Engineering Products Company Structure Analysis - Essay Example

Engineering Products is an established British engineering firm that produces industrial fasteners. There was an extensive restructuring in 1980s which resulted in the company having interests in only three business areas namely automotive components, defence and industrial services which form the firm’s international products divisions. The company has product divisions in Western Europe and North America. The restructuring also affected the 33,000 workforce, half of which has shifted to its overseas offices: ¾ to Europe and the rest to America. Automotive components division is the largest of the three business areas which employs 60% of the workforce and most of its business comes from its overseas divisions. The case study focuses on this business area of the company. The automotive components division is also first tier supplier to multinational final producers of automobiles and 49% of its sale comes from Europe and mostly from Germany, France and Spain where 69% of its overseas workforce is employed. In the recent years, looking at the demands of its customers, the company has standardised the production lines and its working practices in all its sites worldwide. The main reasons being that though the cars sold in different countries may vary slightly, they are nevertheless produced in similar manner thereby necessitating the need for same specifications for the components of the cars in different countries. The company has been persuaded to standardize because most of its clients are multinationals who have their business spread through out the world. “MNEs1 organize international economic transactions through internalization; MNEs are the vehicle through which production has become international and factors of production such as management, labor and technology have become mobile internationally” (Stopford and Strange 1991).Multinational companies have the advantage of operating their business in different countries throughout the world with the same standard and efficiency. Hence they mostly prefer those companies as their suppliers which can provide product or services that have same specifications worldwide and can be freely used by any or all of their globally located operations. Engineering Product Company has thus managed to gain multinational customers by standardising processes in their production lines in different countries. The restructuring, integrated and streamlined the administration and production lines of its various sites across the globe. All the previously broadly decentralised plants have now been brought under a common code of functioning both in terms of its management strategy and manufacturing processes. The headquarter based in UK2, has the onus of creating management structures at the international level so as to facilitate better interaction and exchange of information among the managers of its various groups across the countries. The company wields ultimate power and control over its various overseas sites by introducing new management structures that are designed to integrate the processes of its different sites and evolve common initiatives at the international level to optimise its overall performance and sales statistics. Some of the main administrative structures that have been introduced are as follows: Manufacturing councils brings together senior manufacturing directors from different plants to analyze and appraise the production processes which need to be adopted at each of the plants. International College of Engineering based in Germany, is the R&D3 section of the company where engineers learn and develop new manufacturing methods. International cadres of managers have the responsibility of disseminating information of management practices at the international level by going on foreign assignments at a regular interval and help implement company’s management strategies more effectively in its different offices of the world Internal consultants are the managers who have evolved new practices and have been given the responsibility of successfully implementing this practices in its various overseas plants by going personally and assisting in its adoption. The HR4 periodically organizes meetings of managers and specialists where in-depth analysis of various management practices, in different sites, are discussed and which has often resulted in standardising certain practices. Successful induction packages for graduates and several effective problem solving techniques have emerged from such meetings. The HQ5 has also centralised the order process whereby it receives all its orders from its customers and distributes them among its various plants according to their performances thus effectively putting an end to the autonomy of individual plants in foreign soils. The plant managers across the globe are thus made to follow the uniform code of practices and ensure best results in terms of cost and quality, thereby gaining better advantage of being awarded the customer orders. The powers of the HQ and the internal competition facilitated the cooperation of the plant managers of different sites and helped integration of the various sites across the world in a smooth manner. Automotive component division is an area that is highly competitive and may therefore require an action plan that is based on the management ability to react to market fluctuations or style change. “A centralized organizational structure is counter productive in most cases, because it slows response time…and lowers the incentives of those at local level” (Porter, p.211). The company’s management strategy to centralise its operations spread over different countries, needs more in-depth analysis and must incorporate influence of local conditions which may necessitate some autonomy and delegation of power of decision making to the plant manager. Implications for the managers and employees International integration was the major management decision that effectively curtailed the autonomy of the plant managers of different sites in the world. HR division of the HQ assumed much more important role and got involved in activities that were beyond the call of human resource administration. It started participating in strategic techniques that demanded integration through new management structures and processes which involved organising meetings and workshops for its managers of different sites so that a common minimum agenda could be evolved, which was acceptable to all and could be implemented successfully at all its plants. The uniform code of management and production processes was a decision which needed to take into consideration the ‘local factors’ that are intrinsic part of foreign culture. It therefore made it imperative for the HQ to incorporate local factors in the standardised processes so that plants in different countries can function in accordance with local customs while maintaining their individual characteristics and working within the precincts of standardised company codes. The local factor did give some leverage to the plant managers but it was not enough to defy the HQ in major administrative decisions mainly because the individual plants were not getting the customer orders directly. Their performance and merit, which actually translated into the degree of compliance to the HQ directives, became the criteria for the bulk customer order which is the mainstay of the business. Though the various management structures are designed to facilitate adjustments to new international standardisation and operate at international level in local conditions, the centralized order system where the HQ could remove the production order from one plant to another, effectively curbed the autonomy of the plant manager as well as drastically reduced the bargaining powers of the employees of the plants. This type of emotional and coercive technique is not only against the business ethics but it also goes against clause 26 and 27 of the ILO’s Declaration of Principles for MNE. Clause 26 states “In considering changes in operations (including those resulting from mergers, take-overs or transfers of production) which would have major employment effects, multinational enterprises should provide reasonable notice of such changes to…”(ILO cl 26 pp 12) and clause 27 states “Arbitrary dismissal procedures should be avoided” (ILO cl 27 pp 12). The other way that the international integration affected the managers was hierarchy for managerial promotion which was not confined to one country and senior positions could be claimed by persons of different countries on the basis of merits and better performances. It therefore forced the managers to become more globally competitive and better prepared to be geographically mobile so that they can take up positions in different countries when opportunity arises. The managers across the globe, are thus under more pressure to perform to their optimal best, in order to compete for senior position, in countries other than their own. For its senior managers, the company has made foreign assignments mandatory. The primary goal being that the senior managers can use their experience and expertise to influence and motivate others in plants in different countries. It was mainly due the effect of ‘local factors’ that the employees, to some extent, enjoyed privileges especially where the management had to bow to the local conditions and laws. In Europe, the employees were represented by the ‘unions’ and thus were protected by the excesses of the management. Whereas in America, ‘unions’ did not play major role in the careers of the employee so management was free to implement its own version of justified package for its employees in term of salary and working conditions and constraints. In the overall scenario, the employees lost the sense of job security, which became competitive and performance based, not only for the employees but also for the plant as a whole. The policy of the HQ to implement the ‘best practice’, uniformly in its overseas plants, became the landmark decision of the management. Prior to restructuring, the sites use to adopt and evolve their own unique methods for administration and production. The international integration and standardisation processes introduced the single uniform code on the basis of best practice and incorporated that as major methodology of the process globally. Though the plant manager could continue the existing work practice, unique to the country, but he could only do so as an activity that would complement the major production process for the plant. Engineering Products company’s major source of revenue and sale is from its overseas sites but unfortunately, the company, while restructuring its management and production processes, did not take into consideration the local factors and conditions that are the driving force for the employees and local customers and have considerable impact on their morale and general work practices, probably unique to the plant located in the country. In the end it would be fitting to emphasize that it is the belief of the employees in the vision and management strategies and processes that takes the company towards its long term mission and objectives. As Gerstners says “if you want to out-execute your competitors, you must communicate clear strategies and values, reinforce those values in everything the company does, and allow people the freedom to act, trusting they will execute consistent with the values” (Gerstners, p.234). Reference Gerstners, Louis V. (2002). Who Says Elephants Can’t Dance? London. Harper Collins Publishers. International Labour Organization. (2003). TRIPARTITE DECLARATION OF PRINCIPLES CONCERNING MULTINATIONAL ENTERPRISES AND SOCIAL POLICY.[internet] Available from: [accessed 25 August 2007]. Porter, Michael,E.(1980). Competitive Strategy: Techniques for Analyzing industries and Competitors. New York. The Free Press. Stopford, John and Susan Strange. (1991). Rival States, Rival Firms: Competition for World Market Shares. Cambridge: Cambridge University Press. Read More