“Change manager shows, tells and does it”

Business Review Weekly, Oct 3rd 2002.

By Tim Treadgold

The easiest way for a company to cut costs is to sack a lot of people. But Pasminco, a zinc and lead miner that collapsed under a mountain of debt, found another way to achieve $100 million in cost cutting and productivity improvement. Management worked smarter.

SKIPP WILLIAMSON: "We only hire people who have been humbled"
Image: Eamon Gallagher

There was no single brilliant idea, no sudden discovery of a cheaper way to produce zinc or lead. Pasminco achieved its goal of lower costs by making myriad changes to the way it works. Bottlenecks were removed, maintenance down-time reduced, shift hand-overs streamlined, and operating discipline tightened across all facets of the business. The result is that Pasminco avoided liquidation, returned to cashflow-positive production, and is preparing itself to re-list on the stockmarket in November or December. The biggest victims from the company's failure are its shareholders, who have had their shares suspended from trading for 12 months and look like getting very little in the refloat.

Some of the credit for the survival of Pasminco, which was placed in administration in September 2001 owing 39 banks a total of $2.8 billion, goes to its chief executive, Greg Gailey. Some of the credit goes to the administrators, John Spark and Peter McLuskey of the accounting firm Ferrier Hodgson. Even the banks, normally seen as the villains in a corporate collapse, deserve a little praise for agreeing to support Pasminco's innovative survival and refloating plan.

Behind the scenes at Pasminco was another participant who has received no credit for the improvements that convinced the banks that the miner deserved a second chance. Skipp Williamson, a New Zealand engineer and management consultant, is the person who rolled up her sleeves and took management theory to the shop floor as an assignment for her firm, Partners in Performance International (PIP).

"There is nothing more humbling than implementing," Williamson says. "Most consultants are good at writing reports and making recommendations. Not many are much good at making their suggestions actually happen, or at working alongside shift workers to see exactly how a production process works. We only hire people who have been humbled by the reality of trying to make things happen."

Williamson, a former consultant with McKinsey & Company, set up PPI in 1996 after handling various large change programs, such as helping reshape the aluminium maker Comalco. She says the key to achieving a substantial operational turnaround is to get managers to focus on where they incur costs and where they make money. It sounds
simple, but she says it is all about training managers how to manage.

Two case studies illustrate her point: Pasminco and UK Paper, a division of Fletcher Challenge. At both companies, Williamson's team took management theory and rigorously applied it, working alongside employees on the factory floor. "Management consultants always give you intellectually flawless ideas, but no application," she says. "When I was with McKinsey, I went back to visit my clients. To my horror, half of the cost-cutting we introduced had not hit the bottom line. It was then that I knew there had to be a better way.

"At Pasminco and UK Paper, the type of improvements we achieved include a 20-30% increase in volumes within nine months, a 10-20% reduction in costs per tonne at the same time, and a payback on capital in four weeks." Of the $100 million in productivity and cost improvements at Pasminco, Williamson says $90 million can be attributed to PPI.

Pasminco will not confirm her estimate. Its public affairs manager, Trevor Shard, says the company "declines to give a third-party endorsement".
Stephen O'Donnell was executive general manager of Pasminco's Australian metal smelting division. He is now chief executive of the Pacific National railway joint venture of Toll Holdings and Patrick Corporation. "The question was not how to do the job with less people," he says. "It was how to create more value and improve capacity and yields. I looked at a number of companies that had undergone change programs, such as Comalco. Skipp stood out ... it's the hands-on aspect that goes beyond the normal consultancy."

Williamson says management on a large project she is undertaking did not realise that every day of down-time cost $330,000. "That makes a real difference in the conversations people have," she says. "Management starts making value decisions such as paying contractors more to get a maintenance job done faster, rather than looking at contractors as a cost."

• Management consultants are infamous for writing reports and leaving implementation to the client. A boutique consultancy, Partners in Performance International, is building a niche by focusing on implementation.
• A key factor is to get operational staff to think about the financial implications of their actions rather than volumes of production. The firm played a key role in increasing productivity at Pasminco.

SOURCE: BRW

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