Henry Ford’s Innovations: Wage Motivation, Vertical Integration & Organizational Structures

Posted on Mar 7, 2025 in Business Administration and Management (BAM)

Henry Ford’s Innovative Business Practices

1903: Founded Ford Motor Company. 1908: Launched the Ford Model T, designed to be easy to drive, repair, and afford.

Wage Motivation and its Impact

Since 1914: The concept of “Wage Motivation” was born. Ford doubled the daily wage he offered his workers and reduced the working day, implementing a 40-hour week. This improved the standard of living for workers and reduced turnover, fostering loyalty. It also attracted the best mechanics from Cadillac, increasing investment in training and boosting productivity. Ford was strongly against unions.

Vertical Integration: A Key Innovation

Ford invented “Vertical Integration,” and popularized Taylorism’s initial idea of chain production. This was made possible by the specialization of workers. He built a large factory where he carried out integrated production: raw materials arrived, and finished automobiles were produced.

Innovative Distribution Strategies

Ford innovated in distribution by creating a network of independent dealerships to reach more customers. He also invested heavily in advertising.

Designing Organizational Structures

When designing the structure of any organization, consider the following:

  1. The company’s structure must be suitable to achieve its objectives.
  2. What needs to be done? This relates to the essential functions within the company.
  3. How should it be done? This refers to the necessary processes for its activity.
  4. Who is in charge of doing what? This refers to the people who directly intervene in the company’s operation.

Organizational Forms

Simple Structure

The simple structure is a minimally elaborated structure in which only two parts act: the strategic summit and the operational core. In a way, it’s a “No structure” because it avoids using all the formal devices of the structure and minimizes dependence on functional specialists, who are generally external.

Characteristics of Simple Structure:

  1. Little elaborated
  2. Little to no technostructure
  3. Little support staff
  4. Simple division of labor
  5. Lack of a minimum distinction between internal units
  6. Small managerial hierarchy
  7. Based on little standardized behavior and minimal planning

General Aspects:

Coordination, work units, communication, workflow, decision-making, elaboration of the strategy, environment, and others.

Advantages:

  • Centralization ensures speedy decision-making.
  • The sense of mission is clear.
  • Its structure adapts well to simple and dynamic environments.
  • Facilitates rapid short-term growth of the organization.
  • Favors identification with the company in low-skilled workers.
  • Very productive if management has leadership values.

Disadvantages:

  • Centralization can lead management to confuse strategic and operational issues.
  • The growth and development of the company are limited.
  • It loses its effectiveness when faced with complex environments.
  • It’s demotivating for workers of medium-high qualification.
  • The lack of competing powers can lead management to abuse the use of authority.
  • It’ll be unproductive if management confuses power with authority.

Mechanical Bureaucracy

Mechanical bureaucracy is the type of structure usually found in large organizations that have been in operation for a long time. These are organizations that try to function perfectly. To this end, they design their processes so that the answer to each situation is known beforehand. Example: airlines.

Characteristics:

  • Their operational work is repetitive and often simple.
  • Their work processes are highly standardized.
  • Unlike Simple Structure, this one disposes of the Middle Line, Support Staff, and Technostructure.

Considerations on the Operational Core:

  1. Operational Tasks are simple and repetitive.
  2. Requires workers with minimal skills and little training.
  3. There is a clear work division with clearly defined roles, both vertical and horizontal.
  4. Work processes are very standardized and easily coordinated.
  5. Workers have little decision power and little chance of mutual adjustment.
  6. This makes it possible to design very large work units in the operating core.

Middle Line:

Formal authority falls on Middle-Line Managers, who take on key importance. This leads to the creation of a highly developed administrative structure. The Technostructure only makes recommendations, especially on how to standardize work, assuming the role of informal authority.

3 Main Tasks of the Middle Line:

  1. Manage possible conflicts.
  2. Act as a liaison with the Technostructure to incorporate the standardization of work in operational units.
  3. To convey vertical information to Strategic Summits and elaborate the action plans according to the guidelines received.