Leading Organisation Dynamic

1. I P M I – I n t e r n a t i o n a l B u s i n e s s S c h o o l – I n d o n e s i a
L e a d i n g O r g a n i z a t i o n D y n a m i c s - A n d r e V i n c e n t W e n a s , M M , M B A .
ENGSTORM AUTO MIRROR PLANT
Motivating in Good Times and Bad
By Muhammad Hanif IPMI EMBA 15221023
Leading Organization Dynamic

2. I P M I – I n t e r n a t i o n a l B u s i n e s s S c h o o l – I n d o n e s i a
L e a d i n g O r g a n i z a t i o n D y n a m i c s - A n d r e V i n c e n t W e n a s , M M , M B A .
1948 Engstorm Auto Mirror created and enjoyed successful profit
Engstrom Auto Mirror plant A privately owned business manufacturing
mirrors for trucks and automobiles employed over 200 people in
Indiana location.
by late 1990s Engstorm redesigning new production line with new
technology, these transition was not smooth and increasing long
production delay, create unprofitability.
1998 Ront Bent from camshaft production plant Hired
Dec 1999 Scanlon Plan is introduced and were voted by 81%
Employees and signed Scanlon Bonus Agreement.
ENGSTORM STORY

3. I P M I – I n t e r n a t i o n a l B u s i n e s s S c h o o l – I n d o n e s i a
L e a d i n g O r g a n i z a t i o n D y n a m i c s - A n d r e V i n c e n t W e n a s , M M , M B A .
Workers were motivated by the bonuses (Scanlon Plan ) to increase
their productivity, thus saving the plant from its problem
Since 1999, workers at the plant have received bonuses based on the
Scanlon Bonus Plan, which paid a percentage of all labor savings
each month
On 2006, 46 employees were lay off. During this year employees had
not received a bonus in seven months. Employees had become
dissatisfied with the Scanlon Plan
However, in 2007, the plant once again faced issues of unproductivity
and low profits. By this year Joe Haley hired.

4. I P M I – I n t e r n a t i o n a l B u s i n e s s S c h o o l – I n d o n e s i a
L e a d i n g O r g a n i z a t i o n D y n a m i c s - A n d r e V i n c e n t W e n a s , M M , M B A .
The Scanlon Plan Adoption
• Developed in 1930s by Joseph Scanlon , the heart of the plan is the concept
of participative management.
• The three plan components:
• Submission of suggestions for improvement by employees at
all levels.
• Structure of the company committees that evaluate the
suggestions
• Then sharing of the fruits of increased productivity through
monthly bonuses.
• Employees signed a Scanlon Bonus Plan Agreement at Engstrom
• The strategy was to start with the total sales revenues generated
during a specified period and then establish a percentage of that
total as a standard or normative cost of labor, including managerial
support.
e.g. A ratio of 0.50 to 1 would mean that the normative payroll cost was
50% of total sales revenue—and that employees would be paid a bonus for
any month in which the payroll cost was less than 50% of total sales
revenue (with the size of the bonus based on the percentage of savings
achieved).
Basic Ratio = 𝑵𝒐𝒓𝒎𝒂𝒕𝒊𝒗𝒆 𝑷𝒂𝒚𝒓𝒐𝒍𝒍 𝒄𝒐𝒔𝒕/𝑻𝒐𝒕𝒂𝒍 𝑺𝒂𝒍𝒆𝒔 𝑹𝒆𝒗𝒆𝒖𝒆

5. I P M I – I n t e r n a t i o n a l B u s i n e s s S c h o o l – I n d o n e s i a
L e a d i n g O r g a n i z a t i o n D y n a m i c s - A n d r e V i n c e n t W e n a s , M M , M B A .
• Employees suggest ways to improve productivity at the plant.
• Eight production committees, each composed of a supervisor
and two elected employee representatives, review the suggestions,
passing along disputed suggestions or suggestions costing more
than a specified amount to the screening committee.
• The screening committee determines how to handle all these
suggestions passed from the production committees and also
reviews the monthly bonus calculations from plant management.
This committee is composed of:
• Five employees elected from the production committees
• Four management representatives appointed by the plant
manager
• The plant manager
The Scanlon Plan Adoption
Suggestion Plan Process

6. I P M I – I n t e r n a t i o n a l B u s i n e s s S c h o o l – I n d o n e s i a
L e a d i n g O r g a n i z a t i o n D y n a m i c s - A n d r e V i n c e n t W e n a s , M M , M B A .
Sample bonus calculation:
a. Management adjusted this value for returns, increases, or decreases in
inventory—number is not equivalent to shipments.
b. The normal total labor cost is 38% of the sales value of production, or 38¢ for
each $1 of product produced at sales value
c. 25% set aside before bonus distribution to form a reserve to cover deficit months.
d. Actual payroll minus payroll for employees on paid nonworking days (vacation,
holidays, jury duty, etc.) or on job less than 60 days
a Sales Value USD 4,000,000
b Allow payroll at 38% USD 1,520,000 a x 38%
c Actual Payroll USD 1,280,000
d Scanlon Bunus Poll USD 240,000 b - c
e Set Aside as reserve 25% USD 60,000 d x 25%
f Bonus Balance USD 180,000 d - e
g Company Shares 25% USD 45,000 f x 25%
h Employee Share 75% USD 135,000 f x 75%
i Participating Payroll USD 1,260,000
j Bonus % (empl share / participating payroll) USD 10.7% h / i

7. I P M I – I n t e r n a t i o n a l B u s i n e s s S c h o o l – I n d o n e s i a
L e a d i n g O r g a n i z a t i o n D y n a m i c s - A n d r e V i n c e n t W e n a s , M M , M B A .
ENGSTORM
Scanlon Plan Process
Pros
• Win-win contract
• Eliciting active employee inputs for
improvement
• Increasing communication at all level
• Participation of workers
• Improving product quality
Cons
• Protect low performers
• Complexity & fluctuation of the base
ratio
• Management-labor conflict- lack of
honesty
• Inelasticity for market and economy
changes
• Workers began to perceive the
bonus as part of their regular
paycheck rather than a reward,
which reduces the durability of plan's
results

8. I P M I – I n t e r n a t i o n a l B u s i n e s s S c h o o l – I n d o n e s i a
L e a d i n g O r g a n i z a t i o n D y n a m i c s - A n d r e V i n c e n t W e n a s , M M , M B A .
What ‘s the point of having bonus plan if no bonus paid for months ?
Distrust of bonus calculations:
• company might be “playing with” the numbers ?
• suspicious whenever the management team changed the ratio, which
occurred four times between 2000 and 2005 (the final reduction was to
32.6%).
Question of fairness
• “supervisors should have received a reduced bonus- they are not working
as hard as we are.”
• No reason to replace Scanlon Plan
• Had they though of it narrowly as a bonus plan instead of broader
opportunity to build diff cultures ?
• Had he and his top managers done everything they could to make scanlon
sustainable process ?
• Was there something else he was missing ?
Issues on Employee’s Side
Issues on Engstorm Side

9. I P M I – I n t e r n a t i o n a l B u s i n e s s S c h o o l – I n d o n e s i a
L e a d i n g O r g a n i z a t i o n D y n a m i c s - A n d r e V i n c e n t W e n a s , M M , M B A .
PROBLEM
Suspicious
Moral Down
Distrust
Management vs
Employees
Productivity Low
Revenues
Down
Culture Change
EndangerEngstormFamilyPlant
AndIfNothingchange
Theymightclosetheplant
Although there are many different issues at the Engstrom
plant, the main concern to be addressed is that the
management is not motivating the employees.

10. I P M I – I n t e r n a t i o n a l B u s i n e s s S c h o o l – I n d o n e s i a
L e a d i n g O r g a n i z a t i o n D y n a m i c s - A n d r e V i n c e n t W e n a s , M M , M B A .
Suggestion Committee Action
Ideally
• Productivity
• Revenue
• Bonuses
Facts
• Productivity
• Revenue
• Bonuses
Problem Chains
Suspected area
of promblem INCREASE
DECREASE

11. I P M I – I n t e r n a t i o n a l B u s i n e s s S c h o o l – I n d o n e s i a
L e a d i n g O r g a n i z a t i o n D y n a m i c s - A n d r e V i n c e n t W e n a s , M M , M B A .
Filter all suggestion, Improve screening committee and monitor action plan
Professional Development Plan for employees' career path
Long term plan for staff perform a consistently and progressively growing
contribution to the company to build up Loyalty
Engstrom should create a modified Scanlon Plan that clearly relates
bonuses to increased productivity,
Action Should be Taken

12. I P M I – I n t e r n a t i o n a l B u s i n e s s S c h o o l – I n d o n e s i a
L e a d i n g O r g a n i z a t i o n D y n a m i c s - A n d r e V i n c e n t W e n a s , M M , M B A .
THANK YOU