No stone unturned Featured

7:00pm EDT January 31, 2007

When John Stanik took the job as president and CEO of Calgon Carbon Corp. in 2003, he faced the challenge of improving the company’s sagging profitability in the face of stiff foreign competition.

In the early ’90s, the Chinese began to produce activated carbon, the core of Calgon Carbon’s business, and to sell it to traders in the United States, eroding the profitability of Calgon’s activated carbon sales.

Traders were buying product manufactured in China, selling it as it was in transit, and when it arrived in port, delivering it to the customer at a low price with virtually no overhead costs.

“We were profitable, but it was clear that we needed to improve our margins and stop the declining margins and turn the company around,” Stanik says. “So the first thing I felt we had to do was we had to put an effective strategy together. In 2003, when I assumed my position in February, we immediately started the strategic planning process.”

Stanik sifted through the nitty-gritty of the company with CFO Leroy Ball, poring over every detail of the business to figure out what needed to be done to meet the goals of the strategic plan. To free up himself and top management to dig into the company, Stanik left the day-to-day operations in the hands of the company’s three regional leaders for the Americas, Asia and Europe.

“We asked those three leaders to continue to run the business and continue to optimize the business results while Leroy and I and the business leaders at the first and second levels went through the detailed analysis of the business,” he says. “It was that structure that I think allowed us to be successful.”

With the business leaders at the controls of the company, Stanik was able to investigate the smallest details of Calgon Carbon’s business.

“Getting into the details of what we did, we took things to the micro level,” says Stanik. “We analyzed markets, we went down to customer contracts. We looked at our business segment performance, we looked at the profitability of every technology we had. We looked at the overhead of the company, we looked at pricing of our product. We looked at cost trends for our materials and regional performance.

“Literally, there was no stone that was unturned in that evaluation. By virtue of that and by continuous communication between the leadership team, the guys that were running the regions, the task team and the CFO and myself, with constant communication we developed a list of activities that needed to be completed in this multiphase re-engineering program.”

Stanik says focusing on such a fine level of detail is critical when it comes to gaining a true and comprehensive understanding of the business.

“It’s critical for the leader of a company to understand how the business works,” he says. “It’s critical to understand what is working and what isn’t working. I think it’s important to involve people on the front line and the second line along with the executive group, sharing information and making sure that what’s implemented is effective and the right thing to do.”

Stanik and his team put together a plan calling for shedding noncore businesses, revitalizing the research and development function and focusing on the fundamentals that would make Calgon Carbon a great company again.

Paring to the core
The team examined what businesses the company was in and what the profitability levels were.

“The first things we wanted to look at were the market segments to find out if we were in businesses that we no longer wanted to be in from a market segmentation perspective,” Stanik says. Customer contracts were reviewed, and the unprofitable ones were scrutinized.

“We talked with our regional business leaders and said either we have more pricing capability here, or we need a different value proposition, but we’ve got to improve the profitability of these business segments,” he says.

In their analysis of the business, Stanik and his team recognized that parts of the business didn’t mesh closely enough with its core competencies or fit its strategic direction.

“We needed to understand who we are and where we’re taking this company,” Stanik says. “It became very clear to us that we were a purification company, yet we had a charcoal division that made home charcoal briquettes. We turned that company around and we made it profitable, but it just wasn’t aligned with where we were going. We decided to divest that piece.”

The company walked away from some businesses, consolidated operations and moved some operations to cut costs and increase profits. Management sold a solvent-recovery business, closed a plant in Japan and opened one in China, and formed a new joint venture in Thailand.

Stanik says that in the short term, selling off two units meant a loss of between $42 million to $45 million in revenue and losing a fair amount of profit, as the charcoal briquette business had turned significantly more profitable as a result of its re-engineering. But the divestitures also made the company much simpler, and the leadership of the company was much more aligned and moving in the same direction.

Re-engineering R&D
Stanik saw that one of the company’s strengths — and its traditional engine for growth — had been its research and development competencies.

“This company’s history was one of creating solutions for purification problems,” he says. “So the company was an innovative one, and every time we hit one of those home runs, it grew by a substantial portion. We had gotten away from that, and I felt that we had the capability, because we were a very strong technical company, to get that back and create new products.”

Stanik changed the research and development function to one that was more market-driven, focused on identifying problems and finding solutions rather than developing technologies and then searching for problems they could solve. “We changed the way that we did innovation,” he says. “We put marketing in front of R&D, and the reason we did that is because we felt that we had to be very cost-effective. We didn’t want R&D working on new product opportunities that no one wanted to buy. What the change meant was that before R&D could spend any money or any time, marketing had to approve the project.”

Stanik created and leads a group to guide the research and development effort.

“We meet quarterly and we discuss the status of projects that are in process, and we approve new products that are to be introduced into the new product development process,” he says. “There’s a twofold purpose: speed and getting new products to market at the right time. Those things were extremely important in turning things around, and in 2005, we rolled out 10 new products.” As with any research and development program, there will be winners and losers, but to increase the chances for success and to place resources efficiently, the process demands that new products meet specific benchmarks.

“Now, it remains to be seen how much revenue those products will bring in, but our criteria in that product development process is that they have to eventually bring in $5 million a year at some point during the first three years,” Stanik says.

Patience pays
While 2005 net sales of near $291 million were off slightly from 2004’s level of about $300 million, three sequential quarters of improvement in net sales in 2006 and an overall rise in profits indicate to Stanik that some of the painful decisions the company has had to make are beginning to pay off.

All along, Stanik has resisted the temptation to grow revenue quickly to solve the company’s problems. Instead, he opted to make sure Calgon Carbon’s fundamental model was sound, even if it meant deferring growth. “Actually, I think that’s one of the traps that CEOs fall into, overemphasizing the growth before the company is ready, and if I were to give advice to people who were in situations, either new to running a company or in a company that has been under stress for a period of time, my first advice would be get down to the foundation and make sure it’s very strong before you rush into growth,” Stanik says. “Growing sales can hide some deeper issues that were imbedded in a company.”

While troubled companies often enlist the resources of consultants, Stanik says that bootstrapping the strategic planning and re-engineering in-house is a more efficient and effective way to handle the problems. Instead, tap into resources such as the board of directors, a resource he says can be valuable.

Says Stanik: “I think that leaders who decide that another way could involve someone from the outside or some other group doing this, I think end up doing the work slower, perhaps less effectively and probably will make mistakes. We did not want to make mistakes. We wanted to hit the nail on the head every time we swung the hammer, and I think we’ve done that.”

HOW TO REACH: Calgon Carbon Corp., www.calgoncarbon.com