Turnarounds
The copy cat
How A.D. Frazier refocused Danka Business Systems on the bottom line
By Brian Horn
Smart Business Tampa Bay | August 2007
When A.D. Frazier was asked to join Danka Business Systems PLC
by some of his friends who served on the company’s board of directors, it sounded like a great opportunity for him. “When you do this
sort of thing and help things turn around or fix things that are broken
for a living and have a chance to do it again, it is a fascinating opportunity,” says Frazier, chairman and CEO of the office imaging systems
supplier. When Frazier joined the company in March 2006, it was having its fair share of difficulties. It had lost money for several quarters,
had debt that needed to be paid down and had a business model that
was focused on the wrong end of the balance sheet.
Though revenue was growing, losses were deepening. A previous
management team had made an ill-fated acquisition of Eastman
Kodak’s global copier business using a lot of debt to finance the deal.
The acquired business was sinking at the time of the deal and continued to decline afterward, dragging Danka down with it.
“Our sales process was focused on revenue and moving and selling
copiers and was not focused on bottom-line profitability,” Frazier
says. “It was important to them that growth and revenue was a measure of success. Whether that was taking their eye off the ball or
whether that was what they set out to do, and they thought the profits would follow, I presume the latter, they didn’t.”
Frazier looked at the numbers and realized he needed to change the
philosophy of how the company operated. The previous management
team focused more on revenue and growth, while Frazier shifted the
focus to profitability, even if it meant reducing revenue.
He refers to a big revenue number that isn’t transferring into profit
as “empty calories.”
“It’s just like when you are on a diet and you are eating something
that doesn’t give you anything but calories,” he says. “That’s what
dieters call things they shouldn’t eat.”
Frazier concluded that to get the company back on track, he was
going to have to create a new vision for the company that was focused
on profits, change the culture to execute that vision and pay down the
debt load that was holding the company back.
Listen to your employees
In his first few months at Danka, Frazier developed a vision around
what the company was capable of, and he broke it down into three different parts: Make every customer a reference, reduce the opportunity for errors and meet established targets.
Along with using his own experience, Frazier developed the vision
through working with the people at the company. By talking to the
leadership and the employees, he was able to create buy-in for the
vision.
“It’s amazing how much you can find out if you just ask people what
is going on,” he says.
By listening to people, Frazier found he didn’t run into too many
resisters when he was forming his plan.
“I went on the road,” he says. “I think I had over 25 town-hall meetings all over the country with our people and listened to what they had
to say and told them what we were trying to get done. They generally
were pulling on the same oar as I am. They seemed to be pretty willing to do what I asked them to do.”
Frazier says he doesn’t have any secret formula to why he didn’t face
any resisters when talking about some of the ideas he wanted to
implement. He simply told them he was there to help the company and
focused on doing so.
“I told them when I came here that I really didn’t need to work, and
I was here to help them be successful,” he says. “The only interest I
had is to help them be successful. I’m not trying to get in here to make
a quick buck and get out, and they are left holding the bag. I don’t have
an out package and would have refused it, if it would have been
offered.”
He took a pay cut in May to back up his claim.
Even if some employees would have resisted, Frazier says forcing
someone down a path they don’t want to go is an unwise move for
everyone involved.
“I never felt like I had to force anybody to any conclusion,” he says.
“We’d lay out the facts. ‘This is what we are thinking about doing.’ If
they bought in, they bought in. I didn’t have to browbeat them. If your
ideas aren’t worthy, then people shouldn’t follow them. If they are
worthy, then you don’t have to beat them into submission in order to
get them adopted.”
Frazier says it’s important to get buy-in on your vision and to make
sure that vision is consistent.
“I’ve been around managing some part of business for almost 40
years,” he says. “But the thing I’ve learned over this period of time is
most managers who get fired, get fired from within. They are fired
because their people lost confidence in them or didn’t have confidence in them. They behaved in a fashion inconsistent with what they
said.”
Frazier says employees are expecting their leadership to present
them with thoughts, themes, ideas, plans and initiatives that resonate
with them personally.
Leaders also need to find out what their employees are capable of
doing individually, and what the company is capable of as a whole.
“You can almost guarantee certain failure unless you shape your
plans around what the company can do,” he says. “You can make all
the promises to the street or to the board or to the shareholders you
want to, but you’ll fail because the people you got can’t deliver.”
Once again, Frazier took a simple action to find out what the company’s employees were capable of doing.
“I went around and asked,” he says. “I listened to them, read their
body language, listened to the words they said, had meetings after
meetings after meetings with the key staff and key direct reports and
others who had a lot to say about the things they thought had not
worked so well in the past.
“It sounds so hard. But, for goodness sake, if you just check your ego
at the door, and start by hearing what somebody else has to say and
see what you can learn from that, then it doesn’t take long to separate
the fly poop from the pepper.”
Frazier says from there, you must take demonstrative actions based
on what you’ve heard.
“That is what is frequently referred to as walking the walk as well as
talking the talk,” he says.
Build a supportive culture
Frazier says the company’s culture was in desperate shape
because of the mixed messages being given by management.
“There were too many senior people at the head office giving
orders, and sometimes the orders conflicted one with the other so
people weren’t sure whether to shoot gophers or rattlesnakes,” he
says.
One way Frazier gave clarity and improved the culture was
renaming the head office in St. Petersburg the “field support
office.”
“They are working here to support the people out in the field,” he
says. “The fact that their office is in St. Petersburg gives them no
higher knowledge about the business. In fact, they probably have
less high knowledge about the business than the people closer to
the customers. So, just as a small thing, I said, ‘Your job is to help
the people out in the field be successful. If you don’t have a job
doing that, then get one because that is the only kind of jobs we
have here.’”
Besides reorienting the attitude of the corporate office, Frazier
also changed the culture by recognizing people who made an
impact at the company.
“What I did ask the board for and got was the authority to give
away stock,” he says. “I wanted to be able to give stock awards on
the spot to anyone I felt went above and beyond the call of duty at
their job. We’ve given close to 100 of those awards in the past year,
and people seem to react very positively toward them.
“It’s not much. It’s only 125 shares. The stock is only worth a
buck so we are not talking about a great deal of money. I thought
it symbolized the right values because the employees are working
for the shareholder, and I wanted them to be a shareholder. Also, I
wanted them to have an interest in stock evaluation and have a
sense that they had a dog in the fight when it comes to running this
place.”
He says putting the culture back on track by giving employees a
clear direction and recognizing them helps keep the company in a
stable position.
“As long as you stay in touch with your people and do what you
say you are going to do, things tend to stay on a pretty even keel,”
he says. “The minute you start saying one thing and doing another,
you get into real trouble and probably should.”
Know your assets
Besides redirecting Danka’s people, Frazier also had to deal with
the company’s financial problems.
In order to pay off debt, Frazier had to organize a process for selling Danka’s profitable European business.
“You have to pay your money when it comes due,” he says. “It’s
not a choice. So, the question is, where are you going to pay it?
Either you earn it and pay it back out of earnings or you sell something and pay it back.”
The company went back and started talking to the people who
expressed an interest in the European division as a whole or those
who wanted to buy parts of it. As it turns out, there was a lot of
interest in people buying parts of it, but in the end, Ricoh Europe
B.V. ended up purchasing it as a whole in early 2007.
“It was the only thing left that we had to sell,” he says. “I didn’t
want to sell it. I didn’t have any choice but to sell it because it was
the only asset that people were interested in buying.”
The move has dramatically changed the scale of the company.
Before the sale, Danka had slightly more than $1 billion in revenue. Now it’s about $450 million, and the employee head count
went from 4,000 to 2,000. But the move allowed the company to
pay off and refinance its debt, dropping the debt burden from
$254 million to $120 million, and reducing interest expenses from
$29 million to $13 million annually. The company also reduced its
net loss from $85 million in 2006 to $29 million in 2007.
Frazier says coming to terms with having to sell a profitable portion of the company wasn’t just a matter of doing it. It was a matter of looking to the future and deciding what was best for the
company down the line.
“Nothing is simple,” he says. “In retrospect, sometimes things look
simple that, in the course of undertaking them, weren’t simple at all.
The need to sell something was either sell something in the United
States or sell something in Europe. We had a better-developed business system in Europe with more clearly established market positions and a better structure. So, I thought it would have been easier
to sell, and it was, than in the U.S. where we had to rebuild the structure, put new leadership in a number of places and hire a bunch of
people.
“So, we had more work to do on this one; although, I felt like
from my standpoint, the U.S. business had greater long-term
potential. So, if we fixed it, it would be good to keep it as opposed
to fixing it and selling it.”
HOW TO REACH: Danka Business Systems PLC, (727) 622-2100 or www.danka.com
