Principles of Management

Assignment No. 01

Submitted by: Mr. Mughees Ahmed (Roll No. 2203162) WEMBA

Submitted to: Miss Humaira Taj

A Big Decision Example:

Henry’s Ford: $5-a-Day Revolution

Summary:

In 1913, Ford Company introduced the Model-T Cars in the market and its
demand was too high. To meet with the demands of the market, Ford decided to
increase its mass production and expand its business to all over the world. For this,
Ford needed expert workers to perform job effectively and efficiently in its plants. But,
the actual problem with the company was the high turnover rate of its workers.

Workers at Ford were getting $2.5 a day wage for 09 hours shift in unit. That
wage amount was comparable to Ford’s competitors. Therefore, it was not a problem
for workers to find the job in market at this wage amount other than Ford. So, the
turnover rate of Ford was increasing day-by-day which created problems for Ford in
achieving its goal of spreading its business all over the world.

High turnover rate not only created problems in terms of losing experts but also
gave rise to cost of training of new inductees and, also the cost of finding more experts
in market for stop-gap arrangement. In short, Ford needed more work-force for its new
model production and the expert workers were leaving the company and the new-
comers were not trained enough to complete the jobs in time. Moreover, the increased
cost and delayed production of products was not allowing Ford to sell its car at lower
prices. All this created much mess for the company’s business.
 At last, Ford Company took one decision that revolutionized the company’s
business. That decision was increasing the daily wage of workers form $2.5 to $5 along
with reduction of 09 hours duty to 08 hours duty in a day. At the time of announcement
of the decision, many financial experts of that time was of the view that the financial
burden on Ford Company would be increased by increasing the wages of workers and
the company would not be able to meet with its target productions by reducing the
working hours. As a result, the company would be bankrupted soon. But, all of these
were merely assumptions.

The decision made the turnover rate of Ford Company to minimal level as most
of the workers did not want to leave the company. Instead, they decided to keep
working in Ford for another term. Consequently, the company got benefits from
expertise of well trained and experienced workers as no employee was ready to leave
the company. Besides this, many experts from other companies wanted to join Ford due
to high rate of daily wage. Moreover, the production unit of the company was also able
to run for 03 Nos. working shifts of 08 hours each in a day which gave rise to the
company’s productivity too. As the company could now produce huge volume of
products in unit, therefore, the financial impact of increasing workers’ wages was not
that much on the company. Instead, the company could now sell its products at lower
price in market as compared to its competitors, due to high volume of production of
goods. In this way, the selling rate of Ford was also increased.

Hence, one decision of Ford Company i.e. increasing the wage of workers, gave
benefits in terms of increase in production rate, efficiency and profit rate of Ford.
Besides this, by increasing the wage amount, the living standard of American workers
was also improved. Their social standard was also grown-up.

References:

1. http://ophelia.sdsu.edu:8080/ford/06-05-2011/about-
ford/heritage/milestones/5dollaraday/677-5-dollar-a-day.html
2. https://www.forbes.com/sites/timworstall/2012/03/04/the-story-of-henry-fords-5-a-
day-wages-its-not-what-you-think/?sh=770041a0766d