How do you institute a major transformation at a company that has historically been resistant or slow to change? This is the quandary that the leaders of Graybar, the $5.2 billion wholesale distributor of electrical and communication/data equipment, have been grappling with for the last few years. Today, the company seems to be well on its way to successfully solving the puzzle.

Graybar, an employee-owned company since 1929, values its heritage and has a culture that some might characterize as old- fashioned or traditional. Its sprawling network of branch warehouses has for many years been closely controlled by local managers who highly value their autonomy. As the technology boom materialized in the late 1990s, Graybar found that its local distribution branches were ill equipped to meet the delivery speed and simplicity that customers were demanding. Order completion sometimes took up to a week, and delivery occasionally came from multiple locations.

To alleviate the situation, Carl L Hall, then CEO and now chairman, hatched a plan to create 16 large regional zone warehouses with the goal of using these to replenish branch inventories and offer next-day delivery services to customers. The tricky part was implementing this new system while being sensitive to the existing distribution network and the independence that the local bosses cherished. Leadership decided that the solution was to allow this new regional structure to coexist with the local configuration.

In 2000, due to health reasons, Hall stepped down as president and CEO. Succeeding him was Robert Reynolds Jr, a 28-year, second-generation Graybar veteran who began his career working in the company's warehouse. When Reynolds took over the reigns, he was charged with overseeing the rollout of the dual-distribution system. Conscious of not upsetting the existing arrangement, Reynolds gave local managers the freedom to decide what their customers needed and how much inventory to maintain on-hand.

The decision has proved fruitful. Local warehouse managers have come to the realization that they can rely more and more on the regional zone warehouses to handle large and uncommon orders. Graybar has thus seen a drop in inventory levels even as sales grew 21 percent in 2000. As of July, the company had opened 10 of the 16 regional facilities and planned to complete the remaining six by mid-2002. Though in the short run, the cost of getting the zones up and running has been high, Reynolds is optimistic that the investment will begin seeing significant payoff within five years.

Reynolds also has seen to it that another strategic objective championed by Hall is carried out—that of making customer service a top priority. Two recently instituted programs illustrate this point.

The company set up Graybar Technology Solutions (GTS) in order to help telecommunications service providers get to market faster and at a lower cost. Going beyond just providing product through logistics and distribution services, GTS offers technical design and support from a technology team made up of Graybar's own experts as well as key people at the company's sales representatives and suppliers. "GTS combines its knowledge of Graybar's key manufacturers with world-class distribution services to help customers increase their revenues, reduce their costs, and speed their time-to-market," says Bill Mansfield, Graybar's director for the service -provider market.

Next is the VIP (verified independently for performance) program, which Graybar devised to offer its customers independent third-party testing of cable-system channel performance. Intertek Testing Services randomly samples Graybar's products to verify that they perform at required levels. As a result, customers can have greater peace of mind that they are getting what they need out of a purchase.

Reynolds is able to adhere to a long-term vision primarily because he and Graybar executives have to answer only to employee shareholders and not a market concerned with meeting short-range numbers. It's a luxury that managers at most companies of Graybar's size don't have. This ownership arrangement has the added benefit of creating a special type of employee—one that is more likely to be devoted to the company and share responsibility for its performance. Any leader would have a tough time imagining a better kind of worker to command.