For years Maytag reveled in a coup, with its washers and dryers enjoying a top-quality image thanks to decades-long ads in which a repairman laments his loneliness because of Maytag's trouble-free products. (The actor who portrayed the repairman died in early 1997.) The result of this dependability and quality image was that Maytag could command a price premium: "Their machines cost the same to make, break down as much as ours—but they get $100 more because of the reputation," grumbled a competitor.^[267]

During the 1970s and into the 1980s, Maytag continued to capture 15 percent of the washing-machine market, and enjoyed profit margins about twice that of competitors. Table 17.1 shows operating results for the period 1974–1981. Whirlpool was the largest factor in the laundry equipment market, with a 45 percent share, but this was largely because of sales to Sears under the Kenmore brand.

For many years, until his retirement on December 31, 1992, Daniel J. Krumm influenced Maytag's destinies. He had been CEO for 18 years and chairman since 1986, and his tenure with the company encompassed 40 years. In that time, the home-appliance business encountered some drastic changes. The most ominous occurred in the late 1980s with the merger mania, in which the threat of takeovers by hostile raiders often motivated heretofore conservative executives to greatly increase corporate indebtedness, thereby decreasing the attractiveness of their firms. Daniel Krumm was one of these running-scared executives, as rumors persisted that the company was a takeover candidate.

Largely as a defensive move, Krumm pushed through a deal for a $1 billion buyout of Chicago Pacific Corporation (CPC), a maker of vacuum cleaners and other appliances with $1.4 billion in sales. As a result, Maytag was burdened with $500 million in new debt. Krumm defended the acquisition as giving Maytag a strong foothold in a growing overseas market. CPC was best known for the Hoover vacuums it sold in the United States and Europe. Indeed, so dominant was the Hoover brand in England that many people did not vacuum their carpets, but "hoovered" them. CPC also made washers, dryers, and other appliances under the Hoover brand, selling them exclusively in Europe and Australia. In addition, it had six furniture companies, but Maytag sold these shortly after the acquisition.

Krumm had been instrumental in transforming Maytag, the number-four U.S. appliance manufacturer—behind General Electric, Whirlpool, and Electrolux—from a niche laundry-equipment maker into a full-line manufacturer. He had led an earlier acquisition spree in which Maytag expanded into microwave ovens, electric ranges, refrigerators, and freezers. Its brands now included Magic Chef, Jenn-Air, Norge, and Admiral. The last years of Krumm's reign, however, were not marked by great operating results. As shown in Table 17.2, revenues showed no gain in the 1989–1992 period, while income steadily declined.

Although the rationale for internationalizing seemed inescapable, especially in view of the recent wave of joint ventures between U.S. and European appliance makers, still the Hoover acquisition was troublesome. While it was a major brand in England and in Australia, Hoover had only a small presence in Europe. Yet, this was where the bulk of the market was, with some 320 million potential appliance buyers.

The probabilities of the Hoover subsidiary being able to capture much of the European market were hardly promising. Whirlpool was strong, having 10 plants there in contrast to Hoover's two plants. Furthermore, Maytag faced entrenched European competitors, such as Sweden's Electrolux, the world's largest appliance maker; Germany's Bosch-Siemens; and Italy's Merloni Group. General Electric had also entered the market with joint ventures. The fierce loyalty of Europeans to domestic brands raised further questions about the ability of Maytag's Hoover to penetrate the European market without massive promotional efforts, and maybe not even then.

Australia was something else. Hoover had a good competitive position there, and its refrigerator plant in Melbourne could easily be expanded to include Maytag's washers and dryers. Unfortunately, the small population of Australia limited the market to only about $250 million for major appliances.

Britain accounted for half of Hoover's European sales. But at the time of the acquisition, its major appliance business was only marginally profitable. This was to change: after the acquisition it became downright unprofitable, as shown in Table 17.3 for the years 1990 through 1992, as it struggled to expand in a recession-plagued Europe. The results for 1993, of course, reflected the huge loss from the promotional debacle. Hardly an acquisition made in heaven.

Maytag's earlier acquisitions also were becoming soured. Its acquisitions of Magic Chef and Admiral were diversifications into lower-priced appliances, and these did not meet expectations. But they left Maytag's balance sheet and cash flow weakened (see Table 17.4). Perhaps more serious, Maytag's reputation as the nation's premier appliance maker was tarnished. Meanwhile, General Electric and Whirlpool were attacking the top end of its product line. As a result, Maytag found itself in the No. 3 or 4 position in most of its brand lines.

The long decline in profits after 1989 should have triggered strong concern and corrective action. Perhaps it did, but the action was ineffectual, and the decline continued, culminating in a large deficit in 1992 and serious problems in 1993. As shown in Table 17.2, the acquisitions brought neither revenue gains nor profitability. One suspects that in the rush to fend off raiders in the late 1980s, the company bought businesses it might never have in more sober times, and that it paid too much for these businesses. Further, they cheapened the proud image of quality for Maytag.

Maytag's corporate managers were guilty of a common fault in their acquisitions: they gave newly acquired divisions a loose rein, letting them continue to operate independently with few constraints: "After all, these executives should be more knowledgeable about their operations than corporate headquarters would be." Such confidence is sometimes misguided. In the U.K. promotion, Maytag management would seem as derelict as management in England. Planning guidelines or parameters were far too loose and undercontrolled. The idea of subsidiary management being able to burden the parent with $50 million of unexpected charges, and to have this erupt with no warning, borders on the absurd.

Finally, the planning of the U.K. executives for this ill-conceived travel promotion defies all logic. They vastly underestimated the demand for the promotional offer, and they greatly overestimated the paybacks from travel agencies on the package deals. Yet it took no brilliant insight to realize that the value of the travel offer exceeded the price of the appliance—indeed, 200,000 customers rapidly arrived at this conclusion—and that such a sweetheart of a deal would be irresistible to many, and that it could prove to be costly in the extreme to the company. A miscalculation, or complete naivete on the part of executives and their staffs, who should have known better?

The great problem resulting from an offer that was too good could have been avoided, and without scrapping the whole idea. A cost-benefit analysis would have provided at least a perspective as to how much the company should spend to achieve certain benefits, such as increased sales, greater consumer interest, and favorable publicity. See the following Information Box for a more detailed discussion of the important planning tool of a cost-benefit analysis.

A cost-benefit analysis should certainly have alerted management to the possible consequences of various acceptance levels, and of the significant risks of high acceptance. The company could have set limits on the number of eligibles: perhaps the first 1,000, or the first 5,000. Doing this would have held or capped the costs to reasonably defined levels, and avoided the greater risks. Or the company could have made the offer less generous, perhaps by upping the requirements, or by lessening the premiums. These more moderate alternatives would still have made an attractive promotion, but not the major uncontrolled catastrophe that happened.

Maytag's invasion of Europe proved a costly failure. In the summer of 1995, Maytag gave up. It sold its European operations to an Italian appliance maker, recording a $135 million loss.

Even by the end of 1996, the Hoover mess was still not cleaned up. Hoover had spent $72 million flying some 220,000 people and had hoped to end the matter. But the fight continued four years later, with disgruntled customers who never flew taking

Hoover to court. Even though Maytag had sold this troubled division, it could not escape the emerging lawsuits.^[269]

In the summer of 1998, Leonard Hadley could look forward and backward with some satisfaction. He would retire the next summer when he turned 65, and he had already picked his successor. Since assuming the top position in Maytag in January 1993 and confronting the mess with the U.K. subsidiary during his first few months on the job, he had turned Maytag completely around.

He knew no one had expected much change from him, an accountant who had joined Maytag right out of college. He was known as a loyal but unimaginative lieutenant of his boss, Daniel Krumm, who died of cancer shortly after naming Hadley his successor. After all, he reflected, no one thought that major change could come to an organization from someone who had spent his whole life there, who was a clone, so to speak, and an accountant to boot. Everyone thought that changemakers had to come from outside. Well, he had shown them, and given hope to all number-two executives who resented Wall Street's love affair with outsiders.

Within a few weeks of taking over, he'd fired a bunch of managers, especially those rascals in the U.K. who'd masterminded the great Hoover debacle. He determined to get rid of foreign operations, most of them newly acquired and unprofitable. He just did not see that appliances could be profitably made for every corner of the world, because of the variety of regional customs. Still, he knew that many disagreed with him about this, including some of the board members who thought globalization was the only way to go. Still, over the next 18 months he had prevailed.

He chuckled to himself as he reminisced. He had also overturned the decades-long corporate mindset not to be first to market with new technology because they would "rather be right than be first." His "Galaxy Initiative" of nine top-secret new products was a repudiation of the old mindset. One of them, the Neptune, a front-loading washer retailing at $1,100, certainly proved him right. Maytag had increased its production three times and raised its suggested retail price twice, and still it was selling like gangbusters. Perhaps the thing he was proudest of was getting Maytag products into Sears stores, the seller of one-third of all appliances in the United States. Sears' desire to have the Neptune was what swung the deal.

As an accountant, he probably should be focusing first on the numbers. Well, 1997 was certainly a banner year, with sales up 10.9 percent over the previous year, while profitability, as measured by return on capital, was 16.7 percent, both sales and profit gains leading the industry. And 1998 so far was proving to be even better, with sales jumping 31 percent and earnings 88 percent.

He remembered the remarks of Lester Crown, a Maytag director: "Len Hadley has—quietly, softly—done a spectacular job. Obviously, we just lacked the ability to evaluate him [in the beginning]."^[270]

Leonard Hadley retired August 12, 1999. He knew he had surprised everyone in the organization by going outside Maytag for his successor. He chose Lloyd Ward, 50, Maytag's first black executive, a marketing expert from PepsiCo, and before that Procter & Gamble, who had joined Maytag in 1996 and was currently president and chief operating officer.

However, with extreme regret Hadley found that his choice of a successor was flawed, or maybe Ward was just a victim of circumstances mostly beyond his control. After 15 months, Ward left, citing differences with Maytag's directors amid sorry operating results. Hadley came out of retirement to be interim president and CEO. Some 3,400 Maytag workers, a quarter of Newton's population, roared when they heard the news. They had feared the company would be moved to either Chicago or Dallas, or that it would be sold to Sweden's Electrolux. Hadley assured them that no such thing would ever happen as long as he was at the helm.^[271] Hadley retired again in June 2001 when Ralph F. Hake became his successor.

Hake came to Maytag from Fluor Corporation, an engineering and construction firm, where he had been executive vice president. Before that he spent 12 years in various executive positions with Maytag's chief rival, appliance manufacturer Whirlpool.

Hake kept the headquarters in Newton, Iowa, but moved three plants to Reynosa, Mexico, intensifying fears that Maytag might export even more jobs to countries with cheap labor. He tried to allay such concerns: "I do not anticipate multiple plant shutdowns or restructuring here." However, some analysts cautioned that consumers were becoming increasingly cost conscious—and less concerned with whether a product is made in the United States or abroad.

Hake also sought to move the company's product line beyond the traditional to more unusual products. He created a Strategic Initiatives Group with 10 to 12 members to introduce a premium-priced line of mixers, blenders, toasters, and coffee makers under the brand name Jenn-Air Attrezzi. The hope was that a focus on creative thinking would move the company out of its slump.^[272]

Even though Hake had moved some manufacturing jobs to cheaper labor overseas, Maytag was slower suggest more to do this (than its competitors), and by 2005, it was hurting, with its stock plummeting, and its dividend slashed in half. While 12 percent of its products were made abroad, larger competitors such as Whirlpool and General Electric had huge cost advantages with more than half their production overseas. In recent years, Maytag also had to compete against nimble Asian newcomers, including South Korean LG Electronics, which had brought innovative appliances to the United States a few years earlier.

In 2005, with its sickly stock price, Maytag now became an attractive buyout. Ripplewood Holdings, an investment group, bid $14 a share for the company. This offer was bested by Whirlpool, which offered $21 a share in cash and stock to Maytag shareholders, and the deal was sealed. American jobs and Newton, Iowa, jobs in particular, were in jeopardy.^[273]

Invitation for Your Own Analysis and Conclusions

How could American jobs have been better saved in the competitive appliance industry?