Sample of a case submission: Engstrom Auto Mirror Plant

This is a live case submitted by one of the earlier batch students (Group #19 given in red). The Excel
sheet attached gives the marks allotted. Follow the marks allotted to #19 given in red. The marks
of the other groups are included for illustration purpose)

Sec Group Name of the case Name or names of the person

No No created the final output
BKF 1 Engstrom Auto Mirror Plant: Motivating in 1. Xxx
S Good times and Bad 2. xxxx
3. xxxx
4. Xxx
5. Xxx
6. xxxx

Problem Statement

How to improve the effectiveness of the Scanlon Plan in Engstrom Auto Addressed at system
Mirror Plant level

EXTERNAL ANALYSIS

POLITICAL Implications on the problem

Nil

ECONOMIC: Implications on the problem

Industry downturn of 2005 Bonus as per Scanlon plan was linked to market
demand. The downturn led to no bonus
payments to employees for 7 months, layoff of
46 employees.

SOCIAL Implications on the problem

Nil

TECHNOLOGICAL Implications on the problem

New technology development in equipments Bonus as per Scanlon plan did not consider
procured capital expenditure. Thus, increase in
productivity by the new sophisticated
equipment, improved quality would affect
calculation of bonuses.

CULTURAL Implications on the problem

Nil

LEGAL Implications on the problem

Nil
[note that if any of the factors from political, economic, social, technological, cultural or legal is
not relevant in the case, it can be skipped in actual and in exams. However, for evaluated class
submissions it is important that you make the mention of Nil to signal that you have considered
the factor and found that there is nothing relevant in this case ]

SWOT ANALYSIS OF SCANLON PLAN IN ENGSTROM

Strength Weakness
Increased Sales Distrust of bonus calculations
Increased productivity Complex nature of calculations
Buy-in by employees throughout the Difficulty in calculating base ratio
organization Changing base ratio
Transparent communication by Question of fairness of the Scanlon plan
management Dependency on market demand
Encouraged employee suggestions for Association of bonus as part of salary by
continuous improvement employees
Consistent quality standards Bonus determination on effectiveness of
Promoted thinking process in employees sales force
Increased knowledge sharing Plan designed for individuals was used to
Increased co-operation and team work provide incentives for group
Fosters innovation
Enhanced communication network in the
company

Opportunity Threat
Increased growth opportunities in terms Changing market demand
of sales, quality Loss in productivity due to non payment
of bonus
Increased dissatisfaction due to non
payment of bonus

FACTORS AND CRITICAL FACTORS

Factors Critical factors in order of their priority for

developing options
1. Productivity Motivation (ser 7)
2. Quality Individual plan or group plan (ser 8)
3. Transparent communication Productivity (ser 1)
4. Knowledge Sharing Transparent Communication (ser 3)
5. Innovation Dependency on external environment-
6. Base Ratio Base Ratio (ser 6)
7. Motivation
8. Individual plan or group plan
9. Dynamic
10. Dependent on market demand
11. Employee buy-in
12. Co-operation and team work
[Note how most of the factors are picked up quickly from the PESTCL or SWOT. Note how the factors
are converted into critical factors. Getting to the critical factors is the key in a case analysis and also
in real-world decision making. It is better to follow this protocol than conjure up your own way of
fining the factors. You can add to it using your theoretical knowledge e.g.., if you now about equity
theory, you can identify that lack of equity is a factor in this case but even if you dont you will still be
well off to get the key factors.]

ANALYSIS OF THE CRITICAL FACTORS

1) Motivation: According to the Herzbergs two factor theory, satisfaction and dissatisfaction of
an employee are not two opposites but separate constructs. The hygiene factors are extrinsic
and related to dissatisfaction whereas the motivators are intrinsic and related to satisfaction.

In Engstrom, the Scanlon plan was used as a hygiene factor. The non-payment of monthly
bonus to the employees during downturn led to the dissatisfaction of employee.

Originally, the Scanlon plan had introduced the concept of participative management to
bring about a change in organization culture. It promoted continuous improvement through
employee suggestions. This opportunity to take responsibility for their actions and apply
their skills motivated the employees. But the company failed to communicate the due
importance of improvements in comparison to the bonus payments.

{See how the analyser is using theoretical framework of motivation to justify how this is a key
factor. This makes analysis robust)
2. Dependency on external environment-Base ratio: The base ratio was calculated as the ratio
of payroll costs to sales volume of production. Thus, the parameter was based on the
demand in the market for the product. As a result of this parameter, the employees were not
paid any bonus for 7 months after the economic downturn. The other factor influencing the
base ratio was order received which was a function of the effectiveness of the sales force and
was not dependent on the productivity of the employees. Also, the employees perceived the
frequent reductions in the base ratio as a moving carrot. The base ratio was changed 4 times
between 2000 to 2005
3. Individual plan or group plan: The current plan used a blanket rate as ratio of employee
share to participating payroll and provided bonus to all the employees based on this rate.
The individual plan would focus on performance, continuous improvement and would foster
innovation in the workforce. The group plan would ensure that the productivity of the group
is at higher levels.
4. Productivity: Increased productivity is the final goal of any incentive plan. Productivity also
reflects employee performance and is the basis for evaluation and subsequent distribution of
the bonuses. It also affects the sustainability of the organization as it has to provide the
supplies to customers like Toyota.
5. Transparent Communication: An employee has to be informed clearly where the lags and
any reasons have to be clearly disclosed since this ultimately affects his payroll. Hence the
company adopting any form of incentive system which differentiates one employee from
another need to be very transparent and lay out all the rules beforehand. Transparent
 communication would reduce the apprehensions of the workforce about the fairness of the
incentive plan.

DELIMITERS or CONSTRAINTS

Constraint What is the constraint? How does it affect your options?

No
1 Cost The cost implication has to be taken into
account. Where the company works on a
tight budget, unnecessary expenditure
on extra bonus to motivate the
employee is unacceptable
2 Time As a manufacturing unit it very
important to be on time as most of your
clients is expecting the same from you.
So any reforms should be able to be
easily implementable and produce
instant results
{In this case, these are not delimiters and is included unnecessarily. If you link the excel sheet
attached used for case evaluation, you can see this has been given 0.}

Option 1

Name of the Option and description: Modifications in the current Scanlon plan

Base Ratio: The base ratio should be determined based on the strategic plan of the company and be
frozen for the duration of the strategic plan. The company should not make changes in the ratio
frequently which would increase apprehensions about the incentive plan in the minds of the
employees.

Yearly Incentives: The demand for any good varies throughout the year and the employee would
understand this. The problem with monthly incentives is a particular month of bad demand would
hit their productivity. But once the incentives are given at the end of the year, the effects would
average out and hence employee motivation would remain more or less constant. And the company
could gain considerable interest by investing this amount and gaining an interest out of it.

Group Incentives: The company should continue with the current plan on applying a blanket rate of
bonus percent to the entire workforce. This would ensure that the employees have collective
responsibility for the overall quality of the product. Any defects would be the responsibility of the
workforce and would affect their bonuses.

Changing company share: The company should predetermine the company share in the incentive
plan as per the period of the business cycle. Thus, the company could have more share in the
incentives (from current 75 percent) during downturn effectively reducing the bonus shared to the
workforce. These changes in the company share should be determined with consultation of the
labour union and fixed according to the production capacity of the plant and demand from the
market.

Productivity: The provision of group incentives would increase the pressure on the workforce to
improve the overall productivity rather than focus on individual performance.
Pros Cons
The dissatisfaction of employees over non Motivation level cannot peak as much as a
payment of bonuses during the year would month were a huge bonus was given
reduce
A constant base ratio would build trust among Bonuses would be distributed even to low
employees towards the management as the performers in the organization
bonus would be secured
The responsibility of quality would be on the Need for highly transparent communication and
group and not of any individual. Thus, it would working on employee perception
reduce the need of quality control after each
operation reducing cost and time. The group
dynamics will induce quality conscious
behaviour.
No additional time and cost Not suitable in the long term

Option 2

Name of the Option and description:

Incentive less dependent of Demand: The incentive plan should be derived from factors within the
control of the employees as much as possible. The plan should give equal weightage to individual
performance and defect rates during production. This would encourage employees to keep up their
productivity high even in the period of downturn.

Individual Incentives: The company should monitor individual performances through maintenance
of work logs during production. This would enable the company to pay the incentives to the
individuals according to the performance and approved suggestions provided to the management.

Motivation: Since the incentive are less dependent on demand and includes individual factors, the
employees would have high extrinsic motivation to perform.

Accompanied by personal recognition: Personal recognition to the workforce for their high
individual performance would increase induce an intrinsic drive to excel in the work given.

Continuous improvement: Since incentives are linked to individual performances, the company can
leverage this opportunity to increase employee participation by providing suggestions for continuous
improvement. Increase in the participation by the employees could foster innovations in the business
processes.

Base Ratio: The base ratio should be determined based on the strategic plan of the company and be
frozen for the duration of the strategic plan. The company should not make changes in the ratio
frequently which would increase apprehensions about the incentive plan in the minds of the
employees.
Pros Cons
High motivation levels Increased efforts and cost on evaluating
individual performance
Incentives based on performance
Incentives for continuous improvement
Foster innovation
Less need of transparent communication
Provides learning opportunities for the
employees

Selected Option No: 2

Reason 1 Higher motivation levels irrespective of the period in the business cycle. The
employees have incentives to perform even in the period of downturn.
Reason 2 The plan would promote employees towards continuous improvements in the
production through their valuable suggestions. It would also foster innovation within
the company which would help in increasing the overall productivity and quality of
work. It would also provide learning opportunities for the workforce.
Reason 3 Fewer requirements of changes in the organization culture to create a buy-in from the
entire workforce. The management has to spend less energy in being transparent in
the communication of business and can focus on the business issues at hand.

ACTION PLAN:

1. Determine the performance parameters to measure the performance of the workforce based
on defect rates, units produced per unit time, approved improvement suggestions.
2. Create a new incentive plan with equal weightage to demand (the external factor), employee
performance and quality of products.
3. Discuss the new plan with the labour union to get a buy-in from the workforce.
4. Validate the effectiveness of the incentive plan by implementing it in a particular unit for a
time period.
5. Measure the response of the workforce. Check the satisfaction and motivation levels of the
workforce.
6. Take suggestions for improvements from the employees.
7. Incorporate the suggestions in the incentive plan.
8. Promote the plan across the organization at full scale.
9. Implement the new incentive plan.
10. Promote improvement suggestions by providing recognition to the workforce for valuable
inputs affecting productivity and quality.