Poor Operation of Figgie International Inc - Case Study Example

Consultancy Group Name Student Names Case Study Report Figgie International Executive summary Figgie international, created by Harry Figgie grew through a series of acquisition where more than a dozen companies were acquired from the beginning of 1963. By the year 1989, Figgie international had 36 divisions with several unrelated products from sporting equipment to fire fighting equipments. The stretch of activities raised the reputation of Figgie international to number 286 on the fortune 500 magazine. It was during this period that company’s earnings reached $1.31 billion out of which $63 million were profits to be distributed to 10887 shareholders and 17,000 employees. On the contrary, these earnings blindfolded the management from foreseeing modernization problems affecting Figgie’s divisions. In the housing insurance division, its bad acquisition led to a string of losses amounting to $13.5 million. Harry knew also that manufacturing plant needed modernization but the problem was how to source such a huge investment which was required to fulfil re-engineering or overhaul task. In order to reduce operation cost and produce quality products, it was necessary for Figgie international to take advantage of modern technology and equipment which would raise the company to world class level. For Harry, modernization was a difficult mission and he had no idea on how to achieve it. Consequently, he sought assistance of old management consultants hoping that the objective would be realised. The CEO failed to consider recruiting internally expert personnel or even seeking advice from strategic managers. Table of content Introduction 4 1)Identification 4 2.1 HR issues 5 2.2 management issues 6 2.3 legal issues 7 2.4 financial issues 8 2)Diagnosis 9 3.1 Leadership 9 3.2 Culture 10 3.3 Structure 10 3.4 Management 11 3)Recommendations 12 4)Lessons 13 5)Conclusion 14 Introduction This report provides an analysis of major events that led to poor operation of Figgie international Inc. Issues to be identified will cover on: human resource, management, legal, financial among other essential areas of the company. As equipments in the company were aging, while labour became competitive, it was imperative for the company to take stern action which would enhance survival in the competitive environment. At the same time, federal government crippled the economy through incessant deficit budgets. Studies indicate that six different consultants were on the ground trying to workout 10 different projects on the same plant which needed modernization. Some of the consultants worked on plant consolidation while another evaluated just in time delivery. Too many consultants working on the project led to conflict of goals. Subsequently, plant managers lacked enough time to work on their own. 1) Identification In the month of October 1988, the story about the misfortunes crumpling down Figgie appeared on the infamous Forbes magazine (O’shea, 2007). The narrative focused on a stock buyback manoeuvre initiated by Hurry. That step diluted power of average shareholder by seeping power of average shareholder through a process of replacing one class of Figgie stock with another class which carried less voting power (O’shea, 2007). This strengthened Figgie’s control over the company but was at the expense of shareholders. After publication of the magazine, Figgie reacted with a modernization plan and instantly created a new hierarchy of a chairman and ran to grasp services of consultants. An alternative and appropriate step for the company was to empower employees and purchase right assets for the company. Any person at the management level knows that change out to be continuous and done over a span of time. Even though expenditure on capital goods is costly to a company, they can realise substantial profits if utilised appropriately. Moreover, Figgie should have formulated strategic business management instead of hiring series of consultants pursuing the same goal. 2.1 HR issues The first consultant employed to transform Figgie was not efficient in delivery of services. This was contributed by the fact that Thomas Lawson had specialised in health care and had not worked in a manufacturing sector (O’shea, 2007). He is only remembered for completing only two manufacturing missions in consultancy service. The consultant lacked necessary skills in the manufacturing sector yet was nominated as chief Figgie transformation project Valdez. When re-sourcing consultants, it is vital to use an approach of competitive bids before allocating responsibility to the most qualified consultants. Thomas was nominated simply because he knew Harry III in an Orthopaedic Association. Figgie relied too much on consultant’s services given the risk of misunderstanding or changing briefs and poor fit into the organization. They may fail to deliver cover on major issues surrounding suppliers such as the probability of bankruptcy. Degradation of Figgie international Inc is a proof to other companies that poor advice has serious effects on the profile of an organization. Costs of hiring consultants are also high especially when it comes to a large project similar to that of Figgie. It is important for an organization to consider benefits that accrues from utilising consultancy services before employing their services. Recently, compliance is of essence when tendering services to persons in the business world (Gaynor, 2005). Although it increases costs related to bureaucracy, compliance has the benefit of flexibility in realising value for money. Harry Figgie did not have business confidants therefore relied mainly on family and close friends. Most of the family members were attached to different sections in the company with an exception of a son who was an orthopaedic surgeon. Figgie’s wife was vice president for facility planning earning between $30,000 and $40,000 each year while the youngest son directed mergers and acquisitions. In the modernization plan, Harry would occupy the position of a chief executive and chairman while Vince Chiarucci maintained the status quo of a conglomerate president. The plan also factored in the post if a technology and strategic planner which was to be occupied by Harry III. Contentious issue surrounding the appointment of Harry III was about experience given the fact that he was an orthopaedic surgeon and lacked skills in the manufacturing field. 2.2 management issues Harry who was the head of management team demonstrates weakness in utilising consultative team meetings before implementing a major issue (Montana, 2008). There is clear evidence that Harry would acquire expensive and huge machinery without even consulting with managers who were supposed users. Although Harry demonstrated features of experience in the business field, employees did not like him due to lack trust. Although the management carried out intense inspection of purchases and its impacts on the company, there are little benefits that accrue from this action. It is ironical that the same management proceeds to purchase expensive modern manufacturing equipment without considering the overall effects on the company and the immediate users. Flexibility and innovativeness is of prime importance when planning to go global. Change from old to new process of manufacturing ought to be a slow and precise process where all stakeholders including the employees are involved. To support change, training and education must be implemented by the human resource department. 2.3 legal issues The level of professional malpractice liability is taking a closer step to consultant who participate corporate change and restructuring issues. Just the same way accountants and attorneys are liable to professional misconduct, consultants and their firms are not immune from legal obligation. In the modern bushiness world, firms are targeting consultants who exercise professional negligence and fraud. In 1994, Figgie international instituted a law suit against Bolton Consulting Group with an intention of obtaining damage of $2 million. The lawsuit is based on numerous facts including breach of contract, negligence, breach of fiduciary duty, negligent misrepresentation among other theories. This is an eye opener to consultants requiring them to exercise caution and state clearly the scope of the assignment while subsequently disclaiming any guarantees for results (Johnson, 2005). Suggestions offered by consultants should be reviewed appropriately and the views from strategic managers in addition to employees’ observations considered. Other issues that should be included are a complete package of current conditions, analysis of the causes, consideration of options, and recommendation made by the consultants. All these factors contribute to the successful implementation of a major change process without necessarily leading to a law suit. 2.4 financial issues When exercising a change strategy, strict consideration ought to be placed on rising costs. Initially, Figgie focused on raising money for acquisitions while squeezing the cost. This is only possible when short term profits are involved. Bad acquisitions in insurance division led to destruction of manufacturing sector that formed the base for Figgie international. Harry registered a success when he acquired a company and shaped its bottom by removing excess costs of operation. This strategy needed to change in the present competitive modern world where employees are more exposed and seek for pay rise. 2) Diagnosis This case study of Figgie international has also attempted to provide a detailed analysis of what went wrong in terms of leadership, culture, structure and management. 3.1 Leadership The leadership system at Figgie international was autocratic whereby orders and decisions came from a central command. The founder, Harry was a tooth taller who did not tolerate mistakes from employees. He issued orders and expected orders to be followed to the latter without question. This is contrary to participatory approaches which are the core of modern management practices (Tittemore, 2003). It was also family based in that family members were placed in high echelons of power. The hiring of Harry the 3rd for instance was not well received by staff because they perceived him as,” lacking sufficient experience” (O’shea, 2007). What compounded the leadership crisis was the hiring of six different consulting firms to work on 10 different projects located in the same plant. This brought complexity in the sense that monitoring all the consultants meant that valuable time that would otherwise have been devoted to improving company policy was lost. The world class manufacturing techniques introduced by Larry Schwartz, who was the head of manufacturing, failed because of opposition within the various divisions of the firm. The case could be different if prior consultation with the units was done done. It portrayed a weakness in leadership. Leadership strategy is a very important aspect of any organization. It should be inclusive and consultative (Tittemore, 2003). Before any major decisions are made it is imperative for the management to talk to middle level and junior staff in an attempt to source their views. This will permit sharing information and refining of ideas. A situation where decisions made by leaders cannot be challenged does not augur well for company growth. 3.2 Culture Culture is the sum total behaviour of a group of people. The executives of Figgie international went against culture of equality and competitive employment in their manner of running the company. It was more of a family investment yet shareholders had contributed substantial capital. The American way of running public and even private corporations is normally through merit and competence without regard to race or colour. The corporation went against the grain by bringing in family members who are incompetent in the manufacturing division. 3.3 Structure In an effort to take full control, Harry structured stock in a less powerful manner. That step diluted power of average shareholder granting them less voting ability. The company’s structure was also changed such that family members occupied top management positions. Harry created a new post for the doctor son who acted as vice chairman technology and strategic planning. To further illustrate a poor structure of the company was employment of Harry III who did not have experience in the manufacturing sector. He was perceived by staff as inexperienced and misplaced labour force. Executives in Figgie did not like Harry III but respected him for his smartness and visionary tools he possessed. The use of consultants proved to be the major undoing of Figgie international. In the first scenario, wage bill in terms of spending shot up and ate into company profits. Some consultants for instance Lawson and Giffi, and Deloitte& Touche partner had no experience in project management yet were allowed to take charge of the Figgie engagement (O’shea, 2007). 3.4 Management Management of Figgie is based on family with major decisions assumed by Harry Figgie the founder. It is neither based on professionalism nor even collective decision making but on sustenance of family status. Research vividly elaborates on how Harry managed human resources through a process commonly termed as “Hire ‘em, fire ‘em. ” This was a brutal management style that ought to have been faced out in the modern world where employees are empowered by pressure groups and unions. Critics argue that management style assumed by Harry is responsible for the downfall of Figgie international. Family intrusion destroyed Figgie through poor accounting of personnel and equipment used in Clark-Reliance, business owned by Figgie family. Resources e.g. landscapers and gardeners which belonged to Figgie international, were exploited for personal benefits. This clearly indicates inability to control resources for the common benefit. It is apparent that Harry could not differentiate between personal interest and company’s interest. 3) Recommendations Due to globalization, managers should deviate from micromanagement and take up new package of skills which are necessary to handle challenges brought about by globalization, empowerment and technology. An example is the chief executive of ford motors who is entrenching operating experience, global outlook, and technological experience into vision for the 21st century. The vision in this case is an integrated worldwide manufacturing of cars and trucks. Chief executive officers must focus on competence by balancing strategic vision with operating experience. The situation of Figgie could not have worsened if management had considered strictly hands-on experience and competitive bids. Leadership style and team building have a great impact on company’s profile. Figgie extensively used autocratic leadership where decisions were deficit of consultation. Employees were seen as voiceless and made no contribution in modernising the company. This leadership approach ought to change and be replaced with participative leadership which recognises employees as capable individuals with rational reasoning and hands-on experience. Before employing services of a consultant, prudent judgement must be placed on risk involved and returns anticipated (Kerzner, 2006). 4) Lessons Before making an attempt to employ consultancy firm, it is essential to state goals and objectives of the whole process. If goals are defined clearly, there is high probability the mission will be achieved. Before making effort to employ consultant’s service, one should seek refuge in strategic manager’s office or even employees within the company. How can a big organization like Figgie with thousands of employees lack skilled personnel to assist in modernization efforts? This is an impossible observation. In any case, an organization’s employee is in a better position to clearly define where change is needed. If consultants are hired, attention must be placed on their reputation level (Kelly, 1998). It is apparent therefore that Thomas Lawson should not have been hired since his reputation level was very low with a record of only two completed mission. An organization then uses competitive bidding with consultancy firms displaying their abilities to focus on client’s needs. Both the obligation of consultant and the client must be included as terms of the contract so as to avoid divergence from the main issue. Evaluation of related cost of consultancy and timelines is important so as to draw a budget of expenditures and sources of finances (Rea, 1997). An organization seeking to use consultancy services should address path taken if the engagement does not work. In this case, payments are based on performance and those who do not deliver the service are not paid any cent. In addition, management should not leave control function in the hands of consultants but they are supposed to work together while complementing each other in every dynamic. Respective managers are made to understand that whilst consultancy is taking place, they are under obligation to share decision making, understand duration of the contract, and be in charge of the whole procedure. Consulting service must be measured on its progress. This means that the client company is required to have an internal measure of process involved. If there is conflict of duty, the company can employ an independent person to monitor and report on procedures used by consultancy firm. Mistakes are not tolerated but confronted straight on the face to avoid plunging the company into turmoil. 5) Conclusion This report enlightens Chief Executives on the impact of employing consultancy services. The case of Figgie international demonstrates how management dealt with the need for globalization. Figgie employed six different consultants to work on 10 different projects in the manufacturing plant. The ball of contention was that goal of one consultant often conflicted with another. Managers of the plant were very committed to the consultancy such that they lacked time to work and think on their own. Furthermore, autocratic leadership style in Figgie acted as a setback to a change process. As elaborated in the essay, it should be replaced with participative leadership where decisions are made in a consultative forum. When considering employing a consultant, it is imperative to minimise costs and work within timelines Read More