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In 1993 the large screen television segment of the consumer electronics industry was about eight years old and growing steadily. The $2 billion U.S. consumer electronics division of one of the largest CE conglomerates, a Dutch company that also manufactured light bulbs, semi-conductors and medical equipment had literally founded the mass market for large screen television but the division had not turned a profit in 7 years, although sales exceeded $120 million in 1993.
Industry CAGR was averaging about 7%, however the division revenue CAGR for the past 3 years was -12%. The division experienced a quality crisis in 1992 and retailers began rapidly migrating to competing brands. In 1993 there were about 20 companies offering large screen TVs and the Dutch company's share had eroded from more than 60% to less than 25%. The company began shifting resources to other opportunities and the CFO strongly recommended that the large screen TV division be shut down.
At the same time, a young two-year company veteran asked the CEO for a more challenging assignment than developing marketing programs for the international market. Using techniques and processes picked up in previous experiences, he discovered in about 4 weeks that the root cause of most of the marketing problems was product line complexity which had, in turn, been caused by ceding control of product development to the sales team.
As sales' influence grew and marketing's shrank, the product line quickly proliferated into a complex smorgasbord that attempted to address every retailers'desire for something unique. Parts commonalities diminished, factory throughput slowed to a crawl and the product and engineering team became unable to keep up with a growing and ever changing stream of requests from sales. Quality plummeted, sales shrank, margins shrank as marketing struggled to keep share, and the division's morale hit bottom.
After analyzing the market's growth trends and profitability, the newly appointed executive asked to create the company's first business team and pulled together the division leaders from every functional area. He explained the imminent shut-down of the division, presented a bold turnaround plan focusing on pruning the product line, an all new styling approach, creating consumer incentives and strong new partnerships with retailers. Bluntly asking for their support, he promised the demoralized product management, engineering and manufacturing teams (about 200 employees), if they agreed to this new product line and marketing plan, he would freeze the new product line for one year and not allow sales to make any changes of any nature.
The turnaround took a year to execute and another year to demonstrate sales results. At the end of that second year sales were up, market share was up and the division had turned in a $7 million operating profit, following an operating loss of -$5 million the year before. Of all the divisions in the $2 billion company, this division was one of two that turned a profit that year. The team were treated like company heroes and the large screen television division went on to become a significant strategic component of the parent company's overall consumer electronics strategy. For a turnaround photograph, click here.
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Principal Contact: Mike Harris
Direct Telephone: 858-481-8665
Fax: 858-605-6682
mike.harris@harconllc.com |
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