During the week following the design review meeting Gary planned to make the first verification mix in order to establish final specifications for selection of the raw materials. Unfortunately, the manufacturing plans were a week behind schedule, primarily because of Gary, since he had decided to reduce costs by accepting the responsibility for developing the bill of materials himself.
A meeting was called by Gary to consider rescheduling of the mix.
Gary Anderson: "As you know we're about a week to ten days behind schedule. We'll have to reschedule the verification mix for late next week."
Production Manager: "Our resources are committed until a month from now. You can't expect to simply call a meeting and have everything reshuffled for the Blue Spider Program. We should have been notified earlier. Engineering has the responsibility for preparing the bill of materials. Why aren't they ready?"
Engineering Integration: "We were never asked to prepare the bill of materials. But I'm sure that we could get it out if we work our people overtime for the next two days."
Gary: "When can we remake the mix?"
Production Manager: "We have to redo at least 500 sheets of paper every time we reschedule mixes. Not only that, we have to reschedule people on all three shifts. If we are to reschedule your mix, it will have to be performed on overtime. That's going to increase your costs. If that's agreeable with you, we'll try it. But this will be the first and last time that production will bail you out. There are procedures that have to be followed."
Testing Engineer: "I've been coming to these meetings since we kicked off this program. I think I speak for the entire engineering division when I say that the role that the director of engineering is playing in this program is suppressing individuality among our highly competent personnel. In new projects, especially those involving R&D, our people are not apt to stick their necks out. Now our people are becoming ostriches. If they're impeded from contributing, even in their own slight way, then you'll probably lose them before the project gets completed. Right now I feel that I'm wasting my time here. All I need are minutes of the team meetings and I'll be happy. Then I won't have to come to these pretend meetings anymore."
The purpose of the verification mix was to make a full-scale production run of the material to verify that there would be no material property changes in scale-up from the small mixes made in the R&D laboratories. After testing, it became obvious that the wrong lots of raw materials were used in the production verification mix.
A meeting was called by Lord Industries for an explanation of why the mistake had occurred and what the alternatives were.
Lord: "Why did the problem occur?"
Gary: "Well, we had a problem with the bill of materials. The result was that the mix had to be made on overtime. And when you work people on overtime, you have to be willing to accept mistakes as being a way of life. The energy cycles of our people are slow during the overtime hours."
Lord: "The ultimate responsibility has to be with you, the program manager. We, at Lord, think that you're spending too much time doing and not enough time managing.
As the prime contractor, we have a hell of a lot more at stake than you do. From now on we want documented weekly technical interchange meetings and closer interaction by our quality control section with yours."
Gary: "These additional team meetings are going to tie up our key people. I can't spare people to prepare handouts for weekly meetings with your people."
Lord: "Team meetings are a management responsibility. If Parks does not want the Blue Spider Program, I'm sure we can find another subcontractor. All you (Gary) have to do is give up taking the material vendors to lunch and you'll have plenty of time for handout preparation."
Gary left the meeting feeling as though he had just gotten raked over the coals. For the next two months, Gary worked sixteen hours a day, almost every day. Gary did not want to burden his staff with the responsibility of the handouts, so he began preparing them himself. He could have hired additional staff, but with such a tight budget, and having to remake verification mix, cost overruns appeared inevitable.
As the end of the seventh month approached, Gary was feeling pressure from within Parks Corporation. The decision-making process appeared to be slowing down and Gary found it more and more difficult to motivate his people. In fact, the grapevine was referring to the Blue Spider Project as a loser, and some of his key people acted as though they were on a sinking ship.
By the time the eighth month rolled around, the budget had nearly been expended. Gary was tired of doing everything himself. "Perhaps I should have stayed an engineer," thought Gary. Elliot Grey and Gary Anderson had a meeting to see what could be salvaged. Grey agreed to get Gary additional corporate funding to complete the project. "But performance must be met, since there is a lot riding on the Blue Spider Project," asserted Grey. He called a team meeting to identify the program status.
Gary: "It's time to map out our strategy for the remainder of the program. Can engineering and production adhere to the schedule that I have laid out beforeyou?"
Team Member: Engineering: "This is the first time that I've seen this schedule. You can't expect me to make a decision in the next ten minutes and commit the resources of my department. We're getting a little unhappy being kept in the dark until the last minute. What happened to effective planning?"
Gary: "We still have effective planning. We must adhere to the original schedule, or at least try to adhere to it. This revised schedule will do that."
Team Member: Engineering: "Look, Gary! When a project gets in trouble it is usually the functional departments that come to the rescue. But if we're kept in the dark, then how can you expect us to come to your rescue? My boss wants to know, well in advance, every decision that you're contemplating with regard to our departmental resources. Right now, we ... "
Gary: "Granted, we may have had a communications problem. But now we're in trouble and have to unite forces. What is your impression as to whether your department can meet the new schedule?"
Team Member: Engineering: "When the Blue Spider Program first got in trouble, my boss exercised his authority to make all departmental decisions regarding the program himself. I'm just a puppet. I have to check with him on everything."
Team Member: Production: "I'm in the same boat, Gary. You know we're not happy having to reschedule our facilities and people. We went through this once before. I also have to check with my boss before giving you an answer about the new schedule."
The following week the verification mix was made. Testing proceeded according to the revised schedule, and it looked as though the total schedule milestones could be met, provided that specifications could be adhered to.
Because of the revised schedule, some of the testing had to be performed on holidays. Gary wasn't pleased with asking people to work on Sundays and holidays, but he had no choice, since the test matrix called for testing to be accomplished at specific times after end-of-mix.
A team meeting was called on Wednesday to resolve the problem of who would work on the holiday, which would occur on Friday, as well as staffing Saturday and Sunday. During the team meeting Gary became quite disappointed. Phil Rodgers, who had been Gary's test engineer since the project started, was assigned to a new project that the grapevine called Gable's new adventure. His replacement was a relatively new man, only eight months with the company. For an hour and a half, the team members argued about the little problems and continually avoided the major question, stating that they would first have to coordinate commitments with their bosses. It was obvious to Gary that his team members were afraid to make major decisions and therefore "ate up" a lot of time on trivial problems.
On the following day, Thursday, Gary went to see the department manager responsible for testing, in hopes that he could use Phil Rodgers this weekend.
Department Manager: "I have specific instructions from the boss (director of engineering) to use Phil Rodgers on the new project. You'll have to see the boss if you want him back."
Gary Anderson: "But we have testing that must be accomplished this weekend. Where's the new man you assigned yesterday?"
Department Manager: "Nobody told me you had testing scheduled for this weekend. Half of my department is already on an extended weekend vacation, including Phil Rodgers and the new man. How come I'm always the last to know when we have a problem?"
Gary Anderson: "The customer is flying down his best people to observe this weekend's tests. It's too late to change anything. You and I can do the testing."
Department Manager: "Not on your life. I'm staying as far away as possible from the Blue Spider Project. I'll get you someone, but it won't be me. That's for sure!"
The weekend's testing went according to schedule. The raw data were made available to the customer under the stipulation that the final company position would be announced at the end of the next month, after the functional departments had a chance to analyze it.
Final testing was completed during the second week of the ninth month. The initial results looked excellent. The materials were within contract specifications, and although they were new, both Gary and Lord's management felt that there would be little difficulty in convincing the Army that this was the way to go. Henry Gable visited Gary and congratulated him on a job well done.
All that now remained was the making of four additional full-scale verification mixes in order to determine how much deviation there would be in material properties between full-sized production-run mixes. Gary tried to get the customer to concur (as part of the original trade-off analysis) that two of the four production runs could be deleted. Lord's management refused, insisting that contractual requirements must be met at the expense of the contractor.
The following week, Elliot Grey called Gary in for an emergency meeting concerning expenditures to date.
Elliot Grey: "Gary, I just received a copy of the financial planning report for last quarter in which you stated that both the cost and performance of the Blue Spider Project were 75 percent complete. I don't think you realize what you've done. The target profit on the program was $200,000. Your memo authorized the vice president and general manager to book 75 percent of that, or $150,000, for corporate profit spending for stockholders. I was planning on using all $200,000 together with the additional $300,000 I personally requested from corporate headquarters to bail you out. Now I have to go back to the vice president and general manager and tell them that we've made a mistake and that we'll need an additional $150,000."
Gary Anderson: "Perhaps I should go with you and explain my error. Obviously, I take all responsibility."
Elliot Grey: "No, Gary. It's our error, not yours. I really don't think you want to be around the general manager when he sees red at the bottom of the page. It takes an act of God to get money back once corporate books it as profit. Perhaps you should reconsider project engineering as a career instead of program management. Your performance hasn't exactly been sparkling, you know."
Gary returned to his office quite disappointed. No matter how hard he worked, the bureaucratic red tape of project management seemed always to do him in. But late that afternoon, Gary's disposition improved. Lord Industries called to say that, after consultation with the Army, Parks Corporation would be awarded a sole-source contract for qualification and production of Spartan missile components using the new longer-life raw materials. Both Lord and the Army felt that the sole-source contract was justified, provided that continued testing showed the same results, since Parks Corporation had all of the technical experience with the new materials.
Gary received a letter of congratulations from corporate headquarters, but no additional pay increase. The grapevine said that a substantial bonus was given to the director of engineering.
During the tenth month, results were coming back from the accelerated aging tests performed on the new materials. The results indicated that although the new materials would meet specifications, the age life would probably be less than five years. These numbers came as a shock to Gary. Gary and Paul Evans had a conference to determine the best strategy to follow.
Gary Anderson: "Well, I guess we're now in the fire instead of the frying pan. Obviously, we can't tell Lord Industries about these tests. We ran them on our own. Could the results be wrong?"
Paul Evans: "Sure, but I doubt it. There's always margin for error when you perform accelerated aging tests on new materials. There can be reactions taking place that we know nothing about. Furthermore, the accelerated aging tests may not even correlate well with actual aging. We must form a company position on this as soon as possible."
Gary Anderson: "I'm not going to tell anyone about this, especially Henry Gable. You and I will handle this. It will be my throat if word of this leaks out. Let's wait until we have the production contract in hand."
Paul Evans: "That's dangerous. This has to be a company position, not a project office position. We had better let them know upstairs."
Gary Anderson: "I can't do that. I'll take all responsibility. Are you with me on this?"
Paul Evans: "I'll go along. I'm sure I can find employment elsewhere when we open Pandora's box. You had better tell the department managers to be quiet also."
Two weeks later, as the program was winding down into the testing for the final verification mix and final report development, Gary received an urgent phone call asking him to report immediately to Henry Gable's office.
Henry Gable: "When this project is over, you're through. You'll never hack it as a program manager, or possibly a good project engineer. We can't run projects around here without honesty and open communications. How the hell do you expect top management to support you when you start censoring bad news to the top? I don't like surprises. I like to get the bad news from the program manager and project engineers, not secondhand from the customer. And of course, we cannot forget the cost overrun. Why didn't you take some precautionary measures?"
Gary Anderson: "How could I when you were asking our people to do work such as accelerated aging tests that would be charged to my project and was not part of program plan? I don't think I'm totally to blame for what's happened."
Henry Gable: "Gary, I don't think it's necessary to argue the point any further. I'm willing to give you back your old job, in engineering. I hope you didn't lose too many friends while working in program management. Finish up final testing and the program report. Then I'll reassign you."
Gary returned to his office and put his feet up on the desk. "Well," thought Gary, "perhaps I'm better off in engineering. At least I can see my wife and kids once in a while." As Gary began writing the final report, the phone rang:
Functional Manager: "Hello, Gary. I just thought I'd call to find out what charge number you want us to use for experimenting with this new procedure to determine accelerated age life."
Gary Anderson: "Don't call me! Call Gable. After all, the Blue Spider Project is his baby." Greyson Corporation
Greyson Corporation was formed in 1940 by three scientists from the University of California. The major purpose of the company was research and development for advanced military weaponry. Following World War II, Greyson became a leader in the field of Research and Development. By the mid-1950s, Greyson employed over 200 scientists and engineers.
The fact that Greyson handled only R&D contracts was advantageous. First of all, all of the scientists and engineers were dedicated to R&D activities, not having to share their loyalties with production programs. Second, a strong functional organization was established. The project management function was the responsibility of the functional manager whose department would perform the majority of the work. Working relationships between departments were excellent.
By the late fifties Greyson was under new management. Almost all R&D programs called for establishment of qualification and production planning as well. As a result, Greyson decided to enter into the production of military weapons as well, and capture some of the windfall profits of the production market. This required a major reorganization from a functional to a matrix structure. Personnel problems occurred, but none that proved major catastrophes.
In 1964 Greyson entered into the aerospace market with the acquisition of a subcontract for the propulsion unit of the Hercules missile. The contract was projected at $200 million over a five-year period, with excellent possibilities for follow-on work. Between 1964 and 1968 Greyson developed a competent technical staff composed mainly of young, untested college graduates. The majority of the original employees who were still there were in managerial positions. Greyson never had any layoffs. In addition, Greyson had excellent career development programs for almost all employees.
Between 1967 and 1971 the Department of Defense procurement for new weapons systems was on the decline. Greyson relied heavily on their two major production programs, Hercules and Condor II, both of which gave great promise for continued procurement. Greyson also had some thirty smaller R&D contracts as well as two smaller production contracts for hand weapons.
Because R&D money was becoming scarce, Greyson's management decided to phase out many of the R&D activities and replace them with lucrative production contracts. Greyson believed that they could compete with anyone in regard to low-cost production. Under this philosophy, the R&D community was reduced to minimum levels necessary to support in-house activities. The director of engineering froze all hiring except for job-shoppers with special talents. All nonessential engineering personnel were transferred to production units.
In 1972, Greyson entered into competition with Cameron Aerospace Corporation for development, qualification, and testing of the Navy's new Neptune missile. The competition was an eight-motor shoot-off during the last ten months of 1973. Cameron Corporation won the contract owing to technical merit. Greyson Corporation, however, had gained valuable technical information in rocket motor development and testing. The loss of the Neptune Program made it clear to Greyson's management that aerospace technology was changing too fast for Greyson to maintain a passive position. Even though funding was limited, Greyson increased the technical staff and soon found great success in winning research and development contracts.
By 1975, Greyson had developed a solid aerospace business base. Profits had increased by 30 percent. Greyson Corporation expanded from a company with 200 employees in 1964 to 1,800 employees in 1975. The Hercules Program, which began in 1964, was providing yearly follow-on contracts. All indications projected a continuation of the Hercules Program through 1982.
Cameron Corporation, on the other hand, had found 1975 a difficult year. The Neptune Program was the only major contract that Cameron Corporation maintained.
The current production buy for the Neptune missile was scheduled for completion in August 1975 with no follow-on work earlier than January 1976. Cameron Corporation anticipated that overhead rates would increase sharply prior to next buy. The cost per motor would increase from $55,000 to $75,000 for a January procurement, $85,000 for a March procurement, and $125,000 for an August procurement.
In February 1975, the Navy asked Greyson Corporation if they would be interested in submitting a sole-source bid for production and qualification of the Neptune missile. The Navy considered Cameron's position as uncertain, and wanted to maintain a qualified vendor should Cameron Corporation decide to get out of the aerospace business.
Greyson submitted a bid of $30 million for qualification and testing of thirty Neptune motors over a thirty-month period beginning in January 1976. Current testing of the Neptune missile indicated that the minimum motor age life would extend through January 1979. This meant that production funds over the next thirty months could be diverted toward requalification of a new vendor and still meet production requirements for 1979.
In August 1975, on delivery of the last Neptune rocket to the Navy, Cameron Corporation announced that without an immediate production contract for Neptune follow-on work it would close its doors and get out of the aerospace business. Cameron Corporation invited Greyson Corporation to interview all of their key employees for possible work on the Neptune Requalification Program.
Greyson hired thirty-five of Cameron's key people to begin work in October 1975. The key people would be assigned to ongoing Greyson programs to become familiar with Greyson methods. Greyson's lower-level management was very unhappy about bringing in these thirty-five employees for fear that they would be placed in slots that could have resulted in promotions for some of Greyson's people. Management then decreed that these thirty-five people would work solely on the Neptune Program, and other vacancies would be filled, as required, from the Hercules and Condor II programs. Greyson estimated that the cost of employing these thirty-five people was approximately $150,000 per month, almost all of which was being absorbed through overhead. Without these thirty-five people, Greyson did not believe that they would have won the contract as sole-source procurement. Other competitors could have ''grabbed" these key people and forced an open-bidding situation.
Because of the increased overhead rate, Greyson maintained a minimum staff to prepare for contract negotiations and document preparation. To minimize costs, the directors of engineering and program management gave the Neptune program office the authority to make decisions for departments and divisions that were without representation in the program office. Top management had complete confidence in the program office personnel because of their past performances on other programs and years of experience.
In December 1975, the Department of Defense announced that spending was being curtailed sharply and that funding limitations made it impossible to begin the qualification program before July 1976. To make matters worse, consideration was being made for a compression of the requalification program to twenty-five motors in a twenty-month period. However, long-lead funding for raw materials would be available.
After lengthy consideration, Greyson decided to maintain its present position and retain the thirty-five Cameron employees by assigning them to in-house programs. The Neptune program office was still maintained for preparations to support contract negotiations, rescheduling of activities for a shorter program, and long-lead procurement.
In May 1976, contract negotiations began between the Navy and Greyson. At the beginning of contract negotiations, the Navy stated the three key elements for negotiations:
1. Maximum funding was limited to the 1975 quote for a thirty-motor/thirty-month program.
2. The amount of money available for the last six months of 1976 was limited to $3.7 million.
3. The contract would be cost plus incentive fee (CPIF).
After three weeks of negotiations there appeared a stalemate. The Navy contended that the production man-hours in the proposal were at the wrong level on the learning curves. It was further argued that Greyson should be a lot "smarter" now because of the thirty-five Cameron employees and because of experience learned during the 1971 shoot-off with Cameron Corporation during the initial stages of the Neptune Program.
Since the negotiation teams could not agree, top-level management of the Navy and Greyson Corporation met to iron out the differences. An agreement was finally reached on a figure of $28.5 million. This was $1.5 million below Greyson's original estimate to do the work. Management, however, felt that, by "tightening our belts," the work could be accomplished within budget.
The program began on July 1, 1976, with the distribution of the department budgets by the program office. Almost all of the department managers were furious. Not only were the budgets below their original estimates, but the thirty-five Cameron employees were earning salaries above the department mean salary, thus reducing total man-hours even further. Almost all department managers asserted that cost overruns would be the responsibility of the program office and not the individual departments.
By November 1976, Greyson was in trouble. The Neptune Program was on target for cost but 35 percent behind for work completion. Department managers refused to take responsibility for certain tasks that were usually considered to be joint department responsibilities. Poor communication between program office and department managers provided additional discouragement. Department managers refused to have their employees work on Sunday.
Even with all this, program management felt that catch-up was still possible. The thirty-five former Cameron employees were performing commendable work equal to their counterparts on other programs. Management considered that the potential cost overrun situation was not in the critical stage, and that more time should be permitted before considering corporate funding.
In December 1976, the Department of Defense announced that there would be no further buys of the Hercules missile. This announcement was a severe blow to Greyson's management. Not only were they in danger of having to lay off 500 employees, but overhead rates would rise considerably. There was an indication last year that there would be no further buys, but management did not consider the indications positive enough to require corporate strategy changes.
Although Greyson was not unionized, there was a possibility of a massive strike if Greyson career employees were not given seniority over the thirty-five former Cameron employees in the case of layoffs.
By February 1977, the cost situation was clear:
1. The higher overhead rates threatened to increase total program costs by $1 million on the Neptune Program.
2. Because the activities were behind schedule, the catch-up phases would have to be made in a higher salary and overhead rate quarter, thus increasing total costs further.
3. Inventory costs were increasing. Items purchased during long-lead funding were approaching shelf-life limits. Cost impact might be as high as $1 million.
The vice president and general manager considered the Neptune Program critical to the success and survival of Greyson Corporation. The directors and division heads were ordered to take charge of the program. The following options were considered:
1. Perform overtime work to get back on schedule.
2. Delay program activities in hopes that the Navy can come up with additional funding.
3. Review current material specifications in order to increase material shelf life, thus lowering inventory and procurement costs.
4. Begin laying off noncritical employees.
5. Purchase additional tooling and equipment (at corporate expense) so that schedule requirements can be met on target.
On March 1, 1977, Greyson gave merit salary increases to the key employees on all in-house programs. At the same time, Greyson laid off 700 employees, some of whom were seasoned veterans. By March 15, Greyson employees formed a union and went out on strike.
By June 1983, Corwin Corporation had grown into a $150 million per year corporation with an international reputation for manufacturing low-cost, high-quality rubber components. Corwin maintained more than a dozen different product lines, all of which were sold as off-the-shelf items in department stores, hardware stores, and automotive parts distributors. The name "Corwin" was now synonymous with "quality." This provided management with the luxury of having products that maintained extremely long life cycles.
Organizationally, Corwin had maintained the same structure for more than fifteen years (see Exhibit 10-1). The top management of Corwin Corporation was highly conservative and believed in a marketing approach to find new markets for existing product lines rather than to explore for new products. Under this philosophy, Corwin maintained a small R&D group whose mission was simply to evaluate state-of-the-art technology and its application to existing product lines.
Corwin's reputation was so good that they continually received inquiries about the manufacturing of specialty products. Unfortunately, the conservative nature of Corwin's management created a "do not rock the boat" atmosphere opposed to taking any type of risks. A management policy was established to evaluate all specialty-product requests. The policy required answering the following questions:
• Will the specialty product provide the same profit margin (20 percent) as existing product lines?
Exhibit 10-1. Organizational Chart for Corwin Corporation
Exhibit 10-1. Organizational Chart for Corwin Corporation
• What is the total projected profitability to the company in terms of follow-on contracts?
• Can the specialty product be developed into a product line?
• Can the specialty product be produced with minimum disruption to existing product lines and manufacturing operations?
These stringent requirements forced Corwin to no-bid more than 90 percent of all specialty-product inquiries.
Corwin Corporation was a marketing-driven organization, although manufacturing often had different ideas. Almost all decisions were made by marketing with the exception of product pricing and estimating, which was a joint undertaking between manufacturing and marketing. Engineering was considered as merely a support group to marketing and manufacturing.
For specialty products, the project managers would always come out of marketing even during the R&D phase of development. The company's approach was that if the specialty product should mature into a full product line, then there should be a product line manager assigned right at the onset.
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