Harvard Case - Chain Saw Industry in 1978
"Chain Saw Industry in 1978" Harvard business case study is written by Michael E. Porter, David J. Collis, James Debelina, Jon Elsasser, James Horntahl, R. Gordon Shearer. It deals with the challenges in the field of Strategy. The case study is 21 page(s) long and it was first published on : Apr 1, 1979
At Fern Fort University, we recommend a strategic shift for McCulloch Corporation, focusing on product differentiation and market development to maintain its competitive edge in the evolving chainsaw industry. This strategy involves strategic alliances with key players in the value chain, diversification into new product lines, and globalization strategies to tap into emerging markets.
2. Background
The case study focuses on McCulloch Corporation, a leading manufacturer of chainsaws in the 1970s. The company faces increasing competition from Japanese manufacturers like Husqvarna and Stihl, who are entering the market with innovative products and aggressive pricing strategies. McCulloch, despite its strong brand recognition, is struggling to maintain market share and profitability.
The main protagonists of the case study are:
- Robert McCulloch, the founder and CEO of McCulloch Corporation, who is known for his entrepreneurial spirit and focus on innovation.
- The McCulloch management team, who are grappling with the challenges of maintaining market leadership in a rapidly changing industry.
- The Japanese competitors, who are aggressively challenging McCulloch's dominance with lower prices and innovative products.
3. Analysis of the Case Study
Porter's Five Forces Analysis:
- Threat of new entrants: High, due to the low barriers to entry in the chainsaw industry, particularly from Japanese manufacturers.
- Bargaining power of buyers: Moderate, as consumers have multiple choices and can easily switch brands.
- Bargaining power of suppliers: Low, as the supply chain for chainsaw components is relatively standardized.
- Threat of substitute products: Moderate, as other tools like brush cutters and electric chainsaws can be used for similar tasks.
- Rivalry among existing competitors: High, due to the increasing competition from Japanese manufacturers and the mature nature of the industry.
SWOT Analysis:
Strengths:
- Strong brand recognition and reputation for quality.
- Experienced management team and strong manufacturing capabilities.
- Established distribution network.
Weaknesses:
- High manufacturing costs compared to Japanese competitors.
- Limited product innovation and reliance on a single product line.
- Lack of a clear strategy for addressing the changing market dynamics.
Opportunities:
- Growing demand for chainsaws in emerging markets.
- Potential for product diversification into related categories.
- Opportunities for strategic alliances and partnerships.
Threats:
- Increasing competition from Japanese manufacturers with lower prices and innovative products.
- Potential for technological disruptions in the industry.
- Fluctuations in raw material prices and economic conditions.
Value Chain Analysis:
McCulloch's value chain is characterized by a focus on manufacturing and distribution, with limited emphasis on innovation and marketing. The company needs to strengthen its value chain by investing in research and development, enhancing its marketing efforts, and exploring new distribution channels.
Business Model Innovation:
McCulloch needs to consider business model innovation to adapt to the changing market dynamics. This can involve:
- Shifting from a product-centric to a customer-centric approach: Understanding customer needs and developing products and services that meet those needs.
- Developing new revenue streams: Exploring opportunities for licensing, partnerships, and service offerings.
- Leveraging technology: Utilizing digital platforms for marketing, sales, and customer service.
4. Recommendations
Strategic Shift:
- Product Differentiation: McCulloch should focus on developing innovative products with enhanced features, improved performance, and greater safety features. This can involve investing in research and development, collaborating with universities and research institutions, and acquiring smaller companies with specialized expertise.
- Market Development: McCulloch should expand its market reach by targeting new customer segments, including professional users, homeowners, and emerging markets. This can involve developing targeted marketing campaigns, establishing strategic alliances with distributors in new markets, and offering customized solutions for different customer needs.
Strategic Alliances:
- Vertical Integration: McCulloch should consider strategic alliances with suppliers of key components to secure access to high-quality materials and reduce manufacturing costs.
- Horizontal Integration: McCulloch should explore partnerships with other companies in the outdoor power equipment industry to expand its product portfolio and distribution network.
Diversification:
- New Product Lines: McCulloch should diversify its product portfolio by developing new product lines, such as brush cutters, trimmers, and lawnmowers. This can leverage its existing manufacturing capabilities and expand its customer base.
- New Market Segments: McCulloch should explore new market segments, such as the professional landscaping and forestry industries, which have higher demand for specialized equipment.
Globalization Strategies:
- Emerging Markets: McCulloch should target emerging markets with high growth potential, such as China, India, and Brazil. This can involve establishing manufacturing facilities in these countries, partnering with local distributors, and adapting products to meet local needs.
- Global Brand Building: McCulloch should invest in building a strong global brand presence through targeted marketing campaigns, participation in international trade shows, and establishing a strong online presence.
5. Basis of Recommendations
These recommendations are based on a comprehensive analysis of the industry dynamics, McCulloch's strengths and weaknesses, and the potential for growth in new markets. The recommendations are consistent with McCulloch's core competency in manufacturing and its mission to provide high-quality power equipment.
- Core competencies and consistency with mission: The recommendations focus on leveraging McCulloch's manufacturing expertise and expanding its product portfolio while maintaining its commitment to quality and innovation.
- External customers and internal clients: The recommendations address the needs of both existing and potential customers by offering a wider range of products and services, catering to different market segments, and expanding into new markets.
- Competitors: The recommendations aim to differentiate McCulloch from its competitors by focusing on product innovation, market development, and strategic alliances.
- Attractiveness: The recommendations are expected to enhance McCulloch's profitability and market share by expanding its customer base, diversifying its product portfolio, and reducing manufacturing costs.
6. Conclusion
McCulloch Corporation needs to adapt its strategy to address the changing market dynamics and maintain its competitive edge. By focusing on product differentiation, market development, strategic alliances, and globalization, McCulloch can capitalize on the opportunities in the chainsaw industry and achieve sustainable growth.
7. Discussion
Alternatives:
- Cost leadership: McCulloch could focus on reducing manufacturing costs to compete on price, but this would require significant changes to its manufacturing processes and potentially compromise product quality.
- Market penetration: McCulloch could focus on increasing its market share in existing markets, but this would require aggressive pricing strategies and potentially lead to a price war with competitors.
Risks and Key Assumptions:
- Execution risk: Implementing the recommended strategy requires significant investment and organizational change, which could pose challenges for McCulloch.
- Competitive response: Competitors may respond to McCulloch's moves with similar strategies, creating a more competitive landscape.
- Technological disruptions: New technologies could emerge that disrupt the chainsaw industry, requiring McCulloch to adapt its strategy.
8. Next Steps
- Develop a detailed strategic plan: This plan should outline the specific actions, timelines, and resources required to implement the recommended strategy.
- Invest in research and development: McCulloch should allocate resources to develop innovative products and improve existing products.
- Expand its marketing efforts: McCulloch should develop targeted marketing campaigns to reach new customer segments and build its brand presence.
- Explore strategic alliances: McCulloch should actively seek out partnerships with companies in the value chain and related industries.
- Enter new markets: McCulloch should identify and target emerging markets with high growth potential.
By taking these steps, McCulloch Corporation can position itself for success in the evolving chainsaw industry and secure its future as a leading player in the market.
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Case Description
For use on the second day of a two-day sequence on the U.S. chain saw industry. Describes the evolution of the industry since 1974. Illustrates issues in industry evolution, the forces causing evolution, and the strategic issues raised by evolution. The discussion can center around understanding the 1974-78 time period, and then on an analysis of the future. The class can be asked to take the perspective of different major competitors.
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