Skil cor case

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Introduction:

Emerson Electric Company produced a broad range of consumer and industrial products such as electric

motors, controls, drives etc. It had a strategy of producing low cost and high quality products. It had

embarked on a program of acquisitions to meets its aggressive goals of growing sales 15% annually. It

had acquired only financially successful companies. But in 1979, it acquired Skil Corporation, a financially

mediocre performing company for $58 million.

Skil was a leading manufacturer of portable power tools serving the professional and consumer markets,

the circular saw being the strongest and best seller amongst those tools, which it also invented, and was

amongst the top three in power tools market share holdings in U.S. Other power tools that Skil

manufactured included mid-priced drills and roto hammers. Skil manufactured multiple different models

for different countries, depending upon the local needs of the market. Under increasing competitive

pressure, Skils financial results had not been stellar, although reported profitability had

improved in recent years. It sold through all distribution channels but was well established in hardware

stores and had a strong position in circular saws in contractor supply channels. Its sales force serviced all

distributors except the mass merchandisers. Skil seldom advertised and relied more on product

publicity. It sold tools on a worldwide basis, with its greatest international strength in Europe.

Emerson has a task at hand to improve the market share of Skil Corporation given that the industry is

saturated and has competitors like Black and Decker and Sears. We analyze this case by first looking into

the portable tools industry and Skils competitive positioning followed by the strategic options

available to Skil.

Industry Analysis of Portable Power Tool Industry:

The power tool industry consisted of Stationary tools and Portable tools powered by electricity, gasoline

or air. The principal products were saws, drills, sanders. Power tools could be broadly divided into

following two categories:

a) Professional tools

b) Consumer tools

Professional tools were designed for heavy duty use and had higher horse power, longer useful life,

superior quality and precision as compared to consumer tools. However, the traditional distinction

between the two was blurring as consumer tools were becoming more sophisticated. Product

improvement was taking place through the use of battery power and lighter materials (aluminium,

plastic etc.) through the 1970s.

Buyers

Professional buyers included a highly diverse group consisting of metalworkers, contractors, carpenters,

electricians, farmers etc. who were concerned about performance, quality, durability and service. Sales

to this segment were growing steadily at 8%. Consumers were mainly hobbyists, who were price

conscious and were susceptible to brand advertising. This segment had grown rapidly by the early

1970s.


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Channels

There were 15 separate distribution channels in the power tools industry, which could broadly be

divided under two heads.

a) Industrial channels: These included contractor supply, mill supply, tool specialists, plumbing and

electrical supply outlets, lumber/building materials supply outlets, automotive distributors, and tool and

equipment rental outlets. Among these, mill supply stores were the most important channel for

portable electric power tool sales to factories.

b) Consumer channels: These included mass merchandisers, hardware stores and home centres, catalog

showrooms and buying clubs

Most companies maintained sales force to provide training to the outlets sales teams. Tools

were sold to each channel using different price lists with different discount structures. Competitors that

targeted consumers engaged in heavy media advertising.

Competition

There were more than 70 manufacturers of portable electric tools, worldwide, in 1960s and 1970s.

Around 20 of these were in United States and the remaining in Europe and Japan. Of all the players, only

Black & Decker and Skil exported or manufactured abroad.

Black & Decker Manufacturing Company was the market leader with 31.1% share. It had a broad

product line of 280 models. It targeted both professional and consumer markets and had extremely

strong position in consumer channels. Leadership position was attained in many categories by focusing

on large regionally dominant distributors. It had a strong brand reputation. It was the most vertically

integrated manufacturer in the United States.

Sears Roebuck & Company/Singer Comapany: It positioned itself as general line retailer and

carried a broad mix of lines directed at middle class customers. Their excellent reputation for service

was a major advantage in selling tools.

Rockwell International Corporation: They held just over 6% of the market share and sold tools

primarily through industrial channels.

Milwaukee Tools: It had a strong brand image in professional market and had established a

strong position in contractor supply in high priced drills and reciprocating saws.

Makita Electric Works Ltd.: It concentrated on tools for professional market especially

woodworking. It pioneered the introduction of lower-priced materials on professional tools. It combined

high quality with aggressive pricing.

There were other players such as Robert Bosch Gmbh, Hitachi etc. Skil Corporation was at fifth position

with 7.1% of the world market share.

Product Differentiation and Skils relative position

The major difference between the products made for professional and the consumer market is the

quality and precision in working of the tools. Professional markets need more superior and better

quality products, where as the consumer market can be easily sufficed with a bit lower quality product.

Owing to its better quality, the prices of the professional market products are higher than the consumer

markets and they also provide better margins to the companies manufacturing them. Professional tools


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were manufactured for use under more intense conditions and hence were designed with more horse

power and better strength. Another distinction between types of tools was on the basis of the power on

which they operate, there were both battery operated versions and direct power operated versions but

the battery operated versions, which were cordless possessed less power than the direct power

operated products.

Skil corporation served both professional and consumer market. The circular saw line of Skil Corporation

was their single strongest single product area. Skils product designs were different for different

countries depending upon the local needs of various countries.

Only Skil along with Black & Decker exported and manufactured their products abroad. Black and Decker

was their strongest competitor, which offered 280 models designed for either professional or consumer

market. Another competitor of them was Sears Roebuck & company, whose differentiating factor was a

strong distribution network and is known for its after sales service offerings. Rockwell

automation, another competitor for Skil Corporation was more into professional market. Other two

competitors Milwaukee tools and Makita Electric works Ltd. were also more focused on professional

market.

Strategy Options:

Skil manufactures its tools with 13 plants through out the world which are dedicated for components

fabrication and assembly. The competitors on the other hand have invested heavily in automation

facilities e.g. Hitachi which provides them the lowest cost and lines of tools. Skil if positions its products

in low cost segment, will find it difficult to recover the cost incurred as the company has semi-

automated plants unless it increases its sales volume. The company will have to invest in automation to

achieve its targets. Further by integrating the manufacturing the costs can be reduced. On the other

hand the company has a good positioning of circular saw in the market, which is a main product in

consumer and professional segments, and suits to company strategy.

The companys positioning of its consumer products in discount stores could be a threat as these

stores provides heavy discounts which can have effect on sales through other channels. This also gives

higher bargaining power to these stores as they are responsible for almost 40% of sales.

At this point, with such heavy competition, it is important to find customers that are important to Skil.

Skil should concentrate on those customers rather than trying to please every segment. As mentioned

since the demarcation between industrial users and do it yourself consumers was diminishing, it

suggests a trend that do it yourself consumers are looking for higher power and higher grade tools. Skil

should focus its sale from departmental stores to hardware stores so as to create an impression of

exclusivity but importantly targeting professional workers. The hardware stores have been impacted by

the discount stores and would work harder to improve their sales to do it yourself consumer. Although

this strategy will have a negative impact in the short run, the long run benefits are huge. The decreasing

demarcations between consumers also suggest that the product line has to be brought down so as to

increase efficiency.

Skil should also look towards benchmarking in the industry. This can be done by identifying the best

practices followed across the industry and adapting itself to these processes. This will help reduce slack

existing in the organization. In the overseas market Skil has been performing well especially the Europe


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division. The company should look to improve its presence in Far East by joint venture with other

organizations. The Japanese are good at atomization but Skil have a good investment in Research and

should be ready to leverage that to gain access in those markets.

Porter

Brief Introduction:

Skil Corporation is a portable power tools manufacturer that was acquired by Emerson Electric Company

in 1979. When Skil was first acquired, it had mediocre financial performance. Its main competitors in

the portable power tool industry were Black & Decker, Sears, and some Japanese manufacturers. In

1979, the electric power tools were making up the majority of the portable power tool industry.

1. What is the analysis of the structure of the portable electric power tool industry? Is it structurally

attractive?

Analysis of the structure of the Portable Electric Tool Industry

Industry Structure Attractiveness: Moderate / Low ROE=10%, Profit margin=4% on average

This is primarily because of High rivalry between competitors. Despite of the low threats from other

factors impacting industry structure, the industry is currently witnessing heavy rivalry because of slow

industry growth and high number of existing competitors.

2. How is the industry structure changing? For the better or the worst?

Changes in Industry structure in 1979

Some changes are as follow:

The Rivalry between competitors was gradually focusing on price because of continually reducing product

differentiation. Companies like Makita are leading the pricing based rivalry to gain a quick market share

(sometimes 20% to 30% below market price). This might impact the already low industry profitability badly

if other companies follow suit and start pricing aggressively. Companies are investing heavily on

automation to increase production efficiencies and volumes. Black & Decker is investing heavily on

automation and computerization of processes. This would help them in reducing the cost of production

and at the same time increase the quality of their products. At the same time they would aggressively

target bigger market shares to break even on their

Skil Corporation Case AnalysisSkil Corporation

The acquiring company Emerson had a strategy of producing low cost and high quality products. It

started on a program of acquisitions to meets its aggressive goals of growing sales 15% annually. It had

acquired only financially successful companies. But in 1979, it acquired Skil Corporation, a financially

mediocre and low performing company for $58 million. Skil was a leading manufacturer of portable


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Skil cor case