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Flevy Management Insights Case Study
Global Expansion Strategy for Boutique Wood Product Manufacturer

Fortune 500 companies typically bring on global consulting firms, like McKinsey, BCG, Bain, Deloitte, and Accenture, or boutique consulting firms specializing in Open Innovation to thoroughly analyze their unique business challenges and competitive situations. These firms provide strategic recommendations based on consulting frameworks, subject matter expertise, benchmark data, KPIs, best practices, and other tools developed from past client work. We followed this management consulting approach for this case study.

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Consider this scenario: A boutique wood product manufacturer, leveraging open innovation to diversify its product range, faces significant challenges in scaling its operations internationally.

The organization is battling a 20% increase in production costs and a 15% decrease in market share due to intensified competition and fluctuating raw material prices. The primary strategic objective of the organization is to establish a strong international presence while optimizing costs and enhancing product innovation.

The boutique wood product manufacturer is at a critical juncture, where the need to scale operations and enter new markets is juxtaposed with the challenges of rising production costs and declining market share. Possible root causes include the company's limited experience in managing international supply chains and a lack of robust product innovation in a highly competitive market.

Strategic Analysis

The wood product manufacturing industry is witnessing a resurgence, driven by rising demand for sustainable and eco-friendly products. However, the industry is also facing challenges from fluctuating raw material prices and evolving consumer preferences.

There are several structural forces that shape the competitive landscape of this industry, including:

  • Internal Rivalry: High, due to a fragmented market with numerous small and medium-sized enterprises competing on price and design.
  • Supplier Power: Moderate, as manufacturers can source materials from a variety of suppliers, but are subject to price volatility in raw materials.
  • Buyer Power: High, with consumers increasingly demanding sustainable and customized products, which puts pressure on manufacturers to innovate.
  • Threat of New Entrants: Moderate, given the relatively low initial investment required to start a small-scale wood manufacturing business.
  • Threat of Substitutes: Low to moderate, with plastic and metal products serving as alternatives, but less favored due to environmental concerns.

Emergent trends include a shift towards sustainability and customization, which presents opportunities for manufacturers to explore niche markets and leverage technology for product innovation. However, this also poses the risk of increased operational costs and the need for continuous investment in research and development.

  • Increasing demand for sustainable products: Offers the opportunity to charge premium prices but requires certification and proof of sustainability, increasing operational complexity.
  • Growth in online sales: Expands market reach but intensifies competition and necessitates investment in digital marketing and e-commerce platforms.
  • Technological advancements in manufacturing: Enables efficiency and customization but requires significant upfront investment in machinery and training.

A PEST analysis reveals that regulatory changes towards sustainability are increasing, technological advancements are accelerating, and economic fluctuations impact raw material costs. Social trends favor eco-friendly and customized products.

Learn more about PEST Competitive Landscape Strategic Analysis

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Internal Assessment

The organization possesses a strong brand reputation for quality and craftsmanship but is challenged by its limited scale and efficiency in production processes.

Benchmarking against industry peers reveals gaps in operational efficiency, particularly in supply chain management and cost control, highlighting areas for improvement to remain competitive.

The McKinsey 7-S Analysis indicates misalignments between strategy, structure, and systems, particularly in adapting to international markets and integrating technology into product development and operations.

A Resource-Based View (RBV) Analysis shows the company's strength in brand and product design but identifies a need to build capabilities in international market entry and digital transformation to exploit new opportunities effectively.

Learn more about Digital Transformation Supply Chain Management McKinsey 7-S

Strategic Initiatives

  • Implement a Global Supply Chain Optimization program: To reduce costs and improve efficiency by leveraging technology for better supply chain visibility and vendor management. This initiative aims to cut production costs by 10% within the next two years, creating value through operational excellence. Resource requirements include investment in supply chain management software and training for staff.
  • Launch an Open Innovation Platform: To collaborate with designers, customers, and technology providers in developing new products. This initiative will enhance product innovation and differentiation, expected to increase market share by 5% over the next three years. Resources needed include a digital platform for collaboration and a dedicated team to manage partnerships and product development.
  • Expand into Emerging Markets: Focusing on regions with growing demand for sustainable wood products. This initiative aims to establish a presence in 2 new international markets within the next five years, driving revenue growth through market diversification. Required resources include market research, local partnerships, and marketing campaigns tailored to each new market.

Learn more about Operational Excellence Supply Chain Market Research

Open Innovation Implementation KPIs

KPIS are crucial throughout the implementation process. They provide quantifiable checkpoints to validate the alignment of operational activities with our strategic goals, ensuring that execution is not just activity-driven, but results-oriented. Further, these KPIs act as early indicators of progress or deviation, enabling agile decision-making and course correction if needed.

What gets measured gets managed.
     – Peter Drucker

  • Reduction in Production Costs: To measure the effectiveness of the Global Supply Chain Optimization program.
  • Number of New Products Developed through Open Innovation: Tracks the success of engaging external partners in product innovation.
  • Revenue Growth in New Markets: Evaluates the success of international market expansion efforts.

These KPIs provide insights into the efficiency of operations, the effectiveness of innovation efforts, and the success of market expansion strategies, informing future strategic decisions.

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Open Innovation Best Practices

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Open Innovation Deliverables

These are a selection of deliverables across all the strategic initiatives.

  • Global Supply Chain Optimization Report (PPT)
  • Open Innovation Platform Development Plan (PPT)
  • Emerging Market Entry Strategy (PPT)
  • International Market Analysis Template (Excel)

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Global Supply Chain Optimization Program

The organization employed the Value Chain Analysis and the Theory of Constraints (ToC) as primary frameworks to guide the Global Supply Chain Optimization program. The Value Chain Analysis, initially conceptualized by Michael Porter, was instrumental in dissecting the company's activities into strategic areas to identify cost-saving opportunities. The Theory of Constraints, developed by Eliyahu M. Goldratt, was utilized to systematically improve the supply chain's throughput by identifying and addressing the most critical bottleneck.

Following the Value Chain Analysis, the organization:

  • Conducted a comprehensive review of its inbound logistics, operations, outbound logistics, marketing and sales, and service activities to pinpoint inefficiencies and areas with the highest cost implications.
  • Implemented targeted interventions in high-cost areas, such as renegotiating supplier contracts and optimizing inventory levels to reduce holding costs.

Applying the Theory of Constraints involved:

  • Identifying the supply chain's most significant bottleneck, which was found to be in the raw material procurement process.
  • Realigning procurement strategies and establishing stronger relationships with key suppliers to ensure a steady and reliable flow of materials.

The results from these strategic frameworks led to a 10% reduction in production costs within the first two years. The Value Chain Analysis provided a structured approach to dissect and optimize each activity for cost savings, while the Theory of Constraints allowed for a focused improvement that significantly enhanced supply chain throughput.

Learn more about Value Chain Analysis Value Chain Theory of Constraints

Launch of an Open Innovation Platform

For the Open Innovation Platform initiative, the organization leveraged the Diffusion of Innovations (DoI) theory and the Open Innovation Model. The Diffusion of Innovations theory, proposed by Everett Rogers, helped the company understand how new ideas and technologies spread within communities. The Open Innovation Model, articulated by Henry Chesbrough, guided the organization in incorporating external ideas and technologies to accelerate internal innovation.

Implementing the Diffusion of Innovations theory, the organization:

  • Mapped the communication channels within the innovation ecosystem, identifying key influencers and stakeholders to engage in the platform.
  • Developed targeted strategies to facilitate the adoption of the platform among these key stakeholders, using incentives and highlighting the platform's benefits.

In applying the Open Innovation Model, the organization:

  • Created a structured process for external partners to submit their ideas and collaborate on product development, ensuring intellectual property rights were clearly defined and protected.
  • Integrated these external innovations into the company’s product development cycle, significantly reducing time-to-market for new products.

The combination of these frameworks resulted in the development of 15 new products within the first year of the platform's launch, demonstrating the effectiveness of leveraging external networks and innovations. The Open Innovation Model provided a systematic approach to incorporating external ideas, while the Diffusion of Innovations theory ensured the platform's rapid adoption and effectiveness in fostering collaboration.

Learn more about Open Innovation Product Development

Expansion into Emerging Markets

To support the Expansion into Emerging Markets initiative, the organization utilized the Market Entry Strategy Framework and the Competitive Advantage Model. The Market Entry Strategy Framework helped in selecting and implementing the most appropriate entry modes for each new market, considering factors such as market size, competition, and legal restrictions. The Competitive Advantage Model, inspired by Michael Porter's work, enabled the company to identify its unique strengths and how these could be leveraged to outperform competitors in new markets.

Through the Market Entry Strategy Framework, the organization:

  • Analyzed each target market to determine the optimal entry strategy, ranging from direct exports to joint ventures with local partners.
  • Executed the chosen entry strategies, closely monitoring progress and adapting approaches as necessary to maximize market penetration and minimize risks.

Applying the Competitive Advantage Model involved:

  • Identifying the company’s unique value propositions, such as sustainable sourcing and high-quality craftsmanship, that differentiated it from competitors in the new markets.
  • Developing marketing and product strategies that highlighted these competitive advantages to capture market share and build brand loyalty among new customers.

The strategic application of these frameworks facilitated the company's successful entry into two new international markets within five years, achieving a significant increase in global market share. The Market Entry Strategy Framework provided a structured approach to evaluating and selecting the most effective entry modes, while the Competitive Advantage Model ensured the company capitalized on its unique strengths to establish a strong market presence.

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Key Findings and Results

Here is a summary of the key results of this case study:

  • Reduced production costs by 10% within the first two years through the Global Supply Chain Optimization program.
  • Developed 15 new products in the first year of launching the Open Innovation Platform.
  • Successfully entered two new international markets within five years, significantly increasing global market share.
  • Implemented targeted interventions in high-cost areas, leading to optimized inventory levels and renegotiated supplier contracts.
  • Established stronger relationships with key suppliers, ensuring a steady and reliable flow of materials.
  • Created a structured process for external partners to submit ideas, significantly reducing time-to-market for new products.
  • Identified the company’s unique value propositions, such as sustainable sourcing and high-quality craftsmanship, to outperform competitors in new markets.

The boutique wood product manufacturer's strategic initiatives have yielded notable successes, particularly in reducing production costs, fostering product innovation, and expanding into new international markets. The 10% reduction in production costs and the development of 15 new products within a year are commendable achievements that speak to the effectiveness of the Global Supply Chain Optimization program and the Open Innovation Platform. These results directly address the initial challenges of rising production costs and the need for product innovation in a competitive market. However, the results also highlight areas of potential improvement. For instance, the impact on market share, while positive, suggests that further efforts may be needed to translate product innovation and market expansion into more significant market share gains. Additionally, the reliance on external partnerships and innovations poses risks related to intellectual property and the integration of external ideas into the company's product lineup. Alternative strategies, such as increasing investments in in-house R&D and exploring strategic acquisitions to enhance market presence, could potentially enhance outcomes.

For the next steps, it is recommended to focus on deepening market penetration in the newly entered international markets through targeted marketing and localization strategies. Additionally, the company should consider scaling the Open Innovation Platform by engaging with a broader ecosystem of innovators and leveraging data analytics to gain insights into emerging consumer trends. Strengthening the in-house R&D capabilities, alongside open innovation, can provide a balanced approach to product development. Finally, exploring strategic partnerships or acquisitions with local players in key markets could accelerate market share growth and enhance the company's competitive positioning.

Source: Global Expansion Strategy for Boutique Wood Product Manufacturer, Flevy Management Insights, 2024

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