Lincoln Electric Case Study
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Lincoln Electric (LE) manufactures and sells arc-welding equipment and electrical motors. The company’s objective is to produce quality products at a low price. This objective was to help LE build up their reputation. Therefore their key success factor is their cost leadership. This was achieved through their highly productive employees. LE believed that in order to satisfy customer’s interest, the employees are the only people who can make it happen. As a result, LE created an attractive bonus for the employees and paid them on piece rate basis. To prevent employees from sacrificing quality over quantity with the piece rate system, employees were evaluated twice a year and warranty claims were traced back to the employees who must pay for the damages. Furthermore, communication was promoted within the company. Open-door policy was practiced throughout the company, and an advisory board who were elected by the workers, was set up to meet with the chairman and the president to discuss about employees innovations. Lastly, to create loyalty from the workers, LE treated everyone fairly.
Executives had no preferential benefits, promotions occurs internally and LE did not pay for training and education outside the company because they believed that there was unequal access. Through this, LE hopes to achieve higher productivity and performance by creating employee loyalty, so through this loyalty, employees will be intrinsically motivated to outperform its competitors.
These programs produced dividends. Employee morale and productivity was good and turnover was non-existent. In fact, outside sources have confirmed that levels of productivity were more than twice those for others manufacturers from 1945 onwards. Even college management texts referred to Lincoln as a model for achieving higher worker productivity.
As a result of there superior model, the company thrived. Although it can be argued that since they were one of the best companies known for its management policies they became more conservative to change or reform. As a result of possible conservatism, the company ran the danger of being inflexible to new developments. Two of company’s personnel policies magnified this problem. The first policy was promotion from within. The basic belief was that the employees’ satisfaction will be the driving force that will create customer satisfaction. This was achieved by providing equality to the employees and providing them with security. In order to protect the employees they had a lifetime employment plan in place. Plus, they promoted internally since employees were hired for a lifetime and also create a sense of equality for the employees. What happens is that the employees within the company are on the same page. They believe in the same things, and are taught all the same material. This hinders innovation. Employees themselves become inflexible to change and because of this the company too also runs the danger of being unable to cope with change. The second personnel policy was education equality.
This policy was beneficial at the beginning because it promoted equality among the employees. Since not everyone can utilize this benefit, LE scrapped the idea of paying employees to study outside the company. What this does is that all employees will be trained on the job and all will be learning the same material, taught the same norms and values. Since all the employees are promoted internally, the upper management personnel are comprised with people that all believe the same things and therefore they are less innovative then those who are different. As a result, LE once again runs the risk of being inflexible to change. Yet the company is still thriving even though they run the risk of being inflexible. This is because LE is in an industry which is relatively static, products are virtually the same for decades and the products produced are relatively the same as its competitors. Therefore, in a stable environment, these corporate policies, which hinders the adaptability to change, works well.
However, it was evident that their inability to adapt to change has cost them when they tried to be multinational. Although, their policies worked well in Mexico, it was less successful in Germany and Brazil. German workers had a laid back work week only working 35 hours while Brazil had laws which went against LE’s policies. This stumped LE’s management because they did not know how to deal with such obstacles because all their life they have been doing things only one way, and that way always worked. To further cripple Lincoln’s multinational efforts, they did not have the proper personnel to manage these multinational subsidiaries. This was a result of Lincoln’s belief in promoted internally only and not externally.
As a result of this, LE was forced to hire from outside in order to adapt. However, this also had an adverse effect because employees could feel betrayed because management is not following what they are preaching about hiring internally. This can cause employees to be de-motivated because they may feel inequality because they may not get the promotion they deserve. Another problem LE may face is suggestion overload. LE wants to open up communication and promote suggestions. As a result, they have linked the performance evaluation with new suggestions. They may be a cause of concern, because employees may suggest suggestions just because they want to score better on the merit system in order to get more bonuses. Of course this is a good thing because more suggestions provide a greater probability for better ways of doing things. However, this may cause time stress for upper management because they must evaluate each and every alternative. Conclusively LE’s business success can be attributed to management’s ability to translate the company’s goals into an incentive compensation system, thus aligning the employees’ goals with the organizations (goal congruence).