Case Study - Industrial Co

Implementation of a new CEO's vision for a traditional manufacturing company.
This case study illustrates how we helped a traditional manufacturing company open up a new world of growth and intra-company collaboration, generating over $650 million in annual revenues and over $275 million in improved annual productivity.  It also outlines how we transferred the approaches and techniques used, enabling the company to add programs with similar impact every year.

Synopsis

When a new CEO takes the reins of a company, he or she normally has at least three major domains of concern:

  • Business content and strategy: quickly identifying key areas of focus for the business, be they branding, new competitive positioning, debt management, operating efficiency, or comparable strategic issues
  • Relationship and team: making sure he/she has the right team for the job; quickly establishing teamwork with the executive team, board of directors, employees, and customers, and establishing credibility with institutional investors and analysts
  • Mobilization: producing measurable results in a short period of time, including articulating his/her vision and getting the organization to implement new strategies in “record time” – often requiring cultural changes

This case study illustrates how we helped one new CEO address elements of all three and:

  • Helped steer a traditional manufacturing company into a new world of growth and intra-company collaboration, releasing over $650 million in annual revenues and over $275 million in improved annual profitability
  • Introduced changes that drove new behaviors necessary to energize the entire organization
  • Helped produce initiatives and results that are completely owned by the businesses, rather than being perceived as “the consultants’ program”
  • Transferred the approaches and techniques used, enabling the company to add programs with similar impact every year
  • Achieved everything with a consulting budget well below 1% of one year’s profit improvement from the initial programs

Company Overview

"Industrial Co."

This client is a long-established company making heavy equipment for the mining and construction industries. For more than 100 years, the company had developed a stellar reputation in this area, and has recently diversified beyond its traditional base.

Through a series of acquisitions and divestments Industrial Co. had built a ‘diversified industrial company’ with a range of businesses. In the last 10 years well-known brands in personal transportation, trucking, security, and food processing were added to the portfolio.

In the late 90’s Industrial Co. executed a financial plan across these businesses to reduce working capital and thereby increase margins and earnings per share. The plan was successful, as over this period working capital was substantially reduced, and margins grew from 8% to over 14%. Meanwhile earnings per share grew at an impressive 22%, compounded annually. However, top-line growth over this period came primarily from acquisitions made from operating cash flows, and perhaps for this reason Industrial Co. was still perceived by the stock market as a low-growth, heavy manufacturer. The stock price underperformed its peers and trailed Industrial Co’s EPS improvements dramatically.

In 1999, a new CEO was appointed. The CEO believed that while Industrial Co. had made great strides in operating efficiencies, the next task was to add an emphasis on organic growth and change the market’s perception of the company. Recognizing the diversity of customers, markets, products, services, and capabilities within Industrial Co. the CEO knew that the whole was greater than the sum of the parts. He believed that by leveraging the whole enterprise new opportunities for growth could be found. He also knew that achieving synergy from the corporation’s businesses would change what jobs were performed, who performed them, how they were organized and rewarded, and even how employees thought about the company and their job. This disruption would be a major challenge for the organization, and require skillful implementation if it were not to create confusion, loss of direction, and disenchantment.

The CEO chose Alder Associates to partner with him because he believed that we could understand his vision and what it would take to accomplish it across multiple dimensions: from strategic to tactical, from cultural to organizational, and from the enterprise to personal levels. He would use our experience and capabilities to supplement those of his company where necessary to achieve this fundamental transformation.

Approach - Part One

The CEO knew that he could not pull off this major change if the vision remained his, alone. He must have his executive team take on the challenge with full ownership of the vision and aggressive growth targets. Alder supported the clarification and articulation of his vision and facilitated discussions of the vision and strategy. A level of honesty that had never before been possible in those discussions resulted in a stand on the part of the executive team to more than double the size of the company in five years.

As the executives grappled with the realities of the vision and how they would achieve it, they agreed to emphasize three strategic themes:

Growth
  • Rather than focusing exclusively, as in the past, on operational income they would break out growth targets and develop plans to achieve the doubling of their revenue
Operational excellence
  • Financial management was still essential to control costs and to understand where profitable growth was possible
Dual Responsibility
  • Increasing the value provided by the independent businesses of Industrial Co. through capitalizing onsynergies would require more than restructuring. Businesses would have to adopt more integrated business models and processes. Additionally, employees at all levels would have to adopt a new mindset that enabled them to identify with the entire enterprise as well as their home business

The leadership team embraced the model of Dual Responsibility, a dramatic departure from the past operating model, and agreed to help redesign the company to capitalize on that possibility. Four global growth sectors were identified and an enterprise reorganization of business units, products, and markets followed.

Work was soon underway to develop a new vision for the corporate center, creating clarity and alignment on a governance model that would truly serve the future direction of Industrial Co.

Alder Associates’ consultants provided support by;

  • Providing best-practice expertise on corporate center design
  • Facilitating client exploration of alternative models
  • Developing draft business-models design to stimulate thought and discussion
  • Helping key stakeholders reach alignment on a model to which they could commit

The top 200 leaders across the enterprise were convened at a leadership conference to discuss and learn about the new vision. Alder resources helped to plan the meeting and prepare leaders to accomplish the intended results. This meeting represented a key milestone for bringing the concept of Dual Responsibility off of the drawing board and into a new set of behaviors centered on collaboration, enterprise leverage, and networking.

Approach - Part Two

A “strategic initiative process” was designed and agreed to. Initiatives were chartered to explore and validate new opportunities that would capitalize on cross-business synergies. In 2001, Industrial Co. launched the first set of strategic initiatives designed to produce either dramatic growth or improved profitability, with minimal capital expenditure. Business cases were developed and a process for managing enterprise-wide initiatives was adopted. The initiatives were designed to accomplish all of the following objectives simultaneously:

  • Provide substantial dollar impact as well as real and sustainable business change
  • Develop high-potential leaders required to manage Industrial Co.’s growth
  • Create practical understanding and application of Dual Responsibility across multiple businesses and levels within the organization

Upon launch of the initiatives, behaviors and policies associated with the old, autonomous culture emerged, including:

  • Lack of effective transfer pricing between businesses
  • Inability to portray one-face to the customer through a common approach to selling, terms and conditions, and administrative processes
  • Increased complexity created by multi-dimensional internal and external relationships
  • Misalignment of existing goals between the sourcing and selling organizations
  • Unavailability of shared, timely business information across the organization

Alder Associates coached both team leaders and sponsors, working with them to understand and address these challenges in a way that would produce one of the benefits required of the initiatives - real business change. While in many cases short-term work-arounds for these issues may have been feasible, it was the role of the initiatives to reveal the “rocks lurking beneath the surface” that could undermine enterprise synergies. By identifying the obstacles and working together to resolve them, the initiative teams cleared the way for lasting transformation.

When, by the beginning of 2002, the initiative process was seen to be a success, and the vision was being driven further into the organization, the leadership team decided that the ability to conceive and run strategic initiatives should be brought in-house. As the 2001 initiatives moved out of the planning phase and into implementation, Alder worked with the client to design and staff an Enterprise Program Office (EPO). Alder consultants worked with the new group to transfer to them all relevant learning, tools, techniques and documentation from the strategic initiative process. A broad range of approaches was used to maximize take-up and understanding, including:

  • Full documentation of the strategic initiative management process
  • On-the-job coaching in the implementation of this process for 2002
  • Personal effectiveness coaching
  • Extensive competency-transfer sessions on areas chosen by the EPO and modeled specifically around the strategic initiative management process
  • Short-term role filling as requested by the EPO as it staffed up

Outcomes

Today, Industrial Co. has established new pathways for the dramatic growth and increased profitability of its existing businesses without requiring high levels of capital expenditure. The new CEO leveraged Alder resources to help move his vision into action crisply and quickly, while producing the following results:

  • The initial strategic initiatives have been launched, and these alone will achieve over $650 million in incremental annual revenues and over $275 million in improved annual profitability
  • An Enterprise Program Office has been established, institutionalizing philosophies and processes that will continue to generate and sustain what has been begun. It has recently launched the second wave of enterprise initiatives targeting more business growth and improved internal capabilities
  • The organization is living the cultural shift to “Dual Responsibility” through practical, business based activities
  • Through the initial strategic initiatives, high potentia leaders have been developed and stepped into new business roles. Upcoming initiatives will be vehicles for the ongoing development of new leaders
  • A generative, engaged network has been established, allowing for the collaboration and synergy of people who knew little about other Industrial Co.’s businesses or their leaders prior to the effort

The initiatives and their accomplishments are completely owned by the businesses, rather than being perceived as “the consultants’ program”, and it all has been achieved with a consulting budget well below 1% of one year’s profit improvements from the original strategic initiatives