Harvard Case - Hanson Ski Products
"Hanson Ski Products" Harvard business case study is written by William J. Bruns Jr., Julie H. Hertenstein. It deals with the challenges in the field of Accounting. The case study is 9 page(s) long and it was first published on : Aug 14, 1986
At Fern Fort University, we recommend that Hanson Ski Products adopt a multi-pronged strategy to address its profitability challenges. This strategy involves implementing a comprehensive activity-based costing (ABC) system, optimizing manufacturing processes through automation and lean principles, diversifying its product portfolio with higher-margin offerings, and exploring strategic partnerships or acquisitions to expand its market reach.
2. Background
Hanson Ski Products is a family-owned business facing declining profitability due to increased competition and rising manufacturing costs. The company's traditional cost accounting system, based on direct labor hours, fails to accurately capture the true cost of producing different ski models. This lack of accurate cost analysis hinders effective pricing decisions and profitability management. Additionally, the company's reliance on manual labor and outdated manufacturing processes contributes to high production costs.
The case study focuses on the challenges faced by Hanson's management, particularly the CEO, John Hanson, and his daughter, Sarah, who represents the next generation of leadership. They are tasked with finding a solution to revitalize the company's financial performance and secure its future.
3. Analysis of the Case Study
This case study can be analyzed through the lens of strategic management and operational efficiency.
Strategic Analysis:
- Competitive Landscape: The ski industry is highly competitive, with established players like Rossignol and K2 dominating the market. Hanson faces challenges from both large corporations and smaller niche brands.
- Product Portfolio: Hanson's product portfolio is limited and lacks differentiation. The company relies heavily on its traditional ski models, which are facing declining demand.
- Pricing Strategy: Hanson's pricing strategy is based on a cost-plus approach, which is not effective in a competitive market. The company needs to adopt a value-based pricing strategy that considers customer perceptions and market demand.
- Growth Strategy: Hanson's growth strategy is limited to expanding its existing product line. The company needs to explore new markets, product categories, and distribution channels to achieve sustainable growth.
Operational Analysis:
- Manufacturing Processes: Hanson's manufacturing processes are inefficient and labor-intensive. This leads to high production costs and limits the company's ability to compete on price.
- Cost Accounting System: The current cost accounting system is outdated and inaccurate. It fails to allocate costs effectively, leading to poor pricing decisions and profitability analysis.
- Financial Performance: Hanson's financial performance is declining, with declining profitability and increasing operating costs. The company needs to improve its financial performance measurement and implement strategies to address these issues.
4. Recommendations
1. Implement Activity-Based Costing (ABC):
- Objective: To accurately allocate costs to individual ski models, providing a more realistic view of their profitability.
- Action: Implement an ABC system that considers all relevant activities involved in production, including design, engineering, manufacturing, marketing, and distribution. This will allow Hanson to identify cost drivers and allocate costs more accurately.
- Timeline: Implement the ABC system within 6 months, with ongoing monitoring and adjustments.
2. Optimize Manufacturing Processes:
- Objective: To reduce production costs and improve efficiency through automation and lean principles.
- Action: Invest in new equipment and technology to automate key production processes, reducing reliance on manual labor. Implement lean manufacturing principles to eliminate waste and improve workflow efficiency.
- Timeline: Implement automation in key areas within 12 months, with continuous improvement initiatives ongoing.
3. Diversify Product Portfolio:
- Objective: To expand into higher-margin product categories and cater to a wider customer base.
- Action: Introduce new ski models targeting specific market segments, such as high-performance skis, touring skis, and women-specific skis. Consider developing complementary products like ski apparel and accessories.
- Timeline: Introduce new product lines within 18 months, with ongoing market research and product development.
4. Explore Strategic Partnerships or Acquisitions:
- Objective: To gain access to new markets, distribution channels, and expertise.
- Action: Identify potential partners or acquisition targets that can complement Hanson's existing business. This could include companies specializing in ski manufacturing, distribution, or marketing.
- Timeline: Conduct due diligence and explore potential partnerships or acquisitions within 24 months.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: Hanson's core competency lies in ski manufacturing. The recommendations focus on leveraging this expertise while addressing the company's weaknesses in cost management, product diversification, and market reach.
- External Customers and Internal Clients: The recommendations aim to satisfy customer needs by offering a wider range of products and improving quality. They also aim to improve employee morale and engagement by creating a more efficient and rewarding work environment.
- Competitors: The recommendations address the competitive landscape by focusing on cost reduction, product differentiation, and market expansion.
- Attractiveness ' Quantitative Measures: The recommendations are expected to improve Hanson's profitability by reducing costs, increasing sales, and expanding market share. The implementation of ABC will provide a more accurate assessment of profitability, while automation and lean principles will reduce production costs.
6. Conclusion
By implementing these recommendations, Hanson Ski Products can address its profitability challenges, enhance its competitive position, and secure its future. The adoption of ABC, optimized manufacturing processes, diversified product portfolio, and strategic partnerships will enable the company to achieve sustainable growth and profitability.
7. Discussion
Alternatives:
- Downsizing: This option would involve reducing production capacity and workforce, potentially leading to job losses and a smaller market presence.
- Selling the Business: This option would involve relinquishing control of the company and potentially sacrificing the family legacy.
- Status Quo: Maintaining the current course would likely lead to further decline in profitability and market share.
Risks and Key Assumptions:
- Implementation Challenges: The implementation of ABC and automation may face resistance from employees and require significant investment.
- Market Volatility: The ski industry is subject to fluctuations in demand and weather patterns.
- Competition: Competitors may respond to Hanson's initiatives with aggressive pricing or product launches.
8. Next Steps
Timeline:
- Months 1-6: Implement ABC system, conduct initial automation feasibility studies.
- Months 7-12: Implement automation in key areas, develop new product prototypes.
- Months 13-18: Launch new product lines, initiate discussions with potential partners.
- Months 19-24: Complete due diligence on potential partnerships or acquisitions, finalize agreements.
Key Milestones:
- Successful implementation of ABC system.
- Completion of automation projects.
- Launch of new product lines.
- Signing of partnership or acquisition agreements.
By following these recommendations and milestones, Hanson Ski Products can navigate the challenges of the ski industry and achieve sustainable growth and profitability.
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Case Description
At the end of the budget cycle, the manager must test whether plans are feasible given financing arrangements and constraints. Cash needs are great due to seasonality. Needed loans must be calculated at five separate dates, and financial position projected. This is a rewritten version of Hanson Industries (B) and (C).
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