Interface’s Evergreen Services Agreement
Problem Statement: Dan Hendrix, president and CEO of Interface, Inc. is challenged with deciding the future of Interface’s Evergreen Services Agreement (ESA) business model. This decision will impact Ray Anderson’s vision to create an environmentally stable enterprise.
Objectives/Goals: (Financials / Ecological) • Uphold ESA’s business model concept • Maintain ecological balance using the ESA’s seven goal plan to achieve a sustainable enterprise • Become Profitable – Increasing net income by 3% in 5 years
After using common troubleshooting diagrams and performing a root cause analysis, various reasons have been identified as to
…show more content…
The original lease was three pages which transitioned into one page. This was a beneficial tactic. ESA’s lease is for 7 years which would work for some businesses but not all. The lease terms should have been more flexible. The length of the lease is simply not appealing to consumers. ESA had tailored the lease to fit the needs of their customers, however in the end, the length still posed as a problem. Obligations of FASB classifications placed constraints on the term of ESA’s lease to a maximum of 7 years. In order to sell ESA as an operating lease, they are obligated to a term of 75% of the estimated life of the product. Interface made a good decision to revise their original lease agreement to satisfy customer needs. Amending their previous lease required that they broaden their warranty to 10 years allowing for a maximum of 7 years on ESA lease term. Interface is not obligated to adhere to a 10 year warranty. Allowing for more flexibility, Interface could again “broaden” their warranty to 13 years, allowing for a 10 year lease term. Even if their true warranty of the product is 10 years, the term of the lease would expire at the same time. A common overlooked problem pertaining to the lack of flexibility with the lease is, perhaps, a company wants to relocate or goes out of business before their lease agreement is up.