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Linking HR and corporate strategy: Dyson Appliances
C H A P T E R
3
Linking HR and corporate strategy: Dyson Appliances 䊏
INTRODUCTION
This shorter and more concrete chapter follows on very closely from Chapter 2. In it we trace the development of Dyson Appliances’ corporate/business strategy from the early 1990s to the early 2000s, together with the organization and people strategies and success factors. We argue that by using our framework for linking, this identifies major issues for James Dyson – some he is already addressing, and some that perhaps he may not yet be addressing fully. Our core mission is referred to throughout as ‘HR strategy’, as this is still the most conventional term currently in use. Dyson’s innovative breakthrough in the carpet-cleaning industry underlines the proactive role of organizational skills and mind-set in generating and sustaining value-based growth. This remarkable story also poses some major organizational dilemmas for the future, which we wait to see whether James Dyson and his team can effectively address. In the mid-1990s, James Dyson, founding Chairman of Dyson Appliances, decided to take on other (entrenched) players in the domestic carpet-cleaning industry, and with a rather different proposition. He decided to discard the assumption that such devices needed a bag. Dyson decided that, far from adding value for the customer, the bag was actually an unnecessary cost and a bother to replace. Even more radically, Dyson contended that the bag itself actually reduced the effective power (and thus the performance) of the carpet cleaner. Dyson’s new product – a distinctively designed yellow, expensive, and of course bagless floor cleaner – gained market leadership in the UK carpet-cleaning market, within around just two years from start-up. James Dyson invented and patented a device that enabled his cleaners to do without a bag by using a very fast-circling vortex of air. The dust was drawn up into a Perspex tube or cylinder, where it was dropped. Periodically the user would empty out this cylinder without producing a small dust storm, as usually happens with a bag. 47
VALUE-BASED HR STRATEGY
Dyson’s over-arching corporate goal between 1994 and 1997 appears to have been ‘to beat Hoover’. By 1996, Dyson had established himself as market leader in the UK. This was accomplished through a number of ‘hard’ and ‘soft’ competitive advantages, illustrated in Table 3.1. Table 3.1 ‘Hard’ and ‘soft’ advantages of Dyson cleaners Hard – competitive strategy Patented product Superior technology Superior performance New production site
Soft – HR strategy Innovative design process Innovative marketing Internal responsiveness Young, flexible organization
The results of this strategy were spectacular. In a short time Dyson had achieved a UK market lead. In 21⁄2 years Dyson had moved from employing fewer than 20 people to employing 300, and had a turnover of around £100 million in 1996. By 2000, he had 1500 employees in the UK and an estimated turnover nearing £250 million. In this rapid growth period, Dyson’s return on sales was a staggering 20 per cent – most unusual for a manufacturing company. During the early expansion period, Dyson’s HR strategy was partly deliberate and partly emergent. Whilst Dyson deliberately set out to reinvent very young engineers, untainted by mind-sets from larger organizations, he also recruited (through need) commercial managers from a variety of larger (and often rather political) fast-moving consumer goods (FMCG) environments. Anecdotal input from suppliers to Dyson and former employees suggested that this generated a good deal of internal rivalry within management, especially in the late 1990s and early 2000s. This gave it the ‘feel’ of a more mature organization.
䊏
SUSTAINING COMPETITIVE SUCCESS
The critical areas that appeared to drive the value of this initial competitive strategy were: 䊏 Customers’ perceptions of the superior value of the Dyson product and
their willingness to pay a premium 䊏 The company’s ability to satisfy premium customer expectations through-
out all of its product and service delivery 䊏 Competitors’ inability to compete head-on with Dyson or to evolve an
alternative and more effective strategy 䊏 Dyson’s ability to harvest a good proportion of his product’s premium
price through its retail channels 48
LINKING HR AND CORPORATE STRATEGY: DYSON APPLIANCES
Figure 3.1 Wishbone analysis
䊏 The company’s ability to gain cost economies through scale and simpli-
city of the product range 䊏 The Dyson organization’s potential to create sustainable and value-
focused innovation, and to avoid the well-documented problems of growing an organization at this speed. Figure 3.1 represents this through wishbone analysis. To use wishbone analysis, you begin at the left-hand side with your vision/overall objective, and this is then supported by the alignment factors to the right. (These are the necessary and sufficient conditions of success, and need to include one area in which you have low and one in which you have high control and influence.) Wishbone analysis is a technique for scoping an HR strategy, and also for organizational scenario development (of a positive HR scenario). Dyson’s initial market entry in 1994–1995 saw a rapid development and expansion phase for his organization. This was followed in 1996–2000 by rapid exploitation of the products, primarily in the UK. This called for some kind of review and reflection around 2001–2002, perhaps leading to subsequent adjustment of both competitive and HR strategy. By 2002, Dyson claimed to have 31 per cent of the UK market in volume terms (and in competitive and organizational terms 50 per cent by value), and UK sales of £251 million (source – Daily Mail, 6 February 2002). Taking as read the assumption that one of the key areas for thinking about HR strategy is actually external market and competitive change, the following possible/probable shifts can be identified over 1997–2002: 49
VALUE-BASED HR STRATEGY 䊏 Patents that might expire or be challenged (although Dyson won its long-
䊏 䊏 䊏
䊏 䊏 䊏
䊏
running court battle against Hoover’s ‘single cyclone’, these are still in the shops) Cunning marketing might be imitated The word-of-mouth effect might become less strong, the Dyson product being in part fashion-dependent and not quite as novel at the present time Customers might query its ‘measurably better performance’, which it is very hard to measure objectively (in 2001, the Daily Mail had several double-page features of customers ‘for and against’ Dyson’) Its design style might have been imitated (as indeed it was, by Electrolux in particular) Competitors’ mindsets might change (and did) – for example, many competitors now sell a single-cyclone model Most importantly, premium pricing might come under pressure from discounting (from 2000 onwards price pressure from electrical appliance retailers in this increasingly competitive and mature market did become far more intense, resulting in prices dropping between an estimated 10 and 15 per cent in a year, although volumes were still growing by a similar percentage) Volume growth might actually reverse in the UK, as a result of market saturation and/or economic slowdown (whilst that has not happened yet, it might well do so soon).
Potential changes over both periods can be drawn out by using a ‘From–to’ (FT) analysis, which is a key HR strategy implementation technique. This is shown in Table 3.2. Table 3.2 suggests perhaps even greater challenges for Dyson than those he needed to manage between his early start-up phase and seizing a dominant UK position in the mid-1990s. Table 3.2 ‘From-to’ analysis of competitive strategy at Dyson Appliances, 1994–2004 From 1994–1999
To 2000–2004
Pricing Competition Market growth Product performance Number of products Market focus Geographic markets
High price premium Low/medium rivalry Very high Very good Small (two) Carpet cleaners UK focus
Geographic sourcing Cost base Size
UK Medium/high £100m turnover
Modest price premium High rivalry Low Still good (relatively) Medium (six) Other household products, too UK and other markets – especially the USA (announced in autumn 2002) UK and Far East Towards world class £250–400 million turnover (more if the US launch succeeds)
50
LINKING HR AND CORPORATE STRATEGY: DYSON APPLIANCES
䊏
FROM COMPETITIVE STRATEGY TO HR STRATEGY
When Dyson initially founded his business, it was much easier to design and implement a high quality organization than at later and possibly more mature phases of development. Dyson was able to put his own personal values into the organization by, for instance: 䊏 Insisting that all new recruits actually built (and subsequently used) their
own Dysons when they joined, thus giving them a very close identification with the organization (a ‘cunning’ HR programme but hard to sustain; with a growing organization you need to keep pace with the new recruits, as doing this 3–6 months in would perhaps be less effective). 䊏 Insisting on healthier food (salads, baguettes etc.) being served in the staff canteen instead of conventional British stodge. Although initially reluctant to convert, staff subsequently became enthused with this healthier food. 䊏 Knowing all of his staff personally by managing by walking about, and thus being intimate with all aspects of the business and its organizational issues. Obviously this was just possible with a staff of 100, it was difficult with 200, very difficult with 300, and mission impossible with 500–1500. However, with maturity such early and useful initiatives and programmes would inevitably both tire and be insufficient to generate continued organizational energy. In addition, Dyson would have to face the additional difficulties of: 䊏 Having more a complex and multi-layered managerial structure as the
company grew and became more complex and diversified 䊏 Recruiting and retaining not just the right quantity of staff but also the
right quality (his UK base at Malmesbury might perhaps not be the best location to attract and retain high-calibre and young staff at every level; it boasts an Indian restaurant, a few pubs, and relatively little else). 䊏 Dealing with shifts in organizational style as the organization developed. Inevitably it might become more occupied with budgets, with management processes, and in dealing with problems caused by earlier phases of growth and the additional workload from new innovations. Therefore, Dyson was to face challenge number one – repositioning his organizational advantage. However, on top of this Dyson had a second challenge to face. As we have already seen, by 2000/2001 Dyson faced mounting external changes that can best be summarized best as a short-term from–to analysis as in Table 3.3. Table 3.3 suggests that even by early 2000 some radical rethinking of Dyson’s cost structure was needed, having a major impact on Dyson’s HR strategy too. 51
VALUE-BASED HR STRATEGY
Table 3.3 From-to analysis of external changes at Dyson Appliances, 1995–1999 Shifts
From (1995/1996)
To (1998/1999)
Competitive structure
Dyson dominant/ no new entrants Low bargaining power Low Very fashionable High margin by all players
Challenge by Dyson look-alikes/ new entrants Medium/high bargaining power High Declining novelty (somewhat) Discounting by some players and low-cost single-cyclone machines
Distribution channels UK market penetration Fashion Pricing
In addition, there were a number of other signs (visible outside Dyson) that the company might well need to review how it was organized/managed. This highlights that it is possible to intuit a good part of a company’s HR strategy simply by observation of, for example, its products and advertising, or of press commentary: 䊏 At Christmas 1999, in John Lewis, the authors spotted that the more
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䊏 52
expensive Dyson model had two big filters that needed to be replaced each year at a cost of £40. The warning was clear – instead of ‘Say goodbye to the Bag’, we were now seeing a switch towards ‘Say hello to the Filters’ – a worrying apparent shift in the mind-set. Fortunately, this move was quickly reversed in 2000. This suggested that Dyson’s innovation drive was being misdirected, and that its managers’ commercial skills/judgement could be improved. On the very same visit, two customers were sold a Miele instead of a Dyson by John Lewis (following the discovery of the £40-a-year filter replacement costs). The John Lewis’ sales assistant said to the customers: ‘Miele is our best-selling line’. This was notable, as John Lewis stores were an early fan of Dyson and were instrumental in helping him to launch the machine in the UK. This suggested that its account management skills could be enhanced. Around 1998/1999, Dyson’s advertisements seemed to focus increasingly on the technology edge almost to the exclusion of reference to any real customer benefits – suggesting perhaps too great an internal focus on technology over and above marketing. This suggested its marketing skills could be sharpened. In 1999, British newspapers carried stories of the pending launch of a robotic Dyson, which would sell for £2500. Whilst in the longer term a robotic machine would seem attractive to many people, its pricing seemed to be less than commercial. This was in contrast to Dyson’s original product launch, which was at a good but not unrealistic premium. Had Dyson’s urge to be technologically innovative become too dominant here? This suggested a need to upgrade its strategic thinking skills. The Dyson contra-rotator washing machine was launched in 2001 at a
LINKING HR AND CORPORATE STRATEGY: DYSON APPLIANCES
price of between £1000–£2000, which again seemed high relative to competition in a well-served market. This was presumably driven by Dyson’s desire for innovative technology, and may not have been well thought through strategically and commercially. Again, was Dyson’s technological thrust getting the better of his commercial astuteness? (The jury is still out in this one.) This again suggests improvements in strategic thinking/commercial skills. The above observations (outside Dyson) also suggest that just possibly Dyson’s organizational mind-set was becoming more like those of other mature organizations, as we suggested earlier. Was it thus in need of a culture change programme of some form? In terms of putting economic value on HR strategy, the impact of the contra-rotator washing machine and the robotic Dyson could well have been: 䊏 To absorb many millions of pounds of unproductive investment 䊏 To have created unnecessary organizational complexity, slowing the
organization down and displacing other, better opportunities, with millions of pounds of profit 䊏 To have diluted Dyson’s brand strength with products that proved to be far less successful than the original Dyson models. With hindsight, what might Dyson have paid to have avoided these areas of economic value dilution and destruction (potentially £10 million–£20 million)? On top of this, Dyson would inevitably have issues surrounding leadership and management – it is always difficult when an owner/entrepreneur manages a business throughout different phases of corporate growth. More typically, around this stage we might see James Dyson changing his role (for instance becoming Non-Executive Chairman). Even Stelios at Easygroup decided to step down as Chairman of Easyjet in May 2002, to provide a more robust basis for future growth and development. Table 3.4 provides a summary of the potential issues facing Dyson as of 2001, first from strategic issues to organizational issues, and then to HR strategy breakthroughs (this follows the logic of Chapter 2). Notice that in this analysis: 䊏 There is not just a focus on cost reduction, but also on innovation in
customer value (vis-à-vis both customers and distribution channels). For example, one possible initiative that might be suggested would be not just to get new Dyson staff to build a Dyson (a current HR practice), but also to get them to sell it and to review the satisfaction with its use and with its entire service over its lifetime (from a ‘cunning plan/ to a ‘stunning plan’). And what could this be worth, in terms of economic value? Possibly hundreds of thousands of pounds worth of cost savings per annum through better decision-making (everyone in the organization 53
VALUE-BASED HR STRATEGY
Table 3.4 Potential issues facing Dyson Appliances, 2001 Strategic issues
Organizational issues
HR strategic breakthroughs
Maturity of UK market/price war? Marketing/product development strategy Increasing competition
Cost innovation
Cost management training/processes Strategic/commercial skills
International opportunity/ challenge Labour market skill shortages Brand positioning Responsiveness to change
Decision-making process/skills Customer value innovation Initiatives to get close to the customer Restructuring and sourcing Redundancies/redeployment from other suppliers Rebuilding morale in Malmesbury International sales division Hiring staff for its expansion Internal shortages for expansion Better brand management Mind-set and capabilities
Cunning recruitment strategy Recruitment James Dyson’s role change and new management skills Culture change programme and initiatives Career development, salary package, etc.
would then be intimate with product problems throughout each appliance’s lifecycle, and would wish to eradicate these difficulties). 䊏 ‘Structure change’ is not just seen in isolation from culture shift. Also, were major redundancies in Malmesbury being contemplated, as this would require a significant rebuilding of morale? (This actually occurred.) 䊏 Whilst there were (as of 2001) significant shortages at all levels of skills for Dyson, this would clearly be mitigated (except at senior management level) by a major downsizing of operations in Malmesbury. In February 2002 Dyson announced that the manufacture of Dyson cyclonic carpet cleaners would cease in Malmesbury and would be transferred to the Far East, with the loss of 800 jobs. The Dyson washing machine ‘would continue to be produced in Malmesbury’. James Dyson was quoted (Daily Mail, 6 February 2002) as saying that Far East production made it 30 per cent cheaper to make a cleaner there than in the UK. Some key strategic HR (and related) questions for Dyson at this juncture might be: 1. Was this shift not foreseeable at an earlier stage of Dyson’s evolution – possibly in 1999/2000, when competition intensified, or even sooner (using competitive scenario techniques/and knowledge of how other industries have matured in the past)? If this had been foreseen using strategic think54
LINKING HR AND CORPORATE STRATEGY: DYSON APPLIANCES
2.
3.
4.
5. 6. 7.
8.
ing (see Chapter 12), the value would have been in the order of millions of pounds. If his statement is true, then this is a huge different in costs, and so why did Dyson not consider overseas operations much sooner – by thinking ahead? And does this suggest a need for breakthrough in the organization’s strategic thinking skills? Have Dyson’s aggressive attempts at product innovation/diversification with the robotic Dyson and the Dyson washing machine distracted him from more fundamental issues surrounding his core operations? And has this led to his pursuing this diversification over and above potentially more attractive geographic expansion internationally (until 2002)? Has Dyson thought through the impact of overseas manufacture on the quality of the product and of Dyson’s brand? And what HR changes will be needed to support these shifts? What level of capability and role will be needed from Dyson’s HR department to support these massive changes? How would Dyson now attract top-class skills management skills to the organization of the right calibre and mind-set? How can decision-making and power be shared with his senior managers so that Dyson’s transition to an entrepreneurial/and professional organization (as opposed to a primarily entrepreneurial one) be achieved? Were Dyson to contemplate any new strategies, how would these be organized? (For example, if Dyson decided upon an alliance internationally with say Electrolux or Panasonic, how would this be managed?) Or if Dyson were to further his innovational product development, perhaps this could be done as a new nursery unit called The Dyson Centre for Innovation, perhaps with involvement from companies like Virgin, Easygroup and venture capitalists?
Looking to the future, we can now summarize some of the organization and people strategy shifts and breakthroughs resourced by Dyson in the Table 3.5 Changes required in HR strategy at Dyson Appliances, 1994–2005 Competitive strategy
Pricing and competition and market growth Product performance
HR strategy 1994–1999
Dominant mind-set Technology focus Number of products/ Simple new markets, structure led international, size change by James Dyson Geographical sourcing UK manufacture /cost base
HR breakthrough 2000–2004 Lean and hungry mind-set Customer benefit focus Divisional/matrix with professional CEO Global manufacturing
Culture change Organization change/new skills in design Organization change/new management team and international International managers recruited
55
VALUE-BASED HR STRATEGY
future (see Table 3.5). These from–to scenarios can now be linked to the changes required in organization and people strategy in 1994–2002, and 2002–2005 (again following the logic of Chapter 2). In Table 3.5 we can trace the linkages between competitive and HR strategy by identifying the shifts in emphasis in Dyson’s differentiation strategy, a large reduction in costs (to cope with price pressure), and a more complex set of businesses – entailing a new organization structure and style. Future shifts would entail a big change in James Dyson’s own role and – the very hard part – the establishment of a professional and entrepreneurial top team to carry forward his vision and values. (Besides defining what you are going to change in HR strategy, you also need to define what you are not going to change.)
䊏
KEY LESSONS
The key lessons for HR strategy from the Dyson case study are that: 䊏 The organizational mind-set can provide the spark for innovative
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56
strategic thinking, but it can also (in maturity) be the biggest brake on strategic development, and the costs of this are quite tangible, and potentially quantifiable The organizational mind-set is likely to push a company around down a non-optimal route for strategic development (the Dyson robotic or washing machine?) HR strategy (or organization and people strategy) has a very big role in helping shape that mind-set, and in helping to put in place the attitudes, skills and processes to support the brand, international expansion, and customer-based innovation HR strategy has a major role in any cost reduction/major operational change HR strategy needs to have a focus on organizational process as well as skills (e.g. strategic planning, financial appraisal, resource allocation, and product development processes) Skills shortages should be a major focus for HR strategy – this is tied up with a variety of HR strategic initiatives involving recruitment strategies, reward and recognition, career development, company values and style, and management processes Ultimately, HR strategy needs to grapple with very difficult appointment/succession/transition issues regarding very senior management positions Unless HR strategy plays an effective and incisive role in all of these areas, then strategic drift can easily intensify and accelerate – leading to potential ultimate competitive and financial failure.
LINKING HR AND CORPORATE STRATEGY: DYSON APPLIANCES
Case postscript In late 2002, Dyson’s profits fell from £22.5 million to £11.5 million ‘largely due to higher production and administrative expenses’ (Mail on Sunday, 20 November 2002). Was this the beginning of difficult times for Dyson, especially as (in the summer of 2002) he announced he was going to enter the USA (thus creating a war on two fronts)?
䊏
CHECKLISTS
1. What external competitive changes are affecting your own market 䊏 Now 䊏 In the future? 2. What implications are there from these issues regarding your future organization, and what HR strategic breakthroughs do these suggest? 3. How does your organizational mind-set influence key decisions and ways of operating and thinking, and how does this need to change or develop? 4. What ‘cunning plans’ might be created for: 䊏 Organizational design 䊏 Leadership 䊏 Recruitment and retention 䊏 Motivation and identification with company goals 䊏 Organizational creativity 䊏 Organizational cost reduction? 5. What economic value might be created (or value destruction avoided) by pursuing these HR strategic breakthroughs (relative to not pursuing theory or just doing minimalistic actions)?
57
3
Linking HR and corporate strategy: Dyson Appliances 䊏
INTRODUCTION
This shorter and more concrete chapter follows on very closely from Chapter 2. In it we trace the development of Dyson Appliances’ corporate/business strategy from the early 1990s to the early 2000s, together with the organization and people strategies and success factors. We argue that by using our framework for linking, this identifies major issues for James Dyson – some he is already addressing, and some that perhaps he may not yet be addressing fully. Our core mission is referred to throughout as ‘HR strategy’, as this is still the most conventional term currently in use. Dyson’s innovative breakthrough in the carpet-cleaning industry underlines the proactive role of organizational skills and mind-set in generating and sustaining value-based growth. This remarkable story also poses some major organizational dilemmas for the future, which we wait to see whether James Dyson and his team can effectively address. In the mid-1990s, James Dyson, founding Chairman of Dyson Appliances, decided to take on other (entrenched) players in the domestic carpet-cleaning industry, and with a rather different proposition. He decided to discard the assumption that such devices needed a bag. Dyson decided that, far from adding value for the customer, the bag was actually an unnecessary cost and a bother to replace. Even more radically, Dyson contended that the bag itself actually reduced the effective power (and thus the performance) of the carpet cleaner. Dyson’s new product – a distinctively designed yellow, expensive, and of course bagless floor cleaner – gained market leadership in the UK carpet-cleaning market, within around just two years from start-up. James Dyson invented and patented a device that enabled his cleaners to do without a bag by using a very fast-circling vortex of air. The dust was drawn up into a Perspex tube or cylinder, where it was dropped. Periodically the user would empty out this cylinder without producing a small dust storm, as usually happens with a bag. 47
VALUE-BASED HR STRATEGY
Dyson’s over-arching corporate goal between 1994 and 1997 appears to have been ‘to beat Hoover’. By 1996, Dyson had established himself as market leader in the UK. This was accomplished through a number of ‘hard’ and ‘soft’ competitive advantages, illustrated in Table 3.1. Table 3.1 ‘Hard’ and ‘soft’ advantages of Dyson cleaners Hard – competitive strategy Patented product Superior technology Superior performance New production site
Soft – HR strategy Innovative design process Innovative marketing Internal responsiveness Young, flexible organization
The results of this strategy were spectacular. In a short time Dyson had achieved a UK market lead. In 21⁄2 years Dyson had moved from employing fewer than 20 people to employing 300, and had a turnover of around £100 million in 1996. By 2000, he had 1500 employees in the UK and an estimated turnover nearing £250 million. In this rapid growth period, Dyson’s return on sales was a staggering 20 per cent – most unusual for a manufacturing company. During the early expansion period, Dyson’s HR strategy was partly deliberate and partly emergent. Whilst Dyson deliberately set out to reinvent very young engineers, untainted by mind-sets from larger organizations, he also recruited (through need) commercial managers from a variety of larger (and often rather political) fast-moving consumer goods (FMCG) environments. Anecdotal input from suppliers to Dyson and former employees suggested that this generated a good deal of internal rivalry within management, especially in the late 1990s and early 2000s. This gave it the ‘feel’ of a more mature organization.
䊏
SUSTAINING COMPETITIVE SUCCESS
The critical areas that appeared to drive the value of this initial competitive strategy were: 䊏 Customers’ perceptions of the superior value of the Dyson product and
their willingness to pay a premium 䊏 The company’s ability to satisfy premium customer expectations through-
out all of its product and service delivery 䊏 Competitors’ inability to compete head-on with Dyson or to evolve an
alternative and more effective strategy 䊏 Dyson’s ability to harvest a good proportion of his product’s premium
price through its retail channels 48
LINKING HR AND CORPORATE STRATEGY: DYSON APPLIANCES
Figure 3.1 Wishbone analysis
䊏 The company’s ability to gain cost economies through scale and simpli-
city of the product range 䊏 The Dyson organization’s potential to create sustainable and value-
focused innovation, and to avoid the well-documented problems of growing an organization at this speed. Figure 3.1 represents this through wishbone analysis. To use wishbone analysis, you begin at the left-hand side with your vision/overall objective, and this is then supported by the alignment factors to the right. (These are the necessary and sufficient conditions of success, and need to include one area in which you have low and one in which you have high control and influence.) Wishbone analysis is a technique for scoping an HR strategy, and also for organizational scenario development (of a positive HR scenario). Dyson’s initial market entry in 1994–1995 saw a rapid development and expansion phase for his organization. This was followed in 1996–2000 by rapid exploitation of the products, primarily in the UK. This called for some kind of review and reflection around 2001–2002, perhaps leading to subsequent adjustment of both competitive and HR strategy. By 2002, Dyson claimed to have 31 per cent of the UK market in volume terms (and in competitive and organizational terms 50 per cent by value), and UK sales of £251 million (source – Daily Mail, 6 February 2002). Taking as read the assumption that one of the key areas for thinking about HR strategy is actually external market and competitive change, the following possible/probable shifts can be identified over 1997–2002: 49
VALUE-BASED HR STRATEGY 䊏 Patents that might expire or be challenged (although Dyson won its long-
䊏 䊏 䊏
䊏 䊏 䊏
䊏
running court battle against Hoover’s ‘single cyclone’, these are still in the shops) Cunning marketing might be imitated The word-of-mouth effect might become less strong, the Dyson product being in part fashion-dependent and not quite as novel at the present time Customers might query its ‘measurably better performance’, which it is very hard to measure objectively (in 2001, the Daily Mail had several double-page features of customers ‘for and against’ Dyson’) Its design style might have been imitated (as indeed it was, by Electrolux in particular) Competitors’ mindsets might change (and did) – for example, many competitors now sell a single-cyclone model Most importantly, premium pricing might come under pressure from discounting (from 2000 onwards price pressure from electrical appliance retailers in this increasingly competitive and mature market did become far more intense, resulting in prices dropping between an estimated 10 and 15 per cent in a year, although volumes were still growing by a similar percentage) Volume growth might actually reverse in the UK, as a result of market saturation and/or economic slowdown (whilst that has not happened yet, it might well do so soon).
Potential changes over both periods can be drawn out by using a ‘From–to’ (FT) analysis, which is a key HR strategy implementation technique. This is shown in Table 3.2. Table 3.2 suggests perhaps even greater challenges for Dyson than those he needed to manage between his early start-up phase and seizing a dominant UK position in the mid-1990s. Table 3.2 ‘From-to’ analysis of competitive strategy at Dyson Appliances, 1994–2004 From 1994–1999
To 2000–2004
Pricing Competition Market growth Product performance Number of products Market focus Geographic markets
High price premium Low/medium rivalry Very high Very good Small (two) Carpet cleaners UK focus
Geographic sourcing Cost base Size
UK Medium/high £100m turnover
Modest price premium High rivalry Low Still good (relatively) Medium (six) Other household products, too UK and other markets – especially the USA (announced in autumn 2002) UK and Far East Towards world class £250–400 million turnover (more if the US launch succeeds)
50
LINKING HR AND CORPORATE STRATEGY: DYSON APPLIANCES
䊏
FROM COMPETITIVE STRATEGY TO HR STRATEGY
When Dyson initially founded his business, it was much easier to design and implement a high quality organization than at later and possibly more mature phases of development. Dyson was able to put his own personal values into the organization by, for instance: 䊏 Insisting that all new recruits actually built (and subsequently used) their
own Dysons when they joined, thus giving them a very close identification with the organization (a ‘cunning’ HR programme but hard to sustain; with a growing organization you need to keep pace with the new recruits, as doing this 3–6 months in would perhaps be less effective). 䊏 Insisting on healthier food (salads, baguettes etc.) being served in the staff canteen instead of conventional British stodge. Although initially reluctant to convert, staff subsequently became enthused with this healthier food. 䊏 Knowing all of his staff personally by managing by walking about, and thus being intimate with all aspects of the business and its organizational issues. Obviously this was just possible with a staff of 100, it was difficult with 200, very difficult with 300, and mission impossible with 500–1500. However, with maturity such early and useful initiatives and programmes would inevitably both tire and be insufficient to generate continued organizational energy. In addition, Dyson would have to face the additional difficulties of: 䊏 Having more a complex and multi-layered managerial structure as the
company grew and became more complex and diversified 䊏 Recruiting and retaining not just the right quantity of staff but also the
right quality (his UK base at Malmesbury might perhaps not be the best location to attract and retain high-calibre and young staff at every level; it boasts an Indian restaurant, a few pubs, and relatively little else). 䊏 Dealing with shifts in organizational style as the organization developed. Inevitably it might become more occupied with budgets, with management processes, and in dealing with problems caused by earlier phases of growth and the additional workload from new innovations. Therefore, Dyson was to face challenge number one – repositioning his organizational advantage. However, on top of this Dyson had a second challenge to face. As we have already seen, by 2000/2001 Dyson faced mounting external changes that can best be summarized best as a short-term from–to analysis as in Table 3.3. Table 3.3 suggests that even by early 2000 some radical rethinking of Dyson’s cost structure was needed, having a major impact on Dyson’s HR strategy too. 51
VALUE-BASED HR STRATEGY
Table 3.3 From-to analysis of external changes at Dyson Appliances, 1995–1999 Shifts
From (1995/1996)
To (1998/1999)
Competitive structure
Dyson dominant/ no new entrants Low bargaining power Low Very fashionable High margin by all players
Challenge by Dyson look-alikes/ new entrants Medium/high bargaining power High Declining novelty (somewhat) Discounting by some players and low-cost single-cyclone machines
Distribution channels UK market penetration Fashion Pricing
In addition, there were a number of other signs (visible outside Dyson) that the company might well need to review how it was organized/managed. This highlights that it is possible to intuit a good part of a company’s HR strategy simply by observation of, for example, its products and advertising, or of press commentary: 䊏 At Christmas 1999, in John Lewis, the authors spotted that the more
䊏
䊏
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expensive Dyson model had two big filters that needed to be replaced each year at a cost of £40. The warning was clear – instead of ‘Say goodbye to the Bag’, we were now seeing a switch towards ‘Say hello to the Filters’ – a worrying apparent shift in the mind-set. Fortunately, this move was quickly reversed in 2000. This suggested that Dyson’s innovation drive was being misdirected, and that its managers’ commercial skills/judgement could be improved. On the very same visit, two customers were sold a Miele instead of a Dyson by John Lewis (following the discovery of the £40-a-year filter replacement costs). The John Lewis’ sales assistant said to the customers: ‘Miele is our best-selling line’. This was notable, as John Lewis stores were an early fan of Dyson and were instrumental in helping him to launch the machine in the UK. This suggested that its account management skills could be enhanced. Around 1998/1999, Dyson’s advertisements seemed to focus increasingly on the technology edge almost to the exclusion of reference to any real customer benefits – suggesting perhaps too great an internal focus on technology over and above marketing. This suggested its marketing skills could be sharpened. In 1999, British newspapers carried stories of the pending launch of a robotic Dyson, which would sell for £2500. Whilst in the longer term a robotic machine would seem attractive to many people, its pricing seemed to be less than commercial. This was in contrast to Dyson’s original product launch, which was at a good but not unrealistic premium. Had Dyson’s urge to be technologically innovative become too dominant here? This suggested a need to upgrade its strategic thinking skills. The Dyson contra-rotator washing machine was launched in 2001 at a
LINKING HR AND CORPORATE STRATEGY: DYSON APPLIANCES
price of between £1000–£2000, which again seemed high relative to competition in a well-served market. This was presumably driven by Dyson’s desire for innovative technology, and may not have been well thought through strategically and commercially. Again, was Dyson’s technological thrust getting the better of his commercial astuteness? (The jury is still out in this one.) This again suggests improvements in strategic thinking/commercial skills. The above observations (outside Dyson) also suggest that just possibly Dyson’s organizational mind-set was becoming more like those of other mature organizations, as we suggested earlier. Was it thus in need of a culture change programme of some form? In terms of putting economic value on HR strategy, the impact of the contra-rotator washing machine and the robotic Dyson could well have been: 䊏 To absorb many millions of pounds of unproductive investment 䊏 To have created unnecessary organizational complexity, slowing the
organization down and displacing other, better opportunities, with millions of pounds of profit 䊏 To have diluted Dyson’s brand strength with products that proved to be far less successful than the original Dyson models. With hindsight, what might Dyson have paid to have avoided these areas of economic value dilution and destruction (potentially £10 million–£20 million)? On top of this, Dyson would inevitably have issues surrounding leadership and management – it is always difficult when an owner/entrepreneur manages a business throughout different phases of corporate growth. More typically, around this stage we might see James Dyson changing his role (for instance becoming Non-Executive Chairman). Even Stelios at Easygroup decided to step down as Chairman of Easyjet in May 2002, to provide a more robust basis for future growth and development. Table 3.4 provides a summary of the potential issues facing Dyson as of 2001, first from strategic issues to organizational issues, and then to HR strategy breakthroughs (this follows the logic of Chapter 2). Notice that in this analysis: 䊏 There is not just a focus on cost reduction, but also on innovation in
customer value (vis-à-vis both customers and distribution channels). For example, one possible initiative that might be suggested would be not just to get new Dyson staff to build a Dyson (a current HR practice), but also to get them to sell it and to review the satisfaction with its use and with its entire service over its lifetime (from a ‘cunning plan/ to a ‘stunning plan’). And what could this be worth, in terms of economic value? Possibly hundreds of thousands of pounds worth of cost savings per annum through better decision-making (everyone in the organization 53
VALUE-BASED HR STRATEGY
Table 3.4 Potential issues facing Dyson Appliances, 2001 Strategic issues
Organizational issues
HR strategic breakthroughs
Maturity of UK market/price war? Marketing/product development strategy Increasing competition
Cost innovation
Cost management training/processes Strategic/commercial skills
International opportunity/ challenge Labour market skill shortages Brand positioning Responsiveness to change
Decision-making process/skills Customer value innovation Initiatives to get close to the customer Restructuring and sourcing Redundancies/redeployment from other suppliers Rebuilding morale in Malmesbury International sales division Hiring staff for its expansion Internal shortages for expansion Better brand management Mind-set and capabilities
Cunning recruitment strategy Recruitment James Dyson’s role change and new management skills Culture change programme and initiatives Career development, salary package, etc.
would then be intimate with product problems throughout each appliance’s lifecycle, and would wish to eradicate these difficulties). 䊏 ‘Structure change’ is not just seen in isolation from culture shift. Also, were major redundancies in Malmesbury being contemplated, as this would require a significant rebuilding of morale? (This actually occurred.) 䊏 Whilst there were (as of 2001) significant shortages at all levels of skills for Dyson, this would clearly be mitigated (except at senior management level) by a major downsizing of operations in Malmesbury. In February 2002 Dyson announced that the manufacture of Dyson cyclonic carpet cleaners would cease in Malmesbury and would be transferred to the Far East, with the loss of 800 jobs. The Dyson washing machine ‘would continue to be produced in Malmesbury’. James Dyson was quoted (Daily Mail, 6 February 2002) as saying that Far East production made it 30 per cent cheaper to make a cleaner there than in the UK. Some key strategic HR (and related) questions for Dyson at this juncture might be: 1. Was this shift not foreseeable at an earlier stage of Dyson’s evolution – possibly in 1999/2000, when competition intensified, or even sooner (using competitive scenario techniques/and knowledge of how other industries have matured in the past)? If this had been foreseen using strategic think54
LINKING HR AND CORPORATE STRATEGY: DYSON APPLIANCES
2.
3.
4.
5. 6. 7.
8.
ing (see Chapter 12), the value would have been in the order of millions of pounds. If his statement is true, then this is a huge different in costs, and so why did Dyson not consider overseas operations much sooner – by thinking ahead? And does this suggest a need for breakthrough in the organization’s strategic thinking skills? Have Dyson’s aggressive attempts at product innovation/diversification with the robotic Dyson and the Dyson washing machine distracted him from more fundamental issues surrounding his core operations? And has this led to his pursuing this diversification over and above potentially more attractive geographic expansion internationally (until 2002)? Has Dyson thought through the impact of overseas manufacture on the quality of the product and of Dyson’s brand? And what HR changes will be needed to support these shifts? What level of capability and role will be needed from Dyson’s HR department to support these massive changes? How would Dyson now attract top-class skills management skills to the organization of the right calibre and mind-set? How can decision-making and power be shared with his senior managers so that Dyson’s transition to an entrepreneurial/and professional organization (as opposed to a primarily entrepreneurial one) be achieved? Were Dyson to contemplate any new strategies, how would these be organized? (For example, if Dyson decided upon an alliance internationally with say Electrolux or Panasonic, how would this be managed?) Or if Dyson were to further his innovational product development, perhaps this could be done as a new nursery unit called The Dyson Centre for Innovation, perhaps with involvement from companies like Virgin, Easygroup and venture capitalists?
Looking to the future, we can now summarize some of the organization and people strategy shifts and breakthroughs resourced by Dyson in the Table 3.5 Changes required in HR strategy at Dyson Appliances, 1994–2005 Competitive strategy
Pricing and competition and market growth Product performance
HR strategy 1994–1999
Dominant mind-set Technology focus Number of products/ Simple new markets, structure led international, size change by James Dyson Geographical sourcing UK manufacture /cost base
HR breakthrough 2000–2004 Lean and hungry mind-set Customer benefit focus Divisional/matrix with professional CEO Global manufacturing
Culture change Organization change/new skills in design Organization change/new management team and international International managers recruited
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VALUE-BASED HR STRATEGY
future (see Table 3.5). These from–to scenarios can now be linked to the changes required in organization and people strategy in 1994–2002, and 2002–2005 (again following the logic of Chapter 2). In Table 3.5 we can trace the linkages between competitive and HR strategy by identifying the shifts in emphasis in Dyson’s differentiation strategy, a large reduction in costs (to cope with price pressure), and a more complex set of businesses – entailing a new organization structure and style. Future shifts would entail a big change in James Dyson’s own role and – the very hard part – the establishment of a professional and entrepreneurial top team to carry forward his vision and values. (Besides defining what you are going to change in HR strategy, you also need to define what you are not going to change.)
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KEY LESSONS
The key lessons for HR strategy from the Dyson case study are that: 䊏 The organizational mind-set can provide the spark for innovative
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strategic thinking, but it can also (in maturity) be the biggest brake on strategic development, and the costs of this are quite tangible, and potentially quantifiable The organizational mind-set is likely to push a company around down a non-optimal route for strategic development (the Dyson robotic or washing machine?) HR strategy (or organization and people strategy) has a very big role in helping shape that mind-set, and in helping to put in place the attitudes, skills and processes to support the brand, international expansion, and customer-based innovation HR strategy has a major role in any cost reduction/major operational change HR strategy needs to have a focus on organizational process as well as skills (e.g. strategic planning, financial appraisal, resource allocation, and product development processes) Skills shortages should be a major focus for HR strategy – this is tied up with a variety of HR strategic initiatives involving recruitment strategies, reward and recognition, career development, company values and style, and management processes Ultimately, HR strategy needs to grapple with very difficult appointment/succession/transition issues regarding very senior management positions Unless HR strategy plays an effective and incisive role in all of these areas, then strategic drift can easily intensify and accelerate – leading to potential ultimate competitive and financial failure.
LINKING HR AND CORPORATE STRATEGY: DYSON APPLIANCES
Case postscript In late 2002, Dyson’s profits fell from £22.5 million to £11.5 million ‘largely due to higher production and administrative expenses’ (Mail on Sunday, 20 November 2002). Was this the beginning of difficult times for Dyson, especially as (in the summer of 2002) he announced he was going to enter the USA (thus creating a war on two fronts)?
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CHECKLISTS
1. What external competitive changes are affecting your own market 䊏 Now 䊏 In the future? 2. What implications are there from these issues regarding your future organization, and what HR strategic breakthroughs do these suggest? 3. How does your organizational mind-set influence key decisions and ways of operating and thinking, and how does this need to change or develop? 4. What ‘cunning plans’ might be created for: 䊏 Organizational design 䊏 Leadership 䊏 Recruitment and retention 䊏 Motivation and identification with company goals 䊏 Organizational creativity 䊏 Organizational cost reduction? 5. What economic value might be created (or value destruction avoided) by pursuing these HR strategic breakthroughs (relative to not pursuing theory or just doing minimalistic actions)?
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