3 Questions To Gauge Ford’s Viability As Automakers Morph Into Tech Companies
The future arrived early for Ford’s new CEO, Jim Hackett, who replaced Mark Fields on Monday after the automobile giant lost patience with its former leader just three years into his tenure. David Kirsch, a management and entrepreneurship professor at the University of Maryland’s Robert H. Smith School of Business, says Ford will need its new chief executive to stay in the future as car manufacturers morph into technology companies during the next 10 to 20 years.
That might mean spending more time in Silicon Valley than the Motor City. Hackett gained the right experience at Ford Smart Mobility, where he explored the future of self-driving cars. Now all he has to do, Kirsch says, is answer three basic questions.
- What will be salient to consumers?
Everyone knows that change is coming to the transportation sector, and major players are placing their bets on what will matter most to consumers in the new environment.
Ford announced plans in February to invest $1 billion in artificial intelligence startup Argo AI. Volvo has joined forces with Uber to develop self-driving cars. GM has teamed with Lyft, which has teamed with Alphabet subsidiary Waymo, which has teamed with Fiat Chrysler and has a pending deal with Honda.
“We’re going to see enormous changes,” says Kirsch, author of The Electric Vehicle and the Burden of History. “But the strategic question about this transformation is: Who is going to be producing something of value in that new setting?”
Most industry insiders see autonomous cars as an unavoidable reality. “The thing we don’t know is what the strategic landscape will look like,” Kirsch says. “What will be salient to consumers?”
Will the value be in the app that commuters use to hail a ride? Will certain hardware configurations produce more value than others? Will vehicle brands matter? “When you last went on a trip and rented a car, how much did you care about the brand of the car that you rented?” Kirsch asks.
IBM foresaw the rise of the personal computer but bet wrong on hardware over software, creating an opening for Microsoft. “That was probably the biggest strategic blunder of the 20th Century,” Kirsch says. “The biggest blunder of the 19th Century was Western Union giving Bell the telephone and sticking to the telegraph.”
Y Combinator founder Paul Graham describes the challenge in simple terms. “Move to the future, and build something interesting there,” he tells startup founders.
Taking that advice is not easy, especially for companies with large bureaucracies and long histories of success. “Incumbents make all kinds of mistakes,” Kirsch says.
- How fast is the future coming?
Even if C-suite gurus correctly guess the future, they must still calculate the timing. “If you go to the future and build something there, and it takes a lot of money, and you’re stuck there waiting for the future to arrive, that’s not so good,” Kirsch says. “You want the thing to be ready when the market gets to you, but not too early.”
Remember Newton, the first personal digital assistant that recognized handwriting? Apple introduced the product with a detachable stylus in 1993. The market took notice but never fully embraced the gadget. “Next came the entire Palm ecosystem, which came and went before the smartphone,” Kirsch says. “Why didn’t Palm make the jump to the mobile age?”
Kirsch says Ford’s decision to replace Fields might have more to do with timing than direction. Maybe the board didn’t think Fields placed a big enough bet — or maybe he wasn’t moving fast enough into the future.
“That would reflect the board’s assessment of question 2, but it doesn’t get them any closer to answering question 1,” Kirsch says. “If the answer to question 1 is that the incumbent manufacturer’s capabilities are worthless in the future, then the faster you get there, the faster you’re completely commoditized and made invisible under the brand of the app that’s hailing the vehicle.”
Kirsch challenges the idea that getting to the future faster is always better. “Kodak might question that assumption,” he says. “The future came a little too fast for Kodak.”
On the other hand, companies that arrive first in the future have more time to look around and assess the landscape. “Ford might feel like getting there sooner will give them more insight into how to position themselves,” Kirsch says. “That would be the other argument for going faster.”
- What about today?
Hackett must also stay grounded in the present. Ford stock did not perform well under Fields, which might have contributed to his early ouster.
Kirsch says nothing gets a CEO axed faster than having an underperforming stock, but boards should resist short-term thinking. “I’m always worried when I wake up on Monday morning and read that a board has fired a CEO, and the first thing I hear in the news reports is about the stock underperforming,” he says.
Without having access to boardroom conversations, Kirsch says there are two ways to view the change in leadership.
“Maybe Ford is making this pre-emptive move to underscore the urgency that they see in this approaching crisis for the incumbent auto industry,” he says. “They are trying to stay ahead of the curve by acting now before the industry tips into full-blown slowdown or recession.”
That would be the most generous interpretation of the leadership change. “The worst interpretation, obviously, would be the short-term reaction to stock markets and activist investors,” Kirsch says. “Those are the two alternatives.”
Article by Smith Brain Trust
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