Managing The Transition From Maturity To Decline

Essay, Research Paper

Managing the Transition from Maturity to Decline: Diamond Power Corporation

This case study, prepared by Richard C. Scameborn, follows the Diamond Power Specialty Company from its humble beginnings in 1903 to its decline in 1991.

The birth of Diamond came with the invention of the hand cranked soot blower. As the years and technology progressed, so did the Diamond soot blower. Along with this main product, Diamond also added several other products to its line, but none had the profitability of the soot blower. Diamond had the market to itself for a number of years, but eventually two competitors sprang up to challenge Diamond: Copes-Vulcan and Bayer Company. Competition did not become fierce until World War II, when the soot blower became a major commodity used by the U.S. Navy to clean boilers on board its ships. At this point, the soot blower industry became a seller.s market and the need for strategy (both corporate and business) became a necessity for growth and survival.

Diamond Power.s main mission at its beginning, to produce soot blowers that 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 technological advances to stay ahead of it main competitor, Copes-Vulcan. With the passage of time, production efficiency and technology were not enough. Diamond eventually had to add foreign sales, customer service, and replacement part production to its original plan to keep ahead of the game. By the 1970.s, the mission to supply replacement parts and service became one of Diamond.s top priorities as it 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 with its mission up until the early 1980.s. Basically, Diamond.s goals included staying on the

moderate levels of technology, building a foreign market by exporting machines and parts and establishing joint-venture manufacturing companies overseas, establishing an extensive and profitable domestic aftermarket support system that included minifactories that supplied both parts and service, and to keep the upper hand on the soot blower market share.

Diamond Power.s parent corporation, McDermott, Inc, utilized several different corporate strategies to try to achieve Diamond.s goal of a profitable and extensive aftermarket support system. However, some of the decisions made by McDermott, Inc in regards to its replacement part division caused more harm than good. For example, when a small operator began to copy and sell Diamond replacement parts at a lower cost than Diamond with great success, McDermott overrode Diamond executives. wish to acquire the operation. This decision had far-reaching repercussions as will be discussed in later paragraphs.

McDermott also had to take action where Diamond was concerned when it began experienced severe financial difficulties in the late 1980.s and early 1990.s. McDermott had to implement a major costcutting effort and restructuring plan to keep from going bankrupt. This plan included putting pressure on Diamond to increase profits. Diamond had to take implement several business strategies in order to appease its parent corporation.

Decisions made on the corporate level had a direct affect on the business strategies implemented by Diamond Power. The development of the aftermarket support system was a plan with several long term benefits. The plan, developed by the marketing vice president at the time, involved a nationwide network of minifactories that offered service and replacement parts that could be delivered in a matter of hours to industries in need. Diamond.s high market share on soot blowers allowed the company to lower its new equipment prices and recoup any losses through its

replacement part division. This resulted in increased sales in both new equipment and parts. Diamond.s competition, Cope-Vulcan, did not have any service centers and only limited replacement part manufacturing, and therefore did not reap profits as high as Diamond Power.s. However, not all of Diamond.s business strategies worked as well as the replacement part and service system.

Under the pressure of McDermott, Inc, Diamond felt it had to make several rash decisions in order to increase profitability. First, Diamond did not purchase Bill Blalock.s low production company that made Cope and Diamond parts. This allowed a foreign company to buy it out and break into Diamond.s dominant part industry. It also allowed Cope-Vulcan to increase its part production market by forcing it to implement an aggressive management team and add 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 than Cope sold them itself. Diamond also made the decision to close a very productive plant in Canada and lose a very influential employee in the process. Both of these decisions eventually caused severe problems for the company and helped to lead to its decline.

Ethically, Diamond commits only two mistakes in judgment that should have been avoided. Diamond.s decision to start making Cope parts was not illegal, but was underhanded since