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Virtuous Spiral

Renewed focus on sustainable growth puts Leggett & Platt in a comfortable position.

by Tara Swords

More than 130 years ago in the little town of Carthage, Missouri, inventor J.P. Leggett had an idea: mattresses—then commonly stuffed with cotton or wool—would be much more comfortable if they contained supportive inner springs. He asked his future brother-in-law, C.B. Platt, to help test this invention. They found that they had a winning idea, which they patented in 1885—and changed how millions of people sleep.

Leggett & Platt

Leggett & Platt

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Today, Leggett & Platt still operates in Carthage but has grown to be a global provider of office and home furniture components, retail display fixtures, automotive seating, spring manufacturing equipment, aerospace and automotive tube assemblies, steel rod, and wire. The company maintains its small-business, family culture—many of the top executives have been with the company for as many as three decades—but has grown into a nearly US$4 billion company, employing 18,000 people in 20 business units, with a manufacturing presence in 18 countries.

For decades, leadership drove the company toward the same general goal: year-over-year growth of around 15 percent, with ever-increasing market share. Growth, they felt, was the thing that would provide the biggest shareholder return. “We were growing for growth’s sake,” says Karl Glassman, a 30-year veteran of Leggett & Platt and now the company’s chief operating officer. “We probably got too large and kind of lost touch with our core competencies and the small-company feel.”

So, over the past five years, the leadership team has set a new measure of success: total shareholder return. Revenue is a part of that, but the main focus is on creating shareholder value. The company’s leaders turned to Oracle, the consultants at Oliver Wight, and the strength and commitment of their own employees to transform Leggett & Platt into a lean global competitor.

Back to Basics

Heading into the twenty-first century, Leggett & Platt dominated core markets and was using acquisitions to push into many new ones. But outside forces began to reshape the business. Consumer confidence tumbled after the terrorist attacks of September 11, 2001, and the company saw a slowdown in demand. New competitive pressure from manufacturing in China drove prices down. Suddenly, 15 percent annual growth—yielding the same profits as before—became impossible.

“We were frustrated by the lack of value creation for our shareholders, partly because many of our employees were shareholders as well,” says Matt Flanigan, Leggett & Platt chief financial officer and a 16-year veteran of the company. “We started to ask why the things that had worked so well in the past weren’t working anymore.”

The leadership team decided to refocus the company on its core businesses and sell off the parts that weren’t creating value, divesting about a billion dollars of volume to stop focusing on growth for growth’s sake. Soon after, the economic collapse of 2008 caused another US$1 billion contraction in the business. But according to Glassman, strategic changes left the company ready to grow in a more disciplined, shareholder-friendly way.

With a new goal to maximize profitability and total shareholder return, Glassman and his team began to think about the details, revealing a gap in the company’s landscape: technology. “It’s irresponsible of me to tell our employees, ‘Improve your working capital, reduce your inventory, decrease your days sales outstanding’—whatever the measure is—without giving them the tools to achieve it,” Glassman says.

Sales and Operations

Before selecting technology, Glassman and his team needed to address processes. They brought in Randall Wood as staff vice president of the new Leggett Business System Office. Wood’s first job was to make a plan to execute management’s strategic vision. “How many companies do you hear about that put together a strategic plan and it sits on a shelf and collects dust?” Wood says. “We needed to make sure we were doing what was in the plan and making it achievable.”

Wood says the company had historically carried excess capacity to meet customer demand—a tactic favored by revenue-driven companies. But management was determined to transform Leggett & Platt into a profit-driven company. “We said let’s do a better job of managing the product and demand activity, streamline it,” Flanigan says. “Let’s not keep as much inventory as we’ve always felt we needed to have, even though we weren’t all that sure what the order outlook was.”

Management had been using sales and operations planning (S&OP) in bedding operations since the 1990s, and it was working well. The individual elements of the chain were efficient, from suppliers to customers. So the company’s leaders agreed that it made sense to take a similar approach throughout the remaining business units.

Wood sought support from specialists Oliver Wight, a consultancy that provides coaching on implementing processes that adhere to best practices. The consultants recommended that Leggett & Platt implement an S&OP strategy to support management’s plan for transformation.

“Before S&OP, a company will have a focus on operational processes, and they won’t necessarily be tightly connected or even connected much at all to the business strategy,” says Dennis Groves, president and chairman of Oliver Wight Americas. “With S&OP, we give the organization structure with which they can deploy the strategy effectively and cross-functionally.”

The team saw an opportunity to improve collaboration and planning. The idea was that a fine-tuned supply chain would make the company nimble enough to meet the demand that it wanted to meet. All the plan needed now was the technology to enable it.

Strong Support

In 2009, Wood’s team deployed Oracle’s Demantra Real-Time Sales and Operations Planning to balance demand, supply, and budgets, providing a real-time view of performance metrics via an S&OP dashboard, and Demantra Advanced Forecasting and Demand Modeling for accurately predicting demand and avoiding excess inventory. A year later, led by Maik Breckwoldt, staff vice president of logistics, the Leggett & Platt logistics and transportation team deployed Oracle Transportation Management software to reduce transportation, logistics, and procurement costs.

Leaders wanted to be sure they didn’t push too many process and technology changes on the workforce all at once. That’s why the modular nature of Oracle’s technology was a strong selling point. “So many ERP [enterprise resource planning] providers say, ‘Here’s a system, take the whole thing, all in one bite,’” Glassman says. “Not every company can take it all in one bite. So the fact that Oracle has a number of à la carte pieces that can be fit in with other elements from that same menu—and there’s a transparent interface—is a wonderful thing.”

Wood says modular implementations have let his team manage the people side of the transformation with more sensitivity. And at Leggett & Platt—which strives to treat its employees with honesty and sincerity—that’s nonnegotiable. “We wanted to understand the business better and build relationships and trust. Then we can look at what people need next and make that decision accordingly,” Wood says.

Getting to One

A team from Oracle Consulting helped design and implement the new systems and prepare for the impact of process changes throughout the organization. The biggest change came with the deployment of Demantra applications because it paved the way for a “one-number plan” that would align all operations and people. It meant that everybody would be working toward target total shareholder return. In a company with 20 business units spread all over the globe, that’s a big change.

The fact that Oracle has a number of à la carte pieces that can be fit in with other elements from that same menu—and there’s a transparent interface—is a wonderful thing.

“Everybody agrees that following a one-number plan is a good practice, but you find the sales guys have a number they believe in, and the operations group has a number they believe in. The finance guys don’t believe either of those numbers because they have their own,” Wood says. “Every functional group has a number that fits their view of the world. But we’re trying to say that for us to synchronize our supply chain and leverage these new capabilities that we have, we need to be pulling to the same number, and it has to tie to our strategic plan.”

By setting clear, measurable targets and communicating them throughout the company, Leggett & Platt’s leaders have been able to create new incentives for meeting those targets. They can help each person understand how his or her job ties to the key performance indicators (KPIs)—such as earnings before interest and taxes (EBIT), and revenue—and then tie compensation and rewards to those targets.

As a result, profitability has grown, EBIT margins have continually improved, and the company is paying healthy dividends to shareholders. But management is proudest about improvements to working capital as a percentage of sales, which has freed up cash, giving the company more credit flexibility. “We used to have an externally stated goal of 20 percent, and then we changed that target to 15 percent,” Glassman says. “We’ve been averaging around 12.5 percent for the last five or six quarters.”

After voluntarily contracting by a billion dollars and then involuntarily contracting by another billion dollars due to external economic conditions, Leggett & Platt has once again grown by another billion dollars—this time according to a sustainable plan.

Data-Driven Decisions

One of the biggest challenges in this reinvention was consolidating financial data across the entire enterprise. Each quarter, the company’s leaders try to forecast revenue and earnings and see how well the company is tracking to budgets. But financial systems weren’t linked to S&OP data, and it’s hard to do financial forecasting without knowing what’s happening in sales and operations.

In 2010, teams led by Bill Weil, vice president and corporate controller at Leggett & Platt, deployed Oracle Hyperion Financial Management to help solve that problem. The software consolidates financial data across the company and ties it to the supply chain. Now leaders have a better view of how events in the supply chain affect earnings. Paul Archer, Leggett & Platt’s staff vice president of business intelligence, led a team that implemented an Oracle Essbase KPI cube to share key information. This team also implemented Oracle Hyperion Planning to improve financial forecasting, which is now done on a rolling 18-month basis rather than as a static annual budget.

“Now we’re getting a consistent, holistic look at operations and profitability,” says Dave DeSonier, senior vice president of strategy and investor relations at Leggett & Platt.

Another benefit of data consolidation is the availability of data to anybody who needs it, whenever they need it. In the past, most financial reporting was pushed out from corporate to the field. That put the onus on controllers and analysts, who would spend 80 percent of their time looking for data and just 20 percent of their time analyzing it. A data request from an international location might take several days to fulfill, because of the time it took to find data and the inconvenient fact of time zone differences. That meant little time for analytics.

Now, Oracle delivers all the information the company needs. “By having data and information more democratically available, people can meet their own information needs. They can self-service now, and they will have, over time, a better sense of what’s going on in the business,” Wood says. “We can spend more time driving strategy as opposed to looking backward and asking what went wrong.”

Wood and his team are deploying Oracle Essbase and Oracle Hyperion Profitability and Cost Management to determine the profitability of individual products and customers. “We’re trying to control our own destiny and make good decisions,” Flanigan says. “We can make better decisions about where we’re spending our time, our effort, and our resources.”

Springing to Life

In 2006, Leggett & Platt also underwent another change: becoming more visible in the industry. Most people in the developed world have slept on a mattress or sat on a chair cushioned by Leggett & Platt springs, but they probably had no idea.

Mark Quinn, Leggett & Platt’s vice president of marketing in the residential segment, set out to change that. In 2008, he spearheaded the creation of a mattress tricked out with US$50,000 of technology, which made waves at the Consumer Electronics Show in 2008. He launched the company’s social media presence and in 2012 teamed with Second City Communications—the corporate services division of Chicago’s world-famous improv and comedy theater—to create a music video about hybrid mattresses made of visco foam and a spring core.

These efforts might sound unrelated to the behind-the-scenes changes happening at the company. But Quinn says he couldn’t be raising Leggett & Platt’s profile around the world without the advances in processes and technology to back them up.

“Any time you’re able to have better vision into your business and are able to analyze a trend more efficiently because of your systems, you can plan your business better. And if I’m going to be promoting a new hybrid mattress and getting people talking, then it’s really important for the supply chain to be able to meet the demand that we’re about to create,” he says.

All of this focus on getting Leggett & Platt in fighting shape to take on a new world of competitive pressures has returned the company to its roots.

“The culture has gone back to the way it was when I started 30 years ago,” Glassman says. “We had moved into an area of silo management where people didn’t really communicate. But we again have that willingness to help one another, and it’s an absolute tribute to the adaptability of our people.”

Tara Swords is a freelance writer based in Chicago, Illinois.

 
 
Snapshot Leggett & Platt
    • Location: Carthage, Missouri
    • Industry: Manufacturing
    • Employees: 18,000
    • Revenue: US$3.636 billion net trade sales in FY 2011
    • Oracle products: Demantra Advanced Forecasting and Demand Modeling, Demantra Real-Time Sales and Operations Planning, Oracle Transportation Management, Oracle Hyperion Financial Management, Oracle Essbase, Oracle Hyperion Planning, Oracle Hyperion Profitability and Cost Management, PeopleSoft eProcurement
Snapshot Matt Flanigan
  • CFO
  • Length of tenure: 16 years
  • Education: BS in finance, University of Missouri
Snapshot Karl Glassman
  • Executive vice president and COO
  • Length of tenure: 30 years
  • Education: BS in business management and finance, California State University, Long Beach
  • Personal quote/mantra: “Success is founded on a constant state of discontentment, interrupted by brief periods of satisfaction on the completion of a job particularly well done.”—The mantra of Harry Cornell, Chairman Emeritus, Leggett & Platt

Managing Change Carefully, Compassionately

Leggett & Platt has gone through major changes over the last decade, and those changes haven’t all been easy. As in most businesses that survived the economic bumps of the early twenty-first century, there have been periods of uncertainty. The company’s leaders knew that a refocus on responsible growth would benefit the company and all employees, many of whom are also shareholders. But it would also require everybody to travel the rocky road of transformation together.

“People have been learning to use new and different tools and new ways of going about business,” says Michael Blinzler, vice president of IT at Leggett & Platt. “If we think first about how it’s going to impact people and their lives, then the rest of it tends to come into focus and things tend to work out in a pretty good way.”

Putting people first meant helping them understand why the company was asking them to use new tools, and then listening. “Sometimes there are things that we think we know that we don’t know,” Blinzler says.

That slow and steady approach—being respectful and keeping the lines of communication open—has helped make the transition easier for everyone. Karl Glassman, executive vice president and COO, says he knows the changes have been worth it when he sees people selling the programs to their peers. He remembers a customer service representative standing in front of a group of her peers and telling them that despite the learning curve involved in the new systems and the need to step out of her comfort zone, she was now a believer.

“She said, ‘The quality of life is improved. I get to spend more time with my kids. I’m not wasting my time on the weekends doing work. And the outcome is more accurate and the profitability of the facility is improved,’” Glassman remembers. “That’s the most powerful testimony there is.”

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