9-991-028 DESIGN MANAGEMENT INSTITUTE CASE STUDY AB Bahco Tools: The Development of a Design Strategy at a Tool Company This case study came from the Case Study Research and Development Pro- gram at the Design Management Institute’s Center for Research. The Cen- ter conducts research and develops educa- tional materials on the role of design and design management in business success. Case studies, the Design Management Jour- nal, reprints from the Journal, and other educational materials are available from the Design Management Institute Press. Design Management Institute Press The Design Management Institute 29 Temple Place, 2nd Floor Boston, MA 02111-1350 USA 617 338-6380 Fax 617 338-6570 Web Site: www.dmi.org E-mail: [email protected] Harvard Business School Publishing is the exclusive distributor of this publication. To order copies or to request permission to photocopy, please call 617 495-6117; in the U.S. call 800 545-7685; or write: Harvard Business School Publishing, Customer Service Dept., 60 Harvard Way, Boston, MA 02163 Acknowledgments: Many thanks to all the people at AB Bahco Verktyg whose generous participation made this case study possible; to Karen Freeze of the Design Management Institute, whose ideas, insights, and editing enriched the case in crucial ways; to Earl Powell, Director of the Design Management Institute, whose ideas and encouragement contributed to the development; to Christer Kedström of Lund University who read and critiqued the early drafts; and to Karl Ulrich and Steven Eppinger of the Massachu- setts Institute of Technology, who first taught the case and critiqued it carefully. Lisbeth Svengren, MscBA University of Lund This case was partially funded by the Department of Business Administration, Lund University, and the Design Arts Program of the National Endowment for the Arts. © Copyright 1991 December 1991. Version 1 The Design Management Institute All rights reserved. No part of this publi- cation may be reproduced without writ- ten permission. 2 Design Management Institute Case Study AB Bahco Tools: The Development of a Design Strategy at a Tool Company Bengt Carlsson, the new managing director of Bahco Tools, was very enthusiastic about the Swedish company’s new, ergonomically designed screwdriver. Very different from Bahco’s old screwdrivers, the Ergo screwdriver had been launched in October 1982 and had just re- turned from a major success at the annual spring Hardware Exhibition in ■ This case was prepared by Lisbeth Cologne, West Germany. It was now the last week in March 1983. Svengren of the University of Lund, Sweden, for the Design Management Carlsson and two of Bahco’s managers were discussing the next steps the Institute as a basis for class discussion rather than to illustrate company should take in view of the Ergo’s success. either effective or ineffective handling of an administrative situation. “We can’t let the Ergo Screwdriver remain just an ordinary new prod- uct. We have to carefully consider how we can utilize its concept not only for a stronger market position, but also to reposition Bahco as a special tool company in the future. So far we haven’t been very successful with our low-price tools. They hurt our reputation more than we realize—in fact, I have just received a report from an American researcher, Mr. Armstrong, about the damage to the user caused by poorly-designed tools. I believe the Ergo screwdriver is the answer to that.” Claes Claesgård, head of the Scandinavian Sales Department for many years and now marketing director, was somewhat worried about the company’s situation. The market was stagnating, the cheap imports were getting stronger, and Bahco’s low-priced tools were not reaching budget. 3 AB Bahco Tools: The Development of a Design Strategy at a Tool Company “One of the facts we have to recognize is would solve his problem. This first inven- that our old screwdrivers and other hand tion was so successful that he soon applied tools are regarded as commodity products. the same principle to develop the adjust- 1 Since 1892, when Johansson We have to think about our future market- able wrench.1 received his patent, more than ing strategies.” Claesgård had been instru- B.A. Hjort was a Stockholm business- 90 million Bahco adjustable wrenches based on Johansson’s mental in supporting the Ergo project but man who owned a tool and machine com- patent had been sold throughout wondered whether its full potential for the pany in the late nineteenth century. Rec- the world. In the early 1980s company would be exploited effectively. ognizing the potential in Johansson’s Bahco sold approximately 3 Roine Erkenståhl, communications inventions, Hjort obtained sales rights and million adjustable wrenches per manager, was concerned that the Ergo ad- began a worldwide marketing effort, based year; another 67 million copies were sold throughout the world. vertising campaign and its brochures primarily in Scandinavia and Europe, wouldn’t be enough support for the new through his company B. A. Hjort & Co. product. “If we are going to charge 25% The products were sold under the brand more for the Ergo screwdrivers, we may name Bahco, derived from Hjort’s initials. have to find other ways to show why they In 1916 he bought Johansson’s workshop are so much better.” and in 1954, when it was introduced at the “But the new screwdriver is much bet- stock exchange, the company was renamed ter,” Bengt Carlsson declared. “You know Bahco Verktyg (Bahco Tools). that. We have to tell people that this is not In the course of the next century, espe- an ordinary screwdriver. When they dis- cially during the 1960s and 1970s, Bahco cover that, they will regard it differently Tools acquired a number of different busi- than they do their ordinary tools.” Roine nesses encompassing such areas as pneu- Erkenståhl and Claes Claesgård, who had matics, hydraulics, electronics, construc- been selling and advertising hand tools for tion equipment, and industrial over ten years, looked at each other with automation. By 1981 the Bahco Tools some skepticism. company was just one company in the “We have to discuss not only our mar- large, diversified Bahco Group. keting strategies,” Claesgård reminded his Bahco Tools and the Bahco Group colleagues, “but also our product develop- ment strategies. You remember the manu- Headquartered in Stockholm. The Bahco facturing problems we’ve had with the Group enjoyed annual sales of approxi- new screwdrivers. To start with, we have mately SEK 2.2 billion ($432.8 million) in to look at how to coordinate design with 1981, of which nearly 60 percent was de- production before we can make grand pre- rived from export. The Group employed dictions about the Ergo line saving the approximately 9,200 persons, two-thirds of company.” whom were based in Sweden. AB Bahco Tools’ headquarters re- THE COMPANY mained in Enköping, with subsidiaries in AB Bahco Tools (AB Bahco Verktyg, in Eskilstuna (Sweden), Denmark, Finland, Swedish) was one of the oldest manufac- France, Holland, Argentina, and the U.S. turers of tools in Scandinavia. It had its be- The company employed about 850 people ginning in 1888 with J. P. Johansson, the in 1981 and its annual sales amounted to owner of “Enköpings Mekaniska approximately SEK 220 million ($43.3 Verkstad,” a small mechanical workshop in million), of which exports accounted for Enköping, a small town about 80 kilome- approximately 70 percent. (See Exhibit 1 ters from Stockholm. As part of his service for financial data.) Its largest export mar- to farmers in the surrounding area, kets were Denmark, Finland, Norway, Johansson repaired their equipment. Be- Great Britain, Belgium, Holland, Luxem- cause both tools and fittings were hand- bourg, Italy, and Australia. made, with virtually no standardization, he Until the end of the 1970s AB Bahco used a large assortment of wrenches of dif- Tools had manufactured both hand tools ferent dimensions. As the number (and and power tools. However, as a result of sheer weight) of his tools grew, Johansson the Bahco Group’s decline at the end of began to work out designs for a new 1979, the power tool business had been tool—the universal pipe wrench—that spun off into a separate company within 4 AB Bahco Tools: The Development of a Design Strategy at a Tool Company Financial Data for Bahco Tools 1973–1981 Exhibit 1 Million Swedish Crowns (SEK)1 1973 1974 1975 1976 1977 1978 1979 1980 1981 Sales 83.8 110.3 116.2 141.2 154.6 181.8 207.7 212.1 220.6 Profit2 16.8 13.9 12.9 20.8 21.6 25.0 27.8 19.3 14.4 # of Employees 1,030 934 940 971 953 891 907 846 Financial Data for Bahco Tools 1973–1981 Million Swedish Crowns (SEK)1 Invoiced Sales Profit2 HIAB-FOCO 713.3 -16.5 Mecman 288.4 4.0 Kracht Group 158.2 1.1 Tools Group 220.6 6.1 South American Group 41.7 -12.8 Record Ridgway 175.7 7.3 Industry Group 101.7 -3.1 Air Conditioning/Cooling 193.9 1.5 Utilities 378.9 15.6 Plumbing Fixtures 53.3 -3.8 By 1982 Bahco Central Corporation 30.7 -16.6 Tools was one of Subtotal 2,356.3 -17.2 Corporate Adjustments -142.7 +23.3 the two largest Total 2,213.6 6.1 1 100 SEK≈ $18, $1≈ 5.5 SEK Source: Annual Report, Bahco Corporation, 1981 hand tool 2 After depreciation but before revenues and expenses manufacturers in the group. Bahco’s financial problems in screwdriver, and the universal pipe part reflected a general recession, but oc- wrench.