Throughout his 16 years as chief financial officer with Interface Inc., Dan Hendrix worked hard growing the flooring company through a series of acquisitions, some of which nearly doubled the company’s size. But after taking over as president and CEO in 2001, he realized he needed to get rid of nearly everything he had built.
The company had traditionally provided modular carpet tiles and other flooring to the office market, but when that market went down about 35 percent in 30 months, he knew he was facing a problem.
“We had a lot of internal things going on that were positive, but we had an outside marketplace that had turned almost into a depression,” Hendrix says.
Interface had net sales of more than $1 billion in 2000, but Hendrix saw that number drop the following year, and it would hit a nadir in 2002 at $745 million. What once was a profitable company turned in increasing losses, sinking to an $87 million loss in 2002.
“When the office market turned down, it really exposed that we had some businesses that were not even going to earn their cost of capital, and we were highly leveraged,” he says. “We had $550 million in debt, so it was almost that you really knew you had to get out of these businesses because they were not going to return their cost of capital, and you had to reduce your debt.”
With that kind of a situation, he realized that Interface needed to change if it was going to survive this downturn. He set out to create a new strategy, get the right people to help him with that and then move everybody forward to calmer waters.
Hendrix says, “Once you have the right strategy, you create the right milestones and the right people and the right tools, then it’s really about execution.”
Create a strategy
The first step for Hendrix was creating a new strategy, so he and his team had a three-day strategy session off site, and he hired an outside consultant to help them come up with a plan.
“If you’re trying to have a change-management approach, a lot of times you can come up with the ideas internally, but you really have to get buy-in with your people,” Hendrix says. “A lot of times, a consulting firm can confirm where you’re trying to go and help get buy-in with your people because it’s just another outside endorsement of the strategy you have embraced.”
As they looked at the various businesses that composed Interface, they saw that many were declining, but Hendrix and his team also saw that the core — modular carpet tile — had continued to perform.
“It was the most profitable part of our business, and it had always grown pretty much through the cycles,” Hendrix says. “It had not seen the downturns the other businesses had.”
Seeing that, it was an easy decision for the company to invest in that area instead of the businesses that weren’t even returning their cost of capital. Despite that decision, it also meant getting rid of areas that accounted for more than half of the company’s business, which would also cut half of the company’s 8,000 employees. It was an emotional decision, but with his financial background, it was easier for Hendrix to make that tough choice by focusing solely on the numbers.
If Interface was going to focus on the modular carpet tile business, he next needed to expand where they sold it. Because the office market had gone into such a great downturn, he knew that the company needed to reduce its dependence on that market and instead expand into other areas, including residential, health care facilities and educational institutions. By focusing on the core and then segmenting that into other areas besides the office market, Hendrix felt this would help deliver the company and eliminate its debt.
“Our direction at the time was to diversify and integrate worldwide in the commercial marketplace, and we changed that,” he says. “I changed that, along with our team, to the core modular business, and let’s do it across the vertical markets as well as geographically.”
With a strategy in place, he also had to create benchmarks for progress and performance.
“You have to say, ‘These are the milestones that we have to have,’” Hendrix says. ‘“This is our one-year milestone, this is our three-year milestone, and this is our 10-year vision of where we’re taking the business,’ and you have to communicate those milestones.”
When creating milestones, it’s critical to know what is and isn’t possible by researching the market and measuring how you do against the market.
“You have to get in the weeds a little bit,” he says. “You have to understand the market and do a lot of market research. You have to understand where you have competitive advantages against your competition, and you have to have a vision and get buy-in and get your people energized around that vision.”
Find strong people
In addition to a solid strategy and benchmarks, Hendrix also needed strong people to help him transform the company. It meant bringing in new people, shifting duties and, for some, letting them go.
“Put the right people on the right seats on the bus,” he says. “It was probably one of the toughest things to do. You lose people along the way that you respect, and they’re almost part of your family, but you have to make some of those calls to move the business forward.”
When he looked at his team, he particularly noticed two people that he needed to utilize more. One was the president of the Americas division who understood the segmentation concept. The other was a top modular carpet designer, who also grasped the concept, so Hendrix relied on him to develop new products geared toward the new business segments Interface was chasing.
While he had to have these and other “right” people in place, he also had to look and see who wasn’t a fit and couldn’t help him get to the next stage.
“Have certain things you’re measuring,” he says. “You know if it’s a cultural fit and if he or she is performing to the milestones you’ve created or the benchmarks you’ve created for the business. If they’re underperforming in those areas, you pretty much know when someone has reached Peter Principle.”
When you have to let people go, you then have to bring in new people who have better skills and better fit with where you’re trying to take the organization.
“You look for someone who’s creative, innovative, somebody who’s a team player and someone who can bring an organization and lead it,” Hendrix says.
He says to gauge if job candidates will be a good fit, you have to get to the heart of how they worked in their previous experiences.
“You’re looking for how they view talent and how they view their organization they’ve managed before,” he says. “Are they servant leaders or not? Are they about developing their people and developing the talent of their people? Culturally, are they a fit?”
He says that the key to ensuring that you bring in the right people is how you approach the interview process.
“You spend enough time with them, and you look at what they’ve done in their previous line of work, and you do some talent assessments,” he says. “We do some talent assessments through Gallup and so forth, which gives you some empirical data, and then you make a gut choice at the very end if they’re going to be a fit or not and if they can move the organization where you’re trying to move it.”
At Interface, sustainability has been a major focus for nearly 15 years now, so Hendrix really wanted to make sure he got people that were focused on the environment and how to reduce their footprint. This not only provided him with something to gauge candidates by, but it also drew people to the organization, despite the problems Interface was facing.
“It was already incorporated in our DNA,” he says. “It allowed us to retain and recruit some really good people in that time frame when the commercial office market was really almost in a depression.”
Move forward together
In the first two years of his plan, Hendrix sold the majority of the businesses he needed to, which generated $600 million in cash for Interface. Then, last year, he sold off the fabrics business, which was more difficult for him because it had grown so much, but that growth was tied to the office market. Despite how hard it was, the sale generated $100 million in cash to reduce the debt.
“In looking back, thank goodness we did,” he says. “With the credit crisis going on today, we’re in a much better place today by divesting that business.”
While major changes like this could get employees down, you have to continue to show people why changes are good for them.
For example, by choosing to focus on other markets besides the office industry, the sales force had to change how and who it sold to. While the salespeople may not have liked it originally, once they saw the opportunity in the other segments, they understood how it would help them.
“Our sales force was 100 percent commission-based in the United States, and they had a certain standard of living they were used to when the office market turned down,” Hendrix says. “They were very accepting of change, saying, ‘There’s a bigger opportunity in the nonoffice piece to go after,’ so it was a perfect storm.”
He also provided incentives along the way to help them come over to his side quicker by rewarding sales into nonoffice segments more heavily than those in office areas.
“You have to incent hitting milestones,” he says. “Your pay for performance has to really pay for the behavior you’re trying to drive in the organization.”
It was also important for Hendrix to recognize when something wasn’t working.
“You have to be willing to adjust as you go based on the successes that you’re having,” he says.
For example, as he and his team looked at segmenting their European business, where they previously had an 80 percent dependence on the office business, they made some mistakes.
“One thing we learned was it’s not Pan-European,” Hendrix says. “It’s very specific to each country.”
What worked in the United Kingdom, wasn’t necessarily working in France or Scandinavia. Similarly, they thought what worked in France would work in Germany. Interface had to readjust by tailoring the business for each country individually.
Hendrix has seen Interface do a 180 since he took over. Net sales have since grown to $1.08 billion in 2007, and the loss has been reduced to just $10.8 million. Hendrix prefers not to think of what Interface would be like had it not undergone the changes it did, but now that it’s successful again, he’s excited to think about a strong future full of more growth.
“From a growth horizon standpoint, we’ve got 10 years that we can still grow this business without acquiring anything new,” Hendrix says. “It’s just staying to our strategy of putting carpet tile on any floor out there.”
HOW TO REACH: Interface Inc., www.interfaceinc.com or (770) 437-6800