When Stephan Liozu came to ARDEX Americas three years ago as president and CEO, he was given a big, fancy, corner executive office. Nowadays, he doesn’t use it. As the global leader for strategic innovation, he decided that his big office could be put to better use. The executive office got a complete overhaul and now goes by the name of Innovation Station.
“I felt that we needed to have a space in the business to really promote that innovation by discovery,” Liozu says. “You cannot do that in a dead-boring conference room sitting on leather chairs. You have to do that in a space that is colorful.”
The manufacturer of building materials has 260 employees in Pittsburgh and 1,850 worldwide and is known as an industry leader in innovation. Liozu, who has a master’s degree in innovation management and is halfway through a doctorate in innovation, wasn’t satisfied with that status, so he opened a competition for the new name of his former office to help further the company’s innovation.
“[In April,] I decided to leave my executive office, and we created — in a big space that was not very useful to the company — we created an innovation station,” Liozu says. “This is a creative space where we have a special paint on the wall that you can write on, we have foosball, basketball, music and people go in there and brainstorm and they just create ideas. We have nice paintings of Einstein’s head on the wall, there are red chairs, there is a lava lamp, and there are tools and small tables, but we want people to move. We want people to dance, we want people to just create and play basketball. As they do this they are emotionally connected to the team there and to the process of, ‘OK, there is no barrier, there is no hierarchy, there is no corporate logo, it is just a space where I can freely express myself.’ I felt we needed this to be able to go to the next step of our creativity potential.”
It is through initiatives like the Innovation Station that Liozu works to improve the ways the organization becomes a better company all around. Here’s how he focuses on innovation throughout the business.
Always be innovating
More and more, the name of the game is to constantly reinvent your company, constantly bring new technologies to the market and stay one step ahead of the competition. To do this, you must look to innovate in every opportunity.
“Companies most of the time innovate because they are forced to,” Liozu says. “Maybe there is a disruption happening in the market or there is a competitor that is making things more challenging and your costs are going through the roof. You constantly have to disrupt your organization, and you have to create some gaps and reinvent yourself through innovation, whether you face a crisis or whether you’re very successful. That’s the best time to be investing in innovation is when you’re successful, not waiting for the crisis to come.”
Too often, companies wait for the market to offer opportunities or necessary times when innovation and change must occur. You have to get your company to look for innovation when things are normal in the market.
“It’s a little bit of a challenge that I’m trying to change the culture to be not reactive to events in the market but to be more proactively innovating whether we need it or not,” Liozu says. “It’s that constant change in innovation and disrupting the organization and introducing new technology when customers weren’t expecting it. It’s challenging because you have to bring your whole organization on board and you have to convince them that everything is going fine. But imagine five years from now, there’s going to be a crisis, you’re going through cycles, you have ups and downs, so eventually there is going to be a crisis. Let’s not stay still; let’s project ourselves and find out how we can avoid the crisis and make the changes now but control the changes. It’s what we call a revolutionary change management. You create your own mini-revolutions and not wait for the markets to dictate when you have to change.”
To get your company to adapt to a new way of looking at innovation, you need to start with the leadership.
“First of all, you need creative leadership,” he says. “You need a lot of creativity, and you need to embrace creativity. You need to promote it and let people give you ideas. So there is a lot of ideation process and ideation culture you have to introduce — brainstorming sessions, discussions with customers or customer observations. You have to constantly be scanning the market, opening your ears and listening.
“The second thing is you really have to embrace complexity. The world has become more complex, and you have to leverage that complexity by bringing in solutions that are simple but innovative. The best companies that are succeeding right now are the ones that really understand the complexity, capture the opportunities that come from complexity and fully leverage them. You do this through innovation and creating systems, creating solutions and creating ventures.”
In order to constantly innovate, you need to look for opportunities through design and discovery within your organization.
“You have to do a little bit of both innovation by design and innovation by discovery,” he says. “You really have to constantly be redesigning the organization internally to match the customer voice and match the trends that are coming — being able to design things very well — designing systems, designing solutions, designing approaches, but at the same time, put yourself in discovery mode. You know what you know, but you don’t know what you don’t know. You have to go out there and try to discover new things, so you need both design and discovery in the innovation process.”
Innovating on a year-round basis can be disruptive and a challenge to get used to for companies that follow a routine. You have to be willing to embrace disruption.
“I call myself an agent of disruption,” Liozu says. “One of my favorite sayings is, ‘When you are at peace, prepare for war and vice versa.’ You have to constantly challenge yourself to look at where you are going 10 years from now. Everything may be fine right now, but how do we already work on technologies that may not be needed now but may be needed five years from now? It’s really avoiding the ups and downs, avoiding the reaction, be more productive and systematic in your innovation approach and invest in the right programs. It comes back to constantly reinventing yourself and your value proposition.”
Be serious about innovation
Reinventing yourself and how you do business can be very beneficial, but you need to measure your progress in innovation and invest in it for it to truly be successful.
“We just measured our innovation culture worldwide,” Liozu says. “We just did a very unique survey to measure innovation culture, which is fascinating, and we are learning quite a bit. We developed an innovation cockpit with key performance indicators that we have in there — number of new products created, number of ideas in the bank, etc. We measured things like market orientation, willingness to take risks, importance to customer, voice of the customer and the questionnaire was about 12 minutes with a list of items that you have to agree or disagree with, and you have to respond to those truthfully.”
Having a system in place to measure your progress in innovation will help your company continue to improve. You have to come up with key indicators that you measure on a regular basis.
“You definitely want to have key performance indicators just on innovation,” he says. “Those are very important, and you want to measure those every six months. That way you have annual measurements to say whether you are making progress or not making progress. The numbers speak for themselves, and you can’t hide anything from the numbers. If you really want to change the culture, measuring it is the best way to do so.”
Measuring is just one aspect of staying on top of innovation progress. You have to be willing to make a full commitment to it and designate the necessary resources to it.
“Another key measurement is the investments you’re going to make and these investments have to be made,” Liozu says. “A lot of companies decide to innovate and be more innovative and give them $2 to do it. You need funds, you need investments, you need obviously the payback for it, but you have to show sustainable investments. It’s not short term. You may introduce one or two products from a short-term brainstorming, but at the end of the day, if you want to do that consistently, systematically at the corporate level, globally and locally, you need the right people, the right process and the right investments to do it.”
Part of those investments in innovation is training your staff on better processes and the tools necessary to be on the cutting edge.
“If you’re really serious about innovation, you create dedicated resources to people who are trained in innovation,” he says. “You cannot improvise. If you really study innovation, you really study the tools to innovate, the processes, how to do this, how to do that, how to measure. You cannot just take a guy who has been in marketing and say, ‘Now you’re the innovation manager.’ You have to send that person to a class or to a course. You have to train your people on that.”
Innovate the whole business
Innovation is a complete improvement process of everything you do. It isn’t enough to just look at ways to innovate your products. You need to take a deep look at everything within your organization.
“That’s why you need the culture,” Liozu says. “You need the climate and the culture. You need to communicate a lot and remind people of innovation day in and day out. You have to be serious at multiple levels. One is the infrastructure. Secondly, you have to give them the culture and the climate to be able to share their ideas. And then you have to do something with these ideas. So once you get the ideas, you have to reward the best ones and then work on them and launch them.”
A lot of companies want to appear innovative and will ask for ideas, but then just sit on them.
“That’s the best way to really demotivate people to share that with you,” he says. “You have to execute on these ideas. That’s the way you reach all the way to the front-line people from the top throughout the organization to get people onboard. If you do that, people will know that you are serious. You tell them it’s not just product innovation, its process. How can I do my job better? How can I service my customers better? How can I do this XYZ? How can I cut costs? You have to encourage everybody to share their ideas.”
To get your employee’s creative juices flowing, you have to give them a culture that encourages them to think about new ideas.
“You need to give people a place to be free from the routine and regular noise associated with the business and they will be able to come up with ideas,” Liozu says. “The No. 1 thing is you need to create a culture. You need a culture and a climate that embraces that message that we are going to change for the best. Within that culture, you need to bring in a lot of time that will allow people to brainstorm, and they have the will to brainstorm because they understand why. You allow people to fail, and you celebrate the failures and understand why you failed and you learn from that and do better next time.”
A culture that supports innovation is crucial to developing those processes into your company’s daily fabric, but you also need someone to lead that charge.
“Obviously, you need a champion,” he says. “At the end of the day, every business manager, every CEO and president, should be acting and leading as a chief innovation officer. Because fundamentally if you can do that constantly and if you’re willing to reinvent your business proposition — the value you bring to the market — it has to come from the top office, otherwise change is not going to happen. Some people are too risk averse and some companies are too risk averse and it paralyzes the creative potential of their people. You need the top guys to be the champion of change or the champion of innovation.”
HOW TO REACH: ARDEX Americas, (724) 203-5000 or www.ardex.com/default.asp
The Liozu File
President and CEO
Born: France, became a U.S. citizen in 2009. He has lived in seven different countries.
Education: MBA in marketing from Cleveland State University; master’s degree in innovation management, University of Toulouse. He is trilingual, speaking French, English and Spanish. He also knows a little Italian and Portuguese.
What was your first job, and what did you learn from that experience?
My very first job was when I was 15 and I was selling doughnuts on the beach at Med Sea Resorts in Argeles-sur-Mer. It was brutal. The sun was brutal, and I had competition on the beach. I had six guys selling doughnuts next to me. It really taught me to be resilient and to go out there and try to find a way to differentiate.
What is the best business advice that you’ve ever received?
I get a lot of my advice from books, because I do quite a bit of reading. The one piece of advice I really like is when you have peace prepare for war and vice versa. That is from ‘The Art of War.’ When you’re in business, you really have to constantly be ready for the next round. This is what I really focus on.
What was your favorite name for the Innovation Station?
I liked the Creative Space or ARDEX Innovation Center, but I didn’t win.
If you could do something dangerous without any consequences, what would you do and why?
I would go into space and look at the Earth from up there. The universe is a beautiful design and it makes you wonder how all of this is just suspended. We are in this universe and I would like to see it closer. It’s fascinating to me how we are here on a planet among other planets in the universe that we barely know.
Sue Burnett, founder and president of Burnett Staffing Specialists, had never heard of a staffing firm doing an employee stock ownership plan until a friend told her about a staffing firm in Missouri that decided to do one. Intrigued by the news, Burnett investigated the possibilities for her and her husband, Rusty, who serves as CFO and executive vice president, to do an ESOP in their company.
“We thought that this was something that might be an option for us,” Burnett says. “Rusty and I really have no plans to retire, and we weren’t looking for an exit strategy because we weren’t ready to exit. At the same time, Rusty turns 70 this year and I turn 65, so our staff — particularly our younger staff — were wondering what is the future of the company.”
Burnett thought an ESOP was the perfect situation, because she didn’t have to leave the company or retire. It was a way to give back to the people who helped her build the $64 million company.
Smart Business spoke to Burnett about what went into her ESOP decision.
What are some of the advantages of doing an ESOP?
I think that the advantage of it is that now my staff knows what the future of the company will be. I think there was a feeling of relief that we were not going to sell the company No. 1, and that No. 2, we were going to continue on with the company. It gave my management staff a real vision to be able to see into the future that they will be able to run the company without us. With a management staff that’s young, it made them feel like there was really something to work toward, because they are now owners of the company. It is definitely a long-term way to retain staff and particularly management staff.
For me personally, it was a tremendous feeling of relief from the standpoint that now I know that the company is in good hands. The people that helped build it will be the leaders of the future for it and I can stay for as long as I want. It was a way for me to ensure that the company will continue into the future and my staff won’t be worried about what is going to be happening.
Are there any disadvantages?
From an employee standpoint, there’s nothing but positives. They are being given stock, and it’s free. It’s a retirement situation for them. As the company continues on into the future for all of these people who are fairly young, when they retire, if the company is still in business or if the company is sold, whatever happens, their stock will be worth a lot of money. There is no downside for the employee whatsoever. ESOPs have shown growth faster than normal companies because the employees become very committed and excited that they have ownership in the company.
Why would other CEOs want an ESOP?
I do think that for the owners, it’s a wonderful exit strategy, but they have to look at it as a long-term exit strategy. If you want to just sell the company and leave, then that would not be the best thing to do. In our case, it will take about seven years or so to allocate the stock, and we will certainly be involved during that period of time. There have been some ESOPs that I’ve heard about where the owners basically did the ESOP and then left. That was not as successful, because the management team could not keep the success going and the owners didn’t get paid off.
How can you tell whether an ESOP is right?
It is an expensive thing to do because there is a cost. You need to make sure that you’re willing to take on that cost. There are a lot of attorneys involved and a team of people that work on it. You have to have the financial ability to be able to do the ESOP. Also, you have to recognize that the money of the ESOP really just comes from the profits of the company.
I think that if you’re too young and you want to continue to own the company, you shouldn’t consider it. I see the ESOP as more of an exit strategy for people who want to transfer ownership and perhaps stay involved in the company but maybe not for 20 years. The ESOP decision is an owner’s decision.
HOW TO REACH: Burnett Staffing Specialists, (713) 977-4777 or www.burnettstaffing.com
When Stacey Gillman Wimbish was named president of The Gillman Cos. in 2008, she didn’t have much time to enjoy being named to her new position. She took over right at the height of the economic recession, and in just one day in November, she had to let go of 150 of the company’s then 900 employees. The recession’s full force had fallen on the automotive industry. The Big Three, Ford, GM and Chrysler, were all in financial trouble and that meant that dealerships would suffer, too.
“That’s what faced us during the recession and our reaction was to cut expenses, and that meant employee count, and it was really, really hard rebuilding,” Gillman Wimbish says. “There was nothing we could do about it.”
Although it seemed like nothing was going right in the auto industry, Gillman Wimbish remained focused and rallied her employees to adapt to changes in order to push forward and leave the past in the past.
The $500 million 760-employee owner and operator of 14 car dealerships has had to fight through unprecedented recessionary times as well as inventory setbacks due to the earthquake and tsunami that hit Japan earlier this year.
Here’s how Gillman Wimbish pushed through the recession and an uncertain industry to keep The Gillman Cos. performing as one of the top car dealerships in Texas.
Brace for change
To say the condition of the auto industry wasn’t good in 2008 and 2009 is an understatement. The industry was severely underperforming and the companies at the forefront were in the midst of federal bailouts. In an industry that is hot one minute and cold the next, you have to be ready for change.
“During the recession here in Texas, we had two direct-hit hurricanes on our business, we had $4 gas, at least 70 to 80 percent of all customers financed their cars and lenders stopped lending,” Gillman Wimbish says. “General Motors went bankrupt, and we have two General Motors stores. Pontiac dissolved. Dealers were getting letters in the mail saying we’re not going to renew your sales and service agreements. Thankfully, Gillman didn’t get one of those letters, but it was a very high-stress time.”
When chaos is happening all around you, you have to have a plan ready to move forward and be able to communicate that plan throughout your organization.
“Today, we say, ‘Let’s work; don’t worry,’” she says. “These times demand change. You have change whether it’s natural disasters or poor economic conditions or internal management restructuring; change is hard on your employees. The best way to approach it is to have a plan. You can make mistakes along the way but have a plan [and] communicate the plan: ‘This is what we’re going to do to get through this.’ Lay out expectations and be consistent with your message. Make sure you stay the course and don’t bounce around with your plan. If you can do that, then the best part is at the end when you can thank your team for making it through.”
A plan is only good if it accomplishes the goals you have set to achieve. Make sure that what you plan to do can be measured and improved upon year after year.
“It’s always best to keep it simple,” she says. “Whatever you decide to do, whatever plan you come up with, you have to make sure you measure it so you can tell if the plan is working. When you ask folks to change their routine, it is a matter of presenting your plan and training them on how you want it done, defining expectations and then constantly measuring. My weapon of choice is hard facts. We measure ourselves against everything — against other car dealers, other name plates and, of course, fierce and fun internal rankings. If you can measure it, then you can improve it. That’s how you can monitor what changes you’re trying to instill.”
Change is an ongoing process that your entire organization has to be on board with in order for your company to be able to ride the fluctuations of an uncertain industry.
“You can never stop changing,” she says. “The times are moving too fast to relax. If it’s not hurricane readiness or economic meltdowns or $4 gas coming back or a tsunami on the other side of the world, you have to react and go faster. You have to have folks that will change. If you have employees too set in their ways, then they need to go. We don’t do anything the old way. Old wisdom serves you well, but new technology will make you better and stronger and faster. You can never stop changing and looking for ways to go faster. At the same time, you have to be able to keep calm and carry on. You have to breathe when these curveballs come up. Don’t lose control and don’t give up.”
Learn from experiences
Over the past year and a half, the auto industry has made a big comeback. However, it wasn’t long until some car dealers had to withstand inventory shortages due to the natural disasters that struck Japan in early 2011.
“In this environment, it’s been very nice to have some diversity,” Gillman Wimbish says of having both domestic and import dealerships. “The recession is over so the most recent challenge has been the tsunami and the earthquake that happened on the other side of the world. The ripple effect is production of these cars and that means that our summer inventories are going to be very low. Instead of selling 1,300 new cars, we’ll probably be down to 1,000. So we’re going to be down 30 percent. Through the first four months of 2011, we’ve been on a post-recession high. It’s been an exciting 25 percent increase over last year, but now we have another setback to last year’s sales levels, and sadly, that’s going to rob us of the best-selling months of the year.”
What The Gillman Cos. endured three years ago will play a big role in how the company gets through any future tough times. Just realizing that change is a crucial part of your business can make adaptation easier.
“We’re not planning to just turn off our marketing or suffer through the lack of sales volume,” she says. “We did that during the recession, but we’re not doing that now. In fact, we’re going to do exactly the opposite. We’re going to press on, and we are going to have to change a little bit and sell both new and used cars. We’re going to provide a clear path, stay the course, and offer a lot of reassurance that the dealership is financially strong, and together, we can handle all these curveballs.”
That mentality in a leader is critical in order to be resilient. However, that mentality has to carry throughout the company in order for employees to know they can help.
“I have a great team at the top, but I can’t do it all,” she says. “If you involve more people and you involve them in your recovery plan, that will help make you more efficient. If you tell your employees and managers the challenges that you’re facing, they can be part of the solution. They will offer to step up and help and that will bring you closer together. When you all pull together, it becomes that much easier to pull through.”
Part of pulling together and getting help from the employees around you is being honest and open with them about what is happening in the company.
“One of the things that we have done really well through these hardships is we disclose,” Gillman Wimbish says. “There are a lot of companies out there that hide a lot of their financial statements. We disclose our financial statements and encourage department managers to dig in and find ways that we can be more efficient. There’s not an account within Gillman Cos. that’s a secret. If you create a culture of, ‘They don’t need to know,’ that’s not using the tools you have at your disposal. You need as many eyeballs helping you as you can or else you’re limiting your success. You’re limiting yourself if you don’t disclose your hardships, successes and challenges.
“You should also tell the truth. Employees get worried and they don’t want to hear what’s happening from the ‘Today Show,’ they’d rather hear it from you. Tell the truth, whether it’s good or bad, don’t cover anything up. It’s important, and it’s actually reassuring to them. I’m amazed at how many team members step up and help us through something because they want to feel like they are part of the solution.”
Look through the customer’s lens
Change is not and cannot be the only way a company gets past tough times. A company has to also look at what it is best at and continue to do that and improve it. For Gillman, that meant customer service.
“You have to look at things through the customer’s lens,” Gillman Wimbish says. “I want to treat every customer as if they were my neighbor. They need to get a quality product that you stand behind, sold with honesty and integrity, follow up after the sale and have sincere appreciation for their business. There is a ton of competition out there and the only thing that sets you apart is the service you provide.”
Gillman not only wants to make new customers, but prides itself on having repeat business. If your company doesn’t emphasize customer service and process improvement, you will lose out to companies that do.
“If you treat everyone as if they were your neighbor that you’re going to see everyday … and your neighbor is happy with you, then they will send you more customers,” she says. “You can’t be hiding behind the bushes trying to avoid things. You need to see your processes and customer touch points through the customer’s eyes. You can always do a much, much better job of this. Have customer touch point meetings within your management. You may think your website is clear and full of all the data that is relevant, but is that what the customer is looking for? You need to do more think tanks about the customers’ needs and wants.”
While putting yourself in the shoes of your customers is a crucial part of improving service, you have to also make sure that employees are enjoying the work that they do.
“Another thing that CEOs have to understand is that employee satisfaction equals customer satisfaction,” she says. “We have 760 employees, and if the one employee that you encounter has a bad attitude that day, then you translate that as a poor reflection on the whole face of Gillman. So you need to sincerely have solid employee satisfaction in order to provide a good reflection and a good impression on your customers. You want your employees to be proud of where they work and you want them to have clear direction in their job and confidence in management. If your employees take pride in where they work, they will perform there jobs with confidence.”
Improving the levels of satisfaction among customers and employees takes measuring and monitoring. Competition is what will let you know whether improvement is needed.
“We love competition,” she says. “We love to win, and we’re not afraid of our results, even if we’re in last place in a certain ranking. I won’t ever hide from that, and through awareness of that and getting my teams input, we’ll climb the ladder and improve. In order to monitor, you have to measure. No matter where you are, if you can measure it and keep the awareness in front of folks, you can improve. Don’t try and do too much all at once. Break it up into pieces.”
Climbing the ranking ladder comes back to the satisfaction of your customers and employees. It has to be your top priority to stay out in front of your competitors.
“It’s a fun, happy environment that you have to try and create, because happy employees will equal happy customers,” she says. “Don’t be afraid to ask the customers. Ask them where they’re having problems or where the clogs are and then try to modify based on that feedback. You may think you have the greatest processes in place. You need to have a few meetings specifically pretending to be a customer and try to gauge how they feel about that. You have to challenge yourself to think through their lens.”
HOW TO REACH: The Gillman Cos., (713) 776-7000 or www.gillmanauto.com
The Gillman Wimbish File
Stacey Gillman Wimbish
The Gillman Cos.
Education: Attended the University of Texas
What is the first car you ever had?
A red 1981 Pontiac Firebird Trans-Am.
If you could choose one car on your lot to drive, what would you choose?
I’m driving a Nissan Armada because it holds kids and dogs.
Who is somebody that you admire in business?
My dad, Ramsay Gillman, and my former boss and former COO, Jay Gould. Both of them allowed me to make a lot of mistakes and learn from them.
Remembering Ramsay Gillman: It is with deep sadness and regret that I must announce the death of Ramsay Gillman, my father and our board chairman. Ramsay died at age 67 at his home on Friday, June 3. We miss his guidance, wisdom, affection and humor. He was an inspiration to me, my brothers and my co-workers.
Ramsay followed his father into the car business starting at Frank Gillman Pontiac GMC in downtown Houston. He grew our company from one dealership to 14 in five different cities across our great state. His vision and determination will be hard to match.
My dad’s strong discipline and customer service excellence has been instilled in our dealerships and will continue to guide us in the future. His principles of honesty and integrity will continue to lead us as we move forward.
One card I received read, ‘We will never be the same as we were before this loss, but we are ever so much better for having had something so great to lose.
Edgar Smith Jr. has more than 25 years of sales and marketing experience with Fortune 500 companies and more than 13 years experience in the commercial printing and paper business. It is through his experience that Smith, founder, chairman and CEO of World Pac Paper LLC, has developed his business.
The nearly $30 million paper company has been thriving because of Smith’s ability to form important business relationships within his industry.
“When I started the company, I wanted to be sure that it was a company that had the foundation to be competitive and the insights into the industry,” Smith says. “It was important that I built the company from the ground up with industry experts. I wanted to combine the best entrepreneurial management with top industry leaders to create a very dynamic company.”
Smart Business spoke to Smith about how he has developed relationships over time to keep his business cemented in the industry.
Look for relationships. It was critically important for me that I had other invested principal executive-level company officers with significant experience, knowledge and expertise within the company management to really assist with the daily operations of a paper business. What I was looking to achieve there was that I wanted to ensure that I had as many paper company mill relationships as I could because I knew that it was a very competitive environment.
There’s always a relationship in most things that are done in the world. Relationships are developed over time. You have to really understand human nature and the human condition to understand relationships. They oftentimes occur when you least expect it, and it’s through shared experiences that relationships will come about. We all bring the talented expertise that we bring, but you have to have confidence in yourself and your ability to do what you do and to add to the value equation. It’s about getting others to work with you, appreciate what you do and take the journey with you.
You have to first allow yourself to consider the possibility for relationships. We all know what we know, we don’t know what we don’t know. It’s sitting down and understanding others and what their goals and objectives are in this world. You have to understand yourself and understand others and look for possible connections. But also value experiences that you have not had and see how those experiences can augment some of the things you are trying to achieve. When people believe in you and are willing to go on a mission with you, that’s real power.
Build the relationship. One of the things that’s always been important to me in building relationships is trying to maintain communication. It’s very important that people have conversations. Things happen and don’t happen as a result of conversations. You’ve got to have conversations before you can start the building process in whatever you do. You have to get to know one another and spend time with one another because that is very important. You have to be reliable and dependable and be someone that is trustworthy.
You have to bring value to the relationship. Oftentimes I’m looking for what I can do for others, not what I can get out of the relationship. You have a lot of folks that run around and they wonder, ‘What can I get from someone else?’ and that shouldn’t be your approach. You should look for how you can add value to someone else’s situation. Those are some of the things that I think are necessary, but it’s really about gaining that understanding and taking time to listen to others. It’s not about you; it’s about them.
Get value from relationships. The other thing that’s helped us is that we are customer centric. We understand that the customer is at the center of everything that we do. We’ve got to have the high-quality products and high-quality service. Quality means that we work to achieve total customer satisfaction by understanding and committing ourselves to our customers needs while embracing a philosophy of continuous improvement. There is always more that you can do.
In order to be customer centric you really have to understand your customer and as best you can, you have to understand their industry in which they operate. You have to be able to identify what their needs are and what the opportunities are with a particular customer. As best you can, understand the overall situation. You have to see opportunities as your customer sees those opportunities and try to align with them on those situations. You have to work alongside them to generate possible solutions to their challenges. A big part of that is having open and honest communication, being transparent and operating with excellence and being very consistent in what you do.
HOW TO REACH: World Pac Paper LLC, www.worldpacpaper.com
When A.G. Lafley became Procter & Gamble’s president and CEO in 2000, the company had 10 billion-dollar brands. When he retired from his position as chairman, president and CEO in 2009, the company had 23 billion-dollar brands. Viewed as one of the best chairmen and CEOs in P&G history, Lafley accomplished what he did through a focus on innovation and the consumer.
Four billion times a day, P&G brands like Gillette, Old Spice, Tide, Charmin, Pampers, and Duracell touch the lives
of people around the world. Lafley and Chris Thoen, former director of innovation and knowledge management at Procter & Gamble, spoke last November at the Ernst & Young Strategic Growth Forum in Palm Springs, Fla., to share their insights into how innovation and consumer focus has been the key to P&G’s success.
“The biggest decision we made was to move to an open innovation platform,” Lafley says. “The problem at P&G in 2000 was not that we weren’t inventive. The problem with us was that we weren’t turning that invention into innovation that created customers, that benefitted customers, that created value for customers or a better experience for customers, and that’s all I wanted to do.”
The drive and focus on innovation Lafley instilled in the company during his time there is now one of the most important aspects of the organization’s business.
“Our belief is that innovation is the way for a sustainable competitive advantage and business growth,” Thoen says. “Everyone in the organization breathes it in and out every day. At Procter & Gamble, we see it as the cornerstone to develop the best possible products for consumers everywhere in the world. Innovation has been a great game changer at P&G, especially over the past 10 years.”
P&G had net sales of $78.9 billion in fiscal 2010. Here is what Lafley and Thoen had to say about how the company’s biggest advantage is its ability to innovate.
Innovate for the consumer
P&G innovations have become so successful and a part of people’s daily lives because the company innovates its brands with the customer in mind 100 percent of the time.
“I’m a big believer in pushing the idea, the innovation and the technology in front of the prospective customer very early in the process,” Lafley says. “I learned this working with a lot of very good design shops. We used to spend way too much time and way too much money designing and engineering pretty ornate prototypes. I pushed us to prototype very quickly and prototype very crudely. Consumers are smart. … You just want them to get the idea.”
Not only does P&G innovate with the customer in mind, but it strives to understand its customer base for new products.
“For us, the consumer is the boss,” Thoen says. “It’s the consumer that hands over the money to the cashier and makes a choice to buy a product of P&G or a competitor’s products. So for us, it’s really important to understand what the consumer wants and to be able to deliver that experience. That means understanding the consumer fully. To go forward with that, it’s finding the best possible innovations to put those into the products.”
Once consumers grasp a concept for a product, you have to test it to see if the product holds true to its purpose in a real situation.
“I also believe in getting into some kind of transaction test,” Lafley says. “You don’t know if you have something until somebody will part with some money. You can run all kinds of research and people will say that they are going to do something, but you can’t believe any of it until you actually have to reach into their pocket and pull out hard-earned money, hand it to somebody else who is going to take it away from them and then get that product to try it.”
Innovating products that customers can’t live without doesn’t come without trial and error. You have to be willing to fail and work until you get a product that consumers want.
“The failure rate is high; that’s part of the game,” Lafley says. “Many fail multiple times. We just introduced a new chemistry foam-based feminine hygiene product that we worked on for 13 years. We failed so many times with that technology I can’t even tell you. But we stuck with it because we knew if we delivered it, it was going to deliver protection and security that no other existing technology could come close to. You’re going to fail and you’re going to fail multiple times. I always encouraged fast failure and I preferred cheap failure. I didn’t want to drop $50 million or $60 million. That’s a high price to fail even for a company with deep pockets.”
You can’t underestimate the importance of being able to innovate. You have to identify innovations that will help your business keep growing well into the future.
“As I’ve looked at a number of other industries, virtually all the value gets created by innovation,” Lafley says. “At our company, all of our revenue growth was either organic innovation — serving new brands or new products or better products and improvements in existing brands — or it was acquiring. In our view, an acquisition was a platform for future innovation. We didn’t buy Gillette because we wanted their male shaving business. We bought Gillette because we thought Gillette would be a fabulous platform for male personal care innovation for the next 50 or 100 years. Innovation drove everything.”
Hunt for innovation
Innovation isn’t always easy to come by. You have to be willing to ask for help and let partners in business know that you are innovating.
“For us, it’s tapping into a network of partners, ecosystems, and they range from the individual, the innovator, inventor, to small and medium enterprises, to big enterprises,” Thoen says. “Where the innovation comes from is not important. It’s finding it, doing the right thing with it in our context, putting it in the right products, and then delivering that innovation to the consumer.”
Even if your business is a known leader in innovation, you have to let it be known that you are looking for assistance with new innovations.
“I think we are still trying to get the word out,” Lafley says. “We did all kinds of things. We got a lot closer to our customers and I mean our retail customers, our distributors. We reached out to universities and research laboratories and we tried to get the word out to individual entrepreneurs. One of the things we did was we ran these big innovation fairs. We would run it for two or three days and it was sort of, you had to give if you wanted to receive. So we would show off some of our technologies that we were looking for partners on. Then we would invite people in to show off theirs. It starts out with making a couple of connections, ‘Gee, maybe I have an idea you might be interested in’ and you talk to a third party.”
P&G has a huge network of past and present employees, and it puts that network to good use.
“An amazing source for us was the thousands of people who had worked for P&G that had moved on and I reconnected with them,” Lafley says. “Believe it or not, former P&Ger’s around the world get together and they have these big events. They created a community where they connect on business ideas, they connect on entrepreneurial ideas and they connect on innovation and we started getting a lot of leads from former P&Ger’s, colleagues of former P&Ger’s, and friends of former P&Ger’s.”
The company also utilizes its websites to gain ideas. You have to use all your resources if you want to find the best innovations and ideas.
“We pose those same needs on our PGConnectDevelop.com website,” Thoen says. “A lot of people can go and visit that web site and say, ‘I think I have a solution for you.’ They then submit their idea onto the website. Within P&G, we have a back store process to go in and evaluate those ideas and see if they fit with our strategy and what we want to do. Once those ideas come in, we also have a commitment to those partners that have submitted those ideas to come back to them within a very reasonable time frame, four to six weeks, on whether or not this is an idea that has traction within the company and we want to move forward with it.”
To find or develop products or services that will become true game-changers, you have to be able to get different view points on that innovation.
“All innovation comes from people and you have to open them up and you have to open up to the world around you,” Lafley says. “All innovation comes from either a person or a small group of people making unlikely associations or connections that others don’t make. Everybody’s going to be looking at it, but you have to see it in a way that’s slightly different.”
Find what consumers want
To build upon your innovation, you have to know what consumers are looking for and what you can do to give them what they want. You have to know what products are and aren’t the right fit for your business.
“It’s clearly important to define what are the areas where we want to play and the areas where we don’t want to play,” Thoen says. “For many years, this was all about physical products, consumables. Those will continue to be important, and we have significant business units where we have developed a strong portfolio of products and will continue to strengthen the performance of those products and make sure they have the right value. But what we’ve found is that the consumer is not only looking for products, they’re looking for services. So as we set ourselves up for success in the future, we need to make sure that we follow that trend into the market and make sure that we don’t only have consumables but also have the right services.”
As you try to develop future endeavors you have to devote the time to those projects to make sure they fit.
“One thing you have to keep in mind is how do you balance the return from the present with the investment of the future?” Lafley says. “The other is what business are you in and what businesses do you want to be in and what businesses should you not be in and they are kind of related. I spent a lot of time with what businesses do we want to be in. And I spent a lot of time on making sure that we were putting enough resources, not just financial resources but human resources, in partner investment and acquisition investment for creating the future. I probably spent a third of my time on people development and talent allocation. I easily spent a third to a half of my time on innovation for the future and creating a strategy and a platform for the future.”
A big part of what an innovator does is create something that builds a relationship, creates a better experience, delivers some value and creates trust over time.
“We have a very simple business model in most of our businesses,” Lafley says. “We try to create a brand that makes a promise that you’re interested in and a promise that will make your life a little bit better. We try to deliver a product that delivers better value and a better experience in performance value. Then we try to generate some trial. We try to get some people who we think are most interested or most in need of the brand or product to try it. Then we hope that you like it enough and you come back and try again and will use it on a regular basis. That frankly, is our game and that’s the secret of success to our brands. They have higher trial rates and they have higher usage and loyalty rates and that’s what makes it go.
“At least with consumers, a successful brand is a promise that’s kept. A successful product is a promise that’s kept. If you can take it one more step and add some delight, I not only kept the promise, but I delighted you in some unexpected way then you’re off to the races. That’s what you’re trying to create.”
HOW TO REACH: Procter & Gamble, (513) 983-1100 or www.pg.com
The Lafley File
Former chairman, president and CEO, Procter & Gamble
Born: New Hampshire
Education: Bachelors degree from Hamilton College; MBA from Harvard University
Experience: He joined Procter & Gamble in 1977. He was named a group vice president in 1992, an executive vice president in 1995 and president of global beauty care and North America in 1999. He served as president and CEO from 2000 to 2009 and was elected chairman of the board in 2002.
Accolades: During his leadership, sales doubled, profits quadrupled, and P&G’s market value increased by more than $100 billion dollars.
He was named “CEO of the Year 2006” by Chief Executive Magazine. He received the 2010 Edison Achievement Award, an annual award recognizing leaders that have made significant and lasting contributions to innovation, marketing and human-centered design throughout their careers.
The Thoen File
Former director of innovation and knowledge management, Procter & Gamble
Education: Masters degree in science and chemistry and a Ph.D. in biochemistry from Universiteit Antwerpen
Experience: He joined P&G in 1988 as an R&D scientist for Fabric and Home Care. In 1993, he became section head of R&D for Fabric and Home Care. In 1997, he was named associate director of R&D for Fabric and Home Care. In 2003, he was promoted to R&D director of technology for Fabric and Home Care. In 2007, he was named Personal Health R&D director. In 2009, he became the director of innovation and knowledge management.
Studies have shown that only 3 percent of people around the world write their goals down on paper. However, that 3 percent is more successful than the other 97 percent combined. Think about any winning recipe, whether you’re trying to grow a company to new heights or baking a cake. Without a strategic plan and goals to meet along the way, you’re much less likely to reach them if you don’t write them down and keep track of them. Strategic plans take time, effort, research and people to monitor and drive them forward. You can’t simply devise a plan and then not reference it. You must constantly be checking your progress and making sure you are on track to accomplish what you set out to do. Below is a sampling of what three CEOs previously featured on the cover of Smart Business Pittsburgh had to say about developing strategic plans.
“You have to look at where you want to go and what you’re trying to strive for your business to achieve. It comes down to being able to pick and choose where you want to spend your money and where you want to spend your resources and you really have to do your homework to make sure that you’re making the right decisions.”
Michael Fetsko, formerly of Bombardier Transportation. Currently VP and GM of frieght pneumatics at Wabtec Corp.
“Once a strategic plan is in place, it is to your advantage to continue to follow and update that plan. It requires an individual in the company to have responsibility for that plan and have responsibility for making certain that everybody’s working toward it. Finding the time to work on the longer-term strategy takes a lot of discipline.”
Jack Ouellette, president and CEO, American Textile Co.
“Make sure you have a very strong strategic plan. It’s got to have … your diligence plan, your integration plan and your plan going forward. You need to be able to know what you can do internally from an organic standpoint or what needs to be looked at outside of your current organizational set up.”
Stan Hasselbusch, president and CEO, L.B. Foster Co.
Dean Aloise has big shoes to fill in Pittsburgh and he knows it. Aloise, principal and Pittsburgh market leader of Buck Consultants, took over the position in January 2011 after his predecessor was promoted to managing director of the East region. Aloise is a young guy in his early 30s but is up to the challenge of leading the 70-staff employee benefits consulting firm.
“I’ve actually been fortunate in transitioning to this leadership role,” Aloise says. “My predecessor, Harry Rienhart, has moved up in the Buck organization. My transition has been eased by the fact that part of what I’m expected to do is continue that momentum that Harry created. That’s one of my main goals, and obviously, what I’m trying to do is build further on what he created.”
Smart Business spoke to Aloise about his appreciation for his new position and looking to make his own mark.
Examine the organization
You have to understand the current history and culture of the organization that you’re in and the successes that your firm has been built on. Really embracing that, recognizing it and respecting it is a huge part of understanding where you fit into all of that. Going forward, you will be accepted a lot more as a leader that understands where he might fit within the organization’s history.
You have to spend time with the people that you know got the organization to where it is. For example, say there’s an account that’s been around for 50 years and there’s an account executive that’s run that account for the last 25 years. That’s someone you need to get to know, that you need to understand and that you need to respect. Those are the types of people that you absolutely need to spend time with.
Get to know employees
To become familiar with the role, you need to be very involved. You have to really get to know all the people that you are working with. It’s the personal relationships, whether it’s with your client base or with your employees that are required in order to build trust.
Trust is where you need to get to really be firing on all cylinders. To get that trust in a leadership role you have to put in the time on a personal level to understand people and put yourself in their shoes, have them get to know you and establish a rapport with all of your employees and all of your clients. Unless you do that you’re never going to connect to the level that you need to connect.
It might seem simple, but … take the time to go to lunch one on one with employees. Spend a solid hour talking about them and learn to truly be interested in them and in their well-being. Similarly with clients … get together with them to learn about them and get to know them and have them get to know you so you can establish that trust.
You need to figure out who you are as a leader. I think to be successful, you can’t just show up in the position and exist without putting some specific thought into how you want your organization to work and how you want the culture of your organization to exist. Part of that might be reading leadership books and finding what parts of those books resonate with you and trying to establish your identity, who you truly are, but really getting to know who that is and then you have to deliberately work to try to live that out in your job every day.
Focus on leadership
Always be putting your team and the people around you first. Always be looking out for the best interest of the folks around you. It might seem counterintuitive, but you as a leader should be the last person on your own mind. If you’re taking care of your team and the folks that work around you and your clients, then things probably will work out the best for you in the end.
HOW TO REACH: Buck Consultants Pittsburgh, (412) 281-2506 or www.buckconsultants.com
Sam Liang is a leader who is always looking to the people around him to help make him better. What he expects from himself is what he expects from his company, Medrad Inc. The more than 2,000-employee medical device manufacturer prides itself on its ability to continuously improve upon every aspect of business.
Liang, who became president and CEO in June 2010, was brought in to keep the company pushing forward and to improve upon the success of the business.
“It’s interesting because sometimes CEO transitions, they’re because there’s a turnaround that has to occur,” Liang says. “In Medrad, it’s absolutely the opposite. It really is an opportunity to take Medrad to the next level. My predecessor, John Friel, to whom I owe a tremendous amount of credit, was CEO for over 12 years, and for 12 years, he built this business into a very successful business.”
The more than $500 million company is a market leader in all of the segments it participates in. Since Liang took over his role, he has been driving to further diversify the business through product innovation and improvement across the company’s metrics. Here’s how he reaches for the next level at Medrad Inc.
Never stop improving
Medrad has a culture of continuous improvement and has followed the Baldrige Performance Excellence Program since the late ’90s. The Malcolm Baldrige National Quality Award is the nation’s highest presidential honor for performance excellence and Medrad has won it twice.
“It was 2003 when we were recognized by Baldrige for the first award, primarily for growth,” Liang says. “The second time was 2010 and we were recognized for adaptability and agility through challenging times. The way that we achieved it is you have to invest resources. I would encourage you to find one or two leaders internal to the organization to become very familiar with Baldrige and go visit companies that have seen it. From that perspective, you can start your journey by driving a culture of continuous improvement throughout the organization.”
Continuous improvement cannot be achieved by having a team devoted to it. It must be something the whole company and everyone in it strive to achieve.
“It has to be part of what you do every day,” he says. “It’s not a whole separate group of 30 people that are there to say, ‘Do Baldrige.’ Everybody has to be trained on the methods and the approaches and the tools you can use and then you have to deploy them. Then you have to stick with it. It’s a way of doing business and a way of thinking of being efficient. Start as soon as you can and it will pay itself off.”
Since Medrad started Baldrige, the company has achieved a 14 percent compounded annual growth rate in the last 14 years. To make the principles of continuous improvement work for your company, you must be completely devoted to it.
“It pays off and people think of it as a separate activity,” Liang says. “The No. 1 advice is that it’s not separate. You’re training your employee base to approach things in a certain fashion using tools that are accepted. It’s all about analyzing where you’re at and finding benchmarks out there of who’s doing it best-in-class. You have to put together a plan and execute against it to hit that best-in-class metric and if you don’t, you reiterate until you hit it. The key thing is, once you do hit it, you find the next benchmark to do better. You go through this continuous cycle of improvement.”
Form performance metrics
To know whether your company is improving, you have to measure areas of your business and form metrics around which your company will operate.
“One of the unique aspects about Medrad is that we run the company on what’s called the balanced scorecard, which is based upon the Medrad philosophy,” Liang says. “In 1983, one of our prior CEOs, Tom Witmer, and a group of employees, came up with the reason why Medrad exists. No. 1 is to improve the quality of health care. No. 2 is to create a rewarding and enjoyable work environment for our employees. And No. 3 is to deliver continued growth and profit for our shareholders. If we do all three of those things well, especially if we do the first two … the third aspect of delivering improved profits and sales will just happen. That has manifested itself in how we actually measure and metric the company.”
Medrad has devised five metrics to help measure the success of the company. Three financial metrics and two satisfaction metrics are what the company focuses on.
“What we do is we constantly focus on running the business, making decisions across the impact of those three stakeholders: our shareholders, our customers and our employees,” he says. “You have to keep it simple. Some companies will come up with 40 different metrics and what’s interesting to me is when you’re a small company you say you have to be focused. When you’re a large company, the biggest mistake I think large companies can make is, ‘Hey, because we’re a big company, have more money, have more resources, we can do more things.’ You actually find in large company settings you even have to focus more, because think about the inertia it takes to get a whole organization of people to go in a certain direction.
“My advice is to keep it very simple. Internally you can adjust [metrics] year to year, but from a business perspective, I would keep it simple. Our metrics are aligned with our philosophy. A starting point for other companies is to take a look at the basic operating principles of which the company is founded upon or that people commonly understand. To that extent, you can align your scorecard or your metrics with something that people already get. If people already understand it you want to build off of that foundation as opposed to introducing all new fancy terminology. Just keep it as simple as possible, because the key to Baldrige is making sure everyone from top to bottom understands what you’re trying to do.”
One of the things Liang and Medrad want to improve is the diversification of the company’s products.
“What we are essentially driving to do is to continue to diversify our businesses along three dimensions,” he says. “We have three businesses: radiology, interventional and service. The first level of diversification is within radiology. We want to diversify our revenue stream within radiology, which is the largest of our three businesses. The second piece is to diversify our businesses outside of radiology, which are Medrad interventional and service components. The third is, we have greater than 50 percent of our sales are all in North America. So we are on an effort to globalize and diversify outside of the United States.”
Liang had to take a look at the company and evaluate it to see exactly how he wanted to approach diversifying those areas.
“Using principles of Baldrige, one of our processes that we embrace and take is the strategic planning process. Part of that is looking at your external environment, looking at where you are as a company in terms of how well you’re positioned within that external environment and then coming up with the operating plans to execute against that external environment. If you have a company that’s doing well, you really have to understand the dynamics as to why it’s doing well and build upon that foundation. Don’t change that piece of the formula. The second piece is to put together and stretch plans that are aspirational and visionary but also that are realistic. You have to have very clear lines of roles and responsibilities around how you’re executing.”
In order to diversify the areas of the company that Liang wanted to focus on, he had to put an emphasis on innovation.
“A big part of diversification is innovation and we’ve shifted more dollars to innovation,” he says. “Some companies believe they can sell their way out of situations, ‘Well, let’s just sell more.’ But think about the markets today. It really is about focusing on innovation.”
Look to innovate
When innovation is a focus of your company, you have to get ideas and advice from the people who use your products every day and get their feedback on what to improve.
“We sit in our board rooms and we try to answer specific questions around directions and what should we do, how should we do this and do that,” Liang says. “I’ve always found that the answer always lies with the customer. You have to get close to the customer and you try to understand and gain valuable insights from the customer that no other company can see. The decisions and the directions you take become very clear very quickly around what you should do. You take innovation that is driven by customer needs or customer insights, that’s what I would focus on whether you’re a company that’s doing well or a company that’s in need of a change in strategic direction.”
Customers are your most vital resource for innovating products and can contribute to your company’s quest for continuous improvement.
“We spend a lot of time with our customers both informally as well as in a formal manner,” he says. “You go in and watch everything that they do. Part of the value proposition of Medrad and part of this informatics drive is to streamline the efficiency of how radiologists and technicians do their job throughout a day. Even simple changes in our algorithm of how you fill the syringe can save five or 10 minutes in a certain procedure in terms of set up time and what that translates to is the difference between a hospital being able, in one specific radiology suite, to see 30 patients a day versus 40 patients a day. The only way you get at that is by going in and watching everything that they do.”
Similar to how UPS adjusted its policy on right-turn-only routes to save gas, avoid accidents and decrease delivery time, Medrad uses customers to innovate and improve its products.
“We’ve done the same thing in all of our specific technologies,” Liang says. “In our Medrad Interventional portfolio, we are market leaders in the area of mechanical thrombectomy, which is sucking out blood clots throughout various parts of your body. In working with customers and understanding what their needs are, we’ve introduced a new console that the catheter hooks up to. We have reduced the steps [it takes to set up]. In an emergency, all the doctor has to do is put in a cartridge, push a button and then prime and he’s ready to go. I’m over simplifying it, but before, he had to put in a bunch of cartridges, connect a lot of tubing and then purge and get ready to go. If you’re having a heart attack or if your leg is green, you can’t afford to do all of that. All of the answers lie with the customer.”
While getting customer feedback for innovative ideas sounds simple, it still takes time and resources to develop an innovative culture that helps define your company.
“A lot of people talk about innovation, but the reality is as you look at the amount of money they would dedicate to research and development and innovation, the dollars aren’t necessarily there,” he says. “You have to put resources to it. We have a corporate innovations group, which is the group that looks out at your portfolio and takes the competencies and the technologies that the company has and they are looking out beyond three or five years. They are looking at where our technology can be applied or in the markets we are in right now; what are the longer-term unmet needs. We put money to that for these folks to … dream. We know that a certain percentage of them may not come to fruition, but you have to allow that forward-thinking innovation.”
HOW TO REACH: Medrad Inc., (724) 940-6800 or visit www.medrad.com
The Liang File
Born: Atlanta, Ga.
Education: Bachelor of science degree, mechanical engineering and material science, Duke University; Master’s degree in management, Kellogg Graduate School of Management, Northwestern University
What was your first job and what did you take away from that experience?
My first real job was working in a hospital outside Washington D.C. in a pathology lab. I did everything. I filed pathology reports and logged in specimens coming off the OR. That was where I got my interest in health care and when I knew I wanted to do something health-care related.
What was one of the toughest parts about coming into Medrad as a new president and CEO?
One of the toughest parts personally is that it was a very, very successful company and the former CEO, John Friel, had been here for 12 years. Those were big shoes to fill. For me, it was about trying to learn and connect with the business and connect with the people.
What is your advice to incoming CEOs?
I started in June 2010, but by the three-month mark I did a full 360 and got feedback from anybody I had extended interaction with. It’s a two-way street. I also worked in the field and that’s one thing I think you have to continue to do. You can never do enough of that. You have to keep doing work in the field with the customers because that’s where a lot of the answers are. Spend as much time as you can with customers. Formulate your own impressions.
If you could invite three people to dinner, who would you invite?
I would invite Abraham Linclon. If you look at the issues he had to face and the decisions he had to make as a leader, boy, he had to make them all. You could walk away with so many valuable learnings.
I would want to talk about the topic of innovation, so I would invite Thomas Edison. He was such a leader in that respect.
The third person I would invite is Thomas Jefferson. Anybody that had a say in the founding of this country or writing of the Declaration of Independence is an amazing person. The whole thought process around democracy and the ability for other people to make decisions for what’s right for them takes an amazing amount of forethought.
When Rick Pleczko thinks about the office space his company used to be in, he thinks about a college campus. He remembers open houses with barbeques on the front lawn, free beer, a DJ playing music and all his employees enjoying themselves.
Pleczko, co-founder, president and CEO of BBS Technologies, used to throw these parties as a way to thank current employees for hard work and to attract new employees looking to join the $30 million provider of systems management software.
“We have this interesting environment where, since we founded the company, we have been in three turn-of-the-century mansions in this bohemian neighborhood,” Pleczko says. “Everybody loves it here. It’s almost like a college campus-style environment.”
Over the past few years, the company has grown to new heights and in the process, outgrown its current headquarters. The challenge facing Pleczko and his team was to find a new place to conduct business that would keep that college-campus feel.
“Our big challenge was, ‘Gee, one of the unique things about our company and our culture that attracts folks is this campus-like environment,’” he says. “It wasn’t practical for us to add more houses in this space. It just couldn’t be done in the neighborhood. We knew we would have to move to a tower. Our problem was, how do you recreate that culture in a tower?”
Recreating the company culture was a big undertaking. It took collaboration from his 200 employees to find the right place.
“We talked to our employees,” Pleczko says. “Everybody wanted to be in the same neighborhood or close to it. So we were looking for something within a couple-mile radius of where we were. Then it was going to the staff and saying, ‘What features do you want in this new environment? We can’t replicate what we have entirely, but what do you want to do?’”
Pleczko set up a committee of a few employees to get feedback on the type of things they wanted.
“You have to figure out what the key criteria are to maintain and expand your existing culture and get those criteria from the folks that work for you,” he says. “Focus on the staff and get the information and the feedback from the staff. Then you need to engage a good, talented Realtor.”
Pleczko was fortunate. He found a space 1.5 miles away with 70,000 square feet across three floors of a tower with a spiral staircase connecting all floors.
“We have this environment with a spiral staircase and we’re building it out with almost a Google-like campus environment,” he says. “We set up recreation rooms with Xbox connects, foosball tables and table tennis. Software engineers tend to work long and odd hours, so they like that sort of environment. So we built a couple of playrooms on different floors where people can get together and socialize just like they would walking down to the local Starbucks. We were able to replicate to a high degree our culture inside of a tower.”
Not only did BBS recapture its culture in a new building, but the company took a big step forward in its growth by moving to a new headquarters.
“The environment that we had was perfect for when we were in the startup stage to about where we are now,” Pleczko says. “But we are now doing business with some very significant and very large corporate entities. When they came to visit us in those funky houses, they thought it was cute and it was like visiting an ad agency in a brownstone in Manhattan or something. We always looked like we were a fun startup.
“Now moving to this new environment, it gives the impression of we’re a $100 million company. It gives us significant credibility with the environment, the space, the décor, etc. But it still enables us to maintain that culture of innovative startup.”
HOW TO REACH: BBS Technologies, (713) 862-5250 or www.bbstech.com
Not only will BBS Technologies’ new headquarters building allow the company to continue to grow and keep its unique culture, it provides change within the organization.
“Change is good,” says Pleczko, co-founder, president and CEO. “It seems to refresh everybody’s morale and attitude and I think it acts as an inflection point for growth. I’ve been able to say, ‘We’re moving into a space that a $100 million company lives in and we’re going to be that $100 million company.’ It enables you to get some pretty good motivating messages out to your staff.”
A move like this takes time and a strategic plan. Pleczko had to understand his company’s growth pattern and plan accordingly.
“This is of great strategic importance, because if we didn’t move, our growth would be constrained,” he says. “We are planning to grow aggressively this year and that growth would not be enabled without this new building.”
Failing to realize that your company is outgrowing its current space can negatively impact the productivity of your employees.
“[Employees] become inefficient,” he says. “You have too many people in not enough square feet and they are bumping in to each other. Things like conference rooms end up being turned into offices. Folks become unproductive simply because of the noise and activity level all around them. If you don’t [expand], you will tend to see productivity go down.”
David Petratis has a long background and a strong history in building products. As the former chairman and CEO at Square D Co. and CEO of Schneider North America, he is no stranger to the demands and fluctuations of the construction industry. That experience has proven extremely valuable since Petratis took over as CEO of Quanex Building Products Corp. in 2008, right in the middle of one of the worst economies for any industry.
“I think the performance of Quanex in the worst building environment maybe ever says that we’ve got a lot going here,” says Petratis who now serves as chairman, president and CEO. “And today, even with construction flat on its back, we’re on a margin basis, more profitable than we’ve ever been, are growing and are debt free.”
The strong position Quanex now finds itself in didn’t happen overnight or by accident. Petratis and the 2,300 employees at the manufacturer of windows and doors have worked tirelessly to keep the company pushing forward during a period where if you rest, you don’t wake up. Here’s how Petratis rebounded Quanex from $585 million in 2009 revenue to $798 million in 2010.
Evaluate your business
As a new CEO to Quanex, it was vital that Petratis got a full understanding of the business and how it was operating.
“What we did from the day I hit the door through 2009, we revisited our strategic perspective and our strategic plan three times,” Petratis says. “In six months, we made some observations and then we did it again. In an 18-month period, we took three hard looks at our strategic plan, our markets, and we came to some pretty strong conclusions that has driven growth at Quanex Building Products in a market environment that remains the weakest in my lifetime.”
While the economy made it tough for companies operating in any market, the construction industry was hit particularly hard. Petratis wasn’t sitting still expecting the poor conditions to evaporate quickly.
“First of all, you had an unprecedented decline, especially in businesses related to construction, but you also had a big commodity slide,” he says. “I think, No. 1, when you’re in an economic slide, don’t assume that there’s light at the end of the tunnel. You need to take aggressive steps that ensure the continuity of the business. You cannot make assumptions that the market’s going to come back and life’s going to be good again. The companies that have made those mistakes are still struggling today. You have to create your own opportunities within the business portfolios that you have.”
Creating opportunities in a weak market and an economy as poor as it has been is not an easy task. You have to be aggressive and make sure you’re evaluating your entire business.
“We took aggressive steps to free up cash on our balance sheet,” Petratis says. “We challenged the inventory on our balance sheets and in our factories and took them to historic lows and kept them there. That has generated cash, No. 1, to survive, but No. 2, to go redeploy in things that are growing. We have right-sized ourselves to the new business reality. We had a scale and infrastructure that was built to produce 2.2 million homes; today, we struggle to get above 600,000. Some major restructuring had to occur. We eliminated nonvalue-added activities. We made investments in the skills of our people. You have to give people hope that we’re going to make it through this, but also give them new skills to be able to compete. We have invested more … in the business than we made during the up cycle.”
Evaluating your business and restructuring areas that need it is a critical element at any point of a cycle.
“We looked at our portfolio in a BCG Matrix,” he says. (Editor’s note: A Boston Consulting Group Matrix looks primarily at market share and market growth). “Where did we make money? Where did we lose money? Where are our opportunities for future growth? What are the businesses that we’ve got to get out of? What are our stars, cash cows, dogs and dilemmas? You look at your business and try to emphasize and invest in those businesses that have opportunity or are generating large amounts of cash and you get out of the ones that don’t.
“The other thing that we did was went through a review of our customer profitability and looked for opportunities for price realization. You’ve got profitable customers and unprofitable customers. You’ve got to think about that in terms of just standalone profitability and then you’ve got to think about it in terms of cost to serve. There are customers that are more expensive, take more customer touch and that’s got to go into the analysis. Have a dialogue with your business leaders and your salespeople and ask, ‘What’s our cost to serve?’ A customer that has a low margin and has a high maintenance cost are the first ones that you take action on. It’s critical with a triple underline to know where you make money within your product portfolio.”
Whether the economy is forcing hardships on your company or you’re simply having a tough year, communication within your business is the most important thing a CEO has to do.
“We stepped up our communications aggressively, especially versus my predecessor who operated in a better economic time,” he says. “We cut a quarterly video. There’s a camera crew that comes in and we cut a 20-minute message every quarter. Employees get a letter from me every three-day holiday and I do site visits. You also have to put on your customer ears and get out and visit customers. We’ve done surveys to understand our ability to deliver and our understanding of the voice of the customer.”
Petratis also stressed the importance of safety among his employees and communicated how safety could help improve the business as a whole.
“As a new guy coming in, I have pushed the hell out of safety awareness,” he says. “To me, this is Maslow’s Hierarchy of Needs. If I can get our employees to believe that I care about their safety and health, I am awarded by our employees the opportunity for them to self-actualize into things like customer satisfaction and continuous improvement of our business. In a down environment, if you fail to communicate, if you fail to invest along that hierarchy of needs, I think you’ll lose your work force. We’ve certainly done the things that we’ve needed to do in terms of our cost structure, but we’ve provided extra attention to the people that are still with us.”
If leaders don’t take the initiative to get out in front of their staff and tell them the good and the bad, the company will lose direction and purpose.
“I would say to those CEOs who are not aggressively communicating where they want to go and what are the tough issues that face the business, they probably own the business or should be looking over their shoulder for the next guy who’s going to come in and replace them,” Petratis says. “Think about any human dimension. When things are uncertain because of economic crisis, family crisis, people want to know, ‘Where am I going? Help me understand the risk and uncertainties.’ People understand that times will be tough. You can’t run from them. You have to communicate and you have to do that in a variety of manners. You’ve got to do it in person, you’ve got to do it in writing, you’ve got to do it through media communications and then you’ve got to go back and do it all over again.”
Throughout Petratis’ business career, he’s been in front of the people that he’s led every quarter since 1986.
“That level of communication has rewarded me and the people I’ve worked with with excellent performance and you’ve got to double down when it’s tough,” he says. “You communicate in the good times and it’s like putting money in your checking account. You’re building in the confidence of your work force so when times are bad, you’re believable. They know who you are, you’ve made an investment and now you can make a withdrawal when you’ve got to do something tough.”
Adapt to changes
During a down economy you have to be looking for ways your company can change and adapt to keep pushing forward.
“I think anytime you’re going through a change effort you have to establish proof of the need,” Petratis says. “This is why we need to do this. This is why it will be good for customers, shareholders and employees. Once you’ve satisfied that criteria, there will be resistance. You’ve got to check for that resistance. There are people that can’t make change. For those people that can’t buy in to where you think you want to go and you give them the chance to air their opinions, they need to move into new positions or on to new companies. I think it’s one of the tougher things for managers and leaders to make that call.
“You’ve got to make sure you’ve got the talent around you to take you where you want to go and they’ve got to believe in it. If you don’t have the talent, if you’ve got people in the wrong position, you’re not going to be able to get people where you want to go. You’ve got to have the courage to help them get to where they can contribute the best.”
Through a project Quanex coined ‘Project Nexus,’ the company reshaped its sales force and is serving a broader customer base with its total portfolio.
“We had resistance when we started Project Nexus,” he says. “First of all, we socialized where we wanted to go. I believed when we first launched Project Nexus in January 2010 that we would have resistance, but I didn’t make organizational changes. I didn’t just blow up the organization day one. I let the idea percolate. I got people around it, and we sold it. Then I changed the organization. It was six or seven months after we began to share the data, share the opportunity, help our organization understand that if we didn’t go out and create prosperity, prosperity wasn’t going to come knocking at our door. We still had resistance and we continue to fight that.”
Change is an ongoing process and in the same way that people change, companies change. It’s critical that you communicate that fact.
“You’ve got to continue to communicate that goal, why it’s important we make that change,” Petratis says. “It goes back to your communications and it goes back to your vision and you’ve got to reinforce those things. Nobody likes change. I would just assume to have things the way they were in 2005 when we were building 2.2 million home starts. I wish it never would have changed from that, but it did. You’ve got to change with it, or you die.”
Change seems daunting to most companies, but oftentimes, change brings out the best in employees, leaders and the company.
“Another element to this is that you’ve got to help educate people in the change process,” Petratis says. “Give them new tools and skills. As you change things you create problems and a work force that has a solid toolbox of problem-solving tools manages through those changes more effectively. I don’t give them 20/20 vision; I give them direction. They’ve got to apply the problem-solving tools and get us to where we need to be as a company and as an organization.”
When companies undergo change, it can be very stressful to all involved. Make sure that you celebrate any successes change brings.
“The other thing you have to do in the change process is punch up your wins,” he says. “We created a lot of change with Project Nexus. In our fiscal 2010, our engineered products business grew by 12 percent and our aluminum business grew by 25 percent in a market that was negative. We could have hunkered down and not changed anything and we would have had more pain because the market wasn’t going to give it to us. You’ve got to punch up your wins and help people see there are benefits to taking on new challenges.”
HOW TO REACH: Quanex Building Products Corp., (713) 961-4600 or www.quanex.com
The Petratis File
Born: Council Bluffs, Iowa
Education: University of Northern Iowa, production management; MBA, Pepperdine University
What was your first job and what did you learn from that experience?
I’ve had a lot of jobs. My first job was mowing grass, shoveling snow and detasseling corn. I’ve pumped gas. I’ve worked in an ice cream factory where I bagged ice. My big break that changed my life was getting a job in an electrical supply house when I was 18. I learned how to work. I learned how to be accountable and responsible. I learned how to listen to customers both internal and external.
What’s the best business advice that you’ve ever received?
Take care of your employees and your customers and everything else will take care of itself.
Who is someone that you admire most in business?
I have a mentor named Charlie Denny he was the chairman and CEO of Square D Co. He played a big influence in my life. Jerre Stead is the chairman and CEO of IHS. Those guys are different types of leaders, but I benefited from my exposure to both of them.
What traits do you think a good leader needs?
I think you have to have honesty, respect, courage, tenacity and resiliency. You also have to be a servant leader.
If you weren’t a CEO, what would be your dream job?
I would be a cattle rancher and farmer. I’ve already got the farm part. I like being around equipment and being around animals and working on the land. I’ll have it someday.