John J. Engel doubled down on WESCO’s customers in a market slowdown

 

In John J. Engel’s first year as president and CEO of WESCO International Inc. — one of the world’s largest distributors of electrical, industrial and communications products and services — sales dropped 25 percent. It was a trial by fire. The Great Recession began and the company faced the toughest challenges it ever had.

Like many executives, Engel, who became chairman in 2011, has war stories about exactly what he faced and when he faced it. Everything was uncertain, including the global financial markets.

“Everyone was trying to get a handle on exactly where things would bottom out and what was going to occur,” he says.

So, when the Fortune 500 company’s industrial customers, which represented more than 40 percent of sales, experienced a troubled market in 2015, both Engel and WESCO had survived worse.

A catalyst for change

WESCO, a sales and service arm that took Westinghouse products to market, spun out as a standalone distributor in 1994. At $1.5 billion in annual sales, it was breaking even to slightly losing money. In 2004, Engel joined a company that had doubled in size and had operating margins of 3 percent, which is typical for its industry.

Today, WESCO is a large public company in a fragmented and mostly private industry. It has 70,000 customers worldwide and sales of more than $7 billion because it has diversified through organic growth and acquisitions.

But that growth stalled in 2015. When commodity prices fell and global demand dropped, many of WESCO’s oil and gas customers cut their spending nearly in half. Other industrial customers cut back, as well. At the same time, a stronger U.S. dollar reduced the profit on WESCO’s Canadian sales.

Ultimately, for two years, sales dropped roughly 10 percent, Engel says.

“Those years were challenging, and we took some actions to position ourselves because what we wanted to do during the downturn was super-serve our customers, take a larger share even if they were spending less,” he says.

WESCO adjusted its cost structure, closing or consolidating 40 branch locations to end up with roughly 500, and reducing its workforce by approximately 1,000 people. It also shifted investments to higher growth areas, which is a natural outcome of WESCO’s reliance on continuous improvement. The company is in its second decade of Lean.

Engel says WESCO used the slowdown as a catalyst to right size and drive productivity across other parts of the operation.

“When the organization is not growing, it becomes very challenging because we’re relatively lean. It’s a thin-margin business. So, we’re efficient and effective, and when we don’t grow, the challenges around adjusting our cost structure are more acute than I would say other organizations that have a deeper cost structure,” he says.

Engel and his team did what you should always do when faced with challenges.

“You act decisively. You move with speed,” he says. “Try to see reality for what it is, not what you would like it to be.”

Until you understand and accept reality, Engel says you won’t be motivated or driven to take decisive action.

He directed employees to focus externally on customers, to the extent they could, because while WESCO’s challenges were acute, its customers were facing those same challenges. As someone in the middle of the value chain, this strategy became a rallying cry during the slowdown.

He also tried to improve the quality and frequency of internal communications across the company — publicizing the wins and, most importantly, making sure all the WESCO leaders were visible, knowledgeable, fully engaged and actively leading their teams.

“Change is tough. It requires leadership, and the way we managed through it was, what we measure is what we got done and we were very clear and transparent about what the situation was in the business,” Engel says. “We provided clarity and we tried to communicate effectively, efficiently and, quite frankly, over-communicate as we managed our way through it.”