With no doubt, management system is one of the crucial determinants of a company’s successful performance. One of the main issues in every company is to balance different, and often converse, interests of all stockholders: owners, employees, customers and suppliers. Actually, the aim of a company is to increase its value, i.e. increase the wealth of shareholders. However, this crucial to understand, that the way to high profits is built not by shareholders only: with no motivated workers, fair suppliers, and finally, with no satisfied and loyal customers, the successful activity is impossible. Moreover, these elements are interconnected, e.g. if workers do not do their job well, customers rarely would be satisfied. Therefore appropriate and accurate management system that would organize and balance all relationships and interests is necessary for every company, especially for the large one. The aim of this paper is to analyse the case of Worthington Industries as an example of such management system, including strong corporate philosophy, generous compensation programs and high attention to interests of all stockholders.
Before assessing the management system of the company, it would be useful to briefly overview the financial performance, as a main indicator of company activity in general. Thus, during five years (1995-1999), net sales had increased by 56 % or $ 640 million. Gross margin growth had been 60 % that is higher than increase in net sales. This means, that the company managed to reduce production costs that, in turn, might be a sign of increase in productivity and efficiency. Increase in operating income had also been significant, however more moderate than in net sales and gross margin: the income had increased by 26.9 %. This means that operating costs, general and administration expenses had been also growing significantly. The percentage of operating income in stockholders’ equity has slightly increased from 19 % in 1995 to 21 % in 1999. Furthermore, it should be noted, that the company had been outperforming the industry, that means that high results are associated with internal factors, including effective management, increase in productivity etc., rather than external ones (such as high demand or cheap raw materials).
These figures are crucial because they represent not only the results of the company activity, increase in profitability, productivity and cost –efficiency, but also might allow making some considerations on how the company redistribute the revenues among stockholders.
Actually, it would be better to outline main features of the management system and relations with major stockholders. The following figure represents the company’s stockholders and policies regarding each group:
Figure 1. Worthington Industry Stockholders
Firstly, the main aim of the company is to increase the wealth of its shareholders by constant growth of earnings per share. The financial results is consistent with this goal: indeed the growth in revenues and cost optimization allowed the increase in operating income and the percentage in stockholders equity: after decline in 1996 from 19 % to 15 %, this ration had increased by 6 %.
Secondly, the company policy is every customer focused. The revenues had increased by 56 % outperformi8ng the industry, that is a sign that the demand for the company products had increased and the customer policy is effective. One of the main advantages is high diversity of operations that allow serving wide range of markets and customers. Another benefit is high attention to every customer needs and requirements. Moreover, employees’ incentive programs contributes much to the quality of customer’s service: high level of responsibility, awareness and integrity encourages them not only meet but also exceed customer’s needs.
Thus, the company conducted very comprehensive human resource policy. Actually, the company has been selected as one of ‘100 Best places to work’. Indeed, the company provided very favorable working conditions and opportunity for personal growth. First, the wages had been higher than the average on same positions. In addition, company encouraged employees to join profit sharing programs that contributed from 20 to 60 % of the total compensation, depending on the status of employee: workers, administrations, professionals and executives. This system created additional incentives for the career growth. Indeed, many researches claim that strong future prospects of promotion and increase in earnings positively influence the productivity of employees (Dohmen, 2004). Empirical studies also suggest that promotion reward system also increase average level of wages(Baker, Gibbs & Holström, 1994) that could contributing to the company to became one of the well-paid place to work in the industry. Moreover, company compensated the education costs; encouraging employees constantly increase their qualification and improve professional education.
Indeed, as financials shows, the operating expenses had increased considerably, including salaries and other compensations, as increase in operating income has been lower than increase in gross margin.
Another crucial point in the human resources policy is that employees had been actively involved in the decision making process. Establishing the workers councils allowed workers constantly interact with managers regarding operating issues. Moreover, councils had been making decisions on hiring an employee after probation period. Such practice is useful, because allows considering not only professional performance of a worker, but his abilities to work in a team, that also has major influence on the general productivity.
These measures encouraged employees at every level, starting from factory workers up to executives to do their best, as their performance determined the company’s profitability that in turn, positively influenced their compensations. This allowed company to conflict of interest among shareholders and managers, thus reducing agency costs that contributed much to the significant financial outperformance (Ryan & Rute, 2004). Therefore, employees worked to exceed customers’ needs that, obviously, influenced loyalty and demand for the company’s goods and services in a positive way. Moreover, the workers’ involvement in decision-making processes helped to improve management, because, in many cases, workers have better awareness of needs and peculiarities of the production process. The same consideration is appropriate for the hiring process: as employees allowed choosing their future co-workers, this lead to the creation of strong and productive teams (Robbins, 2001) In addition, different training courses and programs lead to increase in professionalism, better understanding of the company’s processes and needs. One of the notable ones is sales force training program. During the program, every salesperson spent six month in plant that allowed them to understand better the capabilities and other features of production, as a result to accept the most appropriate, profitable orders increasing the company’s gross profit. Indeed, as the overview of financial results indicates, the company managed to increase sales and, at the same time, decrease sales expenses.
Finally, the divisional structure is also contributes to the better team building, cooperation and interaction between employees, including workers and managers. On the other hand, this increase the responsibility of divisional managers that are encouraged by comprehensive incentive programs to do their best. Thus, in general the company combines the organizational benefits both of a small firm (as every division operates as separate small entity this make communication within easier and more effective) and of a large corporation, such as economy of scale, including on supplied goods and services.
Reference list:
Baker, G. P., Gibbs, M., & Holström, B. (1994). The wage policy of a firm. Quarterly Journal of Economics, pp. 921-955.
Dohmen, T. J. (2004). Performance, Seniority, and Wages: Formal Salary Systems and Individual Earnings Profiles. Labour Economics, Vol. 11, No. 6, pp. 741-763.
Robbins, S. P. (2001). Organizational Behavior: Concepts, Controversies, and Applications. London: Prentice –Hall, Inc.
Ryan, H. E., Rutte, C.G. (2004). Corporate Control Mechanisms and Firm Performance: The Case of Value-Based Management Systems. San Antonio, Texas
