In November Lindsley Ruth will unveil his vision for Electrocomponents Plc and outline the actions he is taking to energize the company, improve sales and gain market share. Ruth declined to discuss details of his plans during an interview but the measures will most likely be far-reaching and could include a major overhaul of the U.K.-based electronics components distributor. While Electrocomponents’ shareholders must wait a while longer to find out what Ruth has in mind, though, the new group CEO isn’t waiting to begin the hard task of revitalizing the company.
Only a few months into his tenure, Ruth has visited the far-flung units of the global company, conducted a comprehensive review of its operations and initiated a range of restructuring actions aimed at achieving four distinct objectives: He wants to centralize operations around the company’s customers, reduce organizational complexity, raise accountability at the different business divisions regionally and eliminate complacency at every level of the enterprise.
Of these four objectives, the most important goal Ruth is emphasizing across the breadth of Electrocomponents’ operation is the need for the enterprise to become more customer-centric. The customer, he insists, must come first in everything the company does. This wouldn’t surprise anyone who knows Ruth’s background. Before hopping across the Atlantic in April to assume the position of group CEO at Electrocomponents, Ruth had worked about 14 years at Canada's Future Electronics Inc., where he rose to the position of executive vice president and was reputed for emphasizing the need to keep customers at the “heart” of all operational functions.
In numerous interviews over the years with various Electronics Purchasing Strategies’ editors, Ruth would repeatedly note that the most important goal of the enterprise he worked for was helping customers achieve their corporate objectives. Electrocomponents is getting a dose of that same message that Ruth and Robert Miller, owner and founder of Future Electronics, repeatedly drilled into their employees. Sparking growth at Electrocomponents, Ruth said, would require that the company return to the basic objective of figuring out the customers’ most important needs and providing the resources to make these achievable.
“We’re going through a cultural shift to become more customer-centric,” Ruth said. “We’re working on making sure that we have the right platform to be able to improve the customer experience. We want to focus on improving our service accuracy to make sure the voice of the customer is at the center of everything that we do. This is absolutely critical to our success.”
It was obvious from the moment Ruth’s appointment was announced earlier this year that the company was gearing up not just for a change in leadership but also in how it engages with customers and suppliers. “We are confident that [Ruth] has the skills, experience and attitude needed to address the factors that have held back the performance of our business and deliver improved results for shareholders, customers and suppliers alike,” said Peter Johnson, chairman of Electrocomponents’ board of directors, in comments included in the company’s fiscal 2015 annual report.
The only question now is how far Ruth is willing to go to transform the British company. By the time he’s done, though, Electrocomponents is likely to look different not only internally in how it is organized but also in how it relates with customers, suppliers and investors. So far, Ruth has focused on internal operational changes to identify Electrocomponents’ unique strengths, weaknesses and market opportunities. He has also moved decisively to begin the task of eliminating complexities within the company’s varied operational branches and market regions.
The major objectives he is expected to focus upon over the course of the next year include strengthening sales in weak regions, including in the United Kingdom and continental Europe, beefing up the better-performing North American operations and increasing the company’s global presence in Asia-Pacific. Ruth is also expected to further streamline operational costs to boost margins while adding strategic employees where he believes the company needs fresh energies. In an economic environment where some other distributors may be battening down the hatches Ruth has indicated he plans to add to his management team.
‘We’re open for business and we have opportunities for people who are looking to joining an organization that’s on the move,” Ruth said. “We have great leadership within the company but we are also looking to add leaders. I look forward to the opportunity to recruit and develop the future leaders of our organization as well as the leaders we have within.”
An industry veteran reputed for speaking candidly about market conditions and events within his own organization, Ruth’s dissection of Electrocomponents is as frank as it is biting. The company, he said, grew complacent and insular. Despite its enormous strengths, Electrocomponents over the years lost the focus on customer satisfaction that propelled it into a nearly $2 billion enterprise, according to Ruth.
“My observation is that the company has become too internally focused and we need to put the customer back at the heart of the business,” Ruth said. “So, our customer service has probably slipped a little as we’ve become more internally focused or as competitors have gotten better, which has impacted us in the markets we serve.”
Change: Inevitable and Imminent
Based on its recent financial performance, change was inevitable at Electrocomponents. The company prides itself as the “global distributor for engineers” but it hasn’t made the kind of inroads rivals Digi-Key Electronics and Mouser Electronics have made within the design engineering community. In fact, these two companies have also been chewing into Electrocomponents’ strong position in Europe, a fact Ruth finds galling. He’s determined to change this and the company’s board of directors directly sought him out with this goal in mind, according to statements attributed to Johnson, the chairman.
“Lindsley has many years of highly relevant international experience in the distribution sector and a strong track record of driving sales, margins and international growth,” Johnson said in the annual filing. “We are confident that he has the skills, experience and attitude needed to address the factors that have held back the performance of our business and deliver improved results for shareholders, customers and suppliers alike.”
The task of unleashing Electrocomponents’ potentials identified by Ruth within weeks of joining the company and during which he visited all of its divisions globally preceded his appointment. With annual sales of £1.27 billion ($1.96 billion) for the fiscal year ended March 31, Electrocomponents is a leading global distributor with extensive operations in North America, Europe and Asia. However, its sales growth has stalled and efforts to revitalize operations over the course of the last years have similarly failed to yield the desired results, according to company executives.
“Our 2015 financial performance was disappointing, with investment not yet delivering the expected step up in revenue growth and the UK business remaining in decline,” board chairman Johnson said in the company’s fiscal 2015 annual report. “Neither sales growth nor gross margin reached expected levels, whilst costs continued to grow. Headline profit before tax was down 21 percent, with 8 percentage points of this decline due to adverse exchange rates and fewer trading days. Overall, performance was not good enough and [this is] something we are determined to improve.”
That task falls primarily to Ruth. After a few weeks of visiting company branches and speaking with employees and senior management Ruth has concluded the company has huge growth potentials, dedicated employees and adequate resources to fund its expansion. However, it needs to re-engage with customers fully and leverage what he describes as the latent strengths of its employees and resources.
“We have some amazing thoughts, ideas and programs within this company that can be potential game changers for our organization,” Ruth said. “Our number one strength is the people and our number one weakness is the complexity we’ve introduced into the business. The good thing is that this is very easy to address. I have been surprised at the tremendous amount of pride within the organization. The lower you go within the organization the greater the enthusiasm to change and my role is to unleash that potential. We have the opportunity for tremendous upside in the business.”
Ruth described three opportunities that are immediately available to the company. First, he wants to revitalize growth in the United Kingdom where sales slipped to £363.8 million in fiscal 2015 from £374.3 million in the previous fiscal year. By contrast, sales in North America increased strongly during the same period to £302.7 million from £281.3 million while Continental Europe fell to £447.3 million from £460.6 million and Asia Pacific to £152.4 million from £156.9 million.
Even a slight improvement in sales in the regions where the company is weak should result in better margins and a more competitive position, Ruth said. In addition to pushing sales higher, Ruth said the company needs to improve its position in specific end-markets and implement a system for responding faster to customer demands. The company has the resources in place to achieve these goals but they need to be better mobilized, he said.
“I wouldn’t put a specific timeline on the achievement of these goals but our objective is to get better each year and to keep doing things right and find a way to get ahead of the competition,” Ruth added. “I can’t say how long it will take but in some areas we’re already there and in some other areas we have to catch up but overall I like our odds of success.”
There are some external factors that could negatively impact the company although these issues are hurting competitors also. The ongoing financial debacle in Europe over Greece’s debts and discussions to restructure these with the International Monetary Fund and the country’s other creditors has weakened the common currency. This development will continue to hurt companies like Electrocomponents that have a big exposure to the continent and which generate a large portion of their sales in euro, according to observers.
Ruth, too, sees this as a complication the company must find a way to manage although he insists Electrocomponents will continue to focus primarily on reigniting growth across all regions and improving its relationship with customers. Once the company has completed its internal reorganization it would be better positioned to deal with the fluctuations in the currency market, he said.
“As far as the market itself, the biggest challenge externally has been the impact of the fluctuating foreign exchange rate. It’s been the perfect storm between the strengthening of the U.S. dollar and the weaker euro,” Ruth said. “The external challenges are not my primary concern. Today, I’m focused on making sure operationally we get our business right and that we do the basics brilliantly.”
EPS will publish excerpts from the interview with Electrocomponents’ Ruth next week.