Success: Alcoa Packaging

Its always gratifying to see your clients succeed, and nobody has made the Orion team swell with pride like the folks from Alcoa in Randolph, NY. This division has been in business since 19XX and makes large industrial bottle-capping machines for customers like Pepsi and Coke. The Alcoa name was recognized throughout their industry as the premier brand for many years, but a product innovation gone wrong in the late 1990’s put them in a very precarious position. As capping machines require significant investment and are required to be both durable and reliable, product inefficiencies are not well received by their customer base. All the goodwill built up through the years was in danger of being lost, and the company had to react quickly. Instead of the normally panic-driven “ready-fire-aim” approach so popular in many organizations, Alcoa decided to focus on strategy and the Balanced Scorecard.

The Balanced Scorecard (BSC) has been one of the staples of the Orion product line for years. The BSC measures the effectiveness of an organizational strategy, provides feedback that facilitates improved decision-making, and helps the executive team maintain the focus on strategy versus day-to-day firefighting. While the Orion success rate in implementing this tool has been phenomenal, not many companies have achieved the dramatic results in so short a period of time as the Alcoans.

The process began with a three-day session in September of 2000 with CEO Bernard Winters and the rest of the senior management team. The first strategy map was developed to help guide the way, and measures were proposed to assess progress. One month and several revisions later the strategy map and BSC were presented to and approved by the Board, and Alcoa Randolph was ready to go. This was the beginning of a three-year journey that has transformed the organization from one forced to focus on operational effectiveness merely to keep pace to a profitable entity that has returned to its familiar focus on product leadership. The strategy map and scorecard clearly illustrate this shift. The 2000 strategy contained objectives such as “reduce warranty claims” and “restore customer confidence”, illustrating the need to improve process performance. By 2003 strategic objectives set a very different tone. Goals like “protect intellectual property” and “establish product leadership” send the message that the Alcoa brand is reestablishing itself at the top of the industry pecking order. Among the phenomenal results achieved from the 2001 starting point to today:

Return on Capital increased over 40%
Cost of Goods Sold as % of Sales reduced over 20%
Warranty Costs reduced by over 70%
Inventory reduced over 50%
Customer complaints reduced 90%
Scrap rate reduced over 65%
On-time delivery increased over 50%
Zero environmental violations
Zero safety problems (serious injuries or lost time)
Truly mind-boggling numbers… but how did they do it? It has been a combination of communication, cooperation, and method of execution.

Communication

Alcoa conducts an initial deployment presentation offsite for the entire organization so that everyone knows what their strategy is and how they intend to roll it out. They also post the strategy map and certain scorecard graphics in their conference room, break room, main entrance hallway, and shop entrance hallway. These postings serve as a constant reminder of what the objectives are for the year and how effective they are at achieving them. They also conduct quarterly plant meetings in which the scorecard information is disseminated to the entire workforce. As a result, there is constant focus on the scorecard and the corresponding objectives. There can be no doubt that the BSC has become the focusing tool for the organization, and their success has resulted from this. As Marketing Services / EHS manager Janet Keeley says: “If it is not on the scorecard, don’t do it.” While it may be rash to claim that all Alcoa thinks about is the BSC, it is certainly true that anything not on the scorecard automatically rates as a B-level priority.

Cooperation

Alcoa realized early on that trying to solve all of their problems by addressing them functionally would not be a productive use of time. In fact, one of the reasons they were attracted to the BSC in the first place was the cross-functional nature of it. The tools forced the management team to think about how the different areas must work together and support each other instead of acting independently. The approach has worked so well that plant manager Steve LaFuria commented that “I feel that 2002 was the best year in which sales, operations, and field service were able to meet the needs of the customer while at the same time striking a balance in achieving individual department goals”.

Method of Execution

The October meeting is merely the kickoff for the strategic process at Alcoa CSI Randolph. The company does not develop a strategy and then dutifully ignore it until its time to develop a new one. Instead, a system of approving and executing strategic initiatives (known internally as A-3’s) is key to the success Alcoa has experienced. Once the overall objectives are set, each manager is responsible for developing the specific activities in his or her area that will support the objectives. These objectives each have associated scorecard measures and targets and are part of the evaluation / compensation system as well. As scorecard coordinator Janet Keeley says, “All of our meetings begin with the discussion of the A-3’s”.

As an example of how the process works, consider the need to reestablish product leadership. In the October 2002 strategy session the company used the Kano model of customer satisfaction to help identify what product modifications would be necessary to establish this critical objective. The Kano model is broken down into three categories of satisfaction: must be, more is better, and delighter. A “must be” is an item that has to be there or the customer will be immediately upset and demand justice. When staying in a hotel, for example, having hot water, a television, a clean room, etc. are “must be’s”. The hotel doesn’t get credit or customer loyalty for having these things, but provokes immediate negative reactions when one is missing.

A “delighter” is at the other end of the satisfaction scale. It is something that the customer doesn’t expect that provokes an immediate positive reaction. For example, a hotel that provides umbrellas for their customers when it is raining. Not expected, but makes the customer happy and is remembered. Alcoa defined the “delighter” category to be the things the company could do to solve customer problems… which is not something many suppliers spend a great deal of time thinking about. A number of action items were proposed to accomplish this task. The leadership team discussed their feasibility, prioritized them, and assigned the top candidates to the relevant managers. The managers then drew up A-3’s that detailed how each idea would be implemented, and upon leadership team approval an owner was assigned the responsibility of getting it done. Alcoa then added metrics to the balanced scorecard for ‘delighters implemented each month’ and ‘number of new product innovations’ that are used to assess progress in rolling out the new ideas. Each month the management team reviews the measures to see if targets have been hit, discusses the progress of the relevant A-3 initiatives, and determines what (if any) modifications to their approach are necessary. This focus on strategic direction has put the company back on top.

In conclusion, the Orion team wishes to extend hearty congratulations to our friends in Randolph. The strategic framework of the strategy map and balanced scorecard almost always is effective when applied properly, but to accomplish what they have in such a short period of time is remarkable. We can’t wait to see what the next few years will bring. Great job, you guys!!