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In August, 1999, Nancy T. Snyder got a flattering -- and frightening -- assignment from David R. Whitwam, the chairman and chief executive of Whirlpool (WHR). Whitwam wanted to make the market leader in big-ticket appliances No. 1 in innovation as well, by soliciting ideas from everywhere and everyone in the 61,000-employee enterprise. And he wanted Snyder, director of strategy deployment, to make it happen. Snyder recalls having two reactions after her one-on-one with the boss: "excited and overwhelmed."
She seems to have been the right pick. Whirlpool just reported record results in 2005, netting $422 million on sales of $14.3 billion and propelling its share price to an all-time high. While the U.S. housing boom obviously was a big plus, Chairman and CEO Jeff M. Fettig, who succeeded Whitwam in 2004, credits much of Whirlpool's performance to the new products and features that its growing and seasoned team of trained innovators is now dreaming up.
INNOVATION ROLLOUT. One 2005 example: a fast-fill water dispenser built into the door of a refrigerator that, with the touch of a button, fills containers to the exact ounce and twice as quickly as competitors' models. Another: a new portable device called the Fabric Freshener, which takes wrinkles and odors out of suits and other dry-clean-only clothing by steaming and air-drying them.
And the rollout will accelerate in 2006. The Benton Harbor (Mich.)-based company values its innovation pipeline at $3.3 billion today, up from $2 billion a year earlier and $1.3 billion two years ago. Many of these goods, such as its super-capacity Cabrio washers and dryers, will hit the market soon. Executives say that 60% of the products Whirlpool will sell this year will be new to some extent and will account for $1 billion in sales. Since new items typically command premium prices, Fettig says, that should push up profits by at least 13% to $475 million in 2006.
Snyder, 48, who was promoted to vice-president of leadership and strategic competency development in 2001, couldn't be prouder of the results, of course. But she concedes that success has required a lot of trial and error.
She started out, for example, by simply enlisting 75 employees from across the company to brainstorm. They did come up with a big hit: the Gladiator line of cabinets and appliances for the garage. But most of their ideas were too far-out or inconsequential. Moreover, the innovators often didn't know how to see their notions through. As a result, Snyder fundamentally changed course. While management still encourages every employee to submit ideas to an Intranet site, Whirlpool now relies on 240 full-time employees dubbed I-consultants to assess what the best bets are and then to get them to the market.
Snyder, who has a doctorate in organization behavior from George Washington University, co-authored a book about her experiences, Strategic Innovation, in 2003. In an interview with BusinessWeek Senior Correspondent Michael Arndt at Whirlpool headquarters, she talked further about innovation, from how Whirlpool defines the term to role models, including Mexican cement giant Cemex (CX). An edited transcript follows:
How is Whirlpool different today from before you started on your innovation course? It's really, really different. If you look at our history, innovation had been the responsibility of a couple of groups, engineering and marketing. Now, you have thousands of people involved. It's speeded things along. It's changed the focus of innovation to trying to deeply understand the customer and a belief that we could actually build customer loyalty in the appliance industry. The way we'll know it's successful is if it changes every job at Whirlpool.
And how do you know you've done that? One of the things we struggled with a lot is how do you measure success. We counted the number of people we trained. We did that for a year, but that doesn't tell you anything. Then, we had a defining moment. We were in an executive committee, and it sounds like it should have been obvious, but it wasn't. One of our committee members said, "What if we asked every individual at Whirlpool: "Have you been trained in innovation? Can you use it in your job? Has it changed your job?"
So, in addition to results measures, we started coming up with these embedment measures, including this annual census of employees. I'm not sure this is a silver-bullet answer. We're still trying to get our metrics right and understand if it's sustainable and if everyone can do it.
You mentioned results measures. What are those? The number of new products? We set a goal every year, and the goal this year is $1 billion in revenue from innovation. The first couple of years, we didn't know how to set the goal. Should it be $1 million? Should it be $50 million? It took us a couple of years to get a baseline, to begin to understand what a real goal would be and what a stretch goal would be. We've done really well at hitting our goals. We did so well this year, in fact, that the CEO, being a normal CEO, said maybe he set the goals too low.
And how do you define innovation? We had to be really, really specific about the criteria for what counted to keep people from fudging the numbers. So just like the learning journey on metrics, we had a learning journey on how you describe innovation. An idea had to meet three criteria to be innovative: It had to create a competitive advantage. It had to be unique and differentiating. And it had to create shareholder value.
We worked with those definitions for three years, and then we realized they weren't quite right. It's hard for any one thing to create a competitive advantage by itself and be sustainable. You have to stay ahead of the competition. If you have a cadence of innovations that keeps a product fresh and always improving -- a migration path -- that makes it sustainable. So now we say if we're going to put any money in an innovation project, it has to sit on a migration path, it has to be something that the customer really wants, and it's got to return an above-average profit.
In the old days, as you said, engineers would be looking at a dishwasher, for example, to make it quieter or shorten the cycle time. And the marketing folks would be out there doing consumer research and getting feedback. But if I'm not in engineering or marketing, how do I innovate? Our CEO would go out and talk to thousands of people and say we are going to have innovation from everywhere and everyone. If you have a concept, put it forward. But we didn't have the systems in place to react to this. We needed a couple of avenues for individual innovators. One is, if you have an idea, you can go to our knowledge management system on your computer. It includes a bulletin board, where you can post your idea or your interests.
The second thing we did is we trained these people called I-mentors who are kind of like Six Sigma black belts. They have real jobs, but they've also had special training in how to facilitate innovation projects and help people with their idea. We have nearly 600 of them around the world, so it's very likely that in your location or the department next to you there's an I-mentor who you can talk to.
Is my pay tied to how innovative I am? A third of your pay, if you're a senior leader, is tied directly to what comes out of the innovation pipeline. And that's been in place for three years. That was a tipping point for us on innovation.
What if I'm not a senior leader? Will I find a little something extra in my paycheck if I come up with a good idea? You won't. When we started this, we were still in the Internet bubble. The conventional wisdom was people who come up with ideas should be millionaires. We were really hesitant to go down that path, being the conservative company we are. There's a downside: If it's going to be a team of people, how are you going to determine who should be rewarded? We asked other companies, "How do you do this?" And the answer was over and over: "The reward is recognition by your peers."
When you were early on in this program, you looked around to see who else was doing things that you could emulate. What companies did you look at? We looked at all the great innovators around the world, such as Procter & Gamble (PG) and 3M (MMM). Gary Hamel, who was a consultant to us, also introduced us to some people you might not think of, such as Cemex. It's a cement company. It had unbelievably novel approaches to innovation. For instance, I was trying to find out who had the best matchmaking system for innovators. Cemex sets up competitions, or has employees go online and post ideas, and gives out a certain bonus if the idea moves forward.
What kind of reaction did you get from employees initially? When we first started, employees were excited. It was amazing. We had no idea how motivating this would be. But some of the senior leaders had a harder time getting excited about it. It was a big change, and as with any change, the people at the top felt they had a lot more to lose.
I would have guessed it would be the other way around, that senior management would see right away why you'd want to do this, and lower-ranking employees would say, "What's in this for me?" It was just the opposite. People at the bottom were saying, "Finally, someone gets it." The people at the top were like, "Oh, my God, you've got to be kidding me."
Tell me a little bit about funding innovation. In the beginning, there was a huge issue about where the funds were going to come from. If you're a normal organization, you do your budgeting once a year and you're locked in. So if you came up with a great idea, there'd be no money for you.
What the CEO did is ask each region to set up a seed fund for innovation. For North America, it was $5 million -- not a lot of money. Then he said, "I want you to fund all of the ideas that come forward. I don't want you turning down any ideas. And if you turn them down, I'm going to tell them to come to me." The senior leaders were calling me: "Nancy, tell him not to do this." We were beginning to break away from our culture.
Now every project that comes forward has to meet the innovation criteria or we won't fund it. We've also moved from spending some percentage on new products to, if you do anything new, why isn't it also innovative as we've defined it? Say there's something you have to do to meet new energy requirements. We ask: "Could you also do that and add some innovation to it?" I think that all of the capital we're spending in North America now is spent on projects that meet our innovation criteria.
Are you seeing more innovative ideas every year? We are seeing an increase. We count how many ideas come in, and how long it takes to go through the pipeline, and what happens to them. We currently have hundreds of ideas in the pipeline. For instance, we have 60 in prototype stage and 190 being scaled up for the market.
The thing we struggle with now is killing the ideas. Sometimes things will stay in there too long before someone steps up to say, "You know, this isn't going to work." Before innovation, we would take big risks or we wouldn't take the risk at all. I'm talking hundreds of thousands of dollars. This process has taught us you can take smaller calculated risks; $25,000 can tell you a lot in the marketplace. To date, we've shelved about 670 concepts. We hate to say we're killing a project; we say it's been shelved. It's still a struggle for us.
What are you seeing today in the overall business world about innovation? And how is that different from 1999, when you started out on this path? I think people are moving towards this concept that innovation is more of a capability and not a one-shot deal. It's kind of like what quality was in the 1970s, where people are beginning to understand that anyone can do it and that it has got to be embedded throughout the corporation. It's not about putting creative hats on in a training session. It's if we're going to survive, we really need to be innovative as a company.
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