Scott Barbour puts fundamentals and execution front and center at ADS

Scott Barbour had large shoes to fill when he was named president and CEO of Advanced Drainage Systems Inc. in September 2017. Fortunately, he was up to the task, with 27 years of experience working for Emerson Electric to fall back on, including helping sell the Network Power business.

That experience is part of the reason the board hired Barbour to replace the retiring Joe Chlapaty, who spent 37 years with ADS, including 13 as CEO.

“I’ve had some experience on how to transition from one person to the next,” Barbour says.

The biggest key is visibility, which is part of Barbour’s nature anyway. He visited about 15 of ADS’ 48 facilities in the first nine months, focusing on key locations such as California, Texas and Florida.

The company, which manufactures corrugated pipe and other products for water management, has about 4,400 employees and $1.3 billion in annual revenue. It also is one of the 10 largest recyclers in North America — about 60 percent of its raw plastic is recycled.

“If a new guy takes over and he just sits in his office and only talks to his CFO and the HR VP, that’s not visibility,” Barbour says. “So I did, quite frankly, work very hard to be visible and communicate about me, what I was learning about the company and ask questions.”

Chlapaty and Barbour also worked together to ensure a smooth transition.

“I have lunch with him every month. I call him when I’ve got a question about something. He’s engaged in the conversations and the board meetings in a highly constructive way. So, I give a lot of credit to Joe to making this a good transition,” Barbour says.

Build onto the foundation

Barbour arrived in the middle of a fiscal year. Therefore, his first goal was to help the team hit that year’s plan. He emphasized fundamentals and execution, which he says make all the difference.

Then, he helped develop a budget for the next year and put together a three-year strategic plan, which was communicated to the board and stakeholders in 2018.

The three-year plan focused on growth, expanding margins and generating cash. With a strong performance, ADS has also aggressively paid down debt — even though it’s not an overly leveraged company.

While ADS went public in 2014, Barbour says whether you’re a public or private company, the same things drive your business.

“You have to grow sales. You have to take care of your customer. You have to introduce new products. You have to do the fundamentals and execute well,” he says.

The biggest difference between a private and public company is you are communicating to a slightly wider audience, the investor base, Barbour says. (ADS doesn’t have as much public float, or shares in the hands of public investors, as other public companies.)

Barbour also makes it a priority to have good communication and relationships with the board. He saw the CEO of Emerson Electric, David Farr, benefit from that approach, so he’s tried to do that same thing at ADS.

To grow sales, the company is building off of its base. About 85 percent of U.S. construction occurs in what Barbour calls the crescent — North Carolina, Florida, across the Southeast, Texas, across the Southwest and up through California — with Colorado as the outlier.

So, ADS has prioritized its resources, sales initiatives, new products and even its lobbying around regulatory processes in those areas.

The other piece is adding tools and processes to scale ancillary products — products for storm water retention, detection or capture — faster.

“There’s a certain type of investment and focus you need to drive that solution set, versus just our traditional pipe products. So that’s very high on our agenda,” he says.

Connect the dots

Along with growth, ADS has expanded its margins with sharper execution, which in turn generates more profit.

Barbour says the company is working to decrease working capital as a percent to sales. ADS was in the high 20s as a percent to sales, and it’s down to the mid-20s, with a plan in place to get it to the low 20s.

“That’s not a new formula, but what I’ve perhaps emphasized a bit more is how those dots connect, making it very visible to our employees that what they do makes a big difference, what they do matters and moves the needle for us,” he says.

For example, ADS opened a new Missouri plant. It was doing pretty well, but as a new plant, it had to learn how to work inventory. So, Barbour spent time explaining what it means for the company when inventory sits for 100 days, rather than turns in 60 days.

“We try to make it real for the employees,” he says. “We have a very nice culture here. It’s a matter of making sure we’re communicating the priorities that drive our future, pointing them toward where we’re going and communicating that.

“I firmly believe that if people know where they’re going and they can put it into context of what they’re doing every day, and they know what they do matters, they’ll do a great job.”

As often as Barbour feels like he’s repeating himself, he says you’ve got to continue to drill home a simple, actionable message.

Communicating is also critical when challenges arise.

Barbour knew it would be tough to make the fourth quarter goals for 2017, his first quarter at the company, but he felt ADS really needed to do that.

Thirty days out, management communicated that some people needed to work on a holiday. It wasn’t going to be full crews and they would get holiday pay, but orders had to be filled.

“I wanted to really demonstrate and send the message, ‘We told our board we were going to make this number. We see a path to getting to that number. Now we’ve all got to be in the boat and row hard to get to that number,’” he says. “And people did a very nice job of executing on that.”

High expectations

With ADS’ focus on fundamentals and execution, technology investments and IT spend are also important. Like many manufacturers, ADS is interested in how Industry 4.0 can be used with the complicated extrusion and corrugation equipment that manufactures its pipe.

Barbour says as the company puts in new equipment or refurbishes machines, it’s adding the latest generations of controls that provide more data.

“It helps you become more efficient. It reduces scrap. You get better throughput. It gives you better visibility on where your product is in that manufacturing process, which leads to better customer service and inventory control,” he says.

But just as important is how Industry 4.0 can help ADS attract and retain the factory worker of the future, especially with a fair amount of turnover on the horizon for the next 10 years.

“Think of all the things an employee does with his iPhone or his computer today, and the personal experience he has with that,” Barbour says. “That comes into the workplace and they expect to have that same level of functionality with the tools, equipment or processes they’re interfacing with at work. In many ways, that creates a high bar for the company to be investing in the technology that enables the employee to do the job in the way they want to do it or are comfortable with doing it.”

Be a good steward

However, with ADS’ strong execution around sales, margin expansion and cash flow generation, the company is generating more capital. Barbour says the challenge for the next three to five years will be determining how to deploy that capital.

“We’re very engaged with our board of directors in this,” he says. “We are looking at our core markets and our closely adjacent markets with some new eyes. We’re getting some outside help in looking at some of these things to work alongside our internal marketing and salespeople to find out what the potential is, what are the new growth areas in those markets. And that allocation of that capital is going to be a really fun and exciting challenge for myself and our management team over the next couple of years.”

Barbour can tell from the board’s reaction that the access to capital is higher than they’re used to, so it’s time to develop a structured acquisition process.

Acquisition have been integral to ADS’ strategy, even if there haven’t been as many deals in the last few years. In fact, about 40 percent of sales today are from allied products, and many of those came from deals.

“We spent a fair amount of time over the last year focused on the internals — the execution, the fundamentals, the organic growth — and now that we have that platform in place, a group of us internally is setting our sights on a very well-defined and process-driven acquisition methodology,” he says.

Barbour wants the company to consider a large number of candidates, so at the end of the funnel, a handful of strong targets drops out.

“You’ve got to buy at the right price with the right risk profile and integration plan,” he says. “Valuations can be high, but if you’re not doing it, then you’re not putting all your firepower to work.”

 

Takeaways:

  • Fundamentals and execution are difference makers.
  • Communicate the context to your employees.
  • Tomorrow’s workers expect very functional technology.

 

The file:

Name: Scott Barbour
Title: President and CEO
Company: Advanced Drainage Systems Inc.

Born: Pine Bluff, Arkansas
Education: Bachelor’s degree in mechanical engineering from Southern Methodist University, MBA from Owen Graduate School of Management, Vanderbilt University

You’ve spent most of your adult life in Ohio, except for three years in Hong Kong. What was that like? We lived there from 2008 to 2011, my whole family — my three kids, my wife and me. It was a fantastic experience, and I wouldn’t trade it for anything.

It’s not only the challenges of running an Asian business, especially through the great financial crisis that started a month after I got there and then came roaring back to China, but the challenge of living there, the experiences as a family that you have living in a different culture.

What was your first job, and what did you learn from it? I was a dishwasher and prep cook at Jesse’s Steaks, Seafood & Tavern in Hanover, New Hampshire.

I’m a 16-year-old dishwasher, but I took pride in my job. I got there on time, and if they asked me to do something, I did it. I worked hard, and then one night the prep cook doesn’t show up. That night, the manager came over and said, ‘Look, you’re getting a battlefield promotion. You’re going to go and do the prep cook work tonight.’ Zero training. I think the only thing he made me do was change my shirt.

Where might someone find you on the weekend? My middle child, my son who is 19, has Down syndrome. Most weekends, on Saturday mornings, he and I are at Buddy Up Tennis, a group founded here in Columbus. They have a United States Tennis Association-approved program for kids with Down syndrome. There’s probably 25 chapters around the country now, but this was the first one. Beth Gibson, the founder, started it.

We became involved in it very early and have been big supporters since. He loves it. If it’s not going on one Saturday, it’s a bad Saturday at my house. But I volunteer as his buddy, most of the time. I help put up the nets. It’s like being a dishwasher; I just do what I’m told to do.