Dan Hendrix, president and CEO of Interface, Inc. is challenged with deciding the future of Interface’s Evergreen Services Agreement (ESA) business model. This decision will impact Ray Anderson’s vision to create an environmentally stable enterprise. Objectives/Goals: (Financials / Ecological)
• Uphold ESA’s business model concept
• Maintain ecological balance using the ESA’s seven goal plan to achieve a sustainable enterprise • Become Profitable – Increasing net income by 3% in 5 years Analysis:
After using common troubleshooting diagrams and performing a root cause analysis, various reasons have been identified as to why the ESA might not be appealing to Interface customers. The problem is simple…ESA is not selling. This analysis breaks down potential reasons for ESA’s failure in pursuant to success. As per Anderson’s vision for a sustainable enterprise, unsuccessful methods were used to sell ESA. Analyzing ESA’s current financial status, the present visualization of ESA is a not an achievement. Placing emphasis on the idea of Hendrix standing outside of his superior’s door basically having to communicate to him that his idea is simply unsuccessful, we wanted to play the role of one of Hendrix’s advocates. What advice as advocates would we give to Hendrix before he had to walk into Anderson’s office? The analysis as to what counsel we would give is broken down into two main root causes, sustaining environmental principals and retrieving financial stability. • Sustaining Environmental Principals
• Retrieving Financial Stability
A fishbone diagram was used in both causes of analysis and was initiated to determine the main reasons that may have caused ESA’s failure to sell. Our analysis determined an overall breakdown between management and method (the process) in which the lease was pitched to potential customers. Interface is a well recognized manufacturer and supplier of floor coverings since the early 1980’s. With their success came the recognition of their CEO’s commitment towards environmental principals…“being green” by development and the incorporation of Interface’s seven goals to a sustainable enterprise. During the late 90’s, Anderson’s “product as a service” concept was developed as a lease agreement called Evergreen Service Agreement. Although a promising concept to Interface customers, ESA was failing to expand net income. Evergreen Service Agreement’s failure to retain customers caused a financial burden to Interface as their annual net income dropped 1.3% annually. Analyzing the root cause determines that overall that ESA was not selling due to asthenic management and complications of the lease agreement. Beginning with management, Anderson initially had a vision he had taken from reading others publications of sustaining environmental principals. It wasn’t totally clear whether or not his concept of ESA was realistically achievable or even the vision of Interface’s company as a whole. Anderson is clearly portraying the role of advocacy as he is arguing his concept with a passion without considering alternatives to a more feasible solution. Anderson is using his gut feeling on ESA and not exploring other alternatives to make ESA work for their consumers. His years of experience in the business has proven successful, however he does not possess any years of experience in the “leasing” business. Taken from the case it was sited that “the majority of the cases negotiations broke down at the purchasing level” simply because ESA’s lease is cumbersome and difficult to sell. There are several factors as to why the lease agreement is challenging that can be broken down as follows: • High initial costs to the customers
o 40,000 square foot requirement and commercial building only • Lease terms
o 7- year agreement (FASB 75% of life of the product)...