Engstrom Auto Mirror Case Study

Abstract

Engstrom Auto Mirror has been mostly successful business in automotive industry. It faced unprofitability by late 1990s which was overcame by Ron Bent, newly hired manager at the time, by implementing Scanlon bonus plan. Bonus plan proved very favorable and business quadrupled in next 7 years (Engstrom Case, page 2). Bonus plan highly depended on savings from production improvement suggestions of employees and sales number. After 2005, even with same plan in place productivity dropped which prompted quick changes to motivate employees before Engstrom family shuts down business in industry downturn. This case analysis recommends possible changes in business practices by deploying Expectance theory (Reading 3, Nadler and Lawler, page 157) to get needed behavior from employees to respond to new situation.

Background of company

Engstrom is producing mirrors for cars and trucks for automotive industries since 1948 with more than 200 employees. When reviewing history of company, it is clear that it has seen mostly success except couple of notable difficult business times. In second instance, company faced industry downturn in 2005 and management laid off 46 of its 255 employees in June, 2006. In downturn, the employee lost last 7 months of bonuses from Scanlon plan. After implementation of Scanlon plan with 81% of employees vote in December, 1999 plan worked very well for next 7 years.

Analysis of Scanlon Plan

Scanlon bonus plan is based on concept of participative management and assumed that individuals will work hard to achieve their organizational goals so long they have opportunity. Scanlon plan has three main components which included employee suggestion submission for improvements at all levels, evaluation of them by selected committees and sharing of increased productivity in the form of monthly bonuses. It is important to note that savings from suggestions is key driver of plan’s success which in turn means employee participation. Initially suggestions were more than 300 per year. Plan also depended on complex calculations due to reliance on business variables. Plan also has sense of equality instead of equity (Reading 3, Nadler and Lawler, page 163). Positive aspects of plan included teamwork of employees for cost savings, knowledge sharing, innovations, creativity and improved production rate.

Problem at Engstrom

Per expectancy theory (Reading 3, Nadler and Lawler, page 163) it is clear to see that performance to outcome expectancy has dropped significantly, evident from Haley and Bent’s conversation shown on page 1 of Engstrom case. Also, since number of suggestions dropped to about 15% from earlier phase of plan, it was clear that efforts to performance expectancy also had dropped. Employee motivation deteriorated when they experienced no rewards for their efforts in the form of bonus which were part of regular paychecks. When employee motivation is lost it started issues with on time delivery and quality which can result into financial troubles as well as loss of valued customers. This means Scanlon plan which at one point provided motivation to employees has stop working. Now, Bent needed to do something as soon as possible to bring motivation back and to avoid further business problems. Plan calculations were complex which created perceived mistrust and sense of exclusion. Scanlon plan implemented at Engstrom is also missing inclusion of critical production parameters like “on time delivery” and “quality” of products. Plan was heavily focused on cost savings only.

In Industry downturn circumstances it is also clear that sales figures will not be as good and it is not easily deal with. Also, downturn is an unpredictable so solution has to be flexible in short and long term. Employees are feeling instability resulted from recent layoffs.

Proposed Solution

        Ron needed to act quickly to restore motivation and sense of job stability in plant by making changes to Scanlon plan. Ron needs to add “on time delivery” and “quality” to Scanlon plan.

Following possible changes are suggested to existing Scanlon plan:

1.         For current situation of downturn new Scanlon ratio should be adapted which will boost employees’ effort to performance success probability. To improve motivation there should be early bonus milestone adapted which will be tied to “on time delivery” and “quality” of orders. Trust and openness are keys in communicating new plan. Sufficient time should be given in answering structure of plan in employee meeting so employees feel inclusive. There should be meetings between management and union to work out details efficiently. It is also important that employee feel that goals are reasonable, transparent and achievable.