Breaking out of a losing streak is tough to do whether you are in sports or in business.
A team manager in baseball has to get nine people on the field to work together to earn a win. OMNOVA’s challenge is a little more daunting.
With a team of 1,900 employees to manage, Kevin McMullen, chairman, president and CEO of OMNOVA Solutions Inc., has had to deal with the company posting losses in eight of the last nine quarters, including a $10.9 million loss in the first quarter of 2005 — $5.1 million more than the first quarter last year.
Despite the bad news, McMullen is confident his team will return to winning, but that will involve making more difficult decisions.
“What we have told folks … is that we expected, starting in the second quarter, for profit really to improve from (the end of the first quarter) until the rest of the year,” McMullen says. “Last year, our second quarter, we had a penny earnings per share, so we expect to improve on that as we go forward.”
It’s a small step forward, but transitioning from losing to winning is about staying focused on the positives, identifying the negatives and implementing solutions to improve the team.
McMullen’s plan involves cutting costs, improving the efficiency of the manufacturing process and keeping the team members focused on the job at hand.
OMNOVA is attacking its problems head-on. When things aren’t going well, business-as-usual no longer works. McMullen is restructuring the $746 million company, and OMNOVA, which manufactures performance chemicals, decorative and building products, expects to reduce costs by $13 million, partly by eliminating 125 jobs.
No one likes to fire people, but winning doesn’t come easy. McMullen is making a lot of tough choices to shake up the way OMNOVA does business.
Future challenges
McMullen says there are a number of reasons OMNOVA struggled in the first quarter.
The first is the volatility of the oil-based raw materials market, the second is that OMNOVA’s decorative products business is still trying to recover from weak hotel and commercial office markets following Sept. 11. The third is the seasonality of some of its products that are tied to the roofing industry.
“People don’t do roofing in the middle of winter in more than two-thirds of the country because of the weather,” he says.
A price increase was implemented to help compensate for the increase in raw materials.
“We are not passing along 100 percent of the cost that we are facing, but we are forced to pass on a good portion of it just because it’s been such a rapid rise in raw material costs,” he says.
Competing globally means you have to operate globally, and overseas production and raw materials sourcing will help the company increase its profits.
The company’s performance chemicals business is setting up a wholly owned legal entity in China to support its growth. The decorative products business has joint ventures in Thailand and China.
“They give very cost-effective solutions for us to be able to break back into our existing distribution channels here in North America,” McMullen says. “So we look to leverage that strategic asset we have with those joint ventures.”
OMNOVA is also purchasing textiles in Asia and the Middle East for its coated fabrics and wall covering business. And there are opportunities to sell overseas, helping to mitigate the seasonality of some of the company’s products. OMNOVA is finding opportunities to export its commercial roofing products into Korea and Eastern Europe.
Internally, there are also gains to be made.
McMullen and his team plan to invest in productivity tools, enabling them to get “the same amount of work done, the same amount of product out the door, the same amount of business but with fewer resources, less cost,” says McMullen.
Employees have undergone Lean Six Sigma training to learn how to eliminate waste and deliver greater customer satisfaction. And the Profit Specialist program focuses on identifying the greatest value a company can bring to its customers.
“We’re investing more now than we have probably since the beginning of the company in skill building and training and development,” McMullen says. “If you’re a manufacturer in the United States today, if you’re not thinking about productivity, you’re not going to be around long because it’s absolutely vital given the global marketplace that we’re in.”
The company has also ditched its legacy IT systems that were getting too expensive to maintain and has implemented a new business system, starting in the performance chemicals business and eventually spreading companywide. OMNOVA’s Web site is also being redesigned to make it simpler and faster for customers to navigate.
New product innovations are key to staying ahead of the competition. Innovation is being fostered through OMNOVA’s stage gate approach. As employee teams reach milestones, the project is reviewed to ensure it is on target, that it has enough resources to succeed, that barriers can be overcome and to determine whether resources and employees should be redeployed onto another project.
Each OMNOVA business unit develops a three-year strategic plan based on trends, the company’s strengths, the competitive landscape and getting “inside the mind of the customer on how our products are used,” McMullen says. “This continual focus on innovation, product development and bringing more value to the marketplace … is the cornerstone for us to grow, for us to improve profitability. … If our products bring more value to (the customers), and if they’re more successful, we’ll grow.”
One area of innovation that’s important is environmental sensitivity. It’s an area the company excels at as evidenced by its multiple environmental awards, and it is also an important driver of sales.
“At the end of the day, doing things the right way and doing it responsibly is critical for the sustainability of the company,” says McMullen. “That’s what we’ve viewed as being the minimum acceptable for us. Customers want to do business with companies that are sensitive to the environment in which they’re operating, that understand the responsibilities as a corporate citizen, so that certainly helps us a great deal. I think we’re well-regarded by the markets we serve because of that.”
Environmental issues is an area where the company is always looking to gain a competitive advantage by continually asking questions.
“How can we improve on it?” says McMullen. “What can we do differently and challenge ourselves?”
People power
McMullen can set up the right conditions for OMNOVA to win, but ultimately, he knows it all comes down to his teammates implementing his vision for profitability.
A Louisville Slugger baseball bat sits on the windowsill in McMullen’s office — a trophy waiting to be won again — for OMNOVA’s Hit It Out of the Park Award. Implemented last year, the award honors the business team that provides the best customer service each quarter.
“It’s a little internal competition, and it’s a real positive thing to give recognition to teams that are doing the right thing, and we have a lot of fun with it,” he says.
It may be a lighthearted contest but McMullen acknowledges the bigger role it plays in the scheme of things: 20 OMNOVA positions were eliminated in March as part of the company’s financial restructuring, including eight jobs in the Akron area.
“We’ve unfortunately had to make some tough decisions to reduce our headcount in the company,” he says. “Tough things to do but critical in order for us to get our costs aligned with the businesses we’re in and the business realities that we’ve been facing.”
It’s one of the biggest challenges for a company going through tough changes: How do you keep motivating employees while others are let go?
“Be open and honest with people on the realities of the business climate that you’re in,” says McMullen. “Look for opportunities to overcommunicate those realities. The area where there’s greatest concern is that people didn’t understand the ma
gn
itude of the challenge we faced. We’ve done a pretty good job but that was reinforced by the fact that we tried to overcommunicate those realities.”
For the remaining employees, McMullen says a CEO’s responsibility is to have a process in place that provides them with candid feedback on their performance. Such a process keeps everyone focused on their jobs and on the overall mission of the company.
“(Tell them) what they do that they’re doing very well and what they should work on from a development standpoint to get to the next level and be willing to continue to progress,” he says. “There needs to be a process in place that recognizes individuals and teams that are doing outstanding work … and also to provide financial rewards for people who are making those kinds of contributions.”
Recognition is also important, using a variety of awards and monetary incentives. OMNOVA has a bonus plan, a Moment of Truth award for outstanding employees and a Chairman’s Award that rewards a noteworthy employee with stock options and restricted stock.
McMullen hopes OMNOVA’s losing streak is coming to a close. The strategy is being adjusted and the roster is smaller. If everyone can do their part across the company, winning and profitability are just around the corner.
When that happens, OMNOVA will be a homerun.
HOW TO REACH: OMNOVA Solutions Inc., (330) 869-4200 or www.omnova.com
