Culture of radical innovation and long-term performance in capital-intensive industries: the cases of Maillefer and Secheron in the Swiss electrical industry 1960-1982
Yazid Alaoui
Supervisor: Prof. Mary O’Sullivan Jury: Prof. Juan Flores 2015
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I. Table of Contents
I. Introduction ................................................................................................................... 3
II. Firm performance between economic and culture paradigms ........................... 5
1) Economic and culture paradigms in business history .......................................... 5 a. Drivers of firm performance in the economic paradigm ............................................... 5 b. Relevance, origin and definition of corporate culture ................................................... 8 c. Creation, transmission and sustainability of corporate culture ............................... 13
2) Corporate culture and performance ........................................................................ 17 a. Strong, mission driven and adaptation cultures’ influence on performance ..... 17 b. Culture content and performance ......................................................................................... 27 c. Culture of radical innovation ................................................................................................... 32
3) Research question, methodology and sources ..................................................... 34 a. Research question ........................................................................................................................ 34 b. Methodology ................................................................................................................................... 35 c. Sources .............................................................................................................................................. 37
III. Culture of radical innovation and firm performance ........................................ 38
1) The culture of Maillefer 1960-‐1982 ......................................................................... 38 a. The origin of Maillefer’s culture of radical innovation ................................................. 38 b. Establishment of culture of radical innovation ............................................................... 42 c. Radical innovations, distribution, production and management ............................ 49
2) The culture of Secheron 1960-‐1969 ......................................................................... 62 a. Culture of caution ......................................................................................................................... 62 b. Culture of collaboration and independence ..................................................................... 68 c. Culture of caution and collaboration in times of crisis ................................................. 73
3) Culture of radical innovation and performance .................................................. 78 a. Maillefer and Secheron’s performance ............................................................................... 78 b. Culture of radical innovation and performance, an interpretation ........................ 81 c. Limits ................................................................................................................................................. 84
IV. Conclusion ................................................................................................................... 86
V. Bibliography: ............................................................................................................. 87
VI. Appendix ..................................................................................................................... 94
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I. Introduction
The subject of economic performance of firms has been a constant in the
business history literature. Understanding why a once dominant industry leader
become an obsolete irrelevant enterprise, what explains divergent performance within
an industry or seizing the factors behind organisational failure have been recurrent
questions business historians have studied1. Furthermore, capturing the performance
of specific influential organisations such as De Beers, Fairchild or Pearson has been a
window of exploration of events or processes of broader historical significance2.
Controlling or adapting to the environment has been a mainstream view in to
explain organisational performance. The natural tendency of business history to
highlight the importance of the broader economic, social and political environment an
organisation operates into or its use of economic models to understand historical
phenomena have favoured the emergence of a view where the environment plays a
prominent role in accounting for firm performance3. This latter is perceived as
dependent on a company’s ability to control or adapt to its environment.
Focus on endogenous factors at firm level has been a shift in understanding
firm performance. Chandler’s three ponged investments in production, distribution
and management has brought a new paradigm where internal organisational factors
were no more irrelevant but at the forefront of the discussion on performance4.
Technological leadership, strategic vision and execution, innovation and financial
management were amongst other key factors highlighted in the literature5.
1 McDonald, “Western Union’s Failed Reinvention”; Sull, “The Dynamics of Standing Still”; Chan, “Personal Styles, Cultural Values and Management”; Stanger, “From Factory to Family”; Rae, “The Electric Vehicle Company.” 2 Newbury, “Technology, Capital, and Consolidation”; Berlin, “Robert Noyce and Fairchild Semiconductor, 1957-‐1968”; Bud-‐Frierman, Godley, and Wale, “Weetman Pearson in Mexico and the Emergence of a British Oil Major, 1901-‐1919”; Kornblith, “The Craftsman as Industrialist.” 3 Newbury, “Technology, Capital, and Consolidation”; Reich, “Lighting the Path to Profit”; McFadden, “Monopoly in Barbed Wire”; Porter, “Origins of the American Tobacco Company.” 4 CHANDLER, Scale and Scope; Chandler, “The Emergence of Managerial Capitalism.” 5 Berlin, “Robert Noyce and Fairchild Semiconductor, 1957-‐1968”; Porter, “Origins of the American Tobacco Company”; Burhop, “Pharmaceutical Research in Wilhelmine Germany”; Mass, “Mechanical and Organizational Innovation”; French, “Structure, Personality, and Business Strategy in the U.S. Tire Industry”;
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The emergence of corporate culture as a novel but performance defining
insight in organisational theory triggered an interest in business history literature. Its
potential to go beyond the dominant structural functional approach marked by
technology, markets, firm structure and self-interested competition in explaining
organisational behaviour and performance has brought a fresh air to a maturing
literature6. A limited number of studies link organisational performance to cultures
with a specific content. Strong, mission driven and adaptation cultures are the main
types relating to performance in the literature. They account for short to medium term
performance. However, they stop short of explaining long-term performance. Their
inability to deal with technological revolutions is their common limit.
Culture of radical innovation has the potential to overcome this limit. It is
defined as a culture fostering relentless innovation. It aims to ensure a firm is
constantly at the leading edge of innovation. It consists of three attitudes and three
practices. The attitudes are the willingness to cannibalize assets, future orientation and
tolerance of risk. The practices that engender and sustain these attitudes are the
empowerment of product champions, the establishment of incentives for enterprise as
well as the creation and maintenance of internal markets7. The commercialization of
radical innovations translates into companies’ financial performance8. A culture of
radical innovation is not only a set of attitudes but also requires the concrete
allocation of tangible resources within the organisation9. No studies on the link
between culture of radical innovation and long-term performance exist. This research
aims to fill this gap.
We use a comparative methodology based on the cases of Secheron and
Maillefer in the Swiss electrical industry to address our research question. Current
studies on corporate culture and performance rely mostly on a single case study to the
Petrik, “The House That Parcheesi Built”; Newbury, “Technology, Capital, and Consolidation.” 6 Lipartito, “Culture and the Practice of Business History”; Dellheim, “Business in Time”; Dellheim, “The Creation of a Company Culture.” 7 Tellis, Prabhu, and Chandy, “Radical Innovation across Nations.” 8 Ibid. 9 Eberhart, Maxwell, and Siddique, “An Examination of Long-‐Term Abnormal Stock Returns and Operating Performance Following R&D Increases”; Tellis, Prabhu, and Chandy, “Radical Innovation across Nations”; Leonard, “Research and Development in Industrial Growth.”
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exception of Churella’s locomotive industry. The similarities between Secheron and
Maillefer in terms of environment, industry, history, international orientation and their
marked divergent performance from 1960 to 1982 offers an excellent opportunity to
conduct this exercise and to control for the culture of radical innovation factor
Archival sources available enable us to answer our questions. Maillefer and
Secheron’s minutes of the board of directors and annual reports are the two prime
sources used to capture culture and performance. Complementary documents
designed for third parties such as company journals, memoires of critical actors,
internal history, prospectus for public listings can additionally provide us with an idea
of their culture at a more symbolic level.
II. Firm performance 1) Economic and culture paradigms in business history
performance
a. Drivers of firm performance in the economic paradigm
The question of performance has been one of the major areas of inquiry in
business history literature10. It has been treated either directly or indirectly. Both are
similarly important in understanding the phenomena. In the direct perspective, we can
find studies on Western Union, Electrical Vehicle Company, GE, Firestone, De Beers,
Sincere and Wing on, Draper and Philips11. In the cases of Western Union, Firestone,
Draper and Philips, the authors’ central concern is to explore the dynamics that led
once an industry leader to lose its dominant position and fade into obscurity12. Rae
John studies the blatant business failure of the Electrical Vehicle Company, a
10 Dellheim, “The Creation of a Company Culture”; Lipartito, “Culture and the Practice of Business History”; Hansen, “Business History.” 11 McDonald, “Western Union’s Failed Reinvention”; Rae, “The Electric Vehicle Company”; Reich, “Lighting the Path to Profit”; Sull, “The Dynamics of Standing Still”; Mass, “Mechanical and Organizational Innovation”; Newbury, “Technology, Capital, and Consolidation”; Chan, “Personal Styles, Cultural Values and Management”; Davids and Verbong, “Intraorganizational Alignment and Innovation Processes.” 12 McDonald, “Western Union’s Failed Reinvention”; Mass, “Mechanical and Organizational Innovation”; Davids and Verbong, “Intraorganizational Alignment and Innovation Processes.”
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monopoly hopeful in an industry that never materialised13. As for GE and De Beers,
the focus is on understanding the reverse process, which is how these companies rose
to industry leadership14. Finally, Wellington Chan tries to explain the divergent
performance over time of two pioneering Chinese department stores15. In the indirect
perspective, companies’ performance has been treated with equal rigor, except that
the authors’ central question is rooted in a broader historical cultural context. As such,
Pearson’s performance study is inscribed within the British entrepreneurship decline
in the late Victorian and Edwardian periods debate16. Chickering’s performance is
explored within the questioning of the role of artisan entrepreneurship and craftsmen
in the origins and early progress of the American industrial revolution17. Fairchild is
treated within the framework of Silicon Valley and semiconductor industry growth18.
Several studies with a similar logic engage in the exercise19. Last, another strand in
the literature deals with how companies reacted to change in their environment or
investigates the role of specific organisational features such as family ownership20.
Control of the environment, a firm’s ability to adapt to it and internal
organisational factors are the three main drivers of performance identified in business
history literature.
A first view on performance relies on companies controlling their environment to
ensure optimal results. These latter tried to build a dominant market position through
consolidation of their industry. American Steel and Wire as well as American
13 Rae, “The Electric Vehicle Company.” 14 Reich, “Lighting the Path to Profit”; Newbury, “Technology, Capital, and Consolidation.” 15 Chan, “Personal Styles, Cultural Values and Management.” 16 Bud-‐Frierman, Godley, and Wale, “Weetman Pearson in Mexico and the Emergence of a British Oil Major, 1901-‐1919.” 17 Kornblith, “The Craftsman as Industrialist.” 18 Berlin, “Robert Noyce and Fairchild Semiconductor, 1957-‐1968.” 19 Fauri, “The Role of Fiat in the Development of the Italian Car Industry in the 1950’s”; Mabry, “The Rise and Fall of Ace Records”; Klassen, “T. C. Power & Bro.”; McFadden, “Monopoly in Barbed Wire.” 20 Bakker, “The Making of a Music Multinational”; Petrik, “The House That Parcheesi Built”; French, “The Emergence of a US Multinational Enterprise”; Boyce, “The Development of the Cargo Fleet Iron Company, 1900-‐1914”; French, “Structure, Personality, and Business Strategy in the U.S. Tire Industry”; Burhop, “Pharmaceutical Research in Wilhelmine Germany.”
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Tobacco are prime examples of this approach21. Access to capital and privileged
relationships with financiers have proven to be crucial in that effort as in the cases of
Pearson and De Beers22. This competitive advantage was important enough as to
determine which company emerged as the major winner in the industry. Finally,
building a monopoly position and leveraging market power to establish and
consolidate a firm’s dominance has also been identified. GE engaged in
discriminatory agreements with suppliers, cartel arrangements to control prices and
legal formalisms to build an undisputed place in the electrical industry23.
A second view privileges the interaction between the organisation and its
environment. It states that adaptation is the key to performance. Finding the right fit
between the organisation and its environment is said to be the sure formula for
success or else, business failure is inevitable. Adaptation can go as deep as building,
changing and designing a company’s organisational structure in order to reflect the
nature of the company’s environment as well as embody the major factors identified
behind success in the marketplace. Polygram and Cargo Fleet Iron Company
consciously built a structure that fits their environment24. Adaptation also means
flexibility. It is this flexibility that De Beers and Pearson were well known for. Their
management effectively operated in their political, economic and social environment.
They understood the needs of all the chains of their business and manoeuvred to find
the right balance between their interests25.
Last but not least, a segment of the literature focuses on internal driven organisational
factors to explain organisational success or failure. Chandler suggests proactive first
movers that invested in production, distribution and management built a significant
competitive advantage and enduring industry leadership 26 . Chickering Pianos
21 McFadden, “Monopoly in Barbed Wire”; Porter, “Origins of the American Tobacco Company.” 22 Bud-‐Frierman, Godley, and Wale, “Weetman Pearson in Mexico and the Emergence of a British Oil Major, 1901-‐1919”; Newbury, “Technology, Capital, and Consolidation.” 23 Reich, “Lighting the Path to Profit.” 24 Bakker, “The Making of a Music Multinational”; Boyce, “The Development of the Cargo Fleet Iron Company, 1900-‐1914.” 25 Newbury, “Technology, Capital, and Consolidation”; Bud-‐Frierman, Godley, and Wale, “Weetman Pearson in Mexico and the Emergence of a British Oil Major, 1901-‐1919.” 26 CHANDLER, Scale and Scope. p. 604-‐605 ”
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followed this approach to turn from a craft business into a large modern industrial
enterprise27. Some authors see building a technological edge through innovation is
crucial for performance. Fairchild Semiconductor, Draper, American Tobacco, Fiat
and GE are captured from this perspective28. This technological edge can only be
achieved through envisioning and making the right strategic choices. The Electric
Vehicle Company failed in this point. It ended in bankruptcy whilst E.Merck
succeeded29. This latter maintained the relevance of an overpowered and under
resourced family company in the increasingly competitive environment of the
pharmaceutical industry during a period of major scientific discoveries that
transformed the business30. Without the right strategic vision, a company can engage
in Donald Sull’s ‘active inertia’31. Firestone Rubber and Seiberling responded to
major technological change and shift in their competitive environment by scaling up
the same investments that allowed it to succeed in the past. In doing so, they
accelerated their demise32. Anticipating the right strategic moves is not enough
though. Strategic vision requires the company’s ability to execute it. The
foresightedness of Western Union’s leadership did not save the once major US
telecommunications company from a brutal decline. Rather, the company’s inability
to put its strategy in place and its constraining ‘momentum’ sealed the company’s
fate33. Finally, financial decisions have also been highlighted as an important factor.
De Beers’s superior finance technique and Selchow&Righter’s prudent approach
enabled the first to reach global leadership. It ensured the enduring survival of the
second in its volatile market34.
b. Relevance, origin and definition of corporate culture 27 Kornblith, “The Craftsman as Industrialist.” 28 Berlin, “Robert Noyce and Fairchild Semiconductor, 1957-‐1968”; Mass, “Mechanical and Organizational Innovation”; Porter, “Origins of the American Tobacco Company”; Fauri, “The Role of Fiat in the Development of the Italian Car Industry in the 1950’s”; Reich, “Lighting the Path to Profit.” 29 Rae, “The Electric Vehicle Company.” 30 Burhop, “Pharmaceutical Research in Wilhelmine Germany.” 31 Sull, “The Dynamics of Standing Still.” 32 Ibid.; French, “Structure, Personality, and Business Strategy in the U.S. Tire Industry.” 33 McDonald, “Western Union’s Failed Reinvention.” 34 Newbury, “Technology, Capital, and Consolidation”; Petrik, “The House That Parcheesi Built.”
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Corporate culture entered the debate on organisational performance in
business history literature to bring a fresh perspective. Dulheim states that corporate
culture is no peripheral to performance. It affects productivity by shaping the use of
human resources35. Churella sees no other explanation than in corporate culture for
the dramatic change of fortunes of AlCo after a revolutionary technological change in
the industry 36. Similarly, Stranger attributes Larkin’s success to its unique corporate
culture37.
Corporate culture goes beyond the structural functional paradigm dominating
business history literature where technologies, markets and self-interested competition
drive understanding of organisational behaviour and performance and separate the
activities of the firm from culture. As such, they ignore this latter’s impact on
economic decisions38. Lipartito shows the limits of this paradigm in explaining
divergent organisational behaviour amongst competitors. He draws on corporate
culture to potentially overcome them. He states that ‘capabilities understood as
cultural values specific to individuals firms or entire national economies may be more
important than formal structures like multidivisional organization in explaining
performance’ and that culture can provide a novel appreciation of the relationship
between a firm and its environment39. A new approach is therefore suggested. Studies
of structure and strategy are to be complemented with attitudes and meanings to
account for organisational behaviour and performance40.
The concept of corporate culture emerged as a promising solution to the
structural competitive difficulties witnessed in the 1970’s by US companies. The
1970s were a turbulent period. Japan was rising as international economic
powerhouse. It was able to compete, challenge and even outperform the United States
in some industries in global markets. The intensification of business competition both
in the local and international environments initiated a reflexion on the importance of
competitive advantage building. Finally, within this highly competitive environment,
35 Dellheim, “Business in Time.” 36 Churella, “Corporate Culture and Marketing in the American Railway Locomotive Industry.” 37 Stanger, “From Factory to Family”; Stanger, “The Larkin Clubs of Ten.” 38 Dellheim, “The Creation of a Company Culture”; Lipartito, “Culture and the Practice of Business History.” 39 Lipartito, “Culture and the Practice of Business History.” 40 Dellheim, “The Creation of a Company Culture.”
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some US companies proved to be consistently outperforming their peers. These three
factors exposed by Heskett and Kotter (1992) led to the following question: How can
companies effectively strive and outperform within increasingly intensive competitive
local and international environments?41 Research on the highly performing Japanese
and US companies was undertaken. The main insight derived was the centrality of
corporate culture in generating performance42. Many viewed it then as superior to all
organisational factors (strategy, structure, management systems, financial analysis,
leadership…) that were mainly discussed so far in defining organisational
performance43 . Thirty years of research provide today more perspective on the
concept, away from the hype that may have characterised research at the beginning.
The definition of corporate culture varies depending on the view the author
positions himself within the literature. Martin (1987) singles out three central views
differentiated by their perception of the degree of consensus amongst members to a
culture within an organisation, the degree of consistency of the manifestations of
culture and the reaction to ambiguity44. For the integration view, the consensus is
organisational wide, the manifestations are consistent and ambiguity is limited. For
the differentiation view, the degree of consensus is limited with the existence of
subcultures within the organisation, the manifestations are inconsistent and ambiguity
is given greater importance. Finally, the ambiguity view perceives a lack of clarity
and irreconcilable inconsistencies in the manifestations of culture, embraces
ambiguity as a fact and rejects organisation wide consensus as an unrealistic ideal.
Our position lies within the integration view. The notion of alignment to a corporate
culture to a high degree of consistency and consensus within an organisation cannot
be separated from the concept itself. Otherwise, it may indicate an inexistence of
corporate culture itself. As such, it is then of little relevance to explore its relationship
with performance.
Within the Integration view, Schein’s (1985) definition of corporate culture is
dominant. The majority of authors within the corporate culture literature use Schein
41 Kotter, Corporate Culture and Performance, 2008. 42 Pascale and Athos, “The Art of Japanese Management”; Deal and Kennedy, Corporate Cultures. 43 Kotter, Corporate Culture and Performance, 2008. 44 Meyerson and Martin, “Cultural Change.”
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inspired definitions to conduct their research45. Schein defines corporate culture as
follow: ‘a pattern of basic assumptions – invented, discovered or developed by a
given group as it learns to cope with its problems of external adaptation and internal
integration – that has worked well enough to be considered valid and, therefore, to be
taught to new members as the correct way to perceive, think and feel in relation to
those problems’46. Schein (1985) distinguished three levels of corporate culture. At
the deepest level, there are the basic assumptions. These capture the view an
organisation holds often unconsciously of itself and of the nature of the environment,
human nature, human activity and relationships. At a more apparent level, there are
values. These latter are the solutions developed by an organisation that are apparent in
their organisational processes, their organisational ideology and philosophy. Finally,
the third level is about artefacts. These are the different expressions of a corporate
culture that are visible or explicited such as mission statements, behavioural norms,
rituals or any other type of manifestations47.
The concept of corporate culture can be better defined by adding Pettigrew’s
(1979) emphasis on meaning to Schein’s definition. Schein provides a dynamic view
of corporate culture. It is basically composed of the solutions developed to cope with
problems an organisation faces and that have proven to be effective a sufficient
number of times to become implicit unconscious basic assumptions. However, the
starting point of these problems seems to be assumed as to how to maximise profits.
Whilst this belief may be true for a significant number of organisations, it cannot be
generalised. Some of them may hold beliefs that are not centred on money but on
prestige, the nation, society, the environment or humanity amongst others that are of
45 See Schneider, Gunnarson, and Niles-‐Jolly, “Creating the Climate and Culture of Success”; Booth and Hamer, “Corporate Culture and Financial Performance”; Zheng, Yang, and McLean, “Linking Organizational Culture, Structure, Strategy, and Organizational Effectiveness”; Ulijn and Brown, “Innovation, Entrepreneurship and Culture, a Matter of Interaction between Technology, Progress and Economic Growth?”; Rashid, Sambasivan, and Johari, “The Influence of Corporate Culture and Organisational Commitment on Performance”; Wilson, “Understanding Organisational Culture and the Implications for Corporate Marketing”; Kotrba et al., “Do Consistent Corporate Cultures Have Better Business Performance?”; Salama, “Privatization and Culture Change”; Ogbonna and Harris, “Organizational Culture”; Fey and Denison, “Organizational Culture and Effectiveness.” 46 Schein, Organizational Culture and Leadership. 47 Ibid.
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greater importance to them. These latter may better correspond to the meaning they
provide to their lives. This can actually be a fundamental point of differentiation
between organisations. Pettigrew’s (1979) focus on meaning in his definition provides
us the tool to capture the diverse central beliefs and starting points of Schein’s
dynamic corporate culture definition48. Thus, we add a fourth level we would call
‘central belief’ to put it into perspective.
Brinkman’s (1999) introduction of a tangible dimension of corporate culture is
a necessary addition for a complete definition of the concept. Most authors in the
literature suggest that corporate culture is intangible. Brinkman (1999) supports a
definition corporate culture as a dynamic concept in the line of Schein (1985). He
acknowledges its intangible side but also argues that corporate culture has a tangible
dimension49. The solutions and insights developed within organisations to advance
toward their vision based on their central belief are added to the content of the
corporate culture. They are then transformed into tangible resources and processes.
For example, if an organisation realizes that the way to effectively advance toward
their vision is through innovation, then the company may allocate parts of its tangible
economical resources to establish this new insight within the organisation. It may
allocate resources to build a research and development department, hire researchers,
build partnerships with universities and take other forms of tangible actions instigated
by the new insight.
In conclusion, we define corporate culture as a dynamic concept that has both
intangible and tangible dimensions. This dynamic begins with a central belief around
which a vision is developed. The question arises then on how to advance toward that
vision. The fundamental insights and answers to this question provide the content of
the corporate culture. These insights are then established into organisational processes
and are expressed in a very specific clear way in how the organisation solves its
inherent internal integration and external adaptation problems. These latter become
norms and standards every organisational member has to align and behave according
to. They are then perpetuated through a set of mechanisms. The insights are also
established through the concrete allocation of resources that transform them into a
tangible organisational reality.
48 Pettigrew, “On Studying Organizational Cultures.” 49 Brinkman, “The Dynamics of Corporate Culture.”
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c. Creation, transmission and sustainability of corporate culture The case of Cargill shows the role the founder and early leaders in the creation
of a unique corporate culture. Since the founding of Cargill in 1865, the company
only had 5 chief executives in its 130 years history50. Three have been from the
founding and owning families. The two others did not have any linkage to the
dynasty. Still, two of the first leaders have played an enduring role in shaping
Cargill’s culture. These are John Sr and John Jr. The first came leadership at a critical
stage for the company. Cargill was encountering severe difficulties. It was on the
brink of bankruptcy. The determined resilient cautious personality of John Sr enabled
the company to survive this dangerous phase. It took several years of dealing with
creditors and using his already heightened financial skills to turn the organization
around. Bankruptcy was averted. John Sr was a fine manager of his people. He
brought innovative accounting practices and gained strong loyalties from his
employees. He put into place a corporate culture of consistency, caution and honesty.
It reflected his personal values. Whilst his extreme caution proved to be instrumental
in pulling the company through these difficult times, it became an impediment to
growth. His lack of opportunity orientation refrained Cargill from pursuing further
growth51. This however prepared the ground for John Jr, the next influential leader.
He built on these values and brought of his own to further develop and cement a
unique corporate culture. According to Broehl, John Macmillan, Jr, exerted a
tremendous influence on Cargill’s values from the early 1930s to his death in 1960.
His thoroughgoing entrepreneurship, his exciting leadership, and his willingness to
take on ‘close calls’ in trading battles were all legendary. Overall, he provided a
unique form of leadership for Cargill. John Jr had an incredible impact on Cargill52.
In studying corporate culture and performance, one should clearly differentiate
between a purposefully designed corporate culture as opposed to a spontaneous one.
Schein (1985) provides a general framework capturing how culture is formed within
an organisation based on group theory. As such, all organisations develop
spontaneously a corporate culture over time when a group comes together to achieve a
50 Broehl and Chandler, Cargill.p2 51 Ibid.p4 52 Ibid.p5
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common objective53. From this perspective, all organisations adopt the same approach
naturally and therefore a spontaneous corporate culture in itself cannot be a
competitive advantage that is leveraged to generate high sustainable performance. At
best, short-term performance can occur when a set of uncontrolled circumstances mix
to create an effective corporate culture. However it cannot be maintained over the
long-term as the process for its perpetuation is not established (Heskett and Kotter,
1992). Studying corporate culture and performance is studying an intentionally
developed one that is formed and perpetuated on purpose. The existence of such
culture can only be claimed when a set of mechanisms are systematically present
within an organisation.
Heskett and Kotter (1992), Schein (1985) and Chatman (2007) highlight these
mechanisms defining the existence of a strong culture in details54. The founder is
perceived as the main figure behind the creation of corporate culture. The founder
anchors the central belief, the insights, the underlying values and the business
philosophy that form the content of the corporate culture55. This latter is then
expressed into all organisational processes and perpetuated through a set of
mechanisms. Leaders that follow the founder in leading these companies were
selected based on their alignment to these values. As such, they are organisational role
models that embody the culture, coach and train employees on that basis, constantly
communicate them within the organisation and align their choices accordingly within
all the organisational processes. Leaders pay particular attention to the maintenance
of the culture across all functions. They establish measure and control systems as well
as reward and status allocation criteria on a basis that highlights the content of the
corporate culture. They need to remain committed to it at all times, including during
crises. Additionally, the decisions of recruitment, selection, promotion, retirement and
excommunication of employees are also based on it 56
The cases of Norton and Cadbury show the mechanisms of transmission and
maintenance of corporate culture in action. The founders of Norton shared a deep
commitment for direct control. The timely arrival of talented, interested sons assured 53 Schein, Organizational Culture and Leadership. 54 Kotter, Corporate Culture and Performance, 1992; p7 Schein, Organizational Culture and Leadership; Lyons, Chatman, and Joyce, “Innovation in Services.” 55 Schein, “The Role of the Founder in Creating Organizational Culture.” 56 Schein, Organizational Culture and Leadership; Kotter, Corporate Culture and Performance, 1992; Lyons, Chatman, and Joyce, “Innovation in Services.”
15
continuity and endurance of the value on which the company was originally built. The
tutelage of Charles Allen, Jeppson and Higgins institutionalized these founder values.
They firmly established the pattern of continued owner-operation. This latter has been
perceived as crucial to the preservation of Norton values. It gained fundamental
importance for following generations of management. In this logic, Jeppson and
Higgins recruited and trained descendants for top positions. However, this dynastic
approach did not entail the absence of any meritocratic basis. To the opposite, the
large family provided a rich pool from which to draw and nurture individuals with
great talents to become the future leaders of Norton57. Cheape notes that employment
of various sons, nephews, brothers in law, cousins, and other male offspring from four
of seven founders made nepotism obvious, but advancement at the top was not
reserved to any family or individual. Those with less talent were held to lower or
middle management jobs until they quit or retired; those with aptitude were moved
and promoted. Many applied but few were chosen58. Norton’s experience makes clear
that whilst the personalities of the founding members were important to the
company’s heritage, it is the institutionalisation and perpetuation of their values in the
company’s structure and strategy through the selection and training of its top people
that carried Norton’s culture59.
Cadbury offers equally an interesting example showing the mechanisms underlying
the existence of a corporate culture. The death of the founders of the company did not
mean the death of the values on which they built Cadbury. To the opposite, the next
generation of leaders drew on the values transmitted and built on them in continuity.
The fundamental objectives remained the same. However, the ways to achieve these
objectives were subject to much exploration paving the way for the industrial
experimentation initiatives that characterised Cadbury. The joint pursuit of business
efficiency and industrial reform was the motto of the second generation. This
generation of leaders embodied the culture, behaved consistently to the values they
stated and encouraged. They were role models for the younger generations. Particular
attention has been given to these latter. A person could get employed at Cadbury as
soon as at 14 years of age. She was subsequently trained and nurtured within this
culture. Promotion was almost exclusively from within. Those who best seized and 57 Cheape, Family Firm to Modern Multinational.p357 59 Cheape, Family Firm to Modern Multinational. P359
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acted in accordance with Cadbury values were given positions of responsibility. It
ensured both the perpetuation of Cadbury’s culture as well as an unshakable
commitment and loyalty to the company.
The sustainability of a corporate culture over the long term or its demise
depends mainly on the controlling owners of the organisation60. The controlling
owners ultimately hold the company’s power of decision. Corporate culture is lived
and transmitted through making decisions at all organisational levels according to the
values of the firm. It is therefore necessary that the controlling owners live up this
culture as well as have the decision power to carry it out. Financial independence is
thus critical. The second leader of Cargill understood the importance of this lesson.
He stepped up in times of severe financial difficulty. Cargill was at the mercy of
creditors. It was difficult to lead the company according to the values he was trying to
instil. Once the situation changed for the better, the resentment and fear of being
deprived of power were transmitted to the next generation. Throughout his leadership
and that of John Jr,, Cargill always chose to finance its projects on its own according
to its means rather than seek for external finance that would undermine the company’s
independence. This latter also ensured Cargill’s ability to move quickly and
decisively on its own information and analysis. It came to be one of its main strengths
in its highly competitive industry. The company adopted and maintained a policy of
small dividends with most profits funnelled back to invested capital. This policy
endured ever since through the following generations61. The Norton case reaches the
same conclusion. The company’s deep attachment to its values and unique corporate
culture resulted in a great emphasis to ensure the financial independence necessary to
carry it out. The way it did so was clearly summed up: ‘self finance assured
independence, and success and thrift assured self-finance’62. The company’s high
returns from its premium products generated ample cash flow. Moderate dividend
policy marked by a high percentage of reinvested earnings (32% between 1975-1979)
channelled these funds to reinvestment to sustain and generate further growth.
Norton’s strong financial position enabled it to contract short-term loans for
60 Broehl and Chandler, Cargill; Cheape and Chandler, Family Firm to Modern Multinational; Stanger, “From Factory to Family”; Stanger, “Failing at Retailing.” 61 Broehl and Chandler, Cargill. Trading the world’s grain. P789 62 Cheape and Chandler, Family Firm to Modern Multinational. P357
17
additional capital without needing to surrender any power to creditors63. Finally,
Cadbury further sustain this point. It is most obvious in the great reluctance of George
Cadbury to sell any shares. He feared stockholders would reject the social aims that
have been an integral part of Cadbury culture. Even when the company went public in
1912, the family retained controlling power. This independence provided Cadbury
leaders with the ability to finance their unorthodox industrial and social experiments64.
A note of caution has to be issued. It is critical the controlling owners be immersed
and aligned to the corporate culture to sustain it. Otherwise, these controlling owners
can be the primer destroyers of their inherited culture. The case of Larkin
demonstrates it. The son of the founder assumed leadership using his ownership
power. He was not trained within the company or nurtured within its culture. He
caused the departure of key leaders behind its previous success. They were the
representatives and models of Larkin culture. He quickly dismantled the company’s
culture and led it to bankruptcy65.
2) Corporate culture and performance
a. Strong, mission driven and adaptation cultures’ influence on performance
Three corporate cultures have been linked to organisational performance in the
literature: strong culture, mission driven culture and adaptation culture. In the
following, we explore the mechanisms through which they supposedly influence firm
performance. We equally assess their actual impact on performance as measured in
the literature.
A strong corporate culture is said to generate many benefits within the
organisation by solving internal integration problems that stimulate performance.
The influence of a strong corporate culture on employees is surely one of the
main mechanisms the literature insists upon. Accordingly, it is important to explore
this point in great details. The concept of fit between organisational culture and the
employee’s values is central in this assessment. Posner finds clearly articulated
organizational values make a significant difference in the lives of employees, as well
as in their organization’s performance. His findings reveal that efforts to clarify and
merge personal and corporate values can have a significant payoff for both managers 63 Ibid. 64 Dellheim, “The Creation of a Company Culture.”p352 65 Stanger, “From Factory to Family.”
18
and their organizations. The strength of the congruence between values of an
organization and its employees affects quality of managerial commitment, direction of
energy and effort willingness on behalf of the organization. Strong shared values
provide individuals with a sense of success and fulfilment, a healthy assessment of the
values and ethics of their colleagues, subordinates, and managers as well as a greater
regard for organizational objectives. More specifically, managers who felt that their
values were particularly compatible with those of the organization were significantly
more confident they would remain with their current employer for the next five years.
They were more likely to work long hours for their employer66. Similarly, O’Reilly
(1991) finds that person-organization fit predicts job satisfaction and organizational
commitment a year after fit was measured and actual employee turnover after two
years67. Person-organization fit is a significant predictor of normative commitment,
job satisfaction, and intentions to leave, independently of age, gender, and tenure68.
Shared values matter to organizational goals. These latter were more important for
employees who felt their values were aligned with the organization. They highly
ranked the goals of effectiveness, productivity, reputation, morale, profit
maximization and stability. Hence, clarity, consensus, and intensity about vision and
values are presented as producing significant results for the organization. Last, shared
values are associated with concern for stakeholders. Managers’ alignment to the
organisation’s values affects their orientation, attention and concern for various
stakeholders in the activities of the corporation69.
Firms with a strong culture attract, motivate and satisfy employees with similar
beliefs as well as generate their alignment without interventionism. Van den Steen
(2005) finds that the firm with a strong culture attracts precisely those employees who
take action according to its manager’s beliefs. The sorting effect systematically aligns
the beliefs of employees as well as their actions. It directly eliminates one major cost:
employee demotivation due to difference with manager’s vision. While the manager’s
opinion has an important influence on the decisions of the employee, it is also a key
determinant for the employee’s effort and utility, that is, his motivation and
satisfaction. A stronger belief of the manager motivates the employee and increases
66 Posner, Kouzes, and Schmidt, “Shared Values Make a Difference.” 67 O’Reilly, Chatman, and Caldwell, “People and Organizational Culture.” 68 Ibid. 69 Posner, Kouzes, and Schmidt, “Shared Values Make a Difference.”
19
his utility when the employee’s belief acts according to the manager’s beliefs.
Employees with a strong opinion about the correct path of action are very motivated
under managers who agree with them. They are however demotivated under
managers with a different opinion. Employees get higher utility working for firms that
espouse a vision they agree with as in the case of strong culture companies.
Consequently, they get higher productivity from employees who agree with their
vision. Delegation is more compelling. It requires no efforts of supervision within a
strong culture. In his latter, employees’ actions are influenced by their managers’
beliefs. Since they are unified, they become more aligned. When employees choose
their projects without intervention from the top, they choose what management would
want them to choose. Ultimately, employees are aligned without any explicit
coordination mechanism resulting in more delegation70. Besides greater delegation, a
strong culture leads to less monitoring, higher utility (or satisfaction), higher
execution effort (or motivation), faster coordination, less influence activities, and
more communication. The fundamental intuition behind these effects is in in agency
theory. Shared beliefs and values reduce differences in objectives. It intrinsically
affects every type of agency issue. The time to coordination increases in the level of
belief heterogeneity. The homogeneity in a strong culture makes coordination thus
faster and easier. Furthermore, an employee is more likely to hold information if he
differs with manager’s beliefs and values. Therefore, strong culture leads to higher
exchange of information71.
A strong culture impacts performance by influencing strategy execution and
customer satisfaction. Chatman (2003) builds her argument on the effect strong
cultures create on employees as detailed above. It pushes it further by linking it to an
organisation’s strategic level. This link is identified as of crucial importance to an
organisation’s success or failure. The nature and content of strategy formulation, no
matter how competent and appropriate, can remain but a strateg. The analyses of
different companies showed it is not strategy formulation that is of outmost
importance but an organisation’s ability to execute it effectively. This depends on
how on how clearly employees understand the culture and how intensely they feel
about it. A strong culture plays this bonding role between strategy formulation and
70 Steen, “Organizational Beliefs and Managerial Vision.” 71 Van den Steen, “Culture Clash.”
20
strategy execution. First, a strong culture energizes employees. It appeals to their
higher ideals and values. It rallies them around a set of meaningful, unified goals.
These ideals excite employee commitment and effort to achieve them because they
are inherently engaging and fill voids in identity and meaning. Second, strong
cultures shape and coordinate employees’ behaviour in a very effective and efficient
way. Company’s values and norms focus employees’ attention on organizational
priorities that then guide their behaviour and decision-making at their own level. It
turns complex strategic organisational objectives into manageable clear goals
employees relate to and are eager to reach72. The efficiency with which strong culture
organisations fulfil this function creates an important competitive advantage.
Chatman clearly expresses it in the following: ‘ They do so without impinging, as
formal control systems do, on the autonomy necessary for excellent performance
under changing conditions. The irony of leadership through culture is that the less
formal direction you give employees about how to execute strategy, the more
ownership they take over their actions and the better they perform. Strong norms
increase members’ clarity about priorities and expectations as well as their bonds with
one another. Unlike formal rules, policies, and procedures, culture empowers
employees to think and act on their own in pursuit of strategic objectives, increasing
their commitment to those goals. Organizational culture can be a powerful force that
clarifies what’s important and coordinates members’ efforts without the costs and
inefficiencies of close supervision.’73
The superior coordination ability in strong cultures is related to customer satisfaction
according to Denison. The ability to coordinate service delivery in a consistent way is
a critically important aspect of customer satisfaction. Strong cultures ensure it. They
are related to customer fidelity and repeated purchases. They ensure continuous
streams of revenues over the long term. As such, they impact organisational
performance74. Last among strong culture beneifts, Kilman suggests it is central to the
success for both innovation and corporate mergers75.
72 Chatman, “Leading by Leveraging Culture.” 73 Ibid. 74 Gillespie et al., “Linking Organizational Culture and Customer Satisfaction.” 75 Sørensen, “The Strength of Corporate Culture and the Reliability of Firm Performance.”
21
A strong corporate culture can equally have disadvantages that can offset the
benefits mentioned above. The alignment, consistency, homogeneity and uniformity
a strong culture generates are seen as critical advantages. They facilitate important
organizational processes and performance. However, another strand of the literature
points out to limits and impediments they also create. The main limit is strong
culture’s inability to deal with change in the environment. Sorensen (2002) asserts
strong cultures are appropriate in stable environments. They excel in exploiting
established competencies. However, in changing environments, these strengths
become weaknesses. The discovery of new competencies becomes critical in volatile
environmental conditions. Exploration rather than exploitation is the key. Strong
cultures are ill suited in that exercise, They lack internal diversity and heterogeneity
of perspectives. Adaptation is thus more difficult. Similarly, Nemeth and Staw (1989)
single out a common assumption in strong cultures: truth is correlated with consensus.
Thus, consensus is maintained even in changing circumstances. With this uniformity,
strong culture organisations are likely to fail to adjust to shifts in the environment.
Moreover, pressures for uniformity equally cause rush to judgment and an inability to
make careful, deliberate and divergent decisions76.
Strong culture is detrimental to innovation. The agreement to conform to established
behavioral patterns is a psychological tendency in strong cultures. Decrease in
innovation and detection of error are noticed. The majority influence narrows the
alternatives for a given situation. It reduces the quality of decisions made. Thus, it
stifles innovation. Organizational members’ insistence over established courses of
action reduce individual initiative to identify and correct organizational errors77. Van
den Steen argues difference in beliefs rather than their homogeneity makes people
collect more information to convince the other party. In a strong culture, the inherent
agreement between parties does not provide any incentive. Hence, there is
organizational loss when parties constantly agree. In a similar logic, diversity of
beliefs is linked to more experimentation. It is defined as ‘trying different things and
learning about the payoffs of different actions’. When beliefs are heterogeneous, more
courses of action are experimented. They may result in innovations or in the
76 Staw and Nemeth, “THE TRADEOFF S OF SOCIAL CONTROL AND INNOVATION IN GROUPS AND ORGANIZATIONS.” 77 Ibid.
22
discovery of better courses of action than those deeply rooted in a strong culture78.
Chatman (2007) challenges these arguments. Strong culture limits innovation only
when it is not in the content of the strong culture. Otherwise, it is the opposite
dynamic. A strong culture characterized by innovation can be an important stimulator
of innovation within an organization79. It turns divergent thinking a value shared by
all members instead of establishing uniformity80.
The second type of culture linked to organisational performance in
organisational theory and business history literature is the mission driven culture.
Corporate culture starts from a belief on which a vision is built. Within the corporate
world, the natural widespread belief is profit. All organisational efforts are
exclusively directed towards that goal. A mission driven culture is different. Its
central belief is not profits or self-interested competition. This difference is said to
create a unique culture that relates better to performance. We explore how.
Collins (2004) attributes distinguished superior performance of elite companies or
‘visionary companies’ to their mission driven culture. These are organisation
ideologically rather than profit driven. Their beliefs are apparent in their statements
and embraced in their very perception of profits. Profit is allegedly like oxygen. It is
necessary for life but not the point of it. These basic beliefs outline the purpose and
ideology of the company. They are forces shaping everything the organisation does.
The organisation’s core ideology waves the fabric of the firm. It is translated in every
organisational function from the design of goals, jobs, strategies, tactics,
compensation systems and cultural practices to more artificial edifices such as
building layouts. It is the essence driving the company with messages consistent and
reinforcing. Every organisational member understands it and behaves accordingly81.
Kotter (1992) further supports the idea. Companies with a managerial culture giving
great importance to all organisational constituencies (customers, employees,
stockholders) perform better82. When managers care about all constituencies, they
perform well financially. In a competitive industry, it can only be achieved by taking
care of customers. In a competitive labour market, it means taking care of those
78 Van den Steen, “Culture Clash.” 79 Lyons, Chatman, and Joyce, “Innovation in Services.” 80 Ibid. 81 Collins and Porras, Built to Last. P40
23
whose who serve customers: employees83. It is difficult to assert every constituency
hold the same importance. However, no group has been ignored. Fairness to all
constituencies has been the underlying principle84. On the opposite, a culture lacking
care for the three constituencies generate a limiting dynamic. It refrains a company’s
ability to effectively adapt. It negatively impacts performance. Finally, Denison
(1995) finds combination of economic and non-economic objectives is important for
organisational effectiveness. It provides purpose and direction to its members. The
organisations studied showed compelling evidence of the close relationship between
the overall purpose and direction of the firm, and the actual meaning held by each
employee. Crises occurred when the basic mission was questioned or altered. The loss
of meaning and direction coincided with significant losses in momentum and
effectiveness85.
Specific organisational capabilities develop as a result of mission driven
culture. It creates unique competitive advantages that stimulate performance.
Vrdenburg (1998) studied the impact of a mission driven culture built on care for the
environment. Companies placing the environment at the heart of their culture
developed proactive environmental strategies and unique competitive capabilities in
their industry. These capabilities include superior stakeholder integration, a capacity
for higher order learning and continuous innovation. It differentiated competitors
without proactive environmental strategies. These unique organisational capabilities
of environment driven cultures account from more than 50 percent of the firm’s
variance in competitive benefits (process, product, operational innovations, cost
reductions, improved corporate reputations and better employee moral) and directly
influence performance86. A mission driven culture shifts the focus from the individual
to the collective. Chatman (1998) shows how collectivistic cultures stimulate the
emergence of benefits of demographic diversity favourable to performance 87 .
Collectivistic values positively interacted with demographic composition to influence
83 Kotter, Corporate Culture and Performance, 1992.p46 84 Ibid. p52 85 Denison and Mishra, “Toward a Theory of Organizational Culture and Effectiveness.” 86 Sharma and Vredenburg, “Proactive Corporate Environmental Strategy and the Development of Competitively Valuable Organizational Capabilities.” 87 Chatman et al., “Being Different yet Feeling Similar.”
24
social interaction, conflict, productivity and creativity within the firm. Individualistic
values did not. A collectivistic culture makes organisational membership salient and
encourages people to perceive other members as having the organisation’s interests
and goals in common. The opposite happens individualistic cultures. Distinctiveness
between members is the driver. The social categorisation process is fundamentally
different. In collectivistic cultures, demographic as a social categorisation loses
emphasis towards a categorisation defined by the values of the organisation. As such,
the demographic dimension that can be a barrier in the interaction and harmony
between organisational members is bridged. It facilitates cooperation and
coordination. Expectedly, individualistic cultures generated more conflict. Difference
between individual goals and values lead to tensions and conflict. This was not the
case in collectivistic cultures. Furthermore, collectivistic cultures perceived conflict as
a positive experience increasing learning and improving chances of reaching
organisational outcomes. In individualistic cultures, they were perceived as
detrimental. Last but not least, collectivistic cultures stimulate greater creativity than
individualistic cultures. Trust in collectivistic cultures unlocks diversity of ideas
characteristic of divergent demographic backgrounds, Productivity in collectivistic
cultures is thus higher than in individual cultures88.
The cases of Cadbury and Cargill are prime examples in business history of
the way mission driven culture can relate to performance. Delheim (1987) seized
Cadbury’s mission driven culture. The Cadbury family was deeply religious. They
were highly active Quakers. The Quaker philosophy had central place in their
perception of business and the objectives it served. This approach differed from
mainstream business. It resulted in a unique unorthodox vision of business and
organisational processes. The primary objective was not profit driven. Rather, it has
been stated as the advancement of the social, moral and physical well-being of all
connected with the company. The Quaker philosophy was behind the very
assumptions upon which crucial business practices have been formed. It is clear in
Cadbury’s labour practices. George Cadbury deeply believed all men are equal to God
and that man was saved to serve: ‘The real joy rest and joy in life is to have an
assurance that we are felling up the place, which God has appointed us’. This deeply
88 Ibid.
25
held belief initiated one of the most progressive labour policies of the era. Employee
welfare was central. The company committed to ensure employment for its workforce
even in times of hardships. It enlarged its recruitment to underprivileged spheres to
offer an opportunity for a better life. In turn, these policies resulted in greater
productivity and harmony. During times of labour manifestations and strikes in
Britain, Cadbury was not affected. The demands of strikers were already met and
exceeded in Cadbury. The mission driven culture also translated in their value
proposition, the selection of product categories and the quality they pursued. Cocoa
and chocolate were seen as having social benefits. They were chosen to be the main
product categories for this reason. The company’s strategy was ‘to provide high
quality products at good value to the consumer’89. Cadburys’ policy to only use the
very best raw materials compelled the elevation of the industry standards, to the great
disappointment of its competitors. It reduced their profit margins. Finally, the mission
driven culture brought a long-term approach to building the company. An employee
recalls that ‘George and Richard Cadbury took the long-term view in running their
business. They weren’t looking for immediate profit but were building for the future
when their children would reap the advantage’. In Cadbury’s case, the mission driven
culture proved to crucial to the high performance they registered90. Cargill’s situation
is no different. Its underlying belief is captured upon accession of her fourth leader.
Broehl states ‘there was no doubt that MacMillan was a visionary who wanted
passionately to be the best in improving the living standards for the five billion people
of the world.’ Right from the start of his leadership, he was very strict on placing
critical importance on company ethics at a time where the industry was marked by a
slippage in morality.91
Culture of adaptation is the third type of culture associated with performance.
The Electromotive Company in the American railway locomotive industry perfectly
captures this culture and the way it influences performance. Churella;s (1995) study
of American railway locomotive industry explains divergent performance between the
two main competitors by culture of adaptation. The American Locomotive Company
dominated stream locomotive industry. It had a culture suited for it. However, it was
89 Dellheim, “The Creation of a Company Culture.” 90 Ibid. 91 Broehl, Cargill, 1998.p252
26
ill suited for the technological shift to diesel locomotives. This ‘maladaptive culture’
cost American Locomotive Company its well-established dominant position to the
detriment of its less resourceful but culturally better-equipped challenger, the
Electromotive Company92 . The American Locomotive Company had no future
orientation. It solely focused on the existent technology. It failed to see the radical
technological change forthcoming. Its leaders perceived innovation and technological
advance as a matter of incremental innovations driven by the continuous
improvements on current technology rather than in terms of major technological
shifts. They could not comprehend how the widespread dominant steam technology
could become obsolete. Thus, they strengthened organisational processes and
capabilities for steam technology only. Manufacturing was based on batch production.
Marketing relied on loyalty. They yielded significant success in steam locomotives.
At the same time, leaders perceived the nascent diesel locomotives technology as a
fad. Consequently, they did not commit resources to develop it. Instead, they provided
abnormally high dividends and invested in their existent abilities. They did not adapt
their capabilities to suit the different model diesel technology required. Batch
production and client loyalty were of limited relevance in this optic. At the same time,
the Electromotive Company was new organisation in the industry. It had very limited
resources compared to the American Locomotive Company and but a tiny market
share. However, its leaders quickly recognised the major shift diesel technology was
to create and instantly committed all their resources to this new technological
paradigm. Its founders built a culture of experimentation and innovation centred on
the development of diesel technology. It developed unique organisational capabilities
perfectly adapted to the requirements of diesel technology. It created new distribution
techniques and invested heavily in assisting, teaching and coaching its users to diffuse
it. Consequently, the company held a privileged position when the technological shift
towards diesel technology occurred. The under resourced Electromotive Company
drove once dominant American Locomotive Company to bankruptcy in a few years.
The company’s ability to anticipate and adapt to its environment has been therefore
credited for both the demise of a dominant player and the emergence of a new
92 Churella, “Corporate Culture and Marketing in the American Railway Locomotive Industry.”
27
leader93.
Now that the three cultures relating to performance have been identified and the
ways they influence performance have been explored, we focus on each culture type’s
link to financial performance in both organisational theory and business history.
b. Culture content and performance
A strong corporate culture ensures the reliability of performance within a
stable environment. It has a relationship with short-term performance. However, it
does not guarantee long-term performance. Sorensen (2002) found companies with a
strong corporate culture have a more reliable (less variable) and a superior
performance in relatively stable environments than others. The consensus surrounding
organizational goals and values characterizing strong culture enhance their ability to
exploit established competencies. However, this reliability and superiority in
performance is only enduring as long as the environment is stable. In more volatile
environments, the benefits derived from strong culture attenuate and disappear
because of the difficulty strong culture firms encounter to explore and discover new
competencies better suiting their environmental conditions. Firms with strong cultures
thus incur therefore a trade off with respect to their adaptability in the face of
environmental change94. Di Tomaso (1992) finds the extent to which individuals agree
in their view of the total culture is predictive of short-term performance. More
specifically, strong culture measured as consistency of survey responses within
organizations, is related to organizational performance in ensuing years 95 . It
strengthens the same conclusion reached by Denison (1990)96. However, Kotter
(1992) questions these findings. In his study, strong culture has but a modest positive
relationship with performance. The statement strong culture creates excellent
performance is hardly verifiable in a reliable way and cannot be asserted. A strong
culture can have the opposite effect when its content contains dysfunctional elements.
It can lead even thoughtful reasonable people in the wrong direction. At best, a strong
93 Ibid. 94 Sørensen, “The Strength of Corporate Culture and the Reliability of Firm Performance.” 95 Gordon and DiTomaso, “Predicting Corporate Performance from Organizational Culture*.” 96 Denison, Corporate Culture and Organizational Effectiveness.
28
culture has a modest relationship to short term performance97.
The cases of Larkin, Nuffield and Norton in business history support the link
presented above between strong cultures and performance. Stranger (2000) suggests
Larkin Company’s initial positive performance was a result of its strong culture. It
aligned management, employees and customers. It solved internal problems and
smoothed operations unifying major company stakeholders around clear single
organisational objectives and common interests. This strong culture has been
characteristic of the first generation under the leadership of the founder John Larkin.
The move to the second generation changed the company’s fortunes. The death of the
founder was the beginning of the weakening of the Larkin culture. The leadership
assumed by his son led to rapid degradation of the strong culture. The unity that has
been holding management, employees and customers gave way to divergence and
open conflict. The management that has been instrumental in developing its fruitful
mail ordering business and that embodied Larkin culture quickly distanced itself from
the company they built from scratch following a series of conflicts with the new
Larkin leader. This weakening and destruction of the strong culture consequently led
company to bankruptcy in a very short time98. Nuffield experienced a similar scenario.
Morris founded the company. He was the first to move towards high volume
production in British automobile industry, inspired by the Ford model. He built a
strong engineering team and assembled a handpicked talented team of managers
around a clear vision. The strong culture he built quickly proved fruitful. Nuffield
occupied a prime place in British automobile industry. His retirement however was a
turning point. As in the case of Larkin, the void the founder’s departure left led to the
weakening of culture and to a downward spiral. The once cohesive company guided
by clear vision soon turned into internal division, competition and uncertainty as to
managers’ role. Furthermore, the maintenance of completely independent
subsidiaries, the sacking of key figures, the inconsistency of the values preached with
the empowerment yet punishment of management for taking initiative turned a strong
culture into chaos. Confusion about the company’s direction, lack of communication
and planning rapidly turned a prosperous company into one in difficulty, forced to
97 Kotter, Corporate Culture and Performance, 1992.p22-‐23 98 Stanger, “From Factory to Family”; Stanger, “Failing at Retailing.”
29
merge with a bitter rival to survive99. Last, Norton equally showcases the same
dynamic. The founding generation deeply rooted a strong culture by which they
conducted business and stood firmly. By World War I, they financed, built and
maintained control of a large, integrated, industrial company. It was the world’s
largest manufacturer of grinding wheels and other bonded abrasives. They had the
clairvoyance to nurture a second generation able to uphold the strong culture and
perpetuate it in business operations. Unlike Larkin, the second generation proved able
and further cemented the company’s success.100 The shift to the third generation
proved to be the pitfall instigating culture weakening. The expansion of the company
and the insistence of the subsequent generation to maintain direct control proved to be
a deadly combination. This generation did not nurture and develop talents to hold
leadership positions across the growing and complex organisation. They were
compelled to hire external managers foreign to the unique Norton culture into
important managerial positions. The strong culture diluted. Scores of acquisitions
granted complete autonomy accentuated this tendency101. Poor performance and
important financial difficulties followed. In the three cases, strong culture linked to
performance but only in a short to medium term horizon, in line with organisational
theory findings.
Mission driven culture also generates short to medium term performance.
Denison (1995) finds in mission driven culture a strong predictor of performance. The
profitability criteria are best captured by the mission trait of a culture. His research
however is only applicable for the next few following years without providing
insights as to the long-term horizon102. Delheim (1987)’s study of Cadbury shows the
impact of its mission driven culture on performance. The company went from a
failing company to the 24th largest manufacturing company from 1879 to 1931. It is
even more impressive as it prospered within the context of broad national industrial
British decline103. It is however not sufficient to claim mission driven culture
generates and sustains long term performance. Similarly, Collins (2004) used
99 Church, “Deconstructing Nuffield.” 100 Cheape and Chandler, Family Firm to Modern Multinational.p352 101 Ibid.p353 102 Denison and Mishra, “Toward a Theory of Organizational Culture and Effectiveness.” 103 Dellheim, “The Creation of a Company Culture.”
30
companies’ market performance in assessing the relationship between a driven
mission culture and performance. Mission driven culture companies had stock-return
performance of fifteen times the general market. He claims they stood the test of time.
We do not consider the stock-return performance as an intrinsic measure that truly
captures performance. For this reason, mission driven culture being predictive of
long-term performance remains but an unproved statement104.
Culture of adaptation does not better than strong and mission driven cultures.
It is also limited to short and medium term performance. Corporate cultures with a
good environment fits can only explain short to medium term performance at best.
Highly performing companies reported better culture-environment fit than their
counterparts 105 . However, a change in the environment can hurt long-term
performance. Most of lower performers had a significantly better culture/environment
at an earlier time and registered excellent performance. However, they could not
maintain it106 . Thus, culture of adaptation can only account for short to medium
horizon performance. The case of the Electromotive Company does not contradict this
conclusion. It started to lose ground the same way it gained from the industry’s
previous leader. The Electromotive Company developed the organisational
capabilities necessary to navigate the diesel revolution. However, it did nothing but
maintain and strengthen these existent capabilities. It was not preparing for the next
environment shift. The entry of GE into its market with an innovative product built on
a new technology far superior to existent products quickly eroded its market share.107.
Thus, adaptation culture does not ensure long-term performance.
The case of Cargill is the exception. It is the only case that registered sustained
long-term performance. However, given the nature of its industry, no lessons can be
transposed to capital-intensive technology industries. Since John Jr’s turnaround of
the company in early 1920s, the company has been in an upward spiral consistently
maintained through the following generations. It combined the three types of culture
at once. It had a strong culture, a mission driven one as well as a culture of adaptation.
104 Collins and Porras, Built to Last.p40 105 Kotter, Corporate Culture and Performance, 1992.p37 106 Ibid.p40 107 Churella, “Corporate Culture and Marketing in the American Railway Locomotive Industry.”
31
It is unclear though if the combination of these different attributes is the reason
behind its continued success. Cargill moved from a Midwestern company in the early
1920s to a respected major national force by the 1940s108. Under the leadership of
John Jr,, it became the world leader of grain trade by 1961, respected, envied and
even fear by whose who had to deal with it109. By the time of transition from John Jr
to the next leader of Cargill, it was widely recognised by the public as the number one
in the industry110. It continued its upward performance curve with steady growth in
sales, net worth and profits between 1977 and 1991. It maintained its relentless pace
and advantage over its traditional rivals in the grained trade and fended off new
challengers111. Cargill remained top of its industry throughout decades. It had superior
abilities in almost any trading situation112. Thus, Cargill surely represent the best
template in business history literature to derive understanding of the culture type that
best relate to long-term performance. However, the nature of the industry plays an
important role. No such case exists in corporate culture literature for capital-intensive
technologically driven industries. The quest for seizing the corporate culture behind
long-term performance in these specific industries remains wide open in the literature.
We have seen so far that the three types of culture could only account for short
to medium term performance at best. They fail to explain long-term performance. A
major common issue is emerging. It could enlighten the reason why these cultures fall
short in that exercise. Independently from the type of culture, their long-term
performance seems to be hindered by a common factor: technological advance and
change. The rise of the Electromotive Company was due to its early commitment to
the new technological shift from steam towards diesel whilst its decline was equally
led by the development of GE of a novel technology replacing the existent one113.
Larkin’s rapid demise coincided with the industry’s shift from mail ordering business
to a new business paradigm. It was enable to embrace this major change114. Norton’s
inability to maintain its technological edge and develop innovative premium high 108 Broehl, Cargill : Trading the world's grain.p854 109 Ibid.p867 110 Broehl, Cargill, Going global 1998.p367 111 Broehl, Cargill, Trading the worlds' grain 1992. p876 112 Broehl, Cargill, From commodities to customers 2008. P9 113 Churella, “Corporate Culture and Marketing in the American Railway Locomotive Industry.” 114 Stanger, “Failing at Retailing”; Stanger, “From Factory to Family.”
32
margin products behind its prior success was a major reason for its subsequent
difficulties115. Thus, the major shortage facing all three types of culture is their
inability to drive technological progress, create technological revolutions or at least
recognise, embrace and commit to major technological shifts at their early stages
when the short window of opportunity is still open. Culture of radical innovation has
the potential to overcome this fundamental limit and unlock the puzzle of long-term
performance in capital-intensive technology industries.
c. Culture of radical innovation
Culture of radical innovation is defined as a culture that fosters relentless
innovation that aims to ensure a firm is constantly at the leading edge of innovation.
According to Tellis (2009), a radical innovation has transformational effects. It
merges markets, create new ones and destroy old ones. It differs from incremental
innovations that are the result of improvements of existing technologies and products.
Rather, a radical innovation can take the form of completely new product categories
enabled by major advances or complete shifts in underlying technology. It makes
what was impossible yesterday possible today. Radical innovations can propel small
outsiders in position of industry leadership and bring down dominant players that fail
to launch or embrace these radical innovations. Firms at the leading edge of radical
innovation tend to dominate world markets. Radical innovations have thus the power
to drive market growth, a company’s success and a nation’s economic growth. These
radical innovations are however results and the fructification of a whole process.
Amongst all factors, corporate culture is clearly identified as the most important
driver behind the generation of radical innovations. Thus, a culture of radical
innovation is basically a corporate culture geared towards the continuous generation
of radical innovations116.
A culture of radical innovation consists of three attitudes. The attitudes are
future orientation, the willingness to cannibalise assets and tolerance of risk. The
future orientation attitude means the company is constantly looking ahead and
focusing on the next major technology. A future orientation forces a firm to realize
the limitations of current technology no matter how advanced it is and orients its
115 Cheape and Chandler, Family Firm to Modern Multinational. P354 116 Tellis, Prabhu, and Chandy, “Radical Innovation across Nations.”
33
attention towards the emergence of the next generation of technology that may
become dominant in the future. It shifts the focus from the temptation to channel its
efforts into small improvements and resolution of micro problems of current
technology towards the development of an entirely new and superior technology that
would make the existent technology obsolete in the future. Future orientation has to
be backed by resources allocation. Willingness to cannibalize assets is crucial. In
order to develop the next major technology, the company may have to sacrifice the
stream of profits from current products and services. Finally, trading a current, sure
stream of profits for a future, uncertain stream of profits is perceived as risk.
Tolerance of risk is necessary117.
A culture of radical innovation is not only a set of attitudes but also requires
the concrete allocation of tangible resources within the organisation. Allocation of
resources towards the activities that organisationally and functionally establish and
sustain the culture of radical innovation is of major importance. These activities
typically are research and development efforts. A culture of radical innovation places
great emphasis in developing major innovations from within its laboratories. They are
more prone to commit significant stream of cash flows towards research activities
than the average company. Eberhart (2004) singles out the effect a commitment to
research and development has on performance. He finds that a significant increase of
research and development expenditures generated abnormal positive long-term
operating and stock performance118. These increases were beneficial investments
despite the slowness of the market to recognise it. It lead to abnormally high
profitability. This impact was even more marked in high technology companies.
Research and development allocation of resources is a managerial decision. Thus, it
intrinsically relates to corporate culture. Similarly, Leonard (1971) found research
intensity as measured by company research and development spending, relates to
growth rates of sales, assets, net incomes and other variables through the stimulation
of real output rate of growth. This relationship appears two years following the
commitment of funds and gains influence as new products developed occupy a rising
117 Ibid. 118 Eberhart, Maxwell, and Siddique, “An Examination of Long-‐Term Abnormal Stock Returns and Operating Performance Following R&D Increases.”
34
proportion of sales119. Last, Tellis (2009) finds that research and developments
activities, measured as the percentage of R&D employees to all employees have a
significant positive effect on radical innovation. It captures the degree of a firm’s
commitment to innovation, especially in technology-driven markets. Investment in
skilled labour is a necessity in such cutlure120.
A culture of radical innovation is a strong driver of performance in
organisational theory. However, the horizon of the studies conducted only refers to
short-term performance. The commercialization of radical innovations translates into
companies’ financial performance. It significantly increases the market to book value.
Culture of radical innovation is a strong predictor of financial performance121.
However, the limited time scope of this study does not allow for the assessment of the
link between culture of radical innovation and long-term performance. Doubt
concerning this relationship is even more reinforced given the difficulty of
maintaining a culture of radical innovation through time. Success in one generation of
technology can breed attitudes of complacency and invulnerability with a focus on
managing current products and protecting current profits. These latter can reduce firm
commitment radical innovations. Maintaining a culture of relentless innovation is
difficult. Thus, absence of studies in organizational theory and business history
exploring specifically the link between culture of radical innovation and long-term
performance makes it difficult to lean in a way or another.
3) Research question, methodology and sources
a. Research question
We have established that corporate culture plays an important role in
organisational performance. We identified the three main cultures associated with
performance. We explored the ways they influenced organisational results, We found
they only relate to short to medium term performance in capital intensive
technologically driven industries. They fail to explain long-term performance. The
limit shared by these cultures is their vulnerability to technological advance and
change. Culture of radical innovation has the potential to overcome this limit. It is
orientated towards creating technological revolutions or at least embrace them at their 119 Leonard, “Research and Development in Industrial Growth.” 120 Tellis, Prabhu, and Chandy, “Radical Innovation across Nations.” 121 Ibid.
35
very early stages through heavy allocation of resources and an unshakable
commitment to the future. Existent studies on the link between culture of radical
innovation and performance only capture the short-term horizon. It is unclear whether
culture of radical innovation really overcomes the limit of technological change and
offer plausible explanation concerning drivers of long-term performance. It is this gap
in the literature that this research seeks to address. Thus, our research question is:
Is culture of radical innovation linked to long-term firm performance in capital-
intensive industries?
b. Methodology
We used a comparative methodology to explore our research question. Our
approach has been to identify two companies in a capital-intensive technological
driven industry: one with a culture of radical innovation and one without. Both
companies needed to share the same environment to fix this variable and isolate the
culture of radical innovation factor. We then explored both companies’ cultures in
details and followed their performance over a long-term horizon. Based on this
analysis, we then concluded within the scope of this methodology and the limits of
this comparison whether there is a link between culture of radical innovation and
long-term performance.
Our first step was to select a capital-intensive technologically driven industry
where Switzerland was a pioneer or at least a competitive global player. This industry
had to meet the conditions presented in our research design. The watchmaking and
electrical industries emerged. Feasibility issues narrowed down our selection.
Archives of the watchmaking industry were not accessible. Those of the electrical
industry were open for consultation. Two major companies subsequently were
identified as important players in the Swiss electrical industry: Secheron and
Maillefer. A primary analysis of both companies led us to dress the following profiles
in terms of performance and nature of culture to verify their match with our
methodology:
Secheron was created in 1918. It started off strongly. It was the main actor behind the
electrification of Switzerland upon the decision of les Chemins de Fer Federaux to
launch the project in 1916. The company went on entering new markets and
broadening its products range with many innovations in the process. Accordingly,
Sécheron started producing welding, electrodes, rectifier mercury free vacuums
36
respectively in 1925, 1927 and 1937. Its absolute performance though declined and
stagnated from 1924 to 1942. The neutrality of Switzerland and the important
external demand during the post-war rebuilding efforts contributed to its subsequent
growth. Secheron recorded its best results between 1942 and 1964122. It then suffered
severe difficulties upon the intensification of its competitive environment. It turned it
a loss making business for the first time in its history. Secheron was compelled to
lose its independence. BBC acquired it on 1969123. On the other hand, Maillefer
started from humble beginnings in 1900 manufacturing file tools cutting machines. It
faced important difficulties to remain afloat during the first two decades. The second
generation of the Maillefer dynasty stabilised the company from 1920 to 1960124
through a strategy of product diversification becoming profitable in 1945 for the first
time. Under the leadership of Charles Edmond Maillefer, third generation of the
business dynasty, Maillefer specialised in the production of cabling machines mostly
for the booming electrical energy distribution and telecommunications industries. It
became the undisputed global leader in the market and spurred spectacular
performance from 1960 to 1987. Further primary investigation in the archives
indicated that Maillefer’s culture under the leadership of Charles Maillefer Fils fitted
our culture of radical innovation definition. On the other hand, Secheron did not.
Thus, the Swiss electrical industry provided a fertile ground to put in practice our
research design and investigate the following refined research question:
Does culture of radical innovation relate to long-term performance in capital-intensive
industries? The cases of Maillefer and Secheron in the Swiss electrical industry 1960-
1982
122 CH AVG, SA 1.2 18-‐24, Rapports annuels du conseil d`administration, 1918-‐1924, CH AVG, SA 1.2 24-‐42, Rapports annuels du conseil d`administration, 1924-‐1942Administration, Values, Nature, and Culture in the American Corporation. CH AVG, SA 1.2 42-‐69, Rapports annuels du conseil d`administration, 1942-‐1969 123 Benguigui, Sécheron. 124 Archives Cantonales Vaudoises, Maillefer S.A, http://www.davel.etat-‐de-‐vaud.ch/detail.aspx?ID=196023 Accessed 21 April 2015
37
c. Sources Archival sources available enable us to answer our research question. Maillfer’s
archives have been unused. The breath of their content is at least similar to those used
in current studies on corporate culture125. Maillefer’s archives comprise the minutes of
the board of directors. They date from1920 to 1966. Annual reports spans until
1982126. Maillefer was a private family controlled company. Its leader had dominant
ownership of over 70%, the second shareholder being at 5%. From an agency theory
perspective, the opposition between the core principal and agent is limited. They are
equivalent. The interests and aspirations are aligned consequently127. When the
principal and agent are different entities, the risk of overstatements is significantly
higher than in this particular case. The content of Maillefer’s annual reports is
therefore less prone to intentional bias. There is less incentive to do so. They can be
consequently considered as an adequate source from which to draw Maillefer’s
corporate culture alongside the minutes of the board of directors. Annual reports with
data on financial performance are equally available during the period studied. Last,
many complementary documents designed for third parties such as company journals,
memoires of critical actors, internal history, prospectus for public listings can provide
us with an idea of Maillefer culture at a symbolic level in a similar fashion to existent
studies on culture. Secheron’s archives contain an uninterrupted series of minutes of
board of directors for the period we are interested in. These latter are used as the main
source to capture the company’s culture. Annual reports provide the financial
information needed.
125 Stanger, “From Factory to Family”; Dellheim, “The Creation of a Company Culture”; Church, “Deconstructing Nuffield”; Churella, “Corporate Culture and Marketing in the American Railway Locomotive Industry.” 126 Archives Cantonales Vaudoises, Maillefer S.A, http://www.davel.etat-‐de-‐vaud.ch/detail.aspx?ID=196023 Accessed 21 April 2015 127 Eisenhardt, “Agency Theory.”
38
III. Culture of radical innovation and firm performance 1) The culture of Maillefer 1960-1982
a. The origin of Maillefer’s culture of radical innovation
The corporate culture inherited by Charles Maillefer Fils is best captured in
the personalities of the top two leaders of the previous generation. Charles Maillefer
Pere took the realm of Maillefer in 1920. It was in an extremely vulnerable financial
position. It was on the brink of bankruptcy heading without any clear vision or
discipline. Much like John Sr for Cargill, Charles Maillefer Pere was able leader. He
succeeded to turn around the company. His cautious resilient personality found great
motivation in dealing with the extreme difficulties of the time. He provided Maillefer
with direction at a critical moment of its existence, He then went on to instil discipline
in the company’s ranks. He built a capable team that stirred away Maillefer from
severe financial difficulties to profitability for first time in its then 40 years history128.
Amongst the team he built, Camille Cuendet stood out, He was his number two. His
values and qualities clearly reflected the kind of culture Charles Maillefer Pere
established. Camille Cuendet entered Maillefer in 1923 during the company’s
turbulent times His objective judgement, business intelligence, vivid energy, tenacity
and determination instantly made him a valuable organisational member. He caught
the eye of Charles Maillefer Pere. As a result, he quickly climbed the ladders and
joined the board of directors in 1935129. Since then, he remained as a member of the
board of directors, serving under Charles Maillfer Fils. This latter chose to upheld the
strong corporate culture based on the values of discipline installed by his father and
perpetuated by the leaders he developed such as Camille Cuendet.
Charles Maillefer Fils built on the strong culture he inherited and continued its
value.s He brought his touch by establishing a culture of radical innovation non-
existent in the previous generation. The following statement the year Charles
Maillefer Fils became the leader of the company perfectly captures the culture he
sought to establish:
128 PP 837/30, Archives Cantonales Vaudoises, Maillefer S.A, Rapport annuel du conseil d`administration, 1960. 129 PP 837/30, Archives Cantonales Vaudoises, Maillefer S.A, Rapport annuel du conseil d`administration, 1966.
39
‘Ces etudes de caractere passage ne doivent pas nous faire perdre de vue les
recherché de developpement dont nos produits doivent beneficier regulierement. Il
n’est pas une seule de nos machines qui ne se vendre que grace a ses qualities
intrinseques, a ses avantages par rapport a celles de la concurrence.
Or, notre concurrence se manifeste sans cesse et se perfctionne aussi
constamment. Si l’industrie Suisse doit son development et son success au serieux
et a l’adequat de ses constructions, si l’on estime que l’exportation peut rencontrer
des moments difficiles dans les prochaines annees, le Marche Commum ne
semblent pas s’ouvrir pour demain, nous ne devons jamais oublier que
l’opiniatrete dans la recherche et l’intelligence dans la construction ont ete dans le
passé notre meilleur atout et que c’est aussi pour l’avenir la plus sure Assurance-
Vie qu’il soit possible de contracter. Nous pouvons affirmer qu’il n’y a pas de jour
ou notre bureau technique ne cherche a ameliorer la conception d’une machine ou
une autre, a rationaliser un element et a trouver l’idee, l’etincelle qui ouvre des
perspectives interessentes. Il ne suffit pas de reflechir. Il faut trouver, et la
trouvaille doit toujours subir, dans notre metier, le test de la pratique. A l’effort
intellectuel de nos constructeurs-chefs de branche doit succeder le jugement de
notre local d’essais. Tous les jours ne sont pas fastes, pourtant il arrive que l’effort
soit recompense. Il ne l’est vraiement que lorsque le client reconnait la
superirorite de nos machines’ 130
The central belief around which Charles Maillefer Fils built the culture is beating the
competition. It is the dominant organisational objective. Competition is seen as the
main dynamic inherent force Maillefer has to deal with and overcome131 It is
portrayed in both a favourable and negative light but always with realism. The
competition’s efforts never cease. They are laudable. It makes the task harder for
Maillefer but as the same time acts as a stimulating driver for the company’s own
progress. This competition is merciless and fierce. It fights Maillefer for clients with
all its power132. It is ready to use any tactics possible to get ahead. Competition is ever
increasing and has the ability to copy technical advances of Maillefer with ease and in 130 PP 837/30, Archives Cantonales Vaudoises, Maillefer S.A, Rapport annuel du conseil d`administration, 1961. 131 PP 837/30, Archives Cantonales Vaudoises, Maillefer S.A, Rapport annuel du conseil d`administration, 1966. 132 PP 837/30, Archives Cantonales Vaudoises, Maillefer S.A, Rapport annuel du conseil d`administration, 1970.
40
a short time, especially in simple products categories. Charles Maillefer also
recognises environmental advantages competition holds such as the cost advantages
of foreign competitors or easier access to markets such as the Common Market133.
The only way to beat the competition according to Charles Maillefer Fils is to be
constantly ahead in terms of technological progress, develop distinguished products
substantially superior technically providing higher intrinsic benefits for clients. The
company’s whole success and survival depends uniquely on that single factor: ‘La
leitmotiv de Maillefer S.A reste ‘l’avance technique. Tout l’avenir de notre societe
reside la. Bien que specialistes dans le domaine de la cablerie, nous devons etre en
avance, supeieurs a nos concurents’134.
Specific organisational processes need to be established in order to achieve
technological advance and technical superiority. These latter depend mainly on the
company’s research and development efforts 135 . They should result in the
development of superior technical processes, the continuous improvement of the most
complex machines of Maillefer as well as the creation of completely novel
machines136 Charles Maillefer recognises these deeply rooted underlying processes
require much patience, trial and error as well as perseverance in order to yield any
results. They also require continuous care and attention. Their outcomes are uncertain.
Though, he puts his entire faith and commits substantial resources to this belief. He
has no doubt these efforts are going to be fruitful and will ensure a prosperous future
for his company137. These are but assumptions and beliefs though. Charles Maillefer
put them forward without any particular prior personal success proving their validity.
Still, from the first day, he demonstrated an unshakable conviction it is the right
133 PP 837/30, Archives Cantonales Vaudoises, Maillefer S.A, Rapport annuel du conseil d`administration, 1963. 134 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1970. 135 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1968. 136 PP 837/30, Archives Cantonales Vaudoises, Maillefer S.A, Rapport annuel du conseil d`administration, 1963. PP 837/30, Archives Cantonales Vaudoises, Maillefer S.A, Rapport annuel du conseil d`administration, 1965. PP 837/30, Archives Cantonales Vaudoises, Maillefer S.A, Rapport annuel du conseil d`administration, 1966. PP 837/30, Archives Cantonales Vaudoises, Maillefer S.A, Rapport annuel du conseil d`administration, 1968. 137 PP 837/30, Archives Cantonales Vaudoises, Maillefer S.A, Rapport annuel du conseil d`administration, 1965.
41
course of action to stir the company towards greater success. Prior generation has
proven one could achieve reasonable performance by ensuring clients a decent
quality-price value proposition combined with efficient, reliable and timely deliver of
orders. In this light, Charles Maillefer’s approach marked a complete shift of strategy
with a focus on developing distinguished superior quality products at premium prices.
From the first day, it constituted the single most influential bet Charles Maillefer that
marked his whole leadership era. He took the company to an unchartered territory to
pursue new opportunities for expansion and development.
Once the insights and assumptions of Charles Maillefer experienced success in the
field through significant increase of performance, another critical value in the
established corporate culture became apparent. Whilst many may be tempted to feel
invulnerable and slide into complacency, Charles Maillefer insists more than ever in
the necessity to maintain the culture of radical innovation. He states that to
consolidate Maillefer’s situation, it needs to put in place new machines using the
progress realised in the applied sciences and by studying the latest processes of
production of cables. He singles out Maillefer’s unique capability to develop rational
machines and makes it an objective to further build on that by pouring even further
time, energy and capital into it138. Furthermore, he points to the interlinked processes
enabling Maillefer to grow and insists on keeping the pace in order to maintain these
capabilities. It is crucial the company keeps progressing constantly and regularly to
achieve the profitability required collecting growing revenues to consolidate and
compensate the human resources, technical and financial resources behind these
results. For Charles Maillefer, there is no time to rest. Rather, positive performance
requires even more creative energy and determination to remain above competition
and further strengthen Maillefer’s unique position. Research and development efforts
have to be constant 139. Last, Charles Maillefer expands his assumptions and insights
to the national level when talking about Switzerland’s competitiveness. He urges the
Swiss industry to give particular importance to superior technical advance tby
138 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1966 139 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1970.
42
sustaining its research and development efforts at a high level. He attributes much of
its competitive advantage in the global scene to this factor. 140
b. Establishment of culture of radical innovation Charles Maillefer put in place an organisational structure geared towards
innovation. It conducted a precise extensive systematic research and development
process. The creation of new business lines based on this latter has been a prime
occupation. In difficult times, the company remained committed to research and
development.
Charles Maillefer established an organisational structure based on research and
development, directed towards the production of both incremental and radical
innovations. In 1961, Charles Maillefer reshuffled the management board previously
composed of a combination of technical and commercial profiles. From this date,
engineers with extensive technical knowledge exclusively formed the board141. This
move can be interpreted as a manifestation of the supreme importance technical
superiority occupied in Charles Maillfer’s mind. Managers had to understand the
technology underlying the company’s machines. They were expected to contribute
towards the company’s future orientation by recognising and suggesting major
technological developments to shape the industry. The foundational reorganisation
occurred in 1966. Two new departments have been created. The first department is
the Bureau d’Etudes. Its role was to continuously develop existent Maillefer products
and processes 142 . It had to ensure incremental innovations that maintain the
company’s technological superiority though constant upgrading of their capabilities.
The second department was research and development143. This department was
created for the first time in the company’s 66 years of existence. Its focus was the
pursuit of fundamental research to produce major innovations that go beyond simply
improving existent products. It had to create new generations of machines or
140PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1963. 141 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1961, p2. 142 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1961,p2. 143 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1966,p2.
43
applications resulting from the development of novel underlying technology deriving
from fundamental discoveries. Charles Maillefer personally took charge of leading the
department144. He had an extensive technical background. He received a doctorate
from the Ecole Polytechnique Federale de Lausanne. He was therefore trained in
rigorous scientific research. As such, he was in a favourable place to anticipate if not
to create the major technological developments the future of his industry depended
upon. His position of head of research and development surely focused the company
on the constant pursuit of the next major technology. Besides the two new
departments, an independent entity called Constructions Machines pour Plastiques
(CMP) has also been created. Its goal was to provide a better research environment
than inside Maillefer. Disconnecting researchers from daily operations would
stimulate further creativity and radical ideas. It would push Maillefer’s research
efforts to a new dimension possibly resulting in the development of completely new
activities. The company’s future technological orientation was further apparent. It
allocated twenty persons within its research and development department and external
research company CMP to dedicate their entire efforts to prepare the production
programs for the next couple of years. The primary domains of research had to be
within its core capabilities ranging from cabling machines to plastic industry145
Maillefer’s research and development efforts focused on three areas:
processes, machines and installations. The design of novel machines was the
cornerstone of these efforts. Incremental developments and rigorous quality control
have also been am important part of the process.
Maillefer’s research and development process targeted advances in the domains of
processes, machines and installations. A recurrent feature has been the development
of more sophisticated technological solutions to improve the processes of production.
A clear example concerns the rotating reception collator component. It was an
important piece in the production system of Maillefer. The company consequently
launched detailed studies on the subject146 The theoretical insights and development
efforts led to the creation of a new process. The production program has been
144 Ibid 145 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1968,p2. 146 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1963, p3.
44
consequently enriched. It increased its efficiency by reducing the delivery time.
Maillefer equally developed a process called MONOSIL and its formulation for
cables and tubes at average tension as well as the EMAILEX process designed for
double isolation of new materials147. An example for the installations segment is the
development of programming for their computer control, the optimisation of
telephonic cables set up and the use of a more powerful computer system to equip its
lines148.
The heart of Maillefer’s research rested on the development of new generations of
machines marked by significant technological leaps. Maillefer developed a systematic
process to carry out this research. It started by the design of new machines. This phase
rested on the translation of the accumulated knowledge within Maillefer laboratories
into the theoretical conception of a new machine superior in terms of capacities and
functionalities to previous generation. The theoretical design then became the basis of
the physical construction of a prototype. The company regularly constructed several
prototypes on a yearly basis. These were mainly concentrated in its core activities of
cabling and plastic transformer machines149. These prototypes then moved to the
crucial phase of testing. They were tested initially in house to verify the projected
benefits and technical improvements match the reality of the functionality of the
prototype. If this latter passes this test, another round is organised. This last testing
step then defined whether the designed prototype was to a viable machine. Maillefer
sent accordingly its prototypes to a number of clients for industrial testing150. Their
feedback completed the process. If testing clients found significant advantages in the
use of their prototypes compared to existing machines, Maillefer them moved it out of
147 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1982,p2. 148 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1982,p3. 149 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1963, . PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1965. PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1971. 150 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1965. PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1974.
45
its laboratories to be produced and commercialised151 .The drawing caterpillar of
types QK and QII as well as the cabling machine of type AN for copper cables are
examples of a design that went all through to commercialisation stage152. In the case
of negative feedback, the prototype remained but a prototype. It was sent back for
further research and development efforts embracing the information gathered in the
industrial testing phase. The success of the process was all but guaranteed to generate
new innovations. There was no fixed regularity of its success. Rather, in some years,
several new machines and products were fully developed153 . In others, the pace was
slow and only few developments reached commercialisation154.
Maillefer’s research and development efforts were also engaged in the continuous
improvement of its existent processes, machines and installations. It also ensured the
quality control function. The commercialisation of a machine was the ultimate
achievement. However, it was not the end. As soon as a machine was marketed,
efforts to improve it ensued. The resolution of minor problems related to its
underlying technology, the improvement of some unresolved inefficiencies and the
elevation of certain inherent capacities through different ways of optimization were
under way. However, this kind of efforts differed from the previous one. The
development of new machines required completely new technologies. In the present
case, the focus was on the improvement of the existent technology by stretching its
capabilities to the maximum through adjustments and modifications. The actual users’
feedback in the market also provided a valuable source of information to orient the
effort towards the areas most needed. The commercialised machines of Maillefer
went systematically through this process resulting sometimes in major
improvements155 .For instance, its cabling machines type SZ benefited from a major
151 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1971, p4 152 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1963, 153 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1982 154 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1965. 155 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1971, p4
46
boost in capacity through the optimisation of its alternate tension mechanism156.
Finally, Maillefer’s Bureau d’Etudes played a central role in the setting and
maintaining quality standards that aimed to ensure a consistent user experience.
Before expediting and setting up its complex installations, it systematically engaged
in the control of the quality of all its components and processes. It intensified upon
the increasing reliance on computer technology in operating its installations 157.
Maillefer consistently oriented its energy in developing new business lines sparked
from discoveries or novel applications of its research and development efforts. It
recognised the limits of relying solely on its existent products and operations to
generate its revenues. It therefore engaged from an early stage in a conscious
approach to broaden its products range and activities158 . The key to this strategy was
in its research and development structures. It launched several studies to assess the
fields it could best leverage its core capabilities and knowledge 159. Out of that
conscious process emerged new opportunities Maillefer decided to pursue. In 1968,
Maillefer added Engineering to its main cabling machines business line. Maillefer
moved from a manufacturing only company to one offering services closely
associated with its products. As such, it started establishing complete engineering
solutions setting up manufacturing plants equipped with its cabling machines160 . The
logistics of plant operation became an important element of the engineering solution.
Accordingly, the company pushed its research and development efforts further in that
direction with the objective of creating optimal plants operation efficiency solutions
to clients. Similarly, the company launched another business line in 1971. It entered
the market of plastic transformers161. The firm saw great potential of progression
ahead for this market. It has been developing this technology since 5 years before
deciding to enter the market. The confidence of the company’s ability to produce 156 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1973 157 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1981 158 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1973. 159 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1963,p3 160 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1968 161 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1971
47
significantly superior technical products is the axiom behind its expansion rationale.
If the firm was not confident enough, it did not make the leap.
Maillefer’s commitment to its research and development efforts was even clearer in
difficult times. When the economic socio-political environment became extremely
harsh and hostile to Maillefer’s operations, it did not stop or cut the energy put into its
research and development structures. The opposite happened. Instead, it gave it even
greater importance and doubled its efforts. The Bureau d’Etudes delivered the designs
for production in record times. Maillefer maintained its high pace of design, prototype
development and industrial testing defining its research process. Thus, numerous new
machines have been designed during that phase. Installations of productions were in
industrial trial at Maillefer clients whilst incremental developments of its existing
processes and machines were undertaken as usual 162. Last, the company always kept a
close check on the technological developments and advances in its industry through a
systematic follow up. It aimed to ensure its products were constantly at the edge and
that it was well positioned for the next major technological shift163
Maillefer’s resources allocation philosophy matches culture of radical
innovation as defined by Tellis (2009). It is marked by substantial resources allocation
to research and development efforts, willingness to cannibalise assets and tolerance of
risk. Maillefer consistently allocated significant resources to back its research and
development efforts and increase its capabilities. This commitment is the critical
bridge between the description of the culture of radical innovation Charles Maillefer
wished to establish presented earlier and reality. In absolute, the role of a manager is
to allocate resources. The analysis of resources allocation distribution is a great
indicator of the underlying beliefs, values and cultures the manager ingrains. There is
consistency between the culture presented by Charles Maillefer and the company’s
resources allocation philosophy. Technological progress and superiority is not only at
the heart of Maillefer’s culture but also the driver of his resources allocation.
Maillefer maintained an average of 5% of revenues directed purely to research and
162 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1977 163 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1968
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development164. Neither the hostile environment the company faced nor reaching the
top of its industry did result in the decline of this number165. In all weathers, the firm
remained committed. This significant budget was mainly spent in building greater
research and development facilities. It supported the underlying research process of
design, prototyping and industrial testing by providing resources necessary for their
undertaking166. By 1971, 50 engineers, technicians and designers were assigned the
sole function of developing new machines and improving existent ones167 . Maillefer
also used its research budget once to defend its technological advance. In 1973,
companies from Japan and Luxembourg achieved important technical developments.
Their acquisition by rival companies threatened to reduce technological gap with its
competitors. Therefore, the company exceptionally used its resources to obtain these
patents at a premium price168
The company’s commitment to research and development also led it to situations of
cannibalisation of assets and short-term profits. Each time the heavy weight of
research and development budget threatened to reduce its profits, the firm did not
hesitate to make the sacrifice. This willingness to cannibalise assets is most apparent
in the following situation as described by Charles Maillefer :
‘En 1968, notre chiffre d’affaires net a atteint CH 15 400 000 et notre benefice CH
566 000. La diminution de ce dernier par rapport a l’exerice precedent resulte d’une
part de l’accroissement de nos frais de recherche et d’autre part d’etudes couteuses
realises par notre bureau technique a l’occasion d’une grosse commande (plus de 2
millions) pour deux machines de conception nouvelles. Nous sommes certains que les
investissements de cette sorte, que nous avons ete conduits a faire en 1968, se
reveleront rentables a breve echeance : en effet, ce sont eux qui nous ont prepare a
164 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1968. PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1970-‐1971. 165 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1972 166 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1961 167 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1971 168 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1973
49
disposter maintenant d’une gamme etendue de machines competititves tant au point
de vue commercial qu’au niveau technique’169
The company tolerated the risk of substantial allocation of resources to research
initiatives. Their results were uncertain. The risk they do not yield in any development
and deplete shareholders’ value is constant. Yet, the firm tolerated that risk believing
it would beneficial. The situation of its subsidiary CMP is an example. Maillefer
invested important resources to turn this company into an external research and
development centre as well as to penetrate the new market of plastic transformers170
.Still, the firm could not become financially independent on its own as planned. Yet,
Maillefer kept fuelling resources to support its efforts. It ended up wholly acquiring it
despite the uncertainty associated with the benefits of its activities instead of ending
its operations171
c. Radical innovations, distribution, production and management
Maillefer’s three main innovations from 1960 to 1982 were the extruders BM,
its complete installations range and its plastic transformer machines. Incremental
innovations assisted these innovations to maintain their technological superiority.
The first radical innovation under Charles Maillefer’s era has been the extruder BM in
1961. The characterisation of the extruder BM as a radical innovation lays in its
notable distinguished superior capabilities. It is more productive and efficient than
any Maillefer’s competitor machines worldwide. This superiority lays in the
technology behind its screw172. The market received the innovation favourably173 The
significance of this innovation is such that Charles Maillefer refused to engage in any
licensing before patenting174. During the two years following its development, it is a
lengthy legal process that Maillefer pursued freezing all agreements despite heavy
169 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1968 170 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1969 171 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1971,p1 172 PP 837/25, Archives Cantonales Vaudoises, MailleferS.A, Séance du conseil d’administration 22 February 1962. 173 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1961 174 PP 837/25, Archives Cantonales Vaudoises, MailleferS.A, Séance du conseil d’administration 7 June 1962 .
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interest from companies to enter in licensing either for production or sales. Extensive
care was given to ensure no legal flaws compromised Maillefer’s attribution of this
superior technology175. It is only in 1963 that Maillefer provided the first licenses to
produce and sell its extruders BM176. This radical innovation remained the driver of a
significant part of its revenues for the next two decades.
The second major innovation was its complete installations. In 1968, the cooperation
between Maillefer’s research and development department with its external research
company CMP resulted in the development of complete installations with high
performance for the isolation of high tension plastic cables. These installations
successfully passed through Maillefer’s design, prototyping and industrial testing
leading to its commercialisation 177 . Similarly to its extruders BM, Maillefer’s
complete installations found important appeal in the market. Their technological
superiority was unequalled worldwide positioning Maillefer as a dominant leader in
this market. It quickly became an important source of growth for the company
generating strong cash flows and occupying an increasing position in Maillefer’s
operations178.
The third radical innovation was Maillefer’s plastic transformer machines in 1969.
Maillefer’s interest in the plastic industry was first mentioned in 1965179 A year later,
Maillefer established an external independent company focused on research and
development geared mainly towards the development of machines for the plastic
industry as its name suggested (Constructions pour Machines Plastiques – CMP).
Since then, CMP undertook research in this area. It is only in 1969 that these efforts
yielded in the development of a satisfying machine by Maillefer standards.
Maillefer’s plastic transformer machine became the one to beat. It had a speed three
175 PP 837/25, Archives Cantonales Vaudoises, MailleferS.A, Séance du conseil d’administration 19 September 1962. 176 PP 837/25, Archives Cantonales Vaudoises, MailleferS.A, Séance du conseil d’administration 15 January 1963. 177 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1968 178 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1969 179 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1965
51
times the one of the competition180. Subsequently, these plastic transformer machines
became a novel source of revenues with high growth potential. Ultimately, these three
radical innovations and the distinguished technological superiority they provided put
Maillefer in the position of a dominant leader in these markets. They were the major
drivers of revenues and profits growth Maillefer registered from 196o to 1982.
These radical innovations established an initial comfortable technological superiority.
It is however the incremental innovations in the business lines they generated that
ensured the endurance of Maillefer’s technical advance over its competitors during
the two following decades. The list of actual improvements on these three segments
accumulated from year on year. The modifications on the extruder lines ranged from
stretching the crucial BM screw technology further181 to the development of efficiency
of other components, notably the machine’s coil182. Maillefer’s complete installations
were also subject to continuous improvements. The major area of development was in
the introduction of computer technology and optimisation of automation that provided
Maillefer’s installations an unrivalled operating efficiency and simplicity of use183.
Maillefer’s technological cutting edge was not uniform. However, its obsession with
technical superiority allowed recovery from unpleasant situations. For example, in
1970, the company realised the extent of its inferior technical position in automatic
coils. Since then, it engaged in extensive research and development efforts not only to
reduce the gap but also to create a positive one. In three years, Maillefer moved from
a lagging company in automatic coils to a pioneering one opening novel applications
for that component in telephonic, electric and heavy cables184 .
180 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1971 181 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1968. PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1971. PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1973. 182 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1969-‐1971. 183 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1974. PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1978. 184 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1970.
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The extruders and complete installations radical innovations were the
dominant revenues generating business lines. Armed with the technological
superiority of their products, Maillefer expanded worldwide beyond its traditional
markets. A strong bond with clients characterised their relationship. A host of
commercial initiatives were launched to build an efficient distribution machine.
The extruders and complete installations were Maillefer’s prime sources of revenue
from 1960 to 1982. Together, they consistently represented over 60% of their
revenues 185 . By 1978, they reached 76%. Their plastic transformer machines
accounted for 10% and were growing steadily since a few years186. The relationship
between the radical innovations generated by Maillefer’s culture and the company’s
growing sales is quiet clear. Maillefer’s turnover moved from CH 5 millions 1960187
to CH 80 millions in 1982188 with most of its revenues generated by the new major
innovations developed under Charles Maillefer’s watch. .
Maillefer’s expansion to new geographical markets was a priority. Once it established
its technological superiority, Maillfer’s distribution strategy was to diversify its
markets189 West Europe was its number one market in 1970. It heavily depended on it
despite registering sales in 33 countries. In response to the danger of this dependence
and the risk exposure to the environment of these markets, Maillefer engaged in
reducing the weight of this traditional market. Accordingly, Maillefer started efforts
in 1970 to reach out to new regions. It concluded contracts in East Europe
(Yugoslavia, Hungary and Bulgaria). It launched negotiations in Romania to deliver
important orders of its extruder lines. It established a contact with the USSR and
Tchecoslovakia190. Maillefer relied on licensing to penetrate markets it had no
commercial capabilities to reach and where it was non competitive due to tariff
185 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1970-‐71. 186 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1972-‐74. PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1978. 187 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1961,p1. 188 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1982,p3. 189 PP 837/25, Archives Cantonales Vaudoises, MailleferS.A, Séance du conseil d’administration 15 October 1965. 190 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1970.
53
barriers. Asia is a prime example. It authorised a license of its extruders BM to a
Japanese company, which had the right to use it in different Asian markets from
South Korea, Thailand, Cambodia, Laos to Vietnam191. Besides East Europe and Asia,
Maillefer had an eye on the US market. In 1971, it commissioned a study of the US
market with a view to establish a representation there. However, environmental forces
compelled Maillefer to delay its planned expansion. The Nixon announcement of
1971 marking the end of the fixed exchange-rate monetary system created a period of
great turmoil and uncertainty192. This delay was but temporary though. In 1973,
Maillefer put a firm foot in the US market by delivering 16 extruders to the three
major US cabling machines193. The next major target was the Middle East. The
company succeeded to channel its products and services to this market. It proved to be
instrumental in Maillefer’s resilience to the shutdown of many of its Eastern Europe
markets. By 1981, the once heavily dependent on West Europe Maillefer registered
60% of its revenues outside this previously dominant market194.
Maillefer established a strong relationship with its clients on the basis of its
technologically superior products. The continuous rise of production costs of
Maillefer due to the growing labour costs characterising Switzerland put the company
in a sensitive situation. Yet, time and again, Maillefer succeeded in transferring this
inherent beyond control cost to its clients in a smooth way. In 1969, the majority of its
clients accepted Maillefer’s price increase195. The same happened again in 1974 and
1981196. The ease it succeeded this difficult exercise was the result of the noted
technical advance of its products relative to competition. Maillefer’s machines were
not commodity products reliant on low prices. Rather, they were sophisticated
products clients paid a premium price for. Although repetition of its price increase
191 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1970-‐71 192 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1971. 193 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1973. 194 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1981,p2. 195 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1969. 196 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1974. PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1981.
54
under the pressure of its production costs and the disadvantage of a strong Swiss
Franc reduced in part its competitive position, it registered nonetheless growing sales
and remained the leader in its industry197. Only the technological distinction of its
products and services Maillefer insisted upon in its overall strategy allowed for such
deviations to go unnoticed in a competitive price sensitive market.
Maillefer’s distribution structure and strategy gained fundamental importance when
the company established the roots of technological superiority. Maillefer realized it
was crucial to develop contact with clients. It put it at the heart of its new commercial
system and strategy in 1968. Accordingly, it reinforced the sales team with new
collaborators, exempted it from administrative functions and refocused it around
increased visits to clients and participation to fairs198. Maillefer introduced several
commercial initiatives and backed them with important resources allocation to
facilitate the work of its salesmen and foreign representatives. New methods such as
standard offer, list of prices and technical bulletins were induced199. Maillefer’s
insistence on pushing for the technological superiority argument in sales was apparent
in the development of the massive Technicum. It was a demonstration facility. In
1977, the company initiated the upgrade of the Technicum capacities with the
construction of a new hall. It could show to clients as much as 10 different complete
installations for the first time200. The facility was finished the following year201. Its
unique design, state of the art technique and visual quality were all geared to further
boost the perception of the technological superiority of its products to prospective
clients. Last, the technological complexity of Maillefer machines required a
consequent after sales team to provide technical support. 18 engineers assumed this
function. By 1978, the team intervened 280 times to advise clients or repair
breakdowns. It set up 70 complete installations. By 1981, the after sales team added
197 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1981. 198 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1968. PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1977. 199 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1965. 200 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1977. 201 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1978..
55
12 engineers to its team to assist in the increasing number of interventions required
and provide further support due to the growing complexity of Maillefer machines and
installations. 11% of Maillfer’s sales were registered by this unit through channeling
repairing parts to clients202.
Despite Maillefer’s product technological superiority, its commercial machine faced
important difficulties when the environment became extremely unfavourable. The
dramatic strengthening of the Swiss Franc and the economic socio-political turmoil in
global markets in the end of 1970’s challenged Maillefer’s commercial structure in a
dramatic way203. Special measures were adopted. Maillefer intensified its salesmen’s
visits to clients and participation in fairs204. It multiplied its after sales service’s visits
and intervention with clients to demonstrate the company’s commitment to their
satisfaction. It also tried to keep the sales team’s ambition high by setting challenging
targets. For the first time, it made concession in its prices and accepted to temporarily
to reduce its profit margin to maintain a normal rate of production occupation 205.
Maillefer invested heavily and constantly to upgrade its production
capabilities from 1960 to 1982. It streamlined, rationalised and increased its
production processes efficiency. Despite these efforts, the company could not satisfy
the ever-growing demand and developed alternative ways to reduce the burden on its
production system. In difficult times, Maillefer adopted exceptional production
measures. Overall, the combination of these factors significantly improved Maillefer’s
production performance.
Maillefer engaged in an active pursuit to develop its production capabilities from
1960 to 1982. In 1960, it launched the study for a future plant in Ecublens with
greater capacity than its existent one in Renens206. The following year, the company
202 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1981,p5. 203 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1978,p1 204 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1977. PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1978.p6 205 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1977. 206 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1960.
56
decided to approve the construction of the new plant in Ecublens207. It developed a
construction program in two phases to maintain the financial security and
independence of the firm208. It initiated the increase of Maillefer’s capital to assist in
the financial effort. The objective of Maillefer was to finance the plant with minimal
if no assistance from banks209. Despite taking the decision to proceed forward in 1961,
Maillefer faced legal hurdles. It delayed the start of its plant construction for two
years. A landlord in a surrounding area opposed the construction210. Two years of
legal battles followed. In 1963, Maillefer finally received authorisation for its
Ecublens plant211. In 1965, the Ecublens plant was inaugurated212. This new plant
represented the first piece around which a broader industrial complex was built.
Rapidly, Maillefer engaged in the construction of a third hall213. It was finalised after
10 months of intensive work 214. The next major move was the construction of a new
plant in Ecublens. In 1969, Maillefer considered the expansion of the Ecublens
complex by disposing of its Renens plant and using the liberated resources to create
another plant in Ecublens215 .Two years later, this plan was approved and the company
invested CH 9 millions for this operation. CH 4.5 millions came from Renens plant
sale216. In 1972, Maillefer inaugurated its second plant in Ecublens and relocated all
its production capabilities from Renens to its new site. The company did not refrain
the pace though. Further aggrandisement of the Ecublens industrial complex was 207 PP 837/25, Archives Cantonales Vaudoises, MailleferS.A, Séance du conseil d’administration 15 November 1961 208 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1961. 209 PP 837/25, Archives Cantonales Vaudoises, MailleferS.A, Séance du conseil d’administration 15 January 1963. 210 PP 837/25, Archives Cantonales Vaudoises, MailleferS.A, Séance du conseil d’administration 7 June 1962. PP 837/25, Archives Cantonales Vaudoises, MailleferS.A, Séance du conseil d’administration 19 September 1962. 211 PP 837/25, Archives Cantonales Vaudoises, MailleferS.A, Séance du conseil d’administration 15 January 1963. 212 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1965. 213 PP 837/25, Archives Cantonales Vaudoises, MailleferS.A, Séance du conseil d’administration 25 March 1966. 214 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1966. 215 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1969 216 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1971.
57
under way with the acquisition of new land in the area217. Finally, Maillefer also
invested in the machine-tools material its plants used. In 1974, renewed its production
kit. In this wave, it paid particular attention to acquire the latest technological
development in industrial engineering in the form of numerical orders218.
Maillefer’s efforts to increase its production processes’ efficiency ranged in two
directions: rationalisation and shift to production in series. The rationalization effort
drove several changes. The creation of a finished parts store for their systematic
grouping before assembly , the establishment of a new more rational routing of parts ,
the introduction of a smoother traffic, the codificaton of types of machines produced,
establishment of internal morms as well as the list of tools were all measures
introduced219. Maillefer also engaged in cutting the production of machines with low
demand to the benefit of a stronger production for machines with high demand220. By
1965, Maillefer finished the construction of its Ecublens plant. Maillefer’s ownership
of these two plants created an opportunity to improve production processes by
facilitating the coordination between the two plants221. A separation of tasks in a
synergistc complementary became a major concern. New methods were hence
developed. For instance, parts were now machined and controlled in Renens . They
were then forwarded to Ecublens, stored , then assembled, controlled and shipped222.
The second most important measure adopted to increase production efficiency was the
exclusive focus on production in series. Before 1969, Maillefer’s production was
divided between production on demand and production in series. The first type
required highly specialised labour and more time. Maillefer’s prototyping and testing
of novel machines shifted instructors, group chief and foremen’ attention toward this
new effort. In 1969, the company decided to shift solely to the prodution in series and
217 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1972. 218 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1974 219 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1960. PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1965. 220 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1961. 221 PP 837/25, Archives Cantonales Vaudoises, MailleferS.A, Séance du conseil d’administration 15 October 1965 222 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1965.
58
to gradually discontinue the production on demand223. By 1970, this latter represented
but 10% of total production. Subsequent productivity gains in terms of quality and
quantity were reported as a result224.
Maillefer’s production processes and the underlying technological complexity of their
machines required highly skilled labour. Not only did these workers need to have high
initial skills but they also needed substantial further training and specialisation in
Maillefer’s cabling machines to become operational225. Maillefer has built a training
school to provide apprenticeships and model its workers to master its precise
technological requirements226. Despite these effort, Maillefer faced the challenge of
lack of labour. The restrictive Swiss Federal policies on foreign workers were the
reason227. At the same time, the demand for Maillefer’s products was growing228.
Maillefer’s major investments in production capabilities and the rationalisation of its
processes were not enough to satisfy this demand. The lack of qualified labour further
constrained this action. Maillefer was compelled to find alternative ways to resolve
the problem. Subcontracting and the acquisition of a production company were its
solutions. Maillefer first considered subcontracting in 1965. The dangers of this
practice were clear: technical copying and increase of administration and control
costs229. It was the price for expansion. From then on, subcontracting gained weight
and became a non-negligible source of production covering a volume of 10% by
1968230. Maillefer’s growing demand turned subcontracting in a necessity not only to
absorb peaks and short time deliveries but also as a door to benefit from workers
223 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1969. 224 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1970. 225 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1968. 226 PP 837/25, Archives Cantonales Vaudoises, MailleferS.A, Séance du conseil d’administration 12 January 1962. 227 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1965. PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1969. 228 PP 837/25, Archives Cantonales Vaudoises, MailleferS.A, Séance du conseil d’administration 22 February 1962 229 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1965 230 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1968
59
outside its constraining quotas231. Maillefer further increased its capabilities by
acquiring a US production company in 1975. It produced mechanical tools at the time.
It was chosen amongst 30 firms. Its possession of adequate buildings, appropriate
machine tools and its easy access to qualified labour in its region made it the perfect
candidate to ensure part of Maillefer’s production. Its lack of knowledge in certain
areas forced Maillefer to assign one of its engineers as technical director to correct
this flaw. Maillefer took it over. Within months it was fully occupied with the
production of Maillefer’s machines232.
Maillefer’s production performance significantly improved as a result of the
investments, rationalisation and development of external production capabilities. The
major problem Maillefer faced was its delivery time. In 1960, it was so high
compared to competition that Charles Maillefer feared losing to companies producing
low technical quality for the same price of Maillefer’s machines233. Maillfer’s average
delivery time was of 24 months. Competition did it in 3 to 4 months234 . In two years,
Maillefer reduced the gap moving from 24 months to 8 months for production on
demand and to 2 months for production in series235. The company maintained these
steady efforts until registering one of the lowest delivery times in its industry. In
absolute, Maillefer production performance moved from the equivalent of CH 16
millions delivered in 1969 to CH 70 millions in 1982 relying on its internal
production capabilities alone236. Maillefer’s important demand consistently used
100% of its capabilities if not overused it during some years237. There are exceptions
however during the extremely challenging times of the end of 1970s.
231 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1969. 232 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1975. 233 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1960. 234 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1961. 235 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1963. 236 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1969, p6. PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1982,p4. 237 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1970-‐71. PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1981,p2.
60
The hostile external environment Maillefer witnessed during this period stimulated
the adoption of exceptional measures. It accepted numerous special orders to deliver
in a very short time. These were highly individualised compared to normal times and
required more efforts to be completed. Still, despite these difficulties, the company
remained committed to its work force and maintained their employment238. However,
the worsening of the situation ultimately led the company to shield the seemingly
unbreakable loyalty to its labour. In introduced partial unemployment for two months
for 40% of its workforce, then proceeded to a rationalisation of its costs laying out 11
workers in the process239.
Maillefer empowered its management with clarity and simplicity of its policy,
large delegation of power and autonomy as well as the creation of a learning
environment. The company extensively used the latest technological developments to
assist its managerial force’s function.
Maillefer’s management was empowered to conduct their activities with large
autonomy under clear guidelines. Charles Maillefer submitted to the board a
document called ‘Les politiques’ in 1962240. It outlined a management philosophy
every organisational member should adhere to. The objective was to introduce
explicit values to guide the company’s operations at all levels, including management.
These policies were accepted by the board. They constituted since the ethos behind
managerial behaviour. A management system based on objectives and large
delegation of power characterised Maillefer241. Each head of department and each of
his collaborators were responsible to achieve particular targets in their own way as
long as it fit Maillefer’s broad managerial values. They had fixed budgets to manage
to reach their operational targets. The company gave extensive responsibility and a
sense of ownership to its superiors to strive and succeed in their projects. Further
autonomy was introduced. The ersonnel of the administrative, commercial, and
technical services were put on a free schedule. They could organise their time at their 238 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1977. 239 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1978, p5-‐6 240 PP 837/25, Archives Cantonales Vaudoises, MailleferS.A, Séance du conseil d’administration 12 January 1962. 241 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1970.
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convenience. They were not compelled to observe a particular number of hours nor be
constantly present in the workplace242. Last, the company encouraged initiatives to
stimulate learning at its managerial level. Seminars for executives were regularly
organised. The international nature of Maillefer’s markets was also captured in the
language courses offered. Finally, Maillefer created an open space where managers
could bring their own input as to how best they could collaborate and be most
effective. Meetings to discuss the subject of collaboration, participation and
effectiveness at Maillefer were held. Both top management and lower levels of
management attended243. Despite Maillefer’s seemingly strong commitment to its
personnel, the company did not hesitate to dismiss 17 employees in its administrative
department when Maillefer faced a hostile external environment 244.
Maillefer extensively used technological developments to equip its managers with
tools to facilitate their function. The company acquired a sophisticated accounting
machine and an IBM planning machine245. A host of new possibilities were opened.
The accounting function gained greater precision and provided managers with instant
information that could inform their decisions, identify problems in a shorter time and
orient their strategies. Salaries and production bonuses could be calculated at the end
of each month for the first time. The costs of production and the state of advancement
of any order could be known instantly. The management of raw material stores, spare
parts and stocks was facilitated with the calculation of exact measures. More
importantly, the company’s performance measurement was significantly improved.
Management could now calculate profits at the end of every month instead of waiting
for the annual accounts. They could seize variations and make corrective decisions in
live time.
242 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1970. 243 Ibid 244 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1978,p6. 245 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1965-‐1966.
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2) The culture of Secheron 1960-1969
a. Culture of caution
Secheron’s culture between 1960 and 1970 was one of caution. It focused on
improving efficiency of existing operations. It only invested in activities with proven
results and tangible prospects. It inhibited the pursuit of any radical innovations due
to uncertainty. It was resilient in times of difficulties, ready to allocate substantial
resources to turn the situation around.
Secheron’s underlying belief was that the key to success in the market came
through optimal efficiency of its operations. This focus on improving efficiency of
existent activities was a recurrent feature. In 1960, its chief executive officer Mr
Kronauer underlined the necessity to move production of its electrodes division from
its Geneva plant towards a new structure. The increasing demand for this product put
pressure on its production capabilities. They were not sufficient anymore. He also
argued the technical direction of the welding division found the development of a new
production structure to reduce labour costs by up to 30%. The board approved this
proposition246. It is during times of difficulties this culture of caution was brought to
light further.. The very understanding of Secheron’s board on the reasons behind the
drop of results and loss of competitiveness manifested the assumptions they used in
running the company. When difficulties first surfaced in 1965, the board
unanimously saw the problem as a lag in operations efficiency247. It continued to do so
when the crisis intensified248. For example, Secheron was seen to be uncompetitive in
the welding market because its welding machines could only produce in limited series
whilst its competitors could do in continuous series249 Increase of production costs
driven by the growth of labour costs year on year was an unfair competitive
disadvantage compared to foreign rivals. They benefited from low labour wages250.
246 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 7 December 1960 247SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 9 March 1965 248 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 22 May 1967 249 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 9 March 1965 250 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 1 March 1967
63
The waste and inefficiencies within the organisation reported by the CEO were
decried with great intensity and blamed for Secheron;s decline251. This perception
shaped the board’s response. All measures taken were consequently centred on the
improvement of organisational efficiency and the limitation of future investments252.
It reorganised two of its departments: Redresseurs and Reglages. This reorganisation
was to help solve the electronic problems both departments suffered253. Secheron
engaged in a heavy campaign of downsizing, cutting research activities in certain
areas, separating from its worst performing activities and focusing on ones providing
most satisfaction 254 . In a further effort to reduce costs, Secheron engaged in
collaboration with a supplier in its plant of Gland and reduced its personnel to the
very limit necessary to maintain its levels of production255. When a member of the
board suggested new product developments were the solution, the CEO was quick to
rebuff the idea, asserted it was not necessary and that the measures taken to improve
the company’s efficiency would see Secheron through256.
Secheron’s culture of caution shaped its investments policy. It only invested in
operations and financial participations with proven results on the ground and further
prospects of development. This rationale dominated all its investment activities.
Kronauer asked for the approval of investments to upgrade its production capabilities
for the division of rectifiers and for the creation of a testing material to ensure they
held sufficient power in anticipation of a major increase in its sales according to the
company’s projections. The board approved257. Similarly, the company moved to
launch a major investment in its production capacities for electrodes. This particular
case highlights Secheron’s investment approach. The company conducted a study on
the future of this segment. Already at this stage, a new technology was nascent, which
251 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 20 September 1967 252 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 9 March 1965 253 Ibid 254 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 1 March 1967 255 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 20 November 1967 256 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 20 September 1967 257 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 7 December 1960
64
rendered Secheron’s current electrodes not obsolete but significantly inferior.
However, the sales projection was still positive and encouraging for the next couple
of years. The new type of electrodes was a threat but one that would only affects its
sales in the long term. Armed with this information, Secheron decided to invest
massively in its current electrodes by building a major plant rather than develop the
new technology electrodes258.
Financial participations in companies abroad were a non-negligible source of
revenues for Secheron. Given their past success, Kronauer suggested their
intensification by engaging in participations to maintain the company’s current
turnover. Various propositions in Portugal, India, Israel and Spain were presented to
the board. The CEO was given the green light to proceed forward to study these
projects in depth and take action at his discretion. The board also unlocked the
financial resources to carry out these operations259. This tendency to invest in what
was already working is seen in Secheron’s participation in a Spanish company in the
fields of welding and electrodes production. It was a growing company. It had
profitable current operations and bright future projections, Secheron was already a
shareholder. The company planned to triple its production capacity to respond to its
existent growing demand. Kronauer advised the board to increase its financial
participation to provide it with the resources necessary to undertake this expansion.
The board approved260. The same situation repeated itself for this same company a
few years later. Secheron agreed to increase its financial participation again under the
same decision pattern. In 1962, Laborke-Kupfter was a specialised leading company
with a growing name in its industry. It was known for the quality of its products. One
of the two partners owning and running the company was set to retire. Secheron saw
an opportunity to associate itself with an established successful company with
potential. It decided to acquire the retiring partner’s 50% ownership261.
The low tolerance of risk and lack of future orientation evidenced in its
investment approach inhibited the development of a culture of radical innovation.
258 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 3 July 1961 259 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 18 October 1962, p11-‐12 260 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 27 April 1966 261 Ibid
65
Secheron’s experiences between 1960 and 1970 were of a constant latecomer in
technological developments. The process through which it moved from the pursuit of
the nascent selenium plates technology to the silicon rectifiers to a position of licensee
depending on external companies is telling. By 1960, Secheron decided to enter in the
production of selenium plates. It was a new market spurred by recent technological
advances. However, other companies preceded Secheron’s entry in this market. They
were at the origin and remained at the forefront of this technology. As a latecomer,
Secheron had a 1-year gap in terms of quality relative. It engaged significant efforts to
reduce this gap. Important resources were assigned and Secheron’s selenium plates
quality was greatly improved. However, its competitors did not refrain their own
technological development. They were still a year ahead in terms of quality despite
Secheron’s progress. Kronauer hence told the board if Secheron was to close the
technological gap, further substantial investments were required. The final decision of
the board was to discontinue these operations and focus Secheron’s resources in the
development of the new silicon rectifiers technology262. In that front, Secheron’s
situation was no better. It was equally a latecomer. Siemens and Merck were already
at the forefront of the technology. They each developed a satisfying solution. They
were already bringing it to market and authorising licenses. At the same time,
Secheron’s research efforts conducted by the external company Institut Batelle had
developed a promising technique. It was not advanced enough to be commercialised
despite Secheron’s CH 1 million allocation to the institute263. Faced with this
technological lag again, Kronauer suggested the board a solution whereby it cuts its
research and development efforts for its silicon rectifiers and obtain instead a license
to produce them under Siemens’ technology264. Secheron paid a high price for its
technological shortage. Siemens requested demanding conditions to license Secheron.
The negotiations on the rate of loyalties dragged for years265. Secheron’s latecomer
262 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 30 September 1960 263 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 7 December 1961, p11-‐13 264 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 30 September 1960 265 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 6 October 1966. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 5 June 1967. SA 2A, Archives de
66
position pushed it to purchase other patents in different markets to remain
technologically relevant 266 . Similarly, in the buoyant excitement about the
development of a Swiss nuclear technology, the company engaged in its own efforts
to participate whilst urging extreme caution as to the allocation of financial and
human resources267. This reluctance and hesitation about the future of this segment
quickly led the company to discontinue its operations a year later when problems at
the national level surfaced and the enthusiasm waded268.
Secheron’s board had no clear idea about the future of the company. Major
differences of views between the chief executive officers and the other three
executives were noted269. This uncertainty was further apparent in Secheron’s
decision to abstain from any major investments in 1965270. Since 1960, discussions of
the board on the long-term industrial future were inexistent. It is only in 1966 that it
requested the CEO to produce a report on the company’s future271 . By that time,
Secheron was already experiencing growing difficulties, perhaps due to the very ill
preparedness its focus on existing operations and ignorance of long term future
generated.
Secheron’s culture of caution was also expressed in its resilience to turn
around the situation of its Nancy subsidiary. Secheron acquired a production company
in France (Nancy) in 1958. It was financially independent at first. It also offered
Secheron valuable perspectives. Its qualified labour, its direct access to the European
Common Market and its production of specific product categories of interest to
la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 29 November 1967. 266 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 18 December 1963 267 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 9 March 1965 268 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 6 October 1966. 269 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 3 May 1963 270 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 2 July 1965. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 12 October 1965 271 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 6 October 1966. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 14 December 1966
67
Secheron were assets the company was proud to have and keen to preserve272. This
was especially so given the constraining Switzerland environment marked by a lack
of qualified labour, high wages and its non belonging to the Common Market.
Secheron therefore tried to develop a close relationship with its subsidiary. It changed
directors that were perceived as hindering the quality of the collaboration between the
two entities 273 . However, the Nancy company begun to report difficulties and
registered losses in 1963 for the first time274. Secheron was compelled to pour capital
to assist Nancy’s struggles. It became a recurrent necessity as Nacny crisis
intensified275.
Nancy’s loss was not a one off situation. The crisis was not punctual but persistent. It
gained in intensity, weight and urgency. At first, Secheron tried to leverage its
collaborations and partnerships as well as minor improvements in the company’s
operations to handle the situation276. When this approach failed, it sought to dispose of
the company and started looking for a buyer to cut the negatives consequences Nancy
was beginning to create. Thus, Secheron received offers. The most notable one was in
1965. A company called CGE put forward a proposition to take over Nancy y.
However, the liquidation conditions were too constraining, the underlying loss too
important and the board felt it could get a better deal. Despite the failure of this first
attempt, Secheron maintained its research for a buyer277. Nancy raised interest of other
buyers but no concrete results were reached278 . By that time, Nancy situation
worsened. It was becoming a significant financial threat. The situation became
272 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 9 October 1963 273 Ibid 274 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 18 December 1963 275 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 24 April 1964. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 23 April 1965. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 12 October 1965. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 9 December 1965 276 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 24 April 1964 277 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 23 April 1965 278 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 24 June 1965
68
urgent279. Secheron’s inability to find a satisfying buyer, the degradation of the
situation and the increase of financial risk associated convinced the board to use its
own efforts to operationally turn around the company. Secheron’s CEO and its
technical division provided assistance to improve Nancy’s teamwork and technical
capabilities280. An audit of Nancy resulted in a more accurate vision of the problems.
Nancy had structural weaknesses at all organisational levels. Its main client EDF was
becoming dissatisfied. It was considering dropping the company281. It was clear a
more hands on approach was necessary. Secheron accordingly allocated its CEO,
technical and commercial directors as well as other experts to spend more time in
Nancy282. The objective was to turn Nancy from a poorly managed company to one
able to stand by its commitments and quality standards to limit the incurring losses,
improve its operations in the short term and sell it at a minimum loss283. The direct
efforts of Secheron associated with the collaboration of Nancy’s main stakeholders
resulted in the relative improvement of the situation284. The attractiveness of Nancy
increased. Secheron had two possibly satisfying solutions. The first was to liquidate
the company in reasonable terms. The second was selling it to a subsidiary of Brown,
Boveri & Cie (BBC) that intended to expand Nancy’s production and continue its
operations. It chose the second option to guarantee the personnel’s future285. The
company concluded the transaction with a reasonable loss286.
b. Culture of collaboration and independence
279 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 9 March 1965 280 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 23 April 1965 281 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 12 October 1965 282 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 9 December1965 283 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 9 March 1965 284 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 27 April 1966 285 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 6 October 1966 286 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 14 December 1966
69
The second cornerstone of Secheron’s culture was collaboration. Secheron’s
board believed collaboration with partners was key to its success. It relied on this
mechanism to develop its internal organisational capabilities from research,
production to distribution. This culture of collaboration was consistent with
Secheron’s culture of caution. It was a way to reduce risk.
Secheron’s culture of collaboration used external exposure to develop and
strengthen fundamental internal organisational capabilities. This is clear in the way it
used collaboration to expand its research capacities. The company entered a
consortium of four companies to develop the immersed motors domain. These firms
were Sulzer Wintehour, Sulzer Leeds, Laurence and Laurence & Scott. Each firm had
advanced expertise in certain areas. Laurence & Scott was specialised in electric
motors. The collaboration was a non-financial agreement enabling the exchange of
technical information and designs. It limited however the commercial areas where
developed products could be distributed. Laurence & Scott was entitled to England
and Commonwealth market whilst Secheron and Sulzer shared the remaining regions.
Specific areas of research were targeted. Sulzer Wintehour and Secheron were to
develop complete standardisation solutions to immersed motors at low temperature.
Sulzer and Laurence & Scott were responsible to design a standardising system for
immersed motors at high temperature. Last, Secheron and Laurence & Scott were to
unify the dimensions and conceptions of the previous research assignment results.
They were also in charge of realising practical experiences and testing287 . This
collaboration initiative in research was not the exception but rather a systematic
practice. The welding division entered in a collaboration agreement with another
company in 1961288. Secheron launched collaboration with a Zurich based Frabqieu
Electrodes Buhrle. They engaged in common research on products of relevance to
their Swiss market 289. Further collaboration between both companies was conditioned
by the market reaction to this partnership290. In the field of silicon rectifiers, Secheron
287 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 7 December 1960 288 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 15 March 1961 p4 289 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 14 June 1962,p14. 290 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 18 October 1962,p10.
70
explored collaboration with Ateliers de construction Oerlikon after Secheron’s
frustration with Siemens’ attitude291. This partnership ended in failure292. In the same
field, Secheron collaborated with the Swiss watchmaking industry through exchange
of information of experiences with the Centre Electronique Hrologer and Ebauches
SA293, Finally, Secheron collaborated in research projects with Therm Atom and La
Savoisienne294.
Secheron’s collaboration was not limited to research. Production and distribution
were subject to the same practice. These agreements focused on three geographical
axes: India, Britain and Spain. Secheron collaborated with two leading Indian
companies: Gandhi Electric and Tata. This agreement concerned production and sales
in the Indian market295. Secheron equally collaborated with two Spanish companies in
Bilbao :Altos Hornos and De Baconi. They set up a production and a sales company
to serve the Spanish market296. Secheron further expanded its collaboration in Spain
by tying a licensing agreement with another company in 1965297. Last, Secheron
collaborated with a few British companies through production and sales licensing
agreements designed for the British market298.
291 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 19 December 1962 292 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 7 December 1964 293 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 19 December 1962,p8. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 24 February 1964 294 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 24 April 1964. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 7 December 1964 295 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 4 March 1963,p5. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 4 June 1964. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 7 December 1964. 296 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 19 December 1962. 297 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 4 June 1965 298 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 7 December 1964. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 23 April 1965. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil
71
Secheron’s culture of collaboration also found its expression in resolving the
difficulties of its subsidiaries in Nancy and Italy. When the Nancy problems first
surfaced, the board was unanimous. Developing collaboration with other companies
would quickly end the problem299. Secheron first tried to collaborate with Oerlikon
France. However, the deal collapsed. It looked for other candidates. Jeaumont and
C.G.E were in prime position. The first’s insistence on technical collaboration only
without any financial commitment made it an unattractive option. It was dropped. As
to C.G.E, research for effective ways to collaborate was under way300. All subsequent
efforts were with E.D.F and C.G.E301 . E.D.F was Nancy’s main client. It was
interested in Nancy’s supply and capabilities. E.D.F’s withdrawal would have cause
inevitable bankruptcy of Nancy. E.D.F therefore did not want to trigger this process.
It would seriously damage its image in an already tense social situation in Franc. It
consequently actively engaged in collaborating with Nancy to fill its order books,
facilitate financing access whilst trying to use its wide network to find buyers that
could maintain E.D.F’s supply and protect its brand302. Whilst this collaboration was
not enough to resolve the problem, it bought crucial time for Secheron to improve
Nancy’s operations and attractiveness. It was crucial to find a buyer and resolve the
problem. Secheron adopted a similar approach when its Italian subsidiary OCREN
was under threat. The Italian government was creating a national company. It would
render OCREN uncompetitive and thus cut a major source supplies for Secheron. To
face this situation, Secheron entered in an alliance with other shareholders of OCREN
d'Administration 4 June 1965. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 12 October 1965. 299 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 17 November 1961. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 14 June 1962. 300 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 14 June 1962, p17-‐18. 301 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 14 December 1961. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 7 December 1964. 302 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 18 October 1962. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 19 December 1962,p6-‐8. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 24 January 1964.
72
to deal with the challenge303. An agreement was sealed with Secheron’s Italian local
partners to develop a strategy to fight the new government sponsored competitor304.
Secheron participated alongside its partners in OCREN’s increase of capital305
Secheron’s culture of collaboration was apparent in its attempt to enter in a
general collaboration with one of its direct rivals to improve its competitive position
in its increasingly concentrated industry. In this pursuit, the value of independence
emerged as the third critical value of Secheron’s culture.
Secheron’s board was worried by the recent concentration trends. It first attempted to
create a community of interest to fight this danger306. The limited impact of this
initiative led it to consider a different course of action. The Ateliers de Contructions
Oerlikon was a Swiss company and a director competitor of Secheron. It had a similar
size and comparable capabilities. Secheron engaged with Oerlikon with a view to
develop a general collaboration at all levels from the technical, production,
administrative to the distribution functions307. Talks between companies advanced.
Collaboration became more and more likely to occur. It benefited and strenghtned
their capacity to deal with their changing environment308, In these discussions, a
potential merger emerged as the optimal way to integrate both companies’ capabilities
and facilitate its management 309 . The merger option rapidly triggered a vivid
repositioning of Secheron’s position. It highlighted one of Secheron’s most important
values: Independence. Consequently, the board set clear and strict principles to guide
the negotiations with Oerlikon. Secheron was ready to allocate financial resources in
the collaboration. Secheron was ready to commit both legally and institutionally.
303 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 14 June 1962. 304 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 18 October 1962. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 9 October 1963. 305 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 24 February 1964. 306 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 15 March 1961,p3-‐4. 307 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 7 June 1961,p10. 308 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 3 July 1961. 309 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 17 November 1961.
73
However, the guarantee of its independence had to be part of any deal310. The
Oerlikon proposal maintained a complete merger between the two companies.
Secheron’s independence value was violated. It refused Oerlikon’s proposal but left
the doors open for any proposal embracing independence 311. The attachment of both
companies to their position failed the general collaboration. Its was official a year
after the beginning of negotiations312. Three years later, news surfaced about a
potential collaboration between Oerlikon and Secheron’s other bigger rival BBC.
Secheron regained interest in collaborating again with Oerlikon. It contacted Oerlkion
and stressed the importance of collaboration between the two companies for their
survival, despite the previous failure in talks313. In vain, BBC acquired Oerlikon. An
even stronger local rival was born.
c. Culture of caution and collaboration in times of crisis
Since 1966, Secheron entered a downward spiral. It engulfed the company in a
extremely severe crisis threatening its very survival. Secheron’s efforts to overcome
the crisis highlighted its culture of caution, collaboration and independence.
Secheron’s difficulties surfaced in 1966. It registered disappointing results. They
were completely disconnected from management’s previsions314. This was the start of
a downward spiral. Secheron’s subsequent results dropped year on year at an
important rate315 . The relatively serene stable situation the company enjoyed turned
into an urgent crisis overnight. The roots of this brutal decline were however years in
the making. The board reflected on the situation. A host of factors unravelled. 310 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 14 December 1961 311 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 1 March 1961, p7-‐9 312 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 26 March 1962 313 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 23 April 1964 314 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 6 October 1866. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 21 May 1968. 315 PV 29 Novebmer 1967. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 2 October 1968. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 2 December 1968. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 21 May 1969.
74
Technological change had turned some of Secheron’s core products into less
attractive and competitive ones316. In certain situations, the most important product of
a whole department became obsolete leading the CEO to suggest disposing of the
concerned divisions317. Competition intensified in number. Previous foreign markets
now satisfied their needs locally318. It also intensified in dimension. The industry
became greatly concentrated319. The combination of a price war taking (dumping in
certain cases) and Secheron’s inability to differentiate its products from its rivals led
to a significant loss in competitiveness320. For instance, Secheron’s products in
transformers divisions were driven out of the market by its competitors. An entire
business line was in jeopardy321 At the same time as price war became the norm in a
fragmented industry, Secheron’s production costs were constantly increasing. The
wage bill was growing322. Secheron’s departing commercial director summed up the
situation upon his resignation. Secheron’s dramatic decline was the result of the
company’s loss of industrial competitiveness. Its heavy reliance on the internal
market driven by the relatively regular major orders from the Swiss national railway
company encouraged this technological complacency323. Secheron lost ground in
several central business lines. The development of new lines was under way. It was
not enough to compensate the shrinking of its existent operations. A newspaper article
attacked the uncertainty surrounding the Secheron situation further increasing the
need for a speedy solution324.
316 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 1 March 1967. 317 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 5 June 1967 318 Ibid 319 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 13 October 1969 320 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 5 June 1967. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 13 October 1969 321 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 5 June 1967. 322 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 13 October 1969 323 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 28 February1968 324 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 5 June 1969
75
Secheron’s culture of caution, collaboration and independence between 1960
and 1969 governed the initial response to the crisis. The extreme seriousness of the
situation required however fundamental changes. Some of its key values were
dropped for survival and expansion.
By 1968, in the middle of a worsening crisis, Secheron’s chief executive officer still
believed competitiveness in one of Secheron’s key divisions was solely a question of
price, costs and efficiency of production325. Secheron’s main strength was seen until
then as its irreproachable efficiency and management cohesion. Yet, these very
strengths became questioned as the crisis unfolded. The commercial head of Secheron
disagreed with the CEO on fundamental issues and resigned326 Secheron’s president
departed327. Production problems, repetitive delays of delivery and inability to deal
with labour shortage were all issues highlighted by the direction as the roots of
Secheron’s difficulties328. A heavy campaign was then launched to restore the loss of
operations efficiency not only in production but at all organisational levels. At a
general stage, the CEO engaged in eliminating unrewarding activities with no more
potential and in improving existing divisions with good prospects329. An aggressive
downsizing of the work force in a drive to reduce production costs was carried.
Kronauer conducted this exercise until there was not another worker Secheron could
lay off without hindering its production requirements330. Other areas of cost reduction
were to be found. Research was perceived as a dispensable cost for the first time. The
board suggested Secheron use external patents rather than in house research. This
latter was costly and inefficient. Kronauer agreed to find way to improve research
efficiency. However, he defended maintenance of internal research. The human
325 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 2 October 1968 326 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 28 February 1968 327 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 5 July 1968 328 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 5 June 1969 329 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 28 February 1968 330 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 21 May 1968. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 21 February 1968.
76
capital in Geneva was a valuable asset Secheron could not lose331. Secheron further
moved to liquidate some of its foreign participations to plough back resources and
reduce its exposure to risky ventures. The firm Secheron fought to save in Italy
(OCREN) was sold332. Secheron’s situation worsened to a degree it was taking on
orders with disadvantageous prices and margins to maintain its sliding level of
revenues 333 . Overall, Secheron’s purge into aggressive cost reduction and
improvement of efficiency was not effective to stop its decline334. It could not redress
the situation. The perspectives were only worsening. Another solution had to be
found.
Collaboration was identified as the solution. It was urgent to explore this option and
dedicate all the company’s efforts in that direction335. It actually became the main
solution in the board’s perception. They reached a point they were more interested in
discussing the development of collaboration talks rather than internal developments
and results at Secheron336. The firm was negotiating for a licensing agreement with
Siemens. Despite its dissatisfaction with Siemens’ terms, the board urged Secheron to
maintain a good relationship with a view of a future collaboration337. The objective of
any collaboration was in line with its previous strategy: reduce general costs by
sharing organisational capabilities from research, production to distribution
channels338. Secheron’s president further highlighted the purpose of any collaboration
was to reduce Secheron’s fundamental disequilibrium between its turnover and its
research costs339.
331 Ibid 332 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 28 February 1968. 333 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 13 March 1967 334 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 13 October 1969 335 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 12 March 1969 336 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 20 September 1967 337 Ibid 338 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 21 May 1968. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 10 June 1968 339 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 21 May 1969
77
Secheron explored collaborations with this objective in mind and the non-negotiable
principle of independence it insisted upon earlier during the Oerlikon general
collaboration discussions. Secheron shortlisted several potential partners: Siemens
(Germany), ASEA (Sweden), Burble (Switzerland) and I.T.E. Imperial (United
States)340. ASEA was dropped. It had a sensitive relationship with with B.B.C.
Secheron did not want to risk upsetting its bigger rival. Buhrle was interested in
purchasing Secheron’s Glant plant rather than collaboration. Discussions with I.T.E
Imperial were not promising 341 . Thus, from the beginning, Siemens was the
frontrunner. Both companies developed a very positive relationship during
collaboration discussions and multiplication of contacts between their equivalent
departments 342 . They identified concrete technical and commercial areas for
parternship343. Secheron suggested the creation of an independent company with its
own management and board. It would combine Secheron and Siemens’ plants in
welding and distribute profits between both firms344. During these negotiations,
Secheron insisted on retaining its independence. Any collaboration form should
include this condition345. When financial participation of Siemens in Secheron was
evoked, the company was quick to limit any potential ownership in Secheron to
25%346. At most, it could give up a third of its shareholdings347. After the numerous
visits made by Siemens to Secheron and close examination of the situation, Siemens’s
diagnostic was the following. There were two courses of action Secheron could take.
The first was an expansive one. Siemens would engage in a general collaboration with
340 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 2 October 1968. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 2 December 1968 341 Ibid 342 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 10 June 1968. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 5 June 1969. 343 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 5 March 1969 344 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 21 March 1969 345 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 10 june 1968 346 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 2 October 1969 347 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 9 July 1969
78
Secheron to reduce its immediate difficulties. It would fill its sales book with ordersa
and provide resources to spur revenues and size growth. In this case, Siemens would
need to take major financial participation. It promised to Secheron’s board large
margin of freedom. The second option was to shrink the company’s size and revenues
level by focusing it on a very few targeted profitable activities348. Secheron’s board
noted this second option had no future in a growingly concentrated industry. It would
not guarantee any better prospect349. Secheron equally entered in negotiations with
B.B.C. Similarly, Secheron’s proposal of collaboration without financial participation
was rebuffed350 . At the same time, Secheron’s financial crisis worsened. At this
stage, Secheron realised it had no choice but to trade its independence if it were to
survive and expand351. The late interest of B.B.C upon hearing of Secheron’s contact
with Siemens, surge in support for a Swiss rather than foreign contender within the
board, insistence on retaining Geneva’s intellectual capital and the reception of a
concrete satisfying acquisition proposal by B.B.C were enough to convince Secheron
to side with this latter despite its advanced discussions with Siemens352. Secheron was
acquired by B.B.C in 1969.
3) Culture of radical innovation and performance
a. Maillefer and Secheron’s performance
In both organisational theory and business history literatures, the measures used to
assess performance differed. No clear consensus emerged. Tellis (2009) used the
market to book ratio measure353. Similarly, Collins (2004 used a market driven
348 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 5 March 1969 349 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 13 October 1969 350 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 21 March 1969. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 9 July 1969. 351 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 12 March 1969. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 17 October 1969. 352 SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 21 May 1969. SA 2A, Archives de la ville de Geneve, Secheron S.A, Procès-‐verbaux du Conseil d'Administration 5 June 1969.
79
indicator: stock return354. Denison (1995) and Di Tomaso (1992) used the Return on
Sales (ROS) and the Return on Investments (ROI) measures355. Eberheart (2004) used
variations of Earnings Before Interest and Tax (EBIT)356. Given the lack of consensus,
we use the net profit indicator. It captures the end objective organisations strive for.
The extent to which the company succeeds in this pursuit over time reflects its
broader underlying operational performance
Figure 1: Secheron’s net profit from 1960 to 1970357
Secheron’s performance was slightly growing from 1960 to 1965. It started a
free fall from then on until registering a loss on 1970. Secheron’s culture of caution
enabled the company to perform reasonably during the first phase due to a stable
environment. As evidenced by Sorensen (2002), strong cultures tend to perform in a
reliable way in these conditions. However, this reliability benefit disappears in times
of volatility and environmental change. This was the case in Secheron’s situation.
Secheron maintained its usual focus on improving efficiency. It was rewarded for it in 354 Eisenhardt, “Agency Theory.”p40 355 Denison and Mishra, “Toward a Theory of Organizational Culture and Effectiveness”; Gordon and DiTomaso, “Predicting Corporate Performance from Organizational Culture*.” 356 Eberhart, Maxwell, and Siddique, “An Examination of Long-‐Term Abnormal Stock Returns and Operating Performance Following R&D Increases.” 357 SA 1.2/71-‐81, Archives de la ville de Geneve, Secheron S.A, Rapport annuel du Conseil d’administration 1960-‐1970
0
1
2
1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970
Net
pro
fit [m
illio
n C
H]
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80
a stagnating marketplace. However, the intensification of competition and occurrence
of major technological shifts Secheron was structurally ill prepared for quickly
changed the company’s fortunes. These structural problems were deep. B.B.C needed
three years of major changes to get Secheron out of its loss-making streak from 1969
to 1972.
Figure 2: Maillefer’s net profit from 1960 to 1982358
Maillefer’s long term dynamic was of strong growth, although it was tempered
by specific situations. Charles Maillefer inherited a strong culture. Like Secheron, it
registered a reliable performance at a stagnating level. This level was of CH 0.5
Millions. Under Charles Maillefer leadership, the company moved towards a culture
of radical innovation. Its establishment however required time. The first few years
were dedicated to this sole purpose. Major allocation of resources to research and
development as well as to upgrade Maillefr’s distribution and production capabilities
were made. The company benefited from the instant improvements made whilst this
358 PP 837/30, Archives Cantonales Vaudoises, MailleferS.A, Rapport annuel du conseil d`administration, 1960-‐1982.
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Net
pro
fit [m
illio
n C
H]
Years
81
culture was being put in place. Maillefer thus tripled its net profit from 1960 to 1966.
In 1966, the rationalisation program and the structural reorganisation were just
finished. A few years later, these efforts reflected financially after the
commercialisation of its radical innovations (the extruder BM and complete
installations). From 1970 to 1977, Maillefer registered exceptional net profit figures
as a result. However, the extremely hostile environment of the 1977 to 1979 years
stopped this momentum. Maillefer then stabilised its performance when conditions in
world markets improved. Still, the net profit figure by 1982 was 6 times the one of
1960. Maillefer’s performance during these 22 years can thus be considered largely as
a positive performance, especially when considering the constraining Swiss
environment as well as the punctual tensions in global markets.
b. Culture of radical innovation and performance, an interpretation
The existence of a culture of radical innovation is a likely factor explaining the
difference in performance between Maillefer and Secheron over the long term. We
showed that Charles Maillefer established a culture of radical innovation upon taking
the reigns of the company in 1960. We also showed Secheron’s culture was defined
by caution, collaboration and independence. It was inhibitive of any culture of radical
innovation. It stressed the focus on existing operations without orientation towards the
future. It had extremely low tolerance of risk and was unwilling to cannibalise short-
term assets to invest in the next generation of technological developments. At the
same time, both companies operated in a similar environment. They both faced the
difficulties of the Swiss constraints from shortage of labour, the strong Franc as well
as the broader global environment where their export oriented activities were
exercised. The only difference was the nature of their corporate culture. Maillefer’s
culture of radical innovation seemed to be more favourable to generate sustained
long-term performance. In the following, we delve into more details as to mechanisms
that explain their performance building on the extensive analysis developed in both
cases.
Maillefer’s culture of radical innovation drove the company’s strategy from
the essence of its underlying beliefs. Maillefer’s central objective was to beat the
competition. Technological superiority was the only way. From this sacred belief in
technological advance and superiority followed series of concrete decisions that
established this culture of radical innovation at all organisational levels in Maillefer.
82
First of all, the company put in place an organisational structure driven by research.
Two of its four departments and a subsidiary were exclusively research driven. A
systematic research and development process characterised by fundamental science
research, theoretical design, prototyping and industrial testing inhabited this
organisational structure. Furthermore, the company allocated substantial financial
resources to these efforts. It was constantly willing to cannibalise short-term profits to
develop technologies ensuring its long-term industrial future. It was also constantly
looking for new business lines, activities and markets to enter based on its existing
core capabilities to diversify and create new sources of growth. It tolerated the risk of
pouring significant resources in uncertain research and development projects. These
efforts resulted in three major radical innovations from 1960 to 1982. The first was
the extruders BM equipped with the special unique superior technology of its screw
BM. The second was the technically unmatched complete installations. The third was
its plastic transformer machine. Incremental innovations retained Maillefer’s
technological superiority and competitive advantage in these business lines over time.
In each of the three markets, Maillefer remained the leader during the period studied.
The noted superiority of Maillefer’s machines and services generated and sustained a
strong growing demand. It provided a significant sales argument that emboldened the
company to pursue an expansive policy in world markets. Its diversification from its
traditional European market allowed for flexibility and resilience during hostile
environments. In this expansive and diversification commercial policy, Maillefer
developed its distribution structure, organisation and capabilities to effectively
support its products. Growing demand meant the necessity for greater production
capabilities to satisfy it. Maillefer launched a major investment in a plant in Ecublens.
It used it as the cornerstone it built an expanding industrial complex around. Maillefer
increased the efficiency of its production processes through rationalisation. The
shortage of labour forced it to develop alternative solutions. It subsequently engaged
in subcontracting and acquired a production company. Last, the new volumes it dealt
with and the unprecedented dimension it reached required the development of
effective management. Policies based on objectives, delegation of power, autonomy
and learning were put in place. Maillefer invested in the latest technological tools to
further assist its management reach their objectives. To sum it up, Maillefer’s culture
radical innovation generated radical innovations. They drove strong sustainable
83
demand. It spurred the strengthening of the company’s distribution, production and
management capabilities. Growth and sustainable performance was the result.
On the other hand, Secheron’s culture was built on the cornerstones of caution
and collaboration. The board believed efficiency in running the organisation was the
key to its success. Accordingly, it focused its efforts on constantly improving the
efficiency of its existing operations. The board only invested in activities with proven
results on the ground with further potential of growth. It took foreign financial
participations using the same rationale. Secheron had a low tolerance of risk and was
unwilling to cannibalise current assets for uncertain future technological projects.
With this attitude, Secheron was in no position to create radical innovations. It was a
constant latecomer in nascent markets born out of important technological
developments. It assumed its latecomer position and engaged in significant allocation
of resources to fill the gap. However, time and again, its competitors remained ahead.
It was forced to enter in licensing agreements under constraining conditions leaving it
but with a limited inconsequent market share in growing business lines. Its cautious
culture also led it to devote substantial efforts and resources to try and turn around its
Nancy. Instead of looking ahead and build its industrial future, Secheron was battling
in its existent business lines, seemingly unaware of the dramatic technological
changes occurring in its environment. Another way to reduce the risk was through
collaboration. Secheron systematically engaged in this practice to develop its internal
organisational capabilities whilst limiting and spreading its resources allocation. Thus,
it developed numerous research, distribution and production agreements. Its culture of
collaboration was apparent in its attempt to seal a general agreement with a direct
rival of similar size to strengthen itself against the increasing competition and
consolidating industry. Both its culture of caution and collaboration did not yield into
any major technological innovation. It did not enabled to embrace significant
technological shifts in its industry whilst the short window of opportunity was still
open. Thus, its products were technically undistinguished. Its only weapon therefore
was the efficiency of its operations and its ability to offer a competitive price.
However, the increase of competition led to a price war Secheron could not support.
The continuous increase of its labour costs particular to Switzerland handicapped
Secheron compared to its foreign competitors. Furthermore, major technological
shifts were occurring. Consequently, the star product of many of its key divisions
84
such as the transformers was driven out of the market. This trend intensified. From
then on, Secheron was battered. Its performance went from bad to worse. The despair
of the situation forced it to give up the independence principle it valued deeply. Its
only option to survive was to be acquired by a bigger competitor. It was in 1969.
We can conclude in the cases of Maillefer and Secheron, the critical factor that
defined their long-term performance was their technological capability. Maillefer’s
culture of radical innovation spurred a constant technological superiority overs its
competitors through a combination of major and incremental innovations. Secheron’s
culture of caution and collaboration limited the development of the company’s
technological capacity. It was passively subject to the technological shifts in its
environment turning core products of its main revenues generation divisions into
obsolete uncompetitive offerings. In the light of this comparison, culture of radical
innovation seems to be related to long-term performance.
c. Limits
This research has many limits. The first methodological limit is that it compared
two companies in different sub industries. Maillefer and Secheron are both in the
electrical industry. They rely on the same fundamental science to design and develop
their products. They operate within the same Swiss and global environment.
However, there are certainly differences in some areas that particular to their sub
industries. These differences are not accounted for in this research despite the
conscious selection of this comparison to isolate uniquely the corporate culture factor.
It was though the closest we could get to with company archives accessible. The
second limit is the heavy reliance on annual reports to analyse the Maillefer case. The
minutes of the board of directors were not substantial enough to be the prime source
of our analysis of corporate culture. Rather, they were but indicative and stopped in
1966. However, our awareness of this methodological limit led us to use annual
reports with further caution. Our analysis therefore relied mainly on the objective
facts that are reported rather than the merits that are outlined. In the same line, we
omitted Maillefer archives that assisted the claim of a culture of radical innovation but
were only of symbolic nature or for public relation purpose. The intention was to
seize Maillefer’s culture through the underlined decisions, actions and initiatives only,
assisted by the corporate culture model of radical innovation outlined in the
organisational theory literature. The third methodological limit constrained again by
85
the nature of the archives is our inability to follow the Maillefer case until 1987. On
this year, Charles Maillefer sold the company. Instead, we stopped in 1982 due to the
lack of further annual reports to draw on. Another 5 years would have been welcome
additional data to observe whether there is continuous coherence in Maillefer’s
culture and its resulting behaviour. The fourth limit relates to the measure used for
performance. It would have been more appropriate to cross other indicators such as
revenues to have a clearer picture of Maillefer and Secheron performance. However,
such numbers were not equally available in both cases. The importance of gaps in
certain series pushed us to restrict the performance measure to net profit only in order
to present a comparable tangible set of data. We attached though other performance
indicators on Maillefer in the appendix, which would be useful to have a broader
understanding of the company’s evolution over time.
86
IV. Conclusion
Firm performance in business history literature remains an open debate. The
purely economic inspired paradigm based on technology, markets and self-interested
competition embraced mainstream explanations concerning the drivers of
performance. Internal organisational factors, control and adaptation to the
environment remain the leading theories. The economic paradigm reached limits in
explaining organisational performance and behaviour. The culture framework opens a
new promising perspective to provide alternative and complementary explanations.
Corporate culture is of particular relevance to explore the question of firm
performance. Strong, mission driven and adaptation cultures were identified as the
three corporate cultures that best relate to performance. They are satisfactory to
explain short to medium term performance. However, they cannot account for long-
term performance. The central limit these cultures share is their inability to deal with
technological change. Culture of radical innovation had the potential to overcome this
limit. No studies on the link between culture of radical innovation and long-term
performance in capital-intensive industries were conducted in the literature. We
therefore investigated this question. We adopted a comparative methodology. We
chose the Swiss electrical industry. More specifically, we compared two of its key
players: Maillefer and Secheron. Both companies operated in a similar environment
and were active in global markets. Their intricate similarities enabled us to fix the
environment variable and isolate the culture of radical innovation factor. Companies’
divergent long-term performance and their unique corporate cultures created a fertile
ground to investigate our research question. Maillefer’s culture corresponded to a
culture of radical innovation as defined in the literature. Secheron’s culture was built
on the values of caution, collaboration and independence. Maillefer thrived over the
long-term. Secheron performed well within a stable environment. It collapsed in a
technologically shifting environment. The central result of this research within the
limits of its methodology is a positive link between culture of radical innovation and
long-term performance in capital-intensive industries. Further research integrating the
economic and cultural paradigms to explain firm performance would be a welcome
addition to the historiography.
87
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VI. Appendix
Figure 1: Evolution of Maillefer turnover and workforce from 1920 to 1985