Basic Information of Lincoln Electric Co.

Author: Norman A. Berg, Norman D. Fast Publisher: HBR Case Number: 9-376-028 Publication Date: Aug 1, 1975 Revision Date: Jul 29, 1983 Course Category: Management

Case Summary of Lincoln Electric Co.
³We¶re not a marketing company, we¶re not an R&D company, and we¶re not a service company. We¶re a manufacturing company, and I believe we are the best manufacturing company in the world.´- George E. Willis, President of Lincoln Electric Company

‡ World¶s largest manufacturer of arc welding products, manufacturing more than 40% of supply in United States ‡ Lincoln had grown steadily for four decades

Company History John Lincoln, co-founder of Lincoln Electric, was a talented inventor and technical genius, developing more than 50 patents for inventions, including an electric arc lamp. ‡ 1911, company introduced first arc welding machine, as a source to recharge batteries for electric automobiles. ‡ This first-mover advantage stayed with the company despite entrants from two giants- Westinghouse and GE. ‡ During WWII, proprietary methods were shared with the rest of the industry to aid the government, but Lincoln eventually outperformed competitors yet again.

Strategy

‡ Quality products at a lower cost. an average of approximately $10. 2) Year-end bonuses could exceed regular annual pay 3) Guaranteed employment for all workers Each job was rated on skill. Ratings could be discussed with department heads if there were any disagreements. required effort.´ A worker¶s share of the bonus pool was determined by a merit rating. otherwise. employees would avoid improved production for fear of losing jobs. ‡ Year-end bonuses averaged close to 100% of regular compensation. or 90% of pre -bonus wage. an individual performance rating based on the rest of the department. A base wage rate was assigned for each job. responsibility. the bonus po ol totaled $26 million. Compensation Policies Three components to compensation system: 1) Wages based on piecework for factory jobs. reduced costs were passed on to the consumer via low prices. Employees would perform any job . Guarantees of employment were seen as essential. Second element of compensation was the year-end bonus. Four factors were evaluated: 1) dependability 2) quality 3) output 4) ideas and cooperation.700 per employee. Management built success of company on two factors: 1) Producing more of a progressively better product at a lower price 2) Employee earnings and promotion are in direct proportion with company success Profits were fairly split amongst workers. (Many companies left market because they could not compete with these prices. etc. These wages were comparable to other Cleveland area jobs and adjusted to reflect cost of living. like GE) Incentive system played a large role in productivity. and management. ³In 1974. workers had incentive to work harder and produce more. a share of the results of the company. Savings were passed along to customers. customers.

This incentive plan applied to all workers in the company. They park their cars in the same lot and eat at the same tables in the cafeteria. Willis James. Only certain individuals had access to Xerox copying. there is no sense of division. Lincoln¶s president. with very little delegation from up top. with few defections. Openings were placed on bulletin boards in the plant and there was large room for advancement.assigned and work necessary overtime. established an Advisory Board to listen to the concerns of the workers. Costs were kept under tight wraps by the Maintenance Department and equipment was only replaced if it could not be repaired. An open door policy existe d where the two top executives. Workers were able to set aside money to pay for their houses and cars without worries.Top people make too many small decisions. Management did not have any special perks. helping employees with personal issues such as the death of a loved one. Management Style Management considers themselves on the same level as the workers. Management had a genuine concern for their workers. would meet with any employee. Outsiders could find jobs through hourly or piece rate factory jobs or by a training program in sales or engineering. using the same equipment as everyone else. although management still had the final say. except for entry-level jobs. Irrang and Willis. Irrang and Willis put in 80 hours weeks because of this. Workers felt like their opinion actually mattered. Potential weakness. working for their own benefit and often would work through breaks to be more productive. People felt like entrepreneurs. Personnel All open positions were filled from within. Very few business school graduates were hired due to . Employee Views Employees really liked working at Lincoln and the turnover rate was far below other companies. The executives office were minimalist in nature and not separated by walls. Any issues were either immediately resolved or assigned to an executive to be dealt with. a very open environment.

all materials were transported to work stations to be used. Weakness: Lincoln can¶t always deliver the product on time due to staff shortages because management refuses to hire short-term workers. As a result. comprised of engineering graduates. Firings could be appealed to top management for review and were occasionally reversed. status changes had to be approved by Willis. the Sales VP had 37 regional sales mangers reporting to him. There was no stockroom for supplies. not MBA¶s. Workers would work individually or in groups on a job and were paid by piece. the company had flexibility in deciding what work could be done at a station. The work flow followed a straight lines whenever possible. This causes overworking and possibly loss of productivity as some management is stretched too thin. Marketing Sales Force was extremely competitive. They are regarded as as the best paid and hardest working in the industry.the starting pay and harder work involved. they knew what they were getting with them. ‡ Organizational hierarchy was flat. This is also due to the guaranteed employment clause. Because there was no union. Management was more comfortable hiring people who already knew the system. This gives them a hands on experience which is further improved as they learn metallurgy and design in a 7-month training program. Manufacturing Plant was crowded with materials and equipment with employees working fast and efficiently. Possible flaws: ‡ Company did not send employees to outside management development programs or provide educational tuition grants. Coordination was maintained between Product design engineers and . Many operations were automated and the manufacturing equipment was designed and built by Lincoln. The president and chairman tightly controlled personnel matters.

There was a lot of resistance because people feared their jobs would become obsolete. Information was becoming more complicated and human error was becoming more of a concern. Biggest challenge.Lincoln¶s Order Department recently began computerizing operations. Administrative Productivity ‡ Lincoln had a personnel department of only 6 to service 2. I predict the Lincoln Electric Company is in for big trouble. Employees without computer experience were taught the system and then operated it after that.³If the day comes when they can¶t offer those big bonuses. The computers would save $100. ‡ Budgets weren¶t even used because employees just spent as little as possible. By 1974. ‡ Costs to customers were reduced by the Traffic department by mixing products in loads and shipping in the most cost-efficient way possible.´ Management saw no need to change strategy or worry about the future. . or his people decide there¶s more to life than killing yourself making money. Lincoln¶s Future Union critic. computers proved to be the solution. Lincoln relied on its capability to build its own components rather than purchase from outside vendors.000 a year and give greater control of information. the plant reached capacity and was running nearly around the clock. as if it were their own business.Methods Department to reduce costs.300 employees. is to keep up with technology and to maintain profit. Computerization. Employees trusted them and the need for their product would always be there (as they saw it). so a second plant was in the works to be built.