Victoria Heavy Case

VICTORIA HEAVY EQUIPMENT LIMITED

• Brian Walters – chairman of the board, CEO, majority shareholder
• 2007 – sales of $150 million to over 30 different countries

History

• Company started as diversifying the crane industry and for the first successful hydraulic crane controls – 1970 purchased by Brian’s father and was having financial difficulties
• 1977 – he changed company around by focusing on productivity and tight financial controls – and they started focusing on cranes exclusively
• Brian took over after his father passed away – his strategy was to sell less than 10 cranes to one buyer rather than 100 to one. He wanted to gain a reputation in the US market before the big U.S firms noticed him

Early 2000s

• 2000 – sales of $75 million and this figure doubled by 2007
• However numbers had been dropping because of increasing costs and rate of sales growth slowed
• Main product line was the LTM 1000 crane line - $750,000 average price per crane
• Requires large inventory of both parts and raw material
• 2004 success story – good at making customizable cranes
• 2006 – new crane developed A-100 – much better in performance however sales were disappointing

Crane Market:

• Custom and standard crane market - $945 million in 2007
• Victoria – medium sized custom cranes with 75% of prices of its top two competitors
• The heavier the cranes got, their gap closed (one of the competitors – Washington Cranes)
• Victoria 15% market share with US $360 million – 2007
• Victoria 60% market share with CDN $66 million – 2007
• Main customers – contractors

• Affected by machine dependability, parts and service availability

• Washington Cranes – had better service and reliability
• Price margin important for Victoria to hold advantage

• Backward integration – 85% parts manufactured in house  - reduces costs – however over time most of the machinery at these plants was very old

• Believed in their brand – integrated plant, worker loyalty and single product concentration originating in Canada
• Competition:

• 5 major firms, all larger than Victoria
• Washington Cranes – 2007 - $600 million and 50% world market share – last 5 years, sales growth of 15% per annum

• Key advantage – 100 strong dealers worldwide with 200 outlets
• Held 30% Canada’s market

• Texas Star – small cranes
• Toshio and Sato – Japanese firms entering North American markets
• Two other competitors originating from US, both of which were multinational producers and focused less on their small crane lines

Organization:

• 2001 Problems – development of middle managers, new crane development, profit sharing plan put in place – cause of the manager problem was an overly centralized firm
• 2001-2004 – Firm was reorganized – setting up separate operating companies and a corporate staff group
• See 2005 organizational chart in Exhibit 3
• 2006 – he realized staff groups were not working – River resigned – did not like the distribution of power – (civil war in the company)
• Line managers upset – by intervention of staff VPs of employee relations, manufacturing and marketing
• Staff personnel – upset by poor line decisions
• 2007 – Organization restructured – staff functions were eradicated for marketing / manufacturing
• Executive committee – established 2006 – made of president, head of all staff groups and general managers of the 4 divisions
• Monthly meetings discussed important issues where as subcommittees handled R&D
• 7 major centers in total – measured for performance purposes – behaved as their own firm
• 2007 – Brian became CEO and left presidency role
• Engineering and R&D had a lot of issues – 5-6 committee meetings, 4 VPs resigned since 2005
• Brian hired consultants to tackle these problems
• 2008 – dissatisfaction still remained

• Conflict on establishing challenging budgets for each operating firm
• Conflict over transfer of pricing and allocation capital budgets
• Lack of central control over spending resulted in over expenditures by several of profit/cost centers

Views of the Organization evolution and Present Structure:

• Diane Walters – liked the system

• Identified true performance of sections of the company
• No loss of efficiency
• Little duplication of systems between groups
• Each group acted as a check and balance on the other groups

• Other executives

• Means of opportunity to develop and grow without hindrance of other functional executives
• Decentralization brought benefits, allowed for modifying existing practices
• Minimal direction from Brian – resulted in hiring own staff, and establish their own priorities and programs

• Other executives

• Inappropriate structure
• Lack of real header for the firm resulted in poor coordination of problem solving and difficulty allocating responsibilities
• Priorities of different groups were not synchronized
• This structure was appropriate for a faster, larger and complex growing company
• We are too small to be decentralized

New President:

• Most executives agreed that the new president should not be involved in day to day activities
• They want a bureaucrat cum diplomat rather than an aggressive leader

Current Situation:

• 10% decrease in world crane sales projected, and 30% for North America
• Victoria’s sales and production levels have gone down as well
• Total employment levels went down
• Worker morale low, profit sharing plan was not helping
• No bonus to be paid for the year
• Certain groups did not mean budget hence all were penalized – aggravated issue
• Bonuses for each group based on overall as well as divisional success
• Staff functions paper work was tedious and time consuming
• 4 to 5x as many people in production control as there were in 2002 for the same level of production
• Inventory levels were too high

Long Term Goals

• 25% world market share by 2012
• 375$ million by 2021
• Quality product, motivation and professional people
• We are more focused due to our concentrated product line