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SUMMARY
The Lincoln Electric was founded by John C. Lincoln in the year 1895 in Cleveland. The company started its business operations to manufacture generators and the electric motors. The first machine for welding of the arc was introduced by the company in 1911 and later on the company became the world leader in welding equipment and its supplies and their sales improved dramatically. Until 1995, the company remained under the leadership and management of employees and family when a share issue put 40 percent of the company’s equity into the custody of the general public and in 2005 these new shares required voting rights. John C. Lincoln focused upon keeping his employees motivated through various incentive compensation system and he believed that the top management should have unbounded faith in their employees and there should be equality between the management and employees of an organization. This is what was strongly practiced within the company that helped the company survive the most difficult of all the times when all the major competitors were wiped out of the industry.
The organization culture and management structure were different within the company as Lincoln worked his level best to eradicate the hierarchical distinctions within his company and encourage a management style that encouraged employees to approach the management in case of an issue and also encouraged open communication within the company. The mutual respect was encouraged, and it was reinforced that the workers must be recognized for their efforts. In order to gain recognition, the workers worked extremely hard throughout the week for around 60-70 hours per week. It was deemed important that the managers strive hard to develop trust and mutual understanding within employees. For example, there were no extra benefits given to the managers like extra parking space within the company or different cafeteria for top executives because Lincoln focused upon implying equality within all. The culture of open communication was given importance and employees were encouraged to follow an open-door policy where they can bring their suggestions to improve or complaints against another staff member. This culture encouraged a sense of motivation, trust, open communication level and hard work within employees.
Despite the fact, that, the industry was going through difficult times and financial crises, Lincoln Electric was able to not only survive, but also prosper and grow in a tough time because of their innovative incentive programs that turned out to be a life-saver for the organization. There were many different programs that were launched in order to support the employees and the management requirement of human resource. The company believed that with better and innovative incentive system, the employees remained motivated to work and satisfied in their positions. It was considered significant that every employee must be valued and must be considered important for an organization, and the management was correct in this regard. The company was able to force their major competitors the big names in the market out of the industry and still continue to perform at an excellent pace. The reason behind this was that the employees were producing quality piece work at a better output per hour than their major competitors.
In Australia even though a small plant was developed, the commitment to perform properly was never encouraged or formalized even though the employees considered that their jobs were secured and their working hours were also cut down during several recessionary periods in order to avoid the layoffs but this country was the highly unionized one among all the countries in which Lincoln Electric expanded into but still the employees were able to rebuff the attempts to create issues within the company by unions. This reason behind all this was that there was no international strategy within the company and despite financial issues, the corporate executives kept their focus on the head office of Cleveland and ignored the new plants and particularly the European expansion and set-up that was eventually dragging the entire corporation towards failure.
A major international strategy was developed under the leadership of Tony Massaro when the company realized that they had no executives that had international experience and hence they planned to hire executives that had international business experience as part of their international strategy. This was opposite to the international strategy that was designed in the past years and remained highly unsuccessful as the corporate executives in the past kept their major focus on Cleveland and ignored the financial performance of their major international expansions and the new plants that that were installed. Under his policy, there was many international plants that were swept clean as they were not performing well and there were many employees that were laid-off. Many efforts were in place in order to encourage volume and growth again within the company as many managers were laid-off as they were unable to perform remarkably well, handle the pressure and crisis well. Eventually, they even stopped focusing on one incentive system and instead the incentive system was customized to meet the needs and requirements of the local employees of every region.
In the mid-1996, the company planned to expand its international business operations to Asia and Indonesia was the top choice in this regard. It is recommended that the company expands in Indonesia because of the wide demand of welding equipment and supplies, huge customer base and demand, stabled political situation, support from the government sector to invest, availability of natural resources in abundance, the location of this country is strategic and the workforce is hardworking and competitive. This has resulted in the government being supportive to the business sector and has encouraged an environment of investment within the company. It is recommended that the company chooses to enter into joint venture which will eventually help the management to understand the business culture of operating in Indonesia and also encourage the local labor to join the team of Lincoln Electric.
QUESTIONS
How was Lincoln able to grow and prosper for so long in such a difficult commodity industry that forced out other giants such as General Electric, Westinghouse, and BOC? What is the source of Lincoln’s outstanding and enduring success?
The Lincoln Electric was founded by John C. Lincoln in the year 1895 in Cleveland. The company started its business operations to manufacture generators and the electric motors. The first machine for welding of the arc was introduced by the company in 1911 and later on the company became the world leader in welding equipment and its supplies and their sales improved dramatically. Despite the fact, that, the industry was going through difficult times and financial crises, Lincoln Electric was able to not only survive, but also prosper and grow in a tough time because of their innovative incentive programs that turned out to be a life-saver for the organization. There were many different programs that were launched in order to support the employees and the management requirement of human resource (Bartlett & Connell, p.1).
One of the most prominent components of the incentive program offered by Lincoln Electric was their piecework program as almost all of their production workers that accounted for more than half of Lincoln’s workforce in the United States to be paid no base salary and instead they were paid according to the number of pieces they produced. The price of each piece work remained constant until and unless the changes were made in production methods and employees could easily identify an average rate they can earn in each hour. It was deemed important that every employee maintained their quality and standard for each piecework they produced and any defects that were identified during an inspection by quality control officers required clarification. On the other hand, there was no limit to how much an employee can earn (Bartlett, p.2).
Another incentive program was awarding an annual bonus to the most efficient and productive employees based on their performance. Apart from this, the company was offering a guaranteed employment along with limited company-paid benefits to its employees. The company believed that with better and innovative incentive system, the employees remained motivated to work and satisfied in their positions. It was considered significant that every employee must be valued and must be considered important for an organization, and the management was correct in this regard. The company was able to force their major competitors the big names in the market out of the industry and still continue to perform at an excellent pace. The reason behind this was that the employees were producing quality piece work at a better output per hour than their major competitors. The company focused upon employment of skilled and competent workers rather than on reducing the employment rate and overall production costs which were happening in 1980s. At this point in time, the company was planning to expand internationally as they were holding more than 36 percent of the share of the US$ 1.5 billion market of United States welding supplies and equipment (Bartlett & Connell, p.3).
Given this outstanding success, why did the internationalization thrust of the late 1980s and early 1990s fail?
The international thrust during the late 1980s and the early 1990s failed due to many reasons. Even though the internal business operations were performing well, the sales of new subsidiaries were dramatically hit by the severe recessionary period in Japan and Europe. By 1992, all of the expansionary areas of France and the newly acquired plants were performing in a downturn. The major negative was that the corporate executives were highly focused on Cleveland and paid little attention to what was happening in the international market. The corporates were positive that the change in incentive programs which were more suitable for the local markets will help the growth and development of the company as it have in Cleveland (Bartlett & Connell, p.7).
In Mexico, the company was successfully able to implement this incentive system, but it was expected that in a matter of two years, an incentive system will be successfully implemented in Europe as well. From this situation, it is clear that the organization was ignored and was in a state of complete denial of the severity of the financial threats they were looming over their heads. This was not realized until 1993 when the results of 1992 were announced which clearly mentioned that new plants, especially those installed in Europe were bringing the entire corporation down and the Lincoln Electric was out of cash for the first time in the company’s history. The company was about to go bankrupt as it had lost more than US$ 80 million in two years and had sky rocketing shareholders’ equity of US$ 300 million. The performance was deteriorating severely in Europe, and the results were scary. The long-term debt of US$ 217 million in the financial statements made a terrific impact on the response of the board of directors (Bartlett & Connell, p.7).
What is your evaluation of the company’s internationalization strategy under Tony Massaro’s leadership? Is it likely to be more successful that the previous offshore initiatives? If so, why?
The international strategy was developed under the leadership of Tony Massaro and Don Hastings before him. The company realized that they had no executives that had international experience and hence they planned to hire executives that had international business experience as part of their international strategy. This was opposite to the international strategy that was designed in the past years and remained highly unsuccessful as the corporate executives in the past kept their major focus on Cleveland and ignored the financial performance of their major international expansions and the new plants that that were installed. The company assigned top executives for every region where it operated which helped in increasing the motivation level of employees. This was an improved international strategy that helped improve the communication level between the top executives of the company and the CEO. Along with this, the incentive system was customized according to each country, culture, and economy and developed a strong relationship with the customers, distributors, and suppliers. This helped improve the brand loyalty of the company.
The first international expansion took place in Canada, where the incentive system that was launched by the company was adopted. The next international expansion took place in France and Australia, but these factories manufactured the piece works in small scale and mainly relied upon the head office in the United States for the key parts. The top executives of the company as discussed above paid little attention to an international expansions especially in France, Canada and Australia (Bartlett & Connell, p.5).
In 1996, Tony Massaro became the CEO of the company where he started to extend the sales and distribution network of Lincoln Electric in Asia and Latin America. This is the point when he realized that Lincoln Electric had no international executives and hence for the first time in the history of the company, Lincoln Electric planned to hire executives that had international business experience as part of their international strategy. For all the chosen regions, he assigned separate Presidents so that they can command and direct their own teams. A flexible incentive system was adopted according to each country customs and culture, so it made it easier to motivate the local employees and carry out international business operations. Tony Massaro was able to take some risk taking but strong decisions that turned out to be beneficial for the international expansion plans of the company and turned out to be successful in the long-run (Bartlett & Connell, p.7).
Should Lincoln go ahead with its investment in Indonesia? If so, what should be its entry strategy with respect to partnerships? Which compensation option would you recommend to Mike Gillespie as he considers the advisability of implementing the company’s incentive management system?
I believe that the company must opt for the option of investing in Indonesia, and there are many reasons to support this. First and foremost, the country has a population of over 250 million as in 2014 which means that the consumer base is high. Secondly, Indonesia is considered to be an important market as far as the welding products are concerned with high demand and since the country is growing quickly, it can be anticipated that the requirement for the developed machines will increase accordingly. The third reason why I suggest that the Lincoln Electric must invest in Indonesia is that the competitors are not strong or established enough in this industry. This means that Lincoln Electric will not have to face any significant competition or rivalry threats in the near future. Even the two multinational organizations that are already present in Indonesia are experiencing severe difficulties with their distributors and other local organizations as they tend to supply products of low quality. The reputation of Lincoln Electric is already well-established in Indonesia and if the company is able to cater to the consumer requirements, it is highly likely that a vast majority of consumers will shift to Lincoln Electric welding equipment and supplies (Bartlett & Connell & Connell, p.10).
Another important aspect of investing in Indonesia is that the regulatory environment of the country is improving at a dramatic rate and even the 100 percent ownership by foreign companies in the manufacturing sector is now permitted by the regulatory authorities. Along with this, another benefit of investing in Indonesia is that the country is rich in natural resources, the location of this country is strategic, and the workforce is hardworking and competitive. This has resulted in the government being supportive to the business sector and has encouraged an environment of investment within the company (Bartlett & Connell, p.11).
As the entry strategy of any organization into the international market like Indonesia is crucial, it is important that Lincoln Electric must enter the country with a joint venture. The benefit of the joint venture is that it helps in understanding the local culture, adapt to business etiquettes, learn the local language skills, the risks are shared, finances are distributed, investment capital can be gained easily, and it becomes easy to deal with the government rules and regulations. The joint venture will also help in competing with the local competition and lower the cost of capital and attract new customers with better quality products and highly competitive prices. The best joint venture partner that Lincoln Electric can choose is SSHJ, as they an extremely strong financial position within the industry with years of hands of working experience in the field (Bartlett & Connell, p.11).
It is important that the company instead of experimenting with the incentive system must adopt the local incentive and management structure of Indonesia. This will help them to match the culture and business requirements of Indonesia with reduced resistance from the local workforce. Overall, I believe it can be a win-win situation for the company if it plans well and ahead of time and expand successfully in Indonesia.
Work Cited
Bartlett, Christopher A., and Jamie O'Connell. "Lincoln Electric: Venturing Abroad." (January 1998), pp.1-11, Harvard Business School Case 398-095.
