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Managing the transition from maturity to decline

Managing the Transition from Maturity to Decline: Diamond Power Corporation

This case study, prepared by Richard C. Scameborn, follows the Diamond

Power Specialty Company from its humble beginnings in 1903 to its decline in

1991.

The birth of Diamond came with the invention of the hand cranked soot

blower. As the years and technology progressed, so did the Diamond soot blower.

Along with this main product, Diamond also added several other products to its

line, but none had the profitability of the soot blower. Diamond had the market

to itself for a number of years, but eventually two competitors sprang up to

challenge Diamond: Copes-Vulcan and Bayer Company. Competition did not become

fierce until World War II, when the soot blower became a major commodity used by

the U.S. Navy to clean boilers on board its ships. At this point, the soot

blower industry became a seller's market and the need for strategy (both

corporate and business) became a necessity for growth and survival.

Diamond Power's main mission at its beginning, to produce soot blowers

that would efficiently clean the inside of boiler as it continued working,

basically stayed the same up until the addition of competition into the market.

At this point, Diamond had to revise its mission to include technological

advances to stay ahead of it main competitor, Copes-Vulcan. With the passage of

time, production efficiency and technology were not enough. Diamond eventually

had to add foreign sales, customer service, and replacement part production to

its original plan to keep ahead of the game. By the 1970's, the mission to

supply replacement parts and service became one of Diamond's top priorities as

it opened parts and service plants in New Jersey, Georgia, Ohio, Texan, Colorado,

North Dakota, California, and Washington.

Diamond Power's goals over the years seem to stay pretty congruent with

its mission up until the early 1980's. Basically, Diamond's goals included

staying on the moderate levels of technology, building a foreign market by

exporting machines and parts and establishing joint-venture manufacturing

companies overseas, establishing an extensive and profitable domestic

aftermarket support system that included minifactories that supplied both parts

and service, and to keep the upper hand on the soot blower market share.

Diamond Power's parent corporation, McDermott, Inc, utilized several

different corporate strategies to try to achieve Diamond's goal of a profitable

and extensive aftermarket support system. However, some of the decisions made by

McDermott, Inc in regards to its replacement part division caused more harm than

good. For example, when a small operator began to copy and sell Diamond

replacement parts at a lower cost than Diamond with great success, McDermott

overrode Diamond executives' wish to acquire the operation. This decision had

far-reaching repercussions as will be discussed in later paragraphs.

McDermott also had to take action where Diamond was concerned when it

began experienced severe financial difficulties in the late 1980's and early

1990's. McDermott had to implement a major costcutting effort and restructuring

plan to keep from going bankrupt. This plan included putting pressure on Diamond

to increase profits. Diamond had to take implement several business strategies

in order to appease its parent corporation.

Decisions made on the corporate level had a direct affect on the

business strategies implemented by Diamond Power. The development of the

aftermarket support system was a plan with several long term benefits. The plan,

developed by the marketing vice president at the time, involved a nationwide

network of minifactories that offered service and replacement parts that could

be delivered in a matter of hours to industries in need. Diamond's high market

share on soot blowers allowed the company to lower its new equipment prices and

recoup any losses through its replacement part division. This resulted in

increased sales in both new equipment and parts. Diamond's competition, Cope-

Vulcan, did not have any service centers and only limited replacement part

manufacturing, and therefore did not reap profits as high as Diamond Power's.

However, not all of Diamond's business strategies worked as well as the

replacement part and service system.

Under the pressure of McDermott, Inc, Diamond felt it had to make

several rash decisions in order to increase profitability. First, Diamond did

not purchase Bill Blalock's low production company that made Cope and Diamond

parts. This allowed a foreign company to buy it out and break into Diamond's

dominant part industry. It also allowed Cope-Vulcan to increase its part

production market by forcing it to implement an aggressive management team and

add new products to its line. Diamond responded to this by deciding to reverse-

engineer nonpatented Cope parts in Korea and sell them for a lower price than

Cope sold them itself. Diamond also made the decision to close a very productive

plant in Canada and lose a very influential employee in the process. Both of

these decisions eventually caused severe problems for the company and helped to

lead to its decline.

Ethically, Diamond commits only two mistakes in judgment that should

have been avoided. Diamond's decision to start making Cope parts was not illegal,

but was underhanded since the two companies seemed to have an understanding that

they would not make eachother's parts. Diamond also made and ethical mistake by

closing the plant in Canada and basically turning its back on a loyal Diamond

employee. Both of these breaches of ethics ends up causing Diamond a lot of

trouble as time goes on.

There are three major problems that come up in the Diamond Power case.

The most obvious problem the company encounters involves the handling of its

lucrative parts industry. For a number of years, the parts division was able to

carry the company through times of low new equipment sales. But, for as

important as the parts business was for Diamond, it did not take

adequate measures to protect it. For example, Diamond never bothered to patent

its parts in the U.S. or in Korea, and this left the door open for other

companies to reverse-engineer Diamond parts and sell them for their own profits.

Also, Diamond did not take the opportunity to buy out the profitable Blalock low

production company, a company making Diamond parts that were not patented.

Patenting would have saved Diamond from the invasion of a low producer invasion

and from aggressive retaliation by Cope later on for making and selling

nonpatented Cope parts. It seems that a division as valuable as the service and

replacement division would have been protected more heavily.

The second major problem Diamond had was in shutting down its Canadian

factory. This caused trouble for Diamond in two ways: it gave other companies

the opportunity to cash in on a profitable Canadian market, now left wide open

by the removal of Diamond, and it caused a very influential and valuable

employee to leave and eventually join forces with Cope-Vulcan. The consequences

of closing the Canadian plant and failing to protect its replacement part

business eventually come back to haunt Diamond as Cope is able to break into

Diamond's replacement part market share and lower it from 60% to 56% in less

than one year.

The third major problem Diamond creates for itself is its shut down of

6 of its 8 service divisions in the face of profit pressure and cost-cutting.

This was probably the worst place to cut back, since the former expansiveness of

its service business is what made Diamond such a nationwide force. Industries

that once turned to Diamond for service and subsequently Diamond part had no

choice put to go to Diamond's competitors for service and parts. By this

foolhardy decision, Diamond's president not only lost profits for Diamond, but

also lost his job.

The weakness most in need of fixing is found within the administration.

The leaders of Diamond Power seemed to become increasingly weaker and/or more

foolish as time went on. Examples of incompetence and lack of vision by the

business leaders of Diamond include failure to patent and protect the

replacement parts division, failure to acquire small businesses that posed a

threat to the replacement market share, reverse-engineering of a competitor's

parts without protecting the company from retaliation, closing and losing a very

vital and important foreign plant and employee, and shutting down the nationwide

influence of Diamond by closing service centers in major cities. Diamond's

strengths lay in it replacement parts and service departments. Both of these

industries proved profitable for many years and often carried the company in

hard times. This strength was not protected, but could have still been improved.

Revival of the replacement parts and service division of the company is

essential for the survival of the company. Major improvements of old parts

should be made and quickly patented in order to win back clients and protect

future profits and market shares. Price reductions might need to be implemented

in order to resuscitate sales quickly. Also Diamond may want to boost the

technology level in its machinery and parts to prove that to customers that

Diamond makes high quality products. Some expenses would have to be increased

initially, but these would soon pay for themselves by increasing sales and

reputation.

Long-term changes should include reopening service centers and possibly

trying to break into the Canadian and foreign markets. Also, the production of

new products or services could be a long-term goal to reach for. New, more

aggressive management should also be a long-term project. The initial mission

was a good one and should be kept. The strategies should include lowering new

equipment costs to spark increase in customer service and parts needs (like was

done in the past). Also, Diamond should try to raise the market shares of other

divisions, such as foreign sales to back up its aftermarket support system so

the company is not reliant on just one of its divisions. However, fixing the

weaknesses and improving the strengths would probably be the most productive

course of action for the Diamond Power Specialty Company.

Source: Essay UK - http://www.essay.uk.com/coursework/managing-the-transition-from-maturity-to-decline.php



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