In late 2011 I answered a call to consider leading American Standard. Honestly, the brand wasn't in my consideration set. I knew the brand and respected its rich heritage as an iconic American company. But it wasn't a brand I desired for my home. That sentiment was a very big problem for American Standard — strong awareness, but little preference, particularly among homeowners.
Over nearly two months of deep discussions with American Standard owners, Sun Capital Partners, I learned of many other significant issues facing the company. Margins had collapsed. Cash flow was negative and tapping the bank revolver became a necessity. The economic environment for building products remained dismal.
Yet I was intrigued by the challenge. Having spent nearly three decades helping to reinvigorate growth at iconic brands such as Coca-Cola, Pepperidge Farm and Rubbermaid, I saw potential in this vastly under-managed brand. Worthy competitors in the kitchen and bath business had aptly demonstrated that brands could capture pricing power, benefiting everyone in the channel. At the time, my home bathroom had one of these other brands which I not so fondly referred to as “the double flusher. “ Performance does matter when it comes to toilets and I recalled that one of American Standard toilets could flush a bucket of golf balls. That was a starting point.
I took the job.
Once I arrived at the company, I realized conditions were worse than I expected. I'll share more on that in a minute.
Luxury Brand Launch
First, allow me to jump ahead to March 2014 when I celebrated one of the truly remarkable milestones in my career. American Standard entered the luxury market in a big way. While we had participated in the luxury market previously with our JADO and Porcher brands, we were not a serious player. Despite funding requests from our sales and marketing teams, I refused to invest in this segment until we were confident that we could win. We had to have a brand proposition that was both authentic to American Standard, andalso that created meaningful value for our showroom customers. We wanted to build on the heritage, trust, and reputation of quality and reliability that are inherent to American Standard, while celebrating the past 15 decades of design to create a truly unique and authentic luxury brand. In March, we launched our new luxury collection called DXV by American Standard that is available exclusively to the best plumbing showrooms in North America.
DXV is different; we believe it is better and more special than any other brand in the luxury space. Most importantly it honors our 15th decade in business, hence Decade “XV” in Roman numerals. We took more than 70 unique product and style offerings and curated them into four movements representing the eras we have been in the kitchen and bath business: Classic (1880–1920), Golden Era (1920–1950), Modern (1950–1990), and Contemporary (1990–today). DXV intends to democratize luxury by stimulating conversations about design with showroom associates and their customers.
The DXV launch was as unique as the brand itself. A combination of traditional media (print, digital, PPC) and grassroots (social and influencers), ignited a conversation around design, starting with the design community itself. In a move that was very different, we invited six incredibly talented and socially-active designers to join our launch team and lend their voices to our brand. They imagined their own stories inspired by our DXV products, and we built and photographed sets for the 5 bathrooms and 1 kitchen they conceived to bring our beautiful new collections to life.
These six designers truly started a buzz in the industry that we could not have done on our own. They couldn’t wait to share their work with their clients and colleagues. DXV attained more than 7 million impressions among socially-active designers and their followers in its first two weeks. After hosting the traditional media at an opening party for our DXV showroom in NY, we garnered coverage in the New York Times, ConsumerReports.org and Dwell.com, as well as multiple newspapers and blogs.
Not bad for a company that was on the brink just two short years ago. Here’s the story of how American Standard came back to life:
A Company on the Edge
Within days of starting at American Standard in January 2012, everything I’d been warned about the company became obvious and painful:
• We had a financial crisis. At my first staff meeting, our controller declared, "We don't have enough cash to last the year and by Q2 we need to worry about our debt covenants." Our bonds were trading at a 39% discount to par.
• We had a strategic crisis. Basically, we hadn't done a strategic plan in more than five years. And, as best I could tell our strategic direction was to be a low cost supplier which was a long road to a short house (meaning, a bad idea in a world where our largest customers could backward integrate and source directly from China).
• We had a cultural crisis. Employees were demoralized. We scored in the lowest quartile of all companies measured by the Denison Organizational Culture Survey.
That’s a lot to turn around in a really short time. I had to learn a new company, a new industry, new banking relationships, a new leadership team and a new Board. Basically, everything was new. All I had was my hypothesis: that brands mattered and we needed to build distinctive, authentic positions for both retail and the traditional plumbing wholesale channel.
There were encouraging signs. We knew we had really good product quality and high-performance in features that are meaningful to our end customers. We also had a strong service level to serve customers reliably.
Our employees were loyal.
Best of all, our customers—and even our competitors’ customers--told us they wanted to see American Standard win. They wanted real competition back in the industry. They wanted freedom of choice to promote what they knew they could sell.
Our customers told me I needed to do three things: (1) build our brands, (2) invest in demand creation, and (3) bring real innovation to the market. This was all good news to me, because this was in my wheelhouse of experience.
I asked the Sun Capital leadership team to give me 100 days to come up with a plan which would provide a roadmap to sustainable value creation.
Morale in the You-Know-Where
Even before we did our cultural benchmarking, I could actually feel the strained culture at American Standard. Employees lacking conviction, confidence and courage. A human toll in itself, but also a dangerous dynamic for the business at this important juncture. People were so demoralized and fearful, I worried about getting the honest and open input needed to turn the business around.
I didn't want to reorganize the structure in my first 100 days, but it was apparent that we didn't have the right people in the right seats. Frankly, we didn't even have the right seats identified. I retained outside assistance to build the business strategy and shore up human resources.
We deployed our first culture survey with Dennison Consulting, which has more than 30 years of experience measuring cultures and providing insights for transformational work. We knew things were bad, but not only did we score in the lowest quartile of all companies ever measured, our headquarters location had the lowest scores across the company. If we couldn’t fix the headquarters culture where most of the business leaders resided, we couldn’t get this fixed.
Our rallying cry became "ONE American Standard." If we were to survive, we'd all need to pull together as a team. We needed to break the functional silos and create one integrated organization. I needed to get the entire organization focused on gross margins with clear accountability.
We delegated a lot more authority through the ranks, but also held people accountable for the core metrics of the business, a unique combination of “freedom and responsibility.”
A monitoring system of key performance indicators provided accountability. Various parts of the business went through their own organizational transformation, to ensure that they were positioned to achieve their individual strategic plans.
After 100 days, the turnaround plan took shape and I got the nod from Sun Capital to move forward with our strategy.
Raising the Standard Purposefully
People deliver their best results to the business when they not only bring their heads, but also their hearts to the office. I knew that for the rebuilding to be a success, American Standard needed to be united, not just in recovery, but in hope and a direction for the future. We needed to create real purpose, a reason people would feel good about going to work in the morning. We needed to build a belief that a toilet could literally change the world.
To paraphrase that classic American Standard ad, most of the world does not have plumbers protecting the health of their nations. Upon joining this industry, I was shocked to learn that 40% of the world’s population didn’t have access to the proper sanitation we take for granted. And that 2,000 people — many of them children — die every day for lack of safe sanitation. That was something we could help solve.
Flush For Good was unveiled in early 2013 with a simple premise: for every Champion toilet purchased, American Standard would donate one of its own inventions, a low-cost hygienic toilet pan called SaTo (for Safe Toilet) to people in Bangladesh. We asked our consumers to buy a Champion and become a champion in making the world a better place.
I should note that Flush For Good isn’t charity. Nor is it some feel-good “corporate social responsibility” campaign. It gives our customers the rare opportunity to support a life-saving cause by buying a great product. Buy one, give one. It was a win for American Standard, because we increased our Champion sales 62% during the course of the 2013 ad campaign. It was a win for the people of Bangladesh, because Flush For Good will provide 533,352 sanitary toilet pans for distribution in 2014, as a result of 2013 sales. By the end of 2017 we expect to reach an estimated 5.5 million people with improved sanitation solutions and a better quality of life in Bangladesh and Sub-Saharan Africa.
It was a win for our customers. Here’s an example: the Crowne Plaza Times Square installed 810 Champions to eliminate clogging issues for guests and to save water with our 1.23-gpf performance. But Flush For Good made a big difference. The hotel’s management was so happy to be involved, the Crowne Plaza requested a letter from American Standard to display at the hotel registration desk, so guests can feel good about it, too. “We all win with the Champion, and everyone feels good at the end of the day knowing they were part of it,” said Don Hammerschlag, the New York representative for HD Supply Facilities Maintenance who recommended Champion to the Crowne Plaza.
In the past, that investment in donating SaTos might have gone to other things. Flush For Good gave end consumers a reason to buy American Standard. People want more than to just buy a toilet that functions. They want to join a brand that can make a difference in the world.
Securing our Future
Our five-point strategy is simple and clear. It came directly from those early conversations with customers: build your brands, bring consumer-inspired innovation to the market, provide sufficient brand or product differentiation to protect our margins and continue to develop a superior supply chain including great customer service. I added two elements. First, I wanted to improve the quality and the quantitive of our brand availability. Secondly, I wanted a distinct strategy around building a high performance organization focused on renewed capabilities and employee engagement.
From the outset I had confidence in the strategy. However, I underestimated how quickly the organization would embrace it and execute against it. It worked quickly:
• In the first 18 months we quadrupled EBITA.
• In 2013 our core sales grew by 10% and by the end of 2014 we will have added over $200 million in sales.
• We have grown our gross margins by 700 basis points, improving profitability for us and for our channel partners.
• We launched a new fresh new visual identity, breaking the industry mold of red, white and blue color schemes.
• We were attracting new talent to our team, getting the right people in the right seats.
In June, 2013, we underwent a repeat of the Denison Culture survey. We achieved improvements from 20 to 50 percentile points in just over a year against global benchmarks in the most important measures impacting organizational success.
Bill Neale, co-founder of The Denison Consulting Group, said, “In 25 years of studying, diagnosing culture and leadership performance in hundreds, if not thousands of organizations globally, I would put American Standard Brands in the top 1% to 2% of organizations of its size and composition in terms of its success in changing its culture and achieving high level business improvement results.”
Encouragingly, I could feel the energy, the optimism and the commitment of our employees. They truly believed in our future.
In August 2013, we successfully completed the sale of American Standard Brands to LIXIL Corporation, a $15-billion Japanese building products company. The transaction delivered a return on investment for Sun Capital shareholders, while providing American Standard with a strong and sustainable capital structure. Additionally, we and our customers will benefit from LIXIL’s strong manufacturing technologies, extensive production network and deep product development capabilities. Clearly, Lixil's intent is to leverage American Standard as a platform for growth. Consequently, our North American operations remain in place, including the N.J. headquarters.
Freedom of Choice
Central to our business turnaround was the alignment with our customers and one significant driver of this was our commitment to be brutally transparent. We told our sales teams, and in turn our customers, where we made money and where we didn't. Entering 2012 we had gross margins below 15%. That was not tenable or sustainable. Fortunately, everyone got it and acted on it.
Ironically, that transparency drove trust and attracted more customers as they learned about our new game plan. As of January 1, 2014, that included Ferguson Enterprises (FEI), the largest wholesale distributor of residential and commercial plumbing supplies and pipe, valves and fittings in the U.S.
I've heard from many that this was a shocking industry transformation. I find it less surprising than most. Ferguson wanted to serve the market consistent with their core values and they liked our margin accretive approach to branding. We needed further market penetration to hold the specifications that we were increasingly winning. And, I wanted to put more investment into this demand driver.
Shortly after the FEI announcement, I took a call from a valued American Standard wholesale customer, who asked me if I’d forgotten the people who supported us through the years. I can assure you no one is more appreciative of the 100+ year history of ups and down of this brand than I. I haven’t forgotten the employees who supported us. I haven’t forgotten the long-time relationships that sustained us. Everyone who has supported us for years should benefit from a stronger American Standard.
What’s coming next from American Standard are products and technologies that will redefine what we all expect from bathroom and kitchen plumbing products. In the past 20 months we've invested more in consumer research than we have collectively over the past decade. We’ve added an advanced concepts team to work on new technologies and built a network of strategic suppliers to help with development.
To conclude my response to our longtime wholesaler: Far from forgetting your loyalty, we’re in the best position we’ve been in more than a generation to be good for your business in today’s marketplace.
American Standard is a great company, and I’m incredibly proud of the people who work for me. It’s been a pleasure to join your industry and I look forward to many years of success working with you to help raise the standard for beautiful bathroom and kitchens.
Jay Gould is President and CEO of American Standard Brands. For additional information, visit www.americanstandard-us.com.