AKRON (March 29, 2002)—As surprising as it may seem, Robert Keegan would like Goodyear to be more like the old Kelly-Springfield Tire Co. in Cumberland, Md., a subsidiary the tire maker closed three years ago.
Kelly—which Goodyear absorbed into its Akron operations in 1999—had what Goodyear's president and chief operating officer called a “market-driven” focus.
While it wasn't a broad marketer of tires, Kelly centered on the dealer structure and did a nice job with everything from product development to supply chain and dealer relations. It also was “head and shoulders above the rest of the industry” in terms of being closer to its dealer customers, Mr. Keegan said.
Goodyear, he believes, can benefit from some of these traits.
Since joining the tire maker 18 months ago from Eastman Kodak Co. as president and chief operating officer, Mr. Keegan, 54, has striven to instill a more Kelly-like business approach into the giant tire maker.
While admittedly still on the learning curve when it comes to the tire business, Mr. Keegan maintains that for Goodyear to grow and prosper, it too must become market driven as opposed to remaining a company that is led more by function.
By that, he means a firm that's focused on what its customers want, both original equipment and replacement, instead of being steered by its various operating functions such as manufacturing, technology, logistics, sales and marketing, etc. “And over time, we've been too internally focused,” he said in a recent interview.
While this is considered a fundamental change in business philosophy, Goodyear's effort to become more market focused will be evolutionary in nature, according to John Polhemus, president of Goodyear's North American Tire unit.
“It's really about understanding the consumer, what they want and what motivates them to purchase a particular brand and a particular product,” he said. “In understanding what drives a consumer's purchasing motivation, it translates into driving consumers into outlets where the Goodyear brand is sold.”
Mr. Polhemus said he believes this approach will give tire dealers more opportunities to offer “exactly what consumers desire.”
In today's multi-brand tire market, this will benefit Goodyear and its dealers based on consumers knowing they want a Goodyear tire before entering a tire store. And once there, they will rely on the dealer to match them up with the best Goodyear product for their needs, he said.
Lee Fiedler, the last president of Kelly and now the mayor of Cumberland, supports Mr. Keegan's efforts to make Goodyear more market-driven and customer oriented. “I support it, and I think it's very good,” he said. “It worked very well at Kelly.”
According to Mr. Polhemus, Kelly was market driven primarily because of a bond it developed with its customer base and an understanding of who the consumer was and what his or her tire needs were.
“It's not a formula that can't be resurrected,” Mr. Polhemus said, “but the sheer competitive climate in this segment brings a lot of other factors into the equation.”
One step Goodyear has taken is to put people with Kelly experience, who understand the Kelly culture and spirit, into key positions in the organization. These people are working “to help others understand how it can benefit the entire organization,” Mr. Polhemus said.
Part of Mr. Keegan's drive to transform Goodyear into a firm led by market forces can been seen in changes made in the North American Tire unit since his arrival in October 2000.
He and other company executives, including Mr. Polhemus, studied the company's North American operation and concluded it was not a business in and of itself. Instead, they determined it was actually a portfolio of different businesses. So late last year the company created four new business segments—consumer replacement tires, consumer original equipment, truck tires and farm— to reflect that.
Mr. Polhemus then named four executives to head the different segments, giving them full responsibility for everything from research and development to manufacturing and distribution.
This means, Mr. Keegan said, that Jim Vogel, for example, who heads consumer replacement tires, now has at his disposal all of the unit's business functions, including research and development, forecasting, logistics, manufacturing, sales and marketing, etc.
Under the previous structure, he would have had influence over these areas, but not as directly, Mr. Keegan said.
Now Mr. Vogel and his group “live and die with the market position, profitability and return on investment in that business,” Mr. Keegan said. It's their responsibility to make that business “hum,” and now they have the tools to do that.
Putting these people in charge and giving them authority is a key step, Mr. Fiedler said. “The dealers want to talk to someone often who can make decisions and get things done,” he said. “They don't want to just send messages back to the headquarters.”
But for the market-driven approach to work, the four must put their authority into practice. “If the four truly use their authority and become market driven and customer oriented, the dealers will return that support and all the good things will follow,” he said.
Reshaping Goodyear into a company that's more market focused is one way Mr. Keegan is looking to turnaround the company's poor financial performance, which last year resulted in a $170 million fourth quarter loss and overall deficit of $204 million.
“Certainly our fourth quarter and year-end results were not where we wanted them,” he said. “And there are still many uncertainties at this time as it relates to the economy, the markets and tire demand.”
Goodyear's plan, he explained, is to build on the momentum it created in 2001 with an emphasis on improving revenue per tire and reducing costs so that when the industry and economy do improve, the company will be well positioned to rebound.
To assure this turnaround, Mr. Keegan has had his hand in all facets of the business.
Cutting production
Not only did Goodyear have a tough year in 2001 but so did the entire tire industry, he said, noting North American tire shipments declined by 20 million units last year due in large part to the weak economy.
In the past under such market conditions, Goodyear would have kept its factories running, despite the downturn in demand, and continued to build inventory so that its earnings before interest and taxes (EBIT) would be better. But this would lead to higher inventory and warehousing costs. Then when the economy improved, the company would sell off that inventory often at low prices, he said.
But last spring, management decided to no longer do that. Mr. Keegan challenged Messrs. Polhemus and Vogel to get inventories down and fill rates up. “And they've done that,” he said, without providing specific figures.
The goal is to deliver fill rates consistently in the 90-percent range, and the company is focusing a lot of effort in this area, he said. This includes simplifying tire offerings and reducing SKUs. And, for the first time, Goodyear has put the responsibility for manufacturing and product supply under the same umbrella “to make certain we have the type of model in place that delivers superior fill rates.”
The decision to reduce production to keep it in line with demand wasn't easy, he acknowledged, knowing the negative impact it would have on the bottom line. It would have been easier to keep the factories running. “But you can't run a business, I don't think, very effectively like that,” he said.
Improving product mix
To further boost margins, Mr. Keegan is seeking to develop a “richer mix” of tires, brands and customers. He wants to sell more high-impact products and brands to higher-end consumer segments, which will return more profit to Goodyear and its retailers, including independent tire dealers.
This effort includes pushing the Dunlop brand, which he said offers tremendous assets in terms of product, quality and original equipment sales.
“The only way we're going to get there is through better product, better marketing to the end user, better channel programs and all the tools that we'll use like advertising and promotion to make that happen,” he said.
Goodyear also is getting tough about tackling the sticky problem of selling tires to original equipment vehicle manufacturers at little or no profit.
“Our earnings there are terrible,” he said of OE. “We've got to find ways of working with the OEMs to improve that situation.”
Goodyear began examining this issue in earnest last year and expects to make some decisions regarding sales to vehicle makers in 2002, he said.
Asked whether that might mean scaling back the company's business with auto and truck makers, Mr. Keegan simply responded: “I need a profitable mix.”
Goodyear's shift to a market-driven structure also should provide a spark to the company's truck tire operations. The segment now has its own leader, Ted Fick, who joined the company as general manager of the commercial unit last year from Hino Diesel Truck.
It has 21 additional sales people dedicated strictly to the commercial business. And Goodyear has provided a business structure that includes everything needed to manage the business effectively.
Commercial Tire has all of the company's resources at its disposal and the ear of top management, Mr. Keegan said. “Dealers, fleet customers and competitors will see a far more aggressive Goodyear in this market in terms of product quality, product offerings, distribution outlets, customer service and attention,” he said.
Focus on the end user
Mr. Keegan's role at Goodyear extends throughout the company's global operations, and he sees himself as a catalyst for change at the tire maker.
He is focused firmly on the end user, the people, he said, who “ultimately have the money.” And he thinks tires are severely under-marketed.
“We have a category that you and I drive on every day, and our lives depend on it, and more importantly our families' lives depend on it,” he said. “And the consumer, for the most part, isn't very involved. That's under- marketed.”
Thus, he's pushing Goodyear to learn as much as possible about how consumers view tires and is using that information to help direct product development, advertising and marketing as well as to build the company's brands and relationships with retailers.
While he acknowledged that Goodyear has had success in the past, and is considered by some to be the leader in tire marketing, “nobody has marketed very well in this category when it comes to fully integrated efforts that are built from the market back,” he said.
It's not just an advertising campaign, he explained, but everything that goes with a new product from its genesis, to innovation, to marketing to dealers and consumers all in a totally integrated fashion.
“Ultimately our industry will be at marketing excellence when the majority of consumers no longer take their tires for granted but rather see their tires as products critical to their mobility and their daily lives,” he said.