CASE STUDY MATERIAL: ARNOTT ENGINEERING

Arnott Engineering is a metal processing company with a speciality in fabricating silos for grain stores.
Ronald Arnott formed the Company twenty years ago. He retired in March 2013, appointing his daughter
Christine Arnott, as his successor. As it had always been taken for granted that Christine would succeed
her father as the Managing Director of the Company, upon leaving high school Christine undertook an
Engineering Degree at The University of Newcastle. She started work in the company in 2001 and began
learning every aspect of the business.

The Company’s offices are based in Maitland and the main workshop along the Industrial Drive in
Newcastle.

Staffing

There are six staffs employed in the workshop along the Industrial Drive and three in the small office at
Maitland, excluding Christine.

Buyer of materials – Peng Wang, 40, employed with Arnott Engineering for 15 years.

Detailer / Draughtsperson – Colin Jackson, 26, carried out an apprenticeship with Arnott Engineering, total
years with company – 10. Colin identifies how the steel should be cut.

Two Shopfloor Staff – Employed with Arnott for five and six years respectively, they are responsible for
cutting and welding the steel.

Project Manager – David Dobson, aged 40, a long-term friend of Ronald Arnott has been with the company
since the day it was formed (20 years). David holds overall responsibility for projects.

Quality Assurance Manager – Heath Jones, was “headhunted” by Christine three years ago when the
Company needed to acquire the quality standard ISO9001. Heath is responsible for quality assurance and
planning.

Office Staff – Based in Maitland; secretary, accountant and receptionist.

Current Situation
Throughout the previous few years of the recession, Arnott Engineering had managed to retain all their staff
and break even with a small profit margin. To ensure economic survival, Christine Arnott was aware of the
need for expansion and diversification; the drought years had taken the toll on the need for new grain silos.

When attending an Engineering Conference in Sydney recently Christine met up with an old friend, Philip
Thomson, with whom she had studied at the University of Newcastle. He had just completed a project
overseas and was attending the Conference in the hope of making contacts and gaining work. Christine
was very interested to hear that Philip knew of a tender in the Morisset area where a technically unique
bridge design required steelwork support with curved beams. Christine thought it possible that Arnott
Engineering could diversify and tender for the contract. The grain silos currently produced were rounded,
therefore, with no extra outlay, the same equipment could conceivably be used to generate steelwork for
bridge supports where curved beams were to be used.

Christine did not consider David Dobson, the Arnott Engineering Project Manager capable of tendering for a
contract so different in nature to the grain silos produced for the previous 20 years. She did not hesitate in
asking Philip Thomson therefore, if he would like to join the Company as a Project Manager on the same
level as David, but with responsibility only for new work such as the Morisset bridge tender. Philip was
delighted to accept, and upon joining the company drew up a tender with costs at $500,000 and a profit of
5% ($25,000).

Christine Arnott was informed 4 weeks after tender submission that the Arnott Engineering bid for the
Morisset bridgework had been successful and the bridgework supports were required six months on. After
Philip and Christine had met with the Morisset management team, she called the whole team together and
impressed on them the importance of fulfilling this contract on time, the possibility of a bonus for everyone if
the six month goal was achieved and the likelihood of more work in the same field if this project proved
successful.

Philip Thomson was a likeable man of a similar age to Christine (in his mid thirties). He began work with
great enthusiasm and had high hopes of this project being the forerunner to many similar ones. It soon
became obvious, however, that enthusiastic and likeable as Philip was, the Arnott Engineering staff did not
share his views. Problems became evident after the first few weeks; materials, which he had asked the
buyer to order, had not arrived, and it appeared the orders had not been sent until one week after he
requested them. Secondly, the designer had shelved the bridgework to concentrate on some remodelling
and upgrade work for existing silos, which Philip knew were not urgent. When the first beam was
completed Philip accompanied the Quality Assurance (QA) manager to inspect it. He was bewildered and
then angry when he discovered the beam was totally useless, being far more curved than the original
design allowed for. He suspected the Arnott Engineering staffs were sabotaging this project and he could
not imagine why.

On returning to the workshop the first person he met was David Dobson, the other Project Manager, Philip
asked if he could speak with him and David agreed. He asked David if he knew of any reason why the staff
might be sabotaging the new project. David appeared to have been bottling up his thoughts and feelings
for some time, which flooded out in a torrent along the lines of “the Company have been producing grain
silos for 20 years, if they were good enough for Ronald Arnott, why were they not good enough for his
daughter? Nobody asked the staff if we wanted to work on steel beams – what good are they to anyone, we
are proud of producing grain silos for the farmers in Australia, that is what it says on our job descriptions
’employed to manufacture grain silos’, and another thing I have been with this Company 20 years and I am
a good 15 years older than you. I don’t like being told I am being given a pay rise to put me on the same
level as you and nobody asked me if I would like the challenge of managing the new contract did they?”
With that he stormed off leaving Philip standing there.

Philip was stunned at David’s outburst and thought something urgent had better be done, so he drove over
to Maitland to see Christine, after checking to see whether she was in the office. He laid the whole
scenario before her. She responded by calling a company meeting the next day. After again telling the
staff what an important contract the Morisset bridgework was and how critical it was to complete on time,
she announced she was giving them all a 10% pay rise as of today instead of waiting for them to complete
the contract.

She drove away feeling pleased with herself, sure that Philip would experience no more trouble.

Three weeks later the second beam was complete, Philip and the QA Manager again went over to inspect
the beam. Although the beam was not so completely different from requirements it still did not meet the
detailed specifications which has been drawn up. Philip could not understand it. He drove back to the
workshop and called the staff together to inform them about the second beam. “Why do you think the
second beam has failed to meet the specified standards?” No one spoke for a while, until the designer said
“we’ve always worked well as a team, especially under Ronald Arnott. Maybe you aren’t clear enough
about what you want. David always makes himself understood.”

Philip went home that weekend feeling extremely depressed. Two beams unsuccessful, 12 to produce, and
a very tight timeframe to stay within the contract specifications. What was he to do and what was wrong
with the staff at Arnott Engineering?

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