Lessons from Pentair’s Shift from Power Tools to Water Systems - Modern Distribution Management

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Lessons from Pentair’s Shift from Power Tools to Water Systems

The key to success in new markets is allocating resources effectively.

Distributors across segments continue to diversify their product and service mix, aiming to buffer themselves from the ups and downs of more cyclical business. Some are looking beyond their traditional markets for growth, while others are adding complementary product lines. 

MRO distributor Interline Brands, for example, has grown its jan-san business significantly in the past few years, with janitorial supplies now making up nearly half its annual revenues. 

“The jan-san business is a very consumable and stable business,” Interline Brands President Ken Sweder told me in an interview earlier this year. “It’s been nice to add that to our portfolio, and it complements some of our end-markets very well.”

McKinsey & Company recently interviewed the CEO of Pentair on the topic of shifting product focus as part of a series of articles on strategy.

Pentair CEO Randall Hogan talks about how the manufacturer exited power tools a decade ago – which at the time made up more than 40 percent of its business – and shifted its focus to water systems. “The power-tools group was our largest business when I became CEO, in 2001, but I don’t think the board was surprised when I told them I thought it had the dimmest prospects. We didn’t control our own destiny,” Hogan said in the interview.

“Lowe’s and Home Depot, the retail outlets which stocked our professional niche tools and helped drive growth in the 1990s, accounted for 55 percent of sales, and we were dependent upon them.”

(Read more about the impact of big-box stores on the B-to-B market here.)

So Pentair looked more closely at other parts of its business and determined that water systems were the most attractive for growth, M&A and industry dynamics, including channel power, the potential for innovation and pricing. After selling its power-tools business, it bought Wicor Industries (2004) and Tyco International’s flow-control business (2012). Pentair, with about $8 billion in revenues, is now known as a manufacturer of water and fluid solutions, and valves and controls.

Was anyone concerned about the fact that power tools and water systems were not exactly the same kind of business? Hogan told McKinsey that yes, many were concerned, but that the company knew they wanted to exit power tools. That goal was clear. The question was how to get there. “Most companies in my experience don’t have a destination; they just want to keep doing what they’re already doing, at an incremental pace,” he said in the interview.

What keeps companies from taking steps to reallocate or refocus resources? In another article from McKinsey, two McKinsey directors say there is often reluctance to move people or capital from existing work to a new task in a new market. Businesses may also be reluctant because of the short-term hit to profitability that often comes with investment in new markets; this is especially true with public companies.

“The problem isn’t conceiving the strategy; the problem is implementing it — actually redeploying people and capital so that the strategy comes to life. And indeed, what we’ve been measuring in the research is this reallocation of capital and of people. And we’re finding companies do far too little of it,” Conor Kehoe says in the piece.

Read more about that in this McKinsey article.

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