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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


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,


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


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.


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


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


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


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


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).


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).


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.


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


Appendix 1

Divisional Organization Structure


Appendix 2

Global Product Matrix Organization Structure


Appendix 3

Transnational Organization Structure

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