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A Case Study: Skil Corp.

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SUNIL KUMAR

on 30 July 2013

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Transcript of A Case Study: Skil Corp.

Case Study: Skil Corporation
Presented by:
1301038 - Samuel
1301039 - Shailendra
1301044 - Subhash
1301045 - Sunil
1301051 - Ankur
1301055 - Shree Ranjan

S
hailendra
Sunil
Shree Ranjan
Ankur
Subhash
Samuel
CASE BACKGROUND
Emerson Electric Company has acquired Skil Corporation, a manufacturer of portable power tools for $58 million on 23rd March 1979.
Emerson Electrical has a target for sales growth of 15% and to double earnings by 1981.
Acquisition of Skil Corporation, with its mediocre financial performance, was a first of its kind for Emerson Electric.
Faced with stiff competition, the management needs a new strategic direction.
STRUCTURE OF INDUSTRY
Buyer
- Choice for buyers is high.
- Buyers are classified as industrial and consumers.
- Industrial buyers are well informed and are not swayed by advertising.
- Consumer buyers are price conscious.
STRUCTURE OF INDUSTRY
Industry competitors
- Competition is stiff with all players trying to increase their market share.
- Competitors such are reducing costs by automation and optimization of production flow systems.
STRUCTURE OF INDUSTRY
Substitutes
- Not too many viable substitutes for portable electric power tools at the moment
- Pneumatic and gasoline powered tools.
- Increase in market shares of modular fixture/pre-fabricated goods will reduce demand for portable power tools.
STRUCTURE OF INDUSTRY
Supplier
- Bargaining power is high as 43% and 56% components of industrial and consumer tools are purchased from outside.
- No manufacturer possessed technology or scale to produce all necessary components.

STRUCTURE OF INDUSTRY
Potential entrants
- Barrier to entry is high on account of initial capital investment and high cost of development and manufacturing.
- Mass production required to break even.
- Major players have established their brands
- Expensive automation required to be cost effective
STRUCTURE OF INDUSTRY
Attractiveness:
-
Buyer has high bargaining power.
-
Supplier bargaining power is high.
-
Competition is stiff.
-
Entry barrier is high.
-
No perceived threat from substitutes.
CHANGING INDUSTRY STRUCTURE
Buyer
-Volume of sales are increasing (refer exhibit 4).
- Increase of sales of do-it-yourself market.
- Opening up of international markets.
Channels
- Home centres are gaining prominence.
- Overlap between consumer and industrial channels with respect to buyers, price points and products.
CHANGING INDUSTRY STRUCTURE
Product
- Improvements in battery technology
- Availability of lighter materials
- Improvements in ergonomics and safety features.
- Distinction between consumer and professional tools blurring.
Production
- High investment Cost in automation, integration and production flow optimization leading to lower production cost.
CHANGING INDUSTRY STRUCTURE
Better or worse ?
- The market is growing.
- Opportunities for cost-savings.
- Scope for product improvement.
- New channels for sales
- Competitive pricing at cost of long term investments.

On a whole, the outlook for the industry is positive.
SKIL’s COMPETITIVE STRATEGY
SKIL’s COMPETITIVE STRATEGY
Products
- Focused on both professional and consumer markets.
- Aimed at best product performance rather than commonality.
- Had a broad product line and a higher percentage of professional tools in their product mix than competition.
- Catered to local needs.
- Made predominantly metallic products.
SKIL’s COMPETITIVE STRATEGY
Distribution channels and services
- Sold through all distribution channels.
- Sales force serviced all distributors, except mass merchandisers.
- Had established service centers through out country.
SKIL’s COMPETITIVE STRATEGY
Marketing
- Relied on product publicity rather than advertising.
- Occasionally sponsored sales promotions and consumer media advertising campaigns.
- Self contained displays show-cased promotional tools.
SKIL’s COMPETITIVE STRATEGY
Manufacturing
- Components plants were single-function facilities.
- Plants were partly automated with motor winding lines and machining centers.
- Production capacity was recently expanded with new plant in Arkansas.
SKIL’s COMPETITIVE STRATEGY
International
- Operations were divided into three regions: US, Europe and rest.
- Each division was autonomous and had plants to produce entire product lines.
- Sales and services in each country was managed by a network of country managers.
SKIL’s COMPETITIVE STRATEGY
Strengths:
Innovative in developing new products
Experience in power tool making
Profitable in-house electronic switch supplier, Capax.
Broad product line.
Service center network across nation.
Use of all distribution channels.
Presence in international markets.
Weaknesses:
Inferior automation in production in comparison to competition.
Poor marketing strategy.
Profitability
Poor integration of production facilities.
Opportunities:
Production cost reduction.
Growth of market.
Technological advancements.
Do-it-yourself consumer markets.
Increase of market share in lucrative European markets.
Threats:
Stiff competition with respect to price and offerings.
Integration of production facilities by competitors.
Reduction in purchasing power of consumers.
Potential strategy 2
- Emerson Electric Company sales (1979)= $2.6B
- Bought Skil Corporation for $58M
-Skil Corporation Sales in Europe (1979) = $56.63M
- Traditionally, Emerson Electric purchases financially successful companies
- Skil Corporation market share for Portable Electric Power Tool Market = 7.1%
- Skil Corporation Acquisition ; a diversification approach by Emerson Electric
- Skil Corporation -> Strong R&D background
Potential strategy 2
- Increasing market share is top priority, at risk of lowering margins
- Aggressive marketing campaigns and pricing strategy; encourage large number stocking
- Expansion to Europe
- Initiate investments in Advertising
- High-Risk approach for limited time
- Experimental strategy by Emerson Electric, limited to comparatively small geographical area.
Potential Strategy 1
- Increase in in-house production
- High initial investment
- Long term benefits
- Reduces overhead costs
- Allows for slashing in prices/ Increasing margins
- Reduces dependence on suppliers.
Contents
- Case background
- Porter five forces analysis of industry.
-Changing industry structure
- Skil's current strategy
- Strategic options and recommendations.
Porter's five forces
Also known as "The a
SSASS
in
S"

SKIL’s COMPETITIVE STRATEGY
Relative position
- Portable power tools are Skil’s core competency.
- Product line has higher percentage of professional tools with higher margins.
- Production facilities are partly automated and are not integrated.
- Expenditure on advertising is lower compare to competitors.
- Presence in international market backed by production capabilities abroad.
Full transcript