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Masco CEO recovers from costly fiasco

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in Leaders & Managers,Leadership Skills

In 1986, Richard Manoogian was CEO of Masco, a maker of faucets and household products that had produced 29 straight years of earnings growth. The firm was generating nearly $2 billion in cash—and Manoogian decided to invest a big chunk of it in the furniture business.

He figured that Masco had excelled for decades due to its operational efficiencies, management prowess and product innovation—and the company could apply its proven manufacturing, distribution and marketing ability to the furniture industry. In spending $1.5 billion to acquire 10 furniture brands, he sought to tap a fresh source of profitable growth.

By the mid 1990s, however, Masco had lost $650 million as it sold off all the furniture firms. Manoogian, now Masco’s 76-year-old chairman, called it “probably one of the worst decisions I’ve made in 35 years.”

He wrongly assumed that Masco’s impressive track record making and selling faucets and other household items would enable it to sell furniture with equal success. Manoogian did not develop ways to overcome obstacles inherent in the furniture business such as high shipping costs, low productivity, cyclical sales and thin profit margins.

Ultimately, Manoogian reset the company in the right direction by entering other businesses such as architectural coatings, windows and home improvement. But he learned valuable lessons such as avoiding rosy assumptions and accepting (rather than ignoring) industry forces that you cannot change.    

But as Manoogian discovered, you need to say no and forgo what seems like an exciting, easy-to-justify opportunity.

— Adapted from The Strategist, Cynthia Montgomery, HarperBusiness.

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