Managerial Policy| Cooper Industries Case | By: Aena Rizvi, Anum Rinch & Rafia Farooqui| | Introduction: In 1833, an iron foundry was founded by Charles and Elias Cooper in Mount Vernon, Ohio. Overtime, Cooper became the market leader in pipeline compression equipment. Cooper Industries was around 150 years old and was mostly involved in the manufacturing of engines and compressors to facilitate the flow of natural gas through pipelines. They began expanding it around 1960s and for that, more than 60 manufacturing companies were acquired in the following 30 years.
This came to be known as the process of Cooperization and some re-known companies became a part of the Cooper banner to form a highly successful and profitable business. Timeline of Important events for Cooper: Year| Event| 1833| Charles and Elias Cooper founded an iron foundry in Mount Vernon, Ohio| 1900| Switching to the production of natural gas compressors| 1920| Cooper became the leader in pipeline compression equipment| 1957| Gene Miller was elected as the president| 958| Cooper suffered a cyclical downturn and a corporate raider acquired enough shares to elect two board members| 1961| Miller recruited Robert Cizik as chief assistant for corporate development from Standard Oil| 1965| The company formally adopted the name ‘Cooper Industries’| 1967| Headquarters were moved to Houston| | Diversification began and Cooper acquired Lufkin Rule Company| | Bill Rector was appointed as Corporate Vice President and given capital to develop the Tool Group| 1968| Cooper acquired Crescent Niagara| 969| Cizik became Chief Operating Officer| 1970| Cooper acquired Weller Manufacturing Corporation| | Tool Group set up its headquarters in Apex, North Carolina| | C. Baker Cunningham joined the corporate planning department at Cooper| | Cooper purchased Dallas Air Motive| 1970-1988| Cooper Divested 33 businesses| 1971| Cunningham joined the Tool Group as director finance and introduced a new computer system to manage inventories, sales, shipping and billing for all tool products | 1972| Cooper acquired Nicholson Company| 974| Cooper’s acquisitions had relocated their manufacturing operations to new plants mostly in the South | 1975| Robert Cizik became CEO and formed Corporate Level Manufacturing Services Group| 1976| Cooper purchased Superior, maker of engines and natural gas compressors| 1979| Cooper purchased Gardner-Denver| 1981| Crouse-Hinds was acquired| | Cooper acquired Kirsch| | Cooper sold off its Airmotive Division| | Compression, Drilling and Energy Equipment generated 50% revenues and 60% operating profits| 1984| Purchasing council was established| 1985| Cooper acquired McGraw Edison | 987| Cooper expanded its industrial compressor business by purchasing Joy’s air and turbo compressor business for $140 million| 1988| Cooper was a broadly diversified manufacturer of electrical and general industrial products, and energy-related machinery and equipment| | Electrical and Electronic (E&E) became Cooper’s largest segment, generated 50% corporate sales and 57% operating profits | | Acquisitions in the Tool Group were consolidated and new manufacturing facilities were constructed| | Compression Drilling and Energy Equipment accounted for 21% sales and less than 10% of operating profit|
Vision, Mission and Corporate Strategy: Cooper’s success lied in making high quality products that become important input for other products such as turbine compressors. They wanted to be a company with a steady stream of income which is why they always went after ventures that were profitable. They made sure they had no cash flow of liquidity issues just to ensure this. Moreover, they were more interested in being an owning company rather than just a holding company.
To make sure of this they made their acquired companies adapt to their benefit plans etc so that the whole organization on a whole is consistent in policy making. They even made sure that they were deeply involved in all the acquisitions they made so that they do not end up making mistakes by acquiring a wrong company. Cooper’s President, Gene Miller’s ideology was to not restrict operations to the production of engines only. This was reflected in the business decisions when Cooper began to diversify and widen its product ranges.
Cooper’s acquisition strategies were well planned and they were not left to the professional managers on the grounds that they could do justice to any product categories or manufacturing processes. Great importance was given on understanding the culture and customs of the areas in which Cooper operated and diversification only took place when the prospects looked profitable. There was a limit to diversification and special attention was paid to the timing of acquisitions. Most of the companies that Cooper aimed at acquiring were market leaders who maintained records of high quality manufacturing.
Cooper’s journey was not about acquisitions and additions only. After a business had served its useful purpose, it was divested because clinging to the past would only reduce chances of future success. Between 1970 and 1988, Cooper divested 33 businesses. Cooper also ventured into the aircraft service business by purchasing Dallas Airmotive which was mainly involved in the repair and lease of jet engines as well as the distribution of aircraft parts and supplies. After this, Cooper turned to its Energy Division and concentrated all its efforts there.
Energy Divisions’ rising profits made up for the falling sales of hand tools. Cooper’s biggest merger was the purchase of Gardner-Denver, which was equal in size to Cooper and manufactured machinery for petroleum exploration, mining and general construction. One advantage of this merger was that Cooper’s needs of exploration; production, transmission, distribution and storage for oil and natural gas were met. However there were some problems with Gardner-Denver too as it was a company that lacked planning and control and its sales force was not motivated enough to steer the company in the ight direction. Unlike Cooper, the management style at Gardner-Denver was too centralized. Cooper had to change all these things subsequently in order to align Gardner-Denver with the values and business practices of Cooper industries. By late 1970’s Cooper came up with the ‘acquisition by necessity’ idea when it was acquiring Colorado Fuel & Iron (CF&I) which mainly took place because CF&I has stopped producing 1095 Steel and it was really expensive for Cooper to buy it from another German company.
Crouse-Hinds was another crucial acquisition in the history of Cooper and in the words of Mr. Cizik, this was a ‘true diversification’ as compared to that of Gardner-Denver which was more of a complimentary nature. However the Crouse-Hinds acquisition was criticized on the grounds that it reduced Cooper’s exposure to the booming oil and gas industry. Cooper built a reputation in the electrical industry such that it came under the ambit of one of the best-managed companies. Some of Cooper’s acquisitions looked decisive such as the purchase of Kirsch (world’s largest manufacturer of drapery hardware).
But actually they were not based on impulse and such opportunities are normally short-lived. Had Cooper not taken advantage of such opportunities then some other company would have. Cooper had a very flexible management style unlike other companies and it consolidated most of its acquisitions in order to maintain uniformity. Manufacturing Services Group made Cooper a quality conscious company that had state of the art Management Information Systems. It used benchmarking and cross-referencing to improve the production methods.
Manufacturing Services Group also initiated training of engineering school graduates and this equipped the employees at Cooper with the necessary skills. Cooper followed the Hay system for salaries and people with the same ranks throughout the organization had similar salaries. These salaries were at par with the industry average. EVP’s at Cooper had a management-by-exception philosophy and they only interfered in the management of a division if its performance suffered or when the division violated the boundaries set by the strategic planning process.
Cooper believed that ‘cash-flow is king’ because a strong cash flow position enables Cooper to pursue acquisitions. SWOT Analysis Strengths| Weaknesses| * Highly diversified hence lower risk * Acquisition of market leaders was done based on research and not on impulse. * It had a flexible management style * Understood the cultures and customs of the areas in which it operated * Divested businesses that served their useful purpose * Focus on profitability led to the success of the firm * Due to numerous acquisitions, $1. 8 billion of Cooper’s $1. 77 billion stockholder’s equity was goodwill| * ‘Lean and mean’ cost structure due to which many RTE senior managers left within a year after acquisition * Cooper exercised centralized control over corporate policy * Cooper retained too much control with itself which is evident in its control on working capital * Too much focus on profitability| Opportunities| Threats| * Manufacturing Services Group will make Cooper a leader in manufacturing functions. Due to Management Development and Planning, Cooper has a very rich organizational culture and hence more successful market leaders would be willing to merge with Cooper in the future. | * Downturns in industries such as electrical industry can make Cooper resort to cost cutting and layoffs rigidly. * After a merger or acquisition Cooper requires the new company to adopt its benefits package for medical insurance and pensions which leads to dissatisfaction and may make Cooper known as a conservative company|
Conclusion: Cooper remained a market leader in pipeline compressors and engines. It has always focused on being identified as a quality company and pursued only those companies for acquisitions and mergers that were market leaders, had strong core competencies and were successful in their respective industries. It had an eye for rewarding opportunities and took full advantage of them when came across one of these.