Pulling it all Together

1
Pulling it all Together
Organizational Policies
Internal Fit
External Fit
Contracting Perspective
2
Slackers

• Poor incentives if ...
• cant meet bogey
• bogey might be changed (ratchet effect)
• Other problems w/ piece rates
• quality, cooperation, improvement ideas

3
Lincoln Electrics Slacker Fixes

• Shape of pay v. performance
• no bogey
• never ratchet rate unless methods change
• if changed ...
• target pay level stays same
• employees can challenge change
• Quality
• no piece rate until defects repaired
• stencil name on welder
• quality component to rating
• Cooperation / Ideas
• co.-wide bonus pool varies w/ co. profits
• rating dependability, ideas cooperation
• lifetime employment

4
IncentivesSummary Lessons

• To mitigate distortions
• use overlapping mechanisms
• controls
• other measures / rewards
• use subjectivity
• measures or weights
• Subjectivity Þ need for TRUT
• implicit contracting policies
• incentives controls for supervisors

5
External Fita. Arc Welders

• Product
• slow tech. / product innovation
• synergies w/ electric motor mfg.
• Customer
• razors blades
• uses up to 30 years
• cost quality, not timely delivery
• long-term sales relationships
• Market
• potential large competitors
• global demand
• variance (seasonality / cyclicality)?
• growth?

6
External Fitb. Strategy

• Costs Þ prices Þ growth
• total market size market share
• internal v. acquisition?
• scale economies v. core competence?
• focus on welders v. expand to motors?
• Razor blades
• vertically integrate into supplies
• Customer relations/ service
• internalize sales, not distributors
• welding knowledge
• sell supplies

7
Internal Fita. Career Policies

• Promote from within
• mgt. understands welding mfg. use
• aids performance evaluation
• culture building
• coordination
• Lifetime employment
• fits w/ promote from within
• fits w/ growth strategy
• problem w/ seasonal / cyclical variation
• Recruiting probation
• screening hard workers, cultural fits
• Train sales on welder mfg. use
• aids customer service, product design
• fits w/ less complex product, simple product line
• fits w/ internalization of sales

8
Internal Fitb. Job Org. Design

• Assembly line, not teams
• perf. meas. for piece rates
• fits w/ less complex, mature product
• fits w/ focus on extrinsic motivation
• Flat hierarchy, spartan, few distinctions
• lower cost
• fits w/ simpler product line
• Top-down decision making
• fits w/ less complex, mature product, simpler
  product line
• fits w/ promote from within, lifetime employment

9
Internal Fitc. Rewards

• Piece rates
• extrinsic motivation
• fixes for ratchet effect (above)
• Bonus pool overall firm profits
• fixes to piece rate problems (above)
• fits w/ lifetime employment
• fits w/ growth strategy
• fits better w/ stable product demand
• Subjectivity
• piece rates methods changes
• performance ratings
• size of bonus pool
• problem of trust / risk ...

10
Internal Fitd. Voice

• Worker middle mgr. advisory boards open doors
• communication of information
• coordination
• airing of grievances
• builds trust
• fits w/ no union
• No union
• flexibility in work rules
• lower cost
• fits w/ strong reputation / trust
• also reinforces trust
• Communication of culture / history
• aids trust / reputation building

11
Implicit Contracting Trut

• Credibility
• history, culture
• management consistency
• fits w/ founding family, promote within, strong
  culture
• policy consistency
• Capital structure
• no debt, employee stock
• preclude hostile takeovers
• fits w/ long-term growth strategy
• fits w/ large bonus pool, worker exec. stock
  holdings
• no bonus for top 2 mgrs.
• Reducing favoritism
• mutual interests
• monitoring of evaluators multiple evaluators
• relative, but not forced, rankings
• grievance policies
• culture

12
Lincolns Strategythrough 1996

• Growth
• move into AC electric motors
• acquisitions v. greenfields
• GM / Delco
• UAW plant shutdown
• Europe, Brazil
• problems transplanting culture
• price wars
• US v. foreign profits bonus financing
• Inverter technology threat?
• welder big transformer
• inverter more power, smaller transformer
• need for new skills (plastics)
• WSJ ad
• Organizational policies
• no more Lincolns
• changes?