0. Overview 1

The aim of this case study is to show the Quality of the Managementof the Cooking Business Unit: one of the Business Units of theindustrial co-operative Fagor Electrodomésticos S.Coop., which inturn belongs to the MCC business corporation.

Background

On14 April 1956, Father José María Arizmendiarrieta blessed the firststone of Talleres ULGOR (today Fagor Electrodomésticos S. Coop.).The company took its name from the initials of its founders, (LuisUsatorre, Jesús Larrañaga, Alfonso Gorroñogoitia, José MaríaOrmaetxea and Javier Ortubai), students at the Professional Collegeset up by Father José María Arizmendiarrieta in 1943.

Figure 0.1

In 1964 the co-operatives initiated a movement for mutual support, inwhich some of the future structures of the experience timidly began totake shape. This was the embryo of what is today MondragónCorporación Cooperativa (MCC).

Ularco (later the Fagor Group) was the pioneer group and broughttogether the co-operatives operating in the Leniz Valley (Ulgor,Arrasate and Copreci).

In 1989 Ulgor S.Coop. became Fagor Electrodomésticos S. Coop.

The same year Fabrelec S.A., today Edesa S.Coop., was integratedinto Fagor Electrodomésticos, to reinforce its production and salespotential.

In 1995 Fagor Electrodomésticos, as part of its Internationalisationstrategy, inaugurated its first plant abroad: the refrigerator plant inMohammedia in Morocco. This was followed in 1996 by the joint take-over with MCC of the Argentinian domestic appliance manufacturerMc Lean, which markets the Patrick and Saccol brands, and in 1999also with MCC the Polish company Wrozamet which markets theMasterCook brand.

The third co-operative congress took place in 1991. This congressapproved the MCC organisational project and the basic rules on paypolicy. MCC was set up after it had been established that the previousmodel joining together the co-operatives in local or regional groupscould not meet the challenges of globalisation.

The new organisational model was based on a move fromindependent units to a functional concentration, structured intoDivisions and Subgroups, on the basis of the convergence betweenproducts and markets. Fagor Electrodomésticos S.Coop. became partof the Household Division (figure 0.2.).

Machine Tools

Components Automotive

IEngineering

Household

FagorElectrodomésticos

FagorIndustrial

Mueble

DistributionGroup

FinancialGroup

IndustrialGroup

Dishwashers

Comfort

Small D. Appliances

K. UnitsW. Machines

Refr.

Cooking

Figure 0.2 MCC Structure

Today, MCC is the leading business group in the Basque Country andthe sixth in Spain, with sales totalling more than 8,000 million euros(Industrial and Distribution) and more than 53,000 workers.The special interrelationship between Fagor Electrodomésticos andMCC as far as Policy and Strategy are concerned should be stressed.Evidence of this can be seen in the latest changes made to themanagement of both organisations:

- Jesús Catania, the previous President of MCC’s HouseholdDivision and MCC Vice-president has been the President ofMCC since 1 January 2002.

- He was replaced by Fernando Gómez-Acedo, who moved fromthe post of CEO of Fagor Electrodomésticos to that of Vice-president of MCC.

- Pablo Mongelos, the current CEO of Fagor Electrodomésticos,was previously the Managing Director of the Cooking BusinessUnit.

Fagor Electrodomésticos (FED)

Fagor Electrodomésticos S.Coop. is an industrial co-operativeengaged in the manufacture and sale of White Goods DomesticAppliances, Small Domestic Appliances and Kitchen Units. With awork force of more than 4,600 people and factories on threecontinents: Europe, America and Africa, it has 12 subsidiaries all overthe world and a sales network that operates in more than 80 countrieson the 5 continents.

With sales of 762 million euros in 2002, and a market share of 23%we are leaders of the Spanish White Goods market.

% Spanish Market Share (2002)

FAGOR

Comp. 1

Comp. 2

Comp. 3

Comp. 4

Others

Figure 0.3

MCCDIVISIONS

B. UNITS

SUBGROUP

2 0. Overview

Three of the Fagor Electrodomésticos’ brands (Fagor, Edesa andAspes) are among the top 5 in the market share ranking in Spain. The"Comp. 1" brand, belonging to the Comp.1 Group, which occupiessecond place, is the one we have used as a reference in the externalcomparisons of the results criteria.

Market Share 2002 (Spanish Market)

FAGORComp. 1EDESAComp. 2ASPESComp. 3Comp. 4

%

Figure 0.4

Fagor Electrodomésticos is divided into 7 Business Units:- Cooking. - Small Domestic Appliances.- Refrigeration. - Kitchen Units.- Washing. - Comfort.- Dishwashers.

The Cooking, Refrigeration, Washing and Dishwasher Business Unitsproduce so-called “White Goods”. Of these, the Cooking BusinessUnit has the biggest market share.

Setting up of the organisation based on Business Units in FagorElectrodomésticos

The strategic plan for the period 1997–2000 drawn up in 1996observed that there were different situations at the heart of FagorElectrodomésticos. The different sales channels required specificservices and products, based on the different needs of their users.

Faced with the difficulty of the overall management of all the products,channels, production factories, etc., Fagor Electrodomésticos decidedto organise itself into Business Units, in order to respond better andquicker to a constantly changing market and increasingly moredemanding users. The company changed from the organisationalstructure shown in figure 0.5 to that shown in figure 0.6.

FactoryManagers

IndustrialManager

SalesManager

FinancialDirector

R&DManager

ServicesManager

HH.RR.Manager

Managing Director

Figure 0.5

In the new organisation, there is a Managing Director for each of the 7Business Units, and most of the functions that were centralised beforeare now incorporated into the Business Units. To keep the criteriaconsistent between the different Business Units, some centraldepartments are maintained like Financial Management, HumanResources Management, Strategic Marketing and Audit and SystemsCertification Management, to co-ordinate the specific departments ineach Business Unit.

FinancialDirector

H.R.Manager

Man. SystemsDirector

StrategicMarketing

RefrigerationM. Director

WashingM. Director

DishwasherM. Director

CookingM. Director

Small D. A.M. Director

ComfortM. Director

K. UnitsM. Director

CEO

Figure 0.6

Cooking Business Unit

In 1997 the Cooking Business Unit changed from being just amanufacturing management unit to being an autonomous unit thatmanages its own human and production resources, investments,sales force, purchasing (raw materials, components and finishedproducts), user and distributor services, and establishes and launchesits own range.

Figure 0.7 shows how the Cooking Business Unit is organised (theresources specific to the Business Unit are in blue colour and theresources shared with other Business Units are in green colour).

Economic C.Manager

I. Aranzabal

ProductionManagerJ. Galardi

QualityManager

M.Berasategi

R&DManager

Juanfe García

PurchasingManagerJ.Beitia

ManagementInnovationManager

A. Martiarena

MarketingManager

A.Terradillos

SalesManager

J.A.Jiménez

HH.RR.Manager

Eli Zubiaga

SalesManager

J.R. L. de Munain

ServicesManager

Patxi Lopez

M. DIRECTORBelen Kortabarria

Figure 0.7

With the new organisation, on the one hand, we have managed to getcloser to our customers (more speed and flexibility when it comes tosatisfying their needs), and, on the other, we have got everyoneinvolved to identify more with the Business Unit project.

The Cooking Business Unit is located in the Garagarzaneighbourhood of Mondragon. Its facilities occupy an area of 20,000m2 and it posted sales of 161 million euros in 2002. The current workforce totals 505 people of which 417 are members (co-owners of theco-operative).

With its 3 brands (Fagor, Edesa and Aspes), the Cooking BusinessUnit is the market leader in built-in appliances in Spain, Poland, andthe Czech Republic, with market shares in excess of 30%. (sub-criterion 9.a).

In order of turnover, our range consists of the following products:

- Hobs:- Gas and electric.- Glass ceramic and induction.

- Ovens- Extractor hoods- Cookers.- Microwave ovens.- Sinks and Taps

0. Overview 3

We supply the following sales channels:

- Traditional (Specialist shops).- Construction.- Kitchen unit specialists.- Sanitation (plumbers, fitters, etc.).

We export approximately 27% of our production to more than 40countries. The main countries we export to are as follows, in order ofimportance:

Portugal

Czech Rep.

France

U.K.

Morocco

Hungary

Poland

Figure 0.8

Just like the rest of the companies in the MCC corporation, theCooking Business Unit is organised on the basis of the co-operativemodel, the basic principles of which are as follows:

• Democratic Organisation, based on the equality of the worker-members, which implies an organisation on the basis of “oneperson one vote”.

• Management Participation, which implies the progressivedevelopment of self-management with the participation of themembers in business management.

• Social Transformation, by means of the majority reinvestment ofthe results, the creation of new co-operative jobs and support forcommunity development initiatives.

The Business Unit’s strategic commitment to customer satisfaction isbased on achieving people participation by means of teamwork andmanagement excellence. The Business Unit’s own ManagementModel, has played a significant role in this regard. This model wasdeveloped in 1999, with the direct participation of more than 20people from the Business unit. The model establishes the Mission,Vision, Values, Strategic Targets and Basic Strategies (sub-criterion1.a).

Until 1999, the Cooking Business Unit shared the Management Modeland Strategies of Fagor Electrodomésticos with the rest of theBusiness Units. In 1999, the Business Unit established its ownidentity, although always in alignment with Fagor Electrodomésticos.

As we are a co-operative enterprise, in our Management Model wespecify our identifying features, establishing "profitability" and"employment" as our basic targets.

Two types of strategies were developed to achieve this: the Businessstrategies and the Management strategies. The former are specific toeach of the Business Units of Fagor Electrodomésticos S. Coop. andthe latter are similar in all of them. The strategies are formulatedwithin the framework of and backed by our co-operative values(democracy, labour, solidarity and inter-co-operation), which areidentifying features that are a must for us.

The whole model revolves around Continuous Improvement as anelement to make management more dynamic.

Figure 0.9 shows the main milestones in the improvement of theBusiness Unit’s management, which are described throughout thiscase study.

The management approaches adopted have led to good results in theBusiness Unit. These can be seen in more details in the resultscriteria. Likewise, our Business Unit was recognised in 2001 with the“Gold Q” award given by Euskalit (the Basque foundation for thepromotion of quality). This recognition is given to those companiesthat exceed 500 points in an external assessment based on theEFQM model.

Date Modification of approach Trigger mechanism

1993ISO 9001 certification in FEDProcess redesign

Quality Assurance andContinuous Improvement policy

1994 Start of the implementation of self-managed teams

Directive adopted by FED’sExecutive Committee

1995 1st EFQM self-assessment at FED 1994 Strategic Thinking

1997

Restructuring of FED into 7 BusinessUnits1st EFQM self-assessment in eachBusiness Unit

1998 FED Management Model

1999 Business Unit Management Model

Strategic Plan taking theBusiness Units into account

2000

Business Unit’s Overall ProcessBusiness Unit’s Strategic PlanISO 14001 certificationWRPMS.Euskalit Silver Q

Application of the ManagementModel in the Business Unit

2001

Redefinition of the Process Map andManagement by ProcessesEMAS Environmental certificateEuskalit Gold Q

EFQM 2000 externalassessment

2002Management by competenciesConsolidation of management byprocesses

Business Unit’s Strategic Plan

Figure 0.9