Report to Head of Machos Strategic Review Committee

Introduction

Machco was started more than 100 years ago with invention of a steam-driven drill for mining and it is a multi-billion dollar machinery and equipment company. The company grew to great extends since it developed 45 plants all over the world. The company sold almost everything in the market ranging from huge engines to tiny bolts. The company succeeded in most of its business areas but just like any other business organization it had its own share of challenges which it went through.¹

Since the company was huge it had several business groups and production equipment group was one of the groups of the company. The discussion that follows is based on this group and all it underwent opportunities, weaknesses and challenges through its innovative operations. The main duties of the production group were to make and sell range of small electrically powered machines that were used in the industrial manufacturing, assembly and repair processes.

SWOT analysis

Strengths

The Machco production equipment group had several strengths in its business operations; the organization enjoyed a strong and a large market share of 80 percent. This enabled the company to stand firm in the market though the competition in the market share continued to increase.

The group enjoyed good reputation in the market; this was as a result of being the Cadillac of assembly equipment and also because of the good profits it had achieved for years. Good reputation in the market sells out the company and this is what happened to the company.₁

Weakness

The company has weaknesses in innovation it does not encourage or practice innovative strategies. There is also poor management that contributes a lot to the problems in the company. The other areas that have great weaknesses are the use of the informal social system and it is also not focused on future of the company.

Opportunities

Advancing technology offered good opportunities for the company if only it adopted the changing technology in its operations but instead it closed the technology center. Advancement of products technology would result to high performance and competitive advantage in the market. Innovation ideas provided better opportunities if only the company was focused on the innovative ideas. ²

Threats

The company faced high competition from both foreign companies as well as innovative domestic ones. The high competition faced resulted to reduced market share since many of the customers were attracted to companies that provided products that met their needs perfectly. Though the company faced such competition it was all because of lack of innovative strategies to keep in touch with market needs and demands. ²

Challenges faced by the company

Innovation problems

The company assumed that having a large market share was enough and was not committed to developing new innovative strategies to maintain the market share. Because of this competition in the market increased and the company lost the market share to other companies because of lack of innovativeness. The company made many changes and investments in several programs that were aimed at modernizing manufacturing. Though the changes were made still the production innovation abilities did not improve since the period of time before a new product was introduced was too long.¹

Innovation is very important in any business organization and especially for such a huge company innovation was very important. The reason is that the technology and the needs of the society keep on changing hence when a business firm does not adopt the changing technology then it can not meet the market needs. This is what happened for the group since it received high competition from other foreign companies as well as innovative domestic competition. ¹

The company did not adapt the changing technology in its products instead they based their operations on the mature technology that they were using. Because of this they adopted tactics that were deceitful to customers that was based on forging and machining of metal parts. These actions were as a result of closing of the technology center in late 1970’s. ¹

Lack of corporation between members

The management in the group was not corporative and they hated each other, marketing department could do its external work only and leave the rest to the engineering department. Because of the differences that were there management could not coordinate the activities properly within the company. On the other hand the relationship between the engineers and manufacturers was the worst they hated each other completely. ¹

This kind of behavior and relationship that existed in the company affected greatly the production of the company. This is because each department kept on blaming the other for time wasting and delay. For instance the engineers blamed manufacturers for taking too long to manufacture the products. These created enmity further and the production and performance of the company was highly affected.

Lack of corporation was triggered by the kind of relationship that existed between the people and departments within the company. The relationship was very poor among the people and real rivalry existed in regards to who is responsible for what. The other factor that contributed a lot to this was the social informal system that existed in the company. This is because it did not allow a free communication among members from management to operators. For instance the relationship between the management and the rest of members was based on avoidance, they all avoided each other. When communication is poor it is challenging to have a good relationship.¹

Because of such a relationship there were many problems that were experienced in the company that went unnoticed by the management. Also the operations within the company were not very well coordinated since the members of the departments hated each other and definitely where there is hatred activities can not be properly coordinated.

Not future focused

The company was not focused on future but instead major focus was on the daily and monthly activities. They were more concerned on the costs incurred in the processes instead of how to improve performance in the company. This was as a result of the kind of system that was used “standard costs and variance reduction”. The other contributing factor to this was the way the performance was judged since it was based on the volumes shipped but not on quality of work. These two factors limited the focus of the company to daily and monthly costs rather than the end product and the general performance of the company.¹

Use of informal social system

The company operates using an informal system, because of this kind of system there are many activities and duties that are left undone in the company. This in one way or another affects the performance of the company, since much of the time is spent doing some of the activities that one should not be doing hence failure to accomplish the most important tasks. This was a challenge to many of the employees in the company and the ones who were luck to know tricks of survival they went through it.

The other problem associated with the informal social system was the top down control that was practiced. The system was in such a manner that “the senior management determined production levels and product lines while people at the plant executed.” Such a system hindered real communication opportunities between the management and the executors of the decisions. Communication in any set up whether business or not it is very important since it is through these important aspects of success are discussed. Because of poor communication in the company the people continued to focus on cost reduction even when they saw need for change. ¹

The system also created fear among the operators such that even when they saw necessity of communicating something with management they could not because of the poor communication that existed. As a result there were many problems like the issue of focus on cost reduction that were not discussed and they were of importance to the general company operations. ¹

Because of the fear there were many problems and issues that the management did not get know concerning production. For instance when there were problems in quality of products or delivery schedules the management was not informed of this because of the kind of system adopted. This also was associated with the fear of being punished incase the management knew of such mistakes. The notion in the company was such that no mistakes were tolerated and every mistake was punishable. This kind of fear of punishment pushed the operators such that even if something went wrong and would affect the entire company it was better to hide that for the management to know it.

This meant that there were many mistakes that took place in the company that if the management knew they would take an action to prevent or control the damage or losses but this was not the case. The losses and damages took place without their knowledge hence it was difficult to know exactly what went wrong where hence poor performance of the company.¹

Statement of objective

“Keeping costs low was the objective, not spending money was strategy and meeting weekly schedules and cost targets were the key performance criteria.” Such an objective was mainly focused on cost reduction strategies for the company but not how to increase performance. Such kind of an objective limited the members in the company since they could not do anything else that did not maintain the cost low.¹

Porter’s five forces

Buyer’s power

Buyers in the company operations had no much power; the reason was that the company felt that they knew everything about the market hence no need for buyers to be involved in the process of production. It is because of lack of involvement of the buyers in the process that some of the products designed did not succeed in the market.

Competitive rivalry

In the first the company was very competitive and it had a huge market share of 80 percent but with time things changed and there emerged low cost foreign companies that offered better products at lower cost. Also there were domestic competitive companies that rose up and become rivals in the market. ³

Threat of substitutes

The rivalry companies provided substitutes to the products that were offered by the company at lower cost (low cost foreign companies). These substitutes resulted to reduction of the company’s market share since they took larger percentage. ³

Supplier’s power

The company as the supplier of the finished products in the market at one point it had much power since it held a large market share hence being able to command the market. This did not last for long the power was reduced because other competitive companies arose in the market and the market share was minimal. ³

Potential entrants in the market

There was the threat of potential entrants in the market; this is because already there were certain low cost foreign companies and other domestic companies that had ventured in the industry. This was a threat to the company and maintenance of the competitive position was a threat because of the new entrants.

Decision matrix

Decision making is a process and to come up with a viable decision that can work effectively calls for commitment of a members and departments in an organization. When making decisions there are certain choices to be made among any alternatives, the best choice among the many is chosen. In order to come up with viable decisions there are certain steps that should be followed. The first thing is to collect enough data based on the different choices you have, the second step is the analysis of the collected data logically. Here the data is weighed against the objectives that have been set, and then the choice that best suits the objectives is chosen. ²

The company instead of using formal decision making system used informal one whereby every one made decision according to his or her interests without consulting with other people or departments. Because of this a lot of time was wasted every one wanting his decision to be implemented, this created more enmity and bad relationship in the company, hence poor performance.³

Alternatives strategies for the company and their analysis

Organizational learning cycle

The company should have implemented an organizational learning cycle this is a kind of cycle that involves four steps, generating, integrating, interpreting and acting on information. This can only be achieved where the different departments and people integrate together; this interpretation gives chance for idea generation, common interpretation of information and acting on the same information. This is what lacked in the Machco machinery group and was the reason for lack of cooperation and poor relationship among different people and departments.⁴

Generation

The company should encourage and put up some of the strategies that encourage idea generation in the business organization. Idea generation can be encouraged when all the people are treated equal through being given a chance of expressing one’s ideas. This lacked in the company since there was no a good way of communication instead the management was by its own and the subordinates by their own. Idea generation is the core factor to development of innovative strategies if it is encouraged the company’s projects that have failed would have succeed through development of innovative strategies.⁴

Integration

Integration in a company is very important this is because where there are integration people and departments tend to share ideas and activities they have in the company. The company should encourage integration among all the departments in the company, if this is implemented it will mean that all the departments in the company will integrate. When there is integration in the company it will mean that there are many problems that will be minimized in the company. For instance the problems associated with poor relationships and communication in the company would be solved. ⁴

When the company departments come together through integration to share their ideas and activities it means that they will all participate in carrying out the activities and projects of the company stogether. Most of the projects and activities that have failed in the company could have been achieved through proper integration of the departments and people in the company. This is because most of the projects and activities failed because of lack of cooperation and integration of the departments because the activities were left to one department to carry out.⁵

Common Interpretation of information

Integration gives people an opportunity to share ideas and have a common interpretation of the ideas as a team. This helps to solve problems associated with management and relationships within the company. Since the company has encountered poor management as well as lack of cooperation, the issues contributing to this can be shared and interpreted together such that every one is aware of what should be done. Also this will help avoid problems created by the informal social system that is created in the company.⁵

Acting on information

When the information is interpreted together it becomes possible to take action together as a company. This is because the all team knows what exactly needs to be implemented and this also helps in creating and building team work in the company something that lacks in the Machco Company.

Owning the problem and solving it

This is also another strategy that can be implemented in the company whereby all the people are given a chance whenever there is a problem of first admitting that there is a problem then developing ways to solve the problem. If this was the case in the company many problems that were hidden could have been solved and the performance and productivity of the company would have been very high.⁶

The company should come up with a way such that every person has a freedom of owning a problem that occurs and can come up with ways of solving it. Through this it would be easier for the company to avoid some of the major challenges the company faces since people will not hind them instead they will search for solutions to the problems. Each person in the company will be focused on solving some of the major problems in the company hence the company will enjoy competitive advantages in the business environment.⁵

Challenge the status quo

Another major challenge that was faced in the company was the issue of status quo whereby the managers and the operators or the subordinates did not relate well. The managers should not have assumed to be superior or special than the other members instead they should have worked together to achieve the objectives of the company. Because of the status quo the relationship and communication was poor hence poor performance of the company in the market.⁴

Status quo and leadership they usually go together, when status quo is not high in a business organization the leadership is usually favorable for the whole company. Because of the status quo in the company the leadership of the company was poor and when leadership is poor it affects the operations of the company. If the status quo is challenged it means that the leadership will be effective and the company will be a success generally.⁴

The management should develop ways of reducing the status quo this is because it is a main problem in the company and if it is avoided it will create a way for better opportunities. Status quo hinders development of innovative ideas; this is because there are certain classes of people whose ideas are not valued. When it is challenged innovative ideas will even come from the subordinates and the company will go back to its original position in the market. ⁴

Focus on core capabilities

The company should be highly focused on the core capabilities that the company has, this is because it is through this core capabilities that the company can manage to develop strategies that will give it competitive advantage in the competitive business environment. Core capabilities in a business organization can be obtained from the different assents that exist in the company.⁶

The company can use the four different knowledge-based dimensions of core capabilities. The core capabilities include employee knowledge and skill, technical systems, managerial systems and value and norms.

Employee knowledge and skill

This gives the company an opportunity to gain competitive advantage in the market; this is because the company utilizes efficiently employee knowledge and skills that are in the company. The company should put up a strategy to utilize employee knowledge and skills available in the company for its success.⁶

Technical systems

Already the company had tried to adopt technical systems to support its operations. The technical systems set would have helped a lot in success of the company if there were cooperation among the different departments.⁶

Managerial systems

Managerial systems are very important in success of business organization this is because it helps in allocation of finances and the general management of the company. The company experienced failures in its operations due to lack of proper managerial systems. ⁶

Value and norms

For the company to succeed it should set down its values and norms that are practiced in the company. When they are there it is possible to control some of the issues like the informal social system used in the company which contributes a large percentage of the problems and challenges experienced in the company.

Interaction of development projects and core capabilities

The company should strive to integrate development projects and the core capabilities that exist in the company. This is because the core capabilities help in achievement of the objectives of the development projects that are set in the company. Some of the projects failed because of poor management and poor allocation of skills and resources that are available in the company. When the development projects are interacted with core capabilities it will be easier to achieve the objectives and competitive advantage in the company.⁶

Recommendations

The management of the group should ensure that the differences between the different departments in the company are solved. This would be done through development of programs that involved all the members, through this programs they can share and interact together to know the cause of the problems and differences hence be in a better chance of solving the issues for betterment of the company.⁷

The company should change its focus from monthly costs to long term focus; this is because this kind of focus limits the development and growth of the company but long term focus creates better opportunities for growth.

Such a big company can not succeed without formal system to coordinate the activities taking place. The company should adopt a formal system that defines clearly the responsibility and duty of each member in the company. This would help a lot in saving a lot of time wasted while arguing who is responsible for doing what. Also would play an important role in enhancing performance and productivity in the company.⁷

Communication systems in the company should have been in such a way that they allowed free movement of information within the company. This is because when there is free sharing of information within an organization or company the performance and productivity is usually very high. The reason is that they get to share many issues that may affect performance and how to avoid them, also good communication and flow of information results to beneficial idea generation within the company. ⁶

Since the marketing environment is very much changing and competition is very high, in order to survive the company has to be aggressive and should adopt the changing technology and new improved innovative strategies. This is what is keeping many of the business organizations to stay competitive in the business environment. This would only be achieved if there is good relationship and competent leadership in the company. The reason is that competent leadership triggers development of innovative ideas. ⁷

While carrying out plan on implementing new strategies the company should have involved the buyers, this is because they provide very essential information on their needs. With this information it is easier to develop a product that sits the buyer’s needs hence gain competitive advantage in the market. Buyers are very important in success of any business organization because the success is based on the willingness and ability of the buyers to purchase the company’s products.¹

The company should have encouraged interdepartmental participation in all the activities of the company. This is because when all the departments are involved they feel that they are part of the projects being carried out. Each department should have a responsibility in the achievement of the project. This encourages participation and commitment and helps to avoid certain problems that usually take place because of lack of team work and unity in carrying out activities.⁶

Conclusion

The Machco production equipment group started off well with a huge market share and very competitive in the market but it assumed the dominance such that it did not continue developing new innovative strategies. Because of this it lost its market share to other innovative and competitive companies. Though the company was successful it also had its share of challenges which have been analyzed in the report, and possible solutions have been suggested for the company. The implementation of the recommendations will in turn help the company to regain its competitive advantage and market share in the market.

Works cited

1. Deborah Dougherty, (1998), New products at an old firm: Machco gets innovative, McGill University. Pp. 1-14
2. Dorothy Leonard-Barton, Core capabilities and core rigidities: A paradox in managing new product development, Strategic Management Journal, 1992, Vol. 13, p. 111-125
3. Finding a model that works, Generating internal commitment to implementing strategy, pp. 194- 202
4. Julie King, Overcoming challenges that prevent small business growth. Web.
5. Nancy R. Tague’s The Quality Toolbox, Second Edition, ASQ Quality Press, 2004, pages 219-223.
6. The organizational learning cycle, pp. 63-73
7. Vadim Kotelnikov, Core Competencies, things you can do better your competition. Web.

Footnotes

1.  Deborah Dougherty, (1998), New products at an old firm: Machco gets innovative, McGill University. Pp. 1-14
2.  Nancy R. Tague’s The Quality Toolbox, Second Edition, ASQ Quality Press, 2004, pages 219-223.
3.  Finding a model that works, Generating internal commitment to implementing strategy, pp. 194- 202
4.  The organizational learning cycle, pp. 63-73
5. Vadim Kotelnikov, Core Competencies, things you can do better your competition,
6. Dorothy Leonard-Barton, Core capabilities and core rigidities: A paradox in managing new product development, Strategic Management Journal, 1992, Vol. 13, p. 111-125
7. Julie King, Overcoming challenges that prevent small business growth.