Big Interview: Size does not matter

Faced with a failed IT platform integration in Spain and its sales, profits and share price all heading south, pan-European wholesaler ADVEO turned to proven turnaround specialist Jaime Carbó last year to get the company back on track.

The tenure of Millán Álvarez-Miranda as ADVEO CEO came to a swift end in June 2015 following a difference of opinion with the wholesaler’s board on how to turn around its loss-making Spanish operations. The company wasted no time appointing Jaime Carbó as Álvarez-Miranda’s successor and he officially took on the role on 31 August.

Coming from €800 million ($907 million) olive oil producer Deoleo, where he had overseen an organisational and financial restructuring, Carbó quickly made sweeping senior management changes and set to work on stabilising the situation in Spain. ADVEO’s first quarter results – released after this interview was conducted – point to progress, with a focus on generating profits as opposed to growing the top line at all costs.

In fact, better profitability was one of the pillars of a new business plan that ADVEO revealed at the end of March and we are likely to see this pattern of declining sales continue. Not that this worries Carbó in the slightest, as he explains below…

OPI: Your appointment was announced last June. What attracted you to ADVEO and the business supplies industry?

Jaime Carbó: Well, my first consideration was not for the company or the industry itself, but more a combination of the situation of the company and the shareholding. I have good relations with some of the shareholders and I have previously been involved in restructuring companies. ADVEO was clearly in need of restructuring. So they were the main reasons.

OPI: How much of a turnaround job was it?

JC: It was clear that the company urgently needed some changes, mostly focused on Spain. That was public knowledge; some press releases had already referred to the IT platform, the products, the new model, merging Adimpo into Unipapel and so on. So it was clear that there was something to be done.

OPI: You’ve changed the whole of the senior management team since you’ve been there. Was that because you needed a fresh start and a fresh pair of eyes?

JC: I would say that when an IT project does not work after 18 months, it means that the person in charge of IT is responsible; when the numbers show the picture that we have shown, it means that the one managing the numbers has to be accountable, and so on. There is a tendency in business to think that we are super marvellous and that we deserve to be well paid, but we are never ready to take responsibility for our failures and mistakes – that’s not my philosophy.

OPI: Was IT the biggest underlying issue?

JC: No doubt, IT was a problem, but there was, I would say, a previous strategic decision that was wrong. It’s easy to say afterwards, but when we bought Adimpo some years ago, one of the decisions was to merge Adimpo into Unipapel.

Adimpo was a very specific kind of company, very focused on some products and channels, whereas Unipapel was essentially the sales organisation of a production unit that wanted to be a wholesaler. A wholesaler is not the sales organisation of a production unit; it’s a wholesaler and is very specific. So it was not a good idea to blend the people, cultures and systems of Adimpo with Unipapel. That was, I believe, an important mistake.

OPI: And that had a knock-on effect over the years; even before this IT integration, Spain was showing declines?

JC: Sure, because the consequence is that you lose focus and sharpness and are unable to be successful in a very specific channel.

As you know, electronic office supplies (EOS) is a very difficult business: if you try to be as service oriented as we are in EOS you will not make a single euro. You have to be very sharp in order to achieve some margin because the levels of margin and the service requirements are very different.

OPI: Putting the Adimpo integration issues aside, when you look at Spain and the IT problems over the past couple of years, what were the broad reasons for that?

JC: I think there was one fundamental mistake, and that is we didn’t have internal ownership of the project; we were in the hands of consultants and that had some terrible consequences. You know, consultants are not really your advisors, they are there to make money and, to cut a long story short, there was a huge overspecification in the whole model.

We were guilty in that we didn’t have people with the skills, personality or ability to challenge the consultants. And maybe the consultants were not loyal enough to us to offer a basic product without lots of added extras. In the end, the product just became so big and so complex that it never worked.

OPI: Since you’ve come in what’s changed?

JC: First, we made one important decision. The original idea was to deploy this platform in every country, starting with Spain. We decided not to do that. We have stabilised the platform in Spain; it was very costly but it’s working. It will be used in Spain only and we will not deploy it in our other markets.

OPI: But would it not be preferable to have a single IT platform for the whole ?

JC: There are simpler ways to do that. We could follow the advice of our consultants to have one single platform at a cost of 100 million, but we don’t have that money, and anyway we need to invest in many other things. So what we are going to do is deploy a different architecture that will deliver roughly the same system as having one single platform at, I would say, a third of the investment, a third of the risk of implementation and a third of the time required to implement.

OPI: So that will be implemented in all the other markets?

JC: Italy and Germany this year, and France next year.

OPI: Turning to your new plan, I wrote an article recently where I said it was more of a business or financial plan, rather than a strategic plan. Would you agree with that assessment?

JC: Yes, absolutely. We were careful with the words. It’s essentially a business plan with no changes or extensions to our strategy – that will come later on.

First we wanted to show the potential of this company to improve its results and to improve its service through, I would say, quite a heavy investment period.

OPI: So, there will be two plans?

JC: No, there will be two layers. Imagine that you are making a cake; first you bake the cake and then you put in the cream. We have the cake and the cream will be added in a few months’ time.

OPI: What are your strategies for turning things around in Iberia?

JC: The first thing we had to work on was team spirit. If you put all the IT, delivery and service issues together, it created a very low morale, so we needed to change that. We needed to create a new attitude, a new emotion – businesses are managed by people, so whether you are driving a forklift or managing the whole company, we are all important. That’s been a priority.

Second is changing those things that were giving our clients – and vendors – pain. So we have invested, we have changed and we have pushed very hard to return to levels of service that are acceptable. Service is a very broad concept. It’s not only deliveries; it’s also making sure that invoices and discounts are properly booked, that collection of payments is done properly. All that had to be improved, and we have improved a lot.

Third, of course, in any organisation from time to time you have to shake the tree, so we have done that. We had excess resources and we even had people that were not in the best frame of mind, so we have recently finished our social plan. That’s been very painful, especially for the people who are leaving, but I can tell you that the people who have been involved in this plan have taken it very seriously; it’s not fun at all to do that.

And then going out into the street, pushing our sales people hard, visiting clients, promising on deliveries; that’s the most important thing, because at the end of the day we sell – so that’s what we have to do.

OPI: What are some of the strategies to winning back customer trust?

JC: Focusing on what we do well. Are we the best wholesaler for electronic supplies in the IT specialist channel? No. Are we the best one-stop shop experience? Yes. Don’t try to be what you are not.

We are good in the one-stop shop experience; we are very strong in breadth; we are very good in service. If you want to trade with a full truckload of electronic supplies from one warehouse to another, that is not our role. We will not be making money and we will not be doing well.

OPI: So will this mean a shift in customer focus for ADVEO?

JC: Of course, we have to focus on what we do well.

OPI: Does that entail fewer retail and larger volume customers?

JC: More service-oriented actions. People who request full service will pay and will be eager to receive that service. But people who want to trade full truckloads of paper – what do we get out of that? Nothing.

OPI: That will mean an extra focus on things like the Calipage network and the CARIP buying platform for smaller and medium-sized dealers, I suppose?

JC: Calipage is a very intelligent experience and I think we have to push it very hard. We may need more people who are experts in managing this kind of business, but it will be very important for us.

CARIP is a wholesale business, but it’s a different approach to wholesaling. It’s something that works very well in France; it’s working properly in Spain and we have to deploy it in the rest of our markets.

OPI: Your plan talks about ending or changing unprofitable, commercial relationships. What do you mean specifically by that?

JC: Well, that is tied to something I said earlier. At the end of the day, there are some categories and some channels that when you combine them, you get something that is destroying value. Something that is destroying value means that consistently, month after month, probably for years, you never get a return on the capital you have invested into a project.

I don’t care about being the largest player. Size is a tool, or can be a tool, to be profitable. If it doesn’t help you to be profitable, I don’t need to be big. It may sound too financial, but that is how we are paid. We are here to make money for our shareholders, to pay off our debt and to make our employees happy.

OPI: I guess you’re talking about EOS here. Where do you see the traditional office products category going? It’s still your largest category in terms of profit.

JC: There is no doubt that the consumption of paper and paper-related products is contracting and that digitisation is provoking some doubts about the future and growth prospects. What we have to do is to fight, achieve a balance and find new avenues for growth around concepts that are similar.

It’s evident that mobility, working outside the office, working from home are all part of our environment now, not only traditional offices. People are working in different ways and are using different tools. Even offices require different products and services than before, so we have to provide support to this new working environment.

OPI: How does your current product assortment reflect these changes?

JC: That is what we’ll be extending. We’re working on the 2017 catalogue now and we’ll be giving different weight to new products. Of course, we won’t forget the ‘old’ paper or stationery categories – they are still very good businesses. But it is clear that we have to offer products that are more in tune with the new ways of working.

OPI: Final question. Your predecessor talked about possible geographical expansion, even outside Europe. Is that on hold now?

JC: I can safely say that we will not enter Latin America while I’m with the company! But it is true, our geographical footprint is still quite limited, and there is room for expansion.

I’ve been in consolidating industries before, and if you do it properly it can be extremely profitable for the business. But our focus on the short term is on delivering on our business plan.