Answer all questions thoroughly. Be sure that paper is in APA format with in-text citations and reference page. Must use 1 additional source other than the case study itself.
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OL 500 Milestone One Guidelines and Rubric
The final project for this course is the creation of a case study analysis.
Through the practice of analysis and application of human behavior theories and concepts, you will develop your critical thinking skills and the ability to properly
diagnose root causes of organizational issues while recommending solutions that create sustainable positive change within an organization.
You will analyze the case study titled “Engstrom Auto Mirror Plant: Motivating in Good Times and Bad,” which is contained within the custom Textbook/Case
Study bundle. The case study will present a list of known organizational issues. You will apply knowledge of human behavior theories and concepts to properly
identify and analyze the multiple root causes of the organizational issues from a human behavior perspective. Your analysis will include an examination of the
resulting impact of relevant theories and concepts.
Prompt: For Milestone One, review the organization in the case study provided, looking specifically at organizational issues. Develop the following:
a) Develop a clear explanation of the organizational issues within the case study.
b) Outline a clear direction for the case study analysis that includes all of the elements you plan to include.
Guidelines for Submission: Your paper should be submitted as a 1–2-page Microsoft Word document with double spacing, 12-point Times New Roman Font,
one-inch margins, and all sources cited in APA format.
Develops a clear explanation of the
Outlines a clear direction for the case
Articulation of Response
Submission has no major errors
related to citations, grammar, spelling,
syntax, or organization
Needs Improvement (75%)
Develops explanation of the
organizational issues but contains
issues regarding clarity
Outlines a direction for the case study
analysis but contains issues regarding
Submission has major errors related to
citations, grammar, spelling, syntax, or
organization that negatively impact
readability and articulation of main
Not Evident (0%)
Does not develop an explanation of
the organizational issues
Does not outline a direction for the
Submission has critical errors related
to citations, grammar, spelling, syntax,
or organization that prevent
understanding of ideas
APRIL 11, 2008
Engstrom Auto Mirror Plant:
Motivating in Good Times and Bad
There had been several rough quarters at the Engstrom Auto Mirror plant in Richmond, Indiana, a
privately owned business that manufactured mirrors for trucks and automobiles and employed 209
people. For more than a year, plant manager Ron Bent and his assistant, Joe Haley, had focused their
Friday meetings on the troubling numbers, but the tenor of their May 14, 2007, meeting was different.
Both men sensed that they now faced a crisis at the plant.
Bent was talking animatedly to Haley: “This is the third productivity problem in, what, two
weeks? We can’t climb out of this downturn with performance like that.” He scowled as he signed
the authorization to air-freight a large order to the Toyota plant where Sam Martinez managed the
assembly line. The difference in cost was astronomical, and it had been necessitated by the slow pace
of productivity at Engstrom, which meant in this case that a job due for completion on Monday
wasn’t completed until Thursday. But Bent couldn’t afford to make a late delivery to Martinez; he
was a prized but demanding customer who had designated Engstrom as a certified supplier one year
earlier. Only one other supplier for Martinez’s plant had achieved certified supplier status—a
recognition of both extraordinary reliability and quality.
The worry lines on Bent’s face deepened. Certified status meant that Martinez had personally
authorized Engstrom products to be used on the auto lines without a quality inspection. Along with
productivity problems, product-quality issues had also been creeping into the work done at
Engstrom. Bent hoped that he was not paying to air-expedite defective mirrors to Martinez.
Haley said, “Ron, we both know the employees have been complaining for months, but yesterday
and today the talk has been pretty hostile. I’m not saying there’s a definite connection between nearly
late delivery and the grumbling I heard, but you’ve got to wonder.”
Bent knew that Haley, in just four months at the plant, had developed good relationships with
several workers and could pick up useful information about the mood. Haley said, “They’ve had it
with the Scanlon Plan. You hear the griping everywhere: ‘What’s the point of having a bonus plan if
no bonus is paid for months?’ And it’s not just the people who’ve always been active in UAW
HBS Professor Michael Beer and Elizabeth Collins prepared this case solely as a basis for class discussion and not as an endorsement, a source of
primary data, or an illustration of effective or ineffective management. All names and key data in this case have been disguised.
This case, though based on real events, is fictionalized, and any resemblance to actual persons or entities is coincidental. There are occasional
references to actual companies in the narration.
Copyright © 2008 Harvard Business School Publishing. To order copies or request permission to reproduce materials, call 1-800-545-7685, write
Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored
in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or
otherwise—without the permission of Harvard Business Publishing.
Harvard Business Publishing is an affiliate of Harvard Business School.
2175 | Engstrom Auto Mirror Plant: Motivating in Good Times and Bad
[United Auto Workers], although the union could start taking a more belligerent position at their next
Bent held up the expedite authorization. “It’s a vicious cycle. We’re paying a stiff price for slips in
productivity—and that’s money I would far rather be paying to workers as a reward for high
After Haley left, Bent sat for a moment staring out the window in his office. Back in 1998 he had
faced a similar crisis, marked by low employee morale. At the time, he had rated the average worker
productivity at a dismal 40% of expectation. After studying the turnaround of two other plants in
Indiana, Bent had painstakingly built the support needed from both employees and the Engstrom
family to institute a Scanlon Plan at the plant. The choice proved propitious: the Scanlon Plan, which
paid bonuses to workers for increased productivity, had been the primary catalyst of Engstrom’s own
Business had been good; over a seven-year period: sales had quadrupled. In 2005, however, a
downturn hit the industry. In June 2006, Bent had been forced to lay off 46 of his 255 employees.
Those who remained had not received a Scanlon bonus in seven months. Bent wondered: Had the
plan outlived its usefulness? Was it a victim of its own success? The workers had become
accustomed to the plan’s substantial bonuses, perceiving the additional hundreds of dollars as part of
their regular compensation. Therefore, when the bonuses stopped, the workers responded with anger
and suspicion, as if something that rightfully belonged to them had been taken away. Now, Bent had
to determine whether to scrap Scanlon, change it, or look elsewhere for solutions to sustaining
productivity and ensuring quality until the downturn ended.
Understanding Scanlon Plans
The Scanlon Plan is the oldest organization-wide incentive plan still in use in the United States.
Many employee incentive plans (for example, the typical bonus paid to sales representatives) are
keyed to an individual’s performance. Other plans base incentives on the performance of the
functional work group to which an employee belongs. Organization-wide plans such as Scanlon
reinforce teamwork and cooperation across work groups while they focus attention on cost savings
and motivating employees to “work smarter, not harder.”
The first Scanlon Plan was developed in the 1930s by Joseph Scanlon, a cost accountant by training
and a steelworkers’ union official at a steel mill facing bankruptcy. Scanlon worked with the mill
owner to enlist the plant workers in identifying ideas for increasing productivity. Ultimately, the
plant was saved. Although Scanlon was oriented to helping small, distressed companies, variants of
his “gainsharing” plan have been adopted by a diversity of organizations.
The heart of these plans is the concept of participative management. Scanlon believed that
individuals will work hard to help achieve their organization’s goals so long as they have an
opportunity to take responsibility for their actions and apply their skills. A key tactic is to
communicate financial and other business data through all levels of the organization. While this is a
symbolic motivator for many workers, the tactic also has a practical basis: everyone is encouraged to
suggest ways to improve the plant’s productivity.
The three plan components—the submission of suggestions for improvement by employees at all
levels, the structure of the company committees that evaluate the suggestions, and then the sharing of
the fruits of increased productivity through monthly bonuses—ideally work together to drive big
changes in behavior and attitudes. When things are working properly, teamwork and knowledge2
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sharing typically improve in Scanlon organizations: collaboration fosters innovation and creativity,
which in turn drive improvements in productivity, thereby ensuring the payment of bonuses. The
culture in a Scanlon plant also typically becomes more change-friendly, as workers have the
opportunity to make more money by changing the status quo for the better.
While all Scanlon plans share these characteristics, the plans can be tailored to support an
organization’s specific strategy. Plants like Engstrom were focused on cost savings, which means
producing more per hour of labor spent. The bonus for everyone at Engstrom was therefore based on
that ratio—production per labor hour. Organizations with different strategies base their Scanlon
bonuses on different factors, but at Engstrom, pursuing higher productivity that drove labor savings
was the linchpin. Exhibit 1 shows the basic financial and structural components of the plan at
The Path to Plan Adoption at Engstrom
Engstrom Auto Mirror, which had operated since 1948 and enjoyed considerable success for much
of its lifetime, had become mired in unprofitability by the late 1990s. The plant at that time was
redesigning its production lines to incorporate new technology. The transition was not smooth, and
increasingly long production delays irritated and eventually alienated customers. The plant manager
lacked the sophistication with technology necessary to find solutions quickly and was inept at
working with an increasingly militant union (he claimed that the union was “laying in wait” for him
to make mistakes and “wanted to hurt management financially on grievances”). Embittered and tired
of conflict, the manager resigned in 1998. Ron Bent, a successful manager in his mid-40s, was hired
away from a camshaft production plant to attempt a turnaround.
Bent believed strongly in the power of worker incentive programs and wanted to establish one at
Engstrom. Owing to his experience with different types of programs and further study he
subsequently undertook, he held strong opinions about which type of plan might work best at
Engstrom. At the camshaft plant, he had experienced an incentive plan that rewarded individuals—
not groups or the employees as a whole—for performance. He didn’t care for the results: “Individual
incentive plans require a lot of manpower. You’re often arguing with the union. In my experience,
any time you set a rate on an operator, he will figure out a way to beat that rate.” The cumulative
effect of numerous small changes in tools and methods could result in incentive standards that had
little relationship to workers’ tasks. In support of his position, Bent claimed that the plan at the
camshaft plant had “gotten so out of line” that the average worker earned 150% of the day rate.
Bent has similarly strong feelings about group incentive plans: “If you are going to change your
operations or institute a new technology, product, or manufacturing line, the process to get that
installed and operational is much longer under an individual or a group incentive plan.”
A Scanlon Plan, Bent thought, was the best for Engstrom, given the challenges that the plant faced:
“With Scanlon, workers are receptive to new methods and new machinery because they feel they are
a part of the company-wide program. When you’ve established a Scanlon plan properly, you’ve also
built a good communications network throughout your organization.”
Though Bent had worked at and visited plants with multiple incentive plans in place, he felt that
Engstrom was too small to accommodate the complexity of multiple plans. By early 1999, he and his
management team began talking about the Scanlon concept around the plant, focusing on the
potential benefits for workers. They also posted information about Scanlon on bulletin boards, and
Bent spent many hours jawboning workers whom he had heard were opinion leaders.
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2175 | Engstrom Auto Mirror Plant: Motivating in Good Times and Bad
In addition, Bent organized a trip for a group of workers to visit another plant that had
implemented Scanlon. As Bent explained:
Our bargaining committee mingled casually with the other plant’s bargaining committee,
and some of our people attended the Scanlon meeting there. My management team kept in the
background and let the workers develop their own sense of the situation. The workers came
back enthused, and they set the stage for acceptance of Scanlon by their fellows at Engstrom.
Throughout these months of campaigning, Bent included a single consistent message in every
communication he had with any employee at Engstrom: the Scanlon Plan would be adopted at the
plant only if a substantial majority of workers wanted it.
In December 1999, a formal statement of the plan was prepared to be presented to all plant
employees for discussion and, ultimately, a vote. The bar was high: management had insisted that,
because strong employee buy-in was critical, a 75% “yea” vote was necessary. On December 10, 81%
of the workers voted for the plan. Every employee then signed a Scanlon Bonus Plan Agreement.
Following are its key provisions:
The labor savings would be split 75% to employees and 25% to the company.
A reserve would be established to cover months when productivity fell below the base ratio.
Before the monthly payment of 75% to employees and 25% to the company, 25% of all bonus
(both the employees’ and the company’s share) would be set aside as a reserve in case of a
deficit month – that is, a month when total payroll costs exceeded allowed payroll.
The structure of the Scanlon Production and Screening Committees—set up to stimulate and
then evaluate employees’ suggestions—was presented in detail, and methods for appointing
or electing members were established.
Conditions under which management could adjust the base ratio were made explicit. Changes
in wages, sales volume, pricing, product mix, subcontracting, or technology were identified as
potentially leading to increases or decreases in selling prices or standard costs and therefore
as factors that might cause the base ratio to be changed.
The trickiest part of the plan adoption was the calculation of the plant’s base Scanlon ratio. A
benchmark was needed. Plant management selected a ratio of payroll cost to sales volume of
production. Their 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. A ratio of 0.50 to 1, for example, 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).
Bent remembered two of the reasons why establishing the ratio raised protracted arguments
among the management team, a Scanlon consultant hired by Bent, and worker representatives:
The idea was to examine the historical ratio over a representative period of the plant’s
business cycle, including all ups and downs that are likely to occur. But we found it hard to
identify a recent period we felt was representative, given the troubles at the plant. And we
needed to consider that employees had been performing at unacceptable levels. We wanted to
motivate them to excel, not just to perform less poorly.
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The best reconstruction of actual performance showed that the ratio had varied between 30.5%
and 68.2% over the previous fiscal year. The average for the 12 months was 43.7%. Though the
Scanlon consultant suggested a target of 44%, the ratio was eventually set at 38.0%.
Scanlon’s Track Record at Engstrom
The institution of the plan led quickly to an increase in productivity, as measured by the bonus
ratio (payroll cost to sales value of production). While few of the early suggestions that employees
made increased productivity in any meaningful way; the committees accepted as many as possible
(276 out of 305 in the first year). Bent said, “We really wanted to support the submission of these
Bent also immediately instituted monthly communication meetings open to all employees.
We covered the results of the prior month in detail, praising the workers for improvements
they suggested. We also shared our perception of business conditions, identified new
customers we were working with, described new equipment that was coming into the plant—
anything that we felt would be of interest to workers. They had never been exposed to this
kind of communication before. Then we opened the floor for questions, and it was no-holdsbarred. I set only two restrictions: no talking about anyone else’s personality and no discussion
of any individual’s pay rate. If I couldn’t answer a question, I‘d ask one of my staff to answer
it. I wanted the workers to see we weren’t trying to conceal anything.
Tension and conflict in the plant eased, as most plant employees seemed to accept the serious
intent of the plan. At the same time as the plant was achieving growth, higher profits, and consistent
quality standards, the employees were also receiving good financial rewards. Scanlon bonuses were
paid every month of every year following plan adoption, in addition to normal wage increases.
(Exhibit 1 includes an example of a worker’s paycheck showing the bonus). “It’s not just the
money—though don’t get me wrong, the money is great,” said Jim Lutz, a worker on one of the
plant’s lines. “I’m getting rewarded for thinking, not just for performing the same tasks every day. To
me, that means the plant values the knowl …
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