SWOT analysis

I originally wrote this article, “SWOT analysis” in February 2004.

SUMMARY

A case study by Nairn and Strickland (2003) of the Élan Boat Company is used to identify the strengths and weaknesses of the company and the opportunities and threats within the external environment of the company.  According to Nairn and Strickland,

“Ben Favret, professional water-skier, World Champion, V.S. Champion, and Pro-Tour champion, was resting on the dock after a slalom training run one afternoon when a call came through on his cell phone. Jay Blossman, his high school tennis partner and now politician, was on the other end. Out of the blue, Jay announced to Ben that he was buying American Skier, the competition ski boat company owned by financially troubled American Performance Marine. Ben instantly knew that Jay had found himself a great boat and suspected that he was getting a great deal in buying the company, but he also realized that while Jay was an excellent tennis player, Jay lacked the necessary insider knowledge about building, marketing, and selling ski boats. Excited and eager to be involved in this rare opportunity, Ben was on the next flight to New Orleans to meet Jay and look into the situation.

As Ben took the tour of the American Performance Marine plant in Kentwood, Louisiana, he learned that the company had recently filed for bankruptcy. Ben concluded that with his firsthand knowledge of the waterskiing industry and the boatbuilding capabilities that lay before him in the Kentwood plant, he and Jay ought to be able to resurrect the ailing company. With all the enthusiasm and high hopes of an entrepreneur entering the industry of a sport he loves, Ben Favret dove headfirst into building ski boats. In keeping with this excitement and attitude, Ben renamed the company Élan Boats.  The word Élan means ‘vigorous spirit and enthusiasm‘.”

The purpose of this report is to identify the firm's key capabilities and trends within the macro environment to develop a clear strategy for the Élan Boat Company.

The Basic Design School Model is the strategic framework for the analysis. External and internal appraisals are carried out. Key success factors within the external environment and the distinctive competencies of Élan are identified.

Opportunities exist for Élan if water sports receive greater publicity and because the profitability and customer service of the marketleaders is unsatisfactory. . The success of the company is threatened by a declining market (which is highly cyclical), the competition's established dealer networks, a poor powered watercraft safety record and suppliers locked into the industry leaders.

Élan's strengths are it's brand names of 'American Skier' and 'Ben Favret'. The company's weaknesses are its projected profitability and liquidity.

The seven conclusions and recommendations of this report are:

(1) Consider changing the position of the new plant, in 2004, from Covington to a location within the Great Lakes area, where demand is highest.

(2) Investigate rationalization of the company's product range with a view to reducing the product line from eight to one, two or three variants.

(3) Raise manufacturing efficiency and lower overhead costs to increase gross margins from 30% to 40% and net profit from between 1% and 5% to 10%.

(4) Increase the liquidity of the company to allow for depressed sales until an economic upturn in the U.S. economy.

(5) Reconsider the company's distribution channel philosophy of selling directly to customers without a dealer network.

(6) Develop a close supplier relationship with a top engine manufacturer who has both good performance and customer service records.

(7) Continue to associate Élan with safety, and actively promote activities which improve the safety of Élan's customers.

STRATEGIC FRAMEWORK

There are many schools of strategic management thought and they can be grouped as being either Prescriptive or Descriptive. Within the Prescriptive Group are the Design School, Planning School and Positioning School.  Mintzberg (1990:112) illustrates the Design School Model, and (applied to Élan Boats) it can be described as having eleven
components, and these are briefly described below.

External appraisal
An examination of the external elements will influence Élan's strategy options. This involves investigating customers, competitors, market and the environment. Where the environment is political, economic, society, technology and ecology considerations.

Threats and opportunities in the environment
The external appraisal will reveal the opportunities that Élan can exploit and the threats it faces. Opportunities can be regarded as positive trends and threats are negative trends.

Key success factors
Key success factors are competitive assets or competences that Élan need to compete successfully in the power boat industry. An absence of strategic necessities would be a
weakness and possession of strategic strengths will give advantage to Élan.

Internal appraisal
An examination of Élan's employees' skills, resources, innovations and financial position will disclose how the company may be constrained by it's capabilities and resources.

Strengths and weaknesses of the organization
Any activities that Élan does well will be identified as strengths from the internal appraisal. Any lack of resources or activities that Élan does not do well will be identified as weaknesses.

Distinctive competencies or assets
Distinctive competencies are the activities that Élan does exceptionally well. It's strategic assets are brand names or customer base that is strong, relative to Élan's competitors.

Social responsibility
Social responsibility is Élan's obligation, beyond that required by the law and economics, to pursue long-term goals that are good for society.

Managerial values
These describe how the company's managers establish, promote and practice Élan's values. The building of team spirit, influencing marketing efforts, shaping of employee behaviour and guidance for managerial decisions and actions are examples of the main purposes of managerial values.

Creation of strategy
Strategic alternative strategies need to be developed for Élan Boat Company for evaluation. These strategies should take advantage of environmental opportunities and exploit the company's strengths.

Evaluation and choice of strategy
Some of the criteria used for selection of a strategy from alternatives are scenario consideration, sustainable competitive advantage pursuit, organizational vision and objectives consistency, feasibility and their relationship to the other strategies of Élan.

Implementation of strategy
For Élan to succeed, the chosen strategy must be implemented and this involves
converting strategic alternatives into an operating plan.

KEY ISSUES

Current strategy
According to Nairn and Strickland (2003: 178), Favret and Blossman have the following mission statement for the new company, Élan:

"The mission of Élan Boats is to be hyper efficient in the manufacturing and marketing of Inboard Runabout Boats for recreational and competitive water sports enthusiasts. Élan Boats is dedicated to building long-term relationships with customers through superior training and customer support. We will do business consistent with the definition of the company's name. Élan - vigorous spirit of enthusiasm. Synonyms: Style, Confidence, Flair, Elegance, Flamboyance."

Additionally, Ben believes that an offensive attack on the major competitors is the best option and that Élan was "gunning for, and will take down MasterCraft, Correct Craft and Malibu". Nairn and Strickland (2003:179) quote Ben as wanting Élan to be the "true market leader in profitability, quality, manufacturing cost efficiency and, eventually sales."

Identification of Key Success Factors
A cost advantage, through cost efficiency, would be a strategic strength to any power boat manufacturer and Nairn and Strickland (2003:179) state that none of the industry leaders were particularly cost-efficient. A boat builder who was superior at servicing their customers would also have a strategic strength.  A strategic necessity is effective promotion.

Current performance assessment
Nairn and Strickland (2003:180) report that, as of 2000, Élan Boats had 30 clients. According to the FAQ page of Élan's website, the company has spent thousands of hours and dollars reconditioning their moulds, updating their facility and equipment. The FAQ page also quotes Ben Favret as saying, "getting boats built for factory demos and dealer sales was our first problem. We had to fully hire, train and manage an entirely new production team. That combined with dealing with vendors who were sceptical slowed us down this year. Our production was backed up through August and now we have caught up. That hurt because we could not make a strong sales effort this summer. Our Team Élan members have been very helpful in working with us to do demos and let other people experience our boats."

Financial review
Naim and Strickland (2003:179) quote Ben Favret as saying that he wanted Élan to be "the true market leader in profitability and manufacturing cost efficiency". Élan needs gross margins and net margins (after tax) in excess of 40 percent and 10 percent respectively, to achieve this. Acceptable liquidity is also required.

Industry stage and trends
The current stage of the power boat industry in it's half-century history and current trends amongst the 17 manufacturers will influence Élan's chances of success.

Market trends and segmentation
If the market is expanding and demand within Élan's targeted segment is buoyant then this would be favourable to the company.

Customer preferences
Élan and some of it's competitors have boat model features that are designed to cater for customer preferences for wake form and control. However, customer preferences are
not fixed and change over time.

Value chain
Nairn and Strickland (2003:179) report that "Élan planned to bypass boat retailers and sell directly to the end user". However, this strategy appears to have changed as the FAQ page of Élan's website, states that Élan are making their first run at setting up their dealer network now and completing the few remaining Team Élan openings.

HCA (Human Capital Assessment)
Ben Favret did not purchase American Performance Marine as a going concern and, therefore, did not acquire any human capital with the purchase. Nairn and Strickland (2003:178) note Ben’s thoughts that, because of his own connections in the industry, [he had] the ability to recruit top talent in manufacturing, sales, and marketing". This he subsequently did and the FAQ page states that he recruited; a general manager with 22 years expertise (Mary Travis), a sales and development manager with 17 years experience (Darren Landry), and a top fibreglass consultant (Rick Delone).

Distinctive competencies
Élan's distinctive competencies are mainly strategic assets as, when the case study was
written, the company had only been trading for 10 months. These strategic assets include the 'American Skier' and 'Ben Favret' brand names.

Competitor analysis
An analysis of competitors such as Mastercraft, Classic Craft, Malibu and Infinity will reveal their strengths and weaknesses.

ANALYSIS

A situation analysis is made using the external and internal analyses of Mintzberg's Design School Model. Condensed opportunities, threats, strengths and weaknesses are described.

Opportunities

Customer
(a) World Games include waterskiing and wakeboarding.
(b) ESPN X-Games and the Gravity Games include wakeboarding.
(c) Gravity Games drew 370,000 spectators and high TV ratings.
(d) New Cable Parks are a way to introduce potential new boat buyers.
(e) Gulf Coast customers targeted in Texas, Louisiana, Mississippi, Alabama.
(f) Better service, delivery, sales force efficiency with regional advertising.
(g) Élan plans to sell directly to the end user, bypassing boat retailers.
(h) Under marketed competition ski boat segment to be targeted.
(i) "Free week of ski school" to be offered to water skiers and wakeboarders.
(j) Élan had 30 customers in 2000 and projected 50, 60, 72 in '01, '02 '03.

Competitors
(a) MasterCraft has high overheads due to large facility, marketing, etc.
(b) Correct Craft sales fell 17.2% in 2000 due to poor marketing, competition.
(c) None of the industry leaders are particularly cost efficient.
(d) Leaders vulnerable to unhappy buyers, sliding profits, excess capacity.
(e) Ben wants Élan as market leader in profitability, quality, cost and sales.
(f) Élan will achieve cost advantage by revamping it's activity cost chain.
(g) Élan aim to offer a better boat than the competition at a lower price.
(h) Competitive offensive aimed at rivals who service customers poorly.
(i) Objective to win disenchanted customers with service oriented company.

Market
(a) U. S. is largest boating I water skiing nation in the world.
(b) Estimated that waterskiing interest will double if it becomes Olympic event.
(c) Boating industry held approximately 200 boat shows annually across U.S.

Environment
(a) International Water Ski Federation lobbying IOC hard.
(b) Cruise control and driver videotaping have allayed IOC's concerns.
(c) Waterskiing came very close to being included in the 2004 Athens Games.
(d) IWSF is now focusing it's sights on the 2008 Games in Beijing.
(e) Ben anticipates investing in a new facility in Covington Industrial Park.
(f) Team Élan launched to get qualification for Regional and National events.

Threats

Customer
(a) A 2001 sales decline would mean fewer people trading up in 2002 to 2005.
(b) Excessive customer dissatisfaction with overpriced/underperforming boats.

Competitors
(a) Technology and innovation accelerate in economic downturns.
(b) MasterCraft has exclusive Gravity Games towboat provider 3 yr. contract.
(c) Indmar has exclusive customization program with MasterCraft and Malibu.
(d) Indmar has private label with MasterCraft for electronic fuel ignition.
(e) Indmar has considerable name recognition and brand awareness.
(f) Indmar is visble at grassroots waterskiing competitions.
(g) Customer loyalty to MasterCraft, Malibu and Correct Craft is entry barrier.
(h) Three industry leaders have large dealer networks and scale economies.
(i) Three industry leaders have greater supplier bargaining power.

Market
(a) Waterskiing participation fell 18°J'o from 7.2 M in 1998 to 5.9 M in 2000.
(b) Motor boating and waterskiing are ranked 13th and 40th for participation.
(c) Boating industry suffers during periods of economic decline.
(d) Decline in recreational boater numbers accelerated in 2001.
(e) PWC sales fell 54°J'o from 200,000 in 1995 to 92,000 in 2001.

Environment
(a) Spare money is not used for boat-related expenses during recessions.
(b) Income restrained households will depress prices if opting out of boating.
(c) Waterskiing as an Olympic sport has been delayed over driver concerns.
(d) PWCs had a bad reputation with boaters & law enforcers from rowdiness.
(e) There were 83 fatalities associated with PWCs in 1997.
(f) There were 506 deaths and more than 11,000 injured in the last decade.
(g) PWC injuries are six times greater than motor boat injuries.
(h) Blunt trauma is the leading cause of PWC related deaths.
(i) Many new regulations are imposed on PWC use because of bad record.

Strengths

Brand/firm association
(a) Ben knew Jay had found a great boat and a great deal in buying company.
(b) Company had been building to highest possible standards since 1975.
(c) Company had earned a reputation for quality, product perf. and innovation.

Relative cost
(a) Company purchased at low price, giving low overheads and no debts.
(b) Élan Boat company was started with a low capital expenditure.
(c) Inherited R&D, shaping and mold design can cost in excess of $400,000.

Innovation
(a) American Skier is over 600 Ibs. lighter than any other boat on the water.

Management capability
(a) Ben Favret is excited and eager to be involved in this rare opportunity.
(b) Ben Favret has first hand knowledge of the waterskiing industry.
(c) The Kentwood plant is already constructed with boatbuilding facilities.
(d) Ben has entrepreneur enthusiasm entering industry of the sport he loves.
(e) Ben renamed the company Élan, meaning vigorous spirit and enthusiasm.
(f) Ben is a professional water skier and World, US, and Pro-Tour Champion.
(g) Jay Blossman is a politician and high school tennis partner of Ben Favret.
(h) Ben has the ability to recruit top talent in manufacturing, sales, marketing.
(i) Ben will make history as the first professional skier to buy a boat company.
(j) Élan's facility in Kentwood had capacity for 150 units a year.

Weaknesses

Profitability
(a) Projected 1 % I 5°k after tax net income contradicts Élan's profitability goal.
(b) Projected 29.5% gross margin conflicts with Élan's profitability goal.
(c) Projected current ratios of 1.5, 1.7,2.1 give liquidity concerns.
(d) Projected acid test ratios of 0.6/ 0.66 for 2002/2003 cause for concern.
(e) Diminishing cash flow from operations too low to cover current liabilities.

Brand/firm association
(a) American Marine had been unfocused, poorly managed, undercapitalized.
(b) American Skier plant closed it's doors in Jan '01 and filed for bankruptcy.
(c) American Skier had high debt, high production costs, poor management.
(d) Élan prevented from strong sales effort because of backlogof work.

Management capability
(a) Jay Blossman lacks necessary insider knowledge about ski boat industry.
(b) Ben Favret fully hired, trained and managed entirely new production team.

Critical issues
The critical issues for the Élan Boat Company are:
(1) Long-term demand for personal watercraft is declining.
(2) American Skier and Ben Favret brand names are Élan's strategic assets.
(3) Élan's profitability and liquidity are cause for concern.
(4) The personal watercraft industry performance is highly cyclical.
(5) Competitors have established dealer networks.
(6) Suppliers have exclusive agreements with competitors.
(7) Poor safety and a bad user reputation influence PWC demand.

CONCLUSIONS AND RECOMMENDATIONS

Élan Boat Company is operating in the U.S. PWC market that has been contracting since 1996. The Kentwood plant is not located within the highest demand area of this market. If the plant is to be relocated in 2004, as stated by Nairn and Strickland (2003:180), then a location within the Great Lakes area should be considered.

'American Skier' is the brand name that end-users recognize. It is doubtful as to whether Élan Boat Company benefits from having three varieties of this model and five more boat varieties in the Volante and Eagle ranges. The design, tooling, set-up and material costs for these eight product variations should be analyzed. This may reveal that Élan's product line should be reduced to between one, two or three product varieties.

Élan's profitability is at variance with it's mission statement and Ben's goal to be the "true market leader in profitability…” is not reflected in projected gross margins of 29.5% and net margins (after tax) of 1 % to 5%. These figures need to be a minimum of 40% and 10% respectively. This could be achieved by increasing manufacturing efficiency and reducing overheads. Élan's projected assets may cause liquidity problems as most are in the form of inventory and the cash flow from operations does not cover current liabilities.  Inventory levels and the amount of working capital should be investigated.

The demand for personal water crafts, as luxury goods, is reduced when the U.S. economy is on the downside of the economic cycle. This means that Élan should have sufficient financial reserves to support the company until the economic upturn, and they should look at the sensitivity of Élan's finances to reduced sales during this period.

Nairn and Strickland (2003:179) state that "Élan planned to bypass boat retailers and sell directly to the end user."  This would be done through advertising.  Dealers are used to sell personal watercrafts because it is the type of product that potential customers prefer to see in reality so that they can touch it, sit in it and walk around it.  It is recommended that Élan should re-appraise their distribution channel strategy.

Indmar is the most popular engine and this supplier, naturally, has created close relationships with the market leaders. As Élan had less than 1/₆% of the competition ski boat market in the second quarter of 2001, according to Nairn and Strickland (2003:171), it is possible that the market leaders may not regard Élan as a serious threat and a supplier relationship between Élan and Indmar may be possible.

The poor historical safety associated with personal watercraft use influences sales. Élan promote safety on their main web page and offer ski schools. This is a good strategy and it is recommended that this should be built upon.

REFERENCES

'Frequently asked questions', Élan Boat Company. Retrieved: from http://www.elanboats .com/elanfaq.htm.

Mintzberg, H. 1990, ‘Strategy Formation - Schools of Thought', in J.W. Frederickson (ed) Perspectives on Strategic Management, Harper Business, New York.

Nairn, F. & Strickland, A.J. 2003, 'Élan and the competition ski boat industry', in Thompson & Strickland (Eds) Strategic Management Concepts and Cases, 13th edn, New York: McGraw-Hill pp. C-153 - C-183.