How Apple, Ford, Boeing, and others made radical decisions that changed the course of business.
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 counterintuitive — they go against the conventional wisdom. In hindsight, taking a different direction may seem easy, but these bet-the-company moves involve drama, doubt, and 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 groundbreaking decisions have shaped the thinking of today’s top leaders.
1914: Henry Ford decides to double his workers’ wages
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 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 them.
Acting on the advice of his devoted lieutenant, James Couzens, Ford decided to take radical action. On Jan. 5, 1914, Ford and 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 nine hours to eight. 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 southeast Michigan. “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.”
–Alex Taylor III
1997: Apple brings back Steve Jobs
Lesson learned: Sometimes boards are too quick to jettison a founder in favor of professional management. But for all a company might gain from bringing in a pro, it risks losing the magic and entrepreneurial vigor that only a founder can bring.
History often applies a gauzy layer of film to great decisions. Take the action by the Apple board of directors to bring back Steve Jobs to the company he had co-founded 20 years earlier.
It is impossible to overstate just how rotten a state of affairs Apple found itself in during its 20th year of existence. In 1996, Apple lost $816 million on $9.8 billion in sales. Then-CEO Gil Amelio convinced the board that Apple needed to purchase a software company to gain the intellectual property and talent to replace Apple’s aging operating-system software. The company soon bought NeXT, whose founder was none other than Jobs. Amelio understood the value of NeXT’s software and the effect on morale, product vision, and creativity that could come from persuading Jobs to rejoin Apple. Amelio should have been wary of Jobs. He had met with him in 1994 when Amelio joined the Apple board, and Jobs asked for Amelio’s help in having himself named Apple’s CEO. Shortly after the acquisition, Jobs became an “informal adviser” to his former company and began roaming its halls as if he were the boss.
Apple’s newest board member, former DuPont CEO Edgar Woolard, became alarmed about Amelio. He discussed Amelio with Jobs and senior executives at Apple. At the time Apple was in a continual downsizing mode, and Woolard was worried about the company’s ability to achieve its plan and about employee morale.
In July 1997, after consulting with Jobs, Woolard spearheaded the decision by the board to fire Amelio. While Woolard had no reason to be sure that Jobs would step in as CEO, he must have sensed that the organization was starting to follow the young man’s lead. By firing Amelio, Woolard had made a decision that eventually helped Jobs regain power at the company. In a sense, what he decided to do — perhaps all he could do at that point — was remove any obstacles to Jobs’ return.
1993: A radical approach to downsizing
Lesson learned: Tata Steel’s CEO made a decision that led to a novel and humane approach to layoffs that today’s leaders should heed. It boosted employee morale while saving money.
When J.J. Irani walked into his regular quarterly meeting with the shop stewards at the steel plant he managed, he knew this meeting would not be regular. He would be discussing very bad news, news that no one in the room had ever heard before.
This was the sprawling, rusting, smoking, antiquated Tata Steel plant in Jamshedpur, India. The news was that some employees were going to lose their jobs. It was unbelievable. No one ever lost his job at Tata Steel. It existed to give people jobs. Once you worked there, your job was guaranteed, and after 25 years you were guaranteed that your son or daughter could also work there.
The company responded with an uncommon solution, one that in fact seemed crazy — irrational on its face. When an Indian industrialist heard about it, he sent Irani a note: “You either have too much money or not enough brains.”
Yet Irani’s solution has proved to be one of the wisest decisions in the whole realm of employee relations and corporate culture. And it was startlingly generous. Workers under age 40 would be guaranteed their full salary for the rest of their working lives. Older workers would be guaranteed an amount greater than their salary, from 20% to 50% greater depending on their age. If they died before reaching retirement age, their families would keep receiving the full payments until the worker would have reached that age. The program wasn’t as economically crazy as it first appeared. While workers who took the offer would get their full salaries or more, that amount would stay constant until age 61 instead of increasing, as it would if they remained employed; nor would Tata Steel have to pay payroll tax or make retirement-plan contributions. Tata Steel’s labor costs began to decline immediately. By 2004, Tata Steel’s workforce had shrunk from 78,000 to 47,000, with about a third of the reduction from natural attrition. Lower labor costs, combined with over $1 billion of new investment, turned Tata Steel into a far more efficient, globally competitive firm.
1991: How Intel got consumers to love its chips
Lesson learned: By deciding to brand its product “Intel Inside,” the chipmaker proved that an anonymous ingredient of a consumer product might achieve its own identity and provide a competitive edge.
A PC is made of various components: the power unit, keyboard, mouse, hard disk, and — the brains of the operation — the microprocessor. Way back when, users of a Compaq no more knew who had supplied those ingredients than a Chevy owner knew who had made the radiator under the hood.
Intel changed all that in 1991. Until then, the high-tech marketing landscape had pretty much consisted of Apple’s rainbow logo and IBM’s Little Tramp. But if a small blue Chiquita sticker could turn a banana into a marketing icon, then why not an Intel Inside logo on a computer?
The genesis for Intel Inside came from inside the cubicle of CEO Andy Grove. His young technical assistant, Dennis Carter — who had two engineering degrees and a Harvard MBA — understood that the company faced challenges in the maturing microprocessor market. The surprising cause: the very success of the microprocessor. Because of Moore’s law — which holds that the number of transistors on a chip roughly double every 18 to 24 months — Intel and other chipmakers were able to quickly make obsolete each generation of chip. So Intel’s 16-bit microprocessor — called the 286 — was replaced within three years by the 386, a 32-bit one.
Trouble was, nobody was buying it; everybody was still wedded to the 286 chip, although the 386 was a much better product. Carter wondered whether the problem was that end users weren’t aware of the product differences. Grove had his doubts, but in early 1989 he agreed to a $500,000 test, telling Carter, “You believe it — you go do it.” Intel took out billboard ads in Denver with a big, bold “286” inside a circle and a large red “X” spray-painted over the 286. After a couple of weeks, another sign went up next to it: a “386” inside a circle. The message was clear, and those buying PCs got it: Sales of computers with Intel’s 386 microprocessor shot up. It was a major moment: Carter had shifted power in the chip industry from the PC makers to a key supplier.
Ultimately Carter became head of marketing, his reward for demonstrating that an anonymous ingredient of a larger consumer product might achieve its own identity.
–David A. Kaplan
1952: Boeing bets big on the 707
Lesson learned: When CEO Bill Allen decided to launch the 707, he had no orders in hand. He simply believed customers would buy. It takes courage to wager a company’s future on a vision.
Here’s a shocker to even the casual student of aviation history under the age of, say, 75. At the dawn of the Jet Age, Boeing, one of today’s dominant makers of commercial aircraft, was a nonentity in the business of building planes for airlines. That’s right. In the years following World War II, when U.S. industry was retooling for civilian production, Boeing was primarily a maker of military aircraft. Its famous B-52 bomber and a companion tanker had proved that the Seattle company had the right stuff when it came to jet aircraft technology. But for the airlines, jets weren’t commercially viable: Converting to jet technology would require a massive investment that could pockmark their bottom line.
The safe choice for Boeing would have been to stick to its defense-industry knitting. That, however, wasn’t the plan of Boeing’s postwar president, William McPherson Allen, who made a prototypical great decision, a bet-the-company move on civil aviation in the form of a single product. He was convinced that consumers would cotton to the speed, convenience, and comfort of jet travel and that the real growth would be in the civilian sector of the booming global economy. Allen was so sure of his conviction that he was willing to risk Boeing’s financial future on it.
In 1952 he persuaded the Boeing board of directors to invest $16 million in what would become the Boeing 707, the first U.S. transatlantic commercial jetliner and the plane that would alter the course of Boeing’s history. The 707 grew to become as much a cultural icon as a transportation vehicle. The swimwear company Jantzen called its swimsuit line the 707. Every U.S. President from Dwight D. Eisenhower to George H.W. Bush flew on an Air Force One that was a modified version of a 707.
All told, Boeing invested $185 million in the 707. According to a 1957 article in Fortune, that was $36 million more than Boeing’s net worth the previous year. It was just one plane, but it remade a company, an industry, and the very culture of its time.
Johnson & Johnson
1982: Do the right thing
When J&J learned that bottles of its Tylenol being sold in Chicago had been laced with cyanide and had left seven dead, CEO James Burke pulled off the shelves every bottle of the painkiller nationally and designed a tamper-proof bottle — all at a cost of $100 million. He lived by the credo that a leader’s first responsibility was to J&J’s customers.
–Timothy K. Smith
1993: It pays to goof off
Samsung had a problem. Its culture was too inward-looking. Then Lee Kun-Hee, chairman of the South Korean electronics giant, sent a handful of his brightest young employees to faraway corners of the globe — not to work, but to immerse themselves in the culture, learn the language, and build networks so that someday Samsung would profit.
This article is adapted from The Greatest Business Decisions of All Time, by Verne Harnish, CEO of Gazelles, and the editors of Fortune, with a foreword by Jim Collins. fortune.com/greatestdecisions