Emerson Electric: Consistent Profits, Consistently

by Charles F. Knight

When I meet with people outside Emerson, I’m often asked: What makes Emerson tick? That question typically reflects an interest in the company’s consistent financial performance over the past three-and-a-half decades—but my answer deals with issues that go far beyond financial statements.

Simply put, what makes us “tick” at Emerson is an effective management process. We believe we can shape our future through careful planning and strong follow-up. Our managers plan for improved results and execute to get them. Driving this process is a set of shared values, including involvement, intensity, discipline, and persistence. We adhere to few policies or techniques that could be called unique or even unusual. But we do act on our policies, and that may indeed make us unusual.

Several assumptions underlie our management process. We believe, for example, that profitability is a state of mind. Experience tells us that if management concentrates on the fundamentals and constantly follows up, there is no reason why we can’t achieve profits year after year—even in manufacturing businesses that many observers consider mature and unglamorous. We also believe that companies fail primarily for nonanalytical reasons: management knows what to do but, for some reason, doesn’t do it. That is why Emerson has a strong action orientation; we see to it that our strategies get implemented properly.

A third belief is that the “long term” consists of a sequence of “short terms.” Poor performance in the short term makes it more difficult to achieve strong performance in the long term. The basis of management is management from minute to minute, day to day, week to week. Finally, it is crucial to “keep it simple.” While effective management is simple in theory, it’s difficult in practice. As Peter Drucker has noted, managers seem naturally inclined to get caught up in complicated ideas and concepts—ideas that look great on paper but just don’t work. A corporation has to work hard to have a simple plan, simple communications, simple programs, and simple organizations. It takes real discipline to keep things simple.

My answer, therefore, to those who ask what makes us tick is far-reaching in its implications but uncomplicated in its substance: what we do at Emerson to

achieve consistent performance at high levels is just solid management, rigorously executed. Interestingly enough, given our consistent performance, the dynamic impact of Emerson’s approach to management is sometimes overlooked. Wall Street analysts, for example, tend to portray our stock as a good investment, but they also consider us a conservative and unchanging company. Yet a close look at what Emerson has accomplished in recent years reveals that we have changed a great deal.

For example, through our Best Cost Producer Strategy, we have spent more than a quarter of a billion dollars on restructuring and now have best cost positions in all of our major product lines. We’ve moved from an export-led to an investment-led international strategy, resulting in a rise of international sales from about 20% to about 40% in the past five years. As a result of a $1.6 billion investment in technology during the 1980s, new products—those introduced in the past five years—as a percent of sales have increased from 9% to 20%. All the while, we’ve adhered to the discipline of constantly increasing earnings, earnings per share, and dividends per share (see Emerson’s earnings and return on equity charts).

The driving force behind all that change is a simple management process that emphasizes setting targets, planning carefully, and following up closely. The process is supported by a long-standing history of continuous cost reduction and open communication and is fueled by annual dynamic planning and control cycles. Finally, it is nourished by strongly reinforced cultural values and an approach to organizational planning that is as rigorous as our approach to business planning. It is an environment in which people at all levels can and do make a difference.

The Basics of Our Approach

In my view, the job of management is to identify and successfully implement business investment opportunities that permit us to achieve the financial targets we set. That definition is carefully phrased, and it constitutes the foundation of our approach to management.

The first step is to “set financial targets,” since almost everything we do is geared toward reaching our financial objectives. When I came to Emerson in 1973, the company was already a strong performer whose stock traded at a premium relative to other industrial companies. We wanted to maintain this performance. We analyzed Emerson’s historical record and the records of a set of “peer companies” that the stock market valued highly over the long term for growth and consistency. We concluded that, to maintain a premium stock price over long periods of time, we needed to achieve growth and strong financial results on a

consistent basis—no swings of the pendulum, just constant improvement starting from a high level.

Emerson’s Record (Located at the end of this article)

Consistent high performance requires ambitious and dynamic targets. Every year we reexamine our growth targets to see whether they remain valid, and we have recalibrated our growth objectives several times because the business environment has changed, or Emerson has changed, or we’ve learned something that causes us to see the world a little differently. In the early 1970s, for example, the general level of economic activity, plus the energy shocks and their inflationary aftermath, forced us to rethink our nominal and real growth rates. In recent years, we’ve targeted growth rates relative to economic growth as a whole, based on revenue targets above and beyond economy-driven expectations.

We have not modified our other financial goals, despite pressure to do so. During the 1980s, for example, we were criticized because we refused to increase our debt position. Given the then-prevailing attitudes toward leverage, our financial position appeared unduly conservative. But we regard our finances strategically: maintaining a conservative balance sheet is a powerful competitive weapon. When we see an opportunity that we can finance only by borrowing, we have the capacity. By the same token, we’re not encumbered by interest payments, which are especially burdensome during economic downturns—as the experience of the 1990s bears out so far.

Once we fix our goals, we do not consider it acceptable to miss them. These targets drive our strategy and determine what we have to do: the kinds of businesses we’re in, how we organize and manage them, and how we pay management. At Emerson, this means planning. In the process of planning, we focus on specific opportunities that will meet our criteria for growth and returns and create value for our stockholders. In other words, we “identify business investment opportunities.”

From a management standpoint, the most important decision a company makes is the level at which it plans and controls profits. For a corporation of our size, approaching $8 billion in sales, we are relatively decentralized. Our division presidents are responsible for identifying business investment opportunities and planning and controlling profits by product line. We do not have groups or sectors

or other combinations commonly found in large, diversified companies. Although we recently adopted a new structure that gathers similar divisions into businesses to exploit common distribution channels, organizational capabilities, and technologies, we never aggregate financial reports for purposes of planning or controlling profits at levels between the division and the corporation as a whole.

Once we identify business investment opportunities, the next step is to “successfully implement” them. This is where many companies fail. Often implementation goes astray because the people who plan are separated from the people who have the responsibility to make the plans work. The plans go to the bottom of an operations manager’s drawer, and that’s the end of them. At Emerson, the people who plan are the people who execute. They have ownership and involvement; it’s their plan, not a corporate plan. That ownership makes all the difference.

Sometimes companies fail to execute because people are not permitted to complete the implementation. Systems in other companies may require putting good people on a fast track, giving them more responsibility, and promoting them. As a result, people are not permitted to stay involved long enough to complete what they start. In contrast, we try to focus on jobs and projects rather than status; we compensate people based on the importance of their jobs, not on the number of people reporting to them or the arbitrary need for a promotion.

The structure and everyday operation of Emerson embodies this basic approach: set tough targets, plan rigorously to meet them, and follow through on the plans.

Two Underlying Principles

The first pieces of our management process were put in place during the 1950s, when my predecessor, W.R. “Buck” Persons, established two fundamental principles—continuous cost reduction and open communication—as central to everyday management.

The first of the two has correctly been described as a “religion” and “a way of life” at Emerson. Every year for the past three-and-a-half decades (in good times and bad), the company has set cost-reduction goals at every level and required plant personnel to identify the specific measures necessary to achieve those objectives. Over that period, Emerson’s cost-reduction programs have targeted

improvements of 6% to 7% a year, in terms of cost of sales. During the 1980s, when fierce global competition challenged many of our businesses, we redoubled our efforts, aiming for still higher levels of annual improvement. Our present cost-reduction goals, developed by each division, average about 7% of the cost of goods sold.

We identify the programs that will give us 70% to 80% of our cost-reduction targets before the year starts. We know exactly what we’re going to do: we’ll install this machine tool to streamline that process, saving two-and-a-half man-years; we’ll change this design on that part, saving five ounces of aluminum per unit at 75 cents a pound; and so on. Division and plant management report every quarter on progress against these detailed targets. Although this entire saving does not reach the bottom line, without this program combined with price changes, we would not be able to stay ahead of the inflation that affects our costs, and our margins would drop.

The second principle—open communication—is also fundamental to the management process. For decades, Emerson division presidents and plant managers have met regularly with all employees to discuss the specifics of our business and our competition. We continue this practice today because we believe people are more likely to be receptive to change if they know why, when, and how it’s coming; they need to be involved in the process.

As a measure of communication at Emerson, we claim that every employee can answer four essential questions about his or her job:

1. What cost reduction are you currently working on?

2. Who is the “enemy” (who is the competition)?

3. Have you met with your management in the past six months?

4. Do you understand the economics of your job?

When I repeated to a business journalist the claim that every employee can answer these questions, he put it to the test by randomly asking those questions of different employees at one of our plants. Each employee provided clear and direct answers, passing both the journalist’s test and ours.

Communication is a two-way street. We listen to employees and make changes when we hear a better idea. We also conduct, and spend a lot of time analyzing, opinion surveys of every employee. At many plants, survey information reaches back for decades and is a valuable resource that enables us to track trends. I personally review a summary of every opinion survey from every plant. When I spot a downward trend, I immediately ask the managers in charge for an explanation. It has to be a good one.

Best Cost Producer

Continuous cost reduction and effective communication became two central elements of Emerson’s Best Cost Producer Strategy, which we developed during the early 1980s to meet global competition. The four other elements of this strategy are: an emphasis on total quality, a thorough knowledge of the competition, a focused manufacturing strategy, and a commitment to capital expenditures.

Emerson’s Best Cost Producer Strategy (Located at the end of this article)

The Best Cost Producer Strategy begins with a recognition that our customers’ expectations for quality, broadly defined, are getting higher every day. To remain competitive, we have to meet or exceed the highest standards in the world for product performance, on-time delivery, and service after the sale. In this context, for example, the ideal of “zero defects” is not some high-tech dream: we’ve gotten to the point where defects are counted in parts per million—and I’m not just referring to electronic products. For example, on one of our electric motor lines, we have consistently reached fewer than 100 rejects per one million motors.

We also stress the importance of analyzing and understanding the competition. Simply comparing ourselves with ourselves teaches us nothing of value. We use the products and the cost structure of our competitors as the measures against which we assess our performance. We do this in detail, legally and ethically, by taking apart competitors’ products, analyzing the cost of components, knowing regional labor rates and freight costs, and more. If we want to make intelligent decisions about investing millions of dollars in a new plant to make circular saws, we must assemble as clear a picture as possible of the cost structures and overall plans of both our domestic and global competitors.

Once we understand the needs of our customers and the plans of our competitors, we develop a focused manufacturing strategy to produce more competitively and to provide better service. Among other things, this strategy means staying close to customers and vendors, helping them achieve their goals as well as our own. It also means that we compete on process, not just product design; that we focus strictly on manufacturing and aren’t afraid to say so; that we address the issue of our installed manufacturing base and are willing to relocate plants, invest in technology, and make other tough decisions when necessary.

Finally, we support the elements of our Best Cost Producer Strategy through an ongoing program of capital investments. This commitment to capital expenditures is crucial: it’s the only way to improve process technology, increase productivity, gain product leadership, and achieve critical mass regularly. This investment program is made possible by our strong cash flow and balance sheet, which we view as a major competitive asset; effective asset management plays a major role in freeing up the needed cash.

These elements of strategy are not especially new or original. We think the key to success is closely tracking performance along these dimensions and attacking deviations immediately. Ten years ago, Emerson was not globally competitive in all its major product lines. Today we are, thanks to the intensity of our manufacturing approach and to the management process through which we make it work.

Making the Future Happen—Planning and Control

At Emerson, rigorous planning has been essential to the company’s success since the 1950s; it’s no coincidence that our long record of improved annual earnings dates from the same period. As CEO, more than half of my time each year is blocked out strictly for planning. Emerson President and Chief Operating Officer Al Suter and other senior managers spend even more time in planning sessions. We devote so much time to planning because that is when we identify business investment opportunities in detail—and because good planning takes time.

Each fiscal year, from November through June, selected corporate officers, Al Suter, and I meet with the management of every division for a one- or two-day planning conference, usually held off-site. These division conferences are the

culmination of our planning cycle. The mood is confrontational—by design. Though we’re not trying to put anyone on the spot, we do want to challenge assumptions and conventional thinking and give ample time to every significant issue. We want proof that a division is stretching to reach its goals, and we want to see the details of the actions division management believes will yield improved results. Our expectations are high, and the discussions are intense. A division president who comes to a planning conference poorly prepared has made a serious mistake.

Corporate management sets the stage. We require only a few standard exhibits, including a “value measurement chart,” a “sales gap chart,” and a “5-back-by-5-forward” P&L statement. (See the four corresponding exhibits, which are reproductions of actual Emerson charts.) While the list is short, it takes substantial planning and backup data to develop these exhibits. To prepare properly requires that division presidents really understand their business. Every piece of data we ask for is something division management needs to know itself.

The value measurement chart captures on a single page such vital data as long-term sales and profit growth, capital investment, and expected return. The chart displays the amount and type of investment and return on capital over the preceding five years, allowing us to see quickly the return on incremental capital. Add to this a forecast of capital investment and returns over the next five years, and we can see whether the division is earning, or expects to earn, a return on total capital greater than our cost of capital. In other words, we can tell in a glance whether the division is creating stockholder value.

The sales gap chart and sales gap line chart display current sales and make projections for the next five years based on an analysis of the sources of growth: the market’s natural growth rate, the division’s change in market penetration, price changes, new products, product line extensions, and international growth. Should the projected growth not meet or exceed our target, the division faces a

gap. Then it is management’s job to tell us the specific steps it will take to close the gap.

The 5-back-by-5-forward P&L chart arrays current-year results in the context of 5 years of historical information and 5 years of projections. This exhibit shows not only sales growth but also gross profit margin, SG&A expense, operating profit margin, capital turnover, and returns on sales and capital. We look at 11 years’ worth of data to spot trends. If they’re down, then we want to see why we can’t make the margins we used to make and what actions will bring them back. If they’re up, we ask, “How much further can we drive them?”

Together, those four charts tell us basic information about the business, alert us to any problems, and provide clues to the steps divisions must take to outperform the competition and produce results for stockholders. Beyond the required exhibits, the planning conference belongs to the division presidents. We’re there to help them improve their plans and their results. We want to hear division management’s views of customers and markets; its plans for new products; its analysis of the competition; and the status of such manufacturing issues as quality, capacity, productivity, inventory levels, and compensation.

We also believe in the logic of illogic. Often, a manager will give a logical presentation on why we should approve a plan. We may challenge that logic by questioning underlying assumptions illogically. The people who know their strategies in detail are the ones who, after going through that, are able to stand up for the merits of their proposal. In the end, the test of a good planning conference is whether it results in managers taking actions that will have a significant impact on the business.

Since operating managers carry out the planning, we effectively establish ownership and eliminate the artificial distinction between strategic and operating decisions. Managers on the line do not—and must never—delegate the understanding of the business. To develop a plan, operating managers work together for months. They often tell me that the greatest value of the planning cycle lies in the teamwork and discipline that the preparation phase requires.

The Measure of Managers

The measure of Emerson managers is whether they achieve what they say they will in a planning conference. We track the implementation of our plans through a

tight control system. That system starts at the top, with a corporate board of directors that meets regularly and plays an active role in overseeing our business. Management of the company is directed by the office of the chief executive (OCE), which presently consists of me, Al Suter, Vice Chairman Bob Staley, Vice Chairman Jan Ver Hagen, the seven other business leaders, and three additional corporate officers. The OCE meets from 10 to 12 times each year to review and discuss issues facing the divisions individually as well as the corporation as a whole.

Input from the divisions arrives in the form of their president’s operating reports (PORs), monthly submissions that summarize the divisions’ results and immediate prospects (see the president’s operating report chart). We view the budget process used by many companies as static. In contrast, the POR is a dynamic tool: we update expected annual results each month and make rolling comparisons against historical and projected performance.

The divisions themselves are governed by their own boards of directors, with a member of the OCE serving as chairman. Other members of the board include the division president and the president’s direct reports. The division boards are

partly a legacy of Emerson’s growth through acquisition, but more important, they are a reflection of the level at which we plan and control profits. The boards meet monthly to review and monitor performance. In addition, the president and chief financial officer of each division meet quarterly with corporate operating and financial management to discuss short-term operating results and lock in on the current quarter; we call these sessions “president’s councils.”

Each division president, along with appropriate staff, meets once a year with senior corporate officers for separate financial reviews. These reviews occur late in the fiscal year and are a review of performance against financial plan, with a detailed financial plan of the coming year.

At the financial review, we push the divisions to think through different scenarios and to plan and advance actions that different contingencies will require. We use a technique called ABC budgeting: an A budget applies to the most likely scenario, a B budget to a possible lower level of activity, and so on. As a result, our managers know well ahead that, if their business environment changes, they have a well-thought-through set of actions they can take to protect profitability. This contingency planning is particularly helpful in an economic downturn; we are not paralyzed by bad news because we’ve already planned for it.

Information generated for and during the division planning conferences and financial reviews becomes raw material for the corporate planning conference. We consolidate the data and take a fresh look at the aggregate at our corporate “preplanning conference” about a month before the corporate planning conference, which is held in late September near the start of each fiscal year.

For the preplanning conference, we combine input from the divisions with an analysis of the macroeconomic environment. The annual planning conference itself, which includes corporate management and the top officers of each division, serves primarily as a vehicle for communication. Corporate officers share overall results and communicate the financial plan for the coming year as well as the strategic plan for the next five years. It is an ideal setting for sharing success stories and for challenging conventional wisdom.

So the wheel turns full circle, and we do it all over again. This may sound repetitive and boring. But paying attention to detail makes Emerson successful.

Management Development

We manage organizational needs with the same intensity as we manage our businesses. Emerson’s approach to the development of people is founded on two principles: first, the corporation has the obligation to create opportunities for talented individuals; and second, these individuals have the obligation to create their own careers. We provide the opportunities; it’s up to our people to take advantage of them.

Our organization planning reflects the critical importance we attribute to human resource issues and our dissatisfaction with standard, off-the-shelf appraisal and compensation packages. We rely primarily on two techniques.

The first is the organization review, which is part of the annual planning and control cycle for each division. This review is an annual half-day meeting centering on basic human resource issues in a division. In preparation, a division will evaluate all managers who are department heads or higher, assessing them according to specific performance criteria. At the meeting, we talk about key managers’ length of service in a particular assignment, their potential to move to a more difficult job, and specific responsibilities they might assume.

We try to identify young people who look like “high potentials” and develop plans to offer them a series of assignments that will enhance and augment their skills. Finally, we try to ensure that the division has—or knows how to get—the specific human resource skills it will need to implement its strategy. If a business plans to open an operation in Eastern Europe, for example, we want a demonstration that it has the organization and personnel capacity to succeed there.

The second technique is one we adapted from a major engineering construction firm. We maintain an organization room at headquarters, where we keep personnel charts on every management team in the entire company, corporate and division (see Emerson’s personnel profile chart). Every year we update this information, which covers more than a thousand people, on the basis of organization reviews. The charts include each manager’s picture and are color-coded for areas such as function, experience, and career path. They provide a powerful visual aid to human resource planning. When a position opens, we know quickly which candidates are most qualified and which people might succeed the candidates we move up.

Both of these organization planning techniques support our focus on follow-through and implementation by letting us know when people should not be moved. For the benefit of implementation, we avoid moving people who are in the middle of important assignments.

Emerson’s management personnel come from four sources. The first—and by far the largest group—consists of long-term employees. We believe that operating the company successfully requires management continuity. The typical Emerson division or corporate officer is in his or her late forties and has about 15 years of service. About 85% of promotions come from within Emerson; we believe that this approach to management development contributes to good morale and helps our culture remain cohesive. A second major source of personnel is acquisitions. Many of our division presidents and business leaders joined the company this way; if they stick around—and, in most cases, they do—they tend to thrive in the Emerson system.

Third, every year we recruit 10 to 20 high-potential young people and put them in jobs for which they are not yet qualified. The best make it; the others don’t. It’s that simple. We carefully track these people, and we retain a majority of them; some have become division presidents and corporate officers. Finally, we hire experienced people for certain jobs because we believe that occasionally bringing in new thinking is very important. We also hire from the outside when we need specialized experience that we do not have internally.

To keep people motivated and involved, we’ve tried to avoid problems that can paralyze corporations—things like organization charts and large headquarters staffs. We don’t have a published corporate organization chart at Emerson. No such piece of paper exists because we want people communicating around plans, projects, and problems, not along organization lines.

I am a believer in small, talented, functionally oriented corporate staffs. But we work hard at not loading up on staff because a large staff creates work. For every person we hire at corporate, we have to hire others in the divisions. A number of years ago, one of the best staff people I’ve ever known came to me with a list of programs Emerson’s operating management wanted to implement and the seven people he would need to hire to help carry out these initiatives. I sat down with him and said, “Let’s cut the number of programs in half. How many people do we need to hire now?” He said, “Three.” Then I said, “Let’s cut the number of programs in half again. Now how many people do we need to hire?” He said, “None.” As it turned out, we were able to complete all the programs the businesses wanted with no additions to corporate staff.

There are two lessons to be learned from this story. The first is, don’t underestimate the capacity of well-managed organizations to get important things

done—less important things probably will not get done, but important things will. And the second is, don’t burden very talented staff people with a lot of administrative responsibility; the loss of their productivity is rarely worth the extra capacity the additional people provide.

So, whenever someone considers hiring additional personnel, the presumption is that the answer will be no. In 1991, Emerson has about the same number of people at headquarters—approximately 300—as it did in 1980, when the company was one-fifth its current size.

Emerson’s compensation policies help involve and motivate our people. Simply, we pay for results. Each executive in a division earns a base salary and is eligible for a year-end “extra salary,” which is based on the performance of the division according to measurable objectives. This extra compensation is calculated as a multiple of an extra salary “centerpoint,” which we establish as part of the total compensation target at the beginning of each year. Depending on how well the division performs, the multiplier applied to the centerpoint ranges from 0.35 to 2.0. If the division hits its forecasted target for performance—numbers based on commitments that were mutually agreed on during the annual financial review—the multiplier is 1, and members of the management team will receive their centerpoint extra salary. Doing better increases the multiplier, and doing worse lowers it.

The formula for computing compensation targets changes over time, depending on the needs of the business. At present, sales and margin have a 50% weighting, with inventory turnover, international sales, new product introductions, DSOs (a measure of accounts receivable), and individual management objectives accounting for most of the rest. Other factors that may be included in the formula are geared to the economics of a particular division. In addition, stock options and a five-year performance share plan make up an important part of the total compensation package.

Systematic Process—and Benefits

Emerson’s annual planning and control cycles provide important advantages in addition to good plans and tight controls: the process fosters teamwork, communication, understanding of the business and the marketplace, improved management skills, and focus on the fundamentals; it serves as an ongoing

mechanism to identify and assess management talent; and it helps assimilate new acquisitions into the company.

The most important benefit, of course, is the bottom line. The proof lies in constantly improving results and long-term, high levels of total return to stockholders. We are opportunists, constantly on the lookout for new management techniques. When a new idea surfaces—such as a method of measuring value creation or focusing factories or a statistical process control technique—we take a hard look. If we think the idea has merit, we’ll adapt it into our management process and operations.

Occasionally, I’m asked whether the Emerson management process is exportable to other companies. The quick answer is yes—it happens every time we make an acquisition—but it is never easy. As has happened here, building a smooth-running operation will entail years of effort and piece-by-piece construction.

The process cannot be installed all at once, nor is it necessarily appropriate for all other companies. But nothing we do has a geographic or national basis; the sources of competitive success are the same in Japan, Germany, the United States, or any other strong manufacturing economy. A company that puts the pieces in place will see progress and results. We believe that planning will pay off if management implements it aggressively, that the results of the process will reward the intensity of the effort, and that people will respect and respond to tough challenges.

One final, basic point: never underestimate the cumulative impact of incremental change and the gathering forces of momentum. When you grind it out a yard at a time, you are in fact moving ahead. I can’t say it will work for everybody, but at Emerson we view it as the only way to manage.

Author’s note: This article was written with substantial input from the three senior members of Emerson’s office of the chief executive: Albert E. Suter, president and chief operating officer; Robert W. Staley, vice chairman and chief administrative officer; and Jan K. Ver Hagen, vice chairman.

HBR.org  >  January–February 1992

Emerson’s Record

During the past several decades, St. Louis, Missouri-based Emerson Electric Co. has posted an enviable record for a U.S. manufacturing company. In 1991, Emerson marked its thirty-fourth consecutive year of improved earnings and earnings per share and its thirty-fifth consecutive year of increased dividends per share—a performance matched by only a handful of manufacturing companies in the world and unmatched by any U.S. company that makes comparable products or serves similar markets.

Since 1956, Emerson’s persistence has rewarded investors, yielding an annual total return that has averaged 19.1%. According to a recent study by A.T. Kearney, Emerson is one of only 11 U.S. corporations that outearned its cost of capital during each of the past 20 years and one of only 22 industrial companies whose ratio of market price to book value ranked in the top 20% of U.S. corporations during each of the past 10 years.

Although it is one of America’s leading manufacturing corporations, Emerson is hardly a household name. Many products bearing its brand names are better known commercially than Emerson itself. Among them are Skil, Dremel, and Craftsman power tools, Ridgid professional plumbers’ tools, In-Sink-Erator waste disposals, Copeland compressors, Rosemount instruments, and Browning, Morse, Sealmaster, and U.S. Electric Motors in the power transmission market.

Emerson’s 40 divisions make a wide range of electric, electromechanical, and electronic products for industry and consumers. The divisions are collected into eight businesses: fractional horsepower electric motors; industrial motors and drives; tools; industrial machinery and components; controls and components for heating, ventilating, and air conditioning equipment markets; process control equipment and systems; appliance components; and electronics and computer support products and systems.

The Editors

HBR.org  >  January–February 1992

Emerson’s Best Cost Producer Strategy

In recent years, the Best Cost Producer Strategy has been fundamental to Emerson’s profitability and its success in global markets. Developed in the early 1980s, the strategy consists of six elements:

•    Commitment to total quality and customer satisfaction.

•    Knowledge of the competition and the basis on which they compete.

•    Focused manufacturing strategy, competing on process as well as product design.

•    Effective employee communications and involvement.

•    Formalized cost-reduction programs, in good times and bad.

•    Commitment to support the strategy through capital expenditures.