When Jim Hensler joined Horsehead Holding Corp. (Nasdaq: ZINC) in 2004, he was charged with leading the zinc producer as it emerged from bankruptcy. Then, just as the company reached its strongest financial hold in years, the recession hit. A steep cost drop in the price of zinc was the primary reason Horsehead filed for Chapter 11, and Hensler was tired of seeing the company fall victim to the commodity price fluctuations that rock the markets during challenging times.
So in 2008, Hensler, chairman, president and CEO, led a charge to heavily invest in growth strategies and eventually diversify the business to make it less subject to cyclicity and commodity price fluctuation.
Horsehead’s leadership team came to two conclusions: One, there wasn’t going to be more room for growth in the area the company was in, and two, it still had significant exposure to fluctuation in zinc prices. So Hensler and his team headed to the drawing board to create a strategic plan that would involve looking for new growth opportunities.
“You’re always better off sticking with what you know and what you’re good at and trying to maximize that, so that’s what we did,” Hensler says. “Then once we got to the point where we didn’t feel we could do much more there, we redefined what we thought we were good at. … We tried to redefine who we are to allow us to broaden the scope of the business and provide career opportunities for growth.
“As long as you’ve got growth opportunities in front of you that are sticking to your basic strengths, then keep following those. When you get to a point where the current direction you’ve been on for a while doesn’t have the growth potential that you felt it did two or three years ago, now you have to take a look at other areas for potential growth in the business.”Define your strengths
When you’re creating a strategic plan, you want to bring in people from different sectors of the business so that you don’t miss potential opportunities or pitfalls. Hensler gathers Horsehead’s top 20 to 25 leaders and takes them off-site for the strategic planning process.
“It’s good to get away from the distractions that you’re dealing with on a day-to-day basis and try to take some time to focus in on one subject, try to hold everyone’s attention on that,” he says. “It’s hard to do that if you’re in your work environment.”
You can’t underestimate the value of involving a broad cross section of management in the conversation. You’ll get more out of the process if you have an agenda going on that allows everyone time to share ideas. It’s like with dinner guests: If you’re going to invite them to the table, you have to engage them in discussion.
“We try to structure it in such a way that each area has a role to play and a part on the agenda for the meeting we’re involved with, so as part of that process we get input from most people,” Hensler says.
Some aspects of Horsehead’s strategic planning process are fairly traditional. There’s time to review customer, market, product and competitor data. A second aspect includes breaking into small groups to allow for brainstorming and identifying strategic paths for the business that are then analyzed by the entire group.
Hensler says if you’re looking to grow, there really needs to be one focus during the discussion. The main question you must answer is: What are you good at? Ask yourself: What are your core strengths?
“It’s really sort of stepping back with the management team and discussing what is the value generating the work that we do in the business,” he says. “When you say, ‘What is your unit of competitive advantage of the business? What are the things that really make a difference?’ it’s not a very long list. In most companies it’s only a couple of things. It’s identifying and having that conversation with the management team that identifies what those things are.”
Those questions can be answered through the typical analysis of your strengths and weaknesses. Closely look at your current focus, where your resources are and what areas of the company create the most value for your business.
Hensler and his team looked at their list and asked themselves: What will be the most profitable aspect of the company in the long term? Can we expand our level of activity there? Are our management, processes and procedures strong in that area?
While Horsehead is the largest zinc producer in the U.S., it’s also the largest recycler of hazardous waste, an industry from which many shy away. Trying to move away from zinc’s price fluctuation, recycling became a clear area to diversify. The decision allowed Horsehead to broaden its range of environmental services beyond zinc recycling, which it did with the acquisition of The International Metals Reclamation Co. Inc. (INMETCO), a recycling business focused on nickel.
“When you look at that and say those are really the core strengths you’ve got, now you start looking at businesses that match up against those strengths,” Hensler says. “Also, look at businesses that not only match up against those strengths but provide diversity.”
Your strategic plan is your map for growth, so it must identify the ways in which you hope to grow either organically or through acquisitions. Horsehead’s main goal is growth through acquisitions, so its strategic plan explicitly identifies potential companies to acquire.
“Part of our strategic planning process is to be identifying target opportunities like that so that when the time is right you’re not just then starting to think about those things,” Hensler says. “You want to be more proactive about it.”
No matter how you plan to diversify, you need to come into the planning process well researched. Hensler uses a combination of experience, external resources and networking, when identifying companies that might be opportunities for acquisitions. He relies on his more than 30 years in the metals industry, his placement on national and international boards and the networking of his management team to keep ears on possible future company matches.
“The other thing we do, though, as part of our strategic planning process, we commission third parties and investment bankers to do studies for us, and in some cases, ideas flow out of that,” he says.
As ideas are shared among your staff throughout the strategic planning process, certain themes will become clear to include in the final version of your plan. You need someone who can take those themes and develop a direction that is then placed in written form. Hensler takes charge of the process.
“Usually, I’ll take a first stab at listening to what I heard and putting together a plan based upon that, sort of setting down some guidelines as to how we would move forward,” he says. “You start out getting a lot of input, you try to condense that down into the key things that are going to be part of your strategic plan … and then you bounce that back to people in the organization.
“It’s a bit of an iterative process until you get agreement that says, ‘This is the way we’re going to move forward.’”Communicate change
Once Hensler had his strategic plan done, he had to roll it out to employees.
Changes shouldn’t come as a surprise to your people if you’ve done a good job communicating the company’s goals. If your goal is growth like Horsehead’s, a new acquisition or plan to diversify the company shouldn’t be a shock.
“You have to set the context for where you want the company to go and then explain the changes along the way in the overall context of where you want to go,” says Hensler, who heads more than 1,000 employees.
Basically, the key to updating employees on new developments is explaining how the changes move the company closer to its overall objective.
“When we decided to move in the direction of diversifying the business, we communicated that to employees, explained why this makes sense and how it fits in strategically with what we’re doing,” he says. “That’s very important to not only communicate that to our existing employees but also the employees of the company that we just acquired and also communicating it to the outside world.”
Employees and investors need to be hearing the same information. And it doesn’t hurt to communicate with them from multiple angles, such as newsletters, e-mails, informal and formal meetings.
After Horsehead closed on the INMETCO acquisition at the end of 2009, it followed up with investors through a presentation at a Raymond James conference. The conference allowed for a public forum and open dialogue. The company also invited analysts who cover the marketplace to INMETCO for a presentation, a tour of the facility and an explanation as to how the acquisition fit in Horsehead’s long-term plan.
Hensler says the important factor in times of change, especially ones in a depressed economy, is that you, the leader of the company, are visible and you’re communicating a consistent message. That also extends to employees. Your employees need and want to be informed that you’re making the right changes so that they have confidence in your decisions and the business plans.
“Most employees understand that when you’re in a down economy companies have to do something,” Hensler says. “They want to understand that what you’re doing is the right thing. Are you doing it effectively enough so that the company is going to get through it?”
Chances are you’ve made reductions in staff, pay or budgets in recent years. Horsehead reduced staff, idled facilities and cut costs like most companies. You have to present those changes in a context of how and why those decisions were made and what that means for the strength of the company and the path for growth moving forward.
“Unfortunately, in situations like this, some people lose their job temporarily or permanently and the real question is, for the people who remain with the company, do they feel like you’ve done enough to secure their jobs going forward,” Hensler says.
You can ease qualms by being visible. That may mean scheduling more time in the field talking directly with employees.
“We have multiple plants and multiple locations, so it’s difficult to be out there all the time,” Hensler says. “What I try to do is get around to each of our plants on a regular basis, meet with not only the managers of the plants but also get out and try to meet some of the people on the shop floor. We try to do that in social settings as well as formal settings. It’s important to do as much of that as possible, particularly when you’re in a downturn situation.”
Horsehead’s growth process is ongoing.
The company’s revenue dropped the last two years, largely due to the fluctuations of zinc prices from $2 per pound in 2007 to below 50 cents per pound in 2008. To combat the price drop, Horsehead bought a put option on its production that generated $100 million in cash. That financial boost allowed the company to implement its growth strategies last year, which included two acquisitions, and end 2009 with no debt and positive cash flow. Net sales were $216.5 million in 2009 and revenue is projected to reach mid-$300 million for 2010.
But in recent months, Hensler has needed to do less convincing that the decisions made at the top were the right ones. The two acquisitions in 2009 allowed Horsehead to return its idled facilities to full capacity by the end of the year. And since acquiring INMETCO, nickel prices have risen.
“As you go through a recession, employees need to understand that you’re reacting in the right way,” he says. “They’re concerned about the long-term survival of the company.”
How to reach: Horsehead Holding Corp., (800) 648-8897 or www.horsehead.net