29. Notetakers Company: Selling Class Notes to Students Teaching Notes
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34. Black Diamond Equipment, LTDTeaching Notes*Overview Reorganized from the bankruptcy of Chouinard Equipment—a division of the Lost Arrow Corporation—in 1991, Black Diamond is a manufacturer and marketer of high-performance mountaineering and skiing equipment. In January, 1993, a climbing incident involving one of Black Diamond’s axes, the Black Prophet, caused reason for alarm among top management. While the incident did not result in injury, word of the axe’s failure would certainly spread quickly through the industry and market. Management is confronted with the need to take quick action to abate any concerns of distributors and end users. Several general options exist: (1) recall all axes presently on the market; (2) disregard the incident and dispute any rumors about the axe’s failure to perform; (3) continue to sell the axe, but with a cautionary label; (4) continue to sell those axes already in the distribution network, but conduct a thorough examination of the production procedures and axes still under production. While management’s decision will have an immediate impact, the decision will also have significant implications for Black Diamond’s longer-term competitive strategy. Black Diamond is pursuing a competitive strategy of expediting innovative products to market. Although such a strategy could provide a first-mover advantage, the potential for quality defects is heightened. Hence, Black Diamond has established a Quality Assurance department to oversee the organization’s procedures and outputs. Being a new manager in a newly created department and—unlike the majority of other management team members—not being a financial partner in the company, the Quality Assurance manager finds herself in an awkward position. The Quality Assurance manager’s primary responsibility is to monitor operations for defective outputs, a secondary responsibility is to improve the efficiency of Black Diamond’s operations. Even though the Quality Assurance manager’s role is one of improving the existing system, she recognizes her informal role as a change agent. The Quality Assurance manager recognizes that improvements in efficiency would be fruitless without improvements in organizational effectiveness. The Quality Assurance manager’s final comment sums the issue: “…my challenge is to get all these other employees and departments to change the way they do things so they’re both more efficient and effective.” Suggestions for Using the Case T One of the strengths of the case is that it punctuates the necessity for an appropriate fit between an organization’s business-level competitive strategy and its functional-level strategies. In emphasizing the need for strategic fit, the case encompasses the following objectives:
You may wish to select the case for an oral presentation or as a written assignment. Our suggested assignment question is: Mellie Abrahamsen, Black Diamond’s new Quality Assurance Manager, has been given the authority to hire you as a consultant to help solve the company’s problem with the quality of its new Black Prophet axe. She has asked that you identify the company’s strategy and the fit existing between the company’s strategy and its approach to executing the strategy. In addition, your final report should recommend how company managers should respond to the company’s immediate problems with the Black Prophet and what changes are necessary to avoid similar problems with new products in the future. Assignment Questions
Teaching Outline and Analysis 1. What do you think caused the axe to break? How should the failure be investigated? You may wish to begin the discussion of the case by asking students to express their interpretation of the situation and identify the source of the problem with the Black Prophet. Once the problem has been adequately defined, you can move into an analysis of the industry, Black Diamond’s strategy and competitive capabilities, and possible solutions to the problem. The students’ responses to this question will likely include combinations of three general areas: product design, component production, and product assembly. Regarding product design, students may not factors such as (1) Black Diamond rushed the Black Prophet too quickly to market; (2) the product design process is too informal; and (3) the product design is too complex for quality production and assembly. Student comments regarding product of components may fall into any of three categories: (1) because of their concerns for liability, suppliers show reluctance to produce parts for Black Diamond; (2) suppliers are inexperienced with the cutting-edge applications required by Black Diamond’s applications and specification; and (3) inspection of in-bound and in-process materials is not diligent enough. In terms of product assembly, students may note that (1) Black Diamond is operating at a hectic pace, scrambling to meet the high demand—for both back and future orders—for a wide range of products; (2) Black Diamond is under time pressure to meet winter season demand for the Black Prophet; and (3) because production of the Black Prophet has not yet benefited from the experience curve, procedures are not in place for assembly of the Black Prophet.
You may wish to take a few minutes of class time to analyze competition in the industry and how industry conditions led to Black Diamond’s problems with the flawed Black Prophet axe. Students should be able to identify elements of the industry structure, its driving forces, and its key success factors. Five Forces Model of Competition
The maneuvering of rivals is based primarily on (1) establishing a technologically advanced—and dependable—reputation that appeals to the fashion conscious recreational market and (2) proliferating innovative products that extend the growth stage of the industry’s life cycle. These maneuvers are further influenced by decreasing cost structures of competitors, and by the seasonal nature of market demand, which places increasing pressure on industry participants to design, manufacture, and distribute products expeditiously. Overall Assessment In general, analysis should reveal that the industry is in the growth phase of its life cycle with hyper-growth in the recreational market segment. This rapid growth—especially in the domestic U.S. market—has intensified the level of international competition but, overall, competition is only moderately strong. However, conditions are ripe for intensifying competition. Non-U.S. competitors—predominantly from European countries—are entering the domestic U.S. market, through both exporting and direct investment. To parry the competitive moves of foreign rivals and to establish a world-class image, U.S. competitors are entering other international markets. The European market is particularly attractive from an image standpoint; however, the presence of ISO 9000 is a potential barrier to entry for some rivals.
The mountaineering and skiing industry consists of three distinct stages. Upstream, the first of these is the collection of firms that design and manufacture mountaineering and skiing equipment. The second stage is comprised of wholesalers. Downstream, the third stage is represented by retailers that have contact with the end consumer. Firms that compete in this industry as manufacturers differ along several dimensions. In terms of size of operation, manufacturers range from one-person garage operations to fifty-person machine shops. In terms of product line, the manufacturing is divided into two groups. One group of firms manufactures “software”—textile products such as ropes and harnesses. The other group manufactures “hardware”—metal products such as carabiners and other protective equipment. In terms of specialization, some firms have very specific capabilities for producing items such as skis, ski poles, foot gear, etc. These firms are often used as subcontractors for designing and manufacturing equipment that other firms would sell under their own labels. In terms of geographic scope, firms compete solely in their home country, in selected countries, or compete on a worldwide basis. International competition has been on the rise. Primarily, however, this competition is being driven by foreign competitors entering the U.S. market to exploit the rapidly growing recreational consumer segment. U.S. firms desire expansion into foreign markets, yet, these markets—especially Europe—have strong, well-established manufacturers that maintain substantial competitive positions within their countries. Also, on the international level, a large number of small manufacturers provide capacity for subcontracting at low cost. Firms competing at the wholesale stage of the industry are predominantly the same firms that compete at the manufacturing stage. The wholesaling stage consists of (1) companies that either manufacture their own products or subcontract the manufacturing of their designs and distribute their own product lines, (2) companies licensed to distribute in certain geographic areas the products of other companies, and (3) various combinations of these forms. The third stage of the industry, retailing, involves three groups of firms. One group of retail firms is known as “core” shops. These shops are small retail operations specializing in products specific to mountaineering. Core shops are located in mountain areas, catering to the professional and expert mountaineering consumer segments. Personnel in these shops possess a high level of expertise, and value-added products are sold at high prices. Another group of retail outlets are classified as “mom and pop” stores. The mom and pop stores are also retail outlets. However, rather than selling the specialized equipment found in core outlets, mom and pop stores sell a small amount of a broad range of equipment. These stores are located near popular mountain resorts and target the fashion-conscious recreational consumer segment. Personnel in the mom and pop stores are usually quite limited in their expertise. Products are sold at substantial mark-up. Sporting goods chains comprise the third group of retail outlets. The majority of stores within this category are located in major cities for their access to large markets. Sporting goods stores compete on volume by selling a wide range of products—mountain sports equipment being one of those product categories. These stores market their goods to the more cost conscious beginner or intermediate consumer segment. Personnel in these department stores are generally limited to expertise. Products are sold at competitive prices. Driving Forces Students should note the following driving forces affecting the competitive dynamics of the industry.
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he case is best positioned near the end of your module on strategy implementation since it allows students to assess a variety of implementation issues including quality management, process reengineering, and the enforcement of ethical behavior. The case also provides ample information to conduct an industry and competitive analysis and an opportunity to evaluate Black Diamond’s resources and the fit between its competitive capabilities and its competitive strategy. You will probably find that you will not be able to fully discuss all assignment questions in a 75-minute class. You may wish to skip some of the questions related to industry and competitive analysis unless you have a class period that approaches two hours.