A Blog by Jonathan Low


Apr 10, 2016

Why Ford Isn't Afraid To Let Software Take the Wheel

If you're really going to embrace change, you need to put your money - and your people - where your mouth is. JL

Chris Ziegler and Nilay Patel report in The Verge:

Ford recently spun off its next-generation mobility initiatives into a wholly owned subsidiary, Ford Smart Mobility LLC, with operations centered in Palo Alto. That’s a long, long way from headquarters in Dearborn. (2,421 miles, to be exact.)We didn’t want to overlay [Smart Mobility] with the Ford bureaucracy
For a guy running a car business, Mark Fields sure doesn’t mind talking about putting fewer cars on the road.
Fields is the charismatic CEO of Ford Motor Company, an honest-to-goodness slice of industrial Americana and an institution of the automobile’s Golden Age. Needless to say, it’s an interesting time to be in his position: even as Ford and other automakers come off a record year for sales, there’s an awful lot of scary writing on the wall. Car-sharing, ride-sharing, Apple cars, Google cars, and Teslas — just to name a few — pose a perfect storm of existential threats that Detroit has never had to deal with before. Not quite like this, anyway.
But recognizing a threat to the business is entirely different from effectively dealing with it. Can Ford course-correct enough to turn its disruption into a new revenue stream? “Our approach is to first disrupt ourselves,” he says during the course of our recent interview.
The line sounds like a talking point from a well-rehearsed presentation, and it is — Fields has been saying variations of it both on and off stage since he took over in 2014, famously announcing a slew of projects at his CES 2015 keynote that had very little to do with selling more cars. And by all appearances, it’s not just lip service: Ford recently spun off its next-generation mobility initiatives into a wholly owned subsidiary, Ford Smart Mobility LLC, with operations centered in Palo Alto. That’s a long, long way from Ford headquarters in Dearborn. (2,421 miles, to be exact.)
We sat down with Fields to discuss the spin-off, the state of his business, and what it means for the 113-year-old Ford Motor Company to exist in a post-car world.
"We didn’t want to overlay [Smart Mobility] with the Ford bureaucracy."Chris Ziegler: Tell me more about the spin-off. I think it’s a really fascinating move, and it speaks to how seriously you’ve been taking this stuff. But tell me more about the real benefits of this. What does it buy you?
Mark Fields: I think a couple of things. As we’ve been thinking about this and we’ve described it to our organization and externally, loving our core business — designing, developing, manufacturing, and building great cars, trucks, and SUVs.
Well, then we have these emerging opportunities in mobility services. We want to aggressively go after that. The point we’ve been making is that it’s not moving from an old business to a new business. It’s just moving to a bigger business as we expand the business model from number of units sold to number of units sold plus vehicle miles traveled. We’ve been thinking through, how do you structure that? Because there are lots of case studies of companies that have made completely different companies, but they’re so divorced from the core business that you never get the cross-pollination that you need to make one plus one equal three.
There are other cases where they make it a division in the existing business. And guess what happens? It gets killed. Because in the scheme of investment priorities, you’ll always be able to prove out the core business before you’ll be able to prove out some of these mobility services. Many times you have to scale. You have to build a customer base and you have to scale it. It could be a different time frame as the business gets to a level of acceptable profitability.
So we decided to create a subsidiary, so we created Ford Smart Mobility LLC. It does a couple of things. First, the way to think about it is, you know, we have Ford Credit. Ford Credit is a subsidiary of Ford. Their role is to help support the core business. Ford Smart Mobility, their role is to design, develop, build, invest, and grow these mobility services. That can not only become a business on its own, but also help support the core business. Because, guess what, a lot of these services, they need vehicles. Right?
You want it separate but connected. The reason we wanted to do it separate is because, you have to realize that we needed to give them the flexibility and the operating structure to be able to be competitive with other technology and mobility services companies that move really fast. We didn’t want to overlay them with the Ford bureaucracy. The reason we have that bureaucracy or those processes in the core business is, listen, it’s a complex product, it’s got to be safe, regulated, all of those kinds of things.
There’s a method there, and [reasons] why we have those processes of governance in place. You can do it a little differently and make it a little more agile, if it was separate. On top of it we’ve taken one of our board members, Jim Hackett, who ran Steelcase for 20 years, and we’ve taken him off the board to be chairman of Ford Smart Mobility. Importantly, he reports directly to me because it has to have top-down sponsorship. If it doesn’t, it’s not going to be able to be as effective as it will on its own, without having that sponsorship.
What Jim did in Steelcase over 20 years, he helped change the way people work — the old death-by-cubicle approach that it was in the '60s. If you look at many of the workplaces today, Jim helped think through that and implement that at Steelcase. We’re asking Jim to again help think through how we help people be mobile, and change the way the world moves.
We’re going to hire a CEO, they will be based in Silicon Valley.
Nilay Patel: The whole division?
Yeah, the organization. There will be some distributed groups but the main nucleus of it is going to be in Silicon Valley. The main reason for that is couple-fold. One, it’s not just because the talent is in Silicon Valley, the whole ecosystem there. It’s a community of ideas. When you’re viewed as a part of a community you get a lot of benefits.
We are already seeing that with our Research and Innovation Center that we set up over a year ago. We now have over 120 professionals. It’s going to grow to maybe 160 by mid-year. Many of the projects that we’ve put in place, things that we’re doing for example, with Amazon, things we’re doing with DJI.
That came about by just being in the community there. Another reason is that you want to put it in a place where mobility is a problem. Necessity is the mother of invention, and when you’re living that every single day, you’re coming up with ideas. To put this thing in, let’s say, Dearborn, it wouldn’t be as effective.
CZ: Could you see this LLC serving other automakers?
No. We want it to be dedicated to Ford. As we said, we want to build out our business model on this. It’s not moving from an old business to a new business, just a bigger business. They’re interconnected. The way we pictorially show this is through an infinity symbol. We have the core over here and we have Ford Smart Mobility over here, to make the point the one can help reinforce the other.
NP: Are you going to want them to design cars?
NP: This seems like a big piece of the puzzle that’s missing, right? If they’re just doing mobility services, you can swap in Camrys and they would still be able to move people around.
Right. Well, what we want to do is make sure that we maintain the integrity of our core business in terms of the design and development process. But we may see — for example, as we get into investigating transportation as a service, and we get into autonomous vehicle transportation as a service — that they will provide some great feedback to the product development team, and take that into account as we’re developing our vehicles. Because in some cases we’ve been very focused on: is it fun to drive? We’ll have to inject an approach of fun to ride. What does that mean?
An autonomous Fusion outside Ford's R&D facility in Palo Alto, California. (Ford)
CZ: What happens when Travis [Kalanick] comes and says, "I want 100,000 Explorers with this option deleted, and the rear seats reconfigured this way"? Do you say yes? Does that conflict with your LLC? What is that relationship like?
This will evolve over time. We talk with everybody, and if that’s the case, and if that particular hypothetical came about, we would always have a discussion. First off, it has to make business sense. Anything that we do, we want to make sure that it does two things. One is, it builds our brand. And secondly, it creates value for the company.
NP: Tell me about the Ford line right now. Ford is a classic American car company, you’re like master of the universe, right?
I wouldn’t say that. [Laughs]
"We're still a family company."NP: I mean, you’re the CEO of a major American car maker. In this moment you need to change what that brand represents, particularly with younger people. What kind of process are you going through, what’s the process you’re going through with your brand?
As you look at our company, we are going through this transition of being an auto company, and a mobility company. First off, it’s making sure that when you look at what our brand stands for, it’s pretty timeless. We’re a brand that’s known for our accessibility. We’re a brand that’s known for our ingenuity and innovation. We’re also a human brand. What I mean by that is, we’re still a family company. We’re a brand that’s recognized around the world consistently. We don’t have different brands in different parts of the world.
As we go forward, we want to be viewed from all customers, and young customers in particular as having great products that have great technology, great safety, great fuel efficiency, et cetera. But also we want to be known as a brand that will help people be mobile. Mobility for us — when we say a mobility company, we mean mobility at its highest level. The definition is allowing people to live, play, and work where they want. How do we play a role in making that happen?
NP: What you’re saying, then, is that you want to be known as a tech company. I think last year you were saying "we have to be a software company."
You know, when I first joined the company, a long time ago, we were a manufacturing company. As we go forward, I want us to be known as a manufacturing, a technology, and an information company. Because as our vehicles become a part of the Internet of Things, and as consumers choose to share their data with us, we want to be able to use that data to help make their lives better. And also, create some business models that will help us earn a return. That’s where we’re heading.
"As consumers choose to share their data with us, we want to be able to use that data to help make their lives better."Again, it’s making sure that when you look at the skill sets that we have in the company, I want our engineering teams and our marketers thinking about how we’re creating experiences. For many years we focused on just the technology. Just driving towards the technology has its dangers. If you just have the engineering teams focusing on just the technologies and then piecing them together to figure out how to deliver an experience, it’s very different. Now flip that on its head and say, "what experiences do we want to give our customers?" — and then ask how do technology, hardware, and software actually enable that.
As we go forward, we are going to be becoming more and more skilled at software, and adding capability around that. We have a lot of software skills right now, around engine controls, calibration, communication, and entertainment technology — you know, Sync, electrification.
But we have to think more broadly around how we create real relationships with our consumers through our products and also through another thing we're introducing, FordPass. In technology companies they talk about the platform, and then you need to make sure if you want to be successful, that any services that you create need to be tightly bound to the platform. Our platform is the vehicle.
One of the things that we announced earlier this year is FordPass, which is basically our way of reimagining the relationship between our consumers, an ongoing relationship. It has a number of different elements with it. We want FordPass to do for the auto industry what iTunes did for the music industry. It’s a set of digital, physical, and also mobility experiences, where we integrate into people’s lives. A number of them will be powered by a Ford app.
You’ll be able to do things like, not only reserve parking — you’ll get smart parking, eventually have ride-sharing off it. You’ll also be able to pay your Ford credit bill, or use what we call FordPay. Let’s say you’re going through a drive-through, and instead of taking your wallet out, your vehicle will know that it’s you, and you’ll be able to pick up your McDonald’s and will get billed through FordPay. It’s about making people’s lives easier, and using the vehicle as a platform, and then generating some services off of that.
NP: So does FordPass extend to not owning a car?
NP: Because that’s an entirely new business model for you, right? Can you push your brand there, that’s the real question. Are you going to get Chevy owners to live in a Ford ecosystem?
I think we have a great opportunity to do that. Plus, if you think about urban areas, you don’t own a car, right? Because it’s too expensive, but you need to be able to get around town.
A part of the beauty of the FordPass is that it will provide mobility solutions for you in the city. Multimodal, right? You’ll be able to maybe take a ride-sharing car to a certain part of the city and maybe take an electric bike the last mile, et cetera.
Ultimately I’d love people to say, "I’m going to take the Ford," but it’s interpreted in a different way, a nontraditional way, than just a hard and fast property.
NP: So there’s a real tension there. We talk about this all the time because it’s what our readers are saying to us, which is, we just want to get in a car, we don’t want to see Sync, we just want to look at Android Auto, CarPlay. We already have a platform, we just want the car to be an extension of whatever kind of platform we like. How do you resolve that tension? Are you just going to keep going on Sync or are you…
Well no, Sync is very important. Our approach is, first off, we want to be consumer-centric around here. And, you’re right, there’s a lot of customers, they love their iPhones, they love their Android phones.
One of Ford's recent mobility projects is RideKC: Bridj, an on-demand bus service in Kansas City. (Ford)
NP: Which kind of phone do you have?
The [iPhone] 6. My whole family has it.
NP: You’re locked in iMessage.
And FaceTime, and all of that other kind of stuff.
NP: The ultimate platform lock in. I see what you’re doing! [Laughs]
Again, we’re trying to think like a software company. How do we make it so sticky that consumers love dealing with us, but then, the switching costs are really high? I don’t mean switching cost in terms of money. Just switching cost in terms of, "you know, I’ve got everything here, it’s convenient, I’m not going to have the aggravation of trying to change things out."
"We saw what happened to the handset makers. We're determined to make sure that doesn't happen."When you think about being consumer-centric, we want to give people the opportunity that if they want to bring their smartphone interface into the vehicle, they can. That doesn’t mean that we cede the in-vehicle experience. In terms of operating HVAC, other systems within the vehicle, we want to make sure that we have a Ford taste to that. At the same time, be agnostic and allow people to take things in as they want. That’s the approach here. Our approach is not to turn our vehicles into handsets. We saw what happened to the handset makers. We’re determined to make sure that doesn’t happen.
NP: Well, if Apple is building a car right next to you…
Who knows?
NP: How do you look at those upstarts, how do you look at Tesla, and rumors of Apple building a car? I keep coming back to this idea of the brand, right? They have classically disruptive brands, and that’s just their story. "We’re going to ruin everything. Then we’ll take it over from the ashes." How do you see those kinds of brands?
Our approach is to first, disrupt ourselves. That’s why you see us creating things like Ford Smart Mobility, the LLC, creating FordPass, really thinking differently about this from a consumer-end standpoint. Thinking about experiences, and then how does technology, hardware, and software deliver that, as opposed to the other way around. I think we’re really disrupting ourselves.
Who knows what Apple is going to do? Our working assumption should be, they’re doing a car, it’s going to have a great user interface, it’s going to be connected seamlessly to the cloud. That motivates us even more as a company, to make sure that we push the company forward in a lot of these different areas.
CZ: What’s interesting is that I’ve heard a number of auto executives at this point say, if Apple is making a car, they should strongly reconsider because it’s not a good business to get into.
I think our business is pretty good. We made record operating profits last year. One billion dollars.
CZ: Absolutely, but is it "peak car?" Is that feeding into your decision to spin-off the LLC?
No, what is actually prompting us to develop our Ford Smart Mobility strategy is that we’re looking at societal trends, right? Any business needs to take a point of view of the future. I’m not talking next month, five, ten, fifteen years out. We’re looking at some societal trends.
We’re looking at the growth of the megacities, 10 million or more people, lots of congestion. We’re looking at the growth of the global middle class. What is the first thing you do when you get in the middle class? "I want to buy a car, because I want to connote that I’ve made it." More congestion. We look at things like pollution, which used to be an issue around the environment, now it’s issues around basic health in certain cities around the world. We look at changing consumer buying behaviors, particularly millennials in urban areas. They want access versus ownership.
We’re looking at that world, and saying, "gosh, those are societal trends, what does that mean for our business?" It doesn’t mean our point of view of the world in the future is that the world is just going to be roaming with autonomous vehicles and you just hit a button on your smartphone and it’s going to show up. It’s going to be a spectrum.
There’s going to be folks who continue to shop, buy, own, and drive vehicles the way they have, for many, many years. That’s why it’s really important for us to focus on growing our core.
But at the same time, particularly in urban areas, these opportunities around mobility services are going to become greater and greater. And the business rationale is, our current core business, if you add up all the OEMs around the world, the car makers, and the revenue, it’s about 2.3 trillion dollars a year. We get about 6 percent of that. If you expand that to transportation services, you know, money that people spend on taxis and car-sharing and ride-sharing and insurance, and that kind of stuff — put aside plane rides — that’s about a $5.4 trillion business a year. We get none of that, and neither does the rest of our industry. Even if we get a small piece of that, that’s additional to the company! That’s the business opportunity in front of us, and that’s why we’re looking at this as a big opportunity.
CZ: To get there you need a strong presence in electrification, which granted, you do, you have a lot of hybrids out there, and a couple EVs as well…
And we’ve made a big commitment over the next five years to invest in over four and a half billion dollars in electrified vehicles.
NP: Are you going to make an electric Mustang? [LaughsDid you see the story of that, on the all electric ’67?
NP: You should go for it.
Low end torque’s pretty good…
CZ: It’s not a joke though. Tesla’s eating everyone’s lunch. The P90D is just insanely quick.
But, put it into perspective. Tesla has done a very nice job of raising awareness of electrified vehicles. They cater to a high-end consumer, where the Tesla is usually their second, third, or fourth vehicle. It’s not their only vehicle. Our approach has been to give consumers the power choice, whether plug-in hybrids or overall electrified vehicles, and be true to our brand and accessible.
CZ: Tesla is about to not be for the high-end customer, right? It feels like between the Model 3 and the Bolt, they’re kind of sucking the air out of the room, maybe unfairly because there are a lot of EVs in the space. The Leaf is up to 150 miles of range, I think. There’s a Focus Electric out there. At what point do you put a 200-plus-mile range, affordable EV on the road? It has to be on your roadmap.
Of course, that’s part of the four and a half billion dollars that we’re investing.
CZ: So, you’re getting there.
Absolutely. We’re building on the experience that we’ve had with the electrified vehicles that we do have on the marketplace. The other thing is, at a certain point, this automotive business is a business that requires a lot of capital. You’ve got to make money at something, okay? [Laughs] You’ve got to generate positive cash.
NP: You going to build a car for Google and generate some positive cash?
You know, we talk with everybody, I know that rumor was out there but we’re not going to get into…
NP: I was looking forward to that. That was going to be the best story at CES. All we got was Faraday doing nothing.
But talk to me about self driving. There is the vision of the future, where people don’t own cars, the F-150 isn’t the best selling car in the world every quarter for 100 years…
Yes it will be! [Laughs]
NP: Five years from now is the F-150 still the best selling car in the world?
NP: Ten years from now?
NP: Why’s that?
When you look at the F-150, most people are using that to do a job. It’s a tool for them. Tradespeople, et cetera. Yeah, there are some personal-use buyers, but it’s a purpose-built vehicle, it’s a tool. You’re going to take that tool away from people? You’re going to take it away from the tradesmen, the farmers.
We don’t get arrogant about it and say, "that’s how it’s going to be." We look at a lot of data. When you look at that the full-sized pickup segment, and the jobs, you always have to look at, what is the job of the vehicles you bring out? It’s a very specific job for our trucks.
NP: There’s that side of it. But there is the "I don’t want a car anymore, I just push a button and the robot drives me around."
NP: How are you going to get into that game? Are you going to do self-driving?
Our strategy is two-fold. The term autonomous vehicle is really thrown about liberally these days and I bet if you asked five different people, you’d get five different answers. Everything from "I hit a button I end up at Grandma’s house" to "it helps me stay in my lane" or something like that.
There’s levels zero through five. Level zero through three is where the driver has to always be prepared to take control of the vehicle, or full-time control. For example, level zero is things like blind-spot detection. The light comes on, notifies you, you have to move the vehicle. Level one is adaptive cruise control. Level two is, we’re bringing out a feature in the next year or two called traffic jam assist. You sit in the West Side Highway near traffic; push a button and the vehicle will control the braking, the acceleration, and the steering for you, in that environment. Level three is like the Tesla Autopilot.
In all of those cases the driver needs to be ready to take control at a moment’s notice. Our strategy is to continue to be a leader in semi-autonomous and driver assist features, to make them better drivers, and we have a separate effort working on level four. Level four is, the driver never has to take control. It’s in a defined area that’s been 3D-mapped. Level five is, any area, any weather. That’s a long way away.
We are working very hard on level four. The first applications could be, for example, transportation as a service in an urban area. We are very aggressively working on both of those. Listen, we’ve been working on autonomous vehicles for over 10 years now. We were the only manufacturer that sponsored a [factory-led] team in the original DARPA autonomous vehicle competition back in 2005. We’re working both ends of these.
CZ: GM is saying that they’re pretty convinced that the applications of that type of autonomy, that level of autonomy, are going to be in ride-sharing fleets for the near and medium term. Do you share that view, or do you think there’s a broader opportunity?
I think it’ll be a combination. I think probably some of the first applications will be transportation as a service in areas that are mapped out, and getting people used to that. But I also think there will be personal-use applications of that. I think it will be a spectrum.
CZ: Will those ride-sharing autonomous cars be run by the LLC or could you sell them to outside providers?
We are thinking through all of those things right now. That’s one of the elements of Ford Smart Mobility that we’re thinking through. We’ll talk about what our plans are as we go forward. It could run the gamut to a number of different things, as you can imagine.
The key is being able to solve a customer need, make their lives easier. What problem are you trying to solve for consumers? Then putting a business model behind that that says you can have a good return based on that.
NP: Last question. It’s 2040.
So I’m six feet under, by the way. Although, no, maybe I’ll still be alive? [Laughs]
NP: Fingers crossed. We’ll be fine. Everything will be better.
What does Ford look like in 2040?
Ford looks like an auto and a mobility company that’s known for that. Also, as I think longer term, I want Ford for our customers. Every time they touch Ford, a smile comes on their face. Right? They feel good about it. They want to talk to their friends about it. Our employees, every day they walk in the door, there’s no other place they’d rather walk into. Because they’re not only building great cars and trucks and providing mobility solutions for people, it’s around making people’s lives better. There’s a higher order. That really goes back to our founder Henry Ford, about making people’s lives better.
Our employees want their sons and daughters to make their careers at Ford. I want our suppliers to feel like partners, not vendors. I want the government constituents that we work with always looking at us as a trusted source, where they’ll always get a good read on things. That’s a vision for Ford today, that’s a vision for Ford in 2040, and all doing it very ethically. We’ve been named one of the world’s most ethical companies for seven years in a row now by Ethisphere Magazine. It comes back to people. Particularly young people. They want to come to a place where they can make their dent on the universe. They want to make cool stuff, further their careers, but also come to a company that stands for something.
NP: That’s a great statement of values. I want to ask way more specifically, in 2040, which side of that infinity sign is bigger? Is it the vehicle manufacturing, or is is the mobility services?
I still think that the core side of the business will be the dominant piece but you can see that other piece actually grow pretty significantly.
NP: Do you think it will ever overtake the core piece?
I never say never, but probably not in that time frame. But, it could grow significantly.


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