In the beginning of 1990s Fiat has started a new factory on a Greenfield site at Melfi in Italy. This plant was the result of constant crisis Fiat faced in 1970s to 1980s, which has given rise to poor quality cars, less production and a widespread industrial conflicts (Lanzara; Patriotta. 2007). In 1990’s Fiat started to pick up because of Melfi. Fiat trained around 1,000 knowledge workers (unskilled workers) in its headquarters Turin. The workers were given intensive training, after which workers contribute building the factory to assembling the cars later. As the project was successful, Fiat earned huge amount of profits and it was also known as “leading example of productivity and corporate efficiency” and “Melfi Model”. Fiat intended to achieve high quality products, flexibility in products and vulnerability. Fiat aimed to build a “learning factory” (Leonard Barton 1992b; Barton and Delbridge 2001). The training programme was designed in a way to achieve two main goals that is to train the workers into socially standardized unit of workers who are strongly committed to the factory, work and the project; and also to train the workers with intensive talent by which they can understand the production assembly in the overall system of industrial manufacturing(Lanzara, G; Patriotta, G. 2007), this was achieved by continuous dis-assembling, problem solving and assembling the cars. According to the authors the building Melfi and its establishment as an intellectual and institutional order with practising of (dis) assembling. “‘Working with method’ was promoted by Fiat’s management as a code of conduct for production and problem-solving, as the correct way to do the job” (Lanzara; Patriotta. 2007). Fiat also aimed to achieve high quality products. To achieve that goal Melfi is divided into four operating units, that is Stamping, body welding, painting and assembly, where each operations unit is dived into elementary technical unit and each UTE are linked on the model “Internal customer Model”; which means each model gets a finish product and send out a finished product as considers it next unit as a customer. It can be said that Fiat used human driven approach, which led to rise in human resource management. Workers were their own bosses; they had all rights to stop a product if the quality is not perfect. Fiat moved from top down approach to bottom up approach; which led to continuous improvement in the company. In this approach workers monitor the work, they are given high skilled training before starting up the work. In fiat this is done by (dis) assembling the car.
How did Fiat redesign the project and what were the elementary technical units?
In the beginning Fiat gave training to thousand workers, both classroom and practical training in its headquarters Turin. They were trained by dis-assembling, problem solving and assembling the products. They followed work in method, by which they achieve a technical manner to achieve the target with good quality, a way of creating and spreading knowledge and a monitoring device for control culture, which is making everyone homogenous culture conduct of work.
Melfi plant aim was to increase the quality and flexibility, so workers monitored every step. Melfi plant did not separate product designer and process designer, they both were same; which reduced the conflicts between workers. Melfi is now divided into four main operating units (OU); where each unit is responsible for various phases of manufacturing such as stamping, body welding, painting and assembling the final products. Every operation united is then sub divided into many Elementary Technical Units (UTE). Each elementary technical unit consists of around eighty to hundred workers plus a supervisor for each unit. This is the basic production structure of Melfi plant. Melfi now uses cell layout, by which it can it is reducing the difficulty of process layouts and increases employee participation. Each unit is linked to its next unit on the basis on Internal Customer Model; which means each elementary technical unit considers its next UTE as a customer, so it has to produce a high quality product. These semi-autonomous units are basically customer driven. They work in such a way that each unit receives a finished product with high quality and have to send a finished product to its next elementary technical unit. (Lanzara; Patriotta. 2007)
Work breakdown structures is used in Melfi, it is responsible for improvement of the complexity of the factory. Such as designing the functional layout, erecting pillars, walls and roofs, monitoring construction of the buildings, wiring the shop-floor, installing and testing the machinery and adapting the management tools to the specific context. This plays a vital role in the Melfi start up and the factories development along the timeline. Every work breakdown structures as a team leader and they should submit a report on online design variation and new inventions for the new formed plant steering committee. It linked and organized each actions required for the production and operation of Melfi. (Lanzara; Patriotta. 2007)
As a part of training workers were asked to dis assemble the car and re assemble for several times, which made them understand the task and the logic of manufacturer. The car acted as s cognitive tool for awareness and institutionalizing the knowledge. With the help of dis assembly and assembling the cars, the workers were asked to give suggestion on any improvements that could be done. With all these developments in Melfi, Fiat has achieved huge amount of profits for a period of time. The human driven approach was successful. Its high volume and low variety model has made a change a bought good quality and flexibility to the company’s products.
What were the implications in terms of governance, of the new way Fiat designed the new production plant.
In the beginning of Melfi plant, the workers were given authority to take decisions. Workers assembled the factory. They have been trained in such a way that everybody has idea about all parts of car, so all the workers have equal authority. The separation between product designer and process designer was no longer there. In the headquarters Turin top down approach was used, that is senior manager takes all the decisions and he/she decided whether a change in process is required or not; whereas in Melfi bottom up approach was being used. That means all the workers have right to make decisions, they can make changes if it is necessary. As long as Melfi came into full production bottom up approach was used. It can also be said that Fiat moved from Fordism to post Fordism. That is from high level of authority over workers to low level of authority.
As the first car was produced with good quality, the Melfi plant rolled to full production level. The box was closed; all the units were given to Melfi’s production system. As the plant is now full operations, it required monitoring and institutionalized rules. So a technology centred institutional direction was generated. Human effort has become a ‘computational tool’. The forms of communal relation were also changed. The control over the production system was given to production devices for example just in time and quality control procedures. Many features of old Fiat were reintroduced, such as strict enforcement of hierarchy and authoritarian rules. Many new members were recruited, in which most of them were temporary. The participative model of working was no longer visible, team leaders were replaced by line bosses. The speed of assembly increased, demanding for more production. The stress on workers increased and demanded them for more night shifts, which led to a strike. The company again moved from post Fordism to Fordism. (Lanzara, G; Patriotta, G. 2007)
What was the issue of durability and to what extent does the paper from Ciravagna and Maieli(2011) help to explain the emergence of the durability issue?
The given paper discusses about the comprehensive study of the impact on the durability and growth due to the variation in adaptation of the organizational structure from its vertical integration to the Open Innovation model of a mature car manufacturing company Fiat (Ciravegna; Maielli 2011). This paper provides a longitudinal study of the fiat case to explore the different issues that affected the emergence towards a different strategy to sustain the durability of its New Product Development (NPD). It explains how Fiat’s historical cost cutting strategies which emerged from its intangible specialization in economical cars made its transitioning from close innovation model characterized by vertical integration used prior to 1990s to open innovation characterized by extremely outsourcing of NPD during 1990-2002, to avoid the investments of organizational structuring to absorb and integrate external knowledge for the creation of new core product. This did not lead to an improved performance of NPD but instead endangered it by losing the control over the architectural knowledge of NPD(Ciravegna; Maielli 2011).
Before 1990s the development of new product in Fiat use to take place by the cluster of various companies, Turin Carrozzieri, having their own specializations in different parts of the vehicle and it gradually adapted the closed innovation model for the manufacturing of their core product which has the major contributions in their sales. The technological and manufacturing advancements at that time duration also favoured this model as Fiat’s location enabled it to develop a broad model range using its superior knowledge of their capabilities that gives them a great grip over the architectural knowledge of the product without having a vast resources to its Research and Development where it did not have intangible specialization.
However from the early 1990s due to the integration of European market exposing Fiat to more competition its performance started to decline. Hence it made Fiat to re-organize their process model as per the Lean production principles. They decided to outsource more than half of their car production to their significantly selected direct suppliers and they also involved external firms in providing ideas and concepts for their NPD process, which changed their production process due to partitioning their NPD tasks which lead to outsource their NPD of core models to external companies. On the contrast, other Car manufacturers in Europe who outsourced the development of the selected products which they were not specialized in. Consequently, Fiat delegated most of the NPD activities only with suppliers and not with consumers which contributed in the loss of its appreciation of development in the market and pushing it towards crisis. However this outsourcing had provided a good opportunity for Fiat to create an organizational structure and process for knowledge search, absorption and integration and moving towards more open innovation system but Fiat failed and instead it opted to cost reduction and decided to downsize the organizational structure leading to “hollowing out” its architectural (manufacturing) knowledge thus a consequent decline in its sales between 1990-2002.
In order to tackle the crisis Fiat went through number of changes in top management during 2002-2004. During which Sergio Marchionne who was appointed as CEO in 2004 hired new mid-level managers and substitute large number of executives to refocus strongly on the core business by reducing the outsourcing of NPD for core products which inclined the sales of those cars enabling Fiat to return to profitability and its recovery by 2006. Subsequently they continued to involve suppliers in these areas but also involved consumers for their contributions towards their New Product Development making the innovation model more open. Thus Fiat retained its growth in its peculiar capability to design and develop small compact cars (Ciravegna; Maielli 2011).
This case study of Fiat of its downfall and recovery helped to understand the emergence of some of the critical issues that played an important role in its durability are
its intangible specialization: the good cooperation work of Fiat’s Engineers and Managers was one of the key factor in shaping Fiat’s growth as their strategic decisions and internal relations reflected the progress in the company by not only rejecting the plan of manufacturing upper range cars but also helped it recover the crisis by decreasing the size of outsourcing of their main specialty i.e. small compact cars.
Architectural Knowledge: as it became predominant that the step taken towards the downsizing and cost cutting in NPD lead to the fade in the knowledge of core product manufacturing process which proved to be an essential tool . Architectural Knowledge was not only crucial for the product development but also a key factor to make product competitive in the market, enabling them to refocus on process performance objectives and sketch their competitive factors.
Thus this paper provided evidence that Fiat by drawing its attention toward the emergence of the durability issues, exploiting its intangible specialization by manufacturing small compact cars and by strengthening their architectural knowledge by involving suppliers and consumers in contributing towards their product development making more open system of innovation process, enabled it to recover from the crisis.
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