BA363 Beta Golf Case Analysis

TECHNOLOGY AND INNOVATION MGMT BA 363
Section 001
Date 2/17/2020
ADISORN SRIBUA
Beta Golf Case Analysis
In the early stages of attempting to develop the HXL technology, Beta Group faced
various challenges including market penetration, elimination of knockoffs and the USGA
approval board. The in-house professionals had given a below-average rating, which leads to
disapproval and rejection of the HXL golf club technology. The market expanded swiftly in
terms of its size and profitability but despite the rejection, Zider was still determined to continue
developing the HXL technology and became promising in the golf club industry. The design
patents were challenging to get rid of the knock offs. It was proposed in the case that licensing
would be a viable approach to protect its patents more aggressively and will enable the Beta
Group to obtain finance from an external source. However, this will potentially harm its core
competency as the technology will become a piece of public knowledge.
Apart from those problems, Beta Group also struggled to choose one of the options:
licensing, acquisition, creating a start-up, and OEM suppliers. These approaches propose
different challenges for the company. The license option was an expensive and wasteful method
for Beta as they are bound to pay between 6-10% of royalty on wholesales with an additional
$10 million in conducting marketing for either non-exclusive or exclusive license. For the
start-up approach, it requires Beta Group to spend a large sum of investment in the initial phase
of development. In the process of acquiring a patent for the technology, Beta Group had to be
submitted for evaluation to ensure that the products complied with all the rules through the
United States Golf Association (USGA). Upon two submissions, the first one was labeled illegal
from using epoxy filler and round pixels. It was a very long process and took a couple of weeks
but still failed the test until they have changed its design to become a hexagon that was later
accepted. The second submission also took several months of redesigning before the product was
approved. However, the USGA stated that HXL was a unique technology to the market but there
was the uncertainty of success, which suggests a level of challenge to Beta Group as being a new
technology may cause people to be reluctant to change their habits and adopt the technology.
In such a very old game, there was not sufficient advancement in technology that the
industry could bring to the market, so exploring the technology will create competition, bring
innovation and stimulate market representatives to compete aggressively. As for the advantages,
licensing could lead to immense competition in the market. The golf market has shown persistent
growth in profit of 15% over the past decade up to $1.5 billion in sales revenue in 1997;
therefore, licensing would protect Beta Group from such potential competition. Additionally,
Beta Group has invested and dedicated a significant amount of time and capital on patent
protection in both the United States and Europe, so licensing would allow them to penetrate the
market and attain financial stability. The start-up option has the advantage of bringing a new line
of equipment that could gain large sales within a short period. Upon choosing the OEM model, it
would create a standardized design, which minimizes obsolescence costs, while adopting
acquisition would enable its brand to gain leverage and being the distribution infrastructure. On
the downside, the disadvantages of start-up and licensing would include a large investment in
development and its lack of expertise in marketing and conducting R&D may worsen the
efficiency of Beta Group.
After consideration of the benefits and drawbacks of each option, I believe that Zider
should choose the OEM supplier. Aldila and True Temper, the leading club shaft manufacturers,
have shown success in developing the OEM supplier model. Beta Group would potentially gain
the benefit of a high gross margin between 30% to 60%. The pixel inserts that the company
considered manufacturing are the key components upholding the HXL technology. Beta Group
should reach out to club makers as they require pixel inserts of different materials for the
pre-machined cavity in the clubhead during the process of assembly. If Beta can successfully
attain the OEM supplier model, they could significantly charge a markup on direct cost from the
club makers by over 80% to 100% with an additional 8% to 10% on the licensing. This is a more
preferred option as compared to others as licensing, acquisition and start-up since those require
significant investment and propose an alarming level of risk and uncertainty.
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TECHNOLOGY AND INNOVATION MGMT BA 363

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