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Dyson case study analysis Strategy for Business Success Zertab Quaderi, 315273001 June 2016 3717 words

Table of Contents 1

2

Introduction.......................................................................................................... 3 1.1

Executive Summary.......................................................................................3

1.2

Company Profile............................................................................................. 3

Part A................................................................................................................... 3 2.1.1

Mission..................................................................................................... 3

2.1.2

Vision....................................................................................................... 3

2.1.3

Goals and Objectives............................................................................... 3

2.2

Industry Snapshot..........................................................................................4

2.3

External Environment Analysis......................................................................5

2.3.1

PESTEL Analysis....................................................................................... 5

2.3.2

Porter’s 5 Forces Model............................................................................6

2.3.3

Competitive Scenario..............................................................................7

2.4

3

2.4.1

VRIO Analysis.........................................................................................10

2.4.2

Value Chain Analysis..............................................................................11

2.4.3

Leadership Style.................................................................................... 12

2.5

SWOT Analysis.............................................................................................13

2.6

TOWS Analysis.............................................................................................14

Part B................................................................................................................. 15 3.1

4

Internal Analysis..........................................................................................10

Current Strategy..........................................................................................15

3.1.1

Porter’s Five Generic Competitive Analysis............................................15

3.1.2

BCG Matrix.............................................................................................16

3.1.3

Ansoff’s Matrix.......................................................................................17

Part B................................................................................................................. 18 4.1

Future Strategy............................................................................................ 18

5

Conclusion.......................................................................................................... 19

6

Appendices......................................................................................................... 19

7

6.1

Appendix A: The Global Household Vacuum Cleaners Market......................19

6.2

Appendix B: Opportunity Indicators.............................................................20

6.3

Appendix C: Market Drivers, Challenges and Global Market Potential.........21

References......................................................................................................... 22

1 Introduction 1.1 Executive Summary This report analyses Dyson’s current business strategy in light of external and internal environment and suggests a sustainable future strategy.

1.2 Company Profile The founder and owner of the company, James Dyson, was born in UK and studied furniture and interior design at the Royal College of Art. In the late ‘70s, Dyson was renovating his home and got frustrated with his vacuum cleaner’s performance as it lost suction. So he took it apart to identify the problem. He then set himself to find a solution and applied the cyclonic technology to vacuum cleaners after observing it in his own factory. (dyson, n.d.) Dyson’s revolutionary vacuum cleaner was launched in 1993 in the UK, fifteen years after the initial idea and after 5,127 prototypes. (Business Case Studies, n.d.) A small company in Japan was the first to license his product as none of the vacuum cleaner manufacturers at home would buy Dyson’s technology. Today, Dyson operates in 65 countries around the world with a 1000-strong team of engineers based in Britain, Singapore and Malaysia. (dyson, n.d.)

2 Part A 2.1.1 Mission Change things for people every day through efficient and eco-friendly products. 2.1.2 Vision Foster ideas to build durable and innovative products. (Shaer, 15) 2.1.3 Goals and Objectives • To build world class cutting-edge electronic appliances for improving •

people’s lives Expand the team of engineers and scientists to create more inventions

• •

Refine and improve the inventions Encourage the young generation to opt for engineering and technology

(dyson, n.d.) There is alignment between the mission and vision of Dyson to a great extent. Dyson’s vacuum cleaners and hand driers show radical innovation, superior quality, novelty in designs, eco-friendliness and user-friendliness. However, the vision of Dyson should include sustainability and customer centricity. Dyson is very focused on innovation and design but not necessarily on sustainability. A case in point is their washing machine, the Contrarotaor, launched in November 2000 but discontinued in 2004 as it was not a profitable product for Dyson. (Hundreds of Incremental Changes A Case Study on Dyson, n.d.)

2.2 Industry Snapshot The world of vacuum cleaners looks profitable as indicated by the growth trends fueled by focus on upgraded lifestyles in emerging markets, rise in dual income households, and fast paced lifestyles. The challenges for this industry are forecasted to be stringent energy efficiency norms, tight consumer credit in debt ridden economies, and high unemployment levels in Europe. The 2020 market forecast predicts a global market of household vacuum cleaners worth US$ 11.4 billion and 115.7 million units. The main opportunities lie in the regions of China and India, where it is expected that 59% and 35% (respectively) of the population will be urbanized by 2018. The projected middle class population for 2020 shows the highest growth in the Asia Pacific region (1,750 million) followed by Europe (698 million), North America (328 million), Latin America (261 million), Middle East and North Africa (171 million) and Sub-Saharan Africa (61 million). (Global Industry Analysts, Inc. , 2014) Please refer to Appendix A, B and C for relevant figures.

The global ventilation fans market is expected to reach US$ 2.4 billion by 2023 with an annual growth rate of 4.9% from 2015 to 2023. The Asia Pacific region held 44% of the global ventilation fans market in 2014 but it is expected that the growth over the forecast period of 2015 to 2023 will be led by North America. An increased awareness about the importance of indoor air quality and infrastructure development are the major reasons behind the growth. (Transparency Market Research, 2016)

2.3 External Environment Analysis 2.3.1 PESTEL Analysis Political

Economic

Sociocultural

Technological

Environmental

The upcoming elections in the US that may have impact on government regulations regarding business. Political stability in Malaysia and Singapore is good for Dyson’s manufacturing facilities there. Brexit could have adverse effects on Dyson’s business in EU as the currency will be devalued and have a negative effect on profitability. Open market economies, increasing purchasing power, growing middle class, emerging markets like China, and low labor cost in Malaysia are some of the key economic factors that have favored Dyson to produce and sell innovative household products. A rise in single-person households, dual income families and men joining in the household work have worked well for Dyson’s products. The advent of 3D models and increasing use of robotics are technological aspects that Dyson use. Increasing environmental concerns and global warming have augured well for Dyson as they have proven

Legal

to be eco-friendlier. Rising temperatures translates to more fan business for Dyson. Protection of patents and IP has fared well for Dyson to take on Hoover and get compensation for patent infringement. The government regulation in some countries require fans to be installed in industrial zones, thus implying a key segment for Dyson to play in.

Table 1 PESTEL Analysis

2.3.2 Porter’s 5 Forces Model Supplier Power is high for Dyson as they have their own team of talented engineers and designers that are highly focused on the product development stage, thereby having control over the supply chain and the lead time for product launching. These engineers and designers have a high bargaining power as they can be easily hired by the competition. The research, design and development centers are located close to each other for competitive advantage. For materials supply, the power of the suppliers is low as Dyson has some rules regarding how their machines are made and how the suppliers treat their workforce. If these conditions are not met, Dyson looks for alternate suppliers. (dyson, n.d.) Buyer Power is high as consumers can choose from lower-priced products offered by competition. The consumers can also bargain as they have more options to choose from as well as more retail options. New Entrants: When Dyson will no longer have patent over its technologies, the threat of new entrants will increase. Also, because of the low labor costs in China and other emerging markets, it is not difficult for new players to enter the market if they have the financial resources for capital investment. The market is already infested with cheaper knock-offs. Substitutes: Substitute products of vacuum cleaners already exist in Asia – brooms. In some emerging markets, the use of solar panel fan and lighting

system - all within a single unit - is popular. The substitutes also consist of lower priced vacuum cleaners and fans. Competitive rivalry: The competitive rivalry in the industry of vacuum cleaners and fans is strong with many renowned brands offering more products at competitive prices as the industry continues to grow. The upshot of Porter’s 5 Forces analysis is that Dyson will face tough competition from lower priced products with similar technology and over time, they might even lose their grip on their patented technology, making it more difficult for them to compete in the world market. 2.3.3 Competitive Scenario There was a drop in Hoover’s sale in 2000 to 10% while Dyson had 50% of UK market share. (McGraw Hill Education, n.d.) Electrolux occupied a volume share of 14% of the vacuum cleaner market in the world in 2005, leading the North American and Western European markets. It shared its 60% market dominance in North America with Maytag and Royal Appliance Manufacturing. In the Middle East and African markets, Electrolux was the leader in 2005 and ranked only second in Latin America. Dyson had 9% market share in Western Europe in 2005 compared to Electrolux’s 14%. The Asia-Pacific and Australasian markets were dominated by Japanese brands in 2005. Dyson had 4% market share in the USA, but it dominated the high-price segment with 21% share against Hoover’s 15%. Hoover lost its low-end market shares to Asian non-brands. (Hollensen, 2007) So it is clear that the two markets where Dyson plays a dominant role are the UK and the USA. The competitive scenario reveals that all successful companies foray into other regions through acquisitions and other business formats to gain a better foothold in host countries. (Hollensen, 2007) Another important point to note is that the competitors of Dyson have a larger basket of brands and products and therefore the risks get spread over a wider portfolio.

2.4 Internal Analysis 2.4.1 VRIO Analysis Are the resources Valuable? Dyson has multiple valuable resources. They are as follows: 1. The founder and owner, Sir James Dyson. He is the face of the company and its products. 2. Innovative products with unique designs and functionality. 3. Financial resources and profits that are invested in R&D help in producing better designs and efficient products. 4. Research, development and design centers in the UK, Malaysia and Singapore. 5. Manufacturing

facilities

in

Malaysia

and

Singapore

that

lower

production costs. 6. Over 1600 engineers and scientists around the world who come from different disciplines add to more innovative ideas. 7. Sustainable engineering through knowledge of

geometry

and

pioneering materials that result in less use of materials, less weight and less waste. 8. James Dyson Foundation encourage young people to choose a path in science, technology and engineering. 9. Patented technology. 10. International awards. 11. A sense of ownership and

involvement

in

the

product

development process among the Dyson staff results in a more dedicated staff. (dyson, n.d.) Dyson's resources are Rare because they have a patented technology. Dyson’s resources are Inimitable. Their patented technology cannot be imitated by other players in the industry. However, competitors can adopt similar strategies like relocating manufacturing facilities for cost advantage, the design of the products, and a team of highly talented engineers and designers.

Dyson is fully Organized to capture the value of its resources. The organization culture fosters and rewards innovative ideas. (dyson, n.d.) It spends a huge amount of time and money to develop prototypes until they get it right before launching in the market. The company involves its staff in product research and encourages them to come up with their own versions in order to give feedback and develop a sense of ownership. (Hundreds of Incremental Changes A Case Study on Dyson, n.d.) Their manufacturing facilities in Malaysia and Singapore help the company cut costs and offer perfect products to the end-users. Moreover, the organization’s processes keep its success secrets within the walls. 2.4.2 Value Chain Analysis Porter’s value chain analysis looks at the details of the primary and support activities to identify which processes are cost drivers and can create a competitive advantage. For Dyson, the value chain analysis is as follows: Primary activities: •

Inbound logistics – Dyson buys components from suppliers in SouthEast Asia and the Far East, therefore reducing freight costs for their manufacturing facility in Malaysia and Singapore. The cost savings are

•

invested in further R&D. Operations – Dyson used advance software and digital solutions to reduce the product design and development cycle. When they have near-perfect prototypes, these are provided to the toolmakers in

•

Malaysia for the next stage of development. (Siemens, 2013) Outbound logistics – Shipping from UK through online stores is a

•

dampener for Dyson’s profitability. Marketing and sales – Sales of Dyson products occur from both online and retail stores. Online sales incur shipping expenses as it is provided free of cost to the customer. Marketing of Dyson’s products are more

informative and educational in nature, often featuring the owner •

himself. Service – Dyson has a helpline that caters to the customers 24/7. (Mitra, 2014)

Support activities •

Procurement – The Strait of Malacca has a series of ports that help Dyson save costs on transportation as many of its suppliers are located

•

there. HRM – A culture of innovation and ideas driven by Sir James Dyson and his team of engineers and designers. Innovative ideas are nurtured and

•

rewarded. (Mitra, 2014) Technological development – The use of NX software enable the engineers to work very fast with 3D models, cutting down the cost and time of producing prototypes. Dyson uses digital simulation and testing capabilities to eliminate errors and improve efficiency, thereby saving

•

time and costs. (Siemens, 2013) Infrastructure – R&D centers in UK and USA and manufacturing facilities in Malaysia and Singapore help Dyson focus on product development and leverage low manufacturing costs.

The Value Chain Analysis of Dyson shows that it is weak only in one area of the primary activities – Sales and Marketing. Their marketing activities should expand beyond word-of-mouth and informational advertising to brand building. 2.4.3 Leadership Style James Dyson is currently the Chief Engineer of his company after stepping down from the role of a Chairperson. He is still leading the team with his participative leadership style where he praises them and encourages them. (Australian Institute of Business, 2015) According to House’s Path-Goal Theory, Dyson follows a participative style of leadership where the organization has complex, unstructured tasks and the team has experienced

and confident members who are given the authority to try out their ideas. This is the best way of leadership for Dyson as the owner himself gets involved with his team in the innovation process, which is at the heart of the company’s mission and vision.

2.5 SWOT Analysis Visionary leadership Private ownership Patented technology Talented team Financial capability Investment in R&D Manufactuirng facilities in emerging markets • State-of-the art design and technology • Limited product portfolio • Global presence Strengths • Sustainable engineering

Figure 1 SWOT Analysis

Weaknesse s

• Dependence on Sir James Dyso • Limited product portfolio • High price difference with competitors

• Growing economy and middle class in emerging markets • Competitve labor cost in emerging markets • Trend shift to dual income families and single-person households • Global warming

Opportunit es

• • • • • • •

• Government regulations not favorable for business, e.g. Brexit • Tough competiton from companies of similar scale Threats • Slower replacement cycle • Expiry of technology patent • Cheaper vacuum cleaners with their own bagless technology transalating to decreasing shares • Cheaper fans

2.6 TOWS Analysis

SO or Maxi-Maxi Strategy Use the financial capabilities of Dyson and their manufacturing facilities in Malaysia and Singapore to reach more emerging economies. Leverage the technological know-how to launch products suitable for weather conditions in the emerging nations. Dyson should continue to use the strength of sustainable engineering to tackle global warming and environmental issues. ST or Maxi-Mini

Use R&D and technology to come up with new patents or extend the life of existing ones. Brand building exercises should be ...