John Engel says his tenure as CEO at Wesco International has been bookended by crises. After joining Wesco in 2004 as COO, he stepped into the CEO role in 2009 during the Great Recession. He says the company managed well through that period and has now come through one of the most challenging periods in human and business history with the COVID-19 pandemic. As an essential business, Wesco continued to serve customers throughout the pandemic while simultaneously integrating two equal-sized companies. What’s next? “Our best days are still in front of us,” he says.
Asutosh Padhi, a senior partner and McKinsey’s global leader of firm strategy, spoke with John, who is also Wesco’s chairman and president in addition to being a director of United States Steel Corporation. Wesco, a leading provider of global supply chain solutions, is a Fortune 200 company with $22 billion in revenues in 2023 and operations in more than 50 countries. It comprises three large strategic business units (SBUs): Electrical and Electronics Solutions (EES), Utility and Broadband Solutions (UBS), and Communications and Security Solutions (CSS). In 2020, John led the $4.5 billion merger of Wesco and Anixter International. In this interview, Asutosh and John discuss John’s leadership style, merging two companies in the middle of the COVID-19 pandemic, why culture trumps strategy, and big data as the next big value creator for Wesco. An edited version of their conversation follows.
Doubling down on a bold strategy in the middle of a global crisis
Asutosh Padhi: How have you evolved as a leader during your time at Wesco?
John Engel: One constant has been my commitment to lifelong learning. You can never foresee the future or be fully prepared for it, so you need to evolve, adapt, and grow. Beyond that, I better understand now the importance of taking care of mind, body, and soul and maintaining health and stamina to operate at the highest level. And I spend time making sure I’m surrounded by the best team because you’re only as good as the talent around you.
I also focus on what I can control, stay agile, and move with speed to adapt and evolve. No one foresaw the COVID-19 pandemic, and now it has resulted in profound changes around the globe and in the markets and value chains where we operate. For most of my 40-year career, value chains were moving in one direction: into Southeast Asia. Then the pandemic focused an electron microscope on the fragility of these global, extended supply chains.
We sell to 90 percent of Fortune 100 companies directly, and virtually all of them are looking at rearchitecting their global supply chains, including moving back to North America to varying degrees as part of a nearshoring or reshoring trend. The switch has been thrown. It represents dramatic and significant business opportunities for companies across North America.
Asutosh Padhi: Wesco’s merger with Anixter was a defining moment. Could you describe that experience and what the journey has been like since then?
John Engel: Wesco spun out of Westinghouse in 1994 and has always been acquisitive. The company has made more than 50 acquisitions since the spin out including more than 30 under my watch. In January 2020, when we announced the Anixter deal, our stock price was $60 a share—and then the pandemic hit; by March 2020, it fell to below $20. By then, we had already completed the due diligence and some regulatory approval processes for the merger with Anixter, but then I went public with three-year financial targets post-close, which was a bold move at the time. I said, “We’re all in,” but some investors said, “You’ve got to get out; the sky is falling. The pandemic’s changing everything.”
So we pivoted from using stock as part of the financing package to using all debt. We closed in June of 2020, and then we were off integrating. We’ve beaten and raised those three-year targets several times and created significant value. We’re obviously very proud of what the team accomplished. We exceeded all our initial operational synergy targets set at the time of the Anixter acquisition. Through the end of last year, our sales grew 30 percent compared to 2019. Our EBITDA grew 90 percent. We expanded our EBITDA margin by 240 basis points, and our stock today is trading above $180. From June 2020 through the end of 2023, our total shareholder return was north of 350 percent, compared to 60 percent for the S&P 500 during the same period.
Prioritizing culture and a focus on the customer during post-merger integration
Asutosh Padhi: Many mergers of equals do not go well, yet you succeeded and created a new company in the process. How did you beat the odds?
John Engel: I think it was the focus on the people and the culture. There have been many deals throughout business history that made tremendous sense at a strategic level, but they failed because of a culture mismatch. We combined two $8.5 billion per year companies and used it as an opportunity to truly build a new company. And we chose to leverage the best of each to create the best of both.
We first put in place a tremendous process to assess, select, retain, and develop the talent. Then, we established a new vision, mission, operating set of principles, organization design, segment structure, leadership team, and strategy. And then we launched.
The team across both companies felt buy-in because we had engaged them through the process. We went out to thousands of folks and said, “Here’s our first shot at the new vision and a new mission and a new set of core values.” We got their feedback, and we iterated. There’s a phrase a lot of people use because it’s true: Culture eats strategy for breakfast. We clearly had a great strategy. We were very confident in that, but it was all about the culture.
Then, against the backdrop of the pandemic, we strategically decided to play offense. We had to stay open because we are an essential business. We focused narrowly on the customer through the integration. We had a series of priorities on other parts of the business to get the initial synergies, but we wanted to protect and defend the front end of the business. We put the two respective sales forces together with the new operating structure with three SBUs and sent them out to engage with customers, who needed more help than ever through the pandemic. It resonated.
We did a few other smart things including building a process to cross-sell. It’s exceptionally difficult to get sales synergies after a merger, so we put in place a special incentive program and paid for true, incremental cross-sales with our customers.
Playing offense, focusing externally, engaging the customer, and focusing on what they needed while our competitors were looking inside their four walls and playing defense really gave us a jump start on performance in the early part of the integration. Once we had that, it was a matter of cultivating it and building on the initial positive momentum.
Reshaping and digitalizing global supply chains with big data as a key asset
Asutosh Padhi: Tell us about the digital transformation you’re leading at Wesco.
John Engel: It’s a six-year transformation journey. We started in earnest in early 2021, six months after we closed the acquisition of Anixter. We’re three full years through it now, and we’ve got three years to go. When we finish, we will be in a uniquely better and different position to provide even more value for our customers.
Every value chain is getting reshaped by technology, particularly now with AI and gen AI. We wanted to lead digital transformation of our portion of the value chain by digitally transforming our company. We had that vision before we put these two companies together.
The centerpiece of our transformation is not an ERP [enterprise resource planning] transition, even though we’ve made more than 50 acquisitions and have many different systems. Unlocking the power of our big data is key to value creation. Our technology approach rests on a new architecture and best-of-breed subsystems wrapped around a world-class data lake. We’re hydrating all of our master data into one data lake.
As a distribution company, our biggest asset, after our people, is our big data—and it’s not on the balance sheet. We have more data on our customers’ operations than they have in many cases—and a lot more data on our suppliers. For most of our supplier partners, we are their biggest customer. When combining their products with our services, we sell to many more customers on their behalf than they sell to directly. So this is invaluable data.
Asutosh Padhi: You’ve talked about culture, technology, talent, and leadership. What have you found is most important?
John Engel: Initially, when we brought the two companies together, it was incredibly important to build the leadership team and the management structure, leveraging the best of each. That set us on the right path. Since then, from 2019 through last year, we grew pro forma sales by $5 billion. How did we do it? We started the integration period by injecting outside talent and new capabilities into the organization based on critical needs and where we were going, not where we were. Today, our top management team is one-third legacy Wesco, one-third legacy Anixter, and one-third from the outside. And we’re constantly working on refining the talent equation, but those moves were critical to successful execution.
Asutosh Padhi: As you think ahead to the next five years, what opportunities are you most excited about?
John Engel: Well, our best days are in front of us. We have an industry-leading value proposition with global capabilities, scale, and execution capabilities and a digital transformation that’s halfway complete. We’ve shifted to higher-growth, higher-margin markets. So the future is exceptionally bright.
One example, as I think about unlocking the power of AI and generative AI [gen AI] in particular, we’re uniquely positioned because, together, our three SBUs can deliver a complete data center solution, from preconstruction and planning to fast deployment and ongoing management. We’re serving customers that are building out the world’s leading hyperscale data centers to provide and support gen AI. And that’s just one of dozens of opportunities for secular growth trends that will mean substantial incremental (with a capital “I”) growth for us.
Asutosh Padhi: How do you modify your leadership approach during a period of rapid change and volatility such as the one we’re in right now?
John Engel: You have to manage the short, medium, and long term simultaneously. If you have the right strategy and you’re investing for the future, it positions you well to do that.
The seismic change that has occurred with global supply chains because of the pandemic is the catalyst for many of our secular growth opportunities. The decades-long globalization trend is giving way to more regionalization. The supply chain has become a top priority for C-suites, boardrooms, and countries. Companies are investing in supply chains at the national, regional, and local levels. That fundamental shift is altering global capital flows. At the same time, we see gen AI combined with IoT applications with huge volumes of sensor data in our customers’ operations and infrastructure. We are looking to unlock the power of all that data across the entire value chain. These changes will create a whole new set of business models and opportunities. It’s a completely different world—but an exciting world for us in the future.
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