W.W. Grainger Inc.: Industrial STRENGTH

Smart Business Chicago, Sep 2007 by Nank, John

As Richard L. Keyser will tell you, turning around a company is no easy task - particularly when the company is already successful.

"I attended a seminar a few years ago, and the title of it was 'Turning Around a Successful Company'; that's probably one of the hardest business jobs you can undertake," says Keyser, chairman and CEO of W. W. Grainger Inc. "When a company is in crisis, it's pretty easy to stimulate change, but when things are going pretty well, it's much more difficult to get the attention of the organization."

For its part, it's not as though Grainger is hurting. Founded in 1927 and publicly traded since 1967, the Lake Forest based distributor of facility maintenance products hit the $1 billion sales mark in 1984, $5 billion in 2004 and posted record revenue of $5.9 billion in 2006, while expanding operations throughout North America and, recently, into China. That's not to say, however, that there wasn't room for improvement.

"We have been nationwide for a long time, but frankly, our positioning in a number of the major markets had gotten stale," says Keyser, who was elected CEO in 1995 and chairman in 1997. "When you have an organization that's been enormously successful, it can easily become very inward-looking and lose touch with customer priorities and begin to march to its own drummer."

In an effort to maintain focus on customer needs and continue to build on its success, during what Keyser describes as "the depths of the post-9/11 recession," Grainger embarked on an initiative to increase domestic market share by systemically re-examining its positioning in the nation's top markets.

"We undertook a reassessment, city by city, of our whole presence," Keyser says. "That includes, 'Do we have enough branches? Are they in the right places? Are they the right size? Are they well-enough merchandised? Do we have proper sales representation to cover the market?' We've dubbed it 'market expansion' because, in almost every case, it results in a fair amount more square footage in the market, it results in some new branches, some relocated branches and, in a few cases, some branch closings."

The market expansion initiative, just one aspect of an overall growth strategy, has already contributed positively to Grainger's branch-based sales growth, and by investing in infrastructure, strengthening customer relationships and communicating the strategy throughout the organization, all indications that point to that growth continuing.

Investing in infrastructure

Before any growth strategy can be executed, Keyser says one must first lay the proper groundwork.

"As most people know, you've got to build the foundation before you build the house," Keyser says. "Systemically, it doesn't work if you don't."

Because building the foundation for growth can sometimes be a massive and painful undertaking, the decision to do so can be a difficult one to make. As a facility maintenance products distributor, it is imperative that Grainger's customers have what they need when they need it. As such, creating the support structure included investing in a Voice-over Internet Protocol phone system, re-engineering its distribution network, expanding an already massive product line, integrating multiple market channels and increasing the size of the sales force.

Today, Grainger is able to provide same day or next-day delivery of any of more than 350,000 products to virtually the entire country.

"It was a complete re-engineering of our back room with a couple hundred million dollars of investment," Keyser says. "It's a bit like changing the tires on your car. You've got to do it, and you have to do it because if you don't, you're inviting people in and saying, 'Hey, come on in and try our lousy service.' That may work for the first quarter, but after that, you may not see them again."

Because, in many cases, the products Grainger provides are not necessarily central to its customers' businesses, Keyser says it is all the more important that the company's 1.6 million customers not be hassled while dealing with something they're really just trying to get off their desks.

"A service failure is the worst possible thing that can happen in our business," Keyser says. "We have lots and lots of customers, and many of them actually visit us infrequently, even though they like us a lot. So if we have a service failure, it can take a very long time before that customer realizes that we fixed that problem. Systemically, the strongest thing we can do is to have very high and gradually improving levels of service."

Moving forward, Keyser says he now considers the market-by-market evaluation an evergreen program that will extend far beyond its original plan, which focused on Grainger's 25 largest markets. Additionally, in order to better monitor the success of the program in improving service to customers, markets where Grainger's operations have already been tweaked will be revisited and readjusted where necessary.

"There are many more cities beyond the top 25 where we require the same kind of reassessment, and by the time we get to the end of the list, it will be time to look at the first ones all over again," Keyser says. "That's probably where we might not have been as aggressive in the past as we should have been, and we're going to have to allow that to happen going forward."