Electrolux Cleans Up

Electrolux, the world's number 2 maker of home appliances, was facing difficult times in 2002. The company's stock was treading water due to middle-market products losing out to cheaper goods from Asia and Eastern Europe. Competition was fierce in the United States where Electrolux obtained 40% of its sales. Chief Executive, Hans Straberg knew something needed to be done to maintain their competitive edge and increase market share. Straberg had an idea to focus on boosting research and development while making it more productive and cut operating costs to boost profits for Electrolux.

Straberg began shifting his workforce to cheaper labor markets in Asia and Eastern Europe to cut costs. He also spun off the outdoor products division. Straberg had a vision to increase sales by breaking down barriers between departments and forcing his designers, engineers, and marketers to work together to come up with new products. Straberg knew that creating a cross functional team would be the best solution to break down barriers between departments and increase communication. He did this because using skills, competencies, and experience of individuals from diverse areas within a firm can increase camaraderie, trust, and performance therefore leading to increased profits through efficiencies in operation.

Sometimes cross functional teams can take time to become effective because of previous impressions, attitudes, and relationships. To combat this and speed the transition, he recruited executives from companies with strong track records in innovation, including Procter & Gamble and PepsiCo. (Ivancevich et. al. 2011). The recruited executives were able to lead brainstorming sessions with the designers, engineers, and marketers that led to new product concepts. Three concepts that emerged were Breeze, a clothes steamer that also removes stains, an Iron Center for shirts, and Ease which was a washing machine that holds a laundry basket inside its drum. These brainstorming sessions led to better products and also saved time and money by avoiding technical and cosmetic glitches that crop up as a new design moves from the drafting table to the factory floor. Clearly, these innovations proved there are advantages to having individuals from different departments and functional areas work together on product design. The advantages mentioned above include team building by increasing camaraderie, trust, and performance and increased cost savings by identifying design and technical flaws before a product moves to production which also increases speed to market.

One of the most successful products resulting from these brainstorming sessions is The Pronto. The Pronto is a cordless stick-and-hand vacuum that is metallic and comes in an assortment of metallic hues. In Europe, it has 50 percent of the market for stick vacs with only 2 years in the market. The Pronto is also doing well in the United States where some retailers report it as one of their best sellers. This new approach to research and development has yielded strong results for Electrolux. After dropping for 2 straight years, annual sales rose 8 percent, to $16.5 billion in 2005. Operating income jumped 42 percent in the fourth quarter, compared with the year before, though it rose by less than 2 percent, to $881 million, for the year as a whole. (Sains, 2006). The downturn of the economy slowed sales in