Management paper

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other groups to use market forces and public-private coalitions, rather than lit­ igation and laws, to promote social and environmental goals. At the same time, the contest also provides insight into ways to reinvigorate some U. S. manu­ facturing industries. By dangling what came to be known as a $30 million "Golden Carrot" before a group of man­ ufacturers that had weathered over a

decade of consolidation and restructuring, the contest spurred them to explore important new technologies and exam­ ine their product-devel­ opment processes. And it prompted the two fi­ nalist.s to design more efficient refrigerators, which should make them m0re competitive.

The notion of the con­ test began in 1989 when the Natural Resources Defense Council (NRDC), a few utilities, and the Environmental Protec­ tion Agency got togeth­ er to explore ways to cut energy consumption. They knew that refrig­ erator makers would soon be revamping their product lines for EPA-, mandated improvements in energy-efficiency and an impending ban on ozone-depleting chloro­

fluorocarbons (CFCs).The NRDC and the utilities, which find it cheaper to pro- ' mote energy savings than to pay for new power plants, wanted to see the fridge makers go even further and fast­ er than the EPA requirements, &incere­ frigerators can account for up to 20% of a household's electricity use.

Instead of calling for new laws, they came up with the Super Efficient Refrig­ erator Program Inc., or SERP. It is fund­ ed entirely by 24 utilities that provide electricity to about 21% of U. S. house­ holds. The winning refrigerator must

TO BUILDA am•••••• IOI~TO.I '"I WHI.LPOOL DAM AND '"I •• UITO. ,"II. LABO., AN OZON •••• IDNDLYAPPUANCI

I

THE GREAT REFRIGERATOR RACE

mentally friendly and energy efficient. Whirlpool, America's second-largest

,refrigerator maker, hact beaten out its archrival, giant General Electric, and a

.dozen others to become one of two con­ test finalists, along with Frigidaire,' the No.3 maker. But now, just two days be­ fore the final deadline, Whirlpool had been told a compressor in its prototype at the testing lab had failed.

The story of Whirlpool's all-out effort to win the contest illustrates a new twist on industrial policy. Its backdrop is a movement among environmental and

How a Whirlpool design team chaSed $30 million in priZe money

Itwas crunch time. On June 2, two . Whirlpool' Corp. engineers walked

. into a testing lab in Cortland, N. Y. T:<1eyD2Q eight hours to scrutinize data showing 'j;nat tbeiT prototype had failed miserably. At stake: 2' year and a halfs worth of work, plus a $30 million prize and big-time bragging rights for the manufacturer that could create and sell

a refrigerator that. was both environ-

hi" :)Ve~ w ~~'~,~u;ited by C(/4gress witi}l.1, '>w ~(j ~~·-j.Jlinton ejected the ,,::;"1 -' 'nY)si~~ L'18tea(~to wait un­ tii he had reform propos:<:.is iT. hand. Now, he risks havrng his iueas nibbled to death by scores of turf-conscious Capitol Hill subcommittees. Worse, congression­ al backers worry '.hat ClintOn has done little to prepare lawmakers for his over­ hauL Says one Hill ally: "They are not doing the political work they need to."

For their part, federal-employe-a un­ ions fe:u' that reinventing government is

.merely code for cutting jobs and pay. Gore has tried to smooth relations with bureaucrats by bringing hundreds of them into the process. But the unions aren't buying. "This is not Texas," re­ marks John N. Sturdivant, president of

the American Federation of Government IEmployees. "'And it damn sure 'J.ln't Arkansas." SCARED. These days, Gore's staff is sift~ ing through 3,000 pages of recommenda­ tions from the task forcp,s (table, page 76). But some broad outlines are becom­ ing clear. One idea is to grant more au­ tonomy to managers in hiring, promo­ tion, and procurement. That may mean breaking down the highly centralized federal purchasing system, as well as restructuring rigid ci'lil-service pay classifications.

The reinventers also 'vant to improve communication among agencies. For in­ stance, as many as 125 different offices in 14 agencies provide job-training assis­ tance. The Clintonites woo't try to con­ solidate them but will1l.ttempt to make it easier for them to share information. Another goal: setting up a one-stop-shop­ ping arrall~ent where individuals, busluesses, arld local governments C!lI1 get information about related programs offered by more than one agency.

The White House feels it can solve many of these problems by cutting away layers of bureaucracy. "The whole men­ tality is one of control. You have check­ ers on checkers," says R. Scott Fosler, president of the National Academy of Public Administration. "People are scared to do anything at all." The White House hopes to free bureaucrats to seek creative solutions without worrying about ruining their careers. "The big question," says Kamarck, "is how do you make government accountable without adding significant costs." --,'

That is, undoubtedly, a big issue. But

! there is a bigger one. With battles loo.m-

ling .OJ!!. trade, health care, and the bud­

.' get, will Bill Clinton be willing to spend his dwindling stack of political chits on

, yet another massive reform project-es-

i pecially one that is sure to run into pow­ erful resistance? If not, all this work will end as yet another dusty report on

~ how to reform the bureaucracy ..15 By Haward Gleckma:n in W(1$hington :Ii

1 78 BUSINESS WEEK/JULY 15, 1993 DESIGN

/ I

of glass. At the hairpin curves of the capillaries, where the inside diameter was less than 0.3 inch, Anderson could see a slight buildup of gunk. It was like watching a person's arteries clOg."This is the engineer's worst nightmare-a very slow failure," said Anderson. Unde-, tected, it could result in millions of breakdowns and huge recalls years from now. ~It could break the company,"said .Anderson. The Whirlpool team knew . the culprit wasn't HFC-134aitself but a lubricating oil in the compressor, the

heart of a refrigerator; They finally found an oil that wouldn't cause the

buildup.. HARD DICIIION. Ho and the team moved quick­ ly through a number of other technologies. A new compressor, re­ designed specifically for HFc-134a with a 'higher-efficiencymotor

and valving changes, squeezed out several points more in energy savings. On the other haftd, a supplier's promis­ ing but;.expensive technol-

ogy didn't deliver the expected energy gains. Anderson nursed· it along for months but would ultimately de­ cide it wasn't up to snuff just seven weeks

before the final bid was due in June, 1993.

By August, 1992, An- derson had two.-possible

bids. One was conser­ vative, using only tried-and-true technolo­ gies, while the other pulled out the stops. In a senior management meeting that month, .

Jerry Weinstein, a Whirl­ pool vice-president, con­ vinced the group to go for the second, more· risky bid by invoking the spec­ ter haunting the compa­ ny: GE. "Will we be able

to look ourselves in the mirror if GE

wins it because we didn't enter the most aggressive bid possible?"he asked.

On Dee. 8, SERP announcedthe two fi­ nalists: Whirlpool and Frigidaire. An­ .derson and his team were stunned-not because they were in, but because GE

was out. With roughly 35% of the mar­

ket compared to Whirlpool's 25% and IFrigidaire's 17%,GE had a natural advan­ tage in the contest. The way the rules were written, 75 of 100 points in the bid went for total kilowatt hours saved, i determined by energy-efficiency gains ~

BUSINESSWEEK/JULY5,199379

more. He was also already at work rede­ signing the defrost drain for some 1993 models. A simple change in its shape yielded energy savings of up to 1~.

The Whirlpool team's toughest prob­ lem was replacing CFCs,which are used in two ways. CFC-ll helps produce the foam that insulates a refrigerator, while CFC-12,commonly known as Freon, is the actual refrigerant. '

Anderson set up a system filled with HFC-l34a,a substitute for Freon. He had the very narrow capillary tubes. that carry the refrigerant specially made out

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achievEltwo goals: eliminate CFCsand in product'design, planning the 1993 boost energy efficiencyby at least 25% models. Anderson began by asking Ho over ctllTent regulations. W:1at makes the obviouSquestion: What could Whirl­ the contest so tough is that· the goals. pool do to win this thing, given what fight one another: In the last 20 years, was cookingin the company's R&D labs? refrigerator m~ers have cut energy .. For an answer, Ho began trying out consumption 50%mainly by using CFCs. different combinations of technologies. 'LOW PAYOUT. Steep as the technical Some were exotic: One that eventually hurdles are, merely creating a winning· went into Whirlpool's SERP prototype icebox won't be enough. Instead, the was an adaptive defrost control that contestants must address a complex uses "fuzzy logic" software to save combination of product development; electricity during the defrost cycle. Ho manufacturing, and marketing challeng- figured the energy savings at 3.5% or es: The victor must cOn-· . vince the judges that it can build aJ:ldsell enough refrigeratOrsbetween Jan­ uary, 1.994,and July, 1997, to produce the total kilo­ watt-hour savings it prom­ ises as part of its bid. To make sure the winner delivers those savings. the $30 million prize won't be handed out in a lump sum but in the form of a rebate of about $100for each of the 250,OOO-plusfridges to be sold. The rebate .Willhelp' the winner keep the consumer price of the SERP models in line wit~ rivals' price tags.

The winner will be an­ nounced June 29. While keeping certain proprie­ tary data on its technolo­ gy pff the record, Whirl­ pool. allowed BUSINESS WEEK to follow its ef­ forts. Frigidaire dis­ cussed its efforts only after completing its en­ try (page 81).

As plans for the con­ test became known in 1990,Whirlpoolexecutives weren't even sure they should enter the race. They had enough on their hands just Goping with slowing sales and bracing for the tough new EPA

rules going into effect in 1993.VincentP. Anderson, an engineer with an mIA, got the job of scopingout the contest. Anderson, then 33, had been head of the company'slong­ standing efforts to gradually phase out CFC,coolants,so he was a natural choice. The Evansville (Ind.) native had grown up in the business: His father and one brother were engineers at the Whirl­ pool refrigerator plant there.

In March of 1992,Anderson drafted Bob Ho to join his group, which carne to be known as the Golden Carrot Project Team. Born in Hong Kong and educated in Minnesota,the 44-year-oldHo worked

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Desl n knew," Anderson sighed. "It's a void." The Fort Smith executive fretted: "This train has left the station big-time. H we don't win, senior management of Whirl­ pool is going to be concerned." ~'

Upon reflection, though; Anderson and the others started to feel pretty confi­ dent. Whirlpool had analyzed Frigidaire's 1993 models and conducted a worldwide patent search to see if its rival had some whiz-bang technology up its sleeve. It couldn't find any. That left hanging only the other half of the contest's equation: sales. If Whirlpool could hold its market­ share advantage while increasing its en­ ergy savings by at least the same amount as its rival, it had a lock on the contest.

Anderson was more worried about ETL Testing Laboratories Inc., the inde­ pendent lab whose judgments would be crucial to the contest. Although he didn't questign ETL'Sengineering competence, its refrigerator-testing business had dried up when the industry consolidated a decade ago, and its spending on test­ ing gear had consequently lagged. Most­ ly, Anderson and Ho fretted over how the judges would react to test results dill' t fr th used b Wh' I 001 DItAlTlIh INOINIIR/DUIOMIR NO, eren om ose y., U' P 1---'--'----------

per fridge multiplied by the number of as the basis for its energy-use claims. lieve Frigidaire if it said that its mar­ units sold. Since GE already sold the ETL says its refrigerator-testing data ket share would double with the super­ most refrigerators in a business where are accurate. efficient models? "They wouldn't have market shares change at a glacial rate, Last May 12, Whirlpool management to do it, they'd just have to say they'd Anderson feared it stood the best chance ironed out the finaI version of the team's do it, to win," grumbled Weinstein. Ner­ of convincing the judges that it had the bid in a teleconference. Anderson of- vous, the group decided to use a technol­ muscle to sell more of the newfangled fered three detailed options for Whirl- ogy twist to enhance Whirlpool's bid fridges: GE says it doesn't know why it pool and three estimates of what Frigi- slightly .. ' lost, and SERPwon't comment. daire would bid. His conclusion: Fri- lAWS OF DIFun Anderson's team met

PA1INT SIARCII. Now squared off against gidaire would have to garner a huge with SERP officials for the ~ time on each other as the two finalists, Whirlpool chunk of market share, lose money, or June 2., The team unveiled a plan to and Frigidaire began meeting almost both, to get anywhere near Whirlpool. track refrigerator sales in order to make monthly with a group from SERP to ham- Weinstein and Neil Lynch, general man- sure the units, and their energy sav~ mer out details of tlie final bid rules. ager of the WhirlpOOl brand, were still ings, went into areas served by the con­ The Whirlpool team held one such meet- worried .. test's sponsors-another key require­ ing last Mar. 30 in Fort Smith, Ark., Utilities, they argued, seemed to be- ment. Next, Phyllis Woolley, the team's

. the site of one of the company's three lieve that consumers would flock to en- ad speciaIist, explained Whirlpool's mar­ U. S. refrigerator plants. After the SERP ergy-efficient refrigerators even though keting plans-the finaI four points in the

. representatives left for the airport, the Whirlpool's experience showed that contest. The folks from SERP seemed Golden Carrot team's anxiety seemed wasn't true. Indeed, its bid assumed impressed. to crest. "How are we doing?" a local that its market share would remain the Then, Terry Stat, SERP's liaisori with manager asked the team. "I wish I same. But would the judges simply be- ETL, dropped his bomb: The compres-

....THE" cONTEnFOR"~·LUN:t~iif~IE~;~~~=~~~1~7t~~~~~~~:7_'T:~;;·:~:~'~:;i~~:;·:~1:,.:,~:;-:. GREEN, COOLING MACHINE 'payment comes in the fonnof a ~sh 're::~,.,75 POI~S for kilowatt ho:u~¥;::~.

. . "bote to~e'!'O~ufacture,r per refr:lger~tor, .os detel1TlInedby energy-efficIency gainS. :. The Super Efficie~t,Refrigerator~rogral'!'soId : .. ,~:::;:;~,L/:.,'::::.;+; ::;,~,~.;;':h·'.~:';:~-rper refrigerator, multiplied by number.of:~'(SERP) '. ::," ·~v> ':,>.': ;1'>:-':;~" IJ!ImWi~~~'m~~t;nc]Oufad,re a~ :'oi units sold . ,';'o:'jrc'<: ::>" ,c<,: .: .. '.

DJ:::!J:I!m Whirlpool and Frigidoire,a' sell over 250,000 refri~rotors between· 2.1 ~INTS for a tracking sys~ that unit of Sweden's Efectrolux:, ., ; ,:1',' January, 1994, and July, 1997, that are .' pinpoints who burs the new reFri~e~otors ~, " ',' ..... ,., "" free of Qzone-depleting chloroRuorocor- '.' and where (ensunng soles are Withinthe,' L:6.i.I.L;I Winner to.be announced J,:,ne 29 boos (CFCs)and at least 25% II'1Of1a en-'-; sponsoring utilities' markets) .. ' ~ 2.4 utilities (encOuraged by ergy-efficient than 1993federol.' 4 POINTS for vigorOussoles Cnd

the Environmental protectiO~,~;::)~f~~ .; ~:~:~f1S;~;':~""~'~~;':'t;2:",~~~';'::.~;;;~,marketi~.:~~:;~:;.~~~~. ,'i,:":' '~::' ",'

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80 BUSINESS WEEK/JULY 5,1993 DESIGN

less of ,whogets the $30 million, every­ one wins. Other refrigerator makers will have to come up with efficient offerings to compete with the victor's modeLAnd the contest has succeeded in _pushing technology. If Whirlpool wins; the com­ pany will immediately sign purchase or~­ ders for equipment to tool up for a key new technology, something it wouldn't have done so SOOnwithout the promise of the prize money. "We've won before the first one is sold," exults Charles Montoyll,a SERFdirector and executive at the Los Angeles Water & Power Dept. _ Asked what he would tell the team if

, Whirlpool doesn't win, Chairman and' CEODavid R. Whitwam pauses, then says: "I'm not good at giving losing speeches. I don't think I've ever given one." He'll soon find out if he needs to learn.

By James B. Treece in Eva:nsvilli!,1nd.

. hours a day, from before last Christ­ mas Untilthis.May. The team was tak­ en aback when a key component ex· "

, 'pected to get one-thirdof the needed . energy'savings hardly provided any;' - "That was a low point," says

product planner Bdan P. Dillon; .•-Backman says he's happy now that he went through with the SERFbid, but he wasn't al­ ways so certain. "There have been one, or two times we asked: 'Shall we continueor not, considering all the other pro:. ' jects we have?''' Stretched for resources, Frigidaire had to de­ lay other new products. In addi­ tion, some of the UltraStyle line on which the SERFmode1sare based may have been experi­ encing more failures than ex~ pected at the Greenville plant;-;.. though the company says its­ startup' problems were normal.

Even if Frigidaire wins'-"it's nota bonanza," says marketing chief Arjan J; Gursahaney. But

'the SERF contest has forced Frigidaiie to slash in half, to nine months, the time it usually takes to develop'a prod­ uct and has pushed it to put "gold"in

. the system Withits' new Compressor,as McCloskey-puts it. Becauseof the com­ pressor's cost, that's something Frigi­ daire wouldn't have done without the prospect of SERF'S'prizemoney. In the end, consumers are likely to see some of Frigidaire's SERPmodels whether or not it's named the winner;

. flY -Zachary 8cJr.iUerin Greenville;

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test results were in line with his own. Scanningthe readouts for the failed unit just before it shut down, he got an idea. When he and,a colleaguehooked up the unit, they quickly confirmed his diagno­ sis: The prototype's hand-wired cooling fan wasn't' turning. The compressor con­ tinued to run, but the override circuit detected too much heat and, to prevent a possible fire, turned off the unit. No compressor failure whatsoever. Just the fan, jury-rigged for the prototype. Mil" DONL- On June 8, Anderson sent off Whirlpool's bid-bumped up yet again. After another Weinstein pep ta1k, the team had found a way to squeeze more units out of the factory, increasing the kilowatts saved. "It's done, it's fr0­ zen," Anderson said. "Now, we just sit back and wait." He left June 15 on a two-week campi~ trip with his family and in-laws around Lake,Michigan. "

The SERFutilities believe that regard-

FRIGIDAIRE'S RUN FOR THE

sor in a WhirlpoolproOOtyperan at 1OO"A> for'a while at the lab, then simply shut down. In addition, the laboratol''Y'searly test data could not confirm th(; compa­ ny's claimsof efficiency."It sounds like a compressor failure to me," said Stat. Anderson stared at the conference table in front of him in shock. This was too much. He began to massage his tem­ ples with his fingertips. "I think you might want to have Bob Ho go up there," said Stat., ' , <.

Anderson's quiet voice barely betray­ ing' his frustration, he offered to send SERFa six-page letter listing Whirlpool's concerns about ETL'Sprocedures. ETL wasn't the problem, countered Gary Fernstrom, SERF'sCFOfrom PacificGas & Electric Co. "The major issue here is the failure. I think you should get up there and find out what caused that."

Within two hours of arriving at the ETLlab, Ho relaxed. ETL'ssubsequent

Frigidaire President Hans G. Back-' . man didn't need much convincing

that his company should try, to win the refrigerator. competition .' launched by a group of utilities. Frigi­ daire Co. was already hard at ' work on more efficient units 'free . of chlorofluorocarbons (CFCs)."Just the time frame was shorter," says Backman. A win would also help Frigidaire, with itS main strategy: to set apart its top brand and firmly differ­ entiate its productS. So ~ Au­ gust, Backman gave the Super Efficient Refrigerator Program

. Ine. (SERF)contest the nexi- ',-In meetings at its refrigerator

unit in Greenville, Mich., Frigi­ daire brought together as many as 30 marketerS, engineers, and manufacturing officialsto brain-

. storm the entry. By then, Frigi­ daire had already made the first key decision: to drop all exotic technologies. "In order to meet the timetables, we felt it was !HI GRIINVILLI GANGI MANY 7o.HOUR WORKWIIU

necessary to take known technology: Frigidaire waS also well along with and enhance it;" 'says Dennis E. replacements for CFCs;'The .company McCloskey,head of the company's r& . already had reformulated its foaming_ frigerator business and team leader.. " agent to cut t~e CFCsin its insulation GlIPPlJIO AWAY. Frigidaire also decided' by 50%. Still, the company had to do early on to base its SERFmodels on plenty of further refinement and test- its new UltraStyle line, a 1992design ing to cut out the rest. It got help overhaul featuring a rounded look, from Americoldand Electrolux, which made on a new production line in the recently introduced some CFC-freemod- Greenville plant. For its SERFproto- ,e1s in Europe, in shifting to Hro-184a.as type, Frigidaire put a "smart" compres- a refrigerant.' .. "".-'".,,"" ." - --- sor inside the cabinet. It was already Making further energy~efficiency being designed by Americold, which gains also wasn't easy. A small group like Frigidaire is owned by Sweden's worked seven days a week, often 10

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DESIGN BUSINESS WEEK/JULY S, 1993.1

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