Schwinn Wipes Out
Jodi Vuotto
LDR531
April 30,2012
Leo Maganares

Schwinn Wipes Out
Abstract
This paper will examine the Arnold, Schwinn and Company (Schwinn) and their rise and fall as an American icon. By looking at the management, leadership, and organizational structure in the different stages of growth the slow decline and failure can be examined.
History
Arnold, Schwinn and Company was established in 1895 by German immigrant Ignaz Schwinn and Adolph Arnold. Schwinn was headquartered in Chicago, Illinios, and by 1905 had become a leader in bicycle manufacturing. Ignaz successfully brought the company through the Great Depression with new models, innovations, and improvements. Ignaz Schwinn died in 1948 and control of the company went to his son Frank W. Schwinn. Under the leadership of Frank W., Schwinn continued making improvements and in 1952 established the “Authorized Dealer Network.” The network established specific Schwinn stores that expanded their “genuine parts and accessories” program and provided training by Schwinn in repair; parts, and sales (Re-cycle, 2011). Schwinn became famous for its outstanding quality, service, and lifetime guarantee. With the death of Frank W. in 1963 Schwinn came under an incompetent third generation, Frank Jr. followed by Edward Jr., and thus began the end.
Organizational Behavior and Structure
Organizational behavior is “the study of what people do in an organization and how their behavior affects the organizations performance (Robbins, 2011. P. 10). From 1895 to 1963 Schwinn was managed by strong innovative and business wise leaders. They focused on continually up-dating and manufacturing new products. Under Frank Jr. Schwinn began to decline because of his lack of vision and business sense. The Chicago plant continued to produce bicycles on outdated equipment using outdated materials proving to be ill equipped to accommodate new processes, materials, and technologies.
Contingency theory can be applied to the Schwinn organization. This theory is based on an organizations structure reflecting situational factors, including “age and size of the organization, its technical system of production, various characteristics of its environment, such as stability and complexity, and its power system” (Mintzberg, Lampel, Quinn, & Ghosal, 2003. P. 217). This is clearly seen in looking at the continued growth during the depression and World War II. With the new generation of leaders the organizational structure did not change with new technologies and consumer demands, Schwinn neglected to adapt its products to the growing bicycle market.
Globalization
By the mid-1940s imports increased bringing in lighter weight and less expensive bicycles. As noted by Robbins, 2011 organizations must remain flexible, continue to improve quality, and beat their competition in the marketplace (P. 19). Frank Jr. failed to see that to stay competitive he needed to update their Chicago factory, as it was not capable of producing the new chrome-moly frames that was becoming popular (Re-cycle, 2011). Schwinn began to import bicycles from Japan, Taiwan, and China but the quality suffered and customer support waivered. Another factor that led to the downfall of Schwinn was their ethnocentric views. During this time the majority of large bicycle manufacturers were sponsoring and participating in racing competitions throughout the world to stay affront of new designs and technologies. Schwinn limited their involvement to only those competitions within the United States, therefore limiting their exposure to new innovations and materials. With the increase in foreign manufacturing of bicycles Schwinn lost much of its customer base as they were unable to compete with new markets, production, and low cost.
Leadership and Vision
The failure of Schwinn was a slow process driven by the lack of vision by its leaders. The 1960s and 1970s brought with it new trends in bicycles, including the BMX bike, road bikes for adults and mountain bikes. Schwinn was slow to act on these trends believing them irrelevant (Noble, 1997). Company executives believed that the demand for more sophisticated bicycles for adults would be a short lived fad and was slow to enter the market. When Schwinn did attempt to enter the “new” market the result was a much heavier and less responsive product than those of their competitors (Griff, 2004). Schwinn continued to focus on production of youth bikes leaving the ‘new generation’ bicycler to the foreign markets. The success of a business depends on working within a changing environment it must be able to see changing trends and implement them in a timely manner. Both Frank Jr. and Edward Jr. failed to see the benefits of updating their factoris and following new market trends.
Culture
In 1979 Edward Schwinn Jr. began to run the company but was plagued with labor issues steaming from worker dissatisfaction and financial issues because of the steep decline in quality. In 1980 Schwinn’s workers were organized by the United Auto Workers Union and began a 13-week strike the company never fully recovered from. Due to the outdated factory conditions in Chicago and worker dissatisfaction the quality of the Schwinn bicycle drastically suffered, thus alienating suppliers, dealers, and customers. With the building of a new plant in 1981 in Greenville, Mississippi, Schwinn placed itself in an isolated position. From a logistics standpoint the factory could not have been in a worse location, as it was distant from not only management, which remained in Chicago, as well as rail and sea. Schwinn also discovered a shortage of skilled workers in Mississippi that contributed to poor quality products. The Chicago factory closed in 1983 and much production was transferred overseas, and other various locations that physically split the company. By1986 80% of Schwinn’s production was outsourced (Re-cycle, 2011). After this time Schwinn was plagued by financial problems but the damage had been done and in 2001 Schwinn was purchased by Pacific Cycle and by 2004 by Dorel Industries (Bruno, 2012).
Conclusion
Business failure can be classified in two ways; catastrophic failure and general lack of success. “Catastrophic failures result from economic factors and are cited as the reason for failure by 75% of the businesses that fail, whereas, 88.7% are a result of management mistakes, (Holland, 1998) which is where the Schwinn failure falls. By linking organizational and leadership structure to the development of the Arnold, Schwinn & Company, it is clear that the lack of experience, drive, and vision of Frank Schwinn Jr. and Edward Schwinn Jr. were large factors in the company’s failure. References
Bruno, G. (2012). Live Strong. Retrieved from http://www.livestrong.com/article/369101-history-of-schwinn-bicycles/
Holland, R. (1998). Planning against a business failure. Agricultural Development Center. Retrieved from http://cpa.utk.edu/pdffiles/adc24.pdf
Mintzberg, H., Lampel, J., & Quinn, J. B. (2003). The strategy process: Concepts, contexts, cases (4th ed.). Retrieved from The University of Phoenix eBook Collection database.
Noble, B. P. (1997, July). No Hands: The Rise and Fall of the Schwinn Bicycle Company, An American Institution by Judith Crown and Glenn Coleman. Strategy + Business, Third Quarter(8), . Retrieved from http://www.strategy-business.com/article/17848?gko=a3bf2
Re-Cycle. (2011). Retrieved from http://re-cycle.com/History/Schwinn/Swn9_Chicago.aspx
Robbins, S.P., & Judge, T.A. (22011). Organizational behavior (14th ed.). Upper Saddle River, NJ: Pearson Education.