Ford Cuts To Grow. Sears Cuts To Die. – Forbes

Ford Motor Company recently announced dramatic cuts in staff. Sears Holdings has been doing so for years. What’s the difference?

Ford cuts to transform and grow. Sears cuts to survive— and die.

Ford Motor Company’s CEO, James Hackett, has been downsizing businesses in Brazil and Europe, rationalizing Ford’s product portfolio and cutting costs to drive profits from core businesses– not unlike former Sears Holdings Chairman Eddie Lampert’s actions that have contributed to the company’s long, slow death. The two approaches couldn’t be more different.

Despite a tough 2018—Hackett encouraged employees to “bury the year in a deep grave”—Ford’s CEO summarized the long-term vision beyond optimizing the core: “Smart Vehicles in a Smart World is our path out of mediocre performance.” Shrinking the core to re-invest in new paths to growth.

PSA Peugeot Citroën Shows The Way

In 2015, I spoke for New Mobility World at the Frankfurt Auto Show, a major program dedicated to non-traditional automotive technologies from connected cars and electric vehicles to autonomy. As part of this engagement, I had the privilege to interview Carlos Tavares, Chairman of Groupe PSA, parent of auto brands including Peugeot and Citroën.

Having ascended to the Chairman’s office in 2014, Tavares led an enterprise in crisis. Our conversation foreshadowed the transformation he had just initiated.

As Tavares explained, the metric ‘unit sales’ drove the automotive industry throughout its history, biasing toward volume and market share sometimes at the expense of profitability. In a relatively stable context, this made sense. Traditional automotive was a scale game: for capital requirements, manufacturing efficiency, distribution prowess.

Tavares realized the metric that won yesterday’s game won’t win the future. As consumer demands and platform technologies change, an overweening focus on scale can backfire– creating more of what the market eventually doesn’t want. Driving unit sales might guide his company to oblivion. (See my original conversation with Tavares in Harvard Business Review regarding the tyranny of metrics.)

Tavares directed his team to streamline product portfolios, cut under-performing businesses, often at the expense of unit sales. Meanwhile, PSA Groupe began acquiring businesses such as Opel and Vauxhall, applying the same discipline. Whereas GM had lost money on Opel for years, PSA returned the brand to profitability within one year. PSA Groupe achieved record sales and profitability in 2018.

After a three-decade absence, PSA now has eyes on North America. What the company won’t do is build a traditional dealer network, a model unlikely to thrive in the future. The company will slowly re-enter with car-sharing operations in Washington, D.C., and Seattle. Tavares promises a “creative and disruptive way to distribute our cars,” though he’s not yet forthcoming with details.

By increasing margins in core businesses—while markets remain healthy— PSA has been able to transition resources to initiatives like autonomous vehicles. Even at our meeting in 2015, Tavares had his sights on autonomy. “We don’t know when it will become real at scale, but we know it will. We must be a leader.”

Ford Joins The Chase

Ford Motor’s Hackett is on a similar path. While Ford’s pruning of management offers higher margins for the core business, it accompanies efforts to decrease bureaucracy and accelerate decisions. Like PSA, they’re shifting attention from market share to profitability and investing aggressively for the future.

Earlier in 2019, Hackett explained that while his predecessor, Alan Mulally, navigated impressively through the Great Recession, Ford remained focused on its traditional automotive businesses. From 2011 – 2018, costs increased more rapidly than revenues. Investments for the future of mobility lagged rivals.

Through dramatic marketplace change, only significant commitments of resources and attention will suffice. Hackett noted in a March 8 memo to employees, “Transformation starts with the realization that… we don’t have a right to the future. We have to earn it.”

Meanwhile, Sears Fails To Earn A Future

Eddie Lampert is no fool. While early on, Lampert might have believed a brilliant hedge fund manager could run a retail giant, he must have learned otherwise. Examining the past decade, his strategy appears to have shifted from resurrecting the company to harvesting whatever he could from the assets while slowly winding down the company.

In addition to mass stores closings, the sale of crown jewels such as Craftsman Tools (now owned by Stanley Black & Decker) and unsuccessful attempts to sell the now-moribund Kenmore appliance brand, Sears has been its own worst innovation enemy. I’ve had a few friends and former students who have led innovative projects at Sears, particularly in digital initiatives. They’ve all left the company for better opportunities, their projects cancelled.

It could be that Sears leadership honestly tried to operate the company for the future, but just made a horrible mess of it. The evidence, though, suggests a more insidious path.

If your strategy is to harvest to death, you cannot let the public know about it. You must appear to operate the business for success, while extracting and disposing behind the scenes. Consumers, suppliers and shareowners aren’t going to be supportive if it’s obvious your plan is corporate euthanasia.

This path does not require malfeasance of ownership or management, but it might encourage it. Sears Holdings Corp’s suit against its long-time Chairman Lampert, his hedge fund ESL and others alleges behaviors consistent with the plan to act like an operator while dismantling the business for short-term gain. It is unclear whether the allegations are true—or even if Lampert and ESL will ever recover their investments. It is abundantly clear that Lampert has led a once-venerable company to a tragic end.

Sears Holdings navigates its denouement after years of exploiting assets built over decades. Meanwhile, Ford and PSA make tough choices necessary to—possibly– prosper long term. Both are strategies. One includes a future.

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