The Lincoln Electric Spark

Frank Koller has written a most thought-provoking book entitled Spark: How Old-Fashioned Values Drive a Twenty-First Century Corporation.

Lincoln Electric, a manufacturing company in Cleveland, Ohio rejects normal North American business practice by refusing to lay off its employees in tough times. The company’s century-long record of profitability and innovation is proof that trust, flexibility and fairness can inspire people to achieve amazing things when they are confident that their future – and that of their families – is secure.

He uses the Lincoln Electric story in a wide-ranging critique of current American management practices and the value system underlying American business.  He homes in on the widespread attitude that layoffs are now seen as an everyday technique of modern management and are an almost instinctive reaction to corporate downturns.

His account could be seen as a reasonable description of the paradox that Lincoln Electric’s ‘old fashioned values’ that have produced success are so often rejected by most modern businesses.  However his analysis could perhaps have gone a little deeper.

The key label attached to the Lincoln Electric approach is that it has a no-layoff policy.  Koller downrates this by describing it as reflecting old-fashioned values.  This naturally is anathema to the average big business CEO, who would like to be seen as:

  • producing short term results fast
  • action-oriented
  • tough-minded

The advantage of instituting lay-offs when results are dropping is that it looks as though it confirms that the CEO ‘is not afraid’ to do what it takes.

The Lincoln Electric approach could have better been described as the timeless set of best practices, rather than just the ‘old-fashioned’ way of doing things.  Homing in on only the no-layoff practice provides only a caricature of what Lincoln Electric is all about.

Lincoln Electric has a set of 6 core values and non of them refer to a no-layoff practice.  Here is a very short summary of these values and you will see that they are very much now-values rather than just old-fashioned ones.

  1. Be customer-centric
  2. Value your team
  3. Reward Performance
  4. Be financially prudent
  5. Respect the environment
  6. Support local communities

Most businessmen would support these six values.  However many would not list them in this order which I believe is very much an order of priority.  Only by applying these values in a tough-minded way will success he achieved.

  • Clearly #1 is that the customer will perceive above all else that the company will do its utmost to meet their expectations and fulfill their needs.
  • The team is equally important and management must develop a climate of mutual respect and mutual commitment.
  • #3 is the lever by which this climate is maintained and enhanced.  It is not solely rewarding the good performers but ensuring that unsatisfactory performance is identified and corrected.  This may mean that some team members who are not willing to pull their weight will be shown the door.

The remaining three values are clearly important too.  They are very necessary for a successful company.  However they are not sufficient in themselves to ensure success.  That only comes from a strong commitment to the first three values.

The staff are very much a key asset for any company.  Real success comes from making assets perform rather than getting rid of assets.

In fact getting rid of human assets generates costs rather than bringing in revenues.  The biggest cost is the alienation that everyone in the organization feels as they note that anyone is expendable.  Rather than everyone putting out 100% of effort to satisfy customers, part of that time is spent in polishing up their resumes and seeing what other opportunities may exist in the marketplace.

Usually also there will be cash costs in termination packages or redundancy arrangements for those who are let go.  These are rarely mentioned in the PR releases as the firings are announced.  However a true accounting might well show little net benefit when all is taken into account.

Lincoln Electric is all about a very different way of managing enterprises.  It may well be too tough a challenge for those Wall Street quick-fix merchants.

Enhanced by Zemanta

3 thoughts on “The Lincoln Electric Spark”

  1. Barry,
    Glad you enjoyed SPARK – who doesn’t want his book to be described as “thought-provoking?” Thanks.
    A couple of quick points in response to your comments, and let me say that overall, I don’t disagree with their general direction.
    Re: “Homing in only the no-layoff practice provides only a caricature of what Lincoln Electric is all about.”
    You are quite correct that the overall message of the book is to challenge modern corporations to find creative alternatives to layoffs – based on my conviction that layoffs in the vast proportion of situations represent prima facie evidence of bad management.
    But I do try to be crystal clear that Lincoln’s guaranteed employment policy ONLY works in the context of an overall incentive system which also includes the use of piece rates and other performance based compensation incentives, a sophisticated and rigourous performance merit-rating system which profoundly affects end-of-year compensation and an open door communication structure (which includes the powerful Advisory Board).
    I do confess that in these times it was the guaranteed employment policy which first drew my attention to Lincoln – I have come to appreciate that it can only exist as part of the overall system. Hence I try to be clear that cherry-picking the idea is likely to be disappointing.
    Re: “Koller downrates a no-layoff policy as reflecting old-fashioned values.”
    Whether or not a guaranteed employment / no-layoff policy is evidence of “old fashioned values”, it is certainly NOT overtly part of modern management values in North America. I have covered far too many layoff announcements over the past decades where CEOs with crocodile tears announce huge layoffs of staff – after telling those who survive they are “the firm’s most important asset” – by arguing that “we had no option.”
    Companies talk endlessly about engagement and building loyalty. Here in Canada, where we both live, I can find no company with a formal explicit no-layoff policy similar to Lincoln’s – other than as rhetorical goals. In the US, there are a few (and some like S C Johnson spill over north of the border.) There are a very few such as Standen’s manufacturing in Calgary which has done a remarkable job over the past three decades in avoiding layoffs. But it is certainly not a “modern value” in practice.
    Okay – that’s it ..
    Frank Koller

  2. Thank you for stopping by, Frank. I think we’re very much singing from the same hymn sheet. I use modern to mean appropriate to the times, not necessarily what the average corporation may be doing now. I think the average corporation is unfortunately stuck in the past. They will be beaten by those companies who take on the values of a Lincoln Electric, which I find to be wholly modern.

Comments are closed.