NexGen Advisors Point of View: Industry Goods - Small Goods Industry
By Carla Zilka 7/1/09
A broad range of industries are suffering through one of the worst economic crises America has ever seen and the Small Tools industry in the Industrial Goods Sector is no exception. But how these companies are performing today goes back to decisions they made in 4Q07 and 1Q08, many of which predate the official start of the recession. If they had a business strategy and plan that focused on innovation they may have had a better chance of survival without the need to take drastic measures like plant closings, headcount reductions, base pay cuts, 401K matching suspension and incentive pay cuts.
Although these tactics can deliver short term relief, having the right products that customers want, is the only way to deliver long term benefits and sustainability. All companies should be focused on innovation, no matter what the economic outlook. If you get it right, success will follow as it is the foundation of any viable business model. If you get it wrong, the result can be catastrophic for your business, resulting in excess inventory and lost market share…but not doing it at all or only making small changes to standard products is not an option. This is exactly what happened to some of the companies that make up the Small Tools industry.
Innovation is the most important core activity your company performs, especially if you are operating in a mature market. If Innovation isn’t something you do well, you will travel a long, hard road, and may never become a market leader. You must have innovative products and services that customers want to buy. Cutting-back on R&D during a downturn could spell disaster when the market recovers.
Companies like Snap On are putting their money where their mouth is, building a new Innovation Works Facility that will be at the forefront of new technology development and customer interaction. Without customer feedback, companies cannot develop the type of products that will sell in the marketplace. Snap On is breaking records with their MG 325 Power Tool even in a down market because they listened to their customers’ needs: a longer life, smaller, lighter and faster. Makita’s Lithium Ion Battery Products are another exceptional example of innovation based on customer’s wants and needs. Their hand tools have more power, less weight, and are more compact and efficient.
Toro met the needs of its’ customers by listening to their complaints, then creating a product that met both of their needs. The end consumer wanted to outsource the tedious task of mowing their lawns, but at an affordable price, while commercial customers complained that typical push behind mowers took too long to mow a standard sized lawn. Using the innovation process, Toro rethought the entire way lawns are mowed, with their Grand Stand Mower, which allows the individual to stand on the back of a larger, faster mower. It allows contractors to substantially increase the volume of lawns they can mow, increasing their efficiency which has been passed on to end consumers in the form of lower prices. What once was affordable only to the elite, has now become a low cost service offering available to a larger market. It allowed the average American to add more time to their day, and from the consumer’s perspective, the time gained outweighs the cost. This is example of innovation at its best!
Innovation alone is a necessity, but combined with a strong presence in Emerging Markets is the best option for Small Tools manufacturers. It’s not surprising that companies with a large sales forces and manufacturing facilities in Emerging Markets (i.e. Danaher, Makita and Snap On) are riding the market decline better than those focused solely on North America and Western Europe. Companies must be diversified to weather the storm and continue to grow. Continuing to focus on mature markets can be a successful business strategy, if you are developing new products and you have instituted Lean or Six Sigma into your manufacturing processes to remain cost effective and efficient. If however you are only updating standard models while focusing on mature markets, even with a good quality program, your growth potential will be small.
Countries like India, China and Eastern Europe are key Emerging Markets for both sales and manufacturing, so it is surprising that companies are taking baby steps instead of huge strides to enter those markets. Some are growing their market share through acquisitions, like Snap On which purchased Zhejiang Wanda Tools in China, and some, like Makita are doing it organically through the expansion of sales offices and manufacturing capability in that region. Either way, a business plan that includes Emerging Markets in conjunction with innovative products is critical to long term success.
Operating in today’s environment isn’t easy, but taking the right steps now can prepare any company for a rebound when the economy recovers. It sounds simple, but as we have seen, if you get it wrong, it causes drastic measures which puts you one step behind the competition.
Although these tactics can deliver short term relief, having the right products that customers want, is the only way to deliver long term benefits and sustainability. All companies should be focused on innovation, no matter what the economic outlook. If you get it right, success will follow as it is the foundation of any viable business model. If you get it wrong, the result can be catastrophic for your business, resulting in excess inventory and lost market share…but not doing it at all or only making small changes to standard products is not an option. This is exactly what happened to some of the companies that make up the Small Tools industry.
Innovation is the most important core activity your company performs, especially if you are operating in a mature market. If Innovation isn’t something you do well, you will travel a long, hard road, and may never become a market leader. You must have innovative products and services that customers want to buy. Cutting-back on R&D during a downturn could spell disaster when the market recovers.
Companies like Snap On are putting their money where their mouth is, building a new Innovation Works Facility that will be at the forefront of new technology development and customer interaction. Without customer feedback, companies cannot develop the type of products that will sell in the marketplace. Snap On is breaking records with their MG 325 Power Tool even in a down market because they listened to their customers’ needs: a longer life, smaller, lighter and faster. Makita’s Lithium Ion Battery Products are another exceptional example of innovation based on customer’s wants and needs. Their hand tools have more power, less weight, and are more compact and efficient.
Toro met the needs of its’ customers by listening to their complaints, then creating a product that met both of their needs. The end consumer wanted to outsource the tedious task of mowing their lawns, but at an affordable price, while commercial customers complained that typical push behind mowers took too long to mow a standard sized lawn. Using the innovation process, Toro rethought the entire way lawns are mowed, with their Grand Stand Mower, which allows the individual to stand on the back of a larger, faster mower. It allows contractors to substantially increase the volume of lawns they can mow, increasing their efficiency which has been passed on to end consumers in the form of lower prices. What once was affordable only to the elite, has now become a low cost service offering available to a larger market. It allowed the average American to add more time to their day, and from the consumer’s perspective, the time gained outweighs the cost. This is example of innovation at its best!
Innovation alone is a necessity, but combined with a strong presence in Emerging Markets is the best option for Small Tools manufacturers. It’s not surprising that companies with a large sales forces and manufacturing facilities in Emerging Markets (i.e. Danaher, Makita and Snap On) are riding the market decline better than those focused solely on North America and Western Europe. Companies must be diversified to weather the storm and continue to grow. Continuing to focus on mature markets can be a successful business strategy, if you are developing new products and you have instituted Lean or Six Sigma into your manufacturing processes to remain cost effective and efficient. If however you are only updating standard models while focusing on mature markets, even with a good quality program, your growth potential will be small.
Countries like India, China and Eastern Europe are key Emerging Markets for both sales and manufacturing, so it is surprising that companies are taking baby steps instead of huge strides to enter those markets. Some are growing their market share through acquisitions, like Snap On which purchased Zhejiang Wanda Tools in China, and some, like Makita are doing it organically through the expansion of sales offices and manufacturing capability in that region. Either way, a business plan that includes Emerging Markets in conjunction with innovative products is critical to long term success.
Operating in today’s environment isn’t easy, but taking the right steps now can prepare any company for a rebound when the economy recovers. It sounds simple, but as we have seen, if you get it wrong, it causes drastic measures which puts you one step behind the competition.
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