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[x] November 2006 Escaping the middle-market trap: An interview with the CEO of Electrolux Hans Strberg discusses the challenges of serving both the high and low ends of the market successfully. .

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*Required The e-mail addresses that you supply to use this service will not be used for any other purpose. Note: If the recipient of this e-mail is not a registered member of mckinseyquarterly.com, he or she will be asked to register in order to view the full article. The article Escaping the middle-market trap: An interview with the CEO of Electrolux has been sent to the following recipients: Escaping the middle-market trap: An interview with the CEO of Electrolux Hans Strberg discusses the challenges of serving both the high and low ends of the market successfully. NOVEMBER 2006 Trond Riiber Knudsen

In This Article Exhibit 1: Biography of Electrolux's Hans Strberg Exhibit: Electrolux's total returns to shareholders is improving. About the authors Comments Hans Strberg took the reins of Electrolux in 2002, just in time to face the daunting challenge of a rapidly polarizing appliance market. Low-cost Asian players, such as Haier,1 were applying pressure at the low end of the market, while premium competitors like Bosch, Sub-Zero, and Viking were continuing to grow at the expense of middle-ofthe-road brands.2 The result wasnt a crisis for Electrolux but rather a slow erosion in performance, with EBITDA (earnings before interest, taxes, depreciation, and amortization) margins dropping steadily from 9 percent in 2002 to around 8 percent in 2005.3

The companys response has extended far beyond cost cutting. To be sure, Strberg has guided Electrolux through a major restructuring that includes importing more parts from Asia and shifting assembly operations from about 20 sites in Western Europe and the United States to lower-cost countries such as Hungary, Mexico, Poland, Russia, and Thailand. At the same time, he has pushed the company to sharpen its value proposition at both the high and low ends of the market by taking a fresh look at what consumers really want and by creating new products that are specifically aimed at the purchasing patterns and lifestyles of more fine-grained customer segments. In this interview, Strberg describes both the nature of market polarization in the appliance sector and the high-wire act Electrolux is now performing. By rethinking customer wants and needs, refocusing the brand portfolio,4 sorting out the challenges inherent in selling high- and low-end products in the same channel, and launching innovation efforts that have won public plaudits,5 Electrolux has started to compete more effectively across the entire market. Yet even as sales, operating income, margins, and the companys stock price rise, Strberg is well aware that achieving continued success means hitting a target thats moving in at least two directions at once.

Back to top The Quarterly: What do you mean when you talk about market polarization? Hans Strberg: Polarization is something that has been going on for quite some time. In major appliances, over the past 15 or 20 years, people have doubled the amount they spend on their homes. As part of that, they are spending more on their kitchens. You can

cook food on a campfire, but people nevertheless spend $2,000 on an induction range. This general trend coincided with globalization, which opened up the possibility of new, lower-cost manufacturers in emerging economies coming onstream. These parallel developments drove apart two segments of the marketcall them the premium end and the value end. Other industries have experienced similar developments. We know that when the shift comes, it comes quite fast. In floor care products like vacuum cleaners, where the market polarized earlier, the whole processstarting with the rapid growth of premium players like Dysontook five to seven years. The first signs of entry by low-cost competitors occurred in the late 90s, and the big change happened very fast, maybe within the first two or three years. Its important to be prepared for the rapid change and not engage in wishful thinking.

Back to top The Quarterly: When you moved from the floor care and small domestic-appliance division into the CEOs role, what actions did you take with respect to polarization? Hans Strberg: First, I needed to see how our industry was changing, so I traveled the world and inspected a wide range of products from new manufacturers, mostly Asian companies. The products hadnt hit Western markets, but I knew it was only a matter of time. In my mind, the middle marketthe stomping grounds of Electroluxwas on the

verge of disappearing. Then I started shipping some of my finds to the homes of my top managers. When I got back, we rolled up our sleeves in a series of workshops designed to shed light on the strategies of new competitors, such as LG and Samsung. In one of these meetings, top managers assumed the role of LG executives strategizing how to beat incumbents and then reflected on what it meant for Electrolux. The Quarterly: How does market polarization force you to rethink your customers and their needs? Hans Strberg: When you segment the market youre not talking about the typical consumer but the consumer combined with a particular buying situation. Take the example of a built-in induction range. Its a must for somebody with a lot of specific wants: you like it, its an interest you have, and therefore youre prepared to spend money on it to feel good and satisfy those wants. At the other end, cooking is a more basic necessity. Youre looking for the best offer at the best possible cost. Its not a product that you want to show off; its mainly a product that you want to use. Given the differences in what consumers value, we have abandoned the traditional industry segmentation based on price and a good-better-best hierarchy. Now our segmentation has as many as 20 product positions that relate directly to the lifestyle and purchasing patterns of different consumers. Steam ovens, for example, are now successfully marketed to health-oriented consumers. Compact dishwashers, which we had initially developed for smaller kitchens, are now marketed to a broader consumer segment interested in washing dishes more often. The Quarterly: How did you decide to play at both ends of the market simultaneously, and what challenges has that created? Hans Strberg: At first, I thought we needed to decide whether to compete with commodity-like offerings or to deliver higher-value products. But after some deep soulsearching, we decided we could still make money in both ends if we separated our business models for the two ends of the market. Dividing the sales force is one example of what I mean when I talk about different business models. At one end youre selling freestanding countertop refrigerators, which just fill a basic need; youre driving for orders and you want high volumes at certain price points. The cost, the quality, and the delivery time are all very important. At the other end youre working with consumers and retailers who are buying a kitchen solution to fit their specific needs. The same sales force usually cant handle both of those roles. And even if the same person can handle both, you have to focus to avoid compromising how well you serve the retailer. The challenge, of course, is if youre dealing with one retail customer thats selling to both segments in its stores. If you have one competitor that goes in and only focuses on sending full truckloads into a retailers system and offers a very short warranty, if any, then you have to be able to do the same. Simultaneously, you have to satisfy consumers in the premium segment. So you have to separate the business, and thats the difficult part. I dont have a general patent for that. The Quarterly: Is it possible for a company that feels stuck in the middle to escape without doing some successful innovating? Hans Strberg: It is not possible. I think you can build awareness. Its quite expensive, but you can advertise yourself to get awareness. But if you dont get differentiation its very difficult to win people over just because your products are known. What makes innovation particularly challenging is that the functional improvements that set products

apart in the 1970s and 1980s, such as RPMs6 for washing machines and watt usage for vacuum cleaners, are no longer effective differentiators. But differentiation can take many forms. Consider complementary services. In the United States, we launched a water filtration subscription program for side-by-side refrigerators. Strong consumer support can also be a differentiator. There are very high demands on consumer support in the premium segment compared with the lower end. So we are supporting premium products with special help or consumer support contact points: more personalized service if consumers have a problem or questions, a separate number they can call to reach a given distribution channel, and so on. The Quarterly: What is the role of the brand in dealing with polarization? Hans Strberg: In both ends of the market, brand credibility and trust are very important because customers entrust our products with expensive loads of clothes or have a lot at stake when cooking dinner for people. You want to show that youre very good at cooking, and therefore you cant be let down by the product. But there is a big difference in what consumers can afford to spend on high- and low-end brands, and marketing methods differ accordingly. In the value segment, the focus is usually more on in-store displays at the point of purchase or on cooperative advertising with retailers, while in the premium segment you can afford to use other means, such as mass-media and targeted Internet campaigns, that allow more time to explain the innovation to premium consumers. Of course, the specifics are highly dependent on what category youre in. The Quarterly: Given these differences, why did you abandon Electroluxs multibrand strategy, and how is the transition going? Hans Strberg: We committed ourselves to a master global brand, complemented by some well-defined subbrands, after looking outside our industry. We saw how even in the industries hardest hit by low-cost imports, such as TVs, a large majority of consumers would deliberately pay a premium for distinct global brands, such as Sony and Philips. And so far, sales of the Electrolux brand account for about half of total group salesan impressive progression from only 10 percent in 2000. As important, the creation of one global brand has instilled a sense of one global corporate culture, which has already had an extremely positive effect on the organization. The Quarterly: What advice would you give to a company that is stuck in the middle on how to jump-start innovation? Hans Strberg: Start with consumers and understand what their latent needs are and what problems they experience. That doesnt mean you go and ask them, What are your latent needs? or What problems do you experience? Then you will not get the answers. You need to observe and find out by different means and then put the puzzle together yourself to discover what people really want to have. Henry Ford is supposed to have said, If I had asked people what they wanted, I would have made faster horses or something like that. You have to figure out what people really want, although they cant express it. There is a whole series of techniques and approaches for doing that: videotaping consumers and asking them the right kind of questions; observing consumers; reading between the lines of what they are really saying; observing them for what they are doing, not what theyre saying; and so on. The people doing this work should be organized in cross-functional teamsproduct developers who are actually coming up with the ideas, sales and marketing people, and support personnel who can help collect and organize

data. This approach has helped us almost double the number of new-product launches in the past three years. About the Author Trond Riiber Knudsen is a director in McKinseys Oslo office. https://www.mckinseyquarterly.com/Escaping_the_middlemarket_trap_An_interview_with_the_CEO_of_Electrolux_1871

JAMES DYSON CASE Introduction

You know the feeling when some everyday product lets you down. You wish someone could solve the problem. James Dyson does that. He is a man who likes to make things work better. With his research team he has developed products that have achieved sales of over $10 billion worldwide. In 1978, while vacuuming his home, James Dyson realized his bag vacuum cleaner was constantly losing suction power. He noticed how dust quickly clogged the pores of the bag and blocked the airflow, so that suction dropped rapidly. He set to work to solve this problem. Five years and 5,127 prototypes later, the world's first cyclonic bagless vacuum cleaner arrived. James Dyson offered his invention to major manufacturers. One by one they turned him down, apparently not interested in new technology. They seemed determined to continue selling bags, worth $500 million every year. Later, Hoover's vice president for Europe, Mike Rutter, said on U.K. national TV, "I do regret that Hoover as a company did not take the product technology off Dyson; it would have lain on the shelf and not been used."

Thinking about the issue of core competency and strategic capability, what is the secret of James Dysons competitive advantages? Early inventions

The Sea Truck, Dyson's first product, was launched in 1970 whilst he was at the Royal College of Art. Sales of the Sea Truck amount to $500 million. His next product, theBal lbarrow, was a modified version of awheelb arrow using a ball to replace the wheel. Dyson remained with the

idea of a ball, inventing theTroll e yb al l, a trolley that launched boats. He then designed the Wheelboat which could travel at speeds of 64 km/h on both land and water. Vacuum cleaners In the late 1970s Dyson had the idea of using cyclonic separation to create a vacuum cleaner that wouldn't lose suction as it picked up dirt. He became frustrated with hisHoover Juniors diminishing performance: dust kept clogging the bag and so it lost suction. The idea of the cyclones came from the spray-finishing room's air filter in his Ballbarrow factory. While partly supported by his art teacher wife's salary, and after five years and 5,127 prototypes, Dyson launched the 'G-Force' cleaner in 1983, the world's first bagless vacuum cleaner. Unfortunately, no manufacturer or related distributor would launch his product in the UK as it would disturb the valuable cleaner-bag market, so Dyson launched it inJapan through catalogue sales Strong brand A key task for an entrepreneur like James Dyson is to give innovation the right look, literally and metaphorically. Brand image comprises the product, its attributes and its brand

personality. Customer perception of a product and its attributes are inextricable from its perceived superiority that derives from a range of factors including technical excellence and value for money.

Has he been able to appropriate the rewards of the value he has added?

In an attempt to maintain their competitive advantage, Dyson and his colleagues at Malmesbury have continued to develop new innovations. Determined to create vacuum cleaners with even higher suction, they have developed an entirely new cyclone system. Dyson has developed the robot cleaner that not only makes cleaning easier but guides itself even more logically than a human being would. Then, in November 2000, he launched the world's first two-drummed washing machine, the Contrarotator. Dyson's engineers constantly re-examine products of all types, including the washing machine. They found that in the traditional automatic washing machine the fabric is not flexed all that much and that washing by hand gave better results than the single drum machine. So, Dyson developed a machine that would 'even improve on hand washing'. Reputedly, it took four years, a million man hours and 25 million to develop the machine, which comes with a built-in jack and trolley and a coin trap to capture buttons and loose change.
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Dyson Appliances Ltd. and its Approach to Innovation

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Case Length :27 Pages electronic format: Period :2000-2009 Rs. 400; Organization:Dyson For delivery Appliances through courier Ltd. (within India): Rs. Pub Date :2009 400 + Rs. 25 for Teaching :Not Shipping & Note Available Handling Charges Countries :UK; Europe; Themes US Industry :Electricals Innovation / & Electronics Design / Culture / New Product Development
Abstract: This case

discusses the innovation principles and processes adopted by Dyson Appliances Limited (DAL), a market leader in the vacuum cleaner market. Experts felt that product design was a core competency at DAL and the innovative designs of its product had enabled it to command a premium price in a market that was previously known for price discounting. According to analysts, DAL's constant focus on innovation had led to its cornering a market share of 32 percent and 46 percent in the US and UK vacuum cleaner markets in 2008. Analysts attributed the success of the company to the innovation principles and processes institutionalized by

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DAL's founder James Dyson (Dyson). They felt that Dyson was the source of innovation at DAL. He is himself widely known as the inventor of the first bag less vacuum cleaner (DC01, DAL's first product) that took the vacuum cleaner market by storm in the early 1990s. Since then, he and his team had churned out innovative models of vacuum cleaners that had helped DAL gain a market leadership position. In addition to vacuum cleaners, its other products such as The Contrarotator (a washing machine) and Dyson Airblade (a hand dryer), were hailed by experts as being equally innovative. Analysts felt that DAL's deep-set culture of innovation gave it an edge over its competitors. DAL approach to innovation drew inspiration from Thomas Alva Edison's (Edison) step-bystep approach where he made a single change to the prototype at a time in order to perfect his invention. Inspired by the thoughts of Edison, Case Studies by Company the engineering and design staff at DAL made Search a single change to the prototype that led to the launch of an innovative product. The case also discusses the integrated approach to design and development of new products adopted by engineers and design staff at the company, and how Dyson had fostered a culture of innovation at DAL.
Please note:

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Study the innovation principles and processes followed by DAL. Study DAL's integrated approach to new product development and design. Understand how Dyson fostered innovation and creativity at DAL and institutionalized a culture of innovation. Understand how innovation helped DAL emerge as the leader in the vacuum cleaner industry. Understand how innovation can lead to a competitive advantage and how DAL had

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

developed a core competency in product design.

Contents:

Yet Another Innovation at Dyson... DAL - The Innovation Journey The Drive to Innovate Creating the Right Environment for 8 Innovation Nurturing a Culture of Creativity and 9 Innovation New Product Development and DAL's 11 Integrated Approach to Designing Cultivating the Ecosystem 14 Leading Through Innovation? 14 Looking Ahead 15 Exhibits http://www.icmrindia.org/casestudies/catalogue/Operations/OPER087.htm

Page No. 1 3 5

Dyson appliances
Article Abstract: Dyson Appliances is one of the UK's major success stories. The company, which makes vacuum cleaners, was founded in 1993, since when it has grown to achieve annual global sales of 320 million pounds sterling and a turnover of 190 million pounds sterling. Dyson, with its innovative dual cyclone technology, leads the UK's floor care market with a 35% volume share and a 52% value share. Author: Lee-Mortimer, Andrew Publisher: Gillard Welch Ltd. Publication Name: Engineering Subject: Science and technology ISSN: 0013-7782 Year: 2000

Management, Innovations, Vacuum cleaners, Cleaning machinery and appliances industry, Cleaning equipment industry, Manitoba, Dyson Ltd. Read more: http://www.faqs.org/abstracts/Science-and-technology/Corecompetence-Neighbourhood-watch.html#ixzz1R7BBT7Ju

UK: DYSON'S CLEAN SWEEP.

By Hugh Aldersley-Williams. Sunday, 01 December 1996
UK: DYSON'S CLEAN SWEEP. - The revolutionary Dual Cyclone vacuum cleaner is wiping the floor with the competition - indeed, sales now top 8 million a month, more than either Electrolux or Hoover.

The revolutionary Dual Cyclone vacuum cleaner is wiping the floor with the competition - indeed, sales now top 8 million a month, more than either Electrolux or Hoover. In the spring of 1993 Hoover launched what was to become perhaps the greatest disaster in the history of sales promotion. In a few short months, it sold hundreds of thousands of vacuum cleaners by offering free flights to America with each sale. But managers underestimated how many people would respond to the offer, and the miscalculation has done the company lasting damage. Just then, into this already saturated market, came James Dyson with the product that bears his name, the Dyson Dual Cyclone. In a sector not known for its progressive ideas, the Dual Cyclone represented perhaps the greatest leap forward since electric-powered suction did away with the need for manual bellows. Early in 1995, Dyson's upright cleaner overtook the leading Hoover model in sales, according to independent figures. Its sales have trebled since then to more than 30,000 a month; other models hover around 5,000. With the recent addition of two compact models, sales of Dyson's premium-priced cleaners now top 8 million a month, more than either Hoover or Electrolux. It might never have been like this. Back when they each commanded 40% of the market, both companies had the chance to take up Dyson's idea. Like a number of other companies, Electrolux liked some things, but disapproved of the fact that the cleaner required no bag - something the companies rely on to generate aftersales profits. Hoover's views remained a mystery. 'We never met because they wanted me to sign a piece of paper saying that anything that came out of a conversation between me and them belonged to them. Considering that I was going along with a new technology, this seemed like a pretty rotten deal,' says Dyson. The Cyclone story began in 1979. While looking for a way to avoid the mess created in spray-painting another of his inventions, the Ballbarrow (a wheelbarrow with a ball), Dyson found that other companies used systems of spinning airflow - in effect, mini

cyclones - to produce orderly paint droplets. He then took apart his domestic vacuum cleaner and made a rudimentary cyclone of cardboard. It worked - up to a point. Five thousand prototypes later, Dyson had a machine ready to market - a machine in which a high-speed air vortex whizzed dirt particles to the rim of a cylindrical collector, and which, without the dustbag that on conventional machines becomes gradually more clogged, continued to perform at the same level. All you had to do was empty the collector from time to time.

A former colleague, Jeremy Fry, with whom Dyson had worked when designing a stable landing craft for engineering company Rotork, had put up half the money to get Dyson to this point. Already mortgaged to the hilt, Dyson raised the rest by selling his vegetable garden and persuading Lloyds Bank to make him a loan. Once Electrolux and the rest had rejected Dyson's idea, Rotork decided to take it on. The machine was made by Zanussi and sold by the direct-selling company, Kleeneze, but never really took off. A licensing deal with the network marketer Amway for the American market quickly turned sour. Then Rotork wanted out. By the end of 1984, Dyson was back to square one - until, that is, he received a phone call from the London agent for a Japanese importer of Filofax and other stylish goodies who had seen his product in a design annual. Within four weeks, he had a new agreement. Six months later, his cleaner was in full-scale production with every detail of its design intact down to the eccentric pink and mauve colour scheme Dyson had concocted. All well and good, but the Japanese cleaner cost 1,200. This was all right for people who saw it as a designer collectable. But this was not where Dyson wanted to be. He invested the profits from the Japanese sales in refining his design to the point where it could be positioned for the mass market with a 200 price tag. But by the time he was ready to launch a more affordable product in Britain, the Hoover promotion was in full swing. The initial decision was to target upmarket, independent retailers, in the

presumption they would be eager to stock a product not seen in high-street chains. But the idea backfired because they were already stocked to the rafters with Hoovers. In the event, Dyson Appliances' first outlet was the GUS mail-order catalogue. 'Our first accounts, Rumbelows, Littlewoods and GUS, were people trying to change their tune and beat the competition. We suddenly realised that you mustn't pander to the condition of the market at the moment. You must go to those people who are trying to change the market or their position,' says Dyson. John Lewis soon signed up, but it was 18 months before Curry's and Comet climbed on the bandwagon. Dyson Appliances now employs 500 people. Production at its Malmesbury headquarters a combined assembly plant and R&D centre - is being ramped up from 3,000 to 5,000 units a day. Plans for one new factory had to be discarded because the company had outgrown it while it was still on the drawing board. Another building is now on the way. Meanwhile turnover of 3 million in 1993 became 10 million in 1994 and 55 million in 1995. James Dyson seems a little bemused by it all in his corner office, gazing out at the playing fields of the school across the road. A drawing board and a Macintosh computer testify that he is still more designer than chief executive. 'I'm not an experienced manager,' he admits. 'I don't think any of us here are experienced at managing companies of the size we've become. We're all learning it together.' Dyson's competitors seem less willing to learn. Some have brought out vacuum cleaners that imitate Dyson's new silver and yellow colour scheme. But there are, as yet, no competing bagless designs. The hope must be that Dyson goes the way of Vax, the company that enjoyed short-lived success persuading people to wet-clean their carpets. To Dyson, the Vax episode at least demonstrated that the sector was open to new ideas. Where Vax went wrong was in selling an idea others did not share - that carpets should be washed not vacuumed. Dyson points out that his product merely represents a substantial improvement on an existing way of doing things. And so far Dyson continues to demonstrate the power of a genuinely improved product to sweep all before it. 'I hope we've proved the fallibility of brands,' he says. 'Hoover goes round saying about 80% of people go into a shop asking for a Hoover. But only 17% come out with one. What is much more important than a name is what a brand stands for, the warm feelings you have about that company. Hoover made the mistake of thinking that because everybody calls a vacuum cleaner a Hoover, they are thinking of the wonderful Hoover company.' Dyson, by contrast, has taken steps to consolidate his advantage by revolutionising the service offer that comes with his product in ways calculated to bring on those warm feelings. If your Dyson breaks down, you call a help number and a courier service picks it up if necessary. After a 24-hour repair turnaround at Malmesbury, a courier brings it back to your door.

But people do not buy a vacuum cleaner very often (unless it will fly you to America), and Dyson's domestic sales have reached a plateau during 1996. The company may yet garner a larger share of the UK market, but the more logical thing at this point is to look at the export potential. 'Our market share is now over 30% by value in Britain and 20% by volume. If we can do that in other countries, then in a way it's our moral obligation to go and do that for the sake of Britain. We've got a wonderful product to export, and it would be madness not to go and do that. Our problem is that British manufacturing has such a bad name. 'Look at OEM suppliers,' Dyson goes on. 'The thing that astonishes me is that they don't seem to be interested in expanding their businesses. They utterly refuse to develop their product. Secondly, they seem to think that we will take everything they produce whether it's to the right quality or not. If we fitted their faulty parts, it would kill our business as well as their own. It's phenomenally stupid.' Dyson's most recent sorties are into Australia and France - selected not so much because of the market opportunity they offer but because Dyson has found the right people there to run the companies. This time around, the competition is forewarned - and forearmed. One Australian manufacturer, for example, wasted no time in rubbishing Dyson's product to its retailers. Dyson is not worried: such action will merely make retailers curious, he figures. 'We were delighted because we were important immediately. In Britain, when we started, nobody gave us any notice at all.' And he now has his dramatic sales graphs to make his case. Nor is confidence lacking - an application pack for the Queen's Award for Export Achievement already sits on the export manager's shelf. Dyson is clear that organic growth is the way forward, and rules out the idea of a stockmarket flotation. Still more distasteful to him is the idea of endorsing other manufacturers' products with the Dyson brand despite an invitation to do so from a major retailer. 'I'm absolutely not going to do that.' The only products likely to carry the Dyson brand are those thought up by the 50 designers and engineers who work at the Malmesbury plant. When it comes to new product development, Dyson realises that his very success may have offered a hostage to fortune. He cannot guarantee that future products will embody innovations commensurate with those of the Dual Cyclone. Yet anything less might seem a disappointment. Dyson may have proved the fallibility of brands. But now Dyson is itself a brand, and this may well limit his room for manoeuvre.

It is not the sort of language he likes, but this seems the right moment to ask what Dyson considers to be his core competence. Is he a manufacturer of vacuum cleaners or of novel domestic appliances in general? Or is his core competence more narrowly defined as the development of products using cyclone technology? (One product in development is a device to extract soot particulates from diesel exhausts.) Or - more generally - as the ability to rethink the technology and appearance of all manner of products? Dyson hesitates, then picks the broadest brush. It is 'our ability to design, develop and launch onto the market better products,' he says. In what sector? 'I think in any sector. We happen to have done it in the vacuum cleaner sector, but I don't think that stops us doing it in other sectors.' In a way, Dyson is where Clive Sinclair was after his early successes but before the illjudged C5 single-seater vehicle. And he is acutely conscious of the hubris in presuming that any innovation he might dream up will necessarily be found attractive by consumers. A better analogy, however, may be with Akio Morita's Sony Corporation in the early days. Some of its products were highly innovative; others were merely slightly innovative; all were distinctively styled. The combined effect was that Sony products were able to command premium prices and that the company became a colossal force in consumer electronic products. Asked what his goal is by an American design magazine, Dyson shot back: 'World domination of domestic appliances'. He is attacking it in his own - highly distinctive way. http://www.managementtoday.co.uk/news/410299/UK-DYSONS-CLEAN-SWEEP/? DCMP=ILC-SEARCH

Transcript - Martin McCourt, CEO of Dyson

Nicholas Oregan, Professor of strategy and innovation talks to Martin McCourt, CEO of Dyson, discusses the challenges posed by the recession and Dyson's model of investing in innovation.

Q. Dyson is growing at a rapid rate despite the recession. What are the main challenges facing business over the next 3-5 years? Martin: More of the same Im afraid, if that comes as bad news. Recession presents all sorts of difficulties for businesses. The biggest challenge of all is, what do you do with your investment plans? Do you pull up shy in order to try and repair the bottom line? Or do you keep taking risks? And for us were very much in the latter frame.

Weve continued to invest actually very heavily, throughout the recession. Well continue to battle whether economic adversity lies ahead of us using exactly the same method, because thats what we believe in, ideas, technology and taking risk. Q. What are the key challenges faced by Dyson? Martin: I think the biggest challenge that we have is, Can we actually cope with the rate of growth that were experiencing? Cause that sounds like a wonderful problem to have, but its a very real issue. Weve had to ramp up the number of hires we have for example in research design and development, weve announced that recently, were looking to doubling the number of engineers that we hire to work in Malmesberry for example from 350 to 700. That sounds easy, it isnt. Because we need them all to be of a high calibre and to come out of university with the right kind of qualifications. I think the biggest challenge is without those people we cant turn our raw inventions into machines. Q. What are the key growth opportunities? Martin: Well I think, the growth for us lies in three areas. The first and obvious one for us is, although we are in 50 markets in some of them markets were still not penetrated. So if you take America as an example its the biggest market in the world, for the kind of products that we sell and its also our biggest market. But we still only have perhaps about, about 10 percent penetration of that market. We may have a current market share of almost 30 percent but if you look at the total number of homes in America, weve only been selling there since 2003. So weve still got a lot to go. Then if I look at other two areas, one would be staying with geography, what about the 25 30 countries that were not yet in? There are massive geographies that were targeting, South America, Indian, China, a lot of the Gulf States. Were not there yet and were determined to get there. And the Final limb of those, the three is new products. Now we have vacuum cleaners and we have bladeless fans and we have hand dryers that actually dry your hands, but were targeting to move into other new categories and then well push those into all those geographies that weve been busy, penetrating over the last 17 years or so. Q. You have been involved in continuous innovation. What factors enable you to have such a high success rate? Martin: I think a lot of it is just a gritty determination, to uncover and recognise great ideas and when those ideas emerge, really back them. Dont just talk it, really do it. Be prepared to put up the risk capital in order to those bring those ideas to fruitarian and believe them and accept that there are going to be knocks, there are going to be setbacks. But keep your head down, if you believe in it, follow your instincts, go for it. I think thats really been our secret of success. Weve, weve actually been really focused.

Weve had some incredible ideas and weve driven them very, very hard and very successfully. Q. In business people are very important and in an innovative company like Dyson, one of the key issues is retaining creative people.How do you retain the key people? Martin: Its er, er, I think its a bit of a chicken and egg situation there because, if we dont have the right people to start with, were not going to generate the ideas or if we have the raw ideas were never going to turn them into anything. But then if we do have those people and we do create these great technologies, these fantastic machines that enjoy huge success. There is nothing more likely to turn around a team of people than that kind of success. Particularly if its rapid and if its on the world stage the rest of it is fairly straight forward I think. Its about feeding that aspect of the business. Its about keeping that energy and that drive within that company then also making sure you treat those people properly, you pay them well and all those other obvious things Q. What are the core competencies of Dyson? Martin: The core competencies of Dyson (pause). That is probably the toughest question youve asked me, its very difficult to define. We are, as Ive said about invention. Infact, we dont even use the word innovation even though that is a word that you use alot here. For us we flip it, and call it invention. So were about trying to create the environment, where young people. People by the way who come straight from university, no previous work experience. They can come to our place of work, cut their teeth, make their mistakes, and ill happily let them do that, but create wonderful openings for us. Well then turn those into- I hope magnificently packaged pieces of technology, great machines and thats the fun of it. I think that really is what were good at spotting ideas and turning them into something wonderful. Q. There is a great deal about effective leadership in the private sector now. What are the attributes of good leadership? Martin: Well, Im fortunate because I work in an environment where the philosophy is defined by other people and other things around me. Starting with James Dyson, who is the inspiration for everything we do. But now of course its much, much greater than James. Now there are 2,750 of us worldwide. But we all sign up to the same deal, and the deal is were going to come out with products which work differently and better than other people. And all our focus is going to be on that. So for me, when i look at my leadership team, Im looking for them to be completely into the detail of that; completely signed up to it, that that is what they say. Every time there talking, every encounter with their people and they show an enormous enthusiasm for it. Totally focused on it. If I get that from my leaders, I can put up a lot of

the other stuff that maybe isnt so good. As long as weve got that cost thats the drive that holds us all together. Q. Based on your own successes and challenges, what advice would you give to budding entrepreneurs? Martin: Follow your instincts, yeah thats probably quite obvious but so many of them are rather doubted by the, what is the overwhelming challenge, the prospect of how they must need to invest and what they have to do. Follow your instincts, be ready for things to go totally wrong, which they will, dont expect any help from the market your going into particularly not your competitors because they will do absolutely everything they can to thwart you. Unless of course your ideas are no good in the first place, in which case your likely to have an easy time, but not a very good time as a business. Q. You have received the Orange Leader of the Year 2010. What does this mean for you? Martin: Well i mean that was hugely flattering of course, I mean i was quite happy to be nominated, let alone win it. Its a great recognition not just for me, but for all Dyson people. Because I think actually the reason why that award came my way is because what Dyson have been doing over the last 17 years is, quite a dream story. We started with something which started really with very very humble beginnings and weve climbed onto a global stage. Weve competed with some of the biggest international organisations that there are in the world. We fought them tooth and nail in our backyard and we had a lot of fun doing it and a great deal of success. Q. Did you always want to be a CEO of a leading company? Martin: No, I wanted to be an actor. I wanted to be in films. Nicholas: Is there a big difference? Martin: (Laughs) Do you know what? I dont know, does that mean I could make it in Hollywood? I dont know. But fortunately, fortunately I got the idea when I was very young, when I was in my late teens that I probably wasnt going to give George Clooney a run for his money so I found myself weaving into the business world instead. And Im very pleased I made that decision. Q. Sir James Dyson is the company founder and Chairman how do you see the relationship between the Chairman and CEO? Martin: Well the relationship between James and I of course it goes back, were actually rolling into our 15th year together. Its actually quite a simple split on the surface because James is the engineer and Im the guy that runs the business and thats much how we do it. Now there are much of moments in the course of a day, week or month where we come together and take joint decisions but much of the time were working in

complimentary but quite different areas. James is much more at home in the laboratory or with the engineers than in the boardroom. Nicholas: Well Thank you Martin, Thank you Very Much. Martin: Your Welcome. http://www1.uwe.ac.uk/bbs/aboutus/filmlibrary/transcriptmartinmccourtceo.aspx june 8, 2011-07-04
Sony's core competencies/ capabilities and competitive advantages to my mind are as follows: miniturization with the use of electronics innovative designs manufacturing prowess good marketing deep technological know-how

- short, if not quick design-to-market cycle Ian indicator of a very integrated in-house system) - high quality products - ability to turn out a variety of products based on core-base design that can target mulitple segments, even subsegments of the market. - Very strong R&D Other advantages - brand name recognition the use of proprietary solutions (which can be a disadvantage too) to lock customers into their products alliances with carl-zeiss for lenses can focus and be relentless willing to experiment, make mistakes and learn from their mistakes

- Caterpillar

Competing on Capabilities: The New Rules of Corporate Strategy

by George Stalk, Philip Evans, and Lawrence E. Shulman

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In the 1980s, companies discovered time as a new source of competitive advantage. In the 1990s, they will learn that time is just one piece of a more farreaching transformation in the logic of competition. Companies that compete effectively on timespeeding new products to market, manufacturing just in time, or responding promptly to customer complaintstend to be good at other things as well: for instance, the consistency of their product quality, the acuity of their insight into evolving customer needs, the ability to exploit emerging markets, enter new businesses, or generate new ideas and

incorporate them in innovations. But all these qualities are mere reflections of a more fundamental characteristic: a new conception of corporate strategy that we call capabilities-based competition. For a glimpse of the new world of capabilities-based competition, consider the astonishing reversal of fortunes represented by Kmart and Wal-Mart. In 1979, Kmart was king of the discount retailing industry, an industry it had virtually created. With 1,891 stores and average revenues per store of $7.25 million, Kmart enjoyed enormous size advantages. This allowed economies of scale in purchasing, distribution, and marketing that, according to just about any management textbook, are crucial to competitive success in a mature and lowgrowth industry. By contrast, Wal-Mart was a small niche retailer in the South with only 229 stores and average revenues about half of those of Kmart stores hardly a serious competitor. And yet, only ten years later, Wal-Mart had transformed itself and the discount retailing industry. Growing nearly 25% a year, the company achieved the highest sales per square foot, inventory turns, and operating profit of any discount retailer. Its 1989 pretax return on sales was 8%, nearly double that of Kmart. Today Wal-Mart is the largest and highest profit retailer in the worlda performance that has translated into a 32% return on equity and a market valuation more than ten times book value. Whats more, Wal-Marts growth has been concentrated in half the United States, leaving ample room for further expansion. If Wal-Mart continues to gain market share at just one-half its historical rate, by 1995 the company will have eliminated all competitors from discount retailing with the exception of Kmart and Target.

The Secret of Wal-Marts Success

What accounts for Wal-Marts remarkable success? Most explanations focus on a few familiar and highly visible factors: the genius of founder Sam Walton, who inspires his employees and has molded a culture of service excellence; the greeters who welcome customers at the door; the motivational power of allowing employees to own part of the business; the strategy of everyday low prices that offers the customer a better deal and saves on merchandising and advertising costs. Economists also point to Wal-Marts big stores, which offer economies of scale and a wider choice of merchandise.

But such explanations only redefine the question. Why is Wal-Mart able to justify building bigger stores? Why does Wal-Mart alone have a cost structure low enough to accommodate everyday low prices and greeters? And what has enabled the company to continue to grow far beyond the direct reach of Sam Waltons magnetic personality? The real secret of Wal-Marts success lies deeper, in a set of strategic business decisions that transformed the company into a capabilities-based competitor. http://hbr.org/1992/03/competing-on-capabilities/ar/1