Business Strategy: Emerson Electric Company

In March of 1979, Emerson Electric Company purchased Skil Corporation, a manufacturer of power tools, for $58 million. Emerson began as a manufacturer of electric motors and fans and gradually expanded into a variety of consumer and industrial electrical components and systems by following a strategy of acquisitions of related smaller companies in order to achieve the goal of increasing sales by 15% annually and doubling profits by 1981. The company’s stated goal was to be the best-cost producer in as many markets as possible, and therefore its primary focus was on cost reduction while maintaining high quality, allowing Emerson to be seen as a superior customer value. The acquisition of Skil was a departure from Emerson’s usual approach of finding and buying highly profitable companies—historically, Skil had only achieved average financial success. Emerson saw Skil as an opportunity to experiment with a turnaround and determine if this could be a successful strategy for the future.
Historically, portable power tools were primarily plug-in electric tools, with a few gas or air powered tools, such as chainsaws and pneumatic drills. There was a range of prices, qualities, and sizes of portable electric tools with the distinction between consumer and professional quality and price well defined. The trend, however, was towards blurring the price and quality distinctions, as well as in added features in each tool. This allowed the manufacturers to increase margins as the consumer market gravitated towards the better quality and features of the industrial lines and the industrial customers added more tools to their for “touch ups”. Major improvements in battery power, higher quality construction of the tools, improved safety features, and lower production cost all led to a wider diffusion of products within the approximately $2.35 billion market. Cordless tools in particular were experiencing high sales growth rates during this period as longer-lasting batteries were