Introduction

In May 1993, the Swedish automobile major, Volvo AB (Volvo) announced the closure of its car
manufacturing facility at Uddevalla, Sweden, barely five years since its launch in 1989. A year
later, the company had to shutdown yet another world famous facility, the car assembly plant at
Kalmar, also in Sweden.
Reacting to the two closures within a year's gap, analysts said Volvo's human centric approach
towards automobile manufacturing was no longer feasible in the fiercely competitive scenario of
the 1990s, with most companies striving hard to improve production efficiency. Volvo was well
recognized in the industry for its employee-friendly policies ever since its inception.
Guided by the 'Volvo Way,' the company had made conscious efforts to implement job
enrichment concepts such as job rotation, job enlargement and employee work groups in its
manufacturing facilities (Refer Exhibit I for the Volvo Way). In the late 1960s and early 1970s,
when the company faced the problem of increasing employee turnover and absenteeism, it
introduced these concepts and obtained positive results.
Volvo was inspired to build a new facility keeping this work design as a basis. This reiterated the
company's belief that industry needed to adapt itself to the people's requirements and not vice-
versa. This concept was implemented successfully in other plants of the company too in the
1970s. The best practices in Human Relations (HR) tried and tested in these plants were
passed on to new plants established in the 1980s. While investing heavily in developing new
plants like Kalmar and Uddevalla, where new work design concepts were implemented, Volvo
was conscious of the risks involved and the possible effect on the company's financial
performance if the experiments failed.
Acknowledging this, Gyllenhammar, in Harvard Business Review wrote, "Volvo's Kalmar plant,
for example, is designed for a specific purpose: car assembly in working groups of about 20
people. If it didn't work, it would be a costly and visible failure, in both financial and social terms.
We would lose credibility with our people and those who are watching from outside."
Gyllenhammar's apprehensions proved correct when Volvo closed down Kalmar plant in 1994.
However, Volvo's efforts in bringing changes in work design offered valuable lessons to both the
academic and corporate community.
Analysts appreciated Volvo for its constant emphasis on learning from experiences and
implementing the lessons so learnt in its new initiatives. This contributed significantly to the
development of human-centric production systems. These systems brought to life several
theories and concepts, which had earlier only been enunciated in textbooks but rarely practiced
with the kind of seriousness with which Volvo did.
Background Note
Volvo was founded on July 25, 1924, when Gaustaf Larson (Larson), an engineer and Assar
Gabrielsson (Gabrielsson), an economist, met over a meal and agreed to build a car suited for
Sweden's roads and climatic conditions.
The two founders had worked earlier for SKF, a famous Swedish bearings manufacturer, where
they nurtured the dream of building a car. In 1926, the duo prepared 10 prototypes of the car to
convince SKF into investing in their company.
SKF not only agreed to invest SEK 200,000 kroner, but also lent its patented name, AB Volvo.
On April 14, 1927, the new company rolled out its first car, the OU4, from a factory near
Goteberg, Sweden. The day marked the official date of inception of AB Volvo (Volvo). In
September 1929, Volvo reported its first ever profits. In 1934, Volvo launched its first bus, the B-
1. The product rapidly gained acceptance as a vehicle fit for rural areas.
By the time World War II broke out in 1939, Volvo had established itself as a profitable
automobile manufacturer with a broad product range.
The company's automobile engines were known for their reliability and were used in cars,
buses, boats, fire tenders and military tanks.
Volvo began exporting vehicles on a major scale to Latin America, Japan, China, Israel, Ireland,
Holland and Belgium. Volvo's financials were boosted during the war period (1939-1945), when
it supplied a large number of vehicles to the military.
In 1946, Volvo introduced its first diesel bus, the B-56, which became immensely popular as a
city bus as well as a tourist coach. By 1948, Volvo emerged as a major tractor manufacturer. In
1949, Volvo rolled out its 100,000th vehicle from its assembly lines. In 1955, the company
began exporting to the US.
In 1963, Volvo commenced car production in Canada, becoming the first European automobile
manufacturer to set up such facilities in North America. Its manufacturing facility in Belgium
became operational in 1965. Volvo created a separate truck division in 1968.
The 1970s witnessed a significant change in Volvo's operations, under the leadership of
Gyllenhammar. In 1972, the Volvo Technical Centre (VTC) was established, which had R&D
facilities, including a safety centre and an Emission Laboratory.
The HR Problem
Volvo was among Sweden's leading employers with employees numbering 41,000 in company-
owned plants. Its dealer network provided employment to an additional 10,000 people as of
1973. An additional 15,000 people were employed through Volvo's sub-contractors. Volvo's
products were marketed in 120 countries with 75% of its total production exported mainly to
other European countries and the US.
The Job Enrichment Experiments
The changes in the organization structure facilitated easier implementation of job enrichment
concepts. Volvo's efforts involved both employees and the management. The management
decided to experiment with five job enrichment measures - job rotation, management-employee
councils, small work groups, change implementation and employee-oriented facilities - at its
manufacturing facilities.
Job Rotation
Job rotation involved shifting around of jobs among workers according to a pre-determined plan.
Each employee within a group was offered a job, which was different both physically and
psychologically from his/her previous job.
The New HR Initiatives
Volvo introduced three new HR programs in the late 1970s and early 1980s. These were Match
Project, Full Rulle (Full Speed Ahead) and Dialog.
The first was introduced in 1983. It aimed at achieving five HR objectives, which were:
• Training new recruits intensively.
• Disseminating organizational objectives to all employees in the company.
• Framing rules and regulations for employees to establish discipline.
The Uddevalla Plant
Uddevalla offered the best work environment for employees. Developing staff competence was
deemed vital by Volvo to build quality cars as well as to achieve the organizational objectives of
improving productivity, flexibility and efficiency. Also, operations had to be scaled up as Kalmar
could accommodate only 600 employees, which was not sufficient. Employee representatives
were involved in the plant's planning group, which had a team of researchers with diverse
backgrounds ranging from engineering to psychology.
End of the Socio-Technical Approach?
While Volvo was going ahead with its human-centric approach, the external market forces in the
automotive industry were changing. This forced the company to take serious measures, which
stopped the progress of its job enrichment initiatives. In the early 1990s, with the declining
demand for cars in the global market, it was no longer feasible for Volvo to continue operating in
relatively smaller facilities like Kalmar and Uddevalla.

1. How would you assess the implementation of the new HR initiatives in Volvo?

2. What are the problems of Volvo? How were they resolved?

3. Do you think Volvo was successful in using the new HR initiatives in solving its problems?

In the early 1990s, Volvo, the Swedish automobile major, faced significant challenges in its car
manufacturing operations. The company announced the closure of its car manufacturing
facilities at Uddevalla and Kalmar in Sweden. This decision was driven by the fierce competition
in the 1990s, with companies striving to improve production efficiency.

Volvo had a reputation for its human-centric approach to manufacturing and had implemented
job enrichment concepts such as job rotation, job enlargement, and employee work groups in its
facilities. These concepts were introduced in the late 1960s and early 1970s to address
employee turnover and absenteeism issues, and they had yielded positive results. Volvo
believed in adapting the industry to people's requirements rather than the other way around.
The closures of the Uddevalla and Kalmar plants within a year's gap signaled a shift in Volvo's
approach. Analysts noted that Volvo's human-centric approach was no longer viable in the
highly competitive automotive industry of the 1990s. The closures highlighted the risks involved
in experimenting with new work designs and their potential impact on the company's financial
performance and credibility.

Despite the closures, Volvo's efforts to bring about changes in work design provided valuable
lessons to the academic and corporate communities. The company's emphasis on learning from
experiences and implementing those lessons in new initiatives contributed to the development
of human-centric production systems. Volvo's commitment to continuous improvement and its
serious implementation of theoretical concepts set it apart in the industry.

The background of Volvo dates back to its founding in 1924 when the founders, Gaustaf Larson
and Assar Gabrielsson, aimed to build cars suitable for Sweden's roads and climate. Volvo
became profitable before World War II, and during the war, it supplied a large number of
vehicles to the military, which boosted its financials. The company expanded its product range,
ventured into exports, and established manufacturing facilities in various countries.

In the 1970s, under the leadership of Gyllenhammar, Volvo underwent significant operational
changes. The company established the Volvo Technical Centre for research and development,
including safety and emission testing facilities. Volvo's employee count was substantial, and it
implemented job enrichment measures such as job rotation, management-employee councils,
small work groups, change implementation, and employee-oriented facilities.

In the late 1970s and early 1980s, Volvo introduced three new HR programs: Match Project, Full
Rulle (Full Speed Ahead), and Dialog. These programs aimed to intensively train new recruits,
communicate organizational objectives, and establish rules and regulations for discipline.

The Uddevalla plant was developed as a result of Volvo's focus on building a quality work
environment and improving staff competence. However, external market forces in the
automotive industry were changing, and Volvo had to make tough decisions. With declining
global demand for cars in the early 1990s, it was no longer feasible for Volvo to continue
operating in relatively smaller facilities like Uddevalla and Kalmar.

Overall, Volvo's experience with job enrichment and its human-centric approach provided
important lessons for the industry. However, the evolving market conditions forced the company
to reassess its strategies and adapt to the changing automotive landscape.
Introduction

The case discusses the efforts made by the Swedish automobile major - Volvo AB
towards improving the work conditions at its facilities through job enrichment programs.

In its efforts to reduce the instances of employee turnover and absenteeism in its
manufacturing facilities, Volvo introduced innovative job enrichment programs including
job rotation, management employee councils, small work groups, change
implementation and employee oriented facilities. These programs helped the company
to understand the importance of designing its facilities according to the work design and
employees' requirements.

Volvo was one of the first automobile companies to deviate from the traditional
assembly line system and adopt a more employee-centric approach for manufacturing
automobiles.

Volvo was known for its human-centric approach to manufacturing, but this approach
became less feasible in the 1990s as companies strived to improve production
efficiency. Volvo closed two plants in 1993 and 1994, but its efforts in bringing changes
to work design offered valuable lessons to the academic and corporate community.

Volvo's human-centric approach was based on the belief that the industry needed to
adapt to the people's requirements, not vice versa. The company implemented job
enrichment concepts such as job rotation, job enlargement, and employee work groups
in its manufacturing facilities. This approach was successful in reducing employee
turnover and absenteeism.

Volvo was aware of the risks involved in its human-centric approach, but the company
was committed to learning from its experiences and implementing the lessons so learnt
in its new initiatives. This contributed significantly to the development of human-centric
production systems.

Volvo's closure of two plants in the early 1990s was a setback, but the company's
efforts in bringing changes to work design offered valuable lessons to the academic and
corporate community. These lessons are still relevant today as companies strive to find
the right balance between efficiency and employee satisfaction.