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Case Study of Lincoln Electric Nine out of ten new businesses fail within their first year.

This is an alarming statistic that may in fact be more of a myth than truth. However, recent data suggests the same trend just not as extreme. According to Brian Headd and data from the U.S. Census, a more realistic figure suggests that 62% of businesses close within the first six years of operation (Headd 2). This raises the question of: What makes a successful business? By analyzing and dissecting the intricacies of Lincoln Electric's consistently stellar performance as well as paying close attention to several interesting financial pitfalls an answer can be found. Value in the Individual An organization at its core is made up of individuals and equipment. Now which of these has the most influence over the success of that organization? Most emphasis must be placed on the individual because he is the one that can be creative, motivated, skilled, efficient, and responsive. The proper function of management is to draw out these characteristics and encourage their growth in a productive setting. A large portion of Lincoln Electric's (LE) success can be attributed to this unique and effective management style which ultimately leads to a competitive advantage. No matter the economies of scale a huge corporation such as GE can offer, the increased productivity level of a properly motivated individual production worker can easily compensate for it. This management style is further fostered through a combination of structural, strategic, and cultural norms within LE. Structurally, Lincoln Electric aims to flatten the hierarchical structure and eliminate nonfunctional middle management positions. To do this, LE has fostered an "open-door" policy between production workers and executives as well as created an Advisory Board that has representatives of the workers who meet with executives twice a month. Strategically, LE pushes for an integrated approach of maximizing output and reducing costs. Though this seems straightforward and simple, the effectiveness is in the details. Cost reduction will be explored at a later time, but to maximize output, Lincoln Electric draws from its motivated employees. However, these employees are not naturally motivated. This is the role of James Lincoln's Incentive Management System. This system provides a tool to motivate all employees through bonuses that redistribute a large portion of the corporation's yearly profits. Two main results stem from this redistribution. First, there is a heightened sense of ownership in the company from top to bottom because if the company as a whole does well, everyone is compensated for it respectively. Secondly, there is increased personal performance. This performance boost is the result of a sort of quiet competition within each work group. A specific bonus pool dollar amount is allotted to each work group, and the bonuses are then distributed to the members of that group according to their quantified relative performance on the semiannual Merit Rating. Now the Merit Rating's function is to counteract some of the pitfalls of a strategy based on speed and efficiency. Generally the result of an emphasis on speed

is the sacrifice of quality and safety. Each tenet of the Merit Rating (including Dependability, Quality, Output, and Ideas/Cooperation) is a reaction to the common shortcomings of a traditional production worker. By being rewarded for attendance, work quality, and contribution of ideas on top of their piecework output leads to a wellrounded final product that is produced at the proper specifications in record time. To further the speed of production, LE places a strong emphasis on idea generation and worker input. This allows for creative ideas and suggestions on the production process to be spread over the whole corporation. As a result, there is a strong and steady increase in LE's productivity per worker. The Merit system also serves to increase coordination by rewarding teamwork while at the same time introducing an element that is historically known to be one of the greatest efficiency drivers of all time: competition. Though this seems like teamwork and competition would be in conflict, they are not. Since there are only a certain number of possible Merit Points available, competition over these points between members of the work group exists. However the total payoff at the end of the year is split up based on the profit of the corporation as a whole; therefore encouraging teamwork and idea sharing. This comprehensive Incentive Management Syst