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Summer OL - 2010

BSM 495
International Case Analysis
Strategic and Organization Change at Black & Decker

Known primarily for its power tools, Black & Decker is one of the
world’s older multinational corporations. The company was founded in
Baltimore, Maryland, in 1910, and by the end of the 1920’s had
become a small multinational company with operations in Canada and
Britain. Today the company has two well-known brands, Black &
Decker consumer powers tools and its DeWalt brand of professional
power tools. It sells its products in over 100 nations, and has
revenues in excess of $5 billion, more than half of which are generated
outside of the United States.
The company grew rapidly during the 1950’s and 196’s due to its
strong brand name and near monopoly share of the consumer and
professional power tools markets. This monopoly was based on Black
& Decker’s pioneering development of handheld power tools. It was
during this period that Black & Decker expanded rapidly in
international markets, typically by setting up wholly owned subsidiaries
in a nation and giving them the right to develop, manufacture, and
market the company’s power tools. As a result, by the early 1980’s,
the company had 23 wholly owned subsidiaries in foreign nations and
two joint ventures.
During its period of rapid international expansion, Black & Decker
operated with decentralized organization. In its 1979 annual report,
the company described how “In order to be effective in the
marketplace, Black & Decker follows a decentralized organizational
approach. All business functions (marketing, engineering,
manufacturing, etc.) are kept as close as possible to the market to be
served.” In effect, each wholly owned subsidiary was granted
considerable autonomy to run it own business.
By the mid 1980’s, however, this structure was starting to become
untenable. New competitors had emerged in the power tool business,
including Bosch, Makita, and Panasonic. As a result, Black & Decker’s
monopoly position had eroded. Throughout the 1980’s, the company
pursued a strategy of rationalization. Factories were closed and the
company consolidated production in fewer, more efficient production
facilities. This process was particularly evident in Europe, where
different national operating companies had traditionally had their own
production facilities. As the company noted in its 1985 annual report,
“Globalization remains a key strategic objective. In 1985, sound
progress was made in designing and marketing products for a
worldwide market, rather than just regional ones. Focused design

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centers will ensure a greater number of global products for the future…
Global purchasing programs have been established, and cost benefits
are being realized.
During this period, while the company maintained a number of design
centers, it cut the number of basic R & D centers from eight to just
two. The autonomy of individual factories also started to decrease.
The factories that remained after the round of closures had to compete
with each other for the right to produce a product for the world market.
Major decisions about where to produce products to serve world
markets were now being made by manager at the corporate
headquarters. Even so, national subsidiaries still maintained a fair
degree of autonomy. For example, if a national subsidiary developed a
new product, it was still likely that it would get the mandate to produce
that product for the world market. Also, if a national subsidiary
performed well, corporate management was likely to leave it alone.
By the 1990’s, however, it was clear that this change had not gone
far enough. The rise of powerful retailers such as Home Depot and
Lowe’s in the United States had further pressured prices in the power
tools market. Black & Decker responded by looking for ways to garner
additional manufacturing efficiencies. During this period, Black &
Decker shut down several more factories in its long-established
subsidiaries and started to shift production to new facilities that it
opened in Mexico and China. As this process proceeded, any
remaining autonomy the managers of local factories enjoyed was
virtually eliminated. Corporate managers became much more
aggressive about allocating products to different factories based on a
consideration of operating costs. In effect, Black & Decker’s factories
now had to compete with each other for the right to make products,
and those factories that did not do well in this process were shut down.
In 2001, Black 7 Decker announced yet another restructuring
initiative. Among other things, the initiative involved reducing the
workforce by 700 people, to 4,500, shutting long-established factories
in the United States and Britain, and shifting production to low-cost
facilities. By 2004 this process reached a logical conclusion when the
company reorganized its power tools business into two separate global
divisions-one that was charged with the global development,
manufacture, and marketing of Black & Decker power tools, and
another that was charged with the same for the company’s
professional DeWalt brand. At this point, the company operated some
36 manufacturing facilities, 18 outside the United States in Mexico,
China, the Czech Republic, Germany, Italy, and Britain. It had seven
design centers, and two basic R & D centers, on in the United States
and one in Britain. Increasingly, the design and R & D centers in the
United States and Britain took on responsibility for new-product
development for the global market. Throughout the early 2000’s,
successively larger shares of production were allocated to factories in

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just three nations, China, Mexico, and the Czech Republic, and in its
2004 annual report, Black & Decker indicated that this process was
likely to continue.

Your assignment is to respond to the following questions.


Use information gathered from your text, outside research
and class discussions. Submit your assignment via the link
found in the Assignments folder under Course Information.

Case Discussion Questions

1. Using the strategic approaches described in CAPSIM, how would you


characterize Black & Decker’s international expansion during the
1950’s and 1960’s?
Black & Decker grew rapidly during the 1950’s and 196’s due to its
strong brand name and near monopoly share of the consumer and
professional power tools markets. At the time the company was
operating with the strategic approach of niche differentiation.
Because the monopoly was based on Black & Decker’s pioneering
development of handheld power tools, it was able to, during this
period, rapidly expand in international markets. The company
gained a competitive edge by distinguishing their products in area
of design, awareness, accessibility and branding. Setting up wholly
owned subsidiaries in other nations gave them the right to develop,
manufacture, and market the company’s power tools in a way that
was unique to the times.
The key feature of the international structure was that the wholly
owned subsidiaries operated with decentralized organization.
Having a wholly owned subsidiary means that the parent company
owns 100 percent of the common stock, owns the company
outright, and has no minority owners; however, running each
subsidiary with decentralized organization means that each
subsidiary was able to make key decisions in the business
processes. This puts a company in a powerful, yet precarious
position, especially when it is operating on a global scale.

The benefits of having wholly owned subsidiaries are that a


company can secure and protect proprietary information, trade secrets, and expertise
and technical knowledge while maintaining a high degree of control over the
operations. Another benefit is that global strategic coordination is improves because
the strategic positioning offers strong control over the global operations of the
subsidiary. This is particularly significant in the case of parent companies which need
to completely rely on foreign managers to manage the operations of their various

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plants. By enhancing the chanced of maximizing location economies and the ability
to freely choose locations closer to a favorable market area there is the added
advantage of readily available cheap local labor. The drawback to the wholly owned
subsidiaries is that the company bears the full brunt of the financial burden if
something were to go wrong.

Given Black & Decker’s structure of the subsidiary front and its entry into foreign
countries, decentralization made some since. Without decentralization, the company
may not have been able to expand quickly, gaining more and more market share,
brand recognition and domestic reputation as time went on.

Given the competition at the time, Black and Decker’s strategy and structure
decisions mostly make sense. The company made large scale expansion moves in a
niche market, taking advantages of the benefits long before the would-be competitors
caught up. Decentralization allowed the company to take advantage of native culture
knowledge that is an essential boost to the learning curve when entering the global
markets. The company took a huge risk, expecting great returns and in doing so,
outpaced any company seeking entry into the market and foreign economy where
Black & Decker was operating. By setting standards, keeping proprietary information
safe, and taking advantage of decentralization, the company made competition tough
and was allowed to exist at the forefront longer that may have otherwise been.

By the early 1980’s, the company had realized rapid expansion which
garnered them 23 wholly owned subsidiaries in foreign nations and two
joint ventures. Because new competitors began to emerge in the
power tool business, including Bosch, Makita, and Panasonic, Black &
Decker’s monopolistic position was compromised leaving them with
the task of refining both strategy and structure. Throughout the
1980’s, the company pursued a strategy of rationalization, which
meant it was time for the company to pick and choose which factories
to close and which production facilities to consolidate. While
globalization remained at the forefront of its strategic objective, Black
& Decker’s long reign of dominance was being rendered obsolete by
the forces affecting change
The company’s position shifted from being able to promote a specific
design without regard to demographics, to having to adopt a more
responsive, specialized tactic. While this strategy cut cost and allowed
it to remain in the market rather than be priced and designed out of it,
upper management had to increase its knowledge of foreign
legislation, logistics, marketing strategies, and other areas that
increased the learning curve and set the company back in terms of

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growth. By the 1990’s the company still had not regained its footing.
Powerful retailers such as Home Depot and Lowe’s put pressure on
prices in the power tools market. Black & Decker responded by looking
for ways to garner additional manufacturing efficiencies. Black &
Decker shut down several more factories in its long-established
subsidiaries and started to shift production to new facilities that it
opened in Mexico and China where labor was cheap. Decentralization
was virtually eliminated and Corporate managers to on a more
aggressive approach to allocating products to different factories based
on a consideration of operating costs. This shift caused Black &
Decker’s factories to compete with each other for the right to make
products, and those factories that could not hold their own were shut
down.

In 2001, Black & Decker embarked upon a new restructuring


initiative. They reduced the workforce by 700 people, to 4,500,
shutting down long-established factories in the United States and
Britain, and shifting production to low-cost facilities. Finally, by
2004, the company had reorganized its power tools business into
two separate global divisions. One division was charged with the
global development, manufacture, and marketing of Black & Decker
power tools, and the other was charged with the same for the
company’s professional DeWalt brand. The company has effectively
split its organizational structure into two distinct entities, thereby
giving it the façade of two companies instead of one. This was a
power play. By distracting the consumers’ vision and creating an
illusion of two separate brands, the company could adopt a
marketing structure wherein one of its product brands was the
substitute for the other. The company was position itself to be the
competition for itself and establishing a strategic objective for being
a cost leader. This is evident by its 36 manufacturing facilities, 18
outside the United States in Mexico, China, the Czech Republic,
Germany, Italy, and Britain and its seven design centers, and two
basic R & D centers, on in the United States and one in Britain. By
allocating larger shares of production to factories in just three
nations, China, Mexico, and the Czech Republic, the company was
able to cuts costs, take advantage of accessibility by entering into
joint ventures with retailers such as Home- depot and Lowes and
raise product awareness on a global scale at the same time.
The cost leader strategy was both necessary and exemplified
what Black & Decker was trying to do as far as strategy and
structure. The changing economy dictated that the company
decides how to compete or else it would have failed. By
consolidating its efforts over the scope of its operations in order to
cut costs and entering into more mainstream markets, the company

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was able to maintain much of the ground it had laid during the early
years of the company.

The forces affecting change can come quickly or they could


evolve slowly over time. For the first decade, Black & Decker was
sitting in a position of dominance; for the second decade, the
natural forces effecting change had begun to outpace the
company and the company had to make adjustments to keep up.
In actuality, it did not take Black & Decker two decades to effect
change in strategy and structure as the times and market
position of the company did not necessitate change. Only when
the breadth and girth of globalization began to broaden did the
company need to review and adjust its initiatives.
A balanced scoreboard in always of benefit and in the 1950’s
and 60’s while Black and Decker was operating as a
decentralized organization and a monopoly, a balanced
scoreboard may have been a great asset. While the financial
position of a company is a good indicator of success, its
immediate benefit does very little to forecast the future viability
of an organization. By using the four perspectives of the
balanced scoreboard, financial, customer, learning and growth
and business process, an organization can translate vision and
and strategy into implementation processes. A company can
monitor present operations and still be able to see into the future
to get an idea of how its positioning will manifest. When
Corporate managers were having to make more and more
decisions that were previously allocated to lower management,
the balanced scoreboard would have offered insight into whether
or not employee’s personal goals and objectives were aligned
with those of the organization (Kaplan & Norton, 2001). This
would have saved considerable time and effort because at the
height of its success, Black & Decker could have been positioning
itself to transition through times of change in the global arena.
They would have started doing at the end of the 60’s what they
were just beginning to do in the 70’s and 80’s.