QUALITY in PRACTICE: Leadership Changes at Alcoa41 Alcoa, ranked as the 79th largest firm in the 2005 Fortune 500, employs approximately 129,000 people worldwide and had 2004 annual sales of $23.96 billion. Alcoa has been known for progressive, innovative management. It treats its employees well, tries to avoid layoffs and plant closures unless forced to make changes as a result of continued negative results, and has unions at only about 15 of its 47 locations. Nevertheless, at Alcoa's industrial magnesium plant in Addy, Washington, a crisis of epic proportions rocked the plant and rattled the company, leading to some key leadership changes that ultimately resulted in dramatic improvements in safety, productivity, and profits.    At the time of this case (in the late 1980s) the plant was facing two severe problems: an unacceptable rate of serious injuries that averaged 12.8 per year, and five years of unprofitable operations. No clear, easily-implemented solutions were apparent for the first problem, but corporate management had suggested that layoffs of 100 or more employees were all but inevitable in order to stem the tide of red ink. Operating statistics bore out the depth and breadth of the problem. Prices of magnesium had dropped, and units selling for $1.45 on the open market cost $1.48 to make at Alcoa's plant. Quality control was below what was needed to counteract market forces, with magnesium recovery at only 72 percent of the raw material being processed.    The apparent causes of plant problems consisted of a complex mix of lack of accountability, poor quality control, inadequate leadership, and low morale, especially among hourly employees. Corporate management stressed safety above all, and profitability second. The death of an employee, who was related to seven other employees, and the unacceptable financial losses led senior corporate management to decide that a change in plant management was essential. Don Simonic, a former college football coach, with Alcoa experience, was tapped for the job of plant manager. His turnaround team members included the then-personnel manager, Tom McCombs, and outside consultants Robert and Patricia Crosby. If the new leadership team could not turn the plant around, plant closure or sell-off were the only remaining options.    Since its construction, the plant had been designed with an open-systems, team-based culture, adapted from socio-technical systems theory. It was structured similar to the way that Procter and Gamble had set up its soap plants, and was considered a leading-edge organizational design. The process for producing the industrial magnesium was highly advanced and technical, and the innovative work team structure seemed to fit the technical systems characteristics. The plant attracted visitors from inside and outside the company who wanted to benchmark the operation and talk to team members. The organizational structure included: · • Autonomous, self-directed teams with no immedi ...

1. QUALITY in PRACTICE: Leadership Changes at Alcoa41
Alcoa, ranked as the 79th largest firm in the 2005 Fortune 500,
employs approximately 129,000 people worldwide and had 2004
annual sales of $23.96 billion. Alcoa has been known for
progressive, innovative management. It treats its employees
well, tries to avoid layoffs and plant closures unless forced to
make changes as a result of continued negative results, and has
unions at only about 15 of its 47 locations. Nevertheless,
at Alcoa's industrial magnesium plant in Addy, Washington, a
crisis of epic proportions rocked the plant and rattled the
company, leading to some key leadership changes that
ultimately resulted in dramatic improvements in safety,
productivity, and profits.
At the time of this case (in the late 1980s) the plant was
facing two severe problems: an unacceptable rate of serious
injuries that averaged 12.8 per year, and five years of
unprofitable operations. No clear, easily-implemented solutions
were apparent for the first problem, but corporate management
had suggested that layoffs of 100 or more employees were all
but inevitable in order to stem the tide of red ink. Operating
statistics bore out the depth and breadth of the problem. Prices
of magnesium had dropped, and units selling for $1.45 on the
open market cost $1.48 to make at Alcoa's plant. Quality control
was below what was needed to counteract market forces, with
magnesium recovery at only 72 percent of the raw material
being processed.
The apparent causes of plant problems consisted of a complex
mix of lack of accountability, poor quality control, inadequate
leadership, and low morale, especially among hourly employees.
Corporate management stressed safety above all, and
profitability second. The death of an employee, who was related
to seven other employees, and the unacceptable financial losses
led senior corporate management to decide that a change in
plant management was essential. Don Simonic, a former college

2. football coach, with Alcoa experience, was tapped for the job of
plant manager. His turnaround team members included the then-
personnel manager, Tom McCombs, and outside consultants
Robert and Patricia Crosby. If the new leadership team could
not turn the plant around, plant closure or sell-off were the only
remaining options.
Since its construction, the plant had been designed with an
open-systems, team-based culture, adapted from socio-technical
systems theory. It was structured similar to the way that Procter
and Gamble had set up its soap plants, and was considered a
leading-edge organizational design. The process for producing
the industrial magnesium was highly advanced and technical,
and the innovative work team structure seemed to fit the
technical systems characteristics. The plant attracted visitors
from inside and outside the company who wanted to benchmark
the operation and talk to team members. The organizational
structure included:
· • Autonomous, self-directed teams with no immediate
supervisors. Teams were responsible for their own work areas.
· • Hourly employee leadership that consisted of a team
coordinator, safety person, training person, and team resource
(internal facilitator) on each team.
· • Supervisors, called shift coordinators, with four or five
teams reporting to them, who were connected to the team
coordinators. Shift coordinators generally stayed at arm's
length, because if they intervened in team operations, they
would get in trouble. The teams would say, “Leave us alone. We
know what we're doing.” If they didn't intervene, upper
management would say that the teams weren't doing what they
should be. The supervisors were caught in the middle.
Employees were empowered, but unable to face critical
decisions that needed to be made to stem the crisis. The Crosbys
identified lack of clarity in decision making and authority as the
main culprit in the plant's environment. The new leadership
model, conceived by the Crosbys and the plant leaders, involved
major changes in goal-setting and decision-making practices. It

3. required:
· • New clarity in goal-setting.
· • A consultative, instead of a pure consensus approach to
decision making.
· • Coming to grips with the need to cut costs pragmatically.
As the turnaround proceeded, Simonic decided that cutting
staff was essential to meeting the new goals. First, all
temporary and contract workers were laid off. As leaders were
explaining the facts that had led to a decision to lay off an
additional 100 workers, an hourly worker revealed a
breakthrough that his team had made to significantly reduce the
downtime required to turn a magnesium smelting furnace
around. This process involved switching over to a new crucible
once the other was filled (a form of the Japanese manufacturing
technique called SMED—single minute exchange of dies). The
new team approach required more labor, but cut the downtime
from the usual one-and-a-half-hour turnaround time to just one
hour. Simonic called off the impending layoffs. When the new
process was implemented on all nine furnaces in the plant, the
savings reached $10 million. This was more than the wages of
the 100 employees, who were allowed to keep their jobs.
Simonic held strategic meetings where he engaged salaried
and non-salaried employees in intensive dialogue. His objective
was to align all parts of the system, clarify who would be
making what decisions, explain how decisions could be
influenced, and communicate why decisions were made.
Simonic then set the goals. Simonic made clear statements like,
“These are the goals. You and all our employees have firsthand
knowledge of how things work around here. I don't care how
you get there. I will support you in making choices about how
to get there. And, if you can't get there, I will step in and decide
how we will get there.” McCombs, the personnel manager,
remembered how they developed a matrix reflecting what kind
of decisions team members and supervisors would make.
Supervisors would still retain authority over all decisions, if
needed. Before Simonic's arrival, decisions had been made

4. largely by consensus.
As a result of this process, one person was made responsible
for every project or task, known as single-point accountability.
This proved to be a critical change that was used instead of the
consensus (team) approach, which was previously the only way
to perform projects. McCombs and Simonic believed that for
single-point accountability to succeed, it was necessary to
establish the “by whens”—when particular tasks would be
accomplished. After making clear to the teams and employees
what was expected, they started achieving goals better.
Eighteen months after Alcoa's brought Simonic in as plant
manager, the change efforts had produced impressive results:
Unit costs had been reduced from $ 1.48 to $1.18, recovery of
magnesium increased by 5 percentage points (worth $1.3
million per point), and the serious-injury frequency fell from
12.8 to 6.3 per year. Although positive signs appeared
throughout the process, the incident in which the layoffs were
averted proved to be the most critical, because employees
subsequently had taken responsibility for applying their own
creativity to meeting plant goals. Over the next two years, the
plant became the lowest-cost producer in the world, and shortly
afterward had boosted productivity by 72 percent. The president
of Alcoa even asked all of the plant managers to visit the site
and learn from Addy's turnaround.
One decision-making technique that was practiced at Addy
and several other Alcoa plants was consultative decision-
making, where the manager makes the final decision but
consults with the team first. For example, McCombs recalls an
incident requiring disciplinary action on several teams: “The
teams would have 24 hours to give their recommendations to
management on how the discipline should be handled-up to and
including termination- and management would administer the
discipline. At least 95 percent of the time we took the team's
recommendation and moved on,” says McCombs.
The consultative method was also used to make hiring
decisions. For example, the boundaries laid out for a team might

5. concern Alcoa's desire to hire minorities. Typically, “the team
would present their selection of who to hire to the manager, and
often they would do such a good job the decision was just
“‘rubber-stamped,’” explains McCombs.
Another successful approach was called the “cadre.” During
the turnaround, Simonic and the Crosbys would work with the
cadre, a group of key people, chosen from a vertical slice of the
employees, who engaged in two specific roles: (1) observing
and evaluating the change process as it played out while (2)
simultaneously participating in the process. The cadre became a
skilled resource for the plant on leadership development, change
management, conflict management, quality, and work processes.
In reflecting on Simonic's impact on the organization,
McCombs noted: “Don had a dynamic personality and was very
charismatic. He possessed a very strong leadership style and
was very clear. But you also must work with the intact families
in the organization—one of Simonic's own beliefs. That's where
change happens—in the small groups. You must work with that
supervisor and that crew and get them aligned with the
organization and work out any conflict.” According to
McCombs, Simonic was guided by four clear principles:
“Leaders have to lead, make decisions, have a clear vision, and
set direction. Once leaders set direction and get a breakthrough
goal in mind that people can rally around, then people can tell
the leader how they are going to get it done. A leader shouldn't
tell how to do it, but he or she needs to set that direction. And
that's what Simonic did very well,” insists McCombs.
Unfortunately, Addy didn't sustain the momentum of the
turnaround. In 1992, Simonic and McCombs left to help turn
around other Alcoa plants. Corporate management continued to
reduce the workforce. They eliminated all the department heads
and everybody ended up reporting to the shift supervisor or
plant manager. This caused lack of clarity about leadership and
authority in decision making all over again, and as McCombs
explained, “They stripped away the leadership that could have
supported the change efforts afterwards.”

6. Perhaps because of the previous successes and the skills
gained in the previous turnaround, Crosby believed that the
second recovery that occurred some time after Simonic and
McCombs left was going to be much easier. The plant appeared
to be back on track and headed for success again, but the
fortunes of business intervened. There was another drop in the
price of magnesium, and the Addy plant lost its competitive
edge. In fall of 2001, the plant was closed down and
approximately 350 employees lost their jobs.
Key Issues for Discussion
· 1. From a strategic management standpoint, why do you think
that corporate management at Alcoa delayed taking action for
five years as the plant continued to lose money and deteriorate
in other operational measures?
· 2. What type of leadership style did Simonic seem to follow?
Does it fit any of the leadership theories that were developed in
the chapter?
· 3. How easy or difficult would it be for other organizations to
duplicate the leadership style of Simonic and the organizational
systems practiced at Addy, prior to, and after Simonic's tenure?