Case: Walter Hundhausen Gmbh

Size up Germanys metalworks Industry? Is WH puff up sited in it straight off- account and in the rising?The beginning of the sore millennium has presented Walter Hundhausen (WH) with a big hurdle to jump. The German miserliness is experiencing eco no.ic stagnation, an aging population and a German drive market that is filled with many intrusive g oernment regulations. The German economy has been festering at an ordinary rate of 0.6 percent per social class for the ut close 4 years making it maven of the s crushedest growing economies in the Euro Zone.However, studys bespeaks in 2004, the domestic economy is expected to grow above 2 percent. Moreover, one-third of Germanys economy is comprised of exports. In per exerciseing a Pest Analysis (see p survey 1 below), at that place atomic fargon 18 many macro factors affecting the German Foundry Industry.MACRO FORCESThe acronym stands for Political, Economic, Social and technological concerns that could affect the stra tegic development of the hurl metalworks application in Germany. By identifying PEST influences it helps gage the outer env entreatment in which the b effect foundry exertion operates. PoliticalStrict Layoff Regulations Government regulations had strict policies in built in bed on how giving medications could layoff employees. Before employees were laid-off, heed had to advise the working Council and they had to agree to the nature and measure of the externalise. In addition, the steering team had to develop a accessible purpose for each employee on how the layoff would affect them and what remedies the organization would put in place for them. If asocial plan was non presented, employees could claim for compensation finished the courts. This could prove to be followly in time, money and reputation.National Bargaining on Wages The current German industrial relations policy was ground on a duel model. One part finaglet with the collective negociate, musical c omposition the different dealt with code conditioninalination. The collective bargaining agreement dealt with minimums and maximums, with respect to wages and salaries and operative hours. Codetermination was an authentic Act or Law that provided labourers in Germany with ternion levels of federal agency Supervisory Board, kit and boodle Council and Labour conductor. However, in the end, all collective bargaining agreements could be adjusted and then ratified through this exploit.Social Market rendery The political climate in the country is based on the social market economy, where employers and unions worked as partners to better the organization as a whole. However, in reality, the residual of power lay in the hands of the union. Unions accomplishd national and regional wages and hours of operations in addition, they as well as negotiated paid time-off. In 2004, the bonnie individual worked 1,542 hours. The standard legislated work week was unbending at 60 hours wi th a minimum paid leave of 24 days. That translates to 2,832 hours per year. Despite the legislation, the average individual worked 54 percent less than was legislated in 2004.Ordnung Principal This is Germanys version of the Triple Bottom Line, where economy, society and the government all accede in the mechanism for workers democracy. New Environmental Legislation The government obligate a new ecological tax in 2000 that focused on drop reduction as opposed to waste recycling. This added be in the form of time and money to the WH plaster bandage dish. From an frugal perspective, the government wanted the application to focus on the externalities and turn out them or remove them totally.EconomicalDomestic appendage The last three years (2001 to 2004), the German economy was growing at an average rate of 0.6 percent per year. Germany had been experiencing the slowest growth in the Euro zone. This touch many organizations in Germany, peculiar(a)ly mid-sized companies tha t were not big enough to fully utilize economies of scale. Future Growth The economy in Germany has been slated to grow well-nigh 2 percent for the year 2004.This represent an summation of 1.4 percent over the previous year and that may notseem big, but comparatively speaking that is a 233% mixture magnitudes from year over year. Increase in appreciate of the Euro Another concern at the macro level is the appreciation of the Euro against other currencies, most notably the Amerifanny dollar. As the Euro step-upd, the constitute of WHs harvest-tides to a fault increased. However, the opportunity to purchase at a lower impairment fleck iron and nerve from non-European countries has also increased. As the Euro appreciates in value, it gage now purchase novel materials at a lower cost.SocialAging Population The current labour shortage in Germany is creating a nightm atomic number 18 in the cast persistence. In order to attract and retain employees, organizations were man ufactureing a adeninelitude over scheduled tariffs. These be were substantial, as many companies were running quintuple shifts in order to keep up with demand. Reduction in full-time Employment The current macro environment suggests a reduction in the number of full-time resources, because of the mellowed labour be. However, because of the aging population, its meet increasely unwieldy to find qualified workers.Sounds counter intuitive a reduction of full-time staff to cut be, but many companies in the industry atomic number 18 paying premiums over scheduled tariffs in order to keep their current work force. Strong Social Employment Contracts The Germany foundry industry has a gruelling employment contract system, where employers are responsible for the well being of their workers. The contract is enforced by the Works Council and the Labour Director who is part of the origination. Their main objective is to resolve disputes through intensive free contacts.Strong Union P resence The dual model in the industry consists of a collective bargaining agreement and codetermination. This dual system gives the unions a strong position within the foundry industry. Their presence has lead to numerous bouts of appointment with management when negotiating collective agreements and in or so cases these disagreements lead to pertinacious and bitingly strikes.TechnicalAbove Average R&D Investment R&D is a major competent in the casting foundry industry. R&D creates better products and above all expurgates costs through the automation of the casting physical process. Moreover, by being a grad 1 supplier, clients are expecting better products and lower costs year overyear. Frequent Technology Changes In the casting process, technology changes occur frequently, in order to maintain lower sand-to-metal ratios and silicon chip ratios. Largest European Foundry existence the largest casting foundry in Europe, economies of scale can wee-wee satisfying cost savings, as the organization can purchase large amounts of chalk iron and steel.Close Proximity to Clients By being close to customers, shipping costs and delivery times are reduced substantially giving the topical anesthetic casting foundry a cost advantage over their enormous distance competitors. Efficient Sand Casting Process The casting process is highly integrated and labour intensive. By having a disjointed process, the cost of the process pull up stakes be high and the products produced would be of an inferior quality. A process that is tightly controlled and modify depart reduce un requirement waste and cut costs in the form of wages and naked as a jaybird material.MICRO FORCESBelow are the specific micro forces that depart influence how WH reacts to the environmental issues assessed above.SupplyThe cost of lovesome materials was increasing 23 percent year over year (see plat 2 below). Raw materials consent been the single most expensive cost to WH. Diagram 3 below, illustrates the cost of raw materials to revenues and the cost of wages and salaries to revenues. As for wages and salaries, they redeem been holding steady. Moreover, the dilute seems to be mintward one-sided (see Diagram 3, below).Total revenues choose been increasing steadily since 2001 with a significant increase occurring in 2004 (see Diagram 4, below).Year over Year Increase in Revenues2001 2002 2003 2004Total Revenues 97 99 103 1172.06% 4.04% 13.59%However, in 2004, the index price of turn iron and steel has been averaging slightly 191.00, that is a 43 percent increase, year over year. The trend seems to be foremaning higher, potentially breaking the 250.00 barrier (see Diagram 5, below).Average 81.25 99.91667 99.91667 111.5 133.75 191.25CompetitionCompetition from non-OEM organizations was growing. However, customers instantly are to a greater extent sophisticated and understand that quality plays an important persona in the decision to purchase a product v ersus purchasing a product on price alone. The real flagellum get out diminish from organizations in the casting industry from Eastern European that will ultimately become tier 1 suppliers. One of the challenges facing WH is the current workforce in Germany. WH has been experiencing a high degree of absence due to leaves and purify days.The above graph (see Diagram 6) illustrates by department where the greatest number of absences are occurring. The stars indicate the average per department and in 2004, there was an increase in the number of absences in Core market, finis and Heat Treatment. Finishing can be explained because of the nature of the work itself. It is one of the most vexedparts of the casting process. Some of the other not equal to(p) information to mention, is when the automated casting process is operating efficiently, sick days and leaves are unbroken to a minimum.For example, pouring and melting in 2003 experienced numerous mechanic problems, thereof the department experienced a higher level of absences as opposed to 2004, when the process was operating with subatomic interruptions, sick days and leaves decrease substantially. Moreover, for the first 6 months of 2004, the average cost of the total days off work amounted to 3.39 million, which represents 8.7 percent of the overall fraternitys revenues (see Diagram 7, below).DemandThe biggest threat facing WH is their ability to reduce costs. Their customers are demanding lower prices and the organization has been responding, by investing heavily in R&D to meliorate the casting process. However, if they do not get the costs of the casting process under control, they will not be able to meet the increasing demand from the motor fomite industry. The motor vehicle industry in 2004 purchased a total of 68% of the total industrys output. Diagram 8, below illustrates the percentage increase or decrease year over year by industry and the tonnage duty sold by industry. Clearly, the industry that has been adding value to WH has been the motor vehicle industry. On average, over the last three years, the motor vehicle industry has increased 13 percent.If the motor vehicle industry continues on their current growth path, by the end of 2005, WH will have reached plant capacity of 95,000 tonnes per year (see Diagram 9, below). The forecast includes a 13 percent increase in motor vehicle tonnage per year and holds the other two industries with no growth or rectify in tonnes required.PEST ConclusionThe rising cost of scrap iron and steel, a slug Germany economy, the German labour market and its regulations are proving extremely difficult for WH to deal with. In addition, WH is reaching plant capacity and they have not been able to control rising costs to date. For the last three years, wages and raw material purchases have been well over budget. SWOT ANALYSISA SWOT psychoanalysis was completed for WH to evaluate their Strengths, Weaknesses, Opportunities, and Threa ts (see Diagram 10, below). The analysis identifies the key internal and external factors that will hinder or help WH achieve their stated goals and objectives.One of the key factors to WH conquest was their ability to understand their customers business require and create new products for them. This was one area in the casting foundry industry that separated WH from their competitors WH was and still is Best in Class, when it comes to product innovation. One area of improvement would be to eliminate or reduce the number of products that have low margins.By producing these low margin products, WH is tying up valuable resources both(prenominal) in time, money and material. One of the greatest threats WH will encounter is the surging casting foundries from Eastern European countries, such(prenominal) as Spain, Turkey and Poland. Currently, many of the Eastern European organizations either small or big are not OEM rated. However, with time and additional investment dollars, these or ganizations will be able to compete against WH on price.PORTERS FIVE FORCESOne final sagacity was completed to pay back the profitability or attractiveness of the casting foundry industry in Germany. By utilizing Porters Five Force model, a more realistic assessment of the competitive rivalry that exists in the market can be determined. This will give WH insight as to the attractiveness of the industry and determine what course of action (if any) is required.The analysis clearly demonstrated that the industry is highly economic (see Diagram 11, above). The Barriers to Entry are high, making it difficult for organizations to enter. Entry requires a high initial capital investment and ongoing R&D dollars. Moreover, the bargaining power of the Buyer is Low, because electrical switch costs are high. Substitutes products are available, but in the motor vehicle industry highly unlikely to be used.Thebargaining power of Suppliers is strong, because there is strong union presence and the raw material is based on world supply and demand prices. In short, the competitive rivalry within the Casting Foundry Industry is high, suggesting that the industry is profitable. Furthermore, with high exist barriers, because of the high fixed costs, it makes it extremely difficult to exit the industry, and thus remaining organizations will continue to suffer and lose more market share.Question 1AIs WH well positioned in it now and in the future?Not with their current casting process. Clearly, WHs core competency lies in their ability to produce exactly what the customer necessarily and then takes that knowledge one maltreat further by producing new products that customers ends up wanting WH creates demand for their new more profitable products. Moreover, WH links their internal logistical and informational systems with their customers. Basically, WH becomes an extension of their customers. The future for WH would be to source some non core activities of their value chain to 3rd parties in the casting foundry industry perhaps in Eastern Europe, such as Poland, where wages are less and employment is more bountiful.In conclusion, with the current trends in the casting foundry industry, where growth is expected to increase 2% per year in tonnage and 3% per year in value, WH does not have the current structure to capitalize on this growth opportunity. Pricing has also become an issue and they are trying to go head to head with their customers and asking them to pick up the additional surcharges on the price of scrap steel and iron. Moreover, with the additional investment in R&D, costs have not decreased. Revenues have been steadily rising, but so have costs and costs have outpaced revenues. This is evident, as WH is expected to lose 6 million in 2004, making it the worst loss in the companys 4 year history.Question 2Is the resource that WHs management called strategic change really strategic? Justify you answer.In order to explain the answer, one mo ldinessiness first define what strategic change is. harmonise to Joseph N. Fry, one of the authors of strategic Analysisand Action he suggests that it is a rooster for building, communicating and maintain the direction of the business. As for Lawrence G. Hrebiniak, he suggests that strategic change is all about execution. In his book, Making Strategy Work, he suggested that without a careful, planned approach to execution, strategic goals cannot be attained.Albeit, in both examples above, little reference is made to the actual strategy, but in reality both authors agree that the strategy is important, but the execution of the strategy is key to achiever. An affinity that can be used to illustrate their point of view would be a golfer that needs to fade a shot around a tree. The strategy has been set, the trajectory of ball flight has been visualized envelop and all other factors have been taken into reflexion. Whats left is the actual striking of the ball. However, if the gol fers core competency is to hit a draw, rather than a fade, the strategy has little to do with the result of the execution.One of WH alternative is to shut down Line 2, reduce employment by 114 workers and increase sales through a radical merchandising campaign that started in 2003. However, the radical marketing campaign emphasizes a differentiation strategy as opposed to a price strategy as indicated by Klaas. The key to their current success is WHs ability to understand their customers business needs and create specific casting moulds for them. In addition, WH has been able to develop new products with higher margins for their customers and then sell those products back to their customers push marketing.By adopting a low cost strategy, rivals in the industry will eventually out price WH and take market share away from them. One of the reasons why WH can be out priced in the market is that their main competitors from Eastern Europe, such as Poland, have a much lower wage structure s. To conclude, WHs alternative does not fit the traditional definition of a strategic change. After reviewing the data and the definition, the answer remains a resolute no. The reason for the decision is that strategic change must take into consideration other aspects of the organization.The changes suggested by Klaas will not delivery the strategy in a controlled manner that is efficient and effective to implement. Strategic management is not about delivering one single project or addressing one particular issue, but a process that governs the entire organization and how the entireorganization is affected by the strategic change (see Diagram 12, above). The so called alternative strategic change in the end will not deliver any real value to the organization, thus further suggesting that this is not a strategic change. Strategic change at the end of the day must deliver real value, not perceived value.In Germany that value takes on the form of a stakeholder, rather than a sharehold er. Thus, by just now focusing on profits and ignoring the human costs of the layoffs, WH will not execute this strategy with any conviction or success. Both Fry and Hrebiniak realize that the process is complicated and contains many moving parts. In short, there is no prank bullet. Simply cutting workers and installing automated processes does not guarantee costs reductions and increased revenues.Question 3How much tractability did the company have in dealing with its problem?The reality of the situation is that WH only had perceived tractableness. With economic stagnation, an aging population, tight employment regulations and a shortage of workers, WH has limited flexibility in being able to deal with the problem. Moreover, with the increase in tariffs, raw materials and energy, WH has even less flexibility in addressing their current problem. WH was able to negotiate concessions with the Works Council however, the concessions came with a hefty price. The Works Councils goal w as to scavenge jobs in the short term for the promise of better pay in the long term. Thus, WH was able to negotiate special agreements to break the current collective agreement.WH negotiated for more free hours, less pay and forgone holidays and vacation pay, but had no control over dismissals and working exemptions the Works Council held the balance of power in these two categories. For example, if employment dropped below 570 permanent employees, the regional tariff rates would come into effect and they did. The Works Councils position for long term better pay may present a problem with a few of the alternatives being suggested by WH.The Works Council may not approve any of the alternatives that involve significant layoffs and pay reductions. These alternatives are in direct conflict with their own goals and objectives. In conclusion, perceived flexibility is much different than actual flexibility. WH may think they can suggest an alternative thatmakes sand for them, but the re ality is that without get in from the Works Council, the strategy will surely fail to execute.Question 4What could management do to address the problem?WH management must develop a Strategic Management Process. The new strategic management process is to be undertaken by the executives at WH and GMH. The executives will review and interpret the Germany foundry industry and determine the direction for WH. At this point in the process the executives will set the merged Strategy (strategic direction) and priorities, while understanding and taking into consideration resources and budget constraints (see diagram 13, below).The seconds tempo is to create the right Corporate Structure with the square-toed incentives and controls to ensure that the Corporate Strategy can be achieved. The final step is to ensure that the Business Units understand the objectives set forth and have the necessary resources in place to achieve their goals and objectives. It is the business unit who is respons ible for ensuring that they have the correct skills and capabilities in place in order to achieve the Corporate Strategy. Once the strategic management process has been developed, the next critical step in the process is to formulate a well defined plan that has clear and focused goals and objectives. These goals and objectives must be measurable, attainable and realistic.Moreover, the plan must address how these achievements will affect the overall organization, but more importantly, if the goals and objectives are not meet, what are consequences to the organization. This process must be open and vapourific that will ensure that buy in will occur quickly. In conclusion, the execution of these key activities is the heart of any successful strategic management process. In addition, WH must ensure that the Works Council understands that the long term success of WH is in everyones best interest. The Works Councils long term goal is for better pay for its workers, without WH, their goa ls and objectives will never be realized.Question 5What had management done so far?Management has accomplished a lot to date. They sold WH to GMH who had experience in purchasing distressed companies and providing them with fair equity and motivating their work force. In addition, in 2003, WH implemented a radical marketing plan that increased revenues by approximately 13.6 % in 2004. WH invested heavily in operations, by trying to automate the sand casting process. WH believed that they could further reduce the operating costs by automating a lot of the high touch processes.WH has also outsourced the finishing process, as this is one of the most costly processes in the sand casting process. WH hired a advisor by the name of Knight Wendling who was hired to improve productivity and reduce costs. His first mandate was to get customer to pay a scrap surcharge and eliminate unprofitable products. By the middle of 2004, 91 percent of customers were paying the surcharge and he eliminate d 5,000 tonnes of products that were generating low contributions. Finally, in 2004 WH made some major changes to their current management structure and sent out a new message to their workers, that management was looking for fresh ideas that would make a difference.Question 6What actions were left open to WHs management and would they make sense?One action that was left open was continuing with the Radical Marketing Plan that WH started in 2003. The marketing plan would continue to increase sales by 8.2 million and contribution by 5.2 million in 2005. However, one of the major issues with this action was that costs were also increasing and the increase in revenues and contributions was being offset by the rising cost of scrap iron and steel and wages. The rising costs, coupled with WHs increase in prices were source the doors to some of their direct competitors in Eastern Europe, such as Poland, Hungary and the Czech Republic.This plan would only make sense if they could get the W orks Council to increase the number of hours that employees could work and reduce the minimum number of workers required, earlier tariffs are enforced. Moreover, this approach would make sense, if WH could convince the Works Council that their short term objective to keep as many employees aspossible is rattling going to hurt their long term goal of better pay for their workers. If WH and the Works Council could overlook their short term objectives and focus on their long term objectives, everyone would be better off.Question 7How could it pursue the remaining actions?WH could simply divest the entire operations and payout the 15.3 million owed to the workers ( 25,000 * 612 workers). However, this may not be in the best interest of the entire organization as an environmental assessment must be completed before the land gets rezoned. trounce case scenario, if the land is contaminated the purchaser may request that the seller clean the land before title change and this could cost G MH broad money.The opportunity cost of closing down the plant would be the 15.3 million, thus the company could take that money and reinvest it into WH. Currently, WH is losing 6.2 million per year, if they continue losing this amount of money, that would buy them 3 additional years and then WH could simply sell the business. WH would have to create a strategic plan that takes into consideration all the options associated with investing additional capital. More so, they will need buy in from the Works Council. Without their buy in strategic plans will prove useless.