Running head: WORTHINGTON INDUSTRIES CASE 12-3 1

Worthington Industries Case 12-3

MBA

Worthington Industries Case 12-3

Worthington Industries has a long history of success in steel processing and

metals-related businesses. From 1995 to 1999, they increased sales consistently year-

over-year. During 1995, the company reported net sales of $1.126 billion. By 1999, net

sales grew to $1.763 billion, an increase of 57 percent (Anthony & Govindarajan, 2007).

There are four key factors of their management system that have helped them exceed

their competitor’s performance. These four factors include their values, organizational

structure, human resource policies, and their reward systems.

Values

The first key factor is the company’s values. The company founder developed

these values and they have remained at their core ever since. There are eight rules or

statements that make up the company’s philosophy. These eight statements include

earnings, their golden rule, people, customers, suppliers, the organization,

communication and citizenship.

The heart of these values is the golden rule of treating others the way you want

to be treated. They apply this rule to their customers, employees, investors, and

suppliers. The first priority for the company is to earn money for their shareholders

(employees are also encouraged to become shareholders through the company’s profit

sharing plan) and increase the value of their investment. They measure this through

growth earnings per share. From 1999 to 2005, operating income as a percent of

stockholders’ equity increased from 19% to 21% (Anthony & Govindarajan, 2007).

These values are interwoven into each part of the company. They have been

successful in creating an environment where people feel valued and everyone treats

each other with mutual respect. When employees know that their hard work is

appreciated and rewarded, they go the extra mile. The company also focuses on

developing their employees. They have tuition reimbursement programs to help them

continue their education. They also have an open door policy with management to

encourage open communication and trust with the staff. These all have contributed to

the success Worthington has over their competitors.

When it came to the suppliers, they simply asked to be treated fairly. They didn’t

expect the lowest price, but a competitive price for quality material. In turn, they treated

their suppliers with the same respect and prized their loyalty.

Organizational Structure

The second key factor that contributes to the company’s success is their

organizational structure. They consider their organizational structure to be flat. There

profit sharing plan only has four basic levels including production, administrative,

professional, and executives. (Anthony & Govindarajan, 2007). They also believed in

smaller plants of fewer than 150 employees. This helped with communication and

allowed the employees to better identify with the company.

Most of the functions are decentralized. Purchasing and human resources are

the exception and are centralized to take advantage of cost savings and consistencies

to policies. This means plant managers have tremendous autonomy and can run their

individual plants as their own profit centers.

Human Resource Policies

The third key factor is the company’s human resource policies. Managers are

not the only key decision makers. The company created employee councils made up of

workers. They are appointed by management and meet at least once per month to talk

about critical issues at the plant. They are also responsible for determining whether or

not an employee becomes permanent. Management felt the coworkers knew if an

employee was a good contributor, so after a 90 day trial period, the council votes

whether the person will be offered a permanent position or not. This contributes to

workers feeling they aren’t just an employee and they actually have a say in how the

company is run.

Worthington also promotes internal growth, with 95 percent of their job openings

going to internal candidates. People with common sense and who can lead others are

identified and promoted into management roles. Again, this creates trust and dedication

between management and the staff. The company also encourages cross-training

employees for different jobs. This helps more workers advance and move up in the

company. When employees know that they are promoted based on merit vs. tenure,

they tend to work harder to advance.

Reward Systems

The fourth key is Worthington’s reward system. The employees are paid for

good performance through competitive salaries and profit sharing. They make sure

salaries are in the top quartile for each location, reducing potential attrition to

competitors and helping to attract the best talent for the job. The profit sharing is

distributed quarterly and makes up a substantial part of their overall compensation. For

the workers, it was 20-25 percent of their overall compensation compared to executives,

where profit sharing made up to 60 percent of their overall compensation. Worthington

believes in performance based pay and the more money the company made, the more

they rewarded their workers.

They also require every salesperson to spend six months working in a plant

where they could see how the products are made, the plant capabilities and they

learned technical skills that they could share with their customers. This also gave them

a better understanding of order profitability. Worthington would not take an order that

was not profitable, so it was important that sales understood. A more educated sales

force gives Worthington Industries a real competitive advantage.

Conclusion

Worthington Industries (WOR) started in 1955 and has grown into a market

leader. They were named as one of the “100 Best Places to Work” in 1998 and 1999 by

Fortune magazine (Anthony & Govindarajan, 2007). They continue to lead their

competition by sticking with their values, following the “golden rule.” Their high values,

flat organizational structure, employee centered human resource policies and generous

reward system all contribute to their continued success. The chart below shows that

Worthington Industries continue to lead their competitors in many areas including EPS

and profitability (WOR, 2012).

References

Anthony, R. N., & Govindarajan, V. (2007). Management control systems (12th ed.). New York,

NY: McGraw-Hill/Irwin.

WOR: Summary for Worthington Industries, Inc. Co- Yahoo! Finance. (2012, November 30).

Yahoo! Finance. Retrieved November 30, 2012, from http://finance.yahoo.com/q?

s=WOR