Lincoln Electric Case Study

Lincoln

1. Founded by John C. Lincoln in 1895 in Cleveland to manufacture electric motors and generators, Lincoln Electric introduced its first machine for arc welding in 1911. The company became the world leader in sales of welding equipment and supplies. James F. Lincoln, John’s younger brother, joined in 1907, The company held by the family until 1995, they put 40% of its equity into the hands of the general public. voting rights in the year 2005.
2. Incentive system

1. Piecework (paid on the basis of the number of pieces they produced) (Each worker also had to ensure his or her own quality)
2. Annual bonus (The bonus is paid  by the Board of Directors of the Company. It is the results based upon the contribution of each person to the overall success of the Company for that year) (In the 1980s and 1990s higher base wages and competitive pressures reduced bonuses to 50% to 60% of base pay)
3. Guaranteed employment
4. Limited benefits ) Christmas, and day off paid )

1. Management style and culture: (The mutual respect was reinforced by the workers’ recognition that management worked as hard as they did, often putting in 60- to 70-hour weeks) (open-door” policy toward all employees, encouraging them to bring suggestions) (Since 1914, an Advisory Board of elected employee representatives had met twice a month with Lincoln’s top executives)
2. Performance : 

1. Canada (1916 established a sales organization in Toronto, Canada. In 1925, it opened a manufacturing plant there and produced the full line of Lincoln products)
2. Australia (moved from the United States to Australia to manage a plant Lincoln had opened in 1938)
3. French (in 1955, Lincoln responded to a request from the French government for U.S)

1. International Expansion, 1988-1994 (James Lincoln’s death in 1965, William Irrgang became the first non-family member to lead the company) (in 1986, Willis became CEO) ( He believed that a slowdown in U.S. market growth, he would force Lincoln to find most future growth abroad)
2. Managing the new subsidiaries

(Willis retained the existing managers of most of the acquired companies to take advantage of their local knowledge) ( Resistance from many quarters hindered the implementation of key elements of the incentive system, Many of the European managers and workers were philosophically opposed to piecework value vacation time more highly than extra income from bonuses)

1. Financial trouble

(In 1991, while internal reworking was still in progress, the sales were hit hard by a severe recession in Europe and Japan) (When the 1992 Lincoln Electric had lost money for the first time in its history. Despite strong performance in the United States, 1993 saw another loss.“ The company was almost in a death spiral: it had shareholders’ equity approaching $300 million, and had lost over $80 million in two years)

1. A new broom...

Recognizing that Lincoln lacked the expertise needed to handle the crisis,

Hastings decided to look outside for executives with international experience. In April 1993, he hired Tony Massaro, president at Westinghouse Electric, as a consultant and brought him on permanently in August as director of international operations. Jay Elliott, president for finance at Goodyear Tire and Rubber Corporation, joined Lincoln in August as international chief financial officer to work closely with Massaro. The two were the first senior executives Lincoln had ever hired from outside the company. Hastings also added four heavyweight outsiders to the board of directors, including Edward E. Hood, Jr., former vice chairman of General Electric and Paul E. Lego, former chairman of Westinghouse.

Massaro’s first priority was to conduct an intensive examination of Lincoln’s new overseas subsidiaries. With Elliott’s help, he quickly identified several causes of the subsidiaries’ poor financial performance. First, they recognized that because most attention had been focused on the quality of the acquisition target’s manufacturing facilities, several of the newly acquired European companies had small market shares and weak sales organizations.

Another problem was that fragmented production had kept costs high. Instead of concentrating manufacturing of each product in one factory to take advantage of the EC’s elimination of intra-European tariffs in 1992.

In Venezuela and Brazil, Massaro and Elliott found different problems. There, the company had replaced inherited managers with former Lincoln distributors who were enthusiastic about Lincoln’s manufacturing and incentive systems but who had no manufacturing experience. Cleveland had given them little assistance, leaving them to succeed or fail on their own. “The Lincoln culture was so focused on individualism that corporate took a ‘sink or swim’ attitude with the subsidiaries,” commented Elliott.

1. ... Sweeps clean

The cleanup had two main stages. Some subsidiaries could not be saved and we had to shut these down. After that, we rationalized the product lines of the remaining plants in Europe and improved the sales force to increase volume.

The plants in Germany, Japan, Venezuela, and Brazil were judged too troubled to keep. In Germany, for example, sales costs were out of control, yet labor laws limited Lincoln’s flexibility to respond. Massaro noted that the plant’s militant union, IG Metall, was especially resistant to proposed changes, and the company ended up closing the subsidiary in 1994 at the cost of 464 jobs. Elsewhere in Europe, approximately 200 administrative and other non-production workers lost their jobs, leaving European operations’ overhead costs 20% below their 1993 level. Plant closings in Brazil, Venezuela, and Japan the same year eliminated another 120 positions.