Reviewed by Patti A. Mills Indiana State University
This book should be required reading in all accounting and business curricula in the United States. The author, Max Hol-land, tells the fascinating — and ultimately, grim — story of Burgmaster Corporation, its rise to prominence as one of America’s premier machine tool manufacturers, and how it was “managed” out of existence in the heady days of the 1980s. This is more than the story of a single company, however; it is also about the demise of American manufacturing in general, and the reasons U.S. industry has lost its competitive edge in world markets.
Burgmaster was the quintessential American success story. Started in 1944 by a Czechoslovakian immigrant, the company grew from humble beginnings in the garage of its founder, Fred Burg, to become one of the major machine tool manufacturers in the United States. Over the period 1946 to 1965, Burgmaster and the industry as a whole benefitted from a relatively stable economy, low inflation and minimal foreign competition. Hol-land, however, attributes the greater part of the company’s suc-cess to one “simple yet vital fact”: “the Burgs knew their busi-ness”. Fred Burg, his son, and son-in-law — the top three executives at Burgmaster — were all former machinists, and their management approach derived from that experience. Short-term horizons and management fads were alien to them. Rather, the Burgs made technological innovation the firm’s highest priority and cultivated the skilled and dedicated work force necessary to achieve it.
These priorities began to shift in 1965 when Burgmaster was acquired by a conglomerate, Houdaille Industries. As the Burgs and their key employees were eased out, Burgmaster acquired several new layers of managers and accountants, few of whom had any intimate knowledge of the company or of machine tool manufacturing and who spent their time producing the reports, budgets and forecasts that had become the new lifeblood of the firm. Numbers had been used at Burgmaster, but as “a measure of performance and a guide.” Now they were an end in themselves, “an all-consuming purpose” imposed by a distant head office. Production, too, was made to fit the new corporate structure. Under the Burgs, manufacturing foremen had always been actively involved in drawing up production schedules; now their only task was to meet them, their part in production planning having been usurped by a greatly expanded “production control department.” In short, a “distant, managerial capitalism” replaced the vitality and entrepreneurship that had been Burgmaster.
The company stagnated in the early 1970s, helped by a ris-ing dollar and a shortage of qualified machinists. The division between blue-and white-collar workers yawned ever wider and Burgmaster produced increasingly inferior products, gradually losing its competitive and technological edge to Japanese manu-facturers. The beginning of the end occurred in 1979, when Houdaille was the subject of a leveraged buyout. Engineered by the notorious KKR & Co., the LBO left a crushing burden of debt, which the subsidiaries were forced to service. Indeed, in-creasing cash flow by whatever means possible soon became the primary objective of management. Needless to say, this shortsighted approach only added to the problems at Burgmaster; the effects of an overvalued dollar and a mismanaged economy in the early 1980s finished the job. Burgmaster was liquidated in 1985.
Just prior to Burgmaster’s demise, Houdaille made a last, desperate effort to save its machine tool interests, which unfor-tunately had little to do with the company’s real problems. Like many failing industries before and since, it attempted to secure protectionist legislation. These machinations, and the complic-ity of political figures and the media in Houdaille’s “jap bash-ing,” must rank as one of the saddest and most pathetic chap-ters in recent business history.
Holland tells this story with passion and a genuine concern for the future of U.S. business. He is particularly good at draw-ing out the wider implications of the Burgmaster experience. Among these are that no country can become — or remain — a major economic power without an indigenous manufacturing base; that American industry is hamstrung by a de facto indus-trial policy which subsidizes speculation and wasteful military spending at the expense of productive investment; and finally, that no amount — or quality — of accounting and reporting can substitute for effective, hands-on management. Holland’s observations on accounting are particularly timely, considering recent calls within the profession for improved costing methods. If the story of Burgmaster shows nothing else, it is that more and better accounting information is unlikely to alleviate the problems of American manufacturing; a different management approach and a consciously formulated industrial policy are better bets.
