Quality Truck Australia produces parts for trucks, and it has been operating profitably in the domestic market. The business was established about 50 years ago and has been bought and sold several times by Australian conglomerates. It currently resides with the well-known Company A, which is in the top 50 Australian corporates. This latest acquisition occurred about five years ago. Before that the business was owned by the investment conglomerate Company B, which had it for eight years. During the time Company B owned the business little or no money was invested and it was milked of cash to pay for new investments or appease creditors in other businesses.
Production systems and shop-floor control were inefficient, outdated and poorly maintained when Company A bought the business. However, the business has a brand name well recognised across Australia and it has maintained a strong market share based on its reputation for quality and reliability. The threat of imports has been increasing over the past few years and market share has begun to erode.
Quality Truck was at a point where it had to become more efficient and improve productivity or eventually be swept away by the tide of imports, which were much lower in cost and usually, but not always, of lower quality.
To rectify the manufacturing problem the organisation recruited a production expert with excellent experience in lean manufacturing and the theoretical ability to improve processes and maintain high standards of quality. Hence, Malcolm was employed in the capacity of general manager operations reporting to the managing director.
The organisation was run effectively by two people: the operations manager and the general manager of sales and marketing. Both reported to the managing director, who had responsibilities for other businesses as well as Quality Truck.
The operations manager was responsible for procurement, manufacturing, logistics, human resources and manufacturing accounting.
The sales manager was responsible for new product development, marketing, sales across Australia with offices in all states, production forecasts and financial reporting except for manufacturing accounting.
Malcolm was intelligent and had vast business experience with expertise in lean manufacturing. He quickly made his presence felt by dismissing or transferring most of those who directly reported to him and recruiting people known to him from past assignments and those he felt could support the process changes that were needed in the factory. Some managers felt that bringing in a team of new people to engineer process change could result in years of valuable experience being lost if the old team were replaced altogether, and that the change process might thus become inefficient. Malcolm dismissed this notion on the grounds that the current team was incapable of achieving change or it would already have attempted to do so.
With the new team a change in business style began to emerge. Malcolm was keen to succeed, and all his people were made aware of it. If an individual did not put a 100% effort into meeting the objectives, they were severely reprimanded.
In isolation this may be acceptable practice, but it brought about some interesting management practice. The human resource manager, for instance, used to keep records of all personnel and assist in training programs for sales and marketing as well as manufacturing. Under the new regime only manufacturing issues had priority, and records were not updated for employees and staff outside of manufacturing. Sales and marketing managers had to resort to keeping their own records and obtaining advice on personnel matters from consultants outside the company.
The mood of the factory began to change. Orders were prioritised into efficiency runs to improve factory performance and not necessarily in sequence to meet customers requirements. Factory areas were cleaned up without consultation with sales and marketing staff. In one incident, product dies were thrown out, only for it to come to light later that they were needed for products that were vital to customers but were manufactured only infrequently.
Procurement priority was always manufacturing first, other areas generally second, and sales and marketing last. There were several occasions on which the product-development team was unproductive because vital equipment could not be acquired, the explanation being that orders for manufacturing always had higher priority.
The organisation as a whole began to suffer, and customers began to feel the strain because sales representative could not contain their frustration over priority orders not being produced on time. An uncomfortable and destructive culture evolved: two distinct camps developed their own policies which, in many cases, were strategies to thwart the other. Disgruntled discussions between employees at coffee break soon turned into formal meetings.
The parties met regularly to agree on production planning for future periods, but more often than not the meetings turned into shouting matches. Malcolm argued that the factory had to be run efficiently, and the sales manager argued that the customer must always come first, and complained that deliveries to the warehouse were always late for every order.
Malcolm held his ground. He had a loyal team of managers that did his every bidding. Manufacturing efficiency was higher than it had been for years. Labor performance yield was the best ever recorded, waste was down and quality was improving. According to manufacturing statistics, the plant was turning around at a great rate and Malcolm was meeting all his objectives.
Malcolm never conceded that he was in the wrong. No matter what the issue, he would justify his actions with facts and statistics and always prove that he was correct.
The managing director was approached time and time again by different people in the organisation with various stories that at first seemed amusing but began to develop a sinister tone. No one from outside operations liked Malcolm, and even many people in the manufacturing camp found it difficult to cope with Malcolm’s autocratic, can do no wrong style.
Eventually the managing director was presented with an ultimatum. The whole of the management team from sales and marketing, including the general manager, threatened to resign unless Malcolm were replaced.
The managing director took action that same week.
How could Malcolm have better managed the changes he believed were needed at Quality Truck Australia? Was he justified in his actions? Should the managing director have intervened earlier?
Proposed solution #1
Anne Riches is a change facilitation specialist. She provides consulting, coaching and facilitation services to the corporate and public sectors in organisational change and leadership development. Formerly a human resources director and lawyer, she has had more than 25 years of experience as a change agent in start-up executive roles. Anne is a fellow of the Australian Institute of Management and is also an adjunct faculty member of the Graduate School of Business at the University of Sydney.
We have known for a long time that change efforts like the one at Quality Trucks Australia fail to produce long-term sustainable results.
An article in the Harvard Business Review (November/December 1997) noted that between 1980 and 1995 each Fortune 100 company invested, on average, more than $US1 billion in change programs. Only 30% produced an improvement in bottom-line results that exceeded the company’s cost of capital. Only 50% improved their share price.
Why? Because too many managers still don’t get it. Success depends not only on how many widgets are produced in the shortest possible time at the lowest price. It is also about how many customers keep buying the widgets despite increasing competition in price, quality and innovation.
How do companies manage to keep their competitive edge? By focusing on their customers and their people but Malcolm does not seem to know this.
Although the ownership of Quality Trucks had changed often, nothing else had. To remain competitive, changes were vital. Malcolm has turned the plant around, producing improved short-term performance for Company A. But for how long and at what cost?
A fearful, divisive culture has emerged. Malcolm’s narrow focus on improvement in manufacturing has resulted in psychological and financial losses to the other part of the business, the unit responsible for attracting and retaining customers. This is hardly good business.
Was there anything Malcolm could have done differently?
Malcolm’s leadership style
Autocratic and coercive leadership can be effective in the short term. Increased productivity will be short lived as people begin to resent this treatment. Malcolm may be smart, but as Al Dunlap found out, what goes around, comes around.
For example, why did Malcolm remove the incumbent team so quickly? The existing managers were potentially a rich source of information and ideas. Given the company’s history, it is not surprising that they had made no changes. If the company was just a cash cow for Company B’s other investments, what motivation or incentive was there to change?
As soon as possible, Malcolm should have talked with each existing direct report to get ideas and contributions about the changes needed. Malcolm could have assessed each manager’s motivation, ideas and capability and set some indicative short-term performance goals and targets. If the managers did not perform and had to go, at least he would have started to establish his credibility as a worthy leader in the business and to build relationships. He missed an excellent opportunity there.
Change management strategy
Most change efforts fail because of employee resistance, which is not usually about changes to systems, structures or processes. Most employees recognise the need for change and welcome it. Failure to get employee buy-in and support almost always arises because of the way in which the changes are introduced. This was the situation at Quality Truck.
Malcolm may be vastly experienced in lean manufacturing but his people and change-management skills are poor. He and his colleagues have introduced a new culture that is rapidly becoming dysfunctional. Quality Truck now faces cultural breakdown, morale problems and resistance to change.
It is unlikely that Malcolm has the capability or willingness to recognise and fix these shortcomings, especially as he surrounds himself with like-minded followers.
In the absence of any apparent systemic approach, each general manager is running his part of the business as a silo. Without an overall context, it was almost inevitable given Malcolm’s single-minded approach that divisiveness, internal competition and lack of co-operation would set in as each unit jockeyed for a favorable position.
Strategic leaders know that organisations are made up of interdependent units, all focused on adding value for the customer. A good corporate strategy strikes the appropriate balance between present imperatives (leaner, faster, better production) and future needs (for example, new products, new markets, new distribution avenues). Such a strategy ensures that customer, employee and shareholder expectations are understood and met.
For Quality Truck to go forward and resolve the split in the company, there must be immediate action to establish the short-term goals, strategies and tactics for all business units in the context of Quality Truck’s longer-term aims and business objectives.
The managing director
The head of the company should have stepped in as soon as it had become apparent that Malcolm’s leadership style was jeopardising the sustainability of the change activity. Leaving intervention until a crisis arises means that drastic action is necessary. Although Quality Truck has some short-term gains, resolution of this situation requires bigger-picture thinking and strategies if morale and commitment are to be rebuilt.
Of course, like Quality Truck’s many previous owners, Company A could always sell it.
Proposed solution #2
Peter Taylor is the human resources manager for the Community Newspaper Group in Perth. He has been involved in human resources since 1985 and is an associate fellow of the Australian Human Resources Institute.
The managing director’s attempt at improving efficiency and productivity by hiring a production expert indicates a short-term focus. It is a knee-jerk reaction that does not consider the long-term viability of the organisation. It needs to be kept in mind that organisations are made up of various interdependent subsystems and that it is impossible to change one subsystem without affecting the others. The efficiency improvements in production have had a disastrous effect on sales and customer service. The effectiveness of the organisation has been reduced even though production has improved its efficiency.
How could Malcolm have better managed the changes? There are several methods he might have adopted to improve production efficiency and the effectiveness of the whole organisation.
The first move should have been to build a good working relationship with the general manager of sales and marketing, the manager of operations (roles pivotal to the company’s success) and the managing director. They should all have spent time developing an overall plan for the company’s future.
All work groups could then be involved in developing ways of achieving the objectives. The common goal would reduce the likelihood of inter-departmental fights. Employee involvement is critical to the success of the process. It is no wonder that employees in the sales and marketing and production departments are in conflict when their leaders are openly arguing.
Malcolm’s attempt at empire-building was a serious blunder. The dismissal and transfer of employees resulted in the loss of irreplaceable knowledge, experience and understanding of the organisations history and of its unique character. Malcolm made key strategic decisions in the absence of the knowledge that these experienced employees possessed. That Malcolm’s new recruits were well known to him from past assignments was no guarantee that what had worked for him in previous organisations was appropriate for Quality Trucks Australia. Malcolm should have retained the existing employees at least long enough to assess their worth to the company.
Malcolm’s comment that the dismissed and transferred employees were incapable of making the changes he envisaged sent an unequivocal message to the remaining employees that they were stupid and that their jobs were on the line. Besides which, perhaps those who were moved and fired merely required good leadership through the change process to become good leaders in their turn.
Malcolm’s keenness to succeed and his business style compounded the problem. His severe reprimands seemed to be designed purposely to reduce employees commitment to his objectives. He could have gained employee commitment by involving them in setting shared objectives instead of dictating to them. The dismissive tone of his direct reports and the changes being implemented were bound to provoke uncertainty and fear in the work group.
Malcolm’s priority should have been to encourage and reward achievement instead of reprimanding people for any effort that was less than 100%.
He was also responsible for the human resource function, in which he failed miserably. A key component in the success of any change process is the human factor. His directive to give production issues priority indicates a lack of understanding of the importance of people in the change process.
The autocrat in the canteen
Was Malcolm justified in his actions? His statistics might show that he achieved his objectives, however his actions cannot be justified because they have had consequences prejudicial in the extreme for the company overall.
Malcolm’s autocratic style alienated employees inside as well as outside the operations department. He should have demonstrated a more consultative approach and encouraged all employees to contribute their ideas. He should have invested more time in educating himself about the business. This would have allowed him to make decisions that were more informed. His lack of understanding of the real needs of the business is evidenced by the increasing number of disgruntled customers.
The managing director should have investigated the situation much earlier. He was approached time and time again and yet failed to act. This failure to act itself should have rung a warning bell that something was amiss.
It was not until he was presented with an ultimatum by which time most of the damage had been done that the managing director acted. He has much to answer for to the customers and staff of Quality Truck Australia and to Company A. The organisation has a doubtful future given the serious internal problems it now suffers.