Lincoln Electric

Case # 3: Lincoln Electric

Not many people know about Lincoln Electric, a Cleveland, Ohio based manufacturer of welding machinery and consumables, and a world leader in sales of those. Even less know about its founding philosophy, which is based on "unbounded faith in the individual and a belief in the equity of management and workers." In real world terms that translates into an incentive system for all employees, based on four key concepts: wages based solely on a piecework output, a year end bonus dependent

on productivity and merit ranking, guaranteed employment, and highly limited benefits. This system worked great in the United States over the years, but it proved problematic in other countries, for various reasons.

In countries such as Brazil and Germany, the incentive system could not work, mainly for the legal reasons; in Brazil any bonus paid for two consecutive years became a legal entitlement and in Germany piecework was illegal altogether. Other factors that have made its operations less successful (to say at least) in those countries were mainly cultural, as Brazilians and Germans proved to value different priorities, than for example, Ohioans. Forces such as union laws, low productivity, poor relationships with local businesses, local and inexperienced management, all led to a situation where Lincoln Electric was, for the first time in its over 100 year long history, losing money. Furthermore, global recession in the early 1990's did not help either, forcing the management to close down aforementioned plants.

In 1992 Lincoln started to rebound, mainly because of its internationally and culturally conscious management. The need for executives with international experience (as oppose to those coming only from Ohio) was recognized, as one of the most important steps toward further expansion to foreign markets. Doing things "the Lincoln Way" was simply impossible to implement everywhere, so the idea of adjusting for local conditions finally begun to sink in. New European sales and marketing staff with experience in international business was hired; reliance on local materials and reduced tariff barriers, as well as development of new -country specific products - all helped the company to get back into the profit zone it has experienced for