Making Things Stick

Dean Scarborough's mantra for his first year on the job as chief executive of Avery Denison Corp., the $5.5 billion label materials and office supply giant, was "building credibility and confidence." The company's former chief operating officer took the top job almost a year ago amid a turbulent time when the company was losing market share, its stock price was sliding and raw materials inflation was choking profit. Scarborough has tapped his experience and knowledge of the company's European and domestic business to tighten production and invest in new initiatives, such as radio frequency identification technology (RFID), which are high-tech tags that emit radio waves and help companies track inventory a big leap from the company's origins in self adhesive labels. He also has pushed expansion in China, Eastern Europe and other emerging markets. When Scarborough started with the company in 1984, the company did almost all of its business in the U.S. Today it has more than 22,000 employees and does business in more than 150 countries.

Question: So how has your first year been?

Answer: Exciting, to say the least. When I came on last May, I tried to approach the job as an outsider, with an objective eye. The company did not have a good first quarter last year and some things needed to be changed. Because we're so raw material intensive, inflation hit us really hard. We incurred about $100 million worth of raw material inflation last year. We were also feeling the pinch from carrying too much inventory and sales were below our forecast to Wall Street, so our stock price dipped because of it, which was kind of embarrassing. A combination of those factors all converged on us last year for a perfect storm.

Q: Well that doesn't sound exciting so much as difficult.

A: However, at the same time we really took a good look at ourselves and began to really trim our production and the way of doing business to become as efficient as possible as well as looking long term, as far as growth goes. We really began our push for RFID and also rolled out some new products in our office services division so the year started out bumpy, but now things are much better.

Q:What about the fact that the company has had only five chief executives in its 70-year history?

A: A little scary at first. All you have to do is pick up the paper and read about the latest horror stories coming out of America's boardrooms. I think the average tenure for a CEO in the U.S. is around five years, which isn't very long. But this is a very historic company, with a great reputation for innovation and for staying the course. I know the company very well and understand the culture. I made the choice to stay here for the first 23 years of my career and that is no accident. I believe in this company and the entrepreneurial culture Stan Avery established when he started the company.

Q: Yet you've made some pretty big moves, including dumping the European reflective-tape business when you came on.

A: Yes. When I came on, I took a long look at just about every sector Avery is involved in and decided to trim back our involvement in areas where growth potential was minimal. In the reflective-tape business as well as the filing business we had in Europe, there just wasn't a lot of room for growth. I mean, it's really hard to differentiate yourself with a manila folder. There are two things you can do with a business: grow it or milk it. I'm an entrepreneur at heart so growing has always been the number one choice for me.

Q: What have you discovered about being in charge?

A: I love working with and empowering people. I spent a lot of time in Europe and you want to talk about managing different personalities, my management team there was extremely diverse we had just about every European nationality represented. Getting all of those personalities on the same page was challenging, but very rewarding. I also embrace and try to further the entrepreneurial spirit here at Avery. I ran my own company for a few years after college and I understand how important that spirit is. Avery really allows people to take ownership of what they're working on and run with it.

Q: What about the flip side?

A: Some of the difficulties of being the boss are your disconnect with your employees. During brainstorming meetings I can't just throw out ideas anymore because people take them as instructions. I have to tell them, "No, don't do that, it was just an idea. And a bad one at that." I also don't like being in the spotlight so much. People are always trying to read into what you're saying and draw more out of it than necessary.

Q: Avery is known as an industry leader and an innovator but when it comes down to it, RFID isn't really something Avery would traditionally pursue. Yet you have invested tens of millions of dollars in making it your business. Why?

A: You're right, RFID isn't our business, but innovation and being a market leader is what Avery does best. With RFID, the company saw great potential for growth. What was needed in RFID was a company that could develop a methodology for manufacturing as much product as possible for the lowest cost possible. That sounds very similar to what we do with label materials and RFID inlays are label materials. So when you think about it, it is exactly what Avery does, just higher tech and a little more expensive.

Q: Was there anything in particular that drove the decision?

A: Once Wal-Mart jumped on board and say what you want about Wal-Mart, I think they are the world's premier logistics company then you can pretty much say it's a go. We couldn't afford to not establish ourselves as the leader in this market.

Q: You seem to be doing well in various growing and emerging markets, such as South America, China and Eastern Europe. Why?

A: The fundamental driver in our label materials business is the rising middle class. In emerging markets, when you have middle class consumers, they have discretionary income and can afford to buy things that they never thought of buying previously. One of the best examples is the general manager of our Fasson business in China. His daughter, who's a teen-ager, washes her hair every day, so she goes out and buys shampoo. This is normal to us, but to him, this is something new. He told me "When I was growing up, we just took, you know, a bar of soap a couple times a week and washed our hair."

Q: So what is the connection to labels?

A: For me, that is very descriptive of what's happening in these emerging countries. Be it for cultural or financial reasons, those things are changing and driving demand. In areas like Eastern Europe, China and India, people have more money to spend. The major manufacturers will come in every few months and completely change the labeling on a product to spice up the packaging and the image of the product. Those labels are what we make. So as nations develop, our business expands.

Q: What are your goals for next year?

A: Our main challenge for this year is to improve margins and increase growth rates. In most of our businesses, we're either number one or number two, so staying on top is difficult.

Q: Tell us about your day. Do you put in an 80-hour work week like many execs?

A: Well, being CEO means you're always thinking about work. Because we're a global company, I spend about 30 percent of my time traveling, which I enjoy, and also spend about the same amount of time in meetings. I also spend every Saturday morning in a bookstore over in West L.A. while my two teen-agers take piano lessons, writing my weekly newsletter type thing. It basically updates everyone on what's going on, in both the company and in my head. And I put in things I feel are important to mention. I enjoy doing it and I hope everyone enjoys reading it. I haven't received any complaints yet.

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