Basic Information of 

Lincoln Electric Co.

Author: Norman A. Berg, Norman D. Fast
Publisher: HBR
Case Number: 9-376-028
Publication Date: Aug 1, 1975

Revision Date: Jul 29, 1983

Course Category: Management

Case Summary of Lincoln Electric Co.

“We’re not a marketing company, we’re not an R&D company, and we’re not a
service company. We’re a manufacturing company, and I believe we are the best
manufacturing company in the world.”- George E. Willis, President of Lincoln
Electric Company

• World’s largest manufacturer of arc welding products, manufacturing more than

40% of supply in United States
• Lincoln had grown steadily for four decades

Company History

John Lincoln, co-founder of Lincoln Electric, was a talented inventor and technical
genius, developing more than 50 patents for inventions, including an electric arc lamp.

• 1911, company introduced first arc welding machine, as a source to recharge

batteries for electric automobiles.
• This first-mover advantage stayed with the company despite entrants from two
giants- Westinghouse and GE.
• During WWII, proprietary methods were shared with the rest of the industry to aid
the government, but Lincoln eventually outperformed competitors yet again.

Strategy
• Quality products at a lower cost, reduced costs were passed on to the consumer via
low prices. (Many companies left market because they could not compete with these
prices, like GE)

Incentive system played a large role in productivity, workers had incentive to work
harder and produce more.
• Year-end bonuses averaged close to 100% of regular compensation.
Management built success of company on two factors:
1) Producing more of a progressively better product at a lower price
2) Employee earnings and promotion are in direct proportion with company success

Profits were fairly split amongst workers, customers, and management. Savings were
passed along to customers.

Compensation Policies

Three components to compensation system:

  1) Wages based on piecework for factory jobs.

  2) Year-end bonuses could exceed regular annual pay
  3) Guaranteed employment for all workers

Each job was rated on skill, required effort, responsibility, etc. A base wage rate was
assigned for each job. These wages were comparable to other Cleveland area jobs and
adjusted to reflect cost of living. Second element of compensation was the year-end
bonus, a share of the results of the company. “In 1974, the bonus pool totaled $26
million, an average of approximately $10,700 per employee, or 90% of pre-bonus
wage.”

A worker’s share of the bonus pool was determined by a merit rating, an individual
performance rating based on the rest of the department. Four factors were evaluated:
  1) dependability 2) quality 3) output 4) ideas and cooperation.

Ratings could be discussed with department heads if there were any disagreements.
Guarantees of employment were seen as essential, otherwise, employees would avoid
improved production for fear of losing jobs. Employees would perform any job
assigned and work necessary overtime. This incentive plan applied to all workers in
the company.
Employee Views

Employees really liked working at Lincoln and the turnover rate was far below other
companies, with few defections. People felt like entrepreneurs, working for their own
benefit and often would work through breaks to be more productive. Workers were
able to set aside money to pay for their houses and cars without worries.

Management Style

Management considers themselves on the same level as the workers, there is no sense
of division. They park their cars in the same lot and eat at the same tables in the
cafeteria. Lincoln’s president, Willis James, established an Advisory Board to listen to
the concerns of the workers. Any issues were either immediately resolved or assigned
to an executive to be dealt with. Workers felt like their opinion actually mattered,
although management still had the final say. An open door policy existed where the
two top executives, Irrang and Willis, would meet with any employee.

Potential weakness- Top people make too many small decisions, with very little
delegation from up top. Irrang and Willis put in 80 hours weeks because of this.

Management had a genuine concern for their workers, helping employees with
personal issues such as the death of a loved one.

The executives office were minimalist in nature and not separated by walls, a very
open environment. Management did not have any special perks, using the same
equipment as everyone else. Costs were kept under tight wraps by the Maintenance
Department and equipment was only replaced if it could not be repaired. Only certain
individuals had access to Xerox copying.
Personnel

All open positions were filled from within, except for entry-level jobs. Openings were
placed on bulletin boards in the plant and there was large room for advancement.
Outsiders could find jobs through hourly or piece rate factory jobs or by a training
program in sales or engineering. Very few business school graduates were hired due to
the starting pay and harder work involved. Management was more comfortable hiring
people who already knew the system; they knew what they were getting with them.
Possible flaws:
• Company did not send employees to outside management development programs or
provide educational tuition grants.
• Organizational hierarchy was flat. As a result, the Sales VP had 37 regional sales
mangers reporting to him. This causes overworking and possibly loss of productivity
as some management is stretched too thin.
The president and chairman tightly controlled personnel matters, status changes had to
be approved by Willis. Firings could be appealed to top management for review and
were occasionally reversed.

Marketing

Sales Force was extremely competitive, comprised of engineering graduates, not

MBA’s. This gives them a hands on experience which is further improved as they
learn metallurgy and design in a 7-month training program. They are regarded as as
the best paid and hardest working in the industry.

Weakness: Lincoln can’t always deliver the product on time due to staff shortages
because management refuses to hire short-term workers. This is also due to the
guaranteed employment clause.

Manufacturing

Plant was crowded with materials and equipment with employees working fast and
efficiently. There was no stockroom for supplies, all materials were transported to
work stations to be used. Workers would work individually or in groups on a job and
were paid by piece. Because there was no union, the company had flexibility in
deciding what work could be done at a station. The work flow followed a straight lines
whenever possible.

Many operations were automated and the manufacturing equipment was designed and
built by Lincoln. Coordination was maintained between Product design engineers and
Methods Department to reduce costs. By 1974, the plant reached capacity and was
running nearly around the clock, so a second plant was in the works to be built.

Lincoln relied on its capability to build its own components rather than purchase from
outside vendors.
Administrative Productivity

• Lincoln had a personnel department of only 6 to service 2,300 employees.

• Budgets weren’t even used because employees just spent as little as possible, as if it
were their own business.
• Costs to customers were reduced by the Traffic department by mixing products in
loads and shipping in the most cost-efficient way possible.

Computerization- Lincoln’s Order Department recently began computerizing

operations. There was a lot of resistance because people feared their jobs would
become obsolete. The computers would save $100,000 a year and give greater control
of information. Information was becoming more complicated and human error was
becoming more of a concern, computers proved to be the solution. Employees without
computer experience were taught the system and then operated it after that.

Lincoln’s Future

Union critic- “If the day comes when they can’t offer those big bonuses, or his people
decide there’s more to life than killing yourself making money, I predict the Lincoln
Electric Company is in for big trouble.”

Management saw no need to change strategy or worry about the future. Employees
trusted them and the need for their product would always be there (as they saw it).
Biggest challenge, is to keep up with technology and to maintain profit.