Growth evolution Featured

10:45am EDT April 27, 2006
When John Orr was named president and CEO of Myers Industries in May 2005, he was faced with the challenge of growing a company that consisted of 13 brands, employed more than 5,300 people and, until then, had always been family-run.

And although former CEO Stephen Myers left the 73-year-old company with a solid foundation of growth and profitability, Orr wanted to take that growth one step further. After analyzing the situation, Orr developed a plan to grow Myers based on five key principles: organizational development, business growth, customer satisfaction, cost control and positioning the company for the future.

“These are the cornerstones of our business, and by pursuing them, we ... position ourselves to deliver greater value to our customers, shareholders and employees,” says Orr.

Depending on people
One of the first things Orr did upon becoming CEO of the polymer products and wholesale distribution company was to organize Myers into five segments, four based on the products manufactured and one based on distribution.

Managing directors were appointed to oversee each segment, and they, along with seven other general managers, are charged with putting together a strategic plan for each business segment, keeping Orr’s five key principles in mind.

Orr uses a set of financial metrics based on percentage of growth in sales and profits, as well as return on invested capital, to evaluate his managers. One of his favorite quotes is “Great managers are almost always great simplifiers — they can cut through an argument, debate or doubt to offer a solution that everybody can understand.”

Orr also defines great managers as loyal people who are detail-oriented, who can motivate others and who make tough decisions to better the business. Most of Myers’ general managers have been with the company for years, serving in several different positions.

When Orr talks about organizational growth, his first principle, he talks about having the right people in the right places. Once he has the right managers in place, he holds them responsible for making sure their employees are in the right place and doing their jobs.

“The general managers need to know what their key positions are,” says Orr. “Then you take a look at the people who are in those positions and see if they match up. I’ve always found that there really aren’t bad people. They may just be the wrong people for a particular job, so you may be able to find something that is more suited to them and their knowledge, experience and key aspects that they can do differently. Then you find the right person and put that right person on the job.”

Listening to customers
When it comes to Orr’s second principle, business growth, innovative products that create excitement in the marketplace are essential and allow the company to better serve long-time clients, as well as gain new ones. Orr would like 10 percent of his business to come from new products, and he relies on both employees and customers to come up with innovative ideas.

“It’s the responsibility of the general manger and his team to pull out those ideas from his organization,” says Orr. “I unfortunately only get to visit one of our companies maybe once a year, if I’m lucky. It really falls to those executive management teams to harvest those ideas. New ideas create growth, growth creates profitability opportunities and people are measured on profitability.”

Customers also approach Myers when their needs change or to suggest a new product that could help their business. Although their suggestions help fuel innovation, listening to those suggestions, questions and concerns is a large part of Orr’s third principle, customer satisfaction. Orr says that the way to satisfy his clients is by giving them a complete solution to their problems. When a client suggests a new product or process, Orr sends engineers to research it, then sales associates try to sell other clients on it.

“If the amount of business is there, then we will design and tool a new product,” says Orr.

One example is Myers’ Citadel container. Before it was created, tomato paste processors and manufacturers had to ship their product in wooden boxes that often deteriorated before they got much use. Someone brought this problem to Myers’ attention, and its Buckhorn business created a plastic solution, now known as the Citadel bulk shipping container. The sales team then approached leading manufacturers with this solution, which was instantly embraced by the industry.

There aren’t many things that Myers won’t do for a customer. In fact, the company recently invested in a new manufacturing plant in Brazil to help support a key client’s expansion and it custom-designed plant packaging to help another customer launch new lines of flowers.

Judging by the numbers
Although Myers’ sales were strong, an increase in the cost of raw materials was a serious threat to its profitability. The cost of plastic resin, the primary raw material that Myers uses, was 30 percent higher in 2005 than in 2004, and Orr had to find a way to offset those prices. That led to his fourth principle, cost control.

Orr looked for ways to minimize expenditures and maximize cash flow and offered his employees this advice: Spend Myers’ money as cautiously as you spend your own. Orr also stresses that operating expenses can only be a certain percentage of sales. That number is confidential, but employees know it and are held accountable for meeting it.

“There has been a direct correlation to increased material costs to a decrease in our operating expenses,” says Orr. “All of our businesses are charged with that. They’re held accountable for it. That involves reductions in spending ... and several factories were consolidated. We are doing all the right things from a cost standpoint that we feel is necessary to help us offset, but the way those resin prices have gone up, we can’t save our way to profitability.”

So that price increase must be passed on to customers. Myers was able to recover approximately 75 percent of the $48 million increase in raw material costs, and had these efforts not been made, its net income would have been dramatically lower.

When it comes to the fifth principle, positioning Myers Industries for the future, the four previous principles come into play, as does selling businesses that aren’t excelling and acquiring new businesses that will enhance Myers’ position in key markets.

Orr and his managers are constantly evaluating the different segments and brands within Myers. They meet once a year and discuss where the company is going and where capital should be spent, and financial metrics are set up to keep businesses accountable and on track. Those metrics are reviewed on weekly or monthly, depending on the business.

“We’ve set certain financial hurdles to meet,” says Orr. “If businesses are meeting those, then we continue to invest in those with capital. If businesses aren’t quite meeting those, we ask ourselves, ‘What can we do to get them to that level?’”

If Orr thinks that a particular business may not be able to live up to the standards set for it, he will consider selling it. And if he comes across a company that looks like it will fit well with Myers’ existing businesses, he will consider acquiring it. Myers has a history of growth from strategic acquisitions and that is something that Orr will continue to look for in the future.

Because Myers is essentially a holding company, it can’t approach acquisitions in the same manner as many companies. Orr has to make sure that a strong management team is already in place because Myers doesn’t have the executives to run new businesses. He extensively interviews the leaders of these companies to make sure that they really know and understand the business and that the business can grow.

“We try not to have to put any management into it, because A, we don’t have it, and B, that’s kind of costly and it takes away from people knowing all about the business,” says Orr. “When you bring somebody from the outside, there is a steep learning curve. When you make an acquisition, you don’t want to go through a learning curve, you just want to keep operating.”

Financials also come into play, but Orr needs to know that a business can continue to grow, not just that it has grown in the past. With proven leaders in place, Orr has a better chance of predicting that business’s profitability.

Finally, he needs to make sure the potential acquisition’s product will fit in and add to Myers’ existing products.

“We virtually do everything on the plastic side of business and quite a bit on the rubber side, so it helps that an acquisition has a process that we know and understand,” says Orr. “We also look at potential customers in markets to see if there are any synergies there with our other businesses.”

If all of those factors are in place and the business looks positioned to grow and make money, Myers will acquire it. Many times acquisitions are a cheaper way to offer new products because it doesn’t have to buy equipment or find employees to create that product.

One year after taking control of Myers Industries, Orr has taken the first step in following in Stephen Myers’ footsteps and leading the company to continued growth and profitability. His strategic business evolution program has helped the company take a more disciplined approach to growth, which contributed to an increase in revenue from around $800 million in 2004 to more than $903 million in 2005.

Net income increased 25 percent in the fourth quarter and resulted in the highest fourth-quarter earnings in six years.

“What really pleases me is that Steve selected me about five and a half years ago to come into Myers with the idea that we would eventually have this transformation,” says Orr. “...It’s quite an honor when you take over a business that has been family-run for almost 75 years, and I’m trying to continue that tradition.”

HOW TO REACH: Myers Industries, (330) 253-5592 or www.myersind.com