High Tech Industry & Power Tools

Strategic Issues and Case Analysis

High Tech Industry and Power Tools Industry Analysis

Both the high tech electronics and power tool industries are heavily reliant on their supply chains, innovation practices and processes, and distribution channels for stability and growth. The intent of this analysis is to evaluate each of these industries from their legal, social and economic environments, management structure, operational and financial issues and the impact of strategic change factors on the structure of each industry as well. Included are extensive analyses of their five-year revenue projections. Both industries face significant challenges in growing beyond their traditional markets, and the use of social networking technologies holds potential for that growth. Finally, this analysis evaluates how the factors mentioned are reorienting the value chains of each industry and forcing greater levels of customer-driven innovation and supply chain performance as a result.

Introduction

The intent of this analysis is to evaluate the similarities and differences of the high tech electronics and power tools industries. Using the dimensions of their legal, social, and economic environments, management structures, operational and financial issues and the impact of potential change factors on these industries, they are compared and contrasted to each other in this analysis. The strategic intent of the dominant members of these industries is also illustrated in this analysis.

Industry Research

Legal, Social, and Economic Environments

Both the high tech and power tools manufacturing industries are going through a very turbulent time right now as their cost structures are being redefined by global competition, their supply chains under increasing scrutiny for compliance to environmental standards (Casella, 2010), and the global recession drastically reducing the availability of capital for expansion. The impact of cost reductions and greater skill sets being available in China for high tech manufacturing is re-orienting the entire industry’s value chain (Albrecht, Morgenstern, Xia, 2008) and the same is happening with the shift of tools production to India (Dangayach, Deshmukh, 2006). As the value chains of these industries drastically change, there will need to be more focus than ever on environmental compliance globally including the WEEE and RoHS standards (Casella, 2010) and product quality standards including ISO 9002 (Williams, 2004). This has become the greatest legal risk to both industries as each manufacturer varies in terms of their ability to manage the exporting and enforcement of their quality standards into the nations where the majority of production is migrating today.

Management Structure

The management structures of each of these industries vary significant as each has a drastically different approach to managing the innovation, product development, production, service and distribution channel aspects of their businesses. The innovation process that initiates the new product development cycles in tends to be more global in scope and oriented towards demographic segments (Graber, 1996) while innovation in high tech tends to be more insular and focused on technological gains over time (Tsai, Chang, 2008). These differences in how each approach innovation have a strong impact on the management structures of each industry. As innovation is more outward centric in tools manufacturing, the organizational structures are hierarchical and more concentrated on managing very specific product lines, functions, and services. In high tech as innovation is much more generated within an organization, the structure is flatter, wider, with more emphasis on cross-functional teams to ensure that expertise is shared throughout organizations’ structure. The wider and flatter organizational structure of high tech firms also lead to smaller, highly concentrated teams spinning off onto special projects as expertise can be quickly re-assigned. In the case of tool manufacturers, the processes that lead to the development of new products is more externally based, often including channel partners, resellers, and construction companies using their products.

Operational and Financial Issues

In 2009, the machine tools industry experienced negative growth as the combination of tightening credit slowed new production and construction companies found it difficult to get credit to purchase new equipment. As a result, industry-wide sales dropped 2.4%. Inventory turns contracted at a rate of 15% in the high tech industry and across the consumer electronics sector, price reductions and bundling were commonplace as consumable incomes plummeted in 2009. Operationally for both industries, 2009 was however, an excellent year as manufacturers in each retrenched and sought out initiatives to make their operations more efficient, lean, and focused on customers. For the high tech industry, the focus on quality management and attaining higher-levels of quality in their manufacturing operations were critical if they were going to be able to sell into Europe (Casella, 2010).

Impact of Potential Change Factors

The potential change factors that both industries share is offshore production that is drastically re-shaping their value chains while also changing the structure of many industry participants from a supply chain standpoint. The outsourcing of tool manufacturing to India is forcing investment in quality management and compliance (Dangayach, Deshmukh, 2006) while in the high tech industry the change factors of Chinese manufacturing (Albrecht, Morgenstern, Xia, 2008) is changing the cost structures of the high tech industry and product lifecycles. The change factor of regulatory compliance to sell into Europe and global markets with tighter environmental restrictions than the U.S. is also re-ordering both industries.

An Analysis of Strategic Intent

The strategic intent of the power tools industry is to concentrate on the construction industry and generate stable sales through the Original Equipment Manufacturer (OEM) market, where profitability and sales levels are consistently high. For the retail sector of the power tools industry, the focus on new product development through customer listening and voice of the customer programs is critical. For the high tech industry the strategic intent is to capitalize on the speed of product lifecycles and generate create inventory turns as the economy improves (Dangayach, Deshmukh, 2006).

Future Performance Projections

The following two tables illustrate the revenue growth, industry value-add, enterprises and employment in the high tech (semiconductor segment specific) and the power tools industries.

Both analyses reflect the relative slow growth of these two industries going forward. The combined factors to a global economic slow-down, the development of production centers outside the U.S. And the impact that is having on industry value chain dynamics including prices and the intensity of focus on new product introduction speed and time-to-market are reflected in the relatively flat growth of each industry.

Social and External Challenges

The impact of social networks and the platform they have provided consumers to comment and in many cases comment on quickly the directions and strategies of manufacturers (Bernoff, Li, 2008) is a powerful force on each customer facing process in the high tech and power tool industries as well. The social challenges of greater accountability and transparency is critical, as is the need for offering to participate in social media to stay connected with customers. There is a new level of participation required of manufacturers each industry. They must address their consumers, channel partners, major account and OEM partners as peers and partners if they are to survive and grow in this era of extreme transparency where trust, not price, is the king of transactions.

Conclusions and Recommendations

As both industries are going through a transformation of their value chains, both need to seek out stability of pricing, supplier quality and manufacturing process control. Quality must become the differentiator in power tool production, especially with manufacturing shifting to China. The need to make quality the center of high tech manufacturing is also evident in how extensively Apple is using contract manufacturing in China for the iPhone today. The reliance on just price will force both industries into a shakeout and contraction, even more severe than that brought on by the recession. Instead, the industry needs to stabilize and concentrate on quality first, differentiate by adding value in channels with greater reliance on electronic platforms to serve channel partners, reseller and OEM accounts. If both industries are to stability their losses, they must also concentrate on product lifecycles that are more attuned to the needs of user and less driven by supplier availability of parts or worse yet, supplier product line decisions. Manufacturers need to take ownership of the customer relationship as well, as social network are revolutionizing these industries with greater transparency and the requirement of great honesty than ever before.

References

Albrecht, S., Morgenstern, I., & Xia, X.. (2008). The cost of going global for China’s high-tech companies. The McKinsey Quarterly,(3), 8.

Bernoff, J., & Li, C.. (2008). Harnessing the Power of the Oh-So-Social Web. MIT Sloan Management Review, 49(3), 36-42.

Casella, M.. (2010). UK Environmental Regulation. Risk Management, 57(3), 20-21.

GS Dangayach, & SG Deshmukh. (2006). An exploratory study of manufacturing strategy practices of machinery manufacturing companies in India. Omega, 34(3), 254-273.

Graber, Don R. (1996). How to manage a global product development process. Industrial Marketing Management, 25(6), 483-489.

Tsai, K., & Chang, H. (2008). The Contingent Value of Inward Technology Licensing on the Performance of Small High-Technology Firms. Emerging Markets, Finance & Trade, 44(4), 88.

Joseph a Williams. (2004). The Impact of Motivating Factors on Implementation of ISO 9001: 2000 Registration Process. Management Research News, 27(1/2), 74-84.