Strategy Assignment : Lincoln Electric

Topics: Minimum wage, Indonesia, Motivation Pages: 6 (2141 words) Published: November 11, 2005
Strategy Assignment : Lincoln Electric: Venturing Abroad

1.Lincoln's competitive advantage lies mainly in its effective compensation and benefits system which put forth three main elements to spearhead the company's efforts. The trinity of elements comprised of piecework, bonus system and guaranteed employment. Piecework provided workers with a sense of autonomy in that now, workers can earn as much as they are willing to work for. The bonus levels in Lincoln far exceeded those of industry peers and were based on their contributions in the form of output, ideas, cooperation, dependability and quality. Consequently, the benefits provided by Lincoln were not extensive as they saw higher wages as substitutes for things such as insurance, and workers were also in a better position to decide their own benefits. All these elements combined gave workers a sense of ownership in the company and motivated them to work harder as entrepreneurs rather than mere workers. It also helped that Lincoln's managers strove to build a sense of trust with the workforce thereby reducing the need to form unions as well as enhancing their willingness to abide by company policies. This willingness is extremely important in James Lincoln's philosophy of offering guaranteed employment as a means to attain higher efficiency as workers are able to adjust to different economic situations by their willingness to modify their working hours and job designations. The trinity combined resulted in high productivity with an output 3 times higher than competitors with just half of their workforce. Coupled with the fficiency from continuous improvement in production process, employee effort and a seven-day-a-week equipment utilization meant Lincoln managed to generate huge cost savings. On top of that, Lincoln passed the cost savings on to its customers which created very high demand. The profits are then passed back to the workers, motivating them and sealing up a hugely successful strategic cycle indeed.

2.Lincoln's failed international ventures can be attributed to several factors, one of which was the leadership of former CEO, Irrgang which left a legacy of a management team without any substantial international experience. Another reason was the fact that most of Lincoln's acquisitions were unionized and had poor relations between management and labour. Furthermore, the differences in cultures and legislation were not something Lincoln had paid enough attention to understand in the process of acquiring foreign subsidiaries. Transplanting the Lincoln approach wholesale was not effective because the differences in cultures meant different priorities in values which rendered the incentive system practically toothless in certain areas while in Germany, piecework was totally illegal. The lack of supervision from the corporate headquarters in Cleveland further compounded the situation. Subsidiaries were left to their own devices and maintained fragmented production which not only failed to take advantage of intra-European tariffs elimination but also kept costs high. In addition, corporate executives even overlooked the recession in Europe and Japan because of their undivided focus o Cleveland. Even a move to curb the international losses failed because the team entrusted with the responsibility of analyzing and setting goals for foreign operations was made up entirely of Cleveland-based managers who were ill-equipped to adjust to local conditions. Indeed, Lincoln was led under the false assumption that factors of motivation were universal, and that a target's manufacturing facilities was adequate enough to build a successful enterprise without looking at other aspects of the target company such as market share and strength of sales organization. 3.The new internationalization strategy is markedly different from the old one in that instead of focusing on the mature North America and Europe markets, it is focusing on markets that were predicted to...
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