^ Norm St. Laurent, operations manager for Oilwell Cable Company, pulled his Bronco 4x4 onto Kansas' Interstate 70, he heard on the CB about the traffic jam ead of him due to icy road conditions.
Although the traffic was moving some, Norm decided to get off at the eastern offramp for Lawrence, rather than the more direct western offramp, to save time. While waiting for the offramp to come up, Norm's mind drifted back to his discussion with Bill Russell, the general manager, on the previous day. Norm had been contemplating adding microprocessors to their rubber mixing equipment in order to save manual adjustments on these machines. This would improve throughput and reduce costs simultaneously, though without displacing any employees. Based on the data Norm had seen, it appeared that the microprocessors could cut the production time by one percent and reduce scrap from the current rate of one percent down to one-half of one percent.
However, it seemed that this might be an issue that should first be submitted to the production team in charge of rubber mixing for their thoughts on the idea. Once before, an even simpler change had been made without their knowledge and it wound up causing considerable trouble.
As the traffic wound around two cars In the ditch by the highway, Norm reflected on how difficult it was to make changes at this plant with their team management process, though there were advantages too. It probably stemmed from the way the company was originally set up.
History of Oilwell Cable Company (OCC)
Originally known as the Chord Cable Company and located in New lersey, the firm had been experiencing severe management difficulties. When acquired by new management in 1983, they renamed it Oilwell Cable Company and relocated in Lawrence, Kansas so as to be closer to their primary customers in northeastern Oklahoma. Their product line consisted primarily of flat and round wire and cables for submersible pumps in oil wells.
The manager chosen to head up the new enterprise, Gino Strappoli, gave considerable thought to the organization of the firm. Gino envisioned a company where everyone took some responsibility for their own management and the success of the business. Gino preferred this approach not only for personal reasons but because cable manufacturing is a continuous process rather than a job shop-type of activity. The dedicated allegiance of the relatively few employees in a process firm is crucial to staying competitive. In such industries, direct labor commonly constitutes only 5 percent of the cost of the product, with indirect labor being another 5 percent. By contrast, in a job shop the wages paid for labor are a major determinant to being cost-competitive, often run ning 30 percent of product cost, thus introducing a potential conflict between labor and management. Gino reasoned that if he could obtain the employees' commitment to improving productivity, reducing scrap, being innovative with new technologies, and staying competitive in general, he would have a very viable firm.
With the approval of the new owners, Gino initiated his plan. Of the original labor force, only a few moved to Kansas, including Gino and the firm's controller, Bill Safford. All new equipment was purchased for the firm and a local labor force was selectively recruited. As the firm was organized, the team management process was developed. Eleven teams were formed, six of which constituted the production area. The remainder included the management team, the resource team (support functions such as computing services, accounting, etc.), the technical team (including the lab employees, R&D, and so on), the administrative team (office and clerical), and the maintenance team.
These teams basically set their own work schedules, vacation schedules, and job functions. They addressed common problems in their work area and interfaced with other teams when needed to solve problems or improve processes. With Gino's enthusiastic encouragement, the team approach grew and took on more responsibility such as handling grievances and reprimanding team members when needed.
In lanuary 1985 the firm became profitable and later that year came fully on-stream. Gino soon thereafter left for another position and the operations manager, Bill Russell, was selected to succeed him. At this point. Norm was brought in to replace Bill as operations manager. Norm had years of experience in manufacturing and was a degreed mechanical engineer. (See Exhibit 1 for the organization structure.)
As Norm recalled, from 1985 to 1989 the firm rapidly increased productivity, improving profits significantly in the process and increasing in size to 140 employees. In so doing, they became the low cost leader in the industry and gained a majority of the market share. This resulted in a virtual fourfold increase in sales since the days of Chord Cable Co. They were now approaching almost $25 million in annual sales.
In 1989. however, the recession hit the oilwell industry. Added to this was the slowdown in energy consumption, effective conservation, and the oil glut. For almost a year, the company bided time and idle
Accounting Purchasing Production Maintenance Human resources Lab Quality assurance
Exhibit I : Organization Chart: Oilweil Cable Division
Accounting Purchasing Production Maintenance Human resources Lab Quality assurance
Exhibit I : Organization Chart: Oilweil Cable Division employees were paid for minimal production. Management felt a commitment to the employees to avoid a cutback, more so than in a normally organized firm. But finally, in 1990, top management told the teams that they would have to choose a method for handling this problem. Alternatives were shortened workweeks, layoffs, and other such measures. The teams chose layoffs. Next, management drew up a list of names of "recommended" layoff personnel representing a vertical slice through the organization—a top management employee, some professional and technical people, and a number of production employees. These lists were given to the teams who then decided what names to change and what names should remain.
Management largely went along with the teams' recommendations and the layoffs, about 20 in number, took place.
With a slimmer work force, the division increased their productivity even more significantly (see Exhibit 2), allowing them to cut their product prices from between 10 to 20 percent. As the country climbed out of the stagnant economy in 1991, the division was excellently poised to capitalize on the increased economic activity, although oil itself was still largely in the doldrums. Increased demand in mid-!991 forced the division to use overtime, and then temporary help. They didn't want to get back in the same work-force predicament they were in earlier.
The Team Management Process
The 1990 layoff was a traumatic situation for the teams and the team process. Following that episode, the employees were unsure whether the team management process might require too much responsibility on their part. They had faced reprimanding employees in the past, and had even asked one employee to leave who tried to deceive them. In general, they were very receptive to employees' individual problems and had helped their colleagues through tough times on many occasions, but now they were unsure.
Team size varied from a low of three to a high of 17. The advantages to the firm of the team process seemed significant, in the minds of the team members and area managers. One member of the maintenance team noted that the team process gave much more responsibility to the employee and allowed the firm to obtain the maximum talent from each person. The firm, in response, spends S1000 per person per year on upgrading the skills of the employees in such areas as team effectiveness training, technical skill acquisition, communication skills, and general skill building. Bill Russell sees the major benefit of the team process as its production flexibility. Employees are also very receptive to change. Since the 1990 layoff, the employees have become much more sensitive to outside threats to their jobs. This spurred quality and productivity gains of over 30 percent in 1991.
The primary benefit of the team process to the employees is having a say in their own work schedule. A typical secondary benefit was the elimination of penalties for making an error. The employees feel that this is an excellent place to work; absenteeism is only 0,7 percent and only two people have voluntarily left since 1988.
Overall, the employees seemed to feel that this process worked well but wasn't utopia. "It doesn't give away the store," one employee commented. A disadvantage of the process, according to the employees, was the time and energy it required on their part to make decisions. As an example, they noted that it required three full days for the teams to come up with the revised layoff lists. Normally the teams met once a week for an hour and a half.
But when the teams made a decision, the implementation of the decision was virtually immediate, which was a big advantage over most managerially made decisions. Although this process required more time on the part of the employees, the total amount of time from idea to full implementation was probably less than that in a traditional organization, and was clearly more successful. When asked if he would ever be willing to work in a regular work environment again, one team member voiced the opinion that this process, while very good, really wasn't that much different from a good, open, traditional organization.
Teams realized that not every decision was put through them. They felt this was appropriate, however. They also recognized the difficulty facing management when trying to decide whether something should come through the teams or if it was unnecessary to consult them. Though the teams met on company time, they were not eager to spend more time on team meetings. Especially after the layoff crisis, the teams realized that self management was a two-way street and frequently hoped that upper management would make the tough decisions for them.
In summary, the teams felt that the process was based on trust, in both directions, and was working pretty well.
As Norm pulled his truck into the OCC parking lot, he noticed there were quite a few empty spaces. This 1992 winter had been more severe than most people had expected, based on the November and December weather. The snow was almost over Norm's boots as he slogged his way to the buildings. Upstairs in his small, jumbled office, Norm pulled out the microprocessor file from his desk drawer and sat down to review the production process.
Their primary raw materials, which made up about 60 percent of the products' cost, included copper rods, lead, polypropylene, nylon, and rubber. Inspection consisted of submerging the cable in water and charging it with 30,000 volts. To date, none of their products had ever been returned. However, just in case they were ever queried about a cable they had produced, they kept samples of all their cables for five years back.
The firm considered itself very vulnerable to new technology and hence kept an active R & D lab in continuous operation. Simple advances in process technology or insulation and jacketing materials could wipe out their market overnight so they didn't want to be caught napping. Other methods of oil extraction were also a constant threat. Since they competed in a world market, they were highly exposed to foreign competition, and the location of their competitors was often a major factor in sales.
1. If Norm chooses to go ahead with the microprocessor conversion on the machinery, what are the potential conflicts that might arise? What are the advantages of such a move?
2. If Norm decides to put the decision to the appropriate production team, what are the potential problems? What would be the advantages?
3. Can the firm always consult the teams before acting? What is the role of expediency in this process? Where should the line be drawn in what goes to the groups and what doesn't?
4. How much impact might microprocessors have on production costs? Assume that variable overhead represents the same percentage of costs as fixed overhead. Find the net present value if the microprocessors cost $25,000 and their installation runs another $5000.
5. Compare Norm's recollection of the division's productivity gains between 1985 and 1989 to Exhibit 2. Explain the inconsistency.
6. What would you recommend that Norm do?
This article reports on a survey of the use and effectiveness of matrix management. It identifies three different kinds of matrix organizations and describes the advantages and disadvantages of matrix management in general, and of each of the three kinds in particular.
After a description of the study situation, the results are reported in terms of the usage of each of the three types of matrix and their effectiveness in those situations. Though usage was rather evenly distributed across the types, effectiveness was higher for the project matrix and below average for the functional matrix.
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