Henry Ford

(1863-1947)

Summary

Henry Ford (July 30, 1863 – April 7, 1947) was the founder of the Ford Motor Company (Automobile Industry) and father of modern assembly lines used in mass production. His introduction of the Model T automobile revolutionized transportation and American industry. He was a prolific inventor and was awarded 161 U.S. patents. He started up two auto making companies before, each of which failed, before finally launching the Ford Motor Company we know today. As sole owner of the Ford Company he became one of the richest and best-known people in the world. He is credited with "Fordism", that is, the mass production of large numbers of inexpensive automobiles using the assembly line which could finish a car in 98 minutes, coupled with high wages for his workers—notably the $5.00 per day pay scale adopted in 1914. Ford had a global vision, with consumerism as the key to peace.

Personal Profile: self-confident, fit-looking, ambitious, idealistic. Ford believed in standardization to the extreme. He wanted a simple machine that could be mass produced, and could be repaired by its owner. All of his efforts went into making one product as cheaply as possible, in one color, in one model, and mass producing so the cost would come down, and anyone could afford it. The model-t was a massive success.

Ford is credited for inventing the moving assembly line, as well as creating the 40-hour, 5-day work week, as well as paying a "five-dollar" day (which was unheard of back then). As a result of these marvels, Ford became an international celebrity, followed daily by journalists and the press.

Eccentric

One of Ford's biographers, David Lewis, took these comments from Ford: "This globe has been inhabited millions of times, by civilians having airplanes, automobiles, radio, and other scientific equipment of the modern era". He also proposed that horses, cows, and pigs should be eliminated, and in 1927 he added chickens to that list, saying that "The world would be better off without meat".

He enjoyed footraces.

His mind was described by a friend as follows: "His mind does not move in logical grooves. It does not walk, it leaps. It is not a trained mind. It does not know how to think consecutively....He does not reason to conclusions. He jumps at them."

He was deeply prejudiced against Jews.

Ford did not believe in accountants; he amassed one of the world's largest fortunes without ever having his company audited. The company's first audit occurred after Henry Ford II became head of the company. Henry Ford's intense commitment to lowering costs resulted in many technical and business innovations, including a franchise system that put a dealership in every city in North America, and in major cities on six continents. Ford left most of his vast wealth to the Ford Foundation but arranged for his family to control the company permanently.

Early years

Ford was born on July 30, 1863, on a farm next to a rural town west of Detroit, Michigan (this area is now part of Dearborn, Michigan). His father, William Ford (1826-1905), was born in County Cork, Ireland. His mother, Mary Litogot Ford (1839-1876), was born in Michigan; she was the youngest child of Belgian immigrants; her parents died when Mary was a child and she was adopted by neighbours, the O'Herns. Henry Ford's siblings include: Margaret Ford (1867-1868); Jane Ford (c. 1868-1945); William Ford (1871-1917) and Robert Ford (1873-1934).

Henry took this passion about mechanics into his home. His father had given him a pocket watch in his early teens. At fifteen, he had a reputation as a watch repairman, having dismantled and reassembled timepieces of friends and neighbors dozens of times.

His mother died in 1876, which came as a blow that devastated young Henry. His father expected Henry to eventually take over the family farm, but Henry despised farm work. With his mother dead, little remained to keep him on the farm. He later said, "I never had any particular love for the farm—it was the mother on the farm I loved."

In 1879, he left home for the nearby city of Detroit, Michigan, to work as an apprentice machinist, first with James F. Flower & Bros., and later with the Detroit Dry Dock Co. In 1882, he returned to Dearborn to work on the family farm and became adept at operating the Westinghouse portable steam engine. He was later hired by Westinghouse company to service their steam engines.

He married Clara Ala Bryant (c1865-1950) in 1888, and Ford supported himself by farming and running a sawmill. They had a single child: Edsel Bryant Ford (1893-1943).

In 1891, Ford became an engineer with the Edison Illuminating Company, and after his promotion to Chief Engineer in 1893, he had enough time and money to devote attention to his personal experiments on gasoline engines. These experiments culminated in 1896 with the completion of his own self-propelled vehicle named the Quadricycle, which he test-drove on June 4. After various test-drives, Henry Ford brainstormed ways to improve the Quadricycle.

Starting up Ford Motor Company

Ford Motor Company

At age 40, Ford, with 11 other investors and $28,000 in capital, incorporated the Ford Motor Company in 1903. In a newly-designed car, Ford gave an exhibition on the ice of Lake St. Clair, driving one mile (1.6 km) in 39.4 seconds, setting a new land speed record at 91.3 miles per hour (147.0 km/h). Convinced by this success, the race driver Barney Oldfield, who named this new Ford model "999" in honor of a racing locomotive of the day, took the car around the country, making the Ford brand known throughout the United States. Ford was also one of the early backers of the Indianapolis 500.

Ford astonished the world in 1914 by offering a $5 per day wage which more than doubled the rate of most of his workers. The move proved extremely profitable; instead of constant turnover of employees, the best mechanics in Detroit flocked to Ford, bringing in their human capital and expertise, raising productivity, and lowering training costs. Ford called it "wage motive." The company's use of vertical integration also proved successful when Ford built a gigantic factory that shipped in raw materials and shipped out finished automobiles.

Model T

The Model T was introduced on October 1, 1908. It had many important innovations—such as the steering wheel on the left, which every other company soon copied. The entire engine and transmission were enclosed; the 4 cylinders were cast in a solid block; the suspension used two semi-elliptic springs. The car was very simple to drive, and—more importantly—easy and cheap to repair. It was so cheap at $825 in 1908 (the price fell every year) that by the 1920s a majority of American drivers learned to drive on the Model T. Ford's network of local dealers made the car ubiquitous in virtually every city in North America. As independent dealers, the franchises grew rich and publicized not just the Ford but the very concept of automobiling; local motor clubs sprang up to help new drivers and to explore the countryside. Ford was always eager to sell to farmers, who looked on the vehicle as a commercial device to help their business. Sales skyrocketed—several years posted 100% gains on the previous year. Always on the hunt for more efficiency and lower costs, in 1913 Ford introduced the moving assembly belts into his plants, which enabled an enormous increase in production.

By 1918, half of all cars in America were Model T's. As Ford wrote in his autobiography, "Any customer can have a car painted any colour that he wants so long as it is black".

Bad decisions

(led to a near disaster in the 1930's)

1. Focused on manufacturing without concern for marketing or finance.

2. Kept on trying to just produce one car (the Model-T) in one color...and left the gates open for competitors to diversify and take advantage of changing consumer tastes.

3. He kept on making an "open top" (no metal roof) car, even when competitors began offering the "closed top" version.

4. Responded by closing his factory for almost a year to design a new car (the Model A). But, doing so stopped all income without stopping expenditures, and almost destroyed the company. This also opened up the market to competition, which is when Chrysler introduced the Plymouth.

5. Then, Ford stuck just with the Model A car, and did not introduce new versions.

6. It wasn't until 1938 that he finally introduced another model (the Mercury to compete with GM's Pontiac, Oldsmobile, and Buick), and finally the Lincoln to compete with the Cadillac.

Leadership quits

The young talent mostly quit during this time period to go and work for the competition.

How Ford survived the Great Depression

1. Because of reputation of the man, and company, people kept buying

2. War contracts with the US government during WW2.

Family company

Ford suffered an initial heart attack in 1938, after which he turned over the running of his company to Edsel. Edsel's 1943 death brought Henry Ford out of retirement. In ill health, he ceded the presidency to his grandson Henry Ford II in September 1945 and went into retirement. He died in 1947 of a cerebral hemorrhage at age 83 in Fair Lane, his Dearborn estate, and he is buried in the Ford Cemetery in Detroit

His grandson, Henry Ford II saved the company. He hired executives from GM, and copied GMs organizational structure. He then put in place statistical controls and planning procedures (similar to what GM was doing).

Business Philosophy

Ford kept two main business principles: make high-quality cars, and sell them as inexpensively as possible. He reinvested all profits back into the business, and even faced a lawsuit regarding his low dividend policy (brought by the DODGE brothers).

He hated "fincanceers", and stock brokers that he called "parasites". He expressed worry about the "trappings of capitalism".

In 1919, to get away from the pressures of stockholders, he purchased all of the outstanding shares of his company, and took Ford private. This put the entire company under his control (or, "lack of control", is a better way to describe the situation).

About the consumer:

Ford had very little respect for the tastes of consumers. He thought he knew what they needed.

About the organization:

Ford did not believe in bureaucracy. Ford said "the Ford factories and enterprises have no organization, no specific duties attaching to any position, no line of succession or of authority, very few titles, and no conferences".

This attitude was very good during the creative development of a startup, ie. getting from an idea, and creating a business out of nothing. It encourages creativity, and is seen in many smaller Silicon Valley web startups. But it can be disastrous in larger companies. As a result, chaos was found in Ford during the 1920's and 30's. Overburdened accountants would simply weigh a stack of invoices rather than actually take the time to add up the numbers on each sheet. It was that bad.

Ford came to be known as the first American billionaire "crackpot".

Lessons for the entrepreneur

1. Henry Ford benefited from "first movers advantage", but discovered that this advantage alone is not enough to ensure success. Over time, competitors will take that advantage away, and you need to find other long term competitive advantages.

2. You need to adapt to changing consumer preferences.

3. Pay attention to marketing

4. Henry Ford did one thing very well...he understood the power of "creative destruction" on the manufacturing side.

5. It's disasterous to put all decision making authority in the hands of just one person. Where Alfred P Sloan at GM was going about empowering his employees to make decisions, Ford was doing the opposite, and was centralizing decision making power in his hands.

Links

 Wikipedia article

References:

"American Business, 1920-2000: How it worked", Thomas K. McCraw