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Call it the ultimate e-biz challenge: overhauling a clunky brick-and-mortar industry selling ordinary household goods from refrigerators to washing machines into a purveyor of high-value-added Information Age tools. The stakes are enormous for the giant $14 billion company -- and for the entire appliance industry. Unless it succeeds in becoming Net-savvy, Electrolux is bound to remain stuck in a painful low-growth market. Although the Swedish company expects sales to increase by 5% this year -- better than its main competitors are likely to do -- most consumers today don't replace their fridges or washing machines until they break down. And that means not more than once a decade. Even then, their buying decisions most often are based on a quest for the lowest price. EUROPEAN STRENGTHS. Not surprisingly, all the world's major appliance manufacturers are rushing to inject bytes into their Old Economy products. Whirlpool is developing Internet-ready appliances with Sun Microsystems and Cisco Systems. GE Appliances and Maytag are working with Microsoft. But Treschow believes his Swedish company, which sells in America under the Frigidaire brand name, can beat the American competition by relying on European strengths in energy saving and mobile telephony. In January, he set up a joint-venture company, e2Home, with a natural Swedish partner, mobile-phone giant Ericsson. "The key to making smart appliances is having them talk to each other and be accessible from anywhere," Treschow explains. "Ericsson can help us accomplish this goal." Treschow believes Europeans may rush ahead of Americans and buy smart appliances. European energy and water prices are high, so IT-efficient machines, even if expensive to purchase, could save money over the long haul. Smart washing machines already being sold on the Continent measure the conductivity of rinse water, enabling the machine to stop rinsing as soon as all the detergent is dissolved. Electrolux is experimenting with 9,000 Swedish households, giving away free washing machines that allow users to pay per washing cycle via their electric bill. WALLENBERG BLOOD. Of course, such revolutionary gizmos won't transform the dull industry overnight. High-tech appliances remain experimental products in a high-volume industry. "It's a tricky balance shifting from a standard white boring box to a sophisticated, intelligent device," says Niklas Eckman of Carnegie Research in Stockholm. Competition remains focused on cutting costs and rationalizing brands. On the day Treschow took office back in 1997, he announced plans to close 23 factories and 50 warehouses, and lay off 12,000 workers. The 57-year-old CEO, with his linebacker physique, strong handshake, and big smile, took a one-time $300 million charge and earned the nickname "Mike the Knife." Treschow's profile exemplifies the Swedish elite. He studied engineering at the Lund Institute of Technology -- the CalTech of Sweden -- and has close ties with his country's titans of capitalism, the Wallenberg family. His wife, Christine-Charlotte Gyllenkrok, has Wallenberg blood -- her grandmother was born one. Treschow lives on the sprawling Wallenberg estate outside Stockholm with his wife and their two teenage children. "INTENSE COMPETITOR." As a young engineer, Treschow joined a Wallenberg company, Atlas Copco, which makes construction equipment and mining tools. He spent 22 years at Atlas Copco, rising to CEO. During the recession in the early 1990s, Atlas Copco lost a quarter of its sales, but Treschow kept it profitable. "He managed to take margins at that company beyond where anyone thought that they could go," says Susan Anthony, an analyst at Credit Lyonnais in London. Treschow is a sports lover and spends his free time hunting or playing tennis or golf. Whatever he does, he likes to win. "I'm an intense competitor," he says. His Atlas Copco success and Wallenberg connection brought Treschow to Electrolux. The Wallenbergs owns 21% of Electrolux and have effective voting control, so when they needed a proven leader to get the company back on track, they turned to somebody they already knew. During the 1980s, Electrolux made a string of acquisitions, growing in size but not using economies of scale to achieve better margins. Overcapacity and overlaps predominated as the former management refused to take hard decisions on restructuring. Treschow's tough medicine has worked. Since he took over, margins have soared from 2.3% in 1997 to 6% last year. On Aug. 11, the company announced a 26% rise in first-half profits, to $442 million on sales of $6.6 billion. Fears about markets in Brazil and the U.S., where competitor Maytag has reported poor results, have hurt the company's stock price, which has fallen from a high of about $30 in January to $17 on Sept. 4. Even so, analysts still look favorably on Treschow's performance. "Michael has put some real dynamism and enthusiasm into what looked like a very boring business," says Anthony. In his boldest move yet, Treschow is rumored to be in negotiations to spend up to $4 billion to acquire Maytag. That would increase Electrolux' presence in the higher-margin U.S. market. He hasn't commented on the speculation. But he's happy to talk about his plans to produce new, snazzy, Web-friendly products. "We must convince consumers to replace machines more often and that we can add value to them," he says. MOBILE-PHONE CONTROL. Electrolux made its first move into the Information Age two years ago when it demonstrated the so-called Screenfridge, a refrigerator with a computer screen on the front door. The Screenfridge runs Microsoft's Windows 98 computer operating system, suggests recipes, and even launches video demonstrations of how to prepare a dish. Once products are scanned via bar code into the computer, the fridge knows when goods are nearing their expiration date and can signal when they need to be replenished. Although such features look nice, Treschow believes smart appliances will only mature after they are linked to a network. E2Home, the Electrolux-Ericsson joint venture, has come up with a pilot product called Live-In Kitchen that centers around a pull-down TV screen installed at eye level below a kitchen cabinet. The display features small icons for every connected appliance, each accompanied by a face that smiles when the tool is on and working and frowns when there's something wrong. All the appliances are controlled by mobile phone. From the car, the oven can be preheated and room temperatures set. Family members can be alerted by phone if a stove burner is left on. Since consumers pay different electricity rates for different time spots during the day in much of Europe, the system saves them money by allowing them to program their dishwashing cycles and cooking times for the cheapest times. "We can make life easier and produce big savings," says Per Grunewald, e2Home's chief executive. The appliances are networked to a central database. As food items are consumed, the fridge can be programmed to automatically reorder them. If too much detergent is poured into a washing machine or the temperature set too high, the machine will send a warning message over the Internet from the manufacturer's Web site. ISLAND TEST. Electrolux is experimenting with giving away networked appliances and charging for their use. Since February, some 9,000 households on the island of Gotland have enjoyed Internet-linked washing machines that charge them about $1 per cycle. Each month, users receive an itemized electricity bill that shows the number of washing cycles. The washer is replaced free of charge after 1,000 cycles, which Electrolux estimates will take about five years for a family with two children. Consumers should be interested because they avoid a large outlay for a machine. Environmentalists should like it because it encourages economizing on energy and lessening waste. And Electrolux gets to sell the used machines as low-cost alternatives and introduce efficient new machines faster. "We become a service provider producing clean clothes, not just washing machines," says Treschow. However promising the theory, the reality remains cloudy. Reaction to the Gotland experiment has been mixed. Although the company expects consumers to fill up the machine more carefully, it still hasn't proved it. At the same time, two years after their release, only a few prototype Screenfridges have been produced. Eventually, the potential advantages of smart appliances may come to outweigh the drawbacks. Since his disastrous experience with the robot vacuum cleaner, Treschow has kept on testing his company's prototypes, including a new robot lawn mower. The machine worked perfectly. "It became like the family pet," he reported. If Treschow can make refrigerators as lovable as the family dog, he'll have gone a long way toward turning the Net-connected home into a reality. Echikson covers technology companies in Europe |
