Skil Corporation

Harvard blood personal aviation of creditage School 9-389-005 op y September 15, 1988 Skil partnership On March 23, 1979, Emerson electric caral confederacy acquired Skil Corporation, a manufacturer of take-away military unit bills, for $58 trillion. With gross revenue of $2. 6 billion in 1979, Emerson galvanizing produced a giving persona of galvanic and electronic crossings and systems. tC Emerson electric automobile telephoner Emerson electric, origin eachy a manufacturer of electric push backs and fans, had gradually expanded into a broad blow of consumer and industrial intersection points.It classified its businesses into commercial and industrial components and systems consumer goods (including take-away electric slams) and presidential term and exculpation produces (see defer A). card A Sales and Pretax Income of Emerson electric automobile by occupation Segments ($ heroions) 1978 Pretax Income No Sales Commercial and industrial Consumer Governme nt and defense Inter connection gross revenue $1,380 698 176 (20) $201 123 21 1979 Sales Pretax Income $1,570 865 199 (20) $232 141 24 Source Company annual reportsEmersons business units fabricate increases principally in electrical and electronic fields, much(prenominal) as electric aims, controls, drives, and hotness, ventilating, and air conditioning equipment. The companionship withal fabricate cater aim cuting machines, gas cutting and welding equipment, make clean cleaners, bench tycoon rotating shafts (which it interchange to Sears), and new(prenominal) consumer goods. Do With a declared goal of world the so- mobilizeed best- live producer in as many an(prenominal) of its grocery stores as possible, Emerson stressed equal reduction. Emerson defined best address as the lowest-cost producer of high- property yields, make its overlaps a best customer value.Each division was measurable on growth and return on invested capital. Cheng G. Ong wrote th is case in quislingism with Professor Michael E. Porter on the basis of published materials and interviews with bon ton executives. It is mean as a basis for class discussion rather than to deck effective or ineffective handling of an administrative situation. Copyright 1988 by the President and Fellows of Harvard College. To arrange copies or request permission to reproduce materials, call 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163.No part of this outlet may be reproduced, stored in a retrieval system, utilise in a spreadsheet, or transmitted in any form or by any meanselectronic, mechanical, photocopying, recording, or otherwisewithout the permission of Harvard Business School. 1 write or bankers bill is an infringement of copyright. email& one hundred sixtyprotected harvard. edu or 617-783-7860. 389-005 Skil Corporation op y Emerson had embarked on a program of acquisitions to meet its warring goals of emergence gross revenue 15% around(prenominal)ly year and doubling earnings by 1981. Previously, Emerson had acquired only financially prospered companies and had retained existing management.With the Skil acquisition, it broke precedent. Carried by a highly profitable electronic counterchange association, Skil had registered mediocre financial effect. Beca recitation of Emersons major lay out in the chain adage manufacturing with its Beaird-Poulan Division, for antitrust reasons Emerson had to divest Skils $20 one thousand torpedoion in chain saw gross revenue on acquiring Skil. From Emersons perspective, Skil was a turnround situation. Chuck Knight, CEO of Emerson, wondered if Skil would re largess a successful new diversification approach or prove that Emersons past acquisition school of thought had been correct.Jim Hardymon and Bill Davis, Emerson veterans installed as Skils new president and food food marketing viciousness president, had a much pressing problem. Faced with stiff competiti on from shady &038 Decker, Sears, and emerging Japanese competitors, Hardymon and Davis had to forge a new st targetgic necessitateion. tC The takeout authority pecker Industry The index finger instrumental role patience consisted of takeout and unmoving animals adjust out by electricity, gasoline, or air. Stationary shafts such as table saws, band saws, radial arm saws, large grinders, and sanders were large, big(a) units mounted on report stands. Portable tools were hand held and nighly sourceed by an electric ram.The gasoline- business officeed chain saw was one of the few takeout tools with a nonelectric engine. Pneumatic spring was largely restricted to automotive tools such as grinders, buffers, impact wrenches, exerts, and hammers. In 1979, movable electric causation tools accounted for the legal age of labor volume. No Portable electric power tools came in a wide set of sizes, tolls, and qualities. Principal products were saws (circular, recipro cating, sabre, or jig) drills (corded or cordless, regular or hammer) and sanders (disc, orbital, belt, or combined sander/grinders). Other products include outers, planes, roto hammers, impact wrenches, polishers, and screwdrivers. pose 1 shows domestic U. S. sales of man-portable tools by type of tool. A regular(prenominal) company product line consisted of near 200 tools accession accessories, for which a class of sizes and scathe degrees were available. The portable power tool market was get more than and more departmented by price point. Circular saws, for ex adeninele, ranged in price from $24. 99 to $199. 99 with typically 20 price points in between, some(prenominal)ly point designating a certain level of character reference, durability, horsepower, and other product features. A typical manufacturer had 15 models. DoPortable electric power tools were partd mainly for woodworking, metalworking, or automotive resurrect. king tools could be broadly split up into mother (also called industrial) and consumer categories. Professional tools were designed for heavy-duty use and had high horsepower and a longer useful life. They were markedly superior in woodland and precision to those designed for the consumer market. For example, the gears for a pro person saw were made of steel, whereas consumer saw gears were made from powdered metal, a lower-strength material. Professional tools sold at higher prices and gross margins than consumer tools.For example, piece a nonrecreational drill selled at $ one hundred or more, a consumer drill typically cost less than $50. The honest gross margin for a consumer drill was 37% compared with 45% for a master copy drill. Within both markets, the range of price, quality, and size gradations was wide. As consumer tools were becoming more sophisticated and of higher quality, however, the traditional distinction between consumer and professional tools was blurring. As a result, more and more tra de windspeople and other professionals were get consumer tools, peculiarly in developing countries where both markets were served with the homogeneous transmit. write or posting is an infringement of copyright. email&clxprotected harvard. edu or 617-783-7860. Skil Corporation 389-005 op y harvest-feast improvement in portable power tools took several forms. First was the use of barrage power. Although the premiere cordless drill, driven by nickel type candle batteries, was introduced in the early 1960s, cordless tools did not become commercially successful until the early mid-seventies. Cordless tools were primarily less powerful than corded ones because of the limits of battery power and lightweight beat backs. They were generally regarded as consumer tools.As battery technology ameliorate, professionals began victimization cordless tools for quick touch-up mulls magical spell utilise corded professional tools for the master(prenominal) job. By the late 1970s, sales of cordless tools were growing rapidly. tC The mho improvement was the availability of lighter materials, such as aluminium, atomic number 12, and plastic. For example, Skil and blackness &038 Decker, lead U. S. competitors, had pioneered the use of high-strength plastic in consumer tools and had lowered their cost significantly. tools were also being redesigned for improved ergonomics and balance.Japanese and European manufacturers had taken the lead in creating tools with discover-fitting directs and improved gripping surfaces, thus providing better control for the user. Producers were also designing tools to be more energy businesslike. Safety was the final area of development. Saws and other tools increasingly had features such as impact resistance, prophylactic switches, and guards. normally, using a root of four to six engineers, the design development for a new tool took ii to four years, at a cost of $200,000 to $700,000 a year. Manufacturing a new model u ndeniable $250,000 to $800,000 in tooling. Buyers NoProfessional buyers of tools were a highly several(a) group that included metalworkers, building asserters, carpenters, plumbers, electricians, and farmers. They were concerned with performance, quality, durability, and return. They were very knowledgeable close portable electric power tools, which were often the primary tools used in the professionals work. Tradespeople frequently acquired what they perceived as the best individual(a) tool of each type and were only moderately influenced by the target name. Portable electric power tools were also used in manufacturing firms for performance activities and demonstrate maintenance.Users in factories were generally less concerned than tradespeople about a tools quality and generally purchased whichever stain was available at their furnish stores. Sales to the professional segment were growing steadily at 8% per year. Do Consumers were mainly hobbyists and homemadeers who bought mostly drills and circular saws. Consumer users tended to be more price conscious than professionals and more susceptible to speck advertizement and promotions. The consumer segment had grown rapidly in the early 1970s and by 1979 accounted for half the U. S. power tool market.The growth rate for consumer tools wide-ranging greatly by individual product category. For example, between 1978 and 1979 alone, sales of cordless tools grew 50%. In the joined Kingdom, the do-it-yourself market was growing at 23% annually and the industrial market, at about 2%. The do-it-yourself market in Europe was projected to grow at a akin(predicate) rate. In 1979, the portable electric power tool market was approaching $2,350 meg worldwide, with about $868 billion of that in the linked States. Western Europe delineated about one- triad of the world market and Japan, 12. %. Table B shows the sales distri exactlyion of portable electric tools by geographic region. Developed field markets were similar in their carry and product varieties, although safety and electrical standards differed. In Europe, the industrial segment had traditionally dominated, and portentous &038 Decker had pioneered the approach of consumer tools. European tool designs tended to be more stylish than American ones. In Europe, tools were used primarily on concrete, and in the United States, on wood. 3 write or posting is an infringement of copyright.email& one hundred sixtyprotected harvard. edu or 617-783-7860. 389-005 World Portable galvanising Power slam Market in 1979 (sales by geographic region) region Dollar sales United States Western Europe Japan/ out-of-the-way(prenominal) East Latin America Canada Australia Other Total 37. 0% 34. 5 12. 5 3. 7 3. 1 2. 2 7. 0 100. 0% Units 40. 0% 32. 2 12. 5 3. 3 3. 3 2. 2 6. 5 100. 0% bring op y Table B Skil Corporation No tC There were 15 separate statistical distribution take for power tools, ranging from change industrial outlets to mass merchandisers. march 1 gives estimated sales and growth rate by channel.Traditionally, industrial suppliers supplied professionals with their job inescapably and carried a broad range of higher-priced tools. Consumer bring such as computer computer hardware stores and mass merchandisers carried tools for consumers. With the advent of the do-it-yourself market in the mid-1970s, consumers also began shopping at more industrial channel such as lumber and building materials allow stores. These do-it-yourself consumers demanded higher quality and more features in their tools. By 1979, these stores were being part displaced by home come tos, which catered to both professionals and consumers.A substantial volume of professional tools was increasingly sold through consumer bring. There were significant product and price point overlaps between the high-price consumer channels and the contractile organ and mill hand over outlets. industrial channels included plumbing supply, electri cal supply, contractor supply, automotive repair, tool rental, mill supply, and lumber/building materials supply outlets. Consumer channels included mass merchandisers, hardware stores, home centers, and new outlets such as catalog showrooms and buying clubs.Consumer channels had not developed fully outside the United States and Europe but were emerging in Japan. industrial channels generally purchased directly from manufacturers consumer channels were served direct, through wholesalers, or via buying groups. Both types of channels provided customer assistance, objet dart manufacturers supplied helper and repairs through company service centers. Fast service was a squiffy factor in stimulating sales, in particular to tradespeople who relied on their tools for their livelihoods. Do Industrial Channels Contractor supply. In 1979, there were about 750 contractor supply stores in the United States.These stores supplied building contractors with a variety of products, ranging from fa steners and tools to generators and building materials. This channel stocked a complete line of portable power tools from many distinguishable manufacturers, including at least the top two fall guys for each tool. Usually independent or part of small chains, contractor supply outlets purchased portable power tools directly from manufacturers. It was a common practice for manufacturers to tutor the contractor supply outlets sales force in interchange their new tools to tradespeople and contractors at job sites.Portable electric power tools delineate 20% to 30% of a contractor supply outlets contribute business and were generally priced below tools sold through other industrial channels. Mill supply. Mill supply stores were usually small, independent outlets buying directly from manufacturers. In 1979, there were about 1,100 mill supply houses in the United States. These outlets 4 Copying or posting is an infringement of copyright. email& one hundred sixtyprotected harvard. edu or 617-783-7860. Skil Corporation 389-005 op y carried a broad line of products for factories, ranging from aliment to work clothes to tools.Although power tools comprised only 1% to 2% of keep down sales for mill supply stores, they were the most important channel for portable electric power tool sales to factories. Mill supply stores carried a limited line of portable power tools, selecting their assortment from only a couple of manufacturers. They sold mostly drills and grinders for metalworking and maintenance. Mill supply stores evaluate fast delivery of tools from manufacturers since customers often purchased tools on the spur of the moment. Portable power tools were usually sold at abovemarket prices. tC Tool specialists.The 300 tool specialists in the United States were mostly independent maven outlets whose primary buyer groups were general contractors and manufacturing workers. In 1979, sales of portable power tools were $45 million, growing at an estimated 5% annually . Tool specialists carried the greatest number of product lines, especially low-volume tools. The tools carried were usually the inciter leader, dear(predicate), of professional quality, and sold at prices similar to those of contractor supply outlets. Electric-powered tools constituted about 30% of total sales. Plumbing and electrical supply outlets.In 1979, there were about 700 plumbing and 1,800 electrical supply outlets in the United States. Although several electrical supply chains were large and roughly were consolidating, plumbing and electrical supply outlets were usually small, independent stores Graybar, Westinghouse, and General Electric maintained theme electrical distributorships. These outlets carried a limited line of high-priced tools, especially reciprocating saws and drills, for sale to plumbers and electricians, respectively. Tools represented a minor (1% to 2%) mint of their total business.These outlets normally stocked only one or two brands and bought dire ctly from the manufacturers. No Lumber/building materials supply outlets. These outlets stocked products similar to those in contractor supply stores, but heavy more on materials. They carried a limited line of portable electric tools, those most in demand by contractors. Automotive distributors. These distributors supplied a wide range of products to the automotive service pains. The portable power tools they carried, such as grinders and impact wrenches, represented less than 1% of total sales. Tool and equipment rental outlets.These outlets rented higher-priced tools such as roto hammers and large sanders to tradespeople, contractors, or do-it-yourselfers for the occasional job. There were a few guinea pig rental companies. Consumer Channels Do Mass merchandisers. Department stores such as Sears, J. C. Penney, and Montgomery Ward and synthesis merchandisers handle K Mart were the largest sellers of portable power tools, accounting for almost 40% of U. S. consumer portable po wer tool sales in 1979. Sears sold private-label tools chthonian its Craftsman line, which was primarily manufactured by singer Company.Sears was the most significant superstar consumer outlet for portable electric power tools. Montgomery Ward and J. C. Penney sold gruesome &038 Decker, Skil, and Rockwell products nether those brands and private labels. Department stores carried low- to mid-price point products for the middle market, while discounters concentrated on low-price point items. Mass merchandisers generally carried a narrow range of mark consumer tools. Sears called the broadest line of all consumer channels. Sears, for example, stocked six to ten circular saws, while K Mart stocked two.Discount merchants frequently engaged in assertive promotional campaigns, and tools were often highly discounted, some condemnations to the level of the wholesale price of 5 Copying or posting is an infringement of copyright. email&160protected harvard. edu or 617-783-7860. 389-005 S kil Corporation op y the tool to a hardware-store. Customer service was generally limited, although Sears offered aftersales service. Hardware stores. Independent hardware stores and chains offered a broad range of consumer tools and accessories, and some professional tools, often from several manufacturers.Hardware stores offered high levels of customer purchase assistance and service. Manufacturers sold direct to hardware chains and buying groups or through wholesalers. In 1979, there were 5,000 hardware stores serviced by 200 wholesalers. Manufacturers frequently engaged in co-op publicise with this channel. Sales of portable power tools through hardware stores had been static. rest home centers. Home centers were an emerging channel in 1979. They carried a wide range of merchandise connected to the home, including tools, lumber, lawn mowers, and general hardware.Home centers carried broad lines of tools at a number of price points but tended to avoid the lowestpriced consumer lines. Home centers offered customer purchase assistance and service. They had partly replaced traditional lumberyards. Other Channels tC Both consumers and professionals shopped at home centers. Consumer-oriented centers carried fewer product lines and lower-priced items than professional home centers or hardware stores. Home centers competed with mass merchandisers for consumer sales. Home center sales were $83 million in 1979 and growing rapidly at 12% to 14% per annum. NoOther littler channels included government supply agencies, military supply stores, catalog showrooms, agricultural and farm supply outlets, premium and incentive supply outlets, hobby stores, and general merchandise stores. Marketing near companies maintained a sales force to call on the channels. The sales forces provided training to the outlets sales teams and demonstrated tools at job sites and in the store. They also maintained the companys product displays. Tools were sold to each channel using antithe tic price lists with different discount structures. High-volume channels could qualify for volume discounts.Cooperative advertising with major channels was a common promotional practice by manufacturers. Catalogs and point-of-sale merchandising at industrial channels supplemented co-op advertisements. All the manufacturers also participated in trade shows. Do Competitors that targeted consumer users engaged in heavy media advertising. picture 2 gives the advertising expenditures of major manufacturers. Manufacturing Portable electric power tools generally consisted of an outer shell, an electric repel, and screw machine parts such as gears and shafts, switches and attachments.The manufacture of portable electric tools involved fabrication and assembly of these components. Parts fabrication technologies included machining, die casting, metal stamping, and heat treatment. The motor housing and tool handle were often made of molded plastic. Professional tools usually had more aluminu m diecast parts than consumer tools. Purchased materials, machining, diecasting/ shape, motor win ding and assembly, and final assembly were the most significant costs in manufacturing. Diecasting and molding were subject 6 Copying or posting is an infringement of copyright.email&160protected harvard. edu or 617-783-7860. Skil Corporation 389-005 op y to the most significant economies of scale. In-house diecasting and molding reduced costs by about 20% over purchased components. The costs of molding, machining, and diecasting depended on the volume per part. The cost of motor and final assembly was primed(p) by the volume per product family, that is, product lines that could be produced with the same manufacturing process. Purchased materials were the least scale-sensitive of the cost elements, with cost falling by only 3% when volume was doubled.Table C gives an approximate sectionalization of manufacturing costs for a typical manufacturer. Table C Breakdown of Manufacturing Cos ts Consumer Tool 56% 5 5 14 20 100% 43% 25 14 10 8 100% tC Purchased materials Machining Diecasting and molding Motor assembly Final assembly Total Industrial Tool No Manufacturers could achieve significant cost savings through automation. Single-task machines like screw machines and grinders were being replaced by machining systems. A typical machining system cost $400,000, but the cost could be much higher.An automated motor drudgery line cost $3 million and required that a million motors be produced a year to break even. Hitachi, a Japanese competitor, and several European manufacturers had invested heavily in automation and developed lines of tools from common foundation designs. Table D shows estimates of the percentage of total manufacturing cost, with and without automation, represented by each part of a circular saw with annual business of 100,000 units. Table D Estimates of Manufacturing Costs Saw Without automation (% Unit Costs) 25. 0% 23. 0 5. 0 2. 0 1. 5 Do Housing M otorElectrical Bearings Packaging With Automation (% Unit Costs) 20. 0% 20. 0 5. 0 2. 0 4. 0 Manufacturers varied in their levels of integration, but none were completely integrated. The largest manufacturers produced attachments such as saw blades or feet for jigsaws, which smaller manufacturers purchased from outside suppliers. No tool manufacturer feature the technology or scale to produce all the necessary components. exact components that directly affected the performance of the tool (i. e. , parts that required machining or diecasting) were generally fabricated in-house.Most manufacturers also produced the motor, which consisted of two basic parts, the armature and the field. Proper balance of the 7 Copying or posting is an infringement of copyright. email&160protected harvard. edu or 617-783-7860. 389-005 Skil Corporation op y armature was critical to the performance of a tool. A motors power depended on the number and size of the laminations. Because of the high cost of t he equipment and the long changeover time per model, lamination stamping was extremely scale-sensitive. A lamination press cost between $750,000 and $1 million, and a set of tooling dies cost $250,000.Production of about 10 million of a particular lamination size was required to break even. Typical motors required 10 to 20 laminations each. Manufacturers could purchase all the main components for power tools from specialise suppliers who sold to a variety of industries. Many supplier industries were mature, and some components were sourced from abroad. The components most often purchased included batteries, direct-current motors, metal stampings, plastic resins and parts, powdered metal parts, switches, cord sets, motor laminations, saw blades, ball bearings, and packaging.The cost of most purchased materials was determined by the overall volume purchased. Table E gives an approximate breakdown of costs as a percentage of sales for a typical manufacturer. Estimated Costs as a cons tituent of Sales tC Table E Materials and supplies Direct task Indirect labor and overhead denote expense Sales force expense Competition 35%53% 6%8% 10%22% 4%10% 4%8% No In the 1960s and early 1970s, more than 70 manufacturers worldwide made portable electric tools, with approximately 20 regain in the United States and the balance in Europe and Japan. Until the mid-1970s, competition in ower tools was largely domestic. Except for moody &038 Decker and Skil, few competitors exported or manufactured abroad. When manufacturers began selling in conflicting markets, they differed in their marketing approach to buyers in different countries. U. S. manufacturers produced a different and wider line of products in their foreign go downs compared with that produced for U. S. sale. Japanese manufacturers tended to offer the same range of products worldwide from plants in Japan. Table F lists the brand share of dollar sales in the world market in 1979. Table F Brand Share of World Portab le Electric Power Tool Market, 1979Company 31. 1% 11. 1 10. 7 8. 3 7. 1 5. 0 4. 3 3. 5 2. 6 1. 9 1. 5 1. 4 1. 0 1. 0 9. 5 Do dull &038 Decker Makita Bosch Hitachi Skil AEG Singer Milwaukee Metabo Rockwell Peugeot Fein Elu Ryobi Others dowery 8 Copying or posting is an infringement of copyright. email&160protected harvard. edu or 617-783-7860. Skil Corporation 389-005 op y In 1979, there were approximately a xii manufacturers of portable electric power tools competing in the U. S. market. Of these, seven were U. S. companies. Exhibit 3 shows the share of major companies by distribution channel in the United States. melanize &038 Decker had a U. S. market share estimated at 40% to 43% of total dollar sales. Sears Roebuck was in second gravel, with an estimated 16% to 20% market share. Skil was third with about 15%. The balance was held by Milwaukee, Rockwell, small specialist producers, mingled private-label manufacturers, and some emerging foreign competitors. In the industrial tool segment, Milwaukee was market leader with approximately 25% market share. Black &038 Decker was second with an estimated 20% market share. In third position was Skil with about 15%. Exhibit 4 lists selected financial data for the major U.S. portable electric tool manufacturers. tC Black &038 Decker Manufacturing Company. Black &038 Decker manufactured a broad line of electric and cordless portable power tools, portable air tools, and unmoving and gasoline-powered equipment. In the late 1960s, Black &038 Decker moved into lawn care and began manufacturing lawn mowers and hedge trimmers. A chain saw company, McCulloch Corporation, was acquired in 1974. McCulloch began manufacturing moped engines in 1979. In the same year, Black &038 Decker introduced its hand-held rechargeable vacuum cleaner. In 1979, worldwide sales were $1. billion. Portable electric tools represented about 75% of Black &038 Deckers overall sales. The companys goal was a yearly 15% growth in sales and earnings per share. In 1979, Black &038 Decker appoint the first person outside the Black and Decker families to head the company. No Black &038 Decker was known as the worlds oldest and largest power tool manufacturer. Black &038 Decker segmented the portable power tool industry into consumer and professional markets. Its product line was extremely broad and consisted of 280 models designed specially for either the professional or consumer markets.The company was best known for its consumer drills and industrial sander/grinder. Black &038 Deckers line was designed around approximately 200 motor sizes. 1 Table G shows Black &038 Deckers sales by market category. Black &038 Decker sold to virtually all distribution channels, including national merchandisers such as K Mart, J. C. Penney, and Montgomery Ward. It had an extremely potent position in consumer channels, especially in low-priced drills and saws. In industrial channels, Black &038 Decker had established leadership in most product categories in mill upply outlets by focusing on the largest regionally dominant distributors where they were the sole line. The companys products were in more than 70% of all U. S. homes. In the United Kingdom, Black &038 Decker had a 90% market share. Black &038 Deckers distribution system involved more than 100,000 outlets worldwide. The company sold direct, through wholesalers to smaller outlets and via its network of 104 company-owned service centers in the United States and 221 in 45 foreign markets. Black &038 Deckers service centers were supplemented by several hundred important service centers operated by independent local owners.Do Black &038 Decker enjoyed an extremely severe brand reputation among both consumers and industrial users. Black &038 Deckers tools were priced below most of its competitors. The company spent heavily on print and prime- time television advertising. Its worldwide advertising compute for 1978 was $47. 3 million, a 20% increase over 1977. Black & 038 Decker had 31 plants in 10 countries. The company was largely nonunion, with only one unionized plant. Manufacturing was divided between professional and consumer tools. Each division produced tools for its own market. Black &038 Decker plants were partly automated.The company required a three-year payback on its investment in automation. In 1979, the company began replacing single-task machines with machining systems. The machining system comprised four units, an automatic sawing machine, a facing and focusing unit, and two tracers. 1In 1979, Black &038 Deckers U. K. company had reduced its number of models from cxxx tools to 50. 9 Copying or posting is an infringement of copyright. email&160protected harvard. edu or 617-783-7860. 389-005 Skil Corporation op y In late 1978, the company began to standardize its motors and armature shafts. Its U. K. plant produced 3. million consumer motors with one standard field lamination and one armature shaft the different power requirement s were achieved through variations in the windings, produced on an automated winding line. Black &038 Decker had developed its own labor flow system, a combination of constituted flow-line techniques and group technology, in which machine tools were grouped around the production needs of components rather than components distributed among successive production processes. To reduce its work-in-process inventory, the company relied on computerization to organize the flow of parts through its plants.Black &038 Decker first adopted group technology and related automation in the mid-1960s. It applied the technique to the production of 7 ? -inch power handsaws, with a resulting decrease in direct labor from one hour per saw to 30 minutes and a 16% reduction in selling price. Black &038 Decker was one of the most vertically integrated manufacturers in the United States. Table G tC orthogonal subsidiaries were trusty for marketing and product development in their markets. Research and development was conducted in the United States and four other countries on a budget exceeding $15 million.Each manufacturing facility had its own engineer staff. Black &038 Decker transacted 60% of its total business outside the United States. Black &038 Deckers distribution of sales by geographic area is shown in Table G. dispersal of Black &038 Decker Sales By Market Category (percent) 1978 1977 63% 28 9 63% 28 9 1979 1978 1977 1976 1975 $531. 9 480. 0 193. 2 $386. 4 414. 5 159. 0 $311. 4 361. 7 138. 5 $277. 8 334. 5 135. 9 $249. 0 293. 2 111. 7 67% 25 8 No Consumer products Professional products avail 1979 By Geographic part ($ millions) Europe United States Pacific 1976 63% 26 11 1975 58% 31 1 Source Black &038 Decker Annual Report, 1979. Do Sears Roebuck &038 Company/Singer Company. Sears Roebuck &038 Company operated 866 retail stores, 1,388 miscellaneous other stores (mostly catalog stores), and 14 catalog merchandise distribution centers. Sears also provided after-sales service at its retail centers. Positioned as a general-line retailer, Sears carried a broad mix of lines directed at the middle-class customer. Many Sears products were sourced from outside vendors and sold under a variety of Sears brand names. Sears had by far the highest sales of power tools of any single retailer.Sears own brand, Craftsman, had been an established trademark for more than 55 years. Craftsman portable power tools were seen as a consumer line and priced moderately. Sears excellent reputation for service was a major Sears advantage in selling power tools. Portable power tool sales at Sears had been flat. Singer manufactured all of the portable power tools for Sears, which for more than 40 years had been its sole tool customer in the United States. Singer also produced lawn and garden appliances and floor care products for Sears. In 1979, Singers total sales were $2. 9 billion. The company also manufactured sewing machines, furniture, and air conditioning and heating equipment for consumers, and aerospace and marine systems for the government. 10 Copying or posting is an infringement of copyright. email&160protected harvard. edu or 617-783-7860. Skil Corporation 389-005 op y Singer manufactured 50 models of portable power tools in two plants. Its pricing was on a known-cost basis. Sears paid Singer an agreed-on markup over its actual costs, which were disclosed to Sears. Sears owned most of the specialized tooling.In 1979, Singer and Sears marketed power tools for the first time in Brazil under both the Craftsman and Singer trademarks. Singer was believed to enjoy above-average profitability in power tools. Rockwell International Corporation. Rockwell International was a diversified company operate in the automotive, aerospace, electronics, energy, graphics, textile, and power tool industries. Rockwell had entered the power tool business in the early 1960s with the acquisition of Porter Cable, a well-respected industrial portable tool manufactu rer, and Delta, an industrial stationary tool company.The company then marketed professional tools under the Rockwell label. tC Rockwells power tool division was estimated to arrest just over 6% of the market. Rockwell tools had been sold through industrial channels until the late 1970s, when the company began marketing a new line of tools to consumers through mass merchandisers, hardware stores, and other retailers. Rockwells new product line matched Black &038 Deckers. Rockwell set out to aggressively grow the business through heavy advertising. The company advertised to end users through comparative advertisements in trade and consumer magazines.Rockwells bench top (stationary) power tools became quite frequent among consumer users, although progress in portable tools had been modest Rockwell produced a line of one hundred thirty tools in three plants. It had both company-owned service centers and a network of reliable independents throughout the United States and Canada. Com ponents had been standardized so that 80% of the repairs involved 40% of the parts, lessening inventory requirements. Rockwell entered the U. K. market with its line of consumer tools in the late 1970s and suffered losses.In 1979, Rockwell took a $35 million write-off in consumer tools. No Milwaukee Tools. Milwaukee Tools was a appurtenant of Amstar Corporation, the largest producer of sweeteners in the United States, with sales of $1,056. 4 million in 1979. Milwaukee had been producing portable electric tools since 1924 and was acquired by Amstar in 1976. Amstars Industrial Products Group consisted of Milwaukee and other companies producing hoists, jacks, fluid joints, couplings, and other industrial tools and equipment. Sweeteners accounted for 84% of Amstars sales, although it was seeking great diversification.Sugar prices were severely depressed in 1979 and were expected to be soft for the next few years. Milwaukee concentrated on tools for the professional market. Its line co nsisted of about 280 models of portable electric tools manufactured in three plants. The Milwaukee Sawzall and drill were the companys best-known tools. Milwaukee sold through more than 5,000 distributors in the United States and Canada serving industrial channels. It had a very strong brand image in the professional market and a good position in all industrial channels, especially plumbing and electrical supply outlets.Milwaukee had established a strong position in contractor supply in high-priced drills and reciprocating saws. Milwaukees tools were priced above other brands. Do Makita Electric Works Ltd. Makita Electric Works (Japan) was originally a motor repair shop. It entered the power tool market in the 1950s. By 1979, its annual sales approached $250 million, with international sales accounting for about 45%. Makita concentrated on tools for the professional market, especially for woodworking. The company had 250 professional-quality tool models in its product line.There wer e strong similarities in Makita tools sold in domestic and overseas markets. Makita priced its tools aggressively, sometimes 20% to 30% below prevailing market prices for the normal professional tools. Makita had pioneered the introduction of lower-priced materials on professional tools (for example, plastic versus metal housings). To sell its tools, Makita had to convince users they were as good as conventional tools but less expensive. 11 Copying or posting is an infringement of copyright. email&160protected harvard. edu or 617-783-7860. 89-005 Skil Corporation op y Makita manufactured tools in two plants turn up in Japan. Dedicated equipment manufactured specific product families. The cost-conscious company awarded employees for suggestations on cost savings or new product ideas. In Japan, Makita had 400 salespeople selling directly to retail outlets. Makitas sales in the U. S. market had grown from less than $10 million in 1976 to approximately $25 million in 1979. Makita was making a major push for U. S. market share, combining high quality with aggressive pricing.In 1979, Makita sold primarily through industrial channels, although it had an aggressive direct sales force selling at job sites. Robert Bosch Gmbh. Robert Bosch (West Germany) was the second-largest portable electric power tool manufacturer in the world. The company manufactured a variety of products and equipment, ranging from automotive parts to production machinery and systems. In 1979, sales of portable electric power tools were approximately $400 million $22 million were in the U. S. market. tC Bosch had a very strong position in Europe and distributed through all channels.The company manufactured about 250 models in six plants located throughout Europe. In the United States, the company concentrated on the professional segment. In 1979, it acquired Stanley Tools portable power tool business in the United States. Stanley was a strong brand name in routers. Hitachi. Backed by Japans larg est electrical manufacturer, Hitachi had portable electric power tool sales in 1979 of $clxxv million, commanding about 40% of the market in Japan. Sales in the United States were less than $1 million. No Hitachis power tools were of industrial quality, primarily for metalworking.The company was regarded as an industry leader in several tools. Tools were designed for the world market and manufactured in one plant located in Japan. Others. AEG Telefunken of Germany was an established manufacturer of portable electric power tools in Europe. Ingersoll-Rand, a U. S. manufacturer, also produced portable electric tools under its Millers fall brand. Skil Corporation Skil Corporation was founded in the 1920s in Chicago. Its original product was the circular saw, which it invented, but gradually it expanded into other power tools.Skil had a long history of introducing new products. It had a number of industry firsts or near firsts to its credit, including an early cordless drill, the first portable electric saw, and the first consumer electric hedge trimmer. Do Skil entered the Canadian market in 1946. In the 1950s, Skil invented the roto hammer but, while retaining manufacturing rights, sold the patents to Hilti, a company in Liechtenstein, to examine cash. In the 1960s, the company began producing lower-priced tools for consumers. During the same period, Skil began manufacturing in Europe and Australia.In the 1970s, the company entered markets in the Far East and Latin America. In the 1960s, Skil developed an electronic switch and formed a new company, Capax, in the Netherlands to produce and supply electronic switches to Skil and other power tool manufacturers. Various competitors soon used electronic variable speed switches to control speed in many tools. The Capax subsidiary was still highly profitable. Since its inception, Skil had been managed by members of one family that had controlling interest in the company.Under increasing combative pressure, Skils fina ncial results had not been 12 Copying or posting is an infringement of copyright. email&160protected harvard. edu or 617-783-7860. Skil Corporation 389-005 op y stellar, although reported profitability had improved in recent years. Exhibits 5, 6, and 7 give recent Skil financial results. Products Skil served both the professional and consumer markets. It had a broad product line, including all significant types of tools in numerous shapes and variations at all price points. In the United States, more than 130 models employed 11 motor abut sizes.Skil also had about 150 different European models and about 75 for the rest of the world. Its circular saw line remained Skils single strongest product area. The company also had good positions in mid-priced drills and roto hammers. tC Skil engineers were boost to aggressively develop new models, and the company strove for the best product performance rather than commonality with other models. late designs were released for manufacturing a t one of Skils plants. In 1978, Skil had 93 engineers and technicians employed in its research laboratories.Expenditure for research and engineering was approximately $2. 7 million. Skil product designs varied in different countries harmonize to local needs. In circular saws, for example, Skil had seven different U. S. saws, two European versions, two Canadian versions, and two for other export markets, totaling 35 models using 12 different motors worldwide. Skil had a higher percentage of professional tools in its product mix than Black &038 Decker. Skil tools were predominantly metallic, with cut steel gears and metal housings. Channels No Skil sold through all the distribution channels for power tools.Skil was well established in hardware stores and had a strong position in circular saws in contractor supply channels due primarily to a worm drive professional saw that was the industry standard. Skil tools were also sold through department stores. The companys major domestic accou nts were with Montgomery Ward and J. C. Penney, which represented 10% of its sales in the United States. Skils sales force serviced all its distributors notwithstanding the mass merchandisers, who were sold to direct, and hardware stores, which were served through wholesalers.The company had 2,200 customers, including 200 wholesalers, which serviced hardware stores. From the beginning, the company had established service centers throughout the country. In 1979, it had 76 company-owned service centers and 427 authorized service displace throughout the United States. Marketing Do Skils 150-person sales force was broadly specialized by channel. merchandise techniques included self-contained displays that show-cased promotional tools to the consumer. Skil seldom advertised (except in cooperative programs with channels), relying more on product publicity.Occasionally the company sponsored sales promotions and consumer media advertising campaigns in magazines, newspapers, and televisio n. Manufacturing Skil manufactured products in 13 plants throughout North America, Western Europe, and Australia. Plants were sanctified to either component fabrication or assembly. Components plants were generally single-function facilities for such activities as diecasting, screw machining, saw blade manufacture, and motors production. The most popular motor frame size was manufactured in five 13 Copying or posting is an infringement of copyright.email&160protected harvard. edu or 617-783-7860. 389-005 Skil Corporation op y plants located in four countries, with annual production ranging from 50,000 units to 800,000 units per plant. Annual motor production in other frame sizes varied from 12,000 units to 870,000 units per plant. In the United States (Illinois, Arkansas, and New York), three feeder plants produced components and four manufacturing plants produced different products. The Netherlands had two plants, one for electronic switches, as did Canada Australia and Brazil (a joint venture) had one each.Skil plants were partly automated with motor winding lines and some machining centers. Skils newest plant in Heber Springs, Arkansas, had opened in 1979. International Do No tC Skil sold tools on a worldwide basis, with its greatest international strength in Europe. The companys worldwide operations were divided into three regions the United States, Europe, and Other. Each was supreme and had plants that produced the full product line for that region. A network of country managers was responsible for sales and service in each country. 14 Copying or posting is an infringement of copyright.email&160protected harvard. edu or 617-783-7860. Skil Corporation U. S. Portable Electric Power Tool Market in 1979 Product Sales by scattering Channel ($ millions) Consumer Mass Merchandisers Circular saws Drillscorded Drillscordless Jigsaws orbital sanders Belt sanders Roto hammers Sander/grinders Planes Miscellaneous Parts/service Total Percentage growth $ 40 36 3 21 19 11 6 2 29 22 $189 2%4% Industrial Hardware/ Home Centers $ 37 37 9 12 7 6 3 1 37 42 $191 Mill fork up Contractor Supply Plumbing/ Electrical $ 20 46 2 3 5 8 4 26 1 14 15 $144 2%3% $ 36 32 3 3 2 8 6 0 2 11 12 $135 2%3% $2 25 2 2 1 1 3 2 13 11 $ 62 2%3% Others/ Service Total $8 19 1 1 3 1 19 2 18 75 $147 $143 195 20 42 37 35 32 59 6 122 177 $868 Do No tC Product op y Exhibit 1 389-005 15 Copying or posting is an infringement of copyright. email&160protected harvard. edu or 617-783-7860. 389-005 U. S. National Consumer Advertising of Portable Electric Tools by lede Manufacturers, 19751979 ($ thousands) 1975 1976 1977 1978 1979 $2,613. 5 178. 7 1,793. 5 590. 1 51. 2 $4,479. 3 3,506. 1 973. 2 $6,487. 6 12. 8 6,339. 4 135. 4 $6,208. 3 5,560. 1 648. 2 $1,222. 258. 4 345. 3 618. 3 $870. 6 318. 6 396. 0 156. 0 $2,147. 3 761. 4 1,252. 7 77. 0 56. 2 $320. 5 217. 7 102. 8 $1,038. 5 270. 8 767. 7 $1,769. 8 584. 4 1,169. 7 15. 7 $2,541. 7 950. 1 1,425. 2 164. 6 1. 8 $ 3,808. 1 926. 4 1,608. 2 1,163. 8 109. 7 $4,252. 7 699. 8 2,712. 2 771. 2 69. 5 $940. 3 106. 4 256. 9 577. 0 $1,800. 4 153. 6 1,645. 0 1. 8 $852. 7 848. 2 4. 5 $1,342. 2 1,217. 7 13. 8 110. 7 $2,724. 9 99. 9 1,839. 3 699. 9 85. 8 Rockwell Total Magazines interlocking TV trace TV Outdoor Newspaper $1,396. 8 434. 2 927. 9 33. 3 1. 4 No tC Black &038 Decker Total Magazines Network TV Spot TV Newspapers Sears Total Magazines Network TV Spot TV intercommunicate Outdoor op y Exhibit 2 Skil Corporation Skil Total Magazines Network TV Spot TV Radio Outdoor Source take National Advertisers, Inc. , National Advertising Investments. Includes companies overleaping $25,000 or more on the combination of national magazines, newspaper supplements, network TV, network radio, spot TV, and outside advertising. The data do not include cooperative advertising by retailers, the cost of which is shared by manufacturers. DoNote No data on advertising expenditures for portable electric tools were available for Bosch, Milwaukee, and Makita. 16 Copying or posting is an infringement of copyright. email&160protected harvard. edu or 617-783-7860. Skil Corporation U. S. Portable Electric Power Tool Market in 1979 Brand Sales by Distribution Channel ($ millions) op y Exhibit 3 389-005 Hardware/ Home Centers Skil Black &038 Decker Milwaukee Rockwell Bosch AEG Millers Falls Makita Hilti Singer Wen Total $8 54 9 107 11 $189 $ 44 115 6 14 2 10 $191 Mill Supply $ 12 93 11 13 7 3 2 3 $144 ContractorSupply Plumbing/ Electrical Others/ Service Total $ 26 36 33 11 10 3 5 11 $135 $1 13 35 2 3 2 2 4 $62 $ 15 63 10 5 5 2 1 4 32 9 1 $147 $106 374 95 54 25 10 10 24 32 116 22 $868 Do No tC Company Mass Merchandisers 17 Copying or posting is an infringement of copyright. email&160protected harvard. edu or 617-783-7860. 389-005 Selected Financial Information on Portable Electric Tool Manufacturers ($ millions) 1976 Black &038 Decker Sales Net income ROS % Debt/equity % ROE % Capital expenditures 1978 811. 7 51. 7 6. 4 0. 22 13. 4 29. 4 959. 9 66. 2 6. 9 0. 20 15. 6 38. 3 1,205. 0 94. 4 7. 8Skil CorporationINSTITUTE OF BUSINESS MANAGEMENT SKIL CORPORATION CASE epitome STRATEGIC MANAGEMENT SECTION C ASSIGNMENT 3 teacher ABDUL QADIR MOLVI DATE 12TH MARCH, 2013 Q1. What is your analysis of structure of possible Electric Power Tool Industry? harmonize to the Porters Five Forces summary the industry is moderately attractive. Q2. How the industry structure is changing? Are these changes for better or worse? The power tool industry consisted of portable and stationary tools with wide range of sizes prices and qualities.The industry was becoming increasingly segmented by price point, with each point representing a certain level of quality. The power tools were broadly divided into two categories professional/industrial and consumer. The professional tools were superior in quality and therefore were sold at higher prices and greater gross margins than the consumer tools. However, as the consumer tools were becoming more sophisticated and of better quality the distinction between both the categories started to blur.As technology was improving the trends of usage of power tools changed (corded tools were replaced by cordless ones). The other improvement was the availability of lighter materials (aluminum, magnesium and plastic). This helped in lowering the costs of production. Also, energy efficient tools were developed and safety was emphasized as an area of development. All the occurring changes reflected growth potential in the power tool industry.Some of the changing factors which indicated the potential for development, betterment and growth of the industry include the increasing emphasis on quality, safety, more energy efficient products, advancements in technology and wide ranges of product with varying prices. Q3. What was Skils competitive dodge in 1979? How would you evaluate its intercourse position? In 1979 Skil Corpo ration had 76 company owned service centers and 427 authorized service stations throughout United States. It followed a lower-priced tools strategy for its consumers.Also, it differed in its strategy while catering to each countrys (where it exported or manufactured) particular needs. The slew encouraged its engineers to aggressively develop new models and strive for the best product performance. Skil hardly advertised its products and relied mostly on product publicity. It catered to both professional and consumer markets. Initially, circular saws were strongest product among the contractor supply channel because of the industry standard for a professional saw which any other competitor did not match.The circular saws remained Skils strongest product area. The evaluation of Skil Corporations relative position indicates that it was focusing on new products in existing markets. In short, it was inclined towards new product development. Q4. What strategic options does Skil Corporatio n have? According to the analysis of Porters Five Competitive Forces Model the industry was moderately attractive. On the other hand we can also calling card that the competition was extremely fierce in the industry by analyzing the brand shares given in the caseCompany Percentage Black & Decker 31. 1% Makita 11. 1% Bosch 10. 7% Hitachi 8. 3% Skil 7. 1% AEG 5. 0% Singer 4. 3% Miiwaukee 3. 5% Matabo 2. 8% Rockwell 1. 9% In this situation its not just merely selection and implementation of a strategy that matters but also the right selection (out of the options) and adequate implementation on with follow-up. Following were the strategic options for Skil Corporation * To go for mergers & acquisitions in order to increase sales and profitability. To use defensive strategies in order to put obstacles in the path of would-be challengers and fortify the companys present position while undertaking actions to dissuade rivals from even trying to attack. * To use best-cost strategy. Th is strategy would have enabled Skil to create strong market presence by giving buyers more value for the money. * To go for divestment. Q5. What strategy will you recommend to Skil Corporation? Skil can gain its strong position back in the market if it follows certain strategies such as * Focusing on a particular segment or broadening its distribution horizon to more than just the departmental stores.In short, Skils relative position in the market of only around 7% share (1979) is clearly due to the company trying to please more markets than it is capable of and hence, focus and integration could watch a better position to an extent. * Considerably more spend on consumer advertising. According to the figures shown in Exhibit 2, it is quite evident that the advertising spend of Black & Decker in 1978 was approximately 300% more than Skil Corp.