Reference no: EM132798938

OB 12AMERICAN STEEL AND WIRE COMPANY

Since its inception in 1986, American Steel and Wire Company (AS&W) has operated under the philosophy that people are its number-one resource and that quality and customer advantage come from the effort of hard-working, dedicated "entrepreneurial" employees. This strategy enabled AS&W to become a profitable, high-quality producer of rod and wire products in just eleven months. Today, the company continues to thrive. Its success is even more impressive considering that 75 percent of its current workforce never worked in a steel mill prior to being employed by AS&W.

AS&W was the dream of Thomas N. Tyrell, the former vice-president of marketing for Raritan River Steel. Tyrell believed that buyers of rod and wire wanted products that would fill their needs rather than having to adapt their needs to the products made available by the mills. Tyrell convinced executives of Chicago West Pullman Corporation to purchase three USX Corporation plants in a $40 million deal that included state loans and private investment. The three plants were the Cuyahoga (a shut-down unionized facility), the tube-launched, optically tracked and wire-guided (TOW) (a salaried, nonunion plant), and the Joliet (a unionized facility). The Cuyahoga plant was started up again from scratch, the TOW plant remained salaried, and the collective bargaining agreement was renegotiated at Joliet (the wage package was reduced by over 40 percent, job classes were cut from 33 to 3, and employment dropped from 145 to 113). In all three plants, the overriding philosophy was "people are our number-one resource".

This philosophy is based on a premise that if you treat employees with respect and as equals, the work attitude improves dramatically. This attitude pervades both communication and actions. Colored hats, a symbol of hierarchy and authority in most steel plants, are passé. Implementation of this philosophy embraces employee involvement, that is, employees have the right to have input into any decision that affects their work lives.

Tyrell, president of the new company, felt that all employees should have a financial stake in the company as an incentive to both follow their own money and keep a keen watch on shareholders' equity. He also believed that this investment would increase involvement in keeping the plant clean and eliminating plant theft. To accomplish this, he requested that the parent company set aside a piece of the company for employees. Additionally, every person hired at AS&W is required to purchase one hundred dollars worth of stock as a condition of employment. This has been a major commitment for AS&W employees, since many of them were unemployed prior to joining the company. Today, employees own approximately 18 percent of the company and participate in quarterly shareholders' meetings. The company also has a profit-sharing plan covering all employees. Bonuses have been paid out every quarter since the first month of profitability.

To further increase employee involvement, production and maintenance workers are responsible for hiring new personnel. At each plant, employees are grouped into hiring teams. Each team takes the responsibility for interviewing and selecting applicants. Once someone is hired, there is no probationary period. It is the consensus of management and employees that if employees are interviewed and selected properly, there is no reason for probation.

Involving employees carries through to concern for customer relations. The AS&W philosophy is to consider the customer's interests in every decision. To accomplish this, customer value teams, consisting of seven employees each, meet biweekly to discuss problems or suggestions for improvement and methods of resolution. Team membership is voluntary. Only one shift manager can participate on a team; he or she cannot chair the group. Problems that cannot be decided by a customer value team are sent to the chairs' committee, which meets monthly and is composed of the chairs of various customer value teams. This group's responsibility is two-fold: (1) to discuss problems broader than the sphere of responsibility of the individual customer value teams, and (2) to discuss unresolved problems submitted by the individual teams. The chairs' committee does not resolve the problem submitted to it. Instead, it defines and dissects the problems and passes them back down to the appropriate team for reevaluation.

The corporate steering committee, which meets quarterly, is the final committee level. It includes the president, the vice-president for human resources, marketing, operations, and finance, and the chairs of the customer value teams. In addition to reporting responsibilities in the areas of financial and marketing perspectives and operational results from a productivity-and-yield point of view, the steering committee discusses customer value team activities. Any unresolved problems from the chairs' committee are also discussed. But rather than resolving them, the steering committee evaluates the problems and sends them back with suggestions.

The customer value teams were asked to deal with the issue of a salaried work force. It was management's desire to have a fully salaried work force to emphasize equity among all organizational levels. Senior workers were skeptical of the idea, fearing that younger workers would take advantage of the situation. After a thorough examination, though, everyone ultimately agreed with the idea. With the salaried work force, overtime is paid when employees work more than forty hours per week; however, like management, no one is penalized when a sick day is taken. Prior to implementation, the salaried work force absenteeism rate was 1,2 percent annually; under the new program it is less than one percent. Absenteeism rates in the steel-related products industry average is about 5 percent annually.

In addition to being salaried, all AS&W employees are on a common benefit program. There is no difference based on management status. While salary and benefits are competitive, the decision was more difficult for much of management, who were accustomed to a more substantial, differentiated benefit plan. In keeping with the philosophy of equality within the organization, the decision seemed the only logical choice for the company's long-term success.

Paying attention to the details has been a key to AS&W's success. For employees, this includes making their families an integral part of AS&W. On one occasion, a paint party was held for employees and their families. In the rod mill, five-foot-long gray steel hooks carry two thousand-pound rod coils through the mill. The paint party gave employees and their families the opportunity to be creative and paint each of the hooks with some slogan that was especially important to them. The purpose was simple: to make the families feel they were a part of the company. On another occasion, a beautification day was held; employees and their families planted shrubbery and cleaned up the grounds. Children of employees can participate in a birthday card design competition. The winning card is sent to all employees' homes on their birthdays.

Performance appraisal, which is tied to the profit-sharing program, is also seen as a means to allow employees to reach their performance potential. Employees are taught to do self-appraisals and establish individual goals and objectives. Each employee is reviewed by his or her supervisor twice a year; approximately half of the evaluation is self-appraisal. The importance of performance appraisal is highlighted by the fact that a focus team has been established to continually review and improve the program.

Productivity and quality are two important measures of competitiveness in the steel industry. Operating with 22 percent fewer people than industry averages (75 percent of whom had never worked in a steel mill), AS&W achieved an average productivity rate of 484 tons per turn mill utilization at its Cuyahoga plant. When this plant was under United States Steel (USX), with a very senior work force, the numbers were only slightly better - about 500 tons per turn, during its best times. It should be noted that USX plant was considered a quality rod mill. The problems that led to the shutdown of the mill stemmed from, among other things, poor management-employee relations.

As one might guess, given the company's mission, that quality has been an area of primary concentration at AT&W - and one in which it has excelled. Quality is often measured in terms of yield (tons in and tons out). At the Cuyahoga plant (the only plant that has completely implemented the AS&W philosophy), the yield rate has been at 94 percent, about 1 percent better than the industry average. A clearer indication of performance is shown in a study conducted by National Standard Company of Stillwater, Oklahoma, a major customer of AS&W. National Standard found AS&W had a rod-to-size deficiency ration of one in 373 800 pounds, compared to a one in 39,4 pound average ration for its other suppliers. In breakage per million feet of steel, AS&W ratio was one in 743 000 compared to an average of one to 58,5 for the others in the study.

Rejection rate by customers is another indication of AS&W's quality performance. Although industry average figures were not available, a study conducted by another major customer indicated that AS&W had rejection rates far lower that its U.S. competitors and comparable to one Japanese firm.

According to Tyrell, one key to AS&W success is that its people never get comfortable. The fact that AS&W is presently planning for how it will fit in the U.S. market five and ten years from now is evidence of this. Tyrell believes the number one key to success is "having the ability to reinvest to make a profit and keep yourself ahead of the changes being made by your competition. The mill that can produce a competitive, quality product and keep its wages and costs in line is the mill that will succeed."

QUESTIONS:

1. What concepts and processes from the job characteristics enrichment model seem to be practiced at AS&W? Indentify specific descriptive statements in the case study and link them to the concepts and processes in the job characteristics enrichment model.

2. What concepts and processes from the sociotechnical systems model of job design seem to be practiced at AS&W? Indentify specific descriptive statements in the case study and link them to the concepts and processes in the sociotechnical systems model.