Electric: Critical Analysis on the Philosophy of Control Kaplan University Shannon Blair Introduction The purpose of this paper is to analyze a case study related to issue of control and how organizations can utilize different approaches of control in order to improve quality and performance in all arenas, domestic and global. The focus of this case revolves around Lincoln Electric, an Ohio based company that has set the bar for how to develop and implement a successful management system.
This paper will use the Lincoln Electric case analysis to present recommendations on how managers can use control methods to enhance employee performance, increase employee participation and empowerment, and improve organizational quality in all areas. Lincoln Electric, a manufacturer of welding products, welding equipment, and electric motors is a leader in the welding manufacturing field, with sales over $1 billion and 6,000 workers worldwide (Daft, 2012, p. 566). While the company is publicly traded, the Lincoln family still holds a large portion of stock.
The company’s founding values are still very much a part of its’ corporate culture today and include: honesty, openness, loyalty, accountability, and self-management (Daft, 2012, p. 566). Lincoln promotes trust within the organization and its’ employees by encouraging communication between all levels of employees, encouraging workers to challenge management if practices or compensation rates appear unfair, by hiring workers with little to no experience and investing in their training and development, and by following a “no layoff policy” for which no workers have been laid off since 1951 (Daft, 2012, p. 66). While these practices point toward a decentralized control approach, other practices such as strict performance goals, defined tasks, and clear manager/employee differences suggest a form of hierarchical control. Daft (2012) describes the kind of extrinsic reward system that Lincoln has in place as hierarchical, although the pride workers take in their workmanship as well as employee contribution and feelings of involvement points toward the decentralized method of control. For the U. S.
Lincoln Electric plants, the incentive and control system works extremely well for increasing productivity. Workers are rewarded for meeting and exceeding productivity standards. Moreover, workers are eligible for annual bonuses which are based on not only work productivity but also the quality of their work, their dependability, and how well they work with their peers (Daft, 2012). What also works for Lincoln Electric is their open-book style of management. Open-book management “allows employees to see for themselves” (Daft, 2012, p. 555).
Lincoln Electric is not afraid of sharing information with employees related to operations and financial performance. This allows employees to see the big picture and how their performance impacts the overall organization in reaching its’ strategic goals. Analysis In this case analysis, the main problem revolves around Lincoln Electric’s inability to translate its’ successful U. S. management system overseas to plants in Japan, South America, and Europe. This failure left the company needing to borrow money to pay the workers’ annual bonuses.
In transferring the control philosophy to international plants, Daft (2012) concludes that some international managers have difficulty using control methods such as open-book management due to the differences in attitudes and standards in other countries (p. 555). These differences in attitudes and standards also impact work productivity. For example, Bloom and Van Reenen (2010) conducted a study that compared cross sectional management scores from countries around the globe such as the U. S. , Japan, Italy, Germany, Russia, and Greece. They found that the U.
S. had the top score for management practices (based on a survey of middle managers consisting of 18 questions, several of which focused on productivity) followed by Germany, Sweden, and Japan (p. 209). Thus, one can conclude that a decentralized control approach may not be the best approach to use in an international plant. In Lincoln Electric’s case, the company did not have a country-specific plan for their international plants. It appears as if the strategy was simply to transfer the exact same system that is being used in the U. S. to these plants.
This failed because workers in other countries do not have the same work values and beliefs as those in the U. S. With the European labor culture, piece-work and bonus systems were an unfamiliar and uncommon practice. Workers didn’t understand the system, thus leading to lack of motivation to meet standards set by top management. It also doesn’t appear as if international workers were prepared via training and development by company management. Additionally, U. S. managers did not receive training on international culture and thinking either.
Recommendations In order to make future international plants more successful than previous acquisitions, Lincoln Electric’s managers may consider re-evaluating their management control approach; carefully evaluating the international labor laws and regulations of the plant prior to deciding whether or not to invest in it; and providing increased training and development to managers and workers of both the parent company and host company to ensure understanding of both sides’ cultural values and beliefs.
Elements of Lincoln Electric’s management system that made it so popular in the U. S. such as piece-rate work, bonuses, and employee empowerment are not easily transferrable to international plants without adequate training and development on both ends. Using a mixed control (with both hierarchical and decentralized elements) may not have been the best way to approach operations in other countries, in particular when top management executives have little to no experience working with employees in other countries.
In the Lincoln Electric case, it may be a better practice to use only a hierarchical approach. Daft (2012) describes this approach as relying on “cultural values, traditions, shared beliefs, and trust” (p. 553). This means that the management system is going to be different depending on the specific country the plant is operated in (i. e. cultural values in Japan are quite different than cultural values in Germany). Labor markets are another factor to consider as they differ significantly from country to country.
Labor laws and regulations may also impede an organization’s ability to follow the same management practices used in the U. S. Bloom and Van Reenen (2010) conclude that labor market regulations “restrict manager’s ability to hire, fire, pay, and promote employees”. Results of Bloom and Van Reenen’s study found that “labor market regulation is significantly negatively correlated with the management scores on incentives” (p. 216). Thus, labor market regulations significantly influence a company’s ability to implement its’ control measures for productivity.
Finally, Lincoln Electric would benefit from providing managers and workers with increased training and development prior to beginning operations at international plants. Donald Hastings, former CEO of Lincoln Electric, admitted that Lincoln Electric’s top management naively assumed that workers in international plants would accept Lincoln’s incentive programs without issue and gave very little thought to the process (Hastings, 1999, p. 166). Additionally, Hastings (1999) opined that the lack of training and international expertise hindered most top management executives in their international business dealings (p. 169).
Investing in additional training or even exploring the possibility of hiring seasoned international executives would be the best solution to Lincoln Electric’s problem. Conclusion Looking back at Lincoln Electric’s venture into globalization of their management system, Donald Hastings (1999) concluded that “the root cause of the crisis was the Lincoln’s leaders, including myself, had grown overconfident in the company’s abilities and systems” (p. 178). The Lincoln Electric case study is very helpful in examining how the managerial function of control can make an organization successful or can make an organization fail.
Certain aspects of the decentralized approach of control can empower, motivate, and improve employee work performance in the U. S. ; however, this does not ring true for other countries. When considering the transfer of successful U. S. management systems to other countries, managers must be cautious and do their homework as there is no “one-size-fits-all” approach to managerial control. This doesn’t mean that all successful U. S. management systems will fail overseas; with careful implementation and training for workers and managers alike, some systems will be very successful.
Hastings (1999) cites Lincoln Electric’s success in its’ Mexico City plant as an example of how using training and slow implementation of a management system can work (p. 178). References Bloom, N. and Van Reenen, J. (2010). Why do management practices differ across firms and countries?. Journal of Economic Perspectives, 24(1), 203-224. Daft, R. L. (2012) Management (10th Edition). Mason, OH: South Western Cengage Learning. Hastings, D. F. (1999). Lincoln electric’s harsh lessons from international expansion. Harvard Business Review, 77(3), 162-178.
