Over the past 10 years Black & Decker Corporation has had a roller coaster ride of ups and downs. These highs and lows in business operations are clearly reflected in Black & Decker’s net profit margin (Exhibit 1). Unfortunately though the company has been under performing and has seen its stock performance fall below the benchmark of the S&P 500. As any business student graduating from Cal State Hayward would know, the following questions must be raised; What has caused the volatility within Black & Decker? What strengths, weaknesses, threats, and opportunities effect Black & Decker? What are the key strategic issues, both the internal and the external, that the company must bear in mind to achieve a sustainable competitive advantage which will lead to above-average returns and therefore produce greater shareholder wealth? Strengths: Black & Decker has experienced modest growth in revenue over the past 10 years (Exhibit 2). The company also has done an excellent job of branding its name and creating customer loyalty to its products. Black & Decker set out to create a line of high end power tools and has done exceedingly well with these tools (DeWalt). The development and marketing of these tools has paid off and has helped the company to keep its head above water. Black & Decker’s strive to innovate new products has also been key in its survival. The company has a relatively strong market share in a variety of its core products including toaster ovens & irons (Exhibit 3). Black & Decker has been able to continuously reduce its debt by a significant amount year to year (Exhibit 4).Weaknesses: Unfortunately for Black & Decker, net income has remained meager at best (Exhibit 2). Net profit margin has been extremely volatile with an average of only .2% over the past 10 years (Exhibit 1). The company’s stock price has not realized the performance that would otherwise be expected from a company of such size and reputation. The company has seen a continuous decline in many of its core products (Exhibit 5). The company has made some purchases over the years in order to broaden it’s portfolio. These purchases and acquisitions (GE’s household appliances and the Emhart acquisition) have proven to lack the synergy required to make such purchases profitable. Also the company has been able to reduce its amount of debt (primarily from the purchase of Emhart) over the past 10 years (Exhibit 4) the company has had many struggles and continues to have difficulty associated with this debt.Threats: Competition has always been a concern of Black & Decker. Competitors will continue to enter the market and introduce new products. These competitors, specifically the large companies such as Hamilton Beach, Rival, and Oster/Sunbeam will continue to chip away at the market share that Black & Decker has. Evidence of this erosion of market share can be seen in (Exhibit 5). Another threat is the fact that the primary markets that Black & Decker are competing within are mature and saturated in the U.S. This maturation and saturation of the market is evident by the decline in demand, increasing competitive intensity, need for tighter pricing, and reduced profitability.
Opportunities: Black & Decker has a few opportunities that will provide the means by which to continue its ability to create value for its shareholders. The international market has great potential for exploitation, specifically in Asian and Latin countries where power tool sales have been low and maturation / saturation is not yet present (Exhibit 6). While power tool growth in the U.S. has slowed, growth internationally is expected to continue at a high growth rate. There is also opportunity for diversification into other areas where Black & Decker’s expertise and brand name will add value to the process.
Conclusions: Within the past few years Black & Decker has experienced modest growth, but some markets where is active have become mature and saturated. The following key strategic issues must be taken into account when devising a strategy for Black & Decker to achieve above average returns: Strong Competitive Advantages in: Brand recognition, market penetration, product design and development, & customer service. External Trends: As stated above, the power tool market has become mature and saturated in the U.S, but there is a great amount of potential in the international market.
Liquidation – Quit! Sell off their assets.
Alter Business Model – Sell items in retail stores, CompUSA, Best Buy, etc.
Status Quo – Continue to do what they are already doing. Combinations – Merge, acquire, or venture jointly with other companies (specifically international companies that already have an international presence.
Expand Internationally – Continue to increase international market share.
Black & Decker made some poor decisions in the past that have eroded its profit margin and has not produced a competitive advantage to create above-average returns. Fortunately the company has come back to a true vision that includes the consolidation of their portfolio. The company must continue to strengthen its core products within this portfolio so that these products will act as a “cash cow” that will allow the company to find other opportunities of expansion. One opportunity that this seed money should be earmarked for is the expansion into the international market. Black & Decker must find international companies that already have a strong presence in the countries that Black & Decker is expanding into and either acquire, merge, or create a joint-venture. The relationship between Black & Decker and these companies MUST provide enough synergy to justify such strategic moves and expansion. These strategic managerial decisions and actions will help the company to obtain competitive advantages which will result in above-average returns, leading to greater shareholder wealth and value.