Maytag in Transition

Hake: Maytag in transition
Date April 16, 2004
Section(s) Columnists
Peter Hussmann
Editor

Shareholders attending next month’s annual meeting of Maytag Corp. can expect to hear some straight-forward talk from its CEO Ralph Hake, that is if he follows the script of his letter to shareowners contained in the company’s annual report.

In his message to shareholders, filed with the SEC this week, Hake describes 2003 as a year of “transition.”

“We squarely faced the competitive challenges of our industry and committed to make the necessary changes to successfully compete and win,” Hake says.

And while he acknowledges the “rich heritage” Maytag holds and what makes the company “special,” it “does not imply success in the future.”

“That brings us to where we are going,” Hake says. “We accept the world around us is changing and that we must change, too, if we are to further extend the power of our brand experience and enhance the profitability of our operations.

“The opportunities ahead, as well as the threats, begin and end with the markets we serve. Our future results will be determined by how well we serve the needs and demands of those markets and how well we respond to the challenges of aggressive foreign competition, declining product prices, channel consolidation and elevated consumer expectations.”

Hake says new ideas are needed for a new era. However, Maytag has in place several factors that will help it meet those expectations, including highly regarded brands, quality, a talented sales organization, a substantial logistics network and dedicated people.

But, Hake says, these strengths must be supplemented by “a new set of core ideas we must execute against to drive future performance. Rapid and compelling innovation is required for success. Our business is driven by products and great products will lead to good results — it’s that simple. We must create products that set us apart.”

Hake said the whole corporation must expand its lean, mean fighting machine mentality. The management system it uses as its efficiency model must not only continue within production operations, he says, but must expand throughout the entire corporate structure. The benefits of its use to date has been “dramatically improved quality and millions in savings…”

While the success of the corporation is contingent upon selling great products, manufacturing everything Maytag sells is not in the cards, he says.

“Our success results from designing and selling great products,” Hake says. “But we don’t have to, and in fact should not, manufacture everything we sell. In the eye of the consumer, it comes down to value. Maytag adds value to products in many ways through its brands, distribution, logistics systems, engineering design and testing. In many cases our manufacturing adds value, too. But when it does not, we need to source product from selected partners who agree to provide Maytag exclusive product. This sourcing strategy will provide more rapid product introduction with less investment and broaden the line of products we sell, distribute and service.”

Hake also talks of sacrifice.

“We must achieve best-in-class cost to compete globally and we know this transition will require sacrifice,” he says. “Aggressive cost management is a key to our success. We must partner with our supply base to support our strategic sourcing goals. We must also ask our employees to participate in cost containment. Hard decisions and tough negotiations come with the territory.”

Hake notes two specific instances involving those hard decision and tough negotiations.

The first is the closing of the Galesburg, Ill., refrigeration plant with production moving to Mexico and Amana.

“I want to express my appreciation and gratitude to Galesburg employees who have shown their continued dedication during this difficult transition,” he says.

Hake also notes the contract changes Hoover employees approved that will allow for continued operations in North Canton, Ohio.

“I am also particularly proud of employees at Hoover’s North Canton, Ohio, facility for showing the courage to change to help protect jobs,” he says. “We are extremely pleased with the open-minded support from Hoover’s union leadership and we are hopeful that the collaborative model created there between management and labor demonstrates how jobs can be saved in the face of global competition.”

Work, however, needs to continue in order for Maytag to meet its cost containment goals, particularly at plants in Iowa.

Hake says “2004 will be pivotal in our effort to achieve best-in-class cost levels. We must mitigate mounting pension and retiree medical expenses and we will negotiate two significant labor contracts at our Newton and Amana Maytag Appliances’ facilities.”

In his letter, Hake asks shareowners to learn about “a new Maytag… a company in the midst of transition and transformation in the way it does business, the way it reaches consumers, the way it creates the next generation of products that make life easier. We’ve set our sights on returning sustainable, profitable growth and after a challenging year… our time is coming.”

Though the transformation is well under way, Hake says, the financial benefits have yet to materialize. He expects that to change this year for a number of reasons.

First, he notes, all Maytag major appliance products have been renovated in less than two years. Last year Maytag also launched new cooking lines across the board, introduced new platforms in dishwashers and launched two laundry products. New refrigerators are on tap this year, including new top mounts “sourced” from Daewoo, wide-by-side refrigerators built in Amana and side-by-sides built in Mexico.

At Hoover, the focus is on cost and product positioning. New high-value products are in store and nearly 15 new products are slated for the market this year.

Maytag’s service business is also growing and a new housewares unit will market small appliances for the home. In addition, Maytag is expanding opportunities in luxury appliances by bringing its top-of-the-line Jade commercial cookware to the homeowner.

Hake says he is optimistic and enthused about the future of Maytag.

“Your company is undertaking enormous change at a fast-moving pace,” Hake says. “My thanks to the talented people of Maytag for their dedication and courage as we move forward with this transition. I believe we accomplished many key goals in 2003 that form the basis for improved results.”

As I said, more straight talk from the Maytag CEO. You can decide for yourself what it all means.

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