American Icon

by Bryce G. Hoffman

  He finally found what he was looking for on his family’s black-and-white television in September 1962 when he watched President John F. Kennedy call on his generation to go to the moon. Mulally took it as a personal challenge—one worthy of his lofty ambitions. He enrolled at the nearby University of Kansas, joined the Air Force ROTC, and started studying physics and calculus as he plotted his path to the stars. But a routine physical revealed that Mulally was color-blind and put an end to his dream of becoming an astronaut. Mulally shrugged it off and switched his major to aeronautical and astronautical engineering. If he could not go to the moon, he could still build the rockets that would take other men there. At the same time, Mulally was beginning to demonstrate the charisma and leadership skills that would serve him so well later in life. He joined the Kappa Sigma fraternity and became president of the Lawrence chapter. At night he managed a small convenience store, Dylan’s Quick Shop. The owner told Mulally he would never amount to anything, but his professors were more encouraging. His graduate adviser, Jan Roskam, thought Mulally was a born leader with a knack for getting people to work together. At the school’s annual engineering exposition, Mulally not only did much of the organizing, but also made sure everyone had fun at the event. Roskam told Mulally that he had a rare gift for an engineer—people skills—and suggested that he think about management. The professor, who consulted for Boeing, also talked Mulally into going to work for the aerospace company instead of NASA.

  Mulally toyed with the idea of becoming a professional tennis player first. He was that good. But after earning his master’s in 1969, Mulally headed for Seattle. Airliners were not nearly as sexy as rockets, but he soon found himself enamored with the idea of jet travel and its ability to make the world a smaller place. Just as Roskam predicted, Mulally was quickly promoted to management. But his first employee quit after Mulally kept redoing all of his work and showing him his mistakes. The young boss realized that his job was not to show his subordinates how much smarter he was than they were, but to bring them up to his level. It was a valuable lesson, and one he never forgot. As he honed his management skills, Mulally kept asking for more responsibility and getting it. He worked on every Boeing jetliner program from the 707 to 767. By the early 1980s, Mulally was being eyed for a senior position. Boeing sponsored him for a Sloan Fellowship at MIT, where he earned a second master’s in management and only missed Bill Ford by a couple of years. Mulally’s career advanced quickly after that. He led the cockpit design team for the 757 and 767 programs, creating the first all-digital flight deck for a commercial aircraft. But it was on the pioneering 777 program that Mulally really made a name for himself.

  Ford CEO Donald Petersen was a member of Boeing’s board of directors in the late 1980s when Mulally was named chief engineer for the important new jet program. Petersen suggested that Mulally study Ford’s work on the Taurus and offered to introduce him to Lew Veraldi, the man who led the development group Ford called “Team Taurus.” Veraldi was a visionary product development executive who, when given the task of designing a car that could take on the Japanese, had assembled a team that included almost every Ford function to make sure they got it right. In addition to the usual designers and engineers, there were representatives from manufacturing on hand to offer insights from the assembly line, purchasing staff to add input from suppliers, and marketing people who talked to dealers and found out what their customers really wanted. Veraldi even worked with major insurance companies to figure out how to make the car cheaper for customers to repair after a collision. As a result of this innovative approach, the Taurus not only became the bestselling car in America, but also came in nearly $500 million under budget—unheard-of at a company famous for its cost overruns.

  Ford promptly forgot most of what it learned from Veraldi and Team Taurus, but Mulally did not. He blended it with other lessons he picked up on Toyota’s assembly lines during visits to Japan and applied it all to the Boeing 777 program after he was promoted to general manager in 1992.

  By then the new jet had become a make-or-break gamble for the aerospace giant. All over the world, airlines were passing on Boeing’s aging 747 and buying newer models from its rival, Airbus. The company was losing market share and desperately needed a new plane, but the entire industry was in the midst of a deep recession. One of the most complicated machines ever built, the 777 would push the envelope on aeronautical science and would cost an estimated $5 billion. It was a huge risk but Boeing had no choice. The company staked its future on the program and asked Mulally to lead it.

  He assumed command of a team of ten thousand and a supply chain that stretched over four continents. The program was already behind schedule, a victim of the same sort of corporate infighting that had plagued Ford. To cut through it, Mulally and his boss, Philip Condit, instituted a new policy of enforced cooperation and transparency. This was Working Together, and it required the top leaders of each discipline and function to meet every week to go over their progress, discuss problems, and figure out how to deal with them as a team.

  “It was a point of conflict to begin with. You know, an engineer with pride wants to find the solution to his problems. And it’s not a natural thing to go out and explore publicly the particular problems you have,” said Ronald Ostrowski, who became chief engineer of the program after Mulally was promoted to general manager. “There was resistance at first.”

  Mulally overcame it by inviting a documentary crew to film the entire process. He knew the cameras would keep everyone on their best behavior.* It worked.

  At about $100 million a plane, Mulally would have to sell some 200 of the new jetliners to save Boeing from ruin. A year after United Airlines took delivery of the first one in 1995, the order tally was already approaching 300. Boeing logged its 500th order four years after that. The 777 would become one of Boeing’s most successful—and profitable—aircraft ever. It would also make Alan Mulally a star.

  When Boeing merged with McDonnell Douglas in 1997, he was given the unenviable task of weaving together the two companies’ space and defense businesses. Some in the industry wondered if that was even possible, particularly for a man with no military background. But Mulally did it. Then he was called on to save Boeing once again.

  Despite the success of Mulally’s 777, the company found itself in serious trouble by 1998. Banking on the success of the new wide-body, the commercial aviation division had launched an ambitious growth program with the aim of doubling production. Instead, Boeing’s supply chain collapsed and work at its factories stopped completely. The company reported its first loss in fifty years. The group’s president, Ron Woodard, was fired, and Mulally was tapped to replace him. Mulally began a radical reformation of the Commercial Airplanes Group. Declaring that “you can’t manage a secret,” he ordered his senior managers to compile every possible piece of data about the company’s operations, organize it all into easy-to-read charts and tables, and present their findings in daylong problem-solving sessions held every Thursday. Based on this information, Mulally and his team quickly developed a restructuring plan. They streamlined every aspect of the group’s operations, cut thousands of jobs, and outsourced work that did not have to be done in-house. A year later, the division was profitable again and setting new production records.

  Mulally was named CEO of the commercial aircraft division in 2001, just a few months before terrorists hijacked four of its planes and used them to attack the World Trade Center and the Pentagon. The attacks would prove devastating to Boeing as well. Over the next several months, half of Boeing’s orders were canceled or delayed. Airbus soared past Boeing to become the largest commercial jet manufacturer in the world. Mulally responded by slashing Boeing’s workforce in half and outsourcing even more production. He also streamlined the company’s product portfolio, canceled programs that no longer made sense, and used the money he saved to invest in the most advanced commercial airliner ever: the Boeing 787.

  Dubbed the “Dreamliner,” this was a par
adigm-shifting plane that promised to make air travel easier, cheaper, and less damaging to the environment. The 787 was designed to be 20 percent more fuel-efficient than the 767, which carries about the same number of passengers. That translated into lower greenhouse gas emissions and operating costs for the airlines. The 787 was also designed to break the hub-and-spoke model—which had long dominated civilian air transportation, to the chagrin of passengers everywhere—by encouraging more point-to-point flights. The airlines were impressed, and Boeing was soon on the rebound as airlines lined up to place orders for the new jet. Mulally’s promotion to CEO of the entire company seemed only to be a matter of time.

  That job now belonged to his mentor, Philip Condit. But at the end of 2003, Condit was forced to resign in the wake of a controversy involving U.S. Air Force contracts. Less than two years later, his replacement, Harry Stonecipher, was also forced to resign after it was discovered that he was having an affair with another Boeing executive. Neither of these scandals had anything to do with Mulally, and it was assumed that he would be named Boeing’s new chief executive once the board had a chance to catch its breath. But Boeing’s biggest customer, the U.S. Department of Defense, was getting tired of the headlines. The Pentagon told Boeing to bring in someone from outside the company to make a clean break with the past. That man was Jim McNerney, then chairman and CEO of 3M and the former head of General Electric’s aircraft engine division. Mulally, who was about to turn sixty, had been passed over.

  If Mulally was devastated, he did not show it. He seemed to shrug it off just as he had the news of his color blindness. However, there were plenty of other people who were openly indignant on his behalf. One of them was Tom Buffenbarger, the president of the International Association of Machinists and Aerospace Workers. He had led strikes against Mulally and accused him of coming at his members “with a meat cleaver” after September 11, but he said Mulally deserved the top job at Boeing and called the decision to pass him over “a crime.”

  Mulally was used to getting calls from corporate headhunters interested in his obvious managerial gifts. He usually dismissed them out of hand. He was only interested in building airplanes. But this call was different. This one was from Ford Motor Company. It came not from a headhunter, but from board member John Thornton himself.* And Thornton was calling to tell Mulally that William Clay Ford Jr. wanted to talk to him about running his company.

  Bill Ford, the great-grandson of Henry Ford himself, wants to speak to me, he thought as he hung up the telephone. What an honor!

  The Mulallys’ home was being remodeled, so he had moved his family into a small apartment. Mulally had claimed a tiny bedroom as his home office, and he sat there now, staring up at the ceiling, awed by the opportunity that had just been presented to him. Ford Motor Company. If there was a more powerful symbol of American manufacturing might, he could not think of it. Ford was the company that brought the automobile to the masses, created the moving assembly line, and lifted factory workers out of poverty. Mulally thought back to the old Ford pickups that were as much a part of the landscape of his youth as the Kansas prairie itself. Like Boeing, Ford was a legendary name associated with legendary products. Boeing had its B-17 and 747; Ford had the Mustang and the Thunderbird. America would not be America without Bill Boeing and Henry Ford. After a few long moments, Mulally emerged from his reverie, stood up, and opened the door. His wife and son were standing outside.

  “That was Ford!” Mulally beamed. “They want me to run the company.”

  The Mulally clan quickly swung into action. His son Googled “Ford” on the home computer while his siblings away at college began their own research efforts. They scoured the Internet for information about the company and the Ford family, forwarding everything to their father. Mulally spent the next several days learning everything he could about the automaker. He printed out the latest financial data, product photos, and scores of recent articles. As he leafed through it all, his initial enthusiasm waned a bit. Ford may have once been a great company, but it was in deep trouble now. Reviving it would be a herculean task. But if he pulled it off, he would be a hero. And he would be a CEO.

  But how can I leave Boeing? Mulally asked himself.

  Boeing was his baby. Mulally had nursed it through the ups and downs of the business cycle and an array of unprecedented challenges. After slogging it out with archrival Airbus, Boeing was about to deliver a decisive blow with its best airplane yet. How could he walk away before it was finished? Mulally was still weighing that question when Bill Ford called and asked him to come to Dearborn to hear his pitch in person.

  On Saturday, July 29, 2006, Ford sent a Gulfstream V to pick up Mulally in Seattle. On the way to Michigan, he pored over the thick file of data he had collected on the company. The research he had been doing on Ford since that first phone call had generated a myriad of questions; he was about to meet the man who he hoped could answer most of them. Mulally began writing his questions out on the back of a copy of Ford’s most recent annual report.

  The plane landed at Willow Run Airport, which had been built by Ford during World War II when the company was in the bomber business. When Mulally stuck his head out into the humid summer air, he found a driver waiting for him next to a Ford Expedition. The man took his bag and opened the rear door, but Mulally climbed into the front passenger seat. As the big sport utility vehicle navigated the winding road through the woods near Ann Arbor, Mulally found himself growing excited. He tried to temper his enthusiasm.

  I’m just here to gather information, Mulally reminded himself. I’m not deciding anything.

  They pulled up to Bill Ford’s gate at noon. Mulally admired the leafy estate. He recognized that he was in the domain of the truly rich. But as the Expedition pulled up to the front door, he was surprised to see the lord of the manor emerge from the front door in shorts and a polo shirt, accompanied by his wife, Lisa. Mulally surprised the Fords by greeting them with big hugs. Bill gave Mulally a brief tour of the grounds, then invited him inside. The two men sat down on couches in the spacious living room and started with football. They both knew Tod Leiweke, the CEO of the Seattle Seahawks. But they soon got down to the business of the business itself.

  Ford started by outlining the history of his company, from its founding by Henry Ford, through the heady days of Hank the Deuce, to the debacle that was Jacques Nasser, culminating in his own frustrated efforts to save it. He talked about the competitive landscape—railing against Toyota, which he accused of working with the Japanese government to manipulate the yen in order to boost exports and of other devious practices. He told Mulally that the upcoming 2007 contract negotiations with the United Auto Workers would be critical to the company’s survival, and outlined the concessions he hoped to wrest from the union: wage cuts, more competitive work rules, and an end to the infamous jobs banks, where idled workers continued to collect pay and benefits—sometimes for years—while waiting for new positions to open up. If Ford could not get these concessions, it might have to move most of its production to Mexico.

  Mulally seemed hooked. Clearly there were a lot of challenges facing the storied automaker. And he had a lot of questions that needed answering before he would consider taking charge of such a troubled company. But here was a chance to fight for the very soul of American manufacturing.

  If I’m going to do this, I’m going to need to know everything, he thought. So Mulally began his interrogation.

  “Why are there so many brands?”

  “What is the strength of the dealer network?”

  “Why all these different regional organizations?”

  “Why aren’t you leveraging your global assets?”

  Ford was a little taken aback by Mulally’s intensity, but he answered every question Mulally put to him. He told Mulally about Nasser’s dream of building a house of brands. He acknowledged there were too many dealers, and told Mulally about his push to globalize product development.

  “Until we do that, no
thing else is going to work,” Ford said. “Our costs are going to be too high. Our product cadence is going to be too slow. We’re just going to fall further and further behind.”

  “Why haven’t you done it already?” Mulally asked.

  Ford explained that he wanted to, but was getting pushback from his executives, who saw it as a threat to their regional fiefdoms. If Mulally took the job, he would have to find a way to overcome that resistance.

  “That will be the enabler to get everything else done,” Ford told him. “If you can’t do that—if we can’t get that—then we’ll just be whistling past the graveyard.”

  The internal politics of Ford troubled Mulally. He asked Bill Ford for more details. Ford grabbed a piece of notebook paper and sketched out the company’s organizational structure in black pen—a family tree of sorts that listed the head of each division and showed who reported to whom. All of the lines seemed to run through Ford’s chief of staff, Steve Hamp. Mulally was shocked to see how few people reported to Ford directly.

  He is too insulated, Mulally thought as he studied the paper. Mulally was even more surprised to learn that Hamp was Ford’s brother-in-law.

  Ford continued his unflinching assessment. The automaker was in deep trouble. It was being pulled apart by internal and external forces. The board of directors was actively considering selling Ford or finding another automaker to merge with. The chief financial officer, Don Leclair, was pursuing his own agenda.

  “The operating people are on quicksand,” Ford told Mulally. “I need help.”

  Mulally had realized that Ford’s problems were serious, but did not know they were this bad. Bill Ford was clearly in over his head, and he did not try to conceal it. Mulally was moved by his self-awareness and candor but worried about the dire portrait Ford was painting of the company. If the automaker still had a chance to save itself, this was its last.