Topic 7: Control

Case: LINCOLN ELECTRIC

MBA-SECTION 1
Group Members:
1. Norliza Albutra
2. Reyniel Bacog
3. Cherry Mae Benitez
4. Carmichelle Garcia
5. Kellen Jane Hernandez
6. Hanna Krishia Ignacio
7. Nila Macalalad
8. Judith Camille Maralit
9. Glenn Oreo
10. Gladys Stefanie Rosaroso
11. Gelina Joyce Serrano
12. Milrose Tisado
13. Geraldine Villanueva

Case Questions and Answers:

1. What types of control described in feedforward, concurrent, or feedback are illustrated in this case? Would
you characterize Lincoln's control approach as primarily bureaucratic or decentralized? Explain your
answers.

a. Feedforward controls involve identifying and preventing problems in an organization before they occur.
They are proactive, preventative, and are helpful to managers because they allow a manager to plan work
effectively; they can regulate resources like employees, raw materials, and capital ahead of time. This
means that future problems can be avoided. 

In relation to Lincoln Electric, this control method appears wherein the company has an open-door policy
for all top executives, middle managers, and production workers. Workers are expected to challenge
management if they believe practices or compensation rates are unfair. Further, Lincoln emphasizes
anticipating and solving customer problems. Most workers are trained and cross trained to perform
different jobs. Sales representatives are given the technical training they need to understand customer
needs, help customers understand and use Lincoln's products, and solve problems. This customer focus is
backed by attention to the production process using strict accountability standards and formal
measurements for productivity, quality, and innovation for all employees.

b. Concurrent controls begin with standards and all employee activity is measured against the standard.
Usually these include quality control standards. This means that products and services can be checked as
they are being produced or performed to be sure that the highest quality product or service is being
produced or provided.

In Lincoln Electric, tasks are precisely defined, and individual employees must exceed strict performance
goals in order to achieve top pay. Production workers are paid on a piece rate basis, plus merit pay based on
performance. Wherein, a worker's bonus is based on four factors: work productivity, work quality, depend
on ability, and cooperation with others.

c. Feedback control is a process used by managers to assess the performance of the team. It helps to determine
the performance of an individual member of the team. In other words, it helps managers to control and
monitor the performance of a team by providing feedback.

The Lincoln system succeeds largely because of an organizational culture based on openness and trust,
shared control, and an egalitarian spirit. Managers respect the expertise of production workers and value
 their contributions to many aspects of the business. They also meet regularly w/ the CEO to foster
communication.

d. Lincoln Electric follows a decentralized approach to management. At foremost a decentralized approach to

management according to Daft, “culture, values, traditions, shared beliefs, and trust are used to foster
organizational goals” (Daft, 2012, pg.553). This approach is worked upon in a unifying effort for success
by every member of the organization. Decentralization control management prides itself in workers
autonomy and high-performance work systems in respect to performance standard. Workers’ autonomy
from the perspective of managers may be defined as, “interpersonal styles where managers take the
perspectives of subordinates into account, present reasons for the decisions taken, behaviors requested, and
originate opportunities for choice and self-initiation” (Baard, Deci, & Ryan, 2004, pg. 651). Thus, workers
are able to utilize their skill as it pertains to specialization with little monitoring; however, this type of
freedom is not counterproductive toward organizational goals, but more so geared toward high performance
work. An example of this system is the Lincoln Management Control System itself, “where every employee
is allowed to input his or her values towards, organizational management, employee fairness, and quality
production output” (Daft, 2012, pg. 566).

2. What do you think makes the Lincoln System so successful in the United States?

The main reason for the success of Lincoln System in the United States is its good organization culture,
which is rooted on the following:

 Openness. The Company has an effective social culture within its organization. They have an open-door
policy for all top executives, middle managers, and production workers, and have a regular face-to-face
communication. Also, workers are expected to challenge management if they believe practices are unfair.
Through open communication the Company can easily address issues that hinders the maximum
performance of employees, and it creates a safe space to voice out suggestions that innovates their current
practice.

 Trust. There is no layoff policy in the Company which means that Lincoln Electric do everything in its
power to avoid terminating its employees due to economic situation. This is such a big plus for the
Company because it promotes security of job to employees. It increases the morale of employees knowing
that they are well taken care of despite the economic crisis like recession happens.

 Shared Control. People from different areas of the organization called “cross-functional teams” work
together. This empowers them to make decisions, take responsibility for product planning, development,
and marketing resulting in work that is a collaborative effort because minds with diverse expertise come
together.

 Egalitarian Spirit. This means that the Company see its people as equal and deserves equal rights and
opportunities. Managers respect the expertise of production workers and value their contributions to many
aspects of the business. To be treated with equal regardless of position surely lifts the value of the
employees because they can see how each function contributes to the overall team of Lincoln Electric.

In a nutshell, the Lincoln System's success is due to its employees. The Company’s people are its most valuable
asset and top priority resulting in a successful organization.

3. What is the problem with transporting Lincoln's control systems to other national cultures? What
suggestions would you make to Lincoln's managers to make future international manufacturing plants more
successful?

The main problem with transporting Lincoln’s control systems to other national cultures is the lack of
sufficient international expertise and experience of corporate management in running a complex and dispersed
organization. The managers did not have enough knowledge on how to run foreign operations nor did they
understand foreign cultures. Because of this, they had to rely on their workers in the foreign companies, whom
they did not know as well. The incentive systems can be adopted by the countries where hard work and mobility
 are ingrained in their culture, however, it might be difficult for other countries having different work practices
and tradition. The top management had grown overconfident in the company’s abilities and systems that they
failed to consider the different culture of the countries they wanted to expand in. They carelessly assumed that
the incentive system and culture can be quickly replicated to those countries. Moreover, there is limited
management resources which may not be sufficient for their plan of global expansion. The company had no idea
nor prior experience of blending with foreign rules and regulations. No careful planning was conducted before
entering the global market.

Stemming from the problem which has transpired to Lincoln’s global expansion above; generally, we suggest
that top executives and the board should evaluate and weigh-in the benefits and risks that comes with future
international expansion endeavors including corresponding actions to take to mitigate these inherent risks.
Competing globally requires a lot more time, money, and management resources. Henceforth, we propose
specifically the following measures should Lincoln engage into global expansion in the future, to wit:

a. Build a management team and a set of board of directors with diverse backgrounds, dynamic leadership
skills and sufficient international expertise exuding a genuine familiarity of the culture (i.e., specific
country targeted for expansion and existing locations) and who can live by Lincoln’s core values.

This composition of management team will aid in welcoming and challenging ideas into tailoring their
approach on performance/incentives system and ways of working to at some point align with the respective
practices of each culture while not compromising the values and vision that Lincoln stands for.

b. Following above recommendation, the size of new management team should be considered by which it
commensurate to the size it can administer or manage - direct reports and/or area of operation.

c. Allocate a buffer on the forecasted cost or at least twice the money budgeted and assumed that the business
may suffer some setbacks.

d. Introduce the piecework system gradually until employees can weigh in the benefits, and later on
voluntarily sign up with the system which has been successful in the US.

e. Evaluate the current operation by identifying which plants can best serve a given market.

f. Drive commitment from leaders in each area of operation to achieve realistic targets and influence them in
truly understanding what’s in it for them when goals are realized. These driven leaders will eventually
influence its direct reports down to bottom line to cooperate and meet the targets that the whole
team/organization will reap the fruits for in due course.

4. Should Lincoln borrow money and pay bonuses to avoid breaking trust with its U.S. workers? Why or why
not?

Borrowing money to primarily fund bonus expenditures while Lincoln Electric is in a financial downturn is
not a good choice. Taking additional debt pressures would only lead to more adverse consequences, such as
future borrowing and financing constraints, an increase in financial losses, or even insolvency. Most bonuses
are not legally obligated, especially in times of unprofitability.

While we recognize the impact of Lincoln’s competitive incentive system, this is not the only factor that has
encouraged the employees’ productivity and loyalty to the company. The honesty, openness and trust among the
organization’s members are also strong corporate values that the company can depend on in this time of
financial difficulty. The company should continue being transparent to its employees and explain to them its
financial condition at this time. Given the company’s organizational culture and the established trust and loyalty
of its U.S. employees, we believe that they would understand what the company is going through.

We propose the deferment of payment of the financial rewards and bonuses to a later period of profitability. The
company, however, should pay the bonuses that is mandated by law to avoid any legal issues in the future. It
should also offer other non-monetary rewards and incentives (e.g., compensatory time-off, gift
vouchers/certificates, employee of the month/quarter, perfect attendance) instead to recognize the performance
of the U.S. workers and to motivate them.

We also emphasize the need for Management to immediately address the issues in the foreign operations since
further losses can eventually lead to insolvency, layoffs, and broken trust with the U.S. workers.