bergmann thesis
TRANSCRIPT
B.Sc. International Business Thesis
An analysis of Stelton’s turnaround
from an agility perspective
Written by Jesper Bergmann Pedersen
Advisor: Ole Strømgren
Group nr: 42
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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
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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.
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Table of contents
1.0 Introduction page 7
1.1 Literature Review page 8
1.2 Research Question page 10
1.3 Elaboration on Research Question page 11
1.4 Scope of the Paper page 11
2.0 Research Method page 13
2.1 Research Design page 13
2.2 Delineations page 15
2.3 Data Collection page 15
2.4 Interview Method page 17
2.5 Ontological Considerations page 18
3.0 Discussion and Theory Review page 19
3.1 Selecting Theories and their Role in the Research Process page 19
3.2 Core Competences and Strategic Intent page 20
3.3 Sanchez and Heene page 22
3.4 Turnaround Management Literature page 24
3.5 Dicken and Production Circuits page 26
3.6 OODA Loops page 30
3.7 Relation between Theory Review and the Research Question page 34
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Table of Contents
4.0 Stelton’s Situation in 2004 page 35
5.0 Analysis of Stelton and the Changes they have made Since 2004 page 37
5.1 Observations from Stelton’s industry page 37
5.2 Stelton’s Reorientation page 40
5.3 The new Organizational Climate at Stelton page 43
5.4 Stelton’s Reorientation in Product Development and Supply Chain Management page 46
6.0 Conclusion page 49
6.1 Further Perspectives page 50
7.0 References page 51
8.0 Appendix page 56
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List of Figures
Figure 1. Designs for Case Study Research page 14
Figure 2. Basic components of a production circuit page 29
Figure 3. John Boyd’s OODA Loop page 34
Figure 4. AITR test of the Stelton Brand page 368
Figure 5. Evolution of employees at Stelton page 42
Figure 6. Changes at Stelton from 2003 to 2007 page 48
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1.0 Introduction
When Stelton was founded in 1960 by Peter Holmblad it was with the purpose of selling stainless steel
hollowware. 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.” (available from www.stelton.dk, first accessed on January 10th 2008).
Through collaborating with world renowned Dansh architect Arne Jacobsen, 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, 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.).
After Jacobsen’s death in 1971, Stelton began working with the young designer Erik Magnussen and in
1977 Stelton introduced the stainless steel vacuum jug designed by Magnussen. The vacuum jug went
on to become the best-selling product in Stelton’s history (ibid.), and in many minds is the most iconic
product from Stelton.
However Stelton’s reputation as a visionary, earned in their early years, proved difficult to keep up and
as others realized the profitable niche Stelton had found for branded design products in the table top
segment, new competitors began to emerge and challenged Stelton and their ability to remain at the
forefront of what customers wanted.
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. 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, 2008).
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Years of disappointing performance at Stelton combined with high production costs and little to no
emphasis on new product development, resulted in Stelton being sold in 2004 to new majority
shareholder Michael Ring, who also became the new CEO.
Before taking on the challenge of turning Stelton around, 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.
By now, 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.g.
Berlingske, Bolig Eksklusiv, Soendagsavisen), 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.
1.1 Literature Review
In the process of deciding on a research topic, 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 top-
performers and in relation to this, whether the superior performers have common characteristics that
less efficient firms can learn and adopt.
In particular, 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. More than anything else this interest sprung from the work of
Colonel John Boyd and his OODA Loops, applied to business by Chet Richards (Richards, 2004). 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.
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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. Common for these two frameworks is that they
view organizations and economic processes as embedded in and interconnected with several larger
layers. They also view organizations as systemic, which I found interesting and useful in relation to the
changes that have happened at Stelton.
Additionally, I thought that an interesting field to look for explanations for differences in competitive
strength would be to look closer at the turnaround literature. 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.g. D’Aveni and MacMillan, 1990; Barker and
Duhaime, 1997; Chowdhury, 2002).
However, one the caveats of the majority of the turnaround literature is that parameters differ widely
between studies, 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. 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.
To look at Stelton’s turnaround I also found it relevant to review the literature in the field of sustainable
competitive advantage, in order to look at how firms can build and sustain competitive advantages. At
first I looked at Porter (1998, 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, 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.
In this phase I also looked at Barney’s resource-based framework (Barney, 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. 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.
Finally I looked at Hamel’s and Prahalad’s (1990, 1991, 1993 and 1994) framework of Core
Competences as well as their ideas about strategic management in general. Since I had a conversation
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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, 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.
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. Also I was inspired by the holistic view of organizations as open systems
embedded in and shaped by larger systems (e.g. Sanchez and Heene, 2004; Richards, 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, 2003) and the role of top management teams in turnarounds
(Lohrke et al., 2004). 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. Therefore, 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.
The result of this initial literature review is a research question that tries to incorporate both of these
aspects, while staying close to my initial interest in organizational agility and what makes some firms
competitive.
1.2 Research Question
How has the Stelton’s reorientation in product development and supply chain management contributed
to their successful turnaround?
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1.3 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. 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, 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.
As Stelton is a small company with approximately 70 employees, the role of management, most
notably personified by the new owner and CEO Michael Ring, 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, 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.
1.4 Scope of the Paper
This paper deals primarily with Stelton after it was taken over by Michael Ring in 2004, and the actions
and strategies formulated and implemented by Ring in order to turn Stelton around. It is therefore not
part of the life cycle approach in the turnaround literature that analyzes turnarounds from the beginning
of organizational decline (Chowdhury, 2004).
Overall my paper will not focus much on the malfunctions and poor decisions prior to Ring’s arrival at
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.
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The issue this paper seeks to deal with is not the situation at Stelton or companies in the table top
industry per se, 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.
Because all companies are embedded in different cultural and location-specific contexts (Dicken,
2007), it is hard if not impossible to generalize across industries as well as countries. This means that
each company has specific idiosyncrasies and therefore it is ill-advised to suggest a one-size-fits-all
approach (Kanter 2003). For this reason the findings about Stelton might not be applied to different
contexts.
Since Stelton was founded in 1960, 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. Studies have proven that survival is not easy not even for the largest companies in the world. 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.tompeters.com, first accessed, February 9th 2008).
Peters goes on to claim that companies must either “innovate or die” (ibid.) and argues that companies
cannot expect to be sustainably competitive if they fail to innovate. This is consistent with the
hypothesis brought forward in the introduction, that no innovation and a general failure to adapt to the
changes in their industry almost killed Stelton.
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. 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.
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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. 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.
Since this paper is the final project to obtain a Bachelor of Science degree the primary focus has been
to endeavor into scientific research. So while of practical lessons from Stelton’s example hopefully
emerge, 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.
Thus, this paper hopes to validate the relevance of the theories chosen based on whether they are
helpful when applied to Stelton’s case.
Additionally constraints in space limitations of the project as well as the time allocated to write it,
means that there are limitations to the level of rigor that can be employed. In order to accommodate
these limitations best possible, I will keep a focus on the theoretical frameworks and analytical sections
as much as possible.
2.1 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. 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 cannot be replicated without understanding those processes (Inkpen, 2005). Thus in order
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for processes related to knowledge to be studied, the processes that knowledge is deeply embedded in
must be understood (ibid.).
Because the nature of the research objective is qualitative and because case research is best suited for
analyzing contemporary events (Yin, 1984) my paper is designed as a case study.
The unit of analysis is Stelton and the level of analysis is the management at Stelton. 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).
There are different reasons for why I see a Type 1 case study as the most appropriate in my situation.
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). Thus the choice between type
1, 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.). My choice means that I have had to sacrifice some benefits of the more
thorough types of case studies; most noticeably the generalizability significantly improves as more
cases are analyzed from multiple units of analysis, 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.g.
Kanter, 2003).
Single case design Multiple case design
Single unit of analysis
Multiple units of analysis
Figure 1. Designs for Case Study Research (Yin, 1994, p. 39)
Type 1 Type 3
Type 2 Type 4
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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.g. Eisenhardt, 1989; Yin, 1994).
Within case research, this study identifies itself as an explanatory case study because existing theories
constitute an essential input (Dubé and Paré, 2003).
2.2 Delineations
Since this is a thesis about how Stelton’s reorientation in two specific areas; supply chain management
and product development, there will not be much emphasis on Stelton’s initiatives in regards to their
other core competences. 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, 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.
No organization exists in a vacuum and therefore Stelton’s surroundings have obviously been a factor
in deciding how to reorient the company. However this paper is not about the table top industry as a
whole, and attention to industry trends will be given only when they are relevant to Stelton’s situation.
However, as mentioned in the literature review, it is worth noting that there has not been a decline in
performance among Stelton’s main competitors Menu AS and Rosendahl AS (Leleux, 2008) which
additionally confirms that the problems at Stelton were caused by internal factors.
2.3 Data Collection
The data collection has primarily been constrained by Stelton’s small size. Since Stelton is not publicly
listed, information is harder to come by which has made the data collection process more challenging.
Stelton’s turnaround has been noted and reported by several members of the Danish media; however
most of these reports are primarily short newspaper articles that I have not seen fit to use as data in
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scientific research. Instead, I have taken these articles as an expression that Stelton’s turnaround has
indeed been remarkably successful, and then I have consulted a variety of scientific theories and
frameworks to undercover how they came to this success.
Apart from the limitations in data collection due to Stelton’s small size, 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. 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.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, is also updated in
regards to research, in particularly within strategic management. I deemed this to be an additional
benefit in the process of writing this paper.
Finally, 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. This first of all has the benefit that the professor who
prepared the case, has gained access to and collected a lot of data which would have taken me
considerable amounts of time.
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.imd.ch, first
accessed, February 16th 2008).
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. The second part is about turning Stelton around and
Ring’s new strategy for Stelton, and finally the third part is about what Stelton does - now when the
turnaround is completed – in order to stay ahead of competitors.2 Overall the case study provides a lot
1 In this paper the interview with Ring will be referenced as (Ring, 2008)
2 The case study of Stelton from IMD will be references as (Leleux, 2008)
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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.
2.4 Interview Method
The primary part of my empirical data apart from the IMD case study of Stelton is an interview with
Michael Ring. 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, personal communication). Later into the process, after consulting several books and articles about
core competences and OODA Loops as well as strategic management in general, I conducted a phone
interview with Michael Ring on Tuesday the 15th of April. In order to get as much out of this interview
as possible and analyze the answers as rigorously as possible, I recorded the entire interview and
transcribed it (See appendix for the transcription of the interview).
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, 2003).
One limitation is that I only interviewed Michael Ring, however I think this is offset by the IMD Case
Study where the date is partly based on several interviews with Ring.
Because only Ring was interviewed, 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.
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. This is also consistent with the turnaround literature’s
emphasis on the importance of leadership (Kanter, 2003) and top management teams and their actions
(Lohrke et al., 2004)
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2.5 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, or whether they can and should be
considered social constructions built up from the perceptions and actions of social actors” (Bryman
and Bell, 2003 p. 19).
In this regard, 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, but rather meaning is constructed
through constant social interaction (ibid.) 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.
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.
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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. Overall the theories I will look at will be
about competences as well as core competences, production circuits and OODA loops as well as
turnaround literature.
3.1 Selecting Theories and their role in the Research Process
In the process of formulating the final research question, I looked at several different theories,
particularly theories in the field of strategic management as well as competition. 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. This is in line with Yin’s
notion that the use of rival theories is relevant in explanatory case studies (Dubé and Paré, 2003).
Initially I read Michael Porter’s theories about the five forces that shape competition (Porter 1998,
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. Further the decision to leave out Porter was confirmed by his
suggestion that a thorough industry analysis requires several resources (Porter 1998, 2008) which I did
not have access to.
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, since Stelton’s problems did not seem to be
caused so much by a rapid shift in competitive advantages in their industry, as by internal problems at
Stelton.
Finally it deserves mention that even though my final research question involves new product
development and supply chain management, it has never been my intention to look at the specific
theories within these fields. More so the purpose has been to look at how Stelton became a faster and
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more agile company through their reorientation and for this purpose these two areas, which were
specified as core competences by Ring (Michael Ring, personal communication) seemed like very
relevant proxies.
3.2 Core Competences and Strategic Intent
The concept of competences in strategic management is usually considered as part of the resource-
based view of the firm, primarily popularized by Barney (Barney 1991). One of the difficulties in
looking at competences is the abundance of different definitions employed by different researchers,
which makes it difficult to achieve progress in strategic management research (Sougata and
Ramakrishnan, 2006).
One of the most cited definition of competence is the concept of core competences (ibid.) which is a
term originally coined by Hamel and Prahalad (1990) in their Harvard Business Review article.
In their book, Competing for the Future (1994), Hamel and Prahalad define a core competence as “a
bundle of skills and technologies ” (ibid., p. 202). Another important aspect of core competences is the
dichotomy between core and noncore. The gist of this approach is therefore that of all the different
competences that contribute to a given company’s success, some are more than important than others.
A core competence is thus a competence that is central or at the core of a company’s long-term
competitive success, 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. Customer Value, meaning that a core competence must enable the firm to deliver “a
fundamental customer benefit.”
2. Competitor Differentiation, which essentially means that a core competence must be
uniquely held by a single firm.
3. Extendability, 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, 1994, p. 202-207).
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Another important part of Hamel’s and Prahalad’s work (1994), is that at the time a company decides
where it wants to be in the future, it does not necessarily have to possess all the resources and
competences in order to get there. Hamel and Prahalad call this concept for “strategic intent” and it lays
out where the company wants to be in the future, however without requiring the company to know
exactly how to get there. They also provide several examples of how companies with a very clear
strategic intent have outmaneuvered much larger companies with more resources. 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.). These
observations led Hamel and Prahalad to claim that “starting resource positions are a very poor predictor
of future industry leadership.” (ibid., p.128).
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.
Thus a very central point of the idea of strategic intent is that when companies formulate their strategic
intent, they must not be limited to thinking about today markets, 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.
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, 1991).
Because it is risky to try to predict the future, 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.)
Regardless of the specific core competences a company possesses or aspires to build, Hamel and
Prahalad (1994) define three legs any company must have in order to be balanced.
1. Strong product development capability.
2. Capability to produce at world-class level of cost.
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3. 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.
3.3 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.” (Sanchez and Heene, 2004, p. 37).
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, interdependent resources and capabilities (ibid.). 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.).
It is an important notion that organizations are systems that do not exist in a vacuum, but are seen as
open systems embedded in different contexts at various levels such as strategic groups, industries as
well as national and regional economies and societies. 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.
Because the larger systems which organizations are part of change, Sanchez and Heene (ibid.)
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.
23
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.
Overall, Sanchez’ and Heene’s idea of strategic flexibility is essentially similar to Hamel’s and
Prahalad’s (1993) concept of stretching and leveraging resources.
Similarly to the idea of strategic flexibility is the idea of 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, 2004). Taken together, the ideas of strategic flexibility and strategic
options are very similar to Boyd’s ideas of OODA Loops and agility, which are introduced later in the
theory review.
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, therefore the managers who are able to make the most precise
predictions about the future will have a significant advantage. This is very similar to Hamel’s and
Prahalad’s ideas of corporate imagination, (Hamel and Prahalad, 1991) which posits that a company
must be able to imagine markets that do not currently exist.
The more and the broader strategic options a corporation has, the greater its strategic flexibility is,
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.
Sanchez’s and Heene’s thoughts on strategic change are also influenced by the systemic view. Primarily
they see strategic change driven by strategic gaps, 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, 2004).
In relation to designing effective organizations, 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, compared to finding out what needs to be done to achieve high
effectiveness at the strategic level. This is another way of saying that the causal ambiguity is higher at
24
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.” (Sanchez and Heene, 2004, p. 56).
Coupling this with the notion that the larger systems which organizations are part of change, 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.
3.4 Turnaround Management Literature
Turnaround management deals with reversing organizational performance and is part of the strategic
management field. However, the literature and research within turnaround management is confusing
and uneven (Chowdhury, 2002) mainly due to several divergent foci and approaches taken by scholars
in the field. As a result of this, a dominant theory of turnarounds is lacking and has yet to emerge
(ibid.). There is however agreement on a dichotomy that classifies turnarounds as either operational or
strategic. Where strategic turnarounds focus on changing the business the company is currently
engaged in, operational turnarounds are more focused on the way the firm currently conducts its
business (Chowdbury, 2002, Barker and Duhaime, 1997).
A common denominator for several studies of turnarounds is the importance of leadership, as well as
the other side of this coin: the lack of leadership. It is often this lack of leadership that is attributed to
leadings companies into crises as well as exacerbating existing organizational problems. Studies have
shown that as problems manifest themselves, 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, 2003).
However similarities in top management behavior have also been detected in the cases where the
turnarounds have been remarkably successful. One characteristic of successful turnarounds is that they
promote openness and dialogue instead of the isolation and secrecy that is often found in organizations
25
in crises. Different ways of encouraging openness and increasing dialogue have been credited with the
successful turnaround at large companies such as BBC and Gillette (ibid.)
This is in line with Kim’s and Mauborgne’s (2005) concept of fair process, which they believe is
necessary for companies to successfully execute new strategies. Fair process is based on research that
shows that people care as much about the justice of the process, than they care about the outcome of the
process, and the basic tenets of fair process are (Thibaut and Walker 1975, cited in Kim and
Mauborgne, 2005):
• Engagement. To encourage employees to give their inputs.
• Explanation. To explain the underlying motives for the decisions that managers make.
• Expectation Clarity. 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.
Another characteristic that successful turnarounds often share are CEOs who are new to their
organization. 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. 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.
(Kanter, 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, to see which aspects of their environment they
pay attention to. Their methodology was to analyze the content of letters to shareholders. The study
found, that after a crisis hits managers of the successful firms paid relatively more attention to their
external environment and factors such as customer needs, 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.).
26
Another study that looks at top management teams role of formulating and implementing turnaround
strategies (Lohrke et al., 2004), looks at factors such as the backgrounds of the top management teams
as well as their cognitive complexity3.
An additional finding of this study is that when decline is attributed to internal factors it results in
strategic reorientation, especially when these internal factors are deemed to be controllable. The study
also confirms the inconsistency of definitions of turnarounds, and criticizes that decline is almost
always measured with financial measurements such as profit deterioration. A suggestion to overcome
this is to use more non-financial measures such as for example customer satisfaction and stakeholder
opinions (ibid.).
3.5 Dicken and Production Circuits
Peter Dicken is an economic geographer, who is concerned with geo-economy and mapping the shifts
in the global economy. Similar to Sanchez’s and Heene’s (2004) view of organizations as open systems
embedded in larger contexts, Dicken sees the global economy as a complex network of different
interrelated and interconnected actors, governed by different unequal power relationships (Dicken,
2007).
Similar to Sanchez’ and Heene’s (2004) view, 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. Common for all processes according
to Dicken is also that they are territorially embedded. Thus spatiality and geographic origin still
matters, and Dicken refutes the notion of ‘placeless’ organizations as well as hyper-globalists’ notion
that ‘the world is flat’, instead Dicken still believes that the nation state is the most significant
‘container’ (ibid.).
However, even though key actors in the economy are interrelated and interdependent, power between
them is not distributed equally, quite the contrary actually. The significant determinants of bargaining
power are: “first, control over key assets (such as capital, technology, knowledge, labour skills, natural
3 Cognitive complexity deals with how individuals process information. More cognitive complex decision makers make use of more categories in their environments than their less cognitive complex counterparts. (Lohrke et al., 2004)
27
resources, consumer markets) and, second, the spatial and territorial range and flexibility of each of the
actors. The two are not unconnected. Ability to control access to specific assets is a major bargaining
strength.” (ibid., p.12). This notion of power relationships is to some extent reminiscent of Porter’s five
forces framework (Porter, 1998, 2008) where different stakeholder’s bargaining power, collectively
determine the industry structure and the intensity of rivalry within the industry. However, where
Porter’s analysis is at the industry level, 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.
One actor that Dicken thinks is of particular importance to economic processes is the transnational
corporation. 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. 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, even if it does not own
them.” (Dicken, 2007, p.16).
In order to map the economic trends, 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. 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.).
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. Inherent in all these concepts of chains is
that they are sequential and linear of nature, whereas Dicken’s production circuits are circuitous and
reflexive, which means that the different stages are connected through feedback loops, thus productions
circuits do not have a clearly defined beginning or end (see figure 2).
An important part of Dicken’s production circuits is that consumption is considered an integral part so
unlike many of the sequential models, production circuits do not end when a good has been produced
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but consider the consumption of the good as an essential albeit often overlook part of the process
(ibid.). The consumption and the related feedback from consumers, provides the firms with important
knowledge that should help them constantly improve their production to meet customer demands.
Additionally since Dicken’s view is systemic, the basic steps in the production process spill into each
other, and as is characteristic for systems, changes in one element of the system precipitates the
changes in other system elements (Sanchez and Heene, 2004).
In production circuits products are made as inputs are transformed and distributed and ultimately
consumed, however the opposite way of this flow, is a flow of information from suppliers and
distributers and customers. Additionally each individual element of the production circuit depends upon
(ibid.):
• Technological inputs
• Service inputs
• Logistical systems
• Financial systems
• Coordination and control systems.
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.” (ibid., p. 21)
29
Figure 2. Basic components of a production circuit (Dicken 2007, page 14)
30
3.6 OODA Loops
Corporate strategy is often described as being inspired by military strategy and several expressions
from military language (e.g. headquarters, officers) are part of business terminology (Kim and
Mauborgne, 2005).
In spite of the similarities between military strategy and business strategy there are important
differences between the two. In particular, where military strategy is most often two-sided and
inherently coercive and destructive in nature, business is many-sided and has to be constructive in order
to satisfy customers and succeed (available from http://www.sonshi.com, first accessed, 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, 1998, 2008).
Instead one of the common denominator for Hamel’s and Prahalad’s (1990, 1991, 1994) framework of
core competences as well as Kim’s and Mauborgnes’s (2004, 2005) concepts of blue oceans is that they
do not see competition as a zero-sum game. 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, with some precautions, 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. One of the most central ideas of Boyd is that time is the ultimate competitive weapon; 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, 2004, Romm, 1994). 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, and this is a central part of the subsequent description and
application of Boyd’s ideas.
31
Similarly to Hamel’s and Prahalad’s (1994) notion that starting resources is a very poor predictor of
future industry leadership, Boyd does not believe that it is the largest or most technologically
sophisticated army that wins. Rather it is the characteristics and competences each given soldier as well
as the army as a whole possesses. 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, 2004, p. 51). 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, 2004).
• Einheit, mutual trust, unity and a strong group feeling.
• Fingerspitzengefühl, intuitive feel, especially for complex and potentially chaotic situations.
• Auftragstaktik, mission, a contract between the superior and subordinate. Requires mutual trust
in order to successfully work.
• Schwerpunkt, any concept that provides focus and direction to an operation. The focal point
which all other activities in the organization must support. 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.
One of the central concepts of Boyd is agility which in this sense means: “the ability to change one’s
orientation – roughly, worldview – in response to what is happening in the external world.” (ibid, p.
30). It is important here that the essence of agility is, 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.
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, and it is for this reason
that time is called the ultimate competitive weapon (Richards, 2004, Romm 1994).
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):
• Observe. Scan the environment and gather as much information as possible.
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• Orient. To decide what the observations mean, and make sure that the orientation matches the
real world as closely as possible.
• Decide. Reach a decision.
• Act. Carry out the decision that has been reached.
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.
An important notion about OODA Loops is that these four activities mentioned spill into each other and
are interrelated and interdependent, however an OODA Loop is not sequential so they do not prescribe
to first observe, then orient etc. Instead all elements of the OODA Loop must be carried out
simultaneously and as quickly as possibly. This idea is similar to Dicken’s (2007) production circuits
which are also reflexive and interrelated, and where each part of the circuit constantly relies on
feedback and inputs from the other parts of the circuit. 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. 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.).
In order to be able carry out all the elements of OODA Loops simultaneously and as quickly as
possible, an organization must have an organizational culture, must create a climate where this is
possible. The most fundamental element of such cultures is mutual trust (ibid.). Mutual trust must
permeate the entire organization and leaders at every level must make sure that trust is the number one
corporate virtue (Richards, 2004). It should also be emphasized that it is not enough to carry out the
elements either quickly or simultaneously, 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. For this reason, the most important element of OODA Loops is
orientation. As further proof of this, 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, to
33
illustrate how important is to keep orientations as precise and closely matched to the outside world as
possible (available from http://www.sonshi.com, first accessed, March 25th 2008).
On this process Boyd noted: “Note how orientation shapes observation, shapes decision, shapes action,
and in turn is shaped by the feedback and other phenomena coming into our sensing and observing
window. Also note how the entire “loop” (not just orientation) is an ongoing many-sided implicit cross-
referencing process of projection, empathy, correlation, and rejection.” (Boyd, 1996; “The Essence of
Winning and Losing”). 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., 2004).
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, it will be able to skip the decision step
so action can flow smoothly from orientation. 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. However, underlying all these tools that can speed up OODA Loops is
that none of them are useful unless the four key elements mentioned earlier, are present. Thus in order
to build agile organizations that are able to reorient and execute OODA Loops faster than competitors,
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.
When looking at figure 3 it is also apparent that the orientation part is systemic, since all the different
parts that make up orientation are interrelated. Thus as is characteristic of systems, 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.
Finally an important key to understanding OODA Loops, is entropy. Entropy is related to the Second
Law of Thermodynamics which says that all natural processes generate entropy. 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. Applied to business, this means that closed systems and organizations who
fail to interact and communicate and understand the surrounding environment run down (Richards,
34
2004). In the analysis I will show how some of Stelton’s problems were caused by entropy.
Figure 3. John Boyd’s OODA Loop (Boyd, 1996).
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, Michael Ring;
product development and supply chain management/sourcing (Michael Ring, personal
communication). 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.
The theoretical approach to this thesis has been shaped by the literature I reviewed when preparing to
write it, 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.
Particularly Sanchez’s and Heene’s (2004) ideas about strategic management and Boyd’s concepts of
agility and OODA Loops (Richards, 2004) inspired me to look organizations’ ability to adapt and
35
change and take advantage of the changes in the environments in which they are embedded. Therefore,
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, 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.).
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. 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, in order to survive
and thrive. Thus, through analyzing which observations and considerations underlay the changes in
product development and supply chain management/sourcing at Stelton, 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.
4.0 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 five years leading up to 2004 showed no real growth in revenues and
an actual decline in profits. 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, 2008). Part of the explanation for Stelton’s problems, were high
fixed costs tied up in production assets and an almost complete standstill in innovation and product
development. 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, most of Stelton’s employees were employed in production (ibid.).
36
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. However with increasing
competition and competitors, who for some time had been taking advantage of globalization to lower
production costs, Stelton could not afford to remain dislocated from the market and out of sync with the
surrounding world and its realities.
37
5.0 Analysis of Stelton and the Changes they have made Since 2004
In this part, 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.
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. I then look at how they based on this mismatch between their observations and old
orientation, decided to reorient and execute this new orientation. Throughout the analysis I will use the
other theoretical frameworks in order to analyze the changes at Stelton. Since the key to Boyd’s agility
concept is orientation as well as how well the orientation matches with the observations, this is where
the emphasis of my analysis will be. Thus, 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, 2004).
5.1 Observations from Stelton’s Industry
Stelton primarily serves the Nordic markets (Denmark, Sweden and Norway) as well as the markets in
Germany and the Benelux countries. This is because customers in these countries overall share an
interest in decoration styles described as “Scandinavian” and “International Minimalistic” (Leleux,
2008). However the markets Stelton are in are far from static and they have undergone significant
changes throughout the time and continue to do so. Some of the major trends that can currently be
observed are (ibid.):
• 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. (ibid.)
38
These are all trends that transform Stelton’s industry and in order to be successful, 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.
Another observation that was of importance to Ring, was that 80% of the market (measured by volume)
was made up of products selling for less than DKK 300 (ibid.; Ring, 2008). This segment could be a
potential growth area for Stelton; however because their production was in Denmark, Stelton’s margins
were too low for them to profitably serve this segment (Leleux, 2008). 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. It was well
known that Stelton enjoyed solid brand recognition, especially in Denmark (ibid.). In order to quantify
how valuable the brand was Ring decided to ask a representative sample of potential customers in
Denmark, by using the Awareness-Interest-Trial-Repeat (AITR) framework (see figure 4), 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.
0%
20%
40%
60%
80%
Figure 4. AITR test of the Stelton Brand (Leleux, 2008)
39
The outcome of this test was a serious cause of concern for Michael Ring, since it showed that 72% of
the sample of potential customers in Denmark knew Stelton, yet only 18% were interested in buying
their products. 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. Ring identified the low
interest in Stelton’s products as the most critical factor at the time (in 2004). In doing so, 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, interested in buying their products. In fact the results of the test of Stelton’s
brand were somewhat good news since mismatches is really what would be looked for, because they
represent opportunities to reorient to match the external environment.
In order to become a successful design brand, 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. The other components he thought were required were:
• A continuous stream of new products.
• An optimal marketing mix.
• An aggressive sourcing policy.
• An efficient distribution system.
• Innovative shop-in-shop solutions.
• A manageable geographical focus (ibid.).
The concern for Stelton’s situation in 2004 is further verified when looking at the financials for 2003,
which show that only 2% of expenses were spent on marketing while over 50% were spent on
production (ibid.).
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. Especially, 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. Additionally the corporate culture had become
complacent and the company relied on the same formulas and paradigms that had brought Stelton
40
success 30 years earlier. Overall, these observations show that Stelton had become a closed system
which acted in isolation and as noted by Boyd, isolation leads to decay and disintegration (Boyd, 1987)
as well as entropy, which as described earlier cause closed system to run down (Richards, 2004).
Based on these observations, 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.
5.2 Stelton’s Reorientation
After Ring’s assessment in 2004 that illustrated how deeply Stelton’s problems were rooted, 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, 2008; Leleux, 2008). The first step was to create the right structure and get it in place.
The main part of creating a new structure was to reorient Stelton towards the areas in which it had the
strongest competitive advantage: Design. Thus, the new focus - or schwerpunkt in Boyd terms - for the
entire Stelton organization became to become a world class design brand.
The idea that the right structure has to be in place before any changes can happen, is also akin to
Boyd’s idea (Richards, 2004) that in order to be successful, an organization must have a climate that
enables and encourages all members of the organization to execute fast OODA Loops (ibid.). I will
look more in depth at what Ring did to change the organizational climate at Stelton in the next part of
the analysis.
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. These four
core competences where chosen based on the key success factors in the design brand industry, which
ensures coherence between the schwerpunkt and all of Stelton’s other activities, which support the
schwerpunkt .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.
41
The inclusion of the external world also implies an important acknowledgement of the new Stelton as
an open system that is embedded in larger, constantly changing systems, which it is dependent upon
and therefore has to interact with. 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, 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 is consistent
with the consequence of entropy as well, namely that closed systems run down (Richards, 2004).
Several aspects of Stelton’s new plan fit particularly well with Hamel’s and Prahalad’s work (1990,
1991, 1993, and 1994) and this is their concepts of core competences and strategic intent.
With his observations about the industry, Michael Ring believed that some competences were more
important to succeed than others, thus he acknowledges Hamel’s and Prahalad’s notion that some
competences can be more “core” to a corporation’s success than other. At the same time Stelton’s new
schwerpunkt is a good example of strategic intent, because when Stelton decided on this new focus and
made it their vision to become a world-class design brand (Leleux, 2008) they did not have the
resources nor the competences to fulfill this goal. Thus, 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, 1993) as well as build the necessary competences in order to
reach that goal.
Additionally, 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, an efficient supply chain and a sufficient marketing infrastructure
(ibid.)
The remaining parts of Ring’s plan after getting the right structure in place, would be to invest where it
was needed in order to rebuild Stelton and its brand and subsequently to create sustainability. These
two subsequent elements are both related, to the first part about getting the right structure in place, 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.
42
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. The
one dogma that was probably the most significant impediment to change at Stelton was the ambition
that everything should be produced by Stelton. Furthermore because Stelton’s production facilities in
Denmark excelled at producing cylindrically shaped products, all of Stelton’s products were cylindrical
(Ring, 2008). So instead of focusing on and specializing in design and R&D like their successful
competitors did, 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. 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.
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).
Job Area 2003 2004 2005 2006 2007
Product Development 0 2 2 2 2
Marketing 0 0.5 1.5 1.5 1.5
Sales 5 5 8 10 13
Management 2 1.5 1.5 1.5 1.5
HR + Finance + Administration 3 3 3 3 3
Customer Service 4 4 4 4 4
Technical Support of Products 5 1 1 1 1
Production Administration 10 5 4 3 3
Distribution 7 6 6 7 10
Production 86 54 42 36 30
Total 122 82 73 69 69.5
Figure 5. Evolution of employees at Stelton (Leleux, 2008).
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, while at the same time closing
down most of their production. In Boyd terms, figure 5 shows the decision and action element of the
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OODA Loop, which was based on Ring’s initial observations and his newfound orientation. However
when analyzing the sequence of actions it must be stressed that as Boyd prescribes (Richards, 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, so while reorienting Stelton to
match with the external world, Stelton also had to close production facilities and develop new products
along with building their core competences.
While it is useful to analyze the changes at Stelton through observable outcomes such as profitability
and evolution of employees, 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.
5.3 The new Organizational Climate at Stelton
In order to turn Stelton around and get the right structures in place, Ring knew that he had to start with
the culture at Stelton. And just as Boyd (Richards, 2004) prescribes that the top of the organization has
to set the example they want the rest of the organization to follow, Ring believes that a leader has to
lead by example (Ring, 2008).
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, 2008, p.13).
This is consistent with Boyd (Richards, 2004) who thinks that mutual trust is fundamental to any
organizational climate and additionally, mutual trust allows companies to execute their OODA Loops
faster than organizations that do not have a climate of mutual trust. 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, 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. Naturally, this does not build mutual trust, 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. The message that production would be closed down and the
44
majority of the employees employed in production let go, also served as a wake-up call to the rest of
the organization who had been part of Stelton during their decline.
When Ring took over in 2004, he made it clear that not just one part of the organization had to change,
but rather the entire organization had to reevaluate the things they were doing and the reasons for doing
them. 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. 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, trendsetting, ahead of its time brand/design house based
on the Scandinavian design philosophy, in which the best designers in the world aspire to work.
Mission: Stelton want to be the first choice for consumers who actively seek good design to
enrich their way of living. (Leleux, 2008, p. 17).
Ring made it clear that in order to implement the right structure at Stelton and build the four core
competences he decided on, they needed to have the world’s best employees, who also needs to have
the culture that Stelton wants to have (Ring, 2008).
Although Boyd (Richard’s, 2004) emphasizes several times that one of the key components in
achieving mutual trust is time, Ring had little choice but to make Stelton leaner immediately and
thereby let go of employees. Although the time requirement is difficult to fulfill as Ring was new to
Stelton, his actions are in some ways in line with Boyd’s idea (ibid.) to promote those who support the
schwerpunkt and remove those who do not. 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. Additionally, 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. (Leleux, 2008; Ring, 2008)
45
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. According to Ring a leader’s four most
important tasks are (Ring, 2008):
• Get the right team together.
• Continuously develop these employees
• Lead by example.
• Make decisions and execute them.
Taken together, these four tasks say that a leader cannot do anything without the right team. And
additionally, 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. This is in line with Boyd’s idea of leadership as inspiring people to reach uncommon goals
(Richards, 2004). In order for an organization to be agile, all parts of the organization must be as
closely connected to the surrounding environment as possible (Romm, 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. 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.
Finally, Ring exemplified Stelton’s new orientation while cutting costs at the same time when he
decided to move Stelton’s head office. Ring moved the head office from a big old villa in the wealthy
Copenhagen suburb Hellerup, to an old warehouse in the trendy part of Copenhagen, Christianshavn.
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.
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5.4 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; product development and supply chain
management/sourcing. As mentioned earlier these competences were part of what Ring believed a
successful design brand had to master (Leleux, 2008). Based on what he had seen his competitors do
along with the large potential segment of products priced less than DKK 300, Ring decided that costs
would have to be brought down significantly if Stelton was ever going to be able to serve that market.
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. 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.
Another important change was in Stelton’s approach to product development. 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. 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. And perhaps more important than the number of new products is Ring’s view
of design as a holistic and dynamic process, and even though all new products should be coherent with
Stelton’s new schwerpunkt, he also made it clear that: The design principles are not stuck in time. They
are organic, dynamic…” (Leleux, 2008, p. 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.
Perhaps the example that best demonstrates how much faster at executing OODA Loops, Stelton has
become is their new approach to product development. Out of every 10 new products, Stelton expects 2
to become blockbusters, 6 to be OK, and 2 to be unsuccessful (Ring, 2008). Of course Stelton do not
plan to make 2 out of every 10 new products unsuccessful but in accordance with their schwerpunkt
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they accept it, 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, instead of
promoting a culture where mistakes are punished (RICHARDS, 2004).
Because this organizational climate has become embedded at Stelton, 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.
Not only does this approach look like what Boyd prescribes for successful organizations, it is also
reminiscent of Dicken’s production circuits (Dicken, 2007). Just as Dicken describes the production of
goods as circular and reflexive, he also emphasizes the importance of the feedback loops that connect
consumption with the production and distribution processes, 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, and subsequently continue to use this knowledge to create products that
match the market - or the external realities in Boyd terms - ever more.
A concrete and very successful outcome of Stelton’s reorientation in product development and supply
chain management is their bread bag, launched in 2006 with a retail price of DKK 149. Not only is this
product innovative in a category as simple as bread bags, Stelton is also able to sell it profitably to the
large segment that demands products under DKK 300, thanks to their new and more efficient supply
chain. The bread bag has become an enormous success for Stelton and since it was introduced
approximately 700000 bread bags have been sold (Michael Ring, personal communication). This is
consistent with Richard Platt’s (2007) notion that investments in product development should impact:
Speed to market and profitability. 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, is an aggregation of what Michael Ring and Stelton have accomplished since he took over in
2004 can be found in
48
Parameter 2003 2007Revenues 74 Mill. DKK 142 Mill. DKKGross Margin 35% 57%Net Profit Margin -7% 14%Return On Assets -10.8% 10% (2006 numbers)Return On Equity - 18.7% 16.6% (2006 numbers)# Of Employees In Production 101 34New Products Per Year 0-1 20-30Marketing Expenses 2% (of expenses) 25% (of revenuesRetail Price to Total Production Costs 3.5 7.0Figure 6. Changes at Stelton from 2003 to 2007 (Leleux, 2008; Michael Ring, personal
communication)
All of the parameters in figure 6 have undergone significant changes and in spite of that all the
parameters are tangible and quantifiable, the main purpose of the analysis has been to show that these
changes which all show a remarkable improvement in performance, 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, 2004), these changes have enabled Stelton to
execute their OODA Loops, radically faster than before Ring took over.
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6.0 Conclusion
When attempting to study a turnaround, like Stelton in my case, 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, and then this process is analyzed in terms of
different financial measures.
On the other hand, different frameworks within strategic management such as Hamel and Prahalad
(1990, 1991, 1993 and 1994) and Sanchez and Heene (2004) prescribe different ways for companies to
organize in order to create sustainable competitive advantages, 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. 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, Michael Ring.
Inspired by Sanchez’ and Heene’s (ibid.) view and in concert with Boyd’s (Richards, 2004) and
Dicken’s (2007) ideas of reflexive systems, 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.
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. To test this, in my research
question, 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. I found indications that
Stelton’s significant improvement in performance can be ascribed to a reorientation towards a more
systemic and reflexive approach, 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, 2007, p. 51).
One of the main reasons for Stelton’s decline in performance was found to be, that they turned into a
closed system which failed to observe and adapt to the surroundings they were embedded in, and
50
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.
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7.0 References
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Kim, W. Chan and Mauborgne, Renee (2005) Blue Ocean Strategy - How to Create Uncontested
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Yin, Robert K. (1994) Case Study Research: Design and Methods. Sage Publications, Thousand Oaks,
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March-April; 75-84.
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Kim, W. Chan and Mauborgne, Renée (2004) Blue Ocean Strategy. Harvard Business Review, October;
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Interview
Ring, Michael (2008) CEO and owner of Stelton, phone interview, April 15th, 2008.
Unknown Author (Unknown) Interview with Chet Richards. [web page]. URL http://www.sonshi.com/
richards.html [first accessed March 25th 2008]
55
Unpublished Case Study
Leleux, Binoit (forthcoming in 2008) Stelton: Buyout Opportunity, Turning the Company Around,
When Competition Awakens, IMD.
Websites
www.stelton.dk [first accessed January 10th 2008]
www.d-n-i.net [first accessed January 10th 2008]
www.menu.dk [first accessed February 1st 2008]
www.rosendahl.dk [first accessed February 1st 2008]
www.tompeters.com [first accessed February 9th 2008]
www.imd.ch/about/keyfacts/rankings.cfm [first accessed February 11th 2008]
Power Point Presentations
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56
Platt, Richard (2007) The Art of War for the Enterprise: The Key Elements of Agility and Innovation in
Business. Available from http://www.ebizq.net/filelib/8751.html [first accessed February 15th 2008]
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mm.di.dk/NR/rdonlyres/4DD03239-871F-4EF5-9B64-C894D26A3D69/0/MichaelRingspr
%E6sentation.pdf [first accessed March 16th 2008]
57
8.0 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.
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, we are constantly trying to live up to our mission and vision and the brand
values that we have. Many companies make mission statements and brand values but then they put
those aside when they start doing business. What is important for you when writing about PD and
sourcing is that it is related to the mission and vision that is stated.
Jesper: What have you done since you looked at Stelton in 2004, to make sure that the values and
ideas you talk about are embedded in the organization, because I assume many of the employees
have remained the same?
Michael: Unfortunately many of the employees are not the same... When you are buying a company
that is not making money then you divide the employees into three groups: Yes, No and Maybe.
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. This can also be employees that work in
parts of the organization that will no longer be needed. Let me give you an example: We had our own
plastic production and we closed that and moved it. Not because the employees in the plastic
production were bad, but there just was not a job for them in the organization after we closed the plastic
production.
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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. Because if you look at the industry overall, it is a attractive industry. If you do
the right things it is an attractive industry to be in.
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. It is
these you have to make... however it is not easy to make, and therefore we created a culture that
permeates this entire organization.. When we make 10 new products, 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 not because
we have a goal that 2 must be unsuccessful but we accept that. And by doing that, you dare to do things
that other organizations do not dare to do. Because then you promote a culture that says it is ok to make
mistakes and it is ok to take risks.
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.
Michael: The stainless steel was the main thing.. And there was this very clear ambition that
everything should be produced by Stelton. And because the production excelled at producing
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cylindrically shaped products, 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.
It was not the case that somebody had the idea that “wauw now everything has to be cylindrical
because that fits with Stelton”, it was because Stelton was very good at producing cylinders.
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. Also I had a CC’s where I came from and that
was marketing and understanding specialty retailers and sourcing. PD was something I had learned
during my time at Royal Scandinavia, but that was not what my CC was. 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.
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 that is the head of PD and
me.
Jesper: I would like to know more about the bread bag. 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, now there is going to be bread crumbs
all over.” 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, why not make a bread bag out of the
napkin.
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.
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Jesper: I assume that the first priority when you took over Stelton was to survive.
Michael: Correct. 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. 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. And I say this after having read countless
books on the topic.
2. Get the right team together
3. (Continously) Develop these employees
4. 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. This is one that is often forgotten but nevertheless very important: Make decisions and execute.
These four are what makes a good leader.
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. 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.. so I took the guy who was the best
in the MBA class at CBS that year. 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.
Jesper: So were you the driving force behind the new sourcing as well?
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Michael: That was my head of PD and myself that did that and in that phase, my previous experience
at Royal Scandinavia and George Jensen was a huge advantage since I had done something very similar
there.
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.
Jesper: So there is no middle man involved?
Michael: We use one guy to do different services for us, such as quality inspections and technical aids
for the factories and such, and we know what he makes doing that and that is ok with us.
Jesper: You have now had four years in this industry and have gotten to know it better, so so you
feel the competition is becoming more global, 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. It is similar to the IT or the hearing aid
industries for example are both industry where there are some clusters, where fierce competition
creates a cluster of firms in the same industry. 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.
Jesper: Do you feel the competition has become more intense after even small companies are able
to get access to global resources as well?
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Michael: Actually I do not think so. Clearly our main competitions, is on the Danish market, but as
soon as you go outside the Danish market this changes... Some of the small companies have a belief
that the more markets they are in, the better it is, where my opinion is: “forget it”. We (Stelton) have to
sell products in Denmark, Sweden, Norway, Germany and Benelux. That is what is important to us and
that is where we invest.
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.
Michael: That’s the road to hell.. to try to build a brand globally with extremely limited resources and I
think they have been blinded.. Because the first sale (to the stores) is always very easy, but you have to
sell to them 5 and 10 times before you develop a relationship and it becomes sustainable.
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, is what the market potential in the different countries is. And as long as
there is great potential in markets like Denmark and Norway and Sweden and Germany, 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. As an example Erik Magnussen was at an expo in Rio di Janeiro
organized by the Danish cultural ministry, and all the companies that produce his products were
present. 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.. So i cannot possibly defend to go
there, 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.
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Jesper: I am particularly interested in where your focus was when taking Stelton in a new
direction. It seems that the first task was to survive and clean up..
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: So going forward do you also see a remained focus on organic growth?
Michael: Currently when we are seeing double-digit organic growth, then it is really difficult to go out
and say: “Let us buy a company”. 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.. Last year we grew our sales by 58%, so
why go and buy someone because it is a lot less risky to have 58% organic growth than to buy a
company.
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%.
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. 20 Euros)
Michael: Exactly. That is why we can pursue other segments and price points which we were not able
to before.
Jesper: Does this also mean that these new price points have converted people who were
previously non-customers to customers?
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Michael: If you take the Danish market in general then products priced at DK 250-300 and less
represent 80% of the market. So if you have a product that costs DK 350 then you are competing for
only 20% of the market. 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.
Jesper: Was this move particularly motivated by what you had seen your competitors do?
Michael: I have learned something from Rosendahl. 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.
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, you will end up winning. And
that is what we are doing and that is why our CC’s look as they do.
Jesper: Are customers in your industry usually very loyal or are a lot of purchases by impulse?
Michael: They are very brand loyal. Had we made the bread bag and not had the Stelton brand it
would not have been the same success, and we are aware of that, so brand is definitely important.
Jesper: So it is about using the Stelton name and brand to launch innovative products and
positively surprise customers.
Michael: Yes.
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