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September 16, 2017

Strategy Consulting for Richard A. Michelson, McNeil Corporation and Inspection Technologies, Akron, OH

by Frank Sowa

A reader of my blog posts has requested that I select and share stories from my days when I was earning my experiences as a strategy consultant. That’s good, because they bring out a lot of valuable pointers, and they are in days that are no longer under total confidentialities.  I’ve already published the first on my experiences with George W. Tippins. This is the experience story about my experiences with Richard A. Michelson, then chairman/CEO of McNeil Corporation (now McNeil & NRM Inc.) and co-founder Sharon Golf Club), Akron, OH.

agoodyGrowing up in the suburbs of Akron, Ohio and having both parents having worked for Goodyear, I was always enamored to learn more about the world’s largest tire maker. I also lived in a city where it seemed all the world’s tires were manufacured. Akron was home to: Goodyear, Firestone, General, and BF Goodrich. As a high-school student at Archbishop Hoban, you could literally see most of the tire manufacturing facilities of Goodyear just over the hill that Hoban sits on. Speaking of my high-school days, I had found Babcock & Wilcox logosummer jobs at Babcock & Wilcox; and as a caddy, gardener, and working in the lkitchens and pro shop of the Sharon Golf Club in Sharon Center. (As Sharon’s top caddy, by the way, I was sent to both the PGA events at Firestone CC, and the LPGA events at Weymouth Valley CC where I was selected to caddy on the PGA tour for Texas’ Miller Barber, and for Australia’s Jan Stephenson in her rookie year on the LPGA tour, among other well-known pros. For Stephenson, it was her first tournament in the United States, and no one (including me) knew of her full golfing potential — or else I might have made a different life’s work decision.)

Sharon Golf Club also was a great place to meet famous people. While there, I caddied for General Westmoreland, Robert McNamara, Jack Nicklaus, John Glenn, Graig Nettles,

RA Michelson

Richard (Dick) A. Michelson

Thurman Munson, Joe Namath, Mike Phipps, Bob Babich, Lee Majors, many other celebrities, and business leaders of Akron and Cleveland that frequented Sharon, a private male-only golf club buit by local millionaires, for millionaires. Like I said, I had many opportunities to meet and converse with them all. One of the founders of the Sharon Golf Iwo_Jima_amtracs_crop_LVTA4Club was Richard (Dick) A. Michelson, CEO of McNeil Corporation in Akron, he often played his rounds with Glenn Meadows (also from McNeil). I caddied for both of them mutiple times. Dick Michelson was an old-school, pragmatic and very-friendly ex-Navy machinist who during World War II was stationed in Riverside, CA overseeing the production of the light Landing Vehicle Tracked version four (LVT-4) armored personnel and cargo armored landing vehicle that was used to strike the beaches of Saipan and Iwo Jima. After the war, he returned to Akron to find work within McNeil Akron Inc.

Work for McNeil Akron Inc. as a creative director

In the last few weeks I was creative-director at Akron’s Quadrathought Creative Group, a marketing services company, we were hired by Quadrathought-logoMcNeil’s CEO Glenn Meadows to design marketing campaigns for their OEM equipment for the global rubber and tire manufacturers. (I say last few weeks, because three weeks after we were signed on, the IRS and State tax agencies closed Quadrathought down for failure to properly pay McNeil Corp logoemployment taxes, which led me to Pittsburgh and the beginnings of The Xavier Group, Ltd.) I pitched the winning marketing campaign’s creative ideas and services to the upper management team (which included both Meadows and Dick Michelson among others). After the meeting, Dick pulled me aside and asked me if I used to caddy for him and Glenn at Sharon. I said that I was their caddy, and that started off a new friendly relationship between the three of us.

Research and Analytics into new directions for McNeil and their potential impact on strategy and profits

A week later, Dick Michelson called me back to explore and provide some advice and analyses work on whether McNeil Corporation should purchase BF Goodrich’s Aerospace Company (now UTC Aerospace) Inspection Technology Division. Inspection Technologies had been rolled out of Goodrich with French venture capital to create a start-up that became Inspection Technologies Inc.ITIlogo (ITI). Michelson and Meadows felt that “possibly ITI would give them a broader range of process equipment,” and that would better bolster McNeil to survive for the future, as the rubber tire industry was undergoing a massive shakeout (with class-action lawsuits against Firestone’s failed fiberglass wheels (additive manufacturing today would have been Firestone’s savior in the 70’s) and their attempts at radial tire manufacturing, and BF Goodrich’s hostile takeovers by European investors. I agreed to personally begin this process at Quadrathought for him and to use the results as some of the analyses in our more comprehensive marketing campaign.

Once I relocated to Pittsburgh and started The Xavier Group, Ltd. I announced Xavier’s start-up in many newspapers. Because, I had ties and family in Akron-Medina, I also had the start-up release sent to the Akron Beacon Journal, the Medina County Gazette, the Wadsworth Sun Newspapers, Rittman-Norton-Doylestown Trogdon Papers, and History7community papers in Fairlawn, Barberton and throughout West Akron. Michelson read the release and called Xavier at its new Pittsburgh location (in Ross Twp.). In our conversation, he explained that even though Quadrathought no longer exists, he would like to hire The Xavier Group to continue the analyses and work on projects for his company. I explained that legally we would have to side-step any work on any kinds of marketing, advertising, or sales campaigns for McNeil. He then asked if we were able to provide our engineering services and strategy services for McNeil specifically regarding ITI, but also McNeil’s line upgrades at Goodyear’s tire manufacturing facilities in Akron s a subcontractor to their prime contract. Xavier took the job, and McNeil became another one of our first clients.

Status of the Rubber and Tire Industry

images-2It needs to be understood here that THIS is what strategy is all about. It is difficult to think of an industry that was affected more by the wave of mergers and acquisitions (M&A) in the 1980s than the U.S. tire industry. Seventy-five percent of the companies in the industry (accounting for 90 percent of the value) experienced a takeover bid or were forced to restructure during the period 1981-89. As a result of this activity, control changed hands in over half the companies in this industry and forever altered the rubber and tire industry in Akron. Even more remarkable, in the majority of cases, control was transferred to foreign owners. By the end of the decade, the longstanding traditional American firms like Firestone, Uniroyal, BF Goodrich, Armstrong, and General Tire belonged to foreign companies. As a consequence, large U.S.-owned tire manufacturers, who in 1971 represented 59 percent of the world production and included four out of the top five producers, dropped to just 17 percent by 1989.

The rubber industry was in a shakeout mode being broadsided by European and Japanese competitors who introduced radial tire designs; just as the steel industry based in the same region was broadsided by the new technologies of electric arc furnaces and mini-mills. The foreign competitors, looking for a vulberability of the traditional giants in their industry, had latched on to disruptively innovative technological advances.

The switch to the radial technology required major capital investments because it was not economically feasible to convert the existing bias-ply capacity to producing radials; 5612b38c6f3fc82da79172c34c533b20--charles-goodyear-rubber-companyFirestone’s attempt to do so ended in fiasco, and record financial losses. As a result, tire producers faced the prospect of making major capital investment in a low margin sector at the same time as the growth prospects for the entire sector looked grim. The major diversified tire companies (Goodrich in particular) made the conscious decision to reduce their capital and development expenditure in the tire business, sell their foreign operations, seek government “national security” contracts within the military-industrial complex to salvage some operations, and look for a foreign (European) buyer for mostt of its domestic operations.

It was also this rapid technological change that began in the 60’s and culminated in the 80’s that generated overcapacity in certain industries (and significantly in manufacturing), that required longstanding firms to quickly and RADICALLY improvisehydraulic-tire-curing-press-250x250 and adapt with new strategies for survival from optimizing the use of R&D explorations; operationally downsize; or exit. Managers who were tied to old paradigms to this day, still fail to recognize quickly enough that a decision has to be made; so they continue to invest in the old paradigm as they always have, and turn to legal channels to defend against the broadside intrusions to their markets. When managers behave this way, exit is significantly delayed at substantial cost of real resources to the company, to the industry, and to the society as a whole, and in my opinion, we see a lot of this in the current politicized ideologies of the “Make America Great Again” approach to business strategies.

The tire industry of the 70’s and 80’s serves as a great example of how favoring the power and profits of the old paradigm over attempting new disruptively-innovative maxresdefault-1products and services can become a road to perdition. Wide-spread consumer acceptance of radial tires by 1982, meant that worldwide tire capacity had to shrink by two-thirds (because radials last three to five times longer than bias ply tires). This, therefore, required that the tire giants had to move forward with new strategies if they wanted to survive. Instead, historical analyses suggest that they turned to the military and defense “national security” industry to keep them safe (which ultimately didn’t help at all — but led to multiple recessionary downturns that negatively affected US society.

“This business is going through some rough times. We have to make major investments so that we will have a chair when the music stops,”was the chant coming from many business leaders in that time. They failed to recognize the true issues facing them at their front doors.

Lessons from the Steel / Primary Metals Industries

In 1964, all of the US Steel behemoths (US Steel, Bethlehem, Republic, LTV, National) made the decision to stick with basic oxygen furnaces (BOF) and improve outputs in their facilities. The STRATEGY was to milk the cash out of BOF when electric arc furnacesdofasco 033 and overseas mini-mills challenged the leaders in steel. That meant NOT investing in new steel equipment and plants, but reengineering operations with union labor pay increases  that increased experienced steelworker loyalties; and to increase purchases of automation and advanced manufacturing equipment that (in combination labor, automation, advanced tooling) would improve outputs and profits of existing (old) facilities. They would “milk them” until they were no longer profitable, then sell them to others. (Unions thought they were negotiating better deals and higher middle class wages — but the strategies used in steel suggest otherwise!)

At McNeil, because they saw their rubber and tire “cash cow” drying up, as a tire manufacturing supplier of OEM equipment, they saw they needed to increase their offerings, and they wanted to see if in-line 2D and 3D automated visual inspection machines, flouroscopic / ultrasonic / X-ray / infrared analysis inspection machines would Davy-logoimprove their standings with Akron’s tire manufacturers and keep them at the top of their game. If it did, their new STRATEGY would be to offer end-to-end in-line equipment to meet the needs of rubber and tire manufacturers. That end-to-end (or turnkey) approach, I was very familiar with from my work at Davy McKee on processing plants.

What is real “strategy?”

The purpose of hiring outside engineering and strategy consulting firms is to allow them to deeply analyze potential future actions to see if it will increase profitability and/or extend the life of the organization until new economic conditions can yield growth.strategy Growth strategies in good times are to expand and improve positioning of resources to yield better demographics, territories, technologies so as to optimally serve more customers in a more valuable way. Engineers analyze with a deep dive of how technologies are designed and applied in real-world situations. Their feedback and recommendations will either improve the technologies, or make recommendations specifying some other course of action would be more appropriate. Those are the essence of shaping a good strategy. Once the strategy is in place, the tactics (plan or execution) will dictate the degree of success an organization will have.

How did this relate to my and The Xavier Group’s experiences?

My newly acquired exposure to visual inspection automation and robotics would drive iumyself, and The Xavier Group, from then (1981) to the present day. Think about it. McNeil’s machines (before inspection machines) were using chemistry to shape, mold, cure, vulcanize, and create tires on a mass produced scale. They wanted to add inspection equipment to the in-line process to provide “automated” quality controls (QC) and quality assurance (QA) … and to create a turnkey offering to manufacturers.

From a sheer technology experience the OEM machines to be analyzed were:

  1. McNeil Akron’s existing OEM line of rubber processing equipment
  2. McNeil Akron’s potential OEM line of inspection processing equipment
    1. 2D high-resolution, high-speed visual inspection machinery
    2. 3D high-resolution, high-speed spatial visual inspection machinery
    3. Flouroscopic X-ray analyses inspection machinery
    4. Ultrasonic sound wave analyses inspection machinery
    5. Thermographic Infrared light analyses inspection machinery
    6. Thermographic Infrared LIDAR analyses inspection machinery
  3. How that processing equipment would work together in a Goodyear tire manufacturing facility
  4. How the automation equipment was to be “networked” together
  5. How the network would collect and use data in a “turnkey design”

In understanding the machines, one had to also understand (in 1981 technology):

  1. High-resolution cameras and optical lenses
  2. Camera placement to yield 3D virtual imagery
  3. Flouroscopic X-ray imaging processes (silver print emulsions)
  4. Picture-taking focusing and manual and automatic exposure dynamics
  5. Ultrasound camera imaging processes (digital screen and paper readouts)
  6. Ultrasound osilliscope/oscillograph soundwave readouts (amplitude and frequencies — and what they mean)
  7. Thermographic Infrared camera imaging processes (including FLIR)
  8. Thermographic LIDAR camera imaging processes
  9. In-process Conveyor Systems
  10. Process Controls, Statistical Process Control (SPC), Quality Management
  11. Sensing technologies
  12. Process line software and Relational Database Management Systems (RDBMS)
  13. Inspection Equipment Software
  14. OEM Equipment Software
  15. CAD, CAM, CIM, CNC Machinery and Software
  16. Electrical and Electronic Components
  17. Mechanical and Engineered Design Components
  18. Chemical and Mixing Components and Formulae
  19. Networked in-line Controllers and Switches
  20. Enterprise and Information Technology Architectures
  21. Machine-to-Machine Communication Technology Architectures
  22. Human-to-Machine Communication Technology Architectures
  23. Human-to-Human Communications Theory and Practice
  24. Problem-Solving Theory and Practice
  25. Operational Governance and Business Operations Modeling

In understanding the McNeil Corporation business model to develop a strategy and make a decision regarding the Inspection Technology one had to:

  1. Perform a company Situation Analysis
  2. Perform a company Financial Analysis
  3. Perform a company Marketing/Industry Analysis
  4. Perform a by Market Economic Outlook Analysis
  5. Perform an Industry Outlook Analysis
  6. Perform a Stakeholder Analysis
  7. Perform a Resource Allocation and Positioning Analysis
  8. Perform an ITI Merger and Acquisition (M&A) Analysis
  9. Perform a Customer and Customer Outlook Analysis
  10. Perform a Technology Outlook Analysis

From these, The Xavier Group would then be able to provide cohesive and detailed recommendations to McNeil, Michelson, and Meadows on how they should best proceed; and for The Xavier Group (the results could dictate whether or not McNeil should enter the next phase) with Tactical Plans and Executibles.

The 1982 Goodyear installation and testing subcontract experience

23274-9978419.jpg

One intriguing upside to this process was that McNeil senior management had already closed a deal with Goodyear_Social_02Goodyear’s CEO Charles Pilliod Jr. to install the inspection equipment on a Goodyear Tire line to see how well it would work. (It appears that Goodyear, at that time, was formulating a strategy regarding their future and facilities as well!) This meant that in addition to providing strategy consulting services, Xavier would be subcontracting on engineering services regarding the installation and implementation of the inspection technology equipment, which would thus be providing the advantages of real-time field data and information collection to support solutions, recommendations, and improve conclusions regarding the project.

We began the project in the summer of 1982. Over the winter, I, and The Xavier Group team and its contractors prepared ourselves for the task by preparing and pining over reams of analyses, and engineering on-site work at both McNeil and at Goodyear to see how the equipment would work, and how it would be installed at the facility. We also deep-dived into research regarding the science that was behind the new technologies; while our financial team prepared its M&A and P&L papers regarding the backgrounds and culture of Goodrich’s Inspection Technologies Inc. to see whether or not the purchase would be a “good fit” for McNeil. We wanted to be ready and prepared to fasttrack our capabilities as McNeil’s subcontractor, when we were asked to execute. In that stage, preparation and persistence are much more valuable to the outcomes than other aspects. We, as spring blossomed, began to mimic “dry-runs” on all the procedures we would be involved in — and time-sequenced them to optimize our productivity when we were in the field. Those dry-run practice operations were also key in helping us come up with metric procedures to help collect the right kinds of field data when the pilot program was turned on and we were receiving realtime data from the in-line process and machines. These runs also helped us define better questions to be asked, and allowed us to draw up the kinds of meaningful information feedback loops that would optimize the characteristics of the working final product. (I’m not sure if today’s organizations truly understand the value of such preparation — though I do know that it is still done by most competent outside contractors.) I must note here, that these should be done as standard operating practice in all industries and organizations or businesses from start-ups through Fortune 100 multinationals.

It took only a few months to compete the project within budget and under deadline in 1982. It turned out to be a successful installation. As for McNeil’s purchase of Inspection Technologies Inc. we provided them with our recommendations regarding the purchase, as well as plans for the implementation of the new strategy should they adopt the recommendations. I don’t know how things transpired after that, because I understand that Goodrich and the French venture capitalists involved complicated the financial side of the project. It was my understanding from ongoing discussions with Michelson and Meadows for the few years after that project that McNeil Corporation (as it had then been renamed) did, in fact, use many of the strategy recommendations moving forward, and did eventually increase its OEM offerings in the area of non-destructive testing inspection machines and equipment.

 

 

 

 

 

 

 

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