Critical Analysis of ALSTOM - Assignment Example

ALSTOM power service report based on case study 2005 CONTENTS 1. Executive Summary 2. Introduction 3. Critical Analysis of ALSTOM 4. Critical Analysis of ALSTOM’s HR Strategy 5. ALSTOM’s Micro-level Management issues 6. Recommendations and Implementation 7. Future of ALSTOM 8. Strategy for the identification of shortfalls and its clearance 9. Centralisation to decentralisation 10. SWOT Analysis 11. References EXECUTIVE SUMMARY ALSTOM Power Service was founded in 1999 as an autonomous unit to run the service business of the ALSTOM group, Paris. The aim was independently to develop and market the company's service activities for the installed power generation capacity. The new organization instantly had more than 10,000 employees worldwide in local units. The managers and employees had previously been assigned to different power generation units, thus merely knowing each other. More importantly, the management faced partly disillusioned employees. Service engineers had been perceived as the low end of the engineering profession. The people perceived their jobs as being only a tedious add-on to the exciting business for new power plants. In 2004, ALSTOM Power Service headquartered in Baden, Switzerland, was a leading global provider of service for power plant worldwide. ALSTOM Power Service covered the whole variety of service products such as repair and spare parts activities, maintenance and full plant operation, and plant efficiency improvement. The management team had created a successful global business in a series of changes. The organization grew from 10,000 to 13,500 permanent employees in 45 countries. It achieved growth in sales from € 2,500 million in the fiscal year 1999/2000 to € 3,300 million in 2003/2004 representing a market share of 13% in 2003- In the same period, the operating income doubled from € 200 million in 1999/2000 to over € 400 million in 2003/2004. The management team had succeeded in changing the employees' mind- set from a low energy level workforce to a mutually shared understanding on how to do service business at ALSTOM. A first step towards the Service Identity was, they created clear business accountability in nearly every unit for the first time. The autonomy and recognition they received for the first time triggered motivation and engagement. Then in late 2001, acknowledging that structural means were only a first step for success as a new Service Sector, the management implemented a global process to strengthen the shared values to realize a strong service orientation in the decentralized activities. Building a shared identity allowed ALSTOM Power Service another strategic shift. In 2003, the Service Sector decided to go beyond the traditional service offers and provide complex integrated service products called Value Packages. Those utilized and combined the knowledge and competence from different fields existing in the organization and delivered outstanding effects - first, in plant operation efficiency and second, in the sales and profits of ALSTOM Power Service. INTRODUCTION The ALSTOM group could look back to more than 100 years of experience in the field of power plant technology. The ALSTOM group was the result of a series of mergers or acquisitions of ALSTOM and its predecessor companies such as GEC ALSTHOM, Marconi, and General Electric UK. In 1999, the company made a joint venture with ABB and later fully acquired its power business. This resulted in a share of 11% for ALSTOM in the worldwide installed power generation technology. In parallel, the ALSTOM management in April 1999 decided to found ALSTOM Power Service as a new unit - a so-called segment - within the power sector. ALSTOM Power Service was independently responsible for the global service activities on power plants - side by side with the units for new plant business such as gas turbines or steam turbines. The new segment was ALSTOM's answer to the emergence of an own market for the service business within the power industry. In 2002, an estimated 35% of the demand of the power industry or € 31 billion was service business because the energy generating companies avoided new instalments in favour of prolonging the lifetime of plants or optimizing maintenance and plant efficiency. ALSTOM Power Service intended to put specific emphasis on this opportunity and gain a large share of the attractive, high-margin service market. The new segment at ALSTOM combined the existing, company-wide distributed service departments and dedicated distinct resources and its management effort towards developing a service business. Analysis about its position in the power service industry 1999-2005 Organizational performance Through efficient structures, systems and capital investments organizational performance can be achieved in ALSTOM. To evaluate organizational performance, Organizations need key performance indicators to measure the capability and to meet goals and assess how people respond to what has been learned through the process. A system of measuring and monitoring achievement can support the performance of the organization. In order to achieve organization performance, it is to establish indicators to monitor processes and provide adequate feedback to the people who involved in the achievement of goals and in the organizational performance. (DRUCKER F. 2003. Management challenges for the 21st century. Oxford: Butterworth-Heinemann) In order to have a better organizational performance, in ALSTOM use a broad range of performance measures, targeting process efficiency, customer service, bottom line, productivity, profitability, corporate culture and corporate growth. Until the foundation of the segment in 1999, they were only a spare parts supplier. With being independent, ALSTOM became grown-ups and the way ALSTOM was thinking changed. ALSTOM developed an awareness of customer expectations. They were driven by customer requirements who wanted supply, consulting, and new service ideas. ALSTOM was getting independent. The separation from the OEM Business produced a great motivation in the managers and people because they were able to create their own values, standards, and the way of doing the business themselves. The new autonomy generated initial momentum. With the new direct contact and responsibility for to the plant customer they had, for the first time, the means to create customer relationships on their own initiative. That was the start for the successful development that began with a rise in sales from € 2.500 million in 1999/2000 to over € 3-300 million in 2003/2004 and in operating income from € 200 million in 1999/2000 to over € 400 million in 2003/2004. ALSTOM was successful in the first one and half year after the foundation in mid 1999.With gained experience ice started 2001 with an optimized organizational structure and Power Service increased turnover by 50% and doubled earnings within about 4 years. The atmosphere was stimulated by the successful development and hence very positive. Managers took the idea of accountability they wanted to install. At the first large Service Convention, ALSTOM was already able to tell the managers success stories about the development of their segment in terms of growth and orders: That made them feel like they were part of a good story and led to extremely good feelings and excitement. At the first Service Convention in 2000 in Brussels with 150 managers, ALSTOM was able to present an extraordinary development of the customer service segment which was visible in successes and immediate achievements such as large contracts for overhaul of plants and long-term maintenance contracts. The successes generated an increasing belief in their competence and triggered excitement about the new segment. And excellent people from other units started to join the service unit. The whole atmosphere changed. ALSTOM evolved from a collection of neglected people with a bad reputation to a successful, confident workforce. Today, the success and the momentum at ALSTOM Power are driven by motivated local managers. Q.2, critically Alstom’s HR strategy, their leader ship and focus on its structure and Culture ALSTOM has four things that both strategic and operational leaders can do to make teams and organizations successful. They are: selecting talent, motivating people, coaching, and building trust. In ALSTOM, they point out that leaders of great teams pick talent on the basis of excellence and ability to work with others. Good leaders are not afraid to hire people who know more than they do. A leader should design responsibilities that engage a person’s competence and values. Responsibilities are motivating when they stretch people and are meaningful to them. Responsibilities can engage such intrinsic motivations as exercising one’s abilities, creating something new, helping others and providing value to customers. Which of these meanings is most motivating depends on an individual's personality. The combination of intrinsic motivation with extrinsic rewards and recognition can produce highly motivated people. Of course, incentives, rewards and recognition should reinforce the kind of behaviour needed for the team's success. If you want people to cooperate, you need to reward and recognize successful cooperation. To summarize, ALSTOM need good management and great leaders, and efficient function and energizing relationships. Bureaucracies are typically over managed and under led, resulting in bored, unmotivated employees. Start-ups are often intensely led and under managed, so that enthusiasm leads to unplanned problems, overspending and missed deadlines. There are many different ways to exercise the management function and people are willing to follow different leadership styles. Although there are many good examples of management and leadership, other than ALSTOM, there is no one best way. You can get good ideas from observing successful companies, but you need to design your own management function by involving team members, and developing your own way of inspiring people to follow you. Individual Management as a powerful tool, ALSTOM focus more on all levels of HR which gives fruitful results for better performance. HR Selection Being a service industry of diverse cultures, ALSTOM’s sales supervisors must had managed a global sales force differently than they would a domestic sales force, this cultural gap had not been widened. The major difference in the shift was that global sales managers were not contended with diverse cultures and languages, territories and ethical standards, while achieving goals through a sales force that was based half-way around the globe. Likewise, culture impacts each of these stages where the managers were unable to understand that what is acceptable in one culture for selecting, training, or motivating sales force members may be unacceptable elsewhere.( Bratton & Gold, 2003, Human Resource Management (3rd ed.), Palgrave) ALSTOM was also involved in the ‘cultural conventional commodity production’ where the facelessness of the work force, labour unrest, management that is often out of touch with the operation, low standards of quality, sometimes even sabotage of the product are all common themes in the popular literature of production. All ALSTOM required was the marginal leadership skill which was lacking in their leaders. They were unable to transmit commands accordingly. Q.3 Identifying Alstom’s micro-level management or internal issues and evaluate the company’s capability in solving issues. Why should we develop a performance management system? By putting time, money, and all energy, you are trying to build your company. If the team is not efficient and productive, nobody will be able to function it properly up to the expectation. You have to build a team and co- ordinate and control them so as to perform up to your expectation. The employees should be properly appreciated and rewarded adequately. (ANTHONY RN & GOVINDARAJAN 2003 Management control systems 11th edition Boston: McGraw-Hill) In order to ensure excellent performance of the employees and to make them more productive, ALSTOM focusing more on the following steps: 1. Prepare well in advance: Before interacting with the employees one should prepare well in advance. The re should be properly time managed, because, time is money. 2. Set by positive example: As an employer one should be very positive to provide good results. At the beginning of the review, it’s important to reaffirm the employee’s strengths and weaknesses. The performance review is an excellent time to tell an employee how much you value their contributions to your business. As job security is the number one concern of almost all the people they will be much pleased to do all sorts commitment to ensure the same. 3. In general terms, it’s also important not to criticize the employee. It should be kept in mind that the aim is to evaluate the job performance and not a particular person. By doing otherwise the employer is simply taking away the employee morale which is so significant for his performance. 4. Try to understand that the employee is also a human being. If you treat your employee like a machine rather than a human being, you are not providing reasonable reviews to the employee and try to make him a machine. 5. You should be consistent regularly. As an efficient employer one should provide detailed performance appraisal of the employees. The gifted and talented employees should be motivated and weak employees should be given adequate help accordingly. To the job requirements, a simple step to assess work based on quantity and quality is needed relatively. 6. Don’t let it one-way traffic. As an efficient employer, one should focus more on employee motivation regularly. With an open agenda an effective performance review can be done with interactive discussion. Seek the employee’s ideas and input to formulate effective strategy for effective performance management. By doing so, the employees get the feeling that his or her opinions will be considered with due respect. The employer should try to make the review as an open forum for expressing their ideas and opinions for better performance in the company. 7. Do recognize and value employee’s reasonable opinion This is very vital thing to boost up the employee satisfaction by appreciating the reasonable opinion of the employee at the right place at the right time. 8. Balance life with work. Jointly discuss solutions to improve the balance between work and life. 9. Do show your concern for the employee’s work/life balance and to it is also a good time to create a plan for the employee’s career advancement. Tell frankly and discuss what future opportunities might exist for him or her in your organization that will definitely boost up his confidence to a very great level. 10. Lend your ear. If you are an efficient employer, your key strategy would be to hear the employees regularly. This will give them a morale booster by providing a belief that there is somebody to value their verbal and nonverbal cues. As an efficient employer, one should review the matter regularly. Proactive reviews should be done methodically.( Edwards & Rees, 2006, International Human Resource Management, Pearson Education.) There is no doubt that in the presence of Walter, ALSTOM’s management was able to cope up with the problems to some extent. The company with the help of deploying several strategies was not only able to retain its’ customers but also maintained law and order situation in the case of internal conflicts. But this is also true that Walter’s management in 2003 when redirected towards ‘efficiency’ and ‘sales concern’, found them in a critical situation where they had not enough experience to survive in the global industry. It was due to Walter’s overregulation of micromanagement that they remained unable to manage 10,000 employees in the beginning and later they realised that they were also lacking capable managers to determine and plan according to competitive environment. ALSTOM’s evaluation at micro level management was uncertain and not properly organised. This is evident from factors like lack of expertise, internal conflicts, conflicts in decision making etc. Walter’s management deployed no defined processes; however he admitted that he lacked experienced and devoted people for the first part of the industry. This case was not applied to the OEM which met the sales target and captured highly qualified staff. However, on the other hand the micro management development of three teams which consisted of 10 people per team, the customer-market team, strategy team and Solutions Portfolio team was an effective approach at least towards clearly defined goals. Qn 4: Recommendations, Alstom’s future management and workforce Being a start-up of company size Previously, ALSTOM's service activities consisted of several small departments connected to different plant technology business segments. The management became responsible for the newly built customer service segment. The structural break was in 1999 when nearly every service activity was cut out of the five main power technology segments and combined to the independent power service unit in the power division. This was a quantum leap. They with a start-up 10,000 people and with extreme uncertainties they had to start and function immediately. Throughout the years ALSTOM has been able to develop effective strategies for managers as well as employees and has overcome its weakness of lack of expertise and unity among employees. ALSTOM in 2003 was confronted to many losses due to lack of understanding between new and old employees. In the light of SWOT, today ALSTOM’s strength lies in its’ experienced service engineers, managers and sales staff. The current situation is due to the efforts conducted by Walter in the area of developing strength and motivation of its’ employees through conducting seminars, workshops, training and up dating of its’ local as well as global service centre managers and employees. On the customer level ALSTOM is confident to have the knowledge and experience to satisfy its’ customers, but where ALSTOM lacks is the ‘Marketing’ division which demands proper packaging and marketing techniques. ALSTOM is aware of the weakness in its’ marketing sector and realises that this aspect has become an ‘advantage’ for it’s’ competitors, who market their services effectively focusing on their lower rates, whereas ALSTOM offers quality oriented expensive services. However ALSTOM has identified its’ opportunity level by offering various ‘value packages’ to the customers, who rather than going for machine parts, prefer performance solution packages. This is the area where ALSTOM’s competitors are left behind. Future of ALSTOM ALSTOM’s future lies in effective employee management, meetings, equipping its’ employees to confront challenges and in order to avoid conflicting situation, providing same employee benefits to every department. ALSTOM is planning for effective solution packages on a large scale, for which it is keen to adopt effective marketing strategies like advertising, promotional campaigns etc. ALSTOM will manage to develop effective relationships not only with customers but also with suppliers who would hopefully promote ALSTOM to be a full fledged plant service provider. HRM Decision over the next 1-2 strategic Periods: Since ALSTOM has constantly improved its’ services, it still has the need to initiate a cooperative environment between it’s’ employees. There is a need to strengthen ALSTOM’s infrastructure not only through management but also decentralising its’ activities particularly through effective decision making. The main reason behind decentralising is the huge amount of work force which has involved in various conflicts in the past and the limitation of cultural aspects. Its focus should be on HR inducing members of the organisation to adopt attitudes and behaviours consistent with the systems developed by management, thereby contributing to achievement of the industry’s goals. This can be accomplished through the reconciliation and coordination of the needs and goals of the supervisee with those of the organisation. Despite inducting new Industry experienced people heavily ignoring and limiting current employees to a particular level just because they are not in favour of a particular department (OEM), ALSTOM’s strategy must include conductive programs to motivate the current work force to acknowledge the requirement of the service department and its up gradation for the betterment of the ALSTOM Industry. This would create an environment where the employees who were once the stakeholders of the ALSTOM business continue to do so by changing or modifying their school of thought for the betterment of the ALSTOM. The current management people who are the pioneers and the stakeholders must have to be motivated to upgrade themselves in order to be in the managerial position for the new OEM department so that they can guide the new talent being inducted by the company. In other case they should be motivated enough and realised that they play a vital role in the communication between all the departments. All the employees must have to be updated about the changing status of the ALSTOM industry business, its threats and opportunities so that they can easily adapt newer changes. Strategy for the identification of shortfalls and its clearance There is a need to notice constraints that emerge at every level of management, particularly at the leadership level where one has to check and analyse daily constraints. The above suggestion might not work in every situation and there is always a need to induct new talent in order to cope up the changing industry standards as it might not be possible to upgrade the current employees of ALSTOM to the required level of expertise which is essential for the newer change and operations of ALSTOM. In this condition the older employees should be motivated to upgrade themselves enough for the newer processes so that they might be able to manage the new talent and also be able to involve the suggestions of the subordinates. The HR management must take into account and develop policies equally beneficial for the new and old employees. Team shifting and switching of departments should be preferred rather than to get hooked to the same old departments. Regular annual and monthly meetings should be conducted to analyse and supervise the work done so far. This presents the involvement of various levels of decision making for the higher level service operations manager. First, the number of workers needed to cover anticipated business demand must be forecasted at every level. This can be done by making strategic plans in terms of standard labour hour’s division as most businesses attempts to cover all work with no more than 10% unapplied labour with provision for rapid expansion of capacity when required. This decision must be followed and re-evaluated periodically, quarterly or on a weekly basis. If each and every employee is competent to every department and is able to hold any responsibility, there would simply be no obstruction or hindrance anywhere in the industry but the main concern in ALSTOM’s case is not just hiring but the division of work in such a manner that would not create any conflicting attitudes. Centralisation to decentralisation ALSTOM managers should focus on decentralising and adopting policies in the industrial hierarchy, and must emphasise on the decision-making domain along with it’s’ consequences. In this case it might happen that the upper managerial staffs does not have time to devote to the frequent, detailed decisions required to carry out mundane processes. So, every move must be monitored on a micro management level along with the threats and opportunities related. In this case Walter must be aware of the existing market structure where there is always an open invitation to employees and the situation from which ALSTOM has suffered in the past, could drive its’ employees towards its’ competitors. There is a need for Walter to plan new team building strategies, which must include: Building relationships, creating and maintaining a positive working atmosphere and establishing agreed working procedures. ALSTOM future progress depends upon the leaders wise decisions in the situations where conflicting interests arises. Leaders must take into account all the issues that serve as the generators of conflicts. (Tracy, 1994, p. 159) Consequently, leaders play a primary role in the management of conflict, both within the systems they lead and between systems. ALSTOM should present those leaders who are expected to make decisions for the benefit of their employees group, Industry and those communities that represent ALSTOM. CASE STDY-SWOT ANALYSIS Strengths 1. An excellent team of professionals. The very name ALSTOM, Signifies the impersonality attached to any single individual's name or family. Scope, thus, exists to work for the company rather than to glorify the name of a family. Self generated export business and hence first hand knowledge of the foreign buyers and the markets. Thus a positive synergistic effect is possible for the entire group. Presence of both domestic and export markets in ALSTOM market mix enables knowledge of both the market. Availability of a pool of experience and information through its association is very much needed. Product line, at least the one associated with leather has a tremendous growth potential, both in International and domestic markets. Weakness 1. Size: To my mind this appears to be a major weakness in case of ALSTOM. . The whole Woking of it has to be reorganized to utilise the human resources available to it. 2 Product Portfolio: Though so far has been able to generate sales from only two lines, but the lines have very narrow product-market scope and could prove vulnerable in the long term, a balanced portfolio could be one which would enable ALSTOM to generate sufficient funds to achieve its growth and the present objectives. Lack of 'systems' appears to be another weakness of ALSTOM. Today, whatever information is generated appears to be an end in itself. Further, it is being generated, because it has to be generated. Thus, the most important aspects of systems to aid in decision making advance alarming, forecasting, control, etc., are missing. This would require development of attitude, skills and a way of working. The entire organisation and not the directors alone, have to be reoriented to develop a culture for systematic working. Creation of this culture at this stage is very important as only this would enable a better growth. If not introduced today, corrective actions would prove very expensive at a later date when gaps would start surfacing between the operations’ and 'work attitude'. Important is to arrive at as balance between persons based operations and systems based operations' and the time to act is 'now'. For example, there is a need for periodic review, and hence the generation of monthly concept reports. There is a need to develop budgets and monthly cash flow statements. There is a need to develop reports, which would consider the various lines as different profit centres. There is a need to develop corporate plans and hence to develop strong market and marketing information systems. There is a need to develop corporate plans and hence to develop strong market and marketing information systems. There is a need to coordinate production between two units and subcontracting, and there is a need to manage materials as raw materials today from 80% of cost and 98%. Heavy reliance on borrowed funds could cause a serious financial problem. The financial position has deteriorated to the extent that seems to be having a negative working capital. It not only means reduction in profits due to heavy interest burden, but it may also mean shortage of working funds for day-to-day operations. My apprehension is that in the near future, unless finished goods are liquidated earlier, would face serious working funds problems and would be forced to borrow more money from outside at very high interest rates and become vulnerable. Another weakness appears to be a wide gap between the skills and competence of permanent staff. It has to grow and it has to have a proper team to manage its operations. ALSTOM seems to have no image of its own. Though this is a very useful association, it need not imply that cannot and should not have its own corporate image. All four partners are convinced that is a different concept than any other company so far floated by competitor. In fact, one of the biggest assets, which of course has come more because of a chance, is the name itself. This name, devoid of any personality or family, should become a symbol of a professional house. Thus attempts should be made to project and create a good corporate image. Problems Problems could be both due to internal weaknesses of the organisations as well as due to exogenous factors beyond the control of the organisations. Whatever may be the cause, they need to be known in the first place and then solutions have to be found to solve them. To my mind, the following appear to be the major problems. Except for one firm, no other firm seems to have a specific area of responsibility. Lack of competitive advantage as market share is low. Under-utilisation of time and competencies in other words, lack of work for all the employees and channel partners. Lack of motivation to expand seems to have set in that in spite of producing more would continue to incur losses. Threats Raw material subject to constant price rises. Demand may rise or fall without any explicable trends. Poor and erratic availability of raw material. Changing government policies and export restrictions by 'importing ' countries. Constant labour trouble. Only high volume can sustain the business as profitability is low. Irregular supplies of the material. Opportunities For power, tremendous opportunities exist in both domestic and international markets. In case regular supplies are available the firms can generate much needed surpluses. Assuming a net profit of 10% can each year generate a good business. It can enter into trading of another line. They would need to develop some strength at least in terms of market knowledge and marketing practices of trade etc. By utilising the present channels and contracts, they can also try to add some more profitable line, which can be marketed. REFERENCE 1. Bassett Glenn, (1992) Operations Management for Service Industries: Competing in the Service Era: Quorum Books: Westport, CT. 2. Beach Lee Roy, (1996) Decision Making in the Workplace: A Unified Perspective: Lawrence Erlbaum Associates: Mahwah, NJ. 3. Casson Mark, (2001) Information and Organization: A New Perspective on the Theory of the Firm: Oxford University Press: Oxford, England. 4. Ford B. John, D. Honeycutt & Simintiras C. Antonis, (2003) Sales Management: A Global Perspective: Routledge: London. 5. Imundo L. V. (1980). The effective supervisor’s handbook. New York: AMACOM 6. Minkin Lewis, (1991) The Contentious Alliance: Trade Unions and the Labour Party: Edinburgh University Press: Edinburgh. 7. 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(ANTHONY RN & GOVINDARAJAN 2003 Management control systems 11th edition Boston: McGraw-Hill) 18. (DRUCKER F. 2003. Management challenges for the 21st century. Oxford: Butterworth-Heinemann) Read More