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What is Operations Management?
Operations Management is the ability to maintain and/or continually improve the dayto-day operations of a business using analysis and management skills in a planned and organized way.
It is an integral part of a sturdy business foundation. This model can be explained this: Rooted in common values and a shared vision, the management team creates a business and organizational structure supported by key people.
Together, they successfully accomplish day-today operations using investment wisely. Production systems are continually honed to achieve short- and longer-term goals that prove to be successful.
LightWorks was founded in January 1997. Our vision is to become the premier supplier of prototype and production custom optical systems. At LightWorks we collaboratively work with our customers as an extension of their product development team to develop and manufacture high-quality, high-reliability, integrated optical systems.
and test high-technology optical systems. defense and commercial companies. ground and sea-based optics for military applications. to commercial optics for medical. manufacture. test and measurement and other commercial applications. LightWorks customers include space. engineer. with applications ranging from space-based telescopes and optical systems to airborne. Our goal is to provide our customers a comprehensive capability to design. microlithographic. . integrate.
. based in Orange County. employee-owned company meet its ambitious growth goals without compromising its high-involvement culture? LightWorks Optics. made highly sophisticated optical components for defense aeronautics. California. space exploration. and commercial applications.Case LightWorks Optics Could a small.
LightWorks had set up an employee stock ownership plan. . or ESOP. Early in its history. In 2007. the three founders indicated that they hoped to sell their shares to the ESOP trust in a leveraged buyout in 2012. under which employees gradually built up equity in the closely held firm.
in turn. . and could not. that. especially ones requiring high-volume production. the company needed to improve its revenue and profitability significantly. But. do effectively. LightWorks had to pay attention to its core capabilities and what it could. In order for that to happen. would require that it bring in more contracts.
Moreover. the company prided itself on its culture of ownership--one in which all employees had a stake in the business and a voice in its decisions. Could the president. Dan Barber. and his top management team reach a consensus on how to expand production without losing the benefits of a culture of ownership? .
Employee empowerment Employee Stock Ownership plans Entrepreneurship Open book management Organizational change Organizational development Small & medium-sized enterprises .
. Roger Johnson. Califonia-based firm. The three men all physicists with expertise in optics (the study of physical properties of light) had worked closely together for more than a decade at another Orange-Country. and Don Small. INC LightWorks Optics was founded in 1997 by Dan Barber.LightWorks Optics. the West Coast division of PerkinElmer.
In 1996. and decided to leave to start their own company. the three men learned that Corning. . and that of many of their colleagues. was going to acquire OCA. They became concerned about their future. a major multinational.
as Barber put it. Quietly. and an operating approach. pro forma financials. the three partners attended business classes and worked with an advisor from Small Business Administration. they set about developing a business plan. Over a six-month period as they planned their departure. Their initial plan was simply to seek the kinds of contracts they were familiar with to. recreate OCA in the marketplace as Corning exited the business. .
There were some management issues that we thought weren t handled particularly well. however. Barber commented. PerkinElmer and OCA didn t do a very good job of keeping employees informed and involved in what was going on. . the founders did not want to model their company after their former employer. In one important respect.
000 and a computer the sum total of their startup capital. the company prospered. In 2006. . Over the following decade. gradually building a business making high-quality optical components. Each contributed $15. In early 1997. the partners incorporated LightWorks Optics. LightWorks revenue was around $9 million. Around 90 percent of this amount came from defense contracts.
. The building housed both LightWorks corporate offices and production facility under one roof.
including their former employer. LightWorks recruited almost exclusively from a network of contracts in defense contractors in and around Orange Country.A Highly Skilled Workforce As it expanded over the first decade of operations. .
Barber commented: It would have been very hard to do our recruiting from colleges. but over these past years. or doing it blind. About 70 percent of our staff now are former OCA employees. It s very risky recruiting people you don t know. . they ve migrated over . They didn t all come over right away. Instability at other firms worked to LightWorks advantage.
The downsizing of the industry has let us pull together people who can do this kind of work. well. you re laid off. where if the bottom line on the income statement looks bad. . A lot of these people have been kicked around in acquisitions.
We look for people who are unhappy and looking for other employment. It would have been hard without that to build our company. Our competitors failures are our gain. These people take a lot of pride in what they do. and they don t appreciate being treated that way. .
by the same amount. . As shares were allocated to the trust. the founders stakes would. employees would build up their equity stake. When an employee left the company or retired. Over time. he or she would be entitled to be bought out by either the ESOP or the company at then-current fair market value. be diluted. as determined by an independent appraiser.
employees owned about 36 percent of the company (the remaining shares were held by the three founders.) . By 2007.
A High-Involvement Culture From the beginning. Barber and his partners wanted to couple employees ownership with a high-involvement culture. . They quickly recognized the importance of setting up structural mechanisms to enable both the sharing of information and employee participation.
and each projects earned revenue. Barber explained we have a bi-weekly allhands meeting where we go through all financials. profit and loss by project. compare that to our break-even costs. We assess revenue on a monthly basis. the full financial outlook of the organization. how much money we have in the bank. what invoices we re issuing. Are our financial outcomes good this month or bad this month? .
. Barber maintained an open-door policy and made himself available to talk with any employee who wished to see him. the company held regular department and project team meetings. So. In addition. it s information and training at the same time. to its all-hands meetings.
I own a part of this business. . employees were highly invested in the company s success and willing to go the extra mile to make it happen. Barber saw many advantages and a few disadvantages to the company s ownership culture. He said I own this job. On the positive side.
We accomplished the move more quickly than anyone thought possible. The ownership culture that s why we ve been successful in doing things here When we first moved into this building. we set up a committee. gave people decision-making power. . and people really made things happen.
There have been numerous times when a particular project faced a crisis that required the team to go above and beyond. Our project teams unfailing do whatever it takes to solve the project issue and satisfy our customers . .
Barber pointed out: we want to feel that they own the business. I can t just sit at the top of the org chart and dictate a decision. But it means that if anyone in the organization is negative enough about a decision. they can affect that decision. .
That s just not how things work here. I spend a lot of time working the crowd. I m back in that area (where employees are working) a lot . . so to speak.
This would occur through a leveraged buyout. the three founders decided they wanted to sell their remaining equity in the business to the ESOP trust in 2012.Preparing for the Ownership Transition In 2005 and 2006. as part of their exit strategy from the business. as sponsor) to buy out the founders. . in which a bank would loan money to the ESOP trust (through the company.
(By 2012. the loan would be paid off out company revenue. the founders could decide either to retire or continue working for the firm full or part-time on a salaried basis. At the time of the buyout. the founders estimated their collective ownership share would be around 52 percent. the ESOP would own the rest. and employees would eventually own 100 percent of the company.) over time. .
. the company would have to establish a strong record revenue growth and profitability over the preceding five-year. In order for the ESOP trust to qualify for a bank loan.
a single defense contractor. In fact. Lockheed Martin. he was concerned that the company was too dependent on military contracts. The company anticipated a decline in defense contracts as the wars in Iraq and Afghanistan wound down. accounted for more than 70 percent of their projected 2007 earnings.Barriers/Challenges For one thing. .
was 20 percent space. Barber thought. particularly in biotechnology and medical diagnostics. . 40 percent defense. The greatest potential for future growth. The ideal mix going forward. he believed. was in space and commercial applications. and 40 percent commercial.
Many of the company s skilled technicians liked this work. . A large share of LightWorks business was building complex prototypes and one-of-akind optical devices. but it was not a reliable moneymaker.
it s still very precise. you hire people who know how to do the job and leave them alone. you tell people here s what to do and here s how to do it. but it s a different mindset. In a one-off system. . In an assembly environment. Barber commented: The culture of a prototyping organization and the culture of a highly-efficient manufacturing operation are two different things. In an assembly line operation.
He added: I was concerned about the potential for a culture conflict between the prototyping side of the business and the high volume production side of the business. The first requires a culture of focused attention to detail and experimentation. . We had already started to encounter this culture problem in some of our early production programs. and the latter requires a culture of operational efficiency.
highvolume assembly work. the company had sought to drive down quoted prices. As it had tried to attract more low-cost. . He anticipated particular resistance from the quality assurance inspectors if the company moved into high-volume production. But it had run into a difficult obstacle.
LightWorks had tried to charge a larger share of its overhead to its prototype and one-of-akind jobs. and quality control. . business development. Each contract had to build in indirect costs ( overhead ) for such things as administration. to enable it to bid at lower price points on its high-volume work.
However this was not permitted on military contracts. which were governed by rules set by the Defense Contractors Auditing Agency. . and then charge all indirect costs to each contract on an equitable basis. DCCA required that contractors carefully segregate direct and indirect costs.
Barber explained: We were having a lot of problems with our pricing structure. . Engineering. quality we re carrying a lot of resources here (in Tustin) that aren t really necessary if you go into a focused manufacturing operation.
The only way we can allow a different rate structure is if (we) set up a totally different facility. and the resources of that facility are only used for the products that are produced there. but we are governed by DCCA rules. . We tried to set up a different rate structure for prototyping projects and manufacturing projects.
Here (in Tustin) you re carrying the whole front part of the building (engineering.) In other facility. corporate functions. . we needed to go elsewhere. (we) wouldn t be carrying the whole front part of the building. etc. quality control. To get our cost structure down. design.
.The Decision to establish a new facility Option 1 was to make no change and continue on the company s present path. Option 2 was to upgrade and expand their existing diamond-turning operation in Tustin and rent local office space nearby for staff displaced by this expansion.
which was vacant. Option 4 was to lease the building next door. to expand their available production space. Option 3 was to try optimize the space they already had shifting things around and using the space we ve got more efficiently . .
and develop an offsite location for HPVF. possibly in Mississippi. Option 8 was to continue to operate the Tustin facility and to open an HPVF out of state in a low-labor cost region. Option 5 and 6 involved opening a dedicated high-volume production facility (HPVF) in Vista. . about an hour s drive south. California. with displaced employees to offices nearby.
Note that: Opening a plant in Mississippi would be expensive initially but have the potential of lowering labor costs significantly over the longer term. But. could the company operate a second facility at such a distance and still maintain its ownership culture? .
. Expansion next door would make it easy for the engineers and quality inspectors to go back and forth as various projects dictated. but would this satisfy the DCAA requirements? Barber was concerned that indirect costs at headquarters would have to be allocated to contracts fulfilled to close by.
although not as cheap as Mississippi. perhaps that wouldn t matter so much if the company moved decisively into commercial production. It would satisfy the DCAA rules and enable the company to charge less of overhead. The Vista plant would be cheaper than Tustin to operate. . Barber thought. But.
. But would even an hour away be too far? Perhaps shifting to high-volume manufacturing anywhere would pose too big a threat to the firm s culture.
don t change anything . basically. . don t make any changes until you re forced to. The message was.Resistance to Change There was a lot of pushback. a lot of resistances to change. I m comfortable where I am.
The (management) group was well aware of resistance from the rank-and-file. Our employees were worried that they would have to travel frequently between the two sites. Some were concerned that we would gradually shift production to the satellite facility. . so there would be less work here in Tustin.
. There was just a fear factor that it wouldn t work. we can find a way to make this happen . Eventually. Others were resistant because they felt they could figure out a way to do our work more efficiently here. They kept saying. that might lead to layoffs here. fear that it would hurt the company.
. You ve got to be crazy . Phil(Eads). from quality control. kent(Weed). said. so you d better watch out. so they were on board. They were going to lead it (the expansion). and Todd(Sanders) were mostly positive. my people aren t going to support it. Greg(Paddock) said point blank. But Al(DeLiso).
Whatever action was taken. Barber knew the support of the whole organization was crucial. . One of the risks in an employee-owned environment is that the possible (negative) reaction to an autocratic decision is orders of magnitude worse than in any other kind of organization.
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