Organizational Behavior: Introduction Milestone I Engstrom Case Study

Organizational Behavior: Introduction Milestone I Engstrom Case Study

Scott A. Schinaman

Southern New Hampshire University

Introduction

        The Engstrom Auto Mirror plant (Engstrom), is a privately owned business, employing over 200 people in Richmond, Indiana, that has been in continuous operation since 1948.  The plant has manufactured mirrors for cars and trucks since opening its doors and has enjoyed extended periods of financial success (Beer & Collins, 2008).  In 2006 the industry took a downturn and management was forced to lay off 46 of 255 employees, nearly 20% of their total workforce.  This created descension and discontent among the remaining employees.  Production, morale, and company loyalty were at an all-time low.  Engstrom had weathered a similar downturn eight years earlier, when a senior plant manager was hired specifically to research methods that could turn the company around, and instituted the Scanlon Plan.  

        The Scanlon Plan was a “bonus” pay incentive plan developed by Joseph Scanlon in the 1930’s.  This kind of incentive plan is not keyed to an individual employee’s performance, but instead, is an organization-wide plan intended to reinforce teamwork and cooperation across work groups, while management focuses attention on cost savings and motivating employees to work “smarter, not harder” (Beer & Collins, 2008).  The plan had three main components.  The first allowed any and all employees to submit suggestions for process improvement.  The second component created a committee to evaluate the suggestions submitted and the third component called for sharing of the profit from increases in productivity through a bonus pay structure.  The Scanlon Plan was successful for a number of years, but given change in the industry, layoffs, and lack of “expected” bonus pay for over a half year, employees began working below expected capacity and the quality of Engstrom’s products suffered.  Engstrom was in need of radical change again, or it would likely not recover.  

Organizational Issues        

        In 2006, Engstrom was at a crossroads and management needed to identify, assess, and intervene across a number of important organizational issues.  Included in these issues, and among the most significant, was employee morale.  When the current senior manager began his tenure at Engstrom, he encountered a similar problem, which was remedied largely with the Scanlon Plan.  Unfortunately, one of the more salient and current sources of poor morale was now also the Scanlon Plan.  As the industry declined, production demand was reduced and bonus pay, which had been abundant and easy to make when demand was high, disappeared.  The structure of the Scanlon Plan system created a sense of entitlement in employees and they came to see the bonus pay as something they should get regardless, and this in turn created part of the morale problem.  The diminished morale resulted in poor production quality and unmet production expectations.  
        Degradation of trust in management was also a significant organizational issue effecting Engstrom.  An important part of the Scanlon Plan was for all employees to offer suggestions for process improvement, which would then be reviewed by a committee and put into action.  Suggestions were plentiful when Scanlon was initiated, but more recently, fewer than 50 suggestions were received.  The lack of suggestions infer a lack of trust that management would consider or carry out any of the suggestions made, so the majority of employees no longer bothered to take part in the process.  Although management and accounting offered explanations for the alterations in pay structure and the lack of bonus pay, employees reported that the use of accounting “jargon” and confusing explanations further deepened their level of distrust.  Newstrom (2015) would label this as a barrier to communication, more specifically, a semantic barrier.  It is hard to understand meaning, when groups are not “speaking the same language”.  The overarching organizational “thread” that ties all of the issues together to some degree is ineffective communication.  It seems that although well intentioned, Engstrom management had a downward communication process that became ineffective and the upward communication stopped nearly altogether once pay was effected.  Communication was at a stand still.