International Business Thesis

An analysis of Stelton’s turnaround from an agility perspective

Written by Jesper Bergmann Pedersen Advisor: Ole Strømgren Group nr: 42

Executive Summary

In 2004 Stelton found itself in a crisis after several years of declining economic performance and was taken over by new majority owner and CEO, Michael Ring. During Ring’s tenure, Stelton has undergone significant changes at the strategic, operational and cultural level. Through an explanatory case study, the changes in two of Stelton’s new core competences are investigated with the scope of the research to find out how the changes in these two core competences have contributed to Stelton’s successful. With the help of data from a case study of Stelton to be published in 2008, along with an interview with and personal communications with Michael Ring the paper tries to uncover what underlying structures and processes have to be changed in order for a successful turnaround in particular and competitive success in general.

Due to the lack of a dominant or exhaustive theory in the field of turnaround management literature, theories from a variety of fields are reviewed with the purpose of discerning common characteristics of successful organizations to better be able to analyze turnarounds. In line with the research question, the core competence perspective is reviewed and deemed to be useful to describe how organizations can prioritize certain competences that are most critical to success in their industry. Subsequently a different competence perspective where organizations are seen as systemic and holistic is reviewed. This perspective rivals the idea of core competences since it views all of an organization’s resources and competences as interrelated and therefore does not support the dichotomous division of competences as either core or noncore. Subsequently Peter Dicken’s concept of production circuits is looked at and found to be useful to describe the increasing interrelatedness and interdependence in the global economy as well as the embeddedness of economic processes, which explains how Stelton’s industry and competition have become more global. Finally the military strategy of John Boyd applied to business is with an emphasis on the concept of OODA Loops and Boyd’s ideas about agility. Boyd’s idea about organization’s as open systems that have to constantly interact with their environment and adapt and reorient as their surroundings change


in order to avoid entropy and organizational decline is found to be a particularly useful framework to use to analyze the causes of Stelton’s decline as well as their successful turnaround. Stelton’s situation prior to being taken over in 2004 is described to juxtapose it with the Stelton in 2008. It shows that after Ring took over in 2004 he based his new strategy for Stelton on his observations from Stelton’s industry as well as the even larger environments which Stelton was embedded in.

Consistent with Boyd’s theory, the observable changes in Stelton’s core competences within product development and supply chain management are found to be particularly caused by changes in the underlying structures and processes at Stelton. Especially, the conscious and significant changes in Stelton’s organizational climate are found to contribute to the changes in their performance.

The study concludes that positive organizational performance is related to an overall view of organizations as open systems embedded in larger systems that are in a constant state of change and revision. Through the changes that Ring implemented at Stelton are found to change Stelton from a closed system to an open one with a clear focus. Finally the study looks at further perspectives to be considered in order to look more in depth and validate the findings of this study.


1 Literature Review 1.7 Relation between Theory Review and the Research Question page 19 page 19 page 20 page 22 page 24 page 26 page 30 page 34 4 .0 Research Method 2.0 Introduction 1.2 Delineations 2.2 Core Competences and Strategic Intent 3.4 Scope of the Paper page 7 page 8 page 10 page 11 page 11 2.5 Dicken and Production Circuits 3.3 Sanchez and Heene 3.3 Data Collection 2.Table of contents 1.4 Turnaround Management Literature 3.6 OODA Loops 3.3 Elaboration on Research Question 1.1 Research Design 2.4 Interview Method 2.2 Research Question 1.5 Ontological Considerations page 13 page 13 page 15 page 15 page 17 page 18 3.1 Selecting Theories and their Role in the Research Process 3.0 Discussion and Theory Review 3.

4 Stelton’s Reorientation in Product Development and Supply Chain Management page 37 page 37 page 40 page 43 page 46 6.1 Further Perspectives page 49 page 50 7.0 Conclusion 6.0 Analysis of Stelton and the Changes they have made Since 2004 5.3 The new Organizational Climate at Stelton 5.2 Stelton’s Reorientation 5.0 References page 51 8.Table of Contents 4.0 Appendix page 56 5 .0 Stelton’s Situation in 2004 page 35 5.1 Observations from Stelton’s industry 5.

AITR test of the Stelton Brand page 368 Figure 5.List of Figures Figure 1. John Boyd’s OODA Loop page 34 Figure 4. Designs for Case Study Research page 14 Figure 2. Changes at Stelton from 2003 to 2007 page 48 6 . Basic components of a production circuit page 29 Figure 3. Evolution of employees at Stelton page 42 Figure 6.

Through collaborating with world renowned Dansh architect Arne Jacobsen. A variety of new competitors such as Menu AS from Denmark and founded in 1979 as well as Rosendahl also founded in Denmark in 1980 threatened Stelton’s position as a visionary innovator and for several years Stelton continued to rely on the Cylinda line along with the products designed by Magnussen.). proved difficult to keep up and as others realized the profitable niche Stelton had found for branded design products in the table top segment. 2008).1. However Stelton’s reputation as a visionary. Stelton began working with the young designer Erik Magnussen and in 1977 Stelton introduced the stainless steel vacuum jug designed by Magnussen. As a result of this Stelton was not able to match the growth rates of their competitors who kept investments in new product development high and with time Stelton went from being a company with a prestigious brand and high growth to a company with stagnating growth and a brand that a lot of people were aware of but few people were interested in buying (Leleux. Stelton launched the Cylinda line in 1967. All the different items in the Cylinda line were in stainless steel and cylinder shaped and its serene and functionalistic design. first accessed on January 10th 2008). 7 .). made it an instant success and made Stelton a respected and admired in Denmark as well as in export markets such as Sweden and Norway (ibid.stelton. earned in their early years. new competitors began to emerge and challenged Stelton and their ability to remain at the forefront of what customers wanted.0 Introduction When Stelton was founded in 1960 by Peter Holmblad it was with the purpose of selling stainless steel hollowware. and in many minds is the most iconic product from Stelton. The vacuum jug went on to become the best-selling product in Stelton’s history (ibid. After Jacobsen’s death in 1971.” (available from www. Stelton was a visionary company whose idea was to create a line of tableware “where correlation of design between the individual items would always ensure harmonious table settings.dk.

whether the superior performers have common characteristics that less efficient firms can learn and adopt. 1. At the heart of Boyd’s work is organizational agility and that the ability for an organization to change direction faster and more precise than competitors is a source of competitive advantage. and it is this analysis of Stelton’s problems and the subsequent implementation of Stelton’s new strategy that this paper will primarily deal with. Bolig Eksklusiv. Ring has proven that his analysis was right and Stelton has seen remarkable success in his tenure. which has also resulted in positive articles in several Danish newspapers and magazines (e. applied to business by Chet Richards (Richards. my earliest research interest was to investigate to what extent military strategy can be applied to business and which precautious measurements must be taken in order for military strategy to be applied outside its original context. resulted in Stelton being sold in 2004 to new majority shareholder Michael Ring. In particular.1 Literature Review In the process of deciding on a research topic. More than anything else this interest sprung from the work of Colonel John Boyd and his OODA Loops. 8 . who also became the new CEO.Years of disappointing performance at Stelton combined with high production costs and little to no emphasis on new product development. By now.g. Before taking on the challenge of turning Stelton around. Berlingske. Soendagsavisen). 2004). Ring had carefully analyzed Stelton and believed that it could be turned around through a reorientation of the direction Stelton was going in along with investments in and emphasis on four different core competences: · · · · Product development Supply chain management/sourcing Marketing Understanding specialty retailers. the overarching theme of my different areas of interest is what makes some firms outperform their peers and what recipes might be learned from these topperformers and in relation to this.

g. 1993 and 1994) framework of Core Competences as well as their ideas about strategic management in general. In this phase I also looked at Barney’s resource-based framework (Barney. Turnaround studies usually look at companies that have been in crisis and then look at different parameters to find out what contributed to the comapnies either surviving or going bankrupt (e. This is also why I decided against using specific quantitative measures to gauge the extent of Stelton’s turnaround and instead decided to look for more qualitative ways to analyze their turnaround. Finally I looked at Hamel’s and Prahalad’s (1990. and my early look at Stelton’s industry did not indicate that the industry was unattractive but rather that Stelton’s problems must stem from internal causes. Causal ambiguity means that clear relationships between cause and effect cannot be determined and since I believed that this constraint would make it difficult to study Stelton’s turnaround. thus it does not seem as if certain parameters have emerged as commonly accepted and this caveat creates limitations in the replicability for studies of turnarounds. They also view organizations as systemic. 1997. Common for these two frameworks is that they view organizations and economic processes as embedded in and interconnected with several larger layers. Since I had a conversation 9 . Additionally. To look at Stelton’s turnaround I also found it relevant to review the literature in the field of sustainable competitive advantage.I also looked at Sanchez’ and Heene’s (2004) work in strategic management as well as Dicken’s (2007) work about the global economy and economic shifts. in order to look at how firms can build and sustain competitive advantages. Chowdhury. one the caveats of the majority of the turnaround literature is that parameters differ widely between studies. Barker and Duhaime. D’Aveni and MacMillan. 1990. 1991) but particularly I found that the causal ambiguity that is part of the framework was problematic in relation to using this framework as a theoretical guideline for my analysis of Stelton. However. 2008) and his five forces framework to analyze industries before I eventually decided against using Porter as my primary theoretical foundation since he is mainly concerned with industry structure. I thought that an interesting field to look for explanations for differences in competitive strength would be to look closer at the turnaround literature. At first I looked at Porter (1998. 2002). 1991. which I found interesting and useful in relation to the changes that have happened at Stelton.

personal communication) I found it ideal to use Hamel’s and Prahalad’s framework to look at how Stelton reoriented with the help of focusing on Core Competences. Sanchez and Heene.with Michael Ring before initiating this thesis in which he mentioned core competences as an essential part of Stelton’s turnaround and the important a role they have played throughout the entire process (Michael Ring. 2004. 1. 2004). The result of this initial literature review is a research question that tries to incorporate both of these aspects. Therefore.. Also I was inspired by the holistic view of organizations as open systems embedded in and shaped by larger systems (e. 2004 and Dicken 2007) This is not to say that my research approach is completely novel because other studies have looked at the psychology of turnarounds (Kanter. However I have not come across any research in which Boyd’s concept of agility and OODA Loops are combined with Hamel’s and Prahalad’s concept of core competences as a way to study an organization. while staying close to my initial interest in organizational agility and what makes some firms competitive. Richards.2 Research Question How has the Stelton’s reorientation in product development and supply chain management contributed to their successful turnaround? 10 . I thought my approach of analyzing a turnaround through the core competence perspective in concert with Boyd’s concept of agility would be an interesting way to combine existing literature. Overall my literature review was guided by an interest in the more qualitative aspects of turnarounds since successful turnarounds seem more to be the outcome of intangible aspects such as leadership and the role of top management. 2003) and the role of top management teams in turnarounds (Lohrke et al.g.

1. Overall my paper will not focus much on the malfunctions and poor decisions prior to Ring’s arrival at Stelton. most notably personified by the new owner and CEO Michael Ring. the role of management. It is therefore not part of the life cycle approach in the turnaround literature that analyzes turnarounds from the beginning of organizational decline (Chowdhury. As Stelton is a small company with approximately 70 employees. has played the most essential role in Stelton’s turnaround. For this reason the role of Ring is inextricably linked to the performance of Stelton. but instead look at his leadership and new strategy at Stelton in order to see if there are any discernible patterns that might be applied in other organizational contexts. thus a crucial part of this paper is to try to understand which observations led Ring to change Stelton’s orientation in order to implement a successful turnaround. 2004). and the actions and strategies formulated and implemented by Ring in order to turn Stelton around. 11 .4 Scope of the Paper This paper deals primarily with Stelton after it was taken over by Michael Ring in 2004. personal communication) so the research question assumes that the new approaches to product development and supply chain management have played a significant part in Stelton’s turnaround and the aim is therefore to look at the underlying structures and processes that led to these changes. This has been done in order to go more in depth with product development and supply chain management. At the same time all the four competences mentioned in the introduction have been emphasized by Michael Ring as the underlying reasons for Stelton’s success (Michael Ring.3 Elaboration on Research Question The research question primarily narrows down the possible factors that might have contributed to Stelton’s turnaround to only two factors. 1.

Studies have proven that survival is not easy not even for the largest companies in the world. The primary scope of this paper is how Stelton’s renewed ability to innovate in relation to their increased agility has enabled Stelton to move quickly and coherent. Peters goes on to claim that companies must either “innovate or die” (ibid. it is hard if not impossible to generalize across industries as well as countries.com. This means that each company has specific idiosyncrasies and therefore it is ill-advised to suggest a one-size-fits-all approach (Kanter 2003). first accessed. 2007). This is consistent with the hypothesis brought forward in the introduction.tompeters. everything from technologies to consumer preferences has changed and so like all companies Stelton has had to adapt to that change in order to survive and continue to thrive. As an example out of the one hundred largest US companies on the Fortune 100 list from 1917. only 39 were still alive in 1987 (available from http://www. 12 . that no innovation and a general failure to adapt to the changes in their industry almost killed Stelton. For this reason the findings about Stelton might not be applied to different contexts.) and argues that companies cannot expect to be sustainably competitive if they fail to innovate.The issue this paper seeks to deal with is not the situation at Stelton or companies in the table top industry per se. In order to not lose focus I have chosen to look at it only through the lens of the changes in supply chain management and new product development in concert with the observations of Ring that eventually led to these changes. February 9th 2008). Because all companies are embedded in different cultural and location-specific contexts (Dicken. Since Stelton was founded in 1960. but it is rather to try to uncover the processes that change a company from stagnation to booming growth in revenues as well as all other financial measurements.

I will keep a focus on the theoretical frameworks and analytical sections as much as possible.1 Research Design My research question relates to the different processes related to the reorientation of Stelton. Since these processes are embedded within their specific organizational context they are likely to be elusive and therefore do not lend themselves to first hand observations or quantitative hypothesis testing.2.0 Research Method This part will briefly explain the approach that has been taken in order to write this paper in terms of research method and research design. In order to accommodate these limitations best possible. Additionally constraints in space limitations of the project as well as the time allocated to write it. thus cannot be replicated without understanding those processes (Inkpen. this paper is first and foremost an investigation of the relevance of different theories and frameworks in describing the initiatives undertaken at Stelton and conclusively use this insight to prescribe efficient solutions in the future. Subsequently I discuss the delineations as well as the approach to data collection and theory that has been employed as well as why the data collection methods and theories are most relevant in relation to the research question. It has been shown in other studies that companies’ simply observing successful operations is not a recipe for success because what makes these operations successful is deeply embedded in their processes and culture. Thus. So while of practical lessons from Stelton’s example hopefully emerge. 2005). means that there are limitations to the level of rigor that can be employed. 2. Thus in order 13 . this paper hopes to validate the relevance of the theories chosen based on whether they are helpful when applied to Stelton’s case. Since this paper is the final project to obtain a Bachelor of Science degree the primary focus has been to endeavor into scientific research.

most noticeably the generalizability significantly improves as more cases are analyzed from multiple units of analysis. Single case design Multiple case design Single unit of analysis Type 1 Type 3 Multiple units of analysis Type 2 Type 4 Figure 1. Because the nature of the research objective is qualitative and because case research is best suited for analyzing contemporary events (Yin. The unit of analysis is Stelton and the level of analysis is the management at Stelton. For this reason I acknowledge that the results of my single-case design research cannot be generalized too broadly and it is also compatible with the turnaround literature that cautions generalizations because of the idiosyncrasies of individual firms (e. Kanter.for processes related to knowledge to be studied. My choice means that I have had to sacrifice some benefits of the more thorough types of case studies. 2 or 3 studies is mainly a design question where cost and time are higher for type 2 and 3 studies than for type 1 studies (ibid.g. The primary reason is that the cost as well as the time required to carry out the research increases as one moves away from the Type 1 quadrant (Westgren and Zering 1998). 1984) my paper is designed as a case study.).). Yin (1994) has devised a simple matrix to categorize case study research and in this matrix my study fits as a Type 1 study (see figure 1). Designs for Case Study Research (Yin. 1994. 39) 14 . the processes that knowledge is deeply embedded in must be understood (ibid. 2003). p. Thus the choice between type 1. There are different reasons for why I see a Type 1 case study as the most appropriate in my situation.

1994). and attention to industry trends will be given only when they are relevant to Stelton’s situation. but they have been purposely left out order to focus more in depth on the effect of the changes in supply chain management and product development on Stelton’s overall success. 2. Within case research.2 Delineations Since this is a thesis about how Stelton’s reorientation in two specific areas. I acknowledge that in particular their new core competences within marketing as well as well as understanding specialty retailers have also contributed significantly to the turnaround of Stelton. However.Since this is my first attempt with business research I have taken great measurements to follow the recommendations of scholars in the field of case study research (e. however most of these reports are primarily short newspaper articles that I have not seen fit to use as data in 15 . information is harder to come by which has made the data collection process more challenging. Since Stelton is not publicly listed. 2008) which additionally confirms that the problems at Stelton were caused by internal factors. 1989. supply chain management and product development.3 Data Collection The data collection has primarily been constrained by Stelton’s small size. Yin. Eisenhardt. it is worth noting that there has not been a decline in performance among Stelton’s main competitors Menu AS and Rosendahl AS (Leleux. 2. as mentioned in the literature review. there will not be much emphasis on Stelton’s initiatives in regards to their other core competences. However this paper is not about the table top industry as a whole. No organization exists in a vacuum and therefore Stelton’s surroundings have obviously been a factor in deciding how to reorient the company. 2003). this study identifies itself as an explanatory case study because existing theories constitute an essential input (Dubé and Paré.g. Stelton’s turnaround has been noted and reported by several members of the Danish media.

and then I have consulted a variety of scientific theories and frameworks to undercover how they came to this success.2 Overall the case study provides a lot 1 2 In this paper the interview with Ring will be referenced as (Ring.now when the turnaround is completed – in order to stay ahead of competitors. Additionally the quality of the case study is excellent which is further verified by the fact that IMD consistently ranks among the worlds best MBA schools (available from http://www. The case study of Stelton is divided in three parts where the first is about the opportunity to buy Stelton and the considerations that Ring had in this regard. I have taken these articles as an expression that Stelton’s turnaround has indeed been remarkably successful. Apart from the limitations in data collection due to Stelton’s small size. I deemed this to be an additional benefit in the process of writing this paper. The second part is about turning Stelton around and Ring’s new strategy for Stelton. one of the primary motivations for writing about Stelton was that I was given the opportunity to interview Michael Ring about Stelton and their turnaround. February 16th 2008).imd.scientific research. Finally. Since Ring is the main driver behind Stelton’s turnaround it is reasonable to assume that he can be helpful in explaining how he managed to change the underlying structures and processes at Stelton. has gained access to and collected a lot of data which would have taken me considerable amounts of time. 2008) 16 . Instead. first accessed.1 Additionally Ring holds an MBA from IMD in Switzerland and has been involved as a lecturer at the MBA program at CBS which means that he aside from his business experience. and finally the third part is about what Stelton does . This first of all has the benefit that the professor who prepared the case. in particularly within strategic management.ch. 2008) The case study of Stelton from IMD will be references as (Leleux. the majority of my data will come from an unpublished draft for a case study of Stelton by IMD in Switzerland. The case study will be published later in 2008 and is written by Binoit Leleux who is a professor and the MBA Director at IMD. is also updated in regards to research.

Before formulating my research question I had an informal conversation with Michael Ring at Stelton’s head office at Christianshavn where he elaborated on Stelton’s turnaround (Michael Ring.. Later into the process. In order to get as much out of this interview as possible and analyze the answers as rigorously as possible. I conducted a phone interview with Michael Ring on Tuesday the 15th of April.of data but it does not analyze the actions of Michael Ring and therefore it has been helpful to use the data from the case study and then analyze it from the perspectives of the different theoretical frameworks I have reviewed. the questions were phrased specifically with Ring in mind and therefore it would not be meaningful to ask other members of Stelton’s organization these questions. however I think this is offset by the IMD Case Study where the date is partly based on several interviews with Ring. One limitation is that I only interviewed Michael Ring. This is also consistent with the turnaround literature’s emphasis on the importance of leadership (Kanter. 2004) 17 . after consulting several books and articles about core competences and OODA Loops as well as strategic management in general. The reasons for not interviewing anybody else than Ring is that he has been the sole person in charge of crafting Stelton’s turnaround strategy and therefore my main emphasis when looking at Stelton has been Ring and what lay behind his decisions. The best way to categorize the interview is as an unstructured interview which is characterized by an informal style of questioning and a list of topics and issues rather than very specific questions (Bryman and Bell.4 Interview Method The primary part of my empirical data apart from the IMD case study of Stelton is an interview with Michael Ring. 2003). 2003) and top management teams and their actions (Lohrke et al. Because only Ring was interviewed. I recorded the entire interview and transcribed it (See appendix for the transcription of the interview). personal communication). 2.

or whether they can and should be considered social constructions built up from the perceptions and actions of social actors” (Bryman and Bell. 18 . Since Stelton has visibly undergone significant changes since Ring took over it would not be meaningful to study Stelton as an objective entity that is not shaped by the social actors. the ontological position of this thesis is constructionist. Constructionist means that meaning is not pre-given to social entities such as Stelton in this case.5 Ontological Considerations Ontology is concerned with social entities and whether social entities “can and should be considered objective entities that have a reality external to social actors. 2003 p. In this regard. but rather meaning is constructed through constant social interaction (ibid.2.) with the surroundings and is therefore also in a constant state of flux and revision. This fits particularly well with several of the theories I have used which view organizations as open systems embedded in and co-evolving with larger systems and therefore in a constant state of revision. 19).

production circuits and OODA loops as well as turnaround literature.3. Finally it deserves mention that even though my final research question involves new product development and supply chain management. particularly theories in the field of strategic management as well as competition. it has never been my intention to look at the specific theories within these fields. At a different field within competition I looked at Richard D’Aveni’s theory of hypercompetition (D’Aveni. 1994. 1995 and 2007) and decided not to use it. This process was important as it exposed me to different as well as opposing school of thoughts which forced me to further reflect upon the scope of my paper and what I was trying to uncover. 2008) and decided against it because I deemed Porter’s view of industry structure too static and not the best approach in Stelton’s situation. 2008) which I did not have access to. More so the purpose has been to look at how Stelton became a faster and 19 .1 Selecting Theories and their role in the Research Process In the process of formulating the final research question. 3.0 Discussion and Theory Review In this section I will describe as well as discuss the different theoretical frameworks I have selected in order to answer the research question about how Stelton’s reorientation in product development and supply chain management has contributed to their success. I looked at several different theories. as by internal problems at Stelton. since Stelton’s problems did not seem to be caused so much by a rapid shift in competitive advantages in their industry. Overall the theories I will look at will be about competences as well as core competences. Initially I read Michael Porter’s theories about the five forces that shape competition (Porter 1998. Further the decision to leave out Porter was confirmed by his suggestion that a thorough industry analysis requires several resources (Porter 1998. 2003). This is in line with Yin’s notion that the use of rival theories is relevant in explanatory case studies (Dubé and Paré.

3. which essentially means that a core competence must be uniquely held by a single firm. The gist of this approach is therefore that of all the different competences that contribute to a given company’s success.2 Core Competences and Strategic Intent The concept of competences in strategic management is usually considered as part of the resourcebased view of the firm. 3. One of the difficulties in looking at competences is the abundance of different definitions employed by different researchers. 20 . Extendability.” 2. personal communication) seemed like very relevant proxies. Competitor Differentiation. 202). 1994. meaning that a core competence must enable the firm to deliver “a fundamental customer benefit. Another important aspect of core competences is the dichotomy between core and noncore. which means that a core competence must have the ability to be applied outside the specific area in which it is embedded (Hamel and Prahalad. Competing for the Future (1994).more agile company through their reorientation and for this purpose these two areas. 2006).) which is a term originally coined by Hamel and Prahalad (1990) in their Harvard Business Review article. where as all the remaining competences then by definition must be noncore. Additionally in order to be considered a core competence any given competence must live up to three criterias which are: 1.. p. 202-207). Customer Value. some are more than important than others. which makes it difficult to achieve progress in strategic management research (Sougata and Ramakrishnan. which were specified as core competences by Ring (Michael Ring. In their book. One of the most cited definition of competence is the concept of core competences (ibid. A core competence is thus a competence that is central or at the core of a company’s long-term competitive success. p. Hamel and Prahalad define a core competence as “a bundle of skills and technologies ” (ibid. primarily popularized by Barney (Barney 1991).

it is important that the organizational culture encourages experimentation and prioritizes the importance of learning from failures and mistakes rather than promoting a culture where failure is punished and all measurements are entirely financial (ibid.. Hamel and Prahalad call this concept for “strategic intent” and it lays out where the company wants to be in the future. it does not necessarily have to possess all the resources and competences in order to get there.) Regardless of the specific core competences a company possesses or aspires to build. This claim is consistent with the empirical data earlier from Tom Peters that showed how many of the largest companies from 1917 were no longer in existence 70 years hence. Part of this is also to think about how the corporation’s core competences can be stretched and leveraged outside their main context and that corporations must be able to imagine markets that lie outside current business boundaries and therefore might not even exist yet (Hamel and Prahalad. Hamel and Prahalad (1994) define three legs any company must have in order to be balanced. Strong product development capability. but they must also carefully try to imagine what the market place and the industry will look like in the future and then build core competences that will position the company for future leadership. These observations led Hamel and Prahalad to claim that “starting resource positions are a very poor predictor of future industry leadership. They also provide several examples of how companies with a very clear strategic intent have outmaneuvered much larger companies with more resources. Thus a very central point of the idea of strategic intent is that when companies formulate their strategic intent. 1. 2. Capability to produce at world-class level of cost. is that at the time a company decides where it wants to be in the future.” (ibid. they must not be limited to thinking about today markets. One example is from the heavy earth-moving equipment industry where the Japanese company Komatsu challenged the industry leader Caterpillar through stretching and leveraging their core competences (ibid.).Another important part of Hamel’s and Prahalad’s work (1994). 21 . Because it is risky to try to predict the future. however without requiring the company to know exactly how to get there.128). 1991). p.

) emphasize that managers should improve the strategic flexibility of their organizations in order to be able to respond to the changes in the systems the organization is embedded in. 22 .3. 2004. 37).). Sufficient marketing and service infrastructure Permeating the concept of core competences is that not all competences in an organization contribute equally to competitive success and therefore most attention should be given to the competences that are most integral to creating and sustaining competitive advantages. Sanchez and Heene (ibid. p. 3. industries as well as national and regional economies and societies.). Because the larger systems which organizations are part of change.3 Sanchez and Heene Ron Sanchez’ and Aimé Heene’s approach to competence shares Hamel’s and Prahalad’s focus “on an organization’s ability to coordinate its various skills effectively and to maintain high levels of organizational learning. However Sanchez’ and Heene’s (2004) approach differs from Hamel and Prahalad in that they have a systemic view of organizations which means that any organization is seen as a collection of interacting. Therefore Sanchez and Heene dismisses the idea that an organization’s competences can be deduced to “core” or “noncore” since no competence can be separated from the system it belongs to and the organization it is embedded within (ibid. This interdependence and interrelatedness also implies that since organizations compete in the open market for resources as well as customers they will also have to co-evolve as the larger systems they are embedded in evolves.” (Sanchez and Heene. It is an important notion that organizations are systems that do not exist in a vacuum. interdependent resources and capabilities (ibid. but are seen as open systems embedded in different contexts at various levels such as strategic groups.

2004). In relation to designing effective organizations. compared to finding out what needs to be done to achieve high effectiveness at the strategic level.The strategic flexibility of an organization depends on two factors: The intrinsic flexibility of the resources and capabilities the firm has and the coordination flexibility which is how flexible managers are in redefining strategies to take advantage of the resources that are available to the firm. Similarly to the idea of strategic flexibility is the idea of strategic options. where a strategic gap exists between the resources and competences the organization currently has and the resources and competences it needs to have in order to achieve future goals (Sanchez and Heene. the ideas of strategic flexibility and strategic options are very similar to Boyd’s ideas of OODA Loops and agility. however the value of strategic options also increase with increases in the speed with which the organization can exercise these options as well as reductions in the costs the organization incurs when it exercises its strategic options. Strategic options are courses of action that can feasibly be undertaken by the organization based on its resource and coordination flexibility (Sanchez and Heene. The more and the broader strategic options a corporation has. one of their points is that it is generally easier to establish clear cause-and-effect relationships between lower system elements such as how to achieve high operational efficiency. This is another way of saying that the causal ambiguity is higher at 23 . Part of the concept of strategic options is also that the range of strategic options is limited by the cognitive limitations of managers which mean that they cannot possibly analyze and predict all future changes in their environments. 2004). Sanchez’ and Heene’s idea of strategic flexibility is essentially similar to Hamel’s and Prahalad’s (1993) concept of stretching and leveraging resources. therefore the managers who are able to make the most precise predictions about the future will have a significant advantage. (Hamel and Prahalad. the greater its strategic flexibility is. which are introduced later in the theory review. Sanchez’s and Heene’s thoughts on strategic change are also influenced by the systemic view. Overall. Taken together. 1991) which posits that a company must be able to imagine markets that do not currently exist. Primarily they see strategic change driven by strategic gaps. This is very similar to Hamel’s and Prahalad’s ideas of corporate imagination.

then the biggest obstacle to strategic change is likely to be the mindset of the managers rather than the ability to shift production or suppliers or similar more tangible processes. 2002) mainly due to several divergent foci and approaches taken by scholars in the field.the more intangible and strategic processes of an organization and therefore a consequence of this is that “an organization is likely to take longer time – perhaps much longer time – to change the ideas it uses than to change the things it uses. However. 3.). operational turnarounds are more focused on the way the firm currently conducts its business (Chowdbury.4 Turnaround Management Literature Turnaround management deals with reversing organizational performance and is part of the strategic management field. However similarities in top management behavior have also been detected in the cases where the turnarounds have been remarkably successful.” (Sanchez and Heene. One characteristic of successful turnarounds is that they promote openness and dialogue instead of the isolation and secrecy that is often found in organizations 24 . A common denominator for several studies of turnarounds is the importance of leadership. the literature and research within turnaround management is confusing and uneven (Chowdhury. a dominant theory of turnarounds is lacking and has yet to emerge (ibid. Coupling this with the notion that the larger systems which organizations are part of change. Studies have shown that as problems manifest themselves. As a result of this. 2003). Barker and Duhaime. 2002. It is often this lack of leadership that is attributed to leadings companies into crises as well as exacerbating existing organizational problems. secrecy and blame increases and eventually members of the organization focus more on protecting them selves instead of collectively trying to solve the organizations problems (Kanter. 56). 1997). p. 2004. There is however agreement on a dichotomy that classifies turnarounds as either operational or strategic. as well as the other side of this coin: the lack of leadership. Where strategic turnarounds focus on changing the business the company is currently engaged in.

than they care about the outcome of the process.) This is in line with Kim’s and Mauborgne’s (2005) concept of fair process. Explanation. 25 . cited in Kim and Mauborgne. New CEOs have the benefit that they are not entangled in all these old games and politics and therefore they are able to embrace new strategies. that after a crisis hits managers of the successful firms paid relatively more attention to their external environment and factors such as customer needs. This is because it is hard for the old CEO’s to admit that they have chosen a wrong strategy for the company and therefore the result is often secrecy and blame instead of openly communicating the problems and dealing with them. 2003) A study by D’Aveni and MacMillan (1990) looked at the focus of attention of top managers in 57 bankrupt firms as well as a match of 57 surviving firms. which they believe is necessary for companies to successfully execute new strategies. Expectation Clarity. to see which aspects of their environment they pay attention to. To explain the underlying motives for the decisions that managers make. and the basic tenets of fair process are (Thibaut and Walker 1975. Fair process is based on research that shows that people care as much about the justice of the process. 2005): • • • Engagement. Another characteristic that successful turnarounds often share are CEOs who are new to their organization. Their methodology was to analyze the content of letters to shareholders. To make sure that employees know the new strategy and know from the beginning what is expected of them and according to which criteria their performance will be judged. The study found. where the unsuccessful firms were insensitive to changes in the external environment because they stubbornly focused on the internal environment and the methods that had been successful in the past (ibid. (Kanter. Different ways of encouraging openness and increasing dialogue have been credited with the successful turnaround at large companies such as BBC and Gillette (ibid. To encourage employees to give their inputs.in crises.).

The study also confirms the inconsistency of definitions of turnarounds. Thus spatiality and geographic origin still matters.Another study that looks at top management teams role of formulating and implementing turnaround strategies (Lohrke et al. Common for all processes according to Dicken is also that they are territorially embedded. control over key assets (such as capital. (Lohrke et al. and criticizes that decline is almost always measured with financial measurements such as profit deterioration. governed by different unequal power relationships (Dicken. who is concerned with geo-economy and mapping the shifts in the global economy. labour skills. A suggestion to overcome this is to use more non-financial measures such as for example customer satisfaction and stakeholder opinions (ibid.). Similar to Sanchez’ and Heene’s (2004) view.5 Dicken and Production Circuits Peter Dicken is an economic geographer. technology.. embeddedness is central to Dicken’s work and he sees all economic processes as embedded in larger macro structures such as social and cultural processes and institutions which shape and influence the processes they embed. even though key actors in the economy are interrelated and interdependent. 3. power between them is not distributed equally. knowledge. looks at factors such as the backgrounds of the top management teams as well as their cognitive complexity 3. Dicken sees the global economy as a complex network of different interrelated and interconnected actors. and Dicken refutes the notion of ‘placeless’ organizations as well as hyper-globalists’ notion that ‘the world is flat’. 2007). However. instead Dicken still believes that the nation state is the most significant ‘container’ (ibid. The significant determinants of bargaining power are: “first. natural 3 Cognitive complexity deals with how individuals process information.). 2004). Similar to Sanchez’s and Heene’s (2004) view of organizations as open systems embedded in larger contexts. quite the contrary actually. especially when these internal factors are deemed to be controllable.. 2004) 26 . More cognitive complex decision makers make use of more categories in their environments than their less cognitive complex counterparts. An additional finding of this study is that when decline is attributed to internal factors it results in strategic reorientation.

This notion of power relationships is to some extent reminiscent of Porter’s five forces framework (Porter. The significance of Transnational Corporations is also great because Dicken’s definition is very inclusive and focuses on coordination and control rather than ownership of specific assets: “A transnational corporation is a firm that has the power to coordinate and control operations in more than one country. 2007.. Ability to control access to specific assets is a major bargaining strength. 1998. the spatial and territorial range and flexibility of each of the actors.resources. Dicken (2007) asserts that the nation states are no longer the most appropriate unit of analysis since it is common for production processes to transcend national boundaries and be dispersed among a variety of different nations. second. Because transnational corporations are able to coordinate and control various processes within and between different countries. they are highly influential in moving goods and influencing the processes that shape the geography of the world economy. An important part of Dicken’s production circuits is that consumption is considered an integral part so unlike many of the sequential models. In order to map the economic trends. One actor that Dicken thinks is of particular importance to economic processes is the transnational corporation. 2008) where different stakeholder’s bargaining power. The two are not unconnected.” (Dicken.12).” (ibid. which means that the different stages are connected through feedback loops. Dicken’s power relationships are between different actors from various layers as well as production networks and at a much more holistic level than Porter. production circuits do not end when a good has been produced 27 . consumer markets) and. whereas Dicken’s production circuits are circuitous and reflexive.16). p.). A key to understanding these production networks is first of all to understand how Dicken’s view is different from the idea of value chains and production chains. even if it does not own them. However. thus productions circuits do not have a clearly defined beginning or end (see figure 2). p. Instead Dicken solves this problem through conceptualizing the global economy in terms of production networks and production circuits which cut through the geographical layers (ibid. collectively determine the industry structure and the intensity of rivalry within the industry. where Porter’s analysis is at the industry level. Inherent in all these concepts of chains is that they are sequential and linear of nature.

is a flow of information from suppliers and distributers and customers. Additionally each individual element of the production circuit depends upon (ibid. In production circuits products are made as inputs are transformed and distributed and ultimately consumed.). 21) 28 . provides the firms with important knowledge that should help them constantly improve their production to meet customer demands. The consumption and the related feedback from consumers.but consider the consumption of the good as an essential albeit often overlook part of the process (ibid. Additionally since Dicken’s view is systemic.” (ibid. changes in one element of the system precipitates the changes in other system elements (Sanchez and Heene.. Overall the implication of this approach is that no single element of the production circuit can be analyzed in isolation since the entire system must be seen as a “dynamically interconnected whole. p.): • • • • • Technological inputs Service inputs Logistical systems Financial systems Coordination and control systems. however the opposite way of this flow. the basic steps in the production process spill into each other. 2004). and as is characteristic for systems.

Figure 2. page 14) 29 . Basic components of a production circuit (Dicken 2007.

business is many-sided and has to be constructive in order to satisfy customers and succeed (available from http://www.6 OODA Loops Corporate strategy is often described as being inspired by military strategy and several expressions from military language (e. In particular. 2008). One of the most central ideas of Boyd is that time is the ultimate competitive weapon. 2005). 1994) framework of core competences as well as Kim’s and Mauborgnes’s (2004. March 25th 2008) This criticism of the “business as war” approach where one side has to lose in order for the other side to win also implies a criticism of Porter’s view of competition as a zero-sum game (Porter. aspects of military strategy can be applied to business and in this thesis I will use Chet Richards’ (2004) interpretation of John Boyd’s military strategy applied to business. 2005) concepts of blue oceans is that they do not see competition as a zero-sum game. 1998. this is simply based on the observation that all successful organizations in business as well as war have one advantage in common: They act faster than their competitors (Richards. headquarters.g. This also applies for Sanchez and Heene (2004) who believe that competition can be turned into a positive-sum game when competition is turned into mutually beneficial cooperative alliances. However. In spite of the similarities between military strategy and business strategy there are important differences between the two. 2004. However in order for an organization to be able to use time as a competitive weapon several underlying structures and processes have to be aligned. with some precautions.3. and this is a central part of the subsequent description and application of Boyd’s ideas.sonshi. where military strategy is most often two-sided and inherently coercive and destructive in nature. Romm. 1994). officers) are part of business terminology (Kim and Mauborgne. first accessed.com. 30 . 1991. Instead one of the common denominator for Hamel’s and Prahalad’s (1990.

” (ibid. One example of an army that possessed all the characteristics was the German army that won the blitzkrieg during the Second World War and Boyd believed these characteristics were central to why the Germany won the blitzkrieg (Richards. Scan the environment and gather as much information as possible. intuitive feel. Boyd has looked at characteristics of successful armies and found four characteristics that combined will create what he called: “an organizational climate for operational success” (Boyd quoted in Richards.Similarly to Hamel’s and Prahalad’s (1994) notion that starting resources is a very poor predictor of future industry leadership. One of the central concepts of Boyd is agility which in this sense means: “the ability to change one’s orientation – roughly. unity and a strong group feeling. worldview – in response to what is happening in the external world. especially for complex and potentially chaotic situations. and it is for this reason that time is called the ultimate competitive weapon (Richards. 51). mutual trust. Romm 1994). a contract between the superior and subordinate. p. p. 2004). 2004. 31 . Fingerspitzengefühl. • Schwerpunkt. The time it takes for any company to undertake this reorientation compared to their competitors will be a very decisive factor in terms of deciding which side will be most successful. Rather it is the characteristics and competences each given soldier as well as the army as a whole possesses. 2004): • Observe. The OODA Loop (see figure 3) is based on four distinctive but not distinct activities that Boyd thought that any participant in any conflict goes through (Richards. 2004. Auftragstaktik. This also implies that it in order to be successful it is only possible to have one schwerpunkt however the ability to shift focus or schwerpunkt more rapidly than competitors is critical to success. It is important here that the essence of agility is. • • • Einheit. Requires mutual trust in order to successfully work. to as quickly as possible change the orientation of the organization to align it as closely and quickly as possible with the surrounding world as it changes. Boyd does not believe that it is the largest or most technologically sophisticated army that wins. mission. 30). The focal point which all other activities in the organization must support. any concept that provides focus and direction to an operation.

Mutual trust must permeate the entire organization and leaders at every level must make sure that trust is the number one corporate virtue (Richards. This idea is similar to Dicken’s (2007) production circuits which are also reflexive and interrelated. For this reason. An important notion about OODA Loops is that these four activities mentioned spill into each other and are interrelated and interdependent. and make sure that the orientation matches the real world as closely as possible. Reach a decision. In order to be able carry out all the elements of OODA Loops simultaneously and as quickly as possible. however an OODA Loop is not sequential so they do not prescribe to first observe. then orient etc. Romm (1994) who is also a Boyd proselyte also argues that a systemic approach is superior to linear approaches and backs it up with a study that compared two groups of companies approach two research and development: linear approaches and systemic approaches. it must be both in order for the organization to be agile since quickness combined with precision and correctness of the orientation in relation to the external world is an important part of the agility concept. must create a climate where this is possible. To decide what the observations mean. It should also be emphasized that it is not enough to carry out the elements either quickly or simultaneously. The conclusion of the 1993 study was that the systemic approach was not only faster and had lower costs it also accelerated the learning process (ibid. Carry out the decision that has been reached. the most important element of OODA Loops is orientation. Instead all elements of the OODA Loop must be carried out simultaneously and as quickly as possibly. an organization must have an organizational culture. The most fundamental element of such cultures is mutual trust (ibid. • • Decide.• Orient.). 2004). Act. and where each part of the circuit constantly relies on feedback and inputs from the other parts of the circuit. As further proof of this. to 32 . The incorporation and consideration on the external world and how this shapes the decisions of organizations is similar to Sanchez’ and Heene’s (2004) and Dicken’s (2007) view of organizations as open systems embedded in and interacting with the larger systems in which they are embedded.). Boyd in his final version of the OODA Loop put orientation in the middle and drew the “implicit guidance and control” arrows (see figure 2) to observation and action.

Finally an important key to understanding OODA Loops. since all the different parts that make up orientation are interrelated. When looking at figure 3 it is also apparent that the orientation part is systemic. this means that closed systems and organizations who fail to interact and communicate and understand the surrounding environment run down (Richards. empathy.illustrate how important is to keep orientations as precise and closely matched to the outside world as possible (available from http://www. and rejection. Thus in order to build agile organizations that are able to reorient and execute OODA Loops faster than competitors. and in turn is shaped by the feedback and other phenomena coming into our sensing and observing window. 2004). However.sonshi. On this process Boyd noted: “Note how orientation shapes observation. “The Essence of Winning and Losing”). underlying all these tools that can speed up OODA Loops is that none of them are useful unless the four key elements mentioned earlier. it will be able to skip the decision step so action can flow smoothly from orientation. Basically entropy is a description of the energy in a physical system which is not available to do work because the system cannot get rid of the energy. Thus as is characteristic of systems. it is necessary to take a holistic approach to organizations and make sure that the four key elements are deeply embedded in each members conscience. The idea that information should be gathered from several different fields is similar to the study mentioned earlier that showed that managers who process information from more categories are more successful than managers who only make use of few categories when they process information (Lohrke et al. shapes decision. are present. is entropy..com.” (Boyd. Also the ability to constantly sense what is going on in the external world and then reorient accordingly to quickly match the external world is an essential part of speeding up OODA Loops. 1996. Also note how the entire “loop” (not just orientation) is an ongoing many-sided implicit crossreferencing process of projection. Applied to business. correlation. A method of speeding up the execution of OODA Loops is to make as many processes as possible implicit and if eventually an organization succeeds in doing so. a change in one element causes changes in the other elements and this just further emphasizes the importance as well as the complexity of the orientation part of the OODA Loop. March 25th 2008). 33 . first accessed. Entropy is related to the Second Law of Thermodynamics which says that all natural processes generate entropy. shapes action.

2004). 3.7 Relation between Theory Review and the Research Question The overall concern of this paper is to analyze the successful turnaround of Stelton through the reorientation in two core competences that were singled out by new owner and CEO. personal communication). 1996). Particularly Sanchez’s and Heene’s (2004) ideas about strategic management and Boyd’s concepts of agility and OODA Loops (Richards. product development and supply chain management/sourcing (Michael Ring. and the synthesis between parts of the different theories emerged as I looked at the theories from different fields to eventually arrive at a holistic and systemic perspective which I believe could successfully be used to describe and analyze Stelton’s turnaround. Figure 3. Michael Ring. 2004) inspired me to look organizations’ ability to adapt and 34 . In the analysis I will show how some of Stelton’s problems were caused by entropy. The theoretical approach to this thesis has been shaped by the literature I reviewed when preparing to write it. These two areas were not chosen because they were intrinsically interesting from a theoretical perspective but rather as proxies in order to look at the changes in the underlying structures and processes as well as the changes in the organizational climate that have made it possible to build these new core competences. John Boyd’s OODA Loop (Boyd.

I hope to be able to look further into the importance of organizations interaction and adaption to their surroundings and the impact on performance this has.). 4. through analyzing which observations and considerations underlay the changes in product development and supply chain management/sourcing at Stelton. 2008).). 35 . However all approaches share a holistic view and the notion that it is necessary for organizations to interact with the surroundings they are embedded in.0 Stelton’s Situation In 2004 Before Stelton was taken over by Michael Ring in 2004 it had been a family company with a renowned brand but poor performance. the common denominator for the different theoretical frameworks I have used is not related to turnarounds or product development or supply chain management per se. most of Stelton’s employees were employed in production (ibid.change and take advantage of the changes in the environments in which they are embedded. As an example the net profit margin for 2002 was slightly less than 2% and meanwhile competitors such as Rosendahl was rapidly growing revenues and profits and had a net profit margin of 24% in 2001 (Leleux. in order to survive and thrive. were high fixed costs tied up in production assets and an almost complete standstill in innovation and product development. The five years leading up to 2004 showed no real growth in revenues and an actual decline in profits. From 2001 to 2004 Stelton had only released one new product and while most of Stelton’s competitors in the design brand industry primarily focused on design and research and development. Part of the explanation for Stelton’s problems. Thus. One of the relations between the different theories is that they all view organizations as open systems and then take different approaches to what companies must do in order to create sustainable competitive advantages. but instead it is related to how companies can become more competitive in order to improve their long term financial performance. with the key assumption that organizations are open systems and must behave accordingly in order to not run down because of entropy (ibid. Therefore.

Stelton could not afford to remain dislocated from the market and out of sync with the surrounding world and its realities.Therefore it seems fair to describe Stelton in 2004 as a great brand but with an organization that still relied on the methods that had brought them success some thirty years earlier. who for some time had been taking advantage of globalization to lower production costs. 36 . However with increasing competition and competitors.

(ibid. Thus.) 37 . Throughout the analysis I will use the other theoretical frameworks in order to analyze the changes at Stelton. I will not go much in depth with the decision and action steps of the OODA Loop since these both flow from orientation and are therefore determined by the observation and particularly the observation part of the OODA Loop (Richards. I then look at how they based on this mismatch between their observations and old orientation. However the markets Stelton are in are far from static and they have undergone significant changes throughout the time and continue to do so.1 Observations from Stelton’s Industry Stelton primarily serves the Nordic markets (Denmark. Since the key to Boyd’s agility concept is orientation as well as how well the orientation matches with the observations. Some of the major trends that can currently be observed are (ibid. 2008). Sweden and Norway) as well as the markets in Germany and the Benelux countries. I will combine the different theoretical frameworks with data from Stelton from the IMD case and my interview with Michael Ring in order to analyze the underlying structures and processes behind their changes in product development and supply chain management/sourcing.5. this is where the emphasis of my analysis will be. 2004). The analysis will be carried out by using Boyd’s concept of OODA Loops so I will go through observations about Stelton’s industry and external environment and then the fit between this and their old orientation. 5.0 Analysis of Stelton and the Changes they have made Since 2004 In this part. decided to reorient and execute this new orientation. This is because customers in these countries overall share an interest in decoration styles described as “Scandinavian” and “International Minimalistic” (Leleux.): • • • Increasing importance older customer groups Increasing availability of cheaper products thanks to globalization A wealthy middle-class who travels a lot and can afford luxurious homes.

however because their production was in Denmark. which gives a good indication since it look at the parameters in concert and therefore it gives a good measure of how valuable a brand is as well as which parameters should be improved. Instead this segment was being served by Stelton’s competitors such as Rosendahl and Menu who were able to produce at lower prices due to more efficient supply chains and that their products were being produced in countries where production costs were significantly lower than Denmark (ibid). Another observation that was important to Ring in 2004 was the value of Stelton’s brand.These are all trends that transform Stelton’s industry and in order to be successful. Ring. 2008).). companies in the industry must make sure that the internal elements of their organizations are aligned and matches the external world in order to take advantage of these new realities. It was well known that Stelton enjoyed solid brand recognition. was that 80% of the market (measured by volume) was made up of products selling for less than DKK 300 (ibid. by using the Awareness-Interest-Trial-Repeat (AITR) framework (see figure 4). especially in Denmark (ibid. 2008). This segment could be a potential growth area for Stelton. AITR test of the Stelton Brand (Leleux. 2008) 38 . 80% 60% 40% 20% 0% Figure 4. Stelton’s margins were too low for them to profitably serve this segment (Leleux.. Another observation that was of importance to Ring. In order to quantify how valuable the brand was Ring decided to ask a representative sample of potential customers in Denmark.

An optimal marketing mix.The outcome of this test was a serious cause of concern for Michael Ring. The combined observation about Stelton’s internal situation in combined with a look at how their competitors were performing in 2004 confirmed that Stelton’s problems were internal and that their orientation at the time was extremely poorly matched with the external realities. Ring identified the low interest in Stelton’s products as the most critical factor at the time (in 2004).). interested in buying their products. An efficient distribution system. because they represent opportunities to reorient to match the external environment. Additionally the corporate culture had become complacent and the company relied on the same formulas and paradigms that had brought Stelton 39 . he made it the top priority at the time to find ways to take advantage of this mismatch and make potential customers who were aware of Stelton. Innovative shop-in-shop solutions. In order to become a successful design brand. The other components he thought were required were: • • • • • • A continuous stream of new products. Especially. In doing so. Ring believes that several components are necessary and the high recognition of Stelton’s brand was actually the only component that Ring saw at Stelton in 2004. In fact the results of the test of Stelton’s brand were somewhat good news since mismatches is really what would be looked for. A manageable geographical focus (ibid.). since it showed that 72% of the sample of potential customers in Denmark knew Stelton. The concern for Stelton’s situation in 2004 is further verified when looking at the financials for 2003. An aggressive sourcing policy. which show that only 2% of expenses were spent on marketing while over 50% were spent on production (ibid. yet only 18% were interested in buying their products. the high production costs paralyzed Stelton’s ability to change their orientation and go after the attractive market segments for products selling at less than DKK 300. This gap between awareness and interest was significant and confirmed that Stelton was out of sync with the external realities they operated in and were embedded in.

isolation leads to decay and disintegration (Boyd. The main part of creating a new structure was to reorient Stelton towards the areas in which it had the strongest competitive advantage: Design.or schwerpunkt in Boyd terms .). which ensures coherence between the schwerpunkt and all of Stelton’s other activities. 2008. it was now up to Ring to set out a new direction for Stelton as well as figure out how to execute that new strategy. Overall. I will look more in depth at what Ring did to change the organizational climate at Stelton in the next part of the analysis. which as described earlier cause closed system to run down (Richards.for the entire Stelton organization became to become a world class design brand. which support the schwerpunkt . these observations show that Stelton had become a closed system which acted in isolation and as noted by Boyd. 5. Thus. The first step was to create the right structure and get it in place. 2004) that in order to be successful. Leleux. 2004). The idea that the right structure has to be in place before any changes can happen. an organization must have a climate that enables and encourages all members of the organization to execute fast OODA Loops (ibid. Stelton’s new schwerpunkt also meant not being involved in production unless it was absolutely necessary and instead it became the key priority to build four specific core competences. 40 . Based on these observations. 2008).2 Stelton’s Reorientation After Ring’s assessment in 2004 that illustrated how deeply Stelton’s problems were rooted.This is essential because Ring used all the information he gathered from the world outside of Stelton to find out what would be necessary to align Stelton’s activities and reorient them to adapt to these external realities. he came up with a 3-step plan that should bring Stelton back to profitability as well as to the forefront of the industry (Ring.success 30 years earlier. These four core competences where chosen based on the key success factors in the design brand industry. the new focus . is also akin to Boyd’s idea (Richards. 1987) as well as entropy.

and 1994) and this is their concepts of core competences and strategic intent. constantly changing systems. These two subsequent elements are both related. which it is dependent upon and therefore has to interact with. because when Stelton decided on this new focus and made it their vision to become a world-class design brand (Leleux. Additionally. This is consistent with the consequence of entropy as well. thus he acknowledges Hamel’s and Prahalad’s notion that some competences can be more “core” to a corporation’s success than other. 1993. Thus.The inclusion of the external world also implies an important acknowledgement of the new Stelton as an open system that is embedded in larger. Michael Ring believed that some competences were more important to succeed than others. With his observations about the industry. an efficient supply chain and a sufficient marketing infrastructure (ibid. the four core competences that Ring decided must be build are in almost perfect alignment with Hamel’s and Prahalad’s (1994) idea that any balanced company should have strong product development capabilities. to the first part about getting the right structure in place. 2004). thus the entire plan is coherent and all parts of it support the new schwerpunkt which is to make Stelton a world-class and innovative design brand. would be to invest where it was needed in order to rebuild Stelton and its brand and subsequently to create sustainability. when the external world is dynamic and in a constant state of flux and revision and really should be the most important for the organization to be aware of. This illustration further illustrates why Stelton in 2004 found itself in a crisis: It is not possible to run your organization as a static and closed system that does not take into account the external world. At the same time Stelton’s new schwerpunkt is a good example of strategic intent. 1991. 2008) they did not have the resources nor the competences to fulfill this goal.) The remaining parts of Ring’s plan after getting the right structure in place. the new schwerpunkt provided the entire organization with a common orientation and made it clear that Stelton then had to stretch and leverage their resources (Hamel and Prahalad. namely that closed systems run down (Richards. 1993) as well as build the necessary competences in order to reach that goal. 41 . Several aspects of Stelton’s new plan fit particularly well with Hamel’s and Prahalad’s work (1990.

Evolution of employees at Stelton (Leleux. In Boyd terms. Job Area Product Development Marketing Sales Management HR + Finance + Administration Customer Service Technical Support of Products Production Administration Distribution Production Total 2003 0 0 5 2 3 4 5 10 7 86 122 2004 2 0.5 8 1. A good illustration of the outcomes of Ring’s reorientation of Stelton is to look at how many employees are employed in the different parts of the company (see figure 5).5 Figure 5.5 10 1. all of Stelton’s products were cylindrical (Ring. while at the same time closing down most of their production.5 3 4 1 3 7 36 69 2007 2 1. Furthermore because Stelton’s production facilities in Denmark excelled at producing cylindrically shaped products. These numbers of the evolution of employees at Stelton clearly show how they reoriented the organization to focus on the core competences that Ring had chosen.The plan also marks a significant departure from Stelton before 2004 where the investment level was almost zero and commonly accepted and deeply held believes restrained Stelton from changing. Stelton’s product developments and designs were determined by the capabilities of their production facilities which was already incurring them with very high production costs.5 5 1. So instead of focusing on and specializing in design and R&D like their successful competitors did.5 3 4 1 4 6 42 73 2006 2 1. The one dogma that was probably the most significant impediment to change at Stelton was the ambition that everything should be produced by Stelton.5 13 1.5 3 4 1 3 10 30 69. Michael Ring’s first task in order to turn Stelton around was therefore to correct this serious dislocation from the market that these deeply embedded believes at Stelton had created. 2008).5 3 4 1 5 6 54 82 2005 2 1. 2008). figure 5 shows the decision and action element of the 42 .

2004) who thinks that mutual trust is fundamental to any organizational climate and additionally. 5. Stelton also had to close production facilities and develop new products along with building their core competences.3 The new Organizational Climate at Stelton In order to turn Stelton around and get the right structures in place. but it sets an example of openness and honesty while at the same time making it clear to the entire organization that Stelton’s situation was very serious and drastic changes would have to be implemented for the company to survive. which was based on Ring’s initial observations and his newfound orientation. While it is useful to analyze the changes at Stelton through observable outcomes such as profitability and evolution of employees. so while reorienting Stelton to match with the external world. One of Ring’s first tasks at Stelton was to cut costs and even though this had the unpleasant consequence that people had to be fired. this does not build mutual trust. 2008). Ring made sure to make these decisions quickly and communicated openly and within 30 days the employees who would have to leave the company knew. And just as Boyd (Richards. Naturally.13). these outcomes are the results of observation and orientation and it is through looking at these that we are able to see how Ring changed Stelton. The message that production would be closed down and the 43 . 2008. 2004) these elements were not carried out sequentially and linearly but rather simultaneously in a process where Ring and Stelton had to execute all the elements at the same time. Ring believes that a leader has to lead by example (Ring. p. mutual trust allows companies to execute their OODA Loops faster than organizations that do not have a climate of mutual trust. Ring knew that he had to start with the culture at Stelton. 2004) prescribes that the top of the organization has to set the example they want the rest of the organization to follow. Additionally Ring believes that it is a prerequisite for Stelton’s success that they take care of their stakeholders and employees: “You take care of all stakeholders so that ultimately they take care of you…You cannot build something sustainable on someone’s slumping back!” (Leleux. This is consistent with Boyd (Richards. However when analyzing the sequence of actions it must be stressed that as Boyd prescribes (Richards.OODA Loop.

p. Ring has subsequently made it clear that he consciously chose his new team based on whether they possessed the core competences Stelton wanted to build as well as whether they had the attitude Stelton was looking for.) to promote those who support the schwerpunkt and remove those who do not. he made it clear that not just one part of the organization had to change. 2008). 2008. but rather the entire organization had to reevaluate the things they were doing and the reasons for doing them. (Leleux. When Ring took over in 2004. his actions are in some ways in line with Boyd’s idea (ibid. who also needs to have the culture that Stelton wants to have (Ring. also served as a wake-up call to the rest of the organization who had been part of Stelton during their decline. Ring. 2004) emphasizes several times that one of the key components in achieving mutual trust is time. To support the schwerpunkt Stelton developed new and very clear vision and mission statements that would serve to guide the company: Vision: Stelton is the most innovative. ahead of its time brand/design house based on the Scandinavian design philosophy. trendsetting. The new schwerpunkt would serve as the focus and the new Stelton would have to become leaner and much more innovative in order to accomplish this. Ring had little choice but to make Stelton leaner immediately and thereby let go of employees. they needed to have the world’s best employees. in which the best designers in the world aspire to work. Since Stelton was so seriously misaligned with the realities in their industry it seems fair to assume that many employees would not be ideally suited to execute the new strategy Ring wanted to implement. 2008) 44 . 17). Although Boyd (Richard’s.majority of the employees employed in production let go. Although the time requirement is difficult to fulfill as Ring was new to Stelton. 2008. Additionally. Ring made it clear that in order to implement the right structure at Stelton and build the four core competences he decided on. Mission: Stelton want to be the first choice for consumers who actively seek good design to enrich their way of living. (Leleux.

Christianshavn. Taken together. 45 . 2004). Make decisions and execute them. 2008): • • • • Get the right team together. This is in line with Boyd’s idea of leadership as inspiring people to reach uncommon goals (Richards. Finally. Continuously develop these employees Lead by example. According to Ring a leader’s four most important tasks are (Ring.Michael Ring’s view of what constitutes leadership and what a leader’s most important tasks are also set the tone for an entirely new organizational culture. it is of great importance to continuously develop and train the team to be up to par and then the leader’s job is to make decisions and set an example that his employees will be inspired to follow. With the climate that Ring has created at Stelton this seems to be the case although it takes time to build mutual trust and therefore it should be a top priority for Stelton to retain their employees and continue to encourage a culture permeated by mutual trust. Ring exemplified Stelton’s new orientation while cutting costs at the same time when he decided to move Stelton’s head office. all parts of the organization must be as closely connected to the surrounding environment as possible (Romm. these four tasks say that a leader cannot do anything without the right team. to an old warehouse in the trendy part of Copenhagen. Christianshavn and the old warehouse caters more to the creative minds Stelton wants to be associated with and at the same time it brought their orientation closer to the external world they want to sell their products to. 1994) and they must work together towards the same schwerpunkt while knowing that they can trust each other to swiftly change the orientation of the company based on their observations. In order for an organization to be agile. And additionally. Ring moved the head office from a big old villa in the wealthy Copenhagen suburb Hellerup.

Out of every 10 new products.4 Stelton’s Reorientation in Product Development and Supply Chain Management As mentioned earlier an observable outcome of Stelton’s new organization and increased agility is the changes in two of the core competences they decided to build. Based on what he had seen his competitors do along with the large potential segment of products priced less than DKK 300. 2008). and 2 to be unsuccessful (Ring. 15) This quote underscores that Ring and the new Stelton understands that it has to constantly reorient so that their organization is aligned with what they observe in their external environment. Therefore his decision to close down most of the production in Denmark and instead hire new people to set up and manage a high quality sourcing department seems like an idea that would increase the efficiency of Stelton’s supply chain and lower their production costs as well as making their production leaner and more flexible. and even though all new products should be coherent with Stelton’s new schwerpunkt. dynamic…” (Leleux. 2008. p. Ring’s new product strategy marked a significant departure from this old strategy and he made it the goal to develop 20-30 new products each year. Previously Stelton had launched very few new products and instead they had relied on their old collection of popular products designed by Arne Jacobsen in the 1960’s and Erik Magnussen in the 1970’s. Also in terms of Sanchez’ and Heene’s (2004) this change increases the strategic flexibility since it allows Stelton to easier switch between suppliers and while lowering costs. Ring decided that costs would have to be brought down significantly if Stelton was ever going to be able to serve that market. Another important change was in Stelton’s approach to product development. Of course Stelton do not plan to make 2 out of every 10 new products unsuccessful but in accordance with their schwerpunkt 46 . 6 to be OK. he also made it clear that: The design principles are not stuck in time. As mentioned earlier these competences were part of what Ring believed a successful design brand had to master (Leleux. They are organic. Stelton has become is their new approach to product development.5. And perhaps more important than the number of new products is Ring’s view of design as a holistic and dynamic process. 2008). Perhaps the example that best demonstrates how much faster at executing OODA Loops. Stelton expects 2 to become blockbusters. product development and supply chain management/sourcing.

they are able to execute OODA Loops ever faster as the employees gain experience and continue to build mutual trust while getting to know each other better so they can increasingly rely on verbal and implicit communication which is significantly faster and more efficient than written and explicit communication. personal communication). he also emphasizes the importance of the feedback loops that connect consumption with the production and distribution processes.or the external realities in Boyd terms . 2004). Stelton is also able to sell it profitably to the large segment that demands products under DKK 300. A concrete and very successful outcome of Stelton’s reorientation in product development and supply chain management is their bread bag. Because this organizational climate has become embedded at Stelton. Platt is the former corporate innovation manager at Intel who is now lecturing about the importance of Boyd’s OODA Loops and how businesses can become more agile and innovative if they learn to execute OODA Loops fast enough. Figure 6. and this is in reality what Stelton is doing when they launch their new products and adjust their marketing and production accordingly as soon as they get the markets verdict. instead of promoting a culture where mistakes are punished (RICHARDS. and in doing so Ring makes an auftragstaktik or a contract between him and the employees at Stelton’ which also lets the employees know that their fingerspitzengefühl or intuitive feel is trusted and that the organization encourages taking these risks and learning from them. launched in 2006 with a retail price of DKK 149. Not only is this product innovative in a category as simple as bread bags. Not only does this approach look like what Boyd prescribes for successful organizations. This is consistent with Richard Platt’s (2007) notion that investments in product development should impact: Speed to market and profitability. The bread bag has become an enormous success for Stelton and since it was introduced approximately 700000 bread bags have been sold (Michael Ring. 2007). it is also reminiscent of Dicken’s production circuits (Dicken. is an aggregation of what Michael Ring and Stelton have accomplished since he took over in 2004 can be found in 47 . thanks to their new and more efficient supply chain. Just as Dicken describes the production of goods as circular and reflexive. and subsequently continue to use this knowledge to create products that match the market .they accept it.ever more.

the main purpose of the analysis has been to show that these changes which all show a remarkable improvement in performance. these changes have enabled Stelton to execute their OODA Loops. DKK 57% 14% 10% (2006 numbers) 16.0 Figure 6.5 2007 142 Mill. DKK 35% -7% -10.18. personal All of the parameters in figure 6 have undergone significant changes and in spite of that all the parameters are tangible and quantifiable. radically faster than before Ring took over. Changes at Stelton from 2003 to 2007 (Leleux. 2004).6% (2006 numbers) 34 20-30 25% (of revenues 7.8% .7% 101 0-1 2% (of expenses) 3. Michael Ring. 48 .Parameter Revenues Gross Margin Net Profit Margin Return On Assets Return On Equity # Of Employees In Production New Products Per Year Marketing Expenses Retail Price to Total Production Costs communication) 2003 74 Mill. have been precipitated by the changes in the underlying structures and processes and through changing the ways of thinking that were deeply embedded in Stelton before 2004. When looking at these changes through Boyd’s OODA Loop framework and concept of agility (Richards. 2008.

I found indications that Stelton’s significant improvement in performance can be ascribed to a reorientation towards a more systemic and reflexive approach. Particularly I found that Stelton changes in these underlying structures and processes were well described by the framework of John Boyd and his theory of OODA Loops. in my research question. like Stelton in my case. The suspicion that Stelton’s problems were caused by internal factors was verified by looking at the performance of Stelton’s competitors as well as interviewing the owner of Stelton since 2004. in concert with a culture where I found signs that Stelton showed signs of all the attributes of a “an organizational climate for operational success” (Boyd. quoted in Richards. one meets the obstacle that most turnaround literature looks at companies prior to a crisis then again ex post when the companies have either gone bankrupt or successfully been turned around. To test this. I chose two core competences as proxies and then looked at how the observable and quantifiable changes in these two core competences were enabled and precipitated by a change in Stelton’s organizational climate and their underlying structures and processes. the approach I chose for studying Stelton was to look at to what extent their underlying structures and processes changed in order for Stelton to become an open system. that they turned into a closed system which failed to observe and adapt to the surroundings they were embedded in.6. 2004) and Dicken’s (2007) ideas of reflexive systems. One of the main reasons for Stelton’s decline in performance was found to be. 2007. and then this process is analyzed in terms of different financial measures. Michael Ring. while emphasizing the importance of organizations being agile and flexible and ready to adapt to take advantage of the changing dynamics in their external environments. different frameworks within strategic management such as Hamel and Prahalad (1990. p. 1993 and 1994) and Sanchez and Heene (2004) prescribe different ways for companies to organize in order to create sustainable competitive advantages. and 49 .0 Conclusion When attempting to study a turnaround. On the other hand.) view and in concert with Boyd’s (Richards. 1991. Inspired by Sanchez’ and Heene’s (ibid. 51).

within this closed system the entropy gradually increased until Stelton was in such poor shape that drastic measures were required to save them. My insights from Stelton’s case and the new structure Ring implemented at Stelton, is consistent with the theories I reviewed, which agree that, circuitous, systemic organizations are more successful than organizations with linear approaches, and overall more holistic organizations that interact with and adapt as much as possible with the external environment in which they are embedded, will show superior performance relative to Stelton before Ring took over in 2004.

6.1 Further Perspectives

Based on the insight from Stelton’s turnaround a more eclectic approach to organizational performance through a combination of theories from strategic management as well as Boyd’s concepts of OODA Loops and agility applied to business, should be further investigated. The main finding of my research has been that in order to change the performance and agility of an organization, there has to be an organizational climate and culture that provides a schwerpunkt as well as encourages einheit, and an auftragstaktik that allows the leaders to trust their employees to use their fingerspitzengefühl to perform their tasks. More case studies matching successful companies with poor performers would provide an opportunity to compare the organizational climate and its impact on performance.

A weakness of the conclusions of this study is the low validity since I have only been able to look at one organization. Therefore, more studies of organizations of different sizes and in different industries would improve the validity and demonstrate whether the conclusions of this study can be applied outside the context of Stelton. Additionally, many of the concepts that have been investigated are hard to identify and define and therefore it would be helpful in the future to have different constructs to measure for example mutual trust and ability to observe.


7.0 References Books Bryman, Alan and Bell, Emma (2003) Business Research Methods, Oxford University Press.

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Porter, Michael E. (1998) Competitive Strategy. Free Press

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Romm, Joseph J. (1994) Lean and clean management: how to boost profits and productivity by reducing pollution. Kodansha.

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And then the No’s you get rid of immediately and this group can potentially become large if you have to meet specific goals and lower your costs to specific levels. to make sure that the values and ideas you talk about are embedded in the organization. but there just was not a job for them in the organization after we closed the plastic production. What is important for you when writing about PD and sourcing is that it is related to the mission and vision that is stated. No and Maybe. Let me give you an example: We had our own plastic production and we closed that and moved it. This can also be employees that work in parts of the organization that will no longer be needed. we are constantly trying to live up to our mission and vision and the brand values that we have. because I assume many of the employees have remained the same? Michael: Unfortunately many of the employees are not the same.. Jesper: What are the criterias for Stelton’s new products? One of the new things after you have taken over is the “Stelton state of mind” Michael: In our products. Jesper: What have you done since you looked at Stelton in 2004. Many companies make mission statements and brand values but then they put those aside when they start doing business.0 Appendix Interview with Michael Ring on the 15th of April 2008 Michael: What is important when talking about Product Development (PD) is whether everything is related to the mission and vision that Stelton has and that is what it comes down to when Stelton makes a new product. When you are buying a company that is not making money then you divide the employees into three groups: Yes.8.. 57 . Not because the employees in the plastic production were bad.

It is not because we have a goal that 2 must be unsuccessful but we accept that. you dare to do things that other organizations do not dare to do.. however it is not easy to make.. and therefore we created a culture that permeates this entire organization. it is a attractive industry. Jesper: Did you have any specific ideas in order to get a step ahead of your competitors? Michael: I looked at the world famous thermo jug (by Erik Magnussen) and then said to myself. And by doing that. When we make 10 new products. If you do the right things it is an attractive industry to be in. And there was this very clear ambition that everything should be produced by Stelton. Because if you look at the industry overall.. Because then you promote a culture that says it is ok to make mistakes and it is ok to take risks.Jesper: Was one of the key criteria also that almost all of Stelton’s employees were employed in production and that it was necessary for Stelton to cut production costs? Michael: The production as well as the administrative roles related to production were closed. Jesper: When looking at Stelton’s competitors like Menu and Rosendahl they seemed to be doing fine at the same time while Stelton was underperforming so it seems as the problems are not as much due to the industry as to internal factors at Stelton? Michael: It was internal. Michael: The stainless steel was the main thing. Jesper: So it seems as if Stelton up until 2004 kept seeing the products designed by Arne Jacobsen as Erik Magnussen as the most important and saw it as their main role to continue selling these products. And because the production excelled at producing 58 .. then 2 of them have to be ‘blockbusters’ 6 of them have to be OK and the last 2 unfortunately not be successful. It is these you have to make.

Also I had a CC’s where I came from and that was marketing and understanding specialty retailers and sourcing.cylindrically shaped products. It was not the case that somebody had the idea that “wauw now everything has to be cylindrical because that fits with Stelton”. PD was something I had learned during my time at Royal Scandinavia. Jesper: I only look at two core competences (CC) but all the 4 CC’s you saw as the most important for Stelton were non-existent and had to be build? Michael: One of the things I do well is to lead people. all products were cylindrical. It sounds crazy when you say it and of course that is not entirely how it was but that is how the underlying process was. Was that the outcome of a specific task given to a designer or how did that come about? Michael: The idea is actually from a morning when I was sitting at home and had an Alessi bread bag where I had forgot to put a napkin in and then I though: “oh no. but that was not what my CC was. why not make a bread bag out of the napkin. Jesper: So do you have the final say in regards to what new products you choose to develop? Michael: We have a process where at the end two people have to agree.” And then I looked at the Alessi bread bag which is from 1952 and is very beautifully designed and then I thought: “what a stupid design” and then i had the idea. it was because Stelton was very good at producing cylinders. 59 .. Jesper: I would like to know more about the bread bag. That is also why I very quickly realized that in PD I need somebody immediately that understands the nuts and bolts and the technical aspects of PD. and that is the head of PD and me. And then I essentially give that brief to some of our designers who developed it and added parts such as the magnets so you can close it. now there is going to be bread crumbs all over.

About the first point how to get a good team together sometimes it might be the case that some parts of the team are not fully developed. And I say this after having read countless books on the topic. (Continously) Develop these employees 4. 2. Michael: Correct. His previous job was in the hotel industry so he did not have any industry experience but he had the right attitude and he was eager to learn. Get the right team together 3. And in order to become the best in the world we need to have the world’s best employees and they have to have the world’s best education and they need to have the culture that we want to have Jesper: What have you done to nurture and embed this culture at Stelton? Michael: A leader has four tasks that are the most important. This is one that is often forgotten but nevertheless very important: Make decisions and execute. so I took the guy who was the best in the MBA class at CBS that year. Leading by example (it is of no use if I say we have to keep travel costs down if I then fly business class) 5.. Jesper: So were you the driving force behind the new sourcing as well? 60 .Jesper: I assume that the first priority when you took over Stelton was to survive. These four are what makes a good leader. As an example in the marketing department I was convinced that it was better to get someone who was young but with the right motor. And the second priority was then to become the best in the world at those four CC’s which all build on the key success factors in the industry.

where fierce competition creates a cluster of firms in the same industry. so so you feel the competition is becoming more global. This is also what I see in our industry in Denmark where new companies emerge and some make it and some do not make it. such as quality inspections and technical aids for the factories and such. Jesper: So there is no middle man involved? Michael: We use one guy to do different services for us. It is similar to the IT or the hearing aid industries for example are both industry where there are some clusters. Jesper: Do you feel the competition has become more intense after even small companies are able to get access to global resources as well? 61 . Jesper: You have now had four years in this industry and have gotten to know it better.Michael: That was my head of PD and myself that did that and in that phase. Jesper: How do you carry out quality control and keep track of these new production networks? Do you go out and look for these factories or how does it work? Michael: At this point we are finding some factories and then we try to initiate long-term relationships with these. my previous experience at Royal Scandinavia and George Jensen was a huge advantage since I had done something very similar there. and we know what he makes doing that and that is ok with us. because what I have found is that more of your new competitors such as NormannCopenhagen and Muuto are also Scandinavian? Michael: When you have a dynamic industry then that industry will also develop and undergo changes and currently the dynamic in our industry is in Denmark.

. then why should we go to Japan to sell our products? There’s plenty of unfulfilled potential in these countries and this is exactly what a companies fail to see and therefore spread out way to much.Michael: Actually I do not think so. 62 . Norway. Jesper: When you are looking for new markets are you then looking for market segments so that it might as well be London as Frankfurt or are you looking at it in a more general way and going for the countries where Stelton is already known? Michael: What we look at. As an example Erik Magnussen was at an expo in Rio di Janeiro organized by the Danish cultural ministry.. Jesper: I read a case study on Muuto and they made it a point to emphasize that they are present in 15 countries and only sold in a couple of stores each place. Some of the small companies have a belief that the more markets they are in.. We (Stelton) have to sell products in Denmark.. but you have to sell to them 5 and 10 times before you develop a relationship and it becomes sustainable. Clearly our main competitions. Michael: That’s the road to hell. what kind of signal would that be to send to the rest of the organization? Again. leading by example so when I say we have to focus we have to focus. is on the Danish market.. That is what is important to us and that is where we invest. is what the market potential in the different countries is. where my opinion is: “forget it”. but as soon as you go outside the Danish market this changes. They paid them selves of course and he also asked me and I explained to him that we sell more on Moen (small Danish island) than I do in all of South America. the better it is. Germany and Benelux. and all the companies that produce his products were present. And as long as there is great potential in markets like Denmark and Norway and Sweden and Germany. Because the first sale (to the stores) is always very easy. to try to build a brand globally with extremely limited resources and I think they have been blinded. So i cannot possibly defend to go there. Sweden.

Jesper: I am particularly interested in where your focus was when taking Stelton in a new direction. Jesper: So going forward do you also see a remained focus on organic growth? Michael: Currently when we are seeing double-digit organic growth.. It seems that the first task was to survive and clean up.. so why go and buy someone because it is a lot less risky to have 58% organic growth than to buy a company. Jesper: Does this also mean that these new price points have converted people who were previously non-customers to customers? 63 . 20 Euros) Michael: Exactly. Jesper: Has this also meant that you can go after new markets and market segments? As an example the bread bag we talked about earlier sells at DK 149 (approx. Michael: Exactly and then second is to build your CC’s and the third step is then sustainable growth where we among other things have bought a cutlery factory. Jesper: How has your profitability increased after you have changed your production? Michael: Where we previously had a gross margin after fixed production costs of 38% we are today at 60%. That is why we can pursue other segments and price points which we were not able to before. Last year we grew our sales by 58%. Of course we are still keeping our eyes open for opportunities but it is not like we are cold calling companies to take over anybody. then it is really difficult to go out and say: “Let us buy a company”.

Of course we also have to produce more expensive products to maintain our brand but we have also chosen to make products that are affordable for everyone and that has actually always been possible. there has just been a perception that it was not possible. Michael: Yes. So if you have a product that costs DK 350 then you are competing for only 20% of the market. Jesper: Was this move particularly motivated by what you had seen your competitors do? Michael: I have learned something from Rosendahl. Had we made the bread bag and not had the Stelton brand it would not have been the same success. When I first started working for Royal Scandinavia in 1999 we looked at Rosendahl as this little newcomer but he was smarter than us and we learned something from him. you will end up winning. And that is what we are doing and that is why our CC’s look as they do. so brand is definitely important. and we are aware of that. Jesper: How do you avoid that you end up competing for the same customers only on price? Michael: By constantly trying to be ahead in innovation and marketing.Michael: If you take the Danish market in general then products priced at DK 250-300 and less represent 80% of the market. Jesper: So it is about using the Stelton name and brand to launch innovative products and positively surprise customers. 64 . Jesper: Are customers in your industry usually very loyal or are a lot of purchases by impulse? Michael: They are very brand loyal.

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