There is a belief in some quarters that a professional manager can bring skills to any business, be it manufacturing, finance or services and successfully run that enterprise. Yes, of course this has happened, and there are examples at a high corporate level. Ignorance is bliss, however. There are also examples of abject failure by the same people when they are head hunted or move on to new organisations, writes Dr Mike McDonagh.
When they fail, they will always have the same arguments citing market forces, prevailing culture, an intransigent board unwilling to make changes etc. On the other hand, the successes are always down to their leadership and decision-making abilities. The truth is that sometimes, the right people in the right circumstances fortuitously come together to provide all the right ingredients for a successful business. However, being a general manager with no experience and little knowledge of a specialist industry, like battery manufacture, can lead to incorrect decisions being made, with dire consequences.
For this edition we take an example from real life in the 1980s in which a 40-year-old lead-acid battery factory manufactures industrial monoblocs and 2-volt cells. It had just appointed a new MD after the last one had retired. Initially it concentrated solely on the forklift truck market and had grown cautiously, by product diversification and market penetration, up to its present size. It employed 250 people on a single 10-hectare site.
A new MD, Tony, was appointed a couple of months in advance, and spent time as a non-executive board member, until taking over as the new MD. This gave him time to understand the basics of the market, the finances, the material suppliers, customers and factory operations. A necessary spoiler alert here is that in this decade, polyethylene separators were a new product, as were battery autofill systems (AFS).
Record of success
Qualified with a degree in psychology and also a certified accountant, he also had a master’s in business management. His work background was in purchasing for a famous international retail brand. His record to date was one of success, particularly in dealing with suppliers, where he managed to substantially reduce purchase costs without impact on the quality of sold products.
His experience in working for a global corporation was seen as a positive advantage in expanding the company and would be beneficial in opening up new international markets. From his perspective it was a natural progression into general management in a high-level executive role, despite it being a considerably smaller company.
His aim was to grow the business internationally, with subsidiaries in several countries. On the day of his formal appointment to managing director, Tony called a board meeting to set out his agenda for growth.
In this he explained that he would ‘internationalise’ the company’s activities to include depots for storage and sales, plus provide back-up for agents and customers in key European countries.
These had been identified by expensive marketing concerns, who were also to organise a multi-national publicity campaign to introduce their batteries into these markets. The commercial department were to brief the advertising agency on the types and individual requirements of their markets, and provide sensible sales projections over the start-up period.
The finance department would make the appropriate financial forecasts with cash flows and a profitability target. The overall aim would be to increase turnover by 25% over three years with a similar or improved margin on sales. Total profits should be up by at least 20%, even with contingencies. There was, however, one small problem: production output.
For obvious reasons it was Jim, the production director who piped up: “How are we supposed to ramp up the output? I haven’t seen any costings for additional equipment or personnel. And what about space for the extra equipment. How on earth can we get more machinery in, let alone do it without major disruption? And another thing, are you aware of the lead time for this type of machinery? It’s at least nine months from specification to delivery. And that is not even counting a couple of months of commissioning!”
It was in fact the finance manager who broke through the dissonance. “I would expect that the managing director would have an overall plan including ramping up production to meet this objective?”
New schedule planned
Tony explained to the group that there was a schedule showing how production could be increased over a 12-month period. This included a night shift, as currently there was none, and seven-day production based on a 4+3 shift operating pattern. i.e. four days on (12 hours x 2 shifts per day) and three days off.
There would be an initial night shift created at the beginning, before the equipment arrived and therefore before the new shift pattern could operate. This would work out the snags for supervision etc. to ensure that a good management and control structure was in place for the full production operation.
Jim, the production director, asked for the detail, which Tony agreed to. In fact, he had prepared an individual folder for each of the directors as well as the overall project plan. Alan (technical) and Jim raised a query.
Jim was concerned about the formation department. It was already fully occupied and there was no provision to increase this. Surely this would be a major flaw in the plan? Alan then stepped in. He was concerned about the plan to review the materials’ suppliers to locate a cheaper source of materials. Specifications aside, there were differences in the production methods among different suppliers, and even minor variations in performance could spell disaster for a particular application.
Tony smiled: “Decades with no competition will ensure you are being screwed.”
Before Alan could reply, Tony called the meeting to a close and instructed all directors to study the proposal and put their comments in writing in the next couple of days. He finished with a warning shot: “The next meeting will not be one of objections, but one of solutions. This is going ahead and we need answers, not barriers. Am I clear?”
The department heads murmured their assent and shuffled out of the room, still with flash arguments sporadically illuminating the newly formed storm cloud. The MD leaned back in his chair; he knew it was a tough ask for the company. His job was to ensure that it would be done correctly.
His training had taught him that there were five principles to good management summarised as POLOS, an acronym for Planning, Organising, Leading, Overseeing and Staffing. The planning and organisation were almost in place, the goals were set and the strategies outlined, and the organisation already existed in the company structure.
Leading should not be a problem. He had already shown his visionary and motivational skills in his previous appointments and achievements. Only the staffing and control, or overseeing, remained to be established. That should resolve itself however, as the heads organised their own departments and came back with their proposals.
After a month of working out the details of the project, Tony called a meeting to finalise the plan and deal with any problems or loose ends that needed to be resolved. Cross-tasking and timescales were discussed as the final architecture of the plan was constructed. At the end of the meeting, he congratulated all for their efforts and pronounced that the plan was now in place with only minor tweaks being required.
Any questions?
When he asked for questions, it was Alan who spoke. He was still concerned about the use of alternative materials. In particular, the separator materials and some of the additives used in the active material. The company had spent a considerable amount of time and research to determine the optimum specification and properties of the barium sulphate additive.
Because of the uniqueness of its properties, there was only one supplier. For the separator there were only two suppliers in the world. After trials, only one had been chosen.
Tony recalled the battles he had had with his executive team in the retail trade when changing to lower cost suppliers. Well, if he had to do it again, he would at least be in familiar territory.
He addressed the accountant: “Vincent, what are the potential savings for these additives and separator materials – approximately?”
Vincent explained that the additives were less than 5% of the total negative AM costs. For an average battery we are talking about 1% of the total battery lead, less than 0.5% of the lead costs. The separator however, was different. A saving of 25p (10%/square metre) would result in an annual profit increase of £625,000 ($763,000). In fact it turned out the total savings, for all materials, would increase the annual profit by around £1.1 million ($1.3 million).
And that was without the increased revenue from the expected sales increase. All seemed enthusiastic, apart from one – Alan, the technical director. He had another concern – it was the oil content. The proposed supplier had a higher percentage of mineral oil in its constituents. Unfortunately, he could not say how this would affect the chemical and physical properties.
Gave the go-ahead
After some debate, the consensus was that in the absence of any firm evidence of product damage, they should go ahead. In fact, Jim was aware of the separators, and had the opinion that they would in fact improve the manufacturing productivity due to their extra flexibility.
Tony ended the meeting by giving some commercial facts. The proposed separator company was a global organisation with a high reputation. Their market share was close to 25% of the total lead-acid battery business, and as far as he was aware, none of their competitors was suffering massive warranty claims or profit falls. Besides, this programme needed to be funded by increasing the company’s cash reserves, and that meant more profit on the same turnover.
Within a couple of months Alan gave his report and his recommendations which were basically to delay changing the separators and to do high temperature life testing over six months. Tony realised that Alan was simply doing his job as technical director but going down this route could seriously jeopardise the project.
He decided to get Jim’s opinion as a seasoned battery manufacturer. When the engineering manager was put on the spot, regarding potential dangers, he offered to get the opinions of his technical contacts in other battery factories. At the moment, Alan was siding with his engineering director.
His positive attitude and decisiveness were more helpful than obstructive, and the clock was ticking. However, it was important to show the other board members that his decisions were both fair and informed. As it turned out, at least two competitors used the new separator with no increases in their warranties or customer complaints, and there was more than a 50% overlap in product types. They did however, report that very high operational temperatures increased the amount of oil on the electrolyte surface.
The sales department set up outlets in three countries and serious sales began within two months. After three months a few customers reported major battery failures due to dry-out. The same dry-out problem then spilled over into two more countries. An emergency meeting was called in the UK factory.
It emerged that these customers supplied fork lift trucks for warehousing. All had 24-hour operation with two 12-hour cycles consisting of battery charging and swapping after each shift. Additionally, they used automatic water topping up systems to provide a maintenance-free battery operation.
Within eight months of launching the new agencies, the level of warranties was in the 15% region. The cost of the foreign replacements was already around $300,000, with fears that this may be just the tip of the iceberg. To add to this, there had been a rise of around 3% in the domestic warranty rates since the project started.
Show reasons for failures
At the meeting Alan was asked to shed some light on the reasons for these failures. Unfortunately, although he had been sent several of the dried-out cells for analysis, he could not pinpoint any reason for their failure.
He needed to visit the customers’ premises to see the operation in situ. There was an objection from the sales director, based on the insistence by the agents that only they could visit the customer. The reason was that they were nervous that their customer would then buy directly from the factory and bypass them. Alan suggested that he go as the agent’s technical expert, rather than the battery supplier’s technical director.
The agent was in Belgium. They ran 2-tonne FLTs with a 24V 750 Ah battery for power throughout the 12-hour shift. There was battery swapping equipment to change the 1.5-tonne batteries every shift. As a result of this, batteries were running at fairly high temperatures i.e., 54-580C. This would create the need for a high frequency of water top-ups due to additional gassing on charge, as well as heightened water evaporation.
To address the water loss, the customer had fitted an autofill system (AFS) to each battery, which needed to be switched on when attached to the chargers by the FLT drivers. Alan noticed in a bank of eight chargers, one of the batteries on charge was not connected to the AFS. This is when the penny finally dropped. Some of the 24 cells had reasonably high electrolyte levels, but several others had levels well below the plates.
Auto-fill system not working
It was clear that the AFS was not working properly, leading him to take a closer look at the filling plugs. Alan also found that some of the plugs were not letting the water through, they were contaminated with oil. This coincided with those cells having low electrolyte levels. The internal floats that raised and dropped to allow and stop the water flow, had a high degree of oil contamination, compared to those plugs that allowed some water flow.
After checking other batteries and finding identical correlations, he closed his investigation and returned to the UK factory the next day. The conclusion that their product produced sufficient oil to block autofill devices went down like a lead balloon. More to the point, every one of the batteries currently in use may be a potential warranty, costing the company millions in warranties, with no guarantee of replacements not meeting the same fate, triggering further warranty claims.
Tony questioned the validity of Alan’s findings. However, he had brought a few of the plugs back with him and passed them around the board members. Jim the engineering director agreed with Alan that a sticking float valve due to excess oil would clearly prevent water from flowing through, which would cause the cell to dry out within a couple of weeks.
No blame shifting
Despite Tony’s insistence that he should have been warned of the consequences, the other board members were having none of this blame shifting. To add to his woes, the company accountant had made some rough estimates of the potential size of the company’s financial exposure. It turned out to be between $1.2 and $2 million, depending on how many more batteries may go down and possibly having to pull out of these agencies.
Tony asked the obvious question: “Is there anything that we can do about this?”
Surprisingly it was Alan who came to the rescue. He explained that he had seen one of the chargers without the ATS being plugged in. If this was normal, then that one in eight mistake would give about a 12% battery failure rate. This could be used to at least offset the costs.
Despite sales director Trevor’s defence of the agents, Alan showed pictures he had taken of the offending charger, suggesting that this should be a negotiating position to persuade the agents to allow the use of our own people to change the batteries. Tony could not see the point. These batteries would also fail.
Alan however, proposed that replacement cells be constructed with the old-style separator, to prevent this from happening again. In the meantime, a maintenance programme should be drawn up for all of the batteries fitted with auto-topping systems. Doing this would allow swapping the contaminated watering plugs, and also the syphoning of the top level of the electrolyte, containing the majority of the free oil in the cell.
Tony agreed and asked Alan and Jim to organise the team for the checks and maintenance. Vince made a new estimate of the costs based on a partial success rate, as around $600,000, i.e. about the same as the cost savings.
Damage done, sales fell
This meant break-even for a project that would draw in higher profits in the future. It was decided to go back to the original separator for manufacture, and the cells containing the new material would be isolated and used only in the domestic market in light duty applications. Unfortunately, the market damage was done and sales fell, resulting in a reduction in profitability for the company. Although Tony was ‘allowed to leave’, he managed to quickly find another well-paid job with no personal financial or reputational loss.
