Case Study 4: Alum Tubes Ltd manufactures aluminum cylinders that are used in a
ID: 435399 • Letter: C
Question
Case Study 4:
Alum Tubes Ltd manufactures aluminum cylinders that are used in a variety of products, such as scuba diving equipment and fire extinguishers. The company has just introduced a performance-related pay system in their smallest manufacturing plant. Employees will receive bonuses, based on their work team exceeding the team’s performance targets. At this stage, only three of the four work teams will participate in the scheme. If this system works well, it will be introduced into all of the company’s plants.
There are four teams, and each team has been given quarterly performance targets for (1) time taken in manufacturing cycle time, (2) material cost per unit and (3) production output (number of units produced). Two of the work teams are organized sequentially, that is, the output of Team A becomes the input for Team B. Teams C and D both manufacture their product independently of the other teams. However, teams C and D do share some equipment with Team B. Team D is not participating in the new performance-related pay scheme. Team D has just introduced some new production technology and therefore management believes the team is facing a steep learning curve at present with this new technology, and the lack of knowledge and experience would make it difficult for team D to achieve any performance targets at this stage.
A bonus pool of $10,000 has been set aside each quarter. This bonus is to be shared only among each of the participating teams that achieve their targets for the quarter and shared equally among the members of these successful teams.
The employees are excited about the new scheme. They can only gain by such a system. However, at the end of the second month, tempers start to fray. Sam Smart, a member of Team B, takes his complaints to the production manager, Adam Dolittle:
Sam: This new system is just not working. Team A is sabotaging our performance. How can we meet our performance targets when Team A gives us faulty product to process? “They have skimped on the quality of materials, so it takes us much longer to complete our part of the manufacturing process because of the amount of re-work to fix the products. We have had a 15% increase in the number of units we have had to scrap due to materials defects, which reduces the number of units we can make in a day!. This is made worse when the purchasing department orders our material far too late (as they can purchase materials cheaper if bought in larger quantities, but this makes delivery slower), so we have to wait around for deliveries. Also, someone has been leaving the calibrator machine in such a mess, so we waste valuable time resetting the gauges before we can use it. I am sure it is a member of Team C. The system is not fair. The other two teams are making their targets and we are not- and it is not our fault! Additionally, John Grump, a member of our team, is clearly not working to capacity- and his rewards will be the same as ours!”
Adam was not sympathetic. He has just had to deal with a delegation from Team D who is upset because they cannot share in the performance bonuses.
Adam: Calm down Sam. I am sure that you are exaggerating. These problems will iron themselves out over the next few months. It is up to each team to manage its performance. Go away and deal with these problems.
Requirements:
1. If Adam Dolittle is wrong, then what features of the performance-related pay system are causing problems? Support your answer with an explanation.
2. Are the three performance measures appropriate for assessing performance and awarding bonuses? Explain your answer.
3. Discuss other forms of bonus incentive schemes that would help to solve each problem. Describe the performance measures that you would suggest, and how it should be measured so that it motivates all teams of the company.
4. This week, the management of Alum Tubes Ltd has decided to adopt a visionary (strategic pro-active) sustainability strategy. Provide a plan to management that includes the development of new strategies for all four types of strategies (enterprise strategy level, corporate strategy level, business strategy level, and functional strategy level) and one example of an appropriate measure you would suggest for each strategy level within the newly redesigned performance measurement system.
Explanation / Answer
Answer 1.
If Adam Dolittle is wrong, then following are features of the performance-related pay system that are causing problems are as below
Teams Inter dependency: Teams are not able to execute their production, as there production is dependent on one another. Thus teams are not able to work on the independent basis and they need to reply of the production of performance of their preceding team. Competition cannot be exist of inter dependency is available. Competition generally happens in the independent working environment where one can perform best to his talent, capabilities and abilities.
Pay system is not logical: The performance based pay system or approach is not logical as does not provide equal and open opportunities for all the teams, hence they can execute equally and they cannot feel like competition environment due to their enter dependency on their preceding team’s performance.
Team can affect performance of their succeeding team: The system creates problem as the preceding team can impacts the succeeding team’s performance, hence this does not provide right competitive environment for the teams. The competition environment should be such that all the teams are not inter dependent and they can plan their own target and they can achieve as per their planning. But the above stated performance based pay system is not as per this and is not acceptable to any teams
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