The General Characteristics of the Lincoln Electric Company - Case Study Example

The General Characteristics of the Lincoln Electric Company 1) Lincoln Electric methods for sustaining its competitive edge over rivals has changed especially in terms of the method emphasized. In its early years the company relied heavily on innovation of its own equipment to give it operational advantages. With growth innovation was supported with process efficiency. Process efficiency in this instance was epitomized by the company’s focus on motivating staff to not only increase their productivity but also to come up with suggestions for lowering costs further. These two methods enabled the company to achieve cost leadership. By pursuing innovation and efficiency the company inherently ensured that product quality was kept high. 2) Under planning Lincoln Electric’s management’s log-term goal is expressed through its vision statement that stated the company was aiming to be the world’s leading manufacturing company (Fast and Berg 1). To achieve this plan, management structured all its operations with manufacturing as the core. New staff had to spend some time in the factory before they moved to their relevant departments. Secondly, the company also implemented a flat structure and promoted an open and direct communication policy so as to build trust and enhance communication between managers and employees. Management provided leadership in many ways such as applying the same philosophy and procedures regarding incentives across the organization, treating all equally, and working similar long hours. Finally management controlling was demonstrated by the merit rating system that evaluated workers’ performance in four key areas. This ensured that employees did not remain single-dimensional at work. 3) Munsterberg stated that managers needed to identify the psychological conditions under which workers did their best work after which they should devise strategies to influence employees to follow management’s interests. Lincoln identified that a competitive environment and a fair reward system would do just that. On the other hand, Follett stated that work processes be placed under control of workers with relevant knowledge which was what Lincoln Electric did with its internal job promotions. Finally, Lincoln interacted with all workers a sign that he cared about them. This made them more committed to their jobs and work harder as the Hawthorne effect states. 4) Lincoln’s approaches to employee motivation created a strong sense of ownership and commitment to the organization. These translate as increased worker productivity. Other factors that Lincoln used includes being confident in workers’ ability to self-manage. These factors complement each other and could not be said to be greater than each other individually. 5) The scientific management viewpoint proposes the study of work methods to improve productivity of individual workers. Lincoln’s incentive plan and merit ranking encouraged employees to make suggestions with regards to increasing productivity / lowering costs. the company also had a Methods Department (Fast and Berg 7) which we assume utilized the scientific method. The classical viewpoint of management emphasizes looking for ways to manage work more effectively, which may be achieved by improving productivity of individual workers discussed above. 6) TQM, quality control and quality assurance were always a key component of Lincoln Electric from the time it was founded. John Lincoln’s mechanical talents ensured the company maintained its cost and efficiency leadership over rivals. As the company grew, his brother introduced the incentive system and watermarks that would ensure workers are easily held accountable for poor quality. 7) There are three important external environment forces: economic, technological and international forces. Economic forces affect both supply of capital and revenues generated. These are necessary for investment, growth and development. Technology would affect the organizations processes such as supply chain management, manufacturing, and customer relationship management and so on. International forces are important with globalization and more efficient supply chains. Trade agreements and lower manufacturing cost advantages are some of the possible factors that make international forces vital. 8) Cultural dimensions are an important factor to consider when pursuing an internationalization strategy. These generally determine how business is conducted within a given locality. It may include nuances on activities such as use of first names, manager-worker relationship, and adherence to time and so on. 9) Porter’s five forces show the balance of power within an industry which firms could use to strategically position themselves where profits will be maximized. Also having a strategy for each of these forces enables the company to develop long-term competitive advantages. 10) Lincoln is using cost focus. It aims to provide its customers with ever decreasing costs but its business is largely dependent on performance in the relatively narrow arc-welding and supplies market. 11) Five key elements to Lincoln’s management system are: demonstrated leadership, open communication, impersonality, operations management and quality management. Lincoln’s management practice what they preach which manifests leadership. Open communication allows timely information flow from top to bottom and vice versa. Impersonality assures staff that working hard counts. Operations management enables the organization to use operational excellence as a core competency. Quality management leads to further cost reduction due to less waste and customer recalls. 12) Lincoln’s success in the US was attributable to its focus on long working hours and generous reward schemes. However, other countries employees were not enthused by the prospects of working harder or longer for extra pay. Not all cultures were motivated by the Lincoln’s incentive management philosophy. 13) For international expansion an acquisition strategy is better than a “greenfield venture” approach for several reasons. Firstly, in an acquisition, Lincoln immediately gets access to trained personnel, established distribution network, as well as expedient political networks. Most of all in an acquisition Lincoln gets tacit management knowledge from the retained managers. A “greenfield” venture approach lacks most of these benefits. 14) Problem’s created by Lincoln’s management system include: unproductive competition, employee complacency and management tunnel vision. The company’s incentive management philosophy runs the risk of shifting employee focus from other equally important life activities, such as family time, as employees compete for rewards. On the other extreme, employees guaranteed employment for life may slack down in their productivity. Finally, the company’s obsession with promoting from within may prevent its management and staff from being able to see outside the “box”. Organizational culture influences how management think 15) Lincoln’s compensations system can work in companies within the same industry as well those where piecework is quantifiable. On the other hand, this compensation system may not be suitable for service organizations such as schools, medical services or consulting services. The challenge with service industries is that they involve human interaction which is hard to standardize for costing. 16) On the surface Lincoln’s experience appears to contradict Hertzberg’s assertions. However, we can attribute this to the case writer’s emphasis on the incentive management system. A critical look at Lincoln’s incentive management philosophy reveals competition as the force behind motivation and not money. Lincoln was seeking to create an environment that spurred competition fully aware of the power of money. According to Hertzberg money is not a motivating factor. Satisfaction comes from factors such as achievement, recognition, growth and advancement etc. At the end of the case, Richard S. Sabo, manager of publicity & educational services, brings to our attention the fact that Lincoln’s success is not solely attributable to psychological principles. This supports our argument that competition was Lincoln’s motivating factor and not money. 17) Lincoln’s failure to turn a profit initially as it expanded abroad because its managers were only concerned about the US office. Ray Bender affirms this when he says that the company allowed its acquired subsidiaries to run as they pleased (Fast and Berg 21). Secondly we are informed that the Lincoln did not do expansive due diligence before it acquired these companies. Massaro states that the company was only interested in the manufacturing capabilities of these businesses before making its acquisition while it ignored looking at their market share or sales capabilities (Fast and Berg 20). Also, these new subsidiaries were cannibalizing each other’s sales within the region because they operated in an uncoordinated manner. We believe Lincoln’s compensation system could have worked if only the mother company had taken a greater interest in truly transforming its acquired businesses as it did after Massaro was made director of international operations. 18) Indonesia presents several advantages in comparison to disadvantages. Firstly, Lincoln has market leadership in both equipment and consumables for automatic welding. Secondly, the company’s growth rate is high and so is the population. This portends a ready growing housing market in the near future. Thirdly labor costs are very low. Fourthly, the country has favorable foreign direct investments terms such as allowing 100% repatriation of money. The only disadvantage is the uncertain political environment. Considering all the above, Lincoln should invest in Indonesia. When it comes to wage structure, the following factors favor piecework. To begin with, in Exhibit 15 it is seen that the company would make 4.5% more in profit margins if it adopted piecework over normal labor. Secondly, the Indonesian government does not oppose it so long as the pay is more than the prescribed minimum wage. Thirdly, the company could use high wages that generally result from piecework as positive public relations in the US where lobbyists attack foreign corporations operating in Asia of slave-like labor. 19) Lincoln’s continued success over the years in America can be explained using Hofstede’s cultural dimensions: power distance, individuality and masculinity. America is a low power distance country. This is ideal for effective and open interaction between managers and their subordinates. The US scores high on individuality meaning that individuals more concerned with self-activities rather than social activities. This merges very well with Lincoln’s incentive management philosophy. Lastly, America is a fairly high masculine country. This implies that attributes such as working long hours is appreciated. These three dimensions prove that Lincoln’s management style was a perfect fit for the he US culture. In other places the cultural dimensions may not have similar fit with Lincoln’s management style thus its lower success. 20) I would recommend that Lincoln customize its management philosophy to fit the different socio-cultural systems that it seeks to operate in. As we have discussed the role of cultural harmony in the success of Lincoln’s management philosophy in the US, we believe that seeking this harmony will be paramount for Lincoln’s success abroad. Technology systems tend to be standardized across the world. This tends to lead to slight change of cultures and behaviors with respect to the given technology. Other than potentially creating avenues for improved operational excellence, we see technology also drawing new techno-cultures that are similar and that could be exploited by Lincoln to advance its management philosophy. . Works Cited Fast, Norman, and Norman Berg. “The Lincoln Electric Company.” 1975 : n. pag. Print.  Read More