Emerson Chairman Farr talks about growing his business

Being a CEO in the modern business climate is a daunting challenge. The global economy is constantly transforming, forcing businesses to change and adapt in an unstable market.

In the current period of economic instability and decreased growth, many stress that change is the ultimate way to save the organization — otherwise companies face dying out.

This is exactly what David Farr, chairman and chair executive officer of Emerson Electric Company, believes. Farr visited the Tepper School of Business at Carnegie Mellon this past week to discuss business strategy reform, his successes, and his work as the CEO of a Fortune 500 company. Emerson’s original business model to sustain growth functioned very well from the year 2000 to the year 2012, but in 2012, the company experienced a significant decrease in sales growth.

As a result, Farr changed the structure of the company and adjusted his business model to better suit a world of shrinking global fixed income.

Farr focused the new strategy on delivering better growth, broader customer solutions, more robust profitability, and higher returns. “Without growth, no company can make an earning in the long run,” Farr said.

The foundation of Emerson’s new business strategy is made up of the management process, the talent within the company, the technology, and the investments.

The management process must be reworked every year to ensure the company’s growth. The talent in the company must be reallocated to its most optimal position; Emerson needs “the right people, in the right places, with the right resources,” Farr said.

In addition, global technology must be carefully monitored and updated to suit customers’ needs and to maintain the company’s leadership in the market. Some new technologies may be disruptive to older companies, so Emerson must understand new technological developments and be willing to adapt to the changing world. “Emerson is utilizing the key disruptive technologies of the 21st century to unlock new opportunities for growth,” Farr said.

Lastly, investments in Emerson help the company establish presence and strengthen its position in new markets. Historically, this was not a problem, as Emerson surpassed the S&P 500 in terms of economic growth, but the company has been shrinking significantly since 2014. Farr was therefore forced to change his business strategy and worked with his board to adjust the company.

Adjusting the structure was complicated, because Farr could not base Emerson’s business model on global economic growth.

Currently, global fixed income and worldwide economic growth is decreasing. Farr therefore strategically shrunk his company to better suit the market. He cut the company down from a $24.5 billion franchise to one of $16.3 billion, and Emerson consequently experienced a 2.4 percent increase in sales growth. Today, as a result of his strategic actions, Emerson is showing excellent growth. Farr went on to explain other strategic changes he implemented in his business model to ensure growth, and how the management held the company’s high position in the market. Mid-tier markets in Russia and India offer profitable opportunities for Emerson, Farr said. Emerson was once a very strong company in China, but other competing local companies started to form and take over some of the market.

Therefore, Farr was forced to change Emerson’s market strategies or disappear completely from China’s market. He employed new strategies that would tie down the company’s upper tier and grow in the mid tier, thus keeping their position in the high tier and enabling Emerson to compete with other mid tiers.

Farr believes that to be a CEO, you must demonstrate that you can indeed be a leader and induce positive changes for a company. Before he became Emerson’s CEO, Farr urged the company to expand to Asia given the global economic changes that were occurring at this time. Now, Emerson still holds a strong position in the Asian market.

“To be a CEO, you have to make an impact, you need to demonstrate that you can make something big happen, not just sit behind a desk,” Farr said. Farr himself exhibits strong leadership and willingness to better his company for the future, concluding by saying, “I was given the keys to make this a better company for the next CEO.”