1. How would you describe Lincoln’s approach to the organization and motivation of their employee?
2. What role do you think this approach has played in Lincoln’s performance over the last 25 years? Have any other factors been more important?
3. What factors will be critical to Lincoln’s continued success? 4. What recommendations would you make to Mr. Willis?
5. What is the applicability of Lincoln’s approach to motivation to other companies and situations? Why do not more companies operate like Lincoln?
6. Is Lincoln ahead of or behind current “good management practice?” In what respects? 7. Would you like to work in an environment like that at Lincoln Electric?
8. What is your 25-year prediction for Lincoln Electric?
Discussion
Once the record of success and the important facts of their approach have been brought out, it is appropriate to push for why it has worked at Lincoln, and to defer discussion of the applicability of what they are doing to other situations for later. It is important to develop a recognition that there is not any one explanation for their success, but a package of interrelated and consistent policies that have been applied. The high bonuses are important and highly visible, but clearly not the only factor. It is important also to look beyond the specific policies and to ask whether there may be some importance in the facts that the policies are clear and explicit, communicated frequently to all, fairly and consistently enforced, consistent both with each other and with their product-market strategy, and that the executives themselves seem to live by exactly the same rules and apparently work as hard, or harder, and in little more luxury, as the “workers.” Regardless of the substance of the specific policies, are not these practices which are both important and of relevance to other situations?
Lincoln is obviously not interested in hiring MBAs. They do not pay much of a premium for doing so, and have not in fact hired many. One can explore why or why not you (the student) would like to work for Lincoln. Neither do they believe in bringing in trained managers in mid- career, or in sending their managers to management development programs or seminars. They
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructor’s Manual
have great confidence in their ability to attract to their beginning jobs the kinds of people who, with the training they receive on the job at Lincoln, will serve the company’s needs for management. Should Lincoln change this policy? What implications would this have? What is the danger, if any, of continuing their current policies?
Some observations on several of the important questions raised above follow:
1. Why has Lincoln Electric been so successful? What are the key elements in the management “system?”
The strategy of reducing costs—reducing prices—expanding primary demand and market share is very powerful. The key is being the low-cost producer and continually reducing costs.
The Lincoln management system is successful because almost all aspects of the company’s practices reinforce the shared goals (cost reduction and high profits) and share values (your status and reward in proportion to your contribution), and serve to improve communication and reduce unnecessary barriers to communications and efficiency. Key practices and policies include:
piecework pay
guaranteed employment
bonus based on company performance
encouraging lateral communication and cooperation between functions (marketing, product engineering, and process engineering) in product design
company attracts highly motivated individuals
efforts to reduce distinctions between management and workers Management Advisory Board to improve vertical communication
lack of a union—allows most efficient manufacturing layout and novel pay schemes clear company philosophy and ideology—shared values
leadership by example—Willis is very hard working and superefficient
life-time employment—allows accumulation of specialized experience and knowledge as well as adding to commitment and communication (everyone knows everyone else)
attention to detail without losing sight of overall goal
marketing focuses on customer’s needs—salesmen know welding honesty and fairness in relations between management and workers
a minimization of conflict between management and workers because they share the goal of high profits and high bonuses. Thus, there is a “catch 22”: Whatever workers demand and get comes out of their bonus
promoting from within.
2. What problems does its management system create? In what kinds of industries would Lincoln have difficulty?
Guaranteed employment creates a problem of not being able to expand and contract production as easily as competitors. Therefore, Lincoln “gets beaten on delivery.” Lincoln could not compete in a seasonal or highly cyclical industry.
Promoting from within and hiring into only two professional entry level positions (sales trainee and engineering trainee) prevents the company from hiring Ph.Ds and most individuals with MBAs. This may not be a major problem now but as the technology of the industry advances, it could become serious. Lincoln could not compete in a high-technology business.
Strong company culture and values. This tends to limit the variety of types of individuals who work for Lincoln and limits the range of acceptable views. The homogeneity within the company limits it ability to adapt to a changing environment, and develop new capabilities if required. Views which diverge environment, and develop new capabilities if required. View which diverge from the “party line” do not last long.
Continual efficiencies reduce Lincoln’s value-added. The whole system rests on the continual reduction of costs and increasing efficiency. Yet, as efficiency increases, Lincoln’s value-added declines. The way this is counteracted is by back integrating. In the electrode division Lincoln’s extraordinary efficiency has reduced the labor input tremendously and has forced them to back integrate to the mine (buying ore, the raw material for flux). The next step would be to build a mini-steel mill to produce wire to their electrodes.
3. Can the Lincoln system be introduced into other companies? What parts of the fit are transferable?
There are certain types of businesses (discussed above) in which Lincoln’s system would not work well.
There are significant obstacles to the Lincoln system in most companies (such as unions) which could not be overcome. In addition, the effectiveness of Lincoln’s system rests in large part on the mutual trust, shared values, and a strong culture and philosophy which took decades to build. The Lincoln system in its totality probably has to be “grown” rather than being introduced into an established company.
Parts of it could be transferred to certain objectives. For example, an Advisory Board, early involvement of process engineers in product design, and training salesmen in becoming knowledgeable and skilled in the use of their product would benefit most companies. It is important to point out key interdependencies between practices. For example, guaranteed employment, passing cost reduction through to the customer to expand demand, and piecework payment are complementary. (The failure of piecework pay in the past has been partly attributed to workers fearing loss of their jobs with increased output.)
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructor’s Manual
4. What should Lincoln’s president be worried about? Is he to involved in detail and unable to separate the forest from the trees?
He sees his role as perpetrating and maintaining a proven system. Should Lincoln’s strategy be changing? In 1947, a union leader predicted that Lincoln was “headed for trouble.” Are there changes taking place which threaten Lincoln? Lincoln’s strategy of reducing costs and increasing volume would be difficult if not impossible in a no-growth economy. Could the management system work under these circumstances?