DEPARTMENT OF AGRIBUSINESS MANAGEMENT AND ENTREPRENEURSHIP

College of Economics and Management

University of the Philippines at Los Baos
College, Laguna, 4031 Philippines
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Case Analysis

Case No. 5: Lincoln Electric

Submitted to:
Prof. Dia Noelle F. Velasco

In partial fulfillment for the requirements of the subject

Organization and Management (MGT 201)

Submitted by:

Marc Jason C. Delomen

Judy Ann V. Rebong
Luis Julius Bragais

November 18, 2016

I. POINT OF VIEW

Lincoln Electric Top Managers

The companys top managers will have shoulder most of the decision making
process since they were the ones who extended the their management system overseas.
MGT 201 Organization and Management
Case 05: Lincoln Electric
Group 03

II. SYNOPSIS

Lincoln Electric, a leading manufacturer of welding products, welding equipment,

and electric motors, is faced with the challenge of determining the reason behind the
ineffectiveness of their management to other cultures overseas. Internally, Lincoln
Electric uses a diverse control approach wherein tasks are precisely defined and
employees strictly exceed performance goals to achieve top pay. The company succeeds
largely because of the organizational culture which was based on trust, shared control,
and an egalitarian spirit. The companys trust can be attributed to the no layoff policy,
respect between managers and workers, open-door policy and promotion from within the
company. The core of Lincolns culture was formed by certain values such as honesty,
trustworthiness, openness, self-management, loyalty, accountability, and cooperativeness
with which employees receive rewards once these qualities have been observed from
them.

With regards to customer issues, sales representatives are given the technical
training they need for understanding the customers needs. They have a customer focus
backed up by attention to production process through the use of strict accountability
standards and formal measurements for productivity, quality, and innovation for
employees.

Due to the success of Lincolns system in the United States, the senior executives
decided to extend it overseas. Eleven plants in Japan, South America, and Europe were
purchased or built by the company. Managers, being positive that their system could beat
the local competition of these overseas plant, applied the same manufacturing control
incentive systems to reduce costs and raise production in plants around the world.
However, the results were abysmal. Huge losses nearly caused the company to sunk.
Goals were not achieved, international managers had no innate desire to increase sales,
and workers were found sleeping on benches. With this, the top management has to re-
strategize in terms of the control that they will apply on their management systems
abroad.

III. ANALYSIS OF CASE SITUATION

A. Case Facts

Lincoln Electric is a leading manufacturer of welding products,

welding equipment, and electric motors, with more than $1 billion in sales and
6,000 workers worldwide.

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MGT 201 Organization and Management
Case 05: Lincoln Electric
Group 03
The company has a very successful control system called the
Lincoln Management System which is revered by other businesses by using it as a
benchmark for their systems.

The company uses a diverse control approach in which tasks are

precisely defined and individual employees must exceed strict performance goals
in order to achieve top pay.

The company implements a no layoff policy and last time it laid

off anyone was in 1951.

The company has an open-door policy for all top executives,

middle managers, and production workers, and regular face-to-face
communication is encouraged.

The Lincoln system succeeds largely because of an organizational

culture based on openness and trust, shared control, and an egalitarian spirit.

The company workers are paid via a piece-rate system.

There is a recession in Europe and South America.

The European labor culture was hostile to the piece-work and

bonus control system.

Lincoln Electrics Approach to Management

The company uses a decentralized approach to management. The basic

assumption of having a decentralized control is that people work best when they are fully
committed to the organization1. It relies on cultural values, traditions, shared beliefs, and
trust to foster compliance with organizational goals. The following are examples of
instances stated in the case that shows a decentralized approach:

The Lincoln system has an organizational structure based on

openness and trust, shared control, and an egalitarian spirit.

Cross-functional teams, empowered to make decisions, take

responsibility for product planning, development, and marketing.

1 Daft, R. L. (n.d.). Hierarchical versus Decentralized Approaches. In Management (p. 549).

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Case 05: Lincoln Electric
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The company so effectively socializes employees that they
exercise a great degree of self-control on the job.

Open-Book Management

An organization that promotes information sharing and teamwork admits

employees throughout employees throughout the organization into the loop of financial
control and responsibility to encourage active participation and commitment to goals 2.
The company implements open-book management by openly sharing information about
the companys operations and financial performance with workers throughout the
company.

B. Assumptions Made

The early 1980s were a time of hardship for the company with
sales dropping 40 percent in response to the combined effect of inflation, sharply
higher energy costs, and a national recession. Even though the company received
severe test on its employment, the company has not laid off a single employee3.

In a European country like Germany, for example, the average

factory workweek is 35 hours. In contrast, the average workweek in Lincolns US
plants is between 43 and 58 hours, and has a flexibility when longer working
hours are needed4.

Licolns two main plants are in the Cleveland area in Ohio5.

The company given its leading status has a large market share in
the United States.

Lincoln Electric has existing marketing and manufacturing

operations in Australia, Canada and France.

2 Daft, R. L. (n.d.). Open-Book Management. In Management (9th ed., p. 550).

3 The Lincoln Electric Company. (n.d.). Company History. Retrieved November 17, 2016, from http://www.lincolnelectric.com/en-
ca/company/Pages/company-history.aspx

4 Seal, W., OBrien, F., ODea, W., & Tagoe, N. (n.d.). Autumn Examinations. National University of Ireland, Dublin.

5 Hastings, D. F. (1999). Lincoln Electrics Harsh Lessons from International Expansion. Harvard Business Review. Retrieved from
https://hbr.org/1999/05/lincoln-electrics-harsh-lessons-from-international-expansion

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MGT 201 Organization and Management
Case 05: Lincoln Electric
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C. Company Analysis

Financial Position

The company is struggling to compensate for the losses in its overseas plants.
They are considering borrowing money to maintain the bonuses of its US
workers.

Marketing

Their marketing in the United States is strong, with their emphasis in solving
customer problems. But it seems like they lack marketing in European countries
who patronizes their home-grown products.

Lack of International Experience

As reading one of the references of the case, it was stated that the senior
management of the company lacks experience in the international stage. This was
one of the main causes why their acclaimed management system failed in its
globalization efforts.

Organizational Structure

Lincoln Electric started as a small company in the early 1900s. But during their
expansion phase their CEO is a one man army, having to directly address all the
problem facing the company.

IV. PROBLEM
A. Problem Analysis

The huge losses of the company was brought upon by the poor receptivity of the
Lincoln Management System to the overseas plants, the pessimistic attitudes of its
foreign managers on sales and the inappropriate predictions of the production and
financial goals of its overseas plants. The hostility of the Europeans to the incentive
system was the effect of the different work practices and traditions. The economic
recession has great impact to the outlook in life of its European managers and employees.

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Case 05: Lincoln Electric
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B. Problem Flow Diagram

C. Problem Statement

How would the companys top managers strategize to compromise different work
practices and lack of motivation of its overseas plants to the Lincoln Management
System?

V. FORMULATION AND EVALUATION OF ALTERNATIVE SOLUTIONS

A. SWOT Matrix

Opportunities Threats
External
Environment i) The company has a large i) There is a recession in Europe and
market share in the US. South America
Analysis

ii) Lincoln Electric has existing ii) The European labor culture was
Internal marketing and manufacturing hostile to the piece-work and bonus
Environment operations in Australia, Canada and control system
Analysis France.
iii.) There is a cultural diversity from
the plants abroad

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Case 05: Lincoln Electric
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Strengths SO Strategies ST Strategies

i) Lincoln Electric is a leading Implement strict Total Quality Implement strict Total Quality
manufacturer of welding products, Management first in the US then Management across all plant locations.
welding equipment, and electric benchmark across all plant locations
motors abroad. Define a Balanced Scorecard per plant
location and include the financial
ii) The company has a very performance, customer service
successful control system called the indicators, internal business processes,
Lincoln Management System and continuous improvement. Each
plants scorecard will be reviewed on a
iii) The company uses a diverse defined basis and presented to top
control approach managers from the main plant.

iv) The company implements a

no layoff policy

v) The company has an open-

door policy

vi) The company uses a

decentralized approach to
management

vii) The company workers are paid

via a piece-rate system

Weaknesses WO Strategies WT Strategies

i) Managers at international Re-design Lincoln management system Re-design Lincoln management

plants fail to meet their production
and financial goals every year.
ii) Many overseas managers
are pessimistic regarding increasing
per plant location abroad so as to system per plant location abroad so
address the differences in cultures. as to address the differences in
cultures.
Implement bureaucratic control

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Case 05: Lincoln Electric
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sales
iii) Borrowing money to pay for
US workers bonuses can cause
cultural shock to employees
iv) Overseas workers found
sleeping because of not enough
work available
v) Lincolns senior managers
lack international experience in
handling their overseas plants.
Alternative Solutions
Implement strict Total Quality
Management first in the US
then benchmark across all
plant locations abroad.
Define a Balanced Scorecard
per plant location and include
the financial performance,
customer service indicators,
internal business processes,
and continuous improvement.
Each plants scorecard will be
reviewed on a defined basis
and presented to top
managers from the main plant.
B. Evaluation of Alternatives
Rationale
TQM aims to achieve high
customer satisfaction
through the involvement of
all employees on the
companys quality
management.
Implementation of TQM
across all the plant locations
would help the top
managers have a common
goal where all plants can
focus.
Having a Balanced
Scorecard will allow other
plants abroad to see the
performances of each other.
This would in turn results to
a positive competition
among the plants.
approach to all plant locations.
Close the plant with the largest costs
incurred.
Pros Cons
A Effectiveness may not
common goal will be be measured in an instant.
pursued across all
plants
There
will be a centered
focus on customer
satisfaction and
continuous
improvement.
Easy
to implement since
Lincoln Electrics
management system
already gives
importance to
customer satisfaction
and employee
involvement.
Would
increase employee
motivation due to the
emphasis of employee
involvement in the
continuous
improvement of the
company.
Positive May not have a direct
competition among impact on the the employees
different plants that on the line.
could lead to increased
employee morale and
thereby would aid in
increased sales and
profit
Easy to
implement since the
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MGT 201 Organization and Management
Case 05: Lincoln Electric
Group 03
scorecard will be the
same for all plants.

Re-design Lincoln Lincoln management has Will directly Implementation might

management system per plant
location abroad so as to
address the differences in
cultures.
proven its effectiveness
locally. Taking it overseas
should require careful
analysis and trial and error
approach to have the
appropriate system
applicable per plant abroad.
address the concern of take too long since the
cultural diversity on the approach will be trial and
locations of the other error.
plants.
Procedure of
implementation is clear
and defined following
the Control Process.
Creates a more
flexible management
system which is easier
for the other plants to
adapt.

Close the plant with the largest
costs incurred and increase
sales and production in the US
plants to offset the losses, and
introduce new products..
Closing one of the overseas
plants would result to
reduction in costs that could
be further incurred by the
company.
Increasing sales and
production will increase the
cash assets of the company,
therefore offsetting the
losses in the overseas
plants.
Will reduce
further costs that could
be incurred by the
company.
Increasing sales
will reduce the debts
from its lenders. Since
the company is already
borrowing from banks to
fulfill its financial needs.
May lead to other
threats due to possible
negative views from the
people due to closure of a
certain plant.
Increasing production
means that the employees will
reduce vacations to meet the
increased production goals.

VI. RECOMMENDATION

A. Rationale

Based on the evaluation of the pros and cons of the listed alternatives, the best
alternative is to implement a strict Total Quality Management at Lincoln Electrics US
Plant and benchmark this system across the other plants abroad. Total Quality
Management, or TQM, is a method by which the management, together with the
employees, become involved in the continuous improvement in the products and services.
It is a combination of quality and management aimed at reducing costs incurred from
wastes from production. TQM is the foundation of activities which include (Hashmi,
2016):

Commitment by senior management and all employees

Meeting customer requirements
Reducing development cycle times
Just in time/demand flow manufacturing
Improvement teams
Reducing product and service costs
Systems to facilitate improvement

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Case 05: Lincoln Electric
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Line management ownership
Employee involvement and empowerment
Recognition and celebration
Challenging quantified goals and benchmarking
Focus on processes / improvement plans
Specific incorporation in strategic planning

It also has the following key principles as listed by Martin, L. (1993):

Management Commitment

Plan (drive, direct)

Do (deploy, support, participate)
Check (review)
Act (recognize, communicate, revise)

Employee Empowerment

Training
Suggestion scheme
Measurement and recognition
Excellence teams

Fact Based Decision Making

SPC (statistical process control)

DOE, FMEA
The 7 statistical tools
TOPS (Ford 8D team-oriented problem solving)

Continuous Improvement

Systematic measurement and focus on CONQ

Excellence teams
Cross-functional process management
Attain, maintain, improve standards

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Customer Focus

Supplier partnership
Service relationship with internal customers
Never compromise quality
Customer driven standards

With these, TQM provides the principle that the root cause of mistakes in the process can
be identified and eliminated and repetition can be prevented.

B. Implementation Plan

Since their Lincoln Management System has considerable success in the United States,
there is a need to bridge the problem of cultural and working differences in its foreign plants.
This will done via benchmarking. The overconfidence of the senior management has brought a
rushed globalization effort to reduce their dependency in the United States considering the
effects economic recession to the country. This has resulted in the massive losses in its overseas
plants.
The top management would focus on the interoperability between its experienced US
workers and the overseas plants. The overseas managers especially its sales and directors would
be involved in the process. The following steps will be implemented by the senior top managers
of the company:

1. Identifying what to benchmark

This includes clarification of the benchmark objectives. This process would

involve the overseas managers. A process would be defined and the scope is established.
Boundaries are set and the involved people would agree on what happens in the process.

2. Determining what to measure

The top managers would examine the flow chart and establish the process
measures. A verification process is made to verify that measures match objectives.

3. Identifying who to benchmark

In this step a general research would be conducted. A level would be chosen for
the benchmarking process.

4. Data collection

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The top brass would issue questionnaires to the the involved people. A benchmark
site visit would be conducted.

5. Analyzing data and determining the gap

This would involve quantitative data and qualitative analysis.

6. Setting goals and developing the Action Plan

In this process performance goals would be set. An action plan would be developed.

7. Monitoring the process

The changes would be tracked and making the benchmarking a habit.

For the benchmarking to succeed, it must have the full support of the senior management of
Lincoln Electric and they should be actively involved in the process. The team and process
training is very important. If correctly implemented, the problem of cultural differences, lack of
motivation of overseas managers, and wrong production and financial goal setting would be
avoided and thus lessen the losses of the plants.

VII. CONTINGENCY PLAN

If the benchmarking process failed, the problematic plants would be shut down to curb the ever
increasing profit loss of the company. Also, to offset the losses incurred by its foreign plants, the
company would increase production capacity and introduce new products. Putting the US plants
into full capacity would put stress to the employees and remove its vacation and holidays.

Plant Shutdown Negotiation

The top managers would select which plants has the most consecutive losses in its overseas
operations. Since the plants were purchased, they have to carry out the plant closings by
negotiations since there will be affected workforce.

References:

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Case 05: Lincoln Electric
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Hashmi, Khurram. Introduction and Implementation of Total Quality Management (TQM) . Retrieved:
https://www.isixsigma.com/methodology/total-quality-management-tqm/introduction-and-implementation-total-quality-management-tqm/ .
Copyright iSixSigma 2000-2016.

Martin, L. (1993). Total Quality Management in the Public Sector, National Productivity Review, 10, 195-213.

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