Executive Briefings

Hardy Industrial Products Companies Flexible, Innovative, Long on Productivity, Human Capital

Discard the perception of all industrial products companies as victims of a "rust-belt" mentality, doomed to wither away in the age of high-technology. The next two years will present significant growth opportunities for the sector-or at least those companies that embrace innovative thinking. So says Paul Loftus, North American managing partner of industrial equipment with the Accenture consultancy in Reston, Va. A recent study by Accenture of six top-performing companies found that the leaders were especially strong in four areas: global flexibility, innovation, productivity and a sharp focus on "human capital." As a result, says Loftus, those businesses have posted double the industry's average return for shareholders over the past seven years. Their average free cash flow is 13 percent, versus 9 percent among peer companies. American Standards, for example, reduced direct spend by $300m while widening its marketing focus around the world. ITT Industries solidified its presence in China through the acquisition of a local maker of water-purification equipment. Finland's KONE Corp., a manufacturer of escalators and elevators, transformed itself from a pure product maker to a provider of end-to-end services, with long-term direct service agreements bolstered by sophisticated diagnostic equipment built into the units. Cooper Industries, a maker of lighting, wiring and sprinkler systems, teamed up with distributors to create a comprehensive service for large construction companies. Danaher, a diversified producer of industrial equipment and controls, created a consistent production system on a global scale. It provides a framework for measuring productivity and making decisions at a high level of management. And Japan's Daiken, which makes motors, pumps and electrical equipment, has "the highest productivity of any manufacturer on the planet," says Loftus. It has a strong program of supporting employees who have remained with the company for many years. One interesting element that all six companies have in common: all are team efforts, not solely the work of a high-profile (and publicity-hungry) chief executive officer. In addition, all six have been able to grow steadily in a highly cyclical industry, in good times and bad. Says Loftus: "It's a very balanced approach."

Discard the perception of all industrial products companies as victims of a "rust-belt" mentality, doomed to wither away in the age of high-technology. The next two years will present significant growth opportunities for the sector-or at least those companies that embrace innovative thinking. So says Paul Loftus, North American managing partner of industrial equipment with the Accenture consultancy in Reston, Va. A recent study by Accenture of six top-performing companies found that the leaders were especially strong in four areas: global flexibility, innovation, productivity and a sharp focus on "human capital." As a result, says Loftus, those businesses have posted double the industry's average return for shareholders over the past seven years. Their average free cash flow is 13 percent, versus 9 percent among peer companies. American Standards, for example, reduced direct spend by $300m while widening its marketing focus around the world. ITT Industries solidified its presence in China through the acquisition of a local maker of water-purification equipment. Finland's KONE Corp., a manufacturer of escalators and elevators, transformed itself from a pure product maker to a provider of end-to-end services, with long-term direct service agreements bolstered by sophisticated diagnostic equipment built into the units. Cooper Industries, a maker of lighting, wiring and sprinkler systems, teamed up with distributors to create a comprehensive service for large construction companies. Danaher, a diversified producer of industrial equipment and controls, created a consistent production system on a global scale. It provides a framework for measuring productivity and making decisions at a high level of management. And Japan's Daiken, which makes motors, pumps and electrical equipment, has "the highest productivity of any manufacturer on the planet," says Loftus. It has a strong program of supporting employees who have remained with the company for many years. One interesting element that all six companies have in common: all are team efforts, not solely the work of a high-profile (and publicity-hungry) chief executive officer. In addition, all six have been able to grow steadily in a highly cyclical industry, in good times and bad. Says Loftus: "It's a very balanced approach."