Case Study Analysis
Engstrom Auto Mirror Plant
Southern New Hampshire University
Engstrom Auto Mirror Plant Case Study Introduction
Engstrom Auto Mirror Plant is a privately owned company located in Richmond
Indiana, fabricating mirrors for automobiles and trucks since 1948. In 2005, the company
encountered a declining trend in sales, productivity, product quality and employee
morale, and consequently in June of 2006, the company laid off 46 of the 255 workers.
The company had enjoyed considerable success and was profitable for about 50
years up until 1998 when the plant implemented new equipment and technology within
their production lines to adapt and keep up with the competition. Unfortunately, the
training and transition of workers utilizing the new equipment was slow and was not up
to par with the customers' needs and time frame. The plant manager ended up resigning
due to his lack of "sophistication with technology" and was "inept at working with an
increasingly militant union." Engstrom hired "Ron Bent, a successful manager in his mid-
40's" to attempt a turnaround for the company (Newstrom, 2015, pg. 538). Bent
implemented the Scanlon Plan, an organization-wide employee incentive "gainsharing'
(Newstrom, 2015, pg. 537) program to involve employees more directly in an
organization's decision-making process and was successful in turning the plant around
Employees received monthly bonuses on top of their paychecks for seven straight years
as long as the company met their performance and output benchmark. The Scanlon Plan
motivated employees, increased productivity and product quality. However, over time,
employees became complacent and expected the monthly bonuses. Problems occurred
when employees saw a decrease in their bonus due to the calculation ratio changes made
by management four times from 2000-2005 even though sales were continuing to grow.
Although all employees received a detailed explanation of the process and could easily
access the bonus calculations, it was a complicated calculation for some to comprehend
and management never took the time to explain their rationale behind the ratio changes
Some employees felt the company was "playing with the numbers" (Newstrom, 2015, pg.
540) to benefit the company and lower their bonus amounts. Distrust of management
grew while employee morale was beginning to decline.
Coincidently, in May 2007, Bent was faced with a very similar situation to when
he first started at Engstrom in 1998: decrease in sales, low productivity and product
quality issues that may impede on the company's relationship with Toyota, their biggest
customer, if they "can't climb out of this downturn" (Newstrom, 2015, pg. 536). "Over
time, enthusiasm waned and dissatisfaction grew with certain aspects of Scanlon.
Suggestion rates dropped precipitously, down from hundreds to 50 a year. Employees
have been complaining about the Scanlon Plan for months with two consistent complaint
themes heard from workers: distrust of bonus calculation and question of fairness"
(Newstrom, 2015, pg. 540). Now, "Bent had to determine whether to scrap Scanlon,
change it, or look elsewhere for solutions to sustaining productivity and ensuring product
quality until the downturn ended" (Newstrom, 2015, pg. 537) or else.