ationManaging the Transition from Maturity to Decline: Diamond Power CorporationThis case study, prepared by Richard C. Scameborn, follows the DiamondPower Specialty Company from its humble beginnings in 1903 to its decline in1991.
The birth of Diamond came with the invention of the hand cranked sootblower. As the years and technology progressed, so did the Diamond soot blower.
Along with this main product, Diamond also added several other products to itsline, but none had the profitability of the soot blower. Diamond had the marketto itself for a number of years, but eventually two competitors sprang up tochallenge Diamond: Copes-Vulcan and Bayer Company.
Competition did not becomefierce until World War II, when the soot blower became a major commodity used bythe U.S. Navy to clean boilers on board its ships. At this point, the sootblower industry became a seller’s market and the need for strategy (bothcorporate and business) became a necessity for growth and survival.
Diamond Power’s main mission at its beginning, to produce soot blowersthat would efficiently clean the inside of boiler as it continued working,basically stayed the same up until the addition of competition into the market.
At this point, Diamond had to revise its mission to include technologicaladvances to stay ahead of it main competitor, Copes-Vulcan. With the passage oftime, production efficiency and technology were not enough. Diamond eventuallyhad to add foreign sales, customer service, and replacement part production toits original plan to keep ahead of the game. By the 1970’s, the mission tosupply replacement parts and service became one of Diamond’s top priorities asit opened parts and service plants in New Jersey, Georgia, Ohio, Texan, Colorado,North Dakota, California, and Washington.
Diamond Power’s goals over the years seem to stay pretty congruent withits mission up until the early 1980’s. Basically, Diamond’s goals includedstaying on the moderate levels of technology, building a foreign market byexporting machines and parts and establishing joint-venture manufacturingcompanies overseas, establishing an extensive and profitable domesticaftermarket support system that included minifactories that supplied both partsand service, and to keep the upper hand on the soot blower market share.
Diamond Power’s parent corporation, McDermott, Inc, utilized severaldifferent corporate strategies to try to achieve Diamond’s goal of a profitableand extensive aftermarket support system. However, some of the decisions made byMcDermott, Inc in regards to its replacement part division caused more harm thangood. For example, when a small operator began to copy and sell Diamondreplacement parts at a lower cost than Diamond with great success, McDermottoverrode Diamond executives’ wish to acquire the operation. This decision hadfar-reaching repercussions as will be discussed in later paragraphs.
McDermott also had to take action where Diamond was concerned when itbegan experienced severe financial difficulties in the late 1980’s and early1990’s. McDermott had to implement a major costcutting effort and restructuringplan to keep from going bankrupt. This plan included putting pressure on Diamondto increase profits. Diamond had to take implement several business strategiesin order to appease its parent corporation.
Decisions made on the corporate level had a direct affect on thebusiness strategies implemented by Diamond Power. The development of theaftermarket support system was a plan with several long term benefits. The plan,developed by the marketing vice president at the time, involved a nationwidenetwork of minifactories that offered service and replacement parts that couldbe delivered in a matter of hours to industries in need. Diamond’s high marketshare on soot blowers allowed the company to lower its new equipment prices andrecoup any losses through its replacement part division. This resulted inincreased sales in both new equipment and parts. Diamond’s competition, Cope-Vulcan, did not have any service centers and only limited replacement partmanufacturing, and therefore did not reap profits as high as Diamond Power’s.
However, not all of Diamond’s business strategies worked as well as thereplacement part and service system.
Under the pressure of McDermott, Inc, Diamond felt it had to makeseveral rash decisions in order to increase profitability. First, Diamond didnot purchase Bill Blalock’s low production company that made Cope and Diamondparts. This allowed a foreign company to buy it out and break into Diamond’sdominant part industry. It also allowed Cope-Vulcan to increase its partproduction market by forcing it to implement an aggressive management team andadd new products to its line. Diamond responded to this by deciding to reverse-engineer nonpatented Cope parts in Korea and sell them for a lower price thanCope sold them itself. Diamond also made the decision to close a very productiveplant in Canada and lose a very influential employee in the process. Both ofthese decisions eventually caused severe problems for the company and helped tolead to its decline.
Ethically, Diamond commits only two mistakes in judgment that shouldhave been avoided. Diamond’s decision to start making Cope parts was not illegal,but was underhanded since the two companies seemed to have an understanding thatthey would not make eachother’s parts. Diamond also made and ethical mistake byclosing the plant in Canada and basically turning its back on a loyal Diamondemployee. Both of these breaches of ethics ends up causing Diamond a lot oftrouble as time goes on.
There are three major problems that come up in the Diamond Power case.
The most obvious problem the company encounters involves the handling of itslucrative parts industry. For a number of years, the parts division was able tocarry the company through times of low new equipment sales. But, for asimportant as the parts business was for Diamond, it did not takeadequate measures to protect it. For example, Diamond never bothered to patentits parts in the U.S. or in Korea, and this left the door open for othercompanies to reverse-engineer Diamond parts and sell them for their own profits.
Also, Diamond did not take the opportunity to buy out the profitable Blalock lowproduction company, a company making Diamond parts that were not patented.
Patenting would have saved Diamond from the invasion of a low producer invasionand from aggressive retaliation by Cope later on for making and sellingnonpatented Cope parts. It seems that a division as valuable as the service andreplacement division would have been protected more heavily.
The second major problem Diamond had was in shutting down its Canadianfactory. This caused trouble for Diamond in two ways: it gave other companiesthe opportunity to cash in on a profitable Canadian market, now left wide openby the removal of Diamond, and it caused a very influential and valuableemployee to leave and eventually join forces with Cope-Vulcan. The consequencesof closing the Canadian plant and failing to protect its replacement partbusiness eventually come back to haunt Diamond as Cope is able to break intoDiamond’s replacement part market share and lower it from 60% to 56% in lessthan one year.
The third major problem Diamond creates for itself is its shut down of6 of its 8 service divisions in the face of profit pressure and cost-cutting.
This was probably the worst place to cut back, since the former expansiveness ofits service business is what made Diamond such a nationwide force. Industriesthat once turned to Diamond for service and subsequently Diamond part had nochoice put to go to Diamond’s competitors for service and parts. By thisfoolhardy decision, Diamond’s president not only lost profits for Diamond, butalso lost his job.
The weakness most in need of fixing is found within the administration.
The leaders of Diamond Power seemed to become increasingly weaker and/or morefoolish as time went on. Examples of incompetence and lack of vision by thebusiness leaders of Diamond include failure to patent and protect thereplacement parts division, failure to acquire small businesses that posed athreat to the replacement market share, reverse-engineering of a competitor’sparts without protecting the company from retaliation, closing and losing a veryvital and important foreign plant and employee, and shutting down the nationwideinfluence of Diamond by closing service centers in major cities. Diamond’sstrengths lay in it replacement parts and service departments. Both of theseindustries proved profitable for many years and often carried the company inhard times. This strength was not protected, but could have still been improved.
Revival of the replacement parts and service division of the company isessential for the survival of the company. Major improvements of old partsshould be made and quickly patented in order to win back clients and protectfuture profits and market shares. Price reductions might need to be implementedin order to resuscitate sales quickly. Also Diamond may want to boost thetechnology level in its machinery and parts to prove that to customers thatDiamond makes high quality products. Some expenses would have to be increasedinitially, but these would soon pay for themselves by increasing sales andreputation.
Long-term changes should include reopening service centers and possiblytrying to break into the Canadian and foreign markets. Also, the production ofnew products or services could be a long-term goal to reach for. New, moreaggressive management should also be a long-term project. The initial missionwas a good one and should be kept. The strategies should include lowering newequipment costs to spark increase in customer service and parts needs (like wasdone in the past). Also, Diamond should try to raise the market shares of otherdivisions, such as foreign sales to back up its aftermarket support system sothe company is not reliant on just one of its divisions. However, fixing theweaknesses and improving the strengths would probably be the most productivecourse of action for the Diamond Power Specialty Company.
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