OB 13

PITKIN STEEL: A PROBLEM OF ORGANIZATIONAL STRUCTURE

The Pitkin Steel company was founded in 1976 by Steve Mitchell and Joe Dove. They shared a common belief that there was a growth opportunity in supplying steel pipe and tubing to companies capitalizing on the energy boom in the western portion of the United States. An increasing demand for energy had led to intensive oil and gas explorations, and the demands for pipe and tubing were outstripping supply.

Primarily, Pitkin bought raw steel pipe and tubing from a major steel producer in the United States and reprocessed the raw product to meet customer demands for threading, copping, forming and coating. The work was accomplished in a production facility adjacent to its corporate office in a large western city. An additional production facility was constructed in 1985 in another large western city approximately six hundred miles away. This second facility incorporated state-of-the-art technology and, therefore, provided greater productivity. Orders for the company's products were obtained by a field sales representative working out of a small office in Houston, Texas, or through telephone contact initiated by staff at the two plant facilities.

During the fall of 1980, Joe Dove sold his 51 percent share of the business to an investment group from Chicago. The group chose Steve Mitchell to continue to operate as president of the organization. He had approximately fifteen years of experience as a line manager for a Fortune 500 steel firm. In addition, he had an undergraduate degree in history and taught at the high school level for two years before deciding that teaching did not stimulate him. His subordinates acknowledged that he was a gifted humanist with a keen and perceptive mind. According to them, Mitchell thoroughly enjoyed the challenges of sales and was respected for his integrity and personable approach in relating to others. As far as he was concerned, Pitkin was one big happy family. Because of this attitude, the company continued to be managed with no formally established lines of reporting relationships other than to acknowledge that that Mitchell was the president and whoever was best qualified to do a specific job in the company would take it on. For eight years, from 1980 to 1988, it seemed as though Mitchell's management approach was good for the organization. Year after year, the company did well. Everyone in the company appeared to be content, operating independently with very little or no guidance from management.

During the first quarter of 1989, Pitkin experienced its first quarterly loss and signs of employee discontent. While it was not expected, it was viewed with only mild concern. Mitchell talked with his key personnel individually, as was his custom when problems arose, and urged them to work harder. He often got on the phone himself to initiate or close a sale with a customer. In addition to his contact with the customers either by phone or in person, Mitchell welcomed every opportunity to become directly involved in Pitkin's day-to-day operations. As the months progressed, the anticipated upswing in sales and employee morale failed to materialize. Mitchell was concerned and continued to tell all to work harder and consider what steps might be taken to help the company become more positive in its working environment.

Mitchell wanted to chat with Mike Childs about his upcoming meeting with the board of directors. After an hour or so of rehashing old concerns without a fresh approach, Childs suggested it was time that the company did a more formal appraisal of its operation. Childs knew that certain principles were essential to a business's success and that Pitkin had never really engaged in a structured approach to its operation. Consequently, Childs suggested that he contact one of his old professors and that he, Mitchell, and a few other key members of the organization spend a couple of days in retreat for a serious discussion of the organization.

As a preliminary step to the meeting, Childs met with Dr. Austin Foster, who brought with him Dr. Ron High. Childs had prepared on organizational chart of Pitkin Steel as he saw it. He apologized for not having a formal one to present. Childs acknowledged that none had ever been constructed or communicated to the employees of the company. After all, the company was small and everyone should know what his or her responsibilities were, so why bother adding "formality"? Childs proceeded to present an overview of the personnel.

The key players in the company, including Mitchell, were relatively young. But each had several years' experience in the industry and generally worked well together. Each did his or her own job separately, and if a problem arose, each would solve it. Ted Davis, the forty-year-old Vice-president of Production, had an engineering degree. He was a long-time friend of Mitchell and concentrated on the operations side of the business. He was not considered a team player by the other key managers. He wielded a great deal of influence with Mitchell and could block decisions that others had made. Davis always met the bottom line, did not procrastinate, was a no-nonsense manager, operated as a loner, and was viewed as a strong administrator. He was somewhat oblivious to the importance of interpersonal skills.

Mike Childs, thirty-five, was the marketing manager. He had a master's degree in business administration and had worked for the company ten years marketing the standard pipe products. He was also close to Mitchell and was extremely supportive. Because of his loyalty and tendency to be a good listener, he was the primary sounding board for Mitchell on most matters. He frequently had sound ideas on problems concerning operational matters but usually fell short of aggressively selling his suggestions.

Cathy Nicols, the forty-five-year-old sales manager, had been in the industry twenty-three years and joined Pitkin Steel as its founding. She was a high school graduate, knew a lot about standard pipe, and had been successfully selling it during her tenure with the company.

Mark Jones, twenty-seven and a high school graduate, managed the sales of steel tubing and had been invited to join the company seven years ago, after working sales for a competitor. The last of the group was Sherry Dove, twenty-five, daughter of Joe Dove, who worked out of the Houston, Texas office. She had been calling on customers in the Southwest area for the past five years. She attended college for one year.

Those scheduled to attend the mountain retreat were Dove, Childs, Jones, Mitchell, and Nicols. The primary rationale for this selection was that each person had a marketing background and they worked well together. Childs informed the professors that Mitchell was fully behind the meeting and would purposefully absent himself from the first day's discussion to allow for free exchange of ideas and would like to be briefed the next day on what had been decided. Mitchell agreed to totally support the team's recommendations and would spend the second day with them formulating and implementing those recommendations for the board of directors meeting.

The session opened with a general airing of what each participant considered to be significant problems for Pitkin. Several things became immediately apparent to the consultants:

1. Each participant had a personal sense of where he or she fit into the organization and what his or her unit was expected to achieve. However, there was disagreement as to whether Pitkin was a manufacturer, wholesaler, distributor, or sales organization

2. There was little understanding of one another's area of responsibility, how each person's activities affected the others, and what each one's area of responsibility should be. In addition, their individual strengths, weaknesses, likes and dislikes with respect to current or future positions were unknown

3. There was a consensus of opinion that Mitchell was a personable, concerned, benevolent, hard-working and knowledgeable person. But his organizational skills were poor, and he did not utilize them as valuable resources in the decision-making process. He was more prone toward being a worker than a corporate leader.

4. Each person considered himself or herself qualified in either production or sales, but not as a manager well versed in management concepts

5. Since the inception of this organization, there was never any written, formalized system of tasks, authority, or reporting relationships.

Questions:

1. What are the strengths and weaknesses of Pitkin's organizational structure?

2. How do you think Pitkin Steel Company should be structured (mechanistic or organic)?