In the face of minimal of consumer adoption, Interface is struggling with the execution of a strategy aimed and incorporating a potentially disruptive innovation in the delivery of a mature product with a sustainable twist. Through the course of this analysis, I will discuss the implications Interface’s Evergreen Services Agreement (ESA) presents to the traditional business model, the market environment and strategic execution.
In looking at the traditional business mode, Interface was introducing a disruptive innovation into the market that could redefine the industry (Bower, Christensen, 1995). By allowing customers to eliminate large capital purchase, ESA would stretch out cash flows and provide a more stable cost structure for customers without an increase in overall cost. Or at least, that is what Interface thought. What they failed to recognize is that the maintenance portion of the offering was, in some circumstances, already being handled by the in-house facilities departments. ESA did not take this into account and did not have the necessary flexibility or breadth of offerings to meet the needs of this customer base.
Wal-Mart attempted to, at to some extent has been successful, redefining how their supply chain behaves by initiating a movement to include labeling that speaks to the product’s impact on the environment (Rosenbloom, Stephanie, 2009). One of the key distinctions between Wal-Mart and Interface is the amount of leverage each organization has within their value chain. While Wal-Mart is able to dictate changes to packing and business operations due to their purchasing power, Interface is in a much different position.
The market environment in which ESA was to be introduced, presented myriad opportunities and threats. Beginning with opportunities, ESA has the potential to be disruptive in the market due to the innovative delivery model. ESA also bundled a service component into the offering, which was typically either handled by another contractor or the customer’s in-house facilities/housekeeping operations. Further, the whole ESA business model was based upon a sustainable structure that attempted to create a close looped value chain, establishing a foundation for reducing waste (Hutter, Lawrence, Capozucca, Peter and Nayyer, Sattar. 2010). This was something that all organizations where eying and Interface hoped to leverage this due to the recent attention sustainable business practices had received in media.
One of the main threats that ESA faced in the market was the strict regulatory environment governing the terms of an operating lease. This was evidenced by a lease agreement that required senior level officers to explain the intricacies to the customers and was ultimately where the negotiations broke down. By engaging regulatory stakeholders, Interface could have lobbied for some favorable changes in the law or perhaps some loopholes that would have reflected the unique nature the ESA presented (Hutter, Lawrence, Capozucca, Peter and Nayyer, Sattar. 2010). Another threat was that presented by the suppliers. While it was not discussed specifically in the case, ESA threatened Interface’s supply chain partners in that it sought to reduce the amount of raw materials that would have been purchased in order to manufacture the carpets. While there still would have been a need for the raw materials, it would have been significantly reduced due to the targeted replacement of high traffic areas. As stated previously, engaging these stakeholders early on in the ESA development cycle could proactively address these concerns early in the implementation to avoid an unfavorable response down the road after revenues of key suppliers are impacted (Hutter, Lawrence, Capozucca, Peter and Nayyer, Sattar. 2010).
The strategic execution of ESA was less then ideal in my opinion; however, there were some area’s where it excelled. For instance, by creating a position within the vice president ranks of Interface, the company’s CEO, Ray Anderson, set in motion his vision of creating a more sustainable company. Anderson also took a key step early on, attempting to educate key stakeholders within the value chain (Bonini, Sheryl & Oppenheim, Jeremy, 2008). While this was a good step, it could have been improved as Wal-Mart did by actually teaching various partners within their China supply chain how to operate in a more sustainable manner (Schell, Orville, 2011).
Another area where ESA could have improved in my opinion is through the implementation of an appropriate compensation system, which emphasized the importance of the new ESA business to their sales team. By creating goals and incentivizing sales personnel, Interface would have been better position to create a culture that encourages the sale of ESA versus traditional product lines (Nohria, Joyce, and Roberson, 2003).
The current sales structure adds complexity to the closing of a sale as well. Once a sales rep has taken the time to field basic questions about ESA, a visit by senior level officers is required to explain the actual lease agreement to the customer. Being as the sales personnel are somewhat autonomous, this change requires a shift in the culture in order to achieve the desired results. An alternative approach would have been to simply set expectations high, provide resources/support and create the appropriate reward system to change behaviors (Nohria, Joyce, and Roberson, 2003).
Interface also failed to seek any input from their customers early in the development phase. While what ESA attempted to achieve was unprecedented in the industry, feedback should have been solicited early on in the process to ensure the product was being developed to meet the needs of the various industries ESA targeted. The consumers are the driving force in this movement, so understanding their needs and wants is a crucial component of success. (Hutter, Lawrence, Capozucca, Peter and Nayyer, Sattar. 2010). Perhaps this would have prevented the one dimensional approach which denied flexibility when it came to unbundling the maintenance agreement for customers who already had their own housekeeping departments or third party contractors. Instead, Interface made a series of acquisitions and alliances that positioned them to be a more vertically integrated player in the industry. Obtaining customer feedback would have also highlighted which companies were interested in sustainability, as this movement was in its infancy. What interface failed to recognize was that each customer had a very different appetite for operating leases within their budget’s. Additionally, the way in which service contracts were handled varied as well. By only creating a “one size fits all” model, ESA did not lend itself to customization for a particular companies needs.
To conclude, Interface has an amazing opportunity to capitalize on an innovation that will drive value for not only their shareholders, but all of their stakeholders. By taking a step backwards, evaluating what customers truly need, seeking input from all stakeholders in the value chain and modifying the ESA offering accordingly, Interface can put itself back on track (Hutter, Lawrence, Capozucca, Peter and Nayyer, Sattar. 2010). It is important the missteps of the past are not soon forgotten, as there is a lot at stake and smaller competitors waiting to take not only the ESA market share, but also the market share associated with their traditional business.
Bower, Christensen. 1995. Disruptive Technologies: Catching the Wave. Harvard Business Review, January-February 1995: 43-53.
Rosenbloom, Stephanie. 2009. At Wal-Mart, Labeling to Reflect Green Intent, The New York Times, July 16, 2009.
Hutter, Lawrence, Capozucca, Peter and Nayyer, Sattar. 2010. A roadmap to sustainable consumption. Deloitte Review #7: 47-58. http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/Deloitte%20Review/Deloitte%20Review%20-20Summer%202010/US_deloittereview_A_Roadmap_For_Sustainable_Consumption_Jul10.pdf Accessed 1/2012
Bonini, Sheryl & Oppenheim, Jeremy. 2008. Cultivating the Green Consumer. Stanford Social Innovation Review, Fall: 56-61.
Schell, Orville. 2011. How Walmart is changing China. The Atlantic. http://www.theatlantic.com/magazine/archive/2011/12/how-walmart-is-changing-china/8709/ Accessed 1/2012
Nohria, Joyce, and Roberson. 2003. What Really Works. Harvard Business Review, July.