Speaker Name: Nicholas J. St. George
Speaker Title: President and CEO
Speaker Company: Oakwood Homes Corporation
Oakwood Homes Corporation Website
Distinguished guests, members of the faculty and members of the student body, it is truly an honor to be chosen as a speaker for this distinguished lecture series.
It's great to come up to these wonderful mountains and visit one of the South's fastest-rising and highly respected universities. Appalachian State University is an extraordinary university -- a forward looking institution that is a leader in preparing its students for a productive life in the rapidly changing world.
I don't know whether it's the air or altitude, but I think these rugged mountains just naturally give ASU folks a little better perspective of who you are in the great scheme of things and, consequently, you make better leaders and more positive contributors to our society.
It's a pleasure to be here. Today I'm going to talk about Oakwood's turnaround and leading a successful life...and how the two are similar.
Let me begin my thoughts this afternoon with a quick quote that lies at the root of my fundamental beliefs. Ralph Waldo Emerson said, "What lies behind us...and what lies before us...are tiny matters compared to what lies within us..."
Think about that for a second. What this is saying to me is that your successes or failures of the past and the barriers to success in your future are tiny matters compared to what you have inside you.
- Are you self motivated?
- Are you enthusiastic?
- Are you committed?
- Do you believe in yourself and in your vision?
I'm not talking about the kind of commitment that dissolves with the first failure, barrier or embarrassment. I'm talking about a commitment to NEVER give up. I'm talking about a commitment to do whatever it takes to reach your objective--to do it honestly, decently, ethically, and by the rules--and never give up. In short, make sure you are not collaborating in your own defeat.
What's inside you will determine success or failure. Those who recognize this focus on self improvement and don't waste time pointing or blaming the rest of the world for their failure.
As Vince Lombardi said, "I've never known a man worth his salt who in the long run, deep down in his heart, didn't appreciate the grind and discipline...and that any man's finest hour--his greatest fulfillment to all he holds dear--is that moment when he has worked his heart out in a good course and lies exhausted on the field of battle victorious."
Let me just say one thing about enthusiasm. Whatever you choose to do, from broad goals to little everyday tasks, do it with everything you have. Give it your whole body and soul...put your identity into it...put your mark on it. If you do that you will have drawn on one of the most powerful tools of personal success--and other people will naturally gravitate to you.
I say all this because time after time, in each of your lives, you will have to reach down inside you...to take on the difficult challenges...to dare to be different...to stand alone...to go against the crowd. And remember--if you don't want to get anywhere--just follow the crowd.
I also know that each choice in your life has a price tag...and not making a choice has the highest price tag of all. If you don't make a choice, you have effectively lost control of your own destiny and at that point someone else will control you--and that is a heavy price to pay. Life is a series of choices--you make them or someone else will make them for you.
What I admire about you young people is that you have made a choice--the right choice. You have chosen a tough and challenging discipline in a tough and challenging university. Keep challenging yourself. Never stop learning, trying or experiencing. Life pulls things out of you so if you want to know what's inside you, take on the difficult challenges.
James Turrow said it best, "It should be one of our nagging fears that we may die with our gifts yet unwrapped, with our talents, our skills untried and unused in the service of God and neighbor."
Or, in my words, don't die with the music still in you.
I keep hearing that your generation doesn't want to work as hard as your parents...that you're self-indulgent...that you're not ambitious. Do I believe that? NO--absolutely not. And don't you believe it either.
I wouldn't care so much about what people say but perception has a bad habit of becoming reality. And when you hear this bunk from the media and the know-it-all social commentators, you may make the mistake of believing it. If you come to believe that your generation is not as good as mine or willing to work as hard as mine--it will become a self-fulfilling prophesy. So don't you believe it.
Your generation does have some unique challenges that will require you--more than any other generation--to instill your own discipline and meaning to yourselves, your families, your schools, your communities, and your government.
Perhaps Walter Lippman described the obligations and challenges back in 1940 better than I can hope to do today. Lippman said,
"For every right that you cherish, you have a duty which you must fulfill.
For every hope that you entertain, you have a task that you must perform.
For every good that you wish to preserve, you will have to sacrifice your comfort and ease."
Today, 50 years after Lippman penned those words, if you and this nation are to succeed, we'll have to fulfill those obligations despite the fact that a certain segment of our society is letting you down because:
- It is a society that is afraid to instill discipline;
- It is a society that is looking for rights and privileges with no corresponding responsibilities and accountabilities;
- It is a society that is being fleeced of its entrepreneurial instincts;
- It is a society that is looking for a free lunch and easy answers to difficult questions.
I believe that, at the core, your generation is as good as any that has come before. I believe that your generation can instill in yourselves the discipline and the willingness to make the hard choices for yourself, for your society and for your children. I believe your generation can reject the assumption of rights, privileges and benefits without corresponding sacrifices, responsibilities and costs. In short, I believe your generation can reject the free-lunch mentality, because, without question, the free-lunch mentality is the most costly meal in the world. It will destroy your initiative, your character and your future.
What does all this have to do with Oakwood and its turn-around--EVERYTHING! What it will take for your generation to be successful, what it will take for you as individuals to be successful, and turning a company around in a crisis basically employ the same principles.
Let's not sugar-coat it; my tasks and your tasks are not easy:
- Neither can be done on the sidelines,
- Neither can be done without hard choices,
- Neither can be done without enduring short-term pain for long-term gain,
- In short, neither can be done without binding together the power of good human beings focused on the right values and objectives and looking beyond their own self-interests to the betterment of their organizations and their society.
Can you do it? YES--absolutely. Is it worth it? YES--absolutely. The rewards are happiness, pride, dignity, a meaningful life and self worth. The alternative is negativism, misery and a life without no rudder.
Now let's talk about Oakwood. First, let me give you a thumbnail sketch of what kind of company Oakwood is. Second, I'd like to share with you the 30-second sound-bite version of the principles that are at the heart of my business philosophy. And finally, I will talk about Oakwood's crisis and how we turned it around.
Oakwood Homes was founded in 1946 and employs approximately 1,700 people. We are the second largest retailer and the seventh largest manufacturer of manufactured homes in the country.
Oakwood is unique within the manufactured housing industry because we are the oldest fully integrated company in the industry. Being fully integrated means we are involved in all phases of the business:
- Manufacturing--with five plants in North Carolina with a capacity to produce 11,500 homes per year,
- Retailing--with 110 company-owned sales centers in 10 states,
- Finance--with our captive finance company,
- Insurance--with our captive insurance company,
- Land development--which develops and operates our rental communities and subdivisions.
In short, our mission is to find out what the customer wants and then give it to him--defect free. Period. Our basic rationale in building an integrated concept was to simply maximize profitability.
Now that you have an idea of who we are, let me share with you what I believe are the five most critical principles of business leadership.
- First, surround yourself with good people...vital people...people with the right skills...people who share your values and who have what I call the "pit-bull tenacity."
- Second, ask your customer what he or she wants and deliver it...no ifs, no ands, no buts, no excuses, no alibis...just do it.
- Third, get out of your office and talk to your customers...or onto your plant floor...or into your remotest sales locations. An office is the most dangerous place from which to manage a business.
- Fourth, aim everything you do at a total quality commitment in every nook-and-cranny of your business--a commitment driven by a non-compromising objective of total customer satisfaction.
- And finally, be totally honest and completely ethical in everything you do--especially with yourself.
That's it...the whole course...five points. If I've totally and completely convinced you of those five points, you can go ahead and leave because I've done everything I set out to do. I truly believe that if you stay focused on those five points you have the greatest chance to succeed.
What's more important, you'll not only be successful, but you'll like yourself when you look back at the end of your working life. You'll feel a sense of pride that will dwarf the material rewards you'll also receive for your success.
And let me ask you young leaders out there--shouldn't that be your ultimate goal--the goal of building a career you can look back on 40 or 50 years from now and be proud of yourself?
I've seen too many people who live in the big houses, belong to the right clubs, drive the Porsches and Mercedes--who appear to have everything anyone would want--but who are miserable. They are people who looked out for number one all the way up the corporate ladder knocking others off at every rung. When these sad folks wake up and find that what they have is nothing but hollow things, with loveless lives and aching guilt and what they lost along the way was self-respect and the love and respect of others, they are absolutely miserable.
In the end, all we have that's of value is the love and respect of others and ourselves. When it's all over, and the pluses and minuses are added, we are either good human beings or we are not. It's that simple.
Let me finally talk about crisis management in business and specifically about Oakwood Homes. To set the stage for my brief discussion of Oakwood's response to our financial crisis in the late 1980s, let me start with a thumbnail sketch of Oakwood's situation before the crisis.
And those are great memories! The years of the mid-70s to the mid-80s were robust and happy years for Oakwood. As of the end of 1986, Oakwood Homes had run a string of eleven years of record performances--record sales, record revenues, record earnings, record everything--eleven years of growth, stability and profit increase.
- The stockholders were happy.
- The management was happy.
- Our bankers were happy.
- And our employees felt secure.
In 1987, all that came to a screeching halt and the bottom fell out of the manufactured housing market. I must say, when economic conditions in an industry head south, it seems like everything heads south at once.
From 1987 through 1989, Oakwood experienced some very challenging years which were precipitated by the depression of the Texas market followed by rolling economic recessions in other regions in the United States, resulting in declining sales, overcapacity, severe price competition and repossessions.
Employees were distracted, confused and stressed out. Trust levels and morale declined. Just recounting it gives me chills. In a word, a nightmare! Everything was heading south and at a rapid pace. The combination of all these factors resulted in our industry suffering eight straight years of declining sales and a blood bath that effectively eliminated 50% of the companies in our industry.
When the bottom drops out of your market and your financials start hitting the red-ink area, let me tell you, you have a lot of unhappy surprises in store for you:
- Many of the people that were your undying buddies and pals in the good times, don't return your phone calls in the bad times.
- A lot of that talk about long-term relationships is just that--talk.
- And many of us, whose financial wealth is tied up in our businesses, get another shock when the stock plummets. You're broke. Your wealth is gone.
Yes, it's a shock to lose your wealth, but it only took me about a day to get over that particular problem. I had more pressing and important things to worry about. I had a responsibility to 1,200 people whose lives and livelihoods were also tied up with Oakwood. To put a lot of feelings and thoughts I had at that time into a nutshell--it was a gut-wrenching reality that these folks were looking to me:
- To provide the leadership to control the losses and damage,
- To turn this company around,
- To protect their jobs,
- And to bring Oakwood back to where it would be a secure place to work--a company in which they could trust their family's happiness and their future.
When I looked in the mirror and asked myself how I was going to do all that, the answer came back that I was going to have to ask for a lot of sacrifices and it had to start with me. I would dedicate myself 24 hours a day for however long it took. I would give up everything that would detract me. Golf. Tennis. No personal commitments. In short, no distractions! 100% focus!!
I knew that these decisions of sacrifice and complete focus were the right decisions and they came easy when I looked into the faces and souls of the people who were working at Oakwood. Because, when I walked onto the plant floors and talked to our employees...they all had the same look in their eyes. It's that kind of half-scared look that says: Are we going to make it? Am I going to lose my job? Their concerns, their fears and the looks on their faces were my driving force.
This experience also made me realize in crystal clear fashion that a leader must be willing to sacrifice his own personal goals and ambitions and focus on the needs of others. He must have a compassion for the working man and woman--an honest concern for their welfare--or he will fail.
In times of crisis, or even normal times, if you don't make sacrifices and earn the respect of your employees, you'll only get each employee's uninspired body from eight to five. But, if you give each employee respect and care, you'll have his or her mind, creativity, and hard work 24 hours a day--an unstoppable driving force from the success of your company and you.
We started out by creating a plan which we first implemented in 1988. It was a plan not only to solve our present problems but to totally restructure the entire company to put us on a solid foundation for future growth. It was a simple plan--designed that way so that everyone in the company could understand it.
Coming up with the plan was the easy part. Anyone worth his salt can design a plan. It's in the execution of the plan that most companies fail. But this is where we enjoyed our greatest success. The plan stuck to the following basics:
- First, increase new unit sales with emphasis on further penetration of the moult-section market;
- Second, maximize margins;
- Third, maximize related sources of revenue from our finance, insurance and land development operations;
- Fourth, minimize our loss experience, especially from the repossessed homes;
- Fifth, pursue access to secondary markets for our loans and capital for operations;
- Sixth, reduce costs to ensure our cost competitiveness;
- Seventh, increase productivity and quality throughout the organization;
- And finally, "muscle-build" our organization to ensure we had the right people in the right positions with the right skills with a powerful sense of responsibility and urgency.
It's the last part of the plan--muscle building--that I want to concentrate on this afternoon; but let me make a quick comment or two on each of the seven points.
To increase new unit sales, our plans included the following strategies:
- Develop a product line of multi-section homes to penetrate the market which Oakwood was not in at the time.
- Develop more price points for our single section homes to continue growth in this segment of our business.
- Reduce our marketing costs by 50% and speed up our product development process--a tall order for a company and industry in trouble, but it worked.
Sales went from $71.9 million in 1988 to $185 million in 1992, for a compound growth rate of 26.6%. The number of new unit sales rose from 3,577 in 1988 to 7,453 in 1992, for a compound growth rate of 20.1%.
Along with that we dramatically increased sales in multi- and single section homes, increased market share in all 10 states and cut the time it takes to introduce new product to the point that we are now considered market leaders in new product introduction.
The results are that profits soared from $434,000 in 1988 to $14,015,000 in 1992, for a compound growth rate of 138%. Remember, all of this occurred in an industry that was severely contracting during each of these years.
You either make it at the gross margin level or you don't make it, so it was critical that we maintain high margins. As it turned out, we not only maintained our margins, we improved them from 26.4% in 1988 to 30.9% in 1992--a very difficult task in a declining market.
Maximize Related Sources of Revenues
In the third part of the plan, maximizing related sources of revenues, our finance company has been the shining star, making a significant contribution to revenues and profitability.
- Our revenues have grown from $15,536,000 in 1988 to $39,110,000 in 1992.
- Our pretax profits have grown from $6,822,000 in 1988 to $13,474,000 in 1992.
- The number of loans in our portfolio has grown from 7,779 in 1988 to 21,450 in 1992.
Truly explosive growth.
Minimize Credit Losses
In the minimization of credit losses, we have made some strong advances as well:
- Credit losses as a percentage of our average outstanding portfolio balance went from 1.6% in 1988 to .97% in 1992. Our goal is to stay below 1% which will insure excellent portfolio performance.
- I'm happy to say that portfolio delinquencies, which are a strong indicator for future credit loss trends, are still heading down from 4.2% in September 1991 to 1.8% today. This is an all-time record low.
Pursue Access to Secondary Markets
We've continued to gain access and diversify in sources of outside capital. We now have more sources of capital for financing our customer mortgages than we need.
As far as capital for operations is concerned, we have reached a new milestone in Oakwood's history. The most recent effort in this regard was the common stock underwriting raising $54 million in January 1993. This puts Oakwood's equity position at $215 million, up from $52 million in 1988. We now have the capital for our continued growth.
In cost reduction, we have reduced our breakeven from 302 homes a month in 1988 to 210 today. We are presently selling houses at the rate of about 650 new homes per month. If our breakeven is 210 homes per month and we are selling 650 homes per month, that means we are highly profitable.
Increase Productivity and Quality
In productivity and quality, Oakwood has made some extraordinary gains. We knew we couldn't save our way to prosperity; so after we made our cost cuts, we had to ensure that all remaining assets, including people, were as productive as possible.
Rather than citing activities, let me give you a few results which will show our success in this area:
- New home sales per sales center increased from 47.2 in 1988 to 76.8 in 1992, a 63% increase.
- In manufacturing productivity gains, we went from seven floors per employee in 1988 to 14.7 today, an increase of 110%.
This is the reason we have been able to offer more value at a competitive price and not raise prices in four years. And we are increasing our profitability every year!
Muscle Build the Organization
And finally in our effort to "muscle build" the company, we made some radical changes. This was by far the most important aspect of the entire plan. As a matter of fact, if someone would have said, "Nick, you've got a great plan here, but you can only have one point of your seven-point plan, which will it be?"
Without question, I would have chosen "muscle building the organization." This was at the core of our progress. Without the right people with the right skills and the right sense of urgency, none of the other components of the plan would have ever been achieved.
Therefore, with this in mind, I want to spend the last few minutes with you this afternoon talking about team-building under crisis conditions. Let's start with some basics:
- We had a plan.
- We had experienced people.
- We had meeting after meeting where there was head-nodding and agreement.
- But when it came to action, things just didn't get done.
As time went on the head-nodding continued and still we failed to make progress.
- We were not making the market penetrations...but all I got were problems and excuses.
- We had established a whole host of marketing and financing goals, and when I asked why these were not being met, all I got was more problems and more excuses.
After taking all the leadership and management steps a reasonable CEO should take, of coaching and counseling, etc., it finally sunk in that many of my management team could not change.
- They suffered from that albatross called "past success."
- In short, they had cement in their heads.
- They could not change.
- They stopped listening to the customer, to the market and to the competition.
- They thought they knew it all. With that attitude no progress could be made and the enterprise was at risk of failure.
This brought to me a heavy responsibility and one I knew had to be dealt with quickly and effectively. The net result was that I had to fire over half the management team. Easy? Never!! More like gut-wrenching. Necessary? Absolutely!! It was them or the 1,200 Oakwood people and their families.
And in doing so, I spent a huge portion of my time finding the right people to replace them. Not people waving resumes but people that were targeted as the best in their areas both inside and outside our industry. Not just men and women who looked good in a blue suit and white shirt, but leaders who knew how to roll up their shirt sleeves and get things done. But most of all I looked for people:
- Who had a pit bull sense of urgency,
- Who could bring results and not excuses,
- Who were doers with "O" tolerance for procrastination,
- Who were proactive, change agents, integrators, team-builders, listeners and risk takers.
You know the kind of people I mean--the kind who when faced with a locked door that kept them from succeeding would just walk through it or rip it off at the hinges. These people--the results of muscle building our organization--are the reasons I believe Oakwood will thrive in the 90s.
You'll notice that in my recovery plan there is no mention of "profits" and there's a reason for that. The reason is that I believe if you have the right operational goals and send the right kind of motivated people after them, you'll get the numbers--and profits will follow.
And you know what? It worked! Between 1987 and today:
- Revenues have increased from $98 million to $231 million;
- Net income after taxes has increased from $434,000 to $14 million;
- Our equity base has increased from $52 million to $215 million;
- Return-on-equity from .8% to 14.8%;
- And earnings per share from four cents to $1.00.
And it's not over--we just reported our second quarter of 1993 and it's an all time record. Sales are up 35% and net income is up 76%.
Our plan worked in the face of the worst bloodbath in the history of our industry. It worked because we had the right people, the discipline to execute our plan, a customer focus, believe that we could do it, a commitment to turn desire into reality at all costs, and a culture of teamwork, caring and respect for each other.
Where are we going from here? Well the future is never completely certain, because the world is always changing--and we've got to change with it. But a few things I know.
- First, we're not "resting on our laurels" because in my view, "He who rests on his laurels is wearing them in the wrong place!"...and if they're resting on their laurels and working for me, they're working in the wrong place.
- Second, we know that every plan and every human endeavor should be driven by a dream.
My dream and my vision for Oakwood is:
- To be a boundaryless company--to get rid of the barriers and walls that people build around themselves for status, for security and to avoid change;
- To achieve $1 billion in sales by the year 2000;
- And to become the best housing company--bar none--in the United States--a company that is revered by its customers and feared by its competition.
As we move forward in the 90s it will not be business as usual but competitive warfare. And I expect Oakwood to be one of the winners, because we have what it takes inside us and we're willing--as a collective team--to pay the price for success.
I also know that each of you has greatness inside you...the question is, are you willing to pay the price to get it out...to turn desire into reality? I feel that you will...I'm betting that you will. And I know when it comes to the end of your time on this earth, you won't die with the music still in your soul.
And finally, I look forward to seeing many of you in our showrooms and among our shareholders. And more importantly, I'd like to look around Oakwood a couple of years from now and see a good many of you working with us, creating a brighter future for yourselves and your society.