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Columnist: A. Blanton Godfrey

Photo: A. Blanton Godfrey

  
   

Building a Better Mousetrap
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.

About the author

A. Blanton Godfrey, P.h.D., is dean and Joseph D. Moore Professor of North Carolina State University’s College of Textiles.