The Four Methods in Lincoln Electric - Case Study Example

The Four Methods in Lincoln Electric 1. Which of the four methods stated in the textbook did Lincoln Electric use to gain a competitive advantage over its competitors, and how and why did they use these methods to gain an edge over their rivals. Discuss. Lincoln Electric used the Low Cost Leadership method to gain competitive advantage over its competitors. This permeates right through the organization, with its emphasis on high productivity and piecework reward systems. It has 40 percent of the US market for arc welding equipment and supplies and under its new leadership of Massaro as President and COO, is planning to expand further internationally in different regions. Secondly it was the R&D efforts of its founders and its proactive stance that made it a success over its competitors, even though it had shared technology during the Second World War for the benefit of the USA (Case Study 3). 2. Discuss Lincoln Electric’s use of the four principal functions of management (POLC) to establish the culture, mission, vision and strategy for their company. The company setup was planned and organized with very few levels of management. Workers had a right to voice their opinions and thoughts and these were listened to, with the consequence that there was no need for unionization. There was an open door policy and every complaint was looked into. The vision for the company was to expand and prosper through a system of high productivity and rewards like year-end bonus and guaranteed employment. The company also promoted from within and many of the top management had progressed from the lower ranks up the organization. The company was successful in extending this culture and philosophy developed at Cleveland to some regions, but met with opposition from others. To some degree, culture and education have been responsible for this. 3. Discuss Lincoln’s approach to the organization and motivation of their employees as it corresponds to the behavioral viewpoint of management, specifically as it relates to early behaviorism pioneered by Hugo Munsterberg, Mary Parker Follett and Elton Mayo’s Hawthorne Effect. The behavioral viewpoint of management seeks to motivate workers through a reward and punishment system aims to elicit a certain type of behavior from its employees. It is usually based on a system that is fair and equitable for everyone. Hugo Munsterberg proposed that employee skills match job requirements and devising management strategies that made employees follow management’s best interests. Mary Parker Follett preferred that organizations work like communities with joint efforts and collaboration between workers and management to deal positively with problems that might emerge. The open door policy, guaranteed employment and CEO knowing employees by name are all manifestations of the Hawthorne Effect where employees feel that management is taking a personal interest in them and are thus inclined to work harder (Kinicki & Williams 87). 4. What role do you think the approach in Question 3 has played in Lincoln’s performance over the time period of the case study? Have any other factors been more important? Why or why not? The company’s compensation policy is based on the single but fallible premise that monetary rewards for high productivity are the only thing that can motivate employees. But the decade of the 1980s and beyond has been characterized by a new type of worker, one that might prefer work life balance to monetary rewards. He will likely regard Lincoln’s methods as outdated and anti-union. 5. Describe how the classical viewpoint of management as it relates to scientific management applies to Lincoln’s manufacturing operations. Given that Lincoln’s manufacturing operations was based on high quality and low cost due to high volumes produced by the workers, this is highly indicative of Frederick Taylor’s Scientific Management Principles in practice. In fact workers were known not to even stop for 10 minute smoking breaks, and were supposed to work extra hours during periods of high demand and productivity. On the other hand, Lincoln management supposed that high worker bonuses, guaranteed employment and promotion from within were sufficient to motivate workers. 6. After reading the case, discuss your thoughts about Lincoln’s approach to TQM, quality control and quality assurance. Granted that lean manufacturing and lesser levels of management as well as value chain management were modernistic methods that were being employed at Lincoln, we can still see that the company is insistent on high productivity and low wastage with emphasis on time and cost control. Some of the workers also have this attitude ingrained in them as a consequence of working here. The company focused on individualistic rewards and achievement, but left the workers to sink or swim in new assignments. Those who could adapt and succeed did. Amazingly the turnover has been low. The company’s formula for success is based on providing what the customer wants at the lowest price possible. Sometimes they lose orders due to taking too much on at one time and could not make deliveries. 7. In the ‘general environment’ of Lincoln Electric, discuss which of the six forces listed in the textbook are important to the success of Lincoln, and why. Explain. The technological innovation, uniform treatment of workers and management, lean management and good and uniform rewards structure based on merit are important to Lincoln, coupled with open door policy and guaranteed employment. This ensures that both internal and external stakeholders are benefitted through high productivity and cost control leading to higher profits, revenues and shareholder value. 8. What other factors either inside or outside the organization will be critical to Lincoln’s success, and why. Explain. It is important that Lincoln be aware of technological advancements in the field and its employees have the skills and knowhow needed to match these changes. Cultural and sociological changes would also have to be considered as the company expands in other continents where differences are bound to exist. The company will have to plan keeping these differences in mind. Adopting a geocentric approach would be best if the company wants to be successful and respected at the same time. 9. Discuss the importance of Lincoln Electric to build a strategy for each of Porter’s Five Competitive Forces. Since arc welding is a very generic process, the company can build an entry barrier by technological innovation if it gets patents and copyrights like it did with the handheld welding equipment. Exit barriers would be defined by sunk costs and investment. Lincoln is already pursing a low cost leadership strategy and if it could build a niche by catering to a specific industry like ski equipment or exercise equipment that would increase its focus and marketability. Keeping a good relationship with suppliers and buyers and practicing value chain management is likely to add to its prowess. If a low cost substitute or a better process is invented, Lincoln would do well to invest in it to continue its leadership in the industry. 10. In your opinion, which of Porter’s Four Competitive Strategies is Lincoln using? Lincoln is using the Low Cost Leadership strategy (Porter 15). 11. List at least five ‘key elements’ in the management system contributing to Lincoln’s success, and then discuss why each is important to Lincoln’s success. a. Guaranteed employment is essential to Lincoln’s success as it is the hook which attracts many a worker in an uncertain economic environment. This is seen as a blessing even if one has to work hard in times of high demand. b. A good and equitable reward system based on piecework is intelligible to the worker as well as management so there is no ambiguity. The worker knows his productivity and the reward it attracts at the end of the year. c. The open door policy ensures that both suggestions and complaints are heard and attended to. No one could hope for a better outcome. d. Promotion from within would give hope to every aspiring employee that he can rise to greater heights if he has the required skills and ability. e. Continuing to insist on high productivity and quality while lowering costs of production is bound to pay off in a volume based industry, where the product of arc welding equipment and supplies has not undergone many technological changes. 12. Discuss the cultural issues that were an initial hindrance to Lincoln’s success in its overseas expansion strategy First of all, formerly unionized workers in the newly acquired companies had to learn to trust Lincoln’s management. In the second instance, some of the operations in Balkanized states continued to manufacture a full range of products as opposed to concentrating production on the few they did best, to take advantage of EU integration laws. Some managers did not have international expertise and had to be replaced. Demands from Europe were of a different kind than that of the USA. Sometimes supplies had to be flown in to jumpstart production and it was clear that cultural norms and employment laws were different in various regions of the world that did not support Lincoln’s uniform productivity reward strategy. 13. Discuss why you think it was important for Lincoln to use the acquisition strategy over the ‘Greenfield venture’ approach to expansion in foreign markets. One of the reasons that they used the acquisition strategy over the Greenfield one- which means to build, own and operate from scratch- was that it is more cost effective and they would only have to change the operating and management principles to reflect those in Cleveland. The Greenfield strategy would be pursued only where there were no worthy candidates for acquisition. 14. What problems does Lincoln’s management system create? List and discuss. Although on the face of it, Lincoln appears to be successful and prosperous in adopting a low cost leadership strategy, the long term success of the company depends on adapting to changes in the outside environment as well. Workers are not machines and do not deserve to be treated as such. They have rights, feelings and responsibilities and deserve time off, vacation, work life balance and other benefits like provident fund, gratuity and insurance coverage. In the modern environment following the 1980s, the quest for worker rights has increased across the world. Of course money is important, but that is not the only motivator. 15. Would the Lincoln compensation system work in other companies? In what types of companies would the system possibly work? In what types of companies would it possibly fail? Discuss. The Lincoln system would probably work in companies taking off that have to desire to progress quickly and want to motivate workers through monetary incentives. Where the processes are simple and the product generic so that competition is usually based on cost and quality, this system would work. The system would fail where there were constant and rapid changes in technology, as in the IT or mobile phone industry. 16. Does Lincoln’s experience contradict Hertzberg’s assumptions or does it support them? Please pay special attention to the way in which Hertzberg seems to be defining motivation. Herzberg seems to defining worker satisfaction and therefore motivation at work as a consequence of two factors. The first, called Satisfiers, are those factors that workers prefer to be there inducing them to work. The second, called Dissatisfiers put a spoke in the wheel of worker’s motivation, like the absence of a clean workplace and favoritism rather than a merit based promotion and rewards policy. While Lincoln followed a policy of merit based rewards, they did not consider other worker rights like work life balance and the need to select the right worker for the right job. Open door policy and guaranteed employment however could be viewed as important for workers. Thus Lincoln follows Herzberg’s theory in some respects and negates it in others (Kinicki & Williams 63). 17. What is the root cause of Lincoln’s failing to turn a profit in so many of the operations it acquired in other countries? Could its vaunted compensation system have worked in some of those operations? Explain. In reality there were a variety of factors contributing to Lincoln’s losses in 1992 and 1993 but in the opinion of Don Hastings, it mainly stemmed from a failure to implement Lincoln’s manufacturing and administrative strategies across the other regions. It was found that the diversity of cultures, different worker expectations and labor and employment laws stood in the way of Lincoln’s adopting a similar strategy in different regions. Unionization, economic distress in Europe, overproduction and lack of coordination and cost control owing to management inexperience were other factors that resulted in rising costs and the company undergoing losses. 18. Should Lincoln Electric proceed with its investment in Indonesia in 1996, as posed in the case? What should the approach be to employee compensation? Yes, in my opinion, Lincoln should proceed with its investment in Indonesia. Before doing so, however, it must conduct a detailed analysis as to whether to follow an acquisition, franchise or Greenfield approach. In my opinion setting up shop would be most difficult given the level of gratuities that will have to be paid at every step. It is better to purchase rights in either Tira or SSJH with the latter company being a better fit. Tira was spread financially thin and could not afford a joint venture, but SSJH could. Lincoln could capitalize on the lower cost of materials and labor in Indonesia, and by linking the workers productivity to incentive based plans as followed in Cleveland, the new venture could soon be making profits. Matching Indonesia’s base rate or minimum wage rate of 250,000 rupiah was no problem at all (Case Study 25). 19. Discuss the reasons for Lincoln’s success so consistently over so many years. Why has its system worked well in some locations, but not in others? It was the founders’ insistence on principles that favored worker productivity, maintained standards of quality and lowered cost of production through consistently meeting high targets that has resulted in Lincoln Electric being so consistently successful over so many years. By streamlining production and giving workers a good bonus and reward system, the company has succeeded in lowering costs and supplying 40 percent of the demand for arc welding equipment and supplies. Nevertheless, this strategy worked in some regions and not in others due to cultural difference and different worker perceptions and labor laws about worker rights and work –life balance. 20. What is your recommendation for Lincoln Electric with regard to its overall management philosophy going forward in the future? How does technology relate? Discuss. I do think that the new crop of internationally experienced managers recruited from institutions like Westinghouse, Goodyear and General Electric would be like a breath of fresh air in incorporating new and more contemporary management and operating principles in Lincoln Electric, especially as it seeks to expand abroad due to reduced growth rates in North America and Europe. The rapid expansion of technology has reduced trade and tariff barriers and opened opportunities in many hitherto closed economies like China, Korea and the former Russian states. While an individual rewards and incentive system could still work, it would be better to move to contemporary management principles seeking work life balance and other kinds of incentives for the workers. Works Cited Berg. F. Lincoln Electric Case Study. The Harvard Business Review, 1975. Print. Kinicki, A. & Williams, B. Management, 5th ed. McGraw Hill, 2010. Print. Porter, M..E. Competitive Strategy. The Free Press, 1980. Print. Read More