Strategy Assignment : Lincoln Electric: Venturing Abroad

Strategy Assignment : Lincoln Electric: Venturing Abroad

1. Lincoln's competitive advantage lies mainly in its effective compensation and benefits system which put forth three main elements to spearhead the company's efforts. The trinity of elements comprised of piecework, bonus system and guaranteed employment. Piecework provided workers with a sense of autonomy in that now, workers can earn as much as they are willing to work for. The bonus levels in Lincoln far exceeded those of industry peers and were based on their contributions in the form of output, ideas, cooperation, dependability and quality. Consequently, the benefits provided by Lincoln were not extensive as they saw higher wages as substitutes for things such as insurance, and workers were also in a better position to decide their own benefits. All these elements combined gave workers a sense of ownership in the company and motivated them to work harder as entrepreneurs rather than mere workers. It also helped that Lincoln's managers strove to build a sense of trust with the workforce thereby reducing the need to form unions as well as enhancing their willingness to abide by company policies. This willingness is extremely important in James Lincoln's philosophy of offering guaranteed employment as a means to attain higher efficiency as workers are able to adjust to different economic situations by their willingness to modify their working hours and job designations. The trinity combined resulted in high productivity with an output 3 times higher than competitors with just half of their workforce. Coupled with the fficiency from continuous improvement in production process, employee effort and a seven-day-a-week equipment utilization meant Lincoln managed to generate huge cost savings. On top of that, Lincoln passed the cost savings on to its customers which created very high demand. The profits are then passed back to the workers, motivating them and sealing up a hugely successful strategic cycle indeed.

2. Lincoln's failed international ventures can be attributed to several factors, one of which was the leadership of former CEO, Irrgang which left a legacy of a management team without any substantial international experience. Another reason was the fact that most of Lincoln's acquisitions were unionized and had poor relations between management and labour. Furthermore, the differences in cultures and legislation were not something Lincoln had paid enough attention to understand in the process of acquiring foreign subsidiaries. Transplanting the Lincoln approach wholesale was not effective because the differences in cultures meant different priorities in values which rendered the incentive system practically toothless in certain areas while in Germany, piecework was totally illegal. The lack of supervision from the corporate headquarters in Cleveland further compounded the situation. Subsidiaries were left to their own devices and maintained fragmented production which not only failed to take advantage of intra-European tariffs elimination but also kept costs high. In addition, corporate executives even overlooked the recession in Europe and Japan because of their undivided focus o Cleveland. Even a move to curb the international losses failed because the team entrusted with the responsibility of analyzing and setting goals for foreign operations was made up entirely of Cleveland-based managers who were ill-equipped to adjust to local conditions. Indeed, Lincoln was led under the false assumption that factors of motivation were universal, and that a target's manufacturing facilities was adequate enough to build a successful enterprise without looking at other aspects of the target company such as market share and strength of sales organization.

3. The new internationalization strategy is markedly different from the old one in that instead of focusing on the mature North America and Europe markets, it is focusing on markets that were predicted to experience faster growth i.e developing countries in Latin America and Asia. This represented a much bolder approach as it is unfamiliar territory for Lincoln which had failed in some of its earlier international ventures and had to sell them off. The new strategy also entails Massaro to keep a closer watch on the international operations in stark contrast to the swim or die approach undertaken previously. Lincoln's structure has changed somewhat to accommodate this greater need for supervision. For example, a president is named to head international operations in each of the five regions, North America, Europe, Russia/Africa/Middle east, Latin America and Asia. These presidents held vice-presidential rank in the corporate structure to underline the importance of the subsidiaries to the overall global strategy of Lincoln. They play vital roles in supervising sales staff in their regions, advising Massaro on the need to create manufacturing capacities in their respective countries and also developing interregional cooperation such as sourcing goods from the Lincoln factory that could provide them most profitably despite it being in another territory. Compare this to previous internationalization strategies where the subsidiaries were left to their own devices and resulted in several inefficiencies both in terms of range of products manufactured as well as other costs incurred. Finally, Massaro also had to tweak the imposition of Lincoln's famed incentive system. The new internationalization strategy concedes that the system cannot simply be transplanted for use in another region because of cultural differences. The new strategies leaves the implementation of incentive system to the international managers and employ only elements that would prove beneficial for their respective territories instead of just imposing it as the one and only incentive system allowed in the company based on its competitive advantage in the U.S.

Tony Massaro should be more successful than his predecessors with this strategy. One of the best qualities of Lincoln is granting autonomy and giving its entire staff a sense of ownership. However, autonomy should also not go overboard to the point that the parent company merely watches as its subsidiaries either sink or swim. This new strategy takes the best of both worlds- autonomy in incentive systems and a more hand-holding, supervising role of the corporate headquarters. This approach also focuses more on the synergies that can be created with greater synchronization and understanding of each other's strengths and weaknesses and taking a more holistic view of global strategy. The result is a more responsive organization that is better able to cope with changing conditions and economic climates. Furthermore, the basis for a more successful international approach was already laid by Massaro (when he was chief of international