The Wall Street Journal spotlighted Tennant Co. in Monday's Marketplace Section. It's a heartening tale of Schumpeterian dynamics gone right, as well as good management and innovation.
As a cleaning equipment producer, the firm had long gone down the road of efficiency and cost-cutting. The article begins,
"Beset by cheap imports from overseas and facing a slowing U.S. economy in 2002, Tennant Co., a big name in the small market for industrial floor-cleaners, could have tightened its belt and sent more of its factory jobs overseas.
Instead, the Minneapolis company decided to place a big bet that it could outsmart its competitors with innovative products."
How Tennant did it is a pretty riveting story. Central to the tale is this incident,
"A key moment came in October 2002 when Chris Killingstad, then the recently installed head of North American operations, visited his first international trade show in the cleaning business, in Las Vegas. His main impression at the show was that "every machine looks like it's designed the same," recalls Mr. Killingstad, who became president and chief executive in 2005.
Mr. Killingstad returned to headquarters and helped push Tennant -- which makes vacuum cleaners, sweepers and scrubbers deployed in factories, schools, casinos and malls around the world and has 12% of the $5 billion world-wide market -- to boost research-and-development funding to fight back with better products."
Their bet on new features and, where necessary, technologies, worked well. Describing their two leading new products, the Journal article noted,
"The scrubber would tinker with the traditional cleaning method, which involves spraying water and cleansing chemicals onto the carpet, and then vacuuming it. Tennant's concept would inject water and cleaning fluid directly onto circular brushes under the machine. As a result, the cleaned area would dry in about 30 minutes -- a pressing concern for institutions such as casinos that otherwise have to rope off cleaned areas for as long as 24 hours, Mr. Swenson says.
ReadySpace, as the machine would be dubbed, was launched in 2004 and became the company's best-selling carpet-cleaning device.
Last fall, Tennant announced a product that used an electrical current to turn tap water into an industrial cleaner.
A top Tennant researcher who was in Japan about two years ago doing field-testing for a different product noticed a hospital there was using a technology that harnessed electricity to sanitize surfaces. The machines briefly split water into two flows: one an acid that kills some bacteria on a surface and the other an alkaline stream that removes grime and dirt.
Back in Minneapolis, the researcher developed a prototype using the technology. To help the opposing streams stay separate longer, prolonging their effects, he injected air bubbles."
As the nearby, Yahoo-sourced five-year price chart for Tennant and the S&P500 demonstrates, the company's efforts have paid off.
The past three years have been very impressive for Tennant's total return performance. And for four of the past five, the firm has outpaced the index's return.
Schumpeter's belief that innovation and constant forward movement in the quest to satisfy consumer preferences would pay off holds true in this case.
It's wonderful to read of the all-too rare case in which a firm engages in good, creative management and product development to maintain or increase their edge in a competitive product/market by adding more value, not merely reducing prices.
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