BUSINESS BUCKING BIG STEEL

Management goes Forward at Chaparral

IF GORDON Forward had come along 150 years ago, Marxism might be associated strictly with Groucho, Zeppo and Harpo-not Karl. Forward is president and chief executive officer of Chaparral Steel Company in Midlothian, 25 miles southwest of Dallas. The company melts down scrap metal (refrigerators, shredded cars, etc.) and transforms it into a variety of high-quality steel in a continuous-casting process that skips many of the steps of old-time steelmaking. And Forward. . .well, he just might have hit upon a labor-relations concept that is right for its time-a concept that could alter the course of the labor movement in America.

With thick glasses, unusual candor and a doctorate in thermodynamics and high-temperature metallurgy from MIT, Forward looks more like a researcher than a revolutionary-and yet “revolution” is a word he likes to use. He doesn’t overwhelm you until he begins to speak. Then you realize that he is an uncommon capitalist.

“We have a management system that really treats people as adults,” Forward says. “Our past management systems have not done that. Docking people’s pay, punching time clocks-all of those things say to people, ’You’re irresponsible; we don’t trust you; you’re a little kid.’ But if you treat people as adults, it’s amazing: They act like adults!”

Forward’s theories seem to be working. At full capacity, Chaparral can outperform any steel mill in the world. The steel mills of the Great Lakes region commonly produce a ton of steel in seven to eight hours of human labor; the best of Japan’s modern steel mills can produce that same ton of steel in three to six hours. Chaparral does it in 1.6 hours.

That’s productivity. And productivity means profit-$11 million during 1982, on sales of $160 million, while the U.S. steel industry overall was feeling the heat of a $2.8 billion deficit. Forward explains why: “Probably about 60 percent of our high productivity is due to automation. We have a very automated operation; there’s no doubt about that. The other 40 percent probably comes from our philosophy of management.”

Anyone can buy technology. It’s the mention of management philosophy that turns Chaparral people into missionaries. “We’re computerized and all that,” Forward says, “but what we’re talking about is basically conscientious people putting in a strong day’s work and enjoying what they’re doing. It’s amazing what you can do when you give people the right kind of ammunition to work with and the right environment and attitude.”

An important part of this “right environment” is a salary system for everyone. That means, for one thing, that no pay is withheld when workers are sick (“I get paid when I’m sick,” Forward says. “Why shouldn’t they?”). The result? Chaparral absenteeism, about 2 percent, is about one-third the national average reported by the U.S. Department of Labor Statistics.

A few years ago, Big Steel probably considered Forward’s approach naive; now it’s sending delegations to Midlothian. During the Association of Iron and Steel Engineers (AISE) convention in Dallas in April, several busloads went out to Chaparral. They didn’t just get a tour; they nosed around and came away impressed. Joseph Dickinson, one of AISE’s leaders from Pittsburgh, told the press, “The lack of antagonism between workers and management – that’s a tremendous part of it. We can learn a lot from this plant.”

Forward finds his host role enormously satisfying because he came from Big Steel. He left 16 years ago for philosophical rea-sons. “I guess you can call me a refugee,” he says. “I ran away from the network that’s there-from the layers of decision-making that you have to deal with there.”

As a researcher with the Steel Company of Canada (he’s from Vancouver, British Columbia), Forward constantly struggled with bureaucracy. If he wanted to study the heat balance on a furnace, for example, he would discover that it was part of some vice president’s private empire and out of his reach.

“I think the day I decided I was going to leave,” he says, “was when the research manager took me into the office and showed me where I could be within that corporation in 20 years. I don’t want to know where I’m going to be in 20 years. I felt trapped. I was writing proposals that were hitting desks and then getting caught up in the decision-making network.”

In Toronto, Forward met Gerald Hef-fernan, president of Lake Ontario Steel Co.-the man who, back in 1954, had built the world’s first steel mill dedicated to continuous casting. His small, modern-technology plant near Toronto had a lot of appeal for Forward: “Mr. Heffernan said, ’We can make things happen.’ And that is what I wanted to do.”

But making things happen meant leaving research, something Forward genuinely enjoyed. At Lake Ontario Steel, he moved over into management. In research, he had known freedom, challenge, the excitement of discovery and new ideas; in the production side of the steel industry, he found something else.

“When I first went into management,” he says, “I couldn’t believe how people come to work and spend eight hours bitching at one another, chasing around paper, doing busy work. I saw so many people who were miserable – and who were treating one another like numbers or pegs or something.”

Metallurgist soon became social scientist. Seven years at Lake Ontario Steel prepared him for the opportunity that Chaparral gave him. Chaparral became his laboratory.

In 1972, Lake Ontario Steel’s parent holding company, Co-Steel International, had interest in three mills-one in Canada, one in Minnesota and one under construction in England. Meanwhile, Dallas-based Texas Industries (TXI) was studying the steel industry. A decade before, TXI had become the first company to control concrete products from the raw material stage to the finished product. Now it was looking at one of the other raw materials that its customers use: reinforcing steel. After a year-long investigation, TXI realized that the smaller mills using the continuous-casting process were the future of the steel industry and that, of those mills, Co-Steel was a major innovator. So TXI president Robert Rogers went to see Heffernan and proposed that Co-Steel build a plant for his company. Heffernan countered with a proposal for a joint venture.

“We had never been a part of any jointly owned company,” Rogers says. “We had always operated by ourselves. It took six months to get over that hurdle and come to the conclusion that, yes, we would try to do Chaparral. But in order that there be no difficulty at all with the ownership, we insisted that the owners of the company, Texas Industries and Co-Steel, be responsible for only two functions: hiring and firing the chief executive officer and supporting the Chaparral management, which was to be completely independent of the parent companies.”

Thus Chaparral was born. After the agreement on July 4, 1973, Co-Steel chairman Heffernan came to Texas. TXI leadership showed him three sites, all on a north-south axis following the power lines Chaparral would need for its enormous energy needs. The third site was in Midlothian, where TXI owns land and has a large cement plant. Co-Steel people were excited by what they saw. As they were driving through Midlothian, Heffernan noticed the chamber of commerce bulletin board: “Need money? Try working.” This was during the height of the 1973 recession. “Boy!” Heffernan said. “That’s the spirit we want!”

Indeed, one of the crucial concepts in the Co-Steel/Texas Industries game plan for Chaparral was efficiency of labor. They wanted an environment that allowed them to talk directly with the workers, to enlist them in a partnership. Productivity, they reasoned, would follow. They wanted task definitions, not job descriptions. They wanted trust, not rules. They wanted flexibility, not wasted time. Midlothian was ideal: It had a population of 5,000, was still close to the soil and was uncon-taminated by traditional industry. When the plant opened in 1974, only about 10 to 15 percent of the employees were tradespeople from Northern industry; the rest were locals. Most had never seen a steel mill before they began at Chaparral.

“We were selective,” says personnel vice president Dennis Beach. “We went for personality traits. We were looking for [people who were] bright, enthusiastic, articulate.” Forward calls them “people with a twinkle in the eye, with a zest for life.”

“They designed the plant around its people,” Beach says. “They spent as much time designing employee relations as they did in designing the plant.”

In designing the plant, Chaparral people hopscotched around the world, looking at the best in state-of-the-art technology. They brought ideas home from Germany and Japan.

But that initial purchase just got them started. Chaparral spends 15 percent of its gross profits each year to update equipment; it now has $300,000 worth of technology for each of its 750 employees. And the company has a policy of knowing what’s going on in the world. “In the long run, we consider ourselves to be competing with imports,” Forward says. “And if we’re going to continue to compete with the imports-there are efficient steel mills in the Third World with very low wages-we’re going to have to be technologically advanced. We felt from the beginning that joining societies and going to meetings about technology was not going to be the total answer. We look for the best steel-making operations in the world, and we keep in touch with them. We regularly send out teams to these operations – not just presidents and vice presidents, but also foremen and crews – to live in the mill and get to know these people. If a plant in Sweden is doing something with electricity, we send a team of electricians over there. We send the people who can best tell us what’s going on.” (Last summer, when Lone Star Steel laid off 4,000 workers, a group of Chaparral people was studying new technology in Japan.)

Unlike its technology, which Chaparral borrows from elsewhere, its management philosophy is home-grown. It borrowed very little from the old ways of doing things in industry. “It was exciting for me to come here,” Forward says. “I thought, ’Okay, here’s a cotton patch. It’s a clean blackboard. Let’s take all those things we do in the steel industry, get rid of them and start fresh.’ “

Beginning in the cotton patch, the Chaparral pioneers were able to sit down as a group (Forward, Beach and two early production people) and ask, “What kind of company do we want to have from an employee relations standpoint?”

They found inspiration in such irreverent writings as Robert Townsend’s Up the Organization, which scoffs at “the way things are done,” and adopted many of the concepts of “participative management.” (Townsend came to Midlothian after he read about Chaparral Steel in the Los Angeles Times. He said that Forward was creating something truly new by treating workers as adults. “It needs a new name,” he said. “Let’s call it ’adultery.’ “)

In fact, Forward has done very little that is totally novel. But as Jeffrey Werner, senior vice president for marketing, puts it, “Gordon has taken us a step beyond what existed, to the 21st century.”

Gordon Forward would probably have enjoyed interchanging ideas with a man from the 19th century, Karl Marx. When Marx wrote that exploitation of labor is an inherent evil of capitalism, he was only drawing a generalization from what he was seeing all around him. The Industrial Revolution was a horror show of labor surplus and labor abuse. Marx’s response was to argue for the dignity of the individual worker, as Forward has done. But one big difference between Marx and Forward is that Marx was a frustrated philosopher, while Forward is an active industrialist in a position to do something about it.

The main reason “why” is what Forward calls “the right environment,” which includes soundproof, air-conditioned rest areas throughout the plant. The most visible feature of this new environment – one that has bearing both on organizational structure and on employee relations-is equality. Very little difference is made between labor and management. All hard hats are the same color; there are no gilded thrones. And there aren’t any time clocks at Chaparral. The system was designed, as Forward puts it, “for the 97 percent who are conscientious, not for the 2 or 3 percent that shouldn’t be there, anyway.” (Chaparral started out with an hourly scale and no time cards, but the workload was too great on supervisors.)

There is no executive parking. Everyone gets free coffee and free towels in the locker rooms. Training classes and foreman/ worker meetings are held in the corporate board room. The chief of the janitorial crew dictates his letters to the president’s secretary. Everyone is on a first-name basis. And everyone from Gordon Forward down has the same company benefits and a share in 6 percent of the company’s pretax profits. The profit sharing is distributed on a sliding scale that comes out to between 9 and 20 percent of wages. Foremen are required to meet monthly with their workers, and a standing agenda item is the company’s progress: How are shipments? How are we doing financially?

“Our people work essentially as shareholders,” Forward says. “In our minds, that was the final step in getting away from two classes of citizens. To me, participative management is taking decision-making down as far as it will go.”

At Chaparral, the whole way down isn’t very far – only four levels of management, from Forward to the production people. Large corporations usually have 16 to 20 levels (Toyota has 17). Forward hates the gross inefficiencies of management systems that require so many people to handle something before it can be decided, and where good ideas are lost in their trek up the hierarchy. At Chaparral, the decision-making process usually involves three people. “It makes a lot of difference,” Beach says, “when you can sit down in one room with all the decision-makers and say, ’Okay, are we going to go ahead with this or not?’.”

However, the people at Chaparral don’t sit down together very often. “We do a lot of managing while we’re walking around,” Forward says. “We have one general scheduled meeting a week, and that’s really the only formal meeting we have. 1 have half my meetings in the hallways and the other half in the washroom. Or you stop somebody in the parking lot. Whatever he has on his mind, he says it. It’s amazing what you get done that way.”

This kind of system means fewer employees and a big edge when it comes to that all-important ratio of man-hours to tons of steel. Supervisors do most of their own interviewing and hiring, so the personnel department at Chaparral has only four people. And everyone in the organization is involved in improving efficiency in his own area, so there is no research and development department as such; engineers work directly with foremen. And since everyone accepts the safety program as his own, there is no safety committee.

Marketing vice president Werner has the same lean, efficient personnel system in his marketing area, where he has a staff less than half the size as would be expected from a plant that pours one million tons of steel a year and is gearing up to pour 1.5 million in the future. There are fewer than 30 people in the entire sales organization and only 10 in the field.

Werner says of his team: “You stand out when you do a mediocre job here. Mediocrity really doesn’t have much of a place in this organization-and that’s throughout the plant. If you’re marketing the volume we are, with so few people, the responsibility level is fairly significant… We put a lot of faith in our people’s ability to assess situations-customer complaints or rejections or whatever might require a decision on a day-to-day basis. They are allowed to make a lot of those decisions, decisions that would normally go through three levels of approval. We’re very responsive to the marketplace.”

Chaparral, in fact, calls itself a “market mill,” as opposed to the industry name, “mini-mill.” Productivity is directly tied in with marketing. “We do not try to be all things to all people in all markets,” Werner says. “We don’t produce something just because somebody wants to buy it. Originally, we were singularly producing reinforcing bars, and we expanded our product range with the criteria being that we expand into products that are efficient for us to produce.” Now Chaparral selectively markets product groups, some of which are within a four-state area, some in 44 states.

The plight of American steel was outlined in a Time article in January: high wages, outmoded equipment and foreign competition, losses that could turn to bankruptcies in two years.

Does little Chaparral Steel in rural Texas have a message for the whole industry? Those associated with Chaparral say yes. In 1950, the U.S. steel industry had 47 percent of the world’s steel market; now it has 11 percent. Something must be done, and increased productivity is the key. Big Steel has noted the Chaparral experiment, perhaps even more attentively since Chaparral doubled in size last December but has had to make no adjustments in its policies.

“Don’t call us steelworkers,” a Chaparral employee says. “We’re Chaparral people.”

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