The Turnaround Experience

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The Turnaround ExperienceReal-world Lessons in Revitalizing Corporations

Frederick M. ZimmermanUniversity of St. Thomas St. Paul, Minnesota

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The Turnaround ExperienceReal-world Lessons in Revitalizing Corporations

Frederick M. ZimmermanUniversity of St. Thomas St. Paul, Minnesota

The Turnaround Experience

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Freedom to copy noticeThe Turnaround Experience: Real-world Lessons in Revitalizing Corporations by Frederick M. Zimmerman was originally published by McGraw-Hill in 1991. After the book went out of print after selling all of two printings, the author repurchased the copyright from McGraw-Hill in 1996. The Turnaround Experience: Real-world Lessons in Revitalizing Corporations is copyrighted material but it is made available for single copying for anyone who wants to use it. No permission from the author and copyright owner is necessary. If there are question, the author can be contacted at 651-962-5751 or at zimco@visi.com. Frederick M. Zimmerman, January 3, 2002

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ToJoanell Eleanor Felker Zimmerman Frederick Josef Zimmerman Carita Michelle Zimmerman Christina Joanell Zimmerman Brigitte Aimee Zimmerman Hans Anthony Zimmerman and all of the people who have tried to do their best including Charles Nash, Walter Chrysler, Henry Leland,George Romney, Fred Zeder, Hans Mathias, Douglas Fraser, Dr. John Cich, Hal Sperlich, Charles Wiman, Ray Kline, Bill Laughlin, Jim Russell, Karl Hohlmaier, John Povolny, Tom Rowe, Jim Boaz, Bud Trisko, Paul Moor, Lillian Gilbreth, Bud Ruvelson, Frank Gilbreth, Larry Horsch, Mary Parker Follett, Dwight Jereczek, Denny Earley, Ed Barker, Dr. Stacy Roback, Harold Steele, Rick Passek, Dan Carroll, John Kraemer, Tom Perry, John Kokesh, Steve Helmueller, Bruce Hertzke, John Kreiner, Robert L. Nichols, Dr. James Sidman, Dr. Susan Sencer, John Walker, John Povolny, Glen Thommes, Don Stolz, Clarence Shallbetter, Franz Mueller, Bruce Erickson, Ray Willis, Marty Swerin, John Adams, Francis W. How, Lee Radermacher, Mary Ann Savage, Judith Adams, Ronaldo Custodio, Gary King, Rahn Worcuff, Jean-Luc LaHouze, Rev. Joseph Baglio, Barbara Shallbetter, Lee Lucas, Mel Hazelwood, Dan Stenoien, Tom Glisczinski, George Gleeson, Fred Wagner,, Lillian Zimmerman, Frederick Otto Zimmerman, Ruth N. Zimmerman, and all of the doctors, nurses and staff at Minneapolis Childrens Hospital

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Table of ContentsPreface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Manufacturing Still Matters . . . . . . . . . . . . . . . . . . . . . . . 5 How Do Firms Turn Around? . . . . . . . . . . . . . . . . . . . . . . 9

The Individual Firm and the Turnaround Process 13Chapter 1 Three Key Factors in Successful Turnarounds . Tactics of Low-Cost operation . . . . . . . . . . . Tactics of Product differentiation . . . . . . . . . . Tactics of Leadership . . . . . . . . . . . . . . . Chapter 2 Recognizing a Turnaround Situation Signs of decline . . . . . . . . . . . . Recognizing a Turnaround Situation . . . . The Stages of the Turnaround process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 17 18 19 23 23 26 27 31 31 32 33 36

Chapter 3 Profit Patterns in Successful and Unsuccessful Turnarounds . Selection of Turnaround Cases . . . . . . . . . . . . . . . . . Criteria for Success: Lasting Performance . . . . . . . . . . . . Profit Patterns in Successful and Unsuccessful Turnarounds . . . . . Practical Lessons on Profit patterns . . . . . . . . . . . . . . .

The Strategic advantage of Low-Cost operation 37Chapter 4 Achieving Operational efficiency . . . . . . . . . . The Economics of Breaking even . . . . . . . . . . . . . The Strategic advantage of Upside and Downside Efficiencies . Low-Cost Operation and Product Differentiation Interrelated Practical Lessons on Operational efficiency . . . . . . . . . Case Histories Case 1 Masters of Production at Buick . . . . . . Case 2 The Harvesting of International Harvester . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 44 53 54 55 56 56 63 71 71 79 80 84 84 85 99 101 104 104 104

Chapter 5 Achieving and Sustaining Modest . . . . . . . . . . Expenses unrelated to What the Customer Is Buying . . . . . . Attaining Inventory efficiency . . . . . . . . . . . . . . . Inventory efficiency and Turnaround Success . . . . . . . . . Practical Lessons on Modest overhead . . . . . . . . . . . . Case Histories . . . . . . . . . . . . . . . . . . . . . . Case 3 Professional Frugality at Nash . . . . . . . . Case 4 Majestic Laxity at the Willys-Overland Company

Chapter 6 Lowering Cost through Design. . . . . . . . . . . . . . . . . . Designing for Manufacturability . . . . . . . . . . . . . . . . . . . . Practical Lessons on Lowering Cost through Design. . . . . . . . . . . . Case History . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case 5 Making the Most of American Motors. . . . . . . . . . .

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The Value of Product Differentiation 113Chapter 7 Developing Distinguishing Product Features Managing Development for Future Trends Distinguishing Features and Turnaround Success . . Practical Lesson in Distinguishing Product Features Case Histories . . . . . . . . . . . . . . . . Case 6 Best in Class at Ford . . . . . . . Case 7 Cosmetic Surgery at Kaiser-Frazer . Chapter 8 Achieving Product Quality . . . . . Quality in the Product . . . . . . . . . . Quality in the Process . . . . . . . . . . Practical Lessons on Product Quality . . . . Case Histories . . . . . . . . . . . . . Case 8 Getting It Right at Cadillac . Case 9 Leaving It Wrong at Hudson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 118 124 130 130 131 137 143 144 145 146 147 148 153 161 161 164 167 167 168 173

Chapter 9 Sustaining Market Continuity . . . . . . . . Avoiding Strategic drift . . . . . . . . . . . . . . Servicing the Declining Market . . . . . . . . . . . Practical Lessons on Market Continuity Case Histories . . . . . . . . . . . . . . . . . . Case 10 Saving the Best of Chrysler Corporation Case 11 Market Vacillation at AMC/Renault . .

Leadership and the Turnaround Organization 179Chapter 10 Outfitting the Management Team . . . . . . . . The Management Team . . . . . . . . . . . . . . . . Personal Characteristics Practical Lessons on Outfitting the Management Team. . . . Case Histories . . . . . . . . . . . . . . . . . . . . Case 12 Professionals in Place at Maxwell-Chalmers . Case 13 Witless Dissipation at Allis-Chalmers . . . Chapter 11 Focusing on Present Operations . . . . . . Focus on Needs in Turnarounds . . . . . . . . . . Styles of Decision Making in the Turnaround process Organizational Change . . . . . . . . . . . . . . Practical Lessons in Focusing on Present Operations . Case Histories Case 14 Cars for the Methodists at Packard . Case 15 Last Hurrah in South Bend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 181 188 191 192 192 200 207 208 211 212 217 218 218 225 233 234 236 238 239 240 240

Chapter 12 Fair Play . . . . . . . . . . . . . . . . . . . . Fairness As Discussed in the Earlier Literature on Management The Manager in an Exemplary Role . . . . . . . . . . . . Fair play Extended outside the Firm . . . . . . . . . . . . Practical Lessons in Fair play . . . . . . . . . . . . . . . Case History Case 16 Midwestern Ethic at Deere . . . . . . . .

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The Turnaround Experience Looking Ahead 247Chapter 13 The Strategic Profiles of Turnaround Cases . Successful Turnaround Profiles . . . . . . . . . . Strategic Positioning for Survival Summary of Findings . . . . . . . . . . . . . . Generality of the Findings . . . . . . . . . . . . Alternative Explanations . . . . . . . . . . . . . Need for Improved Analysis of the Declining Firm . . The Turnaround Framework . . . . . . . . . . . A Final Caveat Chapter 14 Real or Illusory Leadership? Quality in the Managerial Process . . Does Management Understand Its Job? Turnaround Management as a Skill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 249 250 255 257 258 259 260 261 263 263 264 269 271 272 274 276 278 283

Chapter 15 Recommendations for the Future . . . . . . . Recommendations for Businesses Involved in