Table of Contents

B. Strategic Planning...............................................................................................................................2
C. Operational Planning..........................................................................................................................4
Deciding..................................................................................................................................................5
A) The Concept of Decision.............................................................................................................5
Stages of information about environment.....................................................................................5
Taking Rational Decisions...............................................................................................................6
B) The Valuation of possible Results...............................................................................................6
C) Decision rules.............................................................................................................................6
i.) Organization...........................................................................................................................8
A. Task of Organization...................................................................................................................8
B. Organizational Structure.............................................................................................................8
3. Organizational Structures.........................................................................................................10
C. Processual Organization...............................................................................................................12
j) Surveillance...................................................................................................................................12
Other production factors......................................................................................................................13
III. Staff-related Management Tasks.................................................................................................13
B. Strategic Planning

Strategic Planning: influenced by general values/ framework of company

SBU: must have own market, product line independent from other lines, market clearly defined

Instruments for valuation of SBUs:

- GAP analysis (how big is problem, how much needs to be done)

- Cost experience curve (the higher quantity, the lower cost = economies of scales)
- Product life cycle
- Portfolio analysis (visualize, analyze, plan all business fields of a company simultaneously)

GAP analysis, several stages: actual performance, market penetration, market growth, product
development, diversification, potential performance

-> work with scenarios in time range 10 to 15 yrs, try to minimize gap between actual and potential
performance

Reason for reducing costs = cost reduction law (learning effects, fixed cost degression = the more you
produce the more distribution to whole production, more efficient orga, larger supply rebates)

Product life cycle, product from market entry till leaving the market

Turnover

Raise interest again

relaunch
stop

1 2 3 4

innovation growth maturity decline time

1. Innovation: convince adopters, stimulate demand

2. Growth: extremely dynamic, large investments in capacity ( go faster downwards cost
experience curve), keep up with rising market growth
3. Maturity: slower increase in sales, saturation point (highest sales volume), lower
investments, “harvesting” + making profit due to high economies of scale
4. Decline: lesser demand, point of decision whether product stays on market or sales should
be stopped, often relaunch campaigns, revitalize demand and make product desirable again

 Costs before actual market appearance (for innovation, development and production), even
after product out of market (maintenance, liabilities, disposal costs)
Database research / PIMS (profit impact on market strategy)

How to get crucial info from vast amounts of data, no recipe for success

Analyzing + collecting info of 300+ SBU´s worldwide, research of “laws of market place”, certainty
about failure or success

 Impossible to predict success, but certain factors important for success

High market share (high profitability due to cost experience curve)

high market growth (means the best is still to come, product life cycle-wise)

high quality (improving profitability for success, most important to stay competitive in market)

par-report: average amount of profit to be expected in relevant business, useful when limited
knowledge about certain business field, term came from golf, par = approximately needed
number of strikes to get ball in hole

rola-report: “look-alike-s”, more individual, gives info on closest comparable business field
without revealing it

measure of success = ROI (return on investment)

ROI = profit (turnover-costs)/average bound capital

With linear depreciation ROI is always half of classic profit/ capital ratio.

Portfolio analysis

Internal dimension: strengths and weaknesses of company

External dimension: chances and risks of environment

Which measure used? – relative market share (that of own comp and other comps)

Market growth rate: scaling depends on concrete market and line of business

 4 field matrix

Market growth rate

Question marks Stars

Poor dogs cash cows

Rel. market share

1. Question marks: high growth rate, poor relative market share, lots of investments needed to
keep up with market, increase market share, when weak position improved + going well =
development, very high dropout rate, cash flow mainly negative
 2. Stars: very good competitive position, high growth rate, good market share position,
developing mainly by themselves, future with shrinking growth rates, earn lots of money,
cash flow neutral or slightly negative
3. Cash cows: good market position, small growth rate, investments will be smaller because
capacity needed is available, cash cows generate money, liquidity position is positive
4. Poor dogs: weak competitive position, low negative market growth, liquidity hard to
estimate, keep them as long as they earn money, then sell or eliminate

Implications of SBU:

1. Analyze maturity or age distribution, vital to think about future develop. of company, SBU
should be positioned in upcoming markets and industries
2. Necessary financial “support streams” must be analyzed, from which SBU money can be
taken to support development of future potentials
3. Strategy development based on actual situation of busin. fields and wanted positioning, need
of investments, company needs to know where they will get money from for them

Problems: poor relative market share and negative or zero market growth = in niche market good
business, poor dogs can be very profitable, in BCG portfolio bad!

More measures than strengths, weaknesses, chances and risks. E.g. quality, technology, employee´s
skills and motivation

 Perfect for quick analysis, not so good for strategic decision taking

Mc Kinsley developed market attractiveness/ business fields strengths portfolio, 30 criteria per
dimension, offers sounder analysis of overall strat. Situation, better based decisions f. 17

C. Operational Planning

Implementation of strategies in reality

- Program planning (fixation of type, time, quality of products)

- Process planning (coordinate individual production factor)

Operational planning: system of plans, plans done in sequence, alternative is simultaneous planning,
saves a lot of time if all plans worked on parallelly

Sub-areas of operational planning structured alongside corp. functions:

- Material planning (oriented by strat. Sales planning)

- Supply planning
- Production planning
- Storage planning
- Sales planning
- Financial planning
 Simultaneous planning hard to handle, not working in practice, just finished plan always
taken for next plan

Which plan start with? – always sector with bottle neck; limiting factor of business -> identify bottle
neck
Limiting factor: company cannot grow like they want to, mostly market-related or finance,
production capacity, human resources, rarely production material

Difference between strategic and operational planning:

- Strategic planning: avoid bottle neck (i.e. market development)

- Operational planning: handle bottle neck efficiently, makes best of it

Operational plans executed with budget, steering instruments involve clear targets and financial
capabilities. Budgets formulate how much money can be spent (limiting factor) in order to fulfill
capacity of all departments in the company.

Coordination of different departments towards overall optimum for company is one of the biggest
challenges in leading a company.

Example:

Production department

Small range of products, no varieties, big batches perfect (the larger batch, the smaller fixed costs per
piece, more advanced positioning on cost experience curve), minimum production costs, maximum
profit contribution

Marketing/ Sales department

Broad range of products, many varieties (fulfill customer desires), small batch series (smaller batches
= higher possibility for short time delivery), high turnover = maximum profit contribution

 Both excludes each other, necessary to make compromise, most important: consider bottle
neck and start from there

Deciding
A) The Concept of Decision
As the third constitutional management function, in addition to leading and planning

Decision is a choice of alternatives for target realization, in economic sciences, we have a theory of
decision that does not examine how decisions are actually taken, but how decision takers should
decide on a strictly rational basis

Stages of information about environment

1) Decisions under security: deterministic situation, we know exactly what will happen; we
have stages like “near” security
2) Decision under risk: stochastic situation, possible end condition and probability known, e.g.
roulette in casino
3) Decision under insecurity: possible end-conditions are known, not so the probabilities, e.g.
poker: competition with everyone, follow a strategy without knowing the strategy of others;
try to influence others, influence with strategies can influence result = not able to determine
probability; irrational to make decision without result knowledge or probability
4) Decisions under uncertainty: we know nothing, neither the possible decision results, nor
probabilities, under logical conditions no decision is possible, get more information to
achieve at least an insecurity situation
Taking Rational Decisions
Premise for it is the principle of rationality, need to fix target first (such as profit maximization and
cost minimization)

Value possible decision results with their benefit towards the decision target. Benefit could but must
not necessarily be linked to the monetary measure. Usually it is an abstract measure that just shows
the advantage relations between alternatives. The result is a benefit function. Based on it we can
arrange a decision matrix

B) The Valuation of possible Results

Is depicted in a decision matrix (Action a indicates the decision alternatives. Condition of
environment Z indicates different situations which could happen after the decision taking)

Action Condition of environment

Z1 Z2 Uij = benefit of action I in condition j

a1 U11 U12

a2 U21 U22

a3 U31 U32

C) Decision rules
1. Decisions under security (max. column value)

Z1 (probability of p and Z1 = 1) -> we know what will happen

a1 12
a2 30
a3 18
we choose a2 because U21 = 30 = max
2. Decisions under Risk
The risk situation is more complex because first we need to understand what exactly risk means to us
 Without special opinion = risk neutral
 Risk is positive (benefit of its own) = risk seeking
 Negative opinion about risk and try to avoid it = risk averse
Risk neutral: decision strategy = we use the Bayes-Rule based on the expectation value principle. The
expectation value (EV) is the sum of all environmental condition probabilities multiplied with their
corresponding benefit value
Z1 Z2 Z3 EV
P= 0,1 0,6 0,3 must sum up to one!
a1 10 30 25 = 0,1*10+0,6*30+0,3*25 = 26,5
a2 35 5 30 = 0,1*35+0,6*5+0,3*30 = 15,5
a3 40 20 10 = 0,1*40+0,6*20+0,3*10 = 19
 We choose the alternative with the highest expectation value EV here: a1
Base value of expectation principle
Risk averse: decision strategy = choose alternative with highest benefit for most likely condition
(choose a1 because p (Z2) = 0,6 and U12 is 30 and therefore the highest benefit in the most likely
condition)
Risk seeking: decision strategy = choose alternative with highest benefit of the decision matrix
without considering probabilities (we would choose a3 because U 31 = 40)

3. Decisions under uncertainty

Pre-condition: opinion about the future development: optimistic or pessimistic
The following decision matrix is used as example for all upcoming methods
Z1 Z2 Z3
a1 18 35 5
a2 20 14 25
a3 12 15 30
 Maximin rule (minimum loss); strategy for pure pessimists, maximum of line minima
We choose a2, because U 22 = 14 (line minima are 5,14, 12)
 Maximax rule (maximum gain); strategy of pure optimists, maximum of line maxima
We choose a1, because U12 = 35 (line minima are 35, 25, 30)
 Hurwicz rule; usually less deciders are pure optimists or pessimists, with this rule we can
have combination of both views:
Pure optimism: λ = 1
Pure pessimism λ = 0 0 größer gleich λ größer gleich 1
Example: λ = 0,3 (more pessimistic; 70% pessimist, 30% optimist)
Calculation: (line maxima*λ) + (line minima*(1-λ))

Line maxima line minima sum

a1 35*0,3 + 5*0,7 = 14
a2 25*03 + 14*0,7 = 17,3
a3 30*0,3 + 12*07 = 17,4
a3 is chosen result of a2 and a3 really close, nearly identical
 rule of minimum regret: (savage-niehans-rule) a more pessimistic decision perspective
first: look for the highest column – value-wise then
second: calculate the differences to that maximum (columnwise!), the regret
transfer of the benefit matrix
Z1 Z2 Z3 maximum regret of alternative
a1 -2 0 -25 25
a2 0 -21 -5 21
a3 -8 -20 0 20
the decision rule is now: choose the alternative with the lowest maximum regret (principle of
disappointment limitation) -> we choose a3
 laplace rule: if we do not have any information about the probabilities of conditions (Z1, Z2,
Z3…) then we can also assume equal probability
p= 1/3 1/3 1/3 (assumption)
Z1 Z2 Z3
a1 18*1/3 35*1/3 5*1/3 = 19 1/3
a2 20*1/3 14*1/3 25*1/3 = 19 2/3 -> chosen
a3 12*1/3 15*1/3 30*1/3 = 19
 i.) Organization
A. Task of Organization
To get the companies` activities in order => structuring; after structure define concrete process
Result of this process = system of companies regulations
Regulations => instructions of the management
How much organization is beneficial for a company? Should it be maximized?
Erich Gutenberg: “substitutional law of organization”.
“With decreasing variability of the companies activities, there is an increasing tendency for general
regulations”.
+ everything in order - inflexible against change
Regulations small with growing variability, environment important
Task: search for an organizational balance between general regulations and improvisation (as the
opposite of organization).
Benefit of orga regulations
How to find?

Optimum grade of organization grade of organization

Distinguish between:
Organizational structure (the set-up) Operational structure
Framework before operation Structure already here
How processes look like and be executed
Form orga in total
Formal organization informal organization
(both above) (very important; not regulated or depicted,
cannot rely on it, can take big or small role)
B. Organizational Structure
A split of the overall task into sub-tasks, then their combination to positions in a way that a
reasonable order is the result. A position (similar to a workplace) is the smallest independent unit in
organization.

In detail, organization is a 2-step procedure

1. Task analysis (we break down work into single tasks and then collect them in a way that in
the next step meaningful work places can be defined)

Criteria: which performance (ex: production planning), object (ex: machine tool), necessary work
equipment (ex: tools, machines, computer, software, work, material…), spatial preference (ex:
Rastatt plant) where?, temporal preference (ex: 34. Calendar week) when?
Result: task structuring plan (detailed structure what has to be done for organizational
structuring)
just input to achieve product; input to handle job efficiently; building up larger unit from scratch;
usually develop product further

2. Task Synthesis
 Target is, to combine task in way, that positions are generated
Positions are the basic elements of organizational structuring.
Usually, positions are generated impersonally
What kind of positions we have = departments built based on that
Usually, positions are generated impersonally
 Result is a position plan; in it, the task assignment is fit in position descriptions
They contain: task description, organizational integration (department, hierarchy), instructions
for task fulfillment, personal requirements for the position holder
From that competencies (rights and authority) and responsibilities (duty of accountability) can be
derived
If management tasks are summed up to a position that we talk about an instance – a position which
has mainly management tasks, a leading position. The subordinated positions below an instance are
called “department”
Instance

1 2 3 department

Important question in practice:

“How many positions should form a department under one instance?”
 Question of the “span of supervision”
Today: long-term trend to a larger span of supervision, but there are limits (25-60)
Flat hierarchy is seen positively today, flexible and cheaper, because instances are paid high, so if a
company wants to save money, it might be an option to remove a level; so we will have a broader
span of supervision automatically. But a larger span of supervision leads to much more work for the
managers in a way that they are not able to do their job efficiently. This can only be done if
subordinates are able to work more independently (i.e. by MbE (management by exception)/MbO
(management by objectives)).

Visualization of that automatism:

The picture shows comparable departments

span of supervision S.O.S.: 2 S.O.S.: 6

level of hierarchies: 3 2

if we increase the span of supervision, we automatically decrease the level of hierarchies in a

company and vice versa
 3. Organizational Structures
Results of organizational structuring = different patterns for position structuring in the company
(1) Line System (basic pattern)
(principle: unity of command) -> know their superior
 Clear line of instances
(=official line of command) coordinate decisions, in military, not directly ask division general

Positive: clear orders, no possibility for different orders from different superiors to cause confusion
Negative: very sluggish and inflexible slow!

(2) Multi-line system (basic pattern)

Principle: specialization
Frederick Winslow Taylor: specialization = higher efficiency

Work preparation Quality Marketing Safety and Health

Positive: high functional competence – managers are fully specialized (so they know what they are
talking about)
Negative: risk of conflicting orders (problem of coordinating different orders) between different
specialized managers
(3) Line system with staff positions (basic pattern)
A staff position has no order authority but is linked to an instance in higher hierarchical levels to
support that instance in taking decisions.

The circles indicate staff positions

Positive: disburden of management (especially with wide span of supervision); the company gets the
latest qualifications and frequently new knowledge
Negative: balance of authority and responsibility; conflicts between staff and line; danger of
influencing decision not towards the realization of company targets

After discussion of the three basic elements, we will now take a look on the typical organizational
patterns which do result out of the use of these elements in practice
 (4) Functional organization
The second hierarchical level is organized after the main functions (=task groups) of the company
 Good for companies with only one or few products or with a homogenous product program
Example Airline

Management

Operations Maintenance Finance H.R.

Positive: high efficiency; everybody understands it

Negative: many interfaces (because of functional-egoism/rivalries); all the responsibility is
centralized/ concentrated at the top; tends to be traditional, inflexible (because changes are very
complicated, ie. To sell a division)
(5) Divisional or sectional organization
Focus is on the products or divisions; they can be found on the 2. Level of hierarchy
 Useful for companies with diversified production program
Management

Machine tools Piping systems automotive

Positive: market driven, it´s easy to integrate new businesses as new divisions, and get also easily rid
of old ones => flexible
Negative: lack of synergy in a group (i.e. one logistics department in machine tools, one piping
systems, one in automotive) => not efficient
(6) Matrix systems
Overlay of 2 organizational principles in the 2. Hierarchial level: here i.e. divisional and functional
organization
Management passenger freight maintenance catering interior

Finance
Logistics
operations

possibilities as dimension criteria are: functions, divisions, regions, markets, customers…

 Often characterized as institutional conflict (because of equal subordination of a position
under the two leading dimensions)
Positive: especially innovative, rapidly growing companies; it can deal perfectly with rapid growth
and innovative pressure
Negative: in case of a crisis, the system often collapses, because there is no clear responsibility
 “nice weather structure”
Modifications of the Matrix-Organization:
Project Management (2. Dimension focuses on projects)
Product Management (1. Dimension focuses on products)
 Difference: in case of a difference, the 1. Dimensions managers have the last word. So the 2.
Dimension managers can only lead by convincing, not by giving orders
Same criteria as matrix orga.
Management 1. Dimension

(1) Product or
(2) Project
2. dimension
Product management can be found i.e. in the consumer goods industry
Project management: a project is executed in a limited time
 So, projects can be easily integrated into e.g. a functional structure
 Especially for project-oriented companies (like construction)

C. Processual Organization
Design of work processes
Content of work
Time of work
Location of work
Work order for concrete positions

j) Surveillance
= detection of deviations between actual measured performances and the target values, their
analysis and the development of measures to reduce or avoid these deviations in the future.

Surveillance can take the form of

Control Auditing
Done by persons who execute done by process-independent persons from
The process (a) inside (b) or outside of the company

a) Internal control
Condition: only processes, which are planned, can be controlled
 Necessity for a target definition
Control should be integrated in the work process wherever possible; it should not lead to
interruptions and longer process-time (i.e. real-time measurement in quality control).
b) Internal auditing
Task areas of internal auditing
Valuation of steering mechanisms
Checking of internal control processes
Check of internal communication structures
Measurement control as insurance against losses of assets (traditional main task)

Typically, “Internal Audit” forms an own department in larger companies which is directly related to
top-management to ensure independence
Audits are mainly based on precisely defined and detailed checklists to ensure quality, transparency
and comparability of an audit
 c) External Auditing

There are numerous different external audits. Some are obligatory, others (more or less) optional.
Just as examples:
 Annual audit (of the annual financial statement); obligatory for capital companies, done by
certified public accountants
 Credit check; more or less optional, done by the bank where the credit application was sent
to
 Tax audit; obligatory, done by tax authority
 Organizational audit; obligatory, done by appropriate environmental regulatory authority
 Certification audit, i.e. quality management system (ISO 9001), environmental management
system (ISO 14001), energy management system (50001); optional, done by accredited
certification bodies
 Most important aspects/ functions of management as dispositional production factor

Other production factors

III. Staff-related Management Tasks

People must have similar mindset as company; no automotive guy can work for green peace
Next production factor: labor
Performance results of human labour are depending on willingness and ability.
Both can be influenced by company. Willingness is related to proper motivation and ability to
education and the working environment.
What is presented in CV; check whether all papers are true, important if announced internally or
externally.
In this huge area we will focus on 5 main aspects who will influence both:
a) Staff Search/ proper employee selection
(ensure applicant has as well motivation and ability and that he/she fits to the companies´ values)
Selection process is comparison between companies´ requirements and applicants qualifications

Process of employee selection:

 Start: publication of vacant position (internal/ external)
 Publication = requirement profile, choice criteria: professional criteria (e.g. education or job
experience), physical criteria (strength or hardiness), psychological criteria (dependability,
ability for concentration), social criteria (ability for teamwork)
 Recruitment and pre-check of applicants (primary choice)
 Detailed analysis of applicant´s abilities
(from secondary data analysis up to performance tests on basis of
Application papers, internet, discussions, expert statements, references, tests up to
assessment centers (Exkursus))
 Probation period
 Final choice decision
Requirement what kind of criteria must have or nice to have, tariff contracts good
Flawless letter
 b) Optimization of Working Conditions
Set priorities, delegate, assessment center, neglect private issues (don´t in assessment center)
4 fields, who are mainly influencing working conditions, will be discussed in this chapter:

A. Work design (designing the process of work)

- Humane design of work process and working conditions
- Efficient/ profit-increasing design
Working on a belt and adjusting of machines etc., ergonomic aspects
Belt increases efficiency, speed and concentration because everything is being taken care of
 Ergonomics
Bases are work studies about typical moves/ work steps and standard times for them (based on the
work of F.W. Taylor) -> specialization increases efficiency; third industrial revolution
In Germany for example provided by: REFA society (Reichsaussschuss für Arbeitsabteilungen (before
Hitler): statistics for nearly everything!)
Tasks:
- Guidelines for efficient work design
- Help for defining performance targets
- Help for the valuation of work results

B. Spreading of Work Time

Example: German laws about work time:
Work time law (1994) trade regulations act (1869) federal holiday act (1963)
Duration + limits of daily work is forbidden on Sunday minimum holidays 24 days
Worktime: 48 hrs/week and holidays (today nume- (4 weeks on Mo.-Fr. Basis)
10hrs/day; not in reality rous exceptions) accident prevention rules
(of employer´s liability insurance
Association)
Tariff regulations and contracts

Trend: reduction of work time but with fully compensated wages (until 2007)
Actually, we see a differentiated development depending on the region
ILO: research about working time around the globe: one out of five workers are putting in “excessive”
hours (more than 48 hrs/ week)
Additional aspects about spreading of work time: medical results =
best performance: 8-11, 18-21
most mistakes are made: 1-4

Today increase of flexibility through:

- Flexible work time models
Flex core-time flex
6 time 9 14 time 19
- Job sharing
- Flexible rest and holiday regulations (sabbatical)

C. Workplace Design
(as a special field of Ergonomics)
- Freedom of movement
 - Light, temperature, humidity, smell, noise
 Appropriate design of manufacturing resources (basis for efficient work)

D. Working Atmosphere/ Employee Attitude

- Between superiors and workers
 Not directly changeable, hard to predict and difficult to be influenced
 Measures for influencing working atmosphere: decision participation, further education, job
enlargement/ job enrichment, voluntary social benefits

c) Design of Wages
In this chapter, different methods of wage calculation are discussed

A. Valuation of Work (as a basis for wage calculation)

 Graduation of wages after the grade of work difficulty
Depending on the kind of work, the work requires knowledge, education, training, experiences, skills,
performance and responsibility. With grading these elements, labour-values are defined. They are
the basis for wage calculation and they bring different kinds of work in relation to each other.

B. Types of Wages

1. Time-based Wage
 Average performance expected -> wage/ time unit is consistent e.g. belt; no incentive to
work harder; belt is responsible for the speed level
 Wage/ piece is not constant and depends on the used time and develops inversely
proportional to performance

Where to use time based wage:

- If no incentive is necessary
- If there is no relation between incentive and performance (info-desk)
- If over proportional performance is not possible or necessary i.e. for security reasons
(nuclear power plant, train driver, doctor…) not possible (power plants), not necessary (belt)
- If performance is not measurable (or not easy to measure) haircuts of hair dresser
Credence quality; just believe, no real measurement

The system is illustrated by the next two figures:

Companies perspective Workers perspective
Wage/piece wage/hour pieces per hour vary, not so
Focus wages

focus
Pieces/hr pieces/hr

Benefits Problems
Easy to calculate (for payment) the company carries risk of low performance alone
Avoids overload (this often leads to intensive monitoring with
Allows focusing on quality issues negative influence on employee´s motivation)
Complicated for production cost calculation
No incentive to increase performance
Modification: time-based wage plus performance bonuses (condition: frequent performance
evaluations); hard to handle, transparency issues. But it´s often hard to find appropriate criteria. In
such case, grading systems might help (like school-grading). If detailed targets are fixed and linked to
bonus payments, we change to the bonus wage (see below).

Stakeholder situation: interest groups; different objectives; causes problems with criteria, measuring
like cardinal scale is nice, but often not there, more traditional than bonus (modern)

2. Piece-Rate Wage (working over average is best for P-R Wage)

Wage depends on performance, not on time. Not the duration but the result of work is paid.
Necessary condition: the work is able to be piece-rate paid
 result + speed influenceable by worker (if production is defined by belt, no influence on
speed = no piece-rate wage -> still a lot of jobs paid that way, though outdated).
 Work must be repetitive
Calculation forms of piece-rate wage:
- Time based piece rate = based on standard time. If worker is faster, he owns more money
- Quantity-based piece-rate = based on standard wage/piece (on a pure basis in most
countries not possible! If no work = no money; entrepreneurial risk not being put on
workers)
Both forms come to the same results, it´s just a different calculation
Today in many countries (like Germany), the piece rate wage is blocked with a legal minimum wage.
So if the performance of pieces/ hour underruns the standard, the payment system switches to time
based wage, if performance is above standard, the piece rate system works.

This is illustrated by the next two figures:

Company´s perspective: workers perspective:
Wage/piece wage/hour

Pieces/hour pieces/hour
Min. wage min. wage
Benefits Problems
Incentive for higher performance high velocity leads to hastiness, tiredness,
Easy for cost calculation abrasion and quality problems and with that,
(wage/piece is constant) disaffection
Complicated for indiv. Wage calculation: needs
performance monitoring
Necessary condition: definition of a standard time on the basis of standard performance. This is
always subject of controversial discussion. (where quality is visible)
No real incentive for overperformance
In piece rate systems: quality problem because hasty work and problem with machine, not tell
because loss of money, continue work and ruin machine

3. Bonus Wage
The smaller the workers influence on the quantitative result is, the less important are piece rate
systems (after all the performance measurement in piece rate systems is complicated).
Bonus Wage = basic wage (time based) + surplus, depending on performance
Objective and agreed performance criteria are necessary!

The benefit of over-proportional performance is parted between worker and company (different
than in piece-rate systems):

This is illustrated in the next two figures:

Company´s perspective: bonus wage workers perspective: bonus wage
wage/ piece wage/ hour
(piece rate wage to compare)

helps compare with piece rate syst (piece rate wage

to compare)
below piece rate wage; comp. benefits

bonus start Pieces/hour bonus start pieces/hr

wage=return for performance; bonuses and social benefits not

Bonus-systems are more flexible. Not only amount- and time dependent aspects but also qualitative
ones can be measures for bonuses (i.e. accuracy, adherence to delivery dates, customer satisfaction)

There is also no necessity for work-time checks.

Types of bonuses:
- Amount bonus (easier than piece-rate system)
- Quality bonus
- Cost savings bonus
- Bonus for good capacity use/ high level of capacity utilization
- Bonus for high material efficiency

d) Voluntary Social Benefits

Any kind of economic incentives such as vacation payment, anniversary gifts
Border to wages: the last are return for performance, social benefits don´t have a relation to the lead
of performance only to Job tenure
Frequently, voluntary services are provided by repetition to claimable benefits through common law
(extra Christmas payment)
At which times important = labor shortage, hard to find ppl, significant to labor market

Types of v.s.b. (voluntary social benefits)

Economic betterment (holiday payments, anniversary gifts, houses, flats)
Risk insurance (prepaid pension assets, very favored and valuable, pays off, also in case of accidents
etc.)
Family support (family extra payments, birth- and marriage grants)
Support of personal interests (library, further education, sporting possibilities)
e) Profit Participation of Employees
Calculation: total salary = tariff wage + v.s.b. + profit participation v.s.b. = voluntary social benefits
Profit participation

Forms of participation
Company: Profit of financial accounting
Site: profit of managerial accounting
Distribution interest: dividend oriented/ share value

Profit (calc. as low as possible, taxes etc., cost acc. More realistic, financial more reliable, transparent
than cost acc.) participation done:
As payment
Based on equity capital (shares)
Through capital participation
Based on credit capital (loans)

What is the direct contribution to performance of company? HR officer not so obvious, but with
shopfloor worker it is; if company does well, reward employees; usual in company with no clear
contribution to success of company
Shareholders instruments, dividend or value on share; look at interest = profit participation for share
holders; lower value interesting in long run (quite good percentage)
Share value (higher rank managers profit participation, mainly based on share value develop.;
operationally okay since technical shift,
strategically catastrophy: top managers have high influence on share develop., take care that share
value is high for short period, not long run; e.g. accounting deadline, sale and lease back activities =
reduce debt, invest in programs; large capital amounts, boost for few days or weeks, reducing
sustainability ability of comp. by selling assets; paid on base of something you can manipulate =
danger!)
Corp values: in mission statement, clearly fixed and transparent, depends on liquidity of company
(credit, higher % to employees, rare), rather shares (equity, big companies, interesting, not so costly,
reduce taxes in some countries, relationship tightens)
Issue shares only for that, reward employees and bring them in capital stock

Next main chapter (after Management and labor the third production factor):
Manufacturing resources (how to plan, handle capacity; ec. And engineering view different!)
Problems
Estimation of capacity use (money is invested and bounded – how long?)
Calculation of decrease in value though time and use => depreciation (manuf. Resources; should stay
for longer term, losing value over time, how to calc. and estimate loss of value)
The economic use time is shorter than the technical life of an asset (high maintenance cost at the
end of life)
 Concept of “life-cycle cost” as basis for decisions

Ec. Use time shorter than techn. life time

Life cycle costing for product life; producers view
Costs Profit

loss
Market entry End of market time time
Life-cycle -costing
 For product life
(users view) Disposal-recycling
Operating costs – e.g. energy, maintenance
LCC Setup-costs
Product price

Planned calculation of decrease in value =

Fin./ External acc. (Expenses) = get rid of asset values as soon as
possible, depr. Values as high as possible, tables, duration of use
assumption, increase annual expenses, decrease profit, taxes
Depreciation (getting capital into company, finance, only survive by it!)
Cost/ Internal acc. (Cost) = real use time, use time much longer than
in fin. Accounting, typically lower rates

“Truck”-Example
 Forwarding agency buys a truck
0 1 2 3 4
-200’ - - - - Payment
- 100’ 100’ 100’ 100’ Turnover
- -50’ -50’ -50’ -50’ Depreciation
(virtual expense,
no real expense)
- -50’ -50’ -50’ -50’ Operating
expenses
(liqu. Expense,
change)
-200’ +50’ +100’ +150’ +200’ Cumulated
liquid money
- 0 0 0 0 profit

Depreciation helps renew assets when necessary, source of finance

Often silent reserves such as real estate, other assets, extraordinary income

Reasons for value reduction:

Use (quantity, intensity)
External progress (software releases)
Depreciation is for companies financing extremely important (=> again truck example)

The capability of a facility is called capacity. = technical maximum capacity

The technical maximum capacity > economic capacity!
Economic capacity = capacity grade with least cost/ piece
Grade of capacity = Actual production -> for complete productions; actual or possible
Possible production performance/ use
Minimum production pieces
Look on capacity grade of robot = lowest average cost of handling unit
Ec. Optimum capacity smaller than technical maximum capacity!
The next slides shows the principle of calculating the economic capacity:
See how costs are developing
E.g. Fuel consumption of car, Paderborn, drive as fast as possible to Paderborn
Fuelmeter = high usage, drove as fast as possible, catastrophe
Only middle low, low use or high use = high fuel consumption of car
Average fuel consumption

economic Grade of capacity use

capacity 100%
total cost

Ec. Capacity grade of capacity use

Maintenance costs always present; even if capacity use 0, they are there (though small), rise slowly
with use, come closer to maximum = rise drastically

Total cost/ piece (=1+2+3)

Cost p.p.
Wear/ repair/ maintenance (1)

Energy consumption (2)

Depreciation (3)
Ec. Capacity 100% use

Press tools depreciated on use, very rare, usually depreciate on time!

Finding ec. Capacity always same!
Costs per piece reduce, gives capacity?
Planning always be focused on target to hit ec. Capacity
Ec. Capacity really far away from optimum capacity? Usually not (80%-95%)
In practice it is very complicated to receive a cost minimal adjustment between production and
orders received because many conflicting targets has to be taken into consideration like:
Storage cost minimization
Ability to deliver
Capacity use
Full program to choose from
(repeat: marketing perspective vs. production perspective)
Materials
Direct production factor: labor assets materials management (not value adding, only steer to make
other values work together)
New products: conversion (stamping), substance change (chemical reaction; new substance to work
with), assembly
3 Types of materials
Operating materials: material consumed during production (energy: electricity, oil, gas)
Raw materials are the main parts (wood for chair)
Auxiliary material are secondary parts (glue for chair)
Through put time in production process should be as short as possible, capital locked and stays
locked;
Due to capital lockup, the timespan between buying material and selling of product should be as
short as possible.

Just in time production: no intake storage area

Risky if not in time
Grade of material use is influenced by:
 Rejects (defects caused by mistakes, material or in production; nowadays rare, no intake
control, usually material directly taken into production process; takes too much time to
control, production comp and supplier to check and cross check for perfect quality)
  Material waste (for example clipping cut) -> tin for car bodies, not 100% used of tin plate,
reduce clipping cut, shaping presses in clever way to reduce it, but there will be waste;
cooperate with other companies to give them waste to stamp smaller pieces; grade of
material use depends
Today high grade of material use is of great importance:
 Disposal costs are rising
 Competition pressure rises
 Environmental care taking
Waste are often side products, who are able to be sold (cost reduction and waste prevention)
Idea of recycling
If neither sale nor recycling possible: Waste disposal as last opportunity
Waste prevention is an enormous potential for cost saving

Mine below expectation, find out why

 Very high standards, detectors
Oversaw arrows and bows (out of carbon fiber, attached diamonds to them) shoot several hundred
meters out of the company ground -> new fence in 1.1km to protect from theft

Disposal and recycling costs rising, pay for material and production material is used in = spoiled piece
of production
 Work on material as efficiently as possible to reduce costs
Environmental concerns of people/ customers -> company more and more careful
Customers ask for environmental care records -> constant measure to improve and how you do
something for environment

Limit of company is limit of thinking!

Bring something which was waste in the beginning to use again, it´s a win!

Even from g) Planning BEGIN!

60 minutes, 60 points!
Top down bottom up and both -> Task 6
Task 1 frequent, repetitive, know it!; careful! Compare!
Task 3 Nature of risk situation = no possible results or probabilities, some risk neutral, averse, risk
seeking -> explain expectation value principle etc.
Minimum information level for decision is uncertainty?
Task 4 personal meter of level of understanding; in 1920s people like Gutenberg; how much orga
needed; should it be maximized? No. for every orga own level, depends on variability of company, if
always adapt level of orga low; if processes of orga static, we can have more orga with benefit
How flexible must orga be?
Orga <-> Improvisation (inefficient) if repetition
Task 5 process of controlling, especially results, process integrated, auditing (independent people
from process) -> control mechanisms running properly