Nine out of ten new businesses fail within their first year. This is an alarming statistic, is in fact more a myth than truth. However, suggests the recent data the same trend but not so extreme. According to Brian Headd and data from the U.S. Census, a more realistic figure shows that 62% of businesses in the vicinity during the first six years of operation (Headd 2). This raises the question: What makes a successful business? By analyzing and dissecting the intricacies ofLincoln Electric consistently stellar performance as well as the attention can be found on several interesting financial pitfalls of a response.
Value in the Individual Work
An organization that at its core is made up of individuals and has been equipped. Who of them has the greatest impact on the success of this organization? Most of the value placed on the individual, for he is the one who is creative, can-motivated, qualified, efficient and responsive. ProperFunction of management is to pull these properties and their growth in a production environment encouraged. A large part of the (Lincoln Electric LE) success can be attributed to this unique and effective management style, which ultimately leads to a competitive advantage. Offer no matter the size advantages of a large company like GE, the increased productivity of each worker's sufficient justification in the production can not compensate easily. This style isfurther promoted through a combination of structural, strategic and cultural norms in LE.
Structurally, Lincoln Electric seeks to eliminate the hierarchical structure of flat and non-functional middle management level. To do so, has a LE "open door" promoted "policy between workers and managers as well as an Advisory Board that representatives of the workers who created meet with leaders twice a month. Strategically, pushes LE for an integrated approachto maximize the performance and reduce costs. Although this seems straightforward and simple, the effectiveness is in the details. Cost will be examined at a later date, but to maximize the output, Lincoln Electric draws from its dedicated employees. However, these employees are not naturally motivated. This is the role of James Lincoln incentive management system. This system provides a tool for motivating all employees through bonuses, that a large part of the redistributionCorporation annual profits. Two main results come from this redistribution. First, there is an increased sense of ownership in the company from top to bottom, because if the company works well as a whole, everyone is compensated for each of them.
Secondly, it is becoming increasingly personal performance. This performance is the result of a kind of peaceful competition within the group. A special bonus pool dollar amount is allocated to each group, and the bonuses are thendistributed to members of the group that quantified the relative performance of their semi-annual Merit Rating. Now, the Merit rating function is to counteract some of the dangers of a strategy to speed and efficiency. In general, the result of an emphasis on speed is the sacrifice of quality and safety. Each principle of Merit Review (including reliability, quality, performance and ideas / Cooperation) is a response to the common shortcomings, atraditional production worker. The fact that for participation, reward quality of work and contribution of ideas on the starting chord leads to a well-rounded end product that is produced on the correct data in record time.
To push the speed of production, LE places a strong emphasis on the idea generation and employee input. This will allow for creative ideas and suggestions about the production process across the entire distributed enterprise. As a result, there is a strong andLE steady increase in productivity per worker. The Merit System is also used to coordination by rewarding teamwork to increase, while introducing an element that is historically known that one of the most effective driver of all time competition. Although this seems like teamwork and competition are in conflict, they are not. Since there are only a certain number of possible merit points available, the competition in these respects between members of thethe working group exists. However, the total payout at the end of the year is to split the profits of the company as a whole, therefore encouraging teamwork and idea exchange. This comprehensive incentive management system combines the direction of the workforce and leads to a balanced and efficient set of goals, which yields strong a competitive advantage over competing companies. In a commodity industry it is the process not the product, the rule and must be differentiated. LincolnElectric has found the perfect process, but it is a process that can be universally applied in overseas?
Cost reduction and market expansion
The blind pursuit of profit can easily lead to bad decisions. Therefore, the remedy has to create income is of vital importance. The question is how a company can increase their margins? There are two easy ways: reduce costs or increase the output by expansion and efficiency. Lincoln Electric has identified this dynamic duo and they integrated into the generalBusiness strategy. To reduce costs, LE uses a variety of good business development tactics. There are three layers on the bodies, so that it constantly rotated and allows for no downtime for equipment. This avoids having excess capacity, which leads to unnecessary overhead costs. In addition, LE goal of the company's flat structure and levels of the organization has overcome to distract from the established environment of open communication between workers and management. This will reduce salary costsand ultimately increase profit margins.
The concept of job security is another brilliant cost cutting idea by James F. Lincoln. The cost of keeping staff on the payroll is less than the cost of recruiting and training of highly motivated and creative employees. As a result, in a downturn, not LE dismissal is not working, but would the conversion and making them available elsewhere in the company. This would promote loyalty to the company and reduce staff turnover again sharply reduce costs for LincolnElectric through a variety of quantitative and qualitative means. Finally there is the concept of limited benefits increased profits. This improvement reflects, bonuses, and worker's compensation paid by the piece, which would compensate put more control in the hands of the individual with the allocation of money and for their lack of benefits. LE approach to maximizing the performance has been previously studied and the general consensus was a focus on the development of a creative, motivated andEmployees who requires an efficient production consistently more effort than a similar worker in the production to another company. Another way to increase production is to expand into other markets.
Lincoln Electric with expanded into Canada with the opening of a manufacturing plant in Toronto in 1925. About twenty years later, Canada took the LE Incentive Management System (IMS), including their annual bonus and piece-work facets. Because of the similar cultural norms between the U.S. and Canada, this adaptationflowed smoothly. But the poor decision-making, led to the application of IMS in other markets, including Europe and South America. Friction resulted, because the cultural values of the worker in production are different. Also led to government regulation in Germany and Brazil the most important settings that undermine the incentive LE efforts. In Europe, employees rated benefits such as vacation time on annual premiums. It was noted that the annual premium was little increase individualthe efficiency of production without the piece-work aspect of IMS. Chord, in fact, was illegal in Germany.
Of course, if more planning and research had been done, would have discovered this important fact and LE should be avoided, the expansion in Germany. Lincoln Electric is the root of the problems began with the rapid expansion of thinking of George Willis. The main problem was the speed of expansion. LE create long-term debt for the first time in the societyHistory. The additional interest expense and durable adhesion hurt future profit and loss accounts difficult. A study of Lincoln Electric's consolidated profit and loss account and balance sheet shows some interesting financial facts.
From 1987 LE had no long-term debt. This, together with the firing push for expansion in subsequent years to more than $ 220 million in 1992. Given that implied in the profit and loss account, the amount of long-term debt with the first loss of LincolnElectric. Failure to control spending and keep costs down (the historical competitive advantage LE) undermine the desire for power through the expansion increased. Another interesting fact is that "makes their revenue from 1992 and 1993, education costs and expenditures do not coincide, so that they grow until 1994, which also happens first posted net income after the losses of 1992-93.
This analysis of cost reduction and market expansion raises some questions. How canLincoln Electric to prevent similar losses in the future? How closely correlated is the net loss in 1992-93, with geographic expansion? What can Lincoln Electric do in the future to maintain its historical rapid growth and competitive advantage?
Recommendations
So the moment has come to the decision on Indonesia. Indonesia is ready and willing to match with the strategy of Lincoln Electric, or it is the incentives that the key competitive advantages are distinguishing ward? After analyzing theIndonesia's economic and financial situation, I recommend slow in its expansion welding market. The current distribution network of Tira and SSHJ should be changed so that they can be refined and expanded. Although smaller falls SSHJ strategy with LE more than Tira's strategy. I suggest that with only SSHJ sellers, because they highlight the cost savings and benefits of Lincoln Electric products and also the target for new customers in more than name recognition and drawing LEReputation for high quality. LE should take advantage of co-optation to the company with local contacts and recommendations, so that the former error can be addressed in the incentive management and provide change. Exact details of my recommended Indonesian extension are indicated in the following list:
• combination of chord and salary with a salary equivalent to a figure slightly lower than the average production worker wage of 250,000 Indonesian rupiah.
• No annual bonus, becausethe economy is so changeable and fleeting that it would probably not affect daily effort.
• There are job security would be helped by an understanding that economic change would not jeopardize an employee job. Job security would foster intense loyalty and a key factor in building a consistent workforce.
With this comprehensive entry strategy in the Indonesian market, I believe that Lincoln Electric only be met with success. This strategy includes the mostAspects of the Cleveland LE incentive system while adapting it for profit maximization in the specific Indonesian environment. Gillespie should have no worries, as he presented the plans to his colleagues, because the basis for this plan are rooted in the historically successful tradition of Lincoln Electric, and have been adapted to the differences that hampered earlier to compensate for global expansion.
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