Big is better, sometimes
Megapowers have advantages, drawbacks
By Gary Evans -- Furniture Today, December 16, 2001
KEY BISCAYNE, Fla. — Being big helps, but it doesn't guarantee success. That was the message of a panel of major manufacturers assembled here for the Furniture/ Today Leadership Conference session, "Does Size Matter?"
The consensus was that being a megapower is filled with advantages but, at the same time, fraught with danger. And the panel — Pat Norton, Bob Maricich, Charlie Eitel and Art DeFehr — said elements apply to both large and small companies.
DeFehr, president and chief executive officer of Palliser Furniture, said companies acquire and merge for technical and design dominance, market access control, branding dominance and financial strength. An even more important reason, he said, is the "ego factor," which "is probably the one (thing) that does the most damage in terms of reasons why consolidation doesn't work."
Big furniture companies have limited opportunities in technology and design, said DeFehr, "because there's not much we can do that somebody isn't close behind." Branding has some value, he added, particularly for stores that dominate their market. There's also large-company strength in marketing and purchasing abilities.
"The big issue in our industry is that it is driven by personalities," DeFehr said. "The pluses and minuses of that are that you can drive a company to larger size. But it's very hard to sustain. The reason you became large may not help you stay there."
Maricich, president and CEO of Century Furniture, focused on why organizations fail, with the No. 1 reason being lack of adequate capitalization. But not having a clear vision of one's mission is a straight route to failure, no matter who you are, he said.
"You can't be all things to all people," Maricich said. "Small companies and big companies (alike) fall into that trap, so I don't think there is any difference there."
One key to the success of a large company is having the right business strategy. The dot-coms had the capitalization and a clear vision "but they plain had a failed business strategy," he said.
Eitel, chairman of bedding major Simmons, said an overall rule for companies is "to figure out what you're good at and become great at it." One of the most important factors in running a large business is having world-class systems in place, along with the proper leadership and culture. "If you don't have that, I think you're going to get in trouble," Eitel said.
"The advantage of having a large company is that you have the opportunity of making a lot of mistakes and you can learn from those mistakes," Eitel said. For example, Simmons had 18 plants making product without communicating how they were doing it, he said. Consequently, the company had 12.2% off-quality products, roughly $87 million annually in waste. It initiated a zero-waste program, emulated practices from the best of its plants, and restored $52 million to the bottom line, he said.
"Size is not an open door to profit at all," said Norton, chairman of La-Z-Boy. He noted there are two types of bigness, the single-entity companies like Ashley and Ethan Allen, and the multi-entity companies like La-Z-Boy. In the latter, "even though one (company) represents half of the volume, you spend more time ... managing the others," he said.
Norton said that for many years he's thought "this industry must consolidate to be really successful and to be really profitable. ... That has gone on, but whether it's gone on in a profitable way is questionable."
In 20 years, the industry will be more like the auto industry, Norton said. "We'll see more big companies establish brand presence and get themselves established in the minds of the consumer," which will create more interest in home furnishings. In turn, the industry "must put more money back in the system from the branding standpoint."
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