The Greatest Business Decisions #1

from Fortune Magazine 2012, enhanced by Peter/CXO Wiz4.biz 4/13

Once in a great while a leader makes a truly game-changing decision that shifts not only the strategy of a single company but how everyone does business as well. These big decisions are counter-intuitive — they go against the conventional wisdom. In hindsight, taking a different direction may seem easy, but these “bet-the-company” moves involve drama, doubt, & high tension. What made Apple’s board bring back Steve Jobs to the company? What motivated Henry Ford to double the wages of his autoworkers, and how did that change the American economy for the next century? Why did Intel decide to spend millions to brand a microchip? The following stories, adapted from the new book “The Greatest Business Decisions of All Time”, provide the background to these pivotal moments. You’ll learn how these ground-breaking decisions have shaped the thinking of today’s top leaders.

#1. Henry Ford decides to double his workers’ wages 1914
Lesson Learned: With their pay doubled, Ford’s autoworkers could now afford the very products they were producing. This triggered a consumer revolution that helped create the wealthiest nation on earth.
Henry Ford had a problem. He was becoming too successful. The growing popularity of the Model T was causing him to rethink his ideas about mass production. He had introduced the moving assembly line at his Highland Park, Mich., plant in 1913, and it had worked far better than he could have imagined. The year before the assembly line was installed, he had doubled production of the Model T by doubling the size of his workforce. The following year he nearly doubled production again, but this time he did it with the same number of workers. The assembly line had made the plant so efficient that the Highland Park payroll actually fell.

The trouble was, employee turnover was accelerating at an alarming rate. The dispiriting, mind-numbing work on the Assembly Line was causing workers to quit en masse. The men (and it was all men back then) reacted to their narrowly defined, repetitive, and physically demanding jobs by leaving the jobs. Acting on the advice of his devoted lieutenant, James Couzens, Ford decided to take radical action. On Jan. 5, 1914, Ford & Couzens summoned newspaper reporters to the plant to publicize changes in employment policies at Highland Park that they hoped would improve employee retention. First, the company would reduce the workday from 9 hours to 8. Second, it was moving to three shifts a day instead of two, opening up lots of new jobs. But the big news came in the third announcement: Subject to certain conditions, Ford would more than double the basic rate of pay to $5 a day. The 11-year-old company was willing to spend an additional $10 million annually to improve productivity and the lives of its workers.

The news spread quickly beyond the Detroit, Michigan area. “A magnificent act of generosity,” declared the New York Evening Post. But the Five-Dollar Day turned out to be an excellent investment. Within a year . . .
– annual Labor turnover fell from 370% to 16%;
– Productivity was up 40% to 70%.
Between 1910 and 1919, Henry Ford reduced the Model T’s price from around $800 to $350, solidified his position as the world’s greatest automaker, and made himself a billionaire.

And by raising wages he expanded the overall market for the Model T. As Ford said to reporters that January: “We believe in making 20,000 men prosperous and contented rather than follow the plan of making a few slave drivers in our establishment millionaires.”

Comments: What do you think of this gutsy, radical idea?

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