Technology Management and Strategy

DUOBACK Case

Introduction1.1 Company Overview

1.2 Core Technology of Duoback

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3

1.1 Company Overview

1. Introduction

Leading ergonomic manufacturer of office furniture and services that create great places to work, live, and rest.

Our Management Philosophy is “Your Comfort, Our Happiness.”

and this pledge became the foundation of our company, passed on

from decade to decade.

CEO Jung Kwan Yong

Duoback Korea Introduction

International BrandAddress: http://www.duorest.com

Duoback Korea is leading ergonomic manufacturer of office furniture and ser-vices and Their motto is “Your Comfort, Our Happiness”

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1.1 Company Overview

1. Introduction

DUOBACK Brand Introduction

Ergonomic Chair Brand That it apply prof. Bruning’s “Duoback Theory” to chair at first time in KOREA

“A healthy world starts from your comfortable chairs”

Chair Market Share (2005)

Duoback(60%)

High-pack

Overwhelming Brand Recognition

Borneo

Livart

iloom

others

0 10 20 30 40 50 60 70 (%)

Duo-Back

Duoback Brand is for Ergonomic Chair and their brand power is much larger than others

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1.1 Company Overview

1. Introduction

History of Duoback Korea

Established the Hae Jung in InCheon, Korea1987.05

Acquired Duo-back license from GRAHL companyExercised monopoly production and selling rights to July, 2009Paid EURO 701,111 in intallment during 15yrs as a royalty of rights

1995.11

Acquired the patent of the Duoback chair from Prof. BrunigDiversified Duoback product line such as Duo-school, Duo-seminar

2004.01

Changed Company name as Duoback Korea, Ltd and became a sole distributor of Duoback chair in Korea.

2002.12

Acquired certifications ISO 9001/14001 2002.08

Certificated as INNO-BIZ from the Small and Medium Business Administration

2003.09

Register Duoback chair as supply product in the Supply Administration2003.04

Won 8th Ergonomic design award from Ergonomics Society of Korea2006.11

Signed the strategic partnership agreement with I-market Korea2009.07

Initiation Stage

Take-off Stage

Duoback Korea acquired Duo-back license in 1995 and then they could produce and sell Duoback chairs monopoly in Korea

Certificated as Korean Company with Excellent Service Quality by the Ministry of Knowledge Economy2010.10

Launched a new product – Duoplex Vine2012.06

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1.1 Company Overview

1. Introduction

Duoback Products

DUOBACK Chairman DUOBACK Leaders DUOBACK Smart DUOBACK Lady

DUOBACK Kids DUOBACK Idea DUOBACK Seminar DUOBACK School

There are 8 main categories as to Duoback user and usage and each has vari-ous sub-model on price level

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1.2 Core Technology of Duoback

1. Introduction

1) Rucksack Effect • Feel less fatigue as back muscles are supported and continuously massaged by the weight of the rucksacks.

2) Dynamic Sitting • While sitting on a chair, people unconsciously move their bodies to lesson muscle strain and fatigue.

DUOBACK offers similar massaging effect on your back while you are sitting

DUOBACK are designed to support your back comfortably in all directions your body moves,

enabling freer movement on a chair

There are 4 Core technologies of Duoback; Rucksack Effect, Dynamic sitting, Personalized Chair, Ergonomic Design.

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1.2 Core Technology of Duoback

1. Introduction

3)Personalized Chair• To enjoy sitting comfort, adjust seat height, headrest height, back-rest height and width, armrest height and width, tilt tension and tilt lock angle position

DUOBACK parts can be easily adjusted to accommo-date individual body requirements.

4)Ergonomic Design• Designed to efficiently reduce fatigues on your back, spine and thigh, by dispersing pressures with maximized contact area be-tween your body and chair.

DUOBAKC’s ergonomically contoured and sepa-rate dual backrest and hip & thigh line contoured

waterfall edge seat

There are 4 Core technologies of Duoback; Rucksack Effect, Dynamic sitting, Personalized Chair, Ergonomic Design.

2.1 Motivation

02

Motivation of Duoback Innovation

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2.1 Motivation

2. Motivation of Duoback Innovation

Customer ori-ented era

Needs for Func-tional Product

Necessity for develop-ing sensitive product

Environment

Interaction

MachineHuman

21st Century Consumption trend

These day, Customer who use machine or work in office want to buy functional product and Duoback tried to catch that needs

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2.1 Motivation

2. Motivation of Duoback Innovation

7%

93%

Workplace for Clerical Workers

Chairs

Others8%

1%

2%

4%6%

14%

18%19%

28%

OthersNeckEyesShoulderHeadLegsArmsWaistTrunk

Injury by Parts

Ergonomics concept is emerged

Most workplace of clerical workers is chairs and by this they are injured body parts; waist, trunk, legs, shoulder, etc. So ergonomics concept is emerged.

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2.1 Motivation

2. Motivation of Duoback Innovation

Formative Period

Growth Period

Transition Period

• Housing Improvement business by government

• Transition from “Sitting of the floor” culture to “Standing Cul-ture”

• Drastic growth in demand as an attachment of desk

• Success in OEM

• Aggressive Sales

• Public interest in well-being culture

•Raising Ergonomics con-cept

• Increasing demand for func-tional chairs

• Highlight on importance of chairs

Simple Chairs EraTechnology-ori-ented Chairs Era

Due to public interest in well-being culture and Ergonomics, Chair industry is moved from simple chairs Era to Technology-oriented chairs Era

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2.1 Motivation

2. Motivation of Duoback Innovation

Duoback innovation

Ergonomic Design

Increasing demand for functional chairs

Public interest in Well-being Trend

Highlight on importance of chairs

Duo-back Theory in Germany

Many motivations such as well-being trend, Ergonomic Design, Demand for functional chairs and duo-back theory make duoback innovation possible

3.1 First-mover Advantages

3.2 First-mover Disadvantages

3.3 Overcoming Disadvantages

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Timing of Entry

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3. Timing of Entry

3.1 First-mover Advantages

17 44 37Utility ModelPatent Design

• These numbers are not less than the number of patent rights of the big conventional furniture companies. ex) SIDIZ has 53 patent & utility model rights and 38 design rights

Technological Leadership Brand Loyalty

Brand Recognition Rate

Duoback

Highpack

Borneo

Livart

iloom

others

0 10 20 30 40 50 60 70 (%)

• There are many egronomic furniture companies, but Duoback is overwhelmingly well known to customers.

DuobackKorea was the first-mover of the functional chair market in Koreaand it had first-mover advantages.

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3. Timing of Entry

3.2 First-mover Disadvantages

• There was no anthropometric data of Korean, so DuobackKorea collected the data by itself.

• Chairs are almost purchased from offices, but usually with desks, so Duoback can not sell

its products to offices.• Distributors were reluctant to buy unproven duoback products.

• Customers and distributors were familiar with conventional chairs and did not know the real value of this new technology.

R&D ExpensesUndeveloped

Distribution ChannelsIgnorance of

New Technology

• Nowadays, anyone can get the data provided by KATS from SizeKorea.

DuobackKorea was the first-mover of the functional chair market in Koreaand it had first-mover disadvantages.

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3. Timing of Entry

3.3 Overcoming Disadvantages

Customers became curious about these Duoback productsand it directly boosted its sales.

Even though a new innovation or a technology is valuable,if customers do not feel the real value

it will never last long.

Subway AdvertisementNewspaper and

Magazine Advertisement

Home shopping Channel

DuobackKorea overcome customer ignorance by advertising during IMF crisisand it finally worked out.

4.1 Sources of Innovation

4.2 Types of Innovation

4.3 Innovation S-curves

04

Sources and Types of Innovation

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4. Sources and Types of Innovation

4.1 Sources of Innovation

Acquiring Exclusive License from Grahl

• Grahl is a furniture company in Germany.

• Grahl required DuobackKorea to pay different amount of loyalties proportional to GNP growth per a product.

• DuobackKorea had paid loyalties of EUR 701,111(1 billion Won) through 15 years.

• The License permitted exclusive production and sales rights in Korea.

• The license expired in July 2009.

License

DuobackKorea has retained several innovation sources since it was established

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4. Sources and Types of Innovation

4.1 Sources of Innovation

• It was recently established at Mok-dong, Yangchun-Gu, Seoul in 2006.• About 10 experts in furniture and industrial design work for penetrating foreign market customized products and product diversification

In-house R&D

Ergonomics Design R&D Center

Headquarter

• It is located in Seo-Gu, Incheon.• It consists of offices, factories, and laboratories.

DuobackKorea has retained several innovation sources since it was established

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4. Sources and Types of Innovation

4.1 Sources of Innovation

• DuobackKorea and Inha University collaborated to conduct several researches on improving chairs in schools

ergonomically in 2001 aches in lower back of middle and

high school students in 2002

• Based on these researches, DuobackKorea intended to penetrate school facility market.

Collaboration with Universities and Other Laboratories

Inha University

Other Laboratories in Foreign Countries

• It seeks to find new collaboration with labs in U.S., Japan, etc.

DuobackKorea has retained several innovation sources since it was established.

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4. Sources and Types of Innovation

4.1 Sources of Innovation

Customer opinions and suggestions are reflected to its product for improvement.

Auto-lock System

• Many parents complain that their kids sitting on chairs with wheels easily get distracted.• When kids sit on the chair, it is locked automatically and then wheels are fixed.

Replaceable Fabric Cover

• Fabrics on chairs easily get stained and many customers wanted this problem to be solved.• It is sanitary and design-changeable.

Customers

DuobackKorea has retained several innovation sources since it was established.

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Innovations in Duoback Kids

4. Sources and Types of Innovation

4.2 Types of Innovation

DK-028N DK-028E DK-128A DK-028D DK-028LDS

Innovation of Duoback could be categorized as four types: Product, Radicaland Incremental, Competence-enhancing, Component Innovations.

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4. Sources and Types of Innovation

4.2 Types of Innovation

A chair itself is a productnot a process.

Its appearance was radical innovation, but it has been

undergone incremental innovations.

Innovations arebased upon itscore duoback technology.

Components of a chairsuch as a back and arms

are the target of Innovations.

Duoback

Innovation of Duoback could be categorized as four types: Product, Radicaland Incremental, Competence-enhancing, Component Innovations.

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4. Sources and Types of Innovation

4.3 Innovation S-curves

• Each S-curve means market saturation

level of a certain version of a product and moving upward means performance improvement.

• Functional chair market is easily saturated when it comes to a certain version of a product.

• When DuobackKorea does not introduce a new product in time, that is when technology disconnection occurs and its growth rate becomes lower.

• DuobackKorea should renew its versions before the market is saturated.

Per

form

ance

Time

Connected

Disconnected

Every new version of innovation replaces the older one, and disconnectionof the replacement results in low growth rate.

5.1 Methods for Protecting Innovation

05

Protecting Innovation

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5. Protecting Innovation

5.1 Methods for Protecting Innovation

• Original owner is Dr. Bruning, a physicist in Germany.• DuobackKorea acquired the rights in January 2004.• It possesses the whole rights of duoback technology.• It receives loyalties from Grahl, reversely.• It can export duoback products to other countries, except for Europe.

• All Duoback-looking chairs infringe DuobackKorea’s Rights.• Suing other companies making clones, DuobackKorea won several cases.• It is also warning distributors to stop handle clones.

Buying Patent Rights from the Original Owner

Suing Other Companies Making Clones

Licensed innovation was unsafe and DuobackKorea has been in trouble withother companies making clones, so it needed to protect the innovation.

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5. Protecting Innovation

5.1 Methods for Protecting Innovation

• Comparison between its product and clones was advertised on the newspaper.• Airing TV Advertisement was effective for maintaining brand loyalty.

• It is a procedure to ascertain if a duoback product is made by DuobackKorea using barcodes and serial numbers after a customer purchases it.• Customers who get certificates are given several advantages, and it can inducts prospective customers to purchase its products

1. Extended warranty period2. Fast warranty service3. Special events

Operating Certificate of Authenticity System

Brand Marketing

Licensed innovation was unsafe and DuobackKorea has been in trouble withother companies making clones, so it needed to protect the innovation.

6.1 Current Market Situation

6.2 Financial Overview

6.3 SWOT Analysis

6.4 Five Forces Analysis

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Analysis of the Company

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6.1 Current Market Situation

6. Analysis of the Company

Duoback patent has been expired by July, 2009. Many followers will copy the design and the competition is going to be tougher.

There are too many copies.

This is a big cri-sis!!

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2005.12 2006.12 2007.12 2008.120

50

100

150

200

250

300

350

400

450 412388

359

285

7154

3014

Sales

Operating Profit

( 억원 )

<Annual Data>

6.2 Financial Overview

6. Analysis of the Company

Sales and operating profit of Duoback has been decreased because of many copies and patent expiration.

2008.12 2009.03 06 09-20

0

20

40

60

80

100

120

140

87

117

8187

-1

7 3 4

Sales

Operating Profit

<Quarter Data>( 억원 )

Low operating profit

Many copies and patent expi-ration have made sales and op-erating profit decreased

The price of the raw material has been increasing, so operat-ing profit is low in this year.

“Financial Crisis!!”

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SWOT

Strength Weakness

ThreatsOpportunities

• Powerful brand image

• Diversified distribution channel

• Many patents

• Narrow product portfolio (only fo-cused on functional chairs)

• Decreasing sales

• Expensive product

• Opportunity for B2B sales

• Potentials for exports to east Asia including China

• Well-being culture becomes power-ful and powerful

• Decreased brand power due to many copies

• Competition will become severe af-ter the patent expiration

6.3 SWOT Analysis

6. Analysis of the Company

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Existing Rivalry

• Copies(ex. Dualback)• Fursys, Hanssem, Iloom, Livart, etc.

Potential Entrance

• Existing Korean furni-ture companies• Foreign high quality furniture companies

Threats of substitutes

Bargaining power of suppliers

Bargaining power of buyers

• Raw materials are easy to buy• Good relationship with suppliers

6.4 Five Forces Analysis

6. Analysis of the Company

• General chairs

• Many copies with cheap price• Other kinds of func-tional chairs

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6.4 Five Forces Analysis(cont.)

6. Analysis of the Company

ExistingRivalry

Potential Entrance

Threats of Substitutes

Bargaining Power of Suppliers

Bargaining Power of Buyers

DegreeForces Low Middle High Explanations

• After patent expiration, more compa-nies might copy Duoback design• Big furniture company made spinoff for functional chairs(ex. Fursys-Sidiz)

• Any furniture companies can easily get into functional chair market• But, they are reluctant to do so because there are many competitors

• More and more people are highly interested in their health, so general chairs are not really threats to functional chair market

• Raw materials of Duoback are easy to get• Duoback Korea has a good relationship with its suppliers, such as 덕진하이텍 , 듀오칼라 .

• Customers can choose the product out of a variety of functional chairs.• Lots of copies cheaper than Duoback

7.1 Implications from Five Forces Analysis

7.2 SWOT Analysis(Revisited)

7.3 Strategies from TOWS

7.4 Priority of the Strategies

7.5 How to Implement the Strategies

7.6 Balanced Scorecard 07

Suggestion

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7.1 Implications from Five Forces Analysis

7. Suggestion

ExistingRivalry

Potential Entrance

Threats of Substitutes

Bargaining Power of Suppliers

Bargaining Power of Buyers

DegreeForces Low Middle High

Strategic Implications

Don’t worry about these

• Duoback should reinforce its “#1 company in func-tional chair market” image to mitigate the threats of competitors

• It must not stick only to the technology, but to sales and marketing.

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SWOT

Strength Weakness

ThreatsOpportunities

• Powerful brand image

• Diversified distribution channel

• Many patents

• Narrow product portfolio (only fo-cused on functional chairs)

• Decreasing sales

• Expensive product

• Opportunity for B2B sales

• Potentials for exports to east Asia including China

• Well-being culture becomes power-ful and powerful

• Decreased brand power due to many copies

• Competition will become severe af-ter the patent expiration

7.2 SWOT Analysis(Revisited)

7. Suggestion

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TOWS

S-O (Offensive) (Risk Aversion) S-T

(Turn-around) W-TW-O (Defensive)

7.3 Strategies from TOWS

7. Suggestion

• Penetrate Chinese market with “Ko-rea #1” brand image

• Active contact with many institutes and schools which are potential cus-tomers(B2B sales)

• Diversify its product portfolio

From TOWS analysis, we can obtain several strategic options.

• Focus on stabilizing its “high quality and luxurious” brand image through TV commercials

• Strategic collaboration with main furniture producers

• Price competitiveness through B2B sales strategy

• Minimize its R&D cost on new prod-uct and focus on sales and marketing

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7.4 Priority of the Strategies

7. Suggestion

Concerning current financial crisis and implications from five forces analysis, we can give priority to some selected strategies in TOWS analysis

TOWS

S-O S-T

W-TW-O

• Penetrate Chinese market with “Korea #1” brand image

• Active contact with many institutes and schools which are potential customers(B2B sales)

• Diversify its product portfolio

• Focus on stabilizing its “high quality and luxurious” brand image through TV com-mercials

• Strategic collaboration with furniture pro-ducers

• Price competitiveness through B2B sales strategy

• Minimize its R&D cost on new product and focus on sales and marketing

Financial Crisis Implications from 5-forces • Decreasing sales and

operating profit• Should reinforce its brand power

• Should focus on sales and marketing

#1

#1#1

#2#3

#3

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7.5 How to Implement the Strategies

7. Suggestion

Duoback should implement the strategies according to the priorities of the strategies.

Phase 1: Crisis management Phase 2: Brand Management Phase 3: Expansion Strategy

• Minimize its R&D cost on new product and focus on sales and marketing

• Active contact with many insti-tutes and schools which are po-tential customers(B2B sales)

• Price competitiveness through B2B sales strategy

Financial Stability

• Focus on stabilizing its “high quality and luxurious” brand im-age through TV commercials

• Strategic collaboration with fur-niture producers

Preparation for a jump

• Penetrate Chinese market with “Korea #1” brand image

• Diversify its product portfolio

Leap by using saving power

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Vision1. Global ergonomic product company within 10 years

2. Customers’ comforts equal to Duoback Korea’s comforts

<Financial Perspectives> <Customer Perspectives>

<Internal Perspectives>

7.6 Balanced Scorecard

7. Suggestion

Goals Measures•Double our corpo-

rate value in five years

• Return on capital• Net cash flow• Earnings growth

Goals Measures•Improve customer

loyalty• Market share• Percent of repeat pur-chases

•Increase customer satisfaction

•Customer satisfaction sur-veys

Goals Measures•Improve inventory

management• Inventory turnover• Inventory costs

•Expand branches in China

• The number of branches in China• Sales in each branch

•Enforce effective marketing plans

• Percent of marketing costs• Customer recognition surveys

<Innovation and Learning>

Goals Measures•Accelerate and

improve new product development

• Average length of the new product de-velopment