Case Study Review: Engstrom Auto Mirror Plant

Engstrom Auto Mirror plant is a privately-owned business in Richmond, Indiana that manufactures mirrors for trucks and automobiles, and has been in operation since 1948. Employing 209 people, the company had enjoyed success for a majority of its history. Engstrom Auto Mirror had gained certified supplier status from a Toyota plant and in the seven years preceding 2005, sales had quadrupled (Collins & Beer, 2008).

Despite these great successes, the organization began to suffer challenges from both internal and external factors that challenged its ability to stay viable.

These challenges include decreasing employee performance and motivation triggered by poor communication between the workforce and management. These issues will be evaluated from the Structural, Supportive and Contingency approaches of organizational behavior, to determine a method for invigorating the workforce back to a state of productivity.

In 2005 the industry suffered a downturn and by 2006, the plant had to lay off 46 people. In 2007 after several quarters of low sales, employee morale was at an all-time low. Relationships between the labor force and management were tense and there was evidence of theft in the inventory reports.

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The Engstrom family contemplated closing the plant, but plant manager Ron Bent was evaluating the need for a revision of the current gainsharing program that had bolstered productivity in a similar financial situation in 1999 (Collins & Beer, 2008).

To establish the current plan, a benchmark ratio of labor cost to sales volume production was initially established at 38.0% (Collins & Beer, 2008). Any month in which labor vs. productivity ratio was less than the benchmark, the proceeds became part of the incentive program.

Off the top, 25% was put in a reserve for months in which total payroll exceeded the allowed payroll (Collins & Beer, 2008). What was left was split 75% to the employees and 25% to the company. At the end of the year in June, if there was money in the reserve, it was bonused to the employees at the same split ratio (Collins & Beer, 2008). Although initially successful in inspiring a collaborative culture and strengthened productivity, the workforce became untrusting of the plan structure, because of the complexity of the calculations.

The success of the Scanlon gainsharing plan implementation did not maintain momentum. The plant had to adjust the benchmark 4 times over a 5-year period which perpetuated mistrust in the moving target. By May of 2007, it had been several months since the employees had received a bonus and production delays were costing the company exorbitant rush shipping costs to meet deadlines (Collins & Beer, 2008). Continuing operations was not an option if the organization wanted to be profitable, let alone remain open.

The organizational challenges that Engstrom Auto Mirror was facing included low employee morale and subsequent low performance and productivity. Mistrust of management and poor communication between the groups compounded these issues (Collins & Beer, 2008). The possibility that the existing incentive program could still be effective will be analyzed, allowing for contingency adjustments in the recent environment (Newstrom, 2015).

Engstrom's core issues are decreased productivity, employee motivation, and poor communication. The systems approach will be used to determine external and internal factors that are inhibiting profitability within the organization. Decreased motivation of the work force will be examined through the lens of the Supportive approach to explore if there are frustrations in current processes that are no longer serving the work force. Lastly the Contingency approaches will be used to determine if in this new state, improved upward and downward communication can improve relations and ownership by the labor force (Newstrom, 2015).

References

1. Collins, E. L., & Beer, M. (2008). Engstrom Auto Mirror Plant: Motivating in Good Times and Bad. Boston, MA: Harvard Business School
2. Newstrom, J (2015). Organizational Behavior: Human Behavior at Work. New York, NY: McGraw-Hill