A strategy can tie you onto a path that leads nowhere. Long before that happens, you should look for new strategies that allow you to add more kinds of value for customers and other stakeholders. This article looks at how Huffy improved its performance as a bicycle marketer by stopping its manufacturing.
Business management is complex. Sometimes you are just lacking one or two elements to become much more successful. For example, have you ever developed a very fine new product but were unable to get anyone's attention to consider purchasing it? A brand name or a powerful distributor might have solved that problem for you.
If you don't have those resources available inside your company, partners should be able to provide what you need. But, you have to know what you need and secure it in a timely way.
Sometimes, a company's business model will inhibit it from being able to expand where the opportunities obviously lay. In such a case, a new business model must be forged that not only permits a company to expand into other opportunity areas, but does so in a way that provides consumer and competitive advantages.
Let's head for the bicycle shop to see how this was done by one manufacturer. For over 50 years, Huffy Corporation focused on designing and manufacturing one brand of bicycles, and selling them mostly in the United States. For over 40 of those years, that business model worked well. When it stopped working, the company was slow to react.
Under the old business model, Huffy had to guess how many bikes of what sort would be sold. If too many parts were ordered and shipped as bikes, the company could lose a lot of money. The company had to be conservative in its estimation of future demand. If sales took off that was too bad, but it was better than having inventory losses.
This business model also discouraged trying to add new items. If the new bikes failed to sell, the losses would be terrible. At the same time, the other controllable area was cutting manufacturing costs. So a lot of attention was paid to the factory operations.
Many competitors had begun to access their bikes offshore years earlier. Huffy's people looked into this, but couldn't see any way that the costs, quality, and delivery could be competitive.
Under Mr. Don Graber, the company made a rapid transition into a new, customer focused business model for bicycles. Huffy now operates more similarly to Nike, the footwear and apparel marketer, than a consumer products manufacturing company.
Like athletic shoes and sports apparel, bicycles have become more of a fashion item and more specialized. Bike use is also diversifying to reflect new technologies, and new concepts of what bikes can do.
As part of this change, Huffy no longer makes its own bikes, relying instead on faster, less expensive, and more versatile foreign suppliers. Huffy has also extended its product line to include more brands.
An early success with this differentiated customer-facing approach was in rapidly adding an in-line scooter in 2000. Huffy had had a scooter which usually sold 200,000 units a year. As sales of the new scooter took off, Huffy was rapidly able to expand its supply. Yet the capital expenditure budget for this rapid ramp-up was zero. Under the old business model, most of the gains would have been missed while the investment would have been significant.
In the process, the company's focus has gone from inventory risk management to rapid trial of promising new concepts.
How did the company find the opportunity to make the transition?
First, Mr. Graber had long experience in the international group at Black & Decker, which gave him a good sense of what international manufacturers can do today. When Huffy people reported that it was cheaper and better to make bikes within the company, Mr. Graber requested that trial orders be placed in competitive quantities in order to find out what costs, quality, and delivery would actually be. The results exceeded all expectations, and the company never looked back.
As helpful as those cost and investments savings were, Mr. Graber was far more interested in being able to do a better job for consumers. Because bicycles are a smaller category than many other consumer goods, it's not practical to launch large television-based advertising. The company seeks to use promoting new bicycle events, word of mouth, Web sites, and specialized advertising as a substitute.
As skill develops, the business model will expand further in this direction of low-cost branded marketing. With more listening to consumers, the company's ability to identify opportunities for new products and brands should also improve.
Copyright 2009 Donald W. Mitchell, All Rights Reserved
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