Business Model for Lincoln Electric Company and the Employment System - Case Study Example

Managing in a Strategic Context Name: Course Professor’s name University name City, State Date of submission Introduction The case study of Lincoln Electric Company (LECO) describes their incentive system and incentive strategy. It discusses the strategy choices on a global scale that the company faces while moving forward. The company is deciding on whether the next step to globalization should be a strong push in the Indian market. Previously, the company has enjoyed a relatively incremental success in the Chinese market. The success has been driven by aggressive expansion of the company using sets of majority owned plants and joint ventures. Thus, the LECO the company is contemplating on the methods of applying lessons learnt in China together with Latin America, Asia and Europe to the Indian case. The essay will form a report on the LECO case study on various issues as discussed below. Main Features of the Business Model for LECO and the Employment System Overall Strategy The overall strategies for the Lincoln Electric Company (LECO) are several. First and foremost, LECO established very consistent and practicable (HRM) Human Resource Practices and policies aimed at building trust (Jordan, 2008). The latter has been the case since the inception of the company. Secondly, the company has a history of boosting confidence in their human resource by giving them surety in terms of future rewards. The system ensures most workers earn on average $17, 600 annually on a week having 32 hours and also earn the same amount in bonuses (Jordan, 2008). Thus, high productivity is inevitable due to high job satisfaction and motivation levels among the LECO’s employees. The other strategy is that the company’s system operates on cooperation, equality and need. Thus, the high productivity creates efficiency of operations which in turn generates competitive advantage for the company over its rivals (Budhwar & Aryee, 2008). Philosophy The philosophy of LECO has always been to keep in touch with their customers and providing them with the best quality products and services in the energy sector (Jordan, 2008). Thus, the company has capitalized in creating systems that ensure the ultimate achievement of their core objective which is their customer’s satisfaction. To accomplish this philosophy, the company utilizes its core capital asset which is the human resource (Jordan, 2008). The HRM policies created favor the employees in terms of their compensation and job benefits and therefore culminating into a highly productive workforce. In result, LECO has realized increasing levels of success in the Canadian, United States (USA) and Chinese markets. The latter has resulted in another philosophy for the company which has been to reap the fruits of globalization as evidenced by their move to Asian Chinese market and the intended entry into the Indian market (Jordan, 2008). Leadership The Lincoln Electric Company (LECO) enjoys high success in the US as much as in Canada and the China markets. LECO is the leading welding equipment manufacturer in terms of size globally. LECO deals in products ranging from plasma welders to stick welders. Before 1955, LECO had expanded successfully and internationally into France, England and Australia (Jordan, 2008). The powerful business model and the HRM policies acted as the main drivers to further global expansion to other nations though it delivered contrary results. Careful analysis led to the development of HRM policies that were locally responsive (Schuler & Jackson, 2008). The latter was then deployed with renewed efforts for international expansion. Presently, LECO maintains thirty-five manufacturing facilities in seventeen countries worldwide (Jordan, 2008). Compensation Most of the success that LECO enjoys is due to its reward systems contained in the company’s HRM models. The company has in place an incentive system that equitably distributes resulting profits realized by the firm. The incentive system has four parts that include piecework, limited benefits, guaranteed employment and annual bonuses (Jordan, 2008). The piecework ensures that employees ensure that they maintain a high quality standard and also does not put to limitation the maximum amount to be earned. Thus, the more the hard work, the more the earnings. Annual bonuses ensure that each and every employee gets reward in accordance to their individual contributions to the company (Schuler & Jackson, 2008). The contributions could be in terms of cooperation, quality, dependability, output and ideas. The component on guaranteed employment helps the company assign different tasks to their employees whenever problems arises so as to cap on lay-offs and thus affecting the motivation and productivity of workers. The limited benefits component is to the advantage of the company. The aim is to limit those benefits paid by the company to their employees and therefore creating a cost advantage for the company. These four components form part of the compensation strategy that the company utilizes as part of their business model and the employment system (Johnson, Scholes & Whittington, 2006). Communication Lincoln Electric Company (LECO) has learned over the years that accessibility to their customers is the topmost fundamental thing to do (Jordan, 2008). The customers definitely want quick access to any information whenever needed regarding the company and its services and products. Such information such as on inventory, costs, shipments and accounts should be up-to—date and readily available whenever needed by the customers. In offering solution to these needs, LECO initiated several phases on how to become much more accessible to the clients (Johnson et al., 2006). The pioneering two phases created the myLincolnElectric.com that delivered all information on a customer’s account in real time and at any place by just clicking to a web browser. The next step involved rolling out of the e-catalog on both business-business and public sites (Jordan, 2008). The result is that the customer base for the company was impressed. Lastly, the company expanded the website to include price checks and availability of inventory and thus achieved effective customer experience (Jordan, 2008). Generalizing LECO’s Business Model to Other Organizations: Discussion In generalizing the business model adopted by the Lincoln Electric Company to other organizations, there are a number of factors to be considered beforehand. First, one has to understand on the concept of strategic management. As defined by Johnson et al. (2006), strategic management is assigning resources of an organization, both tangible and intangible, into various objectives or operations. The core component of these resources is a human resource management. LECO’s business model capitalizes on, first, an effective compensation strategy for their employees who form the backbone of the company’s operations (Johnson et al., 2006). The compensation strategy ensures that employees are highly and competitively remunerated, fewer hours worked, higher bonuses, assurance of employment and non-limitation on the earning scale. The strategy is highly beneficial to a multinational company seeking to go global and venture into newer markets in the international platform (Johnson, Scholes & Whittington, 2008). Since employees are the main driving force of an organization, such an organization such as LECO adopts such a compensation strategy in order to attract and retain well-seasoned employees and highly-skilled talent. The model would thus only be suitable for companies that seek to internalize by going global and not for startups. Startups are highly unstable in terms of their potential to stabilize in the market and stand fierce competition from established multinationals who are the market leaders. As such, such a compensation model would not favor a startup company as it seeks to maximize its returns and minimize costs (Earley & Mosakowski, 2004). Therefore, it is apparent that the business model would only suit large corporations who would seek to internalize their business by venturing in international markets. The latter is meant for retaining the best talent to ensure success of their objectives and to compete against rival multinationals. For startup companies, the business model would not function due to limitations in resources required for further expansion. Thus, the model would not be practically generalizable to all but a certain category of organizations. Generalizing Lincoln Approach to Incentive and Employment: Is it Possible? Introducing the incentive and employment approach in other countries would not be easily generalizable to other countries. In countries such as China, such an approach should be employed only after careful planning and analysis for the initial and short-term modifications (Appelbaum, Roberts & Shapiro, 2009). A major element in the incentive approach is trust. In a country like China, the level of trust between the people in power positions and the average worker is very low compared to the same in the US. In America, workers trust the powerful judicial system for the fulfillment of their promises and contracts. Since the Asian culture orients more on Muslim and Buddhism, the people rely more on fate rather than being future oriented (Applelbaum et al., 2009). The latter aspect thus makes the Chinese people less likely to work more as Americans would do for future bonuses. The main stakeholders in the case of India include the management and the average workforce employed in the company. The company faces challenges of perfectly fitting the incentive system predominantly functional in the American culture into the Indian culture. It is seemingly unrealistic that given the time taken to customize the incentive system in the US culture that it could be automatically transferred to another different business environment (Budhwar &Aryee, 2008). Thus in India, the rewards given by the incentive system did not contain same valance as it does in the US. In effect, the reward system proved not as motivating to some employee's contrary to the case in the US. The other part is that the motivation for American workers to work for bonuses is in order to boost their earnings and escape the poverty level income. Since the workers need a decent life, they will willingly work for bonuses (Applelbaum et al., 2009). In contrast, most of the expenses are covered by food due to their culture. They thus require regular pay on a regular basis to sustain these expenses. Since the management was not properly trained for these experiences and adversaries, the incentive program failed to meet the employee’s priorities (Applelbaum et al., 2009). References Appelbaum, S. H., Roberts, J., & Shapiro, B. T. (2009). Cultural Strategies in the M & A's: Investigating the Ten Case-Studies. Journal of Executive Education, 8(1), 3 Budhwar, P., &Aryee, S. (2008). An introduction to strategic human resource management. Strategic Human Resource Management: Building Research-based Practice, 9-32. Earley, P. C., &Mosakowski, E. (2004). Cultural intelligence. Harvard business review, 82(10), 139-146. Johnson, G., Scholes, K., & Whittington, R. (2006). Exploring corporate strategy: text & cases. Pearson Education. Johnson, G., Scholes, K., & Whittington, R. (2008). Exploring corporate strategy: text & cases. Pearson Education. Jordan S. I., (2008, November). "Lincoln Electric." Harvard Business School Case 707-445. Schuler, R. S., & Jackson, S. E. (2008). Strategic human resource management. John Wiley & Sons. Read More