Decentralization, Incentives, And Value Creation: The Case Of Jlg Industries

From 1993 through 1998, JLG Industries, a manufacturer of aerial work platforms, achieved dramatic improvements in operating efficiency and created substantial value for shareholders. One dollar invested in JLG stock at the end of 1992 would have been worth $15.82 at the end of 1998, whereas one dollar invested in a portfolio of industry peers would have grown to only $1.48 over the same period. Most of the value created by JLG can be traced to three factors: a highly successful product development program that generated substantial revenue; large cost savings resulting from improvements in operations; and a dramatic reduction in inventories. The authors attribute JLG's success to a strategic initiative that focused attention on key value drivers, decentralized decision‐making, and strengthened incentives for employees throughout the organization. In the early 1980s JLG adopted several knowledge‐based management techniques, including TQM and just‐in time inventory, but at that time the company's decision‐making was more centralized and employee incentives did not correspond to strategic goals. After the departure of its founder in 1993, JLG decentralized decision‐making, strengthened employees' incentives, and achieved enormous success. Evidence from the JLG case supports the argument that the benefits of TQM and related management techniques are most likely to be achieved when companies have organizational structures and incentives that encourage the most effective use of those techniques. It also is consistent with recent data compiled by Industry Week that shows a direct relation between employee empowerment and corporate performance.