John Foster helped change Coutinho & Ferrostaal's business approach to survive Featured

7:01pm EDT January 31, 2012
John Foster helped change Coutinho & Ferrostaal's business approach to survive

Over the past few years, John Foster’s clients have not been embracing the conventional approach to the way his company does business, and its sales and backlog have been dropping below forecasts because of it.

Foster, president and CEO of Coutinho & Ferrostaal Inc. North America, a division of Coutinho & Ferrostaal, one of the largest independent steel trading companies in the world, had to make a choice when the recession hit in 2008. The company could wait to see what became of the economy and its customer’s reactions to it, or it could adapt to the changes and position itself for the foreseeable future.

No matter what the decision, the more than $500 million division could no longer survive doing business as usual. Foster chose to shake things up to regain confidence and trust from the business’s customers.

“My focus and challenge has been on re-engineering the mindset of a well seasoned but cognitively well entrenched team of professionals and a back-to-back trading philosophy,” Foster says. “Moreover, set the challenge to go beyond what has been the tried and true commercial formula of the steel trading business for literally decades and now embrace the already re-engineered mindset of our customer base that has changed significantly over the past 10 years.”

Coutinho & Ferrostaal had to switch from being a principal in a global steel transaction to becoming more of a value-added service partner for its customers.

Here’s how Foster took on the challenge of embracing a re-engineered mindset of the company’s customers in order to survive.

Shake up your comfort zone

In today’s business environment, it would be a tough task to find many businesses or industries that haven’t had to change critical ways in which they operate because of new market dynamics. The steel trading industry is no exception.

“The fundamental reasons such change was necessary are found in the fact that the traditional landscape of the trading model, although not obsolete by any means, had changed, and if new avenues of value and commerce were not found, embraced and expanded upon, our company would not only not grow, but fall badly behind the curve of creative innovation that our trade partners have come to expect from our organization,” Foster says. “This meant initiating some monumental change to meet some monumental challenges and where business as usual was not going to cut it.”

The needs of Coutinho & Ferrostaal’s clients have been changing since the explosion of the internet and were altered again when the Great Recession hit. Foster had to help his team understand that their customer’s financial and risk management needs had changed dramatically.

“With the advent of the Internet into our business as well as the proliferation of mass information media start-ups, our customers, vendors and most importantly our competitors knew most of what was happening in the globalized steel world the same moment we did,” Foster says. “The other important and more recent change dynamic that needed to be addressed was the dramatic alteration in how our customers and supply partners evaluated risk and coped with financial stress in light of the varying degrees of corporate trauma that ensued since mid-2008.”

This loss of a particular competitive advantage forced Foster and his employees to bring other value to the daily transaction equation. As is the case with many crisis situations, opportunities can be found. The challenge here was to take the team out of its comfort zone of traditional business and start listening much more closely to trade partners who were no longer interested in going offshore for steel, but rather turning to domestic supply.

“After all those years of having the ball in your hand for the customers needs and then almost overnight they said, ‘I’m not going to buy your futures anymore …  I’d rather buy from you, but you have to have it here for me,’” Foster says. “So right there was a pretty big sea change in how we do our business, going from two-, three- or four-month futures to a just-in-time type of approach.”

To get his team on the same page, Foster had to sit down and lay out the situation in order to understand where to go.

“We sat down with the rest of our department heads and asked, ‘How are we going to manage this? How are we going to meet these needs? These are things we haven’t done before. What are our risk guidelines?’” Foster says. “As a global company, we literally had to redo our risk guidelines. If you’re too conservative, you’re not going to survive. We had to use our professional expertise and change our risk guidelines to align ourselves with customer needs.”

In situations like these, you can never communicate too much.

“You just really need to explain it to them in very clear terms,” he says. “This is what we’re going to need to do to get back to where we were. By just putting up simple pictures, you really impress upon people. I like to get the group together and say, ‘Here’s where our performance has been the last three years. Here’s the event that happened. This is the effect it had upon us. These are our forecasts and we’re having trouble getting there because what worked for all these past years is not working.’

It was really quite a revelation to bring everybody into the mix and say, ‘This is the challenge we have and this is what we’re being told to do. How can you help do it?’ It’s just listening and communicating it to the entire corporation.”

React

The changes in the steel trading market were happening quickly and Foster and his team had to do everything they could to keep up and find out what the company could do to meet the new needs.

“Budgets were revamped and cost-cutting measures were initiated,” Foster says. “Because of the speed of the market retraction however, we found ourselves being in more of a reactive mode than a proactive one. This was when we readily saw the need to pool the brain trust of our key leaders from the financial, logistics and commercial sectors of our company and turn ourselves into a more proactive direction and highlight as many creative options as we could to generate positive business.”

These options primarily revolved around financial services and expanded risk-management models. However, they quickly recognized a key element was missing.

“That element was feedback from our many trade partners as to what they now need to meet their own particular set of challenges,” he says. “It was here that our own change model began to form. Moreover, it saw us moving from that initiating principal role to a better listening and more value rich service partner in our thinking.”

If Foster wanted to find out what direction to go in, he would need to go directly to customers for the answers.

“We went back to these customers and said, ‘Look, you have concerns about inventory management, we can help you do that. You want just-in-time inventory, we can help you do that.’” Foster says. “We have stepped in the middle of domestic suppliers and our customer base, which has never happened in the history of our business, and it’s just a new dynamic.”

It is crucial that you get input from both customers and employees when looking for a new direction.

“I would emphasize stepping back in times of such crisis and reminding yourself of the ever-important need to listen to the boots-on-the-ground team members while mandating the need for them to do the same with their customers and trade partners,” Foster says. “It is only through keen listening that the seeds of expanded thinking and creativity are found.”

Such listening skills must also be encouraged throughout the organization.

“No discipline of the organization can be comfortable with business as usual,” he says. “Even such stoic departments as accounting and human resources need to be given the nod that it is OK to embrace change and question what has been company policy and standards. This is one of the other keys to our implementing change initiatives—not only keen listening skills to understand what needs to be done, but encouraging a corporate culture that feels both comfortable as well as empowered to implement those changes that are viewed as positive directions for the company.”

Now that it had been established the company would need to more of a strategic partner for its customers, Foster had to get complete buy-in for the new direction.

“Buy-in can be said to be grounded in mutual respect and trust for each other’s expertise and shared vision for the company,” he says. “This is a dynamic that is not built overnight, but over years of team building and shared goal setting, albeit not always in full agreement. It is this team and shared information approach that helped us create an ‘OK, let’s try it’ attitude that gets the change mode moving. The need for a change is most fundamentally driven by both the short and long-term dynamics of the market place in which you participate day in and day out. Subsequently, the need for change simply becomes a logical business decision.”

Foster had to broadcast this new market fundamental in a clear, logical and business professional fashion to get an “all hands on deck” environment to be embraced.

“The buy-in was actually a little bit easier than I would have guessed because of the dynamics,” he says. “The rapid pace of the problem before us got people looking for answers. The environment was a fertile one for this type of change. By very logically and professionally putting out the downside versus upside and risk versus reward, it got there.”

It’s that focus on communication that will aid any business leader in changing directions and getting his company onboard.

“You have to get more than your usual team of players together in the same room,” Foster says. “Be careful not to insulate yourself from all levels of the company. I think there are some CEOs that aren’t very comfortable getting outside their own office and they tell their next-in-line lieutenants, ‘Here’s the deal.’ Those lieutenants take it to managers and those managers take it to their people. Things can get lost in translation. You have to put yourself out there as the leader across the whole scope of the company. If it’s a manufacturing company, get out on the floor. Talk to the workers and the guys on the machines. That’s what’s going to impress and engender change more quickly because you’re showing respect for the entire organization.”

Improve upon your success

Once you have found the new direction for your company and you see success, you have to continue to look for ways to meet customer needs.

“So far, I am quite pleased with our initiative results,” Foster says. “As could be expected, some divisions were more receptive to change than others. Change and further market conditions adaption is a constant, particularly in light of the recent Great Recession leaving a mark whose ramifications could be expected to last several more years going forward. At the same time, I am a firm believer that adversity is a catalyst for opportunity. I can say with confidence that our company has made great strides in changing the traditional way of conducting our business to one that absolutely expanded upon our inherent commercial skill sets and financial assets.”

The changes made have allowed the company to outperform its market and meet goals by breaking the molds of its traditional comfort levels.

“What we see now is the need to build upon our new orientation to change acceptance and get deeper into our customers and vendors hierarchy of needs while plying our well-honed and fundamental skill sets into related but new sectors of our industry,” he says. “In other words, apply what we know has worked well further up and down the industry’s commercial chain.”

HOW TO REACH: Coutinho & Ferrostaal Inc. North America, (281) 999-9995 or www.coutinhoferrostaal.com   

Takeaways

-         Test your company’s comfort zone areas so not to become complacent

-         React to market and customer needs by listening and communicating

-         Continue to improve upon the value your company can add

The Foster File

John Foster 

President and CEO

Coutinho & Ferrostaal Inc. North America

Born: Philadelphia

Education: Studied business and economics at Marietta College and got an MBA from the University of Colorado in association with the University of San Francisco.

What was your very first job, and what did that experience teach you?

I mowed lawns in the summer and shoveled snow in the winter. If you wanted to have some money for fun, you had to work for it.

What was the scariest part about the change initiatives at CFI?

That they might not work. Anytime you go into uncharted territory, you have that certain trepidation of, ‘Is this going to work?’ Is the team going to support it? Which I didn’t have much concern about, but the real concern was on the customer side because they were in more of a panic than we were. I was mostly concerned with would the marketplace accept the value-added service initiatives that we were bringing to their table.

What is the best business advice that you’ve ever received?

Be as open and honest with your business partners as you can, because most business is built on trust and that’s the only way you’re going to build the trust you need to bridge the most difficult times. Everybody can be friends in good times, but it’s the bad times that really test your trust and relationships.

What is your favorite thing about the steel trading business?

I just love to see the steel in a building that we sold or on the foundation of a truck trailer driving down the road. To see a ship unloading our imported steel and loading our exported steel because that is an important dynamic in our industry.

What is your favorite business trip location?

Brazil. They are excellent steel people and they know how to work hard and play hard, which is one of my philosophies.