Entrepreneurship:  not just for entrepreneurs.
Managing the transition(s) to more professional management

By Mike Hihn

Entrepreneurship is not just for entrepreneurs.  The critical elements of personal autonomy and earned rewards can be just as effective on the shop floor. 

Consider Lincoln Electric, a Cleveland-based manufacturer of welding equipment.  In its markets, Lincoln’s reputation is a rare combination of cutthroat pricing and high quality.  Shareholders receive above-average returns.  Line workers earn $80,000 per year, with a few topping $100,000 per year.  (No misprint:  $80,000-$100,000 per year)

Lincoln is a billion dollar corporation, founded in 1895.  Co-founder James F. Lincoln added profit sharing to then-common piecework, creating an incentive system that is still taught at Harvard Business School.  The total package rewards both individual and group productivity.  Consequently, Lincoln still enjoys what has become all too rare in this country:  the highest-paid workers creating the lowest-priced products.  But numbers alone are not the full story. 

Lincoln workers receive high levels of continuous training, which allows them to work largely on their own.   By the numbers, Lincoln needs only one supervisor per 100 workers.  On the “human” side, workers enjoy high levels of personal autonomy and control over their work.  It’s a non-union shop. 

Now consider union shops.  In the late 1970s, American autoworkers ranked near the highest-paid in the world, for (then) semi-skilled labor.  Yet, surveys showed that most would rather be self-employed.  Here too, cash wages are not the full story.  Autoworkers still suffer typical assembly-line boredom, which Lincoln manages to avoid.

My own first opportunity involved office-equipment service techs, in a money-losing division.  Management believed that field technicians (entirely male) were wasting time schmoozing secretaries (then entirely female).  I proposed a simple productivity bonus added to existing salaries, based on improving the ratio of billings to wages.  Within six months, there were 15% fewer workers (by attrition), and significantly higher billings per worker.  Worker bonuses had already created a 50% wage increase.  The division went from small losses to solid profits.
 

One final example required neither bonuses nor training.  In the early 1980s, United Airlines began focusing on productivity.  Deregulation had spawned aggressive price competition from new, lower-cost airlines.  Reservation agents (then non-union) could remain competitive despite much higher wages, by improving productivity.  (United had hired a CEO from outside the industry, became the only major carrier supporting deregulation, and was aggressively preparing for a competitive marketplace.)

Each agent received monthly data showing both individual and team productivity.  United planned to run the reports for several months, gather some baseline data, and then create training programs.  But after four months, agents had increased productivity by over 20%, entirely on their own initiative.  These gains were an essentially spontaneous response, to a simple “closed-loop feedback” system.  Workers saw what was expected of them, and figured out how to do better.

Now the bad news.  Of these examples, Lincoln is the only remaining success. 

United is still around.  But their entrepreneurial success was abandoned, and the CEO fired, when the low-cost carriers failed.  Today’s low-cost carriers are a lot sharper than those of 20 years ago.  United is again in crisis.  But this time they seek federal loan guarantees instead of entrepreneurship.

The equipment techs lost their productivity bonuses.  The parent corporation was outraged by the high wages, apparently believing the resulting higher profits were an entitlement.  You do get what you pay for.  Division profits reversed again, now downward.  Three years later, the parent died.

Lincoln still succeeds, I believe, because they learned how to grow and manage a billion dollar corporation – without abandoning entrepreneurship.

Typically, major corporations respond to crises by rediscovering entrepreneurship – if they're lucky – only to lose it again when the crisis passes.  They fail to change their culture – and thus fail to restore what so many small and family businesses have not yet lost.

THE LESSON for growing small and family businesses:  Continued success requires an almost constant evolution to more formal management practices.  However, professional management should always be added to – and never displace – the entrepreneurship that created your original success. 

It's not about size ... And it's not about profit vs. non-profit ...  Entrepreneurs (and entrepreneurial management) have always trumped bureaucratic management.

Lincoln Electric was founded in 1895.  Their success has been profiled twice on 60 Minutes.  Lincoln’s incentive system is a case study at Harvard Business School.  A hundred years from today, would you like to enjoy the same legacy as James F. Lincoln?

Like so many other challenges, success here comes from properly defining the mission.  We must of course continually improve how we manage – but without smothering entrepreneurship – and with the enthusiastic support of the entire organization, from the very top to the very bottom.  So consider expanding your own entrepreneurship – distributing rewards and responsibilities – into all levels of your business.

Why should you have all the fun?

Most recently published in the Kitsap County (WA) Business Journal, 2004.

Hihn is a small-business consultant and entrepreneur coach, originally from Cleveland and recently moved to the Boise area.  Hihn’s toll-free number is 877-596-6379. 
 

Copyright 2005-2008 by Michael J. Hihn