Overcoming disruptions to value chain
How Hoshino used crisis as opportunity to rethink business model
By Sean M Hackett
When a key supplier goes bankrupt, finding a replacement supplier and restoring the viability of the value chain is not necessarily sufficient to end the crisis. While unpleasant, disruptions to the value chain can be used as opportunities to re-evaluate the firm’s value proposition and business model.
When the contract manufacturer for Soldam Corporation’s WiNDy brand premium aluminum PC cases went out of business, all operations at Soldam temporarily ceased for a lack of parts. How could the WiNDy brand survive?
After finding a replacement supplier, Izumi Hoshino, the president of Soldam, carefully analyzed the current industry dynamics as well as his firm’s internal resources and capabilities.
Ultimately, he decided to downsize, restructure, and rename the company, and to reduce business risk by diversifying into three additional related lines of business.
Evolution of the WiNDy brand
In 1998 Hoshino established Soldam in order to launch the WiNDy brand of premium aluminum PC cases. These visually stunning PC cases were the first mass-produced aluminum PC cases in the world.
WiNDy cases were targeted at PC enthusiasts such as “gamers” who like to build and maintain their own PCs from components that they personally select.
At the time of Soldam’s establishment, in addition to selling through retailers, Hoshino also built and maintained his own online store. WiNDy quickly became a leading brand for premium aluminum PC cases.
With a view to cementing its leading market position, Soldam introduced the following innovations in successive WiNDy models: beautiful hand screws, high-quality paint for the chassis, dust-proof design for the better protection of components, blue light-emitting diode (LED) indicators, sliding motherboard base for ease of installation and component change, removable hard disk drive (HDD) holder and HDD expansion holders.
In the second stage of its evolution, Soldam introduced the following sustaining innovations in successive models: all-aluminum case mask, anodized case finish, colored anodized finish, high-rigidity aluminum chassis, full-aluminum small form factor (SFF) cube case, and aluminum bay covers.
In response to the threat of a recently established competitor, in early 2005 Soldam introduced new aluminum cases that were designed to improve air flow while reducing noise.
However, in mid-2005, some retailers began complaining about channel conflict due to lower prices for items listed on the Soldam website. Although Soldam asserted that the models offered online were different from models released through retail channels, the retailers believed that their customers were bypassing them and going to Soldam’s website and they began to abandon the WiNDy product line.
Problematically, revenues at the contract manufacturer were declining precipitously. In July 2006, it was declared bankrupt, and due to the loss of manufacturing capabilities. Operations at Soldam also ceased temporarily.
However, Soldam eventually found a manufacturer that was willing to produce WiNDy case parts in small lots and in accordance with Hoshino’s specifications. Upon receiving the parts, Hoshino and his colleagues would assemble the parts and complete the cases.
With the new contract manufacturer in place, online sales of WiNDy brand PC cases resumed on April 12, 2007, and retail sales resumed in January 2008. However, after resuming operations, Soldam experienced some quality assurance and on-time delivery issues that resulted in unhappy customers.
In June 2008, Soldam issued a letter acknowledging customer frustrations and announced a one-month cessation of operations so that Soldam could restructure and refocus its operations. The letter stressed that although the name of the company would change, the essential WiNDy DNA would remain intact.
After carefully analyzing the current state of the premium aluminum PC case industry and after auditing the firm’s internal resources and capabilities, Hoshino decided to downsize, restructure and rename the company while preserving the WiNDy brand name.
He also decided to diversify into three related business areas in order to offset the decline in revenues associated with the decrease in unit sales associated with a move to small-batch production.
Moving from mass-production to small-batch production enabled Hoshino to position his products as both “Made in Japan” and “Assembled by hand.” Finding a new contract manufacturer and differentiating the WiNDy brand were necessary but not sufficient conditions for placing the firm on more solid footing.
Accordingly, after changing the name of the company from Soldam to Hoshino ING Corporation, Hoshino also reduced the business risk associated with being dependent on revenues from one product line by diversifying into three additional related lines of business. Thus, the new firm has four lines of business:
― Development, sales, and support of the WiNDy brand products such as complete PCs for various professionals by keeping original ideas including in cases made of aluminum as the main material.
― Original equipment manufacturer (OEM) production of PC relevant products such as PC cases and complete PCs.
― Total web service ranging from planning, designing and production of websites to management.
― Development, construction, and operation of various systems that make good use of open network technology and electronic commerce marketing.
Current economic conditions are very turbulent and many firms are experiencing disruptions in their value chains. The case described here suggests that, while unpleasant, a disruption to a firm’s value chain should be used as an opportunity to re-evaluate and, when appropriate, change the firm’s value proposition and business model.
Sean M. Hackett is an assistant professor at Waseda Business School in Waseda University.