Whirlpool's Future Won't Fade
The appliance giant's CEO, Jeff Fettig, has a favorite word: innovation. His company has used it to set earnings records and build a cutting-edge brand
These days, Jeff Fettig is getting the glory. Since mid-2004, Fettig has been chairman and chief executive of Whirlpool (WHR ), which as the world's No. 1 maker of big-ticket appliances, has set records for sales and earnings. The housing boom in the U.S. certainly has helped. But the real numbers booster, says Fettig, is innovation. Thanks to new products, Whirlpool not only has logged outsized growth in demand; it has been able to command higher and higher prices (see BW Online, 4/27/06, "Whirlpool: Fabulous by Design").
In 2005, the Benton Harbor (Mich.)-based company attributed $760 million of sales to new products, up from $217 million a year earlier. Raising the bar, Fettig now expects innovation revenues of $1.2 billion in 2006. And even that goal may not be all that hard to surpass. With 568 projects in some stage of development today, Whirlpool calculates that new appliances in its pipeline will generate $3 billion in annual sales when they're rolled out over the next few years (see BW Online, 3/6/06, "How Whirlpool Defines Innovation ")."
In 1999, then-chairman and CEO David R. Whitwam concluded that innovation was the only way for the appliance maker to rise above its peers. While Whitwam set the course, Fettig deserves credit for leading the way. After all, as Whirlpool's new president and chief operating officer at the time, Whitwam was urging everyone everywhere in the company to think of themselves as innovators (see BW Online, 2/7/02, "Whirlpool Taps Its Inner Entrepreneur ").
Fettig, 49, is a career man at Whirlpool. He was hired as an operations associate in 1981 after earning his MBA from Indiana University. Sitting at a conference table in his executive suite, Fettig recently spoke with BusinessWeek Senior Correspondent Michael Arndt about Whirlpool's innovation strategy. An edited transcript of the conversation follows:
How did you decide on innovation?
This goes back to a critical assessment we did of ourselves and the industry in the late 1990s. Any consumer walking into any appliance showroom anywhere in the world would see this: a sea of white. You don't see anything really different, even if you haven't been in the market for 10 years. You can't differentiate brands. You can't see the value proposition without having someone explain it to you. Thus, it's called the white goods business.
Without innovation and differentiation, the fundamental basis for competition was just price. There's nothing wrong with that. But our view was for us to truly execute a differentiated, value-creating strategy, we needed to do something dramatically different. From day 1, we took the approach that innovation was not the privilege of a few; it was a right of the masses. The only way innovation would work is if everybody was in, so to speak.
So is it working?
We're seeing evidence of what we call a "want in." In other words, consumers see something that is so different or innovative that they want to buy it as opposed to: they have to buy it. Because of that, we're dramatically changing the lifecycle of products. For example, if you looked four or five years ago, the average life of a washing machine was something like 13 years. With our Duet washers and dryers, which have been huge hits, we're surveying owners and finding out a lot of people are replacing their washing machine with the Duet after five, six, or seven years because they want it, not because their old machine broke or wore out. They just saw it, and they wanted it.
Another thing we're seeing is this is driving new revenue growth. I've told our investors that the incremental sales from innovation are now adding three points of growth to our annual growth rate. And it could be more. The other item -- and I don't think anything could be more...
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