Posted at 10.14.2018
In the beginning of 1990s Fiat has started a fresh factory on a Greenfield site at Melfi in Italy. This plant was the result of regular crisis Fiat faced in 1970s to 1980s, which has given rise to poor quality cars, less production and a widespread professional conflicts (Lanzara; Patriotta. 2007). In 1990's Fiat began to grab because of Melfi. Fiat trained around 1, 000 knowledge workers (unskilled workers) in its headquarters Turin. The staff were given interval training, after which personnel contribute building the factory to assembling the cars later. As the project was successful, Fiat earned large amount of profits and it was also called "leading example of productivity and corporate efficiency" and "Melfi Model". Fiat designed to achieve high quality products, overall flexibility in products and vulnerability. Fiat aimed to create a "learning factory" (Leonard Barton 1992b; Barton and Delbridge 2001). Working out programme was designed in a way to attain two main goals that is to teach the employees into socially standardized unit of workers who are strongly committed to the factory, work and the project; and to train the workers with intensive talent by which they can understand the production assembly in the entire system of industrial manufacturing(Lanzara, G; Patriotta, G. 2007), this is attained by continuous dis-assembling, problem solving and assembling the cars. According to the authors the building Melfi and its own 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 way in which to do the job" (Lanzara; Patriotta. 2007). Fiat also aimed to attain high quality products. To achieve that goal Melfi is divided into four operating units, that is Stamping, body welding, painting and assembly, where each procedures 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 could 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 avoid something if the product quality is not perfect. Fiat moved from top down approach to bottom up approach; which resulted in continuous improvement in the business. In this process workers monitor the task, they receive high skilled training prior to starting up the work. In fiat this is performed 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 trained in its headquarters Turin. These 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 means of fabricating and spreading knowledge and a monitoring device for control culture, which is making everyone homogenous culture conduct of work.
Melfi plant aim was to raise the quality and flexibility, so staff 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 split into four main operating units (OU); where each unit is in charge of various phases of manufacturing such as stamping, body welding, painting and assembling the ultimate products. Every procedure united is then sub split into many Elementary Technical Units (UTE). Each elementary technical unit contains around eighty to hundred workers and also a supervisor for each and every unit. This is the basic production structure of Melfi plant. Melfi now uses cell layout, where 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; this means each elementary technical unit considers its next UTE as a customer, so it must produce a high quality product. These semi-autonomous units are basically customer driven. They work in such a way that all 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 can be used in Melfi, it is responsible for improvement of the complexity of the factory. Such as for example 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 plus they should submit a written 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 an integral part of training personnel were asked to dis assemble the automobile and re assemble for many times, which made them understand the duty and the logic of manufacturer. The automobile acted as s cognitive tool for awareness and institutionalizing the knowledge. With the help of dis assembly and assembling the cars, the personnel were asked to give suggestion on any improvements that might be done. With all these developments in Melfi, Fiat has achieved large amount of profits for a period of time. The human driven approach was successful. Its high volume and low variety model has made an alteration a bought good quality and versatility 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 start of Melfi plant, the staff were given authority for taking decisions. Workers assembled the factory. They are trained in such a means that everybody has idea about all parts of car, so all the employees have equal authority. The separation between product designer and process designer was no more there. Within 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 necessary or not; whereas in Melfi bottom up approach had been used. That means all the staff have 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 higher level of authority over employees to low degree 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 received 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 types of communal relation were also changed. The control over the production system was presented with to production devices for example just in time and quality control procedures. Many top features of old Fiat were reintroduced, such as strict enforcement of hierarchy and authoritarian rules. Many new members were recruited, where most of them were temporary. The participative model of working was no more visible, team leaders were replaced by line bosses. The speed of assembly increased, demanding for much more production. The stress on personnel increased and demanded them for much more night shifts, which led to a strike. The business again moved from post Fordism to Fordism. (Lanzara, G; Patriotta, G. 2007)
What was the problem of durability and what extent does the paper from Ciravagna and Maieli(2011) help to describe the emergence of the sturdiness issue?
The given paper discusses about the comprehensive study of the impact on the toughness and growth because of the variation in adaptation of the organizational structure from its vertical integration to the Open Innovation style of a mature car manufacturing company Fiat (Ciravegna; Maielli 2011). This paper offers a longitudinal study of the fiat case to explore the several issues that affected the emergence towards a new strategy to sustain the toughness 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 stay away from the investments of organizational structuring to soak up and integrate external knowledge for the creation of new core product. This did not lead to a better performance of NPD but instead endangered it by losing the control over the architectural understanding of NPD(Ciravegna; Maielli 2011).
Before 1990s the introduction of new product in Fiat use to occur by the cluster of various companies, Turin Carrozzieri, having their own specializations in various parts of the automobile and it steadily adapted the closed innovation model for the manufacturing with 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 wide model range which consists of superior knowledge of their capabilities that gives them a great grip in the architectural understanding of the product with no a huge resources to its Research and Development where it did not have intangible specialization.
However from the early 1990s because of 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 according to the Lean production principles. They decided to outsource over fifty percent of the car production to their significantly selected direct suppliers and they also involved external companies in providing ideas and concepts because of 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. Within the contrast, other Car manufacturers in Europe who outsourced the development of the selected products which they weren't specialized in. Consequently, Fiat delegated almost all of the NPD activities only with suppliers and not with consumers which contributed in the increased loss of its appreciation of development on the market and pushing it towards crisis. However this outsourcing had provided a good chance for Fiat to generate 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 resulting in "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 range of changes in top management during 2002-2004. Where Sergio Marchionne who was appointed as CEO in 2004 hired new mid-level managers and substitute large numbers 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 come back 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 comprehend the emergence of a few of the critical conditions 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 main element element in shaping Fiat's growth as their strategic decisions and internal relations reflected the progress in the company by not only rejecting the program of manufacturing upper range cars but also helped it recover the crisis by decreasing how big is outsourcing with their main specialty i. e. small compact cars.
Architectural Knowledge: as it became predominant that the step taken for the downsizing and cost cutting in NPD lead to the fade in the knowledge of core product manufacturing process which proved to be an important tool. Architectural Knowledge was not only crucial for the merchandise development but also a key factor to make product competitive on 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 toughness 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 recuperate from the crisis.