pressures on the pulp and forest products industries at present, making prediction difficult. Some of the harsh effects of the 2001 recession began to ease in the second half of 2002, when paper prices began to firm. This segment is the largest revenue producer for the industry, so the relief was widely welcomed. However, any extraordinary effects are likely to be mitigated by the oversupply in the wood products sector. (Standard and Poor’s Web site, “Current Environment.”)
International Paper is considered the largest pulp and forest products company in the U.S., followed by Georgia-Pacific (GP). (Hoover’s online Web site) A quick look at their financials, however, demonstrates that they are not equally successful, although both serve virtually the entire range of possible market sectors, and International Paper (IP) also serves some extra niches, producing wood-derived chemicals including crude tall oil and crude sulfate turpentine, as well as a variety of inks, thereby covering markets throughout the possible uses of tree-based products. (Hoover’s online Web site.)
In 2002, Standard & Poor’s reported negative net income for Georgia-Pacific, at $-190.0 (million). It reported net income of $295 million for International Paper.
The reason for this, despite GP’s number two spot in the industry, might be laid at the feet of its product mix: it sold 60% of its Unisource Worldwide distribution segment in 2002. That segment, along with GP’s building products accounted for just over half the company’s sales. (Hoover’s online Web site) As noted above, the market for building products is currently the weakest in the pulp and forest products industry.
The merger of Continental Paper Company and Great Northwestern Lumber Company makes an interesting study, particularly regarding an ROI forecast. Last year, Continental’s sales of $600 million generated $120 million in net profits. Its serves the paper segment of the industry, which did see a rally last year. Great Northwestern, serving the pulp and building products segments, earned only $60 million on sales of $1.8 billion.
It would appear at first that there was no good reason for C. To join GN, except to add value for stockholders in the form of GN’s vast forest holdings. In fact, stock analyst Matthew Berler, who covered forest-products and paper for Morgan Stanley, urged investors to be “quite careful” with paper and forest-products stocks this year, buying only on sharp drops and selling on rallies; this upholds the Continental viewpoint that adding underlying value to their basically finished products company would be a good long-term move, and probably won’t hurt shorter term, either. (Wall Street Journal May 13, 2003)
It appears that IP properly handled its major strength — ownership of vast timberlands and basically total market integration — while also meeting outside challenges. Hoover’s did not report any changes in its operational, structure, products or markets. On the other hand, GP was set to spin off lucrative (although costly to promote and serve) markets in household paper products (Brawny paper towels, Quilted Northern, etc.), but cancelled the spin-off, citing poor market conditions for its public offering. And it possibly shot itself in the foot anyway by selling off a major component of its most lucrative segment, distribution. Perhaps it was attempting to return to its core business — pulp and forest products — but the timing was not good. GP seems to have ignored its strengths (relative to IP, a smaller inventory of divisions to operate) and fallen prey to what might have been an outside threat, divesting itself of a lucrative component. (Hoover’s Online Web site)
Into that arena, C&GN arrives, newly acquired of many of the same components as IP enjoys. There will be some costs generated by combining the companies and some cost of duplication of functions for a while, at least, especially in view of the stated aims of downsizing where needed by attrition only. The real thorn in this might be the diametrically opposite management styles of the two CEOs. But it would still be reasonable to assume that, if the new company enters a holding pattern for its building products, and devotes much of the vast timberlands to serving the paper and packing materials brought to the company by Continental, the company should increase its market share (possibly taking a bite out of GP), for sales of about $2 billion with net profits of $200 to $210 million.
That is predicated on using a strategy based on differentiation, of both products (paper, packaging, building materials) and applying differentiation — or perhaps refocusing — to the uses of the timberlands and pulp mills. Distinctive competencies and resource deployment will be particularly important to achieving these goals. (Griffin 72)
2. The organizational structure that will work best is the U. Form. (Griffin 159-165) While this industry demands a certain number of very specialized jobs (technical), others could benefit from redesign, particularly at the executive and managerial levels.
Examples of new titles and job descriptions would be:
Executive level: Vice president, forestry and raw materials (Directs all operations concerning living trees, through arrival at pulp mill)
Managerial level: Manager, forest resources (Oversees planting, cutting, transport, EPA issues, etc.)
Technical: Senior forester (determines at each site the status of the lumber, needed operations to it, etc.)
The new organizational chart is, in the main, a functional chart. This will allow each working group from each company to have a direct line to superiors whose interaction will be with those who have oversight of the entire operation. In addition, will provide for upward accountability, which will suit the new CEO’s style, and it will allow for minimal upheaval in the operational aspects of the business, although administrative and particularly financial structures will be somewhat more altered.
The new organization chart provides a simple upward reporting chain, but allow. Authority for the company as a whole is concentrated in the CEO: the COO is responsible only for the production side of the business, which, considering his management style, is not ideal. However, while he has direct reports in the column below his position, arrows go from the other four vp-levels slots to him as well as to the CEO level. While Owens becomes, in one sense, a direct report to Foster, he retains oversight of what is happening throughout the company and acts as a buffer between the executive level and the CEO, as well as being the senior advisor to the CEO.
Among the new competencies it is apparent are needed are:
Marketing of pulp products
Marketing of lumber products
Product R&D for pulp, lumber
Forestry management
Diversity management in the H.R. function
New markets development
It is likely that some of these can be filled in-house, especially from certain redundancies that are likely in the marketing and sales departments. However, because the company is going head to head with giants such as IP and GP, it is likely that it will need to put into effect significant programs to attract excellent candidates who might otherwise go to the two leaders.
Human resources policies that might attract the best possible candidates would include superior pay and benefits, but also might include bonuses tied to company performance or departmental performance, and stock options, especially as the merger was about stockholder benefit.
It is possible that a combination of Maslow’s hierarchy elements and expectancy theory will work best in motivating virtually everyone in the merged company. Some nervousness on the part of some staff has already surfaced; therefore, it would be wise to use an appeal to belongingness needs, to reassure those people that they are not to be replaced. Beyond that, however, expectancy theory would seem to provide the answer. There are those whose jobs will change, slightly or significantly, and those who will want to change. Expectancy theory makes it possible for the organization to capitalize on Vroom’s theory, and pair the desires of the employees with concrete signposts by which they will know they have achieved it. This marries well with Maslow’s hierarchy.
There is no question that micromanaging the employees used to the style of Mr. Owens will have them jumping ship almost immediately. While attrition to reduce the workforce might be attractive, forcing it by completely changing management style from distributed responsibility to tight control will alienate even those who choose to stay. On the other hand, employees used to preset boundaries might flounder in a looser atmosphere. And, because he chose to oversee operations, which includes the pulp mills formerly managed by Mr. Foster, Mr. Owens will need to alter his style slightly. Foster is task-oriented; Owens is relationship oriented. However, both men can be encouraged to employ techniques and deriver power from bases, which will help overcome these differences. Both do have legitimate power, of course, but each needs to establish in what arenas each will have power to give or withhold rewards. Mr. Owens can likely also use his charm (referent power). It is likely, considering his length of time in business and the unique nature of the business, that Foster has expert power, which may possibly make it easier for him to gain compliance from the former Continental employees. It would seem a particularly bad idea for either man to use coercive power; the company is essentially a new one, competing with established giants, and as such cannot afford to be seen as a throwback to an earlier age, nor can it afford to alienate the best employees it can retain or attract by harsh and punitive treatment.
The main sources of conflict between Owens and Foster revolve around their management styles, and their apparent beliefs in the reasons for business. Foster has a very stringent style, with frequent reporting upward, and apparently little discussion. Owens, on the other hand, is a relationship-style executive, and is approachable by the employees. Foster sees employees on a scale; Owens sees them as a family or team. It would be helpful to have a company ombudsman, at least for the short-term, to mediate between not only the two chiefs, but between managers who have come from either background/company.
The EPA problems are nationwide and not limited to a single company operating in the pulp and forest products field. However, in order to avoid costs of lengthy legal maneuvering, the company might consider offering a compromise to be carried out on a livable time frame.
Works Cited
Current Environment: Paper recovery stalls but outlook firming.” Standard & Poor. (2003):
http://80-www.netadvantage.standardpoor.com.ezproxy.fau.edu/sphome.html
Georgia-Pacific.” (2003):
http://www.hoovers.com/georgia-pacific-corporation/–ID__10648 — /free-co-factsheet.xhtml
Griffin, Ricky. Fundamentals of Management, Concepts & Applications. New York: Houghton Mifflin, 2003.
Industry Profile: Pulp and Forest Products.” Standard & Poor. (2003):
http://80-www.netadvantage.standardpoor.com.ezproxy.fau.edu/sphome.html
International Paper Company.” (2003):
http://www.hoovers.com/international-paper/–ID__10800 — /free-co-factsheet.xhtml
Korutz, Bryon J. “Standard & Poor’s Paper & Forest Products.” 16 October 2003: http://80-www.netadvantage.standardpoor.com.ezproxy.fau.edu/sphome.html
Machalaba, Daniel. “Best on the Street” (A Special Report): 2003 Analysts Review — Forest Products & Paper. Wall Street Journal (Eastern edition.) New York, N.Y. 12 May 2003, p. R 5.
VP, Finance
CEO (Foster)
Treas.
VP, Personnel
VP, Sales
VP and COO (Owens)
Mgr., Account-ing
Mgr., Purchas-ing
Mgrs:
Admin.
Sales and Marketing
Mgr./Bldg
Products
Mgr./Pulp
Mgr./Pa- per Products
Mgr./Timber-land
Mgr. Pulp
Mgr. Paper
Mgr. Bldg. Materials Mgr./R&D
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