Change processes towards lean production: the role of the remuneration system.

Introduction

This is a study of a major change process -- the implementation of lean production. It took Toyota decades to develop and implement its celebrated production system. Many western companies are now trying to accomplish this task in a few years or even less. This poses a number of challenges, since major organizational changes are difficult to realize[1]. Implementing Toyota's production system, or lean production, is a major organizational change. Lean production is a complex organization principle, the concepts of which span the entire company, from product development to strategies[2]. We can thus expect such a radical change to be fraught with difficulties, since traditional practices and solutions are often very difficult to shed[3].

One area where such difficulties might arise is the remuneration system, since it can be an obstacle to the implementation of lean production[4,5]. This is particularly the case if piece-rates are used to remunerate shop floor workers. Piece-rate systems are likely to create a situation where the focus is on producing as many units as possible[6]. This is not compatible with a lean system, which emphasizes the production of exactly the number of units needed, no more and no less. Furthermore, there are numerous goals in a lean system, productivity is only one of them. Other goals have the same status, for instance, quality, timely deliveries, and throughput times.

Thus, when implementing lean production, the existing remuneration system is likely to influence the implementation process. This influence is likely to be pronounced if the existing system is a piece-rate system. Altering the remuneration system is necessary, and it should be a natural part of the change process[6]. The necessary changes and the way that the remuneration system affects the change process is less obvious.

The research presented here was designed to study the implementation process when introducing a complex production strategy, lean production. The purpose of this article is to explore the role of the remuneration system in the implementation process. Furthermore, we will discuss what changes, if any, need to be made to a traditional remuneration system when implementing modern production management principles, such as those of the lean production concept. Our research is exploratory in nature. We create hypotheses for further investigation as well as systematic experience for practitioners to study. The intention in describing and analysing detailed observations is that the details provided will be useful to managers in thinking through their implementation strategies for lean production. Hence, our aim is to add knowledge to the area of implementation processes.

Methodology

Conducting exploratory research is facilitated by a longitudinal research approach with sustained participation in the organization[7]. Sustained participation becomes even more relevant since our interest is in studying an ongoing change process over a long period of time. As a means of overcoming the problem of access, we find the clinical perspective useful[8]. The clinical perspective is characterized by the active participation of the researchers in formulating and observing organizational change[9]. The psychological contract that arises between the researchers and the organization gives the former access to data that are not usually available[8].

Through the high degree of penetration and involvement in the organization, researchers are able to gain access to rich data denied to other approaches. The sustained interaction with the organization also provides better opportunities for observing many aspects of the situation and for tracing through the connections among phenomena[7]. Taken together, these benefits of the clinical approach provide a unique opportunity to conduct exploratory research.

The study has been performed in an international manufacturing firm producing mechanical and electronic office equipment, mostly for export. Practically all the manufacturing activities are based in an industrialized European country, Sweden. However, the study aims to produce results with general validity. We have spent two to three days per week in the company, over a period of two-and-a-half years. Our role in the change process was to introduce academic knowledge and theories about production organization into the company, mainly in the form of seminars, but also via daily interaction.

A basic principle for data collection is that of triangulation, combining methods when studying the same phenomenon in order to avoid sharing the same weaknesses[10]. Three different methods were used: direct observation, interviews, and content analysis of documents. Interviews provide depth, subtlety and personal feeling. Documents can provide facts, but are subject to the dangers of selective survival. Direct observation gives access to group processes, and can reveal the discrepancies between what is said and what is actually done[l1]. In addition to multiple methods, we have striven to use multiple data sources and multiple levels of analysis[12]. However, before embarking on the case description, we would like to elaborate on the theoretical framework of this article.

Lean production and the implications for remuneration

Lean production consists of five different parts: lean product development, procurement, manufacturing, and distribution, as well as the lean enterprise[2]. As agreed by the company and the researchers, the company in this study is currently implementing lean production according to this model. However, the focus in this article is on lean manufacturing, which for the following study and discussion is defined as the concepts shown in Figure 1[13]:

A number of implications for the remuneration system result from this interpretation. In the following text, we will discuss some possible implications, based on the theory behind lean manufacturing

The first two concepts, elimination of waste and continuous improvement, are closely interrelated. These two concepts mean that nothing is done unnecessarily and that improving the process is a constant aim. In such a system employees cannot be remunerated by piece-work wages, since it will be counter-productive. The motivation for continuous improvement in the piecework system can be expected to be low, since it will normally decrease the chances of the worker earning more.

The multifunctional team, where employees are flexible and …