Essay About Lincoln Electric1 And Production Processes

Lincoln Electric Case Study
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LINCOLN ELECTRIC1.  How was Lincoln able to grow and prosper for so long in such a difficult commodity industry that forced out other giants such as GE, Westinghouse, and BOC, i.e., what has accounted for Lincoln’s outstanding and enduring success in the U.S.?Since 1911, Lincoln Electric attributed much of the company’s financial health to its innovative management style and incentive system which allowed them toMaintain a significant cost advantage over competitors during WWII while sharing proprietary methods and equipment designs in order to boost industry productivity Increase Lincoln’s productivity per worker at twice the rate of benchmark manufacturing companies, which forced competitors out of the marketImplement the strategy to strive for high productivity based on employee effort, continuous improvement in production processes, and seven-day-a-week utilization of equipmentPassing on cost savings to customers = generating high demand = sending everything you make out the door immediately with few holdingLincoln has a famous incentive system credited with rapid, steady increases in productivityUnbounded faith in the individualBelief in equality of management and workersDevelopment of all employees to their fullest potential through a system of proper incentives designed to encourage competition and teamworkIncentive system:Production workers received no base salary but were paid on the basis of number of pieces they producedWorkers are paid a bonus at the end of each year based on their contribution to the company’s total performance (based on semi-annual merit rating measuring performance compared to others)Workers who were drafted retained their jobs during and after warAssured employment for at least 75% of the standard 40-hour weekDuring a recession, production workers are retrained and sent out as sales peopleAvoided laying off a single US employee with less than three years’ experience since 1948Preferred to pay employees with higher cash wages and bonuses rather than fixed benefits (no paid holidays off)Strove to erase hierarchical distinctions and create approachable style for management Spirit of cooperation, mutual respect, sense of trustNo reserved parking places; executives ate in same cafeteria as janitorsOpen communication and open-door policy to encourage suggestionsCompany culture encouraged individual employees to produce and innovateEngineers and operators collaborated to modify equipment to run fasterDeveloped proprietary machineryThe company remained closely held by the family and employees from 1895 until 1995 2.  In spite of their outstanding success, the internationalization thrust of the late 1980s and early 1990s failed.  What were the results of this internationalization drive, and what were the primary causes of failure? Results: Success in MexicoLincoln’s success in replicating their complete incentive system in Mexico led them to believe that other subsidiaries would follow suit. This small success bred lackadaisical behavior that allowed massive failures throughout Europe, Asia, and Latin America divisions. Financial TroubleThe international subsidiaries negative balances created large revenue losses for Lincoln Electric as a whole. This eventually led to closing the plants in Germany, Japan, Brazil, and Venezuela by Tony Massaro. Shareholder equity became around $300 million while total loss grew to $80 million in two years alone. Long term debt amounted to $217 million in 1993. Lincoln began losing control and prosperity in Cleveland because of the failures abroad. External LeadershipLeadership from outside of Lincoln Electric had to be hired to bring in the knowledge needed to solve their massive financial problems.  Causes of Failure: Lack of Resource AllocationWhen the economic recession hit England and Japan, the corporation made no move to provide special attention to these subsidiaries. Afterwards France’s books went red, but  Lincoln continued to focus on Cleveland. Lincoln believed that because they had found success in implementing the same strategies in Mexico, those strategies would work everywhere. Lack of Customization in Each Country Cultural differences should have been studied in each location to ensure the commitment and motivation of employees. This would have also helped build relationships and trust between management and the labor teams. Experts should have analyzed government regulations and policies thoroughly before acquiring international subsidiaries to prevent fines. Lincoln should have taken more time to study each company before buying the subsidiaries. By studying each subsidiary’s culture, policies, and employees, Lincoln could have determined when to merge local culture with Lincoln practices and when to adopt local traditions. Lack of Management Managers should participate in cross-training covering technical aspects, leadership skills, and effective communication with the labor force.  Managers were sent from the US to work with the managers already working in the subsidiaries. Instead, these subsidiary managers should have been trained in company culture and given the option to either aid the transition of Lincoln culture to the new location or leave the company. New local managers could also have helped the transition. To align the subsidiary, Lincoln Electric needed to create systems to track the competitive development and support effective responses to problems. Lack of Synchronized ProductionFragmented production across subsidiaries without regard to the companies’ small market shares and weak sales organizations created unnecessary costs. Just-in-time production could have ensured that each unit’s costs are turning a profit for the company. Production among different countries and subsidiaries should have been synchronized to meet all of Lincoln’s demand efficiently.  3.  What is your evaluation of the company’s new internationalization strategy under Tony Massaro’s leadership?  Is it likely to be more successful than the previous offshore initiatives?  If so, why?