Hagedorn Case Study 1:

The challenge: A renowned technology leader had purchased a business unit with $200 million in annual sales and a 450-person workforce in order to open new strategic options for the company. Due to an unforeseen change of market conditions, the business unit lost profitability. After five years, all efforts to improve the integration and unification of the different cultures had proven unsuccessful. This resulted in a lack of commitment of the workforce to the new parent company that was visible in unsatisfying engagement values and a palpable sense of frustration.

Hagedorn was hired as the unit’s plant manager to manage the turnaround, including a complete cultural change. This meant he needed to fulfill financial expectations, provide the basis for financial stability, drive leadership development and establish a high-performing management team. A quick study, Hagedorn immediately recognized the merger’s complexity due to vast corporate culture differences, extremely intricate machinery/technologies/product portfolio and a difficult-to-appreciate value chain comprising raw part manufacturing, high-precision machining, assembly and more.

Specifically, his analysis showed the following conditions in each division:

Leadership and Management

  • Lack of leadership and orientation on all management levels. Leaders had lost confidence and didn’t have the courage to make decisions
  • One key player with a lack of management and leadership skills had poisoned the atmosphere. He had already lost acceptance from the workforce
  • Key positions were not staffed
  • Responsibilities were not clear


Utilization of Machine Capacity/Overall Equipment Efficiency (OEE)

  • Plant failed to produce demanded output due to low utilization of machine capacity and low OEE. Reasons included missing equipment, a lack of qualification of supervisors and staff as well as inefficient maintenance
  • Plant burned profits in unplanned and expensive extra hours


Logistics

  • Logistics were subordinated to the head of production and lacked appropriate representation in hierarchy
  • The shop floor design didn’t allow to handle materials as needed, because necessary storage areas were missing. Flow of materials were interrupted several times and materials got lost
  • A production and material control system was not properly established. Lots could not be tracked. Employees wasted time to search and count materials on the shop floor
  • Responsibilities in logistics were not clearly assigned; people were desperate


Shop Floor Management

  • Missing coordination and communication between production and support departments including logistics, maintenance and quality assurance
  • Vague responsibilities and priorities and a tremendous level of inefficiency
  • Lack of transparency about quality and output figures of machines, processes and overall plant
  • An unsustainable elimination of defects
  • A missing continuous improvement process


Costs

  • Break even equaled revenue, therefore profits were zero
  • High cost of personnel and materials
  • Amounts of inventory and work in progress were unacceptable

 

Culture

  • Management and staff had lost confidence; people suffered from finger pointing, missing information and a lack of communication
  • There was no trust in the parent company, particularly among the senior management of the plant
  • People felt undervalued
  • Management hesitated to make decisions due to a lack of backing from top management
  • There was no appropriate interconnection between “hard” and “soft” facts regarding qualification, leadership, orientation or decision making

 

The end result: Through careful tutelage, Hagedorn was able to get the best financial results in the business unit’s 40-year history within a two-year timeframe, thereby fulfilling the expectations of the parent company.

How did he do it? The focus of Hagedorn’s first 30 days was to stabilize the management team, to work out an overall accepted turnaround strategy and to harvest low-hanging fruits to gain buy-in from the team and demonstrate much-needed forward momentum.

“As the result of my interviews with managers, supervisors and workers, it turned out that management attention on the shop floor was one of the major levers to prevent burning money and to earn quick wins,” Hagedorn says. “After my first week, I started to implement two well-organized shop floor management meetings a day under my guidance with all managers and supervisors.”

The aim of these meetings was to track the output figures and quality, establish a hands-on production and materials control system and lot tracking system, improve the utilization of bottleneck machines and OEE, set priorities and responsibilities and foster communication — essentially, to begin to establish a culture of collaboration, dependability, trust, openness and responsibility.

Once that was established, Hagedorn moved on to creating a turnaround strategy with short-, medium- and long-term initiatives.

 

Short-term: Effective to the end of the financial year

The focus of the short-term strategy was to reduce break even figures through cost cutting and increasing productivity. Short-term, there was no option to get business back or to gain more profits from sales. The action plan included:

  •  a redundancy of 25 percent of the 200 white collar employers — this unfortunately could not be prevented;
  •  reduction of stocks and materials and an overall new setup of cost targets in to be effective to the bottom line until the end of the year;
  • implementation of a task force including members from sales, procurement and development to identify and realize further cost cutting potentials;
  •  implementation of a second task force to increase productivity. Both of these task forces helped to integrate staff from different disciplines and levels of hierarchy (including blue and white collar workers). That fostered effectiveness, understanding and acceptance of actions taken;
  •  start of an intensive teambuilding process to further stabilize the management team;
  • training and coaching all management to further develop their communication skills and reduce stress levels; and
  • set up of a communication strategy to keep workforce informed particularly in a situation of lay-offs

Medium-term: Effective within the following year

  • a value stream analysis to identify opportunities for improvement and to work out a  LEAN strategy for the plant
  •  a recovery plan, created and aligned  with all major departments and stakeholders like sales, procurement and the development department, including new targets for sales and procurement, a rethinking and adjustment of the product portfolio, the evaluation and implementation of cutting-edge technology to conquer a new USP, driving innovation for new and better products and an action plan to foster customer satisfaction
  • the design and implementation of a production and materials control system
  • a complete redesign of all logistic processes with focus on LEAN
  •  a first redesign and adjustment of the shop floor layout to gain necessary storage areas and harvest the low hanging fruits.
  •  intensive teambuilding workshops on all management levels including white and blue collar workers to increase the engagement level and to change culture

Longer-term: Effective in 2-5 years

  •  implementing a LEAN strategy
  •  rethinking the product portfolio and introducing new products

Results: Within 7 months, Hagedorn and his team were able to reduce break even by 10 percent ($17 million) through cost-cutting and productivity activities. That prevented a loss and the business unit earned an unexpected 7-figure EBIT and, despite the redundancy of 25 percent white collar workers, the engagement level surprisingly increased 10 percent. In particular, a survey showed that levels of trust in the senior management had increased thanks to the workforce value communication and teambuilding activities as well as the performance of the reorganized and restaffed management team.

After 10 months, Hagedorn was promoted to become Managing Director and Executive Vice President of a new production division with plants in Germany and China. He retained full responsibility for the unit undergoing the turnaround, as well.

In the second year of the turnaround, the company had reduced break even by further $18 million, leading to the best result in the 40-year history of the business unit and fulfilling the expectations of the parent company. This result was particularly outstanding because during this time, the business unit had lost another 10 percent in sales.

To stabilize results and to insure financial sustainability, a recovery plan was created and deployed. This recovery plan included the implementation of newly-invented, cutting-edge technologies; the execution of a lean strategy based on results of value stream analysis; a solid, proactive customer relationship strategy; a strategy to regain lost business and to gain new customers; and a strategy for ensuring ongoing product innovation.