Title:

HOW A GOOD COMPANY DIED

Write a brief report that outlines the reasons (both internal and external) for
Burgmasters demise, and whether operations management played a significant
role in the demise.

AN AMERICAN TRAGEDY

SCHOOL OF BUSINESS MANAGEMENT

COLLEGE OF BUSINESS
UNIVERSITI UTARA MALAYSIA
BJMP 5023
OPERATIONS TECHNOLOGY AND MANAGEMENT
BY PM Dr. NORLENA HASNAN
CASE STUDY (INDIVIDUAL ASSIGNMENT)
BY SULOSENI SUPERMANUAM
820837

AN AMERICAN TRAGEDY
HOW A GOOD COMPANY DIED
Max Hollands father worked in Burgmaster Corp., a Los Angeles- area machine-tool maker
founded in 1944 by Czechoslovakian immigrant Fred Burg for 29 years. The firm was founded in 1944
by Fred Burg, a Czechoslovak by birth, a locksmith by training, a machinist by vocation, and a
department store salesman by necessity, whose true passion was tinkering with machines.There are
both internal and external factors that manipulates the Burgmasters demise. Holland have found that
the companys early days excitement and innovations had disgust and cynicism in accompanying the
companys decline.
It was important during that period as the fate of Burgmaster and its brethren is crucial to the
U.S. industrial economy. The company focuses more on the management by numbers rather than
hands-on decision making. In short, manufactured items are dealt by machine tools where carefull
craftmanship involved here. When the company amounted annual sales to about $8 million, it needed a
backing for expanding. Hence it was sold-out to another management, Bufflo-based conglomerate
Houdaille Industries Inc. Then another change of management took over in which leveraged buyout
(LBO) led by Kohlberg Kravis Roberts & Co took in-charge of the company. As can be observed, the
management wise been a bad weak point in company operations and handling. By the year 1982, debt,
competition and sickly machine-tool market battered, Houdaille went to Washington with a petition to
withhold the investment tax credit for certain Japanese-made machine tools. But indeed the petition
failed to get approval by President Reagen even Senate has passed it and thus Burgmaster was
closed.
Hence, it can be clearly said that the operations management played a significant role in the
Burgmasters demise. Below will be the crucial points that have taken out from the issues:

INTERNAL FACTORS:
i.

Poor expanding strategy (human resource)

strategy are plans for achieving the organizational goals and it is important because it is what
determines how an organization operates. The company needed back up financial source in
order to expand, and hence was sold out to the other company.

ii.

Terrible change of management (human resource)

the management level changes drastically in which a total different organization board took over
the business and thus brings a devastating failure to the company. From Burgmasters
management, falls into Buffalo-based conglomerate Houdaille( a manufacturer of automobile
parts) then , was in turn purchased by the leveraged buyout (LBO)

iii.

Speculations replaces knowledge (human resource)

Burgmasters faces failure when they have speculated a bad market demand and hence the
product does not meet the customer wants and needs. Besides that, the nation took the
decision to bounce the petition without a proper knowledge on what will be the consequences.
They made a terrible speculation of the capability of the Burgmasters organization.

iv.

Lack of customer oriented (customers)

Heavy interest charges from the 1979 leveraged buyout compelled the firm to maintain cash
flow, at all costs, so half-completed machines were shipped to consumers. Once-loyal
consumers were not impressed; nor were once-loyal suppliers when accountants began
withholding payments and discounting invoices.

v.

Alienation of skilled blue-collar workers as machines were dependent fully (human resource)
in which laborers at the turn of the century wore blue shirts, which could hold a little dirt around
the collar without standing out were not dependent. Since no workers, there were lack of human
touch and the products. As machines were dependent fully, they believed the product will be
100% correct, as no proper supervision were done and leads to Burgmasters demise. The
Burgs detailed knowledge about machine tools and easy familiarity with their workers gave way
to Houdailles technical ignorance and insistence on managing by the numbers.

vi.

vii.

No squelching of innovation was introduced (facilities and equipment)

when there werent any surveys or feedback were done, thus they do not understand on
customer current wants and needs. No innovation were introduced in the product and made
their customers to look for alternative. Sales-driven efforts to innovate became futile.
speculation replaces enterprise
the economist John Maynard Keynes; of the mismanagement of a capable and willing American
work force, of Wall Street's ability to win big even while a company is irrevocably damaged

EXTERNAL FACTORS
i.

Foreign and domestic competition (competition)

competition is what includes the number and strength of competitors and the basic competition
as well as the ease of market entry. Burgmasters have a tight competitor, the Japanese
company. But nothing can be done as Burgmaster does not have financial neither the
government support to bring back the company level. The Japanese underscores the
importance of intense interfirm competition as well as its managements long-term commitment
to quality, technological innovation, and customer satisfaction

ii.

Demand and supply, price and quality played a big role(markets)

as Burgmaster promised a good quality product, thus the price might be high as well. When
Japanese enter the market, there is a competitor, in which can fulfill the demand and supply with
lower cost.

iii.

U.S. trade policy (legal environment)

Indeed, pressing a 1981 petition for tax-credit protectionism eventually cost the conglomerate

$1.5 million in lawyers fees, and to little avail. A 1986 voluntary restraint agreement, which for
five years limited Japanese machine tool imports to 1981 levels, was more the result of lobbying
by the National Machine Tool Builders Association. This will be the petition in which President
Reagan rejected.