Breville CEO Jim Clayton first knew the company was something special when he did some undercover sleuthing at the Las Vegas Consumer Electronics Show. Each day, he would head to the Sur La Table store and approach a sales representative, claiming he wanted to buy his wife a mixer, then a food processor and then an espresso machine. He always went in asking for a rival brand and every time he got cross-sold to Breville, an experience he found “astounding”.
“They pointed out many other products, claiming Breville was the best at those as well. The reason that was such a big deal for me was that I had spent six years in the consumer electronics industry and what I had seen was that successful companies tend to focus on a single category. They know everything there is to know about that one thing, so you tend to see single-category companies do well on a global scale.”
What is far more unusual is a company that can succeed across multiple categories, where they don’t have a deep domain of niche knowledge to draw upon. Jim had already checked out Breville’s financials and found healthy profit margins and a clean balance sheet, but the sales reps had, unconsciously, sold him on the CEO role, too. “When I discovered Breville had this capability, the deal was closed for me. As a business builder, I can fix almost anything, but there’s one thing you cannot fix: If you make bad product, I can’t teach you to make good product.”
“As a business leader, I can fix almost anything, but there’s one thing you cannot fix. If you make bad product, I can’t teach you to make a good product.”
Distinctively Australian
An Australian, a South African, an Italian and an American are locked in a room and asked to create the perfect coffee machine. This may sound like the set-up of a joke, but for Jim, it is a hypothetical which gets to the essence of Breville’s excellence in manufacturing and designing kitchen appliances.
The way he thinks that scenario would unfold would be the American emerging first, then the South African, both easily satisfied with the machines they had made. Finally, after years of working, reworking and fine-tuning their machines, the Australian and Italian participants would emerge with something capable of producing coffee to their exacting standards. “I say that because great coffee is not something I grew up with, it’s not something that’s been historically seen as important in America. The definition of perfection is so much higher in those two cultures, where it’s really important.
“Through a confluence of events and geography, Australia has become one of the most advanced foodie countries in the world. This means that Australian standards relating to food are much higher than what you might find in another country.” Jim believes this reverence for food and drink comes partly from Australia’s demographics. A critical mass of Greek and Italian migrants came to the country in the post-war years, bringing with them a love of food and coffee that transformed the local approach to eating. Today, international chefs, often seen as professionals in their own countries, are feted like rock stars when they visit Australia.
“Through a confluence of events and geography, Australia has become one of the most advanced foodie countries in the world.”
Australia’s unique food culture is one explanation for a conundrum which initially baffled Jim – how a company from a country with such a small population by world standards could compete internationally, especially in the manufacturing industry. Other leading global electronics companies had come from mature markets in the US, Europe or China, where they could more easily scale up to international competition. Breville was a complete anomaly in being an Australian appliances company that was consistently successful internationally.
What Breville had on its side was product excellence and innovation. It has hundreds of patented technologies and a quite unrivalled record of innovation. It invented the first sandwich toaster, which was released in 1974 and found its way into an amazing 10% of Australian homes. Another first was its juicer capable of extracting juice from whole fruit in addition to its impressive espresso portfolio that has made cafe-quality coffee accessible to everyone without needing the skills of a trained barista.
The Australian culture, which gives Breville its competitive advantage, also meant there were more cultural differences between Jim’s native US and his adopted home than many may realise. He was careful to warn his reports of the potential for miscommunication. “I said: ‘Look, the next six months are going to be the most dangerous that we spend together. The reason why they’re dangerous is because we look the same. When you walk in my office and say something, you’re going to think I understood it. We actually come from very different cultures and there’s a lot embedded in that, so it’s going to be really easy in the next six months for us to miss each other and not know it.”
His new Australian surrounds suit him to a tee. “Beyond all the attributes of Sydney as a city, what I really like the most is the Australian culture. I’ve spent a fair amount of my career in American culture and Korean culture which, in my experience, sit at two opposite ends of a spectrum. Both have their advantages and disadvantages. The Australian culture sits in between what, to me, feels like the ‘goldilocks zone’.”
Repositioning the Brand
When Jim took over Breville, its share price had dipped as a result of multiple compression. Despite the company consistently returning good figures for investors, there was some uncertainty whether this performance would continue in an increasingly globalised market. Jim set about introducing a raft of major changes to prepare Breville to scale up, allowing it to move from consistently good performance to greatness. The analogy Jim draws is that of a car being pushed into high-speed racing. The restructuring of the company’s engine had to be complete before the foot was placed down on the metaphorical accelerator and the company could compete in a higher speed environment without imploding.
Implementing a global sales and operations planning process is the most fundamental change Jim has made since becoming CEO in 2015. Central to this is building a global planning centre and merging five independent supply chains into a single one. An important part of this transition was communicating the global forward view to Breville’s manufacturing partners, a move which has facilitated long-term planning.
“The crux of the transition is to flip Breville to a global company selling locally,” he says. “This also means moving from a ‘new product company’ to a premium kitchen appliance company.” The process involved re-platforming the company’s IT systems and changing every significant process within the company.
As a public company, these changes had to be made with absolute transparency which, Jim says, added to the already steep degree of difficulty. “The most challenging part was doing everything in the light of day, while also promising the market that I wouldn’t steal from EBIT while we executed the transition.” Always one for an analogy, he likens the process to “fixing the plane while it is flying, with passengers on board watching our every move”.
Before Jim’s tenure, Breville had been structured with an eye to safeguarding against failure in the next international market rather than scaling up. It had operated on a silo model, with the Australian, New Zealand, UK, Canadian and US branches having minimal communication with each other. Jim says this isn’t a pejorative assessment of the company, but simply how it was designed. “Everyone was executing that model to a tee, but the hard part for me was that I believed the other end of the spectrum was the right approach. We went from complete separation to just one company where everyone can see everything. I didn’t know how long the change would take because that’s what they had been trained to execute. That was probably the scariest part of the change.”
“I didn’t know how long the change would take … That was probably the scariest part.”
Implementing organisational change is all well and good, but ensuring that staff understand the new direction and buy into it is another matter entirely. Many businesses have failed on this score, but Jim says the answer is quite simple. “The three most important things to do are to: communicate, communicate and communicate. You need a clear articulation of the vision, and as much transparency as possible, at all levels of the organisation. Then, you highlight and celebrate the early wins, and leverage them into larger wins.”
An example of this communication is the biannual report to market Jim undertakes. He prepares and delivers an investor presentation to market analysts and investors. He then presents this same presentation to every Breville office. There are no discrete channels of information, no changing of the message for different audiences. Everyone is on the same page and gets the same information.
Once Breville had retooled, the next phase was the allocation program. Jim says this transition can be easily summarised. “If you start with a company that has the unique capability of building great product, then the answer is to do more of that, faster.”
This involved changes across product, market, platform and business model. First, the velocity of new product development was ramped up. This was aided by adjusted resource allocation to shorten production cycles along with a bolstered R&D department, whose budget was increased. Next, a global sales and operations planning process was implemented, alongside the re-platformed IT systems. There was also increased investment in go-to-market, entering new markets such as Germany and “improving our go-to-market effectiveness”.
The go-to-market changes include a migration towards ‘launching’ new products, rather than simply ‘releasing’ them, a path requiring customers to sell products to themselves through word of mouth and online reviews. Breville has traditionally had longer product development cycles than many of its competitors; better marketing and coordination of launches can communicate the value proposition to customers upfront.
The new approach is more focused on sell-through than sell-in and involves working with Breville’s retail partners to help customers make the most of their products and then supporting them post-purchase. Jim says this is a complete departure from Breville’s previous methods in bringing products to market. “When I came in, I said my hypothesis is that Breville has not launched a new product in its 86 years. It’s released a lot of product, but it’s never launched a product.”
Lessons learned
Before taking up the role at Breville, Jim worked at LG in Korea, most recently as Executive Vice President of Home Electronics New Products Division. He considers his time there a privilege, as well a tremendous learning experience. Perhaps the biggest takeaway from his time there was that execution is often more important than strategy. “You can always make adjustments as you learn,” he reasons. “But focused execution from an entire company can move markets.”
Prior to LG, Jim spent more than a decade at private equity firm Symphony Technology Group. There, he worked under billionaire Romesh Wadhwani. “It was a privilege to work for Romesh. He is an extremely successful business builder. While my interaction style is different, I picked up many learnings from watching him do what he does for a decade.”
Private equity is based around evaluating a business, identifying ways that value could be added to it, and making an argument to acquire the asset at a specific price. In practice, Jim explains, the evaluation of a business as an asset is always imperfect and there are informational asymmetries a buyer doesn’t know about until after they have made the acquisition.
“What private equity taught me was how to take an asset from point A to B and look at it through the lens of value creation. It’s the mindset that, as a public company, we are all working for the investors. They are essentially our bosses and every time we go to the market, we’re getting a report card.” One of the guiding principles in his early days at the company was to “create alignment of vision between the management team and the investors as a whole”.
The sheer pace of Silicon Valley has also influenced Jim’s later career. The philosophy of ‘run or die’ was imprinted on him during his time at the California-based Symphony Technology Group. “I learned there that if you aren’t making mistakes, then you aren’t running fast enough,” Jim reflects. “I came to see that teams are capable of much more than you think. Take the time it should take to complete the project, then cut it in half.”
Jim also reworked an incentive program that rewarded executives if the company successfully hit predetermined targets on earnings per share. While the incentives were related to the return for investors, it was an indirect relationship. Jim has updated this so that he and his fellow executives receive incentives directly based on whether the investors have had a fruitful year. “Now, there is no daylight between us and the investors,” he says.
Jim also credits his time in private equity with instilling in him a bifocal approach to market value. Firms in that industry generally look to acquire a company, add value to it and resell it over a period of five to seven years. This means it’s necessary to focus on both the mid-term value of the asset and its projected exit value. When Jim communicates his plans for Breville, he foregrounds his focus on the long-term objective of building a billion-dollar business that will be successful on a global scale for years to come rather than just offering a strong return on investment in the coming year.
Management style
Jim has chosen to structure Breville as a fairly flat organisation to tie in with his thinking on management. His approach is to bring in reports who have more expertise than himself in the functions they work on, then to effectively get out of their way. “That is how you get scale and speed,” he says. “Speed comes from empowerment. We’ve got some outstanding talent at Breville and, honestly, it’s a lot of fun to watch them drive our acceleration.”
Considering the success of the transformation, Jim returns to the theme of Australian distinctiveness. A relatively low population combined with high market concentration makes for a workforce where many people have worked across different functions and multiple industries and become generalists with real breadth of experience.
“One of the reasons the transformation has gone so well is the Australian culture. What I have noticed about Australians that fascinates me is how quickly they can absorb the capability of another,” he continues. “They are extremely adaptive. If you insert just one person who knows a special skill, then all the Aussies around that person will absorb that idea and operate as if they had known it all along.”
“What I have noticed about Australians that fascinates me is how quickly they can absorb the capability of another.”
‘The Koala coffee mafia’ Breville CEO Jim Clayton says the company’s achievements in kitchen appliance manufacturing and the Australian culture are inextricably linked. One example of this is Australia’s thriving coffee culture which equates to a customer base that demands excellence and innovation.
Australian barista Paul Bassett has been named the world’s best and has been a seminal figure. He pioneered the move away from the 14-gram coffee shot, previously seen as the gold standard.
Melbourne has been voted the city with the best coffee in the world, beating the traditional Italian strongholds. Australian cafes, dubbed ‘the koala coffee mafia’, have also been influential in New York, introducing the flat white as well as healthier breakfast options.
The future
While other companies have become besotted with the Internet of Things, and wearable technology was once considered the next major growth area in home electronics, Breville is now taking a more measured approach and will avoid technology for technology’s sake. “When I was at LG, I spent a tremendous amount of time with IoT and mostly what you see in that space is a product team proving that they can make a product that is connected. I’ll give you the very Breville answer on our plans for IoT and that is: we will do it if it’s going to improve the performance of our product or enhance the customer experience.”
Jim relates the story of a woman who covered the launch of every new product in this space on her podcast. In one episode, she obtained a high-end lighting system that incorporated connected technology. One day, she came home from work, entered her house, looked in her bag for her phone, turned on the phone, clicked a button to wake it up, swiped up, entered a code, swiped through apps, clicked the lighting app, opened it up, entered another code, swiped to the relevant page and clicked another button.
Finally, the light clicked on. What the company had imagined was the brave new world of connected appliances but in reality it was the world’s most convoluted light switch.
One area the company will focus on, however, is design excellence, which has always been an integral part of its identity. “Design excellence is fundamental to Breville’s DNA,” Jim says. “There are two dimensions of design for us. The obvious one is what the products look like. They should have a premium look and feel and be made with premium materials. The second dimension of design comes down to the fundamental purpose of the company, which is to make our customers lives better and to make it easier for them to achieve exceptional results.”
The company has received more than 80 international awards for its design feats. Most recently it scooped the coveted 2018 Design Team of the Year award at the Good Design Awards. At the 2017 awards, its smoking gun, which can be used to flavour meals and cocktails, was described as a “brilliant little product that is a pure joy to use”. It also picked up a Red Dot Award for its top-of-the-line Oracle Touch espresso machine, with the judges commending the machine for “making operation simple, and at the same time, offering deep insights into the process of preparation”. Its Creatista Plus espresso machine claimed the ‘Best of the Best’ award in 2017 for its sleek look and its intuitive interface, which allows users to create barista-quality coffee at home.
Similarly, the aesthetics of the products are often mentioned in the more than 7,000 five-star reviews the products have received online. Many items allow for ease of use along with greater precision, like ‘a bit more’ button on its toaster, allowing users to achieve their preferred toast texture rather than having to put bread back in for a whole new cycle.
The hard work of the transition has been completed and Breville is now ready to go up a level as an international player. It’s been a long journey since Jim’s first impressions of the company at the trade fair, but he has remodelled Breville around the strengths that so astounded him back then. “I saw a diamond in the rough where they were really good at making product. They had that special sauce of being able to innovate across category. That’s a company you can scale to something that can get very, very big.”