Des Moines Register
07-16-06
Elbert: Business prof at ISU predicted Maytag troubles
DAVID ELBERT
REGISTER BUSINESS COLUMNIST
When it comes to Maytag’s failure as an independent company, there is plenty of
blame to go around.
The list of challenges faced by Iowa’s best-known consumer brand, before it was
acquired by Whirlpool earlier this year, was daunting, to say the least.
They included an expensive, aging work force, growing global competition and
an industry that was in the middle of a revolution.
Consumer expectations were rapidly changing, and that was driving changes in
the way appliances were sold and advertised.
Neighborhood appliance stores were out; mega retail chains, such as Home
Depot and Best Buy, were in.
All of this was going on simultaneously and Newton-based Maytag could not
keep up.
Many of Maytag’s problems were presaged in 2002 by David Hunger, an Iowa
State University business professor, in chapters he wrote for a textbook called
“Strategic Management and Business Policy.’’ At the time, Maytag was nearly
three years away from being put on the auction block.
Hunger, who is now retired, had no way of knowing how the story would turn out.
The chapters he wrote reflect the serious problems Maytag faced four years ago.
At the time, Ralph Hake had just taken over as chief executive. The few
comments Hunger made about Hake indicate the new chief executive was
headed in the right direction.
The professor may have been right. It’s possible that the company just ran out of
time. Or maybe the problems were too massive for anyone to resolve.
It’s a moot point now, but Hunger’s observations create an interesting backdrop
for the Maytag sale.
A case abstract that Hunger designed to guide classroom discussions indicate
Maytag managers made four classic mistakes:
•The company paid too much for acquisitions.
“A list of Maytag’s acquisitions since 1995 shows only losers for which Maytag
paid high and sold low,” Hunger wrote.
Exhibit A was G.S. Blogett Corp., a manufacturer of commercial ovens, which
Maytag paid $148million for in 1997 and sold for $95million in 2001.
Other acquisitions resulted in higher than expected costs after the fact. Maytag
managers “failed to identify how much time and money it would take to make
Hoover’s overseas operations competitive” and eventually sold those operations
at a loss, too, Hunger wrote.
The string of acquisitions that began in the 1980s and ended with the purchase
of Amana in 2001 created a crushing debt load for Maytag and ultimately made it
vulnerable to takeover.
•Maytag acquired businesses it didn’t understand.
Blogett and Hoover were both appliance makers, but the commercial ovens that
Blogett made and the floor-care products that Hoover made had significantly
different marketing and distribution systems from the washer-dryer-refigerator
appliances made by Maytag.
Vending machine maker Dixie-Narco was another acquisition that was far afield
from Maytag’s core of major household appliances.
•Top Maytag executives did a poor job managing corporate culture.
Maytag’s culture went all the way back to the founder, F.L. Maytag. It
emphasized “high quality, dependable performance, and promotion from within,”
Hunger wrote.
“The promote-from-within value probably contributed to the company’s difficulty
with executive succession,” Hunger wrote. Lloyd Ward’s one-year term as chief
executive “was a disaster,” he notes, in part because Ward tried to make
“changes that went directly against the corporate culture,” including moving the
headquarters out of Newton.
Like many companies, Hunger said, Maytag “tended to force its culture on its
acquired units.” The strategy worked with most U.S.
acquisitions, but given the company’s strong culture, “it is easy to see why
Maytag had such difficulty with Hoover Europe (which had a laid-back culture)
and its Chinese joint venture,” which Maytag executives abandoned in 2001.
•Maytag did a poor job of integrating acquisitions.
Going all the way back to the late 1970s when Dan Krumm was chief executive,
Maytag leaders recognized that the company needed to grow to survive, and the
company went on a buying spree in the 1980s.
Business schools teach that it is all right to pay a premium for acquisitions, if
there is a workable strategy for bringing down the cost of doing business.
It turned out that Maytag either did not have such a strategy, or it did not have
one that worked.
As recently as 2004, Maytag was trying to find synergies between its core
operations and Hoover’s floor-care business, which was acquired at a premium
in 1988.
“Industry analysts concluded that the Hoover acquisition had been a strategic
error,” Hunger wrote.
As shareholders and others learned during the year leading up to the Maytag
sale, the Hoover acquisition was far from the only mistake.