Organizational Behavior

Organizational behavior HW #1

Identify a reward system in your organization that has unintended, dysfunctional consequences. Describe the reward system and what it was intended to achieve. Describe the dysfunctional behaviors that result. (Examples of dysfunctional reward systems are described in the article by Steve Kerr, "On the folly of rewarding A, while hoping for B". Explain the reasons for the unintended consequences using motivation theory (described in your text). 2-3 pages should be sufficient. Due May 21

Unintended, dysfunctional consequences

Few supply buyers are motivated in solving problems and achieving the department annual targets and personal targets.

Company description

VMI Holland group is the world's leading supplier of machinery and services to tire manufacturers, food and beverage and products handling systems manufacturers. The headquarter is located in Holland, her subsidiaries are located in China (with 2 factories), in Germany, in USA, and Brazil.

VMI Holland is growing fast during the last decade from 40 till 240 million euro and personnel also increased from 200 till 1200. The focus of last few years is to expand (in emerging market) and completes the machines and ships them to customers on time. Except the negative net income in 2009 because of the economic recession, VMI Holland group had been profitable for all other years.

Describe the reward system 1

Since the sales market of VMI group becomes bigger, therefore the competition becomes more intensive. VMI group decided to beat competition by high quality and innovation and service as strategy. As results, these strategies changed the organization to be more specialized in certain processes, for example purchasing department is separated into sourcing and supply departments which eventually also sit in different rooms. Sourcing focuses on the new supplier's development including specification, selection and contracting processes and supply focuses on operational deliveries including ordering, expediting and evaluating.

Want A

The purpose to separate into two departments is to increase the financial and delivery performance by providing more focus and specialization in the limited scope. In other words, this change means less variety of work activities for sourcing and supply departments and it turned into less skills variety needed. The side effect is that by cutting the purchasing responsibilities caused the less transparency of the tasks significance of sourcing department. Since one of the KPI of sourcing is developing the number of new suppliers, for example the KPI for mechanical outsourcing is to develop 6 new suppliers to expand the capacity of suppliers to meet the sales. As results, the new suppliers are often not fitting supply's requirements, because they need more time to be tuned to fit to VMI's requirement. This caused even more frustration and frictions between sourcing and supply departments, which need more communication and clarification about the supplier's section process and how suppliers are selected.

Get B

Especially supply buyers experienced the less freedom or autonomy because they don't have the opportunity to discuss with internal customers (R&D), visiting new suppliers, negotiate on pricing with suppliers, which leads to less responsibility and possibility to develop the growth and general satisfaction by doing enjoyable (other) tasks. Instead of that, they are only allowed to do the repeating process such as ordering products, expedite (on good parts and late deliveries) and evaluate suppliers' performance. This repetitive work leads supply buyers to have less work motivation by experiencing "unfair" treatments, which eventually did not increase the performance.

Describe the reward system 2

Want A

VMI Holland group has two rewards system next to the fixed salary per month, annual holiday surcharge and annual holidays. One is the profit sharing on the group level if VMI Holland group is making profit above certain amount and all full-time employees in different locations who work longer than 1 year will receive 10% of his annual salary as the additional bonus. This purpose of this rewards system is to promote all factories to working together as a team to generate more profits. As required, the financial accounting is therefore centralized at VMI Holland headquarter. All the profits are transferred from subsidiaries to the headquarter, so that the other factories are