Strategy for success

PwC alumnus Rich Kramer shares Goodyear’s plan to stay ahead of the pack.

Rich Kramer
Once you get people moving in the right direction, there’s nothing more powerful

Rich Kramer still remembers what it felt like to be “the new guy” when he joined The Goodyear Tire & Rubber Company in 2000. As the new vice president of corporate finance, he was one of the first people to be hired at the officer level from outside the company in years. “It was just like any new job or client—at first, you don’t know how the place works or where to get the information, but it doesn’t matter. You have to figure it out,” recalls Kramer. The experience proved to be the perfect opportunity for him to apply what he had learned as a partner at PwC working with numerous multinational corporations. “The ability to work with a variety of different people to get the information and understanding you need and then find a way to come to an effective conclusion is one of the best things I got out of the firm,” he says.

Kramer started with Price Waterhouse in 1986 and made partner in 1998. Today, he is the chairman, president and chief executive officer of Goodyear, where he continues to bring people and information together to solve problems and spearhead the company’s path forward. Kramer recently spoke with Keyword about his time at Goodyear and his strategies to continue the company’s success now and into the future.

Your tenure at Goodyear spans more than a decade. What are some of the biggest changes you’ve seen the company experience during this time?

Kramer: I think that as a company, we’ve gone from a push mentality— meaning we would make tires, fill the factories and then push the tires out into the marketplace—to a consumer-back mindset. We’re not going to fill our factories if it means making tires that consumers don’t want to buy. We made the decision that we don’t want to run our business for one good quarter or one good year. We run our business to create sustainable economic value over the long term.

We want to be profitable throughout the cycles, to consistently generate positive cash, and we want to be the company that our associates, investors and customers—those who sell our products— want to do business with.

What steps did you take to shift the company’s long-held volume-driven, or push, mindset?

Kramer: The first thing we had to do was define our strategy. We needed to decide what we were and were not going to be. Then we had to drive that strategy into the business every day to change people’s behaviors. What we see—and I think it’s true for a lot of organizations—is people talking about change at the beginning, but then they go back to their day jobs and return to their old habits. After serious deliberation, we wrote down our strategy road map, mission and vision—articulated for the first time in our 113-year history—and then we shared them at our first companywide top leaders meeting in May 2011. Since then, it’s really started to sink in with people.

Did anything surprise you about this process?

Kramer: I’d say it’s how long and how much repetition it has taken for people to say, “I get it. I get how I need to think about this.” It takes a while for people to internalize the strategy and really make it their own. That’s why we’re reinforcing the strategy, mission and vision every day, in every meeting, speech and monthly review. That’s really driven home who we are, where we’re going and how we’re going to conduct ourselves. Mindsets and behaviors are the toughest thing to change, but once you get people moving in the right direction, there’s nothing more powerful. It really energizes everyone and creates the momentum that I believe we’re seeing in the business results.

Goodyear recently acquired 100% ownership of its Nippon Giant Tire subsidiary, expanding production of off-the-road tires. How did the strategy road map influence that decision?

Kramer: We have a philosophy reflected in our strategy road map that for every investment we make, we owe it to ourselves to get the requisite return on the invested capital. When we looked at the opportunity at Nippon Giant Tire, which is a business that we’ve been part of for a while, we saw that it was a high return investment that made sense for us and fit the criteria that we need to reach our goals. This is also an area where Goodyear is one of maybe three companies in the world that has the expertise to make these 57- and 63-inch tires that can perform on mining trucks that carry all kinds of commodities. We view ourselves as an innovative company in a technology business, and our ability to engineer a tire that can hold the weight of a truck that is seven stories high for hours on end is really a significant feat. Having the technical capabilities to do it and knowing that we could achieve results consistent with our goals also helped us decide that this was a good investment for us.

What role does technology play in Goodyear’s path forward?

Kramer: Within our strategic road map, we have a list of five “Key How-tos,” and number one is market-back innovation. It’s number one for a very specific reason. We know that today’s competitive business environment only gets tougher with the passage of time. Either you lead in innovation and you have the best performing products, or ultimately you’re not going to win in the tire business. It doesn’t mean it’s the only thing you have to do well, but I can tell you that without it, you’re not going to succeed. Goodyear had the first tires you can continue to drive on after a puncture, the first tires to channel water away from wet roads, and the first fuel-efficient tire in the truck industry, so innovation is really who and what we are.

What are some of the recent advancements Goodyear is pursuing?

Kramer: We really focus our innovation in two ways. The first is improving tire performance today, such as through our Fuel Max technology that increases fuel efficiency by reducing rolling resistance. We also have a longer-term view on innovation. We’re developing ways to use soybean oil and BioIsoprene to move away from some of the petrochemicals that are used in the tire manufacturing process today, while not giving up—and in many cases even enhancing—performance. We’re also working on something called Air Maintenance Technology, which would enable tires to self-inflate.

In Europe, new consumer labels for tires will be rolling out this year. Will these new labeling requirements have an effect on how tires are made?

At the end of the day though, it’s all about people.

— Rich Kramer

Kramer: I think the real benefit of tire labeling is that it will highlight the manufacturers that have the technology to expand on all three of the label’s criteria: rolling resistance (fuel economy), wet grip (traction) and noise, although I suspect noise will ultimately be replaced with tread wear. The key to labeling is driving the technology to give you the best performance on those three together. Think of the extreme example of a steel tire. If you had a steel tire, you’d get great fuel mileage, and it would last forever—but you could never stop on the road! Labeling should benefit those that have the technological capabilities to capitalize on all three, and certainly Goodyear is at the top of that list.

Are there any circumstances where the label may not be as useful for a consumer?

Kramer: The consumer’s expectation of how a particular tire should perform will dictate the importance of the label. For example, if you’re buying a snow tire, you’re going to care more about whether it works well in the snow and less about fuel mileage. It’s possible that a winter tire buyer in Europe is not going to care as much about the label. They’re going to care about performance in snow, and they’re going to get that information from a test conducted by an automotive magazine, which typically looks at about 15 criteria. When we design the tire, we design it around about 50 different attributes, so labels are just the starting point. I do suspect other countries will begin labeling. Brazil is developing labels now, and I expect the United States and China are next.

China appears as one of the key strategies on your roadmap. What is Goodyear doing to succeed in that growing market?

Kramer: The Chinese tire market is about the biggest tire market in the world today in terms of new cars and replacement vehicles, and it will only grow in the future. When we look at a 10-year period, we see the middle class in China growing from 10% to around 24% of the total population. That means that over time there will be 200 million new consumers entering the Chinese market. Goodyear currently has about 2,500 retail stores in China, and we’ve just opened a new factory that eventually will double our capacity to about 10 million tires. By building our most modern and productive factory there, we’re supporting our strategy to pursue profitable target market segments. We’re taking a measured approach to Chinese growth. Someone may be ahead of us today, but they may be pursuing a volume strategy versus the customerfocused strategy that we’re pursuing. That’s OK. We know where we’re going, we’re confident in our strategy, and we like where we’re heading.

Some are concerned that economic volatility in Europe may negatively impact the automotive industry. What does this mean for Goodyear?

Kramer: When I was the CFO, I used to start investor conferences with a slide that said, “We are not an auto supplier.” And that would get a lot of funny looks. But if you look at our business from a revenue perspective, only about 17% of our revenue and 25% of our volume come from the new car industry. While that customer group is very important to us, it really doesn’t represent the bulk of our business.

It’s a distinction that I point out because we tend to be grouped with the auto companies, but most of our business is directed toward consumers. That’s why we consider ourselves to be a consumer products company driven by powerful brands.

When we think about the auto industry, it does have its challenges, but it also has a lot of opportunity. Going back to our original volume strategy, we used to put tires on fitments that didn’t always make sense. We realized that the owner of a higher end vehicle that has Goodyear tires is more likely to choose Goodyear tires again than the owner of an economy vehicle who may be more value conscious. When we shifted strategies, we decided we needed to be on the right vehicles for us and for our customers. That’s how we’ve turned what was an unprofitable business into a profitable business. Our share is much smaller than it was, but it’s the right decision for us and it’s holding us in very good stead as the auto industry goes through a difficult challenge, particularly in Europe.

What do you think is going to keep Goodyear successful over the next decade and beyond?

Kramer: First, we have to lead in innovation, because if we don’t have the most innovative products in the marketplace, we won’t live up to what we believe our brand represents. We also have to focus on those target market segments where our brand and our products have the most value both for us and our customers. Next, we need to drive our operational excellence. To do that, we have to efficiently make the right tires through a world-class supply chain, from demand forecasting to procurement. And we have to get the right return on investments.

At the end of the day though, it’s all about people. We have to have the best people in the industry managing our business, the most creative, the brightest, the hardest working; those are the people who can drive the strategy forward. If we do those things, that’s how we’re going to succeed and be a better company 10 years from now.