How getting the basics right – and adapting to technology – is delivering the company's return to form
Electrocomponents, better known by its RS Components brand, sells more than 500,000 products and ships 50,000 parcels a day to more than one million customers worldwide. Its parts keep factories running, drones flying and gadgets operating. But the 80-year old, one-time FTSE 100 company, lost its way somewhere near the turn of the century.
Now nearly three years into a turnaround plan, Chief Executive Lindsley Ruth has his sights set on a much bigger slice of what he sees as a £400bn market. He also has a playbook for boosting productivity that other business leaders can borrow from.
The ambitious American – who thinks the UK government can learn from Trump’s overtly pro-business stance, particularly in the light of Brexit – came to the UK to take the top job at Electrocomponents in 2015. With experience of running Canadian electronics distributor Futures Electronics, he had a mandate to arrest the decline in the business. But he certainly wasn’t cowboy in his approach.
The first thing Ruth did was read 50 years’ worth of annual reports. These, he explains, told a tale of a great company gradually turning in on itself, rather than keeping its focus clearly on its customers. And so informed, Ruth was determined that the turnaround had to be driven by getting the basics right.
Focus and leadership
His strategy was also guided by the very first question he was asked by his Chairman: “You have to decide if we are a UK company with international operations or an international company that just happens to be headquartered in the UK.”
With 72 per cent of revenue coming from outside Northern Europe, Ruth was clear Electrocomponents was an international business. And his response demonstrates the importance he places on leadership.
His direct reports at the time were “all male, white, British, and with limited amount of experience overseas”. He replaced nine of the 10 to establish a “true global leadership team”.
Measurement and accountability
Ruth was equally convinced that the company’s poor performance was down to the fact it had lost sight of the consumer it was serving. His first action under the Performance Improvement Plan launched in November 2015 was to ensure 20 per cent of bonuses depended on a customer satisfaction metric – the first time a customer metric had ever featured in the company’s bonus plan.
"We were operating like a government agency
The push for accountability continued with the introduction of daily, rather than monthly, sales reporting – and with the creation of separate P&Ls for geographic regions, again for the first time.
“We were operating more like a government agency, as a large cost centre,” he explains.
And straight away this meant Ruth could see Asia Pacific was losing £23m a year at that time – and the resulting focus means it’s not far from breaking even today.
Operating for less
Right across the business, Ruth also identified that there was “way too much fat” that needed trimming. “It’s not as much about what we did, but about what we stopped doing,” he says. “There were hundreds of initiatives running throughout the business, so we focussed in on a few priorities.”
These centred on Ruth’s vision for Electrocomponents to become “first choice for our customers, to grow that customer base globally, and to look less like a distributor and more like a partner”.
And with 60 per cent of the company’s revenue now coming from eCommerce, Ruth is happy to admit he has taken inspiration from Amazon.
“If you go back 20 years ago to 1998, Amazon was a book distributor. Most people look at us and say, well, you’re an electronics distributor. Well, no, we’re not really anymore. We’re much more than that,” he says.
“I love reading and studying about Amazon because its journey is something that we can mirror. There’s so much more we can do around customer experience and broadening our product lines and bringing in more value-added services to our customers and becoming a stronger player around the world, expanding geographically as well.”
A quarter in the digital world is like a year in the analogue world
Convincing investors that Amazon is not a threat to the company’s business model – and that Electrocomponents is a big digital player in its own right – has been a challenge, says Ruth. But last year the business passed the milestone of passing £1bn in online sales and the business continues to focus on “making sure that we have an IT road map and the right architecture to be able to scale this business – and scale it with speed,” he explains.
“A quarter in the digital world is like a year in the analogue world. We can’t afford to take a day off at any point in time,” he adds.
Electrocomponents invests close to £70m a year on digital – both advertising and technology. It’s currently looking into blockchain technology and ways in which it can advance its distribution centres. It is also looking at how it can exploit the data it has to make better decisions, personalise the customer’s journey and “to make sure that we’re maximising the productivity of the business by focussing on the right things”.
Ensuring the business is on trend with 3D printing is also a “high priority” – it currently sells printers and offers a 3D printing service – as Ruth is all too aware it will cannibalise some of the business over time.
Culture is king
But keeping up with technology developments requires access to the right skills, and last year Ruth relocated Electrocomponent’s headquarters from Oxford to London’s regenerated Pancras Square, right next to Google’s future HQ, in the hope of attracting the best talent.
“London is really where it’s happening,” he says. “We’re a forward thinking, forward looking company, so we wanted our corporate office to reflect where we’re going and not where we’ve been.”
It also offers an easier route for employees travelling between the HQ and its Corby offices – and Ruth has been keen to ensure his existing staff too have the right tools for the job.
“When I first joined this company I expected the talent to match the poor performance of the organisation. To my surprise, it didn’t. It was the opposite,” he says. “In fact, we had very talented employees who were just not executing. Their desire to change and their commitment has made this journey much easier.”
The skills challenge
But some of the challenges Electrocomponents faces are not strictly within Ruth’s control. And like any other business leaders, he is concerned about how skills shortages will affect the business, both now and in the future.
There will be more innovation in China in the next five years than the rest of world combined
“This isn’t just a UK problem. It’s a problem across the Western world,” he says. “I think there’ll be more innovation that will take place in China over the next five years than the rest of the world combined, and a lot of that has to do with the ecosystem they’ve developed in China: strong partnerships between the government, businesses, universities and schools in general, and a very disciplined approach.
“We’re involved in quite a few universities in China. Most recently, I was at the Hong Kong University of Science and Technology. I was absolutely blown away with the students, their discipline, what they’re working on, the amount of money that’s been invested in labs and equipment. I think we’re falling behind in the Western world and it’s a real concern of mine.”
Keen to do what he can to make a difference, Electrocomponents has invested in an awards programme called BrightSparks with Electronics Weekly to recognise young engineering talent – and inspire the next generation still in school. It also has a truck, Titan II, that it takes around schools, universities and trade fairs across the UK, using Electrocomponent kit to show students that technology is about more than coding for games.
And proving it’s never too late to pick up new – and necessary skills – to drive business growth, the company is also technology partner to Barclays’ Eagle Labs, providing scale-ups at the innovation hubs with equipment and expertise.
They also get access to DesignSpark, Electrocomponents’ online platform of resources, technical tools and community support to assist in the engineering design process – and Ruth is all for nurturing this community to encourage more invention. While the platform currently has 650,000 members, he wants that to burgeon into 10 million worldwide.
It seems it’s Ruth’s personal crusade to support the Maker Movement – and for Electrocomponents to become a partner to firms in the process. But this is also reflected in the company’s campaign, “for the inspired”, which highlights the art of the possible.
The campaign showcases the work achieved by individual engineers using Electrocomponent parts – including Ben Ryan who made his small child a prosthetic arm (and who Electrocomponents is now sponsoring to develop the technology further), Team Hyped at the University of Edinburgh trying to revolutionise mass transit and Richard Browning who has made a jet-powered “rocketman” suit.
And perhaps it’s with that in mind that Ruth comments on what he’s achieved so far. In its latest trading update, Electrocomponents posted growth of 13 per cent over the year to March 2018, but he says: “We’re only half way on this journey of getting the company to where it needs to be and then being able to blast off from there and really accelerate our growth.”