In the face of low-cost competition or economic uncertainty, many manufacturers instinctively cut costs through labor reductions or abandoning costlier products/services.
That strategy can work. Some companies that subscribe to that approach do survive. But what condition are they in when they emerge from the economic downturn? And what if low-cost competition doesn't go away - ever? What competitive posture are they left with?
The Wall Street Journal just ran a piece that features a manufacturer that took different, bold action in the face of stagnation ("How a Firm Got Smart To Fight Grime, Rivals; January 28, 2008; Page B1").
In 2002, with a recession underway and foreign competition fierce, Tennant Co. had just laid off around 5% of its workforce and cut raises and bonuses. But Chris Killingstad, CEO, committed Tennant to spend nearly 4% of sales to establish and sustain an R&D division.
As a maker of industrial cleaning products like floor buffers, scrubbers and cleaners, the company was certainly in a "red ocean" market, one that didn't scream out for innovation. But Mr. Killingstad realized that a market that suffered from "the same sameness" was actually ripe for innovative products.
Here's what Tennant did:
- Huddled With Experts: Assembled teams of its best talent to strategize its way from introverted to innovative.
- Invested Time & Talent: Created an R&D group where one didn't exist before.
- Invested Money: Funded the group - often beyond budget - to ensure its survival.
- Involved Customers In The R&D Process: Asked its customers to test new technologies and products to offer feedback and advice.
- Expected - And Embraced - Mistakes: Realized that lessons were learned from mistakes, and that some extremely profitable technologies and products were actually born from those mistakes.
Most of these tactics aren't instinctive to manufacturers facing tough times.
But many manufacturers like Tennant have found that they can defeat and rise above competition with R&D investment and better products and services.
Tennant's reward for the approach? New, innovative products that completely distanced them from any competition in the space.
Today, Tennant enjoys a 12% market share of its $5-billion(USD) market, has seen its profits double from 2003 - 2006, and its employment rise.
The Tennant story teaches that differentiation from competition can be achieved in many ways. But for manufacturers in hyper-competitive markets where sources all look the same, it may be time to move up - not down - to survive and thrive.
A hat tip to JB, the hardest working man in blog business, over at SpendMatters.
