* BUSI 690 Policy and Strategy in Global Competition Timothy J. Dobiac Jame! C. "#rphy $d#ardo %.

Pai&a Bald'in (ctober ) )0*0

We certify that we are the authors of this paper and that any assistance we received in its preparation is fully acknowledged and disclosed in the Annotated Bibliography section of the paper. Specifically, we have cited any source from which we used data, ideas or words, either uoted directly or paraphrased with the paragraph.

!ames of those submitting this paragraph"

#imothy $. %obiac $ames &. 'urphy (duardo A. )aiva

3 ). ).* C("P%+, SITU%TI(+ %+%-,SIS $&al#ation o. the C#rrent Strategy

).*.* /#alitati&ely +ur company,s current generic strategy is broad differentiation. -n the sensor industry, customers, needs vary according to the five market segments" traditional, low end, high end, performance and si.e. -n accordance with our strategy, our company seeks to maintain at least one product in each segment to satisfy the diverse customer preferences. We strive to keep each product uni ue, tailored to its segment,s customer buying criteria. #hus, we seek a competitive advantage by primarily having products with superior attributes. -n order to accomplish our strategy, we have sought to improve our business,s value chain activities. Specifically, we invested aggressively in #/' initiatives that have significantly enhanced our 01% cycle time2 in 34*5 we invested 63,444,444 in concurrent engineering and our 01% cycle time has improved by appro7imately 89:. We have sought to differentiate our products in a number of ways. ;irst, by having the best 01% department in the industry, our products have e7cellent designs2 Bid and Buddy have one of the highest '#B; ratings in their respected segments. Second, we aggressively seek to position our products at their ideal location each year. #his entails making necessary improvements to each product,s performance and si.e. ;inally, we are striving to have e7cellent awareness and accessibility for our products. Although we are still working on building up our awareness and accessibility, the goal is to be above <4: in both categories in four years. We want customers to know about our great products and have a positive e7perience when they choose us. %ue to successful implementation of our broad differentiation strategy, we have been able to charge a premium price for our products. &ustomers are willing to pay a higher price because our products are uni ue and well positioned within their respected segments. +ur higher

8 prices enable us not only to cover our costs, but to obtain attractive profits. #his is important in satisfying our stockholders and having a higher return on e uity. -n addition, we have sought to control costs by competitively e7panding our products, capacity and automation. -n fulfilling this ob=ective, we have been able to lower labor costs, turnover, and achieve higher worker productivity. ;inally, we have invested in recruitment and training to attract and keep high uality employees. >ere at Baldwin company, we understand that perhaps the best way to differentiate ourselves is with our people. #herefore, we will always seek to have the most talented, bright and motivated employees within the industry. -n short, our vision is premium products for all segments in the industry, while doing what is in the best interest of our stakeholders" customers, stockholders and employees.
).*.) /#antitati&ely )0*0 634A,A59 6@3,9BB 8B.8: 6*@,89A 9.5: **.*: 3.8 B5 *<.<: A8.BA )0*1 6*B*,3<9 6BB,5<A 8A.@: 6**,39B @.B: 9.@: 8.5 @B *A.*: 53.<9 )0*) 6*35,8B3 654,4BB 83.3: 63,9A@ 3.8: 3.8: 3.* BB 5.<: 33.@3

Net Sales Gross Profit Contribution Margin Net Income Net Margin Return On Assets (ROA) Current Ratio Days of Wor ing Ca!ital Return on "#uity (RO") S$are Price

Sales growth is well above the total sensor market growth, which ranges from <?34 : annually. #he 8@: increase in sales from 34*8 to 34*5 was striking since we also increased our market share. #his is an e7traordinary feat since we managed to increase sales at a higher percentage than our competitors while only introducing one new product during this timeframe. ( ually impressive is our ability to maintain a steady contribution margin amid lower prices and

5 fierce competition. &onse uently, the results have been continuous improvements to our net margins year over year. #he outcome of our favorable margins has translated into strong balance sheet positions, especially 0eturn on Assets C0+AD. 0+A for year 34*8 and 34*5 are well ahead of our competitors. We managed to balance investments in capacity improvements as our Sales forecasts for increased product demand developed. #he timing of these investments reflects in higher than average 0+A as compared with our competitors. ;urthermore, the current ratio and days of working capital measures are higher or comparable with the sensor industry, reflecting a strong balance sheet position. 0eturn on ( uity C0+(D and share price are clear indications we have rewarded our investors. 0+( increased in 34*8 and 34*5 by *A: and 34: respectively indicating our vigorous performance. 'oreover, due to our performance we have had a higher per share value year after year on our stocks. -n summary, the goal of our company is to continue to succeed in being cost effective and well managed in future years. ).) S2(T %naly!i! ).).* Company 3e!o#rce Strength! Competencie! and 3e!o#rce Capabilitie! 2ell4e5ec#ted !trategy6 We have e7perienced increasing profits the last four years and we anticipate to continue this trend. We have a product in all segments and each product is positioned competitively in its respected segment. 'odest to aggressive investments in promotion, sales and production over the ne7t four years will secure our place as an industry leader.

B 7igher prod#ct a#tomation6 +ur highly automated production lines allow us to have fewer workers and thus reduce labor costs in our operations. Although our company did not have the highest sales in 34*5, we had the highest profits because we did a better =ob managing our costs. 7igh Plant #tili8ation6 By aggressively working our plant assets, we are better able to manage our fi7ed costs. #his allows us to achieve higher profits per employee. 3ed#ced 39D cycle time6 +ur company has a distinctive competency in reduction of 01% cycle time. +ver a four?year span, we invested in several #/' initiatives, such as &oncurrent (ngineering and /uality ;unction %eployment (ffort. We were able to reduce 01% cycle time by 89: and obtain an industry best by well over 38:. +ver the ne7t four years, this distinctive competency will allow us to be the first?mover in the sensor industry and capture strategically important sales, thus boosting our market share and profits. Strong balance !heet6 We have one of the lowest debt?to?e uity ratios in the industry. &onse uently, banks are eager to help us e7pand and our company has the highest bond rating at BB. %de:#ate .inancial re!o#rce!6 +ur company has the resources it needs to continue growing our business and payoff our loans. -n 34*5, we had cumulative profit of 68*,A@A,A<@2 over the ne7t four years, we e7pect profits to continue between 6*B?34 million each year. ).).) Company 3e!o#rce 2ea;ne!!e! and Competiti&e De.iciencie! 7igher material co!t! than ;ey ri&al!6 +ur company has not focused on reducing material costs. We stand at a disadvantage when compared to our key rivals. ;or e7ample, Andrews company has currently reduced its material costs by 3.43:.

A 2ea;er prod#ct acce!!ibility6 +ur company,s distribution capabilities lag behind key competitors in four of five segments. A lower accessibility will cause our product,s %ecember &ustomer Survey score to drop and we will lose sales. +arro'er prod#ct line6 #hree out of the four rivals offer more products than our company. -n the ne7t four years, this could cause a loss in market share. -o'er a'arene!! compared to ri&al!" (7cept for the )erformance segment, our company lags behind its key rivals in customer awareness. (ach customer that is not aware of our products is a lost sale. ).).1 Company "ar;et (pport#nitie! "ar;et !hare opening!6 &ompany %igby seems to be fading which will allow for greater market share. Bac;'ard! integration6 +ur company is considering the opportunity to integrate backward into controlling our own supplies. #his would potentially allow for greater control and leveraging our products. Ind#!try gro'th6 #he sensor industry is pro=ected to continue growing globally over the ne7t four years by more than *8:. Prod#ct4line e5pan!ion6 +ur company has the opportunity to come out with some new products. +ver the ne7t four years, we will be strategically positioned to introduce at least one additional product. ).).0 Threat! to Company<! =#t#re 2ell4being Increa!ing competition .rom !#b!tit#te prod#ct!6 -n appro7imately five to seven years, the power of substitute products will most likely be moderate to strong. #he sensor industry,s attractive growth and profit potential is attracting additional competition from substitutes.

@ =ierce competition bet'een !eller!6 %ue to the level of competition between rivals, profit margins may lessen. A well?e7ecuted strategy is the best weapon against this threat. Gro'ing po'er o. c#!tomer!6 #he sensor industry is a technological one. &ustomers increasingly e7pect smaller, faster, and cheaper products. ).1 %naly!i! o. Company<! Price and Co!t Competiti&ene!! ).1.* >al#e Chain Diagram Primary %cti&itie! and Co!t!6

S#pport %cti&itie! and Co!t!6 #/' -nitiative >uman 0esources 'anagement ;inance and Eeneral Administration ).1.) >al#e Chain %naly!i! 39D6 %ue to the new and updated product e7pectations of the sensor industry, the 01% department is the key primary activity in our company,s value chain. #he price we determine for our sensors is completely based on how relevant the product meets the customer,s demand for performance, si.e, and reliability. >ence, we focus our attention to delivering the most relevant product in the least amount of cycle time. #his tactic allows our company to have elevated prices translating into higher margins.

9 S#pply Chain "anagement6 #he principal activity where our company is successful in reducing cost is in the area of inventory management. We forecast the units produced to be less than 84 days supply in inventory, thus lower inventory carrying costs. #he company calculates with caution as to not stock out and lose sales in the process. Prod#ction6 &ost savings in this activity occurs especially in the area of labor rates. #he focal point for labor cost reduction is determined by plant automation, capacity, and complement level. +n plant automation, our company strategy is to have the highest automation C94: automatedD for low end products and B4: to A4: automated for all other products. We plan to balance plant capacity and employee complement needed with 3nd shift and *st shift overtime. By conservatively investing in plant capacity and complement, we are able to achieve higher profitability per employee and lower costs. #hese approaches to labor costs allow our labor rate to be competitive versus the industry. Di!trib#tion ? Sale! and "ar;eting6 #he area of distribution is interrelated with the sales and marketing activities. -n particular, the cost savings are derived by effective e7penditures on sales promotion and sales force elements. #he company strategy is to ma7imi.e product awareness without e7periencing diminishing returns on the promotion e7penditure. #hus the promotion e7penses on average for each of our products are not higher than *.B million, the level at which diminishing returns occur. Fikewise, with sales force we strive to ma7imi.e customer

accessibility e7penditures without e7periencing diminishing returns. #he sales force e7penses on average for each product is under 3.B million, below the level of 8 million where diminishing returns are e7perienced with one product C65.B million for each segmentD. T/"6 +ne of the most profitable investments is in reducing our cycle count for new and updated products. By investing in programs such as /uality -nitiative #raining, &oncurrent

< (ngineering, and &&(GA Sigma #raining, we are able to be a first mover and charge a higher price for our products. 7#man 3e!o#rce! "anagement6 We are able to achieve cost savings in >0 by allocating a minimum of 5B hours in training per employee and a minimum of 63,444 in recruiting. &onse uently, we have increased our productivity level and have an improved turnover rate. =inance and General %dmini!tration6 Balancing the debt and e uity levels is the key to reducing interest cost. +ur company strategy is to maintain debt?to?e uity ratio below 4.B. ).0 2eighted Competiti&e Strength %!!e!!ment ).0.* 2eighted Competiti&e Strength "atri5

@ey S#cce!! =actor (7pertise in developing sensors with increasingly higher performance and increasingly smaller si.e )roven ability to improve the production processes of sensors Fow?cost product design and engineering Breadth of product line and product selection Well?known and well? respected brand name Strong, knowledgeable sales force and products with high accessibility Sum of weights 2eighted o&erall !trength rating

2eight

%ndre'!

Bald'in

Che!ter

Digby

$rie

4.3B

@G*.@B

9G3

@G*.@B

*G.3B

5G*

4.3 4.3

8G.A @G*.5

<G*.9 5G.9

3G.5 AG*.3

*G.3 *G.3

8G.A @G*.5

4.*B

<G*.8B

9G*.3

9G*.3

*G.*B

@G*.4B

4.*

9G.9

@G.@

9G.9

*G.*

@G.@

4.* *.44

@G.@

BG.B

AG.A

3G.3

9G.9

A.A

@.4

B.<B

*.*

B.BB

*4
).0.) S#mmari8e the "aAor -earning Point! .rom yo#r "atri5

+ur competitive strength matri7 shows that our company has the largest overall competitive strength rating and therefore has the strongest competitive position within the sensor industry. +ur company has three primary rivals in the industry, each positioned =ust behind us in the overall competitive strength matri7, with Andrews positioned second, &hester in third, and (rie in fourth. +ne company in the industry, %igby, is barely competing and cannot be considered a legitimate rival at this time. #he weighted overall strength ratings should be a fairly accurate representation of the sensor industry, indicated by the strong correlation between the weighted overall strength ratings and the &apsim ad=usted scores for the past two years, 34*8 and 34*5. +ver the past two years, the combined ad=usted scores for each company in the industry were *8B CAndrewsD, *5B CBaldwinD, *4* C&hesterD, 5 C%igbyD, and @4 C(rieD. #hese scores

place each company in the e7act same competitive position within the industry as our weighted competitive strength matri7. +ur competitive strength matri7 show that our key area of competitive strength is our ability to improve the production processes of sensors. +ur investments in #/' have reduced the 01% cycle times by almost 89:. +ur nearest competitor in the industry has only a *8.B5: reduction in 01% cycle times. #his is a huge competitive advantage for our company. Another area of competitive strength is in developing sensors with increasingly higher performance and increasingly smaller si.e. +ur strategy is to position all of our product at the most ideal level of performance and si.e within each segment. +ur reduced cycle times allow us to do this with greater regularity than any other company in the industry. +ur competitive strength matri7 also shows the areas where our company needs to improve in order to remain competitive within the industry. +ur company has not focused on

** lowering the cost of product design and engineering and therefore trails each of our rivals in the industry. +ur company also trails each of its rivals in product awareness and accessibility. ).B. Strategic I!!#e! "anagement =ace! Can Bald'in maintain it! po!ition a! the !tronge!t competitorC Hes Baldwin can, as long as we remain true to our strategy to reduce 01% cycle times, reduce costs through careful inventory management, and continually produce products that are well?positioned in each segment, while maintaining a steady contribution margin %re any ri&al! poi!ed to ta;e a'ay Bald'in<! po!ition a! the !tronge!t competitorC Andrews is best positioned to challenge us as the strongest competitor because they have a broader product selection than us while remaining competitively close in most other key success factors. >owever, it will be difficult for them to suitably position all of their products in each segment since they need to apportion their 01% e7penditures among a larger product line, and they also have much greater 01% cycle times than we do. -f Baldwin maintains it,s current strategy, we should be well positioned to maintain our position has the strongest competitor. 2hat !tep! !ho#ld Bald'in ta;e to en!#re it remain! the !tronge!t competitorC -n order to ensure our long?term competitive position, Baldwin needs to lower the cost of product design and engineering, and raise the levels of awareness and accessibility, while maintaining other areas of competitive advantage. Baldwin should also introduce one or more new products over the ne7t four years in order to compete with rivals that currently offer more products. Baldwin must also regularly re?evaluate its weighted competitive strength matri7 so that it is best able to design wise offensive strategies to e7ploit its rivals, competitive weaknesses and design effective defensive strategies to curtail its vulnerabilities.

*3 %nnotated 3e.erence! *. www.capsim.com website provided specific information on the sensor industry and how to best implement our strategy of broad differentiation based off of the results from 34*5, and provided the specific results for backing up the reasoning in each category of the SW+# analysis. #he website also provided the figures for the uantitative analysis CSection 3.*.3D. Fastly, the website provided information for each company,s labor cost reductions, 01% &ycle #ime reductions, and overall production information so that we could complete the weighted competitive strength matri7 and analysis. 3. &rafting and (7ecuting Strategy, #e7t and 0eadings by #hompson, Strickland, and Eamble provided the framework for our broad differentiation strategy. Specifically, the te7t gave us the differentiation themes, differentiation attributes along the value chain, and the best routes to achieve competitive advantage with broad differentiation. #he te7t also summari.ed each category of SW+# analysis and described what to look for in assessing our company,s strengths, weaknesses, opportunities, and threats. #he te7t provided the graph for the value chain diagram and provided a methodology for creating and interpreting a weighted competitive strength matri7.