Building material manufacturers, like most manufacturers, focus on improving margins through economies of scale. Most of them also try to improve their margins by reducing risk. This short term thinking puts them at greater risk in the longer term. They are sitting ducks waiting to be outflanked by a competitor. Or even worse, to be made obsolete by a company they have never heard of.
How soon will your building product be obsolete?
Many industries such as technology, consumer packaged goods and apparel, live on the edge, while most building material companies live nice and comfortably in the center. They snuggle up where everything is familiar – like the customer, the competition, pricing and costs. It’s like they live in a time before Christopher Columbus and believe the world is flat. If they go out to the edge, they’ll fall off.
For example, look at fiberglass manufacturers. When it was first invented, it was a wonder material. They had a material and no market. With an entrepreneurial zeal, they explored the marketplace and found many uses. Everything from furnace filters to insulation, shingles, Corvette bodies, surfboards, fabrics and more. They got to a certain size and stopped looking for new uses for fiberglass. They shifted their efforts to maximizing the returns from their factories.
They are now riding themselves out of business as they let alternative solutions for products like fiberglass insulation take more and more market share every year. Where they used to be viewed as the leaders, they are now simply a supplier of a commodity.
Building products can learn from Consumer Packaged Goods
Consumer packaged goods (CPG) and technology companies are on a path of constant and never ending improvement. With ever-green products like detergent, they improve sales and margins by investing in innovation. Most building material companies simply look to pull costs out.
CPG and technology companies are also looking for new products that will make their current product obsolete and become a new source of revenue. They search out new ideas at trade shows where they are looking for the small start up that most building material companies dismiss because they have no scale.
Innovative companies also observe trends, changes in consumer behavior and new products outside of their category or industry for ideas. Another way they live on the edge is by engaging innovation firms like IDEO to help them develop new solutions.
Too many preconceptions in new ideas
Another weakness of most building material companies is that when they do try to be innovative, they approach it with a preconceived idea of a product. Truly innovative companies don’t think in terms of products but in terms of problems to be solved. They approach innovation with an open mind.
Finally, when building product companies do develop an innovative new product, it’s usually treated as something for the CEO to mention in the annual report to show people that they really are innovative. They don’t go all in with the level of sales and marketing support they will need to succeed. They don’t put their A team in charge of the product.
With the odds stacked against new product success, this is like sending an amateur to Las Vegas to gamble with your money. And if by some chance the product starts to gain some success, the success may come at the expense of the company’s cash cow. The powerful leaders of the cash cow will then do everything they can to kill the new product before it makes them look too bad.
I see such opportunity for more building product manufacturers to live closer to the edge, become innovative and ensure their longer term success. The biggest change they need to make is to see themselves as problem solving brands rather than simply operators of manufacturing facilities.