International Appliance Technical Conference
2004 IATC - A New Perspective

by Lisa Bonnema, Editor

As always, this year’s International Appliance Technical Conference (IATC) revealed the appliance industry’s latest technological advancements for design and manufacturing. But as most attendees would attest, the real “breakthrough” at this year’s IATC had nothing to do with technology at all.

Keeping with the theme “Visions of the Future,” the conference didn’t focus on the current economic situation, how to save costs, or how to get “leaner.” This year’s IATC took a step back and looked at the bigger picture—the future—and what appliance makers need to do to get there successfully.

The technical presentations laid the foundation. Topics ranged from new high-strength adhesives and sound-absorbing materials to emerging wireless standards and heat pump clothes dryers. Supplier exhibits gave attendees the chance to develop new partnerships. Workshops added another layer, with in-depth presentations on geographically dispersed engineering teams, variable-speed motor drives, and the latest developments in EMC and low-voltage directives.

But the keynote speeches created the icing on the cake. Engineers were challenged to think outside of their comfortable white goods “box” when designing their next appliance. With hard-hitting topics such as China’s emergence as a global competitor, new approaches to satisfying the customer, and market opportunities just waiting to be grabbed, it was hard to come away anything but motivated.

Indeed, this year’s IATC message was one that might not be expected from a technical conference, but it was clear: innovation isn’t always about technology. Sometimes it’s about looking at the market from a new perspective.

David Chase, president and publisher of APPLIANCE magazine, presents Randy Butturini with the Dana Chase, Sr. Memorial Award for the best paper presented at the conference. Mr. Butturini of the U.S. Consumer Product Safety Commission (CPSC) presented the winning paper, Detection of Abnormal Operating Conditions in Electric Clothes Dryers, which was co-authored by Arthur Lee, also of CPSC.

An Industry Visionary

Starting things off was David Parks, Haier America’s new senior vice president of Manufacturing. In his opening keynote, “China Discovers America…Again,” Mr. Parks took attendees through China’s history of determination and how that has helped turn the country into the growing force it is today.

“I think to some extent to look to the future, you also have to look at the past,” Mr. Parks told conference attendees. “Even though you’re looking through the windshield and you’re driving forward, you occasionally should look in your rear-view mirror and see what’s coming up on you…. Many, many people have not looked in the rearview mirror long enough to see what is coming on the American technological manufacturing face.”

According to Mr. Parks, China has historically had competitive spirit, dating back to the days immediately following the reign of Genghis Khan. “Some people have said they actually discovered America in 1421, way before Columbus,” he said. And while the country went through a long period of poverty and isolation, Mr. Parks says that has only strengthened China as a nation. “Sometimes what’s born in adversity really rises in strength,” he said.

China is no doubt growing, he noted, and infrastructure from skyscrapers to education is being developed. “The country is rapidly emerging from the internal consumption for their own needs as well as [from] becoming an international player,” Mr. Parks noted. “So when we talk about people competing on U.S. $0.39 labor, that’s very, very far from the truth. There’s an infrastructure being rapidly developed and rapidly deployed—inside Haier as a company and inside China as a nation.”

Haier, for example, has sustained a 73-percent compounded annual growth rate (CAGR) and will achieve that again in 2004, Mr. Parks reported. “Haier is growing to the point that it’s 20,000 times larger than it was when it started only 20 years ago,” he said.

A competitive spirit is at the heart of the Chinese culture and, in turn, is an important part of Haier’s culture, Mr. Parks said. He recalled one anecdote in which a Haier employee had a new design idea for a chest freezer and engineers literally spent the next 17 hours building a prototype. “They worked all night to get that done just to show that they could do it,” Mr. Parks said. Haier is also completely performance-based, posting individual performance results so that every plant worker can see where he or she rates. The company even has green shoes painted on its factory floors on which under-performing employees stand. “Whoever has to stand in the green shoes doesn’t want to stay in the green shoes very long because they’re the worst performer,” Mr. Parks explained.

One of the keys to the Haier’s success, Mr. Parks said, is its three-dimensional view of leadership. The company strives to lead in products, in operations, and in service. That, he said, means listening to the consumer and their needs. In one instance, the Chinese company was having problems with its washing machine products. The appliances kept failing, but only at certain times during the year. After sending out some technicians to investigate the problem, Haier found that consumers were actually washing potatoes in their washing machines. The answer according to Haier: build a potato washing machine. Mr. Parks explained: “Most companies would say, ‘Oh, you’ve violated the warranty’ and, ‘Stop that.’ They built a potato washing machine, and it’s very popular.”

Haier also invests heavily in R&D. The company is currently spending 6 percent of its annual revenue on R&D, whereas most Chinese companies of similar size spend 0.3 percent, according to Mr. Parks. The company currently has 89 product categories and 13,000 SKUs. “We never say ‘no’ to the market,’” Mr. Parks said.

As far as the company’s growth in the American market, Mr. Parks says that will continue. “We want to build products in the markets in which we want to sell them,” he said. And while it currently only has one operating U.S. plant, Mr. Parks says Haier America has enough land to build seven more factories. “We bought a multi-billion dollar building in New York City to show our commitment to the market, right on Broadway,” he said. “100,000 cars drive up and down there every day looking at this company.

For Haier, success is in the details, Mr. Parks said. Every employee is viewed as a strategic business unit and has his or her individual tasks, which are each viewed as important and valuable. “There’s no detail too small to look at,” Mr. Parks said. “How do you build up the bottom line? You fill it up piece by piece.”

David Parks of Haier America addresses IATC attendees in his opening keynote speech. “I believe there’s a re-balancing going on as we speak, and technology and globalization are leading way,” he said. “The transformation—some people say revolution—is occurring and it’s not with missiles or bullets; it’s with economics, it’s with commerce, it’s with trade, it’s with education.”

Focusing In On Innovation

In his luncheon keynote, Ewald Weber, project engineering coordinator for Turkish appliance maker Arçelik A.S., discussed how appliance companies can define their product innovation strategies by focusing on both consumer needs and core competencies.

Mr. Weber began his keynote by discussing what he calls the “QIC Matrix”—quality and innovation lead to consumer satisfaction. “As appliance designers, we have to start to understand consumer needs,” Mr. Weber said. Consumer needs, he said, can be divided into three main areas—consumers’ problems, which represent short-term needs; consumers’ expectations, which represent mid-term needs; and consumers’ future needs, which represent long-term needs.

As an example of how companies can identify consumer needs, Mr. Weber described a study Arçelik conducted in three Westerns European countries. The company’s research revealed, among many findings, that participants viewed the “ideal” washer/dryer appliance as including some of the following features: the ability to wash and dry in one cycle, ease of programming and use, a square or round door with a large drum, economic “quick wash,” a refresh option during the cycle, the ability to wash and dry special fabrics like woolens, and an internal drum light. “As you can conclude easily,” Mr. Weber said, “this represents a complete research and new product development program [that could take] around 18 months!”

Before any new product development begins, however, Mr. Weber said that “innovation leaders” or managers need to first define the company’s core competencies and analyze how those could contribute to a project’s success. After completing that task through benchmarking and past experiences, companies then need to find ways to “acquire the missing core competencies,” according to Mr. Weber.

By using these core competencies and knowledge about consumer needs, companies can then start implementing what Mr. Weber called an “innovation management change process.” This requires managers to start thinking in processes, he said, as opposed to thinking in functions.

Mr. Weber also described two vicious circles in innovation management. The first involves market development, product development time, and specification chart development. According to Mr. Weber, changes in market development will inevitably induce changes on development time and specifications. The solution, he said, is to reduce the quantity of projects, adding that the general rule is a maximum of six innovation projects per year.

The second viscous circle involves innovation-leading companies that put their image at risk by bringing products to market. The answer to that, he said, is acquiring “reliability data” about the technology and the market.

In the end, Mr. Weber said companies need to decide if they want to be an innovation pioneer or a follower. “When you complain about hard competition, you are complaining about your own lack of ideas,” he said, noting that the best way to predict the future is “to create it.”

Catching the Vision

John M. Collins, executive vice president of TIAX, LLC, closed the conference with his presentation, “Transformations in Appliance Engineering,” which challenged attendees to take initiative when new market opportunities reveal themselves, even if it means stepping outside the traditional white goods category.

Mr. Collins said that rapidly changing consumer needs, increased competition, and exponential advances in science are all creating an innovation-rich environment for today’s manufacturers. As a result, traditional “in-the-box thinking” among appliance companies will mean declining sales and margins, as competition—both new and old—will likely innovate and take a share of the market. The answer? “Mutually beneficial, cross-industry collaborative efforts to innovate [and] create value and sustainable bottom-line growth,” Mr. Collins said.

He added that traditionally, appliance companies have been focused on “doing things better,” which was an idea heavily dependent on cost savings. However, today’s market, he noted, requires innovative companies to focus on “doing better things,” specifically with the consumer in mind. Instead of always thinking about what’s inside the “box” or the appliance, designers should look at what is outside of the “box”—literally, the consumer. “It’s not about the engineering,” Mr. Collins offered. “It’s about the application of that engineering making Jack and Jill’s lives better.”

Mr. Collins then described some of the socio-economic trends that could help manufacturers “do better things,” specifically noting the aging population, the healthcare crisis, the obesity epidemic, and energy and power. Disturbing statistics confirmed that such issues are not only a growing concern, but that they are calling for new devices that have yet to be developed.

When talking about the aging population, Mr. Collins said consumers are going to need to find ways to live or to ensure that loved ones live independently in safety. “For those of us who have parents and other relatives who are getting on in age, the question is, are they safe? What do I need to do to ensure that they’re safe and that they’re in good health?” he asked.

Another market opportunity is the healthcare crisis. According to Mr. Collin’s presentation, there is currently an unsustainable increase in demand on the current medical infrastructure that is creating a crisis that will play-out in homes across the world. “The health care system fundamentally cannot carry the burden of it’s own success,” Mr. Collins said. “By keeping people alive longer, they’re creating more demand for support.”

After stunning the crowd with the dramatic growth of obesity among U.S. women, Mr. Collins noted that the real issue of the obesity “virus” is not about food, as most people know to eat more fruits and vegetables. “People need support to manage a caloric balance,” Mr. Collins offered. “Certainly from an appliance perspective, people here [at the conference] know more than anyone else how time-starved families are when dealing with food.”

His last example, power and energy, touched on the new power sources industry is currently looking at—stirling engines, photovoltaics, and fuel cells—as well as their enabling technologies, which include wireless, energy storage, and pattern recognition technologies Mr. Collins believes that such power technologies and communication platforms are emerging to define a virtual “power appliance” that may redefine the nature of how appliances are powered.

Mr. Collins added that even when good ideas are formed, there is still an “implementation gap” between linking technology opportunities and market needs. The answer, he said, involves context shifting, which means learning about other industries and how they apply to the appliance market, as well as coalescing what the appliance industry can do for other markets. It also means collaborative development agreements and corporate venturing. As an example, Mr. Collins said a washing machine maker might team up with sources knowledgeable in such areas as dermatology, textile engineering, and controlled-release polymer science.

Mr. Collins also noted that working with a new set of partners also means dealing with a new set of competitors. “So many [manufacturers] are so budget-focused that they are truly not recognizing the dynamics of the situation and the real threats that come from outside the industry,” Mr. Collins said. “How many people really want to compete with Johnson & Johnson? But you are. You know that right now.”