Jones Ironworks (Case Study Sample)

One of managements, key challenges is getting people (employees) to do their work effectively. Managers should therefore work towards boosting employee motivation to deliver quality results (Rynes et al, 2004). It is in light of this that Freddie Jones finds it necessary to introduce his "new management ideas" to help improve profitability and efficiency of his father’s factory. His arguments are directly placing emphasis on employee remuneration as a motivation factor to increase productivity per man hours.
Freddie claims that the lack of financial incentives for employees has led to poor labor productivity and output. He therefore recommends introduction of a piece rate remuneration package from the time based system to help boost employees’ motivation towards increased production. When employees’ payments are based on the number of units of output produced, employees strive to produce more output to maximize their wages which leads to high labor efficiency.
In spite of the large number of available and willing workforce, Freddie proposes an increase in the employee pay rate. In order to hire and maintain "highly" skilled workers, the factory needs to increase employee pay rate to motivate them to stay and work for the factory. Hiring and maintaining employees brings down factory costs and increases productivity. If employees stay longer working in the factory, they increase their efficiency and produce more output per given standard time. Maintaining the skilled workers also reduces administrative costs associated with hiring and training new employees.
Freddie claims that the proposed pay rate only represents a 13% increase over the present actual cost per hour. The increase in wage expense resulting from the pay rate increase is likely to be offset by the savings from retaining employees and increased productivity by employees. Increase in employee productivity will increase factory production per hour. As a results of the increase in the number of units produced per hour, the factory will increase its level of production hence clearing its accumulating backlog resulting from increased demand.
Freddie’s father supports the current pay rate system. He claims that Freddie’s proposed pay rate represents a 25% increase in pay rate which is unbearable for the factory at the current situation of decreasing productivity. However, Freddie’s father’s calculation of the current pay rate does not represent a clear picture of the current pay rate system. His calculation is based on a comparison of the current standard production measure with the proposed production measure. This comparison is unreliable since Freddie’s father assumes that employee productivity will remain constant even under the increased pay rate system. The increase in the employee pay rate system is likely to trigger employees’ increased level of activity and hence increase labor productivity and efficiency.
The claim by Freddie’s father that the expected increase in productivity and reduced employee turnover is unfounded. The father bases his argument on an earlier instance where an earlier plan for profit sharing for workers did not work. However Freddie’s argument on increase in pay rate is different from a profit sharing plan. This is because the decision on the acceptance or denial of a profit sharing plan is dependent on the current profitability of the factory as well as the future projections of the factory’s financial and economic status.
The claim that increasing the pay rate will drive the factory out of business is not true. Given that labor costs are 24% of sales, an increase in productivity and employee efficiency will lead to an increase in the aggregate employee costs but reduce the percentage of labor cost to sales.
The father’s claim that employee turnover would not change can be proved wrong. If he improved the working conditions of the factory and improve on the employee welfare, more workers would feel motivated to work and stay in the factory longer.
Both Freddie and his father’s claims are important managerial thou...