Steve Player interviews Randy Guba, executive vice president and chief financial and administrative officer with Integrated Electrical Services (IES).

Steve Player: Tell me a little about Integrated Electrical Services (IES). Randy Guba: This company over a number of years had been on an acquisition spree, buying local electrical contractors and essentially rolling them up under the IES umbrella, as many other businesses did in prior years. It was a tactic that generally involved a loose affiliation of companies that organized under a holding company concept. When I joined the company in early 2007 there were about 27 independently run electrical contractors under the broad affiliation of IES.

SP: These would be local companies doing electrical contracting for the local construction industry? Guba: That's exactly right.

SP: When did they start rolling up? Guba: More than 10 years ago. That was during a time when a lot of companies were doing roll-ups. The belief was that by doing that and setting up a public equity funding structure, one could create shareholder value just from this loose affiliation of businesses.

SP: An economy of scale, if nothing else ... Guba: Yes. They talked a good game about trying to get synergies and integration, but in reality these companies were quite often not integrated. Really you just added big corporate overhead to a bunch of companies that operated exactly like they did before being acquired.

SP: Doesn't seem very efficient... Guba: No, it's not, and the business had gone through some difficulties several years ago. When they did these roll-ups, they also took on a large amount of debt; in this particular business case, the company acquired too much debt and was unable to service it, and went through bankruptcy. It emerged about three years ago. Mike Caliel, our CEO, had been recruited subsequently, and he recruited me in this financial role.

When the company was at its peak it was doing over $2 billion in sales. Over the years they had sold and closed down unprofitable business units, so post-bankruptcy it was about $1 billion in sales.

SP: It seems to be a very fragmented sector. Where does that $1 billion in sales rank in the industry? Guba: Interestingly enough, we're number two. Despite being a relatively small company, we have a high position within the industry, but a low market share overall. We're really the only national electrical contractor. We have about 5,000 employees, and we operate in three segments: industrial, commercial, and residential.

SP: In today's economy, residential is under a lot of pressure. Are the other units facing the same type of stress? Guba: You're right, the residential market has been under significant pressure for several years, which has had a major impact on that segment of our business. Until recently the commercial and industrial businesses were fairly strong, but lately we've seen our share of project delays and funding difficulties as the credit markets have dried up and construction has dropped off fairly dramatically.

The downturn hit us after Mike and I arrived. The new leadership team was brought in to help navigate the business following the bankruptcy. We had embarked on our restructuring program and had completed the first phase when the downturn hit.

I'll give you a summary of what happened. When we started we had 27 fully autonomous business units that had never been integrated; we had never had an integration strategy, and we had business leaders who pretty much set their own agendas. We had localized reporting that resulted in little transparency, so it was very difficult to understand what was going on in the business. We had controllers in each of the 27 companies who were backward-looking and who tended to be scorekeepers. There wasn't a lot of capacity for forecasting or understanding KPIs. We had some control weaknesses, and a lot of those resulted from personnel issues and problematic processes and systems.

Finance was historically aligned to local presidents and not to the finance function within IES, yet it had very little in the way of business partnership relationships with these presidents. From a market standpoint, business development was purely localized and opportunistic. So our role was to come in and develop a strategy that could tackle these problems and restructure the company.

SP: So there had been lots of mergers but no integration? Guba: Right. What we've done is to set up a fourfold approach that we've been driving over the last two years to rectify the problem.

First, we realigned our businesses along three markets: residential, commercial, and industrial. We redesigned the business model so that we could leverage scale and local equity. We kicked off a branding strategy to eliminate the individual independent company names and leverage IES as a national brand. Also, we were able to rationalize rooftops.

Second, we integrated the business. We upgraded the talent within the finance organization and the operating team and aligned the functional organizations -- HR, finance, IT, safety, estimating, and procurement -- along functional lines as opposed to aligning with the local presidents. We consolidated the independent companies' leadership teams, so where we had 27 presidents previously we dropped down to three plus several general managers.

Third, we enhanced the infrastructure. We centralized controllership of the business. We standardized processes and implemented best practices. We implemented three new systems simultaneously: We put in an SAP financial reporting and consolidation package that allowed us to consolidate the books and do financial analysis, all of which was done previously in spreadsheets; we developed an automated project management process on an SAP Project platform; and we outsourced our payroll to ADP and rolled out wireless labor application PDAs that allow us to get a near-real-time view of our labor burn, which is a massive improvement over prior practices.

Fourth, we invested in business development and sales capacities to drive growth in target markets and national accounts. The fact that we're investing in sales resources is also completely new for the electrical contracting industry; nobody else has a dedicated sales force to my knowledge.

SP: How do you pull off changes of that magnitude in only two years? Guba: It's been a massive undertaking for us. Our challenge was to change the culture of the business and get people to operate as a single entity. Obviously, it was a team effort; we had a lot of very smart people working these projects. We formed an executive steering committee that oversaw all of the projects. We assigned executive sponsors for each initiative, and a project manager drove each project. We just executed good project management.

In the first pass of restructuring, we took the finance groups and consolidated them into three shared service centers. We were thereby able to take out a significant amount of cost. That allowed us to strengthen the controls, leverage standard processes and procedures across the business, upgrade talent, and of course reduce headcount.

The next phase, this year, we're going to further consolidate the operations within the business. We'll take what previously had been three or four offices on the coast in our commercial operation and consolidate those into one. The additional operational restructuring will allow us to share specialized resources over a broader region and drive additional cost out.

SP: What were the change management challenges of the integration? Guba: The big challenge for us was that people in the business thought that this had never been done before, that it couldn't be done, and that it would break the business. There was major concern that the key leaders would leave and take all the business with them because they had all the relationships. So there was a huge risk that we would lose the key players and damage the business.

We worked through it openly. We had a high degree of transparency when we made the decision to eliminate the controller jobs at the local company levels and consolidate them centrally. There was a whole change management process to go through to treat people fairly and communicate what we were going to do and how we were going to operate as people's roles changed. Of course not everyone accepted the new direction we were taking, so we parted ways when necessary as amicably as possible. And we were able to actually prove that many of the folks didn't have as much of a stranglehold on the business, markets, and customers as we were led to believe. SP: What happened when you were hit by this latest wave of market turbulence? Guba: We've been impacted dramatically, like everybody else. But the good news is that the restructuring program that we put in place allowed us to cut $20 million of SG&A out of our business. We've been able to continue to improve on execution, having implemented our project management operating system. Our gross margins have been solid and actually improving, but frankly the economic downturn has put additional pressure on the business and we had to respond with significant additional cuts that we are implementing this year. It's a good news-bad news story. We probably wouldn't have done this next round had we not experienced a downturn, but I think it will end up making us stronger. SP: Did you have any performance measurement challenges as you moved to this more streamlined approach? Guba: The problem was being able to get at the data. Since the data wasn't available centrally, it was very difficult to set up KPIs and metrics. I'll give you an example. Until recently, we didn't even have a consolidated view of labor. We had no idea of how many hours of labor per week we were utilizing. In a service company, that's a horrible situation to be in. The independent companies had a better line of sight into what their local operations did, but when we took a look at the business units as a whole we had no overall visibility. You can't scale 27 independently run operations, but when you consolidate them you have transparency into the entire business. And we can very easily scale this business now with the new processes and systems we have in place. We're just beginning to get the benefit of some of the systems that we implemented. We can now see labor burn across the company, we can see sales and project pipelines, we can look at productivity. We're just at the point where we can start creating and looking at the KPIs necessary to run the business. SP: With so many disparate systems out there, even for something as simple as the utilization of people you probably had different ways of looking at it -- different definitions, different formats --which must have made it really tough. Guba: We did. As you would expect, we had different charts of accounts. It was really all over the place. SP: Which would make it difficult, when you have capacity, to shift it over to the guy who needs it. Guba: Very true. And that brings up another great point, because with the consolidation and reorganization we were able to do a better job of creating and extending centers of excellence in the business. For example, we have folks who have done a bunch of work on data centers. We can leverage that expertise across our business to check the work, to make sure that we understand the scoping appropriately. In the past those offices would actually have competed with each other, or not bid at all. With our size and experience national customers can come to us and say "Look, I've got five data centers around the country. I would like you to partner with me." We have an excellent safety record, we have a proprietary project management operating system, and we can partner with customers and execute. SP: Do you see the trend of the industry moving toward more national contracting as opposed to what has historically been local offices? Guba: I would say that we're very innovative in that regard. We haven't seen that from anyone else within this space. It's an area where we think there is a tremendous opportunity. SP: What are you working on in the planning and forecasting area? Guba: Several of us come from companies that have very sophisticated and sound capabilities in terms of operations, analysis, strategic management, and forecasting, so our expectations are fairly high in terms of our ability to see what's coming and to navigate the business to reach a desired result. But this business never had that capability, so we had to create it. We've made investments in financial planning and analysis talent. We've put systems in place to get at the data so that we can start looking at some of the KPIs and the operating drivers that underlie the financial results. And we're building modeling capabilities so that we can get a better sense for how operating performance metrics and KPIs are tied into financial results. That's still in its infancy because we've just recently built some of the tools. We now have the talent on board that knows how to look at the data. We've got the systems in place that can give us the data, and now we just have to sit down and start connecting the dots and providing the tools to the business. SP: Are you driving that through SAP as well? Guba: We have a plan to utilize SAP's forecasting module. We haven't implemented that yet because we've had our hands full, frankly, with our three system implementations. Part of the challenge is to identify the underlying operating metrics that have a high correlation to financial results. SAP's forecasting tool will give us a more sophisticated system once implemented. We're currently taking steps to get the fundamentals built. We've also been very innovative in supply chain. We've partnered with some key distributors. In our commercial business we've taken the inventory that used to sit in all of our individual locations and outsourced it to a distributor, who manages it for us. They put our inventory manager on their payroll. The distributor keeps the material and drops it on the floor of the job site weekly, so we've been able to reduce our inventory carrying costs and shrinkage, and we've increased productivity. With that preferred relationship we also get better pricing and payment terms. We can leverage our buy. This is very innovative for our industry. We looked at the entire supply chain and asked, "Why do I need to have two or three warehouses? Why do I need to be moving things multiple times? Can I take my vendor and put him as close to my point of use as possible? If he holds the inventory longer, I've got greater flexibility. I can get it the day I need it." There are a whole lot of advantages if you open up that supply chain to full view. The pushback we got from operations was, "Look guys, we pre-assemble our materials in these warehouses before we go to the job site to install them, so we need all this inventory and warehouse space." We looked at that and said, "That's not our core competency; why shouldn't we have the distributor do it?" So we now have the distributor pre-assembling our material and distributing it directly to the floor of the job site. We've taken out warehousing and reduced inventory and headcount, and now the distributors' employees are working on our behalf. SP: How have you digested all these changes in the last couple of years, with so new many systems coming together? Guba: It's been a huge challenge, but I can't emphasize enough that the key has been the upgrade of the team. We've achieved a significant enhancement of the financial talent within this organization, from my direct reports down to the finance talent supporting the three business groups and even down to the shared service centers. It's been a huge investment of time, but we've had a terrific experience of bringing together some really solid people. SP: How much of a challenge is it to bring in the right talent in a situation where the business might suggest that you've got to change? How do you handle this dynamic of adding resources at the same time that you may be cutting resources in another area? Guba: It ends up being a net cost savings because you're taking cost out of the business, and you're making selective investments in key talent that you're going to pay market rates for, but that's going to pay off dramatically. The key for me is you have to bring in the right leaders who are going to be able to lead change within their organization. Once you have the right person in place who is intolerant of the status quo and who wants to drive change, and you challenge them to rebuild their organization, they'll do the right thing. We had lots of people working at the company who didn't have the skill sets we needed. By consolidating we were able to upgrade the talent and take out cost. I'd been involved in a lot of acquisitions in the past, and I knew how value creation and synergies work. It was clear that there was a huge opportunity to create value just from basic integration. And that's exactly what we did. SP: As a publicly held company, IES has Sarbanes-Oxley compliance requirements. To me, that's the greatest risk of these roll-ups -- everything is happening on multiple different ledgers. The Sarbanes-Oxley implications of that, from a control point of view, must be a nightmare. Guba: When we consolidated this business we figured we'd find some skeletons. When you pull the stuff away from local operations, bring it to professionals, standardize operations and processes, and take it out of the control of the local management, it's amazing what you find. Our control environment has been strengthened significantly. We put processes in place; we put accounting policies in place. We now have professional leadership in finance so that we're able to make calls on what's appropriate and what's not. It's just an incredible control improvement. For two years we had a material weakness, and we had a number of significant deficiencies. We've been able to eliminate them completely and significantly improve the control environment. We've benefited from reduced audit costs, and we've been able to recover collateral that was previously required. We've reduced our debt. We've been able to get better banking terms and double our bonding capacity at a time when the markets are tight, reflecting good financial positioning. SP: Sometimes basic blocking and tackling in finance can stop a lot of leakage. Guba: You're exactly right, and I'll give you an example. We are adamant about the quality of account reconciliations. I've learned that accounting issues are frequently associated with poor account reconciliations. It's such a fundamental control and so important that it's almost like a religion for us. We set a very strong tone at the top, and Alan Gahm, our chief accounting officer, does a great job leading it. He and his team have stepped up the quality of that process dramatically. We track it very closely. I review it personally as well. SP: Let's discuss the shared services centers. Are all of those in one location? Guba: We have three in different locations, two in Houston and one in Tempe, Arizona. We contemplated moving to a single shared service center directly. The key strategic issue for us was the speed of changing the whole DNA of the company, of moving away from the old culture and the old way of doing business to a new way of doing business. The primary reason we restructured was business realignment. By choosing to go to three business units and realigning those businesses that way and then moving quickly to centralize the accounting functions of three operations in the span of about five months, we were able to make a huge change very quickly, which forces the organization to operate differently. We did that knowing it was a risky approach because it was quick and dirty, and we also knew that we were not going for the optimal solution. But if we had gone to one center it would have been a two-year process, with lots of money spent on consultants as we went through the process of standardization and migration. We've gotten there now; we have stabilized operations and standardized processes that didn't exist before. Under our cost reduction effort this year, we're taking three centers down to two. SP: Some people would like to have two centers just for redundancy, in case you have a hurricane or tornado. Guba: That would be ideal, but currently they can only function to serve the businesses that they are set up to service. It would require standardization of all processes across the businesses. Currently there are some differences within the three groups. It's a vast improvement over the 27 different ad hoc processes we had previously, but we're not there yet. SP: On a personal note, take us back to the beginning and walk us through your career. How did you become CFO of IES? Guba: I started out in public accounting. I spent three years there and got my CPA. I decided that I wanted to go into a business and not take the public accounting route. I joined General Electric in Aircraft Engines and joined their Financial Management Program (FMP). It was a great development program. I was able to supplement my technical CPA background with financial management skills. This is a two-year program that's really well run by GE. I also had the benefit of several leadership development courses at their Crotonville training center during my time with GE. I took on several roles in audit and commercial finance at Aircraft Engines. That's of course a global business that has a large share of the aircraft engine market. After about five years in that business I transferred to become controller at a GE Capital company called Genstar Container Corporation, a global marine container leasing company. Every good CPA wants to be a controller at some point in their career, and I operated in that role for a couple of years. From there I went to corporate headquarters as one of three financial analysts that covered the business units. My role was to analyze the performance of GE Capital, Aircraft Engines, GE Information Services, and NBC. That was a great job because I worked for the vice president of financial planning and analysis, who was Jack Welch's financial planning person. I had exposure to GE's CFO, treasurer, and controller, and I learned how the leaders of the business operated. I spent a couple of years there and then went out to my first CFO role at a division of the GE Capital Auto Leasing business, which had recently been acquired in Japan. This gave me a terrific international assignment experience, which was tremendously rewarding. We had just bought the company and needed to integrate it into GE, so I gained firsthand experience in how to integrate a business. Following that assignment, I moved to GE Energy, as CFO of a division that does installation and field services of power generation equipment. This is a $2.5 billion global business that installs, maintains, and refurbishes power generation equipment in over 100 countries. After a number of years in that role, I left GE to move to a specialty chemical company in Houston where I was CFO prior to joining IES. SP: How does what you are doing at IES compare with what you were doing at GE under Jack Welch? Guba: Well, of course, we're miles behind what GE does, but we're clearly trying to bring many of the finance capabilities to IES that GE enjoys. The philosophy of finance at GE is that half of your job is controllership -- making sure that the books and records are appropriate and correct and safeguarding the assets -- but the other half of your job, and perhaps the more interesting part, is being a business partner. In that model the CFO acts much like a COO and gets heavily involved in the operations of the business. Frankly, that doesn't work at every company, so it's important to ensure that you have a good philosophical alignment with the president of the business that you're in. At IES, our CEO was very used to the GE model. He had worked with CFOs from GE and Honeywell, and he really wanted that relationship. SP: Looking ahead, what advice do you have for people trying to weather this economic turmoil we're in right now? Guba: When the top line comes under pressure from business contraction, you have to take a hard look at your business and cost structure. In our case we were fortunate that we had already embarked on this road because, frankly, had we not done so we wouldn't have been able to take cost out quickly enough to be able to deal with this downturn. The fact that we were able to rebuild the infrastructure in advance positioned us well. I would also suggest that you react quickly. SP: What other thoughts do you have for people coming up in their career, for people who should be thinking about how finance can add value? Guba: I'm a firm believer in business partnering. Not every company follows that philosophy, but I think it's important for finance teams. Certainly that means getting out and taking some risks in terms of taking different roles to broaden your career and your experience base. I've had the privilege of doing a lot in a big company at a very young age. I would encourage people to take advantage of opportunities and try to get as broad of a financial background as they can. SP: You certainly don't seem to be afraid of taking on challenges. Guba: The big challenge is to make sure you don't bite off more than you can chew!