Several things distinguish the special machine tool industry from others, factors that have an important impact on its management methods. The most important is that the typical order size can be quite large in relation to the size of the company accepting that order. It is normal that a company may only process a relatively small number of significant orders in a given year. There are always many small orders for spare parts and re-tooling components as well, but they are normally only a small portion of the total.
The markets that are served are very limited. The total number of significant customers, although very large and multi-divisional, dealt with in a five-year span could well be under two dozen, and of those, only a handful will dominate.
Add to that the fact that a large portion of new business is newly conceived, with inherent risks, to beat worldwide competition to win the order. It’s obvious that every project must succeed, financially, technically, and in terms of timeliness, or grave and long lasting consequences can be expected.
As the entrepreneurial generations have passed and public ownership in the industry has become more common, its methods and success record have been affected. The professional managers have tried to make the cloth of the special machine tool industry fit the pattern of their business management education and background. The usual discreet financial indicators tell only a small part of the story. Success or failure of the enterprise depends entirely on the success of large and urgent projects the details of which are very technical in nature. Customer relationships are the first thing to go when a project is in trouble followed by diminishing backlog and margins. Remember the small total number of customers. Just one of those could be a third of the total market and it is certain that any serious trouble is telegraphed throughout the industry.
Recently, an executive of a venture capital firm was asked, “What do you look for in deciding if an organization is right for your commitment of capital investment?” The top two requirements that he listed were: The organization team must be obviously passionate about its products and its mission, and the top management and/or principle owners must be as knowledgeable about all aspects of the business as possible.
A theme of this book is the importance of the culture of Yankee ingenuity; that is, the application of imagination, passion, and courage and their roles in producing innovation. That should not be confused with creativity for the sake of creativity. Creativity resulting from that culture and a nurturing environment is a wonderful thing, but it must also pass the tests of viability - technically, financially, and in its timeliness.
The following are quotes from an historical publication of The Cross Company, a large and well-known American special machine tool company. The company has since been acquired by a large German machine tool company and is known as Cross H ller.
“It is an industry that repeatedly defies textbook analysis. Its management skills are seldom interchangeable with other industries, and its mastery requires a unique mix of skills which cannot be acquired outside of its boundaries. How then does it attract men who keep it alive and make it grow and flourish? Simply, it appeals to that breed of man who finds adventure in its uncertainties and satisfaction in its non- monetary rewards. The kind of men who see mechanical design and machine building as art forms. Men who love things mechanical and the prospect of solving problems not yet defined with devices not yet conceived. The kind of men that possess the self confidence needed to do things that have never been done before even after repeated failure.” “The reason lies in the word “special.” It is an industry whose continued existence depends on a steady flow of new and workable ideas, most of which become altered by the process of debate on their way to becoming workable.”
While these quotes stress the importance of the human element, sadly, when the family entrepreneur stepped aside, a competent top management vacuum remained that resulted in the appointment of the top executive from outside the industry.
Continuous innovation is a prerequisite for survival in the special machine tool industry. Therefore, it must have a climate that facilitates and promotes it. In other industries where it is apparently not a prerequisite (look again), it may not get the attention that it could and maybe should. A significant difference, of course, is the market it serves; that is, the products are many times one of a kind and must succeed every time on their own merits.
It is apparent that the entrepreneurs who led the few surviving companies for many years achieved their real compensation in much the same way as Eli Whitney did. That is, the satisfaction realized upon achievement of very difficult challenges, one after another, that few others in global industry would attempt. An additional reward was the belief that the organizations that they endowed with that capability and had nurtured to success would survive them. Unfortunately, in many cases they have not. The ones that remain are in serious question, at the time of this writing.
“Recently, a Dutch psychologist tried to figure out what separated chess masters from grand chess masters. He subjected groups of each to a battery of tests: I.Q., memory, and spatial reasoning. He found no testing difference between them. The only difference: Grand masters simply loved chess more. They had more passion and commitment to it. Passion may be the key to creativity.”
A graduate from a technical high school in the 1950s went to work as a draftsman in a privately-owned special machine tool company and soon found that many of the “reasons we work” were satisfied for him. He did not think of it in those terms, only that he was very happy and was learning a lot. He developed great pride in what he was able to do. He made a point of using all the space available in the drawing title block for his full name so that he would be identified with his work. Many used only initials, since a full name leaves little doubt about responsibility or ownership - good or bad.
He would spend his lunch hour eating a sandwich while walking through the manufacturing area, hoping to see the parts manufactured from the drawings he had made and talking with machinists and assemblers (tool makers) about how good or bad those parts were and if they worked as intended.
After some time as a designer, he was creating assembly drawings with the same pride and watching those assemblies being built and operated for a small part of a project. Eventually, as a project engineer, he accepted responsibility for executing the engineering for an entire project. Much of the time it was an all-new concept developed by proposal engineers against difficult competition to win the order.
It is difficult to describe the satisfaction that comes from watching the material arrive, then be assembled, piped and wired, and then to watch the new concept, device, or machine come to life for the first time and be readied for a long productive life for a customer. It may be a relatively simple $100,000 project, or it may be an extremely complex $60 million project. That birth is always a great source of pride for those involved.
Following the direct project involvement came actually developing the new concepts, based on experience and imagination. Winning orders for significant projects against clever global competitors by out-thinking them produces a special emotional high. The concepts offered utilized sound ideas based on a thorough knowledge of the organization’s capability and were as rewarding as designing or building it. You can bet, however, that he was on hand when it was birthed.
This leader is a composite of some of those who became top executives of those American special machine tool companies. The sad part of this story is that an environment to mentor and foster passionate, capable people that could result in any real level of ownership and perpetuate the entrepreneurial nature of the business did not exist in these companies, a common problem of those times.
Those things that are rewarding to the designers, builders, technicians, and their leaders when a project comes to life and functions as planned also reward the owner when it is a private company in much the same way. It is the recognition of project success and is reflected in the financial results accordingly. Many times it also signifies that the risk of a forward technology step was the right thing to do and the company’s future competitive position has been enhanced.
There is a parallel involving the heart surgeon whose payoff includes the satisfaction involved when a healthy patient walks away following recuperation from successful, pioneering heart surgery.
It will always be desirable to have a significant level of ownership by solid special machine tool people. Numerous examples show that professional managers with proven track records have not been able to perform for the public owners in the special machine tool business.
Sooner or later, pure family ownership will likely come to an end, as special machine tool companies grow larger. Family successors to the entrepreneur will not be available generation after generation. Heirs are then no longer involved in operating the company and will get their inheritance (after significant tax obligation) sooner or later. Large sums of operating capital will be required on an ongoing basis. Thus, public ownership, at least in part, is almost a must.
Of Mechanics and Machines, (75 anniversary publication of The Cross Company June 27, 1973).
What happens in the brain of Einstein in the throes of creation? (USA Weekend January 1 – 3, 1999).