Edgeware - Tales

 

Make It Happen, or Let It Happen?
A Case Study of Strategy at Federal Metals

Story of a company which created a complexity-informed approach plan to strategy

Told by: Brenda Zimmerman

Illustration of:

  • emergence
  • wicked questions
  • creating conditions
  • reflection
  • metaphor

This case is an excerpt from Brenda Zimmerman’s doctoral dissertation, Strategy, Chaos and Equilibrium: A Case Study of Federal Metals, Inc., 1991, York University, Toronto, Canada. This version of the case was published in Strategic Management and Organizational Dynamics, Ralph Stacey, Pitman Publishing, London, 1993, pp. 424-431.

Federal Metals: history and context

Federal Metals (Fedmet) is owned by Federal Industries Limited (FIL), a Canadian conglomerate with four industry groups. Fedmet, with revenues of over one billion dollars in 1988, was the largest of FIL’s groups. In 1988 Fedmet accounted for over 50 per cent of the revenue of Federal Industries.

The organization chart of Fedmet is shown in Exhibit 1. With the exception of Manfred Wirth and Carol Besner, the members of the management team attended the formal strategic planning meetings during the 1989 planning cycle.

Federal Metals was primarily a carbon steel distributor which had two main types of steel: flatrolled, which is used in consumer products; and general line, which has more industrial applications. The Canadian carbon steel industry was approximately ten million tons in 1988 of which 75 per cent was sold directly from the mills to the end-user and the remaining quarter was sold to service centers such as Russelsteel and Drummond McCall, which were divisions in Fedmet. The percentage sold through service centers had been increasing over the past few years primarily due to flat-rolled products. The mills were unwilling to cut the flat-rolled into small quantities that the consumer often needed. Fedmet had approximately 20 per cent of the carbon steel business in Canada which goes through service centers. They were the largest in the industry with the next three largest making up about 50 per cent of the industry volume. In addition to carbon steel, Fedmet also distributed nonferrous products. Fedmet’s international division was a trading operation where they imported and exported metals, primarily steel.

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Fedmet focused on metals distribution. The executives said they were not fabricators and hence upward vertical diversification was not considered a viable option for the organization. Their key product was service - the service of providing the metals to customers in quantities and with the frequency of deliveries that the customer needed. Pat Eckersley, President of Drummond McCall, argued that ‘if you think of steel distribution as a stock market you will go bankrupt’. He said there was some friction in the pricing over a broad price band within which orders can be satisfied. He argued that they moved people up the price band by providing excellent service. When asked to define this both he and Al Shkut, President of Russelsteel, argued that customers were willing to pay for trust and comfort. They need to trust that the metals will arrive on time, will fit their engineering specifications and will be cut to fit exactly in their manufacturing process.

Their customer base was mixed. The majority of their business was ‘broken bundles’. Mills have minimum quantities that they are willing to sell, and thus many of their customers needed quantities of metals that were too small to be serviced by the mills directly. Some broken bundle customers were large users of metals and normally bought from the mills and used Fedmet to fill in the gaps when they ran short of certain metals. Others needed special cutting or processing that the mills would not provide. This was primarily flat-rolled metals where they slit or cut to length. They also cut plate metal in shapes for manufacturing parts for heavy machinery. A third type of business that Fedmet’s service centers were involved in was ‘direct mill sales’. In these sales, Fedmet acted as a broker for a fabricator or manufacturer who for some reason failed to meet all of the mills’ criteria. This was not business they sought since it tended to be low margin. Shkut and Eckersley said they spend a great deal of time trying to strengthen their relationships with their customers. Shkut argued that what they wanted to achieve was to ‘pull a customer into our rhythm - you know, so we just become part of their business’.

In addition to strengthening their relationships with customers, Fedmet had spent a great deal of effort reaching out to their suppliers. Shkut argued that they approached the mills with a ‘how can we help you?’ attitude. The logic was that they were part of a ‘community of metals’ which will work better with cooperation, said Eckersley.

Federal Industries annually prepared a five-year strategic plan. Their plan was complete by mid January. The four industrial groups, including Fedmet, were required to prepare a five-year plan by mid-April and their divisions’ plans were due in the middle of July. The 1989 strategic planning process for Fedmet began with a meeting of nine executives on 23 January, 1989.

23 January, 1989: ‘Warm bubbles and little arrows’

The planning documents from previous years and the memo for the upcoming strategic planning day in January stressed the need to look on planning as a learning process. The following three paragraphs are an excerpt from the 1988-93 strategic plan.

"Successful companies that survive and prosper in the long run are ones that seem able to learn and adapt. Such companies have an ability to live in harmony with their business environment, to switch from a survival mode when times are turbulent to a self-development mode when the pace of change is slow. Many companies, however, do not learn to adapt or, at least, not very quickly; a full one-third of the Fortune 500 industrials listed in 1970 had vanished by 1983! Russelsteel only just survived.

In this context then what is planning’s role in corporate learning? In a nutshell the role of planning is to act as facilitator, catalyst and to help accelerate the corporate learning process. The most relevant learning is done by the people who run the business - the operators. So the real purpose of effective planning is to facilitate the ongoing development of the emerging strategies and thinking that the decision makers carry in their heads.

Our ability to learn faster than other players in the industry may be our only long run competitive edge. The tremendous improvement in the results of recently acquired steel service centers is, to a large extent, a result of exposure to the thinking of people in the Metals Group and the resulting ‘fast learning’ experienced by the management teams in the newly acquired units."

In preparation for the 1989 planning cycle, David Fine, Vice-President of Planning, circulated a memorandum. The memo had a series of questions which were to be addressed in the meetings over the next three months. On the first page, Fine introduced the role of planning at Fedmet.

"The planning process requires us to talk to each other on a scheduled basis - that’s about all - and then take a snapshot of our conversations."

The all-day meeting took place in a picturesque country club several miles from Head Office. They sat around a series of tables organized in a U-shape. The agenda was very loose.

Fine:
"Our agenda today is ‘Warm Bubbles and Little Arrows’. The morning session on ‘Warm Bubbles’ is soft. We will review the visions and values of the group and address four questions. The afternoon is a little more focused as we discuss the initiatives of 1988 and propose new initiatives for 1989 and the 1990s."

After a little more description of the stated visions and values of the group, he put an acetate slide on the projector with the following four questions preceded by Fedmet’s vision statement ‘EVERY PERSON A MANAGER’:

  1. What configuration of the vision and value ‘bubbles’ do we envision for the Metals Group?
  2. Which ones do we feel good about?
  3. Which ones do we not feel good about?
  4. What revisions to group vision and values would we like to see?

‘Let it happen’ was a guiding principle of the Fedmet team. During the meeting almost every member used the phrase repeatedly in describing what was happening or could happen in their divisions or areas of responsibility. Although the Fedmet team believed in the philosophy of ‘let it happen’, they often struggled with its implementation, particularly in Drummond McCall. Drummond McCall and Russelsteel were major competitors for over one hundred years. In 1987, after Federal Industries purchased Drummond McCall, it immediately became a separate division of the Fedmet group. The cultures of the two competitors were different and had resulted in a very different orientation in many dimensions of the business. Pat Eckersley became president of Drummond McCall at the time of purchase, after being with the Russelsteel organization for many years. Shkut argued that Eckersley was inculcated with the Russelsteel culture which made the transition very difficult at times. Eckersley argued passionately about the need for the line workers to be closer to the customer in order to improve the productivity of the operations. However, he was struggling with the process concept of ‘letting it happen’ and the content of this idea which he felt sure was valid.

Eckersley:
"I don’t think we’ll ever sell the concept of quality to our people in their hermetically sealed plants, who only see steel pass through the airlock and see it come back in with a label on it that says it wasn’t any good. I don’t think we’ll ever really crack quality until our people who are producing or working with our product have a feel for what happens to that product outside. The only way they can do that is to talk to the guys in the customers’ plants who use the product. I mean our hourly guy talking to the customer’s hourly guy to understand the goddamn problems they have with the product which comes out of our plant.... I can order them to do this but that won’t work, we have to let them come to the idea themselves and want to do it and see the value in it. I am looking for an easy acceptance of a worthwhile thought but the structure of Drummond McCall is so hard edged."

Middle management was the focus of much of the discussion. They argued that middle managers inhibit the process of ‘let it happen’.

A key struggle the Fedmet team had during the day was the concept of the sequence of plans and actions. The team explicitly eschewed the idea that plans precede actions. They argued that a major purpose of the annual planning sessions was to reflect on the past actions and attach meaning to those events. They referred to this concept as retrospective sessions. They institutionalized retrospective sessions for all levels of the organization, arguing that there was a significant learning process in reflecting on the past.

The meeting concluded with Fine expressing the thought that translation of the visions and value into actions was the ‘missing link’ that Fedmet needed to understand. Fine agreed to work on a summary document which would take a ‘snapshot’ in words of the process and the outcomes of the meeting. They would then use the snapshot to continue in developing the concepts and material for the five-year strategic plan.

‘Executive pornography’

The executive team of Fedmet occasionally referred to strategy as a four-letter word, an obscenity. As an example, they labeled an article in the business press which focused on Chief Executive Officers (CEOs) and their strategic decision-making role in an organization’s ‘executive pornography’. The management group identified and commented on some of the pornographic words, phrases and images in this article. They appear in Exhibit 2.

At the meeting on 23 January, 1989, the team discussed the article. David Hurst, Executive Vice President, argued that it presumed that the ideal manager is some sort of genius who can analyze reams of relevant data and use the analysis to make the key decisions which will then be implemented by the people in the organization. There are a number of facets to this image which the Fedmet team found obscene. First, they objected to the implied controller- controlled duality. Second, they objected to viewing the ‘people side’ of the organization as one that involves ‘motivating people’. This insinuates that there is a need and a right to manipulate people to act in the manner the CEO requires in order to implement his, or her, plan. It also suggests some unique personal ownership of the strategy by the CEO.

Exhibit 2
Executive
Pornography

Pornographic words, phrases and images of the Chief Executive Officer:

  • masterminding
  • maneuvering
  • it's fun to move the company in the direction you want it to move
  • he (or she) is expected to be above the fray, reading, thinking and developing long-term strategy
  • he (or she) has got to figure out how to get the company to understand where he (or she) wants to go and to help him (or her) get there
  • the challenge of motivating people
  • strategic management is the absolute key element of success
  • engineered a turn-around; the CEO is in control

(The 'obscenities' were underlined in Hurst's copy of the article The Boss Under Fire, Report on Business Magazine, February 1989.)

 

One of their central concerns about a conception of strategic management hostage to such obscene images, is the time dimension implicit in strategic thinking. They argued that an understanding of where they are and where they are going can only be grasped in retrospect. They questioned the presumed sequence of (1) analysis, followed by (2) decisions and consummated by (3) action. In the terminology of management strategy, they were not convinced that implementation follows planning or decisions. They implicitly believed in experiential learning rather than learning by analysis. Their key phrase which reflects this was ‘Let it Happen.’

The Fedmet team eschewed many traditional strategic management procedures. In particular its members objected to the emphasis placed on developing a strategic plan. The process of planning was considered useful but the ‘black marks on white paper’ or the plan itself was of significantly less value. They viewed all management as a process in which the best one can do at any point in time is to capture the process in a two dimensional way, as in a snapshot or photograph. Fedmet labeled their 1990-94 plan ‘A Series of Snapshots of the Group Planning Process’. The metaphor of the snapshot permeated the entire document. Since a snapshot can only picture the external dimensions of a situation, visions and values, which were the critical management focus of the Fedmet team, could not be adequately captured in a snapshot.

Exhibit 3 Fedmet: 'Living the vision'

The Vision:
'Every Person
a Manager'

Living 'Every Person a Manager':
'Linkage' Processes

The Reality:
'Every Person
a Manager'

  • Customer is King
  • Living '60/60' person to person
  • Front line people, fully mobilized, flatter organization
  • Small company feeling
  • Living '60/60' team on team
  • 'Big company' opportunities
  • Excellent supplier relations
  • Living '60/60' president to president
  • Cooperative initiatives
  • An environment for free thought
  • A retrospective by unit
  • Goals to 'get better'
  • People-oriented
  • Fedmet: creating and living the environment
  • Magnetizing group and division offices, e.g. a Fedmet Library
  • Plans its future
  • Living our plan for growth
  • Growth in the 1990s
  • Profit is a requirement
  • Living 'a federal industries company'
  • Embracing the FIL ESOP 'RONA never below 20' a reality

Another dimension of the snapshot analogy is the connotation that strategy is enacted. Thus a photograph can only capture one point in time, which is over as soon as the photograph has been taken. In the 1990-94 strategic plan they stated that a snapshot cannot capture motion and therefore is limited to portraying dynamic interaction as a static arrangement. The Fedmet team focused on the process elements and suggested that the structures or plans were merely temporary manifestations of the process.

24 January - 15 March 1989: ‘Living the vision’

During the next two weeks, Fine worked on the concept of translating the vision into reality. Fine and Wayne Mang, CEO, met frequently to discuss the issues. Hurst was often present at these meetings. They discussed what the ‘linkage’ process between the vision and the reality should be and the conversations often centered on the need for appropriate body language or actions rather than words. There was considerable jousting in the discussions but Mang’s influence was evident. More often than not, the phrases or words he suggested were included in the final chart which can be seen in Exhibit 3.

The team reconvened on 8 February at the Fedmet offices to discuss Fine’s approach. Although there was considerable discussion about the appropriateness of the approach - including concerns about the ‘linearity of the process’ - all agreed to work through the ideas as the next step to develop the plan. The task was broken down into five subgroups each charged with the responsibility to investigate further the linkage and the reality of the visions and values. The first three values listed in Exhibit 3 below were combined since all dealt with the linkage process of ‘living 60/60’. (The ‘60/60’ concept indicates that each side in a relationship has to go more than half-way to make it work.) The other four groups each had one value to address. Fine prepared lists of questions to stimulate the discussions.

Exhibit 4:
The seven priorities

  1. Create and maintain an appropriate environment
  2. Mobilize and empower front-line people
  3. Capitalize on 'big company' opportunities
  4. Promote cooperative buying Initiatives
  5. Goals to 'get better'
  6. Focus on earnings per share
  7. Growth in the 1990s

The subgroups consisted of three people, in addition to Fine who participated in all the subgroups. Each member of the executive team volunteered to work on two subgroups. The subgroups were expected to meet once for approximately half a day and to report their findings at the next strategic planning meeting on 29 March, 1989.

After the five subgroups had met, David Fine prepared a draft strategic plan which was intended to reflect the subgroup discussions. In consultation with Mang and Hurst, he summarized the subgroup discussions into seven priorities. The document was circulated to the Fedmet executive team a week prior to the meeting. The draft plan used the photography analogy and presented the plan as a series of snapshots. The memo attached to the draft indicated the need to continue to challenge the document. One section of the draft dealt specifically with the subgroup discussions. The ‘realities’ were outlined along with the linkage process to move the value into reality. Under each of these seven items was a blank section entitled Questions. The questions, Fine told us later, were intended to be ‘wicked’ questions in that they would be challenging and equivocal, often with a paradox or an oxymoron embedded in it.

>29 March, 1989: The ‘wicked’ questions

The group’s priorities were the centre-piece of the day’s discussion. The seven ‘realities’ or priorities for the next five years are shown in Exhibit 4.

Under each reality was the list of the translation processes to convert the priority into a ‘living process’. These were essentially the summary of the subgroup meetings as Fine saw them

After some heated debate about the document, and in particular the implications for the divisions’ long-range plans, which were supposed to reflect Fedmet’s plan at least to some extent, the discussion moved to the ‘wicked’ questions. The rest of the day was spent discussing the linking processes before the wicked questions were finalized. Mang sat back away from the table for most of the meeting, only occasionally raising a question or reiterating someone’s comment. Fine played a more active role at this meeting than at previous meetings. The deadline for completing the strategic plan was mid-April so there were certain pressures for closure.

Exhibit 5: The wicked questions of the seven priorities

1. Create and maintain an appropriate environment

  • Do our 'body language' and our everyday actions reflect what we write?
  • Are we committed to practicing this - if so what change does this require in my own behavior?

2. Mobilize and empower front-line people

  • Are we ready to put the responsibility for the work on the shoulders of the people who do it?

3. Capitalize on 'big company' opportunities

  • How can we maintain the advantages of inter-divisional rivalry while also achieving all the benefits of close cooperation between divisions?

4. Promote cooperative buying Initiatives

  • How can we maintain the benefits of autonomy while taking full advantage of our size?

5. Goals to 'get better'

  • Have we learned anything from our history?

6. Focus on earnings per share

  • What needs to happen in order for us to state 'RONA never under 20' is a reality?

7. Growth in the 1990s

  • Where will we find the people to achieve this growth?
  • Will FIL be able to balance their portfolio with growth in other groups to permit our growth?

There was some discussion about how much of the document was retrospective versus future-oriented.

Shkut:
"Wayne, I think your caution is don’t make it a total retrospective document. So we need to look at items six and seven on the list because that is where we really go forward. Are we really comfortable with that?"

Hurst:
"I don’t agree that is where we go forward. I think all of them are forward looking. Creating and maintaining an environment can’t affect yesterday’s business but it sure as hell affects tomorrow. We will only get to point SLY by going through points one to five."

Shkut:
"OK. Yep, you’re right."

Hurst:
"At this instant we have an historic RONA (return on net assets) of whatever it is and the only way to affect tomorrow’s RONA is through the people. We can’t work on the numbers directly. The numbers are a result of action, behavior .... All we can work with is people in such a way that when the numbers are measured the results are favorable. So we have to think about what we can do now which may impact the results later."

Eckersley:
"But it is a bit of a circle because it is looking at the numbers which leads you to think about things which would impact the numbers so it goes round and round."

Greene:
"And surely in that process you have to get as many people as possible keying in on those numbers."

They agreed that the past and the future were reflected in the seven priorities and then spent the next three hours developing the wicked questions related to each priority. The questions are noted in Exhibit 5.

Fine noted that the questions were to be presented in the strategic plan, rather than the answers, with the expectation that the divisions would address these questions and raise these and other questions with their branches. They discussed at some length the need to keep the questions both ambiguous and challenging, to create some discomfort among people at all levels in the organization. Fine argued that using questions indicated that the process is continuous. The strategic plan was viewed as a snapshot of one point in time of the ongoing process.

After the meeting the 1990-94 strategic plan was written by Fine and distributed to the members the Fedmet team, the divisions and FIL. Th process of preparing the plan began with a very loose, broad agenda and focus, and gradually narrowed into some specificity of actions, only to broaden and loosen again at the end with the wicked questions. The ambiguity inherent at the beginning of the process was also inherent at the end. Hurst said they trusted the process to develop the content. He said that objectives of what to do should not be clear at the beginning, rather they become clear through the process.

Reflection: Fedmet’s senior management team struggled with the traditional conception of management and of strategic planning Both were built on clockware, predictability, intermediaries, expert knowledge, and the separation in time of plans and action. Although they found these concepts invaluable for some dimensions of their work, they found them misleading and unhelpful in situations where they needed to access the creativity of all 2000 employees. Without a prior knowledge of complexity science, they intuitively created an approach to strategy which was consistent with the underlying principles of the science.

The following chart depicts some of the dimensions which differ between the two strategic perspectives. The challenge for leaders is to determine the relevant approach for the context.

At Fedmet, both systems operated simultaneously in a complementary and competitive fashion. The swarmware system was not new to Fedmet. What was new was articulating it and discussing it. They exposed the assumptions of the traditional model which provided opportunities for finding new ways of acting and making decisions.

The wicked questions were the final stage of the strategic "plan". They were an indication to all the employees that the strategies were still emerging and they were invited to play a role. One of the unintended consequences of the wicked questions was that others in the organization began to mimic the process and ask their own questions. The concept of leader as the giver of answers was being replaced by the concept of the leader as a questioner who used inquiry to access the full potential of the system.

Comparison of Strategic Processes

 

Traditional
"Clockware"
Strategic Planning

Complex
"Swarmware"
Strategic Management

UNCERTAINTY
  • absorption/reduction
  • creation/expansion
ORGANIZING PRINCIPLES
  • controller-controlled duality
  • self-organization
ROLE OF SENIOR EXECUTIVE(S)
  • leader(s)
  • "the" strategist
  • catalyst(s)
  • enactment of strategies by members of organization
INFORMATION (ROLE/TYPE)
  • processing
  • syntactic
  • creation
  • semantic
HUMAN CAPACITIES
  • bounded rationality
  • limitless ability to create connections
STRATEGY/VISION
  • simple, explicit
  • complex, implicit
STRATEGIC SEQUENCE
  • formulation first followed by implementation
  • concurrent formulation and implementation
ASSUMPTION OF IDEOLOGY
  • ideological uniformity
  • counterforces
DOMINANT EVOLUTIONARY DRIVE
  • adaptation to environment
  • requisite destabilization and self-presentation

This chart is adapted from a paper entitled "Chaos and Nonequilibrium: The Flipside of Strategic Processes", Brenda Zimmerman, Organization Development Journal, vol. 11, no. 1, 1993. The paper provides an explanation of the two approaches and the strategic management literature which links to them.

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Copyright 2001, Brenda J. Zimmerman. Schulich School of Business,
York University, Toronto, Canada. Permission to copy for educational
purposes only. All other rights reserved. Full version of case appears in
unpublished doctoral dissertation, Strategy, Chaos and Equilibrium. A Case
Study of Federal Metals, Inc., 1991, York University, Toronto, Canada.