Stanley Black and Decker Essay Example

Stanley Black and Decker Essay Madison Avenue New York, New York April 24, 2010 John F. Lundgren President amp; Chief Executive Officer Stanley Black amp; Decker 1000 Stanley Drive New Britain, CT 06053 Dear Mr. Lundgren, In response to your request, an evaluation of your firm, Stanley Black amp; Decker, was conducted to determine the strategic issues and problems within and surrounding your firm. This consisted of a review of the external environment, a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis incorporating identification of factors which drive the business, a determination of the company’s financial condition and performance, and consideration of ethics and social responsibility. Please find attached for your consideration a copy of my Business Report containing discussion of the preceding, as well as numerous conclusions and recommendations with justification. The principal recommendations for your firm are as follows: Short term recommendation 1. Shut down the power tool business 2. Expansion in security segment, especially health care product line 3. Decrease dividend-payout-ratio Long term recommendation 1. Create a marketing team with CRM members which will interact and develop relationship with Home Depot and Lowes, so that better and more shelve space can be acquired in the stores. 2. The merged company can ask for higher discounts for procuring raw materials 3. Improve after sales customer support service In the event you have any questions in this regard, please do not hesitate to contact me. Very truly yours, Rana Nayak We will write a custom essay sample on Stanley Black and Decker specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Stanley Black and Decker specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Stanley Black and Decker specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Senior Business Analyst Statement of Recommendations Short-term 1. Create a marketing team with CRM members which will interact and develop relationship with Home Depot and Lowes, so that better and more shelve space can be acquired in the stores. 2. To attract female customers, manufacture the consumer tools with appealing colors like green or pink. Also make these products lighter and ergonomic. 3. Form a division in the company to handle lawsuits filed against the company. The expenses have to be reduced as litigation expenses are substantial. 4. Employ Asian managers to carry out operations in Asia. . The merged company can ask for higher discounts for procuring raw materials 6. Design better packaging for attracting customers at retail stores like Home Depot and Lowes. 7. Advertise on TV Shows. 8. Improve customer service for after sales. 9. Do not shut down any plant in China. 10. Create a market research team to research about the tool industry in Asian Markets. 11. The compan y should design products for international market 12. Use the Black amp; Decker distribution system in the U. S markets to expand Stanleys product line in the retail segment. 13. Start Point-of Sale data collection 4. Set up a showcase office in New Delhi, India. Long-term Recommendations 1. For the segments of Convergent Security Solutions, Health care Solutions and Mechanical Access Solutions the company should maximize their investment and also try to seek market dominance since the market is growing. 2. Shut down the power tool business. 3. Cost containment and the Security segment continue to be bright spots. 4. Moodys has downgraded of StanleyBlackamp;Decker ratings to Baa1. Pay off some debt by reducing dividend payout ratio. 5. Decrease the underfunded debt obligation of $412. million for Stanley Works 6. The cost of production can be decreased by adopting economies of scale. 7. Procurement units can be moved closer to manufacturing plants 8. Invest in Ramp;D 9. Joint venture with â€Å"Future Group† in India to attain shelf places in the biggest retail chain stores. 10. The markets in India and China will be only targeted in the Industrial amp; Automotive and Security business s egments. 11. Open new service centers where products can be repaired and refurbished products should be sold at the same centers instead of Home Depot or Lowes. 2. The material facilities not being used by the company can be sold or leased to other companies. 13. Invest in Training 14. Implement SAP throughout the company. Remote/External Environment a) Economic Factors CDIY amp; INDUSTRIAL The hand tool industry is dependent upon the residential and commercial construction and home repair and renovation industries. The economic recession in the early 2000’s declined the demand in commercial and industrial sectors. However, growth in housing sectors has helped in sustaining the industry. In 2005, the hand tool industry sold $1. 4 billion but in 2006 it dropped down by $100million. Despite a sluggish economy in the early years of the first decade of the 2000s, the climate for hand tools remained positive. Extremely low interest rates caused a surge in new housing starts from 1. 2 million in 2000 to an estimated 1. 6 million in 2003. While residential construction boosted sales among professionals, consumer uncertainty about the economy, as well as the war against terrorism in Iraq and Afghanistan, caused a trend toward nesting. Home improvement and DIY projects rose as people postponed travel and other major undertakings, thus driving the consumer hand tool market. The power tool or pneumatic tools and fasteners include nail guns, staplers, nails and staples that are used for construction, remodeling, furniture making, pallet manufacturing and other applications involving the attachment of wooden materials. Industry growth depends upon increased expenditures in the ho me improvement, home repair and maintenance, and residential and commercial construction sectors. By 2005, increased purchases by women, who were tackling more DIY projects, also drove sales and demand for lightweight, easy-to-use designs. On the other hand, the global recession of 2008-09 had a huge impact on the housing industry. New housing starts reached an unprecedented low of just 494,000 as of May, 2009, which was down nearly 13% from just the previous month. This in turn severely impacted the financials of the major industry players, such as Black amp; Decker, who saw sales of their power hand tools drop by more than $800 million or 23% compared to the previous year. The industry shipped products valued at $1. 3 billion in 2006, which represented a drop from the $1. 4 billion shipped in 2005. However, according to The Freedonia Group, industry growth in the mid to late years of the first decade of the 2000s was projected to be driven by powerful, high-end tools and the continuing proliferation of cordless products. Professional buyers were anticipated to continue to generate more revenues than consumers, but in the DIY market overall growth was expected to outpace professional sales. SECURITY The company provides extensive suite of mechanical and electronic security product system and a variety of security services such as security integration system , software related installation, maintenance, monitoring services, automatic doors, door closers, exit devices, healthcare storage and supply chain solutions, patient protection products, hardware and locking mechanisms. A substantial portion of company’s products are sold to home centers and mass merchants in U. S and Europe. Security products are sold on a direct sales basis and in certain instances through party distributors. Despite the trend towards customer consolidation, the company has been able to make diversified customer base and has decreased customer concentration risk over the past several years. The sales from continuing operations in markets outside the home centers and mass merchant distribution channels have grown at a greater rate through combination of acquisitions and other efforts to broaden the customer base primarily in Security and Industrial segments. Porters Five Forces The threat of substitute products or services: Construction amp; DIY Low The hand tools industry is saturated with numerous small and large companies producing hand tools which include measuring and leveling tools, planes, hammers, demolition tools, knives and blades, screwdrivers, saws, chisels and consumer tackers. The tools are considered as commodities. Consumers are looking for products at better pricing. Local companies are producing these non-powered tools which are less priced as consumers are not concerned for quality. This is true for US, European and Asian markets. Pneumatic tools and fasteners include nail guns, staplers, nails and staples that are used for construction, remodeling, furniture making, pallet manufacturing and other applications involving the attachment of wooden materials. Industrial – Low There are no substitute products for industrial segment as tool will always be required in this segment. Only innovations can be done which can be counted as a competition. Security – Low Threat of substitutes in this industry is low as there are fewer chances of customers going for something that is second best as far as security services are concerned. The threat of the entry of new competitors Construction amp; DIY The growth in the commercial construction has made up the decline in residential construction last year but now that it is also slowing down the outlook for professional power tools is looking gloomy in the U. S. The threat of new competitors is low as the industry has already multiple established companies providing a wide range of hand tools and power tools to consumers. Industrial The Stanley works industrial segment faces an intense competition because there are many manufacturers of industrial products. Each company wants to achieve competitive advantage over other in terms of quality, technology, price, distribution and brand/image reputation. They would face competition not only in terms of similar products but also products that can be used as a substitute for its products. The primary competitors include SK Tools, Multi-power Tools, Bosch etc. Security The security industry is a commodity industry. Growth in this industry is related to the growth of the housing and construction industries. The North American and European markets are already mature, while the emerging markets of Asia and Latin America have strong growth potential. Companies compete aggressively on price, quality, after-sales service, manufacturing efficiency, and supply chain management. Companies tend to spend their advertising dollars on trade shows, trade publications, magazines and newspaper advertisements, and in-store displays. Threat of Entry LOW The barriers to entry within this industry are moderate to low due to brand preferences and customer loyalty towards the larger and more established rival companies. Other obstacles to new entrants include strong brand loyalty to establish firms and economic factors, such as requirement for large sources of capital, specialized facilities, and the technology and manufacturing plants. In addition, the accessibility of distribution channels can be difficult for an unknown firm with little or no brand recognition. Since there are several competitive forces in this industry, it is a difficult industry to penetrate in and be competitive. The entry barriers are high in this industry. There are already a lot of competitors in this industry and they can it difficult for a new entrant by using price cuts, increased advertising, product improvement, and promotions. Supply side economies of scale: Since companies produce large volumes then can capitalize economies of scale this can deter companies from entering the market because either they have to enter in large scale or assume a cost disadvantage. Unequal access to distribution channels: New comers will not have the same kind of access to distribution channels which is their main source of customers. The intensity of competitive rivalry In hand tools, with 50,300 employees and sales of approximately $12. 7 billion in 2008, Danaher Corp. of Washington, D. C. was the industry leader. Danaher expanded by merging with Chicago Pneumatic Tool Company, Acme-Cleveland Corporation, Pacific Scientific Co. , and Joslyn Corp. According to the International Directory of Company Histories, in 1994 Danaher Corporation was recognized as the worlds largest producer of drill chucks, the countrys largest producer and marketer of Swiss screw machine components, and the leading automotive tools supplier to the National Automotive Parts Association (NAPA) and Sears. In the power tools segment, the major industry players are Milwaukee, Makita, Stanley and Black amp; Decker. The bargaining power of customers (buyers) Construction amp; DIY High The bargaining power of buyers is high because as availability of professional segment tools, the products under Do It Yourself segment have become commodities. Hence consumers prefer better quality along with better pricing. Buyers switching cost have become low also as the tools from different companies are available in outlets like Sear, Kmart, Wal-Mart. Hence the bargaining power of buyers is high as all the power tools have more or less same design and serve same purpose. Industrial High The power of buyers is relatively high because for Industrial segment they have two types of customers. i. e. Direct Sales Customers and Retailers/Distributors. The consumers to whom the products are sold directly purchase the products based on their requirements, and price. In case of retailers/distributors they purchase the products in large quantities, which gives buyers substantial leverage over price. There are many manufacturers available in this industry that also provide the same products at very competitive prices. And the customers who buy these products have no switching costs, hence their bargaining is high. For e. g. during economic instability customers are reluctant to spends their money on very expensive or branded products instead they will choose to buy the products which gives them the work at a lower price. Security High Although the company has an established brand in the field of security tools it’s customers have a wide variety of options to choose from. With increased completion from private label brands the customers have high bargaining power. The bargaining power of suppliers Construction amp; DIY Low The bargaining power of suppliers is LOW because, multiple vendors are available for raw material procurement. Industrial Low The suppliers to the Stanley Works are producers/ distributors of ferrous and non-ferrous metals including, but not limited to steel, aluminum, zinc, brass, copper and nickel, as well as resin. the Company uses other commodity based materials for components and packaging including, but not limited to, plastics, wood, and other corrugated products. The raw materials required are procured globally and available from multiple sources at competitive prices. The Stanley Works can obtain these products at a very cheaper rate as there are many sources available. Hence in this case the bargaining power of suppliers is less. Bargaining power of suppliers – low The raw materials required are produced globally and are available from multiple sources at competitive prices. The company does not anticipate difficulties in obtaining any raw materials or energy used in production process. Hence the bargaining power of suppliers is very low. Social Factors CDIY amp; Industrial Professional power tool users include construction workers, electricians, plumbers, repair and maintenance workers, auto mechanics, and manufacturing workers. They are very conscious of quality and features and tend to buy only those tools that are durable, functional, dependable, and capable of precision. They purchase tools through jobbers, contractor supply firms, industrial supply house, building supply centers, and some home improvement centers. The industry is growing as the world population grows rapidly. In U. S. A. , real GDP grew at an average annual rate of 4. 1 percent from 1995 to 2000 compared with 2. 7 percent from 1987 to 1995. Private wage and salary disbursements increased as GDP grew. Key product trends, such as ergonomic designs, added features, and improved battery performance, influences current product development. Fastening and assembly is one of the few areas in manufacturing where things are continually moving fast. No longer can the design and cost of fasteners be viewed outside of the manufacturing process. The design of the fastener and its impact on production costs and product development process must be taken into consideration, rather than treated as piecemeal. Security Security is a multibillion-dollar industry, consisting of a diverse group of corporations that supply personnel and products designed to protect public and private property and individuals from a variety of problems such as theft, arson, and personal attacks. Services include security guards, private investigators, and consultants. Products range from armored cars to X-ray scanning devices to bank vaults. In addition, an area of significant growth and importance for the security industry in the early years of the first decade of the twenty-first century was securing intangibles, in particular intellectual property, computer-stored information or data, and computer networks. Throughout the world, it was an especially important industry in view of real and assumed threats to national security, petroleum pipelines, nuclear power plants, and the global economy, among others. Political Factors Power tools are subject to various safety and environmental laws and regulations. There are several accidents that can involved power tool. Power tools can pose electrical hazards, fire and explosion hazards, projectile hazards, cuts, abrasions, and amputation hazards, ergonomic hazards and noise hazard. Power tools are regulated by the Occupational Safety and Health Agency, Underwriters Laboratories Inc. , and CSA International. For both retail and professional power tools, they can both be dangerous if they are not used properly but for more so for professional because they are used on a daily basis. A major risk faced by professionals that use power tools is the Hand Arm Vibration Syndrome which is a collection of disorders caused by overexposure to vibration of portable power tools. Regulations have been put in place by OSHA that makes employers responsible for the safe condition of tools and equipment used by employees. A risk that is faced by both retail consumers and professionals is loss of hearing; power tools can generate noise levels that can exceed 85 dBA when that occurs users should wear hearing protection. In recent news, the Government Accountability Office has been asked to investigate OSHA’s reporting on work-related injuries and illnesses. This would affect the power tools because stricter regulations can be put in place that would affect the design and production of power tools. Industrial Fastening System Increased sales of Japanese automobiles affected the operation of both OE and aftermarket parts manufacturers. Because most Japanese aftermarket parts were furnished by Japanese OE suppliers, the volumes of replacement parts for domestic parts suppliers dropped as Japanese vehicles increased their market share in the United States. Foreign vehicles manufactured in the U. S. had significantly fewer domestic suppliers than Big Three’s cars. At the request of U. S. suppliers, the FTC began an investigation of alleged antitrust violations by Japanese auto producers in the U. S. As a result, the U. S government forced Japanese automakers to increase their purchasing volume from domestic suppliers. Congress instituted the Fastener Quality Act in 1990 due to the scandal of unqualified fasteners. The strict standards spurred the fastener industry to upgrade its competitive ability more over than foreign competitors. In June 1999, the U. S. fastener industry got its wish when President Clinton signed a series of amendments on the FQA, in an effort to make legislation less burdensome. Supporters of the amending legislation claimed that it shifted the policing focus from government mandated regulations to more â€Å"preventive measures. † The new legislation also recognized decade long industry improvements in quality control and eliminated test performances at government-approved facilities. Plumbing Workers safety measures were gaining fast popularity. Even government and individual chapters were getting involved into it. In response to the same, Black amp; Decker Hardware and Home Improvement group’s Kwikset facility in Denison, Texas became an OSHA (Occupational Safety and Health Administration) Voluntary Protection Program star facility in 2006. There were specific rules for designing and manufacturing plumbing products laid down by the government as well as other chapters. Price Pfister products in plumbing industry are designed and manufactured in compliance with the standards and codes of Federal specification, American National Standard, Uniform Plumbing Code, Federal Energy Policy Act, California Energy Commission and the Canadian Standard Association. Technological Factors Construction amp; DIY Ergonomics, which is the engineering of tools for maximum comfort and minimal hazard to the human body, was an increasingly popular consideration for this industry. In 1999, Stanley Works redesigned the handles of many of its tools to better fit the human hand and to reduce the likelihood of injury from vibration and other stresses. For instance, the company incorporated a carbon-steel shank into its AntiVibe framing hammer to absorb the shock that traditional hammers transmitted to the human arm. Stanley Works also offered an ergonomic screwdriver with a diamond-textured handle made of soft elastomer and a layer of hard polypropylene, so that consumers could grasp the tool firmly without needing to squeeze hard enough to hurt their hands. Security For several years, demand lagged behind the technologys maturity. Prohibitive implementation costs, lingering technical problems, fears of privacy invasion, and concerns over system accuracy stalled mass implementation. By the middle of the first decade of the twenty-first century, security systems were well entrenched in some sectors, particularly government and health care, but penetration was meager for other industries that were long on promise, such as financial services and the travel industry. In 2006, governmental applications remained the predominant market for security tools, while certain types of security systems enjoyed overwhelming dominance. But the heightened security consciousness in the mid-years of the first decade of the 2000s was making a noticeable impression on the industrys prospects. Decreasing costs and increasing technical sophistication of products meant that security tools were gradually penetrating many kinds of transactions. Security tools technology in the early and middle years of the twenty-first centurys first decade thus enjoyed a period of modest but promising growth, moving out of the realm of science fiction and into everyday life. Environmental Factors Future laws and regulations are expected to be increasingly stringent and will likely increase the industry participants expenditures related to environmental matters. Many companies have been named as potentially responsible party (â€Å"PRP†) in a number of administrative proceedings for the remediation of various waste sites. Current laws potentially impose joint and several liabilities upon each PRP. Business operations of companies are subject to foreign, federal, state, and local environmental laws and regulations. These laws and regulations define the acceptable methods for the discharge of pollutants and the disposal of products and components that contain certain substances. These laws and regulations also require that products be designed in a manner to permit easy recycling or proper disposal of environmentally-sensitive components such as nickel cadmium batteries. Batteries used in professional power tools should be designed to meet environmental requirements. IV. SWOT Analysis for Stanley Works Strengths The Company’s operations are classified into three business segments: Security, Industrial, and Construction amp; Do-It-Yourself. All segments have significant international operations in developed countries, but do not have large investments that would be subject to expropriation risk in developing countries. Fluctuations in foreign currency exchange rates affect the U. S. dollar translation of international operations in each segment. Core Competencies Stanley works core competency lies in the security segment of the business especially in the Mechanical Access System. Stanley has been making hardware like hinges, hooks safe locks and keys science 1843. Its major brands being Best, Kwikset, Baldwin, or Weiser and many more. Distinctive Competencies The company has a distinctive competency of hedging its Business Segments based on the demand in the market. The company can take profits from on of its segments to cover of the losses for its other based on the current market condition Company has a distinctive competency in its Health care sector. Stanley entered the Health Care sector in 2007 and has grown enormously in this sector with major revenues coming from the health care department. Competitive Strategy The competitive strategy of Stanley Works is acquisitions of  companies for obtaining employees, processes, technologies and solutions. Multiple and diversified revenue streams of Stanley Works: Stanley has a balanced revenue generation from its three business segments. For the year 2008, CDIY (construction and do-it-yourself), security, and industrial accounted for 37. 4%, 33. 8%, and 28. 8% of the companys total revenues, respectively. This diversification of business portfolio is protecting the company’s earning by providing opportunity to follow the demand variability of different product lines. The company has the flexibility to focus on growing industry and tune its production levels accordingly. Strong brand equity The company has established strong brand equity in construction and industrial segments. The key brands of the company include Stanley, Bostitch, FatMax, MaxGrip, DynaGrip, PowerLock, Proto, Husky, Vidmar, ZAG, MAC, Jensen, Contact East, Bostitch, Atro, Cobotics, LaBounty, and Innerspace. The strong brand equity in the construction and industrial segment makes the company the world leader in the design, development and delivery of tools. In addition, the company has numerous trademarks that are used in its businesses worldwide. For instance, the company’s tagline ‘Make Something Great’ acts as a center piece of the brand strategy for all three segments. The company’s list of trademarks include BEST, HSM, National, Sonitrol, GdP , Xmark, LaBounty, MAC, Mac Tools, Proto, Vidmar, Facom, Virax, USAG, the Bostitch, Powerlock, Tape Rule Case Design (Powerlock), and FatMax. These well-known trademarks enjoy the reputation for quality and value and are among the world’s most trusted brand names. Strong brand equity not only ensures employee and customer retention, but also enables the company to launch more products under its own labels. Power tools, lawn and garden products, portable power products, home products, and accessories are marketed around the world under the BLACK amp; DECKER name as well as other trademarks, and trade names, including, without limitation, ORANGE AND BLACK COLOR SCHEME; POWERFUL SOLUTIONS; FIRESTORM; GELMAX COMFORT GRIP; MOUSE; BULLSEYE; PIVOT DRIVER; STORMSTATION; WORKMATE; BLACK amp; DECKER XT; Stanley fulfillment system (SFS) SFS was created to improve Stanley’s long tradition of its business excellence. It helps in improving the company’s business operations such as procurement, quality in manufacturing, maximizing customer fill rates, integrating acquisitions and other key business processes. It operates as a continuous improvement program focused on the needs of the company’s customers. Moreover, SFS acts as a blueprint for company’s success and roadmap for continued growth. In addition, SFS is focused on continuously improving the key areas where Stanley interacts with its customers. The company measures and implements control improvements to its areas of business to ensure customers have a positive experience. The SFS system helps in improving service, increase quality and reduce cost which gives a competitive edge to the company over its rivals. Diversified business operations globally: Material facilities owned by the Stanley Works and its subsidiaries follow: CDIY Miramar, Florida; Fishers, Indiana; Kannapolis, North Carolina; Epping, Australia; Mechelen, Belgium; Oakville, Canada; Leeds, England; Karmiel and Migdal, Israel; Biassono and Figino Serenza, Italy and Pietermaritzburg, South Africa. Industrial Phoenix, Arizona; Two Harbors, Minnesota; Columbus, Georgetown, and Sabina, Ohio; Allentown, Pennsylvania; Dallas, Texas; Pecky, Czech Republic; Epernay, Ezy Sur Eure, Feuquieres en Vimeu, Morangis and Villeneuve Le Roi, France; and Fano, Gemonio and Monvalle, Italy. Security Farmington, Connecticut; Sterling and Rock Falls, Illinois; Indianapolis, Indiana; Nicholasville, Kentucky; Richmond, Virginia; Cobourg, Canada; Nueva Leon, Mexico; and Xiaolan, Peoples Republic of China. Industrial a. Professional amp; Automotive mechanics tools amp; storage system 1. Broad Array of End Markets . Unique Range Of Government Solutions 3. Light-weighted compared to other available products. b. Hydraulic tools amp; accessories Reduce Initial Costs 1. Air Compressors required to power pneumatic tools are expensive and comparatively the dual hydraulic tool circuit are very cheap. 2. Reduce Operating Costs 1. Less system maintenance: A hydraulic system has few moving parts and is self- lubr icated; therefore requires far less maintenance than an air system. 2. Less tool maintenance:   Hydraulic tools are full of oil at all times, and are thus preserved and lubricated. 3. More efficient. Most hydraulic systems operate at two or three times the efficiency of air systems because the oil is not compressible. 4. No pilferage: While there is a ready market for gasoline or air powered tools, the general public does not have a hydraulic source of power. Hydraulic tools are seldom pilfered. Advantages for the Operator 1. Safer. Hydraulic oil is a poor conductor of electricity. A hydraulic tool with nonconductive hoses is much safer dielectrically than an air tool which may have moisture condensed in the hose. 2. Lower noise levels. Noise of air tools comes from both the compressor and the tool exhaust. Hydraulic tools have neither of these sources, and operate at noticeably lower noise levels. 3. Higher power-weight ratio. Air tools operating at 90-100 psi must be larger and heavier to achieve force