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Customer Relationship Management of Ecolab -
January 17th, 2011
Ecolab, Inc. (NYSE: ECL; known as Economics Laboratory prior to 1986) is a St. Paul, Minnesota based sanitation supply company founded in 1923.
The company provides sanitation and pest control supplies, foodservice equipment repair and parts, food safety services and consulting to restaurants, hospitals, food and beverage plants, laundries, schools, retail and commercial properties. With sales of $5.5 billion and more than 26,000 sales-and-service associates, Ecolab Inc. is the global leader in cleaning, sanitizing, pest elimination services, food safety and infection prevention products and services. Ecolab delivers comprehensive programs and services to foodservice, food and beverage processing, healthcare, and hospitality markets in more than 170 countries.
Ecolab sells chemical products used by beef and poultry processors to reduce pathogens, such as E. coli and salmonella, on uncooked beef and poultry.
The company stock is a component of the Standard and Poor's 500.
In 2010, Ecolab was named one of the “World's Most Ethical Companies” by Ethisphere magazine. The extensive research process included reviewing over 10,000 of the world's leading companies on six continents. Fewer than 100 companies were chosen for the award.
In 2010, Ecolab was ranked #365 in Fortune 500 magazine, moving up seventy three spots over last year. Ecolab also ranked 228 in terms of market value, 183 on return on sales, 111 for return on total assets, 131 for return on equity and 72 in total return (stock price plus dividends) to shareholders over the ten years ending in 2007.
Ecolab Inc. is a leading supplier of cleaning, sanitizing, and maintenance products and services for the institutional, hospitality, healthcare, and industrial markets. The company's institutional division, which is its largest unit, provides cleaners and sanitizers for washing dishes, glassware, utensils, and other kitchen equipment and for laundering needs to restaurants, lodgings, and educational and healthcare institutions. Other Ecolab units offer water and wastewater treatment programs, commercial pest elimination and prevention, and kitchen equipment repair services. The company operates in virtually every country in the world either directly, or through distribution and licensing agreements, or via its Henkel-Ecolab joint venture with the German firm Henkel KGaA. Through its 'Circle the Customer--Circle the Globe' strategy, Ecolab aims not only to be a worldwide operator but also to offer a full range of products and services to its core customers.
For the first 60 years of its existence Ecolab was managed by members of the Osborn family. Merritt J. Osborn, founder of the original Economics Laboratory, abandoned his occupation as a salesman and organized a specialty chemical manufacturer in 1923. The company's first product was a rug cleaner for hotels. Its first key product, however, was Soilax, a chemical detergent for mechanical dishwashers. Economics Laboratory entered the equipment sector in 1928 with the introduction of its first product dispenser; this marked the beginning of the company's 'systems' approach to meeting its customers' needs. In the 1930s the company began a nationwide expansion. Sales passed $500,000 by the end of the decade, then reached $5.4 million by the end of the 1940s.
In the 1950s the company's product line grew to include consumer detergents and institutional cleaning specialties for restaurants, food processors, and dairies. This area of business came to represent the cornerstone of the company's success; between the years 1970 and 1980 the chemical specialties business quadrupled, generating $640 million by the end of the ten-year period. Yet early in its history the company actively pursued customers outside of the consumer and institutional markets.
By purchasing the Magnus Company in the early 1950s, Economics Laboratory gained access to the industrial specialty market. Magnus's primary business, the selling of cleaning and specialty formulas to numerous industries, including pulp and paper, metalworking, transportation, and petrochemical processing, contributed $12.1 million in sales during 1973.
Meanwhile, international expansion began in the 1950s, with the establishment of the company's first overseas subsidiary in Sweden in 1956. The company grew large enough by 1957 to become a public corporation. Earnings per share rose higher than an average 15 percent annually for the next 20 years. The mid-1960s marked a high point in the company's history as earnings grew 16 percent every year. This was exceeded only by a three-year performance between 1974 and 1977, in which profits eventually reached a 19 percent growth rate. By 1973 Economics Laboratory was divided into five divisions. The Magnus division produced items for the industrial market, while the institutional division manufactured dishwasher products and sanitation formulas. In the consumer division, home dishwasher detergent as well as coffee filters, floor cleaners, and laundry aids were produced. The Klenzade division provided specialty detergents to the food processing industry (Klenzade had been acquired in 1961). Overseas sales were controlled by the international division, founded by future chairman and chief executive officer Fred T. Lanners, Jr., who, it was said, paid his first employees out of his own expense account.
Of all the company's products, detergents for household dishwashers became its bestseller. Second only to Procter & Gamble's automatic dishwasher detergent in domestic sales, Economics Laboratory's detergents were preeminent in overseas markets. In the early 1970s, despite the fine company performance, Economics Laboratory attempted to expand its business by offering several new service and equipment packages. One such package offered on-premise laundry services for hospitals and hotels. This business was strengthened by the purchase of three subsidiaries all engaged in the laundry industry. Another package offered sanitation and cleaning service to the food industry. The company's dishwashing operation service, for example, addressed every aspect of the procedure from selecting the detergent to training the employees.
This trend toward offering services to supplement specialty chemical products represented Economics Laboratory's new market strategy. According to Fred Lanners, then president of the firm, service activity was indispensable to building markets and the single most important asset to offer customers. Prospective company employees were hired according to whether they had the ability to give an impression of total commitment to the needs of clients. Aside from laundry and sanitation, future plans included offering a comprehensive cleaning service to food establishments and a chemical surveillance service to food manufacturers and handlers. The ideas for the structure and implementation of these service packages emerged from Economics Laboratory's research and development department. The increasing importance of this department resulted in a staff of 200 by 1973.
Late 1970s and Early 1980s: A Time of Change
In 1978 the company underwent a number of changes as the profit margin dipped to ten percent. Sales of dishwashing detergent had slowed and the expansion of international operations had a temporary adverse effect on profits. Both causes for the reduced profit gains appeared easily correctable and no major reorganization was in order. Yet the disappointing figures happened to occur at the same time new executives filled positions in Economics Laboratory's management.
E. B. Osborn, son of the founder Merritt J. Osborn, ended his long tenure as chief executive officer in 1978 so that Lanners, the first nonfamily member to achieve such high executive status, could assume the new title. Lanners began at Economics Laboratory in the research and development department, becoming first the chief scientist and then the assistant to the research and development director. At the time of the management shift, E.B. Osborn's experience at the company covered 50 years. The third-generation descendant, S. Bartlett Osborn, stepped up to the positions of executive vice-president and chief operating officer.
By 1979 business had resumed at an accelerated pace. Sales increased 16 percent and earnings per share rose 16.6 percent over the previous year. International sales now increased at a faster pace than domestic sales. Profits, however, did not substantially increase; the unimpressive 6.6 percent was traceable to the effects of a large hiring campaign. The 130 new employees in marketing represented the firm's largest sales personnel increase ever in the course of one year.
The hiring of new staff marked only one tactic in management's strategy for growth. In addition to a larger sales force and continued expansion into foreign markets, Economics Laboratory announced plans to use some of its supply of cash to acquire Apollo Technologies for $71.2 million. This manufacturer of chemicals and pollution-control equipment was purchased in 1979 to improve the company's industrial market share. As the company's traditional lines of business in consumer and institutional products neared the limits of market penetration, Economics Laboratory looked for ways to supplement the operations of the Magnus division. Company management hoped that the acquisition of Apollo could offer that supplement.
At first the subsidiary served this function well, and both companies found the relationship mutually beneficial. Apollo gained the financial backing necessary to enter new markets, particularly overseas, and Economics Laboratory broadened its business in the industrial sector. The Apollo subsidiary now held the responsibility for selling all Economics Laboratory's industrial chemical specialties. In addition to marketing coal additives, catalysts, and dust-control products to the electrical utility and mining industries, Apollo's sales staff was given the added task of selling lubricants, pulp-processing compounds, and temperature reducers to the metal processing and paper industries.
The major advantage Apollo's business activities held for its parent company was the ability to raise the industrial service operations to the same level of success as the Economics Laboratory's institutional services. Prior to the acquisition, Economics Laboratory's industrial business suffered from an inability to offer comprehensive services to its customers. With the purchase, Economics Laboratory acquired not only a company, but also technical service engineers to supervise product implementation.
In 1981 Philip T. Perkins assumed the title of president and chief operating officer. The new top executive had joined Economics Laboratory in 1968 as vice-president of the company's consumer division. As a graduate of Michigan State University, Perkins used his self-created bachelor's degree in food distribution to assume a number of positions in consumer operations both at Economics Laboratory and other companies. His experience in Economics Laboratory's consumer division attracted the attention of his colleagues; after three years of employment he was chosen as the company's most valuable employee. Prior to becoming president and chief operating officer, Perkins held the position of executive vice-president and chief operating officer of the international division.
As a new top executive, Perkins was considered particularly useful in overseeing the international operations. Before assuming his new title he had developed a plan to consolidate the program into a highly efficient network. His plan was credited with helping to maintain the division's impressive growth rate. Aside from continuing to expand international operations, Perkins planned to increase research and development spending by 25 percent.
The last remaining promotion entitled to Perkins was the advancement to chairman and CEO. Although it was generally assumed that Perkins was being prepared for this final promotion, tradition at the company protected the incumbency of its older chairmen. For this reason, no one expected the 62-year-old Lanners, then chairman and chief executive officer, to be relinquishing his duties in the near future.
Perkins's promotion, however, never materialized. In a surprise move Economics Laboratory recruited and hired its new top executive from outside the company. This abrupt shift in 1982 was said to have been management's response to a sharp decline in sales of pollution-control chemicals. In attempting to remedy the situation, operating units were restructured and a new leader was sought with a strong background in chemistry and experience in the industrial sector. The recruitment process singled out Richard C. Ashley, former president of Allied Chemical and a group vice-president of the parent company. Ashley's degree in chemistry and his successful experience in the chemical field met the company's qualifications.
Ashley's talents were expected to be particularly useful in addressing the ailing Apollo subsidiary. Sales, dropping precipitously to $5 million, had been adversely affected by the depressed industrial sector and by revisions in the Clean Air Act. The move to realign operating units represented the first in a series of steps devised to increase Apollo's business. Soon after assuming his new position, however, Ashley was tragically killed in a car accident.
Mid-to-Late 1980s: Restructuring and ChemLawn Acquisition
Once again Economics Laboratory recruited outside the company for a new chairman and CEO. Early in 1983 Pierson M. 'Sandy' Grieve, a 55-year-old executive from the consumer goods company Questor, filled the position. Grieve's experience in acquisitions and corporate planning, as well as his aggressive and articulate management style, were his most valuable assets.
Just a week after assuming his new title, Grieve displayed his talent for decisive strategic planning; the Apollo subsidiary was to be shut down. The closing of the operation caused a $43 million writeoff but eliminated the possibility of continuing adverse effects on profits. Grieve's next strategic move involved reorganizing the Magnus division, issuing ultimatums on sales performance for certain foreign markets not up to standards, and hiring 100 new salespeople to market expanded product lines. Although sales had reached $670 million, ranking the company fourth among the top manufacturers of domestic cleaning products, debts over the past years had accumulated, and the institutional market, representing Economics Laboratory's largest customer base, had shrunk.
Grieve's decision to close Apollo was just one of the many major decisions required early in his tenure. Only months later, a significant attempt by an industry competitor to replace the nation's top dishwashing detergents caused Economics Laboratory's product to slip from second to third place. Lever Brothers, a large consumer product company, released its Sunlight brand detergent and captured a sizeable portion of the market. To prevent any further erosion of the company's market share, Grieve issued a plan to develop new products internally. Moreover, for the first time in ten years, he increased allocations for product promotion by adding $5 million to the soap products' advertising budget.
A final cause for concern emerged with the aggressive maneuvers of the Molson Companies Ltd., a Canadian brewing concern. In an attempt to capture a share of Economics Laboratory's U.S. institutional and industrial markets, Molson purchased the Diversey Corporation, a specialty chemical company. Diversey successfully increased Molson's presence in the United States and in five years the company tripled its sales.
Despite these concerns, Grieve's strategy to regain certain markets appeared effective. By 1986 $55 million in assets had been sold, including the pulp and paper division, the domestic portion of Magnus, the coffee filter business, and several plants. Other consolidation measures involved the laying off of employees and the implementation of new packaging processes. Long-term debt was reduced by an equivalent of $10 million and the company once again controlled a comfortable amount of cash. With the acquisition of Lystads, an exterminating service, and ICE, a pest control operation, Economics Laboratory attempted to broaden its customer base in its institutional division. Similarly, with the purchase of Foussard Associates, a laundry product and service operation, the company sought to augment growth in its institutional division. In 1986, the company also changed its name to Ecolab Inc.
Although its institutional and industrial customers had always comprised Ecolab's core markets, the consumer market had also figured into the product mix. In 1987, Grieve would take the company in two directions at the same time in regard to the consumer market. The firm abandoned its battle with Procter & Gamble and other dishwashing detergent makers, selling its dishwashing unit because it simply could no longer compete. About the same time, Ecolab purchased the lawncare servicer ChemLawn for $376 million, a move that would prove to be the biggest disappointment of Grieve's years at the company's helm.
Industry analysts contended that Ecolab paid too much to acquire ChemLawn, which set off an unfortunate chain of events. In its initial couple of years under Ecolab, ChemLawn was unable to generate enough revenue to pay back the costs of the acquisition. Ecolab management decided to increase revenues through price increases, hoping its focus on delivering a quality service would mitigate any negative effects. But ChemLawn's customers turned out to be much more price-sensitive than expected. Grieve later noted that part of this sensitivity stemmed from consumers considering lawncare a discretionary purchase. Moreover, he observed, an increase in environmental awareness in the late 1980s hit the industry just after Ecolab acquired ChemLawn. Overall, the ChemLawn acquisition was eventually regarded as an ill fit. In fact, after losing money under Ecolab, ChemLawn bounced back to profitability under Service Master L.P., which purchased ChemLawn in 1992 for $103 million. With the sale, Ecolab had to take a $263 million writeoff against 1991 earnings.
Late 1980s and Beyond: 'Circle the Customer--Circle the Globe'
Ecolab was able to recover from its ChemLawn disaster through a program that Grieve began in the late 1980s during the initial stages of the ChemLawn debacle. This strategy, eventually known as 'Circle the Customer--Circle the Globe,' brought the firm to its strong position of the early 21st century. The 'Circle the Globe' part of the program emphasized Ecolab's intention to become a worldwide leader in its core businesses. Initially the firm concentrated on the Asia-Pacific region, moving into the area in the late 1980s--one of the first U.S. firms to do so in a concerted way. Ecolab also significantly increased its presence in Latin America, Africa, and the Middle East, particularly in the early 1990s. Growth was achieved through setting up operations in these regions, or via distribution and licensing agreements.
Ecolab then entered into a joint venture with the German firm Henkel KGaA. Established in mid-1991 and called Henkel-Ecolab, the 50-50 joint venture initially experienced some difficulties as a result of a poor European economy, but in a few short years became the leader in Europe in institutional and hospitality cleaning, sanitizing, and maintenance. The joint venture operated throughout Europe, including Russia and other former republics of the Soviet Union. The agreement between Ecolab and Henkel creating this joint venture also transferred ownership of Henkel's Latin American and Asian cleaning and sanitizing operations to Ecolab. By 1994, 22 percent of Ecolab's net sales originated outside the United States.
Ecolab's 'Circle the Customer' strategy was intended to maximize its investment in its core businesses by broadening the range of products and services it offered its customers. By concentrating on the institutional, industrial, and hospitality industries, which it knew best, Ecolab extended its base of core customers in an incremental fashion, most notably with its late 1994 acquisition of Kay Chemical. Ecolab was already a leader in cleaning and sanitizing products for the full-service restaurant industry and added, through this acquisition, the leader in this area for fast-food restaurants--an industry experiencing rapid worldwide growth. A similar expansion occurred through the late 1994 formation of the water care division, which was built through a series of acquisitions and offered water treatment programs to Ecolab's institutional and industrial customers.
Ecolab enjoyed steady growth in net sales and net income in the early 1990s, culminating in 1994 sales of $1.21 billion and $90.5 million in net income--evidence that Grieve's focus on the firm's core businesses and worldwide expansion had begun to pay off. The health of the firm was also evidenced by the smooth transition to new leadership in 1994 and 1995 brought on by Grieve's retirement after 12 years in charge. Allan L. Schuman--who had been president and chief operating officer--became president and CEO early in 1995. Michael E. Shannon--who had served as vice chairman and chief financial officer--became chairman of the board at the beginning of 1996. The two essentially acted as dual leaders, an arrangement that evolved more by accident than by design, based on Schuman and Shannon's strong achievements in their previous positions, complementary personalities and skills, and ability to work as a team.
Under the new leadership team, Ecolab continued with its Circle strategy, expanding its product and service offerings and its geographic reach through several late 1990s acquisitions. In February 1996 Ecolab purchased Huntington Laboratories, Inc. of Huntington, Indiana, a supplier of janitorial products to the healthcare and education markets. When added to Ecolab's janitorial division, Huntington doubled the annual revenues of the division, which was soon renamed the professional products division. Ecolab's second largest division, food and beverage, was similarly bolstered through the purchase of two makers of cleaning products for the North American food processing industry. In August 1996 the company bought the Monarch division of H.B. Fuller Company, then one year later acquired the Chemidyne Marketing division of Chemidyne Corp.; Monarch had annual sales of $30 million, while the Chemidyne operations generated about $17 million. In October 1997 Ecolab acquired Melbourne, Australia-based Gibson Chemical Industries Limited for about $130 million. A maker and marketer of cleaning and sanitizing products for the Australian and New Zealand institutional, healthcare, and industrial markets, Gibson had fiscal 1996 sales of $122 million. Ecolab hoped that Gibson would provide it with a base from which to gain a larger share of the Asia-Pacific market.
Starting in late 1997, Ecolab's institutional division rapidly gained, through acquisition, a significant share of the market for commercial car wash cleaning products. This was a logical extension of the division's dishwasher cleaning product offerings; Schuman, in fact, told Chemical Market Reporter that a car wash is 'really nothing but a big dishwasher.' Two key acquisitions in this area were the December 1997 purchase of the specialty chemical business of Grace-Lee Products Incorporated, which had sales of $16 million, and the February 1999 purchase of Blue Coral Systems, a subsidiary of the Pennzoil-Quaker State Company with sales of about $30 million. Ecolab next moved into the repair of commercial kitchen equipment through the July 1998 acquisition of Danbury, Connecticut-based GCS Service Inc., which reported 1997 sales of $48 million. Ecolab intended to turn GCS Service, which became a division of Ecolab, into a national service company for its commercial foodservice customers. Ecolab aimed to grow both its car wash and equipment repair businesses into $100 million-per-year operations by about 2004.
At year-end 1999, Shannon retired. Schuman was elected by the company board to the additional post of chairman to replace him. Ecolab continued to post record results, with revenues exceeding $2 billion for the first time in 1999, while the company also reported its 19th consecutive quarter of double-digit earnings per share increases and paid common stock dividends for the 63rd straight year. Ecolab continued to churn out successful new products, such as a line of water filters for use in ice machines, juice machines, and coffee makers. The company was also investigating potential new areas of early 21st-century growth, such as selling its institutional products to apartment buildings and complexes. By continually evolving and expanding its array of products and services as well as seeking out new customers for its offerings, Ecolab appeared to have hit upon a strategy for unending success.
Principal Subsidiaries: Ecolab S.A. (Argentina); Ecolab Australia Pty Limited; Ecolab Finance Pty Limited (Australia); Ecolab Pty Limited (Australia); Gibson Chemical Industries Limited (Australia); Gibson Chemicals Limited (Australia); Gibson Chemicals (NSW) Pty Limited (Australia); Gibson Chemicals Fiji Pty Limited (Australia); Gibson Chemicals Great Britain Pty Limited (Australia); Intergrain Timber Finishes Pty Limited (Australia); Leonard Chemical Products Pty Limited (Australia); Maxwell Chemicals Pty Limited (Australia); Nippon Thermochemical Pty Limited (Australia; 60%); Puritan/Churchill Chemical Holdings Pty Ltd. (Australia); Vessey Chemicals (Holdings) Pty Limited (Australia); Vessey Chemicals Pty Limited (Australia); Vessey Chemicals (Vic.) Pty Limited (Australia); Ecolab Limited (Bahamas); Ecolab (Barbados) Limited; Kay N.V. (Belgium); Ecolab Quimica Ltda. (Brazil); Ecolab Ltd. (Canada); Ecolab S.A. (Chile); Ecolab Colombia S.A. (Columbia); Ecolab Sociedad Anonima (Costa Rica); Ecolab, S.A. de C.V. (El Salvador); Ecolab S.A. (France); Ecolab GmbH (Germany); Ecolab Export GmbH (Germany); Ecolab, Sociedad Anonima (Guatemala); Quimicas Ecolab, S.A. (Honduras); Ecolab Limited (Hong Kong); P.T. Ecolab Indonesia (80%); Ecolab Export Limited (Ireland); Ecolab Co. (Ireland); Ecolab Limited (Jamaica); Ecolab K.K. (Japan); Ecolab East Africa (Kenya) Limited; Ecolab Korea Ltd.; Ecolab Lebanon S.a.r.l.; Ecolab Sdn. Bhd. (Malaysia); Ecolab S.A. de C.V. (Mexico); Ecolab Holdings Mexico, S.A. de C.V.; Ecolab Morocco; Ecolab Finance N.V. (Netherlands Antilles); Ecolab International B.V. (Netherlands); Ecolab Limited (New Zealand); Ecolab Nicaragua, S.A.; Ecolab S.A. (Panama); Gibson Chemicals (PNG) Pty. Limited (Papua New Guinea); Ecolab Chemicals Ltd. (People's Republic of China; 85%); Ecolab Philippines, Inc.; Ecolab Pte. Ltd. (Singapore); Klenzade South Africa (Proprietary) Ltd.; Ecolab Ltd. (Taiwan); Ecolab East Africa (Tanzania) Limited; Ecolab Limited (Thailand); Ecolab East Africa (Uganda) Limited; Ecolab Foreign Sales Corp. (U.S. Virgin Islands); Ecolab S.A. (Venezuela; 51%); BCS Sales Inc.; Kay Chemical Company; Kay Chemical International, Inc.; Ecolab Finance (Australia) Inc.; Ecolab Manufacturing Inc.; Ecolab Holdings Inc.; Ecolab Investment Inc.; Ecolab Foundation; Ecolab Leasing Corporation; FastSource Leasing, Inc.; GCS Service, Inc.; Jackson MSC Inc.; Puritan Services Inc.
Principal Divisions: Institutional; Food and Beverage; Kay; Pest Elimination; Textile Care; Professional Products; Water Care; GCS Service.
Principal Competitors: ABM Industries Incorporated; ARAMARK Corporation; Chemed Corporation; Colin Service Systems, Inc.; CPAC, Inc.; Healthcare Services Group, Inc.; ISS-International Service System A/S; Katy Industries, Inc.; National Service Industries, Inc.; Rollins, Inc.; The ServiceMaster Company; SYSCO Corporation; The Tranzonic Companies; Unicco Service Company; Unilever PLC/Unilever N.V.; Unisource Worldwide, Inc.