Column: Business Revival

BUSINESS REVIVAL
Encashing Surprise Success

An astute chief executive can identify opportunities from the surprise success of some products in an application niche the company had not targeted.

By Pradip Chanda

Pradip Chanda, Turnaround Consultant

Turnaround managers need look no farther than the order books of their companies for some guidance on a future course of action. The order book lists both the product range of the company as well as its customer base. And in a market that was thrown open to global competition a decade ago, success is largely a function of a company's ability to improve the quality of its products and develop business processes focused on developing long-term low-cost capabilities.

That's easier said than done in an environment that has changed radically in the past 10 years. Companies unprepared for the turbulence have had to scramble to tap emerging opportunities in evolving market segments. And CEOs have found their job description grow to include redefining their company's business.

That's a tall task, but an astute CEO can identify opportunities serendipitiously from the surprise success of some products in an application niche the company had not targeted. To illustrate the point, may I suggest that the next time you wipe your face with a tissue you pause and reflect on the fact that what you are using is essentially a gas mask filter developed during the first world war for the use of troops in Europe.

Kimberly-Clark, a large American paper company, developed a cellulose product as fluffy as cotton, just before the war broke out. The application of this technology helped the company develop a range of dressings which were not only many times more absorbent than cotton and more resistant to infections, but also cost half as much. The response from hospitals to this product was so overwhelming that Kimberly-Clark went into large-scale commercial production in early 1914. The demand for these dressings was so great that the company not only converted its production capacity at home to manufacture only cell cotton dressings, but also set up two new mills in the next couple of years.

When the war ended in 1919, the company had three plants, a huge inventory of dressings and a market that had virtually disappeared overnight. A recipe for bankruptcy? Fortunately for Kimberly-Clark, its management spotted an opportunity to use a version of the product as a feminine-hygiene offering (not an originally conceived application) based on reports that nurses in France had put cellu-cotton to this use. And that is the story behind the birth of Kotex.

The transition wasn't easy. Kimberly-Clark had to re-orient itself as a consumer product company and rapidly learn the tricks of the trade. Worse, there was a sort of taboo attached to the entire issue of feminine hygiene at the time. Magazines refused to carry 'direct' advertisements for the product and the trade refused to stock these in identifiable packs. The 'negatives' were so great that the company thought it prudent to distance itself from the product by forming a separate corporation to market it, and create a new brand Kotex to avoid any association with its medical dressings, the main product line.

Simultaneously, the company developed thin sheets of cellu-cotton, branded the product Kleenex and introduced it as a disposable substitute for face towels, to easily remove makeup, another rapidly growing post-war market.

Turnaround CEOs faced with a resource crunch, that limits their use of existing assets, will find useful pointers from the Kimberly-Clark experience. An open minded audit of its capabilities and unexpected application of its products helped the company create markets where, thanks to its first-mover advantage, it's ahead of the competition even today. In the process, Kimberly-Clark made the transition from being an exclusively-industrial paper supplier to a $3 billion consumer goods company.

The biggest lesson CEOs have to realise is that machines have no limitations, only minds that operate the machines do. The turnaround CEO must remember this when drawing up plans for revival.

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