Introduction
Lincoln Electric is a high-tech manufacturing firm that produces welding and cutting equipment, consumables, and accessories. Many people in business and economists are interested in the company because of its traditional and old-fashioned approach to management. Lincoln Electric functions on three core ideas: profit sharing with employees, salaries based on piecework, job security, and limited benefits. These strategies have aided in the company’s success; however, the firm faces challenges from rapid expansion.
Case Summary
The key points in the case study include the unique managerial structure of Lincoln Electric. The strategy formed by James F. Lincoln significantly differed from his competitors. Unlike other manufacturing firms, Lincoln Electric does not provide a base salary for its workers. Profit sharing is dividing a share of the company’s profits from sales and splitting them with employees as an annual bonus. The size of the bonus depended on the contribution of the worker. According to Bartlett, in the 1980s, the annual bonus averaged almost as much as the worker’s salary, which meant employees received almost double their pay (“Lincoln Electric: Venturing Abroad” 2). Piecework is a system that replaced the standard base salary with salaries based on the number of pieces produced. No limit was set on the amount earned through piecework, which meant employees were fully in control of their salary.
The company offered guaranteed employment and limited benefits. These aspects, combined with piecework and profit sharing, meant that workers’ salaries would be reduced during trying times because their profits would be decreased. However, the workers would not be laid off, creating a stable and loyal employee base. It also meant that production would stay stable, and the workers had a chance to improve their pay by increasing their share of the profits. There was no huge disparity between the salaries of lower-tier employees and managerial staff, and informal communication flourished between the two. The company eventually outcompeted most other manufacturers by the 1980s, which sparked their interest in expanding abroad. However, the company had acquired long-term debt from these expansions.
PACARDI
Problem Definition
Problems also arose from the expectation that workers work harder for annual bonuses, which worked in individualistic countries, such as the United States, but would not suffice in other collectivist societies. Employees from other countries did not take to the traditional way of Lincoln Electric, which caused major profit loss.
Alternatives
Management options include: providing workers with standard wages to what they are used to, paying standard wages dependent on piecework, and introducing the profit-sharing system. Standard wages in developing countries are much lower than in the United States, which means the company would save money on wages and training because most locals are already acquainted with the system. Standard wages with slight fluctuations depended on the workers skills and proficiency, meaning the better they work, the more their salary increases. Profit sharing would mean the workers pay would depend on the company’s total profits.
Criteria
Worker satisfaction and productivity are the main criteria for the company’s success. It is necessary to examine the applicability of these alternatives in the cultural climates of collectivist societies. The company’s long-term success is very important in decision-making.
Analysis
Standard wages are the most cost-reducing alternative; however, they will not guarantee success in a foreign market because workers will not be motivated to work for higher wages and increase productivity. The company’s long-term success is not guaranteed with this alternative. Piecework would mean high employee competition for a higher share of the profits and annual bonus, providing more work incentives. The last option would suit collectivist societies and motivate workers to unite for the company’s good. It would act on the tendency of collectivist societies to work for the good of the majority.
Decision
The best option is to implement a profit-sharing system that would both motivate employees to work for the company in times of crisis and pay them a stable wage that they are accustomed to. It would solve the issue of worker dissatisfaction by motivating them to work for the benefit of the majority while increasing the company’s profits, meaning long-term success is guaranteed.
Implementation
To develop such a system, managers from overseas firms must be informed about the workings of such a system. They must relay the information to the workers to ensure they share similar goals to raise profits and wages. After instructions, the worker base must be motivated to increase company profits, with the motivation to receive a bigger salary and annual bonus collectively. Frequent meetings with managers and team-building exercises would suffice to create a sense of community that would motivate workers.
Phillips versus Matsushita Case Study
Introduction
Phillips and Matsushita are two companies that produce electronic light sources for living quarters. Despite the similarities in their product, they have drastically different approaches to organization, manufacturing, and management while also being successful and competing with each other, which make them an interesting topic to study. After encountering financial struggles, the companies decided to find a new model of management that would better suit modern competition between the two firms.
Case Summary
Phillips is a European national organization that historically was able to adapt to many different markets. Such a strategy is called “adaptive marketing,” which also implies the division of manufacturing between countries (Bartlett, “Philipps versus Matsushita: The Competitive Battle Continues” 2). The technical and commercial aspects of the business were separate but heavily intertwined. During the 60s, Phillips started to experience problems with competitors outsourcing their production to Asian countries, giving them more market power. The executives decided to change their managerial processes to ensure more productivity, cut costs, and compete with Asian manufacturers. Such strategies include: outsourcing in-house production, increasing the product range, and adapting different distribution channels in developed and developing countries. However, the competition in consumer electronics still weighs heavily on the company.
Matsushita’s organizational foundation resembles a divided structure. Each product had its division within the company that was managed separately from other products. The management served as a bridge between different sectors, providing funds and loans in exchange for higher-than-market interest rates. The different divisions worked on manufacturing different high-quality products, such as TVs, videocassette recorders, and other household applications. CEOs ensured that expatriate Japanese managers played a vital role in communicating between the product sectors. With the expansion, the enterprise continued the same strategy of divisional manufacturing, which initially brought them international success. However, during the 2008 recession, the company had to close 27 overseas plants to cut costs and suffered severe losses. To analyse both companies and their shortcomings, their constant expansion strategy and diverted their focus from operational management. Branches of the company began to compete, grounded in the divisional structure, which ultimately cost them severely.
PACARDI
Problem Definition
Both companies struggle with continuing their current operations worldwide because of economic difficulties. The main problem is the divisional structure of the firms, with different manufacturing and marketing operations in different regions of the globe. It causes problems because of the increased communication time between sectors, and correspondence takes a toll on the companies budgets.
Alternatives
To solve this issue, several alternatives were considered: bringing the company’s manufacturing in-house and unifying production in one country, hiring new employees that would be able to hold correspondence between different firms, and managing costs. Another alternative is forming the company’s different divisions as separate businesses and giving them independence. Bringing the company’s manufacturing in-house would mean a massive transfer of resources and staff to the country of operations; new hires would mean more budget spending on training and wages. Separating the different divisions would mean effectively creating new companies connected to the original company.
Criteria
The main criteria for considering these options are the financial burden the company will take by accepting the choice and the productivity increase or decrease. The strategy’s effectiveness in improving the company’s standing on the global market of electronic manufacturers is an important variable to consider.
Analysis
Unifying manufacturing implies changing the entire structure of the companies and requires a lot of human and financial resources. However, it would help with the companies’ communication issues, which suits the criteria. The second option would effectively lead to more correspondence between production sectors and require less financing than the first. Considering that both companies struggle with cost management, simply increasing staff is a less expensive option in the short-term. Lastly, forming different divisions that each manage their costs while also relying on the parent company would be effective; however, there is a risk of the small companies separating and becoming independent competitors. This option is the least beneficial to Phillips and Matsushita.
Decision
Based on the criteria, the addition of hiring for communication between firms would be suitable, as it solves the problem and makes the companies more efficient in their management.
Implementation
To successfully implement such a strategy, Phillips and Matsushita must reserve a portion of the budget for seeking and hiring new employees. The new hires will be trained in communicating clearly and concisely with CEOs, employees, and other managers from other firms. Specific training includes frequent conversations, rapport-building with managers, and learning the company’s infrastructure to speak between different sections adequately.
Works Cited
Bartlett, Christopher. Lincoln Electric: Venturing Abroad. 1998. Harvard Business School, Case.
Philipps versus Matsushita: The Competitive Battle Continues. 2009. Harvard Business School, Case.