Professional Documents
Culture Documents
13a Chen Hall
13a Chen Hall
Volume Fifteen
2003
pp. 117–143
Abstract: This study examines the extent to which a manufacturing company used
performance measurement and a gain-sharing reward system to achieve strategic
change over a 15-year period. The case examines the initial impact of the gain-sharing
scheme in overcoming inherent hostility within the workforce, its continued success in
gaining the cooperation of employees to work toward the successful implementation
of strategic initiatives and, finally, its limitations in sustaining ongoing strategic change
after a ten-year period of apparent success. The firm eventually adopted team-based
structures to complement gain sharing and sustain commitment to strategic change.
We explain the apparent success of the gain-sharing scheme over the first ten-
year period in terms of the role of organizational trust. Gain sharing is a mechanistic
form of control system, and hence may be compatible with organizational trust. After
this initial success, managers believed that the level of employee cooperation to sustain
strategic change was insufficient to maintain high performance in an increasingly com-
petitive environment. The firm then introduced team-based structures to enhance em-
ployee enthusiasm to work toward sustaining strategic change. The adoption of teams
promotes personal trust and the sharing of values and goals. The team-based initiatives
did not result in significant performance improvements. We attribute this result, in part,
to the continued role of gain sharing, a mechanistic control, which inhibited the de-
velopment of personal trust.
PREAMBLE
E
xamining the history of cultures has been recognized in anthropology and sociology
as providing a richer analysis than is possible from the static framing of synchronic
studies (Marcus and Fischer 1986, 95–108). Similarly, the study of the history of
organizations can help us understand how administrative systems evolve and provide clues
as to how and why they contribute to organizational functioning (Stinchcombe 1965; Schien
1985; Briody and Baba 1994; Vetica 1994). This paper examines the history of strategic
change and the development of a performance evaluation and compensation scheme, based
on gain sharing, in a manufacturing company over a 15-year period. The firm experienced
enhanced performance over 1980–1990, but the rate of improvement declined over the final
five years. The firm introduced additional administrative arrangements based on self-
managed teams over the period 1990–1995, while maintaining the gain-sharing scheme.
The latter innovations were not as effective as anticipated. Initially, conventional agency
We thank two anonymous reviewers for their support and helpful comments.
117
118 Chenhall and Langfield-Smith
concepts of aligning the objectives of employees and owners appeared to explain the evo-
lution of the firm’s management control system (MCS) and structural arrangements. Al-
though elements of these theories are plausible, we concluded early in our investigation of
textual material, and from spontaneous employee comments, that a richer understanding of
the development of the gain-sharing scheme and other structural changes involved issues
related to developing trust. As the research progressed, issues grounded in trust became
particularly important in directing the study. Consequently, the paper uses theories of trust
to interpret the firm’s 15 years of strategic change. We briefly discuss other socially con-
structed interpretations that may provide alternative explanations in the paper’s conclusions.
The data used are mainly oral histories, archival data, and historical documents includ-
ing reports from official sources and prior studies by other researchers of the company.
Details of these sources are provided in the Appendix. While the paper examines basic
propositions related to trust, data are used to describe trends in broad qualitative terms,
rather than reporting specific statistics and testing hypothesis.
INTRODUCTION
In times of strategic change organizations implement processes and policies that involve
acquiring new technologies, skills, and organizational forms that alter patterns of respon-
sibility throughout the organization (Wheelwright and Hayes 1985; Miller et al. 1992). As
organizations introduce and implement these strategic changes, they face needs for high
levels of cooperation between managers and employees (Kochan and McKersie 1992, 172).
The development of trust is one aspect of social exchange that plays a role in ensuring a
cooperative approach to change (Barney and Hansen 1994). Trust is an important aspect of
the willingness of employees and management to cooperate in strategic change, as they
share expectations about future behavior (Luhmann 1979), including mutual respect for the
others’ interests (Tomkins 2001). Importantly, in situations of high trust, managers and
employees are more likely to explore, cooperatively, new opportunities for collaboration
and jointly exploit new strategies (Sako 1998).
MCS are important in providing information to assist in formulating and implementing
strategies (Simons 1995; Langfield-Smith 1997). MCS may involve rule-based, standardized
procedures and operate within formal hierarchical structures, or they may be more open
and flexible, involving relationships characterized by informal, cooperative personal inter-
actions (Merchant 1985). Open and flexible MCS are more appropriate for organizations
facing urgent needs for high levels of strategic change (Simons 1990; Chapman 1998).
Thus, when a cooperative approach to strategic change is required, developing trust and
designing MCS that fit this cooperative, trusting work situation becomes essential.
Trust is apparent in organizations when employees and managers hold common values
and principles. This personal, goodwill, or strong form of trust exists without legal or
contractual protection (Barney and Hansen 1994; Sako 1998). However, when organizations
cannot rely on such interpersonal familiarity and commonality of values, management must
institute an impersonal form of trust. This is variously referred to as contractual trust with
written or verbal guarantees (Livet and Reynaud 1998); institutional trust with rules, roles,
and relations that certain individuals impose on others (Fox 1974); and calculative trust (or
calculative behavior) with contractual safeguards (Williamson 1993).1 The more recent no-
tion of ‘‘organizational trust’’ includes both elements of contractual trust (explicit commit-
ments) together with shared implicit commitments to cooperate that emerge from effective
1
Although there are slight differences in meaning between these terms, we use the term ‘‘contractual trust’’
throughout the paper.
workplace coordination practices (Livet and Reynaud 1998). In this paper we focus pri-
marily on organizational and personal forms of trust.
From a MCS design perspective, systems must be appropriate for the form of trust
within an organization (Tomkins 2001). In a situation of high personal trust, employees
will behave in ways that are consistent with the overall objectives of the organization. If
this trust is permanent and stable, there is little need for MCS to motivate and direct
behavior. Rather, the primary purpose of the MCS is to assist in resource planning and
communication. In fact, the application of formal MCS to induce desired behaviors may
be wasteful (Chiles and McMackin 1996). Moreover, if the systems are used to provide
power to managers to impose cooperation, then the potential benefits of creative synergy
and collaboration derived from interpersonal trust may be lost (Hardy et al. 1998). However,
in a situation of organizational trust, which includes contractual arrangements, the MCS
can become important in strengthening trust in decision-making mechanisms and perpetu-
ating it through performance measurement that rewards trusting behavior (Barney and
Hansen 1994). In summary, the development of trust is important in sustaining strategic
change through encouraging employee willingness to collaborate in the development and
implementation of new strategies. However, the effects of personal versus organizational
trust are likely to differ. Attempts to implement formal MCS should be compatible with
the way in which organizations attempt to develop trust.
This study has three main aims. First, it adds to the limited research examining the
effects of performance evaluation and compensation schemes at the shop-floor level. Sec-
ond, the research studies the evolution of control systems over time. Third, the study em-
ploys theories of trust to gain insights into how synergies or incompatibilities between trust
and control systems may affect organizational performance.
The paper is organized as follows. First, we examine the role of trust in sustaining
change and the implications for the design of MCS. Next, we recount the implementation
of a formal performance measurement and gain-sharing reward system at a manufacturing
company during the period 1980 to 1990. During this period the company encouraged
employees to cooperate in implementing change initiatives by using gain sharing to assist
in developing organizational trust. We next describe the company’s experiences from 1991
to 1995, when the firm introduced team-based structures to encourage personal trust. How-
ever, these efforts appeared to be less successful. As a potential explanation for the reduced
success, we suggest that the formal performance measurement system was incompatible
with the development of personal trust.
2
Personal trust may be developed where similarities between exchange partners are based on common cultural
backgrounds (character-based trust) or mutual understanding within groups (identification trust). In most busi-
nesses within western countries that are characterized by conventional structures based on authority and power
differences between employees and management, this identification-based trust requires parties to have a desire
for closer relationships and be prepared to invest time and effort (Lewicki and Bunker 1996). It is possible that
character-based trust is found only within families and between friends (Williamson 1993).
3
Process trust refers to repeated exchanges, risk taking, and successful fulfillment of expectations (Granovetter
1985; Rousseau et al. 1998). This incremental progression strengthens the willingness of parties to rely on each
other (Granovetter 1985; Sako 1998). The repeated interactions provide the potential for individuals to open
themselves to vulnerability (Ring and Van de Ven 1992). In ordinary communications the exchange of infor-
mation about wants, preferences, and approaches to problem solving supports the development of ‘‘knowledge-
based’’ trust (Lewicki and Bunker 1996).
action that can then enhance solidarity between organization members (Livet and Reynaud
1998). These implicit understandings go beyond contractual responsibilities and focus on
how employees work together collaboratively.4 Where there is organizational trust, both
managers and employees commit to act in a coordinated way. However, this form of trust
is quite different from personal trust. The shared implicit understandings between organi-
zational members under organizational trust relate only to gaining potential benefits from
cooperative action derived from existing work experiences. Unlike interrelationships based
on personal trust, organizational trust does not rely on shared common values and beliefs.
4
Livet and Reynaud (1998) claim that although contractual obligations will ensure that individuals will keep
working together, implicit commitments derived from prior work experiences are required to ensure all parties
can rely upon each other to play a part in the cooperative effort. The level of trust ensured by implicit com-
mitments to cooperate cannot be lower than that guaranteed by contractual arrangements and usually is stronger.
However, not being guaranteed, trust from implicit commitments is more likely to be disregarded. Individuals
find cooperative action derived from implicit commitments attractive as it provides richer and more flexible
opportunities beyond those currently available, including financial rewards and, importantly, those with intrinsic
values involving ‘‘aesthetic’’ and ‘‘social’’ concerns.
Most gain-sharing programs focus on shop-floor employees, but some include employ-
ees at all levels of the organization. Importantly, gain-sharing systems can motivate em-
ployees to pursue strategic priorities by setting performance measures targeted on priorities
and sharing rewards between employees and the organization, based on achieving these
performance targets (Carey 1992; Welbourne et al. 1995). Gain sharing emphasizes em-
ployee involvement in cooperating to improve performance as well as formulating rules
governing performance measures and the distribution of rewards (Bowen and Lawler 1995).
Evidence suggests gain sharing is effective only when employees commit to workplace
innovation, as well as strategic information sharing and decision making (Kochan and Os-
terman 1994, 74).
In summary, gain-sharing schemes, with rules for rewarding individuals and a reliance
on formal performance and reward systems, are mechanistic in orientation. However, they
also have a philosophy of employee involvement and cooperation. The effective use of gain
sharing over time provides a contractual framework and a platform upon which individuals
can develop implicit commitments to cooperative behavior that may enhance organizational
trust and consequently improve organizational performance. This leads to the following
proposition:
held values and goals through cooperative teamwork and organizational learning (Ouchi
1981; Ring and Van de Ven 1992; Sako 1998).5
Gain sharing is a formal mechanistic control based on contractual arrangements. While
the detailed rules governing performance measurement and distribution of rewards may be
determined with employee involvement, this does not extend to collaboratively developing
and sharing values and beliefs that are the essence of developing personal trust. Thus, gain
sharing is inappropriate to develop personal trust and, indeed, may inhibit its development
in situations where personal trust is important for strategic change. The following propo-
sition summarizes these arguments.
CIGGC—BACKGROUND
In 1975, the parent company formed CIGGC to manufacture and supply it with alu-
minum cylinders. The CIGGC division operated as a highly autonomous unit with com-
mercial and accountability links between the division and its parent. Located in Sydney,
Australia, CIGGC produced aluminum cylinders, and filled welded steel cylinders with
fiberglass mass for a variety of purposes, including dispensers for beer, wines, and carbon-
ated soft drinks, medical gases for resuscitation or respiratory therapy, firefighting extin-
guishers, and scuba diving. A cold extrusion process cut soft aluminum logs into billets
that formed aluminum cylinders. These were trimmed and shaped, heat-treated and hard-
ened, and finished for packing and shipping to the customer. In 1995, raw materials (mainly
steel and aluminum) represented about 50 percent of cylinder costs and direct labor about
25 percent. Manufacturing technologies ranged from fully automated robotics to simple
equipment, such as water baths, ovens, cutting machines, and painting equipment. In 1995,
the plant employed approximately 100 people, including 80 shop-floor employees.
CIGGC licensed the aluminum manufacturing process from Luxfer in the U.K., a
wholly owned subsidiary of ALCAN, a leading global aluminium cylinder producer.
CIGGC and Luxfer agreed not to compete in each other’s domestic and export markets. In
the 1990s, CIGGC’s export markets were Japan and other countries in Southeast Asia.
CIGGC also had a technology transfer agreement with U.S.-based Norris Industries, a world
leader in acetylene cylinder massing technology.
5
Evidence from MCS research suggests that more innovative approaches to strategic change should include
subjective, long-term measures of performance (Govindarajan and Gupta 1985). To generate cooperation in
developing and implementing strategies, controls should focus on innovative efforts rather than on the final
results or outcomes of innovative effort (Govindarajan and Fisher 1990; Simons 1995). Simons (1995, 2000)
suggests that attempts to link formal rewards to the success of innovations are likely to lead to risk avoidance
and reduced creativity.
Phase 1 of the case describes the introduction of change, the gain-sharing performance,
and the compensation scheme. Phase 2 describes the subsequent introduction of a socio-
technical system, involving work-based teams.
EXHIBIT 1
Common Interest Program: Gain-Sharing Constitution
Enacted in 1982 by Employees and Management of the CIGGC Plant
● No person will get less than current income, and normal salaries will be corrected for any
appropriate award, Consumer Price Index, or national wage adjustments.
● The program will operate with the health, welfare, and safety of participants in mind.
● Reject cylinders will not be included in the calculation of man-hour savings.
● The productivity base will take into account the cost of the aluminum and acetylene plants’
labor and cost of rejects. Any modifications will be made only after full consultation with all
involved.
● Records will be kept of results and actions taken and these will be available to all participants
on request. The bonus will be paid within ten working days after the end of the working
month.
● No participant will be dismissed by the organization due to improvements in productivity
brought about by the success of the program.
● There shall be a representatives’ meeting held at least once a month to discuss the preceding
months results.
● New employees will be assessed after one month by the participants in their work area and
accepted by the representatives’ meeting subject to the approval of all participants.
● Any problems related to productivity or the working of the program will be raised and resolved
through the structure of the representatives’ meeting.
● Any money generated by improvements in productivity over the historic productivity base will
form a ‘‘money pool’’ each month. This money pool will be split 50 / 50 between the orga-
nization and the participants. If a month’s actual productivity stays at or falls below the
historical base, the money pool will be considered at zero.
● Participant sharing of the Common Interest Program money pool will be made on an even-
Steven basis. A participant’s individual share may be reduced by absence for any reason other
than those listed below: annual leave, 38-hour roster day, jury service, paid sick leave to a
maximum of eight days per year.
● After each six months of the Common Interest Program, representative elections must be
conducted by each department. Representatives may be reelected.
● If the bonus is not accepted after one month by the individual members, then the bonus shall
be returned to the employee money pool for the following month.
Material and labor productivity performance indicators provided the baseline for mea-
suring improvements in performance and determining bonuses. The material productivity
measures took account of rejects that were caused by operator error. The cost figure for
material productivity valued reject cylinders at current purchase price minus scrap recovery.
The firm measured labor productivity at eight points throughout the production process. A
regression equation using these measures then determined improvements from the base
productivity figure.
Despite initial high levels of suspicion between employees and management, 83 percent of
employees endorsed the introduction of the CIP in June 1981.
During 1981 the company organized extensive workshops and technical sessions to
support the implementation of the gain-sharing scheme. A steering committee with equal
shop-floor and management representation developed ground rules for the system (the con-
stitution), announced bonuses, and evaluated all improvement suggestions. The scheme
became operational in January 1982. Initially some shop-floor employees saw the program
as a ‘‘management ploy’’ that could operate to their disadvantage. The manufacturing man-
ager described the approach taken to allay fears:
We had to work closely with the unions to let them know what was going on and to
highlight the opportunities that were available to them. There was a lot of mistrust in
management and some workers saw CIP as a plot to get them to work harder and take
them for all they’ve got. It was not fully supported at first—some employees just didn’t
trust it. However, after a period of time, when they saw their mates getting financial
bonuses, they thought they should also get into it. (Interview by researchers 1995)
One shop-floor employee independently calculated the gains and explained them to his
colleagues, thus becoming an unofficial ambassador for the program. This helped to over-
come the history of suspicion within the firm. At the end of the first six months, the
company averaged productivity improvements of approximately $25,000 per month, and
paid average bonuses of about $100 per employee per month to approximately 100
employees.
Drawing on the emerging participative culture, the CIP Steering Committee introduced
a total quality control (TQC) program employing quality circles and training to identify
areas for quality improvement. This yielded further gains in quality and machine efficiency.
Also, employees realized that commitment to the program provided both enhanced financial
rewards and more interesting and challenging jobs. Employees reported a quantum change
in their sense of ‘‘self-worth’’ provided by their cooperative interactions within the quality
circles. A long-term production worker commented:
In the past [before TQC and quality circles] we could make suggestions but the TQC
program let us know that the managers took the shop floor seriously and we had some
real potential to make improvements. We got to know and understand our mates’ atti-
tudes and were able to have our opinions heard. Very time-consuming, but makes you
feel important. (Interview by researchers 1995)
By 1986, CIGGC had secured substantial orders from the Japanese Asahi and Kirin
breweries by achieving the required stringent quality standards. However, further inroads
into the Japanese market appeared limited as the average production time at CIGGC was
24 days plus 28 days for shipping. This was much longer than that of European and
American competitors. The company, working with external consultants, the Technology
Transfer Council (TTC), developed a just-in-time (JIT) program to reduce throughput time.
There was widespread enthusiasm to cooperate in TQC and JIT initiatives and workers
increasingly trusted management’s intentions and behaviors. A shop-floor worker
commented:
Most of us were keen to play a part in making the new initiatives work. They provided
a lot of potential to develop new skills and we felt good about management’s willing-
ness to consider our suggestions. There was a growing sense of comradeship and sol-
idarity (between workers at the factory) and a definite feeling that management had
our interests at heart. (Interview by researchers 1995)
Set-up times declined and the company began producing to order rather than for stock.
Within 12 months, average production time decreased from 24 to 6 days, and inventory
levels declined from an average of 33,000 to 11,000 cylinders. The company also won a
bid for a Tokyo Coca-Cola contract against Japanese competitors.
The combination of new equipment and workplace reform produced improvements in
productivity and increased the potential gain-sharing rewards. Internal CIGGC documents
produced in 1991 provide summary information on performance for 1980–1990. For 1986–
1990, the gains from introducing TQC and JIT reduced lead-time and inventories while
sustaining improved workplace attitudes. There were no strikes, little absenteeism, and
turnover continued to fall. Productivity continued to improve, although not as rapidly as
over the prior period (1980–1985). By 1988, management expressed concern with declining
productivity improvement rates (CIGGC 1988). Because strong sales supported growth in
the return on funds employed, financial returns from gain sharing remained stable.
The original CIP constitution provided for modifications of the productivity base to
account for technological improvements. The original consultant determined the adjust-
ments, subject to approval by both the parent body and the union. Parent company reports
indicated that they considered the factory to be a success story in encouraging employees
to work toward continuous improvement (CIG 1988). The union used CIGGC as publicity
to show how employees and management could cooperate effectively.
Workers apparently accepted that some part of productivity improvements stemmed
from new capital investment rather than from improved labor input. At times, the monthly
labor bonus declined after adjustments to a new productivity base. Management discussed
reasons for the decline in rewards with employees. A shop floor worker reflected the grow-
ing commitment to cooperate:
These discussions with management provided a feeling on the shop floor that we all
have a lot to gain by acting together, what’s good for the company is good for us all.
We had a sense that management could be trusted to consult with us and not take
advantage. The place was developing a good feel, most of us enjoy working here, and
prospects seem good...and I don’t mean just the money. It was becoming well known
that this is a very inventive factory. (Interview by researchers 1995)
Nevertheless, the previously noted concerns with declining productivity improvement
rates led management to introduce Value Added Management (VAM) in 1988. This ap-
proach involved an extensive examination of work practices and reengineering of processes,
including factory layout and material movements. The VAM program placed less emphasis
on worker participation and more on management direction. The immediate results of this
program did not achieve the expectations of management to halt the declining productivity
of the prior 12 months.
responded well to financial returns from gain sharing, acknowledging their obligations
within the constitution and reacting positively to opportunities for a more challenging and
satisfying work environment. Initiatives led to trusting behavior and employees cooperated
to make strategic initiatives work. The factory moved from a highly antagonistic workplace
to one that trusted management’s intentions.
had restricted employee involvement in previous change initiatives. The design team un-
dertook nine months of extensive research into the operations of work teams within Aus-
tralian and overseas companies. They surveyed employees in these companies to determine
job satisfaction, communications, ambitions, team participation, and sources of dissatisfac-
tion. A comprehensive report, entitled TRUST (Team Responsibility, Unity, Social, and
Technical), recommended future strategies for team design and technical changes
(McBurney 1991). The TRUST initiative sought to provide a work environment that would
improve the quality of employees’ work life. Earlier initiatives sought to involve employees
in improvement programs, but the team-based structures aimed to provide employees with
enhanced opportunities to develop self-esteem by directing their activities to achieving
organizational goals. Importantly, the potential benefits of teams included ‘‘a way of uni-
fying the work force by developing a sense of belonging to the organization’’ (McBurney
1991).
The TRUST report identified recommendations from a social and technical analysis
that would enhance employees’ ability to work effectively in the work-based teams. The
social analysis provided several recommendations: removal of departmental boundaries,
which were an impediment to conducting business; delegation of decision making and
authority to those in a position to use it; requiring teams to identify business goals in line
with overall individual goals; undertaking more training and testing to build confidence;
providing teams with training in problem solving; and participative goal setting in the areas
of quality, cost, and volume. The technical analysis focused on principles of total quality
management, particularly quality accreditation certification, product benchmarking, material
requirement assessments, supplier networking, project management and technical training,
and providing teams with the skills to measure and control variances. These recommen-
dations aimed to make employees aware of how their jobs affected the whole production
system, to provide teams with the necessary information to perform each job, and to develop
close relationships between teams and suppliers.
The human resource management section in CIGGC combined the TRUST initiatives
with training and review programs focused on skill development and quality of work-life
issues to provide employees with the maximum potential to achieve personal goals within
the workplace. The human resource manager commented:
Part of the socio-technical approach is to convince employees that they can develop
themselves by accepting responsibility for more tasks and to take a leadership role
within teams. It is the plan to provide all members of a team with the opportunity to
lead the team at some stage. It’s fair to say that some employees did not respond well
to the leadership and personal development aspects of the training programs. Over time
we believe that attitudes will change and certainly we are careful in employing new
people who have the aptitude to develop with the company. Our aim is to have em-
ployees basically running the organization. They will formulate the way forward and
how we will respond to increasing difficult markets. All employees will share the core
objectives and goals of CIGGC. (Interview by researchers 1995)
During the development period, the design team actively communicated all findings to
production employees, and production employees played an active role in helping the design
team conduct their analyses. The system became operational in July 1991, after 85 percent
of all employees agreed to a trial of the reforms. A shop-floor member of the design team
described how responsibilities changed with the introduction of teams:
It was all so new to us—a culture change, turning the tree upside down. No manage-
ment looking over our shoulder. We now do our own scheduling, our own safety, and
own reporting. When we want to spend money, Chris (the plant manager) is always
there to say yes or no. But it was difficult to manage people in the teams at first. Some
team members resented it, and some guys just wanted to come to work and do their
job: I don’t want to learn all this—I know my job—I’ve been doing it for 12 years.
We had to work hard to overcome this attitude—it was not easy. (Interview by re-
searchers 1995)
adoption of an annualized salary to replace the system of hourly and overtime pay. Man-
agement removed time clocks for shop-floor employees. These changes lessened the per-
ceptions of differential treatment between employees and management and gained high
levels of employee acceptance.
Management and employees originally agreed to the new remuneration system on the
basis of a ‘‘handshake agreement.’’ However, in 1994 the company and employees moved
to formalize these arrangements in light of the threat of a takeover. Although employees
had confidence in the current management, they feared that new owners would not respect
the current arrangements.
During the 1991–1995 period, the gain-sharing scheme remained an integral part of
the employees’ remuneration. Although some individuals’ base wage changed following the
removal of overtime, overall gain sharing remained important, contributing up to 20 percent
of final pay. Employees believed that gain sharing recognized the importance of their efforts.
A shop-floor worker noted:
If you had asked me three years ago whether we had high quality, I would have said
no. But now we are all aware how important it is to be competitive, and how difficult
things are. It’s possible [without the gain-sharing scheme] that we would have coop-
erated with the changes that management introduced, but without the gain-sharing pro-
gram and our bonuses we would not have been happy. (Interview by researchers 1995)
Although financial rewards were important, employees understood that their cooperative
efforts produced these rewards. A union official noted:
Gain sharing has been important, but we were paid for improvements that we suggested
and we pulled together to make sure they worked. This type of effort is still difficult
to achieve at many sites. Most of us see this as a pretty pioneering factory. (Interview
by researchers 1995)
Outcomes of Phase 2
With the introduction of the socio-technical system, CIGGC improved productivity,
quality, and lead-time so that in 1995 export sales accounted for 70 percent of the com-
pany’s business. Management believed that careful attention to the way teams related to
the technical processes, the mix of skills within teams, and identifying managerial roles
within the teams provided a strong basis to ensure that the team structures would enhance
the production processes. As the experience and training within work-based teams evolved,
managers formed employees into cross-functional improvement teams to identify improve-
ments on the shop floor. When asked about the contribution of employees to strategic issues
such as technologies, markets, and products, shop-floor employees emphasized their con-
cern with improving the existing technologies. As one employee noted:
It is not our job to be suggesting new areas of business. We are paid to make the best
use of the facilities to ensure the company is competitive. (Interview by researchers
1995)
The HR manager and senior managers believed differently:
We want employees to take charge of the company, to deal with all operational matters
and to make suggestions on meeting the future even if this means changing direction.
This is very ambitious and will take some time to achieve. The level of maturity within
teams is not yet sufficiently strong to support employees focusing on more strategic
ideas. (Interview by researchers 1995)
At the same time some employees responded well to the challenge of self-managed teams
operating without the manufacturing director’s guidance:
We are going to make self-managed teams work [without the manufacturing director].
If we put a manufacturing director back, we would be hypocritical. It is our job to
provide ideas for future directions. (Interview by researchers 1995)
However, organizational climate surveys and team maturity indices did not support the
expected improvement in employee commitment to the organization. Management inter-
preted the survey results as demonstrating that more time was required to change employee
attitudes. By 1995, organizational climate surveys indicated that approximately 30 percent
of the workforce was enthusiastic and committed to the new structures and the change
initiatives, while about 60 percent worked cooperatively and accepted the increased re-
sponsibilities although they lacked significant commitment to the organization. Finally, the
remaining 10 percent were dissatisfied with the new arrangements.
Before all employees accepted the technical and social reforms, in late 1995 the or-
ganization experienced a substantial external shock. Following a strategic review, the parent
company decided to concentrate on its core business of manufacturing industrial gases.
Viewing CIGGC as a noncore business, the parent sold CIGGC to Luxfer. In turn, Luxfer
identified CIGGC as fitting its emerging global expansion strategy and planned to focus
CIGGC production on a limited range of cylinders. Moreover, Luxfer concluded that the
self-management program was too expensive and had not resulted in the productivity ex-
perienced at other cylinder plants within the Luxfer group. Consequently, Luxfer reduced
team autonomy and the level of the gain-sharing rewards.
ANALYSIS
This section considers the extent to which the experiences at CIGGC are consistent
with the propositions derived earlier in the paper. We offer extensions and modification to
these propositions.
Govindarajan 1993; Kochan and Osterman 1994). Drawing on the early success of the gain-
sharing scheme in improving existing operations, managers now sought a more interactive
collaboration by encouraging a sense of employee solidarity and a reliance on each other.
As well as providing employees with a sound technical knowledge, the programs sought
to convince employees of the benefits, both financial and intrinsic, of working together
cooperatively on new and challenging programs. Those programs were effective, as evi-
denced by employees contributing suggestions for improvements after collaboration through
quality circles. Thus, organizational trust developed based on both the formal arrangements
within gain sharing and shared implicit understandings of the potential benefits of coop-
erating in the implementation of TQC and JIT. Such organizational trust confirms an ap-
proach that believes developing alliances between organizational members based on mutual
cooperation and sharing gains is more effective in improving performance than relying
merely on extrinsic rewards to motivate effort (Tomkins 2001, 163).
Management introduced the VAM initiative without adequately involving employees in
implementing the program. Within the growing climate of cooperation, VAM appeared to
mask consolidation of managerial control at the expense of power sharing between em-
ployees and managers (Hardy et al. 1998). As a consequence, the VAM implementation
quickly damaged employee trust.
The experiences of the organization during 1980–1990 involved effective repeated ex-
changes based on formal gain-sharing arrangements, increased cooperation among employ-
ees to ensure continuous improvement, and considerable enhancements in organizational
performance. These results confirm the effectiveness of organizational trust at CIGGC and
support Proposition 1.
However, the experiences of CIGGC may not generalize to all operating conditions.
The business conditions throughout the 1980s provided many opportunities for expansion
and for technical improvements at CIGGC. By the end of the 1980s, the business environ-
ment had become very competitive and uncertain, making the benefits from gain sharing
and organizational trust questionable. Further theoretical consideration is required to con-
sider the combination of organizational trust and gain sharing in more restrictive environ-
ments, and whether such a combination can generate improved performance. The second
phase of the case analysis provides some insight into the role of gain sharing in more
difficult operating situations, demonstrating that it may be inappropriate to use mechanistic
performance measures that lack focus on innovation, particularly if personal trust is sought
to aid advancement.
Reports 1992, 1993) and from other researchers (Coyte 1995; Rimmer et al. 1996) that
teams initiated ideas to improve the productive processes through significant process reen-
gineering or innovative diversification strategies. Had these innovations actually been intro-
duced, the results would have been reported widely because this was the intent of the self-
managed teams. The experiences with the socio-technical system suggest that personal trust
had not developed sufficiently to enable employees and management to mutually construct
the future directions, beliefs and goals of the company.
trust, not frustration with a fresh initiative. The introduction of teams clearly involved
significant changes. Early resistance stemmed more from a lack of understanding as to why
existing successful structures had to be changed than from frustration with the prospects
of further work intensification. After some initial opposition, workers did not resist the
team-based initiatives to improve productivity. In fact, the history of ten years of successful
change initiatives had predisposed the workers to further work intensification. We contend
that the success of team-based structures required more than employees’ willingness to
accept further work intensification. Success required the development of personal trust to
gain additional commitment to cultivate collective innovation beyond incremental improve-
ments to existing operations. The continued use of mechanistic performance measurement
focusing on productivity within existing technologies was inconsistent with encouraging
innovation and cultivating personal trust.
The lack of expected improvements from teams may reflect shop-floor employees’
resistance to undertaking managerial responsibilities without being adequately compensated.
Thus, arrangements that do not alter the power-responsibility relationships are more likely
to succeed. Although some shop-floor workers may resent performing managerial functions,
the principles of empowerment embedded in team-based structures have often been suc-
cessful (Katzenbach and Smith 1993; Pinchot 1993; Kochan and Osterman 1994, 45–77).
During the same period, shop-floor workers from other Australian organizations ranked the
most important aspects of their jobs as follows (starting from the most important): allowing
achievement, interesting, good security, opportunity for initiative, pleasant colleagues, and
then, good pay (Hilmer 1989, 77). CIGGC’s management believed that employees could
be encouraged to accept managerial roles within teams. Moreover, the company’s expec-
tation that employees could contribute to determining the future is consistent with
Wheatley’s (1992) contention that local initiatives can drive quantum leaps in innovation.
Implementing self-managed teams is a challenging process and the performance mea-
surement and reward system at CIGGC was apparently inconsistent with developing per-
sonal trust inherent in successful self-managed teams. The gain-sharing system supported
the language and symbols of economic efficiency centered on existing technologies and
markets. Although improvements to existing processes were important issues for the teams,
concern with these issues was apparently insufficient to generate strategic change and im-
prove CIGGC’s performance. Organizational climate surveys and interviews suggest that
the majority of employees appeared to be concerned with the goal of enhancing their own
economic returns by providing support for the efficient operations of existing manufactur-
ing. This appeared to impede the development of shared values relevant to the changing
circumstances of CIGGC and discouraged a collaborative approach to goal formulation and
strategy development based on personal trust. These interpretations support Proposition 2.
As with Proposition 1, the case data at CIGGC are situation specific. By 1990, the
organization faced a more competitive operating environment, having already achieved the
relatively easier productivity improvements. This heightened the necessity for highly in-
novative strategies, perhaps involving new products and technologies. Enhanced perform-
ance may have been difficult to achieve even with the development of personal trust within
teams and associated joint efforts to develop innovation. CIGGC recognized that the de-
velopment of effective self-managed teams would take a considerable time to achieve. It is
possible that given more time, personal trust may have developed within teams with more
innovative approaches to strategy. However, maintaining the existing gain-sharing scheme
with its mechanistic performance measures would have probably inhibited such an outcome.
rewards related to existing operations and efforts to link personal trust to more intrinsic
motivation apparently hampered the development of personal trust.
The study is subject to the limitations of a single-case analysis, particularly in terms
of a lack of generalizability of the findings to broader populations of organizations. Further
research across a broader sample of organizations would help identify the robustness of the
propositions presented in this paper, and assist in capturing additional variables that are
potentially implicated in the relationship among performance measurement and reward sys-
tems, strategy, trust, and organizational performance. The study could be criticized for the
ad hoc use of data at CIGGC to examine theories of trust. This interpretation was selected
from others on the basis of identifying trust themes early in the analysis of the case and
from comments and interpretations received from individuals during site visits. This pro-
vided a richer explanation than alternate conventional theories such as those related to
agency relationships and motivation theories. Also, the interpretation of the case from a
trust perspective is novel, adding to our very limited knowledge of how trust operates
together with performance measurement and reward systems.
APPENDIX
Data and Methods
Commonwealth Industrial Gases–Gas Cylinders (CIGGC) is a manufacturing company
located in Sydney, Australia. CIGGC’s relatively long history in employing gain sharing
and undergoing change, together with its reputation in the business community as a forward-
thinking, innovative company make it an appealing research site. Because of its innovative
approach to management, the company received government funding from 1992–1995 to
assist in developing a ‘‘best-practice initiative’’ involving team-based structures. The case
study focuses on the change processes over a 15-year period. The analysis reported in the
text relied extensively on documentation and archival evidence, supplemented by interviews
with current company managers and employees, as well as several business, government,
and academic personnel who had extensive knowledge of events that had taken place at
CIGGC over the period studied. Research teams, sponsored by the Australian government
during the period 1992–1995, collected part of the data and the authors collected the re-
maining data during the period February–June 1995.
Archival data were critical in developing an understanding of the changes that took
place in the company over the 15-year period. The researchers had access to a range of
company documents and reports. These included a major report produced by the socio-
technical steering committee titled TRUST in 1991, and benchmarking reports every six
months during the period 1990–1995. These reports covered programs on strategic priorities
such as quality, reliability, and cost, together with specific aspects of process improvements,
equality of employee opportunities, skill formulation, work organization, occupational
health and safety, information sharing, and consultative processes. The researchers also drew
on other company reports that documented and assessed major change activities over the
15-year period, including company newsletters, correspondence between consultants and
the company, evaluations and assessments of Head Office, memos and reports from man-
agers, financial reports, and trade union documents.
The government funding program required that a three-person monitoring research team
visit the facility every six months from September 1992 until December 1994 to record
progress and document experiences in detail as they occurred. These three-day ‘‘monitor-
ing’’ visits involved interviews, site inspections, examination of records, and documents.
Interviews were with the chief executive, the production manager, the union representative,
and a range of shop-floor and general administrative employees. Four reports document the
results of more than 20 interviews. The researchers received monitoring reports, which
assessed the implementation of changes over a two-year period, and the company’s re-
sponses to those reports.
Further, numerous magazines and trade publications documented the company’s success
and developments including stories in the business section of the Australian Financial
Review newspaper by Peter Roberts (August 11, 1995, 22), the FIMEE newsletter (Septem-
ber 1992), and Innovations, the newsletter of the Australian Centre for Management Ac-
counting Development (June 1995; September 1995). Other scholarly publications and com-
pany reports, which focused on different aspects of the company’s history and changes,
provided further information on the company, its markets, technology, and culture over the
15-year period (Mathews and Griffith 1993; Wright 1993; CIGGC 1993; Coyte 1995;
Rimmer et al. 1996). The more substantive reports included Mathews and Griffith (1993),
which provides an examination of the effects of gain sharing on productivity during the
period 1983–1993. Coyte (1995) is an extensive study of the introduction of the socio-
technical system. Rimmer et al. (1996) provides an overall assessment of the government
funded program, which includes CIGGC’s socio-technical systems, and extensive case de-
scriptions of participating firms. Wright (1993) provides insights into the workplace culture
and the role of training at CIGGC.
The researchers collated interview data over a six-month period from January until June
1995. Researchers interviewed senior personnel by telephone from January to March, and
contacted other researchers who had studied the company. We assembled extensive archival
documents together with the interview and assessment reports of the monitoring teams. We
conducted site visits on four days in April 1995 and follow-up telephone interviews through-
out May and June. During the site visits we conducted 20 interviews with ten managers
and employees. These ranged from two to three hours and most involved repeated discus-
sions. The period of employment of those interviewed at the company ranged from 3 to 15
years. Company personnel interviewed included the plant chief manager (employed 6
years), the manufacturing manager (7 years), the human resource manager (5 years), the
financial controller (12 years), the quality and safety coordinator (3 years), the trade union
representative (14 years), three factory employees (15, 15, 16 years), and one of the general
office staff (5 years). These interviews provided reports of individuals’ experiences during
the 15-year period of change, and confirmed the more objective events of the organization’s
history.
Further, we met with six business, government, and academic personnel who had been
involved in researching or working with the company during the period studied. These
interviews often gave contrasting views to those obtained from the company directly, and
helped provide a critical perspective to the events. For example, discussions with customers
of CIGGC provided insights into the effectiveness of improvements in customer focused
strategies, and key suppliers commented on the role of teams in developing their supplier
relationship. Representatives of trade union and government agencies provided contrasting
opinions to that of some managers on the effectiveness of team-based structures on em-
ployees’ satisfaction within the workplace. Extensive material was provided on a ‘‘Com-
mercial in Confidence’’ basis from members of the Federal Government’s Department of
Industrial Relations and the Australian Manufacturing Council, covering the period 1991–
1995.
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