In the late 1990’s and early 2000’s several accidents were reported of Ford Explorers equipped with Firestone tires rolling over as a consequence of tires’ failures. By the end of 2000 the death toll was estimated at more than 250, and some 3,000 incidents had been associated with “defective” Firestone tires mounted on Ford Explorers. These problems were frequently encountered in Saudi Arabia and Venezuela but also occurred in mid-western US. The US reports triggered a crisis for the two companies.
The magnitude and complexity of the problem was such that neither Ford nor Firestone could provide an acceptable explanation. Both companies denied responsibility and did not react as customers might have expected but instead chose to blame each other. The approach taken by Ford and Firestone to the management of the crisis not only severely damaged their century-old relationship but also enabled other parties to exploit this opportunity for commercial gain. Consequences included destroying both companies’ bottom-line and, of course, damage to brand reputation.
Biggemann and Buttle analyzed the episode using Rules Theory. This models the episode and the companies’ interactions as if the parties were applying sets of rules. There are two types of rule account for their interaction, rules of meaning and rules of action. Rules of meaning enable each party to make sense of the other’s acts and rules of action guide each company’s response based on the meaning given to the other’s previous act, as well as on previous experiences and future expectations.
Rules Theory recognizes that both Ford and Firestone are embedded in extended networks, which both influence and are influenced by this episode. In this report with the assistance of the study of the Ford–Firestone crisis by Biggemann and Buttle, the business-to-business dyadic relationship before the rollover incidents is portrayed first. Then the network setting by identifying additional parties that became involved is represented, and finally the parties’ acts as if rules of meaning and action were guiding interaction throughout the evolution of the episode are analyzed.
THE FORD – FIRESTONE TIRE CRISIS INTRODUCTION Companies in business-to-business markets interact with one another. The outcome of such interaction is inter-company relationships, relationships that are deemed crucial for business success. Each time a company acts, it potentially affects those with which it has relationships. From a network perspective it goes even further, such acts are thought to have effect even on those companies not directly linked because of the involvement that characterizes the extended networks in which companies operate.
Continuous exchanges of acts over time serve as learning devices through which companies develop shared understanding of what is permitted and what is not. Norms, develop ties that keep the parties connected. Bonds, build up the belief that the other has the capabilities to perform the task while looking after the interests of both parties. Trust, whilst increasing the parties’ desire to keep working together in a manner such that both contribute to and benefit from the relationship commitment.
These features of relationships are potentially changed for better or worse each time either party performs an act. Likewise changes in one relationship also affect others in the extended network and potentially change the party’s network position. Long-term relationships, it is believed, are more likely to overcome problems. However, there can be occasions in which changes in the environment or external incidents motivate the parties to behave in unusual ways, thereby diminishing the value of relationships as if the only thing that counts is independent survival.
Such occasions, in an entangled network setting bring to the scene new players, whose only contribution may only be to make the situation even more confusing. The study of the “Ford – Firestone Tire Crisis” is to understand how companies can act and re-act in complex, threatening situations and how such acts might lead not only to unexpected but also highly undesirable outcomes. Using Rules Theory represents the study of changes in the network position of both companies as well as changes that occurred to their relationship and the network context in which they operate.
THE CASE AT A GLANCE
Ford Motor Company and its close ally Firestone Tires faced a serious crisis when many Ford Explorers equipped with Firestone AT/ATX tires rolled over as a consequence of tire failures. In 1999 the first fatalities occurred in Saudi Arabia and not much later similar accidents were reported in Venezuela. Ford immediately reacted by blaming the weather and vehicle owners for under-inflating their tires.
However, Ford also began replacing tires. It was not until March 2000 when a Ford Explorer rollover in Texas USA left one of the car occupants brain-damaged and paraplegic that the American authorities intervened, triggering a massive tire recall and a lawsuit brought by the victim’s family.
The case was settled out of court in January 2001, but by that time many more cases and deaths were reported and therefore neither Ford nor Firestone could continue blaming the weather or car owners. They, instead, were blaming each other. BACKGROUND The Ford-Firestone business relationship has endured more than a century; Henry Ford bought tires from Harvey Firestone in 1896, even before either company was formed.
From then onwards Firestone has met 50% or more of Ford’s original equipment tire requirements. The companies started up a joint research initiative for rubber production in Brazil. The relationship had also an important emotional dimension. Waddell mentions that the only person Ford trusted and respected more than Harvey Firestone was Thomas Edison. In addition, Ford’s grandson married Firestone’s granddaughter in 1947 adding deeper affective links to an already important commercial relationship.
Drawing on published typologies of business relationships, the pre-crisis Ford–Firestone relationship could be portrayed as an ideal relationship, enabled by trust developed over the long-term and characterized by high levels of goodwill-trust. Other features of the relationship to stress are reduced social and cultural distance, strong social bonds, not only built up by the founders’ friendship but also by their family ties, as well as commitment, shared values and willingness to communicate.
All these are linked to relationship satisfaction and long-term relationship orientation (Geyskens, Steenkamp, & Kumar, 1998). Such a relationship might have provided enough cushions to withstand virtually any crisis.
However on May 21st 2001, less than 15 months after the first incident in the US, Firestone announced the termination of the 95 years old relationship. However, the termination effectively never occurred and nowadays Ford and Firestone continue to transact as if nothing had happened.
The relationship was completely reconfigured not only as a consequence of the acts of the companies but also of members of the extended network. Likewise, the episode as well as the parties’ acts affected others in the network and somehow redefined the whole industrial sector rules of the game. Figure 1. Network Setting of Ford-Firestone Crisis RULES THEORY Rules Theory draws on Pearce and Cronen’s (1980) theory called “The Coordinated Management of Meaning”.
Rules Theory adopts a social constructionist perspective providing an analytical framework that can be used for making sense of business-to- business relationship structure and dynamics. Just as Pearce and Cronen asserted that persons in conversation co-construct their social realities, Rules Theory posits that inter-company interaction co-constructs business relationships, which are potentially reshaped each time one party does something to the other. This something is called an act.
Rules Theory provides the external viewer with an analytical tool to understand and explain inter-company interaction as if they were applying sets of rules that guide behavior; rules of meaning and action. Rules of meaning are called constitutive rules and rules of action are called regulative rules. The meaning given to an act and any subsequent re-action are context dependent. Thus, when Company A acts towards Company B, the constitutive rule applied by Company B can be expressed as follows: in the context of (socially-constructed context of performance), Company A’s act counts as X (meaning given to the act).
Company B’s reaction is guided by a regulative rule, which Equation 1. Primitive Form of Constitutive Rule can be expressed as follows: in the context of (socially-constructed context of performance) if Company A did X, it is (obligatory, legitimate, irrelevant or prohibited) to do Y. The four terms – obligatory, legitimate, irrelevant and prohibited – denote degrees of oughtness in Company B’s subsequent act. Constitutive rules describe how sensory inputs count as meanings and how meaning at one level of context counts as meaning at another level. Regulative rules guide action.
Regulative rules describe the process by which particular acts are felt appropriate and guide action. Constitutive and regulative rules can be represented using logical algebra symbology developed by Brown and Varela. The primitive forms of constitutive and regulative rules are illustrated in figures 2 and 3. Both meaning and entailed action are context dependent and therefore subject to change depending on the level of context in which the acts are performed. LEVELS OF CONTEXT Levels of context are the dynamic socially constructed realities that guide the attribution of meaning and subsequent response.
The contexts emerge from the interaction of actors across multiple events between two or more companies embedded in multiple interacting systems. It is expected that multiple levels of context may exist, and therefore any act is capable of being interpreted in more than one way.
In Rules Theory terms, levels of context are hierarchically ordered mutually independent frames of reference. The number and nature of these embedded levels of context depends on the nature of the interaction. Furthermore, levels of context only exist while parties are in interaction. Equation 2.
Primitive Form of a Regulative Rule Figure 2. Levels of Context For this case analysis, three different levels of context are identified; 1, the Episode (The History of Tire Failures); 2, The Ford-Firestone Relationship; 3, the Car Industry; as illustrated in Figure 4. Each one of these levels of context can be activated during an actor’s attribution of meaning or action. Further, they are potentially reshaped as the parties exchange acts. Episode of Tire Failures. Episodes are groups of acts contextualized hierarchically and temporally as wholes, which are at least nameable by subject matter.
Episodes are bounded sequences of acts, with a beginning, an internal structure, and an end. An Ford -episode is a sequence of interactions that form a unit. Ford-Firestone Relationship. Relationships are norms of behavior constructed in interaction, composed of a set of episodes connecting two or more actors over time. Business-to-business relationships can be characterized by application of a contemporary taxonomy of relationship attributes, employing constructs such as trust, commitment, bonds, distance, and information sharing, among others.
The Car Industry (Industrial Sector). For business relationships, Industrial Sector is the highest level of context. This context can be thought of as being defined by a set of acceptable and unacceptable practices (norms), which guide the actions of a group of companies in a defined industrial sector. It transcends the boundaries of any single organization and regulates its operations. Some norms are explicit, like the laws and regulations, at local or international level and some norms are implicit like a generally accepted practice among entrepreneurial groups.
THE FORD-FIRESTONE CRISIS FACTS The manner in which the relationship between Ford and Firestone changed as a result of the tire failure episode is analyzed in this section, as well as of other parties’ acts within their extended network. At the beginning, the parties’ reactions to tire failures were as customary in the car industry whenever a faulty part was installed in cars; the car manufacturer took full responsibility, reclaimed and replaced defective parts with no involvement of, or report to, the supplier.
When in 1999 the first problems were reported after 14 deaths occurred in Saudi Arabia, Firestone was alerted as Ford commenced replacement of the tires through a product recall. However, not long after Ford’s recall commenced, Firestone started its own tire recall beginning with 6. 5 million tires and later adding a further 1. 4 million tires. Contemporary to these initial recalls, a Ford Explorer accident Texas USA left a mother of three children brain damaged and paralyzed, triggering the intervention of the NHTSA and other American authorities.
Ford and Firestone were sued together for this incident. However, Ford settled out of court agreeing to pay $6 million, thus leaving Firestone as the sole defendant in the trial. As the death toll continued to rise, the companies confronted more legal action while sales of Ford Explorers dramatically dropped. Ford requested that Firestone withdraw Venezuelan-made tires from the market arguing those tires had one layer less and therefore did not satisfy regulations. Ford continued its own tire recall stressing that the new tires were Goodyear, not Firestone.
By December 2000, Firestone was blaming Ford for being “at least partially responsible”, though Ford was doing nothing to accept any responsibility. Soon after, on May 21st 2001, John Lampe, Firestone’s CEO, officially terminated the almost century-old relationship with Ford. Firestone argued that Ford Explorer had more accidents than other SUVs also mounted with Firestone tires whereas Ford insisted that Firestone tires presented ten times more failures than other brands. Blaming each other did not change the consequences; estimated costs were $3.
5 billion for Ford and a predicted total of $10 billion combined for both companies. Ford’s board of directors announced in October 2001 the company’s decision to remove CEO Jacques Nasser and replace him with William Clay Ford Jr. , the great-grandson of both Henry Ford and Harvey Firestone. In 2002, the situation started to cool down as communications between Ford and Firestone began to flow to the extent that William Clay Ford Jr. even mentioned being the great-grandson of Harvey Firestone in a Ford commercial. This act was welcomed by Firestone’s John Lampe as a demonstration of Ford’s honesty.
THE DYNAMICS OF THE FORD-FIRESTONE RELATIONSHIP Rules Theory can be used to analyze how the Ford-Firestone relationship evolved as the parties interacted during the crisis. The initial problems to which Ford reacted as customary by initiating a tire recall will be at first. This action will be described from Ford’s perspective. The diagram can be read as follows. The constitutive rule (cR1) applied by Ford is: in the context of the Relationship with Firestone and in the context of the Car Industry, if tires installed in some Ford Explorers fail, this counts as a normal quality problem.
The regulative rule (rR1) applied by Ford is: if normal quality problems are occurring with our cars, it is legitimate to recall the product in order to avoid further problems. Ford was fulfilling the norms of the industry, as it is customary for manufacturers facing this type of problem. The Ford-Firestone relationship might not have improved but clearly had not deteriorated at that stage. However, the problem proved to be far more complex when after a number of cases were reported in the US the NHTSA intervened ordering an investigation, while Ford and Firestone were involved in a court case. This diagram can be read as follows.
The constitutive rule (cR2) is: in the context of the Ford-Firestone Relationship and in the context of the Car Industry, if the tire problem becomes domestic, i. e. involves American customers, then companies face both legal problems and the intervention of the NHTSA, this counts as a serious problem. The associated regulative rule (rR2) is: if the problem turns serious, then it is obligatory to act together in order to demonstrate unity. Thus, Ford and Firestone defended the lawsuit together, once again following the expected norms of behavior in their Industrial Sector and within the established norms of their long-term relationship.
Unexpectedly, Ford announced they had settled its part of the lawsuit, leaving Firestone on their own. To note at this point that the tire crisis had gained such importance that it had become more important than the inter-company relationship, and arguably more important than the norms of the car industry. Effectively, the Episode became the most significant context guiding meaning and action between Ford and Firestone, changing the hierarchical structure from that portrayed in figure 4. Thus, the Episode became the dominant context of interaction. The diagram above reads as follows.
From Firestone’s perspective the constitutive rule (cR3) is: in the context of the Tire Crisis, if Ford and Firestone are facing a joint court case and Ford settles out-of-court, this counts as them looking after their own interests. The associated regulative rule (rR3) is: if Ford looks after its own interests, then it is legitimate for us to find our own solutions, in order to look after our interests too. This interaction appears to have damaged important features of the Ford-Firestone relationship like trust-benevolence and attitudinal as well as the performance elements of commitment.
Under these new circumstances both companies started to blame each other with no regard to their relationship. The diagram reads as follows. From Firestone’s perspective, the constitutive rule (cR4) is: in the context of the Tire Crisis, if the problem reaches critical levels of significance and Ford blames Firestone for the problems, this counts as destroying the relationship. The associated regulative rule (rR4) is: if the relationship value is destroyed then it is legitimate to blame Ford in order to protect our company. At this stage both companies are acting independently.
Almost 100 years of joint business counted for nothing in the face of the enormous financial and reputational consequences of the problem. The boat was sinking. Ford announced their decision to replace the faulty tire with Goodyear product forcing Firestone to terminate the relationship. The diagram can be read as follows. From Firestone’s perspective, the constitutive rule (cR5) is: in the context of the Tire Crisis, if the boat is sinking, and Ford announces they will be replacing our tires with a major competitor’s tires, this counts as a betrayal.
The associated regulative rule (rR5) is: if we were betrayed, then it is obligatory to terminate the relationship in order to save us from catastrophe. CONCLUSION Using Rules Theory helps to portray how the social reality of business relationships is dynamically constructed through interaction. Holmlund proposes that business interaction configures meaningful categories on different hierarchical levels. Sequences of acts build the context for interpretation, which in turn supplies the meaning that guides action.
Thus, each time interaction takes place, the level of context in which such interaction has been performed is potentially reshaped. Then, dynamic interaction emerges. This involves: evaluating and giving meaning to the other’s act and enacting a response. Meaning and response – each of these can affect the interpretations of relationships over time. The Ford – Firestone crisis changed the shared norms of behavior within the car industry to the extent that new episodes related to defective parts’ recalls are immediately connected to this episode.
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