulled Ford out of the woods.

This well-known story remains a cautionary tale for Indian businesses dominated as they are by family-run enterprises.

Most of them are undoubtedly visionary and dynamic and could qualify for global honorifics. Whether they are healthy, sustainable institutions that will outlive their promoter families is, however, another question altogether.

Kanika Datta
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