Internal and External Reasons
Both external and internal factors play an essential role in the overall survival rate of a corporation, because a company can be highly competitive locally, but can be incompetent on an international scale. The given case is an illustration of an American company Burgmaster, which struggled to compete with international competitors due to trade policy pressure and operational management inefficiencies. In addition, Burgmaster was forced to undermine its quality of production management due to Leveraged Buy-Out (LBO) because it was acquired by a larger firm in order to expand.
Burgmaster’s downfall is manifested in the fact that its internal factors, such as operational and production management, were not properly adjusted for the output rate required by its host company. Operational management refers to the type of management activity that allows companies, such as Burgmaster, to provide the necessary products, services, and goods based on the tasks of scheduling, internal production logistics, production motivation, and organization of production processes. Operational management is an activity aimed at obtaining any products such as goods, services, work, or management decisions and information.
However, the overall pressure to generate cash resulted in operational inefficiencies, which in turn led to an increased output of defective machines. The concept of operations management is identified with the idea of production management, but this is erroneous since production management is part of the operations management of the enterprise. In addition, it is important to note that Burgmaster was a machine tool manufacturing company, which involves a complex set of components and other intricacies.
Production management is a type of control that is responsible for the processes of transformation of raw materials into finished products, as well as for all supporting operations and their management. The above concepts characterize operations management as the management of the processes of obtaining a product that may relate to services or goods. Therefore, the major Burgmaster’s problem was most likely in production management, because the company was using computerized production scheduling systems, which were highly inefficient for this type of production style.
In order to determine what the operational management of the development process of a management product is, it is necessary to analyze the nature of such control, and then identify specific features and tasks. From the position of a systematic approach, the management process is considered as the process of the subject of control’s influence on the control object through direct managerial impacts, as well as the transmission of information through direct communication and feedback channels.
Furthermore, the external factor was manifested in the fact that the lack of support by the U.S. government through trade policies and a high level of competitiveness of Japanese manufacturers resulted in the fact that LBO put enormous pressure on Burgmaster. For a company, such as Burgmaster, using its own funds can bring much fewer benefits from the transaction than raising borrowed capital.
In addition, repurchases with a high share of borrowed funds make the company vulnerable – interest payments can divert significant amounts of resources for business development. Since the interest on the loan is paid off at the expense of the cash flows of the target company, any malfunctions in its work can provoke a shortage of funds for paying the loan. In this regard, the LBO as a financial transaction applies to Burgmaster Corp.
The fact that Burgmaster Corp. used non-standard, combined forms of attracting financial resources will give the company an advantage in a takeover transaction. The increase in opportunities, including the redemption of companies using debt financing, contributes to the development of mergers and acquisitions Leveraged Buy-Out (LBO) – a tool for financing mergers and acquisitions. This provides for the acquisition of a controlling stake in the company by attracting borrowed funds. Collateral for such transactions is the assets or shares of the acquiree.
The given transfer of the debt burden to the target company distinguishes the LBO from the usual form of lending. The transaction carried out by management is called Management buy-out. Machine-building production is a complex system, which is a large number of heterogeneous parts of the production and technological subsystems interacting with each other, aimed at solving production problems. The competitiveness of products characterizes the successful functioning of the system. Although Burgmaster was highly successful in the US, it could not remain competitive on the international scale due to the Japanese delivering high-quality and cheaper machines.
The competitiveness of products is ensured primarily by reducing the cost of its manufacture, increasing productivity, and reducing the time to prepare the production of new types of products. Reducing production capacities to fulfill each production task is the basis for compliance with the listed factors and is achieved by rational changes in the structure and parameters of the production system in the shortest possible time. The change in the state of the production system is determined and ensured by the organization of such an impact on it, as a result of which it goes into a state where it is possible to produce new products under positive conditions. Thus, it is important to ensure the system management process, which it would guarantee maximum production performance.
Inadequate Strategic Planning
Burgmaster’s strategic planning was a determining factor that resulted in the company asking for trade protection. The company was not always a struggling business, because, before LBO, it was striving. The problems arose when Burgmaster decided to expand in a highly aggressive manner by applying LBO and merging with its sponsor companies. LBOs are backed or collateralized by both equity and debt, which implies that there is a higher chance of a return, but also higher risk. The company should have expanded naturally because the machine tool-making industry seems to require gradual growth and adaptation for increased productions.
The product quality diminishes significantly if a company does not integrate effective operational and production management strategies suited for increased output. The lack of the given components resulted in Burgmaster being unable to compete with its Japanese rivals.
A strategy that could have increased Burgmaster’s chance of survival revolves around eliminating or reducing LBO pressure as well as implementing project-based operational management. An important aspect of the release of machines to products is the increased risk of overstocking or even lack of demand due to marketing errors, sudden changes in market conditions. This circumstance was, in particular, the reason for the emergence of venture capital enterprises. Under these conditions, active measures are being taken to reduce such risks, in particular, through the rapid production of test lots, verification of the solutions obtained, and, in the case of positive results, development of the technological aspects of the production of the main part of the production batch on them.
The given approach would have been effective because it would reduce the rate of defective machine output and give the company enough time to adjust its production and operational management for increased output. Creating an adequate prognostic model is one of the main conditions for the successful implementation of project-operational management. The success of its use is determined by the availability of necessary and reliable information about the process.
The adequacy of the prognostic model in the design and operational management suggests that the behavior of the system under the influence of various external disturbances will coincide with the forecast presented by the model, provided that the state of the object under consideration is adequately represented in the model. The problem arises of obtaining a reliable description of the current process, which can be ensured by constant monitoring of the control object, as well as registration and processing of information about its state.
Effective operational planning requires a forecast model that reliably describes the process of changing the state of the production system over a period of time. The forecast model allows one to determine the prospective possible states of the production system at a certain time interval, evaluate the consequences of the occurrence of such states, and develop a strategy and tactics for the operational management of its state in order to obtain a positive effect.
Forecasting is a set of procedures for the synthesis and analysis of situational information within the production system. In this case, the forecast model is determined by the parameters, as the degree of reliability of determining the time to complete the production task, and, consequently, the period of the possible launch of the next task. In addition, it is important to take into account the magnitude of the length of time during which the degree of reliability of the forecast remains an acceptable value, since with increasing this segment the degree of reliability of the forecast decreases due to the increasing number of difficultly predicted events and random, unpredictable, initially disturbing external factors.