2007 Distinguished Alumni Awards
Robert Lane, ’74
Image by Matthew Gilson
Robert Lane, ’74, spent 25 years at Deere, weathered recession and crisis, established the brand in emerging markets, and led a dramatic turnaround as CEO.
Chicago Booth Magazine asked professor James Schrager to quiz Lane about facing high-tech competitors, aligning production with demand, and producing machinery for farms of the future.
In 1982, Robert Lane left a comfortable career in banking to join Deere & Company, the world’s largest manufacturer of machinery for farming and forestry and a provider of products and services for construction and lawn and turf care. During the next 25 years, he worked his way up through several divisions and numerous challenges, from a recession to a farm credit crisis. When Lane was named CEO and chairman in 2000, Deere reported a $486 million profit. The following year, the company posted a net loss of $64 million as its focus “changed from boosting revenue to beating down costs and aligning production with demand,” according to Crain’s Chicago Business. “There are signs that his efforts are paying off. Last year, Deere earned a record $1.69 billion, a 17 percent leap from 2005 despite just a 5 percent gain in sales.”
Lane describes Deere’s approach simply: “No tricks, no smoke, no mirrors—right down the middle of the field.” The approach has earned Lane the 2007 Distinguished Corporate Alumni Award. He recently fielded questions from James Schrager, clinical professor of entrepreneurship and strategic management, who’s often sought out by media who are reporting on turnaround management.
Schrager: Why is Deere a great company?
Lane: Deere is great because it has stood the test of time—it’s 170 years old with an iconic history—and because it is prospering today with probably its best days ahead. I think that sets it in contrast to a lot of companies. Just standing the test of time is not sufficient. There’s a very strong bond between our customers and employees because of the great pride in the product and in the company’s values. Our customers have experienced an incredible productivity increase from the machinery we’ve built in the past 100 years. Employees feel they’re part of that. And now both customers and employees feel part of an emerging burst of new, intelligent productivity in our machines worldwide. Our customers and our employees know we emphasize doing things the right way, and this helps our legacy as a great company.
Schrager: What does Deere do well compared to its competitors?
Lane: Deere has prevailed throughout the years because of its commitment to innovation and incredible attention to the customer. For instance, in our largest business—agricultural equipment—Deere is the only company of its scope and scale that has survived intact from the very tough times of the past two or three decades. This sets us apart from every other global competitor that has been merged with other companies or has simply closed its doors.
Schrager: Who do you consider your main competitors?
Lane: It varies by business. In our largest business, our direct competitors would include Case New Holland and AGCO. In our construction equipment business, the largest competitor is Caterpillar. We have other traditional competitors as well in the commercial and consumer equipment product lines. A new development in the recent past is that we have new competitors from the emerging world who are offering products that can meet our customers’ needs. As our products become mobile information machines, new technology companies are among our competitors because they can provide portions of the product, and vital portions of the value.
Schrager: Do you worry about them?
Lane: In our business, customers are hungry for value. There are cycles in the industries we serve, so customers have a difficult time making consistent profits on a sustainable basis. Therefore, they must be very demanding of their suppliers. We worry about other companies that could offer a value package similar to our own. That doesn’t mean we worry to the extent that we don’t think we can prevail, but we do take them very seriously.
Schrager: What remains from the past reasons for success?
Lane: A lot of great things remain—a sense of integrity, a sense of transparency, a sense of offering a really fair and complete deal to our customers so that they really count on us and believe we will provide what they need. And that attracts some great employees who are committed. We don’t want to lose any of that.
Schrager: What have you changed?
Lane: In spite of the many great things Deere had done by the time I took over seven years ago, there was one area we hadn’t been noted for, and that was running a sustainable great business. So the basic motto that’s been on the cover of our annual report for six years is “growing a business as great as our products.”
The improvements focused on what we need for sustainable great business. That means dramatically improving how we use our capital. In the past, we had worked in an expensive way. We did things with too many assets. We were margin-lean; now we have many more profitable products that customers think are really worth paying a substantial margin for. Incidentally, the concepts for creating real economic value on a sustainable basis came out of my education at the GSB.
For 28 consecutive quarters, our inventories and receivables- to-sales ratio has gone down. This is worthy of a trend. When I was at the GSB, I recall that Milton Friedman said you need at least 100 years for good time series. We don’t have 100 years yet, but we do have seven! We can’t assert that we’re going to be a great business until, say, at least 2014. Why? We need time for it to be tested in the down cycles and up cycles. It has to be sustainable. If it isn’t, it’s just a flash in the pan.
Schrager: What do you see in today’s market that pleases you?
Lane: The prospect that so many people in the world can eat well. The world has always had lots of hungry people, and in recent decades we had the ability to grow the food. Now,because of what’s going on in the world economy, billions more people will likely have money to buy food. And of course we’re involved worldwide in helping to grow that food productively. That, augmented by the prospect for sustainable global bioenergy, is dramatically positive.
Schrager: What are the powerful patterns that will drive your business in the future?
Lane: The shift to intelligent machinery. The technology is becoming available for us to bring to the customer intelligent, mobile machinery. And these machines will be doubly smart, because every day out in the field has different weather conditions and growing conditions. To send a smart machine into an environment that’s changing every day, it has to be intelligent enough to be adaptive.
Schrager: How does it look for Deere?
Lane: Because we sell large capital goods, our business will go through cycles. Our goal is to be able to run a great business even when the cycles are down, or when we are at the peak of a cycle. We are aiming to prove this can be done.
We see an opportunity for our customers to improve their productivity so the world can feed another 2 billion people now living on less than $1 a day. The growing demand for biofuels and renewable energy adds to the need for highly productive machinery on the farms of the world.
The planet will add another 2 billion people in a generation who will also likely have the financial means to buy food, so that’s a huge opportunity ahead for Deere’s agricultural business. And we see opportunities in our other businesses—construction, forestry, commercial and consumer equipment, credit, and wind industry—all of those are areas look like an area where Deere’s employees can serve customers well. We are proud to be growing a great business that contributes to human flourishing.