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In 1991 I was contacted by an attorney from DC, who represented one of the three




Lecture 8B. Solving Problems Iron & Steel Company;In 1991 I was contacted by an attorney from DC, who represented one of the three;families that owned The Steel & Iron Company, which was located outside Philadelphia.;Iron & Steel had been in business from the late 1930s. The company was founded by;three investors, one of which became the CEO. The company was a steel foundry and;precision machine shop. The Company prospered during WW II, and after the war;continued as a supplier of shells for the USG, primarily shells for the USN. The founder;CEO was the only one of the three families who was active in the company, and his son;Nick, worked in the company and became the CEO around 1985. Nick succeeded to;manage a company with strong reserves and good contracts into a company that was near;failure in 1991. Nick saw himself as another Harold Geneen and proceeded to make a;series of dump acquisitions. One of the most famous was a company that made hay balers;located in Northern NY State. Nick did not understand that inventory was a use of cash;and had a limited shelf life, so he proceeded to purchase many old style hay balers;(probably had more value as an antique) which rusted in the warehouse and ended up in;the scrap yard.;The other two families bonded together against Nick, and the three man board out-voted;Nick and removed him as CEO. The board was made up of Nick, Wally (an 85 year old;retired insurance agent) and Dr. Medicine.;All of the families were from the Main Line in Philadelphia. I visited the company and;met with the board. Nick, of course, was opposed to any change in leadership, but he was;out-voted 2-1 and I became the CEO. They asked me to be on the Board as well as being;CEO, but I declined the offer since the affair smelled of bad politics and an incompetent;Nick, who had been removed as CEO, but remained on the board. 2-1 and the Doctor;was the swing vote. The Doctor had become disenchanted with the Nick reign..;The company had a sole-source contract with the USG for the 5 shell for the USN. The;shell was fabricated by heating billets of steel to 2000 degrees F and then forging them in;a press to the shape of a shell. The shell forging was then put through a series of precision;machine operations, and the final inspection was done by USG inspectors assigned to;Steel & Iron. Steel & Iron had the record for over 6 months of not having a pallet of;shells pass the first/second/third and onward inspections. The USG was completely fed;up with Iron & Steel and was on the verge of canceling the contractthe only contract;Iron & Steel had. The cash was depleted. The shop was a wreck. The forging area;(furnaces, presses, dark, dirty, dirty, dirty with huge animals living behind the machines).;The production lines had precision machinery, and the United Steel Worker labor force;was demoralized. All of the workers were long term employees. We started the clean-up;and the workers advised us that we could dump the refuse into the creek.;When the Board tried to convert the property into a building site some years later (after;my passing on), the EPA discovered the contamination and forced the corporation to pay;for the clean-up. The Steel & Iron Company were out of money and shut down by that;time and the only equity the owners had was tied up in the land and building. With the;lien against the facility for the clean-up the owners had lost their investment. The final;nail was in the coffin, and Nick, the x-CEO, was last seen drinking wine (out of a paper;bag) in the village square. I dont know what happened to the property with the clean-up;anchor around its neck. The EPA would never disclose who gave them the tip that the;creek was an environmental disaster.;I brought John Koski with me as VP Operations and Nick Walker as Administrative;Officer. John had been with me for 12 yearsfirst at American Seamless Tubing in;Baltimore and then in a series of consulting assignments. I had brought John in as the;division president of one of the sign companies at CDC. John had learned (as you all are;learning) how to dissect a financial statement (limited to the P&L and the COGS). John;was 65, 260# and Polish. We were great friends and complemented each other in the;management functions.;Nick, a longtime friend, was good with administrative problems and was a graduate;engineer. So, Nick took on a lot of assignments (I dont remember assigning him;anythinghe just showed up and go involved). He became the main spokesman between;the company and the unionwhich was tough and mean.;The controller was competent and was glad that someone was there that could read and;understand a financial statement. The vice-President Marketing, John, the nephew of an;owner, the doctor, was the only family member in the company, and his uncles had hopes;for John, but knew that this was in vain since John was lacking in management skills.;The sales/marketing function was headed by Johnthe nephew of the Doctor board;member. There was no pressure to do anything special for John. His uncle had realized;long ago that John was not CEO material and was lucky to be VP Marketing. John was a;graduate of St. Joes University on the Main Line in Philadelphia suburbs, and was a;rooter for the basketball teamrepresented by the scarlet and grey hawk. John drove a;Country Squire Ford Station wagon, was preppy, married, and two children and went;home for lunch every day. With that background we nick-named our VP Mkt John-John.;John-John was the main contact (only) with the USG arsenals at Pickatenny, DesMoines;and other places. Again, we were in a serious position with the USG and they were;threatening to cancel our contract.;After being on the job for a day or so, I asked John-John to make an appointment for the;two of us to visit the arsenals so that I could meet the customer. The customer knew that a;new CEO was on board, and it was imperative that I visit them, and tell them the steps;that we were going to take to improve the quality and bring the production up to;expectations.;The Case of the Reluctant Sales Manager;After asking John-John, VP Sales and nephew of owner, for a week or so to make travel;arrangements so that we could visit customers at the USG arsenals, I made one final;attempt on the Monday of my second week.;On Tuesday, Koski and I arrived at the office around 7:30 am, visited the shop, and made;a general tour of the facilities and discussed the immediate needs for maintenance and;housekeeping. The dirt/grease/grime on the forge shop floor was so deep, that we had to;bring in a small Bobcat to scrape up the chunks and discard them into a dumpster. When;we started the clean-up procedure, we were advised by the old-timers that the practice;was to discard the material over the back bank into the creek. The company also made it a;practice to discard/empty all barrels of cleaning fluids, hydraulic oil into the creek.;Rumors prevailed that the fish still living in the creek were horribly deformed.;During my second week I asked my secretary to find out about John-Johns travel;arrangements. When we found out that John-John had not made travel arrangements, I;buried my head in hands, made a foul statement and said what am I going to do with;John-John. Koski left the office and came back in a few minutes, looking like the pussy;cat that had discovered the goldfish bowl. Koski had found a padlock and applied it to;John-Johns office door. The padlock was locked and we went back to work. About 9:15;am John-John came into my office and inquired, with tears brimming, that his office door;was padlocked and asked if I would find the prankster.;John-John was informed that the door would stay locked until Friday. At that point JohnJohn would be allowed back in his office to file reports on the visits and fill out his;expense forms. John-John asked if the door could be opened so that he could get his;stuffed hawk and take it with him. We said no, the hawk stays here. From that point;onward John-John took a more fervent interest in the sales activity, and actually pursued;some leads, resulting in orders, on his own.;When the door was opened on Friday, we found that the Hawk had died of malnutrition.;A bad omen for the up-coming basketball season.;I am sure that the Human Resource input would be to counsel John-John, hold his hand;and help him develop a plan of action for success in the marketing/sales world. However;remember my first lecture when I talked about the necessity to move fast when managing;a company in trouble, and to separate the turkeys from the eagles. We separated JohnJohn from his hawk, and he fell into the turkey category.;The Non-attentive foremen and the Quality Control Issue.;In addition to the poor condition of the shop, we found that the tools/gauges that were;used in inspecting the precision machined shell casing were rusted, broken, out of;calibration and not being used by the Iron & Steel quality control personnel. At the time;that I took over as CEO, a completed pallet of shells had not pass the final inspection;with the USG inspectors for almost six months. The shells were rejected, re-worked and;rejected again.;With this bad record, Steve, the young quality control engineer asked that the entire shop;be re-trained in the correct procedures and that all of the gauges/tools be repaired. We;agreed to this, and we shut the factory down for a week so that we clean up the forging;press area and run classes for the foreman and workers. This was a significant investment;for a company that was bleeding cash daily.;We started back to work when the work and training was completed, and about a week;later Steve came into my office early in the morning with tears in his eyes. The rejection;rate had increased to the old level, and Steve wanted us to see the results.;When Steve, Koski and I journeyed to the shop to see the results of the recent production;runs, we found that the gauges had not been used and that defective shell casings had;been passed from the secondary machining stage to the final machining operation. This;was conveniently at the time when the shifts were changing, so there were 14 foremen on;the shop floor along with the hourly employees. Around 100 workers.;The proper protocol would have been to have a discussion, write a report on the cause;and the offending foremen/s (note plural) and continue with the 100% rejection rate at the;USG inspection station. Steve suggested a textbook approach, Koski was looking for;scalps and I solved the problem when I terminated the foremans employment, after 25;years with the company, in front of everyone. There was little fanfare, just the statement;that the foreman could pack up his gear and go home. This was the catalyst that finally;got the shop workers/foreman and other members of managements attention. Within two;days, we could see the results of the improvement in quality. More importantly, we could;see the spark of interest in the hourly workers eyes and the increased communication;from the line foreman to their managers. Koski was overwhelmed with suggestions from;everyone on how to improve performance, reduce costs and provide a better workplace.;The termination procedure is not recommended as a management practice. We would get;another failing grade from the HR department. Koski and I had been thinking of what;action would get the attention of the employees, so that they would cooperative in the;turnaround effort. Once the opportunity was presented, we took advantage of the situation;and started the road to profitability.;View Full Attachment;Additional Requirements;Min Pages: 1;Level of Detail: Only answer needed


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