On December 2, 2008, Alan Mulally was behind the wheel of a “kiwi-green” Ford Escape. That morning, Ford announced it was selling its entire fleet of corporate jets. Now, the CEO was driving the 500-plus miles from Dearborn, Michigan, to Washington, DC. Accompanied by his press aide, two executives, and a security team, Mulally’s caravan sped across the industrial ruins of the American Rust Belt. The inconspicuous travelers stopped only for bathroom breaks, devouring the turkey salad sandwiches, potato chips, and soda, packed by Mulally’s secretary, as they went. Within 10 hours, the group arrived at Ford’s Washington headquarters.
For most of Richard Rumelt’s book Good Strategy, Bad Strategy, he talks about how a good strategy should have a single Guiding Policy. That contrasts with the case on the Wonderful Pistachio company, which Rumelt wraps up by saying:
I could see that Stewart’s approach to the nut business was a complex coordinated maneuver over a decade of time.
This has bothered me ever since I read it. Wonderful clearly did not have a single Guiding Policy. The book knows this. And yet, it never addresses how to compose complex strategies.
I resolved it for myself by breaking Wonderful’s strategy into three parts, according to the supply/demand/capital business triad. If you squint, each leg has its own strategy with a single Guiding Policy:
Capital: Wonderful initially bought pistachio fields (at the time, a niche crop) as a hedge against inflation. They had a massive scale advantages over existing producers. Their capital policy called for patience: pistachios fields take 7 years to mature. Smaller competitors couldn’t make investments that far into the future.
Supply: they created a policy to invest in vertical integration for processing, building on the scale advantage [I think, for example, they improved the consistency of pistachios that came out of the roasting process partially opened].
Demand: they were expert marketers who knew they could, in their words, “stimulate demand” for pistachios. The policy to stimulate demand came to fruition with a “Get Crackin’” marketing blitz featuring celebrities like Snoop Dogg. This worked and drastically grew the pistachio market.
All three strategies reinforce each other, meeting the “coherence” or “integration” heuristic that every strategy thinker talks about. Stimulating demand, perhaps the strategy’s foundation, ensured the capital and supply investments pay off.
So, my ears (metaphorically) perked up when I read the section on Mulalley’s “One Ford” plan, because it has this same structure:
On November 14, he officially laid out his “One Ford” plan:
Aggressively restructure to operate profitably at the current demand and changing model mix. [supply strategy]
Accelerate development of new products our customers want and value. [demand strategy]
Finance our plan and improve our balance sheet. [capital strategy]
Work together effectively as one team. [coherence check]
It’s trivial to say that, if supply/demand/capital completely describes business skill, then a good corporate strategy will address all three. But I’m watching for how frequently good strategies are explicitly segmented according to the triad (or not), and whether poor strategies fail to address one or more legs (or not).
That’s a really cool observation — I hadn’t noticed that all three legs of the triad showed up in that one strategy. I’m not 100% convinced that every strategy will account for all three legs, though. I think it’s idiosyncratic to the situation the business is facing, because strategy is about problem solving, right? By which I mean that I can totally imagine certain business problems not requiring one or two legs of the triad at all.
That said, I’d definitely be looking out for counter examples now. It’s a really intriguing way of framing the business strategy question!
Edit: I’ve spent more time thinking about a counter example now, and at least when it comes to turnarounds, I CANNOT THINK OF ONE.
There’s a case that keeps coming to mind, and I don’t understand enough about the business triad to know if it’s relevant here or not, so my apologies if I’m off the mark.
Back when I was learning Thai there was a TV show I liked watching, called อายุน้อยร้อยล้าน which translates to “young millionaires” more or less. A lot of the stories are interesting because they’re so idiosyncratic while also being obvious in hindsight, the way a good strategy feels.
Anyway, one episode, https://www.youtube.com/watch?v=J7OycHoa33E, is about a young guy who studied law and business, got out of the countryside and into a nice, cushy office job, and then eventually couldn’t stand watching his family farm sink further and further into debt, went back home and turned the place around.
He is from an area of Thailand that has a lot of fruit orchards, and especially focused on super sweet fruits (I don’t know the name in English, but according to google ลำไย is longan? It looks right, anyway), and the prices had crashed over the course of several years to the point where they were selling at a loss.
He started learning about beekeeping (initially off of youtube videos, if I recall correctly), and then introduced bees that don’t sting to the farm, and started teaching other farmers in the community about beekeeping.
He initially sold honey, and that was enough to pull the farm out of debt and turn things around, and eventually started producing other honey-based products that were even higher margin.
Some things that surfaced for me when reading this case:
Mulally was a former engineer. Anecdotally speaking, for businesses with manufacturing components, this profile seems to work out quite well a lot of the time. Maybe it’s a skill for challenging norms and assumptions which is useful when navigating a turnaround. They also seem to have a knack for making the few but major, and adept, capital allocation moves
In the context of navigating disruption: 1) like Amazon, Ford did a preemptive financing before they had an acute need for cash. Good capital expertise. 2) like Amazon, there was a relentless focus on the customer and positioning the business to serve the customer, such as investing in R&D. This was not sacrificed in the midst of tough times, and for both Amazon and Ford, the key driver of future value (“focusing on the customer” seems obvious but when your business is running out of cash, gloves are off in survival mode). A somewhat temporary counter positioned strategy as well
“Preemptive” CEO to CEO merger talk is a common occurrence when industries are in change or turmoil (especially in oligopoly or quasi-oligopoly structures?). The CEO who initiates is often in a position of weakness. For example, this happened among the banks during the GFC (I read about it in Lloyd Blankfein’s autobio). Also makes me think of the recent news of United’s CEO going to Delta’s CEO. Don’t think US airlines are necessarily struggling right now, but makes you think (there are of course other reasons and times CEOs try to feel out mergers)
Identifying the disruptive shift – seems it was kind of a storm of several: recession, demand for foreign-branded cars, shift to fuel efficient cars. I’m careful to label changes in consumer preferences as a disruptive shift…consumers changing preferences is normal and recurring
Something about the culture of the organization had decayed. How? Why? The beginning of this case suggests this, causing the flat-footed starting position leading up to the recession. Intuiting what the best cultures look like could be a leading indicator of value creation or big messes. I think about this a lot
I’d frame it differently: Mulally was in the historically unique position of being an outsider empowered to change the culture at Ford
Ford went public in the 1950s (Henry Ford was dead by then and couldn’t prevent an IPO) but the family has maintained a controlling interest in the company through Class B shares. And in the 100 years between when Henry became CEO in 1906 and Mulally was hired in 2006, Ford had been run either by a family member or a Ford lifer that spent multiple decades in house before being promoted to President or CEO
(Owning Ford common stock (indirectly) is one of the drawbacks of being a US based index investor IMO. The family has done an excellent job of keeping the company alive; otherwise they’re pretty meh as operators)
Nice observation, I hadn’t registered that. I’ll notice that potential anchor now – culture established by the source (founder) may have drifted or decayed materially by way of a lack of outsider leadership.
On the index point, assuming you’re being facetious, but with market cap weighted S&P 500, F was never individually material (well under 2% weight at peak in late 90s or late 50s?). Certainly no value creation contribution though!
Yeah, the presence of F isn’t keeping me away from the S&P 500. (I grew up in Michigan and just know a little more than I’d like about the automotive industry there.)
That said, if someone built a large cap index that programmatically excluded tycoon legacy firms I’d probably switch
Not to take this on an unrelated tangent, but the wizards of the asset gathering industry have of course invented this product! It’s called direct indexing and you can blacklist specific companies.