Every now and then a company's big turnaround reads like a staged drama. This is especially true when the drama involves life-and-death decisions Involving people's jobs and safety. The Aluminum Company of America (ALCOA) story focuses on dramatic improvements in safety, productivity, and profitability as a result of a change in how authority was structured.
The setting is Alcoa's Industrial Magnesium Plant in Addy, Washington. The dramatis personae include the plant manager, consultants, personnel manager, and the hourly workers-100 of whom were about to lose their jobs. The scene takes place in 1989.
The Addy plant was in almost total disarray. Serious injury rates were high at 12.8 per year, and the plant was rocked by its first ever fatality. Prices of magnesium dropped at the plant, selling for $1.45 at a cost of $1.48 to make. Quality control was below what was needed to counteract market forces, as magnesium recovery was at 72 percent of the raw material. But the death of an employee caused the most crushing blow.
"The fatality was devastating," says then-personnel manager, Tom McCombs. "It looked like the leadership was not working. Seven Addy employees were related to the man who died." Safety had been a top priority-at ALCOA ever since Chairman and CEO Paul O'Neill had come on board. "The plant had been losing money for about five years, but with the accident, O'Neill said Addy was losing on both fronts. If it didn't get turned around, he would close the plant. In fact, at the time, they were trying to sell it anyway," remarks McCombs. National management stepped in and replaced the plant manager.
Enter Don Simonic, the new plant manager. McCombs describes Simonic as a decisive leader whom people respected. Simonic had coaching experience in college football (McCombs recalls that Simonic was even asked to coach the Baltimore Colts once but went to serve in the armed forces In Korea instead) and would use these coaching skills to drive through necessary changes at Addy. "His kind of coaching was: if someone isn't doing his or her job, then you put that person on the bench. There is authority embodied in that but also a sense of being connected to his people," states McCombs. And, just like in football, some of the players got thrown out of the game. "He had some really tough calls to make, but he didn't hesitate to replace leaders where it was needed." Though McCombs already implemented change with the help of consultants, Robert and Patricia Crosby, at least six months before Simonic arrived, it was Simonic who displayed the kind of authority that many had observed lacking (or nearly nonexistent) at Addy. Together, McCombs, the Crosbys, and now Simonic planned the turnaround.
Their task, however, was daunting. Market forces continued to drive costs higher, productivity was flat, at best-employees complained about the lack of accountability, poor quality control, and inadequate leadership. "The whole organization had a very low morale," explains McCombs. "There was a crying out for leadership."
Alcoa was far from being a bastion of traditional, hierarchical management. On the contrary, it had a team-based culture and what was considered a revolutionary management approach called "open systems," which was adapted from socio-technical systems theory. The business press even heralded ALCOA as a model plant in the tradition of the Procter & Gamble soap plant.
Inside and outside ALCOA, Addy wasn't perceived as just any plant. Built In 1975, it supplied ALCOA with magnesium alloy used in manufacturing aluminum. It was unique in that it used an experimental French magnesium technology, as well as the newer organizational design. The autonomous or self-directed work teams structure lacked immediate supervisors and featured "flexible work," where a team managed their own work area. This work team structure was touted as a first for heavy industry, and visitors flocked to the plant well through the mid-1980s to review the plant for themselves.
In practice, however, the management structure accounted for most of Addy's troubles. "Without clear authority, no one is empowered," according to Robert Crosby. And In his book, Walking the Empowerment Tightrope: Balancing Management Authority and Employee Influence (Organization Design and Development, Inc., 1992), Crosby writes, "A major problem in organizations is the exercise of either too much management authority and power, or the other extreme, abdication. Empowerment programs are falsely aimed at "hourlies" and, as such, are doomed to go the way of other fads and slogans. Authority must be balanced."
At ALCOA there appeared to be what the consultants called an "authority vacuum." McCombs explains that in a traditional plant, "we would've worked to get the supervisors to back off, whereas here, we needed to help them step up and make tough decisions." Illustrating how dissatisfied the teams were, McCombs remembers, "When Simonic went around to interview the teams, one guy came up and said, 'Why doesn't ALCOA just put foremen back? We don't have any accountability left.'"
The problematic empowerment model exercised at Addy before the change process began featured an hourly leadership in which team coordinators were elected about every one to two years. Other hourly leadership positions consisted of a safety person, a training person, and someone called a "team resource," who was similar to an internal facilitator.
Additionally, supervisors, called "shift coordinators," had as many as four or five teams reporting to them, so they were connected to the team coordinators in some way. "We discovered, however, that we had a problem because the [shift coordinators] did not want to 'invade' the teams. So they kept staying hands off because if they did intervene, they would get in trouble because the teams would say, 'Leave us alone. We know what we're doing.' And if they didn't intervene, upper management would say that the teams weren't doing what they should be. So they were caught in the middle," explains McCombs. Eventually management had to take over some of the teams.
McCombs cites a lack of clarity in decision-making and authority as the main culprit in this empowered but troubled environment. To restore clarity, the first step of the Crosby plan focused on the new plant manager becoming clearer about goals. In setting these goals for the plant, Simonic did something very different from what any previous plant manager had done. According to the Crosbys, 'Although he sought input from top-level management, he made the decisions about goals and avoided getting bogged down in the consensus problems that had paralyzed the plant."
As the turnaround proceeded, Simonic decided that cutting staff would be essential to meeting the new goals. First, all temporary and contract workers were laid off and next, in the very meeting where Simonic was to announce a further layoff of 100 hourly workers-roughly eight per team- the climax of the Addy drama took place.
As leaders were explaining the facts that had led to Simonic's decision, an hourly worker stood and spoke. He related a breakthrough his team had made in significantly reducing the downtime required to turn a furnace around. This process involved switching over to a new crucible once the other was filled. (McCombs compares this process to the manufacturing SMED single minute exchange of dyes-breakthrough process.)
"Simonic quickly calculated the proposed savings and said, if you can show the other teams how to do that in the next two weeks, then we won't have a layoff,'" McCombs remembers. Since each minute of downtime cost the company about $32, this breakthrough team implemented a new process where eight, instead of two, employees did the work, completing the process significantly faster. They reduced the usual one and-a-half-hour turnaround time to just one hour. Simonic called off the impending layoffs. When the new process was implemented on all nine furnaces in the plant, the savings reached $10 million-more than the wages of the 100 employees who kept their jobs.
The next big task for Addy players was to hold strategic meetings to align all parts of the system, clarify who would be making what decisions, explain how decisions could be influenced, and communicate why decisions were made. Simonic engaged both salaried and non-salaried employees in intensive dialogue. Then he set the goals. McCombs remembers how they developed a matrix reflecting what kind of decisions both team members and supervisors would make. They stipulated that the supervisors would still retain authority over all of them if they needed to. Since decisions at the plant before Simonic's arrival had been made largely by consensus, Simonic talked to all employees plant-wide in small groups.
Simonic made clear statements like, "These are the goals. You and all our employees have firsthand knowledge of how things work around here. I don't care how you get there. I will support you in making choices about how to get there. And, if you can't get us there, I will step in and decide how we will get there."
As a result of this process, one person was made responsible for every project or task, also known as single-point accountability (SPA). This was a big change from how the plant had originally been set up, where, according to Crosby, consensus was "enshrined."
"The accepted notion throughout the plant had been that if we gave the team accountability, they would handle the [entire] project. Well, that didn't work very well," admits McCombs. With single-point accountability, "You know who is going to do what for which kinds of projects," says McCombs.
For that kind of accountability to succeed, McCombs believes you need to establish the "by whens"-in other words, when will the particular task get accomplished, noting the time on a certain day. For both the teams and employees it was now "clear what we expected, and they started achieving goals better," McCombs adds.
Eighteen months after ALCOA's national leaders began conversations with the soon-to-be-displaced plant manager, the bulk of the change efforts had been completed. Although positive signs had appeared throughout the process, the incident in which the layoffs were averted proved to be the most critical. Because employees had taken responsibility for applying their own creativity to meeting the overall goals, impressive results were achieved: costs had been reduced from $1.48 to $1.18, recovery of magnesium Increased by 5 percentage points (worth $1.3 million per point), and the serious-injury frequency rate fell from 12.8 to 6.3 per year.
The plant kept breaking records for the next two years, going so far as to become the lowest-cost producer in the world. By 1993, the plant had boosted productivity by 72 percent ("The Technology Payoff," Business Week, June 14, 1993). The president of ALCOA even asked all of the plant managers to visit the site and learn from the Addy turnaround.
Unfortunately Addy didn't sustain the momentum of the turnaround. In 1992, Simonic and McCombs left Addy and went on to the challenge of turning around other ALCOA plants. "The upward spiral had lasted about four years and even though [Addyl experienced more breakthroughs in technology, more profit, and more improvements in what we had built, they didn't pay attention to the floor," reflects McCombs. "ALCOA started doing some studies and really reduced external head count. They eliminated all the department heads that were in that plant and everybody was basically reporting to-the shift supervisor-or plant manager. It caused unclarity about leadership and authority in decision-making all over again," explains McCombs. "They stripped away the leadership that could have supported the change efforts afterwards."
McCombs further believes that after he and Simonic left, Addy had neglected to perform the support work, details, or "maintenance tasks," as he refers to them. "We did a lot of work. We had nine internal people devoted to supporting the change effort; half hourly and half salaried, trained at Addy, so the internal facilitator could do a lot of feedback work, transitioning, and other OD stuff' when new leaders came in. But when we left, they stopped doing it. They didn't think they needed it anymore," McCombs laments. McCombs has since learned not to rely on the momentum that accompanies a turnaround. Instead of looking for the next best practice or program, he says you should continue to maintain the actions that made you successful.
Currently, the plant is back on track and appears headed for success again. Perhaps because of the previous successes and the skills gained in the previous turnaround, the Crosbys believe the recovery currently underway is going to be much easier.
Of the lessons learned through the turnaround, the players of the Addy drama convey the need for constancy in decision-making and accountability. One decision-making technique that's now practiced at Addy and several other ALCOA plants is consultative decision-making, where the "boss" makes the final decision but consults with the team first. For example, McCombs recalls an incident requiring disciplinary action on several teams. "The teams would have 24 hours to give their recommendations to management on how the discipline should be handled-up to and including termination-and management would administer the discipline. At least 95 percent of the time we took the team's recommendation and moved on," says McCombs.
The teams also assist with hiring decisions using the consultative method. For example, the boundaries laid out for a team may concern ALCOA's desire to hire minorities. Typically, "The team would present their selection of whom to hire to the manager, and often they would do such a good job the decision was just rubber-stamped,'" explains McCombs.
Another successful approach was one Crosby developed called the "cadre." During the turnaround, Simonic and Crosby would work with the cadre, a group of key people, chosen from a vertical slice of the employees, who engaged in two specific roles: (1) observing and evaluating the change process as it plays out while (2) simultaneously participating in the process. The cadre became a skilled resource for the plant on leadership development, change management, conflict management, quality, and work processes.
In assessing if a turnaround drama like the one at Addy has to have a leader like Simonic, McCombs concedes that Simonic became the main character at Addy. He believes, however, that other processes must be in place for a turnaround momentum to be maintained. "Don had a dynamic personality and was very charismatic. He possessed a very strong leadership style and was very clear," McCombs says. "But you also must work with the intact families in the organization-one of Simonic's own beliefs. That's where change happens-in the small groups. You must work with that supervisor and that crew and get them aligned with the organization and work out any conflict. It's a lot harder, but that's what you have to do to maintain a success story like Addy."
The impact of Simonic's leadership on the employees seems indisputable. "Employees even called him Addy Moses,'" McCombs recalls. He boosted their sense of security." According to McCombs, Simonic was guided by four clear principles. "Leaders have to lead, make decisions, have a clear vision, and set direction. Once leaders set direction and get a breakthrough goal in mind that people can rally around, then people can tell the leader how they are going to get it done. A leader shouldn't tell how to do it, but he or she needs to set that direction. And that's what Simonic did very well," insists McCombs.