29. Notetakers Company: Selling Class Notes to Students Teaching Notes

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  Reputation for quality
  
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  Innovative products
  
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  Reputation for safe products
  
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  Distinctive image
  
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  Established dealer network and relationships
  

The mission of Black Diamond is “to design, manufacture, and bring to market, in a profitable and on-time manner, innovative and technical products of high quality, high performance, and exemplary durability that are targeted toward our primary customers—climbers and back country skiers.

Black Diamond focuses on the professional/expert segment as its primary market niche. While the professional/expert niche allows for larger mark-ups resulting in substantial margins, the volume of products sold is substantially less than if Black Diamond were to target the recreational user segment which is a faster growing segment. Nevertheless, the professional/experts are the “Michael Jordans” of the mountaineering world. Companies clamor for these high-profile athletes to use and endorse products. These professionals write product reviews for climbing publications, are seen in National Geographic and on television using the company’s products, and generally send a signal to the climbing masses that the products they use and endorse are the products of choice.

The professional/expert market seeks the latest and most advanced equipment for the performance advantage it brings. The recreational market also wants the latest and most advanced equipment, but for the status symbol and fashion statement more than a performance advantage. Black Diamond uses the competitive strategy of being first to market with highly differentiated innovative new products—focused differentiation. To succeed at this strategy, a company must be quick to introduce radically new products that meet the customer’s requirements for reliability and quality.

In keeping with this strategy’s emphasis on new product development, Black Diamond is under sustained pressure to maintain a continuous stream of new products in the development pipeline. However, the strategy which attempts to use innovation, responsiveness, and quality as its source of competitive advantage produces a potential quality paradox. While Black Diamond’s competitive strategy seems to be well suited to the demands of the market and competitive climate, the strategy is challenging to implement. The fundamental concern about this competitive strategy is whether Black Diamond can actually achieve quality standards while expediting its products to market.

4. How effective have Black Diamond managers been in aligning the company’s functional level strategies with its overall business-level strategy? Evaluate the fit between Black Diamond’s competitive strategy and its production strategy.

The production strategy conflicts with the competitive strategy on several points. The competitive strategy is to be a quick-to-market, leading edge, innovative producer. This strategy should be supported by a facility with state-of-the-art production equipment, designed for flexible manufacturing; by the use of new product teams, including members from all relevant functional areas; by hiring skilled workers; by providing more training to both existing and new workers; and by employing a rigorous quality system to ensure a high quality product goes to the consumer. Rather than proactively designing processes that support the focused differentiation strategy, Black Diamond is reactively struggling to meet its orders.

A value-chain analysis should reveal the following competitive capabilities:

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  Operations—Historically, Black Diamond’s craft shop operations have been at the core of the company’s strength. Focusing on metal fabrication for customized purposes, Black Diamond had developed a reputation for innovation and quality. The increasing level of demand has, however, stretched the manufacturing operations to its limits.
  
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  Marketing—Black Diamond has been an effective marketer of skiing and mountaineering equipment. The appeal of Black Diamond’s marketing has contributed to the positive reputation for innovation and quality and has created strong demand for the company’s products.
  
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  Service—Black Diamond has been effective at fostering positive relationships with its distributors by responding to their product orders in a timely manner and with the requisite measure of quality. However, with the pressure being placed on its operations, Black Diamond’s customer service is being tested. Much of Black Diamond’s work-in-process is comprised of backorders which means that retailers are having to wait longer for their orders. Moreover, the axe failure indicates quality may be suffering because of the haste to ship products quickly.
  
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  Human Resources—Black Diamond’s managers are avid mountain sports enthusiasts, but the typical shop worker does not participate in mountain sports to any great extent. Consequently, Black Diamond has lost some of its passion for the sport that was evident during its formative years. Further, as Black Diamond upgrades to CNC machinery, the role of workers will change dramatically. Rather than personally crafting products, workers will monitor the machinery for productivity and quality. This work will require mathematical skills which many of the existing workers do not possess.
  
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  Research & Development—The level of technology at Black Diamond is more representative of a craft shop than an high-output production process. The company is making some progress toward improving its production technology, yet, the improvements are incremental, not keeping pace with the strong demand for Black Diamond’s products.
  

Another area of excellence, related to production, has been in metal working. The company from which Black Diamond was formed had developed metal working as a competence, and Black Diamond has maintained this competency. Black Diamond is also trying to develop the software part of production into a competency by bringing its sewing in-house.

In addition, Black Diamond has possessed strong customer relations based on its favorable reputation for quality and service. The origins of Black Diamond were established in a craft shop environment in which customized production and personal service were fundamental beliefs, Black Diamond’s culture is marked by the tradition of taking pride in quality craftsmanship.

Black Diamond’s intended strategy is centered on its distinctive competencies. However, the realized strategy seems to deviate from the intended strategy of product quality.

This discrepancy between intended and realized strategies suggest an issue of flawed strategy implementation. Black Diamond is attempting to employ a very challenging strategy that comprises innovation, speed, and quality. Attempting to employ any one of these sources of competitive advantage would be demanding, but to attempt all three presents a huge challenge in terms of implementation and proficient execution.

6. Should expansion into international markets be a strategic priority for Black Diamond? How important is the implementation of an ISO 9000 plan?

The Quality Assurance manager states that she was hired to implement an ISO 9000 plan. ISO 9000 is a standard, such as the Baldridge Award in the U.S., that some companies are adopting as their quality benchmark. While ISO 9000 has not received overwhelming acceptance in the U.S., this set of standards is widely accepted in Europe. By 1997, companies wishing to sell in Europe will be required to meet the ISO 9000 standards.

Given these industry dynamics, Black Diamond’s management must decide to what extent the organization should invest resources and effort in meeting the ISO 9000 standards. One perspective on this decision could stem from observations about consumer behavior, suggesting that buyers are not influenced in their purchasing decisions by a “seal of approval.” Buyers are more influenced by the credibility that a company, brand, or product has established in the marketplace. Assuming that a product has achieved an acceptable level of credibility, buyers routinely expect the product to be safe and perform appropriately.

Regardless as to how ineffectual ISO 9000 certification may be on the consumers’ buying decision, the European market will require that all companies selling in that market meet the ISO standards. Hence, if Black Diamond views the European market as a strategic priority, implementing an ISO 9000 plan will be a necessity.

In deciding to enter international markets (such as Europe), Black Diamond’s management must consider that (1) the high levels of market growth are occurring in the U.S.—not in the international arena and (2) international competition is intense with firmly entrenched competitors in countries with major markets.

These factors—as well as Black Diamond’s demonstrated difficulties in meeting its growing domestic demand—would suggest that Black Diamond concentrate on strengthening its position in the U.S. and avoid spreading its resources too thinly across a variety of international markets. However, an international reputation can be a strategic asset for competing in the U.S. market, by creating an image of world class design and performance.

Therefore, the international market should not be neglected, but a big push at the current time would only add more pressure to the already over-taxed production system. The company should focus on increasing productivity and quality output for the existing customer base before aggressively entering foreign markets.

7. What should Black Diamond managers do to address the immediate-term Black Prophet situation?

Black Diamond’s top management is faced with several options for addressing the immediate-term issue of the safety of its Black Prophet axe. These options, identified at the end of the case, represent the general categories of alternative solutions the company could undertake. Within these general categories of options, however, a multitude of variations exist. Each of these options deserves careful consideration.

The first option is to recall all of the axes that are currently in the distribution network. In considering this option, management must be aware of the potential impact to the organization’s image and financial position. Black Diamond’s competitive strategy is substantially related to the company’s innovative and quality image. To recall the axes, Black Diamond would attract considerable attention that could not only result in unfavorable impressions about the Black Prophet axe but also cast a shadow on all of Black Diamond’s products.

Financially, a recall could have a devastating effect on the company’s market position and profitability. The Black Prophet is sold as an axe and two component parts, retailing at $200 per assembly. The profit margin for the unit ranges between $60 and $120 per axe, depending on whether it is sold wholesale ($60) or retail through mail-order and the Black Diamond shop ($120). Black Diamond’s total 1993 annual sales are expected to be $12 million with a gross profit margin of about 40% resulting in $4.8 million in gross profits. If Black Diamond sold 2,500 axes averaging a $100 margin, the operating income on these axes would be $225,000. This amount is 5% of Black Diamond’s expected operating income—10% of the winter season’s operating income. The Black Prophet is one of Black Diamond’s top selling winter products.

An integral component of Black Diamond’s competitive strategy is the company’s ability to move products quickly to market. Black Diamond has delivered the Black Prophet well ahead of its competitor’s attempts to market a similar product. Yet, a recall would eliminate any competitive advantage by giving competitors a time extension for getting their own axes to market. With the Black Prophet’s high mark-up, the opportunity of lost sales would be considerable.

A second option is to treat the incident involving the Black Prophet as though it were an anomaly. Perhaps the axe broke, not because of the axe’s poor design, parts, or construction but because of misuse. Or, even if the axe did fail because of a quality defect, the argument could be made that no one expects complete product perfection. Perhaps, this incident was the one bad axe out of the entire lot.

This issue of ignoring the product’s failure must be considered with respect to the potential for future litigation. Could Black Diamond defend itself against an allegation that the company knew about the product’s defects, but chose not to correct them? While Black Diamond’s insurer would pay for any litigated awards, Black Diamond’s deductible would be $25,000 per legal action. Would it be ethical and socially responsible for Black Diamond’s management to dispute rumors about the axe’s failure to perform?

A third option is to continue to sell the Black Prophets that are already on the market, and to sell them with a cautionary label. By placing the label on the product, consumers are warned about the proper use of the axe and the consequences of misuse. While this option makes an attempt at blocking potential litigation, the option does not actually take substantive action toward correcting any defect that the Black Prophet may have.

Finally, the fourth option is to continue selling those products that are on the market, but begin inspecting those products that are still in the process of being produced. This option recognizes the need for taking corrective action, by looking for the causes of any defects. The option does not take into consideration the degree of liability that still exists by leaving potentially dangerous axes on the market, especially while acknowledging the need to inspect axes still under production.

8. Should Black Diamond managers consider changing its strategy in view of the Black Prophet problem? How should Black Diamond’s approach to strategy implementation change to prevent similar problems from emerging in the future?

A good argument can be made that Black Diamond should embark on a company-wide program of improvement that constitutes a quantum-leap program of change, before expecting a program of incremental improvement to produce substantial results. Black Diamond’s top management needs to address some central issues relating to strategy implementation/execution and quality control.

Chief among these issues, top management must determine the path by which Black Diamond should pursue its strategic intent of a world class reputation. Black Diamond’s strategy is one of speed and quality. Nevertheless, the means by which a company achieves quickness is different from how it achieves product quality. Quality is achieved through meticulous attention to the details of production and careful inspection of the product. These actions tend to make a production process move slower than if standards are ignored or not in place, the process tends to produce “defective” outputs that cannot be sold or are hazardous to the consumer.

Black Diamond’s plan is for both of these—quickness and quality—paths to ultimately converge. Nevertheless, Black Diamond is at a stage of its growth cycle which has brought quickness and quality into conflict with each other. Top management must, at this point, decide which of the two paths will take priority. Given the consequences of either quick-but-inadequate-quality or less-quick-but-adequate-quality, the latter set of circumstances would seem to be the best of two evils. Black Diamond should place a higher priority on protecting its tradition of and reputation for quality, rather than risking its quality advantage and making itself vulnerable to an imprudent level of liability.

Overall, departments should work on process improvements. Black Diamond should consider taking measures such as the following:

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  Design products with tolerances that match producers’ uses, i.e., products should not be over-engineered.
  
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  Install equipment appropriate for efficiently machining and testing to the specifications of the products’ designs; e.g., computerized equipment for flexible manufacturing and control.
  
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  Enhance the integrity of the quality inspection system, e.g., diligent inspection of in-bound and in-process work, employee training in quality control methods.
  
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  Reduce the number of products.
  

Since Jeff Jamison’s axe failure was not catastrophic, no law suits were brought against Black Diamond for this incident. Black Diamond did, however, recall all Black Prophet axes from retail shops, using a “return for inspection” (RFI) program. The RFI program accomplished the same purpose as an official recall, but without the public attention created by a formal announcement. The axes were x-rayed by a materials lab and returned to the shops with a letter confirming each axe had received a complete inspection.

Simultaneously, the Black Prophet’s failure was traced and attributed to (1) unsuitable design, (2) improper heat treatment, and (3) assembly variability. The design problems were related to the axe’s tang thickness. Tangs that connected the axe head to the shaft were too thin near the head-tang junction to support the force created on impact. Improper heat treatment, an outsourced process, led to lack of consistent homogeneity in the axe head’s composition which broadened the distribution of the force, making the head vulnerable to breakage. Assembly variability was a result of inconsistent procedures and too much force used to attach the head to the shaft.

Two additional axe failures occurred in the field after the first incident. Neither of these failures were catastrophic, however. The second failure occurred in Japan with an axe produced in the same lot as the initial failed axe, but was not returned during the recall. This tool broke during its first use, only weeks after the first axe failure. The third tool broke in 1994, after 10 to 12 days of use, even after it had been returned during the recall. Several more tools broke at the Black Diamond assembly facility. These failures were also attributed to design inadequacies and heat treatment malfunctions.

Addressing these causes of the Black Prophet’s failure, Black Diamond initiated several preventative measures:

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  Product design changes were made to strengthen the tang-head connection.
  
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  Black Diamond worked with vendors more closely to control dimension tolerances.
  
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  The hardness requirements for the metal was reduced (40-44 RC dropped to 36-40 RC) to prevent potential brittleness.
  
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  Material certification was required for the heat-treat process.
  
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  Heat-treated materials were verified in-house with sampling procedures.
  
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  The assembly process was changed from a pound-in connection to a press fit machine.
  
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  Overall inspection levels and awareness of what to look for during inspection were increased through greater attention to quality assurance and training.
  

The facility began significant advances toward changing from a craft shop process to a line flow process with dedicated assembly lines. The company investing in sophisticated machinery such as numerically controlled machining centers and other automated machinery for testing. Black Diamond made these investments realizing that industry demand would doubtlessly slow at some point in the future. Top management reasoned, however, that as demand slowed, more production could be brought in-house by reducing the use of subcontractors. This strategy has increased both the productivity of the facility and the quality of Black Diamond’s products, enabling a better fit with the quick-quality competitive strategy.