NS Group: A tale of change from three different perspectives
By Rene Robichaud, CEO
My Version
In 1999, NS Group was dying financially and the pride of its employees had been sapped by poor operating performance. The board took action and pushed the founder and CEO, Cliff Borland, to bring in an outside executive and potential successor. In June of 1999, the company’s former investment banker, Rene Robichaud, was hired as president. Eight years later, the company was more profitable than its peers and acquired for $1.5 billion. Virtually all the 1,500 employees had been able to keep their high paying jobs.
NS Group, was a 140 year old steel manufacturer that produced cannon balls in the 1860s. By the 1980s, it was focused on making steel into steel pipe mainly for oil and gas wells. By 1999, oil traded for around $10 per barrel meaning NS Group’s customers were ailing financially too. The company’s safety results were much worse than industry averages. Its customers were disappointed in the quality, quantity and timeliness of delivered product. Employees had filed hundreds (!) of labor grievances against management. Executives stopped walking through the mills. The stock traded as low as $6, a fraction of book value.
The company needed to lower costs. Sacrifices were needed. The question was how to implement needed changes lifting the spirits of a demoralized and angry workforce. We decided to focus on employees by introducing the new, slimmer management team in person. We visited each of the eight facilities in four states every 90 days for the entire eight years. At every session, we spoke frankly about the situation at that facility, an update on the company and what we planned to do to become a successful company again.
In essence we communicated more to all our stakeholders than any of them had ever seen. This gave them opportunities to ask tough questions. Employees responded favorably to the new culture we all wanted to see. We defined our culture as the values, beliefs and habits that would make us successful. Values were standards below which we would never go for any reason. Safety was a prime example. Beliefs were ideas on how we felt the business world works best. For example, we changed our production oriented beliefs to customer-oriented beliefs. That was not easy as the founder was a metallurgist who taught all about the virtues of lower costs through high production volumes. We decided to enhance our product changeover capabilities in order to produce shorter runs of products that matched customer demands more precisely. Shorter production runs raised costs somewhat but our customers responded to our more reliable performance with greater volumes. We implemented many new habits (activities and metrics) that underscored the importance of each value and belief.
We really did not produce a fair financial return for five years. However, attitudes improved considerably by the second year as employees started to see themselves as part of the solution. Our safety improvements came first. The pride that came from a safer environment was the foundation for encouraging employees to enhance productivity and efficiency. These improvements helped morale as we could celebrate each new level of improved performance. Our financial situation was not good but we stopped the downward spiral long enough for the business cycle to turn.
And turn it did. The first quarter of 2004 was our most profitable quarter ever. NS Group’s stock was the tenth best performing stock on the NYSE that year. The year 2005 was better than 2004 and results in 2006 exceeded those of 2005. Employee bonuses in those three years were at record highs. Importantly, our margins were superior to our two largest competitors, something that had never happened before. This financial improvement did not happen because we had the best equipment or technology. On the contrary, the company had some of the oldest equipment in North America for making welded tubular goods. However, when employees put their minds to it, they knew how to make the equipment sing.
Ultimately, the NS Group turnaround came from earning the trust of employees again. This is a process of course but was accelerated by a dedicated focus to communicating regularly and honestly with all. The changes in the company’s strategy and culture could only be fully implemented with the cooperation of a motivated team.
According to the CFO
For me, with all of the structural changes we made, there was a common thread that allowed those changes to be successful –– and that was communication. In the end, communication is what it has to be about. Often and consistent messaging, honest communication, to all constituents of the business, all the time. And we did indeed accomplish it at all levels.
Starting with an executive team that put the right people in the room with the right agenda (communication outline among themselves) and with the right amount of frequency so that a bond, trust, direction, and accountability could all emerge. Formalizing company plans in a consistent, repeatable, and actionable way formed the basis of our communications with the board. Key managers throughout the plants and support departments were engaged in the same formal way (i.e. the right people in the room, with the right agenda and the right amount of frequency) so that information could flow from the bottom up.
And then there was the top-down communication that occurred, again, on a consistent basis with a consistent messaging – to all employees at all locations. One of my philosophies I had with anyone who reported to me was: err on the side of over-communicating to me, and I’ll let you if I’m getting too much information!
And all of this leads me to one particularly proud accomplishment: the 180 degree change made in communicating financial information, both internally and to our shareholder constituents. We were an early adopter to the practice of NOT providing quarterly/annual EPS estimates to the marketplace. What to some felt like a move to less transparency couldn’t have been further from the truth. Our quarterly conference calls became education sessions about the macro drivers of our market segment and cost inputs, with the CEO sharing our company’s belief on the future direction of those drivers. Helpful information was also provided about the key elements of our specific businesses, thus allowing analysts to develop dependable financial models and their own estimates of our future earnings potential. There is no question that our share performance was positively impacted by the trust shareholders gained in management’s honesty (both good and bad news) and transparency through robust communications. All of this against the backdrop of the time of Enron and Sarbanes-Oxley, and the loss of trust in managements throughout the country.
We were successful in accomplishing this financial communication shift because of the cultural shift we made internally. From a privately held company mentality of being stingy with information to any and all constituents, to an organization of communicators. We stopped taking a “look back” approach from a budget that was always dead on arrival (okay, maybe dead one month after arrival), to a dynamic forward-looking 12 month (or longer) rolling forecast.
Think about how that impacted our people! Suddenly managers were involved year-round in a consistent and robust forward-thinking process. No more worry about hiding mistakes or lamenting a missed budget. It was about predicting “what could be.” These managers owned it –– they wanted to be consistently right –– and with better results. And they listened to those shareholder calls and wanted to be sure you were communicating our most accurate views on our business as possible.
By the way, as you know, this elevated communication model was equally applied with our customers, our vendors, and our families.
Seems like simple enough stuff. But imagine an organization that is void of all these successful communication attributes……. I can.
According to SVP, Human Resources and IT
The best way I can describe the culture change at NS Group is to say that we took an organization with limited direction, disparate cultures, and a bleak future to one with hope, clarity, direction, and a promising future. We completed the culture change through a tremendous amount of hard work that started at the top from the CEO throughout the enterprise. The key to our change was CEO commitment to professional leadership. Our CEO, Rene Robichaud, had a firm belief in building an organization that first and foremost, was profitable, but as important, had a sustainable future built with employees in mind. Rene installed a leadership team that believed in the same philosophies.
The leadership had responsibility to align the organization, which was accomplished through a commitment to planning and implementation. More specifically, we instituted a company direction vehicle that clearly identified our vision, purpose, values, and beliefs. This was cascaded throughout the organization by way of a communication infrastructure that included CEO-employee meetings and continuous management reviews. The link to bringing it to life for our employees was our performance management process, compensation system, employee/labor relations and personal and professional development. Employees were now clearly aware and aligned with our direction and what their part was in it.
Because of the commitment to professionalizing the business and to developing our employees, morale improved significantly, which led to bottom line improvement. Our employee retention remained around 7% and our business plan performance achieved nearly 90%. Most significantly, our shareholders achieved a 633% improvement from $9 to $66 per share when we were acquired in December 2006. Our acquirers were very pleased to be buying a well-oiled machine, which was evidenced in our enterprise value of $1.6 billion.