The Lincoln Electric Company

Manufacturing System and Design

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Introduction 115 YEARS OF EXCELLENCE Lincoln Electrics tradition of innovative solutions, technological leadership and commitment to customers, employees, and shareholders stems from the vision of its founder, John C. Lincoln and his brother, James F. Lincoln. 1895 John C. Lincoln founded The Lincoln Electric Company with a capital investment of $200.00. The product: electric motors of his own design. 1900 1919 John C.'s younger brother, James F. Lincoln, joined the Company as a salesman in 1907. Meanwhile, the product line had been expanded to include battery chargers for electric automobiles. A welding set is first made by the Lincoln brothers in 1909. In 1911, Lincoln Electric introduced the first variable voltage, single operator, portable welding machine in the world. In 1914, wishing to concentrate on scientific investigation, John C. turned the reins of the Company over to James F. Lincoln. James F. introduced piecework pay and established the Employee Advisory Board, which includes elected representatives from every department and has met every two weeks ever since. By 1915, in a progressive effort for its time, Lincoln Electric employees were covered by group life insurance. In 1916, The Lincoln Electric Company of Canada was incorporated to distribute the U.S. made products. The next year, The Lincoln Electric Welding School was founded. The school has trained more than 100,000 people since its inception in 1917. 1920 1939 Lincoln Electric's production of welders surpassed that of motors for the first time in 1922, making welding the company's primary business. In 1927, Lincoln Electric introduced the Fleetweld 5 coated electrode which produced welds with 20 - 50% higher tensile strength and 100% greater ductility than those made with bare electrodes. Lincoln Electric employees earned paid vacations, among the first in the nation, in 1923. The first Lincoln Electric employee stock ownership plan, one of the first in the country, was initiated in 1925. An employee suggestion program was implemented in 1929. Lincoln Electric employees received their first annual Incentive Bonus in 1934. While the average Lincoln

Electric worker's pay more than doubled during the decade of the Great Depression, electrodes which had sold for $0.16/lb in 1929 were selling for less than $0.06/lb by 1942. After working 12 years to perfect a ductile weld, John Lincoln created a patented flux which, for the first time, made a weld as flexible as steel. The Procedure Handbook of Arc Welding Design, first published in 1933, is today in its 13th edition. More than two million copies of this textbook have been sold. In 1936, The James F. Lincoln Arc Welding Foundation was founded as a nonprofit educational organization to advance arc welding as a leading materials joining process. That same year, a young salesman named William I. Miskoe was sent halfway around the world to establish The Lincoln Electric Company Pty. Ltd. in Australia. 1940 1949 World War II brought a dramatic expansion of Lincoln Electric's business, with welded ship hulls creating an enormous new market for arc welding products. After many Lincoln Electric workers were drafted, the company hired large numbers of women and minority factory workers for the first time. Motor production was suspended to focus resources on supporting the wartime welding product demand. 1950 1969 In 1951, Lincoln Electric constructed a modern plant with unique material handling capabilities in Euclid, Ohio. Lincoln Electric France SA was established in 1953 with the construction of a plant in Rouen, a short trip from Paris. Major innovations of the 1950's included the Jetweld fast-fill low hydrogen stick electrodes and Innershield self-shielded flux-cored wire electrodes. James F. Lincoln continued to enhance Incentive Management, adding a cost of living multiplier, formal merit rating, and guaranteed continuous employment. In 1959, John C. Lincoln passed away. In the 1960's, motors returned to the company's product line with an award winning new model featuring an extruded aluminum frame and automatically wound stator coils. James F. Lincoln passed away in 1965. 1970 1989 Lincoln Electric entered a new era of professional management with the promotions of George E. Willis to president and William Irrgang to chairman

in 1972. The Mentor, Ohio, electrode plant was started up in 1977 to produce the company's domestic wire consumables products. The early 1980's were a time of hardship, with Lincoln Electric's sales dropping 40 percent in response to the combined effects of inflation, sharply higher energy costs, and a national recession. Although guaranteed continuous employment received a severe test, not one Lincoln Electric employee was laid off for lack of work. In 1986, George E. Willis was named chairman and Donald F. Hastings became president. Mr. Willis pursued an energetic course of foreign expansion; eventually, Lincoln Electric obtained a controlling interest in manufacturing operations located in 16 countries.

Q1. How would you describe Lincolns approach to the organization and motivation of their employee? What are the key elements in the management system?
Answer Lincolns approach to motivate their employee was based on the performance based bonus. Each employee got their bonus based on his/her performance. This way they felt the boss of their own job and contributed to the efficiency. Many of them earned much more than their counterpart in other organizations. According to the James F. Lincolns Status is much greater incentive than money There never will be enthusiasm for greater if the resulting profits are not properly distributed. If we continue to give it to the average stockholders, the worker will not cooperate.

The high levels of productivity common to Lincoln employees can be attributed to motivation and job satisfaction: 1. Guaranteed employment: no layoffs since 1948, instead LECO rotates through co. (skill variety).

2. Equity: employees earn comparable, sometimes higher, wages than other manufacturing companies. In addition, there are short power distances between laborers and managers (common cafeteria, no reserved parking, managers work long shifts, etc.) As a result, employees feel that they are being treated fairly. 3. Expectancy: wages based on piecework and an annual bonus gives the average worker the possibility to increase total compensation. According to expectancy theory, employees are motivated by the belief that they can expect to achieve certain desired rewards by working hard to attain them. 4. Instrumentality: performance. Rewards are explicitly linked to a measurable

5. Positive Valence: employees value the rewards that are offered to them for desirable behaviors.

Q2. What role do you think this approach has played in Lincolns performance over the last 25 years? Have any other factors been more important?
Answer The incentive system has played the most important role in Lincolns performance over the last 25 years because management believes that through competition and adequate incentives every person could develop to his or her fullest potential. Therefore, it has resulted in high labor productivity and subsequently relative low production cost. Besides the incentive system, there are other important (but not more important than the incentive system) factors such as top field sales force, innovative plant, and high administrative productivity. To add to the above, reasons for Lincolns performance as said by M. Norman fast, product development procedure, research and development, purchasing process, manufacturing supervision, production control, inventory

management, technically trained sales department etc have also played major role.

Q3. What factors would be critical to Lincolns continues success?

Answer The company produced and sold products of high quality at lower rates than its competitors. Exhibit 3 and 5 clearly shows its competitive advantage over its competitors. Incentive scheme for employees and other factors discussed above helped company maintain high productivity at lower cost. The most critical factor to Lincolns continued success is whether management can keep providing attractive incentive and compensation to their employees and keep their employees enjoying the competitive and motivated working environment. Furthermore, management should continue to be to have everyone in the organization recognize that the common goal of the company is to give the customer the quality he needs, when he needs it, at the lowest cost. And management still needs to assure that the company keeps up with the technology and have sufficient profit to pay the suppliers of capital. Then management has to make sure communication can be maintained adequately. Company should maintain its transparency in system.

Q4. What are the recommendations would you make for Mr. Willis?
Answer Mr Willis has done great job keeping costs at the lowest and motivating employees productivity. Future may change when Lincoln will not be able to pay high incentives to its labor or they may not want to work for extra hours. But for last 28 years, strategy used by Mr. Willis has worked very well and there is not any need to change the current system. Mr. Willis needs to maintain low cost and high productivity and gain on learning curve to lower cost even more. World seem to expand as predicted by Mr. Willis and there will be lots of construction and hence requirement of more Lincolns product. They need to expand business and maintain high motivational factor of employee, productivity and low cost.

Q5. What is the applicability of Lincolns approach to motivation to other companies and situations? Why dont more companies operate like Lincoln?
Answer Lincolns approach is to lower the cost and pass it to the customers. They continuously strive to increase productivity, motivate employee, lower expenses in each department. According to Willis, they are the best manufacturing company in the world. This single sentence shows mission and vision of the company. Lincoln has the competitive edge of manufacturing innovative products at lower cost and they passed this efficiency to the customers. Other companies could not achieve such high efficiencies or productivity. May be their mission and vision differed from Lincolns. Lincolns leader were clear that making money only for stockholders will not motivate workers on shop floor, hence there should an incentive for them also. Lincolns sales force were full of engineers who went through rigorous training program of 7 months, while competitors hired sales force who were not engineers. Market demand was more technical everyday which engineers could explain and solved in a better way.