An American Tragedy: How A Good Company Died

Prepared for​: Course: Production Management (MGT 314) Instructor: Shaila Jahan Mona (JMS) Section: 15

Prepared by​: Name

ID

Seemin Masood

143 0627 630

Nusrat Hossain

141 1422 630

Mohammad Inquiyad Awal

133 0305 030

Mahmud Ali Sikdar

132 0719 030

Farah Shafique

131 0044 030

Date : 21.06.17

AN AMERICAN TRAGEDY: HOW A GOOD COMPANY DIED Case Study (Chapter 2)

1. Write a brief report that outlines the reasons (both internal and external) for Burgmaster’s demise, and whether operations management played a significant role in the demise.

A brief analysis of the case shows the following to be the probable reasons for Burgmaster’s demise. Internal factors: ● Burgmaster had undergone through immense pressure after the LBO (leveraged buyout) to generate cash. This is why they had to push their inventory as much as possible to allow cash inflow, thereby resulting in defective items being sold to customers. ● The LBO further refrained Burgmaster from reinvesting their profits which was crucial at the time in order to cope with the competition. ● In their attempt to bring in cash and cope with the competition, they also promised their customers features which were not yet designed by the engineers. ● Burgmaster, however, had operational problems way before the LBO. They lacked a computerised system of management which is very essential for complex machine-tool manufacturing. ● Their supply management was in total disarray which further resulted in delays and cost increases. ● When the Burgmaster sold out to Houdaille in the hopes for expansion and in search for a better formula, it turned out that nothing could actually replace the management involvement on the shop floor. Burgmaster had only been profitable because they knew the ins and outs of their business well. External Factors: ● Burgmaster’s failure can be equally attributed to the government’s tax laws and macroeconomic policies which were more inclined towards LBOs and speculation rather

than productive investments at the time. ● Other policies such as “the Pentagon procurement” policy put precedence on exotic machines over standard, low-cost models, which also was to be blamed for the company’s downfall. ● The industry itself was another player equally guilty for the downfall. When the industry felt growing competition from imports, instead of reacting to it, they remained firm with their conservatism. Therefore, when the situation demanded Burgmaster to restructure their organization, they failed.

From the internal factors that led to Burgmaster’s demise, it is quite evident that the company had several operational shortcomings which played a significant role in the demise. Moreover, as discussed earlier, Burgmaster knew their business well, and therefore, their adeptness and involvement in the operations worked for the company. Hence, the first grave mistake they made was to completely sell out in the hopes of expanding with a new formula. When the existing operations strategies provided inflows for Burgmaster, Houdaille was indeed wrong to adopt a new formula instead of sticking to the one which worked best with their limited understanding of the business. Moreover, after the LBO, the company failed to incorporate effective inventory management and production management strategies, resulting in defective items. They also failed to comply with and meet customer needs and wants, and therefore failed in the face of competition. Their supply management was already poor to begin with, which only made things worse after the LBO.

2. Do you think that inadequate strategic planning was a factor that resulted in the company’s asking for trade protection?

Yes, inadequate strategic planning can be said to be one of the factors which resulted in the company’s asking for trade protection and soon after demise. The company's initial corporate strategy was to produce machines which were innovative and offer flexibility to the customer. So the strategy was to differentiate their product based on

uniqueness and offering them the opportunity for customization to the machines. but due to the lack of environmental scanning, poor responsiveness to threats and other external economic and political factors, the company failed to last in the market. The company, it seems, lacked or ignored the effective use of SWOT analysis, which is often regarded as the link between organizational strategy and operations strategy.

Furthermore, Burgmaster failed to formulate the appropriate operation strategies that were required to fulfill their corporate strategies of differentiation, innovation and flexibility to the customers. When they were in need of investment in research and development for new and improved products and services, along with new operations and supply processes to suit the new products or services, they focused elsewhere. They adopted modern management techniques, such as systems for computerizing production scheduling which were ill-executed and therefore ineffective for the company’s needs at the time. There were no operations strategies in place based on the core competencies of the company to achieve the corporate strategy while competitors operated with a low cost strategy and offered cheaper products to meet the demand of the customers better than Burgmaster. While it is important for every business to adopt an effective operations strategy, manufacturing is specifically more in need of such. For Burgmaster, like any other manufacturing company, these should have included inventory management and development of methods for measuring and achieving productivity improvements.

The merger decision to form a conglomerate was strategic move on Burgmaster’s part, but when they should have merged with a company that added value to their existing company and supported current business operations, they chose to merge with a company based on its financial merit and a supposedly better formula.

In the 1970s and early 1980s, operations strategy in the US was often neglected in favor of marketing and financial strategies. That may have occurred because many chief executive officers did not come from operations backgrounds and perhaps did not fully

appreciate the importance of the operations function (Stevenson: 12th edition). Management involvement was also paramount for a business to be successful which Burgmaster was acutely missing on the production floor. Moreover, the company overlooked non-financial indicators of performance such as customers, internal business processes, and strategy performance management tools like the Balanced Scorecard.

For Burgmaster to have been successful, a balance between financial resources, operational capabilities, supplies and consumer needs needed to be struck early on. However, Burgmaster failed to incorporate operations management principles which eventually led to the company asking for trade protection and then its eventual demise.

3. Can you think of a strategy that could have increased Burgmaster’s chance of survival? Explain why you think that strategy would have been effective.

The recommended strategy for the survival of Burgmaster could have been to adapt itself according to the changing market trends in the economy. If the up-to-date trends were to get automation in the business processes then Burgmaster had to adopt this methodology for it to sustain in the market. The automation in business processes would have reduced long term costs, improve business efficiency and thereby help achieve economies of scale. The business productivity and efficiency would have improved as machines have proved to be more effective and efficient than human beings; unlike humans, machines require no breaks during work resulting in less delays. Even though, machines can malfunction mid performance, those can be fixed and then worked for a good amount of time. Moreover, automated systems require less supervision, thereby reducing costs.

Another strategic decision could have been to merge the company with another that was more successful and adept in business operations. Through this, the business could have focused on their sales - the most measurable goal for evaluating business performance, and thereby reclaim their success in the market once again.