Case Study

Analysis

Problem Definition
Ponsse is months away from completing an expansion that would double the capacity of its manufacturing plant. For generate more revenues, ponsse has to increase the number of customers. Tiitinen (President & CEO of Ponsse Oyj), has to decide whether the companys international expansion come from:
Organic Growth Acquisitions Partnerships

History of Ponsse
Einari Vidgren founded Ponsse in 1970 in Vierema, Finland, as a forestry machinery company. In 1980s, machine harvesting became increasingly popular. In check with environmental concerns, Vidgren developed a machine called Ponsse S-15 forwarder which was a breakthrough innovation as a light machine. The competitors failed to match up Ponsses products. As the demand increased, as part of expansion Ponsse purchased a building across the street which later became highly profitable. Apart from major innovations in harvest machinery to smooth cut down trees, recycled used machines also remained an important part of Ponsses business as of 2006.

Mechanized Harvesting
Forests covered 30% of the earths total land area. Wood-related industries are a major component of economic and social development worldwide. The global demand for wood is really high, due to the consumption growth in developing countries. The supply chain was relatively fragmented, except in the paper industry. Mechanized harvesting was divided into two different methods:

Tree length logging

Cut - to - length

Ownership Changes
In December 1988, Ponsse was sold to Interpolar Oy. But Vidgren quickly had second thoughts about the sale of the company. In 1993 he and several of the original owners were able to repurchase it. Vidgren became the chairman and the company heavily invested in its information systems. Ponsse acquired Kajaanin Automatiika Ky and developed Ponsse Opti, a sophisticated control system for the machine cabins.

In order to venture internationally, subsidiaries in Swedish, US, UK and France were established.
In 1995, Ponsse was listed on the Helsinki Stock Exchange.

Ponsse in 21st Century

Tiitenen became President and CEO on April 1, 2004. His initial objective was redefine companys values and mission and instill a corporate philosophy focused on fulfilling customer needs. From products, production, technology, sales, and aftermarket support was reexamined to bring them closer to the customer.

Ponsse Product Line

2 different models of harvesters and 5 sizes of forwarders. First manufacturer to offer combination or dual machines which allowed a single operator. Machines were lighter and shorter than competing offerings and yet more efficient, versatile and reliable. Machines were easier for environment and easier on the terrain and hence adding a value to the customers. The machines had superior hydraulic capacity, better fuel economy and were designed for easy maintenance.

Ponsse Product Line

Ponsses harvesters did not shake while harvesting and thus increased the operators efficiency. They reduced fatigue, lowering the operators health risk leading to higher quality production. The extra cabin room allowed two people to ride comfortably, which helped in sales demonstrations and operator training and for meetings in the cabin while the operator worked. Machines help the customer to make profit as they are more productive, low on fuel costs, trees cut per hour is higher and the quality is better. Used machines accounted for 20% of Ponsses revenues in 2005.

Production in Vierama
Machine components were produced in-house, allowing for greater control and flexibility and ongoing availability of spare parts for customers with older models. Devout subscriber of lean manufacturing and Toyota production systems, having established quality circles. Process teams that continuously measured outputs and monitored trends. A web based product feedback system which improved the customer relationships.

Production in Vierama
Customers had the flexibility in selecting the components and product features of choice. Test drive by 8 drivers before the machines were delivered to the customers. In july 2005, Ponsse acquired 92% of Lako Oy. The acquisition enhanced Ponsses product range with (de)barking Euca harvesters, which it previously lacked.

Technology
Machines contained sophisticated information technology systems for control, measurement, optimization, as well as information capture and communication. Ponsse was the first company to offer remote diagnostics for problems on the harvesters, which operated under very demanding conditions. In November 2004, Ponsse acquired Epec Oy which provided a competitive advantage to have information systems production in-house. This acquisition opened doors for Ponsse outside the forest industry, such as mining, construction, utilities and agriculture.

Ponsse Academy and Customer Service Centre

Tiitien believed his vision of superior customer service was highly contingent upon the level of Ponsses intellectual capital. The vision and objectives of Ponsse Acw ademy were to provide training services not only to Ponsses current and future employees , but also to its other interest groups, including its customers. The Ponsse Academy was housed in the companys new Customer Service Centre near the Vierema factory. In the first year, it was visited by 6000 visitors.

Sales and Service

Ponsses customers were independent contractors as well as larger companies The cost of the machines and importance to the customer profitability made it a very important purchase decision. Personal selling and relationships were important. Customers tended to be highly loyal to a particular brand. Tiintien initiated a review of firms branding strategy by revamping the the logos colour scheme and a new line of accessories like shirts, hats, boots etc.

Sales and Service

Ponsse used its own locations and independent dealers. 80% of Ponsses sales were direct, but was decreasing as more independent dealers were added. Customer satisfaction has been Ponsses top priority. The key of Ponsses service was minimal turnaround time, saving customers from long periods of unpaid downtime.

Sales and Service

Ponsses main parts inventory was located in Lisalmi, Finland. This facility was open 24 hours a day, seven days a week and shipped parts by air freight all over the world. This is Ponsses largest forest machine service centre, along with training facilities for salespeople, customers and partners.

Alternatives
I. II. III. IV. Organic Growth Partnership Dealership Acquisitions

Organic Growth
Advantages The organization will be able to retain its core values and principles Efficient customer service Disadvantages The organization lacks the resources required for organic growth Pace of growth is slow; it takes a long time for the organization to start from scratch and grow in a new market.

Partnership
Advantages Increased financial revenues Added skills and expertise Reduced management costs Disadvantages Conflict of interests, values and mission Lack of public confidence as there is no legal binding to furnish accounts

Dealership
Advantages Low set-up costs Factory owned dealer are very reliable Disadvantages Independent dealers
They may switch to other brands They may use pressure selling tactics They may not provide the expected standards of customer service

Acquisitions
Advantages Overcome barriers to entry Take advantage of synergies:
Buy out a competitor Buy out a firm with good distribution channel in the region

Disadvantages

Guaranteed market growth Economies of scale

Acquisitions contd.
Advantages Shrink overhead costs Low risk:
Expenses and returns can be projected with reasonable accuracy as opposed to other options ROI is immediate

Disadvantages Cost intensive Incorrect valuation of synergies

Easy integration

We recommend Acquisition
Reasons Existing products are in later stages of their lifecycles Business lacks knowledge and resources to grow

organically
Speed of growth is high priority Competitors enjoy significant advantages that are hard to overcome