MBA617
Forward Thinking for a Downhill Company
By Kristopher Larson
Kristopher L Larson3/13/2015
1FORWARD THINKING FOR A DOWNHILL COMPANY
ContentsOverview.....................................................................................................................................................2
Problem 1....................................................................................................................................................5
Suggestion 1.1.........................................................................................................................................5
Solution 1.2..............................................................................................................................................6
Problem 2....................................................................................................................................................9
Solution 2.1............................................................................................................................................10
Solution 2.2............................................................................................................................................11
Works Cited...............................................................................................................................................12
Appendix 1.................................................................................................................................................13
Divisional Organization Structure..........................................................................................................13
Appendix 2.................................................................................................................................................14
Global Product Matrix Organization Structure......................................................................................14
Appendix 3.................................................................................................................................................15
Transnational Organization Structure....................................................................................................15
2FORWARD THINKING FOR A DOWNHILL COMPANY
Overview
K2 Sports is an outdoor sporting goods manufacturing firm located in Seattle,
Washington, employing 500 people globally. K2 sports in currently run by CEO Tim Petrick, a
former Rossignol ski executuve. K2 was founded in 1962 by two brothers; Bill and Don
Kirschner outside of Seattle. K2 has grown rapidly over the last half-century, starting out solely
as ski manufacturer, it started to add other sporting goods to its product line, such as snowboards,
bikes, shoes, and rollerblades to name a few. (Luhn, 2006)
Since the inception of K2, innovation and performance have been at the root of the
company. K2 was the first ski company to start using fiberglass in manufacturing skis, because
the idea was so novel and effective on the hill, it caught on very quickly in the ski community.
The rapid growth from sales allowed the ski company design and build the first American race
ski to win the World Cup for skiing in 1968. Since the ‘60’s , the ski company has grown and for
the past decade has held the largest market share in skiing, top 5 brands in snowboarding, and
top 3 three in inline skates. Every year K2 sports takes away industry awards in the respected
industries it operates in. (Luhn, 2006)
K2 has always been the subsidiary of a parent company. It was first purchased by
Cummins Engine Company in 1969, a decision made to rapidly grow the company, then sold in
1976 to Sitca Inc., and later that year Anthony Industries purchased all shares of Sitca. The
acquisition by Anthony Industries allowed K2 at the time to share modern manufacturing
technologies used by Anthony’s facilities. In 2007, the company is currently now held by Jarden,
3FORWARD THINKING FOR A DOWNHILL COMPANY
a conglomerate of over 60 brands ranging from household appliances, skis, and camping gear.
(Luhn, 2006)
“An org chart could not be released, but briefly described1,” according to a phone
conversation with Dana Berow, Senior Financial Analyst at K2 sports (D. Berow, personal
communication, February 19, 2015). “It is a relatively flat company with global locations in
Asia, Americas, and Europe. Brands have a lot leeway in how they can meet K2 goals. Each
subsidiary of K2 has its own manager, finance, marketing, design, and production staff.” (Berow,
2015)
Dana (2015) went on to say that the company has a very relaxed culture where everyone
literally skis or snowboards on their free time. The attire is casual or business casual or athletic
wear depending on individual preference or nature of the week day. They often go on mountain
retreats for work and have fun during the day whenever they can. Since each segment of the
company has annual releases for their products, there is a series of deadlines leading up the
successful release of a product line. This includes production, marketing, and sales working in
unison to make release deadlines and let people know about the launch of their product. During
this period, the free time starts to decline and headquarters in Seattle starts to hum loudly with
excitement of the new product releases.
The external problems that K2 sports face are not new to the outdoor sports world and
global companies. The issue that seems to always be a thorn in many managers’ sides is currency
fluctuations between K2’s different subsidiaries around the globe (Berow, 2015). This problem
hurts sales or profits depending on the direction of the fluctuation from the USA’s perspective. If
our dollar gets stronger relative to our global retailers before they order our product and pay in
1 See Appendix 1
4FORWARD THINKING FOR A DOWNHILL COMPANY
USD, the products are now more expensive and K2 may lose out on sales. If the retailer usually
orders in their currency and our dollar became strong relative to theirs before they place an order,
K2 loses out on the weak exchange rate. To battle the dynamically changing currency market,
K2 hedges sales of its products in forward contracts by betting that a specific foreign currency
will either get stronger or weaker in order to mitigate the risk of foreign exchange. (Berow,
2015)
The issues of a warming planet have got K2 Sports’ ski brands worried about the future
of the sports itself. Since there is evidence of “global warming” and no sign of the world trying
to deal with the problem on a major scale, K2 sports has to keep this nightmare in the rearview
mirror in order to prepare for the day that there actually may be no skiing in the world. There is
not much K2 can do on its own, except for advocate for a greener industry culture that could help
deter the climate change, and lead by example by using sustainable and ethical materials such as
bioplastic, recycled steel and aluminum and wood. (Berow, 2015)
No issues were apparent internally with K2 Sports from the interview with Dana Berow,
an educated guess for the future of K2 sports is that that it will eventually change its
organizational structure to take advantage of its growing brand catalogue and price
competitiveness. The acquisitions that K2 sports has executed in the past shows that it will
continue to shed and acquire brand names to better bolster its competitive advantage as a top-
notch outdoor sports group. If environmental changes continue it may shift its marketing and
research effort into summer sports such as kayaking, blading, and biking. Speaking from an
organizational standpoint, it must look internally to better take advantage of economies of scale
to stay competitive with other industry leaders.
5FORWARD THINKING FOR A DOWNHILL COMPANY
Problem 1
The issue with this organization is not what it is doing, but what it has not done yet. Right
now, K2 focuses on effectiveness with its products and choosing to also focus and efficiency
would allow K2 Sports to take advantage of low production factors that would keep K2 Sports
competitively priced.
Suggestion 1.1
K2 Sports should consolidate its manufacturing facilities into three main regional
manufacturing facilities from the individual facilities that each of its subsidiaries operates.
Essentially turning its organization from a horizontal- divisional structure to a matrix or hybrid
org that embraces economies of scale, scope, and cross-unit coordination, and opportunities for
both functional and product skill development for employees. This structure will also help
mitigate foreign exchange risk as well.
According to the text book (Daft 2008) three conditions must be met in order for the
matrix organization to be even considered suitable: The first is that there is either external or
internal pressure to share limited resources across product lines. The organization must be
medium sized and have a moderate number of products. It must also feel pressure to share use
human resources and equipment across product lines. Secondly, external environmental pressure
is present for two or more critical outputs, i.e.: in-depth technical knowledge and new and
6FORWARD THINKING FOR A DOWNHILL COMPANY
updated products through discovery or innovation. Lastly, the environment that the organization
operates in is both complex and uncertain. K2 easily satisfies the first two conditions. If we
consider foreign exchange risk and environmental risk as complex risks, then K2 sports should
consider restructuring its organization to better meet customer demands for high quality products
at a competitive price.
By having consolidated manufacturing in four or five stable parts of the globe (USA,
Germany, Norway, Japan, China) and empowering sales and research departments that are
already representing their respective products to band together and share resources and
knowledge to help sell all of K2 Sports’ affiliated products2. this pooling and delegating of
various resources will increase the internal efficiencies of K2 Sports by lowering fixed overhead
and should reduce staff size assuming demand for K2 sports products are constant.
The feasibility of K2 Sports adopting a global matrix structure is high, since the
organization is set up as a global geographic structure with each region having its own functions,
all the is left to do for K2 sports is to create horizontal linkages to collaborate on similar product
types to minimize the isolation of knowledge , data and resources. The drawbacks to this
decision a higher management to employee issue and chain of command issues that arise from
reporting to two managers.
Solution 1.2
A much more elaborate structure option is to adopt a transnational model of organization.
Since K2 Sports operates in several countries across the world, and is already set up in a
2 See appendix 2
7FORWARD THINKING FOR A DOWNHILL COMPANY
flattened global geographic division structure, switching to a transnational organization would
provide benefits exceeding a matrix structure3.
The concept of the transnational organization is that you are organizing your business on
more than just two axes. Instead structuring your org on product and division in a typical matrix,
K2 could coordinate by geographic region, brand, and even product type, supply chains, etc. K2
Sports headquarters would have to give more autonomy to subsidiary managers and regional
managers to allow for local and regional responses in markets while at the same time, ensuring
that middle management work as teams to collaborate on all functions to maximize an efficient
use of resources.
Unique properties of a transnational organization and examples of how K2 sports can
benefit include the following (Daft, 2008).
Resources and functions are scattered globally to help better respond to local and regional
trends and stimuli. This allows fast response to consumer needs and responses and allows for
teams from different subsidiaries or product types to work together without the restrictions of
bureaucracy.
Transnational organizations supersede a matrix org design in this respect because of its
ability to change relatively faster due to its network of interdependence. An example: K2’s
headquarters do not manufacturer skis, they let a plant do that closer to Tacoma and conduct
majority of K2’s R&D in the Seattle HQ. Other K2 facilities could do R&D around the world for
K2 including Norway because of the proximity to so many top performing cross-country skiers
since they already have a factory present in the area. In order to keep item one above true, the
3 See appendix 3
8FORWARD THINKING FOR A DOWNHILL COMPANY
Norwegian team would need linkages to share data and knowledge with all the other appendages
of K2 so that the explicit knowledge is transferred with ease.
Transnational entities empower mangers and divisions not only as followers but also as
leaders of change. Just like the like the first two points, if K2 Sports divisions come up with
something that works for them and share it with the rest of the organization, the organization
benefits from something that was developed on a smaller scale and spread through the
organization organically, not an “ivory tower” idea from a centralized headquarters. An example
for K2 Sports would be the discovery of a new plastic boot mold process that cut costs in half in
K2 rollerblades, but ski boots are plastic and Full Tilt ski boots, a subsidiary of K2 Sports, could
use this new process in manufacturing ski boots, saving the company money, and sparing Full
Tilt from spending time to come up with the idea on its own. The values generated by this
culture would make employees empowered and actively seek ways to benefit the company as
whole.
Finally, a transitional organization is brought together and works together better when
there is a strong culture, vision, and values. Employees globally resonate better with a shared
belief than formal structures and systems. This would be easy for K2 since almost all of the
employees participate in the outdoor activities that K2 Sports manufactures equipment for.
Employees of K2 Sports would know that striving to achieve the highest quality product would
drive employees to help K2 Sports itself realize its goals by working together as unit across the
globe.
While using the global matrix structure would be easier, a transnational model would
allow K2 Sports to respond faster to regional market changes and make “grass root” innovation
9FORWARD THINKING FOR A DOWNHILL COMPANY
and ideas flow unhindered. This is important in an industry where consumers rely on high-
performance equipment and performance is born from new inventions and discoveries. Because
the organization is based upon several dimensions, there is more communication involved and
sometimes lines of authority become blurry and conflicts become harder to mediate; similar
issues that matrix organizations encounter, except it would be amplified by the multiple
dimensions. This option would be considered a high risk-high reward decision, since much more
internal turbulence would occur and is usually a strategy to consider after a matrix structure has
been successful.
Problem 2
Another constraint that K2 sports will face in the future is the cost of the
manufacturing process that it currently employs. According to Dana the ski and snowboard
manufacturing process is still quite labor intensive and requires constant attention of delicate
equipment since some of the processes need to be completed in immediate succession. An
example is once the adhesive is applied to the flat unshapely ski and snowboard layers, it must be
put into a heated press mold for up to 5 days to set the glue and give the boards its specific
camber, and tip and tail rise; its unique shape. The amount of skis that can be manufactured a
month is directly related to the number of press molds in operation. Skis and boards can be
prepped and ready for pressing, but if a press mold breaks down, the amount of units that can be
made in a week diminishes. From the information gathered, K2 Sports currently uses a
production workflow that sits between Small-batch and unit production and Large-batch (mass
production) depending on what K2 product is in question (Berow, 2015).
10FORWARD THINKING FOR A DOWNHILL COMPANY
Solution 2.1
Consolidating the manufacturing plants and diversifying the tools and equipment at each
plant so that each plant can make a large portion of K2 products will greatly increase economies
of scope. This form of “flexible manufacturing” would streamline the time between shop and
shelf to lower Variable Costs and Fixed Costs of production by having the factory floors
constantly working on skis, bikes, blades, or outerwear. Employees would be exposed to
different types of work and gain invaluable experience as they are able to transfer from task to
task and not worry about being pigeon-holed into only making one type of product. Employees
would feel valuable and useful as their skill become broader with time, this form of
manufacturing would also groom floor managers for the future as employees become more
knowledgeable of production processes.
The problem with this action plan is space and equipment. Each different product type,
Ski/snowboard, boots, poles, snowshoes, and outerwear all need specific machinery that is not
transferable. However, skis, snowboards, and cross country skis can all be made in the same
place which reduce the number of machinery needed to produce them separately. Rollerblades
and ski boots use the same plastic mold injection machines and liner fabrication techniques;
these also could be combined under one roof. The combination of these products would
incentivize managers to invest in flexible manufacturing equipment to allow shop floors to
quickly change over from one product to another, and employ lean manufacturing techniques to
always improve the process, such as kaizen; continuous improvement. Currently snowshoes,
outerwear, and bikes would need the proprietary shop space to manufacture and assemble
(Berow, 2015).
11FORWARD THINKING FOR A DOWNHILL COMPANY
Solution 2.2
K2 Sports could also move production to areas with cheap labor to cut down production
costs and employ the aforementioned techniques to greatly improve manufacturing processes.
The problem with tactic is management will have to work harder to ensure quality and deadlines
requirements are met. It also reduces employee moral if workers think that they may lose their
jobs. Many subsidiaries in K2 Sports take pride in being made in the USA, as do many
customers.
As it stands K2 Sports has already moved production for skis and snowboards to Hong
Kong back in 2001 from Washington and Seattle. So the solution was agreed upon and put into
action by K2 Sports Leaders. Now all boards and skis produced K2 Sports subsidiaries are
manufactured in China. If K2 Sports was to change the org structure into a matrix or
transnational org in conjunction with outsourcing, K2 Sports will see a reciprocal sharing of
knowledge and information, integration of facilities and workers willing to collaborate, and a
higher degree of complexity and differentiation that K2 Sports needs to address internal and
external needs.
12FORWARD THINKING FOR A DOWNHILL COMPANY
Works CitedDaft, R. L. (2008). Organizational Theory and Design. Mason: Cengage Learning.
Luhn, A. (2006, November 11). K2 Coporation (K2 Sports) -- a History. Retrieved from: http://www.historylink.org/index.cfm?DisplayPage=output.cfm&File_Id=3901
Transworld Snowboarding. (2001, June 14). Inside K2's China Snowboard Factory. Retrieved from: http://snowboarding.transworld.net/photos/inside-k2s-china-snowboard-factory/#Q08kJgW1bTTPA11y.97
13FORWARD THINKING FOR A DOWNHILL COMPANY
Appendix 1
Divisional Organization Structure
14FORWARD THINKING FOR A DOWNHILL COMPANY
Appendix 2
Global Product Matrix Organization Structure
15FORWARD THINKING FOR A DOWNHILL COMPANY
Appendix 3
Transnational Organization Structure