Reference no: EM132809925
CASE ANALYSIS Lincoln Electric
Imagine having a management system that is so successful people refer to it with capital letters - the Lincoln Management System - and other businesses' benchmark after their own systems by it. That is the situation of Ohio-based Lincoln Electric. For a number of years, other companies tried to figure out Lincoln Electric's secret - How management coaxes maximum productivity and quality from its workers, even during difficult financial times. Lately, however, Lincoln Electric has been trying to solve a mystery of its own: Why is the company having such difficulty exporting a management system abroad that has worked so well at home?
Lincoln Electric I a leading manufacturer of welding products, welding equipment, and electrical motors with more than $ 1 billion in sales and 6,000 workers worldwide. The company's products are used for cutting, manufacturing and repairing other metal products. Although it is now a publicly traded company, members of the Lincoln family still own more than 60% of the stock.
Lincoln uses a diverse control approach. Tasks are precisely defined, and individual employees must exceed strict performance goals to achieve top pay. The incentive and control system is powerful. Production workers are paid on a piece rate basis, plus merit pay based on performance. Employees are eligible for annual bonuses, which fluctuate according to the company's profits, and they participate in stock purchase plans. A worker's bonus is based on four factor: work productivity, work quality, dependability, and cooperation with others. Some factory workers at Lincoln have earned more than $ 100,000 a year.
However, the Lincoln system succeeds largely because of an organizational culture based on openness and trust with its no layoff policy. In fact, the last time it laid off anyone was in 1951. Although the line between managers and workers at Lincoln is firmly drawn, managers respect the expertise of production workers and value their contributions to many aspects of the business. The company has an open door policy for all top executive, middle managers, and production workers, and regular face-to-face communication is encouraged. Workers are expected to challenge management if they believe practices or compensation rates are unfair. Most workers are hired right out of high school, then trained and cross-trained to perform different jobs. Some eventually are promoted to executive positions, because Lincoln believes in promoting from within. Many Lincoln workers stay with the company for life.
One of Lincoln's founders felt that organizations should be based on certain values, including honesty, trustworthiness, opens, self- management, loyalty, accountability and cooperativeness. These values continue to form the core of Lincoln' culture, and management regularly rewards employees who manifest them. Because Lincoln so effectively socializes employees, they exercise a great deal with self- control on the job. Oversees 100 workers, and less tangible rewards complement piece rate incentive system. Pride of workmanship and feelings of involvement, contribution, and esprit de corps are intrinsic rewards that flourish in Lincoln Electric. Cross functional teams, empowered to make decisions, take responsibility for product planning, development, and marketing. Information about the company's operation and financial performance is openly shared with workers throughout the company.
Lincoln emphasizes anticipating and solving customer problems. Sales representatives are given the technical training they need to understand the customer needs, help customer understand and use Lincoln's products, and solve problems. The customer focused is backed by attention to the production process through the use of strict accountability standards and formal measurements for productivity, quality, and innovation for all employees. In addition, a software program called Rhythm helps streamline the flow of goods and materials in the production process.
Lincoln's system worked well in the United States that senior executives decided to extend it overseas. Lincoln built or purchased eleven plants in Japan, South America, and Europe, with plans to run the plants from the United States using Lincoln's expertise with management control system. Managers saw the opportunity to beat local competition by applying manufacturers control incentive systems to reduce cost and raise production in plants around the world. The results were abysmal and nearly sunk the company. Managers at international plants failed to meet their production and financial goals every year - they exaggerated the goals sent to Lincoln's managers to receive more resources, especially during recession in Europe and South America. Many overseas managers had no innate desire to increase sales, and workers were found sleeping on benches because not enough work was available. The European labor culture was hostile to the piece- work and bonus control system. The huge losses in the international plants, which couldn't seem to adopt to Lincoln's vaunted control system, meant the company would have to borrow money to pay USS workers' bonuses, or forgo bonuses for the first time in Lincoln's history. Top managers began to wonder: Had they simply done a poor job of applying the Lincoln Management System to other cultures, or was it possible that it simply wasn't going to work abroad?
Questions
- Does Lincoln follow a hierarchical or decentralized approach to management? Explain your answer and give examples.
- Based on what you've just read, what do you think makes the Lincoln System so successful in the United States?
- What is the problem of transporting Lincoln's control system to other national cultures? What suggestions would you make to Lincoln's managers to make future international manufacturing plants more successful?