Black & Decker During the 1950s and Essay
- Length: 6 pages
- Sources: 4
- Subject: Business
- Type: Essay
- Paper: #26203049
Excerpt from Essay :
Black & Decker
During the 1950s and 60s, Black & Decker held a dominant position in the domestic market. The company was able to achieve this dominance through technological innovation, in that B&D had the only handheld power tools on the market. This is a manifestation of the "broad differentiation" strategy. This strategy involves "maintaining a presence in every segment" which allows the company to "gain a competitive advantage by distinguishing our products with an excellent design, high awareness and easy accessibility" (CAPSIM, 2010).
Black & Decker maintained this strategic focus three ways. In terms of distinguishing the products via excellent design, Black & Decker's pioneering handheld power tools were the first of this type to the market. The first mover advantage allowed the company to gain a dominant market share, and to maintain industry leadership. High awareness reflects the brand value. Even from the earliest days, Black & Decker sought to build the quality and awareness of its brand, so when it established market dominance it used that exposure to strengthen the brand. Easy accessibility refers to a distribution strategy that makes it easy for potential customers to buy the product. With a leading market share, Black & Decker products were not only easy to find, but they were desirable so that new retail suppliers would seek out Black & Decker products.
When Black & Decker expanded internationally, the company took this strategy overseas. The company utilized the wholly-owned subsidiary strategy, as this gave it the most control. Black & Decker wanted to maintain product quality first and foremost, but also wanted to maintain control over the brand image when entering markets that already has established players with strong brands of their own. The company rarely entered into joint ventures, preferring use the subsidiaries to manufacture and market the tools in foreign markets. This method of international expansion is slower, and relies on the company to be able to build market share quickly in order to cover the high costs of setting up these subsidiaries. Therefore, Black & Decker needed to rely on the strength of its brand name in the U.S. To give them some entry into the foreign markets.
The key feature of the international organizational structure was that the subsidiaries were given leeway with respect to the marketing aspect. They were producing Black & Decker tools to local designs, and were able to set their own marketing strategies, both with respect to distribution channels and with respect to promotions.
In the domestic market, Black & Decker had a near monopoly, but in foreign markets it would have faced established competition. For the most part, however, this competition would have had difficulty competing with Black & Decker in handheld power tools. As a result, Black & Decker could enter foreign markets with wholly-owned subsidiaries and the same strategic approach that it took in the domestic market. One of the reasons is because the domestic business was a cash cow that could provide the financing for a series of wholly-owned subsidiaries and the other reason is that Black & Decker was confident that it would come to enjoy a substantial market share in any market that it entered. These factors combined made it easy and desirable for Black & Decker to enter foreign markets with the strategy of setting up wholly-owned subsidiaries instead of utilizing other methods of market entry.
2. Black and Decker had moved to a decentralized strategy by the 1980s, but struggled under successive waves of new competition. The company faced a number of new entrants. These eroded its monopoly power, which typically has the impact of driving down prices and forcing a greater emphasis on innovation (Investopedia, 2012). The company had a number of responses to these threats.
From a structural perspective, Black & Decker began to consolidate operations, and streamline. Designs were made for a global audience, rather than regional ones, in order to help streamline production. Facilities were closed in order to rationalize the production function. The company was still competing as a differentiated producer, but had to do so more efficiently in the new market. In Europe, the company once had different manufacturing facilities in different countries, but these were mostly closed and production rationalized, since there are no barriers to trade between EU countries at that point.
The strategy that Black & Decker was undertaking was understood to be globalization at that point, since the company began to see itself in global terms, producing in a handful of markets in order to sell a standardized product around the world. Some of the sacrifices the company made, however, took away from its competitive advantage as a differentiated producer. Not only were there competitors, but now the products were standardized around the world. The company reduced the number of research and development centers from eight to two, further reducing the ability of the company to stay ahead of the competition, and maintain its technological competitive advantage.
The strategy, however, was incomplete. Senior management undoubtedly felt pressure to maintain some country-specific policies, so in the 80s Black & Decker had undergone basically a halfway transition towards being a fully globalized company. In that, the company was failing to execute its broad differentiation strategy as effectively as it had in the past, and was therefore in a situation where it needed to either get back to that strategy or perhaps even embrace another strategy.
3. Black & Decker remained with a broad differentiation strategy in the global marketplace in the 2000s. The company still had a strong brand and excellent distribution, which are two of the hallmarks of this strategy. Where it lagged in the strategy was in having technological and innovation competitive advantage. The power tools business by this point had become commoditized so innovation was probably at the point of diminishing returns. The company was executing the strategy more effectively, focusing on low cost production through its policies of internal competition and increasing focus on a handful of low-cost production sites. The company was hoping that its brands would allow it to sell at a premium to other tools, but it wanted to keep costs down nevertheless. This is a hybrid of the broad cost leader strategy and the broad differentiated strategy. This strategy is not uncommon but it is highly risky, and there is the sense that over time Black & Decker expected to move to a full-fledged cost leadership model, using only its brand as a point of differentiation, with occasional, minor technological advantages. This is structure is the natural end point for firms in a state of monopolistic competition, where product innovation is relatively low.
I believe that this structure was not a perfect fit for the environment and industry, however. Essentially, Black & Decker had a good fit with DeWalt, which remained a differentiated product but with low cost production. However, the company's flagship brand was still not positioned fully as a cost leader. As Porter (1980) notes, there is significant risk in being neither a differentiated producer nor a cost leader. Other firms will win customers on either of those two aspects, and firms caught in between are inevitably going to have their value proposition eroded, with their financial results and market share following. The issue for the company is that the flagship brand still has value in the marketplace. There is strong temptation to exploit this value and that is essentially what Black & Decker is doing. Eroding the goodwill of the flagship brand with consumers becoming a full-fledged low-cost producer is a bad idea as well. Though the strategy was far from ideal, it was the best that Black & Decker had to work with at the time.
4. It took two decades to make the shift -- and arguably it was not complete by the early 2000s -- from the broad differentiated strategy to the broad cost leader strategy because of two factors. One is organizational inertia. In most organizations, making dramatic changes to corporate strategy is incredibly difficult. This is especially true when the strategic shift involves pulling back power from regional management that once had a lot of autonomy. Usually, there will be little organizational motivation without a crisis. Political considerations would have slowed the process of organizational change.
As well, the global environment did not change overnight. The shift to today's business environment took a couple of decades, with incremental steps along the way. Consider the world in the late 1980s -- China was not a major center of production, there was no NAFTA, the EU was much smaller and Eastern Europe was still Communist. So the idea that Black & Decker should have made these changes more quickly is simply not reflected in reality. The company moved with the market, perhaps slightly behind. If Black & Decker struggled, it had more to do with the change in the market dynamics. Firms in monopolies behave significantly different from firms in monopolistic competition, so as the market dynamics shifted a series of…