MBA299: Strategy

1
MBA299 Strategy

• Husky Injection Molding Systems
• Take-aways
• April 4, 2006

2
What did Schad and Husky do?

• Did not retreat to niches (the 70s strategy)
• New vision become the absolute leader in
  injection molding industries
• Expanded scope of targeted application markets
• Beyond PET preforms and thinwall
• Entry strategy was to trade down into less
  engineered, less expensive machines
• Schad wanted to transform the company from
  Ferrari to Mercedes
• Broad brief to move into general purpose market
• Moved into large-tonneage machines
• Exited mold business (ex PET preform molds)
• Increased manufacturing scale
• Increased capacity/floor space by 60
• New campus in VT
• Production beyond MES 700 machines pa in 1998
• Large, immediate price reductions
• Way to commit to cost reductions
• Not through engineering/AMC but overhead
  reductions and manufacturing efficiency

3
Takeaways

• Was Huskys move correct?
• Differentiation and competitive advantage
• Analyzing WTP advantages
• Hazards of successful focus

4
Was Huskys response in 1996 the right one?

• Some topline growth but fairly disappointing
  profit results
• What would have happened if focused more?
• Example of counterfactual difficult to prove
• Husky management today right response to the
  crisis of 1996 otherwise position would have
  been worse

5
Huskys Performance
6
Husky as a differentiator

• Husky represents classic differentiation strategy
• Focuses on particular product and customer
  segments
• Differentiation is about competitive advantage
  and not industry
• Industry is relatively unattractive but Husky
  does well
• Differentiation is about driving up the WTP
• All activities must be tailored to the strategy
• Operations customized, subscale, job shop, high
  reliability
• Technology substantial investments
• Sales and service rotation, single organization,
  all in-house
• Scope customer focus, breadth in geography and
  product
• Procurement buy vs make commodities
• Managing change when Husky changes its strategy,
  needs to change full set of activities to
  maintain an internally consistent approach

7
Industry attractiveness vs competitive advantage

• Industries differ systematically in average
  profitability
• In addition, industries differ in terms of the
  width of the intra-industry distribution of
  returns
• In some industries, all firms earn similar
  profits
• In others, better firms sustain long-run profit
  advantages
• Competitive advantage is about being in the
  positive end of the distribution, in industries
  where there is dispersion
• Where is intra-industry dispersion generally
  high?
• Technologically progressive
• Markets with opportunities for product or process
  differentiation
• Localized or fragmented competition
• Fast-growing industries
• Markets with many product classes
• Five forces is about industry attractiveness
  (average), but strategists need to spot
  industries with dispersion as well
• These hold out hope of sustained competitive
  advantage

8
Husky attempts to drive up the WTP
9
How big was the WTP advantage?

• Select right unit of analysis
• Form of KYC
• WTP is not an abstract notion, but can be
  quantified
• Easier in industrial settings
• More valid in sense customers do it
• Highlights important issues of source of
  advantage
• In thinwall not just about output but also input
  costs
• In PET preform not inputs, but electricity and
  floor space in addition to throughput

• WTP analysis is critical to understanding Huskys
• Source of advantage
• How to reposition firm
• Take advantage of value during crisis?
• Need to communicate more than just about speed

10
Hazards of successful focus

• Husky illustrates a hazard that successful
  focused companies often face
• Entry by broader competitors into the profitable
  niche
• Particularly threatening if can match on WTP
• Generally better scale
• When entry occurs, company must either (or both)
• Find new ways to widen WTP-cost wedge
• Decide whether to expand beyond traditional
  domains
• Altering strategy requires integrated and
  coordinated changes throughout the company

11
The Hotelling Game

• 61 consumers, equally spaced on a number line
• Each is willing to pay 1 for a product
• Buy from the closest store
• Location anywhere on the line not previously
  occupied
• You get 1 for every consumer who is closest to
  you
• 20 to open store