- Email: [email protected]
Conversation with Gordon Forward
Conversation with Gordon Forward
is is the third in a series of interviews conducted by Organizational Dynamics’ editor, Fred Luthans. The first two were with academics-Edgar Schein of M.I.T. and Lyman Porter of the University of California-Irvine. Luthans explains: “I thought it would be interesting to turn next to someone actually from the business world, and my first choice was Gordon Forward of Chaparral Steel.” Forward was involved in the start-up of Chaparral in Midlothian, Texas in 1973 and became its president and CEO in 1982. He is considered the driving force behind Chaparral, one of the few lasting success stories of the 1980s in American business. Chaparral Steel is a state-of-the-art
T
“mini-mill” that h.as grown from 250,000 tons at start-up to 1.5 million tons today. It is recognized as an international leader in the production of low-cost quality products made from recycled steel. In addition to 1989 sales of $451.5 million and an 11 percent profit margin, 90 percent of the 925 employees participate in corporate-sponsored continuing education, almost two thirds of the employees own stock in the company, and 8 percent of gross profits were paid as profit sharing. Fortune magazine has named Chaparral one of the bestmanaged factories in the U.S., and Tom Peters has named Forward and Chaparral as prominent examples of how things should be done in corporate America.
LUTHANS:
To get started, why don’t you review your educational and experience?
background
FORWARD:
My first degree was a bachelor’s in material engineering from the University of British Columbia in the early 1960s. After spending some time in France doing research for a firm there-and getting marriedI returned to the U.S. to do some graduate work through a fellowship at M.I.T. I wanted to work with some of the academic leaders who had been studied over the years; my desire was to find out what they were doing and what they were thinking.
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A doctorate there (in materials science), with a minor in finance at the Sloan School, was my program of study. The work at Sloan gave me a feeling of entrepreneurship. Although I enjoyed the research, I knew that I wanted to do some things in my career that would be less basic in scope. But I do want to say that I value research greatly; it goes hand-in-hand with the learning process-the idea of going one step beyond what we presently know.
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LUTHANS:
While at MIT, in addition to the finance courses, did you get into any of the more “human” oriented management courses at Sloan?
FORWARD:
No, I didn’t really take courses on the human side. I got into case studies in economics that gave me a chance to analyze companies from a financial point of view but not from a humanistic perspective. My interest in people went beyond my educational background; I really wasn’t exposed to any human resource management kind of thinking in school.
LUTHANS:
With your educational background, do you feel in your present job as the leader of a major company in a tough industry that you had the best educational preparation? In other words, if you had to do it over again, would you do anything differently?
FORWARD:
I guess that I probably wouldn’t do anything differently. Someone once said to me that it’s almost as though I’m a CEO because of my research background. But to me it’s not an anomaly; I feel my research background has given me a sense of how to deal with the mystery and intrigue of solving the p.uzzle. To me, the inquiry, the breaking through to new vistas, the finding of solutions, is what it’s all about.
LUTHANS:
I know you’ve received many awards over the years-which do you feel most proud of, and why?
FORWARD:
Well, that’s difficult to respond to-1 think they’re all important, and I’m honored to have received them. I think, however, that it’s important not to get an overblown view of one’s self. That could be dangerous. I’m flattered by them, but I don’t consider them an end in themselves. Certainly, it was exciting to receive the Fairless Award for technology advancement in the steel industry because I was chosen by my peers in the business.
LUTHANS:
Now let’s talk about Chaparral-not just as a steel success story, but as a business success story. Could you start by giving some background about the company?
FORWARD:
Chaparral Steel started as a joint venture between Co-Steel International (which I was associated with) and Texas Industries of Dallas. Texas Industries wanted to diversify into the steel business. At that time, the steel industry was dominated by fully integrated companies-they went from coal and iron ore all the way to a finished product.
of these
LUTHANS:
Was U. S. Steel the prime example?
FORWARD:
Yes, along with LTV and others. The idea behind Chaparral, though, was that it should get into the recycling end of the business since our society generates an awful lot of scrap. Because I had relevant experience from a smaller plant in Canada, I was asked to come start the plant in Midlothian as vice president of operations. It was a tremendous opportunity.
LUTHANS:
Did you have anything to start with-a
FORWARD:
Nothing. It was a clean blackboard. We hired the management designed the plant, and got things started.
LUTHANS:
What was the mood-the
FORWARD:
Fortunately, we had a board that trusted us for what we were trying to do, so they gave us considerable freedom. It was a highly encouraging group of people to work with. We felt from the beginning that we had an ideal situation because of the freedom we were given, plus the fact that it was a greenfield site. It was the opportunity to start from scratch that we all enjoyed.
LUTHANS:
Can you relate some of the objectives the facility?
FORWARD:
When we started our plant, we had decided that we wanted to be the international low-cost supplier of steel products. We felt that way all along, and focused in on this mission-vision, or whatever you want to call it. I thought it was important that we knew what we wanted to do. In a sense, it was pretty ambitious, but- I felt that we needed to have ambitious goals because times were changing. We really needed to recognize, as we were heading toward the 21st century, that our competition would be coming from the Third World. Some of the Third World companies were paying their people $2.30 an hour-and that’s where our competition was going to come from. It wasn’t going to come from the larger steel companies, or even other North American companies similar to ours that were already established. We felt our competition in the long run would come from low-cost Third World countries. The Brazilians are a good example.
facility, for example?
climate-surrounding
team,
this start-up effort?
and vision you had for starting
LUTHANS:
What about the Japanese? Surely they were viewed as major competitors.
FORWARD:
No. We knew we were competing with the Japanese, but we still felt that the competition in the long run was going to come from low-cost countries-Mexico, for example. We realized that this business has traditionally been labor-intensive, capital-intensive, and energy-intensive, and from the beginning we knew that we had to design all of those things out of it. That was the only way we could be competitive with Third World countries.
’
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We knew we were competing labor, so I guess that was the major major focus of our company, and We’re currently at 1.3 worker hours the business.
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in a world market with low-cost focus in the beginning. It’s still the we’ve been quite successful at it. per ton, one of the lowest rates in
LUTHANS:
Can you give me a comparison industry is?
of what the current
average
in the
FORWARD:
I’d have to make the comparison with the mini-mills. In terms of worker hours per ton, generally it’s in the 1.5 to 3 range. I wouldn’t compare us with the big integrative mills because their process is different. But recently they’ve done a tremendous job of cutting down worker hours; I’m very encouraged by what I’ve seen. Many have cut down from 10 to 4 or 5 worker hours per ton. The first step in the improvement was easy. They just shut down the old mills, and all of a sudden worker hours per ton were down. Now they’re taking the harder steps. There’s still a long way to go, but I’m encouraged to see that managements recognize that it “ain’t what it used to be.” They realize they have to change if they’re going to survive.
LUTHANS:
How about your own company?
FORWARD:
We’ve got some ideas on how we can take our productivity to one worker hour per ton; in fact, we’ve got a plan on the drawing board that we feel could even take us down to 0.8. This is important, but we’ve got to attack on all fronts. The other criteria of success, such as quality and service, are also important because we’re in the commodity business. If, however, we can keep our labor cost below $30 a ton, that is one way to compete with the Koreans and anyone else.
LUTHANS:
So productivity
FORWARD:
Yes, and those will remain major goals in the company. A yield of 1 to 2 percent is important. This can be thought of as your margin. You could double your profits with just small changes in yield. So we concentrate on yield and try to compare those figures with our competitors. We’ve developed some new processes that we’ll be implementing over the next few years; we feel that these changes will put us on the leading edge of high yield capability.
LUTHANS:
Gordon, up to this eral. What I’d like how you view your succeed), and your
FORWARD:
First of all, I mentioned that in starting this business we needed to be low-cost. There’s no question that our costs have to be kept low. It became an issue when we had to decide how we would accomplish
Where do you go from here?
and keeping labor costs low are major priorities.
point we’ve talked mainly about Chaparral in gento get into now is your own personal approachrole, what approaches you’ve seen succeed (or not management philosophy.
that goal. We sat down and said, “Okay, what we want to do is use two American strengths-accessibility to the latest technology and having innovative people.” We found we needed effective engineering to draw from these strengths. But you must remember I have a very broad definition of what I consider to be engineering. LUTHANS:
Well, I know how most of us view engineering-what specifically?
do you mean
FORWARD:
Real engineering to me is taking the idea-the scientific thought or idea, or principle-and driving it through to the marketplace. To me, this is what our business is all about. Engineering encompasses the human side of technology-very much so, in fact. But the financial side is also a part of it and it’s primarily a matter of commitment.
LUTHANS:
How has American business done with this concept of engineering?
FORWARD:
In our industry in particular, we’ve done a lousy job. Granted, it’s definitely changing, but in the past we’ve done a really poor job of taking the technology and transmitting it through to the product. I think that if we could combine the American innovation with say, the Japanese commitment, we could really have a company. We may not be Japanese, but we all do have a sense of commitment. This is what we focused on from day one at Chaparral. I don’t know where it came from-1 guess it has to do with a fundamental feeling I have about people. We were missing a whole lot, an untapped resource in our people. I went back and considered what Adam Smith had said in The We&h ofiVutions: “You must consider self-interest as a driving force.”
LUTHANS:
Are you saying that we should go back and look at, and use, some of the historically significant things that have happened to drive America?
FORWARD:
Well, yes, but I guess there’s also just that gut feeling. An advantage I had was that I’d worked with a large company, and I’d seen and been frustrated by things kind of grinding to a stop in a large bureaucracy. I think that, in a sense, this was when I really started to think about these things-and to reject a bureaucratic form of organization. I saw hundreds of people placed in research and still the ideas weren’t getting through. Maybe not all the good ideas are in research anywaysome of them are out on the floor. But managers on the floor somehow couldn’t drive the ideas through, get them to the marketplace. In a smaller company, things are simplified.
LUTHANS:
Specifically, what did you do differently Chaparral Steel?
FORWARD:
One of the first things we did was to make product development a line instead of a staff function. We decided that technology goes back to the mission. We felt that the way we were going to accomplish our
along this line at the smaller
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mission was through technology. We treated technology as a fundamental element of our business-it wasn’t going to be a side issue or a staff issue. We were going to take manufacturing and technology and put them together; we were going to drive the technology through to our manufacturing managers.
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LUTHANS:
So then structurally you’ve tried to keep things as simple as possible and put technology and development into the mainstream.
FORWARD:
That’s correct. In sense of freedom and learn, which tion. Even small thinking.
LUTHANS:
Can you give me an example?
FORWARD:
Trip reports would be an example. Those kinds of things drive me up the wall. I don’t know whether it was just me or whether this affected other people, but I felt people operating in this bureaucratic structure weren’t really bottom-line oriented. For example, in the past what really ticked me off was that people would seem to be satisfied going home at night having done just a trip report or having attended a meeting.
LUTHANS:
The bureaucratic
FORWARD:
Yes. So much of what was done had so little to do with the bottom line.
LUTHANS:
So your solution at Chaparral was to simplify the structure-but else?
FORWARD:
What I also wanted to do was to create a holistic view of our business.
LUTHANS:
From everyone involved?
FORWARD:
Yes-and that includes customers. I wanted them to view us as the easiest company to buy steel from. A view like this was a bit frightening for those of us who were so used to a highly structured, bureaucratic environment. This didn’t bother me, though; I put some stock in the Japanese adage, “A little bit of fear clears the mind.” All of a sudden we realized there’s a marketplace out there, we’ve got to reach that market, we’ve got this cash crunch, we’re building this plant, we need to start generating cash.
LUTHAN~:
But the “juices were flowing,“ so to speak?
FORWARD:
Yes, they were. But, then, of course, you fall on your face and you get up and do some other things. To me that was energizing-and it was
the bureaucratic structure I’d worked for before, the wasn’t there. The sense of being able to explore, try, you have in academia, didn’t exist in that organizabureaucratic kinds of things can turn off creative
requirements
had become an end in themselves?
what
the same for the kind of people we attracted to work for us. They were risk-takers. LUTHANS:
What kinds of risks are you referring to?
FORWARD:
We deliberately took-and continually take-conscious risks. People often say this isn’t very smart. But I respond that I think what they are doing is really risky. They ask, “What do you mean?” I say, “To me, the biggest risk, particularly in the business world of today, is to do nothing.” Plenty of firms are afraid to take risks, and I see this reluctance as a major risk itself. We’ve thoroughly discussed this with our management, and we all feel that the biggest risk would be if we stop doing what we do. If we stop investing or changing, we’d lose our top people, our competitive edge, all that we’ve built. We’ve built Chaparral on continuous change.
LUTHANS:
You feel that risk taking entire organization-that beginning?
FORWARD:
No. That’s where development and change come in. We didn’t come up with all this stuff on day one when we started. Let me share an anecdote. There was a fellow who’d worked with us for a while and one day he said, “You know, I really like what you guys do here. You people don’t wear a coat and tie. Let’s have a policy that nobody wears a tie to work.” I said to him, “That’s the worst thing we could do-the day we make that a policy, we’ll all wear a tie.”
LUTHANS:
What kinds of policies do you have?
FORWARD:
We don’t have policies. What we started with essentially were some very basic ideas. First, we decided that such things as trust and honesty were going to play a big role in what we were doing. We felt that a lot of the procedures in many organizations were designed to catch the 3 percent who were trying to cheat in one way or another. We decided to design our rules for the 97 percent we can trust. The others would stand out like sore thumbs, we figured, and they’d eventually leave. That’s exactly what happened.
LUTHANS:
Besides trust, what else sticks in your mind as a dominant value?
FORWARD:
Well, certainly challenge. We’ve got quite a number of people, and I think most of them really respond to challenge. Others have found, however-and I can verify this in our situation-that people don’t do as well when the challenges aren’t carefully articulated. The fuzzy kinds of goals don’t really help. What truly helps is in articulating goals that are specific and reachable. The other thing is that people need the freedom to get there. We all figure we’ll make some mistakes along the way, but that freedom is important. Trust goes along with that, by the way.
and the desire for change pervade the it’s been there in your people from the
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70
LUTHANS:
What else besides trust and challenge ues for you and your company?
do you feel are important
val-
FORWARD:
Obviously, there’s one I think that goes without saying. Not long ago I was asked to talk to a group of students about business ethics. I said to them, “There’s only one kind of ethics.” I think the idea of “business ethics” is a strange concept because there’s only one set of ethics that I’ve got-the human values-trust, honesty, and all of those things-I don’t see them separate at all.
LUTHANS:
What else?
FORWARD:
Humor is something that I think is important to me. I guess I differ from some; I don’t see humor as a defensive mode. Rather, I see it as being perspective. If you can look at yourself and what you’re doing and kind of laugh at yourself once in a while, then you can enjoy the situation. I think humor has been valuable to me and to our entire management team.
LUTHANS:
What about the creative, innovative
FORWARD:
Freedom, I think, is a big part of the creative and innovative side of our organization. By that I mean the freedom to question. I actually like to deal in incomplete thoughts-in other words, a thought you haven’t really fleshed out yet, but one that you want to bounce off of someone. It’s kind of like brainstorming. I’ve seen in the past some of the more stilted structures stifle this kind of interaction. The approach was, “Don’t talk to me until you’ve come to a conclusion.” They wanted to see a complete report.
LUTHANS:
How do you do it?
FORWARD:
Well, to begin with, we don’t require that kind of report. We feel that a lot of the creative ideas-some important breakthroughs-happen incidentally. Interestingly, I have found that this process often occurs during travel, and we travel a lot of the time. What’s intriguing about travel is that after traveling a few days with someone, you find that you really begin to level with one another, even if you’re tired from the traveling.
LUTHANS:
A productive
FORWARD:
It really is a productive time. As a matter of fact, what came out of our Creative Writing Program was the fact that people all of a sudden realized that they were most creative when they traveled together.
LUTHANS:
Can you tell us about this Creative Writing Program?
FORWARD:
Well, it came about when we were planning
side of things?
time for you is on such trips?
on expanding
our opera-
tions and looking at other sites. We decided that if we really wanted to bake another cake, we better understand the recipe. We can all speak in hand signals to one another, but have you ever really tried to sit down and articulate what it is that you do? We felt we could do this best through a creative writing program taught by an instructor from the local university. LUTHANS:
Your whole team is involved in the course?
FORWARD:
Right, but it’s voluntary. A bunch of us get together about once a month, and we get writing assignments. For example, we had one assignment on defining risk.
LUTHANS:
How many definitions ment?
FORWARD:
As many as were there. Interestingly enough, though, there was unanimity on what was the biggest risk-doing nothing.
LUTHANS:
Now let’s take a look at the big picture. Obviously, the global economy has arrived and it will have an impact. What do you see for the future-not only for your industry, but American business? Where do we go from here?
FORWARD:
I guess I would start with what I might know best-our own business. I think it’s important, as you point out, that we recognize we’re in a world economy. I think, even in our antitrust laws, we need to understand that. I don’t think the U.S. is being sold out. I think it’s all part of a transition to a world economy. I’m an optimist. I think joint ventures and international business lead ultimately to world peace. I think we all need to become more global, to recognize that other nations offer tremendous opportunities for American business-rebuilding the business infrastructure of Eastern Europe, for example. I think that in the longer run this also will include the Soviet Union. I hope that someday the Soviets will begin to send more of their students to our universities, and vice-versa. It’s the next generation that’s really going to make all this happen. But for now, we ought to be taking an objective look at how we run our businesses.
LUTHANS:
How would you proceed?
FORWARD:
Productivity is important. I think our Japanese friends-and I respect them a lot-have said that we Americans don’t really know about the wealth of nations. I don’t know of any wealthy nation that doesn’t have a strong manufacturing base or a strong industrial base, and we have that. I don’t think our industry is failing; I think it’s going through a metamorphosis. Probably by 1995 the world’s best steel companies will be here in the U.S.
did you get as a result of that writing assign-
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LLJTHANS:
You don’t think we’re there yet.
FORWARD:
Well, actually I think we are-but of course helps things a lot; relative to other countries.
LLJTHANS:
How do we get better?
FORWARD:
I think we need joint ventures with the U.S. supplying the technology. I think we need to get back to basics. In our case, we shouldn’t give up on the material science. I think education should remain a major focus.
LUTHANS:
Where do human Japanese?
FORWARD:
I think we can learn from ourselves. The Japanese have their culture, and we have ours. I think it’s important we understand our own culture. If we look at what makes Americans tick, we’ll find commitment, and we’ll also find what I call enlightened self-interest. Americans aren’t going to sing the company song in the morning, but I’ll tell you what-if you get each of them operating as individuals but moving in the same direction, then you have something!
LUTHANS:
Which is more important-individuals
FORWARD:
I think individuals are important, but they should operate as a team. I don’t think we want to imitate the monolithic approach. Someone once suggested the metaphor that from a distance our company looked like a whale, but when you get up close it is really a school of piranhas all moving in the same direction.
LUTHANS:
And that’s the key?
FORWARD:
Yes, all moving in the same direction-and also all hungry-committed to really drive the product through to the marketplace.
LUTHANS:
What about competition?
FORWARD:
I like the idea of the game, the chase, the thrill-having fun, but not being cutthroats among ourselves. That can be really negative. Sure there will be turf problems. I remember one fellow I talked to who had worked for both Japanese and American companies. He said the biggest difference between Japanese managers and American managers was that American managers are good at communicating down within their own group, but poor at communicating across groups within the same organization. This tends to be kind of the turf thing. If I were to pick up anything from the Japanese, I’d suggest that we make an effort to be a little more open across departments and have the perspective of a unified team.
resources
come
the value of the dollar
in? Can we learn
from
the
or groups?
is is the third in a series of interviews conducted by Organizational Dynamics’ editor, Fred Luthans. The first two were with academics-Edgar Schein of M.I.T. and Lyman Porter of the University of California-Irvine. Luthans explains: “I thought it would be interesting to turn next to someone actually from the business world, and my first choice was Gordon Forward of Chaparral Steel.” Forward was involved in the start-up of Chaparral in Midlothian, Texas in 1973 and became its president and CEO in 1982. He is considered the driving force behind Chaparral, one of the few lasting success stories of the 1980s in American business. Chaparral Steel is a state-of-the-art
T
“mini-mill” that h.as grown from 250,000 tons at start-up to 1.5 million tons today. It is recognized as an international leader in the production of low-cost quality products made from recycled steel. In addition to 1989 sales of $451.5 million and an 11 percent profit margin, 90 percent of the 925 employees participate in corporate-sponsored continuing education, almost two thirds of the employees own stock in the company, and 8 percent of gross profits were paid as profit sharing. Fortune magazine has named Chaparral one of the bestmanaged factories in the U.S., and Tom Peters has named Forward and Chaparral as prominent examples of how things should be done in corporate America.
LUTHANS:
To get started, why don’t you review your educational and experience?
background
FORWARD:
My first degree was a bachelor’s in material engineering from the University of British Columbia in the early 1960s. After spending some time in France doing research for a firm there-and getting marriedI returned to the U.S. to do some graduate work through a fellowship at M.I.T. I wanted to work with some of the academic leaders who had been studied over the years; my desire was to find out what they were doing and what they were thinking.
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A doctorate there (in materials science), with a minor in finance at the Sloan School, was my program of study. The work at Sloan gave me a feeling of entrepreneurship. Although I enjoyed the research, I knew that I wanted to do some things in my career that would be less basic in scope. But I do want to say that I value research greatly; it goes hand-in-hand with the learning process-the idea of going one step beyond what we presently know.
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LUTHANS:
While at MIT, in addition to the finance courses, did you get into any of the more “human” oriented management courses at Sloan?
FORWARD:
No, I didn’t really take courses on the human side. I got into case studies in economics that gave me a chance to analyze companies from a financial point of view but not from a humanistic perspective. My interest in people went beyond my educational background; I really wasn’t exposed to any human resource management kind of thinking in school.
LUTHANS:
With your educational background, do you feel in your present job as the leader of a major company in a tough industry that you had the best educational preparation? In other words, if you had to do it over again, would you do anything differently?
FORWARD:
I guess that I probably wouldn’t do anything differently. Someone once said to me that it’s almost as though I’m a CEO because of my research background. But to me it’s not an anomaly; I feel my research background has given me a sense of how to deal with the mystery and intrigue of solving the p.uzzle. To me, the inquiry, the breaking through to new vistas, the finding of solutions, is what it’s all about.
LUTHANS:
I know you’ve received many awards over the years-which do you feel most proud of, and why?
FORWARD:
Well, that’s difficult to respond to-1 think they’re all important, and I’m honored to have received them. I think, however, that it’s important not to get an overblown view of one’s self. That could be dangerous. I’m flattered by them, but I don’t consider them an end in themselves. Certainly, it was exciting to receive the Fairless Award for technology advancement in the steel industry because I was chosen by my peers in the business.
LUTHANS:
Now let’s talk about Chaparral-not just as a steel success story, but as a business success story. Could you start by giving some background about the company?
FORWARD:
Chaparral Steel started as a joint venture between Co-Steel International (which I was associated with) and Texas Industries of Dallas. Texas Industries wanted to diversify into the steel business. At that time, the steel industry was dominated by fully integrated companies-they went from coal and iron ore all the way to a finished product.
of these
LUTHANS:
Was U. S. Steel the prime example?
FORWARD:
Yes, along with LTV and others. The idea behind Chaparral, though, was that it should get into the recycling end of the business since our society generates an awful lot of scrap. Because I had relevant experience from a smaller plant in Canada, I was asked to come start the plant in Midlothian as vice president of operations. It was a tremendous opportunity.
LUTHANS:
Did you have anything to start with-a
FORWARD:
Nothing. It was a clean blackboard. We hired the management designed the plant, and got things started.
LUTHANS:
What was the mood-the
FORWARD:
Fortunately, we had a board that trusted us for what we were trying to do, so they gave us considerable freedom. It was a highly encouraging group of people to work with. We felt from the beginning that we had an ideal situation because of the freedom we were given, plus the fact that it was a greenfield site. It was the opportunity to start from scratch that we all enjoyed.
LUTHANS:
Can you relate some of the objectives the facility?
FORWARD:
When we started our plant, we had decided that we wanted to be the international low-cost supplier of steel products. We felt that way all along, and focused in on this mission-vision, or whatever you want to call it. I thought it was important that we knew what we wanted to do. In a sense, it was pretty ambitious, but- I felt that we needed to have ambitious goals because times were changing. We really needed to recognize, as we were heading toward the 21st century, that our competition would be coming from the Third World. Some of the Third World companies were paying their people $2.30 an hour-and that’s where our competition was going to come from. It wasn’t going to come from the larger steel companies, or even other North American companies similar to ours that were already established. We felt our competition in the long run would come from low-cost Third World countries. The Brazilians are a good example.
facility, for example?
climate-surrounding
team,
this start-up effort?
and vision you had for starting
LUTHANS:
What about the Japanese? Surely they were viewed as major competitors.
FORWARD:
No. We knew we were competing with the Japanese, but we still felt that the competition in the long run was going to come from low-cost countries-Mexico, for example. We realized that this business has traditionally been labor-intensive, capital-intensive, and energy-intensive, and from the beginning we knew that we had to design all of those things out of it. That was the only way we could be competitive with Third World countries.
’
65
We knew we were competing labor, so I guess that was the major major focus of our company, and We’re currently at 1.3 worker hours the business.
66
in a world market with low-cost focus in the beginning. It’s still the we’ve been quite successful at it. per ton, one of the lowest rates in
LUTHANS:
Can you give me a comparison industry is?
of what the current
average
in the
FORWARD:
I’d have to make the comparison with the mini-mills. In terms of worker hours per ton, generally it’s in the 1.5 to 3 range. I wouldn’t compare us with the big integrative mills because their process is different. But recently they’ve done a tremendous job of cutting down worker hours; I’m very encouraged by what I’ve seen. Many have cut down from 10 to 4 or 5 worker hours per ton. The first step in the improvement was easy. They just shut down the old mills, and all of a sudden worker hours per ton were down. Now they’re taking the harder steps. There’s still a long way to go, but I’m encouraged to see that managements recognize that it “ain’t what it used to be.” They realize they have to change if they’re going to survive.
LUTHANS:
How about your own company?
FORWARD:
We’ve got some ideas on how we can take our productivity to one worker hour per ton; in fact, we’ve got a plan on the drawing board that we feel could even take us down to 0.8. This is important, but we’ve got to attack on all fronts. The other criteria of success, such as quality and service, are also important because we’re in the commodity business. If, however, we can keep our labor cost below $30 a ton, that is one way to compete with the Koreans and anyone else.
LUTHANS:
So productivity
FORWARD:
Yes, and those will remain major goals in the company. A yield of 1 to 2 percent is important. This can be thought of as your margin. You could double your profits with just small changes in yield. So we concentrate on yield and try to compare those figures with our competitors. We’ve developed some new processes that we’ll be implementing over the next few years; we feel that these changes will put us on the leading edge of high yield capability.
LUTHANS:
Gordon, up to this eral. What I’d like how you view your succeed), and your
FORWARD:
First of all, I mentioned that in starting this business we needed to be low-cost. There’s no question that our costs have to be kept low. It became an issue when we had to decide how we would accomplish
Where do you go from here?
and keeping labor costs low are major priorities.
point we’ve talked mainly about Chaparral in gento get into now is your own personal approachrole, what approaches you’ve seen succeed (or not management philosophy.
that goal. We sat down and said, “Okay, what we want to do is use two American strengths-accessibility to the latest technology and having innovative people.” We found we needed effective engineering to draw from these strengths. But you must remember I have a very broad definition of what I consider to be engineering. LUTHANS:
Well, I know how most of us view engineering-what specifically?
do you mean
FORWARD:
Real engineering to me is taking the idea-the scientific thought or idea, or principle-and driving it through to the marketplace. To me, this is what our business is all about. Engineering encompasses the human side of technology-very much so, in fact. But the financial side is also a part of it and it’s primarily a matter of commitment.
LUTHANS:
How has American business done with this concept of engineering?
FORWARD:
In our industry in particular, we’ve done a lousy job. Granted, it’s definitely changing, but in the past we’ve done a really poor job of taking the technology and transmitting it through to the product. I think that if we could combine the American innovation with say, the Japanese commitment, we could really have a company. We may not be Japanese, but we all do have a sense of commitment. This is what we focused on from day one at Chaparral. I don’t know where it came from-1 guess it has to do with a fundamental feeling I have about people. We were missing a whole lot, an untapped resource in our people. I went back and considered what Adam Smith had said in The We&h ofiVutions: “You must consider self-interest as a driving force.”
LUTHANS:
Are you saying that we should go back and look at, and use, some of the historically significant things that have happened to drive America?
FORWARD:
Well, yes, but I guess there’s also just that gut feeling. An advantage I had was that I’d worked with a large company, and I’d seen and been frustrated by things kind of grinding to a stop in a large bureaucracy. I think that, in a sense, this was when I really started to think about these things-and to reject a bureaucratic form of organization. I saw hundreds of people placed in research and still the ideas weren’t getting through. Maybe not all the good ideas are in research anywaysome of them are out on the floor. But managers on the floor somehow couldn’t drive the ideas through, get them to the marketplace. In a smaller company, things are simplified.
LUTHANS:
Specifically, what did you do differently Chaparral Steel?
FORWARD:
One of the first things we did was to make product development a line instead of a staff function. We decided that technology goes back to the mission. We felt that the way we were going to accomplish our
along this line at the smaller
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mission was through technology. We treated technology as a fundamental element of our business-it wasn’t going to be a side issue or a staff issue. We were going to take manufacturing and technology and put them together; we were going to drive the technology through to our manufacturing managers.
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LUTHANS:
So then structurally you’ve tried to keep things as simple as possible and put technology and development into the mainstream.
FORWARD:
That’s correct. In sense of freedom and learn, which tion. Even small thinking.
LUTHANS:
Can you give me an example?
FORWARD:
Trip reports would be an example. Those kinds of things drive me up the wall. I don’t know whether it was just me or whether this affected other people, but I felt people operating in this bureaucratic structure weren’t really bottom-line oriented. For example, in the past what really ticked me off was that people would seem to be satisfied going home at night having done just a trip report or having attended a meeting.
LUTHANS:
The bureaucratic
FORWARD:
Yes. So much of what was done had so little to do with the bottom line.
LUTHANS:
So your solution at Chaparral was to simplify the structure-but else?
FORWARD:
What I also wanted to do was to create a holistic view of our business.
LUTHANS:
From everyone involved?
FORWARD:
Yes-and that includes customers. I wanted them to view us as the easiest company to buy steel from. A view like this was a bit frightening for those of us who were so used to a highly structured, bureaucratic environment. This didn’t bother me, though; I put some stock in the Japanese adage, “A little bit of fear clears the mind.” All of a sudden we realized there’s a marketplace out there, we’ve got to reach that market, we’ve got this cash crunch, we’re building this plant, we need to start generating cash.
LUTHAN~:
But the “juices were flowing,“ so to speak?
FORWARD:
Yes, they were. But, then, of course, you fall on your face and you get up and do some other things. To me that was energizing-and it was
the bureaucratic structure I’d worked for before, the wasn’t there. The sense of being able to explore, try, you have in academia, didn’t exist in that organizabureaucratic kinds of things can turn off creative
requirements
had become an end in themselves?
what
the same for the kind of people we attracted to work for us. They were risk-takers. LUTHANS:
What kinds of risks are you referring to?
FORWARD:
We deliberately took-and continually take-conscious risks. People often say this isn’t very smart. But I respond that I think what they are doing is really risky. They ask, “What do you mean?” I say, “To me, the biggest risk, particularly in the business world of today, is to do nothing.” Plenty of firms are afraid to take risks, and I see this reluctance as a major risk itself. We’ve thoroughly discussed this with our management, and we all feel that the biggest risk would be if we stop doing what we do. If we stop investing or changing, we’d lose our top people, our competitive edge, all that we’ve built. We’ve built Chaparral on continuous change.
LUTHANS:
You feel that risk taking entire organization-that beginning?
FORWARD:
No. That’s where development and change come in. We didn’t come up with all this stuff on day one when we started. Let me share an anecdote. There was a fellow who’d worked with us for a while and one day he said, “You know, I really like what you guys do here. You people don’t wear a coat and tie. Let’s have a policy that nobody wears a tie to work.” I said to him, “That’s the worst thing we could do-the day we make that a policy, we’ll all wear a tie.”
LUTHANS:
What kinds of policies do you have?
FORWARD:
We don’t have policies. What we started with essentially were some very basic ideas. First, we decided that such things as trust and honesty were going to play a big role in what we were doing. We felt that a lot of the procedures in many organizations were designed to catch the 3 percent who were trying to cheat in one way or another. We decided to design our rules for the 97 percent we can trust. The others would stand out like sore thumbs, we figured, and they’d eventually leave. That’s exactly what happened.
LUTHANS:
Besides trust, what else sticks in your mind as a dominant value?
FORWARD:
Well, certainly challenge. We’ve got quite a number of people, and I think most of them really respond to challenge. Others have found, however-and I can verify this in our situation-that people don’t do as well when the challenges aren’t carefully articulated. The fuzzy kinds of goals don’t really help. What truly helps is in articulating goals that are specific and reachable. The other thing is that people need the freedom to get there. We all figure we’ll make some mistakes along the way, but that freedom is important. Trust goes along with that, by the way.
and the desire for change pervade the it’s been there in your people from the
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70
LUTHANS:
What else besides trust and challenge ues for you and your company?
do you feel are important
val-
FORWARD:
Obviously, there’s one I think that goes without saying. Not long ago I was asked to talk to a group of students about business ethics. I said to them, “There’s only one kind of ethics.” I think the idea of “business ethics” is a strange concept because there’s only one set of ethics that I’ve got-the human values-trust, honesty, and all of those things-I don’t see them separate at all.
LUTHANS:
What else?
FORWARD:
Humor is something that I think is important to me. I guess I differ from some; I don’t see humor as a defensive mode. Rather, I see it as being perspective. If you can look at yourself and what you’re doing and kind of laugh at yourself once in a while, then you can enjoy the situation. I think humor has been valuable to me and to our entire management team.
LUTHANS:
What about the creative, innovative
FORWARD:
Freedom, I think, is a big part of the creative and innovative side of our organization. By that I mean the freedom to question. I actually like to deal in incomplete thoughts-in other words, a thought you haven’t really fleshed out yet, but one that you want to bounce off of someone. It’s kind of like brainstorming. I’ve seen in the past some of the more stilted structures stifle this kind of interaction. The approach was, “Don’t talk to me until you’ve come to a conclusion.” They wanted to see a complete report.
LUTHANS:
How do you do it?
FORWARD:
Well, to begin with, we don’t require that kind of report. We feel that a lot of the creative ideas-some important breakthroughs-happen incidentally. Interestingly, I have found that this process often occurs during travel, and we travel a lot of the time. What’s intriguing about travel is that after traveling a few days with someone, you find that you really begin to level with one another, even if you’re tired from the traveling.
LUTHANS:
A productive
FORWARD:
It really is a productive time. As a matter of fact, what came out of our Creative Writing Program was the fact that people all of a sudden realized that they were most creative when they traveled together.
LUTHANS:
Can you tell us about this Creative Writing Program?
FORWARD:
Well, it came about when we were planning
side of things?
time for you is on such trips?
on expanding
our opera-
tions and looking at other sites. We decided that if we really wanted to bake another cake, we better understand the recipe. We can all speak in hand signals to one another, but have you ever really tried to sit down and articulate what it is that you do? We felt we could do this best through a creative writing program taught by an instructor from the local university. LUTHANS:
Your whole team is involved in the course?
FORWARD:
Right, but it’s voluntary. A bunch of us get together about once a month, and we get writing assignments. For example, we had one assignment on defining risk.
LUTHANS:
How many definitions ment?
FORWARD:
As many as were there. Interestingly enough, though, there was unanimity on what was the biggest risk-doing nothing.
LUTHANS:
Now let’s take a look at the big picture. Obviously, the global economy has arrived and it will have an impact. What do you see for the future-not only for your industry, but American business? Where do we go from here?
FORWARD:
I guess I would start with what I might know best-our own business. I think it’s important, as you point out, that we recognize we’re in a world economy. I think, even in our antitrust laws, we need to understand that. I don’t think the U.S. is being sold out. I think it’s all part of a transition to a world economy. I’m an optimist. I think joint ventures and international business lead ultimately to world peace. I think we all need to become more global, to recognize that other nations offer tremendous opportunities for American business-rebuilding the business infrastructure of Eastern Europe, for example. I think that in the longer run this also will include the Soviet Union. I hope that someday the Soviets will begin to send more of their students to our universities, and vice-versa. It’s the next generation that’s really going to make all this happen. But for now, we ought to be taking an objective look at how we run our businesses.
LUTHANS:
How would you proceed?
FORWARD:
Productivity is important. I think our Japanese friends-and I respect them a lot-have said that we Americans don’t really know about the wealth of nations. I don’t know of any wealthy nation that doesn’t have a strong manufacturing base or a strong industrial base, and we have that. I don’t think our industry is failing; I think it’s going through a metamorphosis. Probably by 1995 the world’s best steel companies will be here in the U.S.
did you get as a result of that writing assign-
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LLJTHANS:
You don’t think we’re there yet.
FORWARD:
Well, actually I think we are-but of course helps things a lot; relative to other countries.
LLJTHANS:
How do we get better?
FORWARD:
I think we need joint ventures with the U.S. supplying the technology. I think we need to get back to basics. In our case, we shouldn’t give up on the material science. I think education should remain a major focus.
LUTHANS:
Where do human Japanese?
FORWARD:
I think we can learn from ourselves. The Japanese have their culture, and we have ours. I think it’s important we understand our own culture. If we look at what makes Americans tick, we’ll find commitment, and we’ll also find what I call enlightened self-interest. Americans aren’t going to sing the company song in the morning, but I’ll tell you what-if you get each of them operating as individuals but moving in the same direction, then you have something!
LUTHANS:
Which is more important-individuals
FORWARD:
I think individuals are important, but they should operate as a team. I don’t think we want to imitate the monolithic approach. Someone once suggested the metaphor that from a distance our company looked like a whale, but when you get up close it is really a school of piranhas all moving in the same direction.
LUTHANS:
And that’s the key?
FORWARD:
Yes, all moving in the same direction-and also all hungry-committed to really drive the product through to the marketplace.
LUTHANS:
What about competition?
FORWARD:
I like the idea of the game, the chase, the thrill-having fun, but not being cutthroats among ourselves. That can be really negative. Sure there will be turf problems. I remember one fellow I talked to who had worked for both Japanese and American companies. He said the biggest difference between Japanese managers and American managers was that American managers are good at communicating down within their own group, but poor at communicating across groups within the same organization. This tends to be kind of the turf thing. If I were to pick up anything from the Japanese, I’d suggest that we make an effort to be a little more open across departments and have the perspective of a unified team.
resources
come
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