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Pulling it all Together

Pulling it all Together. Organizational Policies. Internal Fit. External Fit. Contracting Perspective. $. Ratchet. $1.25/hr. effect. $.85/hr. (day rate). Bogey. Output. }. Quota. Goldbricking. Restriction. range. (gravy jobs). (stinker jobs). Slackers. Poor incentives if ...

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Pulling it all Together

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  1. Pulling it all Together Organizational Policies Internal Fit External Fit Contracting Perspective

  2. $ Ratchet $1.25/hr. effect $.85/hr. (day rate) Bogey Output } Quota Goldbricking Restriction range (gravy jobs) (stinker jobs) Slackers • Poor incentives if ... • can’t meet bogey • bogey might be changed (ratchet effect) • Other problems w/ piece rates • quality, cooperation, improvement ideas

  3. Lincoln Electric’s Slacker Fixes • Shape of pay v. performance • no bogey • never ratchet rate unless methods change • if changed ... • target pay level stays same • employees can challenge change • Quality • no piece rate until defects repaired • stencil name on welder • quality component to rating • Cooperation / Ideas • co.-wide bonus pool; varies w/ co. profits • rating: dependability, ideas & cooperation • lifetime employment

  4. Incentives:Summary Lessons • To mitigate distortions • use overlapping mechanisms • controls • other measures / rewards • use subjectivity • measures or weights • Subjectivity Þ need for TRU$T • implicit contracting policies • incentives & controls for supervisors

  5. External Fita. Arc Welders • Product • slow tech. / product innovation • synergies w/ electric motor mfg. • Customer • razors & blades • uses up to 30 years • cost & quality, not timely delivery • long-term sales relationships • Market • potential large competitors • global demand • variance (seasonality / cyclicality)? • growth?

  6. External Fitb. Strategy • Costs ¯ Þ prices ¯ Þ growth • total market size & market share • internal v. acquisition? • scale economies v. core competence? • focus on welders v. expand to motors? • Razor blades • vertically integrate into supplies • Customer relations/ service • internalize sales, not distributors • welding knowledge • sell supplies

  7. Internal Fita. Career Policies • Promote from within • mgt. understands welding mfg. & use • aids performance evaluation • culture building • coordination • Lifetime employment • fits w/ promote from within • fits w/ growth strategy • problem w/ seasonal / cyclical variation • Recruiting probation • screening hard workers, cultural fits • Train sales on welder mfg. & use • aids customer service, product design • fits w/ less complex product, simple product line • fits w/ internalization of sales

  8. Internal Fitb. Job & Org. Design • Assembly line, not teams • perf. meas. for piece rates • fits w/ less complex, mature product • fits w/ focus on extrinsic motivation • Flat hierarchy, spartan, few distinctions • lower cost • fits w/ simpler product line • Top-down decision making • fits w/ less complex, mature product, simpler product line • fits w/ promote from within, lifetime employment

  9. Internal Fitc. Rewards • Piece rates • extrinsic motivation • fixes for ratchet effect (above) • Bonus pool: overall firm profits • fixes to piece rate problems (above) • fits w/ lifetime employment • fits w/ growth strategy • fits better w/ stable product demand • Subjectivity • piece rates & methods changes • performance ratings • size of bonus pool • problem of trust / risk ...

  10. Internal Fitd. Voice • Worker & middle mgr. advisory boards; open doors • communication of information • coordination • airing of grievances • builds trust • fits w/ no union • No union • flexibility in work rules • lower cost • fits w/ strong reputation / trust • also reinforces trust • Communication of culture / history • aids trust / reputation building

  11. Implicit Contracting & Tru$t • Credibility • history, culture • management consistency • fits w/ founding family, promote within, strong culture • policy consistency • Capital structure • no debt, employee stock • preclude hostile takeovers • fits w/ long-term growth strategy • fits w/ large bonus pool, worker & exec. stock holdings • no bonus for top 2 mgrs. • Reducing favoritism • mutual interests • monitoring of evaluators & multiple evaluators • relative, but not forced, rankings • grievance policies • culture

  12. Lincoln’s Strategythrough 1996 • Growth • move into AC electric motors • acquisitions v. greenfields • GM / Delco • UAW & plant shutdown • Europe, Brazil • problems transplanting culture • price wars • US v. foreign profits: bonus financing • Inverter technology threat? • welder: big transformer • inverter: more power, smaller transformer • need for new skills (plastics) • WSJ ad • Organizational policies • no more Lincolns • changes?

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