Management Perspectives in Industrial Organizations

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School of Management

Blekinge Institute of Technology

Final Examination: Answers

Submitted by: Sayyed Saahir

2013-01-13

MANAGEMENT PERSPECTIVESIN INDUSTRIAL ORGANIZATION

http://www.bth.se/



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Table of contents

1. Sloan developed several methods of financial control within GM. Explain how the “standard

volume” concept is working? .................................................................................................................. 3

2. What are examples of managerial practices that reflect McGregor theory Y? Review all six of

McGregor’s core assumptions and indicate which assumptions are most relevant to a givenmanagement practice. ............................................................................................................................ 4

3. Explain how lean production developed by Ohno Taiichi is based on a complete rethinking of the

whole working process? .......................................................................................................................... 5

References ............................................................................................................................................... 6



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1. Sloan developed several methods of financial control within GM.

Explain how the “standard volume” concept is working? GM like any other automotive manufacturing company is involved in a cyclical business, this means

that the volume of the cars sold vary quite a lot from year to year. "Standard-volume" concept of

costing was developed to help the GM management, evaluate the business efficiency (See Figure 1)

of the company and the effect of competitive pricing, irrespective of the variation in the sales volume

and while still being able to relate to the long-term profit targets (Sloan, 1963, p.143-148).

Figure 1 Formula for ROCE ( based on text Sloan, 1963, p.143-148)

In standard-volume concept of costing, the first step is establishing a standard volume based on theaverage utilization of the production capacity and this volume should be high enough to meet the

peaks because of the seasonal and cyclical variation. The next step is to use the standard volume so

established, for calculating unit costs. The actual unit costs are then benchmarked against the

established "standard volume" cost components on a monthly or annual basis (See Figure 2).

Figure 2 Formula for Cost per unit ( based on text Sloan, 1963, p.143-148)

The costs are broken down in to direct costs which consisted of the material and labor cost which is

directly proportional to the volume of the cars produced. And the second components is Indirect

cost, which was further broken down in fixed overhead costs like the rentals, depreciation,

amortization etc. and semi-fixed cost like the wages of supervisors (See Figure 3 ).

Figure 3 Direct and Indirect Costs ( based on text Sloan, 1963, p.143-148)

The actual unit costs are then compared to the standard unit costs. And since the units cost were

broken down, the responsibility for individual cost component could be assigned to functional

organizational units. For example, engineering group is responsible for keeping the direct cost low by

product changes or time studies and other productivity improvement measures.

If the sales volume for the period was more than the standard volume, the cost per unit will come

down, considering stable labor and material costs and this additional revenue was added to the

income. And if the volume was less than the standard volume, only a part of the fixed cost could beallocated to unit cost of production, the remaining cost was deducted from the reported income.



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2. What are examples of managerial practices that reflect McGregor

theory Y? Review all six of McGregor’s core assumptions and indicate

which assumptions are most relevant to a given management practice.Integration and self-control are examples of managerial practices which base themselves on the

McGregor's Theory Y and its core assumptions (McGregor, 1960, p.59-79).

Figure 4 Relevance of Management Practice to Theory Y Core Assumptions

Managerial practice of Integration, involves creating a environment where-in the employees can

achieve their own goals by working towards the achievement of organizational goals.

The practice of integrations closely follows from the fourth assumption of McGregor's Theory Y, i.e.

the employee shows alacrity for responsibility if proper environment is created by the management.

The practice of integration also incorporates the third assumption of Theory Y, which states the

employee will remain committed to the organizational goals, if in returns he gets his share of rewards. These rewards in the practice of integration is the achievement of employees own goals.

The second assumption of commitment being a driver for self-direction and self-control is the result

of successful integration .The Theory Y's first assumption, that work become a succor or scourge

depends largely on environment created by the management, is a affect of Integration failure and

not a cause in itself (See Figure 4). The fifth and sixth assumptions have weak or no relevance to the

management practice of integration.

Managerial practice of Self-control, seeks the empowerment of the employee to achieve the

organization goals, he has committed himself to, without any external direction or control by the

management.

The managerial practice of Self-control, derives from the second, third and fourth assumptions of

McGregor's Theory Y. The second assumption states that the employees cannot be made to

contribute by means of threat and control, but rather commitment to the organizational goal would

result in making the employee practice self-control and self-direction in the achievement of

organizational goals. And this commitment to the organization goal is a factor of the personal goals

that the employee will be able derive from his efforts, which follows from the third assumption of

McGregor's Theory Y (See Figure 4). The fourth assumption also finds relevance to the management

practice of self-control. The remaining three assumptions, first, fifth and sixth have a very weak to no

relevance to the management practice of self-control.



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3. Explain how lean production developed by Ohno Taiichi is based on

a complete rethinking of the whole working process?The principles and philosophy of lean production which Ohno Taiichi developed were a complete

breakaway from the productions practices of the time. One of the fundamental difference was that

lean production is driven by the "Pull" in the system, where as the conventional production systemwas based on "Push".

Figure 5 Conventional Production System ( Based on text Toyota Production System, Ch.1, Taiichi Ohno)

The conventional production system prevalent in almost the entire automotive industry, was based

on mass production of the same type of goods. The shops were arranged according to the machining

operations. The operators in each of these shops, were uni-skilled and could only work in their

respective shops. In the conventional system, a large number of same part undergoing the same

operation were made in one shop were then pushed to the next shop and so on. This lead to the

accumulation of unwanted stocks of the parts at the downstream shops (See Figure 5).

Whereas in the lean production system developed by Ohno, the workstations are arranged according

to the process steps in the manufacturing. The workers are multi-skilled and are able to handle all

the operations in the manufacturing process. Only the right quantity of parts needed by thedownstream operation were transferred from the upstream operation at the right time (See Figure 6

).

Figure 6 Lean Production System ( Based on text Toyota Production System, Ch.1, Taiichi Ohno)

The conventional production philosophy is based on mass producing the same product and pushing

them to the market, whereas, the lean production philosophy, allows product to handle variant mix

based on the demand for each individual variant. Another principal difference is the philosophy of

Autonomation, wherein the machines where designed to be fool-proof against abnormal condition of

operation. Also unlike in conventional production, everyone is made aware of any errors on the line

and these are tackled head-on by stopping the line, developing counter measures so it is notrepeated again (Ohno Taiichi, 1988, p.1-15).



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References

Sloan, A.P. (1963) My Years with General Motors, Doubleday

McGregor, Douglas (2006) The Human Side of Enterprise, Annotated Edition, McGraw-Hill

Ohno, Taiichi (1988) Toyota Production System: Beyond Large-Scale Production, Productivity Press;

1St Edition English Translation (March 1, 1988).

Documents

Management Perspectives in Industrial Organizations