Lincoln Electric has been the world’s largest manufacturer of arc welding products for the past thirty years.
In addition to its welding products, Lincoln also produces a line of three-phase alternating-current industrial electric motors. Their strategy is simple, reduce costs and pass the savings through to the customer by continuously lowering prices. Lincoln’s management believed its incentive system and the climate it fostered are responsible for the continual increase in productivity with which their strategy is based on. Under the incentive system, employees are handsomely rewarded for their productivity, high quality, cost reduction ideas, and individual contributions to the company. Lincoln’s strategy had remained virtually unchanged; it had achieved an enviable record in following this strategy faithfully and therefore felt no need to modify it in the future.
Situation AnalysisInformation technology continues to become cheaper and have more practical applications for every type of business. Using databases a company can organize complex data distribution of information on demand at a rapid pace. Lincoln’s Order department had recently begun computerizing its operations. For the first time a computer will be used in the company with the exception of the engineering and research department. The computer was expected to replace 12 or 13 employees who would be moved to new jobs.
Like anything new the computer was not fully endorsed by top management because people were not sure it could produce savings and allow a greater degree of control. The conversion process has gone well, although slower then anticipated because of order pressure being so high. Lincoln’s strategy has encouraged the exit of several major companies (i. e.
General Electric) from the industry and caused others to seek more specialized areas. Unlike other companies Lincoln has a compensation policy to reward employees for quick efficient work. Almost all production workers at Lincoln are paid on a straight piecework plan. They have no base salary or hourly wag but are paid a set amount for each item they produce. The second element of the compensation system is a year-end bonus.
The bonus is not a gift, but it is the sharing of the results of efficient operation of the basis of contribution of each person to the success of the company for that year. In addition to Lincoln’s incentive program another important competitive edge for them is their sales force. The sales force is paid a salary plus a bonus. They pride themselves on working more hours than anyone else works.
The sales force is known to be the highest paid and hardest working in the industry. Identification of Environmental Opportunities and Threats and Firm Strengths and Weaknesses. The strengths, weaknesses, opportunities and threats (S. W.
O. T. ) of Lincoln Electric’s strategy can be shown to benefit their company and hinder it at other times. The greatest strength in Lincoln Electric is their ability to undercut competitor’s prices by means of cheaper production costs.
Mentioned earlier, they are able to do this because of their incentive program, where they reward employees for speed, quality and innovative ideas. This strategy is the main reason why they are able to avert threat of outside competitors having a lower price with a high rate of quality. It is hard to compete when you can’t beat the competitor prices of high quality products. The management at Lincoln learned many key factors about their employees and how they prefer to work. As long as the employees get their job done the management leave them alone.
In a sense they are their own boss, they decide on their brakes and lunch times (most work through their brakes) and the harder the m!ore products they produce in a day the more money they make in the end. The employees like this, because they like being responsible for themselves and not depending on others, also they determine their paycheck by how hard they work during a given day. Lincoln Electric has a policy of filling all but entry-level positions by promoting from within the company. Any employee can apply for a position that has opened within the company. Because of the company’s sustained growth and policy of hiring from within, anyone has a chance for advancement in the company. The only other way to get a job at Lincoln besides starting on the floor is to enter their training programs in sales or engineering.
Lincoln does not provide tuition grants for educational purposes and they do not send its employees to outside management development programs. Strategy FormulationLincoln’s strategy has been very successful for them over the past thirty years, which constitutes them being the leader in production of arc welding equipment. Because of their conservative nature, Lincoln has not looked closely enough at what benefits they will receive by improving their technology through computers. They have been slow to implement their first system in the ordering department even though they project savings of $100,000. Continual education has been a buzzword of corporations for the last decade. Almost every major company around the world has spent large amounts of company profits and hours on workshops and training sessions to ensure their employees are up to date on every new development in their industry.
Lincoln Electric has not spent dollar one on training. They do not give grants for educational purposes and has never sent someone to an outside management development program. They feel that hard work and persistence is more important then spending money on management training sessions. Lincoln Electric’s employees work hard and very efficiently so they can improve their merit rating Day after day they might compromise brakes and cut corners wherever possible to increase their output. In other words working for Lincoln Electric sounds great because you have the possibility of earning a high paycheck, but the level of stress in an environment like that must be tremendous.
An employee would fear calling in sick with the flu because that would mean missing a full days productivity and costing a lot of money. Many employees’ work through their brakes to increase out put; the only time they are away from the production line is thirty minutes for lunch during a full day. Having a big paycheck at the end of the week is always nice but in a high area of stress compromising your health or safety how important is it really? Strategic Alternative ImplementationLincoln Electric understands the basic drive of their employees, the harder you work the more money you make. This strategy has been working well for them and the employees themselves like it because the turnover rate of employees is the lowest in the industry. Their management policies may be different, but you cannot argue that they are not working because they are the industry leaders. Because of this I would not jump into spending lots of money on sending managers to conferences to improve their skills.
If I were in an upper level position of management with Lincoln I would look to time and cost saving opportunities within the company. My first evaluation would be to improve Lincoln’s lack of technology. Since everyone at the company knows little about information technologies and how they can help the company, I would look to bring in an outside technical consulting company. This way the could come in, look at our operation and give a presentation to upper managem!ent about all the time and money we could save by joining the technological age.
Another advantage of bringing in outside consultants would be we would have a choice, we could listen to a couple different firms and then decide on the best one to meet our needs. It is time for Lincoln electric to stop fearing change and to use computers outside of the Research and Design (Engineering) departments.