Deere and company

Introduction:
Farm machinery company
Started in 1868, as a result of innovation
CSFs distribution, service and quality
Leading manufacturer of farm equipment and supplier of
construction machinery
Had a very stable leadership, with only 2 CEOs from 1928-1982
Events:
- started in 1868
- 1911: 6 non competing companies were consolidated
- 1918: purchase of Waterloo Gasoline Engine Company
- 1984: US rights to manufacture Rotri Engine to Deere
Products & Porfolio:
12 factories in US & Canada
33m sq ft
Affiliates in SAmerica and Australia
- Tractors:
o Utility (less than 40hp) 100% made offshore, 89%
made in Japan
o Row Crop Tractors (40 to 100hp) 95% made offshore,
70% in Europe and 25% Japan
o Over 100hp majority of sales, made in US
o Large 4 wheel drive tractors Majority of sales, made
in US
-

Farm implements (complementary products with tractors)

Industrial equipment ( $ 1m sales in 1985)
Lawn and garden implement line (fastest growing product
line)
o Total market $ 3 bn, growth 6.8% (this is total mkt
figure)
OEM
Rotri Engines
Financial Subsidiary loans given to farmers & dealers and
charge interest for return
Insurance Provided to farmers for Deere products

STRENGTHS
WEAKNESSES
1. Survived hardship
1. Largest manufacturer
and well aware of the
with efficient systems,
challenge next year
but still failed in
2. Service quality and
generating profits since
distribution are their
1981
CSFs
2. Operating under capacity

3. Stable leadership
3.
4. Leading manufacturer
of farm equipment in 4.
the world
5. Strong dealership
network
6. Diversification into
other markets to
5.
utilize excess capacity
7. Own financial
subsidiaries to support
farmers and dealers
8. $2bn for expansion,
6.
upgrading and making
Deere the
technological leader,
Black Hawk country
factory is the most
7.
efficient modern plant
in the world
9. Highly integrated
manufacturer
10.
Strong R&D
11.
Focused toward
product improvement
and application
12.
Leading position
in designing and
building a variety of
engines
13.
40% share of
north america, 32%
worldwide share
14.
Sales plus after
sales services in order
to satisfy customer
and stay closer
15.
Industry leader in
productivity through
massive capital
investments
16.
Consolidating of
supply operations and
use of focused factory
17.
High degree of
investor confidence

High operating costs

(30%)
Account receivables
increased from 1.4bn to
2.75bn since 1979
despite decrease in sales
from $5bn to $4.1bn
Focusing on most
productive tractors
whereas the need of the
time is most economical
tractors
Increased productivity
caused increase in break
even point increased
capacity comes at a cost
(high capital investment)
Sales declined by 7.1%
per year and net income
declined at rate of 40%

OPPORTUNITIES

SO STRATEGIES
(Intensive/Advantage
)

1. Farm income will

1.
likely post future
gains in 1984
2. Lawn and garden
products is the
fastest growing
product with 6.8%
annual growth
3. Joint venture to
develop and
produce diesel
engine for
automakers
4. Increased
purchasing power
of farmers through
availability of
outside lenders
5. High exit barriers
for farmers
6. Increasing need of
farm equipment to
increase
productivity in
order to compete in
the market for
farmers
7. 10% of the richest
super farms are
involved in high
revenue specialty
products, they can
tap into this market
8. in order to reduce
Fixed costs, firm
can consolidate its
facilities or sell
older plants like
competitors
9. diesel engine
expected revenue
$1.5 to $2bn

WO STRATEGIES
(Improving internal
structure)
1.

THREATS

1. Traditional
1.
technological
advantage cannot
be enjoyed by US
anymore. Europe is
also becoming
technologically
advanced
2. Farm income and
asset values are
declining due to high
interest rates
3. Govt regulations
reducing acreage of
land allowed for
production, which
can reduce demand
4. No assurity of farm
equipment demand
restoration
5. Capacity to be cut
an additional 15% to
20%
6. Slow sales at retail
level have left the
dealers scrambling
for income to stay in
business
7. High value
machinery difficult
to finance its
inventories
8. Most of the dealers
hanging on through
service and parts
sales and interest
concessions
9. Prices are volatile for
agri commodities
and cannot be
controlled by
individual buyers or
sellers
10.
Overseas
manufacturers are

ST STRATEGIES
(Threat Reduction)

WT STRATEGIES
(Defensive)

1.

growing due to low

cost labor
11.
Farmers are
caught in vicious
cycle of increasing
productivity due to
high costs of inputs

Internal Analysis:
Marketing: Furrow a magazine published by Deere in ten
languages distributed worldwide with two million readers in 27
editions. Positioning of Deere is most productive tractors in the
market. Full fledged marketing and price cut in order to capture the
lawn and garden equipment market.
Operations: Service and quality focused company. Given the excess
capacity the company is diversifying into other markets and OEM.
Given the economic conditions there was a need of improving
productivity and company has spent $2bn for expansion and up
gradation and as a result became technological leader, most
efficient and modern plant in the world. Similarly it has become a
highly integrated manufacturer with 75% of its own components and
has the leading position in designing and building the variety of
engines. In order to reduce costs it consolidated its supply
operations and used the concept of focused factory. The company
has been mostly producing above 100hp and below hps are
manufactured offshore. Given these steps the company is unable to
utilize the full capacity and operating costs are high. Similarly the
European producers are now producing many of the larger models
that were being made only in the US.
Finance: since 1979 the sales have gone down by 7.1% from 5 to
4.1bn, net income by 40% and despite this account rec have
increased from 1.4 to 2.75bn. the company has spent 2bn in order
to increase productivity which increases its break even point. So far,
company survived the challenges and acquired financial subsidiary
to support farmers and dealers by lending and is another source of
income. Moreover, the company enjoys high degree of investor
confidence, this is evident from the share price but the actual
reason is constant dividends that are being paid despite losses. This
indicates the company is profit oriented.

HR: stable leadership for most of its existence. Two CEOs from 1928
to 1982.
Supply Chain: Strong relations with dealers in order to provide quick
service and stay closer to customers. Deere provides great support
to them in terms of interest concession.
R&D: strong R&D. spent $40m since 1980 and were working with
NASA. Strong focus toward product improvements and applications.
On the other hand, so much diversification without a proper plan
and Europeans are coming up with more innovative products which
are not yet known to US.
Technological: technologically advanced factories with computerized
controlled and operated processes at Waterloo company.
External Analysis:
Environmental:
Weather conditions play an important role. There are few days which
are suitable for planting activities. It is the critical time for farmers
and they cannot afford breakdowns. To address this Deere
developed strong dealers network in order to stay closer to the
customers and provide timely service.
Economic:
Oil prices started increasing in the 80s, this increased the cost of
inputs as they were oil based. Further, due to increase in oil prices,
interest rates were increased, as a result they tried to increase
productivity to reduce per unit cost, this further resulted in
increased overall production that put a downward pressure on
prices, resulting in reduction of income.
Further the interest rate increase made it difficult for farmers to
purchase Deeres equipment. Deere responded to increase in
interest rates by offering financing options instead of coming up
with low cost machinery.
This resulted in low sales of farm machinery that made it hard for
dealers to stay in business. Deere responded to this by giving
interest concessions to support its dealers.
Governmental:
High exit barriers set by the govt led to a surplus as it was difficult
for farmers to leave the industry, this also resulted in a downward
pressure on prices for farmers whose profit margins were increasing.
However, Deere focused on product innovation and improvements
instead of introducing economical machines.
Competitive:

In 1980s consolidation, only two major companies remained in the

US, competition either got bankrupt, merged or moved their
operation offshore. Deere also moved its production of less than
100 h.p offshore. As a result of over capacity, Deere diversified into
other businesses but in the construction machinery there were
established players like caterpillar. Traditional technological
advantage cant be enjoyed by the US anymore. Europe is becoming
technologically advance and started producing more than 100 h.p.
tractors. Also, there is low cost land and labor available outside the
US which basically leaves the US with a number of tough
competitors world wide.
Social & Cultural:
Food production and land ownership are emotional issues in the US
society supported by historical cultural connections hence it
encourages surpluses which further reduced prices.
Minor problems
Management Myopia: here and there, not focusing on customers
Financing: Bad debt expected due to increase in accounts receivable
and credit sales.
Dealers: Strong point for the company but dealers are leaving due
to poor marker situation.
Technology: the company is focusing towards product innovation
and improvement hence it is technologically driven and is not
market oriented. They are focusing on technology for big machines
rather than the more efficient and economical ones. This is why they
are losing their traditional technological advantage to European and
Japanese firms.
Major Problem: Deere is a technologically driven company that is
not responding to changes in the external environment due to the
fact that it feels the strategy that has worked in the past will also
work in the future. They also feel that their stable leadership in the
industry will help reposition them after the recession in agriculture is
over. This concludes their management style of management by
hope, management by extrapolation, and management by crises.
They are diversifying without a plan which means they are in the
state of flux.
Strategic Alternatives:
They should do management by objectives and focus on the market;
and come up with economical and efficient products which are the
current need of the time. In short, they should do strategic
management
Businesses exist to satisfy the needs of the customers not to focus
only on investors. They should manage for all stakeholders rather
than just focusing on shareholders.

Deere is into bigness and has a We make big things attitude

whereas they need to be humble and can manufacture smaller
tractors while also focusing on their core business of big tractors.