1.0 Introduction
Armco Inc. is a steel manufacturer that used to be the sixth largest in its industry in US (in 1990). The Kansas City Works within its Midwestern Steel Division was hit by the decline in the business in the US steel industry despite its good performance in the past. Consequently, it downsized and incurred significant losses in most of the 1980s. This entity produces two primary products including grinding media and carbon wire rod, one being recognized in the industry for its durability while the later being non profitable and only covering some of its fixed costs through volume.
2.0 What’s wrong with the old system?
(a) Inconsistency with organization’s strategy
The Objective of Armco Inc. is maximizing profits and sustaining its position among the leaders in the US manufacturing steel industry. To achieve this objective, Armco has adopted a cost leadership strategy with a broad appeal and has managed to grow bigger through joint ventures and expansion of its product lines in implementing its strategy. However, the strategy adopted by the Kansas City Works is based on differentiation due to its cost disadvantages such as union labor costs and inefficient plant infrastructure.Union labor costs in Kansas City were higher than those of some of its nonunion competitors, particularly those located in the Southeastern U.S. and non-U.S. locations. The Works had an inefficient plant infrastructure because the plant was designed to accommodate five times as many employees as were currently working there.
(b) Subjective performance evaluation
Performance evaluation was made by immediate superior and the division president. The performance evaluations were subjective. They were based on three measures of performance applicable to the position. For example, the performance of Works Manager is evaluated based on three criteria, i.e. plant safety, hard