From Reliable To Wow

Already known for dependable products, Maytag is driving new business success with a strategy of innovation.

You cant leap a large chasm in two small jumps," says William Beer, president of Maytag Corp.s Maytag Appliances unit, at his employee town meetings, emphasizing the need to set big goals. The task at hand is transitioning a 100-year-old, conservative, Midwestern company operating in a slow-growth industry into an industry leader exploiting innovation as a powerful engine of profitable growth. Newton, Iowa-based Maytag has responded to the challenge with a host of new products, in some cases spawning new industry categories. In others it completely redefined the industry in terms not only of functionality, but in pricing and brand positioning as well. In turn, the company has been rewarded with a tripling of share price since 1996, surpassing its goal of doubling share by 1999. In addition, Maytag sales climbed 13.5% in 1997, and operating income was up 15.9%, a reflection of the companys innovations that command premium prices and higher margins because they deliver superior performance. The Maytag metamorphosis is well defined in the companys largest business, appliances, which contributed well over $2 billion of the corporations total revenues of $3.4 billion in 1997. In 1996 the division reorganized its business structure, shifted its culture to embrace risk-taking, changed the way it researched customer needs, and even redefined the way it rewards, promotes, and hires employees. A work in progress, the change at Maytag Appliances is an example of the power of an executive-level vision communicated through an organization that responded with a host of new initiatives to support and realize that vision. "Right now Maytag is driving up margins and profits and getting premium pricing as a result of their innovation in an industry where, in general, you see price declines," says David Raso, equity research associate, electrical equipment, at Wall Street investment banking firm Lehman Brothers. "Competing at the low end is like beating your head against the wall. What Maytag is doing with product innovation creates a much more defensible competitive position in the marketplace. They are really driving intelligent innovation into their culture, and in some cases they are actually moving the entire market up." Own the home The strategies and initiatives that support Maytag Appliances business emanate from the newly stated vision to "Own the Home," a rallying cry for all concerned. "This provides all of our employees, all of our suppliers, all of our dealers, with a vision of what we are trying to accomplish -- that this company is out to own every room in the home, every appliance in the home," says Beer. Owning the home requires a world-class operating company as the price of entry into the market, but only a world-class innovation company can truly "wow" the consumer, says Beer. "The appliance industry was buying into an industry paradigm that said people were not going to replace an existing appliance until the old one wears out." So in addition to intelligent innovation that provides benefits consumers are willing to pay for, Maytag is changing the purchase cycle from "wear out" to "want in." The objective is to have customers want to buy new Maytag appliances with knockout features, even if their old machines are not broken. "If you assume people will not replace an appliance until it is worn out, it closes [innovation] doors for you," says Beer. To make "Own the Home" a reality, Maytag Appliances made three key moves:

  • In 1996 the appliance business was reorganized from a functional structure based on brands (including Maytag, Jenn-Air, and Magic Chef) to an integrated business model based on product category teams: laundry, cooking, refrigeration, and dishwashing. Vice presidents were installed to lead each category team, and team functions such as engineering, finance, product planning, and logistics were all physically co-located. "Before, laundry products, for instance, was solely design- and manufacturing-oriented, not business-oriented," says Beer.
  • A new position not connected with any product category -- vice president of technology -- was established. Supported by staff, the charter of the group is not to design a better washer or dryer, but to first uncover new and interesting technologies, then find ways to apply them -- a pure-research outreach. One of the first triumphs was the discovery of a group of Dallas-based scientists who understand heat transfer at the molecular level, says Beer. Because Maytag appliances from refrigerators to clothes dryers either put heat in or take it out, the match was a natural. Maytag established an equity position with the company (TurboChef Inc.) and initiated several joint development projects. From this research, product concepts will be turned over to category teams for development.
  • Maytag embraced new market-research methodologies for data collection to define the benefits designed to "wow" the customer. "We quit trying to guess what consumers wanted in new appliances," says Beer. In the past Maytag would prototype a new appliance or new features and ask the consumer, "What do you think?" Now Maytag is applying the science of ethnography, literally having researchers live in a consumers home to understand his or her lifestyle, then designing products to serve that lifestyle.
"Before, all we cared about was how consumers used their dishwasher," says Beer. "Today we are just as interested in knowing they have to pick up Suzy for soccer and deliver Tommy to piano lessons. We werent putting the refrigerator or dishwasher in a wide enough context to drive pure innovation. We could drive product improvement, but we couldnt truly change the game." As an example, Beer cites American eating habits and their possible impact on new-product development. "The eating experience is now wherever a person is at the moment. We have people eating in the car on the way back and forth to work, in front of the TV. But the appliances we build are still great big boxes in a central location, the kitchen. As we look out farther, that is probably not the right model. People may need a refrigerated compartment in an automobile or in the arm of a chair." Ethnographic research also helps amplify the voice of the customer when looking for needs to satisfy. "By going right into the home and observing the consumers interaction with the appliances, you can understand their articulated needs," says Doug Ringger, director of product planning for appliances. "By observing their compensatory actions [such as applying a spray to clothing stains prior to washing], you can understand their unarticulated needs." In addition, Maytag is doing more focus-group activity with people screened for their creative abilities, rather than those reflecting a nationally representative cross section. "We concluded that we were getting mundane, warmed-over, non-envelope- stretching ideas," says Beer. And the first discussions with these new groups concern lifestyle, rather than appliances themselves. Free the mind Maytag is mindful that one blockbuster new product or even a handful of new and innovative products will not sustain the corporate growth objective over the long haul. "To establish a continuous-growth pattern based on innovation requires a complete culture change that enables and facilitates risk-taking," says Beer. Keys to this change are aligning the company to excite the customer, recognizing and rewarding competencies within the company, and taking a new view of "failure." "Its amazing how your eyes are opened and a culture can change on a dime when you start focusing on the customer," says Lloyd Ward, Maytag Corp. president and COO. "The focus before was never disappoint the consumer, satisfy the consumer, be out there with a reliable, dependable product. Now we think of wowing the customer, exceeding their expectations, and providing them with fundamental new benefits they are willing to pay for. The challenge within our company is not so much people accepting new ideas as having them forget old ideas. A compelling vision provides a context to let go of tradition and the way things were done before so they can look at new things." In the past, not making mistakes was a better way to get promoted than making mistakes, says Beer. "We were looking for the tried-and-true, tested, and stable people who fit into the old hierarchical management model. One of the biggest things we did to help that culture change was to change the list of competencies we hire, reward, and promote people on." Today Maytag is applying its Leadership Competency Model that includes five well-defined elements: manages vision, moves quickly, sees opportunities, has fire, and builds effective teams. "Those competencies are very different from what we would have traditionally hired in the past as a manufacturing company," says Beer. While Maytag is still working on ways to support innovation via its basic compensation structure, bonus qualifications have been augmented to include innovation. Starting this year, one of several strategic objectives within the incentive-compensation plan calls for the development of four-year product-innovation plans in each product category. The strategic objectives represent 35% of the bonus. "The laundry category team will not qualify for a bonus if they havent delivered a four-, two-, and one-year product plan," says Beer. "The difficult thing is to get people to look out four years. The easier part has always been to get people to meet existing dates they can see right in front of their noses. Most people just see that as part of their jobs." Changing the companys view of failure starts at the top and flows through the company by example. "You need to celebrate your failures as much as your successes," says Ward. "Said another way, you need to redefine failure as a learning experience. Everything you do is an opportunity to deepen focus and get better understanding, so you can do significantly better in your next try. No beheadings is not enough. Im suggesting a proactive framework for people to feel the room to explore, take risks, and innovate. "I find myself paying as much attention to how we talk about and interact with people around so-called setbacks, as I [previously] did around our wins, both in terms of my example and what I expect of the senior team." The culture-change message is not one delegated down the channels of responsibility at Maytag. For instance, in the last 18 months, top management has held three complete rounds of meeting with every employee to share the new vision, mission, and strategies. "You are not going to change culture with videotapes or by forcing it down the chain of command," says Beer. "It takes high-level people speaking directly to employees." Innovation at Maytag does not stop with products. It drives brand positioning as well as profitable pricing and distribution. For instance, Maytags breakthrough Neptune horizontal-axis clothes washer is driving new brand positioning in the laundry category. "If Maytag continues to be viewed [as it has], which is nuts-and-bolts reliability and dependability, we wont be able to get the value for innovation in the marketplace," says Beer. "So we have to reposition that brand. Now we have to transition dependability to mean more than just reliability and service. It needs to mean dependable, demonstrably superior performance." For instance, this year Sears will start to carry Maytag-brand appliances for the first time. In the past neither Maytag nor its competitors had products superior to those under the Sears Kenmore label, says Beer. "We could not go onto the Sears floor from a position of strength until we got into an innovation strategy with a competitively superior position for Maytag on their floor. For instance, they have no answer for the Neptune clothes washer or the new Jenn-Air cooktop in the Kenmore lineup. So we actually had to fight through the dealer to get to the consumer, and you do that with innovation."
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