Barinder Mangat

A20320870
Lincoln Electric Case Study Analysis
Introduction:
Lincoln Electric manufactures electric motors and generators and was founded in 1895 by John
C. Lincoln. The company introduced its first arc welding machine in 1911. The company
recorded a steady growth over the preceding four decades. Lincoln never allowed for formal
organizational hierarchy. The objective was to enhance management- employee relationship vis-vis high inter-department communication. In 1974 domestic net income was $17.5 million on
sales of $237 million. Lincolns growth had been achieved without benefit of acquisition and had
been financed with internally generated funds.
Corporate Strategy:
Lincoln always believed that right HRM policies built trust and motivation, and is the basic
building blocks for achieving success. The strategies implemented were focused on:
1. Incentive system based on performance metrics
2. Informal Work Culture: Open door policy
Lincoln always focused on the quality of products they manufactured. They always worked hard
to offer the products at a better price compared to other competitors. Their incentive system was
very attractive. The attrition rate was lower than 1% of total employees as compared to other
companies which had more than 4%, because of job security. Factory employees were paid on
piece work and were responsible for the quality of product (rework needed to be done if found
defective). There was a yearend bonus which could equal or exceed an individuals full annual
regular pay. Lincoln Electric shared most of the profits on management and employees rather to
shareholders. This developed high motivation and feeling of association towards the company.
Lincoln Electric enjoyed great success in the United States. The rewards, people
resourcing, and HRM models promoted their success. The high bonus potential increased
productivity and employee loyalty. Costs of hiring and firing are nearly eliminated; employees
willingly reduce hours when need arises and work overtime when there is need for increased
production. Lincoln Electric utilizes a greater brain trust. Regular meetings with workers,
convened weekly and monthly, to focus on company improvement. At these meetings,
employees are able to broach any production issue or worker grievance. This improves the
company culture. Further, this employee participation makes the company locally responsive by
mining workers direct production knowledge as well as input from the open market. Part of the
investment of the workers is their own input. When workers have a say in goal setting and policy,
they work much harder, and for much greater duration, than employees who simply receive goals

and targets from upper management. Additionally, the socio-economic gain was capitalized by
making employees part of the organization, as employees have 48% share of company.
One other organizational strategy implemented by Lincoln was to highly value its employees and
customers. As an example, when the company made a profit, the employees got a good share for
their work and this was also reflected to the customers via lower product prices. This strategy
created a win-win-win approach for all of the parties. The optimal utilization of its employee was
made feasible by recruiting less number of employees for a particular role. This not only gave
greater responsibility to employee but also kept him busy for more than 40 hours a week.
4 V Analysis:
Volume: Annual Sales are around $ 237 million. The company produced more than 40% of the
arc welding products. Lincoln also produced a line of three-phase alternating-current industrial
electric motors which accounted for less than 10% of sales and profits.
Variety: Company manufactured two kinds of products. They are welding products and electric
motors. The companys approach to the customer is to go in and learn what he is doing and show
him how to do it better. For many companies Lincolns employees became their experts.
Variance: Many of the operations are automated and most of the manufacturing equipment was
proprietary, designed and built by the company itself. Lincoln always concentrated on reducing
costs and passing the savings through to the customer by continuously lower prices.
Visibility: Most competitors operate through distributors. Lincoln had its own top field sales
force plus take advantage of distributors. This mix helps the company to reach its customer base
more effectively.

5 R Analysis:
Rewards: Lincoln paid a piece rate to each factory worker. Apart from this the employees were
rewarded yearend bonus averaged up to 100%. As can be seen from Income Statement the year
end incentives totaled $24 million and wages up to $21 million. There was a rating system in
place based on the performance of employees. Merit ratings varied widely from as low as 45 to
as high as 160.
Rules: Lincoln does not offer fancy staff positions. The trainees hired by the company works up
to seven weeks in the welding school. The senior positions are mostly filled by the employees
from within the organization. All the engineering graduates hired by the company have to go
through a compulsory training program for seven months.
Roles: The main focus was on cost minimization, customer satisfaction, high productivity of
workers, high efficiency in production process and high standards of quality. Even though there

are employees at different levels in the organization all are treated equally as much as possible.
There was no special treatment given to any employees.
Relationships: The management and other employees had a healthy relationship at work. Open
and frank communication between management and workers had been a critical factor in
Lincolns success. The companys advisory board, consisting of elected employee representatives
has an important role in achieving this relationship. Board service is a privilege and
responsibility of importance to the entire organization. Board members must be guided by the
interests of the company and its workers. They always seek at all times to improve the
cooperative attitude of all workers and see that all realize they have an important part in the
companys final results.
Resources: The Company gives lot of importance to human resources. Apart from paying good
wages and yearend incentives, it also issues stocks to the employees. 48% of employees were
shareholders. A staff of 12 controlled the shipment of 2.5 million pounds of material a day. They
thus could reduce the overall cost to the customer by mixing products in loads and shipping the
most efficient way possible to the companys 39 warehouses. The objective was to cut the costs
as much as possible and to remove any Inventory handling or material handling cost.

Problems:
1. It provides a guaranteed employment for all workers. As the company is performing well
right now it can afford to provide guaranteed employment. But in future due to ups and
downs in various economies it may not be possible.
2. It started automating its processes very recently. The company could have done this
earlier to save lot of money. 21st century consists of knowledge based economies.
Companies should be fast to adapt to new technologies to improve their processes.
3. Lincoln should manage its inventory in much better way. Approximately $30 million is
the cost of Inventory according to Balance sheet which is too high and the method
followed is LIFO which may not be efficient.
4. If other company is able to make new Innovations than it can reduce the market share of
Lincoln company. This will reduce the profits of Lincoln drastically and no money would
be left for giving Incentives and Year bonuses. Or US economy may slow down, which
will also reduce Lincoln Company earnings.
Fabritek is one company which we came across in our course where the same kind of wage
system was followed. But there was no emphasis on quality. The employees were paid just based
on the number of products they produce. They were not made accountable if there were any
defective pieces. Hence the wage system should be piece rate linked to quality of the output.

The other case it resembles is of GM Powertrain in which Hinrichs was able to keep the trust
of his workers by not laying them off during the period of strike. This has given him chance to
make changes and experiment with the operation process being followed, to enhance it
exponentially. In addition people were loyal to him and highly motivated to be a part of this
company.

Recommendations:
1. Every country has its own way of doing business. Before entering into any country
Lincoln should workout the factors such as social, cultural, economic and technological
which may hamper its working. Many countries offer 100% FDI but some countries like
China prefer collaboration with local suppliers to get access to its market. So the
Incentive and culture currently followed may not work well in other countries. Also
Lincoln has workers from its own organization, and hardly has any exposure to diversity
of human resource. So it needed to hire international people from different background at
certain positions like sales or HR to better understand the current scenario of market
globally and to offer Innovative insight. The company should not have the mentality that
they were so successful in U.S so they could be successful anywhere. As we have seen in
American Connector Company the difference in price of raw material may be a challenge
for company to retain the low cost of production. In addition the exchange rate also plays
a deciding factor of its success in other country.
2. Decision making skills must be increased for the managers at middle level. A formal
structure should be implemented and role of each employee should be defined. This
would eliminate redundancy if any and employee can be accessed for his/her
performance more correctly.
3. As the company grows in size, it would be difficult to maintain the level of
communication between management and employees, so they need to have forums where
employees can communicate their problems/suggestions.
4. Lincoln Company has a high Retained Earnings of $66.5 million which can be utilized in
R&D department to innovate new products and equipment. New markets like Asia,
Europe, Canada, and Australia are emerging economies and should be targeted to gain
first move competitive advantage. Lincoln Company has a brand name and it can easily
build a strong relationship with its suppliers, distributors and customers.