Too much innovation?

What happens when you take innovation too far?

James Griffith, president and CEO of The Timken Co., says it cost his business one-third of its overall annual revenue. It happened in 1981, when the bearing manufacturer’s sales and profits were at record highs and foreign competition was just beginning to rear its head.

In response to suddenly aggressive offshore manufacturers, Timken invested heavily in product improvements that extended the useful life of its bearings by 10 times.

In theory, says Griffith, the move made good business sense because it differentiated Timken products from those of its competitors and underscored the company’s commitment to continuous process and product improvement. But in its haste to one-up the competition, Timken forgot a basic tenant of business: New products are only as good as your customers’ ability to use them.

“Few customers could take advantage (of the new bearings),” says Griffith.

The new — and higher-priced — bearings far outlasted the equipment they were used in, and competitors quickly flooded the market with less expensive, lower-performing ones. Within a year, Timken’s sales dropped by one-third and the company posted losses for the first time in 50 years.

Griffith says it took more than a decade to return to the basic principles that had vaulted Timken to the top of its industry.

“Value must be defined through the eyes of the customer,” Griffith says, repeating the mantra as though it were gospel. “Timken was smart enough to learn from its mistakes.”

By the end of the late 1990s, Griffith and his management team set two priorities — profitability and growth. They also developed several avenues to get there, including globalization, customer centricity and agility intertwined with innovation.

“Innovation is far more than just new processes in the manufacturing plants and new products,” Griffith says. “It’s about change.”

The company looked to new services, strategic acquisitions, joint ventures with competitors, unconventional alliances and restructuring of customer relationships as ways to provide the much-needed spark to revenue.

Griffith points recent joint venture with competitors INA US Corp. and Rockwell Automation as one example of Timken’s new strategy. The venture, Colinx LLC, allows the three companies to serve distributors better and reduce asset intensity by sharing a common distribution logistics platform that provides distributors with the ability to order online. Products are shipped from a common warehouse in Crossville, Tenn., on a common truck.

The distributors enjoy the economies of truckload shipments and ease in processing. The suppliers enjoy increased sales.

“The challenge is getting past the paradigms of working with competitors,” says Griffith.

As proof of Timken’s commitment, approximately 70 percent of its orders are processed through a shared distribution point. And it has a plant under construction in China that will produce high-volume standardized products in partnership with a Japanese competitor.

“When our customers have a need that can better be solved by joining forces with our competitors, we see this not as something we can do, but something we must do,” Griffith says.

But while partnering with the competition is helping the company further its priorities, Griffith says it has not lost sight of the importance of controlled innovation. Timken recently invested in new technology centers in Romania, France and India, and acquired Torrington, a $1.2 billion manufacturer of specialty bearings that is heavily entrenched in the European market.

The moves are paying off. Last year, shareholder return was greater than 20 percent; the S&P 500 delivered losses of 20 percent.

So has Timken learned its lesson? Griffith says it has.

“The passion for innovation is still what’s driving the company,” he says. “But by focusing on the needs of the customer, we’re confident we’ll keep the legacy of Henry Timken alive for many years to come.” How to reach: The Timken Co., (330) 438-3000