Founded in 1944, Burgmaster took a stable market position in the machine tool industry. Its stability was propagated by its turret-head drill, which was based by Fredrick Burg. Its capacity and ability to reduce production costs made the Burgmaster drill a favorite tool in the then budding aerospace industry.
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With the early market, dominance came bigger plans. The Burg family publicized the company in 1961 by issuing stock on over-the-counter market (Misa & Thomas 174). Five years down the line, the Burgmaster had grown from a workshop in the Burg familys garage into a massive machine tool production company in the Mississippi region. The heydays of Burgmaster did not last long. In the 1960s, the company merged with the Houdaille Industries. The Houdaille crew of sharp-pencil fellas, equipped with modern time-motion studies, worked the life out of Burgmaster (Miner & Craig 349). They promptly substituted its family-style management with a corporate culture that brought on board unworkable production schedules and discouraged innovation. In 1979, following years of stagnation and cutthroat competition with other tool manufacturers from japan in the United States market, Houdaille flooded the headlines in the business community (Fields & Gary 117).
Houdaille was then made private through the leverage buyout technique by Kohlberg Kravis Roberts and Company. The company, which was bathed in glory for its quality workmanship and products, was compelled by cash needs to dispose of substandard machines. Its wavering reputation foretold its demise (Misa & Thomas 173). The Houdaille management attempted to pull a rescue move at the 11th hour by lobbying the government in 1984 for prohibitions against the Japanese rivals. The Firms lawyer claimed that unfair subsidization of the rivals tool industry allowed it to take dominance in the market. Though hotly debated, the plea was denied, and it became a nationwide symbol of American industrial agony. As a result of deft lobbying, the Senate supported a bill that backed up Houdailles position. However, the then president Reagan was against the idea. Houdailles attempt to connect Burgmaster with a Japanese company failed, and it was shut down (Miner & Craig 349). The Burgmaster was affected by the economy, government policies and cutthroat competition from the competitors. In the early days, the founder of the firm, Fred Burg, propelled the company forward through innovation. The business rose on the path of entrepreneurial leadership, attention to user-needs and change (Misa & Thomas 175).
He was talented, and he even went ahead to design an automatic transmission way before the automobile industry came up with it. The founder was a machinist by vocation, a locksmith by training and store salesman by necessity. In a rented garage, his sons started to make a device that centered bits into their chunks. He got his boldest ideas by visiting customers and listening to their problems (Miner & Craig 349). This concept is among one of the ways of discovering a market gap. One of those visits led to the idea and invention of turret drills, which improved machine shop productivity. The company received numerous orders from several large companies. While the Airforce and the MIT fumbled about with elaborate versions of automatic machine tools, the Burgs developed a line of turret drills with NC controls. The success of the machine tools was a combination of possibility and commercial necessity. These are results of a firm being managed by people with an understanding of their workforce, customers and products (Misa & Thomas 174). However, innovation required money, compelling the company to issue stock, and in the 1960s, to sell out to the conglomerate, Houdaille industries to provide the capital requirements. The takeover was, however, at a price.
A rigid corporate structure replaced the close-knit firm ran by Burg and his family. A few years following the acquisition, it was no more. Focused more on the monthly profit-and-loss statements than the machine production and customers, Burgmaster started making products that ruined its reputation. The conglomerate that bought out Burgmaster was a manufacturer of automobile parts. Although it helped raise capital for the Burgs family company, it brought on board ominous and subtle changes. The Burgs emphasis was on employee performance and shop-floor management, but was replaced with Houdailles desires for formality and meeting monthly plans. The difference in the management strategy of the firm is among the key factors that contributed to the demise of the company (Misa & Thomas 175). The Burgs technical knowledge of machine tools and familiarity with their workers paved the way for technical ignorance by Houdaille, which insisted on managing by the numbers. Funny enough, the companys licensing agreement with Yamazaki, a Japanese machine builder, made the access into the American market easier.
Yamazakis history is founded on its long-term commitment to technological innovation, quality, customer satisfaction and intense interfirm competition. In 1979, when the Japanese started gaining access to the US market, Houdaille became the first large company to go through a leveraged buy-out. Problems faced by Burgmaster Burgmasters entry to the auction block in 1986 was inevitable, due to the factors that worked against it. At this time, the machine-tool firm had sold out its assets. The highly skilled design engineers and machinists that worked in the company with zest and personal loyalty departed the conglomerate for greener pastures in the aerospace firms of southern California. The sales driven quests to innovate bore no fruit. High-interest charges following the 1979 leveraged buyout forced the company to maintain its cash flow whatever the case. As a result, half-baked machines were shipped to the customers.
The formerly loyal customers were not impressed. Additionally, the once-loyal suppliers retracted too, when accountants started to withhold payments while discounting invoices. The generation of goodwill had come to a halt. The move was not geared towards making profits, but instead generating enough cash to make the most of the fabricated devaluated allowances that cheated the taxation company. The situation resulted in earnings without production. Despite the continuous demise of the firm, the Japanese machine tools kept flowing in, with unmatched quality. As a result of the hyped dollar, their price was also unbeatable. The economic and trade policies at the time may have had a hand in the demise of Burgmaster. Such government decisions, like the one made after Houdaille filed its petition, are made without prior knowledge of the happenings in the industry.
Had the government made policies to support the local businesses and prevent excessive exploitation by the foreign companies, Burgmaster may not have drowned as such. The government should have helped cushion the firm back to its feet to prevent it from shutting down. Houdailles accusation that the Japanese government had formed a cartel to incapacitate the United States toolmakers became an excuse and battling ground for those that blamed Japan for the problems facing industries in the United States. However, the Japanese may have succeeded more because of producing better and cheaper machines than because of government assistance. The industry also contributed to the downfall. When it faced growing competition from rival imports, they failed to react and react and remained conservative. The situation demanded the company to restructure its organization, which it failed to. The LBOs are a symptom of a disease that ails the United States economy. The tax laws and policies that encourage LBOs instead of productive investment do note promote growth to the indigenous firms. Also, the Pentagon procurement policies were liable for such failures, as they encouraged exotic custom machines over the locally produced standard low-cost models.
This is a dangerous industrial policy. The LBO, in this case, incapacitated Burgmaster by putting it under much pressure to generate cash. As the firm made the products as fast as possible, it shipped half-baked machines. It breached business integrity by promising customers features that were not yet included in the products. The LBO reaped off the companys investment funds at a time when foreign competition deemed them most necessary. Inadequate strategic planning Inadequate strategic planning is among the factors that led to the company asking for trade protection after the demise. The companys initial plan was to manufacture innovative machines and flexibility to the consumer. As such, the strategy was made their products different regarding uniqueness and customization. However, due to poor environmental scanning, slow response to external economic and political factors the company did not last long in the market.
As it seems, the company did not put any emphasis on the SWOT analysis, which is the link between operations and organizational strategy. Additionally, the company did not articulate the required operation strategies to fulfill their plans of innovation, flexibility to the customers and differentiation. At the time when they needed to invest in research and development for new products, they focused elsewhere. They assimilated modern management techniques like the use of computerized production scheduling, which was poorly executed and thus unuseful to cater for the needs of the company at that time. The company did not formulate any operations strategies based on the primary competencies of the company to achieve the business strategy as the competitors worked with a low-cost approach, offering cheaper products to meet customer demands better than the firm itself.
However necessary it is for businesses to assume effective operations strategy, manufacturing is entirely needy of such. Burgmaster should have included inventory management and developed methods for achieving and measuring productivity improvements. The decision to merge was a planned move by Burgmaster. However, instead of joining with a company that added value to their business, they merged with one based its financial muscle and seemingly better production process (Misa and Thomas 174). This may have happened since many CEOs did not come from operations background and may not have adequately assessed the importance of the operations function. Management involvement was also crucial for a successful business, but Burgmaster missed this on their production floor. Also, the company made assumptions on the non-financial indicators of performance such as the customers and the internal business process. For the company to have been successful, it had to strike a balance between operational capabilities, financial resources, consumer needs, and supplies. Unfortunately, Burgmaster did not incorporate operations management principles, which then forced the firm to ask for trade protection after its demise.
The Burgmaster ended up in the ignominious position due to lack of Houdailles poor organizational integration in significant issues and at critical times. After the acquisition of Burgmaster by Houdaille, the control of the investment strategy was transferred from those who founded the firm. These were the people who knew the needs and the capabilities of the business and were focused on shaping up its future. The management was then imposed and carried on by the numbers.’ The management of the firm, even after the merge, should have considered the ideologies of both sides equally (Fields & Gary 125). The founders of the business were well equipped with the necessary skills and planned to propel their business, but their plans were diluted by the conglomerate’s decisions. These were a failure in the management, which would have been avoided by setting up equal terms to manage the business and ensure quality at all times. The main reason that led to the merging of Burgmaster with Houdaille was lack of capital to fund its innovation quests.
The merge helped them to acquire the required wealth as of that time. However, the amalgamation of the businesses turned out to be a bad idea. It resulted in more harm than good. It would have been more advantageous if the company had acquired a loan from a commercial bank or the government. The problems that raised were due to complications in the management of the amalgamation. Obtaining a loan from the bank or government would not have dissolved the powers of Burgmasters founders. Providing enough capital while maintaining the efficient and productive management would improve production in the firm while encouraging innovation. If such had happened, Burgmaster would probably be among the most successful machine tool industries in the United States.
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