Article (October-2020)

Articles

The Firestone Story

Praveen Sinha

Designation : -   Ex Head - HR Centre of Excellence

Organization : -  Corporate HR, Escorts Ltd., Co-founder People n Planet For a, Faridabad

01-Oct-2020

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To look at the history of tires I picked up the story of Firestone, which was founded by Harvey Firestone. Interestingly, this company was acquired by Bridgestone of Japan in 1988.

The data in archives of rubber and tire industry tell us that the American trucking industry was born through Akron's rubber capital of the world when the four major tire companies, namely, Goodrich Corporation (1869), Goodyear Tire and Rubber Company (1898), Firestone Tire and Rubber Company (1900), and General Tire (1915) were headquartered in the city.

By the 1910s, Akron, Ohio was the fastest growing city in America, was able to attract thousands of people for good jobs in rubber and tire industry. Interestingly, by the time Goodyear was established in Akron in the 1890s, hundreds of rubber firms already called the city 'home of their choice' which impacted the economy and culture of the city.

During the first three decades of the twentieth century, the tire was the semiconductor of its day. Further, this sector was also a hotbed of technical innovation, which included setting up of dedicated research labs in the United States. In addition, between 1900 and 1923, as the data suggest, that more than 500 start-ups entered the tire industry. By 1926, Akron based companies produced nearly 60% of tires manufactured in the United States, making the city a hub of entrepreneurial wealth creation and perhaps, Akron city minted more than 120 or more millionaires.

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Donald Sull, Harvard professor had mentioned the following in his paper entitled "From Community of innovation to Community of Inertia: the rise and fall of the Akron tire cluster" about the Akron city which describes the changing face of tire industry in the US:

a) The tire makers were among the first American companies to set up dedicated research labs and this industry was recognized as the most research intensive in the country in 1920s (chemicals ranked first).

b) Sales of automobiles increased a thousand fold between 1920 and 1923.

c) The average life if tire increased dramatically from 500 miles in 1900 to 20000 miles in 1923.

d) Passenger tire shipments multiplied rapidly - from 2 million in 1910 to approx 60 million in 1925.

e) More than 500 companies entered the tire industry between 1900 and 1934 (saw World War I and beginning of World War II).

f) Between 1910 and 1920, Akron was the fastest growing city in the United States.

In the late 1960s, Firestone was perhaps the best managed company in its industry... and a preferred supplier to Ford. But when Michelin of France introduced the radial tire and shook up the US market, Firestone's historical success proved its own worst enemy... and the winning story of past turned into disappointment with the acquisition by Bridgestone of Japan in 1988.

Let us explore and look at what led to slowing down of Firestone wheels.

Although radials caused a sharp break with existing tire technology and gave a clear signal of change, Firestone managers continued to look at the new technology (radials) from their pre-existing strategic world-view. In other words, Firestone's reliance on managers' existing strategic frames and reliance on company's existing manufacturing processes proved counterproductive in a fast changing competitive environment.

It seems that resistance to change was quite embedded in Firestone managers - in the early 1970s, Firestone's top management team had spent almost their entire career with the company. The two third were Akron born and bred, and the rest one third, followed in their fathers' footsteps as Firestone executives... got job in the company as part of 'legacy'. It is not known, whether they had requisite qualifications and skills to hold the positions.

Someone had quoted - "Had the ghost of Harvey Firestone returned to Akron in the late 1960s, he would have found that little had changed since his death in 1938."

Firestone managers saw radials tire coming with the power to disrupt the existing market. No doubt, they responded fast and aggressively by introducing an incremental extension (known as belted-bias). It was practically, nowhere closer to the design and technology used in radials.

The company (Firestone) adopted an intense marketing strategy to convince the car manufacturers that their new product (belted-bias) is an alternative to radials. Initially Firestone gained market share based on aggressive advertising that promised outstanding performance… but it was short lived. The sales of the new designed tire deflated. The consumers realized that the new launch was actually no different than the old set of products… they started labeling this product as 'old wine in a new bottle'.

In 1972, Ford announced its intention to place radials on all the models over the following few years. General Motors, without losing time followed the suit. In a dramatic response to Ford's decision (since 1906, Firestone focused majorly on 'single customer' i.e. from the time they made their first sale to Ford), Firestone took a call to set up a new factory dedicated to radial production. And the real story was that the Firestone managers decided to 'leverage their existing manufacturing processes' with minor modifications to ramp up radials volume. But soon, the quality problem cropped up due to their 'short-cut culture' which resulted in a voluntary recall of about 9 million tires at a cost of $150 million…largest consumer recall in the history of United States to that time.

The story of Firestone has the following highlights:

Why leaders should take a world view? Any business expecting to survive beyond the next five years must ask itself a basic question: What is the nature and scope of the changes that are turning the world upside down? A serious deliberation on this question will certainly offer a broad-brush look at how the world within which business must operate is changing...

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The corporate story of Sony, Microsoft, Apple, Google, Tesla etc are known for their world view which worked so well for them.

Dann Finnigan, President & CEO, Jobvite recently mentioned that "No job lasts forever--particularly in today's volatile job market, where employees move onward and even CEOs walk away more frequently than ever."

The above statement is quite relevant when we examine this in context of the fact that in Firestone's top management team had spent almost their entire career with the company and one third, followed in their fathers' footsteps as Firestone executives…an impediment in making change in Firestone to respond to external changes and the onslaught of competitors like Michelin of Japan.

The downfall of Firestone also suggests that they relied largely on 'short cut culture' which did not serve at all their customers like Ford which was their single most important customer since they set up their business in Akron, Ohio.

Let us see the curve of short cuts and wins…never consistent will always have down fall where corporate image is tarnished and it takes a huge beating. This is time when wise competitors make the right move and turn the table.

On February 16, 1988, Bridgestone offered to buy a controlling interest in Firestone Tire & Rubber Co. for $1.25 billion. The announcement sent shock waves through the markets… Bridgestone took on world with Firestone acquisition.

The purpose of writing this article is twofold: firstly, to recall the story of tire industry which is almost forgotten…secondly, to draw some valuable business management lessons and also keep them as 'nuggets' of life!

References

Internet research

Write up of Donald Sull, Harvard professor

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Praveen Sinha - Ex Head - HR Centre of Excellence, Corporate HR,  Escorts Ltd., Co-founder People n Planet For a, Faridabad