2015 MDM Market Leader Profile
In 2011, Netherlands-based ERIKS acquired Lewis-Goetz, Pittsburgh, PA – itself a consolidator in industrial distribution. Since then, the company has continued to expand in North America and globally. Jeff Crane, president and CEO of ERIKS North America, spoke with Editor Jenel Stelton-Holtmeier about how to successfully integrate acquired businesses into an organization and the role of e-commerce.
MDM: How has business been?
Jeff Crane: We’ve grown to be a very end-market diverse distribution business. No end market represents more than about 15 percent of our total sales. So oil and gas isn’t an end market that we’re dependent upon. We benefited from the growth of that market when it was growing and expanding – and we expect it will, again, in years to come. But in the meantime we’re going to have to rely on other sectors of the business to help us grow.
Generally speaking, growth in the broader industrial economy has been frustratingly slow. We see pockets of growth. We see quarters of growth. But as the Q1 GDP figures indicate, we tend to take two steps forward and one step back.
MDM: What are some of the changes that you’ve seen in the industry, in your career so far?
Crane: Clearly, the consolidation of the industry is the most dramatic change. And yet, the industry remains quite fragmented. So there’s still a lot of consolidation still to come. We’re very fortunate to have positioned ourselves to be one of those consolidators both as Lewis-Goetz and now as ERIKS North America. And we will continue to be an acquirer and position ourselves as the acquirer of choice in those segments that we choose to play in.
MDM: The integration of Lewis-Goetz into ERIKS seems to have been pretty successful. What does it take to have a successful integration from that perspective?
Crane: I can tell you as a buyer or a seller, the key question is culture. You can look at end markets and products and business model – and all of those things are very important – but if you have all of the right fits in terms of products and end markets and business model but you don’t have a cultural fit, acquisitions are going to be a huge challenge.
Culture is something that is very difficult to define. You know it when you see it. But we spend an awful lot of time getting to know people in the industry. And we’re not venturing far outside of our space. Through association meetings and industry gatherings, we’re able to get to know the players in the market very, very well and to understand the people that are really a cultural fit.
Culture is about people. It’s about your approach to customers, your approach to your associates, how you run your business. So speaking from Lewis-Goetz, it even goes back to when we were bought by the private equity firm Audax in 2007. Largely, we chose Audax because of the fit we felt with the people and their approach to how they managed businesses.
The same was true when we were approached by ERIKS in 2011. We got to know the executives. We got to know their business and quickly became very comfortable with their approach to the marketplace, their approach to their people and the role that we could play in helping them grow in North America.
MDM: With it being such a difficult concept to define, what are some of the questions that need to be asked to identify a cultural fit?
Crane: If we’re thinking about an acquisition, we want to understand the approach that company takes towards their customers. What sort of relationships do they have? How do they add value? How do they document that value? What’s the nature of the relationships? And how long term are those relationships? How did they think about their people from pay practices, benefit practices, the tenure of the people? Those kinds of things begin to give you a sense of the kind of leaders and the people within the organization that you’re going to find.
And we watch for business practices that don’t match our own. They may be growing, but some customers are falling off the back. They keep going into new industries to find that growth even as older industries and older customers fall off. If they’ve got high turnover from an HR standpoint, those are all red flags for us, signs that maybe we don’t have a target here that’s committed to the long term, whether it’s with their own people or with their customers.
Our goal is not getting an order. Our goal is developing a long-term relationship with our customers, and that’s a key question for us in any acquisition target we’re looking at. And you can take that same question and relate it to the people within the organization. Do you have people that are loyal, dedicated and willing to charge the hill with you? Or do you have turnover problems that may be an indication of management’s commitment to their people?
MDM: We’ve heard that the generational shift that’s happening sometimes requires a change in how tenure is viewed, that younger workers may be looking for something different and in some ways are more willing to switch jobs to find it.
Crane: We’re not seeing that ourselves, and I chalk that up to our culture. I think we create an environment that’s vibrant and challenging, dynamic. One of the intangible benefits of having grown the way Lewis-Goetz and ERIKS has is to be able to create a career path and an opportunity that you simply aren’t going to find at smaller distribution businesses.
We’re quite proud of the opportunities we’ve been able to present to younger folks that are just getting into this industry and this business. At smaller local, regional family-owned businesses, the ability to attract and retain that generation and that talent is a challenge. And it’s not a criticism of those
businesses. It is a combination of being able to offer the career opportunities that this generation wants and this generation’s need to try and find those.
It is our responsibility as an industry to create challenging, vibrant environments where there are a lot of different opportunities. I think that’s what the next generation wants. And I think we’re in a very, very fortunate position to be able to offer that.
MDM: It sounds like that might requires a lot of nimbleness within a company, which a lot of large companies struggle with. How does ERIKS manage to create that vibrant environment?
Crane: First and foremost, you have to have an organization that simply has that ability. Having global operations gives us the opportunity to think globally about opportunities. So we as Lewis-Goetz and as ERIKS North America present an opportunity for ERIKS in Europe and other parts of the world to send talent here for international assignments and development that helps with the cultural integration as well.
And it gives us the opportunity to tell a story to people we’re trying to recruit and people within the business that very real opportunities exist globally for those people that are looking for a global career. We’re in the process of sending people to Europe on a regular basis for projects or for permanent assignments.
Those of us that have grown up in the business and remember what it was like to work in a small family business have to open our minds to the possibilities that exist in a global organization. Fortunately, ERIKS and ERIKS North America are organizing ourselves in a way that we force ourselves to think that way as we seek talent. We force ourselves to make sure that we’re creating those opportunities. That’s the way we build the next generation of leadership.
MDM: How does ERIKS North America approach training programs to provide these career paths?
Crane: We struggle with internal training the same as many distributors do, and we are of the opinion that some of the best training comes on the job. We have very well-developed training programs that give our associates insights into many different aspects of the business. And we’re very proud of those, but we also think that finding permanent assignments for talented individuals gives them experiences that they might not otherwise have. Those are going to be the most
MDM: How does ERIKS approach e-commerce as part of its business strategy?
Crane: E-commerce does and will continue to play a pretty central role on how we approach our customers. Our goal with e-commerce is to use it as a value-added tool to facilitate the relationship that we have. It’s not going to be a general tool that we use to approach the market. We see it as an opportunity to enhance the very in-depth, sticky relationship that we have with our customers and a way to make those relationships even more sticky.
Our customers have very wide-ranging needs and capabilities as it relates to e-commerce. So tailoring our approach to the customer does a couple of things. It’s a very customer-focused, customer-centric approach, specific to that customer’s needs and capabilities. It forces us to better understand the needs and the capabilities of that particular customer.
We’re still a very technical product and service-oriented provider. Not an off-the-shelf provider of products, if you will. And e-commerce can help facilitate some of the transactional efficiencies that we know we need to provide but without losing site of the very tailored nature of the product and services that we offer.
MDM: What are your thoughts on the role Amazon is going to play in distribution and on the distribution market?
Crane: For distributors that provide products that are more and more off-the-shelf SKU driven, the threat from Amazon is more acute, although I think those distributors still have compelling supply chain efficiency value propositions to sell that Amazon will continue to be challenged to replicate. For us in the technical product and service space where products are critical to the operation of a customer, it requires local know-how, problem solving, application knowledge. We continue to believe that our value proposition is one that’s difficult for Amazon or many of the broader MRO distributors to replicate and provide locally, let alone on a global scale.
The lessons we take from looking at Amazon and the other more advanced e-commerce platforms is: How do we take the knowledge and the advancements of those e-commerce platforms, learn from them and apply them in a way that is useful in our business? We see it as an opportunity to learn from them and apply those lessons to our business even as we don’t see the immediate threat from Amazon or other e-commerce players immediately impacting the more technical product and service space.
MDM: Is there anything you’d like to add about the direction of ERIKS North America?
Crane: ERIKS North America – and ERIKS globally – is in a unique position to tell a very exciting story about industrial distribution and about being a consolidator on a global scale. As exciting and dynamic and large a space as industrial distribution is in North America and globally, ERIKS is in a pretty unique position to be able to tell that story to customers, associates and young talent that we’re trying to recruit to the business.
Much of what we’ve talked about – you think about cultural fit, you think about relationships and people whether it’s with associates or customers – so much of that comes down to communication. In a far-flung organization with 100 locations across North America, one of the things that I do worry about is how do we send a consistent message to a customer in Seattle that has a sister facility in Houston and a headquarters in Philadelphia? That’s a key consideration for us.
Our growth strategies will just continue to support the compelling story that we have to tell to all of those different constituencies. We’re excited about the future. We’re excited about the growth trajectory of the last several years and the growth trajectory we’re going to see in the next several years and the unique opportunity that gives us to tell a very unique story.