Switched On

On 11 November 1911, Louis and Emory Upton began to produce electric, motor-driven wringer washers from a small factory in St Joseph, Michigan, US. The Upton Machine Company, aiming to be the first to mass produce this new technology, very nearly failed in its first year.

It received its first order for 100 machines from Federal Electric, all of which suffered from the same technical defect, an internal cast iron gear that failed to function. Louis Upton offered to repair all of the gears free of charge, despite the possibility that such expenditure could sink the fledgling company. So impressed was Federal Electric with Upton's ethics that they doubled the size of their order, firmly cementing the company's place in the burgeoning household appliances sector. 

On 11 November 2010, the CEO of the Upton Machine Company, now known by the more familiar name of Whirlpool Corporation, kicked off its year-long centenary celebration by ringing the opening bell on the floor of the New York Stock Exchange. Now the world's leading manufacturer of household appliances, with 67,000 employees around the world, the company and the industry has obviously transformed dramatically.

However, speaking to the president of Whirlpool EMEA, Bracken Darrell, in the bar of London's iconic 'Gherkin' tower after a celebratory lunch, what's most striking is not so much what has changed, but what hasn't. While today's technology may be unrecognisable to those who bought the motor-driven wringer washer, Whirlpool's fundamental aims have remained the same.

"In 1911 we were in the appliance business, in 2011 we are still in the appliance business," he says. "Everything we do is in this field or a logical extension of it, such as fitting a refrigerator with a water filter. I don't envisage us going into any other spaces for the next 20 years and probably the next 100."

The key to success

By building expertise in one field, Whirlpool has been able to develop a sophisticated, highly focused process of innovation across the supply chain. A new idea needs to fulfil three metrics to even be called 'innovative': it has to create a competitive advantage, be unique or differentiating, and create shareholder value. According to Darrell, creating the right environment for this process to happen can be defined in similarly precise terms.

"Accountability is important," he says. "There needs to be someone at the top making sure that the right type of innovation is taking place. Then there are metrics and resource allocation, making sure the right amount of support is being given idea generation, technological change and idea execution. Finally there is culture, which is probably the most difficult to get right."

Darrell's focus on metrics derives from his belief that the concept of innovation is often misunderstood. He sees idea generation as a very small part of the overall process, but one which often receives too much emphasis.

"People tend to think of innovation as 50% good idea and 50% execution," he explains. "In reality, it's 90% execution. You always have to be generating ideas, but many of them have been around for a long time and often your people are sitting on them. The key is getting these ideas out into the open and executing them deeply, broadly and with alignment. A lot of companies don't do a good job on this part."

Team work

This high level of execution requires the input of many more groups, across the supply chain, than it did only a few years ago. The most significant change involves the industrial design team. Darrell believes that leveraging that team's capabilities at the beginning of the innovation process, instead of further down the production line, as was traditionally the case, is vital because of the way consumers perceive good design in the household appliances space.

"In our business, great design isn't about ornament or about colours, it's about solving consumer solutions and so is integral to the success of the product" he says. "You're not going to see a lot of polka dot refrigerators in our stores. People think, 'I'm going to buy this and have to look at it for the next five years." 

The growing importance of design is one of a few significant, but seemingly disparate, trends to emerge in recent years. In 2009, Whirlpool pledged to make all of its appliances smart-grid-compliant by 2015, in line with a growing movement towards more sustainable solutions.

At the same time, tight economic conditions have placed a premium on cost-effectiveness. In Darrell's view, while trade-offs occasionally have to be made between the two concepts, the relatively long lifecycle of white goods allows for these types of products to fulfil both requirements.

"If you want the maximum green refrigerator, for example, you'd need one with vacuum panel technology, which is pretty expensive and not very widespread," he explains. "In that case there is a trade-off between sustainability and cost, but you have to be wary of false tradeoffs. We make appliances today that, if we price correctly, consumers might pay a little more up front but actually make it right back over a 24-month period."   

Although a real selling point, Darrell doesn't believe that the long-term cost benefits of more sustainable, yet highly priced, appliances are emphasised enough on the shop floor. He concedes, however, that this is perhaps more the problem of people higher up the supply chain.   

"These long-term benefits maybe aren't highlighted enough by retailers, but that's as much our fault as it is theirs," he admits. "All they have is the information we give them and the training that we help support. At the same time, I think that we in the industry need to keep it simpler than we do. We've got so many brands, categories, price points and features, how is a poor retailer supposed to keep up?"

Reality check

Small, but helpful innovations are, in Darrell's view, the best kind. Whirlpool invests a lot of resources in finding out what customers want by going into homes and analysing their behaviour.

"I go into people's kitchens and watch them use products that concern us, because sometimes you don't know what you like or don't like until you are in the moment," he explains. "Then you can identify problems to be solved or delightful things you can add."

This method has led directly to two of Whirlpool's most recent innovations. In Italy, the company is marketing a washing machine with only three cycles: colours, whites and delicates, in acknowledgement of a group of consumers that remains unmoved by additional features and settings.

"We also identified that many people will have one small basket of expensive clothes," Darrell adds. "They'd say, 'I'm not the only one who does the laundry and I'm afraid that if someone else washes my €200 dress, it will be ruined. As a result we put an extra-delicate button on the machine, just to make sure. That's not a breakthrough, but it's a consumer insight that we can innovate in a small way."

Cost reduction has, of late, been a driver of many of Whirlpool's innovations, although this is not solely the concern of its customers. The company suffered its fair share of hardship during the recession with certain markets, such as the United Kingdom, only slowly beginning to pick up. Darrell views the past few years as a learning curve that, while testing, has had a positive influence.

"I think that during the recession, our ability to remove unproductive cost, which has always been very good, became outstanding," he says. "And it wasn't a case of getting out an axe and chopping down everything in sight. We now have a more systematic, deeply integrated process to identify and remove excess cost."

This applies across the supply chain, down to the most micro level. It is a process of cost saving that he believes would have taken place anyway, but was pushed through quickly by the onset of recession.

"It touches every area of our business, from types of material and component, to where they are sourced from, the logistics of shipping them to the information sources we employ," explains Darrell.

"We were forced to do things that would have been done over time in compressed form and I feel strongly that we are a much better company now. That's not to say everything was lovely - it was horrible. But the patient needed the medicine and the medicine worked."

Learning curve

The recession was also a time when the advantages of being a multinational organisation became clear. Lessons learnt by different arms of the company can be added to a central body of knowledge that all can learn from.  

"We benefit from the fact that, whatever happens, someone else within the organisation has been through it first," Darrell explains. "Back in 2004-05, it was Brazil that had it really tough. They found a new way of operating and it created a capability that the rest of the organisation was able to learn from, particularly during the past two to three years."

Brazil and other emerging markets are, in Darrell's view, a real cause for optimism. Their relative durability during the global economic downturn defied the view of the many who believed that these economies were entirely dependent on consumption levels in the developing world. He also expresses amazement at the economic and business acumen of the people in these countries, in many cases born out of necessity.

"I once asked a Brazilian colleague of mine, 'why are the people here so good at economics?' He replied, 'when my mother came home on Friday night with her pay cheque, we all got in the car, went to the store and bought as much as we could.' The reason was that inflation was running at 2% a week - even waiting until next week would mean a price rise."

Positive influences

As an American heading up Whirlpool's European operations, he also values the way that a global structure allows individuals from different geographies and with different perspectives to influence each other's outlook.   

"We try to do a lot of international moves," he explains. "The guy who runs North America is German and our CEO used to run Europe, the Middle East and Africa. You might trade off a deeper understanding of the culture, but you pick up something else - a greater reliance on facts and data, which could be seen as more objective. Although, you can certainly create objectivity if you desire it."

Looking ahead, Darrell is extremely positive about the next 12 to 24 months, a sentiment justified by Fitch's recent decision to upgrade Whirlpool's investment rating from BBB- to BBB. As purchasing power increases and credit becomes more freely available throughout the developing world, there is obviously tremendous potential for expansion.

"We have so much room to grow," he says. "Our global market share is in the 15-16% range, which means we've got 84% to go. If the household penetration of India, China, Russia, Africa, the Middle East and Latin America increased ten points it would double the size of the appliance industry." 

With this in mind, it would be a brave person who bets against Whirlpool, on 11 November 2111, celebrating its bicentennial year.