David Petratis has a long background and a strong history in building products. As the former chairman and CEO at Square D Co. and CEO of Schneider North America, he is no stranger to the demands and fluctuations of the construction industry. That experience has proven extremely valuable since Petratis took over as CEO of Quanex Building Products Corp. in 2008, right in the middle of one of the worst economies for any industry.
“I think the performance of Quanex in the worst building environment maybe ever says that we’ve got a lot going here,” says Petratis who now serves as chairman, president and CEO. “And today, even with construction flat on its back, we’re on a margin basis, more profitable than we’ve ever been, are growing and are debt free.”
The strong position Quanex now finds itself in didn’t happen overnight or by accident. Petratis and the 2,300 employees at the manufacturer of windows and doors have worked tirelessly to keep the company pushing forward during a period where if you rest, you don’t wake up. Here’s how Petratis rebounded Quanex from $585 million in 2009 revenue to $798 million in 2010.
Evaluate your business
As a new CEO to Quanex, it was vital that Petratis got a full understanding of the business and how it was operating.
“What we did from the day I hit the door through 2009, we revisited our strategic perspective and our strategic plan three times,” Petratis says. “In six months, we made some observations and then we did it again. In an 18-month period, we took three hard looks at our strategic plan, our markets, and we came to some pretty strong conclusions that has driven growth at Quanex Building Products in a market environment that remains the weakest in my lifetime.”
While the economy made it tough for companies operating in any market, the construction industry was hit particularly hard. Petratis wasn’t sitting still expecting the poor conditions to evaporate quickly.
“First of all, you had an unprecedented decline, especially in businesses related to construction, but you also had a big commodity slide,” he says. “I think, No. 1, when you’re in an economic slide, don’t assume that there’s light at the end of the tunnel. You need to take aggressive steps that ensure the continuity of the business. You cannot make assumptions that the market’s going to come back and life’s going to be good again. The companies that have made those mistakes are still struggling today. You have to create your own opportunities within the business portfolios that you have.”
Creating opportunities in a weak market and an economy as poor as it has been is not an easy task. You have to be aggressive and make sure you’re evaluating your entire business.
“We took aggressive steps to free up cash on our balance sheet,” Petratis says. “We challenged the inventory on our balance sheets and in our factories and took them to historic lows and kept them there. That has generated cash, No. 1, to survive, but No. 2, to go redeploy in things that are growing. We have right-sized ourselves to the new business reality. We had a scale and infrastructure that was built to produce 2.2 million homes; today, we struggle to get above 600,000. Some major restructuring had to occur. We eliminated nonvalue-added activities. We made investments in the skills of our people. You have to give people hope that we’re going to make it through this, but also give them new skills to be able to compete. We have invested more … in the business than we made during the up cycle.”
Evaluating your business and restructuring areas that need it is a critical element at any point of a cycle.
“We looked at our portfolio in a BCG Matrix,” he says. (Editor’s note: A Boston Consulting Group Matrix looks primarily at market share and market growth). “Where did we make money? Where did we lose money? Where are our opportunities for future growth? What are the businesses that we’ve got to get out of? What are our stars, cash cows, dogs and dilemmas? You look at your business and try to emphasize and invest in those businesses that have opportunity or are generating large amounts of cash and you get out of the ones that don’t.
“The other thing that we did was went through a review of our customer profitability and looked for opportunities for price realization. You’ve got profitable customers and unprofitable customers. You’ve got to think about that in terms of just standalone profitability and then you’ve got to think about it in terms of cost to serve. There are customers that are more expensive, take more customer touch and that’s got to go into the analysis. Have a dialogue with your business leaders and your salespeople and ask, ‘What’s our cost to serve?’ A customer that has a low margin and has a high maintenance cost are the first ones that you take action on. It’s critical with a triple underline to know where you make money within your product portfolio.”
Whether the economy is forcing hardships on your company or you’re simply having a tough year, communication within your business is the most important thing a CEO has to do.
“We stepped up our communications aggressively, especially versus my predecessor who operated in a better economic time,” he says. “We cut a quarterly video. There’s a camera crew that comes in and we cut a 20-minute message every quarter. Employees get a letter from me every three-day holiday and I do site visits. You also have to put on your customer ears and get out and visit customers. We’ve done surveys to understand our ability to deliver and our understanding of the voice of the customer.”
Petratis also stressed the importance of safety among his employees and communicated how safety could help improve the business as a whole.
“As a new guy coming in, I have pushed the hell out of safety awareness,” he says. “To me, this is Maslow’s Hierarchy of Needs. If I can get our employees to believe that I care about their safety and health, I am awarded by our employees the opportunity for them to self-actualize into things like customer satisfaction and continuous improvement of our business. In a down environment, if you fail to communicate, if you fail to invest along that hierarchy of needs, I think you’ll lose your work force. We’ve certainly done the things that we’ve needed to do in terms of our cost structure, but we’ve provided extra attention to the people that are still with us.”
If leaders don’t take the initiative to get out in front of their staff and tell them the good and the bad, the company will lose direction and purpose.
“I would say to those CEOs who are not aggressively communicating where they want to go and what are the tough issues that face the business, they probably own the business or should be looking over their shoulder for the next guy who’s going to come in and replace them,” Petratis says. “Think about any human dimension. When things are uncertain because of economic crisis, family crisis, people want to know, ‘Where am I going? Help me understand the risk and uncertainties.’ People understand that times will be tough. You can’t run from them. You have to communicate and you have to do that in a variety of manners. You’ve got to do it in person, you’ve got to do it in writing, you’ve got to do it through media communications and then you’ve got to go back and do it all over again.”
Throughout Petratis’ business career, he’s been in front of the people that he’s led every quarter since 1986.
“That level of communication has rewarded me and the people I’ve worked with with excellent performance and you’ve got to double down when it’s tough,” he says. “You communicate in the good times and it’s like putting money in your checking account. You’re building in the confidence of your work force so when times are bad, you’re believable. They know who you are, you’ve made an investment and now you can make a withdrawal when you’ve got to do something tough.”
Adapt to changes
During a down economy you have to be looking for ways your company can change and adapt to keep pushing forward.
“I think anytime you’re going through a change effort you have to establish proof of the need,” Petratis says. “This is why we need to do this. This is why it will be good for customers, shareholders and employees. Once you’ve satisfied that criteria, there will be resistance. You’ve got to check for that resistance. There are people that can’t make change. For those people that can’t buy in to where you think you want to go and you give them the chance to air their opinions, they need to move into new positions or on to new companies. I think it’s one of the tougher things for managers and leaders to make that call.
“You’ve got to make sure you’ve got the talent around you to take you where you want to go and they’ve got to believe in it. If you don’t have the talent, if you’ve got people in the wrong position, you’re not going to be able to get people where you want to go. You’ve got to have the courage to help them get to where they can contribute the best.”
Through a project Quanex coined ‘Project Nexus,’ the company reshaped its sales force and is serving a broader customer base with its total portfolio.
“We had resistance when we started Project Nexus,” he says. “First of all, we socialized where we wanted to go. I believed when we first launched Project Nexus in January 2010 that we would have resistance, but I didn’t make organizational changes. I didn’t just blow up the organization day one. I let the idea percolate. I got people around it, and we sold it. Then I changed the organization. It was six or seven months after we began to share the data, share the opportunity, help our organization understand that if we didn’t go out and create prosperity, prosperity wasn’t going to come knocking at our door. We still had resistance and we continue to fight that.”
Change is an ongoing process and in the same way that people change, companies change. It’s critical that you communicate that fact.
“You’ve got to continue to communicate that goal, why it’s important we make that change,” Petratis says. “It goes back to your communications and it goes back to your vision and you’ve got to reinforce those things. Nobody likes change. I would just assume to have things the way they were in 2005 when we were building 2.2 million home starts. I wish it never would have changed from that, but it did. You’ve got to change with it, or you die.”
Change seems daunting to most companies, but oftentimes, change brings out the best in employees, leaders and the company.
“Another element to this is that you’ve got to help educate people in the change process,” Petratis says. “Give them new tools and skills. As you change things you create problems and a work force that has a solid toolbox of problem-solving tools manages through those changes more effectively. I don’t give them 20/20 vision; I give them direction. They’ve got to apply the problem-solving tools and get us to where we need to be as a company and as an organization.”
When companies undergo change, it can be very stressful to all involved. Make sure that you celebrate any successes change brings.
“The other thing you have to do in the change process is punch up your wins,” he says. “We created a lot of change with Project Nexus. In our fiscal 2010, our engineered products business grew by 12 percent and our aluminum business grew by 25 percent in a market that was negative. We could have hunkered down and not changed anything and we would have had more pain because the market wasn’t going to give it to us. You’ve got to punch up your wins and help people see there are benefits to taking on new challenges.”
HOW TO REACH: Quanex Building Products Corp., (713) 961-4600 or www.quanex.com
The Petratis File
Born: Council Bluffs, Iowa
Education: University of Northern Iowa, production management; MBA, Pepperdine University
What was your first job and what did you learn from that experience?
I’ve had a lot of jobs. My first job was mowing grass, shoveling snow and detasseling corn. I’ve pumped gas. I’ve worked in an ice cream factory where I bagged ice. My big break that changed my life was getting a job in an electrical supply house when I was 18. I learned how to work. I learned how to be accountable and responsible. I learned how to listen to customers both internal and external.
What’s the best business advice that you’ve ever received?
Take care of your employees and your customers and everything else will take care of itself.
Who is someone that you admire most in business?
I have a mentor named Charlie Denny he was the chairman and CEO of Square D Co. He played a big influence in my life. Jerre Stead is the chairman and CEO of IHS. Those guys are different types of leaders, but I benefited from my exposure to both of them.
What traits do you think a good leader needs?
I think you have to have honesty, respect, courage, tenacity and resiliency. You also have to be a servant leader.
If you weren’t a CEO, what would be your dream job?
I would be a cattle rancher and farmer. I’ve already got the farm part. I like being around equipment and being around animals and working on the land. I’ll have it someday.