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C a s e S t u d y

By group members:
Sirin Alsarmini G1224192
Sarah Abdulelah G1319472
Mohamed Imran G1311139

Submitted to Dr.
Hawa Ahmad
Date: 19 June 2014
Management Control Systems
MGT 6253
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Executive Summary
The Lincoln Electric company was the worlds largest manufacturer of arc welding products and a
leading producer of industrial electric motors. They have total 2400 employees in two US factories
near Cleveland and also eleven factories are located in other countries. The firm was very
successful according to the usual measures. 1914 F. Lincoln became active head of the firm
(General Manager and Vice president). The main goal of this company is fulfilling the customers
needs, its means they are giving more importance to the customers than others. Secondly they gave
importance for the employees and they came up with a lot of employees motivating programs in the
organization like (working hours reduced, paid-up life insurance policy, employee bonus plans,
piece work pay system, two weeks paid vacation, stock purchase plan for employees, pension plan,
pay rates based on job evaluation, continuous employment policy etc) by the start of second
world war the company was the largest manufacturing of arc-welding products in 1941 the sales
was grew from $4 million to $24 million, productivity of employee also doubled in this time.
Lincolns goal, often stated was to build a better and better product at a lower and lower price and
also customer interests should be first goal of industry.
In this company stockholders were given last priority and for fulfilling customers needs they
believed that employee performance and productivity is very important in Lincoln Company.
Innovation in welding technology was bringing a lot of benefits in this company and they achieved
the lowered welding cost and improved quality and speed in many applications in the organization.
The typical Lincoln employee earned about twice as much as other factory workers in the Cleveland
area. And all the employees are hardworking mentality and everybody is working towards the
organization goal. Lincoln never followed the formal organization chart and it was really flexible to
the employees in the organization to do the job. The company was evaluated the subordinates twice
a year using a particular card and the compensation program in this company is effective. They
gave full freedom to the employees to participate in the decision making process. The overall
perspective of employees welfare in this organization is very effective and these things will lead
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the employees to retain in the same organization for a long time and make them more satisfied in
the organization. The main priority in the company is like (customers, employees, stockholders).
Lincolns success was because of the excellent attitude of the employees and their willingness to
work harder, faster, and more intelligently than other industrial workers.
Q2. What are the most important elements of Lincolns overall approach to
organization and control that help explain why this company is so
successful? How well do Lincolns organization and control mechanisms fit
the companys strategic requirements?

The elements of Lincolns overall approach to organization can be best captured
in the Value Chain activities. Primary and secondary activities when effectively
and efficiently handled lead to added value for products and ultimately customers.
Primary activities:
In bound logistics: there were no ware houses; material handling was maintained at a low
cost because materials used at each work stations were stored as close as possible.
Operations: Manufacturing process, its electrode production process was considered a
major innovation welding technology; it lowered welding cost and improved quality and
speed in many applications. Manufacturing supervision and all personnel were held
accountable for reduction of scrap, energy conservation, and maintenance of product quality.
It also designated special programs for cost reduction; it made cost reduction a way of life.
Manufacturing procedures were efficient; there were no unnecessary steps, no wasted
motions, and no wasted materials As for Product development activities, new products had
to be reviewed by manufacturing and all producing costs verified before the products were
approved by management.
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Out bound logistics and Sales: Lincolns products were sold directly by its engineering-
oriented and technically- trained sales forces and indirectly through its distributor
organization.
Marketing: advertising expenditures amounted less than 0.75 % of sales and this could be
explained by Lincolns sales approach where the company had direct contact with the
customers with minimum dependence on forward channel agents. This direct contact helps
the company to be fast and responsive to customer demands through constant feedback.
Services: The sales department along with other real customer services eliminated
nonessential frills and resulted in long term benefits to all concerned.

Support Activities:
Procurement: Purchasing was challenged not only to procure materials at the lowest cost
but also to work closely with engineering and manufacturing to ensure that the latest
innovations were implemented.
Research and Development: Lincoln typically spent more than competitors on R&D
activities and made those activities standardized and systematic.
Firm Infrastructure: IT infrastructure, as Fortune Magazine put it; make wise choices
about automation, several million dollars investments in automated equipment to double
the capacity. As for Lincolns structure, to ensure maximum flexibility and open door
policy, the company never allowed development of a formal organization chart. It was
determined that production workers had two or three levels of supervision only between
them and the president.
Human Resource Management: Allowing employees to elect an Advisory Board
(committee) that represented them and provided recommendations to the top management,
contributed to boosting innovative personnel policies.

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Lincolns approach to Control
There are three elements of a management control system; delegated decision authority,
performance evaluation and measurement systems, and compensation and reward systems.
Delegated decision authority: The management had quite strong formal authority, but it
managed to balance it by related job enrichment, by the advisory board, by forbidding the
development of an organizational chart, and by encouraging open door policy.
Performance evaluation and measurement systems: the company adopted merit reward
system in which each supervisor formally evaluated subordinates twice a year using cards
that covered four critical pillars; increasing quality- it reflects the success in eliminating
errors and reducing scrap; increasing dependability- how well the workers supervisors have
been able to depend on him/her, increasing ideas and cooperation- rates a workers ideas and
cooperation efforts, and increasing output- it quantifies productive work.
Compensation System: was performance based-pay- where good people were recruited,
expected to perform well, and paid well if performance was actually good. This
compensation system covered; (1) fixed payments- basic wage levels were determined by a
wage survey of similar jobs in Cleveland area and updated quarterly according to the
Cleveland Wage Index and where translated to piece rates; (2) bonuses- the Firm- wide
compensation pool was calculated from annual profits and individual bonuses were
proportional to the merit rating scores. On the one hand, to avoid discouraging employees
from giving their utmost effort, the upper cut off level of bonuses was improved in response
to recommendations of exceptionally high performance. On the other hand, the
management was very strict in holding employees accountable for their performance as it
traced warranty claims to the employee whose work caused the defect and requested him/
her to fix the defect and personally pay for the charges; (3) fringes and benefits- covered
medical plans, company paid retirement program, plant cafeteria meals which were offered
at 60% of cost, and employee stock ownership program. The stock program strengthened
team spirit, provided individual incentive, promoted education and development of workers,
and controlled unwarranted expansion. Whats more, it was used to finance the companys
growth where employees comprised 50% of common stock holders and developed a sense
of ownership recognizing their responsibility in the company and the importance of victory.

The fit between overall approach and control mechanisms
According to Lincolns philosophy, the customer is considered number one and pleasing the
customer was the first priority of the top management; thus, productivity, quality, efficiency,
and innovation were key elements to capturing the biggest market share. The balanced
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participative employee involvement and clear task specification, along with merit reward
and compensation systems helped in aligning employee goals with the organizational goals,
it also highly motivated employees to take ownership.

Q3. What is the corporate culture like at Lincoln Electric? What type of
employees would be happy working at Lincoln Electric?
The corporate culture like at Lincoln Electric. The culture in Lincoln Electric could be categorized
to following points.
Open line communication and trust
Although the line between managers and workers is firmly drawn, managers respect the expertise
of production workers and value their contributions to many aspects of the business. The company
has an open-door policy for all top executives, middle managers, and production workers, and
regular face to face communication is encouraged.
(Stockholders, Unionism, Customers) focus
The absentee stockholder also will get his share, even if undeserved, out of the greatly increased
profit that the efficiency produces. At the Lincolns, unionism are parts of one organization in
which they must and should cooperate fully and happily. In Lincoln, the customers interests should
come first, . If there are no customers, the company's operations will not be able to run well.
Employee welfare
The company is against layoff policy .an environment in which employees can discuss problems in
confidence and find out about where and when support can be provided. If staff feels compelled to
conceal their concerns, it may encourage some to become disaffected with their employer and
possibly more susceptible to manipulation.
Trusted employees
This is their way of motivating and ensuring employees job satisfaction. To do this they offer an
extensive employee benefit package and use performance evaluations.
Employee Stock Ownership
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The employee of Lincoln Electric Company can buy the Lincoln's stock. Employee ownership is a
powerful tool to improve corporate performance. Shared capitalist forms of pay are associated with
high-trust supervision, participation in decisions, and information sharing, and with a variety of
positive perceptions of company culture. At the firm level, shared reward forms of pay are
associated with lower voluntary turnover and higher ROE [return on equity]. But it is the interaction
between the mode of compensation and work practices and workplace culture that dominates the
impact of shared capitalist pay on turnover and ROE."
High cooperation, commitment and teamwork
That are effectively to accomplish the goals of the team is a critical factor in team success. The
Relationships team members develop out of this commitment are key in team building and team
success.
An egalitarian spirit
In the Lincoln Company, all employees are equal, because in that company seniority really doesnt
mean anything. To get the good position in the company, all employees had to really work. Each
individual worker is responsible for personal and team tasks without a chain of authority figures to
confuse communication, deliver orders and claim responsibility for positive results that others
worked for. This type of workplace culture promotes individual accountability. It also gives
workers more freedom.
b. The type of employees would be happy working at Lincoln Electric :
The believer
Every employer's dream the believer is dedicated, committed and loves his job. Such
employees are utterly motivated and give their heart and soul to their work. Their innate element of
loyalty to the company and the team binds him to the organisation.
The soldier
Dedicated and committed, Give this kind of employee a task and consider it done. Soldiers show
unstinting loyalty to their companies and often stick around at their jobs for years.
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The idea champion
Constantly buzzing with new ideas and thoughts, idea champions love taking the initiative and kick-
starting projects. They love to think big, differently and proactively push innovative ideas to the
fore.
The climber
Focused on making it big and impatient to rise through the ranks in corporate world, the climber can
be identified in an office owing his/ her apparent thirst to be recognised. One can find them
networking with people who matter and their particular interest to work on the more 'visible'
projects. Climbers also tend to hop jobs frequently in their quest to swiftly climb up the
organizational hierarchy. While their glory-seeking ways may cause resentment among other
colleagues.
Q6. Would you like to work in an environment like that at Lincoln Electric?
Yes, I would like to work in an environment like that at Lincoln Electric Company because there
are so many things that attracted me to work there and my job perspectives will fit with this culture
of organization. Some of the attractive factors are follows...
Free to express our thoughts and ideas or non-authoritarian atmosphere
Long term compensation programs and Earning power
Flexible working atmosphere with open-door policy
Stock ownership programs & rewards system
Incentive system, job performance & continuous employment policy
These are the factors that attracted me to work like that at Lincoln Electric Company. Culture is
about performance, and making people feel good about how they contribute to the
whole. Lincoln Electric company culture was excellent and flexible so it will leads to get more
productive, more satisfied, more fulfilled.
Free to express our thoughts and ideas or nonauthoritarian atmosphere;
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In this organization employees are free to express their ideas and views about anything in the
organization programs; this will help to increase employee satisfaction and productivity. The non-
authoritarian atmosphere (individual freedom) culture is the highlighting point in the organization
and they are giving more responsibility to the employees it will make them more dynamic in the
company.
Long term compensation programs and earning power;
The company is providing to each employee a paid -up life insurance policy, pension plan and
retirement program. These three things will structure the life of employees in the future. The bonus
plan also the one of the compensation program portion of annual profits was distributed as bonuses
in the organization and the earning power is related to the piece rate system, because if any
employee wants to make more production on particular day then the employee will get benefit on
the basis of produced pieces. This one also motivates the employees to work in the organization and
that will help to retain the employees in the company for a long time.
Flexible working atmosphere with open-door policy;
In this organization every employees can access to Advisory Board members and answer to all
Advisory Board suggestion .there was high cooperation between the employees and management.
Knowledge sharing was effective and flow of information from the top to bottom is excellent in this
organization. Lincoln Electric companys production workers were given a short period of on-the-
job training and piece work pay system. This will encourage the employees to obtain the
organization goal. Lincoln never allowed forming a formal organization chart and the main
objective of this to ensure maximum flexibility an open-door policy was practiced throughout the
company
Stock ownership programs & rewards system;
Stock ownership will help the workers to recognize his or her responsibility in the organization
program and stock purchase plan in the organization will encourage as well as motivate the
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employees in the organization, the reward system also one of the attractive point in the organization
because for productive performance if we get reward that will make more satisfied in the job.
Incentive system, job performance & continuous employment policy;
Lincoln employees earned about twice as much as other factory workers in the Cleveland area,
worker performance at Lincoln was a matter of record, the incentive bonuses averaged about 90 per
cent of annual wages will distributed to the employees and pay rates were determined by formal job
evaluation and a merit rating system was in effect in this organization. So these things will motivate
and attracted the employees to the organization. And the continuous employment policy also
effective in the Lincoln Company that will also motivate the employees and these factors will help
to retain the employees in the organization for a long time.