Investing in Innovation
Author: Michael Smythe FDINZ | Category: General
Article published in National Business Review , January 12 2009 written by Michael Smythe FDINZ.
The looming future is being compared to the Great Depression which followed the 1929 share market crash. We should recognise that the rampant consumerism which stands accused of inflating the bubble that has now burst (because it was debt-fuelled) was a vehicle created to drive the world out of the Depression and to rebuild communities after World War Two. Following in the tracks of Henry Ford, who set out to create a product his workers could afford to buy, other industries began using innovative technology and design to create desirable products, thus jobs and consumers. Few would wish that we had not enjoyed access to the resulting music, movies, radios, washing machines and refrigerators.
From 1934 Fisher and Paykel did its bit to help the USA climb out of its Depression by importing home appliances to New Zealand. When our 1938 balance of payments crisis led the re-elected First Labour Government to impose import controls, Fisher and Paykel became a manufacturer and began contributing to our economic growth. Knowing the protectionist era couldn't last, they eventually used the opportunity to build a capacity for original design and product development.
By the time of the 1987 share market crash the re-elected Fourth Labour Government was exposing New Zealand manufacturers to the Darwinian rigors of Rogernomics. Because Fisher and Paykel had seen it coming, and had seen off most of the local competition, they were well prepared to stand up to overseas products in both domestic and overseas markets. Their millionth appliance had been exported in 1980, the new generation refrigerators had won the Prince Philip Design Award in 1984, and the electronic Gentle Annie washing machine had led the world in 1985. In 1986 their Dunedin range and dishwasher division had moved from the old Shacklock factory to a new site at Mosgiel.
Keith Davies' book Defying Gravity: the Fisher and Paykel story documented the company's ability to fend off financial predators. Early in 1987 that darling of the bull(shit?) market, Equiticorp, bought a 20% share of Fisher and Paykel and its head, Allan Hawkins, took a seat on the board. After the October share market crash it became clear that 'the Hawk' was keen to get his claws into the company's hard-earned cash reserves. His own policy of negative gearing, which depended on assets bought with borrowed money increasing in paper value, had come back to bite him. It was Hawkins' attempt to curtail investment in the SmartDrive washing machine project that demonstrated how diametrically opposed his corporate culture was to that of Fisher and Paykel.
When Equiticorp collapsed in 1989 its receiver tried his best to sell its share in Fisher and Paykel to anyone, regardless of their hostile intentions. Only smart footwork by Maurice Paykel averted that disaster. The $50 million that had been invested in the SmartDrive by the time it was launched in 1991 was returned in four years. It became the biggest selling washing machine in Australia (in dollar terms) and opened up many new export markets.
Another product development programme was under way at Fisher and Paykel's Mosgiel site when the '87 crash hit. 'Project Rainbow' was investigating ways to rise above the stereotypical dishwashers of the day by achieving water and energy savings, better wash quality and an enhanced user experience. The breakthrough came when ergonomic analysis led to the 'dish drawer' concept. While the post-crash recession ran its course the board invested $45 million in its research, development and production setup. The DishDrawer was launched in 1997. The millionth rolled off the Mosgiel assembly line a decade later.
The DishDrawer did much more than add another innovative product to the Fisher and Paykel range. Its double-drawer /double-take factor stopped people long enough to appreciate the less obvious world-leading innovations which characterised what was becoming an international brand. It can only be hoped that the global success that led to the painful decision to transfer DishDrawer and laundry product production to Thailand, and to make a USA configured DishDrawer in Mexico, will prove as well judged as Fisher and Paykel's earlier responses to our economic evolution. It's important to note that New Zealand remains their preferred environment for design and product development.
Some commentators have suggested the economic upturn may be ten years away " the time it took for the DishDrawer to grow from intention to reality. 'Cash is king so crunching working capital and rationing investment capital is critical, stated Craig Norgate (PGG Wrightson Chairman) in a 1 January business article. The Fisher and Paykel experience suggests that the SmartMoney will be invested in conceptualising innovative responses to needs and wants that are yet to be articulated.
Prior to the financial upheaval design strategists were focusing on enhanced sustainability, usability and accessibility. The fundamental economic shift we are now confronting can accommodate these trends. The world needs to invent something more economically, ecologically and socially sustainable than debt-fuelled globalised consumerism. Using the downturn to think longer and harder about what we value most could be the best long-term investment. Inter-disciplinary design teams in New Zealand have demonstrated a capacity for creating refreshingly different products, services and experiences. Technology and design have a role to play. The Government might like to send the right signal, and play a constructive role, by reversing its decision to scrap the tax incentive for research and development.
Michael Smythe is a partner at Creationz Consultants, a design and cultural strategy practice, and an industrial design historian.
Posted on 10 February 2009, 01:27 p.m.
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