Professor Edward Desmarais
BUS470 Business Policy and Strategy
Fall 2001
CANNONDALE Cororation
case analysis
December 17, 2001
International Strategic Annalists
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Table of Contents
- Executive Summary……………………………………………………………. 1
- Current Situation……………………………………………………………. 2
- Current Performance……………………………………...……………. 2
- Strategic Posture…………………………………………..……….4
- Corporate Governance………………………………………………..….18
- External Factors…………………………………………………………….19
- Industry and Competitive Analysis ……………………………………..….21
- Summary of External Factors …………………………………………73
- Internal Factors…………………………………………………………….77
- Financial Analysis…………………………………………………… 105
- Management’s Personal Ambitions, Philosophies, and Ethics………... 117
- Company Culture…………………………………………………………….. 118
- Summary of Internal Factors………………………………………….. 120
- Strategies……………………………………………………………………… 125
- Generic Strategy…………………………………………………………….. 125
- Strategy to Gain Maintain Competitive Advantage………………………….. 126
- Matching Strategy…………………………………………………………….. 127
- Summary of the Strategies …………………………………………….…….. 130
- Recommendation and Implementation / Evaluation and Control …...…………….. 134
Appendix A (Consolidated Financial Statement)………………………………….. 143
Appendix B (SWOT Matrix)……………………………………………………………. 152
Appendix C (Responses to Panel)…………………………………………………… 155
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A. Executive Summary
Mission and Vision / Objectives(short and long term; financial and strategic) / External
Opportunities and Threats / Internal
Strengths and Weaknesses / Recommendations(include the pros and cons of each recommendation)
Corporate, Business, Functional, Departmental / Cannondale Corporation mission statement is:
“To be the best cycling company in the world”. Their mission inspired ten principles and on of them is “Stay lean, remain competitive and entrepreneurial” 1 To fulfill their missions they enter the motorcycle industry recently.
Cannondale Vision is “making the best cycling and off-road motorsportscompany in the world” 2. /
Strategic objectives
Short term:-Achieve 15% share of the off-road motorcycle US market by year 2002.
-Lower the operation cost in manufacturing by 2% by 2001.
-Quicker product design-to-market times by 15% in 2002.
-Decrease the number of new product defect by 20% by 2002.
-Deliver their products to the retail stores in 5 to 12 days from the order receive.
Long term:
-Become number one manufacturer and marketer of high-performance bicycle in the world by 2010.
-Reduce the number of defects to 1 on 10,000,000 bicycle by 2004 to 2009.
-Enter motorcycle European markets by 2005 and capture additional 10% of market share.
-Spend $1 million on marketing each year to get the strongest and most recognized brand name by 2005.
-Establish 50% more specialty retailers store in Australia and Europe by 2005.
Financial objectives
Short term:-Achieve 20% annual revenue growth in the 2000.
-Return to its profit margins of 6.2% from 1995 by the end of next year.
-Improve itsMVA by 10% by the end of the next year.
-Increase revenues from Europeans market by 34% by 2001.
-Improve Assets turnover by 12% by 2001 to improve assets efficiency.
Long term:
-Achieve annual sales growth of 30% through 2001 to 2005.
-ReduceDebt/Equity by 23% by 2003 to maintain financial stability.
-Become one of the two best performing stocks in the bike industry by 2005.
-Reduce costs to achieve higher profit margins and increase ROE to 1991 levels of 17% by the end of 2004.
-Achieve profit margin of 12% by 2003 /
Opportunities
-Faster then US growth of international markets.-Expend domestic market share.
-Locate manufacturing plant in other countries with lower labor cost than in US.
-Societal values and lifestyles in which customers turning toward outdoor activities in their leisure time and have disposable income to spend.
-Market size
-E-commerce
-High demand for juvenile bicycles.
-Low rivalry in the motorcycle industry.
Threats
-Maturity of the US market.-Low industry profitability.
-Exit barriers which required large capital to leaving the market in terms of stakeholders’equity.
-Economic slowdown.
-Pace of technological innovation in product introduction.
-High Rivalry
-Fast changing trends and lifestyle.
-Fast diffusion of know-how. /
Strengths
-A powerful narrow differentiation strategy supported by skills and expertise in key functional area.-Flexible manufacturing capabilities suited for production of high-end, high-quality bikes.
-Higher that rivals degree of differentiation supported by greater degree of vertical integration.
-Brand name recognition.
-Cannonade’s proven skill in continuous products innovation.
-CAD and CAM technology
Weaknesses
-Production processes not suited for production of low-end bicycles.-Low Profit margins of 3.3% (1999).
-One plant in light of global competitors.
-High debt leverage. / -Outsource production of low-end bicycles.
-Develop linkages with foreign distributors of low-end bicycles to increase scale.
-Open manufacturing plant in Eastern Europe and capture more market share.
-Aggressively enter off-road motorbike industry to rejuvenate growth.
-Increase customization in the high end to command higher premium prices and increases Profit margins.
-Build strong line of inexpensive bicycles with different brand name and to use the capabilities in design and increase profits.
Cannondale Corporation Case Study, p.127, 2 Cannondale.com
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B. Current Situation
I. Current Performance
Cannondale Corporation manufacture high-performance aluminum bicycles and bicycles accessories. In early 2000 Cannondale was world’s leading bicycle industry manufacturers and marketer with an estimated 20% share of U.S. high-performance bicycle market. The company sells their product in more then 60 other countries.
Cannondale’s revenue growth had slowed to an annual rate of 9.7 % between 1995 and 1999 after growing at a compounded annual rate of 22.3% between 1991 and 1995. In January 1999 Cannondale posted revenue of $176,819,000, and net income of $5,923,000. Their stock price steadily declines since its peak of $27 in 1997.
In 2000 the company sold its bicycle through 1,150 specialty retailers in Canada and US, who could provide knowledgeable sales assistance regarding to the technical and performance characteristics of products and offer ongoing a commitment to service. Cannondale products were not available through mass merchandisers. Cannondale provides their dealers with a full line of bicycle components, accessories, and men and women’s cycling apparel. Cannondale offer 71 total bicycles models of which 70 are aluminum based.
In early 2000 the company prospects for a growth by introduce MX400 off-road motorcycle. Cannondale management planned to capitalize on the initial success of the MX400 with the unveiling of several additional motorcycles at the motorcycle industry.
Cannondale corporate headquarter is located in Georgetown, Connecticut and its manufacturing facilities in Bedford, Pennsylvania. End of July 1999 Cannondale employed a total of 779 full-time workers in US, 115 in Europe, 16 in Japan and 6 Australia subsidiary.
II. Strategic Posture
Mission: “To be the best cycling company in the world”.
Their mission inspired ten principles and on of them is “Stay lean, remain competitive and
entrepreneurial” 1 To fulfill their missions they recently enter the m motorcycle industry.
Criteria / Facts / What does this mean?What is our business? / Cannondale business is to manufacture and market high-performance aluminum bicycle and high-performance bicycle components. They also provide its dealers with a full line of bicycle components, accessories, and men’s and women’s cycling apparel. Cannonade is pioneer leadership in developing and producing the first lightweight aluminum frame for road and mountain bicycles. The company’s bicycles are carrying “Handmade in US” logo.
The company distributes their product to the best specialty retailers in the world that provide knowledgeable technical and characteristic of the product sales assistance and ongoing commitment to service.
In 2000 the company launch MX400 off-road motorcycle. / Cannondale satisfies and delights theircustomers with the high-performance, high quality bicycles and is the trends maker in the bike industry.
Their business operates in the mature stage of the industry, which produces fundamental changes in the industry competitive environment. Cutting-edge know-how and first-to-the market capabilities are very important in this market. Cannondale differentiate their products through technological innovations that make their bicycle lighter, stronger, faster and more comfortable then rivals.
They concentrate on the specific market niche for high-performance, high-quality bicycles for mostly adults’customers who are turning toward outdoor activities in their leisure time. They also concentrate on very narrow market niche for racing team member and they try to be the best market provider for these customers.
The industry business environment is changing by attitudes and lifestyle, and the shifting needs of the customers must be taking into consideration. Cannondale developed alternative business segments by enter into new motorcycle industry and introduced their first motorcycle to the new customers they try to capture.
Cannondale operates in the international market mostly in countries (Europe) with high economic growth and high numbers of individuals that have the disposable income to purchase bicycle for recreations reasons.
Cannondale’s sale model provides their customers with excellent after purchase customer care and assistance.
Who are our customers (stakeholders) (p. 34)? / -Customers -Community
-Competitors -Financial Institutions
-Employees -Government
-Shareholders
-Suppliers / Cannondale has an obligation and responsibilities toward each of them and fulfills it to the best of their knowledge and ability. They care about each other, the shareholders, customers, and vendors.
What do we do for each of them (p. 34)? / -Customers: Supply durable construction, innovative design, high quality and exceptional performance products to the market quickly. Provide excellent customer service.
Cannondale is a niche market provider
for five different bicycle category market segments: mountain bike, road racing, multisport, recreational, and specialty. Their customers in all market segments have different needs and expectations, and for each of the customer segment Cannondale provide different product.
-Competitor: Cannondale provides alternatives for the consumers and creates a competitive force in the cycling market. Competition is based on perceived value, brand image, performance features, product innovations and prices. They stay lean, remain comparative and entrepreneurial.
-Employees: Provide growth opportunities for talented/motivated individual, benefits, economic and educational development, contribute to improve life standard of employees.
90% of profits is going back into the company for growth and the balance is share with the employees.
In 1999 they employed a total of 779 full-time workers in US and 115 in European subsidiary, 16 in Japan and 6 in Australia.
Cannondale creates friendly and safe working environment for their employees and gives them the opportunity for individual growth.
-Shareholders: Cannondale provides yield earnings.
-Supplier: Alliance partnership with various aluminum suppliers to achieve favorable pricing and delivery terms and technical assistance. But the company believes that termination of its contracts would not have the significant impact on the cost, because of aluminum’s wide availability.
-Community: Cannondale provides jobs in the community.
Cannondale cares for the environment by taking proactive position in regard to safe and responsible cycling.
-Government: Cannondale pays taxes and follows rules and regulations.
-Financial institution: Cannondale borrows money to operate their business and pays interest. / Cannondale fulfills customer’s needs though their business models. They successfully respond to changing customers demands and trends in timely manner, including the introduction of new or updated product at prices acceptable to their customers.
Cannondale attempt to serve different customers with the different types of products. They add value to each segment by innovate and improve their bicycles and make them more comfortable and easier to use for the customer. For example for mountain bike customers they combine elements form other bicycles categories that allow more upright cycling positions then read racing bike.
Cannondale tries to be the industry leader and the best cycling company in the world. The worldwide market for bicycles and accessories is extremely competitive and Cannonade has to face strong competition from a number of manufacture in each of the product line.
Cannondale’s competitors are mostly companies from Asia and US. To be able to compete with them Cannondale tries to establish high brand name recognition among their customers. They produce their products in US as a guaranty of better quality over the rivals. Their US manufacturing base is key competitive advantages. Cannondale produce faster by using domestic components than rivals who import from Far East and quicker design-to-market times are a key competency in the industry. It also prevents other component suppliers in Asia from copying their products and selling at lower price.
As the entrepreneurial Cannondale entered the motorcycle industry and they designed and introduced their first new product.
The company encourages employee to be innovative and entrepreneur. Continuously improvement respects and cares one another is the most important issue in Cannondale. The management encourages employee to be innovative and entrepreneur. The company shares profits with all employees.
The employee relations are good.
Cannondale increases owner’s wealth by providing earnings.
Cannondale contributes to their suppliers’financial growth and creates a good relationship with them. They need to develop the ability to maintain flexible relationship with their current suppliers and the ability to substitute new suppliers without interruption of component supply. The alliances with suppliers lead Cannondale to receive services and quality products. Their buying power allows them to secure higher-volume purchasing discount.
Cannondale creates a good image for their company in the society.
Cannondale fulfills their financial duties towards government in order to operate business legally.
Cannondale is able to pay the interest to their creditors and uses financial leverage to increase their competitive advantages.
How (technology used or functions performed) do we meet their needs and expectations (p. 34)? / Cannondale meets expectation through the use of high technological innovationsin frames, components and suspension systems. In 1999 they use carbon composites and titanium to produce frames in high technologically advanced mountain bikes and K2 computer-chip-activated Smart Shock.
In 2000 the company launch MX400 off-road motorcycle. / Cannondale creates opportunities for the consumers, stakeholder and suppliers and creates a challenge to their competitors. Cannondale continues to focus on customer needs by using newest technological innovation and advantages in the operation processes and services, that makes Cannondale leader of the high-end bicycles sector. Cannondale has competitive advantages in manufacturing processes and R&D they shares experience, new designs, and new product ideas with racing engineering staff which significant improve the efficiency of the R&D activities. Though the flexible manufacturing process, know-how to Cannondale is able to have a quicker design to market in comparison to their competitors. Industry manufacturers kept adding features to their products in attempts to maintain their market share and Cannondale is a pioneer in production and product innovation process. The technology that Cannondale implant in their business model gives them the competitive capability over their rivals and address customer’s needs. To remain competitive and entrepreneurial. Cannondale entered new motorcycle industry.
How do we communicate the mission to our organization and our customers (stakeholders) (p. 40)? / -The company Web page
-Post in a building
-Annual report
-Advertisement
-News letters/Memos
-Press release / Cannondale shows their stakeholders whether or not they are achievingtheir objectives by keeping them informed of their presence situation. Informed employees are motivated and fulfil Cannondale’s missions more successfully. Cannondale tries to stay close to their customers to better fill their needs and expectations.
Vision (Refer to the same pages for the mission concepts.)
Criteria / Facts / What does this mean?What will our business be in 5, 10 years? / Cannondale will be the best cycling and off-road motorsportscompany in the world” / By achieving this vision, Cannondale will care of their stakeholders, customers, and venders.
Produce high-performance, innovative, and quality aluminum bicycle as well as high-performance bicycle components.
Device flexible manufacturing processes that enable them to deliver theirproducts to the market quickly.
Limit the distribution to the best specialty retailers in the world with excellent customer services.
Remain competitive and entrepreneurial. Cannondale promote from within whenever possible.
Improve everything continuously.
Who are our future customers? / Cannondale’s future customer will be:
-Existing adult and juvenile mountain bikers in the world
-Potential mountain bikers in the world.
-Team racers
-Distributors (independent specialty dealers)
-Motocross riders
-Contractors (i.e. L.L. Bean, Tommy Hilfinger) / Cannondale has potential and existing customers in their business. They will be able to survive in the US and the other international markets by retaining their customers and gaining more market share.
Each customer has different preferences. Cannondale will offer many kinds of product line-ups, wide range of pricing, and custom-fitting bicycles to fit the customer needs and wants. Cannondale will attempt to serve different customers with the different types of products. They will add value to each segment by innovate and improve their bicycles and make them more comfortable and easier to use for the customer
What will we do for each of them? / Current customers:
-Cannondale will retain and keep attracting theirexisting customers by improving their products and brand image to prevent them from switching to the other rivals products.
-Cannondale will provide competitive products and price.
New customers:
-Cannondale will provide high-performance products and competitive price that potential customers want.
-Cannondale will keep maintaining their brand image by using sales & marketing and promotion programs.
-Cannondale will sell its products only to specialty retailers that have knowledge of the products so that customer can find exactly what they want.
-Cannondale will deal with the foreign restrictions to enter international markets. / Cannondale need to improve their brand image and competitive capabilities to produce valued products at the best price not only to gain new customers but also maintain existing customers. To implement those objectives, Cannondale will improve and develop marketing program and promotion, R&D and efficient manufacturing processes. They will need a large amount of capital to invest.
When Cannondale enter international markets, they will have to deal with foreigngovernment’s restrictions and foreign exchanges. They need to have competitive features to offset the disadvantages of these restrictions.
How (technology used or functions performed) will we meet their needs and expectations? / Though technological innovations Cannondale makes theirproducts lighter, stronger, faster, and more than rivals.
Cannondale uses components and parts supplied from best known suppliers, such as Shimano, SunTour, and Campionolo in order to gain additional value on its products.
Cannondale uses CAD/CAM technology to improve manufacturing processes and reduces the time required to design and produce new bike models. The system also allows Cannondale to offer custom-fitted bicycles. / Cannondale will focus on the innovation and development in frames, components and suspension systems as well as manufacturing systems. They will invest on R&D and add more attractive features and values on their products in more efficient manufacturing processes than the rivals.
How will we communicate the vision to the organization and our customers? / Cannondale will communicate their vision through:
-Cannondale’s annual report
-Advertising
-Logo “Handmade in the USA”
-Volvo/Cannondale racing team
-Media campaign (print media and television)
-Web site
-Print media, point-of-sale literature, banners, product packaging, and product catalog. / In the high-performance bicycle industry, customer recognition is one of key contributors to compete against the rivals. Cannondale strengthens communication to their customers by using many kinds of means.
ESTABLISHING OBJECTIVES (p. 41)