Dr. Iris Berdrow

1. Dr. Iris Berdrow Bentley College, Harvard Summer School

2. Monday July 30th Agenda • Hand In Briefs • Check In • Lincoln Electric • Review last week • Facilitators & Barriers to Innovation • Leadership • Organizational Culture • Wrap Up • Group reps see Mike Harrison

3. Lincoln Electric • Group discussion of questions • Why has Lincoln electric been so consistently successful? • Why has Lincoln's system worked so well in some locations, but not others? • What is the difference between incentives and motivation? • What should Lincoln do in Indonesia? Why?

4. What is the main issue? • Should Mike Gillespie, President of Lincoln Electric’s Asia Region, invest in a new factory in Indonesia. • Should he consider transferring Lincoln’s unique incentive system of management to such an operation.

5. What are the elements of Lincoln Electric’s unique incentive system? • Piecework • Bonuses • Guaranteed employment

6. What is Lincoln’s international expansion history and experience? • Up to 1986: United States, Canada, Australia & France; successful ventures. • 1986 to 1992: Japan, Germany, Ireland, Italy, Netherlands, Norway, Spain, UK, Brazil, Mexico, Venezuela. • 1993 – 1994: Close Japan, Germany, Brazil & Venezuela due to poor performance. • 1996: New CEO, new expansion strategy – Latin America and Asia.

7. Discussion • Why has Lincoln electric been so consistently successful? • Why has system worked well in some locations but not others? • What is the difference between incentives and motivation? • What should Lincoln do in Indonesia? Why?

8. Key Points • Direct labor represents a small percentage of manufacturing cost. Approximately 70% of manufacturing cost is materials (commodity steel products) over which Lincoln has little control. • Incentive system drives front-line workers to look for entrepreneurial innovations that can leverage equipment and operating processes. They operate standard machines at 2-3 times manufacturer’s rated capacity and develop own proprietary equipment. Therefore, knowledge and skill is a key competitive advantage.

9. KSF is people and culture which attracts self-motivated entrepreneur willing to work long and hard for exceptional pay. • Strong values – belief in individuals, principle of rewards based on performance, egalitarian environment. • Management by walking around (MBWA)

10. Overseas companies lack strong link between Lincoln’s strategy and organization model, and the self-selected employees motivated by incentive-system. • Hands-off operation style failed to acculture companies to Lincoln’s strategy.

11. Success depends not so much on the external, cultural and political environment as on the ability to recruit individuals who fit the company’s values and system.

12. Last Week in summary Regulatory Economic Political Social Cultural MARKET Innovating Innovation Competitive advantage ORGANIZATION COMPETITION Return via the market CONTEXT

13. Today’s Readings: • Freeing Managers to Innovate. Bellmann & Schaffer • The failure tolerant leader. Farson & Keyes. • How to Kill Creativity. Amabile. • Inspiring Innovation. Wynette. • Coaching innovation: an interview with Intuit's Bill Campbell. Mendonca & Sneader. • Infusing innovation into corporate culture. Price.

14. Leadership Vision Champion Tolerance for failure People Values Norms Skills & Competencies Management Practices Knowledge Capture Creation Disemination Slack Resources Financial Time Space Facilitators of Innovation

15. Barriers to innovation • Mindset • Not-invented-here vs. Nothing-is-invented-here • Shortage of resources • High internal barriers • Organizational bureaucracy • Lack of motivation

16. What did we learn? • Model of Week 1 • Lincoln Electric Lessons • Facilitators & Barriers to innovation • Group Reps meet with Mike Harrison