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Running head: THE LINCOLN ELECTRIC CASE

The Lincoln Electric Case Kevin Harrison Bradley Henry Cynthia Valentine Howard University 25nd Sept 2019

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Introduction/Case Overview One of the primary reasons why organizations are facing problems in applying different management methods to solve various organization is that there are several schools of thought regarding management approaches to which each of them has its proponents and opponents. Therefore, there has been little incentive to embed one approach with others. Thus the managers have been left to judge which type of the management approach would better satisfy the organization and how best they can apply such approaches to achieve the desired success by solving the problems facing the firm. Moreover, while it is quite clear that those managers are aware of these management approaches, the problem is that they have received little or no guidance at all on how to select the best approach that can fit their organizational needs (O'Neill, Sohal & Teng, 2016). Because of this, each manager would only want to use that one management approach that he/she is familiar with. In this context, this study seeks to analyze a case study which is related to how firms can use various management approaches of control to enhance the quality and performances in both global and domestic marketplaces. Therefore, the study focuses on the case of the Lincoln Electric Company which had set the bar on how they develop and implement a successful management system. Thus the study will use this case analysis in presenting how best companies can use a management approach to achieve success, the weaknesses of such approaches and recommendations on the need for management approaches to professional careers. Company Overview Commonly referred to as Lincoln Electric Holdings, Inc., the Lincoln Electric Company is one of the US multinational and the world's manufacturer of welding products, arc welding equipment, welding consumables, plasma, and oxy-fuel cutting equipment and robotic welding. The company was established in 1895 by John C. Lincoln. It was first established to manufacture electric motors and generators but later started producing arc welding machines in 1911. When the first world war broke, the company had grown to become the American leading producer of arc welding equipment. It is because of the war that the firm devoted its full time to the production of welding products instead of the initial production of electric motors. That was due to the significance of welding to the war, which saw the demand to outpace the production forcing the government to order such firms to increase their production capacity. In the history of the company, its stocks were being sold only to its employees and associates of the Lincoln

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brothers. In approximate, about 48% of all employees were shareholders of the company by 1975, and averagely 80% of the company's outstanding stock was held by employees, the family and their foundations (Koller, 2018). The success of the firm is widely attributed to the fact that in the company's 80 years’ existence, the firm had had only three board chairpersons which include John Lincoln, James Lincoln, and William Irrgang. By 1975, the company had its employees totaling to over 2,365. During the financial period ended December 31, 1974, the company had a total income totaling to $236,631,480 and total assets of about $73,478,303 (Fast & Berg, 1975). The Three Main Strengths of Lincoln Electric's Management Approach Lincoln Company's management approach strengths discussed in this paper include employees’ participation and engagement, wages based on actual piecework, and Guaranteed Continuous Employment Plan. Employees’ Participation and Engagement Lincoln Company has a perfect employees’ participation rate regarding the continuous improvement suggestions. In an organization, the best-fit approach is used in the areas of employees' participation and engagement. Employees engagement not only enhances the generation of ideas but also directly include the workforce in crucial decision-making processes such as the turnaround after an economic crisis. In the case of Lincoln Company for example, as argued by Lincoln, the company's incentive scheme was reinforced by t management's attitudes based on the men on the floor of the factory (Fast & Berg, 1975). Also, Willis James stated that open and franc communication involving both the company management and employees had been a significant factor in the company's success. The company had an advisory board comprising the employees' representatives who were involved in decision making; thus, the face of all employees was considered in every decision made by the company board. The board was constituted in 1914 and would meet twice a month to provide a forum where employees would air their views and concerns, question various management policies while making suggestions for their welfare improvement. such strategies improve the workforce's sense of wellbeing and well-informed and engaged and have proved futile in other firms such as in the case of Nissan and Honda companies (O'Neill, Sohal & Teng, 2016). Wages Based On Actual Piecework

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James Lincoln come up with a reward system which has since been the center of the company's successful performance work system, currently, the company's employees are considered as the highly compensated piecework system which is associated with individual employees’ performance founded on numerous commitment through remuneration which is at the top of American industry (Fast & Berg, 1975). The company has a payment system integrated into clear management commitment and is regarded as the key to accomplishing an outstanding employees’ commitment resulting in advantages in costs, quality, and productivity. Within the organization, a group collaboration developed through specific bonuses allocated for work-group performances. Those bonuses are ten distributed to the group members as per their quantified relative performances on their semi-annual merit ratings. These merits are founded on factors such as output, dependability, idea generation, reliability quantity. The employees long term stock purchase plan also forms part of employees’ remuneration, thus making them entrepreneurs at their workplace (Siegel & Larson, 2009). The company thus initiated the individual performance-system as its primary component towards the development of its workforce in a bid to become its primary strength through an unbeatable motivation and quality-driven (Koller, 2018). The company thus accomplish such successful remuneration-based work performance through wages based primarily on piecework output for most factory jobs, a year-end bonus which may be equal or exceed an individual's full annual regular pay and guaranteed employment for all employees. Guaranteed Continuous Employment Plan The guaranteed continuous employment plan at Lincoln was implemented as a form of the firm's rating and pay system. The plan was initiated because the firm was on the view that employees would be likely to resist an enhanced efficiency and productivity for fear of job losses. Therefore, the strategy was to offer security against layoffs while assuring the employment continuity (Koller, 2018). The plan outlined that for every employee who has worked at the company for at least two years, he/she was guaranteed an employment worth at least 75% of the initial 40-hour per week. Attesting to this strategy, the company had not witnessed any layoffs since 1951, during when the initial rollout of this plan before being implemented fully in 1958 (Fast & Berg, 1975). According to the company, the plan was embraced by the employees who agreed to work on any job that was assigned to them and even was accepting to work overtime during high activity periods. During the periods of downtimes,

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the managers pay, and salaries for workers were reduced, including their responsibilities to ensure that the employees working overtime are paid according to the agreement. Significant Weaknesses in The Management Approach Although Lincoln management approaches had been seen as successful given the long relevancy in the marketplace, some of its key strategies that have led to its success can also be seen as a hindrance to reaching its desired financial success. For instance, the company’s focus on monetary incentives is viewed as the primary weakness that has led to several competitors in the market. The question is, how will the firm compete effectively with other prominent players in the industry without laying a lot of its emphasis on higher financial strengths (Koller, 2018). As an example, during the fiscal year 1974, the company’s total income was at $236,631,480 and total expenses standing at $202,438,265 leaving the company with only $34,193,215 (Fast & Berg, 1975). However, after income taxes, the company was left with a paltry $17,527,215, which is not enough to initiate new development plans of more significant financial magnitude. Therefore, the management plan of financial incentive by the fir benefit widely the employees but not the firm which uses up to $24,707,297 on employees’ bonuses a year. Another weakness is that the inability to meet the consumers demands because of reduced supply had created opportunities for competitors to gain influence in the market. The issue here is that what are some examples of capabilities and resources that the company have, which can curb such threats of new entries. As explained by the company, under normal circumstances they would require 2,300 employees to make up a department of about 20 workers each, but by then the firm only had 6 workers that also comprises of a nurse (Fast & Berg, 1975). That is the case irrespective of the fact the employees’ responsibilities go beyond such typical personnel department. Moreover, it reached a point when some employees get old to perform more demanding work, thus leaving a gap in enough personnel to ensure steady production. With few and aging employees coupled with the high cost of production, the company was not able to meet the customers demand hence low sales and in turn, low profitability. That can be seen during the times of world war I when the government had to urge more firms to increase their productivity (Koller, 2018). If the company cannot meed the supply-demand, it would not be able to maximize its profitability hence the problems of the inability to acquire more resources to compete within the marketplace effectively.

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On the other hand, most of Lincoln’s weaknesses in managerial approaches can be witnessed currently, especially after the decision to enter the global marketplace. For example, the company did not have a specific plan for its new international plants. That is, it seems that the company at first failed to conduct a market survey to understand the characteristics of the labor force in those global marketplaces (Koller, 2018). That led to the transfer of the same employee’s engagement strategies the company was using in the US to such international markets. That was a failed strategy as the labor force in such nations do not have similar job values and beliefs as those held by people in the US. For example, in the European labor culture, both bonuses and piece-work systems are not common and not practiced widely since it is unfamiliar to them (Siegel & Larson, 2009). In this context, the employees would not cope with such system leading to lack of motivation to achieve the standards set by the firm. Consequently, the move by the company to hire its senior departmental had right from the university was another problem since such people had no experience especially on employee engagement and team management which is key to any organizational success (Fast & Berg, 1975). Thus it would be hard for such fresh graduates to prepare, train, and develop employees in the foreign market on various company’s standards and policies for better achievement. Three Concepts from The Course That Most Apply to The Case and Why Organizational Structure An organizational structure is the actual framework of the business and has the basics of how the organization operates daily (Janićijević, 2014). The organizational culture found at Lincoln company can be said to be purely organic. In the case of Lincoln, the company has no formal organizational chart since they focus on maximization of flexibility. Additionally, the company has an open-door policy where the employees take their problems to those individuals whom they view can solve their problems as they would want. Routine supervision is minimal, and the firm has a fairly flat organization whereby there are usually only two to three levels of supervision between the production and workers and the president. For instance, when solving issues, the employees have their representatives in the advisory board who sits with the company’s top executive board comprising the president where their problems can be solved (Fast & Berg, 1975). That saves them the time of having to report to the line supervisor, who again report to the unit managers and to the overall CEO before reaching the board. Moreover, the employees are assessed and evaluated based on their quality, ideas, dependability,

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cooperation, and output. Employees also have the highest level of job security and are allowed to take part in the various organizational decision-making process. Organizational Culture In business field, organizational culture describes such a system of assumptions, values, attitudes, and norms which are manifested through symbols which all organizational people are expected to develop and adopt through mutual experience and which enables them determine the meaning of the world around them including those ways in which they behave in it (John, 2019). In the case of Lincoln company, since its establishment back in 1895, the company has grown to become one of the world’s most renowned firm with the highest employee productivity. That is attributed to the company’s founding philosophies and established policies over the years. Funnily, by the time this company was being established, the concepts of organizational cultures were not in place already that include paid life insurance, social activities, benefits, paid vacations and pension plans but the founders of the company had already outlined such benefits at Lincoln. Since its inception, Lincoln upholds its motto of producing the best quality at the lowest cost. Its cultures and philosophies still persist up-to-date. Currently, it such philosophies and culture that is said to have ensured that the company remains relevant within the marketplaces. They motivate employees in both unwavering and straightforward way through rewards and engagement. The organization has also created a condition which fosters personal growth, continual improvement, and productivity coupled with a transparent incentive system (O’Neill, Sohal & Teng, 2016). Organizational Strategic Plans Lincoln company has a distinct strategy with several creative ideas. Such ideas include keeping a highly motivated workforce through a unique incentive system which ensures an effective distribution of profitability across the firm. Such incentives were the expressions of mutual respect for everyone’s significance to the presumed job. Annual bonuses were also integrated into the motivations and were awarded based on the contribution of the organization’s performance as per the outputs, cooperation, ideas, quality, and dependability. That saw a stop to layoffs and employee’s turnover. Opening a welding school from employees training is also another way that the firm ensured that the employees might add value to themselves. Employees participation and engagement by giving them an opportunity to be heard and participate in company’s key decision was also another motivating factor that the company ensured that their

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employees increase their productivity (Fast & Berg, 1975). The employees were also allowed to buy company stock, a move that gave them a feeling of ownership; thus, most of them felt they must work hard for themselves.

Aspects of The Management Beneficial to My Careers and Why In the case of Lincoln electric company management approach, the primary significant aspect of management to my career is organizational cultures. From the discussions above, it is clear that the company become successful based on its standards and philosophies, which were crucial in ensuring that most of its strategies are prosperous. For instance, to ensure that the company work hard to their perfection and prevent them from leaving, the company created a culture of ownership where employees were allowed to buy the stock in the firm hence making part of the company ownership (Fast & Berg, 1975). Therefore, based on this case, I have learned that stronger organizational culture will allow managers to have an easy time conducting its managerial obligations as a strong culture will enable people to make decisions, take actions and or enter into a relationship in a similar and foreseeable fashion. Moreover, organizational culture is said to have an influence on the dominant leadership styles, organizational learning and knowledge management, and company strategy. It is the preferred system of altering the management, employees reward system, commitments, and among other aspects that connect the organization, its peoples, and society (John, 2019). Thus organizational culture will enable professional managers, and leaders lead a highly motivated, enthused, and productive workforce who are easy to lead and work with for the success of the firm. Conclusion From the case of Lincoln electric company, it is clear that a huge portion of the company’s success is attributed to its distinct and efficient management style which finally results into a competitive edge over its rivals. The move to have an open-door organizational structure policy has ensured that the firm has an employee’s-elected advisory board which champions the employees' wellbeing. In this way, the company has built for itself highly motivated, competent and loyal employees which are associated with high productivity in any given firm. Since the company has decided that these policies, standards, philosophies, and principles are still viable and significant in the success of the firm from such a long period, Lincoln will continue to be a leader in its industry line.

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References Fast, N. D., & Berg, N. A. (1975). The Lincoln electric company. Boston^ eMA MA: Harvard Business School. John, C. (2019). The Difference Between Organizational Culture and Organizational Structure. [online]

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https://smallbusiness.chron.com/difference-between-organizational-cultureorganizational-structure-25206.html [Accessed 21 Sep. 2019]. Janićijević, N. (2014). The mutual impact of organizational culture and structure. Ekonomski Anali/Economic Annals, 58(198). Koller, F. (2018). Lincoln Electric's unconventional approach to employee relations pays off. [online] The Globe and Mail. Available at: https://www.theglobeandmail.com/report-onbusiness/careers/career-advice/lincoln-electrics-unconventional-approach-to-employeerelations-pays-off/article4319842/ [Accessed 21 Sep. 2019]. O’Neill, P., Sohal, A., & Teng, C. W. (2016). Quality management approaches and their impact on firms‫ ׳‬financial performance–An Australian study. International Journal of Production Economics, 171, 381-393. Siegel, J. I., & Larson, B. Z. (2009). Labor market institutions and global strategic adaptation: Evidence from Lincoln Electric. Management Science, 55(9), 1527-1546....