CASE SYNOPSIS

Mitchell Container Services, Inc. is a small business that reconditions and recycles containers, specifically 55 gallon drums and intermediate bulk containers (IBCs).  This case focuses on changes implemented by the owner, Ron Mitchell, at a time when profit for the business was in trouble, how those changes have improved employee performance and therefore productivity and profit, and what motivational theories and performance principles can be seen in this transformation.  The reader is encouraged to envision the state of crisis described, note the theories and principles at work in the changes implemented, and analyze the apparent success of the new approach as compared to more traditional production approaches, especially in the small business area.

THE CRISIS

            “Containers, good for the planet – Reuse, Recondition, Recycle.”  Ron Mitchell worked previously in work settings where the disposition of used drums became a concern as environmental issue rose to attention in business communities across this country. He saw a need for a business to reconditioned and recycle drums, and started Mitchell Container Services, Inc. (MCS) with a clear mission statement and specific set of values.  With five employees in 1974 got off to a good solid star, filled the need Ron had foreseen, forged ahead, and was successful for several years. By 1992 however, the company was in trouble.  With 26 employees, losses were as much as $25,000 per month, and Ron was running out of time.  He saw employee performance levels and exorbitant monies paid out in overtime as being major parts of the problem, and he began to search for a way to turn those factors around.

A NEW APPROACH

            While watching “Sixty Minutes” on television one evening, Ron saw a story done by Leslie Stall on a Cleveland, Ohio company by the name of Lincoln Electric Company that produces welding machines and electric motors. He was intrigued by their utilization of piecework (pay per piece of work rather than per hour), plus an end of the year bonus of $2,000 to $40,000, and by obvious enthusiasm, motivation, and process ownership of the employees interviewed.  On Monday morning, Ron was on the phone to Lincoln Electric to see if he could learn more about what this approach could do for MCS.

            Ron visited Lincoln Electric within two weeks and came back to prepare for implementation of similar approach at MCS. During his time at Lincoln Electric, he had seen immediately that piecework had a tremendous direct effect on productivity.  He had observed that the grading for the bonus program was done by employees and that the bonus distributed rewards in proportion to the employee’s contribution to productivity. And there Ron had been introduced to open-book management in action, about which he learned more from Jack Stack’s book, The Great Game of Business.

IMPLEMENTATION

            Ron started by sharing with his employees that MCS was losing money, and showed them the numbers. He spent about three months talking with them about piecework, paying them eight hours pay for a determined day’s amount of work regardless of the time it took to do the work.  He shared that this new approach would not be a way to pay less, but a way to pay more and work less.  They worked out the per piece rate based on Ron’s experience of how many drums the plant should process in a eight-hour day, using each employee’s hourly pay rate, and determining the pay per drum at the highest rate. The new approach would have employees still punch a time clock, to home when the day’s production was completed, and be paid whichever was higher – their hourly rate or the piecework rate. The hardest thing for the employees to be convinced of was that they could indeed go home when the day’s production was finished, and still be paid a full day’s pay. With a promise for Ron that he would not change the production amount for the rate for one year, they began.

            Upon implementation of this new approach, the savings were immediate.  Within six months, profits were back. At the end of that first year, there was no turning back. MCS was making money, and the employees were making more money and working less time. Ron noted clearly that where employees had previously been dragging through ten hour days, they were now done in five or six hours, and so motivated at their tasks that he found them a joy to watch.

HOW IT WORKS

            Here’s how Ron’s new approach works. New employees are brought in as temporaries to see if they fit into the culture and environment. A team of employees selected by peer’s rates each new hire.  If the temporary’s rating given by this team of employees along with management does not meet requirements, he is not hired.

            The current 28 employees participate in monthly financial meeting at which there is a presentation of the pay and seniority report, as well as presentation and discussion of financial and production reports. Raises in pay are announced and posted, perfect attendees are rewarded, and there is a question and answer period.

            Every employee gets a report card every 90 days, which determines the amount of his quarterly bonus.             Quarterly, after the financial meeting, the team grades the employee report cards and the bonuses are determined. The report cards measure dependability and safety, quality, increasing ideas and cooperation, and increasing output. Each category has specific written criteria. Points are deducted for items such as tardiness and unexcused absences. Recent quarterly bonuses at MCS ranged from $409 to $560 per employee.

            Before piecework, MCS processed three types of drums: plastic, steel tight head drums and steel open head.  There was a lot of dead time when the line was changed over to accommodate a different type of drum.  To maximize efficiency, it was decided that they would only process one type – the steel tight head. The plastic drums and steel open head drums are now sent to another reconditioner to be processed.

            Not every job in the plant can be done on piecework.  Most of the trucking is done by independent truckers pulling MCS trailers.  They are paid by the mile, which is actually another form of piecework. The maintenance employees, the local truck driver, etc. are not on the piecework program, but are graded with a report card for bonus money. Everyone has been affected by the new approach implemented at MCS, and they are all reaping the significant benefits together.

MOTIVATED TO PERFORM

            What are the theories and principles at work in this case where such a positive turnaround was realized? On the content side, Herzberg’s two-factor theory is seen in that giving employees raises during the per-piecework days at MCS, while good and necessary, did nothing to increase productivity or decrease the expenditure on overtime. This would bear out that money is a dissatisfier or a hygiene factor. The new piecework/bonus approach brought about a process for achievement, recognition, shorter work days, and interest in the work itself, and not only the possibility of a quarterly bonus, but the ability to directly affect the amount of the bonus. These are satisfiers or motivators in Herzberg’s theory. They are directly related to the nature of the mob itself and contribute to satisfaction, and therefore motivate.

            Moving to the process side of the topic of motivation, Vrom’s expectancy theory defines motivation as a process governing choices among alternative forms of voluntary activity. It easily appears that MCS employees have a clear and positive effort performance-outcome expectancy. The expectancy theory assumes that “people will do what they can do when they want to.” MCS employees apparently believe that heir added efforts will result in measurable performance increases, and have a perceived certainty that particular outcomes will follow – namely, shortened workdays and larger bonuses. These outcomes are definitely seen by the employees as being positively valent.

According to the equity theory, the MCS employees are motivated by a desire to be equitably treated at work. They now have a very good sense of fairness and equity in that they clearly perceive that the ratios of their efforts (inputs) to their rewards (outputs) are equivalent to the ratios of other employees. When these design changes occurred, the employees are motivated to produce more units in less time because they could see the direct result of changed output (rewards). Not everyone responded in that way to the equation, however. Ron says that in the first six months half of the employees quit. These would be those who chose to deal with the new equation by leaving the playing field, according to Vroom. Ron smiles when he says that they were the half that was “a drag on the company.”

            Locke’s goal setting theory was put to work in Ron’s new approach, and he saw success in that realm due largely to the goal specificity provided by the approach itself. Employees could see very clearly what it took to go home earlier, and what it took to positively affect their report cards and therefore get them larger bonuses. They intentionally chose behaviors that took them directly to the completion of the goals, which now were in line with MCS’s goals. Their level of goal commitment is evident in Ron’ description of how that before piecework, when a piece of equipment went down, the employees would to the break room and wait on maintenance to repair the machine. With the changed behavior motivation, they now ask the maintenance crew if they can help and what they can do to prevent that machine from going down again. If a machine even makes any unusual noises, Ron says they pick up on it, and tell maintenance immediately in hope that they can keep the machine from doing down.

            In the psychological contract side of motivation, the exchange theory suggests that Ron set up a predictable give-and-take relationship with the employees in which they were willing to exert effort and to commit to company goals, and they began to derive satisfaction from their work. This exchange worked to the extent that their expectations of what the company will give them and what they will give the company in return matched the company’s expectations of what it will give and receive. The exchange also worked because of the specific nature of what is to be exchanged, i.e. effort for pay. This psychological contract has contributed to a dramatic decrease to turnover rates. The average time an employee has been with MCS is now 7.4 years.

            Returning to content theories, McClelland’s learned needs theory might offer insight to the type of employees attracted to the MCS environment, and those who work out well and therefore stay. People who have the learned need for achievement, according to McCelland’s theory, tend to set moderate goals and are inclined to take calculated risks. The piecework portion of MCS’s new design provides a structure within which people with those needs can obtain satisfaction as they calibrate their efforts in order to reach their goal of shortened work days, a goal that has proven reachable. They can count on bonus only if there is profit, but this risk is calculated one in that the outcome is directly affected by their efforts and they are clearly able to see that. Persons with a high need for achievent desire feedback on performance; the 90-day  report card is an excellent method of extremely meaningful feedback, in that it controls the bonus distribution. Those with a learned need for affiliation find satisfaction in the team participation surrounding hiring and report card grading activities. Ron’s approach of hiring on a temporary basis and having the team make the hiring decision at 90 days allows the selectiveness needed to match people to the environment, and retention patterns indicated that those not suited to this environment tend to remove themselves fairly quickly.

            The piecework/bonus design has removed the necessity to routinely deal with absenteeism issues.  The behavior of producing is rewarded with pay and input toward the bonus, and absenteeism is unrewarded rather than punished, and is therefore largely an extinguished behavior. MCS production employees take a week off for the Fourth of July and a week off at Christmas.  The plant is closed at those times; the time is paid vacation and id timed to coincide with a quarterly bonus payout. Those who plan time off at other times during the year take that time without pay.

            The new approach at MCS did not fundamentally change the range or depth of the jobs; it did not enlarge or enrich them, nor were they simplified. Task significance and task identity were affected in the employees’ newly found motivation to see the day’s loads completed, and the success of the job characteristic of feedback was that the feedback was largely built into the job itself. Autonomy exists in each individual’s ability to affect his length of workday and financial reward, and it his ownership of the quality of his work. Any re-work required by quality issues is done on the employee’s own time. Only once in ten years has anyone quit rather than do his re-work.

            Ron’s existing state of credibility with the employees at the time of the change must have been fairly substantial, and was bolstered by his communication skills and methods regarding the new approach. He would be seen as having Theory Y assumptions about human nature, according to McGregor, in that he embarked upon internal business changes rather than replacing people. This would imply his assumption that, given the right motivation, people would find their fundamental nature to be hard-working and responsible. This was in opposition to an assumption that it would have been the people who were fundamentally lazy and irresponsible, and that they just needed closer supervision and tougher discipline.

            In the making of a Type Z organization, as theorized by William Ouchi, one of the steps is to stabilize employment and therefore employee security. After the initial shake-up and adjustment to the new system, Ron’s approach has done exactly that in that those retained employees and those who have come on board in subsequent years have tended to stay and thrive, and the company has no history of layoffs. The majority of volunteer termination by employees who have better alternatives has been overcome by the provision of a work environment that offers equity, challenge, and participation. The common work is that “everybody in town wants to work for Ron.”

            Ron used legitimate and rewarding power in the organizational sense, and referent power in a personal sense. Ron motivated utilizing the path-goal model of leadership, and in his approach design showed an outstanding example of path clarification, giving clear identification of the kind of behaviors that would result in goal accomplishment.

THE FUTURE

            What will the challenges be for Mitchell Container Services, Inc. in the future? Ron’s openness to learning and willingness to implement change will serve him well, whatever the challenges may be. He will no doubt continue to balance his role as a directive leader with his role as a participative leader, leaning toward the latter as he maintains a workforce of people who tend to have an internal locus of control, believing that their rewards are contingent upon their efforts. He will need to monitor the environmental variables in the work setting to ensure that they continue to motivate the employees. The value of continuing to involve people in decision-making processes is that psychologically involved employees will be more likely to respond to shared problems with innovation suggestions and unusually productive effort.

            In the game plan according to Stack, one of the higher lows of business is “You Gotta Wanna.” Ron Mitchell at MCS has created an environment in which people are motivated to produce. He will want to stay attuned to the factors that induce the “wanna.”

References

MacNeil/Lehrer Newshour. “Share Economy.” Video of program aired June 5, 1992.

Matteson, Ivancevich. Organizational Behavior and Management. Irwin/MacGGraw Hill, 1999.

Mondy, R. Wayne, and Noe, Robert M. Human Resource Management. Prentice Hall, Inc., 1996.

Ouchi, William G. TheoryZ. Avon Books, 1981.

Sixty Minutes. “Lincoln Electric.” Video of program aired November 8, 1992.

Stack, Jack. The Great Game of Business. Doubleday, 1992.