Unit One
Mini case: The Importance of setting standards
Source: Management, 3e, Thompson/Mathys, pg 26
Focus: To show some of the applications of scientific
management to current problems; to show how objective setting can improve
performance
The Importance
of Setting Standards
Denzel Markham was concerned about the performance of
his truck drivers. Denzel had a fleet of trucks that hauled lumber from the forest
to the mill. A truck driver received an hourly wage. Denzel felt that there
really was not much incentive for the truck drivers. They made only a dozen
trips a day, whereas Denzel felt that twenty trips were possible. But he wasn’t
sure. However, the company gave Denzel a bonus based on the performance of his
unit, and Denzel was going to try his best to improve performance.
Denzel first wanted to get a measure of what was
possible. As a former truck driver, he knew about what it takes to load a
truck, how to safely drive it down the mountain, and how to get it unloaded.
After watching for a week and making some time charts, Denzel knew that twenty
round trips were indeed possible. However, the current average of twelve round
trips had been the average performance for the past several years. Denzel knew
that just demanding it would not work; he had to try to set the conditions that
would lead the truck drivers to want to meet Denzel’s goal.
First, Denzel changed the pay system so that a truck
driver received payment based on the number of trips that were made. The result
of this action was an increase in the number of trips but a decrease in the
amount of lumber carried each trip.
Denzel’s second change was to modify the pay system so
that a truck driver received an incentive for the amount of wood carried each
day, for safe driving, and for having a truck that met safety standards as set
forth by the company. A bonus was paid for reaching the various standards that
were specified. In addition, a group bonus was given to each shift based on the
group’s performance toward meeting the standards. Denzel thought the group
standard would encourage the rest of the group to influence the driver that was
not meeting standards. He set up a pay system that gave a set amount to the
driver for approaching, meeting, or exceeding each of ten standards that were
established. The compensation received for each standard varied. The amount of
lumber carried per day was worth more than reaching the safety standards.
However, reaching each standard was important in making a good day’s wage.
Denzel’s salary system was first met with a lot of
hostility by the drivers. They felt that even though reaching standards would
mean a 20 percent increase in pay, the level of efforts needed to reach that
pay level was asking too much compared with the previous wage system. Nearly
ten of the hundred drivers quit. The others were slow to respond to the new
system. Performance even dropped.
Denzel was perplexed and angry. He knew that standards
could be reached, but he also knew that he would need the support of the
drivers to do it. So he had to try something else. Denzel modified the pay
system again. He reinstituted a basic day wage similar to what was in effect
before he made the change. Next, he offered additional incentives based on the
weight of wood shipped and safety. An additional bonus was paid once the
standard was reached. Hence, drivers could work under the old system and earn
the same amount of pay they did before, but they could also work to meet the
daily standard and receive additional pay with an additional bonus once the standard
was met. Denzel hoped this system would reduce driver dissent while still
motivating drivers to reach the standard. Without the special bonus there would
still be an incentive to work toward the standard, but Denzel thought the bonus
would add an additional incentive. The results were gratifying. Performance
reached the standard within two weeks.
Analysis
- How would scientific
management have helped Denzel learn about an appropriate standard?
- Why do you think that there
was worker resistance to the change in the way of calculating
compensation?
- Why do you suppose the
final change resulted in worker acceptance of the program?
To
show some of the applications of scientific management to current problems; to
show how objective setting can improve performance.
Case Facts:
·
Denzel Markham, a former truck driver
felt that twenty trips a day was possible, however the current average was
twelve trips since past 7 years.
·
Denzel changed the pay system from
hourly pay system to work pay system (based on number of trips). This led to
increase in number of trips but decrease in amount of lumber carried.
·
For the second time, Denzel set ten
different standards and made the pay system such that payment was made on
various scales to those who reach the standard, who approach the standard and
who exceed the standard. Although, just reaching the standards would increase
the pay by 20 percent, the effort required was much compared to previous. This
increased hostility in the drivers and the performance did not increase.
·
Finally, Denzel switched back to the
initial system with additional incentives based on the weight of wood shipped
and safety. The performance reached the standard within two weeks.
Analysis:
1. Scientific
management developed by F.W. Taylor states that a manager must develop a
science for each element of an individual’s work to replace the old
rule-of-thumb method. Furthermore, work has to be done on the basis of the
science developed. And employees must be trained, taught and developed. And the
work and responsibility must be equally shared between the management and the
workers.
Similarly, using time and motion study to eliminate
wasted motions, hiring best-qualified workers and designing incentive system
that focuses output also comes under scientific management.
Here,
had Denzel learnt about the scientific management, he would have been able to
devise the pay plan that would focus output rather than the trips (1st
case) and would have been worker friendly (2nd case). In the first
case, although Denzel had known his objective, the way towards his objective
was not a good one.
2. The
second pay system under which worker was paid on the basis of, him meeting ten
different standards created worker resistance as it was not worker friendly.
Although, reaching the standards would mean that they would have 20 percent
more pay than they were being previously paid, they had to give more input as
compared to the previous case.
Furthermore, reaching each standard was important in
making a good day’s wage but the major work was to carry the lumber.
3. Final
change was worker friendly. Furthermore, it also offered flexibility. The wage
system had shifted to the initial hourly pay system. And there were added
benefits. Flexibility was offered in the sense that workers could opt for the
incentives and bonuses or remain with just their normal pay as well.
Recommendations:
By focusing on scientific management, he should have
made the second pay system more workers friendly. Similarly, he should have
focused on the output in the first case. Both of these things have improved in
the third pay system. Flexibility has been offered with the options to stay
back to the normal wages or move to the new incentive system.
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