Burton Snowboards Develops Profit Growth Strategy

Case Type: improve profits/bottom line; operations strategy.
Consulting Firm: OC&C Strategy Consultants second round job interview.
Industry Coverage: sports, leisure & recreation.

Case Interview Question #00170 Our client Burton Snowboards is a manufacturer of snowboarding equipment and accessories. The company specializes in a product line aimed at snowboarders: snowboards, bindings, boots, outerwear, and accessories, with two distinct major product divisions: boards and clothes. Burton Snowboards has experienced a fall in profitability in recent years. You have been hired to identify the causes for falling profitability. Once that has been completed, the objective is to develop a range of strategic options for the company, which will lead to a return to profit growth.

Additional Information:

At the top level, financial performance has changed as follows:

Question #1: What information would you require to help explain the change in profitability?

Possible Answer:

The Good Answer: Revenue has increased, but profit is going down, clearly increased costs are causing the problem. You need to understand what has been driving the cost increases in the business, perhaps by looking at volumes vs. price levels, or by splitting fixed and variable costs. Also, you would
need to consider the market and competitive environment for snowboarding equipment — in particular whether competitors were also suffering price pressure.

The Excellent Answer: all of the above, but considering the performance of the board division and the clothing division separately.

Solution: the key to a good understanding in this situation is to break down the problem into manageable chunks. If we consider the two divisions separately a much clearer picture emerges:

We can now see that the board division is relatively flat in revenue terms, but brings in constant profit. However, the clothes division, despite growing rapidly, is losing money. We will now turn our attentions to the boards division.

Question #2: What are the strategic options available for the boards division?

The context given for this part of case is as follows: The market for snowboards is growing slightly, at around 5% per annum, in volume terms, but prices are rising much more quickly. Our client Burton Snowboards is clearly not sharing in this growth. Their volumes and price are static. What additional information do you need and what sort of things could Burton Snowboards do to improve their performance?

Possible Answer:

The good answer will consider some or all of the following points: We need to know who the competitors are, and how their price levels and quality compare to our client’s. We also need to understand the level of marketing activity in the industry, and how much marketing the client does compared to the competition. Then we can investigate if our client could reduce costs and prices to increase their sales. The client would also consider doing more marketing, and extending their distribution to more shops.

The Excellent answer would also consider the need to understand how the market works in practice. What are the different types of board available — e.g. top of the range versus standard? What makes customers choose a particular make of snowboard? Once we understand these issues, we can devise more appropriate strategies for our client, such as sponsoring professionals riders and tour events such as National Snowboarding Championships, creating beginner learning to ride program.

Question #3: What can the client do with the clothes division?

Possible Answer:

The good answer will consider some or all of the following points — Why is the clothes division not making money currently? What options does the client have to manufacture more cheaply? Should they pull out of clothing manufacture?

The excellent answer would also include that the business is growing quickly and that some of the costs may be temporary. Also, that the two businesses, although separate, are intertwined, and that the clothing business will benefit if the profile of the boards business is increased through funding of tour events etc.

Question #4: what else could our client consider doing with the business?

Possible Answer:

It is unlikely that there is time to consider many of the following, but excellent candidates often discuss one or two:

• Potential for opening some owned shops, dedicated to retailing our client’s own products.
• Online E-business opportunities around snowboarding destination site — holidays, merchandise, reviews, music etc.
• Investigation of potential mergers and take-overs to improve competitive position.
• Expansion into other product areas — e.g. surfing merchandise.
• Outsource clothing production to another company and licence use of brand name.