The Remodel: A Talk With Elkay's VP of Finance

When John Hrudicka set out to transform finance at cabinetry and plumbing products maker Elkay Manufacturing Co., he wasn’t going to settle for a few minor upgrades. Hrudicka, now Vice President of Finance, launched a total renovation that included profitability analytics, customer relationship management, a rolling forecast, and a Balanced Scorecard.

Steve Player: The thing I find most amazing about what your team is doing is the sheer number of initiatives that you’re attacking, and we’ll come to that. First, would you give me a quick overview of Elkay?

John Hrudicka: Elkay Manufacturing is a 90-year-old company that spans the housing industry and some commercial markets. We manufacture and sell sinks, which is where we began and represents the roots of our company. We also sell faucets, cabinetry, countertops, and water coolers, as well as food service equipment, which is a business that we recently entered into. Historically, our company has been divided into two major divisions: kitchen cabinetry and plumbing products.

At present, under our new CEO, we’re planning to evolve our go-to-market strategy to become more synergistic and become a solutions provider to better serve our customers’ needs. For example, if somebody sets out to remodel their kitchen, we’ll provide tools to assist them in configuring a complete kitchen based on their style preference and utility needs. We bring efficiencies to our commercial customers and projects by providing them complete solutions through a single source partner. Our ultimate objective is to provide solutions that the customer wants, as opposed to selling them the individual products that we provide.

SP: Tell me a little about the Elkay management system, which anchors all of this …

JH: It consists of four primary components and related business practices which, when integrated, provide for greater transparency, knowledge, and guided analytics. The result is real-time, strategically aligned, business decisions made by every employee in the company. I’ll also characterize the system this way: It drives knowledge and analytics down to those in the trenches making business decisions.

It starts with our strategy framework; we have adopted the Balanced Scorecard. We’ve also implemented a Balanced Scorecard best practice by formalizing an office of strategy management to ensure our commitment to strategy execution. The core of the Elkay management system [EMS] is our strategy, with an emphasis on monitoring and measurement to ensure execution.

The second component, business performance management (BPM), describes the business planning application we utilize to plan our business and to monitor and measure our performance against our objectives. It enables us to identify change relative to our initiatives and desired outcomes, in order to develop the appropriate actions to achieve our goals.

The third component is what we call discrete product costing (DPC), its foundation being time-driven, activity-based costing. We utilize Acorn Systems for our application. DPC is a cost assignment methodology that produces very rich profitability analytics. It’s been an integral component for us in driving behavior and creating a culture of awareness and understanding around the profitability profile of our customers, segments, products, and activities. We’ve had a great deal of success; we were named customer of the year by Acorn Systems, and we recently completed a Harvard case study, authored by Dr. Robert Kaplan, that’s being taught at Harvard Business School.

The fourth component is customer relationship management. CRM provides a holistic view of our customer in terms of, one, what they buy; two, how they buy; and three, their customer care issues and profitability to Elkay. It provides a formal guide to help us track our selling processes in real time with complete transparency. We’re in the midst of implementing phase one, which will be completed soon, and we plan to complete our companywide implementation later this year.

SP: How do the parts integrate? Is it all one big system?

JH: Relative to the existing technology platforms, it’s a bit disparate. The technology pieces we’re building into the system tend to be best-of-breed. We believe technology has matured to the point where you don’t need to buy a fully integrated suite that possibly forces you to sacrifice functionality that’s necessary to meet a business need. You must be able to trace back any initiative, technology investment, or resource assignment to the distinct purpose of alignment and execution against a business objective — or else why are you doing it?

We’ve already integrated DPC, our profitability analytics, with our scorecards and dashboards. Soon, we’ll integrate DPC with our CRM application to complete a 360-degree view of the customer.

DPC will provide a lot of the data points for the measurements in the Scorecard, but we also want to make the DPC P&Ls more readily available to our sales teams and management by integrating the P&Ls and associated guided analytics into CRM.

We will also, by the end of this year, eliminate standards-and-accounting-based reporting P&Ls and will utilize DPC “simple-language” P&Ls as our single P&L source, serving both financial reporting and business-decision support needs in a Lean Accounting environment.