For the past several years, RPM’s organic growth has been about three times the average growth rate of the coatings industry, which pretty much mirrors overall economic growth. This has not happened by accident, but rather through a rigorous planning process that is ingrained in the RPM culture, and involves separate business plans for nearly 50 operating units.

Fiscal 2009 marks the 30th year since formal planning was initiated at RPM, at the instigation of three outside directors of the then-$100 million dollar company. For much of that time, internal growth plans were very conservative, short-term oriented and very much bottom-line focused.

Certain hallmarks of early plans remain integral to the process today, including:

• A “no surprises” culture and the establishment of a platform for ongoing and frequent communication between operating units and the corporate office;
• Development of a tiered plan, whereby pre-determined actions occur immediately if profit targets are missed;
• A “bottom-up” process where those responsible for developing the plan are also responsible for its execution;
• Arriving at goals that are mutually agreeable and commonly shared by the operating unit and the corporate office; and,
• Planning down to the business unit level, where unique, smaller entrepreneurial businesses don’t get lost within larger operating platforms.

Above all, the key to the successful process has been a culture where the plan commitment is of paramount importance. As a result,

• Prior to commencement of plan year, much analytical work is required to ensure that the many assumptions providing the foundation to the detailed plan are realistic, not too conservative nor overly optimistic.
• During the plan year, management maintains a “laser-like” focus on meeting plan. While industry and economic conditions change, the plan doesn’t. Thus, operating management must react swiftly in order to succeed.

Revenue Growth Added to Traditional Bottom-Line Focus

At RPM, the primary purpose of planning is to successfully identify and implement solid investment opportunities. Of course, one of the main objectives of budgeting is to control spending, and this is a daily focus throughout the company. However, our planning process has evolved to a more balanced approach that better fosters long-term internal growth by avoiding “self-liquidation” of our highpotential businesses.

In the spring of 2000, RPM conducted our first Growth & Strategy Conference, where we broadened the planning process to address new market opportunities in addition to the customary and continuing emphasis on bottom-line results. This conference has since been expanded into a two-week long series of meetings with operating companies where they present their ideas for revenue growth to both corporate leaders and other operating company executives, and seek funding for these initiatives. Through the Growth & Strategy Conferences, we also identify the most important growth initiatives, directly link them into our planning process and protect them from spending cuts should these be warranted by deteriorating economic conditions.

Historically, RPM had been more aggressive in acquisitions than it had been in developing organic growth opportunities. We now recognize that a well-conceived internal growth investment can have equal, if not greater, value to RPM than a well-planned acquisition of a new company or product line. Critical components of the internal growth process include analyzing the market dynamics and competitive landscape of the opportunity, as well as evaluating spending needs and associated returns. At the same time, we foster inter-company cooperation in manufacturing, purchasing and information sharing, which assists in funding growth.

Outcomes Boost Top and Bottom Line

At about the same time as the Growth & Strategy conferences began, we also introduced a new form of operating company management incentive designed to reward incremental growth, called CANE (capital adjusted net earnings). Rather than evaluating business unit performance on operating profit alone, we also look at the cost of capital associated with developing that operating profit. As a result, the planning process at RPM reinforces our traditional bottom linemindset, but at the same time incorporates a cost of capital component into it.

Two “home runs” resulting from this process include Tremco’s roofing services business and Rust-Oleum’s garage and basement floor coating business, EpoxyShield. These two businesses produced more than $250 million of profitable revenue for RPM in fiscal 2008 from a miniscule base five years ago. Another “home run” from a Growth & Strategy investment is Euclid Chemical’s geographic expansion, which has been instrumental in doubling Euclid’s sales over the last four years.

Other growth initiatives involve investing in a strengthened sales and service capability. For example, most of our industrial businesses have direct sales forces that are extremely knowledgeable about their products and perform after-sale services as well. Two years ago, Stonhard came to the Growth & Strategy sessions with the idea of creating a construction management group to oversee installations on big jobs, thereby freeing up its direct sales force to do more selling, versus providing the necessary oversight on current projects. The result has been a sharp boost in Stonhard sales and an increase in customer satisfaction. The combination of long-standing relationships, a knowledgeable sales force and more efficient project management equates to an even stronger competitive advantage. This program has had such great success that we are in the process of rolling it out to other appropriate industrial business units, both in the U.S. and Europe.

With our consumer businesses, we have seen the tremendous sales impact that television advertising, properly planned and executed, can bring, assuming we have the distribution in place to support it. Rust-Oleum, DAP and Zinsser are all investing heavily in increased television ad schedules to support both new innovations and existing products. Although many parts of the consumer market are weak right now, we know that we are gaining market share in sizeable increments, and in categories where flat or declining sales presently exist, our performance is well above the competition.

Fundamental to RPM’s performance is a culture of growth, the key element of which is our planning process. It is via this process that RPM is able to manage a global, decentralized organization with a small corporate staff, thereby maintaining our unique entrepreneurial operating philosophy, which is critical to our continued success.