Engstrom Auto Mirror Plant: Motivating in Good Times and Bad
Abstract
The Engstrom Auto Mirror Plant was founded shortly after World War II in a small Midwestern town, with a specific focus on the manufacture and marketing of vehicle mirrors. The downturn of the 1990s was a difficult time for the company, in particular because of difficulties with integrating new technology, as well as new competitive forces. One of the innovations of the company was an employee motivation termed the Scanlon Plan, which lasted from about 1999 until 2006. It ended due to serious challenges to Engstrom’s business that manifested as a decline in demand for the products, and a fall in sales and revenues. The company was profitable for nearly five decades, but problems became a crisis in 2005. There was a domino effect of the drop in demand, with layoffs of about 18% of the workforce in 2007. Despite hopes for recovery, the result was reduced productivity and low morale without improved profitability. It was around this time that the American economy suffered a financial crisis, with resulting drop in demand across all markets. It is unfortunate that for Bent, the focus was on the employee motivation plan, because he had bigger problems to contend with and these were not receiving any attention.
Case Study: Engstrom Auto Mirror Plant: Motivating in Good Times and Bad
The Engstrom Auto Mirror Plant was founded shortly after World War II in a small Midwestern town, with a specific focus on the manufacture and marketing of vehicle mirrors (Newstrom, 2015). The downturn of the 1990s was a difficult time for the company, in particular because of difficulties with integrating new technology, as well as new competitive forces (Newstrom, 2015). One of the innovations of the company was an employee motivation termed the Scanlon Plan, which lasted from about 1999 until 2006 (Newstrom, 2015). It ended due to serious challenges to Engstrom’s business that manifested as a decline in demand for the products, and a fall in sales and revenues. The company was profitable for nearly five decades, but problems became a crisis in 2005. There was a domino effect of the drop in demand, with layoffs of about 18% of the workforce in 2007. Despite hopes for recovery, the result was reduced productivity and low morale without improved profitability. It was around this time that the American economy suffered a financial crisis, with resulting drop in demand across all markets. It is unfortunate that for Bent, the focus was on the employee motivation plan, because he had bigger problems to contend with and these were not receiving any attention. Bent, the plant manager, had saved the company before by enhancing employee motivation in the 1990s, and he tried to use the same methods again in 2007, carefully reviewing how the motivation scheme, a financial incentive called the Scanlon plan, could be revised to meet the challenges that were being faced.
The Scanlon plan did not explain the overall lack of efficiency in the plant systems, but the lack of attention to plant efficiency by the plant manager did. Bent paid attention to employee financial incentives rather than plant operations and management as a whole. As Bent evaluated how he could have managed the plan different for better results, one of those reasons that he missed is that attention was paid to employee incentives rather than systematic and process supports, performance recognition (in addition to financial payments) and improving poor communication practices. Employee motivation seemed to outweigh other factors for Bent, including a realistic understanding of how the past decades had impacted manufacturing in America and the readiness of businesses in places like Southeast Asia to provide quality manufacturing at a better price than was possible given the high cost of American labor. Bent never bothered to investigate the internal and external issues or root causes of the low productivity and morale, and this was a serious oversight which contributed to a continued decline in morale, quality as well as a loss of demand due to the competitive forces of globalization and economic crisis in North America and western Europe.
Theories of human behavior, such as Herzberg’s two factor theory, and Maslow’s hierarchy of needs provide further insights to why focusing on the Scanlon financial incentive plan was not a viable way to save the company, not even in terms of attention to employee requirements. Employees do not just have a need for financial compensation, they require fulfilment of social needs, and ideally higher order needs that give them a sense of valuing their own contribution, according to Maslow’s five levels of needs (Ozguner & Ozguner, 2014). Herzberg’s two factor hygiene theory of motivation explains how points of dissatisfaction must accompany those initiatives that increase satisfaction in order for them to be effective (Ozguner & Ozguner, 2014). Bent did not focus on dissatisfaction of employees, or process and system supports that could remove frustration and enhance performance. Instead, all of the time was spent looking at how to use financial incentives to increase productivity, and failing to see the opportunity cost of this narrow focus.
Another important point is that productivity does not occur in isolation. For example, in continuous improvement theories such as lean six sigma, people become motivated by goal setting and feedback, as well as the social interaction and reinforcement of the importance of achieving ever higher performance. A financial incentive focused on individuals could not achieve those same measures, not only because it did not leverage systems for improving efficiency and productive, but also because it did not leverage cultural and social reinforcement of that motivation that was created in the way that having clear aims and objectives as well as processes to achieve them can (Goetsch & Davis, 2014).
Bent and senior management have not managed their relationship with employees well. There has been little transparency, strategic communication planning, or recognition of performance. There are two levels to exploring this issue, at the organizational level, and with reference to the Scanlon Plan. At an organizational level there was a failure of management to earn the trust of employees. Employees did not find the policies transparent, they were shocked by the way that the layoffs were announced, and their performance was not recognized apart from the Scanlon payments, which had no apparent relationship to performance for employees. Further, the company did not appear to be acting fairly, not in its calculation of the Scanlon bonus payments or in other areas of decision making. It is not a surprise that employees were getting increasingly frustrated, since their plant manager was focused on employee incentives, without recognizing all of the inputs to plant performance that had an impact on the outputs, including supporting employees to do their jobs rather than trying to motivate them to do it without continued improvement to tools, supports and process (Eisenberger, Malone, & Presson, 2016).
Essentially, in order to ensure the thriving environment that would allow for employee motivation to have positive results, first there had to be excellence in the efficiency of the approach to production and the resulting quality. Such issues cannot be overcome by attention to employee performance and motivation.
References
Eisenberger, R., Malone, G. P., & Presson, W. D. (2016). Optimizing perceived organizational support to enhance employee engagement. Society for Human Resource Management and Society for Industrial and Organizational Psychology, 2-22.
Goetsch, D. L., & Davis, S. B. (2014). Quality management for organizational excellence. Upper Saddle River, NJ: pearson.
Newstrom, J. W. (2015).Human behavior at work: Organizational Behavior Fourteenth Edition. New York: McGraw Hill-Irwin.
Ozguner, Z., & Ozguner, M. (2014). A managerial point of view on the relationship between of Maslow’s hierarchy of needs and Herzberg’s dual factor theory. International Journal of Business and Social Science, 5(7).
