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YOUN Youngsoo

DNA of “Masterpiece” Company: Craftsmanship

YOUN Youngsoo

July 17, 2009

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There are companies that enjoy steady high growth and create high value added regardless of economic booms or busts. Medtronic, Harley-Davidson, and Hermes are examples, having maintained sales growth of around 10% during the past 10 years. Even during the current global economic crisis they have overwhelmed rivals with more than 20% operating profit to sales.

These companies possess masterpiece brands, products that make a customer want to purchase even at the expense of other spending. Unwavering love and trust for these products make them highly resistant to recessions.

The DNA of these companies is craftsmanship. Their secret to success is upholding exceptional quality and technology. Three keys come into play.

First, these companies promote scarcity. Eschewing mass production, they produce a limited supply to implant the idea of exclusivity to each customer. Even if demand for a product is high, automation is resisted to keep everything handmade. For example, a single craftsman averages 32 hours to produce a single Hermes Kelly or Birkin bag, creating an average wait of four years per order. Hermes is known for buying leather after a thorough inspection and more than eight months of tanning with the extracts of oak. No chemicals are used.

Second, masterpiece companies operate in-house training and offer wealth and reputation for exceptional craftsmen. Hermes bag makers must first undergo five years of training. The companies also inherit craftsmanship and creativity across family generations. Romanee-Conti, one of the world's finest wine producers, maintains a unique terroir by retaining wine makers at vineyards even if ownership changes. There is also a culture of a respect for history and tradition on technology and craftsmanship as exemplified by Mercedes Benz. Mercedes Benz' Maybach line was inspired by Wilhelm Maybach, the chief designer at Mercedes in the early 20 th century.

Finally, masterpieces are not obtained by only a craftsman's artistic spirit, but through continuous contact with customers. New hires at Medtronic, a US medical technology company, start their career by going to hospitals and consulting with customers. Sometimes employees become customers themselves to identify buyer needs. Harley-Davidson executives participate at the company's annual “HOG” event, which brings together buyers. Most recently Harley-Davidson invited an anthropologist to the event to better understand customer needs and incorporate them into business strategy. It also has an after-service program on all its products to maintain a prestigious brand image.

For companies, the most ideal situation may be to combine numerous masterpiece brands into a conglomerate since this will allow a continuous growth and to retain high value added. LVMH is the representative example. This company has successively acquired luxury brands, including Christian Dior, Louis Vuitton, Givency, Genzo, Tag Heuer, and Fendi. LVMH deems acquisition of existing brands more effective than launching new ones, gaining greater synergy through multiple brands.

Companies that mass produce may seek major transformation into a masterpiece brand maker. They could start a small, stand-alone luxury unit and if it is successful, remake themselves. A prime example is Nokia in Finland. The leading mobile phone maker established Vertu, a hand-made mobile phone manufacturer in 1998 and now operates 500 stores in 50 countries. Yet, the mass producers run the risk of overextending their resources to develop luxury brands and creating cash-flow problems before their products gain status. A product becomes masterpiece brand only through the love of people for a long period of time.

For resource-challenged smaller companies, it will be crucial to concentrate on quality and after-services. A product without exceptional quality or after-service can not advance to premier ranks even if no efforts are spared. Yet pursuit of only short-term profit should be resisted and differentiation based on thorough craftsmanship and full responsibility for sold products should follow. HJC, a small Korean firm specializing in motorcycle helmets, serves as a prime example. Since starting motorcycle helmet manufacturing in 1971, HJC has upgraded and retained quality based of R&D. Its R&D-to-sales ratio surpasses 10%, while other small manufacturers are at 3-4%. The company thoroughly examined the characteristics of Harley-Davidson and Honda motorcycles and focused on safety. After US motorcycle racer Aaron Yates fell off his bike, bumped his head in a series of rolls, and still finished second at a motor show in Indiana state in 2001 it was discovered that he wore HJC helmets. The company reaped free publicity.

Companies producing masterpieces are not swayed by temptation of mass production and retain craftsmanship. A masterpiece product maintains sustainability only when an artistic spirit of a craftsman and customer needs combine harmoniously. Perfect quality and post-service are the most important skills a company should have. For sustainable growth, companies at all sizes need to pursue such masterpiece strategy regardless of business conditions.

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