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BUSI 690

Policy and Strategy in Global Competition

Timothy J. Dobiac, James C. Murphy, Eduardo A. Paiva

Baldwin

October 2, 2010

“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

quoted directly or paraphrased with the paragraph.”

Names of those submitting this paragraph: Timothy J. Dobiac

James C. Murphy

Eduardo A. Paiva
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2. COMPANY SITUATION ANALYSIS

2.1 Evaluation of the Current Strategy

2.1.1 Qualitatively

Our company’s current generic strategy is broad differentiation. In the sensor industry,

customers’ needs vary according to the five market segments: traditional, low end, high end,

performance and size. In 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 unique, tailored to its segment’s customer buying criteria. Thus, we seek a competitive

advantage by primarily having products with superior attributes. In order to accomplish our

strategy, we have sought to improve our business’s value chain activities. Specifically, we

invested aggressively in TQM initiatives that have significantly enhanced our R&D cycle time;

in 2014 we invested $2,000,000 in concurrent engineering and our R&D cycle time has

improved by approximately 38%. We have sought to differentiate our products in a number of

ways. First, by having the best R&D department in the industry, our products have excellent

designs; Bid and Buddy have one of the highest MTBF ratings in their respected segments.

Second, we aggressively seek to position our products at their ideal location each year. This

entails making necessary improvements to each product’s performance and size. Finally, we are

striving to have excellent awareness and accessibility for our products. Although we are still

working on building up our awareness and accessibility, the goal is to be above 90% in both

categories in four years. We want customers to know about our great products and have a

positive experience when they choose us.

Due to successful implementation of our broad differentiation strategy, we have been

able to charge a premium price for our products. Customers are willing to pay a higher price

because our products are unique and well positioned within their respected segments. Our higher
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prices enable us not only to cover our costs, but to obtain attractive profits. This is important in

satisfying our stockholders and having a higher return on equity. In addition, we have sought to

control costs by competitively expanding our products’ capacity and automation. In fulfilling

this objective, we have been able to lower labor costs, turnover, and achieve higher worker

productivity. Finally, we have invested in recruitment and training to attract and keep high

quality employees. Here at Baldwin company, we understand that perhaps the best way to

differentiate ourselves is with our people. Therefore, we will always seek to have the most

talented, bright and motivated employees within the industry. In 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.

2.1.2 Quantitatively

2014 2013 2012


Net Sales $206,648 $151,298 $124,352
Gross Profit $72,855 $55,496 $40,055
Contribution Margin 35.3% 36.7% 32.2%
Net Income $17,386 $11,285 $2,867
Net Margin 8.4% 7.5% 2.3%
Return On Assets (ROA) 11.1% 8.7% 2.3%
Current Ratio 2.3 3.4 2.1
Days of Working Capital 54 75 55
Return on Equity (ROE) 19.9% 16.1% 4.9%
Share Price 63.56 42.98 22.72

Sales growth is well above the total sensor market growth, which ranges from 9-20 %

annually. The 37% increase in sales from 2013 to 2014 was striking since we also increased our

market share. This is an extraordinary feat since we managed to increase sales at a higher

percentage than our competitors while only introducing one new product during this timeframe.

Equally impressive is our ability to maintain a steady contribution margin amid lower prices and
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fierce competition. Consequently, the results have been continuous improvements to our net

margins year over year.

The outcome of our favorable margins has translated into strong balance sheet positions,

especially Return on Assets (ROA). ROA for year 2013 and 2014 are well ahead of our

competitors. We managed to balance investments in capacity improvements as our Sales

forecasts for increased product demand developed. The timing of these investments reflects in

higher than average ROA as compared with our competitors. Furthermore, the current ratio and

days of working capital measures are higher or comparable with the sensor industry, reflecting a

strong balance sheet position.

Return on Equity (ROE) and share price are clear indications we have rewarded our

investors. ROE increased in 2013 and 2014 by 16% and 20% respectively indicating our

vigorous performance. Moreover, due to our performance we have had a higher per share value

year after year on our stocks. In summary, the goal of our company is to continue to succeed in

being cost effective and well managed in future years.

2.2 SWOT Analysis

2.2.1 Company Resource Strengths, Competencies, and Resource Capabilities

Well-executed strategy: We have experienced 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. Modest to aggressive investments in

promotion, sales and production over the next four years will secure our place as an industry

leader.
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Higher product automation: Our 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 2014, we had the highest profits because we did a better job managing our costs.

High Plant utilization: By aggressively working our plant assets, we are better able to manage

our fixed costs. This allows us to achieve higher profits per employee.

Reduced R&D cycle time: Our company has a distinctive competency in reduction of R&D

cycle time. Over a four-year span, we invested in several TQM initiatives, such as Concurrent

Engineering and Quality Function Deployment Effort. We were able to reduce R&D cycle time

by 38% and obtain an industry best by well over 23%. Over the next 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 sheet: We have one of the lowest debt-to-equity ratios in the industry.

Consequently, banks are eager to help us expand and our company has the highest bond rating at

BB.

Adequate financial resources: Our company has the resources it needs to continue growing our

business and payoff our loans. In 2014, we had cumulative profit of $31,676,697; over the next

four years, we expect profits to continue between $15-20 million each year.

2.2.2 Company Resource Weaknesses and Competitive Deficiencies

Higher material costs than key rivals: Our company has not focused on reducing material

costs. We stand at a disadvantage when compared to our key rivals. For example, Andrews

company has currently reduced its material costs by 2.02%.


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Weaker product accessibility: Our company’s distribution capabilities lag behind key

competitors in four of five segments. A lower accessibility will cause our product’s December

Customer Survey score to drop and we will lose sales.

Narrower product line: Three out of the four rivals offer more products than our company. In

the next four years, this could cause a loss in market share.

Lower awareness compared to rivals: Except for the Performance segment, our company lags

behind its key rivals in customer awareness. Each customer that is not aware of our products is a

lost sale.

2.2.3 Company Market Opportunities

Market share openings: Company Digby seems to be fading which will allow for greater

market share.

Backwards integration: Our company is considering the opportunity to integrate backward into

controlling our own supplies. This would potentially allow for greater control and leveraging

our products.

Industry growth: The sensor industry is projected to continue growing globally over the next

four years by more than 13%.

Product-line expansion: Our company has the opportunity to come out with some new

products. Over the next four years, we will be strategically positioned to introduce at least one

additional product.

2.2.4 Threats to Company’s Future Well-being

Increasing competition from substitute products: In approximately five to seven years, the

power of substitute products will most likely be moderate to strong. The sensor industry’s

attractive growth and profit potential is attracting additional competition from substitutes.
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Fierce competition between sellers: Due to the level of competition between rivals, profit

margins may lessen. A well-executed strategy is the best weapon against this threat.

Growing power of customers: The sensor industry is a technological one. Customers

increasingly expect smaller, faster, and cheaper products.

2.3 Analysis of Company’s Price and Cost Competitiveness

2.3.1 Value Chain Diagram

Primary Activities and Costs:

Support Activities and Costs:

TQM Initiative

Human Resources Management

Finance and General Administration

2.3.2 Value Chain Analysis

R&D: Due to the new and updated product expectations of the sensor industry, the R&D

department is the key primary activity in our company’s value chain. The price we determine for

our sensors is completely based on how relevant the product meets the customer’s demand for

performance, size, and reliability. Hence, we focus our attention to delivering the most relevant

product in the least amount of cycle time. This tactic allows our company to have elevated

prices translating into higher margins.


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Supply Chain Management: The 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 30 days supply in inventory, thus lower inventory carrying costs. The company calculates

with caution as to not stock out and lose sales in the process.

Production: Cost savings in this activity occurs especially in the area of labor rates. The focal

point for labor cost reduction is determined by plant automation, capacity, and complement

level. On plant automation, our company strategy is to have the highest automation (80%

automated) for low end products and 50% to 60% automated for all other products. We plan to

balance plant capacity and employee complement needed with 2nd shift and 1st shift overtime. By

conservatively investing in plant capacity and complement, we are able to achieve higher

profitability per employee and lower costs. These approaches to labor costs allow our labor rate

to be competitive versus the industry.

Distribution / Sales and Marketing: The area of distribution is interrelated with the sales and

marketing activities. In particular, the cost savings are derived by effective expenditures on sales

promotion and sales force elements. The company strategy is to maximize product awareness

without experiencing diminishing returns on the promotion expenditure. Thus the promotion

expenses on average for each of our products are not higher than 1.5 million, the level at which

diminishing returns occur. Likewise, with sales force we strive to maximize customer

accessibility expenditures without experiencing diminishing returns. The sales force expenses on

average for each product is under 2.5 million, below the level of 3 million where diminishing

returns are experienced with one product ($4.5 million for each segment).

TQM: One of the most profitable investments is in reducing our cycle count for new and

updated products. By investing in programs such as Quality Initiative Training, Concurrent


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Engineering, and CCE/6 Sigma Training, we are able to be a first mover and charge a higher

price for our products.

Human Resources Management: We are able to achieve cost savings in HR by allocating a

minimum of 45 hours in training per employee and a minimum of $2,000 in recruiting.

Consequently, we have increased our productivity level and have an improved turnover rate.

Finance and General Administration: Balancing the debt and equity levels is the key to

reducing interest cost. Our company strategy is to maintain debt-to-equity ratio below 0.5.

2.4 Weighted Competitive Strength Assessment

2.4.1 Weighted Competitive Strength Matrix

Key Success Factor Weight Andrews Baldwin Chester Digby Erie

Expertise in developing
sensors with increasingly
0.25 7/1.75 8/2 7/1.75 1/.25 4/1
higher performance and
increasingly smaller size

Proven ability to improve the


production processes of 0.2 3/.6 9/1.8 2/.4 1/.2 3/.6
sensors
Low-cost product design and
0.2 7/1.4 4/.8 6/1.2 1/.2 7/1.4
engineering

Breadth of product line and


0.15 9/1.35 8/1.2 8/1.2 1/.15 7/1.05
product selection

Well-known and well-


0.1 8/.8 7/.7 8/.8 1/.1 7/.7
respected brand name

Strong, knowledgeable sales


force and products with high 0.1 7/.7 5/.5 6/.6 2/.2 8/.8
accessibility

Sum of weights 1.00


Weighted overall strength
6.6 7.0 5.95 1.1 5.55
rating
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2.4.2 Summarize the Major Learning Points from your Matrix

Our competitive strength matrix shows that our company has the largest overall

competitive strength rating and therefore has the strongest competitive position within the sensor

industry. Our company has three primary rivals in the industry, each positioned just behind us in

the overall competitive strength matrix, with Andrews positioned second, Chester in third, and

Erie in fourth. One company in the industry, Digby, is barely competing and cannot be

considered a legitimate rival at this time. The 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 Capsim adjusted scores for the past two years, 2013 and

2014. Over the past two years, the combined adjusted scores for each company in the industry

were 135 (Andrews), 145 (Baldwin), 101 (Chester), 4 (Digby), and 70 (Erie). These scores

place each company in the exact same competitive position within the industry as our weighted

competitive strength matrix.

Our competitive strength matrix show that our key area of competitive strength is our

ability to improve the production processes of sensors. Our investments in TQM have reduced

the R&D cycle times by almost 38%. Our nearest competitor in the industry has only a 13.54%

reduction in R&D cycle times. This is a huge competitive advantage for our company. Another

area of competitive strength is in developing sensors with increasingly higher performance and

increasingly smaller size. Our strategy is to position all of our product at the most ideal level of

performance and size within each segment. Our reduced cycle times allow us to do this with

greater regularity than any other company in the industry.

Our competitive strength matrix also shows the areas where our company needs to

improve in order to remain competitive within the industry. Our company has not focused on
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lowering the cost of product design and engineering and therefore trails each of our rivals in the

industry. Our company also trails each of its rivals in product awareness and accessibility.

2.5. Strategic Issues Management Faces

• Can Baldwin maintain its position as the strongest competitor? Yes Baldwin can, as

long as we remain true to our strategy to reduce R&D 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

• Are any rivals poised to take away Baldwin’s position as the strongest competitor?

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. However, it will be difficult for them to suitably position all of their

products in each segment since they need to apportion their R&D expenditures among a

larger product line, and they also have much greater R&D cycle times than we do. If

Baldwin maintains it’s current strategy, we should be well positioned to maintain our

position has the strongest competitor.

• What steps should Baldwin take to ensure it remains the strongest competitor? In

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 next four years in order to compete with rivals that currently

offer more products. Baldwin must also regularly re-evaluate its weighted competitive

strength matrix so that it is best able to design wise offensive strategies to exploit its rivals’

competitive weaknesses and design effective defensive strategies to curtail its vulnerabilities.
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Annotated References

1. 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 2014, and

provided the specific results for backing up the reasoning in each category of the SWOT

analysis. The website also provided the figures for the quantitative analysis (Section 2.1.2).

Lastly, the website provided information for each company’s labor cost reductions, R&D Cycle

Time reductions, and overall production information so that we could complete the weighted

competitive strength matrix and analysis.

2. Crafting and Executing Strategy, Text and Readings by Thompson, Strickland, and Gamble

provided the framework for our broad differentiation strategy. Specifically, the text gave us the

differentiation themes, differentiation attributes along the value chain, and the best routes to

achieve competitive advantage with broad differentiation. The text also summarized each

category of SWOT analysis and described what to look for in assessing our company’s strengths,

weaknesses, opportunities, and threats. The text provided the graph for the value chain diagram

and provided a methodology for creating and interpreting a weighted competitive strength

matrix.