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issue: December 2006 APPLIANCE Magazine

China Report
Positive Incentives for Continuous Improvement at A. O. Smith China

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by Viloet Han, China Correspondent

In 1999, when Wei Ding took over the Nanjing water heater operations of A. O. Smith China, the operation was losing money.

Now, the company has enjoyed six successive profitable years at an annual growth rate of over 40 percent, and its market share ranks second in the Chinese water heater industry. Wei attributes the past decade’s success to A. O. Smith corporate values: “Through years of efforts, the corporate value has been deeply planted in our staff’s minds. An administrative system of our own has emerged. This, I believe, is how we achieve success.”

The Drive of Positive Incentives

Like many other companies, A. O. Smith posts its corporate value statements in its plants. Its statement reads: Aiming at profitable growth, focusing on scientific research and innovation, observing the law, preserving a good name, treating each other equally, protecting the environment to the benefit of the community. While the statement itself is not remarkable among manufacturing companies, A. O. Smith is unusual in how is uses incentives to promote its corporate values among employees.
Awards are abundant. A handbook of Continuous Improvement Score Awards lists more than 30 categories of awards ranging from mugs and towels to PDAs and PCs. Positive reinforcement encourages employees to volunteer their own new ideas to help foster Continuous Improvement (CI). Awards can also be tied to reaching quality targets, profitability targets and achieving other goals.
An even more popular incentive method is A. O. Smith’s annual Corporate Values Recognition Program, with 7 award categories such as Customer Satisfaction, Product Innovation and Environmental Protection.
Wei absolutely believes that positive incentives are effective, and he has the history to prove it, having used such methods to help turn the operation profitable. With a technology background, having started as a materials manager, Wei acknowledges that much of the emphasis of his daily work is placed on internal administration and technical innovation.
Wei points to one example of incentives in action. “We have three types of tank steel plates: large, middle and small,” he explains. “The large and small plates are of the same thickness, but the middle is thicker than the other two types.”
Could the company use thinner plate for the middle-sized unit without affecting the performance of the water heater? A press operator in the Nanjing plant had ideas about how to accomplish it, and brought them to management. Technicians became involved, the design was optimized, and a new water heater reached the production stage—and saved RMB 1,500,000 (approx. U.S. $190,400) per year for the company.
Other CI successes at the company include 2004 Administrative Process Improvement awards for employees who developed a 5-day training program to quickly educate retail salespeople in China chain stores, where employee turnover made more intensive training impractical. The program is credited with dramatically increasing sales. A 2005 Customers Satisfaction award went to an IT team in Nanjing for establishing a Customer Care Center and computer systems, significantly improving service quality and efficiency.
“For a good company, efficiency improvement and cost reduction should come as natural as people taking a breath,” Wei tells APPLIANCE. “It should be the daily work of an enterprise.”
Wei said A. O. Smith also earns employee loyalty through salaries at the medium-high end of the pay scale, as well as better-than-average health benefits. Wei says the high level of training offered by the company is also an important incentive—and is vital to the company’s long-term competitiveness.
The incentive to succeed is paying off for A.O. Smith in Nanjing, where the second phase of plant expansion was recently completed—doubling production, but not satisfying demand. Now a third phase of expansion is being planned.

Suppliers mentioned in this article:
A. O. Smith Water Heaters

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