{"id":6698,"date":"2015-12-09T22:22:37","date_gmt":"2015-12-10T03:22:37","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/ecolab-a-nexus-of-innovation-and-high-quality-service\/"},"modified":"2015-12-09T22:56:06","modified_gmt":"2015-12-10T03:56:06","slug":"ecolab-a-nexus-of-innovation-and-high-quality-service","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/ecolab-a-nexus-of-innovation-and-high-quality-service\/","title":{"rendered":"Ecolab: A Nexus of Innovation and High Quality Service"},"content":{"rendered":"

Overview<\/strong><\/p>\n

With over $14Bn in Sales worldwide, (2014A) Ecolab is the global leader in water, hygiene and energy technologies and services. They are the largest dominant global provider of cleaning, sanitizing and water treatment solutions to 1MM businesses in over 170 countries. Dishwashing chemicals in restaurants? Ecolab. Laundry solutions for clean sheets in hotels? Ecolab. Pest control at schools, soap dispensers in mall bathrooms and even pipe cleaning chemicals for downstream oil companies? You got it. Ecolab provides chemicals and services for all of these and much more. The effects of their far reaching global business are prevalent everywhere in our day-to-day lives and most of us as end consumers do not even realize it. Ecolab has enjoyed top notch and long lasting share price\u00a0performance since its IPO in 1978. Two major pillars of this success have been a business model that emphasizes tangible value returned to customers and an operational model that supports it. The way these two models align and support one another in the business make Ecolab highly effective, and a definite Winner \u2013 both for its customers and investors.<\/p>\n

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Financial Performance<\/strong><\/p>\n

Basically\u00a0every way you look at it, Ecolab\u2019s financial performance has been a success story. Since its IPO in 1978, Ecolab\u2019s stock has amassed a cumulative return of 8,896%. This translated into an annualized return of 12.5% and trumps the S&P benchmark by a legitimate margin (which had Cumulative Returns of 2,135% and Annualized Returns of 8.4% in this time period). This outperformance has been even more pronounced<\/strong> in recent history as well – as displayed by the charts below:<\/p>\n

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\n<\/a>\u00a0 \u00a0\u00a0 \"Together\"<\/a>
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NYSE: ECL Performance Compared to the S&P 500 Over 1-Year and 10-Year Time Horizons<\/strong><\/p>\n

So this leads to the obvious question, “How has Ecolab been able to achieve this type of enduring success over various periods\u00a0of time since its public offering?” The answer lies in its business model that focuses on maximizing value for its customers and then the equally important operational model that allows it to do so.<\/p>\n

Business Model<\/u><\/strong><\/p>\n

Ecolab\u2019s Business model is divided into 4 main parts: Global Industrial, Global Institutional, Global Energy and Other<\/p>\n

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\"Nice\"<\/a><\/p>\n

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Global Industrial<\/strong><\/p>\n

Provides water treatment and process applications, and cleaning and sanitizing solutions primarily to large industrial customers. Operating units within the Global Industrial reportable segment include Water, Food & Beverage, Paper and Textile Care<\/p>\n

Global Institutional<\/strong><\/p>\n

Provides specialized cleaning and sanitizing products to the foodservice, hospitality, lodging, healthcare and retail industries. The Institutional operating unit provides specialized cleaners, sanitizers and equipment for warewashing, on-premise laundries and general food safety and housekeeping functions.<\/p>\n

Global Energy<\/strong><\/p>\n

Operating under the Nalco Champion name, serves the process chemical and water treatment needs of the global petroleum and petrochemical industries in both upstream and downstream applications.<\/p>\n

Other<\/strong><\/p>\n

Provides pest elimination and kitchen equipment repair and maintenance through the Pest Elimination and Equipment Care operating units<\/p>\n

Ecolab\u2019s business model is centered around\u00a0taking the value created for its customers and transforming that into\u00a0earnings growth for its investors. A key contributor to the company\u2019s steadily growing earnings (which of course translates to a growing share price) has been its ability to consistently grow sales. It accomplishes\u00a0this in two ways. Ecolab A) charges their customer 10-20% more than their competitors for similar products and B) increases the prices of their services annually for their customers. In a generally fragmented space this is very hard to do, yet Ecolab is able to successfully do so and simultaneously grow their customer base. The aggressive business model Ecolab executes is only achievable due to the\u00a0an effective operational model that puts the customer first.<\/p>\n

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Operational Model<\/strong><\/span><\/p>\n

Ecolab\u2019s business model is certainly a wonder in today\u2019s age of highly competitive business environments. To maintain profitability, they charge more than their competitors and they increase this amount on\u00a0their customers every year. How are they able to achieve this? Ecolab attributes their success in this regard is their \u201cCircle the Customer\u201d approach (which is essentially their operational model). There are a few main keys to their operational model:<\/p>\n

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\"Innovation\"<\/a><\/p>\n

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Innovation and Product Development Processes
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