SRC Holdings - The 'Open Book' Management Culture


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Case Details:

Case Code : HROB039
Case Length : 13 Pages
Period : 1974 - 2003
Pub Date : 2003
Teaching Note :Not Available
Organization : SRC Holdings
Industry : Manufacturing
Countries : USA

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"We are building a company in which everyone tells the truth every day - not because everyone is honest, but because everyone has access to the same information: operating metrics, financial data, valuation estimates. The more people understand what is really going on in their company, the more eager they are to help solve its problems."

- Jack Stack, President and CEO, SRC Holdings Corp., in January 2000.1

The Power of Employee Involvement

There were over 73,000 players operating in the $53 billion remanufacturing2 industry of the US by the turn of the 20th century. An extensive range of remanufactured products and related services were available in different industry sectors, such as automobiles, electrical apparatus, machinery, compressors, valves, tires, office furniture, and toner cartridges.

The engine and spare parts remanufacturing segment was one of the major segments driving the growth of the automobile remanufacturing industry in the US. In the early 2000s, the demand for remanufactured engines was steadily increasing due to a large number of vehicles in the used car segment and the increasing prices of new vehicles.

Surprisingly, the number of players in this segment had gone down considerably since the 1990s. Few small companies could sustain themselves in the engine/parts remanufacturing market. While many of them were acquired by the bigger ones in a spree of consolidation (mergers, acquisitions, and reorganizations), many others disappeared without a trace.

This consolidation resulted in the emergence of a few, but powerful players such as Caterpillar Engine Systems (Caterpillar Inc.), Cummins Engine Co. Inc. and Navistar International Transportation Corp. As the competition intensified, the players were forced to invest more in research and development (R&D), to strengthen their sales and distribution networks, and to constantly improve their product service and remanufacturing capabilities. As a result of the above, all the companies took a severe beating in their profit margins. The Springfield (Missouri, US) based SRC Holdings (SRC), was one of the very few smaller players that continued to prosper in such highly competitive market, dominated by the bigger players.

Reportedly, it was the only company in the industry that had continuously registered profits since its inception in 1983. SRC aimed at generating a 15% growth in revenues and earnings during both good and bad times. The company registered annual revenue of over $160 million in the year 2001. Since 1983, SRC Holdings had been ahead of its competitors on all productivity metrics such as operating income per employee, revenue per employee, and return on invested capital.

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1] "Keep Employees in the Dark, and They'll Go Where It's Light," www.businessweek.com, January 14, 2000.

2] Remanufacturing refers to the process of disassembling used items and utilizing the components to manufacture new products. In remanufacturing, the parts are cleaned, repaired, or replaced and finally reassembled to working condition. Remanufacturing deals with building only parts of a vehicle; when the entire vehicle is made, the process is referred to as rebuilding.

 

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