De Beers And The Global Diamond Industry

De Beers and the Global

Diamond Industry

Section: Four

Team: Four

Spring: 2012

Team Members:

Ryan Crowther – crowthra@dukes.jmu.edu

Rachel Griffin – griffirt@dukes.jmu.edu

Evan Lyons – lyons2ew@dukes.jmu.edu

Michelle Moulden – mouldeme@dukes.jmu.edu

Caitie Webster – webstecm@dukes.jmu.edu

Signatures:

Executive Summary

De Beers’ decision to implement recommendations from Bain and Company Consultants

impacted their management, marketing, operations and processes, finance, and social responsibility.

One sector that was impacted in various ways was their human resources and management

department. There were three main aspects of this department that were affected by these changes:

 Management was changed from their original horizontal monopoly into a more vertical

form. They created “Best Practices Principles”, and used these as guidelines when doing

business and selecting their “suppliers of choice”.

 De Beers’ Human Resources department was expanding at a rapid rate, due to the

vertical integration and creation of retail stores. De Beers had to reevaluate past

employees, as well as train new employees.

 De Beers was able to keep employee morale up through building a strong company

culture, mission, and vision.

The changes recommended by the consultants forced De Beers to alter their marketing practices:

 The threat of new mines, growing competition, and legal sanctions from multiple

governments forced De Beers to analyze and rethink their value chain and goals in the

marketing sector

 De Beers’ new strategy eliminates their practice of stockpiling; the funds generated from

the stockpile are used in their marketing program to expand branding and retailing

 De Beers’ core competencies are advertising and successfully dominating the global

diamond industry with a product of both well-known quality and prestige

Vertical integration resulted in significant changes in De Beers’ operational processes:

 De Beers’ vertical integration gave them a vertical monopoly which allowed them to

dominate the market on every level of the supply chain

 De Beers uses four different methods to mine their rough diamonds. Once they are

extracted from the mines, they are shipped to Diamond Trading Companies (DTCs)

where the diamonds are eventually sorted, cut, polished, and sold to retailers and

wholesalers

 As a result of the consultants’ recommendations, modifications were made to De Beers’

inputs, processes, outputs, and customers

Bain and Company’s recommendations for De Beers positively impacted their financial

statements for subsequent years, 2003-2011.

 Net earnings, EBITDA, and total sales steadily increased in periods not affected by

outside forces (See Charts B and C).

 Marketing and sorting expenses were directly impacted on the financials by following

Bain and Company’s recommendations.

De Beers is neither socially responsible nor ethical:

 Although De Beers had implemented socially responsible practices, their motives are not

pure and these tactics are essentially a marketing ploy

 De Beers still participates in anti-competitive practices that ultimately have a negative

impact on the consumer in the form of increased prices

 The mining tactics of De Beers lead to environmental degradation by polluting the

surrounding areas with heavy metals and other toxins

Management

De Beers Consolidated Mines was once the leader of the diamond mining industry with

control of over 90 percent of the market. At the end of the 20

th

century, De Beers had a difficult

decision to make. With an intense series of pressures threatening their position in the market and a

loss of market shares, De Beers needed to decide whether they would continue down the same path

or make drastic changes to try to regain their status in the market (Cadieux, 2005). Deciding that

organizational change would be in the best interest of the company, De Beers hired Bain and

Company Consulting Firm to make recommendations for the company’s new strategy. Bain and

Company recommended that De Beers, “ditch the role of buyer of last resort and reduce the

unproductive stockpile by selling it on the market” (Cadieux, 2005). The consultants also

recommended that De Beers create a vertical monopoly in order to have market dominance in every

aspect from the mines to retail. With these recommendations came a ripple effect of changes within

the

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