Case Study "Handles and Hinges"

Handles and Hinges (H&H) Ltd1 H&H was established in Birmingham, England, in 1984 by two young entrepreneurs, Dave Philips and Chris Agnew, both experienced in the hardware trade. The business specialized in the ’designer’ market for polished metal (brass or stainless steel) door handles, cupboard knobs, furniture fittings (mostly used in shop/office furniture) and hinges. By 1996, sales had grown to about £500 million per year. This success was based on H&H’s reputation for high quality, unique designs of both traditional and modern products, many of which were selected and specified by architects for large and prestigious projects such as new office developments in London’s Docklands. Dave, the Chief Executive Officer, with responsibility for sales, believed that most orders from construction companies were placed with H&H because they assumed they had no other choice once the H&H products had been specified. Larger companies would sometimes suggest to architect that similar products were available at less than half the price. This advice was invariably ignored as the architect would be attracted by H&H’s designs and quality, and would be reluctant to risk ‘spoiling’ multi-million-pound projects for the sake of saving a few thousand pounds. Dave outlines the characteristics of the changing marketplace. ‘Because of the recession in the construction industry, particularly in office building, we have, since 1990, expanded our direct sales to large UK hardware retail companies, which now account for about 40 per cent of our sales value, but only about 15 per cent of our gross profit. This segment is much more price-sensitive, so we must be able to manufacture good quality, simple, standard products at low costs comparable to those of our competitors. Some of the reduced costs have been achieved by using thinner and cheaper materials similar to those used in our competitors’ products. We have just received our first consignment of brass sheet from Poland with a saving