Guest Blogger: The Chaos Of Change

We are now in a recession and many manufacturers are down in the dumps about the future and wondering if American manufacturers can compete in this new globalized economy

By Michael Collins, Author, Saving American Manufacturing

"To survive and grow in today’s economy manufacturers need to find new customers and markets (diversification), invent new products, create new services for these customers and create new sales channels."

We are now in a recession and many manufacturers are down in the dumps about the future and wondering if American manufacturers can compete in this new globalized economy.   

I am fond of saying that there are always new opportunities in the chaos of change such as, new industries, hundreds of new market niches, and thousands of new applications that will emerge in the new economy. 

U.S. manufacturers are geographically closest to these customers and can seize the initiative by offering innovative products and new services to take advantage of the new opportunities. However, a different organization is required to compete and find these new opportunities.

The organizational model that describes most small and midsize manufacturing companies is the “Defender” model. It is also known as the functional or pyramid organization

The traditional “Defender” organization that worked so efficiently for so many years isn’t going to work very well in today’s new economy because it is not designed to find new customer and market opportunities.
 
Defender organizations are defined by:

• Domain: The Defender’s success comes from a narrowly defined and relatively stable market.
• A few primary markets and customers: Defenders typically direct their products or services to a limited segment of the total potential market.
• Functional organizations: Defenders tend to rely on a fairly rigid functional organization structure using specialists and overhead departments.
• Formalization and administration: Defenders develop a relatively high degree of formalization, the codification of job descriptions, elaborate handbooks, and operating procedures which specify appropriate behaviors for organization members.
• Centralized command and control: The characteristics of a functional organization structure require the Defender’s control system to be centralized and top down.
• Centralized decision making and communication: Defenders normally restrict information flows to vertical channels: directives and instructions flow down the hierarchy and progress reports and explanations flow up.
• Efficiency rather than effectiveness: The Defender’s fundamental emphasis is on efficiency, lowering costs, improving quality and maximizing production efficiencies. Methods like Lean Manufacturing and Six Sigma are important but they don’t find new market opportunities.

Defenders do not have the people or systems to monitor and find new customers and markets. Many job shops don’t even use external sales channels.

The Defender model worked for a long time. Until the end of World War II, market demand was fairly stable; there were few competitors, and customers relied on loyal suppliers. 

A manufacturer didn’t have to be a good industrial marketer. They simply had to get on bid lists and become very efficient. But the defender model is not working very well today – except in places a defender can still dominate a market with little competition.

The primary disadvantage of the defender model is that it relies too much on one market or a few large customers, and requires steady demand. It makes money when it’s heavy investment in capital equipment and technologies are totally utilized. 

It has little or no defense for a stagnant or declining market (or the loss of a large customer). Most defender organizations are now faced with new competitors, changing markets and customers, and erratic margins.

The organization by definition is generally inflexible, slow to react, and requires a lot of overhead to operate. Unfortunately, in these types of organizations, the priority of important things to do always favors the internal, tangible and process things; rather than the external, intangible and customer things.

To survive and grow in today’s economy manufacturers need to find new customers and markets (diversification), invent new products, create new services for these customers and create new sales channels.
 
To focus on these strategies and to find new opportunities in the marketplace will require a new type of organization called a Prospector Organization that works well in a changing environment. They are different from defender organizations in terms of:

• Multiple markets: Unlike the defender, whose success comes primarily from efficiently servicing a stable, primary market, the prospector’s prime capability is that of finding and exploiting new market opportunities. The key word is market and customer diversification.
• Sub Units & divisions: In focusing on new products and new markets, the logical extension of this approach is the product organization in which all resources needed to research, develop, produce and market a group of products are placed in self contained organizational units (like a division). Hence, the company is decentralized into many divisions and sub units. This decentralized organizational structure is a flat organization with many units, cells and teams.
• Market & competitor intelligence: The prospector invests heavily in individuals and groups who can scan the environment for potential opportunities. Prospectors have the ability to find new customers and markets on a continuous basis.
• Sales organization: Prospectors also focus on developing outside sales channels that can find the new opportunities and customers. Depending on the customer, it could mean different types of sales channels or for a job shop- the first-full time outside sales person.
• Decentralized command & control: Control is decentralized because the information needed to assess current performance and to take the appropriate corrective action is located in the operating units themselves, not in the upper echelons of management.
• Decentralized decision making & communication: Prospectors prefer short, horizontal feedback loops. Therefore, when a deviation in unit performance is detected, this information is not channeled to higher management for action, but rather it is fed directly back to the unit for immediate correction. This is truly an example of pushing responsibility and authority down to the people who do the work. This type of organization gives them the ability to quickly respond to customer demands.

There is no one “right model”. In fact there are many variations of the Prospector organization in a wide range of industries and sizes.

Product Manufacturer Example

Minster Machine is headquartered in the West Central Ohio village of Minster at the same location where the company began more than 110 years ago in 1896. Minster is the only American owned and the largest manufacturer of metal presses in the U.S, and they export to 70 countries. 

Despite Minster’s dominance in domestic and international markets with press products, management decided that to grow in the 21st century, they had to diversify into other markets and other products besides presses.

Joe Kumpf, who is the V.P. of the Midwest divisions, was one of the designers of the new organization and processes.  Kumpf had been using Lean Manufacturing techniques for a few years to reduce costs and waste, but Lean did not provide any practical way to shorten lead times for manufacturers of highly engineered and custom products. 

Minster Machine decided to try the methods of Quick Response Manufacturing (QRM), a process totally devoted to lead time reduction invented by Rajan Suri.

In his book Quick Response Manufacturing, Rajan Suri emphasizes that the organization must be changed to accomplish QRM. He says you must:

• Change the organization of tasks, procedures, equipment and processes from a functional basis to a product-oriented basis.
• Transform the structure of your organization from hierarchical with many levels, to flat with cells and teams.
• Cross train employees from being specialists to do a number of operations.
• The management of the processes from top down to team control.
• Replace complex centralized scheduling and control systems with simpler local planning and scheduling.

Minster Machine had already chosen to find new markets and develop new products and to succeed would take a different type of organization.

Kumpf, who has played a leading role in the reorganization states, “We have eliminated the functional organization and created focused divisions who have clear commercial goals, understand their capabilities and become intimate with their customers.” 

Minster went from one large functional organization to seven different businesses or divisions with different, but coordinated missions. There were also two indirect departments that serviced all of the divisions

“Changing from a functional organization means keeping the Divisions as flat as possible and to avoid building functional walls,” says Kumpf “It also means eliminating functional department management whenever possible.  At Minster, people with various skills all report to a Manager who has responsibility for serving the customer.  The result is lots of interaction across disciplines (and work across disciplines too).”

Structure After Forming a Prospector Organization - Circa 2008 (Click image for larger view.) First, Minster changed their captive foundry to a division that could go after markets outside of Minster’s normal business. The casting business is now serving compression, oil, wind, robotics and many other industries.  The machine and fabrication shops are also serving wind, compression, and internal combustion equipment companies with many other opportunities being pursued. They have expanded their machine relocation business to a more industrial set of customers instead of limiting their work to the relocation of Minster Presses.  The Services Division now rebuilds presses other than Minster’s equipment and is pursuing parts and field service opportunities for other types of industrial equipment. Minster no longer has a press organization, but now has a machinery division.  This group is seeking and developing both press and non-press machinery to serve existing and alternative industries.  Their automation division has the responsibility for finding and serving customers for automation products beyond the traditional Minster press products Minster has also created a wind division and is pursuing opportunities to provide complete wind turbine products to satisfy the future need for renewable and clean energy.

In the final analysis, the change to a prospector organization accomplished two primary goals of the corporation. It created an organization that could find new market opportunities and it created an organization that allowed them to implement Quick Response Manufacturing.

Michael Collins is the author of Saving American Manufacturing. His website is www.mpcmgt.com