MGT504 - Organization Theory and Design - Lecture Handout 14

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MANUFACTURING AND SERVICE TECHNOLOGIES

ORGANIZATION LEVEL MANUFACTURING TECHNOLOGY

Manufacturing technologies include traditional manufacturing processes and new computer-based manufacturing systems.

MANUFACTURING FIRMS

Woodward’s Study: The first and most influential study of manufacturing technology was conducted by Joan Woodward, a British industrial sociologist. Her research began as a field study of management principles in south Essex. The prevailing management wisdom at the time (1950s) was contained in what was known as universal principles of management. These principals were “one best way” prescriptions that effective organizations were expected to adopt. Woodward surveyed one manufacturing firms firsthand to learn how they were organized. She and her research team visited each firm, interviewed managers, examined company records, and observed the manufacturing operations, here data included a wide range of structural characteristics (span of control, levels of management) and dimensions of management style ( written versus verbal communications, use of rewards) and the type of manufacturing process. Data were also obtained that reflected commercial success of the firms.

Woodward developed a scale and organized the firms according to technical complexity of the manufacturing process. Technical Complexity represents the extent of mechanization of the manufacturing process. High technical complexity means workers play a larger role in the production process. Woodward’s scale of technical complexity originally had ten categories. These categories were further consolidating into three basic technology groups.

  • Group 1. Small batch and unit production. These firms tend to be job shop operations that manufacture and assemble small orders to meet specific needs of customers. Custom work is the norm. Small – batch production relies heavily on the human operator; it is thus not highly mechanized. Steinway & Sons is an example of mallbatch
    production. Although computerized machines are now used to cut wood more precisely than human hands, much of the work of building a Steinway piano is done by craftsmen in much the same way it was done a century ago. Compared to competitors, who turn our hundreds of thousands of pianos annually, Steinway’s artisans build only 2,500 in the United States and 2,000 in Germany each year.
  • Group II; Large–batch and mass production. Large – batch production is a manufacturing process characterized by long production runs of standardized parts. Output often goes into inventory from which orders are filled, because customers do not have special needs. Examples include most assembly lines, such as for automobiles or trailer homes.
  • Group III; Continues process production, in continuous process production the entire process is mechanized. There is no starting and stopping. This represents mechanization and standardization one step beyond those in an assembly line. Automated machine control the continuous process, and out comes are highly predictable. Examples would include chemical plants, oil refineries, liquor producers, and nuclear power plants.

Using this classification of technology, Woodward’s data made sense. A few of her key findings are given in the number of management levels and the manager/ total personnel ratio, for example, show definite increases as technical complexity increase from unit production to continuous process. This indicates that greater management intensity is needed to manage complex technology. Direct/indirect labor ratio decreases with technical complexity because more indirect workers are required to support and maintain complex machinery

EXAMPLE: Relationships between Technical Complexity and Structural Characteristics

Structural Characteristic Technology
  Unit Production Mass Production Continuous Production
Number of management levels 3 4 6
Supervisor span of control 23 45 15
Direct/indirect labor ratio 9 :1 4 :1 1 :1
Manager/Total personnel ratio Low Medium High
Workers’ skill level High Low High
Formalized procedures Low High Low
Centralization Low High Low
Amount of Verbal communication High Low High
Amount of written communication Low High Low
Overall Structure Organic Mechanistic Organic

Other characteristics, such as span of control, formalized procedures and centralization, are high for mass production technology but low for other technologies because the work is standardized. Unit production and continuous process technologies require highly skilled workers to run the machines and verbal communication to adapt to changing conditions. Mass Production is standardized and routinized, so few exceptions occur, little verbal communication is needed, and employees are less skilled.

Overall, the management systems in both unit production and continuous process technology are characterized as organic. They are more free-flowing and adaptive, with fewer procedures and less standardization. Mass Production, however, is mechanistic, with standardized jobs and for Mali zed procedures. Woodward’s discovery about technology thus provided substantial new insight into the causes of organization structure. In Joan Woodward’s own words, “Different technologies impose different kinds of demands on individuals and organizations, and those demands had to be met through an appropriate structure.

Strategy, Technology, and Performance: Another portion of Woodward’s study examined the success of the firms along dimensions such as profitability, market share, stock price, and reputations. As discussed the measurement of effectiveness is not simple or precise, but Woodward was able to rank firms on a scale of commercial success according to whether they displayed above-average, average, or below-average performance on strategic objectives.

Woodward compared the structure-technology relationship against commercial success and discovered that successful firms tended to be those that had complementary structures and technologies. Many of the organizational Characteristics of the successful firms were near the average of their technology category. Below – average firms tended to depart from the structural characteristics could be interpreted as clustering into organic and mechanistic management system, Successful small-batch and continuous process organizations had organic structures, and successful mass production organizations had mechanistic structures. Subsequent research has replicated her findings.

What this illustrates for today’s companies is that strategy, structure and technology need to be aligned, especially when competitive condition change. Some insurance companies in the United States are currently realigning strategy, structure, and technology because of increased competition in the insurance business. Companies such as Geico and USSAA are growing rapidly though the use of direct mail and phone solicitation, avoiding the costs associated with doing business through independent insurance agents. Agency-based companies like state Farm and Allstate have had to put new emphasis on a low – cost strategy and are adopting efficiency –oriented information technology to cut costs and more effectively serve customers. Another example is the Madame Alexander doll factory in Harlem, where a new production system led to a restructuring of employees into teams. Now, instead of individually producing parts such as wigs, shoes, and all the other tiny bits that go into a doll, employees work in teams that each produces about three hundred complete doll, or wardrobe assemblies a day.

Failing to adopt appropriate new technologies to support strategy, or adopting a new technology and failing to realign strategy to match it, can lead to poor performance. Today’s increased global competition means more volatile markets, shorter product life cycles, and more sophisticated and knowledgeable consumers; and flexibility to meet these new demands has become a strategic imperative for many companies. Manufacturing companies can adopt new technologies to support the strategy of flexibility. However, organizations structures and management processes must also be realigned as a highly mechanistic structure hampers flexibility and prevents the company from reaping the benefits of the new technology.

For utility companies, once the strategy and technology for providing electricity are chosen, the structure and management approach must also be aligned to achieve strategic objectives, as illustrated in the following example of nuclear power plants. The nuclear power plant is a continuous process technology; its automated equipment is highly complex and requires skilled employees along with a high number of maintenance personnel. Great management skills and intensity are required to ensure close supervision and to provide backup expertise in a crisis. The failure of Boston Edison’s management to diagnose the special management. Needs of nuclear technology cost the company and its ratepayers dearly. When the Pilgrim Plant was closed for upgrading. Boston Edison spent $ 200,000 a day to buy electricity to replace what Pilgrim would have generated.

COMPUTER – INTEGRATED MANUFACTURING

In the years since Woodward’s research, new developments have occurred in manufacturing technology. New manufacturing technologies include robots, numerically controlled machine tools, and computerized software for product design, engineering analysis, and remote control of machinery. The ultimate technology is called computerintegrated manufacturing (CIM). Also called advanced manufacturing technology, agile manufacturing, the factory of the future, smart factories, or flexible manufacturing systems, CIM links together manufacturing components that previously stood alone. Thus, robots, machines, product design, and engineering analysis are coordinated by a single computer.

The result has already revolutionized the shop floor, enabling large factories to deliver a wide range of custom-made products at low mass production costs. Computer-integrated manufacturing also enables small companies to go toeto- toe with large factories and low – cost foreign competitors. Techknits, Inc. a small manufacturer located in New York City competes successfully against low-cost sweater – makers in the Far East by using $ 8 million worth of computerized looms and other machinery. The work of designing sweaters, which once took two days, can now be accomplished in two hours. Looms operate round-the-clock and crank out 60,000 sweaters a week, enabling Techknits to fill customer orders faster than foreign competitors. Computer-integrated manufacturing is typically the result of three sub-components.

  • Computer – aided design (CAD). Computers are used to assist in the drafting design, and engineering of new parts. Designers guide their computers to draw specified configurations on the screen, including dimensions and component details. Hundreds of design alternatives can be explored, as can scaled – up or scaled – down ersions
    of the original.
  • Computer-aided manufacturing (CAM) Computer-controlled machines in materials handling, Fabrication, productions, and assembly greatly increase the speed at which items can be manufactured. CAM also permits a production line to shift rapidly from producing one product to any variety of other products by changing the instruction tapes or software in the computer CAM enables the production line to quickly honor customer requests for changes in product design and product mix.
  • Integrated information Network. A computerized system links al aspects of the firm—including accounting, purchasing, marketing, inventory control, design, production, and so forth. This system, based on a common data and information base, enables managers to make decisions and direct the manufacturing process in a truly integrated fashion.

The combination of CAD, CAM, and integrated information systems represents the highest level of computerintegrated manufacturing. A new product can be designed on the computer, and a prototype can be produced untouched by human hands. The ideal factory can switch quickly from one product to another, working fast and with precision, without paperwork or recordkeeping to bog down the system.

A company can adopt CAD in its engineering design department and / or CAM in its production area and make substantial improvements in efficiency and quality. However, when all three components are brought together in a truly advance plant, the results are breathtaking. Companies such as Xerox, Texas Instruments, Hewlett-Packard, and Boeing are leading the way. Boeing’s 777 the largest twin-engine plane ever built, has been called the first “Paperless” Jetliner. The company designed the plane with eight IBM mainframe computers supporting 2,200 workstations that eventually handled 3,500 billion bits of information. The digital design system reduced the possibility of human error and cut engineering changes and reworking of ill-fitting components by more than 50 percent over previous plane projects.

This ultra – advanced system is not achieved piecemeal. CIM reaches its ultimate level to improve quality, customer services, and cost – cutting when all parts are used interdependently. The integration of CIM and flexible work processes is changing the face of manufacturing. The wave of the manufacturing future is mass customizations, whereby factories are able to mass-produce products designed to exact customer specification. Today, you can buy a computer assembled to your exact specifications, jeans customized for your body, glasses molded to precisely fit and flatter your face, CDs with music tracks that you select, and pills with the exact blend of vitamins and minerals you want. Acumin, for example, is an internet –based company that blends vitamins, herbs, and minerals according to each customer’s instructions, compressing up to ninety-five ingredients into three to five pills. At Custom Foot stores, customers mix and match design components such as style, color, and material. A high – tech electronic scanner measures the customer’s foot, then the complete order is sent by modem to the company’s headquarters in Florence, Italy, shoes are generally ready in about three weeks and often cost less than many premium brands sold off the shelf. Ross Controls, a seventy – year – old manufacture of pneumatic valves, invested $ 8 million in computerized design and manufacturing technology to be able to tailor products to exact customer needs. Even automobiles are moving toward mass customization, and 60 percent of the cars BMW sells in Europe are built to order. Although so far, most U.S customers have not been willing to wait the several month it takes for a customordered vehicles, some business leaders envision a time in the near future when cars can be custom made in as little as three days.
Performance: The awesome advantage of CIM is that products of different sizes, types and customer requirements freely intermingle on the assembly line. Bar codes imprinted on a part enable machines to make instantaneous changes such as putting a large screw in a different location--- without slowing the production line. A manufacturer can turn out an infinite variety of products in unlimited batch sizes. In traditional manufacturing systems studied by Woodward, choices were limited to the diagonal. Small batch allowed for high product flexibility and custom orders, but because of the “crafts man ship” involved in custom – making products, batch size was necessarily small Mass production could have large-batch size, but offered limited product flexibility. Continuous process could produce a single standard product in unlimited quantities. Computer – integrated manufacturing allows plants to break free of this diagonal and to increase both batch size and product flexibility at the same time. When taken to its ultimate level, CIM allows for mass customizations, with each specific product tailored to customer specification. This high – level use of CIM has been referred to as computer-added craftsmanship because computes tailor each product to meet a customer’s exact needs. the internet plays an important role in the trend toward mass customization because it addition to making it easier and faster to coordinate customer orders with factory tooling and supply requirements.

Studies suggest that with CIM, machine utilization is more efficient, labor productivity increases, scrap rates decrease, and product variety customer satisfaction increase. Many U.S. manufacturing companies are reinventing the factory using CIM and associated management systems to increase productivity.

Structural Implications: Research into the relationship between CIM and organizational characteristics is beginning to emerge. Compared with traditional mass production technologies, CIM has a narrow span of control, few hierarchical levels, adaptive tasks, low specialization, decentralizations, and the overall environment is characterized as organic and self – regulative. Employees need the skills to participate in teams; training is broad (So workers are not overly specialized). And frequent (so workers are up to date). Expertise tends to be cognitive so workers can process abstract ideas and solve problems. Inter organizational relationships in CIM firms are characterized by changing demand from customers --- which is easily handled with the new technology --- and close relationships with a few suppliers that provide top quality raw materials.

EXAMPLE Comparison of Organizational Characteristics Associated with Mass Production and Computer Integrated Manufacturing.

Characteristic Mass Production CIM
Structure
Span of control Wide Narrow
Hierarchical Levels Many Few
Tasks Routine, Repetitive Adaptive, Craftier
Specialization High Low
Decision making Centralized Decentralized
Overall Bureaucratic, Mechanistic Self-regulating, organic
Human Resources
Interactions Stand Alone Teamwork
Training Narrow one time Broad, Frequent
Expertise Manual, Technical Solve problems
Inter organizational
Customer demand Stable Changing
Suppliers Many, arm’s length Few, Close relations

Technology alone cannot give organizations the benefits of flexibility, quality, increased productions, and greater customer satisfaction. Research suggests that CIM can become a competitive burden rather than a competitive advantage unless organizational structures and management processes are redesigned to take advantage of the new technology. However, when top managers make a commitment to implement new structures and processes that empower workers and support a learning and knowledge – creating environment, CIM can help companies be more competitive. The taking the Lead box describes how mangers at Deere & Co. are combining advanced manufacturing technology with new approaches to management as they reinvent one of the oldest business in the United States.

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