Managing the Transition from Maturity to Decline: Diamond Power Corporation




Managing the Transition from Maturity to Decline: Diamond Power Corporation


This case study, prepared by Richard C. Scameborn, follows the Diamond
Power Specialty Company from its humble beginnings in 1903 to its decline in
1991.
The birth of Diamond came with the invention of the hand cranked soot
blower. As the years and technology progressed, so did the Diamond soot blower.
Along with this main product, Diamond also added several other products to its
line, but none had the profitability of the soot blower. Diamond had the market
to itself for a number of years, but eventually two competitors sprang up to
challenge Diamond: Copes-Vulcan and Bayer Company. Competition did not become
fierce until World War II, when the soot blower became a major commodity used by
the U.S. Navy to clean boilers on board its ships. At this point, the soot
blower industry became a seller\'s market and the need for strategy (both
corporate and business) became a necessity for growth and survival.
Diamond Power\'s main mission at its beginning, to produce soot blowers
that would efficiently clean the inside of boiler as it continued working,
basically stayed the same up until the addition of competition into the market.
At this point, Diamond had to revise its mission to include technological
advances to stay ahead of it main competitor, Copes-Vulcan. With the passage of
time, production efficiency and technology were not enough. Diamond eventually
had to add foreign sales, customer service, and replacement part production to
its original plan to keep ahead of the game. By the 1970\'s, the mission to
supply replacement parts and service became one of Diamond\'s top priorities as
it opened parts and service plants in New Jersey, Georgia, Ohio, Texan, Colorado,
North Dakota, California, and Washington.
Diamond Power\'s goals over the years seem to stay pretty congruent with
its mission up until the early 1980\'s. Basically, Diamond\'s goals included
staying on the moderate levels of technology, building a foreign market by
exporting machines and parts and establishing joint-venture manufacturing
companies overseas, establishing an extensive and profitable domestic
aftermarket support system that included minifactories that supplied both parts
and service, and to keep the upper hand on the soot blower market share.
Diamond Power\'s parent corporation, McDermott, Inc, utilized several
different corporate strategies to try to achieve Diamond\'s goal of a profitable
and extensive aftermarket support system. However, some of the decisions made by
McDermott, Inc in regards to its replacement part division caused more harm than
good. For example, when a small operator began to copy and sell Diamond
replacement parts at a lower cost than Diamond with great success, McDermott
overrode Diamond executives\' wish to acquire the operation. This decision had
far-reaching repercussions as will be discussed in later paragraphs.
McDermott also had to take action where Diamond was concerned when it
began experienced severe financial difficulties in the late 1980\'s and early
1990\'s. McDermott had to implement a major costcutting effort and restructuring
plan to keep from going bankrupt. This plan included putting pressure on Diamond
to increase profits. Diamond had to take implement several business strategies
in order to appease its parent corporation.
Decisions made on the corporate level had a direct affect on the
business strategies implemented by Diamond Power. The development of the
aftermarket support system was a plan with several long term benefits. The plan,
developed by the marketing vice president at the time, involved a nationwide
network of minifactories that offered service and replacement parts that could
be delivered in a matter of hours to industries in need. Diamond\'s high market
share on soot blowers allowed the company to lower its new equipment prices and
recoup any losses through its replacement part division. This resulted in
increased sales in both new equipment and parts. Diamond\'s competition, Cope-
Vulcan, did not have any service centers and only limited replacement part
manufacturing, and therefore did not reap profits as high as Diamond Power\'s.
However, not all of Diamond\'s business strategies worked as well as the
replacement part and service system.
Under the pressure of McDermott, Inc, Diamond felt it had to make
several rash decisions in order to increase profitability. First, Diamond did
not purchase Bill Blalock\'s low production company that made Cope and Diamond
parts. This allowed a foreign company to buy it out and break into Diamond\'s
dominant part industry. It also allowed Cope-Vulcan to increase its part
production market by forcing it to implement an aggressive management team and
add new products to its line. Diamond responded to this by deciding to reverse-
engineer