OMC… Dead in the Water!

Volume 24 Letter 3

Manufacturing an iconic brand isn’t enough. To ensure survival, management must have a passion to lead the market in new directions and keep introducing value adding innovations.    While Johnson and Evinrude outboard motors aren’t the first iconic brands to nose dive into oblivion, what they did do well was to provide is a great example of how to do it thoroughly.  Let’s first explore what made OMC great (the good) then delve into where leaks started to appear (the bad) and follow up with how the company eventually scuttled itself in a tidal wave of incompetence (the ugly).  We’ll conclude with some lessons that you may be able to apply to your businesses and avoid the same unhappy conclusion.

The Good

Ole Evinrude was born in Norway and immigrated with his parents to Wisconsin USA when he was five years old.  Evinrude, and later the Johnson brothers from Indiana, pioneered the early outboard boat motor industry.   It would be Ole’s son, Ralph, (who I was fortunate enough to meet in 1982), who would guide OMC into its heydays.   Ralph merged Evinrude with Johnson and by the 1960’s OMC controlled over 50% of the world’s outboard motor market. OMC also introduced several other iconic brands including Lawn-boy lawnmowers. Managing an iconic brand is a responsibility but its not a right.  OMC got carried away with “hubris and grandiose ideas of supremacy and took their eye off the ball”1.

The Bad

The 1970’s brought a turn in fortunes for OMC.  Emboldened and often militant labour unions prevalent in the USA Midwest caused many industries to lose their focus and OMC was no exception.  In a sleek move to avoid unionized labour strife, OMC moved some parts manufacturing to non-unionized states (mainly Georgia) and later to Mexico.  OMC executives cynically quipped that they had a 2000 mile production line.  While this may have quelled labour issues it caused a myriad of quality issues.

With production and quality headaches to deal with, new innovations stagnated.  Mercury Marine, OMC’s main competition, introduced new cylinder configurations that both boosted power and saved fuel but OMC’s response was lackluster.  Additionally, larger boats were being introduced that needed powerful inboard / outboard engines which brought new foreign competition from Volvo Penta.   Mercury and Volvo sewed up their innovations with patents leaving OMC floundering.

While Johnson and Evinrude shared motor designs and manufacturing they remained competitors in the market.  OMC strictly maintained separate marketing and distribution channels for both brands.  This meant different sales teams, different marketing, different warehouses and distribution etc.  Dealers large enough to host both brands got separate deliveries and visits from two different salespeople.  This may have been wise at one point in time, but it was costly to maintain and eroded profit margins.

The Ugly

Almost all outboard motors in the 1980’s were two stroke engines which produce more power / engine volume than four stroke engines but at a huge environmental cost.  This brought two stroke engines under scrutiny of the Environmental Protection Agency (EPA). Today two stroke engines are mostly banned but back then remaining compliant meant deploying an oil injection system to reduce emissions.  Rather than mixing oil directly into the gasoline, oil is injected directly into the motor as fuel is burned.  Japanese motorcycle companies had mastered this technology and Mercury Marine was initially able to tap Yamaha for their technology.    OMC, being late to the party, partnered with a German company called Ficht.  Ficht oil injection systems demand precise engine requirements to work properly, something the poor quality Johnson / Evinrude outboards couldn’t deliver when their engines were running at less than full throttle.  Inconsistent amounts of oil caused engines to seize, leaving boaters dead in the water.  This proved to be the final straw; once a Fortune 500 company, OMC filed for bankruptcy in December 2000 leaving 7000 people jobless.

What can we learn from OMC and their spectacular fall from grace…

  1. Failing to innovate is planning to fail.  OMC was the leader in new motor technology until 1970’s.  Distracted by short term difficulties led them to ignore innovations needed to secure their future.
  2. Failing to address problems:  Most of OMC’s problems can be traced back to poor labour management. Rather than addressing the issue, OMC moved manufacturing to Georgia.  Good leaders address problems – they don’t avoid them!
  3. Failing to get ahead of regulatory requirements:  Good leaders ‘read the room’ and while regulatory changes can be frustrating and seen as punitive, leaders must get out in front of them and, if possible, influence the changes rather than reacting after the fact.
  4. Failing to eliminate activities that don’t add value.  Johnson and Evinrude were exactly the same engines, but they maintained the facade of two competing brands which only burned resources needed for other priorities.

Funding two competing brands, fighting with unionized labour, and ultimately underfunding R&D all contributed to OMC’s demise.   Hubris, egos and politics are destructive forces that good leaders fight to eliminate.    Stick to the strategic planning principles to remain objective and to keep destructive elements from sinking your business and leaving you dead in the water.

  1.  The Rise and Fall of an Outboard Giant, Danny Casey:


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