Lincoln Electric by Joe Attinello , Cali Cook , Alia Goss , Kurt Oliver , Mark

Strom , Mike Torbenson

History and Background

Lincoln Electric today is the worlds leading manufacturer of arc welding products,
and also is one of the leading producers of electric motors, which was their very first
product. John C. Lincoln is the founder of Lincoln Electric, which opened in 1895. He
previously had been working for the Elliot-Lincoln Company who was a producer of
Lincoln’s electric motors, but during the depression the company had lost so much he was
forced to leave. Using the $200 he earned from redesigning an engine for Herbert Henry
Dow, John opened his new business, with electric motors of his own design as the main
product (Buller/Schuler, 2006). During that first few years the company grew but had
some setbacks, which include a fire in the first year of operation. In 1906 John
incorporated his business and moved it from a fourth floor room in a factory he was in, to
a newly constructed three-story factory. He then expanded his work force and the sales
grew to over $50,000 a year (Buller/Schuler, 2006). In 1907, John’s brother James joined
him as a salesman and to help manage the company, as John preferred to be more
involved in the inventing stage and less in the management of the products and company
(www.lincolnelectric.com/corporate/about/history.asp).
Over the next few years the product line was expanded to include battery chargers for
electric cars, and in 1909 the first welding set was produced. Then in 1911 the company
introduced a variable voltage, single operator, portable welding machine, and the very first
in the world (www.lincolnelectric.com/corporate/about/history.asp). When World War II
started, the company saw a dramatic change in demand for its welding products, ship
hulls needed to be welded so this created a new market for the company and brought on
expansion of the business (www.lincolnelectric.com/corporate/about/history.asp). By the
start of the war Lincoln Electric was the worlds leading producer of arc welding products,
and sales grew from $4,000,000 in 1934 to $24,000,000 in 1941 (Buller/Schuler, 2006).
Many of the Lincoln workers were drafted so the company hired on many women and
minority workers for the first time. Because of the demand for welding products during
wartime, the production of motors was suspended, so the company could focus its
resources on the welding products. During this time the company saw a doubled
productivity level from its workers .The year 1959 marked the death of John Lincoln.
Then in 1960 the company brought back its motor product line and introduced a new
award winning design. James Lincoln passed away in 1965, and George Willis became
president. During the 1980’s the company hit hard times, with the sales dropping by 40
percent, because of inflation, higher energy costs, and the nation being in a recession,
and even though the company was losing sales they did not any of their employees laid
off. Then in 1986 George Willis was named chairman and Donald F. Hastings became
president. Donald Hastings became chairman, and Fred Mackenbach was the new
president in 1992. They then consolidated and reorganized all of the foreign operations,
and during this time asked their U.S. employees to increase the levels of their production
and sales. Since 1993 there have been sales records set every quarter
(www.lincolnelectric.com/corporate/about/history.asp).
Now Lincoln Electric employs around 4000 people not including the 200 or so in the sales
force, in its U.S. factories and in factories and sub companies all over the world, including
locations in France, Canada, China, Australia, Indonesia, South Africa, Brazil, Poland and
others. Employees today enjoy pension plans, opportunities of promotion from within, and
continuous employment. Lincoln has around a 40 percent U.S. market share for its arc
welding products. In 2005 the company entered its 110th year of existence
(Buller/Schuler, 2006).

Company Philosophy
When James F. Lincoln founded Lincoln Electric he wanted the company to be
recognized for its care of people as much as its dedication to quality product. This is why
Lincoln used Christian ethics when setting his company philosophy. The company strives
to give the customer the highest quality product considering their needs. This products
cost will then be based on the efficiency of production and not what the customer is willing
to pay; at no time will the customer be deceived into buying the product at a cost for more
than it’s worth. These ethics also follow Lincoln
s ideas that it’s the customer that
finances a company through retained earnings and not the stockholder (Buller/Schuler,
2006).
To help establish this philosophy of Christian ethics Lincoln Electric has established six
core values. These are: Respond to our customers needs and expectations with quality,
integrity, and value, Recognize people as our most valuable asset, maintain and expand
the Lincoln Incentive Management Philosophy, practice prudent and responsible financial
management, strive continually to be environmentally responsible, and support
communities where we operate and industries in which we participate. These six values
help dictate the way Lincoln Electric operates and helps to establish the corporate culture
as well as the organizational behavior (Buller/Schuler, 2006).
Two of the six core values relate directly to the organizational behavior of Lincoln Electric
while four of the core values relate better to the overall Lincoln Electric business model.
By working to recognize people as their most valuable asset and maintaining the Lincoln
Incentive management philosophy Lincoln Electric is establishing its commitment to its
employees. These specific core values help increase organizational commitment from
employees because the employees want to work for Lincoln Electric.
Lincoln Electric recognizes people as their most valuable asset through a myriad of goals
including federal standards and company policies. Lincoln Electric follows safety
standards by helping the employees work in a safe, clean, and healthy environment.
Employees are trained and able to work in multiple departments and internationally as a
way to broaden skills. Lincoln Electric demands that employees show integrity, discipline,
and professional conduct in all aspects of business and to conduct business ethically.
And the most important aspect of this core value is the recognition of employees hard
work and extraordinary achievement through pay for performance (Buller/Schuler, 2006).
By incorporating each goal Lincoln Electric is able to emphasize their commitment to the
employees.
Lincoln Electric is famous for its Lincoln Incentive Management Philosophy that
recognizes dynamic teamwork and incentive as the most profitable and cost-effective way
of achieving their goals. Some goals of this plan are committed work ethic and positive
employee attitudes throughout the company, a high quality, low-cost manufacturing
process, and a dedicated and knowledgeable sales and service force. An example is
promoting employee involvement in cost reductions and quality improvements.
Lincoln Electric has established itself as a desirable employer because of the company’s
high commitment to success and its employees. The company philosophy has been well
supported by the core values, which work to build up all aspects of the business. Each
goal of the core values has its own importance and helps the balance of the entire
company and brings it in line with the way James Lincoln saw it in 1895. When James
Lincoln founded the company he recognized the importance of having high quality people
producing high quality products and this vision has been passed on since Lincoln’s death
in 1965.

Case Study
Imagine having a management system that is so successful people refers to it with capital
letters— the Lincoln Management System— and other businesses benchmark their own
systems by it. That is the situ-action of Ohio- based Lincoln Electric. For a number of
years, other companies have tried to figure out Lincoln Electric’s secret— how
management coaxes maximum productivity and quality from its workers, even during
difficult financial times. Lately, however, Lincoln Electric has been trying to solve a
mystery of its own: Why is the company having such difficulty exporting a management
system abroad that has worked so well at home?
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. The
company’s products are used for cutting, manufacturing, and repairing other metal
products. Although it is now a publicly traded company, members of the Lincoln family still
own more than 60 percent of the stock.
Lincoln uses a diverse control approach. Tasks are precisely defined, and individual
employees must exceed strict performance goals to achieve top pay. The incentive and
control system is powerful. Production workers are paid on a piece- rate basis, plus merit
pay based on performance. Employees also are eligible for annual bonuses, which
fluctuate according to the company’s profits, and they participate in stock purchase plans.
A worker’s bonus is based on four factors: work productivity, work quality, dependability,
and cooperation with others. Some factory workers at Lincoln have earned more than $
100,000 a year.
However, the Lincoln system succeeds largely because of an organizational culture based
on openness and trust, shared control, and an egalitarian spirit. To begin with, the
company has earned employee trust with its no layoff policy. In fact, the last time it laid off
anyone was in 1951. Although the line between managers and workers at Lincoln is firmly
drawn, managers respect the expertise of production workers and value their
contributions to many aspects of the business. The company has an open- door policy for
all top executives, middle managers, and production workers, and regular face- to- face
communication is encouraged. Workers are expected to challenge management if they
believe practices or compensation rates are unfair. Most workers are hired right out of
high school, then trained and cross- trained to perform different jobs. Some eventually are
promoted to executive positions, because Lincoln believes in promoting from within. Many
Lincoln workers stay with the company for life.
One of Lincoln’s founders felt that organizations should be based on certain values,
including honesty, trustworthiness, openness, self- management, loyalty, accountability,
and cooperativeness. These values continue to form the core of Lincoln’s culture, and
management regularly rewards employees who manifest them. Because Lincoln so
effectively socializes employees, they exercise a great degree of self- control on the job.
Each supervisor oversees 100 workers, and less tangible rewards complement the piece-
rate incentive system. Pride of workman-ship and feelings of involvement, contribution,
and esprit de corps are intrinsic rewards that flourish at Lincoln Electric. Cross- functional
teams, empowered to make decisions, take responsibility for product planning,
development, and marketing. Information about the company’s operations and financial
performance is openly shared with workers throughout the company.
Lincoln emphasizes anticipating and solving customer problems. Sales representatives
are given the technical training they need to understand customer needs, help customers
understand and use Lincoln’s products, and solve problems. This customer focus is
backed by attention to the production process through the use of strict accountability
standards and formal measurements for productivity, quality, and innovation for all
employees. In addition, a software program called Rhythm helps streamline the flow of
goods and materials in the production process.
Lincoln’s system worked so well in the United States that senior executives decided to
extend it overseas. Lincoln built or purchased eleven plants in Japan, South America, and
Europe, with plans to run the plants from the United States using Lincoln’s expertise with
management control systems. Managers saw the opportunity to beat local competition by
applying manufacturing control incentive systems to reduce costs and raise production in
plants around the world. The results were abysmal and nearly sunk the company.
Managers at international plants failed to meet their production and financial goals every
year— they exaggerated the goals sent to Lincoln’s managers to receive more resources,
especially during the recession in Europe and South America. Many overseas managers
had no innate desire to increase sales, and workers were found sleeping on benches
because not enough work was available. The European labor culture was hostile to the
piece-work and bonus control system. The huge losses in the international plants, which
couldn’t seem to adopt Lincoln’s vaunted control systems, meant the company would
have to borrow money to pay U. S. workers’ bonuses, or forgo bonuses for the first time in
Lincoln’s history. Top managers began to wonder: Had they simply done a poor job of
applying the Lincoln Management System to other cultures, or was it possible that it
simply wasn’t going to work abroad?

Questions
1. What types of Control is described here – feedforward, concurrent or feedback?
Is the control approach bureaucratic or decentralized? Explain your answers.
2. What is the problem of transporting Lincoln’s control systems to other national
cultures? What suggestions do you make to the management to make future
international manufacturing plants more successful?