Monday, June 19, 2017

Disruption at Ford


Tesla and Uber may be some of the most frequently cited examples in recent years of "disruptive" technologies or business in established markets. Tesla and its electric cars have shown that an electric car is not just a green low emissions gimmick, but a viable option as a replacement for gasoline powered cars. Uber, with it's easy to use interface, driver rating system, and generally lower cost rides compared to traditional taxis have won over many consumers. While these companies revenues pale in comparison to established companies, not to mention their lack of profits, large car manufacturers are starting to take notice.

One of the most obvious examples is at Ford. Recently Tesla surpassed Ford in market value for the first time this year, despite the fact that Tesla is not profitable and over 50x fewer cars than Ford. However the fast growth in sales of Tesla cars and the company's market leading experience in electric cars and autonomous driving software has been enough to win over investors. Earlier this year Ford fired their CEO Mark Fields, a longtime Ford employee who came up through the ranks and was previously the Chief Operating Officer, and replaced him with a relative outsider in Jim Hackett who formerly ran their division that oversees Ford's autonomous vehicle and ride hailing services program. This surely is not a coincidence is the rising threats from companies like Uber and Tesla.

In The Innovators Dilemma excerpt, I very much liked the stories of previous companies who were seen as excellent run companies with astute management, such as Sears and Digital Equipment, and then subsequent stories of how those companies seemingly fell to pieces despite excellent management. I think this is very important when viewing Ford, as they were the only major American car manufacturer to survive the Great Recession and thrived afterwards in the recovery. Their management was given much deserved credit for that. And now only a few short years later, Ford's CEO is being ousted in part because investors view that Ford is falling behind in the potential new wave of automobiles.

The Innovators Dilemma mentions that good companies often fail in adapting to new innovations because they prefer to wait for a market to become established, don't see enough growth or value in small emerging markets, or don't view new markets as profitable based on their current analyses. Both of these would be true in the case of Ford: Tesla is still unprofitable and only sold 4,000 cars in March this year while Ford sold 234,000 [2], and Uber is likely still unprofitable. However by firing their former GM who had experience rooted in the old automobile industry and by replacing him with an executive with more experience in emerging automobile technologies, they seem to be taking appropriate steps to try to change with times. Hopefully for their sake it's not too late.

Sources:
 1. "Ford, Trudging Into the Future, Ousts Mark Fields as C.E.O." https://www.nytimes.com/2017/05/22/business/ford-ceo-mark-fields-jim-hackett.html?_r=0
2. "Tesla passes Ford in Market Value as Investors Bet on Future" https://www.nytimes.com/2017/04/03/business/tesla-ford-general-motors-stock-market.html

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