Building a Better Mousetrap
A. Blanton Godfrey
“Innovate or die.” This
quote is usually attributed to Jack Welch, the long-time
and extremely
successful chairman and CEO of GE. In these challenging times,
the statement has more relevance than ever.
Companies that fail to create a competitive advantage
definitely face a survival struggle. Just trying to do
exactly the same things as one’s competitors, only
a little bit better, is a tough strategy with which to
succeed. Someone, somewhere, can always find cheaper labor.
History traces the manufacture of many products from Europe
to New England, to the American South, to Mexico, to Central
America and then on to India, Pakistan and now China. Because
of this trend, innovation has become an even more important
competitive tool.
However, we often misunderstand innovation. Far too many
people think only product innovation matters. They forget
that we can also be incredibly innovative in production,
distribution, marketing or service. Many times I’ve
heard people state emphatically: “There’s absolutely
no future in commodities. If we don’t come up with
new products, we’ll be out of business.”
What nonsense. Many of the most successful new companies
during the past decades haven’t really created new
products--just new ways of producing and distributing those
that already exist. In the textile world, for example,
the United States has a large positive trade balance in
nonwovens, one of the most commodity-like products there
is. Surprisingly, we have negative trade balances in computers,
chemicals, automobiles and other high-tech, high-value-added
products.
Several years ago, I worked with a company in the Netherlands
that produced some of the most basic commodities in the
world: magnesium and sodium chlorate. The company’s
previous owner saw no future in these low-tech products
and put the company on the market. Members of the management
team saw the future differently and mortgaged their personal
futures in a leveraged buy-out. They knew they had a good
product and felt they could provide it at world-competitive
prices.
This innovative team, led by a remarkable managing director,
soon discovered many ways to completely change the company’s
cost structure. The huge over-investments in capital made
by the previous owner were turned into
profit centers that sold excess electrical-generating capacity
and water treatment facilities and also leased unneeded
dock space. The team discovered that a waste byproduct
the company had been paying to ship to dumps could easily
be turned into a highly profitable product in a growing
market.
But the best example came from the managing director’s
constant search for new markets through improved customer
service. The company had no sales of its basic products
in one of the fastest growing markets--high-quality cement
floors--even though the company’s base product was
an essential ingredient in producing these floors. A competitive
product was shipped in liquid form that construction companies
found far easier to use than the company’s pellet
form.
The managing director looked for the chink in the competitor’s
armor and soon found it. The construction companies hated
the complex disposal process of the used drums the liquid
product came in. He quickly created a partnership with
a company that made small, self-propelled, portable mixing
units. He leased the mixing units to construction companies
at low rates if they used his pelleted product. He also
removed all the used bags each time a new order arrived.
The construction companies now had an easy way of mixing
an exact amount of his product when they needed it and
transporting it directly to where it was needed, with no
recycling nightmares. Within 12 months, the company had
a more than 50 percent share in this growing market.
A few years before, I’d seen an even simpler example.
A company that made basic plastic tapes was continually
fighting for market, based on price. One of the engineers
decided to learn more about the company’s customers
and how the tapes were used. One of its largest customers
used the tapes as binders for groups of 25 wire pairs in
large telecommunications cables. The tapes were wound together
in two-color pairs to enable the groups to be easily identified.
Cables could have as many as 3,000 pairs, so easy identification
of groups and individual pairs was an important task.
The telecommunications company had to store a large number
of tape rolls to have the right color combinations available.
Winding the paired colors took extra time and sometimes
delayed cable production.
The tape producer offered to pre-wind the tapes into
the needed color pairs. The tape producer could easily
do this as part of the original production process and
at less cost than the telecommunications company could.
Needless to say, the tape company quickly secured a loyal
customer with its “new product” that saved
its customer money while increasing its own margins.
These examples abound. Innovation isn’t just about
breakthrough thinking and radical new products. Often,
it’s simply understanding better ways to produce
something, distribute something or make it easier for your
customer to use your product. Innovation comes in many
forms, but it’s often innovation that drives our
long-term success.
A. Blanton Godfrey, P.h.D., is dean and Joseph D.
Moore Professor of North Carolina State University’s
College of Textiles.
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