The Lincoln Electric Company - Case Study Example

1- Lincoln Electric used innovation and efficiency to sustain its goal of producing quality products at lower cost in comparison to its rivals. The company used two major tactics to make this possible. Firstly it developed its own technologies or customized the ones that it acquired to fit its internal processes. Secondly, it provided monetary and other incentives to spur competition and increase staff performance which resulted in higher staff productivity and efficiency. These incentives kept Lincoln Electric’s workers highly motivated, which reflected in their work. The pursuit of innovation and efficiency led to operational excellence which was its competitive edge over rival companies. 2- Lincoln Electric’s vision was to be the world’s leading manufacturing company. The plan therefore was to produce high quality products at the lowest cost possible in order to transfer more value to its customer in terms of savings and to itself through increased sales volumes. The organization therefore adopted a flat structure to encourage communication and build trust between staff and other workers as well as guaranteeing job security in order for staff to be less resistant to change as need be. As a form of control the company used merit rating systems that analyzed individuals of four factors: dependability, quality, output, and ideas and cooperation. 3- James Lincoln believed that through competition and incentive every person could develop to his or her full potential (Fast and Berg 4). This assertion resembles the optimistic and positive view of workers advanced by McGregor’s Theory Y. Lincoln therefore believed that he had put in place the right environment (and cultural paradigm) that enabled workers be responsible, self-direct and be creative. Other policies that Lincoln instituted such as guaranteeing employment for workers and year-end bonuses pegged on merit ratings point towards Maslow’s theory. Guaranteeing employment allows workers to satisfy physiological needs and to some extent safety needs. The bonus incentives on the other hand allow workers to reach towards greater goals or to afford higher needs such as new car, home etc. which are esteem needs. 4- Belief in workers’ ability to self-manage; be creative; and institution of reward schemes that are not capped directly contributed to Lincoln’s dominating performance over its competitors for two reasons. Firstly, it kept staff motivated. Motivated staff increases productivity which increases returns. Secondly, employees stick around longer thus the organization experiences low staff turnover (Fast and Berg 33). Low staff turnover means that tacit knowledge remains in the company which supports the organization’s continuous advancement in operational excellence. 5- In the classical viewpoint of management emphasis is placed on looking for ways to manage work more effectively. On the other hand, scientific management proposes study of work methods to improve productivity of individual workers. In Lincoln’s manufacturing operations, management is primarily concerned with providing the environment and incentives that will drive employees to be increase their focus on work to the extent that they will be able to self-manage. It is this element of self-management that then makes employees work more effectively as they can visualize how they all stand to benefit. 6- Lincoln had entrenched TQM, quality control and quality assurance as a central tenet of the company’s organizational culture and management practice. The merit rating, a key tool in the organization’s incentive system identified dependability, quality and ideas and cooperation as being important for evaluating employees. The first two assure quality whereas the last two embrace the notion of listening, learning and continuous improvement as being a priority to the company. 7- Economic, technological and international forces are the most important to the continued success of Lincoln in future. Economic forces affect demand, which in turn affects the revenues earned by the organization. Technological forces affect all the organizations key processes such as manufacturing and order department. Disruptive technology could give an edge to competitors or lower barriers to entry into the industry which may dramatically change the industry’s future profitability. Finally, with globalization organizations can no longer afford to ignore the threat posed by other companies around the world. Also, Lincoln’s rivals could opt to leverage their dominance in the emerging economies to amass resources to dislodge it in from its US stronghold in future. 8- Lincoln’s international business has been performing poorly largely because of its leadership’s low sociocultural IQ. This means that sociocultural factors will be an important factor for the organization to consider especially given its life-long overreliance on incentive-based culture to succeed. It is just as difficult to change Lincoln’s culture at home as it is for other employees to adopt it abroad. The company must seek how to replicate its strong employee commitment and manager-employee interaction abroad if it is to translate its American success internationally. 9- Porter’s five forces define the rules of competition within an industry. Having clear strategies allows the firm to influence the five forces in a way that they can create more value for their customers while also developing competencies to sustain their competitiveness over the long-term. 10- Lincoln is using cost focus because it has concentrated on the arc-welding and supplies market. 11- Important elements in Lincoln’s management system include: open and direct communication, practicing equity, emphasis on technical skills, clear reward system and customer focus. Open and direct communication allowed workers to bring issues of concern early to management for resolution as well suggestions for improvement of products and/or processes. At Lincoln workers and managers were treated almost equally (with equity) which gave its employees a sense of being valued. The company ensured that its entire staff was well aware of their core business by making them spend part of their orientation at the factory floor. This made them execute their later duties with better understanding. The company had a clear to understand, merit-based reward system that demonstrated to its staff how much the organization valued their dedication and hard work. Finally, Lincoln’s continuous process and product improvement was ultimately aimed at giving its customers best value for the lowest price. 12- Lincoln Electric’s incentive management philosophy was found not to be ideal for other cultures internationally. For example whereas the opportunity to earn more money was a motivating factor in the US and Australia, that was not the case in Europe. This meant that Lincoln could not transfer what was one of its core values. 13- Acquisition strategy was better than “greenfield venture” approach for international expansion because the company immediately gets to benefits from the distribution network, business and political networks, trained staff and management knowledge and other resources from the acquired company. In “greenfield venture” approach, Lincoln Electric would have to create most of these anew. 14- Some of the problem’s created by Lincoln’s management include: hyper-competition and lack of fresh ideas or idea in-breeding. Incentive management makes employees to only focus on the areas highlighted by the company’s merit-rank system. Lincoln employees are predisposed towards neglecting other equally important duties such as family, philanthropy, leisure time and so on. This prevents employees from being well-rounded individuals. On the other hand, Lincoln’s policy of promoting from within may prevent the company from having individuals who think “outside” its cultural paradigm. This may prove to be disastrous over the long run since the organization may lack the critical mass of managers to push for / implement a radical but important change. 15- Lincoln’s compensations system could work in other companies especially those in the manufacturing industry where piecework is quantifiable. The system, however, will not work in organizations where quality supersedes quantity or volume as output for example in consulting businesses, medical services or even universities. For example offering consulting services to even two SBUs of one company cannot take the same time, cost or research. 16- Lincoln’s experience does not contradict Hertzberg’s assertions. Beneath his incentive management philosophy, Lincoln was seeking to create an environment that spurred competition as the motivator because it leads to Hertzberg’s satisfaction entities such as sense of achievement, recognition, advancement and growth. Moreover we see the merit rating highlighted factors such as dependability, quality and cooperation which we believe were used to determine who got promoted or not. 17- Lincoln’s failure to turn a profit in its initial foray into the international market (excluding Canada and Australia) was not because of its vaunted compensation system; rather it was due to its hands-off approach. As Ray Bender states “[Lincoln] headquarters let subsidiaries do their own thing” (Fast and Berg 21). Lincoln was only concerned with the manufacturing capabilities of its acquired business and it ignored several aspects that were critical for its own success in the United States such as sales and its organization, inter-subsidiaries competition rather than complementarity and even the technical competence of the management of the acquired organizations. Lincoln’s compensation system could have worked in some of these businesses if the company had invested time and effort to teach its new employees and to give them a trial period with which they would have evaluated the merits of the system. With its hands-off approach, it is difficult seeing how the acquired operations would have supported a concept new to their culture. 18- With all the facts outlined in the case, Lincoln should proceed with its Indonesian investment. The organization had already established its reputation there as a high-quality producer and had 50% market share in consumable and 55% in equipment for automatic welding. Indonesia’s high population, high growth rate, low labor costs and attractive foreign direct investments terms are too attractive to be overlooked. Exhibit 15 on Fast and Berg (44) shows that Lincoln is bound to make a bigger profit margin 30.4% if it adopts piecework labor against 25.9% for normal labor. Also, piecework would not be illegal so long as workers received more than the prescribed minimum monthly wage. Given that the prevailing wage for workers was still low, all the factors described above provide arguments to support the adoption of piecework. Lincoln should adopt piecework. 19- Lincoln’s continued success over the years, especially in the US, has been due to the fit between management practices and the American cultural paradigm. Hofstede’s dimensions categorize the US as a low power distance, high on individuality and high on masculinity. Low power distance supports the close management to worker interaction and communication. Individuality matches the incentive management system. High masculinity matches the huge focus on work over other things which match the work ethic demanded by Lincoln Electric. The system has been less successful in other nations largely because of its cultural dissonance. 20- X is already steering the organization towards the right path into the future. He realized that the organization would have to modify its approach to fit with the socio-cultural systems in each different country it enters and not the other way round. I would recommend the organization to keep on that path. Technology has a way of standardizing behavior and could affect the rigidity of certain cultural systems over the long-term. As that happens, Lincoln could consider re-introducing its vaunted compensation system. Works Cited Fast, Norman, and Norman Berg. “The Lincoln Electric Company.” 1975 : n. pag. Print.  Read More