Scanlon Plan

Scanlon Plan is shorthand for schemes that reward workers (typically in industrial manufacturing companies) for suggesting and adopting new work practices that lead to improved productivity. The Scanlon Plan was named for a United Steelworks representative at a failing plant in the 1930s, Joseph Scanlon (a trained cost accountant), the impact of a company’s bottom line is greater output per dollar spent on labor and sharing the gain with the workers by paying productivity “bonuses.” Scanlon plans inherently assume workers know how to improve productivity and have to be bribed into doing so if they are given a share of the improvement.

The Scanlon Plan instituted at the family-owned Engstrom car and truck mirror manufacturing plant in Indiana

in the late 1990s performed as advertised, as described in the case study by Beer and Collins (2008) discussed in this analysis. Eventually, the productivity improvements of the Engstrom Scanlon Plan began to dissipate and when sales dropped drastically during the Great Recession of 2008-2011, the plant reverted to layoffs. This paper analyzes Scanlon plans in a larger context and examines reasons such plans are likely to be short-lived.
Inherent Assumptions of Scanlon Plans
The thesis of this assessment of Scanlon Plans is that such schemes seek to improve productivity by transferring to workers a basic management responsibility – designing the operations of a company - by soliciting suggestions.

The plan then echoes management's traditional rewards by handing groups of workers (now designated “teams”) “bonuses” in the form of a share of the financial gains from improved efficiency of operations. However, the division between “workers” and “management” remains. Scanlon Plans operate on two assumptions, one explicit and the other implicit. Explicitly such plans assume workers have ideas for improving productivity (defined as units of revenue per dollar of labor costs). Implicitly, they assume that workers will reveal and implement these ideas only in exchange for a bonus, without which things would be left to continue as before with improvements resisted through union work rules. This is the language – or the attitude -- of “class warfare.” Experience suggests that after an initial period of improvement, rewarded by “bonus” pay, operations will settle into a new, more efficient, routine, which will become the new “base” from which management will continue to seek improvements – and be disappointed if they are not

forthcoming.
The case study of a Scanlon Plan by Beer and Collins (2008, p.

5) cites a specific example at the Engstrom plant. Before Scanlon, technicians who repaired polishing machines typically brought a single tool to a broken machine, walked back to their station for one more tool, and so on repeatedly as needed until the machine was repaired. After Scanlon, the same techs brought their entire tool cart on the first trip, thereby reducing down-time and helping to improve overall productivity. The Scanlon Plan was credited with persuading those techs to volunteer a change in behavior in order to collect a share of the benefit, shared by everyone (after all, less downtime meant more work for everyone). Scanlon plans use management terms like “bonus” and “teamwork” to suggest camaraderie and common purpose, when in fact underlying management attitudes reflect a sense of “class warfare,” although not put quite so bluntly. From the perspective of union members, Scanlon Plans seem to be a good thing -- a fair sharing of worker contributions to higher profits, rather than a traditional unrewarded speedup of the assembly

line.
The Experience at Engstrom
Each Scanlon Plan is unique insofar as it tries to isolate worker contributions to a management responsibility (improving productivity) and to spread rewards on a team basis, ideally isolated from, say, market conditions. The latter was accomplished at Engstrom with a complex formula that set aside some “bonuses” for the rainy day (or month) of a market downturn. Enstrom’ plan initially seemed successful. Productivity rose and bonuses were paid regularly – so regularly that they soon became routine, viewed as de facto pay raises after increases in productivity disappeared. When market conditions made increased production – not to say productivity – impossible, Enstrom resorted to the traditional manufacturer’s solution: layoffs, which in turn saw a return of the old suspicions between labor and management, as if Scanlon had never been present
A great deal of attention is paid to “attitude,” both by managers and workers, in making Scanlon plans work, but in fact such plans do nothing to eliminate inherent differences in how these two groups view one another. Workers continue to be seen as “costs” to be reduced; managers continue to be seen as “unproductive” overseers. This is a contradiction inherent in the conversion from a skilled tradesman economy to industrial assembly lines. Rewarding “cogs” – treated as extensions of machines – with “bonuses” simply goes against the grain of both groups. Temporary periods of truce may achieve temporary mutual satisfaction, but inherent characteristics of the model are bound to return – as they did at Engstrom.
Scanlon Principles in a Service Industry: Healthcare
My work experience as a patient services manager in a healthcare facility suggests a similar outcome as that at Engstrom of a possible Scanlon Plan. Healthcare is undergoing an analogous transition from a “skilled practitioner” model to an industrial model. Business goals intrude on “medical” goals. The former implies normalizing patient care to an efficient model at lowest possible cost. Different sets of ethics may seem to apply to car mirrors and caring for sick patients, but the economic models are merging. Medical professionals, doctors foremost among them, resist the trend, but financing has come to rule the roost. In an industry where redundancy is rampant -- in the name of maximizing patient outcomes – productivity improvements is a natural fit. If a medical doctor can administer an intravenous shot, then surely so could a nurse, assistant nurse, or even a machine, at lower cost.
“Patient satisfaction” is one widespread measure of success (in addition to medical outcomes). Causes of dissatisfaction are tabulated and analyzed in hopes of finding better routines. A Scanlon Plan may be tried – to borrow ideas from practitioners further down the food chain -- but the results are likely as predictable as at Engstrom: once new practices are adopted, productivity will become frozen, and the old dissatisfactions will return.
About Root Causes
The common, perhaps root, cause of productivity issues in both scenarios is the use of monetary intake as a measurement for success. All economic activity becomes a struggle for compensation above all else. The current model, in both manufacturing and service industries, is similar to the one symbolized by the rise of “Fordism:” a term for a complex form of “class warfare” between owners (or “the” owner of the Ford Motor Co.) and workers. Ford’s strategy was to routinize both work and workers, to make them de facto reflections of an assembly line. Mocked by Aldous Huxley’s Brave New World (1932), the system called “Fordism” was a totalitarian model in which workers were expected to embrace with enthusiasm uniformity in work and in life that reflected Ford’s assembly lines (Peller, 2008, p. 70). In practice, “Fordism” came to imply a form of “corporate totalitarianism” in which workers were considered as virtually “belonging” to the corporation.
Whether by faux sports metaphors like “teamwork” or by plain threats of dismissal, workers made seemingly willing participants in plans to reduce their share of their added value – even if the specifics of a Scanlon Plan like the one at Engstrom might suggest the lion’s share of productivity gains went to workers. Those gains were, in fact, “extra gravy” for a de facto speedup of the line. When push came to shove, it was the workers who were laid off.
Schneider (2010, p 22) makes the case for the added value of healthcare workers: “Improved quality of care can be achieved neither by implementation of advanced IT-based patient records and coordination of care, not by patient empowerment and strengthened self-management alone. Rather, a well-trained, highly-motivated workforce is essential for a health care to function smoothly.” Improved healthcare cannot be wholly measured by cost-benefit analysis, but also includes abstract principles like compassion and empathy.
No patient entering the author’s hospital wants to imagine she is arriving at a factory, or is considered as a “product.” Disrespect, in one form or another, is surely the most common source of patient dissatisfaction. Every patient wants top quality care, but that is understood to be unique to her case in particular. The role of patient satisfaction manager is to diagnose problems not in treatment, but in perceptions of treatment. A Scanlon Plan seems unlikely to be helpful.
Many workers may be eager to make useful suggestions – and to be treated as peers with managers who are “paid to think.” Resistance to crossing that line lies at the root of failure of Scanlon plans, regardless of the patina of “teamwork” and “mutual respect.” A very similar line exists in healthcare, and it comes as no surprise that a Scanlon plan like the one described at Engstrom fell apart when the larger industry fell on hard times.