Lincoln Electric and Kooistra Autogroep

AC411 Essay Submission 1 [201605433]

As examined in class, the Lincoln Electric and Kooistra Autogroep cases present relevant issues concerning the evaluation of management control systems. The Lincoln Electric’s Management Control Systems rely on two main points: the piecework incentive system and the annual bonuses based on each single worker’s rating.

This whole system contributed to the increasingly competitiveness of the firm due to the continuous productivity increase, which in this company means the ability to deliver high quality products at the lowest price possible through the maximum reduction of costs. This was mainly possible because of the two MCS techniques mentioned before, which encouraged the worker to produce as many pieces as possible, with the final objective of the annual bonus, which was given to the workers with the highest productivity.

Now, let us take into account the possible issues this system could face if implemented abroad, focusing on Europe. One could consider that in the specific context in which LE has been object of academic research (the 1970s in the USA) the role played by trade unions was marginal: there were actually no trade unions within the company in that period. Some European countries, such as Italy for example, or the Scandinavian countries, provided a higher significance to the role of trade unions, thus empowering workers to argue against possible managers’ decisions which could limit the rights of the workers. Furthermore, the USA have always been the country symbol of capitalism: get to work, do it well and the system will adequately reward you. This is antithetical to the communist countries, where implementing this system would have been much more difficult in the 1970s, since equality was seen as a priority: no worker could have a higher salary than the others.

On the other hand, another LE management system key factor such as the effort to reduce distinction between management and workers could easily be carried out in such countries.

Another relevant point which has to be taken into account when evaluating this issue is the fact that at that time the markets were booming: after World War II, as a deep process of urbanisation was ongoing, many were the construction sites, so the demand for arc welding products was experiencing a sharp increase.

Nowadays the market is full: there would be no point for the piecework rate to be kept alive, or for the annual bonuses based on productivity to be still in use.

Let us focus on the Kooistra Autogroep indeed, where some of the salesman declared: “At the beginning of 2006, one of my top salesmen asked for a salary raise. I offered her a bonus instead. In her situation the bonus would have resulted in more money than the raise she had asked for, even in the poor last couple of years. Nevertheless, she was unhappy.”  ^[1]

This is also why, as stated in the book, the traditional compensating system in the Netherlands was not based on the individual performance of the worker, rather on his/her experience.