Persistence, Productivity and Pay

One of the first official visits paid by Hans Klemm, the newly appointed US-Ambassador to Romania, was to the Ford plant in Craiova.

The US car manufacturer is considering a new investment in Romania that could considerably increase the current output. For US-Ambassador Klemm, the visit in Craiova has had a particular note – his father had been a process engineer with Ford for 36 years.

The former employer of Mr Klemm Sr. has a interesting history that started 120 years ago. But even when you start your business today, it’s a wise choice to adapt some principles of company-founder Henry Ford.

You could call it the ‘PPP’-principle for ‘Persistence, Productivity, Pay’.

Henry Ford was born 1863 on a farm west of Detroit in the US state of Michigan. After leaving home at the age of 16, he worked as a machinist and learned about fabrication processes. In 1891, he was hired as an engineer at Edison Illuminating and was promoted to chief engineer. In his free time, he started building prototype internal combustion engines and testing them. In 1896, he built his first full vehicle, the ‘Quadricycle’.

Failure Nr. 1
This convinced him that there was a future in automobiles. He left his engineering job to start the ‘Detroit Automobile Company’. Ford was an outstanding engineer, focused heavily on the mechanics of the car, but completely ignored the idea of marketing his invention resulting in poor sales. Ford’s first product failed to capture the public attention, and Ford was forced to file for bankruptcy.

Failure Nr. 2
But this first failure did not deter him from continuing with his passion. Ford relaunched his company a few years later under the name ‘Henry Ford Company’. This time he failed to properly brand and market his vehicles which spelled financial disaster. The public did not understand Ford’s invention and his sales tanked. Unable to pay his debts, Henry Ford filed for bankruptcy a second time.

Third Time’s a Charm
Ford saw bankruptcy as a way to start over and approach his goals in a more intelligent fashion, so in 1903 he relaunched his company a third time, this time calling it the ‘Ford Motor Company’ and his persistence finally paid off.

‘I will build a motorcar for the great multitude,’ he proclaimed. Such a notion was revolutionary. Until then the automobile had been a status symbol painstakingly manufactured by craftsmen. But Ford set out to make the car a commodity. ‘Just like one match is like another match when it comes from the match factory,’ he said.

To achieve his goal, that ‘everybody will be able to afford a car and about everybody will have one’, Ford began to implement factory automation. Experimentation would continue every single day for the next 17 years, under one of Ford’s maxims: “Everything can always be done better than it is being done.”

Ford and his efficiency experts examined every aspect of assembly and tested new methods to increase productivity. Henry Ford didn’t invent the assembly-line, but his principles made the automation-process highly successful:

• Place the tools and the men in the sequence of the operation so that each component part shall travel the least possible distance while in the process of finishing.

• Use work slides or some other form of carrier so that when a workman completes his operation, he drops the part always in the same place—which place must always be the most convenient place to his hand—and if possible have gravity carry the part to the next workman for his own.

In 1914, the 13’000 workers at Ford made 260’000 cars. By comparison, in the rest of the industry, it took 66’000 workers to make 285’000 machines.

Sacrifices & Salaries

Beside this progress in productivity – and ignoring conventional business wisdom – hardcore engineer Ford also sacrificed the profit margins. He slashed car prices and the ‘profits per car’ did fall from 220 USD in 1909 to 99 USD in 1914.

When the ‘Model T’ came down to 575 USD, the pricetag was for the first time lower than the average annual wage in the US. Car ownership became a reality for average workers, not just the wealthy. And the sales exploded, rising to 250’000. Ford demonstrated that a strategic, systematic lowering of prices could boost profits, as net income rose from 3 million USD in 1909 to 25 million USD in 1914.

Don’t confuse Henry Ford with Mother Teresa, he was a tough, stubborn boss, sometimes he acted like a dictator and had many issues with the workforce. But Ford early recognized the value of his workers.

In a time, all other industrialists paid workers as little as they could, and not one penny more (hello, Romania), Ford not only raised, but doubled (!) the salaries of his employees by paying 5 USD a day and reduced the daily work-shift from 9 to 8 hours.

No wonder, the media and the other businessmen regarded this step as a recipe for disaster or at least on bankrupting his company. The Wall Street Journal warned: ‘Ford may have been seeking a place in heaven, but this action would more likely consign him to hell.’

But Ford was no ‘socialist’ set out to redistribute wealth. First, the ‘5-dollar-day’ was not simply a pay raise scheme about half of the money was profit-sharing, based on employees performance.

Ford’s primary aim was to create a loyal and stable workforce so that he could make full use of the moving assembly line, introduced a year earlier. To run the factory around the clock instead of the present 18 hours, Ford switched from two 9-hour-shifts to three shifts of 8 hours each.

‘When you pay men well you can talk to them,” he said. Recognizing the human element in mass production, Ford knew that retaining more employees would lower costs, and that a happier work force would inevitably lead to greater productivity.

The numbers bore him out. Between 1914 and 1916, the company’s profits doubled from 30 million USD to 60 million USD.
‘The payment of five dollars a day for an eight-hour day was one of the finest cost-cutting moves we ever made’ he later said.

PPP – ‘Persistence’, ‘Productivity’ and a decent ‘Payment’ – Henry Ford’s principles of business are over 100 years old but – particular in the Romania of today – still indispensible for business success.

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Henry Ford with a ‘Model T’ in Buffalo, 1921

US-Ambassador Hans Klemm visiting the Ford plant in Craiova, 2015

His visit at Ford made the headlines

Next chapter: http://www.theleader.ro/the-secret-king-of-money-power/