"Our products," boasts Deere & Co. Chairman and CEO Robert W. Lane, "continue to stand alone in productivity, innovation and value." Lane, only the eighth chief executive in the company's 168-year history, is clearly committed to maintaining that tradition of excellence. But since becoming CEO in millennium year 2000, Lane, IW's CEO of the Year for 2005, has been equally committed to growing Moline, Ill.-based Deere into a business that is as great as he believes its products to be. In short, he's committed to running smarter, faster and leaner.
Such a strategic commitment could sound presumptuous, Lane acknowledges, particularly in the context of an iconic U.S. manufacturing company whose agricultural roots are long and deep, a company with enviable market shares, a stellar dealer network, a strong balance sheet and lots of loyal employees. But the reality, relates Lane, is that Deere, best known for its top-performing farm machinery with the distinctive yellow deer logo, was underperforming as a business when he became CEO. The company was "margin lean" and "asset heavy." Factories were running at a steady pace in a business that is cyclical, seasonal and variable. "This company did many great things, but it did things in an expensive way," he says. In Lane's judgment, Deere's overall performance was "O.K., but not great. Adequate might be the right word."
Adequate is a decidedly inadequate description of Deere's recent business performance. Although substantial fourth-quarter production cutbacks had a negative impact on results, Deere still posted sales and revenues of $21.9 billion in fiscal 2005, which ended Oct. 31, 2005, and earnings were a record $1.447 billion. That's remarkable, since fiscal 2004, Lane's fourth full year in the CEO's chair, had yielded a financial bumper crop. Net income more than doubled from fiscal 2003, reaching a then-record $1.4 billion. Sales and revenue rose 29% to $19.99 billion. Assets relative to sales came down. Margins went up. For the company's equipment divisions, operating return on operating assets, now one of the key measures of business success at Deere, more than doubled to 25.5%. Shareholder value added, basically operating profit minus the pretax cost of capital and another key business metric, was just above $1 billion, twice what it had ever been before and a dramatic turnaround from five years of negative numbers.
Under Lane's leadership, inventory and other costs have been cut, non-productive assets have been pared, and Deere is running leaner, more like, well, a deer. Lane's ability to conceive, communicate and execute new ideas that could take the company to the next level were among the reasons Deere's board five years ago chose him to succeed Hans Becherer as CEO. Indeed, Lane's consistency, focus, vision, direction and unwavering integrity are among the qualities that most impress John Lawson, a former senior vice president at Deere who retired just over three years ago. "Once he and the team that I was privileged to be a part of deliberated on [making Deere more successful], that correction was established and communicated, and, to my knowledge, today still is the center of what they're driving for."
Operating return on operating assets and shareholder value added, key performance metrics, top the discussion, right after safety, at every Deere factory Lane visits. And Deere's performance goals remain ambitious. For example, in Deere's three equipment divisions -- agricultural equipment, commercial and consumer equipment, and construction and forestry equipment -- the annual, middle-of-the-sales-cycle target for operating return on operating assets is 20%. Shareholder value added for the whole company, including financial services, is expected to be consistently positive, with the goal of an annual gains of 6% to 7%.
"If you really want to sustain [these] results, anything that's not contributing to them has to go away," Lane insists. "One of the reasons the business is so much stronger now -- and arguably in five years or more we could begin to maybe say it's a great business -- is that every single product line has to carry its weight," he explains. "Where you have too many fixed assets, you need to get rid of them. Our asset turn has gone from about one to two. People are learning to work with much fewer assets."
Robert W. Lane
Chairman and CEO,
Deere & Co.,
Education: B.A. (high honors), Wheaton College; M.B.A., University of Chicago Graduate School of Business
Experience: Joined Deere in 1982, initially managing operations within the Worldwide Construction Equipment Division. Has served as senior vice president and president of the Worldwide Agricultural Equipment Division.
Has been president and COO of Deere Credit Inc. Was Deere CFO from January 1996 until March 1998 and was president and COO of Deere & Company prior to being named chairman and CEO in August 2000.
As he has talked to employees about Deere's new discipline, Lane has spoken to union leadership, suppliers and dealers and has used the same language, another practice for which he's admired. "We have not done the job for our shareholders that we need to do," Lane told United Auto Workers president Stephen Yokich early on. He told suppliers: "We are going to run a better business, and that means you need to run a better business." He told dealers: "You're going to have to change to be in line with us." Whether Lane was on a factory floor talking to an individual, or dealers, or customers or his senior team, "he was steadfast," former senior vice president Lawson recalls. And while there's still a family feel to Deere, probably a product of its agricultural roots and persisting images of farm families and their values that date back to the 19th century, "this is not a family," Lane unapologetically states. "It's a team, a high-performance team. And sadly on a high-performance team those who don't pull their weight aren't on the team."
However, Lane, a former banker who served as Deere's CFO from January 1996 to March 1998, is not just a "numbers" person. Deere, he emphasizes, can't just cut its way to better business performance. So Lane also is leading the company and its 46,000 worldwide employees in what he terms disciplined global growth. "We aren't the market leader in everything we do. But we have the aspiration to be pre-eminent in those markets and with those customers whom we chose to serve," he says.
The company's global reach is expanding. Sales outside the U.S. and Canada have doubled since 1999, accounting for nearly half of Deere's farm-machinery sales in fiscal 2004 and nearly one-third of overall equipment sales. During the past two years, Deere has announced plans to build a new tractor factory in Montenegro, Brazil, that's expected to be in production by mid-2006. It has opened a seeding-equipment assembly plant in Orenburg, Russia. It is building a new engineering and IT support center near its tractor plant in Pune, India. And Deere has broken ground for a new transmission factory in China.
At the same time, Lane is determined to deliver to customers -- especially those linked to the land -- tools that will improve their productivity. For example, the 8030 series tractor now being produced features an infinitely variable transmission and a global-positioning guidance system called AutoTrac designed to eliminate missed rows or overlapped tracks during seeding, spraying and cultivating. "This is not just telling you where you are. It's actually running the machine," brags Lane. Similarly, a Deere technologically advanced tree-harvesting machine known as wheeled loader allows its operator, who's in contact with the mill, to select single trees and set them out in a precise pickup plan as part of an inventory management chain that follows the common factory principles of just-in-time and produce-to-order. Deere also is adding large-scale baling and spraying products to its offerings and moving deeper into products and services needed by commercial mowers and professional landscapers.
Lane would be the first to emphasize that neither Deere's improving results nor its better ideas and best practices are his. To him, they are Deere's. In speeches to employees, reports to shareholders and interviews with reporters, Lane refers to "the skills of our people," the dramatic progress "we've made," and the success in creating a performance-based culture that "we've had." It's a practice the late Peter Drucker, who observed management leaders think and say "we" rather than "I," would approve of. Yes, Lane acknowledges, Deere's board does hold him responsible for results. "They should hold me responsible. If I don't deliver the performance, then I'm the one who has to leave," he says. "On the other hand, as we are delivering results, they are the results of a whole team of people around me," he stresses.
"The goal I have had is to surround myself with people who are smarter than I am, have a similar passion and possess the very high values that Deere stands for. And if you're going to do that, you have to listen to them," he says. "So I do try to listen to them -- a lot. And [I] end up, often, doing what they recommend, which is often different from or at least a revision of what I was initially thinking," he says.
"As we are successful there is no question that there is a whole group of people who can take a bow," says Lane.