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issue: May 2004 APPLIANCE Magazine

Executive Corner
A Controlled Comeback


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Lisa Bonnema, Editor APPLIANCE Magazine

To say the last 2 years have been a time of transition for UK-based conglomerate Invensys plc would be an understatement. Invensys CEO Richard Haythornthwaite would be the first to agree.

Taking the chief executive seat in October 2001, Mr. Haythornthwaite faced the ultimate leadership challenge—rebuilding a global conglomerate with a heavy debt load. In 2002, he started Invensys on a divestment program, which included selling its Sensor Systems, Drive Systems, Rexnord, and Fasco Motors businesses.

 


Richard Haythornthwaite,
Invensys plc CEO

Throughout 2003, Invensys continued its selling strategy, shaving off its Baan, Teccor, and Metering businesses. It also announced the decision to sell its Appliance Control and Climate Control businesses—two of its largest and most profitable units—and creating quite a bit of talk amongst the financial community, the international press, and, of course, its appliance customers.

But in February of this year, Invensys announced a refinancing plan designed to not only put the company on the road to recovery, but that will allow it to keep its coveted Appliance Control and Climate Control businesses. How is this company managing to emerge victorious in such a challenging market? APPLIANCE recently sat down with Mr. Haythornthwaite to find out.

What would you say is the process that led you to the decision to keep the Climate and Appliance Control businesses?

RH: I think first what has to be understood is why we chose to sell them in the first place. The answer to that question is we had to. We didn’t want to; we had to. About a year ago, as we were working through the group of businesses within Invensys, we had already distilled a group of businesses that we thought were good. We knew that we had to invest in those businesses. At about that time, it became clear that the days of Invensys as a conglomerate had burdened these businesses with significant legacy liabilities—tax issues, legal issues, and pension fund deficit. At that point, we looked around and there was only one option, and that was to sell some businesses because we simply could not deal with all of these liabilities and invest in the businesses. It was very, very, very difficult to make that decision. I hate losing good businesses.

What made you ultimately decide to keep them?

RH: As we got toward the end of the year, what we found is that a number of things had changed. The first thing was the liabilities that we had a year ago hadn’t gotten any worse, and in fact, we were managing them down. We saw the businesses themselves—having enjoyed the autonomy for a year—had really sharpened up their sense of who they were and what they could do in the markets and sharpened customer relationships. So their intrinsic value was rising. Third, the markets were improving, and the general economic outlook was improving. Suddenly we found our big shareholders saying, ‘We know that you had to sell it a year ago, but what if you didn’t?’ And that got us to the point in saying, well, let’s not let dogma and pride get in the way of the right answer. Let’s really ask the question: What is the best thing to do? And we looked at this and we said, well, if we could refinance, it makes a lot of sense [to keep them].

Appliance Controls and Climate Controls have always been considered by most as very good businesses. We’re delighted we’re now able to bring them back into the fold, and the refinancing gives them the stability and the flexibility to invest time, resources, and energy into the critical relationships.

What is your strategy to build those relationships?

RH: Relationships are built between people; they’re not built in companies and processes that keep them. Ultimately, people get together, you respond to needs, you react to people, you bring brainpower to it, and trust builds. And nothing that I’ve ever come across can accelerate the building of trust.

I’m a great believer that every aspect of the strategy has to start with what the customer is looking for. One of the shifts I hope our customers have been seeing recently is that they’re being listened to very closely. Once you get to that point, everything else will follow—your technology strategy can be delivered by a keen sense of what the market requires; your supply chain strategy and manufacturing strategy, everything following behind that, should be as efficient as possible. It’s just getting those basics right. Once you’ve got the basics right, then you can both jointly enter into a discussion that is visionary, where you can start talking about a 3- to 5-year timeframe and start building technologies around that as partners.

What is your vision of Invensys 1 year from now and beyond?

RH: I think the important thing about Invensys is that in a year’s time, it will have buried its past—the whole story of financial instability that completely dominated the real story, which is the industrial story. And the only way we’ll have done that is because we would have started delivering the promises we made to our financial markets. And that’s been made possible by giving the operators some stability and flexibility.

So Invensys ceases to become the story. The story is that between the businesses and their customers and the employees—the critical mainstays of value creation. The basics of the strategy are really making sure that we grow with customers, we bring the technologies to market, we make sure that we seek to expand geographically, and we continue working to bring our cost base down. Delivering an environment that is far less tense than the environment the teams had to work in for 2 or 3 years now. I think it just feels better coming to work in that sort of environment.

 

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