Case Study on Lincoln Electric Company Essay Example

as a motivator through an incentive type of system which rewards the employees who utilize their capabilities beyond their call off duty. LE is one of the few companies which has mastered the art of motivating and compensating its employees' initiatives and responsibilities through individual piecework payments and shared bonuses.In addition to the good pay and bonuses, Lincoln has managed to operate with minimal lay offs and its absenteeism and the turnover rates are believed to be the lowest among all manufacturing factories in the U. S (Chilton, 199: p.

29).The use of an incentive system has continuously motivated the employees to work as a team leading to improved quality at reduced production costs. Lincoln rewards its outstanding employees with large bonuses depending on individual contribution to the overall performance of the company.This incentive system is an integral part of the company's organizational culture and it has so far distinguished LE from other companies in the U. S in terms of productivity and employee payments (Spear, 2001: p. 32).

Historically, the amount of bonuses paid by LE to the employees per year constitute more than 50 percent of their incomes making them rank among the highest paid factory workers round the globe. Lincoln's incentive system requires the workers to be highly skilled, independent and money-motivated in order to earn good pay (Chilton, 1994: p. 32).Some critics have argued that this system is unfair and have named it 'the social Darwinism' because although there are no lay offs in the company, the old, unproductive or sick people can not survive in the company due to inability to keep up with the fast pace which is required of

all the employees. However, despite the massive success which LE has achieved from the incentive system in the U.

S, the system has proven to be quite incompatible with the values and needs of the workmen in other countries especially those in European countries such as Germany.Failure in international expansion. LE's attempts to expand its operations globally between 1986 to 1991 were met by severe challenges and failure (Bartlett & O'Connell, 1998: p. 22).

Its limited success in attempts to expand in Europe was mainly as a result of economic recession in Europe, over dependence on its incentive system, lack of internationally skilled managers and conflicts between the company's organizational culture and the labour culture of most European countries.In its expansion plans during the early 1990s, LE managers made some major mistakes which led to severe impacts on its business and almost destroyed the company (Lippincott, 2007: p. 9).Some of these mistakes include making the assumption that the incentive system which had worked well in the U. S would work well everywhere, high ignorance of global management skills and paying too much attention to manufacturing processes as compared to the other activities of the company.

Over reliance on the incentive system is one of the issues which led to Lincoln's limited success in its expansion strategies.While the company made many technical innovations in its expansions abroad, the incentive system remained institutionalized due to the assumption that it would work everywhere and at any time. The company management left the system on an auto pilot instead of seeking ways in which to modify it to meet the needs and values of the changing environments. This incentive system

needed modification because the pay-for-performance system and bonus rewards seemed to encounter some legal barriers.For instance, the German laws against piecework payments and Brazil laws of fixed bonuses restricted the implementation of an incentive system in their factories and this was a major setback for Lincoln's operations (Chilton, 1993: p. 21).

Having limited international management skills, the LE mangers made many mistakes in their decisions to venture into the global markets without adequate surveys. First of all, the then CEO made an uninformed rush to globalize with the aim of replicating the very successful incentive system to eleven countries simultaneously.In addition, the company managers based their expansion strategies on wrong assumptions concerning the effectiveness of the company's incentive system in other countries without studying the cultures and values of other nations to determine if the system was likely to work or not. The managers did not bother to implement a trial period because they assumed that since the reward system had worked very well in the U. S, it would still work in other countries.This was a wrong assumption as they later discovered when the system was met with many challenges and oppositions especially in the European countries.