CIOIN

Larry Smith

former VP-IT, Fleetwood

Convincing management to sell the IT group wasn’t a walk in the park."

Executive summary

Not until filing bankruptcy papers and trying to sell off parts of the company did Fleetwood Enterprises realize the value of its IT group. Here’s how its CIO ensured that it did.

The Organization: The maker of recreational vehicles (RV) and modular homes Fleetwood Enterprises was a powerhouse in the 1990s, but by 2000, its revenues had peaked at $3.7 billion (about Rs 16,600 crore). As domestic manufacturing costs rose and two downturns curtailed consumer spending, profits steadily dropped. And Fleetwood lost money every year from 2001 on.

The Business Case: In March 2009, management finally filed for Chapter 11 with plans to sell off as much of the company as it could. Then Larry Smith, Fleetwood’s VP of IT, and his 32-member IT staff took center stage with a plan to sell the IT group—software, hardware and staff—to a third party. The business decision made it possible for Fleetwood to sell its manufacturing lines and begin to pay its creditors while preserving jobs.
But the buyers needed access to historical data and business processes, along with IT services to run manufacturing operations during the transition. Fleetwood had integrated systems, such as billing and HR, common to both of its manufacturing units, making it impossible to split RV-related IT from housing-related IT without spending money it didn’t have.
But if Fleetwood sold its IT group to a vendor, the vendor could sell technology services to the new owners.

The Project: En Pointe, a services firm, bought Fleetwood’s IT group for an undisclosed sum. The deal provides IT to all parties and keeps Fleetwood’s technology staff together in full-time jobs with equivalent salaries and benefits. According to bankruptcy documents, salaries for the 33 IT professionals En Pointe hired from Fleetwood total an estimated $3.9 million (about Rs 18 crore). Fees paid to En Pointe for IT by the new owners of the RV and housing groups, plus the Fleetwood estate, amount to $6 million (about Rs 27 crore) in the first year. That makes the IT group worth roughly $9.9 million (about Rs 45 crore). The RV and housing groups sold for a combined $62 million (about Rs 2,790 crore).

The Benefits: The arrangement also allows for up to $400,000 (about Rs 180 lakh) to flow back to Fleetwood this year—a cut of the money En Pointe makes providing IT services to the new housing and RV group owners. That will help Fleetwood retire more debt. Plus, software that Smith and his team built for Fleetwood to communicate with its dealers is being turned into a product that En Pointe plans to sell to other manufacturers.
Especially satisfying to Smith, who is now vice president of En Pointe’s app services management practice, is that more potential buyers lined up for the IT group than for either of Fleetwood’s main businesses. And the people best suited to provide IT to any new owners of either product line were Fleetwood’s existing technologists. But Smith also felt a personal obligation to get the best outcome for the people he managed, he says.
In retrospect, Smith says, he had a hard sell. “It took a lot to convince Fleetwood executives there was value in us in several ways. Today, it’s what I can hold my head up high about,” he says.