How Tom Swidarski shifted $100 million in costs to Diebold's bottom line Featured

8:59pm EDT April 30, 2011
How Tom Swidarski shifted $100 million in costs to Diebold's bottom line

Tom Swidarski may not be a secret service agent, a bouncer at a night club or a front desk manager at a high-profile office building, but as president and CEO of Diebold Inc., his job’s focus is similar to all three — security.

On one hand, Swidarski’s job is to supply security solutions for his customers, which include financial institutions, government operations and commercial businesses across 600 worldwide locations. However, in addition to handling security for customers, Swidarski is also responsible for ensuring the security of Diebold’s 150-year-old legacy, a part of his job that presents its very own set of challenges.

When Swidarski became president of Diebold in 2005, he was tasked with the weighty challenge of eliminating $100 million of cost out of the company over three years — a program dubbed the “SmartBusiness 100.”

“We weren’t sure exactly how we were going to do that,” he says. “But we said, ‘Hey, Charles Diebold probably had ‘SmartBusiness 1.’ He got the first dollar out. It’s our job to get the $100 million.’”

Building a profitable business is a matter of controlling costs as much as it is generating revenue, and amid the global economic slump, Diebold’s SmartBusiness cost-savings initiatives have been a key part of increasing Diebold’s profitability and securing its position in the competitive global landscape.

Since 2005, Swidarski has not only led Diebold to achieve the SmartBusiness 100; but in the last year, the company has already launched SmartBusiness 300, and begun its third $100 million tranche of cost reduction. The company’s shares rose 18 percent last year, with fourth quarter revenue increasing nine percent to $791 million.

“Hopefully, the economy turns and things move in the right direction, but in all of our businesses, you can control the cost side of the equation,” Swidarski says. “You can’t control the revenue side — so it’s making sure that we have a good understanding of the cost side.”

Get the info

One way to better understand the cost of your business is to utilize your information-gathering and research tools. By having focused research to use in your company’s strategic planning, you’ll know where resources are most needed for your business to become faster, more nimble and more cost-effective, whether that’s in setting up new operations or proactively adjusting value points with spending to meet changing customer needs.

Before you decide how to allocate your company’s physical and financial resources, you have to make sure information about your customers, industry, competitors and so on, is collected and evaluated similarly throughout your organization. In Diebold’s case, Swidarski added paperwork for all of his global market managers to analyze industry activity in detail.

“What we tried to put in place was a similar process that we could use across the board in terms of the evaluation,” he says. “Then we put it incumbent upon each of the country managers to fill out the documents and forms. At first, people looked at is as, ‘I’m filling out documents and forms.’… Now they understand that to get the R&D effort that we need for a place like Thailand, we need to know the specifics and granularity of the competitive landscape there and how that differs from Brazil, because they are different competitors. To get a group of diverse people across 90 countries focused on the priorities, everybody has to understand the endpoint. So collecting that information became very important.”

Implementing new information-gathering procedures in your business is sometimes necessary to ensure you have all the knowledge needed to make financial decisions.

For example, Swidarski recognized that Diebold could better plan for global operations by moving its $70 million per year R&D — previously based in the United States — out to its top revenue-generating countries and develop micro-market plans to map out each market’s strategy.

“In those micro-market plans, we know exactly what gaps we have, what technology from a software-hardware service standpoint and what we need to do to create competitive advantage,” Swidarski says. “Those countries — they drive about 80 percent of our total revenue — so [there is] very focused effort there.”

Having focused research for specific markets also helps Diebold identify which markets need new capabilities and which could be served by the company’s existing technology.

“Other countries may fall out that are going to use the technology we develop for a China or a Brazil or a United States or a France,” Swidarski says. “So though we may not develop something specific for a smaller country in Europe, we still have the technology that we developed that may be specialized for France that we can use there. That helps us hone our resources not only on the front end but on the back end.”

Look at the big picture

Another way businesses can learn to be more cost-effective is by changing the way they analyze their operations. There are many different parties and steps involved in operational processes such as product design or engineering, so it’s difficult to gauge how cutting costs in one area might affect another. To understand where costs can be streamlined, you need to look at entire processes as whole, complete puzzles instead of as their separate pieces.

“You may make a module less expensive, but then you have to service it out in the field,” Swidarski says. “So for us, it’s looking at all aspects of it and the intelligence you want to build in the module that may give you savings on the backend. That is even more important than saving $2 on the front end if you are going to save $5 or $10 on the backend by having a sensor that helps you have reduced inventory.

“Probably some of our biggest innovations come from our treasury. Our day sales outstanding in the United States have dropped from 60 and 75 days to about 30 days because of process improvements with less people. That’s really where we get the biggest gain. How do we handle everyday processes and look at them wholistically, rather than ‘my little piece of it.’ When you look at an order-to-cash process, where are the areas of ways you call pull out of that? And through that, you get cost savings, as well. We need to do that based on the competitive environment that we are in.”

By looking at the big picture, you’ll have a better sense of how different parts of a process interact and affect one other and, therefore, recognizing how to trim, alter or consolidate costs in one or more areas without sacrificing quality in others.

“There’s more to come out from a process-improvement standpoint than there is from working with suppliers and saying, ‘I want that for 3 cents versus 4 cents,’” Swidarski says. “That gets you a little bit. But it doesn’t change the process.

“It’s not only the design aspect of what’s needed in the marketplace; it’s what are the other aspects of what that device is doing and the connective tissue of it as to what the total cost is and how we attack that wholistically. So we’ve brought our engineers from our service organizations in earlier. We brought manufacturing into design. We brought software in and where we use to test serially, we now test entire pieces wholistically. It really has made a tremendous difference.”

Recognize your value points

You can’t have a good understanding of cost if your strategic analysis doesn’t take into account how the value points that your customers are choosing constantly change. So lastly, to understand the cost side of your business, you need to follow your value points.

The real value a business brings to its customers is shaped and changed based on the competitive landscape. Swidarski sees that more and more of the value Diebold provides customers today is in the service side of its products such as ATMs; so he’s led Diebold’s transition into services-focused organization rather than a manufacturing one.

“The way I view it is: If someone defines you as a manufacturer, you may or may not be,” Swidarski says. “That may be a little part of what your value is. … In our case, if you use a simple device like an ATM, the knowledge of how that needs to be incorporated within an environment is much more important — the software associated with that, the intelligence you can put on that to make it more valuable, the ability to self-heal a remote device. So as we look at it, manufacturing may be a phase that 10 or 15 years down the road, doesn’t have to be something that we absolutely do. Now, today, we do that, but I wanted to make sure that the value points, that the bank that my customer’s choosing, I recognize what those value points are.

“There’s 80 percent that’s spent on managing an ATM that has nothing to do with how much that hardware costs. It’s that 80 percent that has the services that have the greatest value that we spend a lot of time focusing on.”

The point is, you don’t want to define your value it in a way that may not be relevant for your customers changing needs and interests.

“When I met with the first CEO from one of the biggest banks in India, he said to me, ‘You know, your ATM costs four times what it costs for me to buy a car,’ and I said, ‘Well, my ATM’s about 40 times more reliable than your car,’” Swidarski says. “The point is, as you deal with different folks from a different perspective, there are different issues that are the most important issues in their decision process. Having something over-engineered and developed from very sophisticated U.S. folks may not make it to the marketplace because the price points might be wrong.”

When you better understand the cost of doing business, you don’t just learn what strategies are needed to save money and be more efficient. You also learn you can focus your financial resources where they can have the most impact, so as your customers value points change, your business can adapt and grow to meet them.

“It’s in viewing the value chain and how you fit in,” Swidarski says. “Not limiting our thought process in that regard has allowed us to move the value points and allows us to generate over half our revenues from recurring revenue.”

“Now we are about managing high value of networks, creating and managing complex networks. That’s really what we do. It happens to be an ATM today. It happens to be security devices. But in the future it can be anything.”

How to reach: Diebold Inc., (330) 490-4000 or www.diebold.com

The Swidarski File

Tom Swidarski

President and CEO

Diebold Inc.

Born: Pittsburgh

Education: Bachelor’s degree in marketing and management at the University of Dayton; master’s degree in business management from Cleveland State University

What is a typical week in the life of Tom Swidarski when you are not in the office?

Quite a bit of my time — maybe 40 or 50 percent — is spent traveling. And a lot of that is international. That’s really for me to get in front of customers as well as our associates and understand and make sure that we’re meeting customer needs and where we have holes or gaps and making sure that the information we’re getting in. It’s important for customers, especially larger customers that are maybe spending $100 million or $150 million with you, that they see the CEO and that he’s committed to it. So China is important in that regard. Brazil is important in that regard. For me, it’s also important to not only go see them but also to view our operations, to sit with our top team as well as always spend time with our folks internally.

How do you get employees to buy in to your vision?

If you can demonstrate in the deepest, darkest hours the humanity of making tough calls and doing it appropriately, that really helps people buy in to the vision of what you are trying to accomplish, regardless of how good you are at communicating. Regardless of how good your vision is and how fancy it is, it comes down to do people trust you. For me, that’s what it’s about.