Black&Decker Business Case Study

Index of contents

1  Black Decker s Diversification Strategy  1

2  Acquisition of General Electric s Houseware Division  2

3  Acquisition of Emhart  3

4  Black Decker s Business Portfolio 2000  4

5  Nolan Archibald  5

6  Divested Business Units  6

7  Strategic Recommendations  7

  Bibliography  8

  II  

1 Black & Decker’s Diversification Strategy

During the 1984–1992 period Black and Decker had established themselves as a leader in the power tool industry. It was their feeling however, that the market for such tools was maturing to the point where expansion within the industry would provide little or no additional revenues so they decided to diversify. Black and Decker began their expansion operation by acquiring General Electric’s small household appliance segment, the leader in the industry. The success of the GE deal, and the reorganization efforts of their new CEO Nolan Archibald, led Black and Decker to continue on this path of acquisitions and diversification in other areas 1 .

By diversifying, Black and Decker lost focus of its core products (power tools). Customers began to think that Black and Decker tools were losing quality because of their lack of specialization. When they decided to divest the other business ventures, the customers’ view of Black and Decker tools was positively affected as they regained market share. However its image could be better, so by advertising and sponsoring home improvement television shows, Black and Decker could have a better image and gain more market share.

Black and Decker has divested much of its broad enterprises including its household and recreational outdoor products in favor of a more focused business model in the power and professional tools market. They also need to regain their reputation of quality by advertising and sponsoring home improvement television shows 2 .

However, Black & Decker has now a diversified product line that competes in the consumer and professional power tools markets. The company also has a fastening business and a home and hardware business that provide diversification from tools. Such diversification helps mitigate the volatility associated with cyclical swings in any particular market. Black & Decker is known for its innovation, which would help the company to continue to develop new products for these and other markets. The company has come up with numerous "firsts". For instance, it introduced the portable drill, cordless power tools, and laser levelers. This high degree of innovation has resulted in a reasonably high vitality index, which measures the portion of total sales derived from products introduced in the last three years 3 .

1 Press Release: http://www.bdk.com/

2

Dr. Mattson: Black & Decker, 2004 Radford

3

Datamonitor: Black and Decker Corporation, 2005 New York

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2 Acquisition of General Electric’s Houseware Division

Black & Decker purchased the assets of GE Housewares division in 1984 for $300 million and thereafter produced coffeemakers using the GE brand name from 1984 through 1986. These coffeemakers were originally sold nationwide for between $45 and $72. Although it was a small part of GE’s company, it held more market share than other houseware distributors. That acquisition was an additional $500 million a year in revenue for Black & Decker because it was able to offer products like irons, coffee makers and toasters. There were several other acquisitions in the mid 1980’s, which allowed Black & Decker to offer even more new products such as portable woodworking tools and stronger drill bits. After all the new changes, Black & Decker Manufacturing Company also changed its name to Black & Decker Corporation to help market those changes.

In the mid 80’s, name brands were becoming more important to consumers in the housewares category although national names were not as important as they were in 11 other merchandise categories. Seven out of 10 shoppers in DSN Consumer Brands Survey of 1989 said they have a brand preference in housewares when they go to a discount store, up six percentage points from 1988. Consumers also said that private label is becoming more important to them in housewares, as well. Twelve percent of all consumers in the survey expressed a preference for private label housewares, up four percentage points from a year ago.

It took more than four years after acquiring General Electric's small electrics division that consumers were finally recognizing the Black & Decker name in the housewares category. Black & Decker shot up six spots on the consumer list of preferred housewares labels, tripling the number of mentions it received 1988. In third place behind Rubbermaid and GE, Black & Decker passed by such venerable housewares names as Corning, Sunbeam and Revere. Black & Decker's rise on the consumer brands chart came from discount shoppers in general and by customers of K mart, Wal-Mart, Target and Ames/Zayre specifically. Shoppers of each of the nation's top four discount chains helped Black & Decker-brand housewares notch substantial brand preference gains over 1988, with the greatest increase recorded by Wal-Mart and K mart shoppers 4 .

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