Case Title: Organizational Culture and Incentives at Lincoln Electric Table Of Content Introduction: An overview of the case study S. W. O. T Analysts Case Discussion Questions Recommendation 1. Introduction: An overview ot the case study Lincoln Electric is a leading manufacturer of welding products, welding equipment, and electric motors, with more than IJS$I billion in sales and 6,000 workers worldwide. Although now publicly traded, members of the Lincoln family still own more than 60 percent of the stock.
Lincoln Electric's tradition of innovative solutions, echnological leadership and commitment to customers, employees, and shareholders stems from the vision of its founder, John C. Lincoln and his brother, James F. Lincoln. Lincoln Electric has a very successful management system that other businesses benchmark their own systems by it. For years, other companies have tried to fgure out how management coaxes maximum productivity and quality from its workers, even during difficult financial times. The Lincoln system succeeds largely because of an organizational culture based on openness and trust, shared control, and an egalitarian spirit.
Although the line between managers and workers 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 executives, middle managers, and production workers, and regular face-to-face communication is encouraged. Lincoln's system worked so well in the US that management decided to extend it overseas. Lincoln built or purchased 11 plants in Japan, South America, and Europe with plans to run the plants from the US using Lincoln's expertise with management control systems.
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Managers saw the opportunity o beat local competition by applying manufacturing control incentive systems to reduce costs and raise production. The results were abysmal and nearly sunk the company. Production and financial goals were not met. The huge losses in the international plants meant that the company would have to borrow money to pay US workers bonuses, or forego bonuses, for the first time, in Lincoln history. Management wondered whether the Lincoln Management System could be transferred to other countries.
T Analysts Strength Organizational Culture ;Everybody in company treated Equally whereby there is no special car parking area or managers and top management executives ,everybody will use the same cafeteria for breakfast or lunch and lastly they practicing open-door policy in the organization ;Any GAINS in Productivity will be shared with Consumers ” low Price Employee ” Higher Pay Shareholders High Dividend Incentive Scheme Pay according to number pieces produced and enable the workers to gain more wages than the other welding company workers throughout the United states.
In addition, these incentives system indirectly heightened the sense of ownership among the plant workers and it's encouraging them to produce more quality product ithin the timeframe. Lincoln main strength is Lowest cost structure and High level of productivity strategy Weakness Long working HoursAccording to the labor law in US or any other countries ,the acceptable working hours for manufacturing company workers is (35 hours per week ) whereas Lincoln electric practicing (43-58 hours per week ).
No Base salary when there is no base salary, most of the workers will feel uncomfortable to work in that kind of organization. For instance, if the worker couldn't work for 43 to 58 hours per week, he or she might low wage than others and how that person would manage he cost of living in United States with that low wage. Opportunity was told by foreign distributor that American equipment will not sell good in Europe ;So instead company decides to set up the Wholly owned subsidiaries and acquisition to make the Equipment locally to capture the international market.
E. g. Lincoln acquired 7 manufacturer in Europe and Mexico takes 2 years to implement or change the entire company workers to follow and adopt the Lincoln organization culture and incentives system in Mexico. Threats Political In many Europe and Asian countries the government considered piecework as Exploitative compensation system which force employers to work harder, therefore in Germany the strategy doesn't work well.
Society As stated in weakness part, the long working hours became threat when Lincoln implement the strategy in Other countries because it is not acceptable since labor law limit the working hours 35 hours per week Technical Managers have no experience of work outside US and the local managers also felt reluctant to implement the culture of Lincoln in the Unit. Legal Due to many lawsuit against the organizational culture and incentive systems of Lincoln 's foreign acquired companies . Case Discussion Questions 1 . What is the source of Lincoln's long-standing competitive advantage in the United States market for arc welding equipment?
Lincoln's Electric long-standing competitive advantage in the United State market achieved by a high productivity rate per worker and this company success had been on extremely high level of employee productivity. Lincoln's Electric apply incentive scheme based on piecework. The workers receive no based salary but depend on the number of pieces they produce. The piecework rates at the company enable an employee working at a normal pace to arn an income equivalent to the average rage for manufacturing worker in the area where the factory is based.
A company faces a quality aspect when it comes to incentive scheme based on piecework. But at Lincoln Electric's the worker must repair or paid back any piecework that have defect. It means the workers must be responsible for their outputs. The work culture in Lincoln Electric's is one of the attributor. The company had a strong respect for the ability of the individual. Moreover, in this company, they practicing open-door policy whereby the communication barriers between Workers' and 'managers' were eliminated. All workers are treated equally despite of their position.
Since 1934, production workers have been awarded a semiannual bonus based on merit ratings. These rating are based on; Objective criteria; example: employee's level and quality of output. Subjective criteria; example: employee's attitude toward cooperation and his or her dependability. This semiannual bonus motivates workers to perform better and work harder, resulting boost in productivity. Despite high employee compensation, the worker so productive than Lincoln has a lower cost than its competitors.
Lincoln enter foreign markets through acquisitions and Greenfield ventures, rather than through exporting? The Lincoln Electric's did consider expanding into international market by exporting, but was told by foreign distributor that American equipment would not sell well in Europe. So instead the company decides to set up wholly owned subsidiaries and acquisitions to make the equipment locally. Through acquisition, it was a quick way to execute. The company can rapidly build its presence in this targeted foreign market. Lincoln acquired seven arc welding manufacturers in Europe and one in Mexico.
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