Built to last Featured

7:00pm EDT February 23, 2010

Norman C. Chambers and his management team wanted to be ready for a rainy day at NCI Building Systems Inc. It was 2007, and the company had pretty much finished a successful growth strategy that began in 2003, and the company wanted to have plans in place just in case things went south.

“We developed and put together plans that would, first of all, try to give us some road signs about when we would start to see this and things we would try to do immediately,” says Chambers, chairman, president and CEO of the integrated manufacturers of metal products for the nonresidential building industry.

The group identified a mild recession as a 15 percent reduction in the level of activity in the marketplace, which is measured by square feet of new construction. A deeper recession would be a 30 percent reduction in such activity.

Chambers and his team could place the plans for each scenario on the shelf and dust them off if they ever needed them.

But why would they need the backup plans? In the third quarter of fiscal 2008, the company posted record numbers, and things looked good.

But that following quarter, signs started to creep in that things were going downhill. Net income and gross profit in the fourth quarter was less than the third quarter, which was very unusual.

“We hemmed and hawed as to the cause because other parts of our business were doing quite well,” he says. “It culminated with us really taking a step back by our fourth quarter of 2008, in that it was clear that while we are going to have a good (fourth) quarter, it was going to be less volume and less revenue and less profitability than our third quarter and that was the first time. So, we stepped back and said, ‘Why is this?’ and we started challenging some of our basic assumptions.”

Even though Chambers and his team prepared for the rainy day, they were met with a monsoon in the form of seeing most of the company’s business segments declining 62 percent. From November 2008 to April 2009, Chambers had to reduce NCI’s work force by nearly 40 percent and the number of plants in the United States was reduced by 25 percent.

“We went about that in part because we had planned for something that was bad and were facing something that was twice as bad,” he says. “While we had it about right, we had to totally re-engage in exactly looking at what we are doing.

“You then have a look and say the economy is falling off a cliff and your business is linked to economy. You can reduce costs and all those things, but it doesn’t ultimately change the bare facts that there’s going to be a whole lot less work for a period of time that seems to be quite extended.”

Don’t go it alone

Plain and simple, you can’t get your company through tough times on your own.

“Leadership isn’t just the CEO,” he says. “If it is, I don’t know how organizations can effectively do well.”

Since each business unit within NCI has its own president, those individuals were responsible for coming forth with a plan to reduce costs, as were those at the corporate level.

“What occurred was the presidents and their teams within our three business units are the ones who developed a plan based on the guidance we gave, which was a mild recession is a 15 percent hit and a deep recession is a 30 percent hit.”

You have to look at all aspects of your company to see where costs can be reduced.

“It’s across the board,” he says. “Those conversations were very open. We each came forward with our plans — What could get done, why, how fast, could we do more, what would be the consequence of doing more?

“It’s a conversation that is more than just a number or percentage. It’s about what’s behind those numbers. Where are we going to be with factories we have, with the people we have? How are we going to produce even half as much of the products that we produced in this year before?”

With your team, find forward indicators in your industry that can give you an idea of what is expected.

“One attempts to, in devising strategies for a company, try to get a range of possibilities and try to forecast downside cases as well as upside cases,” he says. “I would have argued that we did a pretty good job of doing that. But, I’ve got to tell you that, in retrospect, you can only say that we gravely missed the severity of the downturn.

“The fact that I’m in good company in terms of lots of people that did that doesn’t give me any comfort whatsoever. It gives me no comfort whatsoever the fact that many missed what has been probably the worst downturn since the Great Depression.”

You have to look at your volume reduction and talk to your team about how many people you need and how many locations you can keep open to keep producing.

“You have to work backward from some numeric goal in terms of some understanding of how much business you’re actually going to be able to produce to come up with what your cost structure needs to be,” he says.

While you may feel like many factors are out of your control, you have to control what you can, like costs, and keep everyone focused, while also depending on your team.

“I think that the notion of leadership is the ability to stay the course and continue to focus clearly on those things you can control and do your level best to make the right decisions with the colleagues that you surround yourself with as a leadership team,” he says. “It isn’t just one guy.”

Sure, people look to the leader to stay focused and to make good decisions, but they also want the leader to be open to suggestions and to value that input.

“Because it is, in fact, their commitment that is the only tool you have as a leader to weather a very challenging time,” he says. “It is the commitment of the people around you, of your colleagues and their ability to enroll people that work with them that is the difference, I think, between death and survival.”

Make cuts with compassion

By the second quarter of fiscal 2009, the company had to implement a third action plan for a 50 percent reduction in square feet of new construction.

To stay afloat, the company had pay freezes from top to bottom, cut bonuses and temporarily stopped contributing to employees’ 401(k)s. But none of that hit as hard as the closing of plants and having to let people go.

“As you make those hard decisions — and frankly shutting down plants is a hell of a lot easier decision to make than letting people go — you are letting people go from top to bottom. It’s not just a bottom deal. You are letting people go that you have worked with for 20 years, who depend on a job, who depend on benefits and depend on all aspects of what a company can provide.

“There is nothing that is easy for anybody in our organization to effect those changes. The only way you can is from the perspective of those who remain will be able to earn a living and take care of their families.”

You have to announce the cuts as fast as you can so it’s not hanging over the company. You also have to be honest and as detailed as possible when explaining to everyone why the decisions were made.

“I think that to the extent that you can communicate those steps that you are taking, the processes that you

are going through to be as frank and as open with your constituency, which are customers and suppliers and employees, is very important,” he says. “While you cannot ultimately allay fears, the knowledge that you can share with them and the behavior that they can see in you as the CEO and those that make up your team is critically important.”

You also have to sincerely do everything you can to keep the company steady, and you have to communicate that you and your team are doing all that you can.

“There is no limit to the amount of time you will spend, the hours you will spend, the days you will spend in making sure that the company not just can survive but can prosper,” he says.

While you made cuts in order to keep the company steady, you don’t want to communicate that message of prospering soon after making them.

“I think I’d be fibbing a little bit that you could combine both those messages at the same time,” he says. “I’m not sure that they could be heard. So, when you are doing those cuts, it’s to survive. Then you are proving your survivability by getting back to profitability.”

Much like you don’t make the plan on how to survive alone, you can’t communicate the message by yourself either. Of course, if you are the top executive, your voice has to be heard, but your managers have to spread the message throughout the organization, as well.

“It’s interesting because one often thinks that the CEO or the chairman kind of comes forward and speaks to the troops and kind of gets the message out, and to some extent, that’s true,” he says. “But I’ll tell you, it’s really the case of your leadership team and them being part of understanding the problems and the issues, being part of and creating the solution, being part of and being responsible for the future of the company, and then taking that message out and sharing that with people.”

Employees will react better to many voices saying the same thing than just you preaching the message.

“In a company like ours, the personal types of communications are much more important than some voice from the top of the tower,” he says. “They want to know the voices are singing the same tune and are aligned, that’s for sure. But it’s very important for that structure to be in place and for that leadership and responsibility to be carried by a lot of folks.”

Though making the cuts was hard, the moves, along with capital from a private equity firm, helped the company return to profitability for the third quarter of fiscal 2009. In addition, sales for the fourth quarter of that year were $244.4 million, up 2.5 percent from sales of $238.4 million in the third quarter of the same year.

“Returning to profitability, while being somewhat shallow to those who have lost their jobs, resonated pretty powerfully with those who remained in jobs,” he says.

Though improvements have been made at the $968 million company, Chambers isn’t naive enough to think everything is fixed.

“We certainly believe that the cuts that we have made, the reduction in plants clearly with the refinancing and a significant reduction in our debt, puts us in a position to do well in the future,” he says. “We say that realizing that probably next year will be no better than this year.”

While the economy may not rebound completely anytime soon, Chambers and NCI are ready to take their share of the current marketplace.

“We have to make sure that we get more than our share of that marketplace,” he says.

“The cost reductions and the plant reductions are in service to going there and kicking ass. It’s in service to continuing to be the most successful company in our industry.”

How to reach: NCI Building Systems Inc., (888) 624-8677 or www.ncilp.com