Addendum 5:


Addendum 5:

The Slide

In the late 1960s, The Snyder Corporation, an American old-line, family- held special machine tool company was acquired by Giddings and Lewis, a much larger, publicly owned American standard machine tool company. This company, founded in the early 1900s, had a good record of success, having survived numerous business cycles while maintaining a good reputation. It was fairly diversified, as it served several customer industries, including railroad, pharmaceutical, automotive, heavy vehicle and hydraulic industries. Prior to the acquisition, family members had always managed the company

The acquiring company installed a manager who was an outsider to the special machine tool industry even though there were next generation family members involved in various management positions. The acquired company failed a few years later and was closed, a distinct loss for its owners, employees and especially for its customers.

A very similar set of events was involved with another old-line special machine tool company in Rockford IL., WF and John Barnes, although the purchasing company was a large conglomerate, Babcock and Wilcox. It also acquired another smaller special machine tool company in Rochester Michigan, US Broach and Machine. An up and coming corporate executive from the acquiring company without special machine tool experience managed the division, composed of these two companies. They survived for several years but ultimately, the larger of the two was closed. The other was basically closed as well, although the proprietary property and the name were sold to an employee group who continued to operate on a very small scale.

Also in the late 1960s, another U.S. conglomerate, Bendix Corporation, acquired and eventually consolidated two independent, closely held, American special machine tool companies, Buhr Machine Tool and Michigan Special Machine Tool, and a few years later included a third, Colonial Broach. One of the acquired companies, Buhr Machine Tool, was one of the five larger special machine tool companies at the time. The new company was managed by people from the two acquired companies, but was subject to close scrutiny and the business practices of the parent company. The new company, Bendix Machine Tool Company, performed reasonably well for several years although the competing companies prospered and grew at a faster pace.

The consolidated company, after several years and other changes, was sold to one of the oldest and best known of the other American big five special machine tool companies in the mid-1980s, The Cross Company. Shortly following that acquisition, the acquiring company did it again, this time acquiring another of the big five special machine tool companies of that time, La Salle Machine Tool Company.

The special machine tool division of the acquiring company itself had already undergone significant changes. It had been a public company for a number of years but was managed and controlled by the founding family. It was then merged with a large well-known American standard machine tool company, Kearny and Trecker with a similar family ownership situation, to be known as Cross and Trecker. They were managed as distinctly different businesses under a corporate umbrella.

During the next few years, several changes were made at the corporate level. It eventually led to the appointment of a new chairman from the outside with little knowledge of the businesses he would be responsible for. He in turn selected a president of The Cross Company from the outside. He was a professional manager with no machine tool experience.

This was now a special machine tool company with plants in Canada, England, Germany, four in the U.S., and had an important licensee in Japan. It served customers around the world at the rate of approximately $250 million per year. It was well-known and respected. It now had two large American special machine tool competitors, Lamb Technicon and Ingersoll Milling Machine Company, rather than four. Overall, it was in an excellent market position. The standard machine tool company was a sister division of the same corporation and provided some synergy.

Within two years the company was in serious difficulty. Numerous orders were in serious trouble, technically, financially and for their delivery commitments. This had a very serious negative effect on customer relationships, which adversely affected new orders. The backlog was very low, the company was operating at a loss and numerous projects had serious technical difficulties.

During that difficult period the management at the corporate level was replaced. In turn the management at the special machine tool division was replaced with an experienced special machine tool person from within. Reorganized and working to fix the backlog and warranty problems the company began to show improvements in a year or so and had regained respectability in the eyes of their customers. Within five years, the company was earning at record levels and had a record sized high quality backlog.

This company was performing so well that it was in fact bait for prospective buyers of the corporation including other divisions, which were not doing as well. The corporation was sold to the same standard machine tool company, Giddings and Lewis, as in the first example, this time on a much larger scale.

The acquiring company, managed by an individual with limited standard and no special machine tool experience, chose to split the domestic Cross Company from the European Cross Company pieces. Managers without machine tool experience of any kind would manage each piece of the now fragmented company independently. This was at a time of accelerating globalization by customers and competitors. It also chose to change its name from the one that was the most well-known throughout the global industry. The name of Giddings and Lewis with little connection to the special machine tool customer would be used.

The new American division and new inexperienced president which inherited the large backlog did exceedingly well in the first two years in terms of it’s profitability by producing that backlog with essentially the same organization. As the backlog was completed it was not replenished at the same rate.

At about the same time the diminishing backlog became a concern, one of the large domestic auto company customers asked for quotations for equipment to produce major components for a new engine. A distinguishing requirement, surprisingly from a previously “traditionally” oriented customer organization, was “agility” which would require serious pioneering.

In the situation, where the person responsible for the management of the company is not able to assess technical viability and associated risk himself, as the founding entrepreneurs were, he must have the ability to judge the department heads and their recommendations. They should be technically astute, but are less likely to be able to do intelligent risk assessment. Most were in effect trained by their upbringing to depend on the owner/entrepreneur for the tough decisions and were not normally challenged to take risks at that level.

The president accepted what his people had proposed, which was what the customer had asked for, and was awarded a large order for a system to machine aluminum cylinder heads in a way that had not been attempted before.

Another reason that logic may have been distorted in that exercise was that the organization had just processed the large group of important orders very successfully. All, including the president, felt confident in their collective ability when in fact it was the legacy of a different organization. The backlog was already in place, utilized sound practices and pricing based on knowledge of competitors and on market conditions at the time.

Following receipt of that order another domestic automotive customer requested proposals for equipment to produce major engine components. Two different projects were involved. One project would produce cylinder blocks and the other both cylinder blocks and cylinder heads. These would be large systems and were proposed using flexible concepts, but different from the first cylinder head project. Large orders for three lines of equipment were awarded to the same company.

All four systems were over budget, late and shipped without being fully qualified to satisfy customers who were in serious trouble because of it. Worse, they were ultimately shipped back to the builder because they simply couldn’t perform as required. Other arrangements had to be made to produce the engine components at great cost to the auto companies and to the machine builder. These were historical precedents and seriously injured the mutual trust aspect of special machine tool acquisition. Both sides shared in the blame.

A leading American special machine tool company, whose genesis included seven once proud and powerful family companies and an untold wealth of knowledge and experience, was mortally wounded. The owner’s, the employee’s and especially the customer’s losses, not just financial, cannot be quantified. It also seriously damaged the rapport that had existed between the two industries for many years.

Some time later the entire corporation, including the remains of the special machine tool company, was sold to the leading German machine tool company. They renamed the special machine tool company to include the original American company name in front of the German name and then changed the name of the entire German special machine tool company the same way – Cross Hüller. In the mid 1980s, EX-CELL-O corporation, headquartered in Troy, Michigan, closed its machine tool operations in the U.S. and sold its German company to an employee group.