Editor’s Note: The following is an article from Crain’s Chicago Business profiling the innovative spirit of Dan Ustian, CEO of Navistar International Corp. The company is parent to Monaco RV LLC and Workhorse Custom Chassis Corp.
Navistar International Corp. CEO Dan Ustian churns out new products so fast, you’d think he was running an Internet incubator, not a 175-year-old company that once made the McCormick reaper.
Ustian has tripled the number of products at Navistar since 2007, expanding the Lisle-based company’s repertoire from commercial trucks to military personnel carriers, pickup trucks and recreational vehicles. Now he’s working on natural gas-powered trucks, among other things.
He’s had hits and misses. Military vehicles took off, but pickups flopped and were discontinued. Navistar’s earnings have been uneven, and Wall Street remains skeptical. Its stock is in reverse.
Many companies around Chicago face the same fundamental challenge confronting Navistar: how to grow in a mature industry. Ustian is proving an important point—old-line industrial companies operating from suburban corporate campuses can innovate as well as a startup in a garage.
“Businesses have to grow,” says Ustian, 61, who got his start at a South Side steel plant and spent his career climbing the ladder at Navistar. By the time he became CEO in 2003, he knew Navistar was headed for decline unless it moved beyond the slow-growing North American truck market.
Too often, established, publicly traded companies milk existing product lines and look for growth through acquisitions or geographic expansion. It seems like the safe play, but neglecting innovation carries the greatest risk of all. Just ask Motorola Inc. or Allstate Corp., which watched as innovative rivals commandeered their markets.
Thomas Kuczmarski, a lecturer at Northwestern University’s Kellogg School of Management who advises big companies, says they should make innovation “a long-term growth strategy.”
If that sounds crazy, big companies should realize they have natural advantages when it comes to developing new products. Along with capital and economies of scale, they have technology and know-how that can be leveraged across a range of products without much additional spending on R&D.
The key is finding new applications for that expertise. When Navistar stopped thinking of itself only as a truck maker, opportunities appeared. “Anything that’s got wheels is a potential market for us,” Ustian says.
Navistar looks for markets where it can improve on existing products and fulfill customer needs that existing suppliers aren’t meeting. In the military market, it beat incumbents to the punch with a vehicle capable of withstanding IED blasts in Iraq. In just a few years, military sales climbed to $2 billion a year, or about 14 percent of Navistar’s total.
Equally important is instilling what Mr. Kuczmarski calls “an innovation mindset” in your workforce. Ustian urges employees to think about a product or market not as it is but “as it could be. This is a difficult concept for people.”
It’s tough for people outside the company, too. When Navistar introduced a small truck engine it touted as more efficient, rivals scoffed and customers balked. But it worked, and competitors are now developing versions of the smaller engine.
Skepticism persists, however. Many question Ustian’s choice of a different technology than rivals are using to develop new truck engines to meet tougher U. S. emissions standards. The move could pay off big, or it could sideline Navistar in a key market.
Ustian’s innovations haven’t helped Navistar’s stock. Wall Street focuses on short-term earnings performance and truck sales forecasts. Thanks to a recent earnings shortfall and worries about the new truck engine, shares are down 40 percent from last May’s 52-week high and trade at a discount to its industry peers. Corporate raider Carl Icahn is pressuring the company into a merger.
For Ustian, the answer is innovation: “We’ve got some more breakthroughs coming.”