Wilson’s Wood and Lumber (WWL) began as a family business in the small town of Sliverton shortly after the First World War. Ernest R. Wilson, who originally came from a farming background, saw the need for a timber mill on account of Sliverton’s relative remoteness from other milling centres.
The surrounding rural area contained sufficient native timber stands to support a milling operation, and farmers had indicated a definite interest in planting unproductive farmland with pinus radiata, thus guaranteeing a continuing timber supply.
The mill was built on 12 hectares of land adjacent to the Sliverton railway station. It was a simple operation, consisting of the milling plant, a small joinery shop and Wilson’s office (a lean-to attached to the milling plant). The milling plant contained a steam-powered, wood-fired, belt-driven circular saw. Off-cuts were used to fire the steam engine’s boilers, and what was not burnt the locals were welcome to take away for firewood.
Logs were brought in by bullock teams and off-loaded by a complicated system of pulleys and winches. The timber produced was sold locally and purchasers carried it away themselves.
Wilson ran the business along strict authoritarian lines, pushing the men relentlessly and allowing no unscheduled time off unless he could see it was absolutely necessary. Nevertheless, the men respected him because he applied his rules equally to himself, and worked tirelessly alongside them. During the Depression, the joinery shop had to be closed down and production of timber continued at a reduced level. The situation warranted retrenchment of staff but no employee was retrenched during this period.
Timber demand grew during World War II and in the boom years of the 1950s, 1960s and 1970s. WWL enjoyed good financial times. Timber production increased markedly. A number of changes occurred during this time: a truck was purchased for local deliveries; a rail siding was put in so incoming machinery parts and goods could be brought into the mill (but this was discounted after mechanical loaders were introduced and could unload the wagons at the station); tanalising and borrick plants were built for preserving timber; electric engines replaced the steam engine; off-cuts were cut up and sold as firewood; and the joinery was reopened. The job of felling trees and delivering them to the mill was given to a contractor.
The position of manager passed from father to eldest son. Michael Wilson, E. R. Wilson’s grandson, became the manager when his father retired in 1978.
When Michael and his brother Jim had started work in the mill, they had both started out as mill hands, working the saw benches. This kind of work had not been to Michael’s liking so, over the last five years before becoming manager, he had supervised the tanalising of timber.
It was realised that no one man could run the business on his own. Michael chose to manage the administrative side of the business. He ran the office efficiently and this occupied most of his time. He would have the final say, holding the position of general manager, under the newly created board of directors of the company.
Jim Wilson was the obvious choice for the position of plant manager and was given the added responsibility for the hiring and firing of labor. Jim, however, found it difficult effectively to fulfil his responsibilities, as Michael insisted that all but the most trivial decisions be referred to him for final confirmation.
Jim had several ideas for improving the company, but Michael tended to dismiss many of theses ideas and suggestions as being too risky.
In 1979 Michael was finally convinced that the old faithful belt-driven circular saw system was no longer adequate to the task, and a search for a viable alternative cutting technology commenced. Against Jim’s advice, Michael used his influence with the board to obtain approval for the purchase of a multi-band Swedish frame-cutting system, in preference to a single-band carriage system of equivalent cost. The advantage of the Swedish frame system was that it cut the logs into a number of planks, in just one pass through the bandsaws. In the single-band carriage system, the log was moved backwards and forwards on a moving carriage, one plank being cut off at a time.
Maintenance of such a complex system turned out to be unexpectedly expensive and consequently the company was incurring higher operating costs than it had when using the old system. Fourteen months after installation, the Swedish frame system was removed and replaced by the simpler carriage system. This represented a considerable financial loss to the company.
Faced with the disappointment of his first financial venture and the economic decline of the 1980s, Michael became increasingly involved in cost-cutting measures. A number of old timers were laid off. There was no further expenditure on streamlining the plant operation, maintenance of machinery was kept to a bare minimum, and new machinery was only purchased to replace machinery that became unserviceable. Inevitably the price of WWL timber rose; so much so in fact, that the locals could purchase timber at other milling centres and have it trucked in at a cheaper rate than they could buy the local timber.
In 1995, WWL sold out to Export-Aust, a subsidiary of a multinational company. Export-Aust owned the controlling shares in a number of other timber mills, and purchased WWL with the aim of trucking the timber to their city yard, 80 kilometres away, to fill the demand for timber in the rapidly expanding suburbs.
Export-Aust expressed the desire to retain all current employees of WWL but reserved the right to reallocate jobs within the company if required.
What were the shortcomings of WWL that contributed to the downfall of the company? What recommendations can you make as to the structure that management should adopt after the takeover? How does technological change affect the performance of an organisation?
Thanks to Stanley Petzall of the School of Management at Deakin University for permission to use this case study, which comes from his publication on management case studies
Proposed solution #1
Martyn Healey is a corporate advisor specialising in strategy development, process improvement, structural alignment, quality management and team development. He has held senior positions in the private and public sectors in a range of industries including motor vehicles, textiles, manufacturing, energy and water. He is an Associate Fellow of the Australian Institute of Management, a chartered professional engineer, and a member of the Australian Institute of Company Directors.
It used to be that those who created and built businesses had skills different from those who ran stable and mature companies. But who has the luxury of stable and mature these days?
Ernie Wilson was a creator and builder. He lived in a culture in which his strategy was described by his choices and actions. His strong personal skills readily allowed him to build the initial milling technology, a core technology that lasted his entire career in the business. His probably frugal upbringing bred an instinct for efficiency and cost minimisation. He knew his market well; he grew up in it.
As an entrepreneur, Ernie knew how to manage risk as he grew his business and elaborated its technology. His core technology remained constant; he and his people knew about milling. He introduced process innovations and extended through vertical integration. In this way, he was able to control otherwise uncertain supplies, add new products such astanalised timber find the best resources for the job, and drive down costs, which all helped to stay ahead of competitors.
For each step forward, there was always a fallback position. Failure of any innovation would not jeopardise the business. He always protected his core technology.
Michael needed a stable and mature business to run. And with his succession, a manager was no longer taking the key decisions with the same feel for the technology and the instinctive understanding of the risks of technological change.
Against Jim’s advice, Michael changed the core technology of the business. How did he plan to manage this change? What skills were required? What were the risks and how were they to be managed? How much of a step-change was it? How well could the costs be known?
When it all went wrong, there was no planned way out except to unwind this fundamental change with great damage to the business.
What went wrong?
Management had not understood how to manage the risks of technology change.
Authoritarian cultures are driven from the top, and Michael learned this style from his father. But this did not fit in with the new management structure. It was crucial for Michael and Jim to work as a team, to give voice to Jim’s knowledge, and to reach consensus.
Management failed to align the organisation to the new technology, and develop the skills required to deal with the new technology. And maybe the resilience of the company was lessened by letting go the old timers. Skilled and experienced tradesmen are knowledge workers too.
The integration of WWL into Export-Aust provides a number of opportunities. In wholly owning WWL, Export-Aust can integrate it fully, whereas it may not be able to accomplish this with the other mills in which it has only a controlling interest (and minority shareholders to consider). Many administrative, financial, marketing and retailing processes can be eliminated as WWL becomes the manufacturing front-end of Export-Aust’s business.
The introduction of e-business methods will eliminate the effect of the distance between city and country. A builder’s order for cut timber can be electronically forwarded instantaneously to WWL. These packages can be delivered direct to site and the invoice triggered at the same time. The customer’s value chain can be seamlessly integrated with Export-Aust’s right up to manufacturing. Wholesale supplies can be delivered to the Export-Aust yard based on previous usage patterns modified by market factors such as housing approvals.
The rise and fall of WWL, and its new position in Export-Aust, highlight some of the effects of technological change. There are opportunities for new products and services (and the strategic positioning that goes with them), rapid response to customers, alliance partnering and the building of customer loyalty through the computerised integration of supplier and customer processes. Quality can be improved and waste reduced through improved controls that are part of the process.
But it is not easy. Risks must be actively managed. And aligning the organisation to the new technology, its processes, skills, culture and structure, remains a major challenge.
Proposed solution #2
Harry Larsen is an independent management and training consultant. In his 25 years of experience in this field, he has worked as a full-time consultant with two large international consulting companies. He has worked as a consultant in Australia, New Zealand, the Philippines, the United States and Papua New Guinea. He is a Fellow of the Australian Institute of Management.
History, it seems, has caught up with Wilson’s Wood and Lumber (WWL).
WWL suffered from several shortcomings, which seem to have been allowed to continue over the life of the business. From the background information, there seems to have been neither a Vision Statement nor Mission Statement upon which to base the organisation’s planning. I suspect that from the outset Ernest R. Wilson was clear in his mind what he wanted to achieve, but he never took the time to document his thoughts. That tradition has continued.
There are other obvious omissions in WWL’s functional structures that would leave it coming up short against standard business practices today. There is no mention of either strategic or business planning. Without these plans it would have been a fortunate organisation indeed to make the appropriate choices over the years regarding market development, succession planning, technological changes, budgeting, and organisational structure.
Without the knowledge they might have gained from applying strategic and business plans, it would be natural to assume that there were inappropriate (if any) job descriptions or performance indicators (KPI, KRA). Without proper job descriptions and reporting structures, it it is hardly surprising, as the case study indicates, that decision making would suffer on account of a lack of definition regarding fields of accountability and responsibility. The lack of clarity did cause problems internally in terms of choosing correct equipment; to say nothing of the frustration and tension it must have caused in interpersonal working relationships.
No mention is made of WWL belonging to any outside industry groups or networking forums, or of the use of outside consultants for technological, financial or training advice.
All of these absences indicate that, although WWL may have been happy with the way the business was being run (from the family perspective), it missed out on opportunities to keep abreast of the times. A lack of outside contacts may have contributed to their losing track of their clients product and service requirements. WWL would also have lost track of the changes that affected their specific place in their industry.
I would recommend that WWL adopt a matrix structure to assist it to blend in with Export-Aust operations. In addition, it would be necessary to adopt effective selection procedures based on all the required tools to enable every person within the organisation to be clear on their roles within the new structure. They would also require adequate information to enable them to understand the changes that were occurring in their work lives under the new regime, especially the changes that rendered elements of their work experience obsolete.
The Swedish frame-cutting system brought to light the problems that were building up within WWL as a result of not adopting the procedures mentioned thus far. Regarding technology, an organisation needs to be clear on its vision, strategic plans, business plans, and current progress in order to best determine what technological changes it requires.
I believe WWL fell into the error of buying a luxury vehicle when it only required a utility. The technology must fit the goals and objectives of the organisation. The skills need to be in place (or be accessible) to utilise the technology to its best advantage, and the ROI must be as clear as possible before purchase. Otherwise the leading edge equipment might actually lead your organisation over the edge of bankruptcy.