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?
Lincoln Electric was able to emerge as successful above similar competing firms due to the policies it implemented in the management of the firm’s resources and employees. The management set up well defined incentive systems to improve its production. This involved motivating employees using structured compensations and benefits. This required a critical balance in sharing the company’s profits among the shareholders, improvement of the quality of goods and increasing workers’ salaries and wages. Lincoln Electric was especially successful because of its ability to strike a balance in the allocation of funds to the competing needs.
The company was also able to attain articulate division of labor. This created a piecewise process in the production of goods. Consequently, goods were produced at a faster rate while increasing the quality due to specialization of labor. This was further improved because workers’ pay was dependent on the number of units produced. This is as opposed to other firms that paid workers at a flat rate. This motivated most workers to work harder. Consequently, production increased tremendously during this time. The production process was closely monitored by quality inspectors who ensured that the high quantity of goods produced did not compromise the quality of the goods.
Employees were also continually motivated to improve their performance through annual bonuses at the end of each financial year. The amount of the bonus varied from one employee to another based on a merit rating that was determined throughout the year. Employees also received limited benefits. This was a strategy to make the employees dependent on the piecework payments. This was in line with the company’s policy of ensuring employees do not receive fixed benefits or pay, which minimized chances of their status quo negatively affecting the employees.
Lincoln Electric also had a unique management style and culture that allowed for interaction between employees and supervisors. This environment encouraged employees to give the appropriate feedback to the management. Consequently, the firm was able to make great strides in solving any problems that arose in the production process. This also improved innovation by welcoming new incentives that improved the efficiency of the firm. Simple procedures were used to set up a general environment of equality between the employees and top management. The firm, for example, ensured that there were no reserved parking slots for any employees while ensuring that all employees ate in a common dining area. The firm also encouraged open communication, which allowed employees to forward their suggestions and complaints. This promoted innovation that in turn led to increased efficiency in the production process through cost reduction procedures.
Other than the numerous incentives in the workplace, employees at Lincoln Electric were had a guaranteed employment. This was introduced in 1958, and it led to improved performance of employees. This was combined with rotation of duties depending on the changes in demand for goods. This helped to curb occupational unemployment or even redundancies in the workplace. The employees were also trained adequately on the use of new technologies. The cost of training these employees was eventually covered with the increase in production and hence revenue.
Given this outstanding success, why did the internationalization thrust of the late 1980s and early 1990s fail?
The internationalization process that occurred in the 1980s and 1990s was undermined by several economic and managerial factors. The economic recession that occurred in 1991, in Europe and Japan affected the sales in these regions. The new plants were not as responsive to the company’s traditional management systems as older plants. Eventually, the company suffered through losses. The management style did not produce the expected changes in overseas plants. The problem was a lack of dynamism according to the varying market conditions. Management was initially adamant about using new management procedures since the old systems had worked so well for so many years.
In other countries such as Brazil and Venezuela, the company hired managers who lacked sufficient technical knowledge and experience. They hired former distributors who had worked for Lincoln Electric. This led to a decline in the performance of the firm due to inefficient employees. Furthermore, overseas plants were left to their own devices. The top management did not follow up on new plants to ensure that everything was in order. The production process was also fragmented in terms of acquisition of supplies. This led to increased production costs of the firm, and eventually huge losses. The management decided to continue full line production of several products in a single factory. This was less efficient than ensuring a factory produced a specific line of goods. This would increase both the efficiency and the quality of goods produced.
Subsidiaries were not adequately called upon to bring goods financial results at the end of each financial year. This made the managers of the overseas plants become complacent in the achievement of their production goals. The firm also failed to carry out sufficient research on the business cultures, which existed in various countries and economies to determine how well they would blend in with the firm’s existing policies. The management was wrong in assuming that all employees only sought to enjoy higher pay and ignore other pleasures of life. This is especially as concerns the preference between increased wages and increased leisure time. Some employees preferred spending more time with their families over having to work overtime just to make extra wages. Furthermore, other employees preferred to have benefits and a fixed rate of pay for purposes of financial planning over the piecewise mode of payment of employees that depended on the number of units produced. Therefore, the incentive procedures that had been setup in the 1940s and 1950s failed to produce the same outcome in all overseas plants. Workers were not motivated to work, and hence production and sales of the company declined drastically. The company should have responded by trying new incentive methods in some plants while observing their response on production and performance of employees.
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 internationalization strategy by Tony Massaro is likely to be successful than the previous offshore initiatives. Over the years, the success of the company depended on the productivity of their employees. This was attributed to the company’s incentives plans, which had inspired the employees to be productive. During this time, the company did not focus on any form of international expansion. At the start of the international expansion, the CEO focused much on the quality of acquisition of the company’s manufacturing facilities. The incentive system failed as it was not customized for the different international expansion facilities of the company. The decision by the CEO to implement Lincoln’s incentive and manufacturing systems, which was utilized in Cleveland, indicated that there was little research done in understanding the locals of the different countries. Massaro only implemented some elements of the Lincoln incentive system. He contributed to developing a new bonus program in the European facilities, which allowed increased the cooperation of the employees and resulted in improvement of performance of the facilities in the international markets. Furthermore, after the new managers were taught how to implement the incentive and manufacturing systems, no further effort and management consulting were done on how they would run the company. The managers employed to handle the international facilities lacked the international experience in the global market. This introduced the problem of fragmented production that highly contributed to the company’s financial problems as the costs of production were high.
Massaro’s idea to shut down some of the international facilities was a strategic idea. This was justified because of the increasing fragmented production that had caused some of the Lincoln’s manufacturing facilities especially in Europe to start competing against each other. Previous regime had focused on the use of unions to avert any form of union problems. However, this started becoming a problem as the unions resisted major implementation changes to the international facilities. The previous management, on matters relating to international management, had focused much on individualism where in-house employees were promoted to handle international facilities with no experience at all. Thus, they were unable to cope with the demands and changes. To improve the performance of the international facilities managers who could not perform had to be removed. Massaro replaced them with managers who had international experience in business.
Massaro’s plans proved to be successful as they helped reduce the high cost the company was incurring. Furthermore, the previous offshore initiatives had relied on the importation of materials from the United States, which increased the cost incurred because of the tariff costs. Massaro suggested and introduced the company to using local materials. This reduced tariff bills incurred by the company. The previous offshore initiatives had failed to customize the company products to the international markets. The same products manufactured in the United Sates were manufactured in the international facilities. This indicated that the production of the products was only designed for the U.S. markets. Massaro changed this by customizing the various engineering departments in the international facilities to produce products according to the customer’s needs.
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?
Lincoln Electric needs to go ahead with investing in Indonesia owing to a number of reasons. Indonesia presents a very large market for what Lincoln has to offer. Most of the potential customers use hand held stick welders, as opposed to semiautomatic or fully automatic machines. Indonesia is a developing country that will require the use of more sophisticated machines.
Competition in the Indonesia market is less. Two multinationals firms in the same business as Lincoln are reported to have some distributor problems. The Lincoln Company can take advantage of this opportunity to launch their products at competitive prices, which may make most of the customers switch to their products. Furthermore, Lincoln’s reputation in producing quality products was well known, and this would assist to convince potential customers to utilize their products. Moreover, the regulatory environment in Indonesia has been improving. Joint ventures between foreign companies and local-based companies has been the norm in the past. However, new regulations are permitting full foreign ownership. Thus, the company can enjoy full profits. The government has also removed any restrictions on repatriation of profits and conversion of rupiah is free.
As an entry strategy, the company needs to form a joint venture. This may have significant advantages for the company in establishing the factory. Lincoln Electric can be able to obtain significant business and governments contacts that will be helpful when setting up the factory. Additionally, the local company can provide some insights on what the customers in Indonesia are demanding, which may make it easier for Lincoln Electric to customize their products to the Indonesian population. Further, since the company plans to be using local materials, a joint venture would provide critical information regarding resource locations that may prove to be very valuable to the company.
Implementing the piecework compensation system would be recommended. This would be beneficial as it would encourage workers to perform and increase the production output. Indonesia being a developing country, the workers would invite the opportunity of having a chance to improve their living that is linked to their level of performance at work. Providing a basic salary, which is just higher than the recommend by the labor laws in Indonesia would seek only to increase the number of non-performing individuals who were targeting higher pay only with no effort to show for it.
