Engstrom Auto Mirror Plant:

Motivating in Good Times and Bad

HBR Case Analysis for MNG 616
S. Bhargava 16102017
Shailesh J Mehta School of
Management IIT Bombay
 Synopsis
• Relatively small auto supplier faced crisis in 2007
• Productivity dropping
Outcome suffered
• Morale low
Reflects on internal culture
• Apprehension on product quality
Status of customer perception
• Shift in business environment had triggered the
crisis
External factor
 Synopsis Continues
• As a result, sales started dripping since 2005 and still going down
• It forced to lay off 46 employees reducing to 209 without recalling
anyone till date
• Similar crisis came 7 years back
• Bent was hired to effect a turnaround
• Scanlon plan with 81% voting was introduced with 3 plan
components intended to work together to drive big changes in
behavior and attitudes
1. The submission of suggestions for improvement by employees at all
levels
2. The structure of Scanlon committee that evaluate the suggestions
and
3. Sharing of the fruits of productivity through monthly bonuses based
on pre-determined ratio
 Synopsis Continues
• Operating under Scanlon had been bumpy ride but in 7 years sales
and quality were affected
• During 2000 to 2005, every employee got regular Scanlon bonus
• recently hostile grumbling was heard among workers,
• “what is point of having a bonus plan if no bonus is paid for
months”
• Bent’s quandary is what to do to get the plant back on track
• Revise the Scanlon plan set-up
• Remove it
• Try another plan
• Are there some other organizational factors that may be sabotaging
the Scanlon
• Class had opinion of 107 prospective managers and 15 teams
varying in size from 5-7
 Objectives of discussing the case
• MBA students must enrich their understanding of how to
motivate individuals with diversity to drive towards
achieving goals in good and bad times
• What are the prerequisites for such an engagement
• How important is money as motivator
• Individual and group incentive schemes and their
effectiveness
• Must become acquainted with key elements in employee
incentive plans with organizational hurdles and drivers to
impact the success of the plan
• Solution to Ben’s dilemma
• Case methodology had different objectives
(individual/team/class presentation/discussion)
 Objectives of what should come
out from discussion
• Identify the key problems/issues
• Identify theoretical contribution of Scanlon plan
• Is this plan a good solution to the company
• What organizational factors impacted effectiveness of Scanlon plan
• Pay for performance influenced positively or negatively by organizational
factors
• Bent faced main problems such as
Small plant attempting to serve huge manufacturers
Market downturn, resulting in dropping sales for over a year
Need to integrate new technology on lines
Tension between employees (union) and management
Pilfering (act of stealing in small quantity) and potentially other acts indicating
an angry workforce
• Comparing individual (merit pay, bonus and rewards), tem ( reward
equally to all) and organizational (gainsharing) plans
 Is money a powerful motivator
• Maslow’s hierarchy of needs theory
• Physiological
• Safety and security
• Social
• Ego/self esteem
• Self actualization
• Alderfer’s ERG (existence, relatedness and
growth) theory
• Money need not be ignored but alone not
sufficient
 Does money motivate you (Herzberg…)
Is it a motivating or hygiene factor
Security
Status
Relationship with peers and superiors
Personal life
Salary
Working conditions
Supervision (power and control)
Company policy & administration
Advancement & growth
Responsibility
Work itself
Recognition
Achievement
Hygiene factors are also called as maintenance factors
Anything that has long term satisfaction will motivate
Satisfaction Performance relationship
 Would you be innovative/creative
if not paid for effort
• Motivational force= Valence x expectancy
(Vroom)
• Valence is strength of person’s preference for a
particular outcome (-1 to +1)
• Expectancy is probability (0-1) that a particular
action or effort will lead to an outcome
• Instrumentality refers to the degree to which a
first level outcome will lead to a desired second
level outcome
• So your first level outcome is crucial in effort
• In this case as well as other organizations
applicable
 Is perception of unfairness on pay
linked to performance
• Equity theory (Adams)
• Your outcome should be in proportion to your inputs
• You want outcome at par with your peers
• This means you compare your outcomes with others
• Here emerges inequity
• Inequity is perceived unfairness
• It leads to dissatisfaction and performance affected
• How to minimize it : Procedural justice
• Distributive justice
• Organizational voice and whistle blowing activities
 Will your recommendations for
Bent solve the problems
• Learning from historical background and trigger of external environment, crisis of
productivity drop could be checked
• Morale could be strengthened by introducing measures for engaging/involving people
consequently will reduce perceived unfairness and improve product quality
• Study Scanlon plan set-up in depth (how does it change attitude/behavior, conditions for
success, benefits of its implementation and important points) and execute effectively
Increased cooperation and cooperation
Improved culture
Strong communication lines between management and workforce
A culture that is change ready
All travelling in same path
Recognition of values and abilities (employees are experts)
Motivate to succeed in challenging and interesting tasks
• Revisiting the Scanlon plan set-up that has Pros/Cons but will allow to try another plan after
incorporating internal/external organizational factors
• Performance matrix should be for all and not only to workers only and training for all
• Seemingly little focus on other factors beyond labor-based productivity
• Motivation is unstable. Therefore process is important for maintaining it in good/bad times
Motivating individuals with diversity to
drive towards achieving goals in good
and bad times
•
• Financial Rewards Job Content & Design
• Job Characteristics
Direct • Identity
• Variety
Salary/perks
• Meaningfulness
Indirect • Autonomy
• Feedback
Benefits/non- • Affiliation (3 factor theory)
cash/retirements • Support/culture/environment
benefits/training • Career (Achievement)
• Advancement/growth
Effective Reward Management System

• INTERNAL ENVIRONMENT • EXTERNAL ENVIRONMENT

• STRUCTURE • BUSINESS
• CULTURE • COMPETITION
• TECHNOLOGY • GLOBALIZATION
• OPERATIONAL PROCESS • INFLATION
• MANAGEMENT • CHANGING WORKFORCE
PRACTICES • ECONOMIC TRENDS
• EMPLOYMENT • SKILL SHORTAGE
PRACTICES • GOVERNMENT POLICIES
• COMPANY LAWS
Individual incentive plans (piecework, standard hour plan, bonuses, merit
pay, lump-sum merit pay, sales incentives, and executive compensation)

•
•
Group incentive plans
Team compensation
• Organizational
• Gainsharing incentive plans Incentive plans
• Scanlon plan (Es should offer
ideas to improve productivity • Profit sharing
and in turn be rewarded for plans
their constructive efforts)
• The Rucker Plan or the share- • Stock options
of-production plan (SOP)
• Improshare (improved • Employee Stock
productivity through sharing)
Ownership plans
• Earning at risk plans (portion
of basic pay at the risk)
(ESOPs)
 REDESIGN OF REWARD SYSTEM: RELATIONSHIP BETWEEN
PERFORMANCE AND REWARD

• Performance based compensation system

recognizes, rewards, and retains talent
• Create a proper mix of individual, team, and
organization’s performance measures
• Use compensation to create the new system
• Reward teams that deliver value to customers
• Frequent distribution of rewards
• No guarantee for tomorrow if works today