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Engstrom Auto Mirror Plant Root Cause Case Study Analysis

By:   •  July 1, 2019  •  Case Study  •  1,178 Words (5 Pages)  •  952 Views

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Root Cause Case Study Analysis

Engstrom Auto Mirror Plant had been operating at a profit from 1998 until 2007. Employees were motivated to come to work daily as they were reaping the benefits under Scanlon Bonus Plan. When the automotive industry faced a downturn, Engstrom began to suffer the consequences of organizational issues that caused a productivity and financial decline. By identifying the root cause of the issues faced by the Engstrom Auto Mirror Plant, we can further investigate to determine the cause of the decrease in both productivity and employee morale, address the issues present, and look to prevent a recurrence of these same issues in the future. The three most predominant issues that were contributing to the decrease in productivity and decreased employee morale were: loss of trust in management which was driven by the failure of the Scanlon Plan, lack of employee motivation and lack of communication.

Low productivity plagued by employee motivation that seemed to be at its lowest level seemed to be haunting Engstrom Auto Mirror. Looking at the behavioral issues inside of Engstrom, one could see why there were issues present at the factory. By looking at not only the current downturn at the company, but also the downturn that the company faced back in 1998, one could assess that had history repeated itself in the automotive industry, and also, employees were now once again facing the same reduced morale and productivity once again. Management had not learned from its past mistakes, and was on the track to repeat them.

The event that instigated Engstrom’s major organizational issues stems from the fall of the “Scanlon Bonus Plan” (Beer & Collins, 2008.) Under the Scanlon Plan, employees were motivated to exceed the standard that was expected and set for them by management. Standards, which were set by management back in 1998, were the same standards in place in 2007. Engstrom failed to account for the downturns in the automotive industry. Employees grew to expect the monthly incentive as part of their monthly compensation, and not as part of a bonus plan meant to produce increased productivity. This expectation resulted from the fact that the company set a reserve of “25% of all bonuses (both the employees’ and company’s share)” and would be used “in case of a deficit month.” (Beer & Collins, 2008, p.4). When the automotive industry declined, productivity followed suit and the company needed to go into the reserve that was set aside for lower producing months. When this turned into months over months of lower productivity, the reserve could not be replenished, meaning that employees were not paid out under the Scanlon Plan. Once employees were not paid out for something that they had grown to feel entitled to, resentment grew towards management. A distrust festered between factory workers and the management team. Management began to view workers as exhibiting the behaviors under Theory X; “An average employee intrinsically does not like work and tries to escape it whenever possible. Since the employee does not want to work, he must be persuaded, compelled, or warned with punishment so as to achieve organizational goals. A close supervision is required on part of managers.” (Juneja, P., 2015). Management exhibit behavior characteristics following Theory Y; “Employees may not require only threat, external control and coercion to work, but they can use self-direction and self-control if they are dedicated and sincere to achieve the organizational objectives. If the job is rewarding and satisfying, then it will result in employees’ loyalty and commitment to organization.” (Juneja, P., 2015)

Another factor that played into the Scanlon Plan failing was the lack of employee involvement. The Scanlon Plan was brought into Engstrom in 1999 because the employees were onboard with the plan implementation. Employees felt like they were part of the decision-making process at Engstrom. “I’m getting rewarded for thinking, not just for performing the same task every day. To me, that means the plant values the knowledge I have about how my line runs.” (Beer & Collins, 2008, p.5). This provided employees with a sense of ownership in the company. As productivity levels began to decline, employees began to have a suspicion of the management team and how bonuses were being allocated to employees. “Some employees

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