The Engstrom Company Case

Key issues (by Kanmin)

Engstrom, located in Indiana, is a private automobiles mirror manufacturer. It was extremely successful in the past years due to the implementation of Scanlon Plan. Scanlon Plan was an organization-wide incentive plan that focus on improving team work to achieve higher productivity. The basis of this plan was employees could receive 75% labor cost savings as bonus monthly. However, an industry downturn took place in 2005. This made the Scanlon Plan into a vicious cycle: company became non-profitable and had no ability to pay extra bonus to their employees, consequently, employees were unmotivated resulting lower productivity and quality, and the distrust diffusion made Engstrom harder to get out the crisis. Their manager Bent thought it is the time to change to make a turnaround.

Listed are the primary factors that contribute to the current situation:

 Single incentive method

Scanlon is a bonus based incentive plan, but it relies too much on the bonus to motivate. Employees are expected to receive monthly bonus payments. The trap is: it works well in the “good” time. However, if the whole industry become low profitable, the company has no ability to pay the bonus monthly to meet the employees’ expectation. By doing this way, it will surely cause the dissatisfaction and low morale. It is entirely

The whole manager team of Engstrom was too focus on improving productivity meanwhile ignore other factors such as marketing strategy, financial management that may contribute to success. In addition, the industry crisis came in 2005, but they made no changes till 2007 which showed the manager team was lacking of the ability to adjust timely. Also, employee complains lasted two years and the managers did not appease the mood of their angry employees. Their reactions showed that a lack of the knowledge of conflict management and how to be “side by