While the U.S. manufacturing sector has been resurgent for three years and counting, the recovery cooled a bit in the third quarter — and there’s no clear consensus among experts as to the reasons why. The reasons for this leveling off are varied and complicated.
Many experts have lists of theories to explain the slowdown, but there’s a lot less consensus among these authorities’ theories than you might expect. There is one commonality, however, among the experts’ opinions. They remain guardedly optimistic that the rebound will continue but at a slower pace.
“We’re definitely seeing a little bit of a blip in our multiyear recovery over the last couple of months,” says Chad Moutray, chief economist for the National Association of Manufacturers.
“What’s causing that blip is uncertainty — uncertainty caused partly by the ‘fiscal cliff’ everyone has been talking about, partly by the [economic] problems in Europe and a few other factors. We haven’t solved these problems yet, and it doesn’t look like we’re going to be solving them anytime soon, so that’s a headwind that we expect is going to be persistent over the next few months and probably longer.”
What happens domestically over the next few months will be hugely important for U.S. manufacturers over the next year or two. That includes next month’s election, how steep the so-called “fiscal cliff” drop-off turns out to be at the beginning of 2013, and then the subsequent direction of the U.S. economy thereafter.
“The biggest unknown out there right now for the U.S. economy is the ‘fiscal cliff,’ and the fact that on Jan. 1, assuming that Congress doesn’t act between now and then, we’re going to see tax increases and spending cuts of around $500 billion to $600 billion,” Moutray says. “That obviously could have some dire consequences for the economy. We’ve had the Congressional Budget Office and a lot of others saying we could have a recession early next year if that’s the case.
“We’re seeing a lot of people in Washington angling to see if they can try to avert that. But there’s an enormous amount of pessimism that that’s going to happen. So that’s a key thing manufacturers are worried about: the uncertainty over what their tax rates are going to be and what the regulatory environment will be like next year.
“People are very engaged in what’s happening in the U.S. election because it obviously will impact manufacturers deeply.”
Nonetheless, Moutray says that on the whole, U.S. manufacturers’ outlook for 2013 is positive but guardedly so.
“Of course, that could all change very quickly,” he says. “We’re seeing some pessimistic numbers coming out right now, which I think should be a wake-up call to folks in Washington that, ‘Hey, maybe this is something we’d better act on. We need to reduce the level of uncertainty in the economy that’s out there.’ ”
Scott Paul, executive director of the Alliance for American Manufacturing, agrees that a large number of concurrent factors have conspired to flatten the U.S. manufacturing curve. One crucial factor he points to is import-export problems with both Europe and China.
“One thing that was helping to drive the boomlet in manufacturing over the last few years was increased demand for our exports to Europe and to Asia,” Paul says. “A key reason for that has been that our exchange rate has been, while not perfect, much more suited to exports than it used to be.”
But the days of gangbuster exports to Europe and China are fading.
“We’ve seen that tailing off dramatically over the last couple of months,” Paul says. “The Chinese are reverting to their traditional strategy of continuing to produce and export as much as they can regardless of what the demand is. That creates problems for other countries such as the United States. At the same time, we’re seeing the value of the Chinese currency take a nosedive. That, to me, is troubling.”
Exacerbating this set of complications coming from Asia is a different kind of economic headwind pushing across the Atlantic from Europe.
“Some of Europe is headed back into a recession again, related to the debt crisis financial situation,” Paul says. “That has an impact on demand, on unemployment, on a lot of things. And that, in turn, impacts U.S. manufacturers, because Europe is an important market for us.”
Cliff Waldman, senior economist for the Manufacturers Alliance for Productivity and Innovation, is another insider who attributes the U.S. manufacturing slowdown to a convergence of several factors. Waldman postulates that the key factor was the sharp inventory fluctuations that took place during the recession and in the years since.
“Over the last three to four years, the U.S. economy had probably the sharpest inventory swing in modern history,” Waldman says. “During the panicky days of 2008 and 2009, inventories were liquidated very rapidly. Some companies were liquidating inventories just to raise cash.
“So then, even though we had just a modest turn in the economy after the recession, there had to be a rapid restocking of the shelves just to handle that moderate traffic. That got our factories humming again. If you think about it, manufacturing essentially produces inventories for the economy. So that helped a lot.”
Now, though, the manufacturing sector has caught up with the shelf shortages, so the inventory catch-up surge that got the factories buzzing is dying away.
“The inventory swing is finite,” Waldman says. “Eventually the stocks on the shelves reach short-term equilibrium with the pace of sales. It’s a one-shot deal, in effect. It comes back to equilibrium.”
Another factor in the slowdown has been economic volatility in countries that Waldman labels emerging markets.
“After the recession, we had a stronger and a faster rebound in emerging markets, particularly some of the larger emerging markets, than people had thought,” he says. “China, India, Brazil, Mexico — these markets all felt the downdraft of the crisis in the industrialized world, and they certainly slowed.
“But they implemented policies rather quickly and came back rather quickly. As we all know, over the last decade, U.S. manufacturing has been making a lot of investments in those markets, and the health of those markets has been increasingly important for U.S. manufacturing profitability. This helped propel manufacturing into a more normal recovery than almost any other sector of the economy. That’s why manufacturing was able to lead the recovery.”
However, that’s another development that can be added to the list of trends that drove the manufacturing rebound but have now begun to slow down.
“Now, the storyline is changing,” Waldman says. “The global situation is troublesome, particularly for manufacturing. The activity in the emerging markets is slowing dramatically. That’s why we’re seeing that manufacturing is not really the leader anymore. It’s starting to get mixed up with the troubles of the U.S. and the global economies.”
But not all of the recovery-driving trends are disappearing. Some look like they’ll have staying power, and that endurance should, barring other unforeseen problems, continue to keep the U.S. manufacturing rebound at least somewhat on track.
Exhibit 1 — leanness and efficiency: “Manufacturers have been able to take advantage of being much more lean and efficient, which has improved their overall competitiveness,” Moutray says. “When I look at the sectors that have done well the last couple of years, I think they’ve taken advantage of exports, which speaks to that level of increased competitiveness.
“Exports are going to be an evermore important part for the manufacturing sector. I think we’re going to continue to find ways that we can better compete.”
Another manufacturing-positive trend expected to have staying power is U.S. manufacturers’ increased competitiveness, which is being fed by several factors: advances in technology, consequent gains in productivity and decreases in costs, particularly energy costs.
“We definitely have seen a little bit of a sea change in terms of the overall competitiveness of U.S. manufacturing,” Moutray says. “Nearly every manufacturing sector is becoming more efficient by using technology. That’s why we’ve seen such huge gains in overall labor productivity the last few years.
“U.S. labor productivity grew more than 5 percent in the first quarter of this year. In the durable goods sector, it was almost 10 percent. Those are unheard of levels of labor productivity growth, and as a result, we’ve seen the overall cost of labor per unit fall dramatically. That has helped keep U.S. manufacturing more competitive.”
Declining energy costs have also been a boon to U.S. manufacturers’ attractiveness relative to foreign competition.
“Another key reason why we’ve seen this boomlet in manufacturing is that energy costs have come down with so much natural gas coming online,” Paul says. “That, in itself, has spawned an industry: supply pipe that goes into the natural gas. But more broadly for manufacturing in general, especially energy-intensive manufacturing sectors, it has helped to bring down their energy costs. And I see that continuing to be a very strong factor.”
Reshoring is another trend expected to have some durability, and thus continue to help U.S. manufacturing sustain its recovery to some degree, Waldman says.
“What appears to be happening — and underline appear, because it’s still in its early stages — is that for global manufacturing supply chains, which are spanning many countries these days, the U.S. is playing a somewhat better, stronger role in terms of production in those global manufacturing supply chains,” Waldman says. “It’s being driven by multinational decision-makers. When they look at the map of their world, U.S. manufacturers are looking more attractive.
“That’s because there are a lot of hidden costs to doing business and to having a production presence in a low-wage economy, and those costs are now becoming less and less hidden. And while the benefits of market potential in emerging economies are tremendous and always will be, these multinational decision-makers are beginning to realize that the costs are a little higher than they thought, so that puts the U.S. and North America in a better position.
“This is clearly a positive for the strength of U.S. manufacturing, and it’s something I think the United States needs to see as a glimmer of light and to capitalize on.”
Policymakers are expected to play a crucial role in the coming years in terms of whether the manufacturing sector continues to recover and perform well.
“We’re in a time that’s somewhat similar to just after World War II, in the sense that policy matters a great deal these days,” Waldman says. “And not just U.S. policy; central bank policies and fiscal policies around the world are absolutely crucial now.
“We’re also in a time where you have to watch policymakers. Manufacturers in the U.S. might have thought some time ago that monetary policy in India or in Europe or even in the Federal Reserve was a bit removed from their business, a bit arcane. Not these days. They need to follow it. It’s crucial. And the same holds true for fiscal policies.
“Over the long term, getting past the sluggishness and the challenge of this year and the next couple of years, we need to make policies that engender long-term investments in our workforce, in innovation, in technologies. So policy around the world matters more to manufacturers now than it has in a generation.”
In the big picture, the resurgence of U.S. manufacturing during the last three years has changed the way the public and political leaders view manufacturers and their role in the economy and in society, and that bodes well for the future of the domestic manufacturing sector.
“I think it’s healthy that we’re hearing more talk about the importance of manufacturing than we have in the past by everyone,” Paul says. “There’s this realization that it has to be part of our future, and everyone — particularly those in leadership positions — seems to be embracing that. I think that’s a very good thing.” <<
How to reach: National Association of Manufacturers, www.nam.org; Alliance for American Manufacturing, www.americanmanufacturing.org; Manufacturers Alliance for Productivity and Innovation, www.mapi.net
U.S. manufacturers should continue to fare well in 2013, although next month’s election is a wild card that could change that outlook to some degree.
“U.S. manufacturing should do well next year, but a lot depends on the election and policies that the newly elected president and Congress may or may not undertake,” says Stuart Hoffman, chief economist, PNC Financial Services Group. “We’re assuming that some of what’s being called the ‘fiscal cliff’ will probably go into effect but not enough to be fatal to the economy.”
Hoffman expects that most manufacturing sectors will continue to do well, including household goods, energy-related manufacturing, farming equipment and nondefense aerospace manufacturing. Construction-related manufacturing is expected to be a particular bright spot, and automobile production should continue to fare well, though less robustly than the last couple of years.
“We think auto production will still be rising, so auto manufacturers and the related supply chain should do well,” Hoffman says. “It won’t be a big increase over this year. The rate of increase for next year will probably be around 5 percent, whereas this year it’s double-digits.
“But auto production will still be operating at an overall higher level — a higher production level, a higher employment level, a higher productivity level and, ultimately, a higher sales level.”
A few manufacturing sectors are expected to cool down, including heavy truck production, tool and die, defense aircraft (though that too depends on the direction of post-election government policy) and raw materials such as steel, copper and aluminum.
“Production of raw materials is more of a global issue, and while we don’t expect the global economy to fall into recession, we have seen global problems with steel slowing down and a tremendous amount of supply,” Hoffman says. “Some steel companies might not be all that profitable because of the increase in supply, and global supply could easily meet if not exceed the rise in demand.” <<
To learn more, listen to Stuart Hoffman on PNC’s 2012 National Economic Outlook webinar on Nov. 8. To register, go to www.csvep.com/pnc/110812flyer.html.
When Jim Snow became president of Gold’s Gym International three years ago, he stepped into a tough challenge. The recession was in full swing, and retailers were closing left and right, leaving behind a glut of cheap, readily available retail space. This void presented a ripe opportunity for operators of tiny, low-overhead gyms offering super-low-priced monthly memberships.
The discount gyms were feasting on the opportunity, thereby cutting into the market share of many of GGI’s smaller gyms, in some cases deeply.
“It was pretty clear; when I arrived, I started holding meetings with all of my stakeholders to learn about the business environment, and this was one of the key threats to the business that everybody was searching for an answer to,” says Snow, who took the helm at Gold’s Gym International in 2009 after having worked for five years as regional vice president at Omni Hotels, a sister company of Gold’s.
In its many years of existence, Gold’s has carved out its territory as an operator and franchisor of full-service gyms: large facilities covering 40,000 to 60,000 square feet that offer a wide array of fitness services and amenities. The company, which has 700 gyms and more than 3 million members worldwide, has always fared well in the full-service segment of the fitness market.
In more recent times, GGI has also begun operating and franchising fitness-only gyms — midsize facilities covering 20,000 to 25,000 square feet that offer fewer services and amenities than the full-size gyms, at somewhat lower membership rates. These fitness-only facilities were the ones that were feeling the pinch from the rise of the discount microgyms when Snow came aboard.
“Our full-service gyms are really made up of two kinds of gyms,” Snow says. “We have the big full-service gyms with all the amenities: pools, basketball courts, group exercise programs, etc. And as we looked at the marketplace, we saw that these gyms continue to compete very well because they offer so much value.
“But then we have a segment of fitness-only gyms that are in that 25,000-square-foot range. They don’t have the basketball courts, the racquetball courts, the pools, those kinds of things. They were more susceptible to this new low-cost discount gym that was coming into the marketplace.”
The discount operators were opening scads of smaller gyms — 8,000 to 15,000 square feet — in areas near GGI’s fitness-only gyms. And because the microgyms operate on lower overhead and can therefore afford to offer super-low membership rates, they began luring Gold’s customers away.
“In those markets where they built the discount gyms, there was a lot of attrition,” Snow says. “We started feeling the effects of the low-cost gyms on our product. Sometimes it was as much as 25, 30 percent of the volume. That can be pretty significant to an operator, especially an independent operator or franchisee who’s got their entire life on the line and is personally guaranteed against everything.”
The proliferation of discount gyms had begun a couple of years before Snow joined GGI, and the company hadn’t taken any action to counter it.
“This started happening in ’07, ’08, and it grew from there,” Snow says. “I came in October of ’09, and it had not been addressed. So it was a pressing priority. It was critical that we resolve this problem.”
Weigh risks, benefits
Snow and his leadership team began looking at the idea of creating a new type of gym to compete directly with the discount microgyms that were cutting into Gold’s market share. There were pros and cons to be weighed. The weigh-in became a prolonged process. Eventually the pros prevailed.
“Once we decided to consider this opportunity, we pulled my team together,” Snow says. “My stakeholders in this were the GGI team, the senior executive team, the management team, the franchisees and the board of directors at our parent company, TRT Holdings.”
Adding a new product line to Gold’s traditional full-service line of gyms would be a major shift for a company that hadn’t changed its offerings much since its birth in Venice Beach, Calif., in 1965.
“Nothing had been added to our gym line in 45 years,” Snow says. “We’d been the same company offering the same product, basically, for a very long time. So this would be a major change in direction. We had to think it through: Should we compete in this low-cost, high-growth segment?”
There were significant risks to take into account.
“We had potential risks to GGI that we needed to work through and get everybody comfortable with, and I needed buy-in from the senior team here,” Snow says. “One of the major risks was possible damage to the brand. Not all line extensions work.
“So we went through a pretty long and arduous process of understanding this line extension before we jumped into it, because our brand is the most valuable asset we own. The Gold’s Gym brand has been around a long time. It’s a storied company. It has tremendous value, and you don’t want to damage that brand by making a mistake.”
The company also had to weigh whether it had the financial resources and manpower it would need to put a new brand into the marketplace.
“You don’t just go out and launch a brand,” Snow says. “It takes a tremendous amount of work from everybody and financial commitment. There were many questions that needed answers. Did we have the internal talent required to do it? Could we build these gyms? Could we put them up quickly? There were a lot of pieces to the puzzle when you start looking at launching a new brand like this. So we had got a lot going on here, because we’ve got a lot of divisions, and this would be a major undertaking by Gold’s if we decided to move forward with it.”
On the other side of the ledger, GGI’s leadership team also determined that the potential upside was significant.
“It seemed like an interesting opportunity,” Snow says. “As a full-service gym owner and operator, as well as a major franchiser, the low-cost gym seemed to provide a lot of advantages to our brand.”
Among those advantages: A new line of low-cost gyms would enable GGI to quickly increase its distribution of gyms across the country because the gyms could be built quickly. The gyms would be relatively easy to run, requiring only about half the management team that a full-service gym needs. In addition, they were projected to become profitable quickly.
“In the end we determined, after we’d gone through this process, that there were enough potential advantages and the risks were low enough that it warranted proceeding,” Snows says.
Lay out the plan
The next steps involved conducting consumer research studies, creating the new brand’s concept and image, creating financial models with best- and worst-case scenarios for the new line of gyms, getting the company’s franchisees on board with the new concept, and then, ultimately, presenting the idea to the company’s board of directors. It was a yearlong process in all.
“We presented it to the board of directors in the late fall of 2010,” Snow says. “We had a finance analyst who had completed a compelling set of financial models, and we presented those to the board. And the board, after quite a bit of discussion, agreed to fund the Gold’s Gym Express development on a beta-test basis. That gave us the funding mechanism we needed to move forward, to build between six and eight Express gyms.”
Over the next year, GGI wound up building six Express gyms in a variety of markets around the country to test the concept. The Express gyms offer Basic Memberships for $9.99 and Gold Memberships for $19.99 a month, as compared to the $30 to $50 monthly memberships at GGI’s full-sized gyms. All the Express gyms have performed well in their test markets.
“The beta-test gyms are performing much better than our original models projected,” Snow says. “One of the things we look at is upsell percentage: the percentage of customers who buy the Gold Membership instead of the Basic Membership because of the extra benefits that come with it, like tanning, massage, half-price drinks, and unlimited guest passes.
“Our models projected that these test gyms would have an upsell percentage of about 20 percent. We ended up with an upsell percentage over 50 percent — much higher, obviously, than we thought we would experience, and also much higher than the industry average.
“Our projections are at least a year ahead of schedule in terms of what we thought these test gyms would do. They break even much faster than we thought they would, and they’re growing to maturity very quickly, much quicker than we had projected in our pro formas. Also, they’re ranked right at the top of all of Gold’s Gyms in terms of service and customer satisfaction — and that’s coming right out of the chute.”
Based on these test-gym results, GGI decided this past spring to move forward full-throttle with development of the Gold’s Gym Express line of small, low-cost gyms.
“In the last couple of months, we made the financial commitment to move forward and to build up to 50 new Express gyms in 2013,” Snow says. “That’s where we’re at right now. We have 30 to 40 leases that we’re working on. My guess is we’ll build 10 in the first quarter of 2013 alone. And we’ve got a few gyms that will have leases done this year; we’ll probably get another six to eight done this year. Then we’ll probably get an additional 25 to 50 done next year. Our franchising division has about 30 gyms lined up right now for new franchisees.
“We’ll probably end up with between 50 and 100 Express gyms by the end of ’13, including those that will be in the pipeline. So we feel good about that. It’s right in line with our projections.”
Proceed with caution
Asked what advice he would give executives faced with similar challenges posed by low-cost competitors moving in and grabbing market share, Snow says it’s important to avoid the knee-jerk reaction of simply lowering your price and your standards to meet the competition head-on.
“Don’t jump to conclusions about discounting until you’ve researched and understood all the possibilities available to you,” Snow says. “Discounting is typically the first reaction that everybody has, and it’s typically one of the worst things you can do. Your services and your product line are based on certain things you did when you built the product to maintain certain margins.
“So just going and cutting your rates and allowing your product to stand as is, while this will probably drive some volume, will destroy your margins. And it will be very difficult to ever come back from that.”
Snow also recommends that if an executive is considering introducing a new product line that will affect the company’s overall brand, it’s crucial to avoid getting ahead of yourself and hurrying the process.
“There are times when you would like to move faster as a leader,” Snow says. “But it’s difficult to move fast until your internal teams have bought in. You can’t go forward without them. Now, not everybody is going to jump on board right away. But as long as they jump on board once the decision is made, you’ll be OK.”
In the end, as with most important tasks that businesses face, teamwork and group sacrifice were key elements that enabled Gold’s Gym International to successfully grapple with the tough competitive challenge it faced.
“There’s no problem that we would cross here in this company that any one person believes they have the perfect answer to,” Snow says. “We operate as a team. It’s a team environment. The team works together to help work through problems. We use the leadership and knowledge and expertise from all our people coming from different backgrounds to help us make the right decisions and move forward.”
HOW TO REACH: Gold’s Gym International, (972) 444-8527, www.goldsgym.com
THE SNOW FILE
Gold’s Gym International
Born: Manhattan, Kansas
Education: Bachelor’s degree in marketing, Kansas State University
What important business leadership lessons did you learn during your time in school that you use today?
My marketing classes helped me understand the value of consumer studies, customer focus and the need to drive top-line revenues. Today, my primary role is to balance revenues, customer service, and the owners’ priorities. And everything starts with revenue. You’ve got to look for it everywhere and drive it incessantly.
What was your first job, and what important business leadership lessons did you learn from it?
One of my first jobs coming out of college was with Marriott Corp. Marriott gave me an excellent basis of training for my future career. One of the things they taught is that they expect their managers to work hard and perform at a very high level. I took that credo and told myself I’m always going to be the hardest working person I know, and I’ve tried to do that throughout my career.
Do you have an overriding business philosophy that you use to guide you?
You’ve got to have a dynamic culture that supports your associates. And you’ve got to have an organization that takes the needs of the customers into account, and a mentality that doing those things will take care of your owner’s requirements.
What traits do you think are most important for an executive to have in order to be a successful leader?
You’ve got to be transparent. You’ve got to be courageous enough to go the uncomfortable route when you don’t have complete buy-in. You’ve got to be confident in your direction. You’ve got to think big. And you’ve got to be willing to swing the bat.
What’s the best advice anyone ever gave you?
Be aggressive and set the expectations very high for your company.
Eric D. Belcher was not overwhelmed by the fact that his company went from having a presence in four countries to having one in 44 countries in just a single year.
“When you’re in a rapid-growth environment, change is … not just something that you need to embrace and get used to,” says Belcher, president and CEO at InnerWorkings Inc. “It’s something you learn to feed on. It becomes exciting and important. My guess is if we dialed back our ambitions and had more time to spend worrying, who knows? We might find ourselves using that time to worry or talk about people at the water cooler.”
Belcher and his team have worked hard to position InnerWorkings as the market leader in outsourced print management services. They’ve done so by giving the customers what they want – a one-stop shop that can tackle all their printing needs.
He has been able to sell that promise and in the process, rapidly expand the company’s presence around the world. Belcher says the frenetic pace is only going to keep gaining speed.
“For us, it isn’t as though we’ve gone global and now we can sit back and integrate and grow at 5 to 10 percent and do what many other organizations do in situations like this,” he says. “We’ve both gone global and added about 300 people to our ranks last year. But we’re going to add at least that again this year to our company and probably grow at an extremely rapid clip once again.”
New people are showing up almost daily, bringing the total number of employees to more than 1,200 and still growing. Belcher says it’s not always easy, despite his affinity for rapid growth, to keep everyone moving forward as one.
“That makes the communication of who we are and what we do and where we’re going and making sure everybody is aligned all the more challenging than it would be if it were a more static environment,” Belcher says.
“We’re pioneering a space and we expect substantial competition at some point. By the time that competition comes, we hope to have a fairly meaningful jump on that competitor or set of competitors.”
Here are a few things Belcher and his team do to manage the company’s rapid growth and prepare for future competition in the print management industry.
Find the right fit
Belcher doesn’t want there to be any misunderstanding with potential new hires at InnerWorkings. In short, the message he conveys is that the future is subject to change and so is your job.
“It takes a certain amount of courage to show up on day one knowing that you’re going to have to deliver and it’s not the company that’s going to tell you in some long-written form exactly what the expectations are,” Belcher says. “It’s up to you to help us figure out where the gaps are and plug your talents in.”
Recruiting at InnerWorkings is done for individuals and not for specific positions. The reason is that some positions that exist today will not exist tomorrow and some that will exist next week haven’t even been thought of yet.
“There is sort of a natural selection that goes on with the candidate pool when you do recruit more for the company, the cause, the energy, direction and vision versus, ‘Hey, I’ve got a role and I need to fill it,’” Belcher says.
When you’re looking to bring people in quickly, you have to be in an almost perpetual state of recruiting. It’s probably not something you should delegate.
“I do delegate plenty, but on this one, I stay pretty involved as I find it’s much better to have a firm grasp of who we’re partnering up with early on versus making a decision and then hoping there will be an opportunity to blend that person into the culture and strategy of the business,” Belcher says. “It’s just time well spent.”
Skills are obviously important, but when you’re growing fast, you need to focus more on personality and attitude and make sure the person you’re looking at can handle whatever you throw at them.
“We are looking for people who are hungry and have a fire in their belly,” Belcher says. “People who see the master goal, the major goal that we have as a company, which is revolutionizing one of the oldest and largest supply chains in the world. We look for people who can get excited about that just like us. So there’s a passion, a fire, an intangible that we are constantly searching for.”
One of the keys to InnerWorkings’s success at finding people is the recruiting groundwork that was laid before the company entered hyper-growth mode.
“We work very hard to understand the people that we hire and their background not so much from doing the rote checking of self-supplied references and making a few calls like that,” Belcher says. “We do it but by finding contact network overlaps where we can get candid feedback and also by watching an individual as they perform over a period of time prior to joining our company.”
If you don’t have the time to do that, focus hard on the attitude because it will be a key to your new hire fitting in and meshing with your team.
“We just communicate frequently and openly and generally; decisions made about hiring are made in a fairly collective manner where a number of people within our organization will have a chance to weigh in on somebody that we’re thinking about hiring,” Belcher says.
While Belcher believes the future is wide open for InnerWorkings, there do need to be goals and objectives to keep everyone on the same page. It’s the ability to toe that line and promote independent thought that still fits in with a common goal that is his challenge.
“It would be easier for me to micromanage and be more autocratic than it is to step back and have the trust that is required for people to flourish,” Belcher says. “There’s a way to stand back and allow autonomy, but yet still have a firm understanding of what’s going on in the business. That’s the challenge.”
Belcher and 10 other members of his leadership team have put on paper a few priorities that they each plan to pursue for 2012.
“It’s not a broad, ‘I’m going to do a good job this year,’” Belcher says. “It’s very specific. That group meets once a week and we pull that document out every month and we make sure that within the macro, we all understand what everybody else is focused on and expects to accomplish throughout the course of the year.”
With that foundation in place, leaders are free to work within a set of parameters to find their own creative ways to deal with issues and challenges that arise each day.
“There is everything in between those one or two top priorities and the day-to-day, which is the vast majority of what fills our work days,” Belcher says. “With that component of the business and how we interact as a leadership team with one another, it’s very open, very dynamic and there’s a tremendous amount of autonomy that each leader has to make decisions.
“Ultimately, as long as there is that vision of what is the one thing that my function or my geography or my role needs to knock out this year to make it a successful year, it works.”
The regularly scheduled meetings work to keep everyone apprised of what their colleagues are doing. Beyond that, Belcher says he doesn’t want his direct reports to feel like they have to check in with him on every little decision that needs to be made.
“I want to be able to make decisions that I feel safe and comfortable making without having to hit the pause button and consult and hold meetings,” Belcher says. “There’s a simple framework that we’re all working toward, but outside of that, there’s quite a lot of room and freedom and excitement that people feel.
“The enjoyment people feel on Monday morning is exponentially magnified when there is this sense that I can make decisions within my world. If I don’t make them all right, which I’m not going to, I don’t have to worry about hearing about that. As long as I’m making decisions, everything is going to be good.”
Take smart risks
It may not always seem like it’s possible, but you’ve got to have a plan in place no matter how fast your business is growing. If you don’t, it will eventually get the best of you and you’ll hit the wall.
“That starts not with the CEO saying, ‘Hey guys, go take some risk and it will be cool if it doesn’t work out,’” Belcher says. “It starts with having a disruptive, ambitious and aggressive growth strategy which by definition is somewhat friendly to taking some risks and trying new things.”
If you always keep the big picture in mind and trust that your people are talented enough to deal with the occasional bump in the road, you can avoid the things that slow companies down such as a bottleneck for making decisions.
“It isn’t as though we’re reckless and charging ahead and someday, we’ll look back and clean up the mess,” Belcher says. “But we’re very comfortable making quick decisions as a company. I think we’re just very good at correcting as we go.”
Dialogue needs to be regular so that people constantly feel they are in the loop and know what’s happening and know that they need to be doing.
“We hold quarterly calls, we call it an open mic where for an hour, we’ll get on and it’s essentially a Q&A with people from around the world asking questions and things of that nature,” Belcher says. “It’s a very candid and open internal conversation.”
Belcher also makes it a priority to get out to his company’s locations around the world as frequently as he can to have face-to-face meetings. But the key, whether it’s laying out a new plan or troubleshooting an existing one, is to keep things as simple and manageable as possible.
“We really do keep to a minimum that which is most important to us, which is client retention and the reputation we have in the marketplace based on what our clients say about us,” Belcher says.
The formula has helped InnerWorkings grow from $482.2 million in 2010 to $633.8 million in 2011. One of the keys to enduring success will be Belcher’s ability to stay ambitious.
“The natural inclination when something is working so well is to hunker down and try to protect it,” Belcher says. “We suppress that and our goal is to keep introducing is at as rapid a clip as we can do without compromising our service offering.”
How to reach: InnerWorkings Inc., (312) 642-3700 or www.inwk.com
People with the right attitude help you grow.
Have a plan everyone understands.
Make smart decisions.
The Belcher File
Eric D. Belcher
President and CEO
Born: St. Paul, Minn.
Education: Bachelor’s degree, Bucknell University, Lewisburg, Pa.; MBA, The University of Chicago Booth School of Business
What was your very first job?
It was working for the village that I lived in in Southern California for the summer, doing things like laying asphalt and trimming trees. Laying asphalt in the summer in Southern California, as hot as it is, I lost a lot of weight. It taught me I better go to college and get an education. It was a requirement of my parents that I get a job for the summer and I guess that’s the one I saw advertised and went and applied for.
Who has had the biggest influence on your life?
My wife, Lisa. Knowing me as a person, knowing me from the inside, she’s able to put into a unique perspective questions I may have regarding my work environment. And I can always trust that she is going to give me the most direct and open feedback that I’ll get from anybody, anywhere. It doesn’t hurt that she’s super bright.
Belcher on making decisions: The day I see the company struggling to make the difficult decision or taking too long to make what is a somewhat obvious decision, but yet is not being talked about with pure intellectual honesty in meetings — that type of stuff we have zero tolerance for. We’re just very open and we’re very quick at making decisions. That’s in part because of the business model and our strategy and our business approach and that’s what gives me the confidence that we’re doing things right.
Each year in June, Ernst & Young celebrates entrepreneurial leaders across the country as part of the Ernst & Young Entrepreneur Of The Year Awards. This year marks the 26th year in which Ernst & Young has recognized those leaders.
Over the years, we’ve learned that entrepreneurial leaders are a little different from the rest of us. They can take ideas and put them into action where others cannot, and along the way, they lead others into a better future. We call this “turning vision into reality” as that is exactly what entrepreneurs do.
In recent years, we have had a slower economy and we have seen the start of a recovery. However, during challenging economic times, entrepreneurial leaders step up to the challenge, as you will see with this year’s finalists. The companies represented at this year’s Ernst & Young Entrepreneur of The Year Gulf Coast Area Awards grew the number of people employed in excess of 30 percent and grew revenues in excess of 40 percent during the last two years combined. There can be no doubt that these entrepreneurial leaders, through their vision, will bring our country back to prosperity.
Ernst & Young has been recognizing these risk-taking visionaries for 26 years, and over that time, it has recognized more than 8,000 entrepreneurial men and women. The Entrepreneur Of The Year Award has grown to be recognized as the leading business award. While Ernst & Young is proud of this accomplishment, the credit goes to the thousands of entrepreneurial leaders who have been recognized over the years. The fact that the program has endured and grown for more than 26 years is a true testament to the entrepreneurial leaders themselves.
The program now celebrates entrepreneurial leaders in 26 U.S. regions each year. The regional award recipients then participate in the National Entrepreneur Of The Year awards in November in Palm Springs, Calif.
At that ceremony, 10 award recipients are selected and one is selected as the National
Entrepreneur Of The Year overall award recipient. The National Entrepreneur Of The Year overall award recipient will then participate in the World Entrepreneur Of The Year in Monte Carlo, along with award recipients from 50 other countries. This truly is the world’s business award.
The National Entrepreneur Of The Year Program is the culminating event for a five-day Strategic Growth Forum that had more than 1,500 participants last year. This is the only event of its kind that is focused on the CEOs of companies. The panelists and speakers are unparalleled and have included special guests such as George W. Bush, former president of the United States, and Richard Branson, CEO of Virgin Air. This year will feature Frederick Smith, chairman, president and CEO of FedEx Corp., and Irene Rosenfeld, chairman and CEO of Kraft Foods. The content of the program is focused on strategic growth strategies, from initial public offerings to expansion in high-growth markets.
We are honored to present the 26th Ernst & Young Entrepreneur Of The Year Awards and to recognize the entrepreneurial leaders of the past, present and future that make this the greatest country in the world to do business. Turning vision into reality, which benefits all of us.
Todd Zuspan is a partner with Ernst & Young LLP ?and is the director of the Entrepreneur Of The Year Gulf Coast Area program.
Finalists & Award Recipient
• Joe Fowler, Stress Engineering Services Inc. (Award Recipient)
• Antonio R. Grijalva, John W. Allen, G&A Partners (Finalist)
• Richard Eichler, Hart Energy Publishing (Finalist)
• Curtis Brown, Rimkus Consulting Group Inc. (Finalist)
• Charles Schugart, U.S. Legal Support (Finalist)
Consumer Products & Services
• Earl Hesterberg, Group 1 Automotive Inc. (Award Recipient)
• Melvin Payne, Carriage Services Inc. (Finalist)
• Donald Klein, Chesmar Homes Ltd. (Finalist)
• Drake Mills, Community Trust Bank (Finalist)
• Jerry Lasco, Lasco Enterprises LLC (Finalist)
Distribution & Manufacturing – Energy
• Terry Looper, Texon LP (Award Recipient)
• Thomas Amonett, Champion Technologies Inc. (Finalist)
• Ray Rice Jr., RB Products Inc. (Finalist)
• C. Jim Stewart IV, Surfire Industries USA LLC (Finalist)
• Ron Farmer, US LED (Finalist)
Exploration & Production
• Scott Smith, Vanguard Natural Resources (Award Recipient)
• Matt McCarroll, Dynamic Offshore Resources (Finalist)
• John D. Schiller Jr., Energy XXI Ltd. (Finalist)
• Alan Smith, QR Energy LP (Finalist)
Health Care & Health Care Services
• Richard Zuschlag, Acadian Ambulance Service (Award Recipient)
• Dana Sellers, Encore Health Resources (Finalist)
• TJ Farnsworth, SightLine Health LLC (Finalist)
Logistics & Industrial Services
• June Ressler, Cenergy International Services LLC (Award Recipient)
• John Magee, Crane Worldwide Logistics (Finalist)
• Carolyn Doerle, Doerle Food Services LLC (Finalist)
• Brian Fielkow, Jetco Delivery (Finalist)
• Sandy Scott, Sprint Industrial Holdings LLC (Finalist)
Oil Field Services
• Cindy Taylor, Oil States International Inc. (Award Recipient)
• Darron Anderson, Express Energy Services LP (Finalist)
• Chris Beckett, Pacific Drilling (Finalist)
• Christopher DeClaire, Vantage Drilling Co. (Finalist)
Oil Field Technology
• Richard Degner, Global Geophysical Services (Award Recipient)
• Robert Stewart Sr., Lime Instruments (Finalist)
• Peter Duncan, MicroSeismic Inc. (Finalist)
• Allen Howard, NuTech Energy Alliance Ltd. (Finalist)
• Bob Beauchamp, BMC Software Inc. (Award Recipient)
• A. Jay Harrison, Mav6 LLC (Award Recipient)
• James Taylor, Arun Pasrija, CHR Solutions Inc. (Finalist)
• Rick Pleczko, Idera (Finalist)
• Andres Reinder, PROS Holdings Inc. (Finalist)
Revenue and profit from international sales needs to be part of any strategic growth plan. Growing international sales can be done by developing a distribution model (organic) or through acquisition (inorganic).
As chairman of Clark-Reliance, along with Rick Solon, president and CEO, we have successfully used international sales as part of Clark-Reliance’s overall strategic growth plan.
Develop a distribution model (organic growth)
In order to use organic growth to expand internationally, it is important to seek natural markets for your products beyond the borders of the United States. To do this strategically and successfully, you cannot look at the entire international market, but rather regions or countries that offer a reasonable opportunity for product placement.
For example, if you are looking at one of your first international endeavors, you need to look for opportunities in close proximity to the United States. If you are close to home, you will incur less capital risk and become established more rapidly. Initially, you may want to consider looking at Canada and Mexico. This will allow you to get a flavor for international business, currency exchange rates and overall business risk that will be tolerable for your company.
When entering any new market internationally, there are a few critical first steps:
? Start with a select few countries or one region.
Too many options can cause a loss of force evaluating logistics costs. Import/export duties, laws, regulations and demographics all need to be done thoroughly and can be very time consuming.
? Learn how to do business in that country.
Seek information from international trade consultants like Chamber of Commerce Trade forums or a specific country’s trade mission and trade shows. A great deal of information and some potentially good contacts can be gathered. The Internet can also be a great way to find organizations that will help you become established properly. Sometimes a local law firm or financial services company can be a great guide. One of the most effective ways to learn is by visiting potential customers and learning what influences their buying decisions. This also will give you an idea of how much support infrastructure you will need to be successful. Make sure you consider time differences, language barriers, foreign exchange issues, letters of credit and local competition.
? Seek adequate representation in these markets.
Critically look at distribution channels and determine the best course of action. You can utilize a manufacturer’s agent or a direct sales representative. Using a manufacturer’s agent is generally less expensive (you only pay them if they sell) and is a great way to start building sales. Using a direct sales person is more expensive but may be more effective in technical consultative sales. Ultimately, a hybrid of both will prove most productive. After getting established, your success rate may warrant a sales office or manufacturing facility in the region to support your efforts.
? Evaluate and prioritize growth markets.
Once you are established in your initial target countries or region, you should look at other countries or regions in the world that have robust markets for your products. In general, the developing countries or non-OECD (Organization for Economic Cooperation and Development) countries like in Southeast Asia and the Middle East offer the best short-term growth prospects.
The hybrid approach
A hybrid approach to organic growth is to look at a partnership or joint venture. Properly chosen and implemented, joint ventures can be a great way for your small business to get in on opportunities and profits that otherwise you would miss out on. By teaming with other people or businesses in a joint venture, you can extend your marketing reach, access needed information and resources, build credibility in a particular target market and access new markets that would be inaccessible without the partner. This is a good option to consider before growing inorganically because it requires less risk and generally less capital.
Inorganic growth is often a faster way for a company to grow when compared with organic growth. Through acquisition you can align yourself with an established operation and be up and running relatively quickly.
Any acquisition should be a good “fit” with your strategic plan and complement or expand your product line. The acquired company will know competition, customer preferences, buying habits and the general market.
The expertise in a country or region that can be gained through acquisition should not be minimized. Gaining extensive knowledge of customers and markets is expensive and generally takes many years to gather, so the “speed” of an acquisition can be very beneficial. The drawbacks to this approach beyond a significant cash outlay for the acquisition are a longer and more costly period of due diligence, foreign legal issues and the normal complexities of purchasing any company.
Matthew P. Figgie is chairman of Clark-Reliance, a global, multidivisional manufacturing company with sales in more than 80 countries, serving the power generation petroleum, refining and chemical processing industries. He is also chairman of Figgie Capital and the Figgie Foundation.
Rick Solon is president and CEO of Clark-Reliance and has more than 35 years of experience in manufacturing and operating companies.
The development of a strategic business plan requires an analysis of growth through strategic acquisition. Making strategic acquisitions is a fundamental component of a company’s business plan and revenue enhancement.
As chairman of Clark-Reliance, I get together with Rick Solon, president and CEO, and the rest of our leadership team to continue to use strategic acquisitions to grow our 127-year-old company.
Any strategic acquisition strategy should consider the following:
Evaluate companies that have products and services that can expand and diversify your current product line and overall value.
It is important to find companies that not only complement your current product line, but improve and add to the product offering. Identify companies that have products that can diversify your existing product offering but that fit into the bundle of products you are selling to a specific market or market segment. The integration of the existing and acquired product lines creates sales opportunities to all customers of the merged companies.
You should also consider acquisition opportunities that will allow you access to a different industry or industry niche but one that still fits your strategic mission.
Your core customers probably are focused within a few industries. An acquisition can act as the “introduction” for your existing products into an industry or industry segment that you have not been able to penetrate but that has good growth potential. You may need to evaluate your sales channel model, because your existing model may not be effective for the new industry.
There are a few fundamentals as you start an acquisition strategy:
1. Identify and create a list of companies that you want to acquire that can result in a market share increase, product line diversification or industry diversification. Focus on companies that complement the core strategic intentions of your organization. Create a cross-functional acquisition team consisting of members of sales, marketing, operations, finance and business systems to discuss growth and become your due diligence team.
2. If you do not have sufficient internal expertise, identify a consultant with skill and experience in acquisitions who can assist you in this process.
3. Determine the best way to contact the company you are interested in and their preferred way to be approached. Some companies may prefer a letter of introduction, while others would prefer phone contact. Someone on your team may have a relationship or contact that can open the door for discussion.
4. Construct a letter of intent to purchase the company outlining key purchase terms and conditions and an overall timeline to complete the deal.
5. Create a comprehensive due diligence checklist that your team will use to thoroughly examine or audit the potential acquisition.
6. Make sure that the company is truly a good fit as you examine the financials and learn more about the operation, corporate culture and work force.
7. Have a law firm with an expertise in acquisitions put the deal together. They know the details and can guide you through the legalities, administration and what to do when you run into problems, which is inevitable in any transaction of this type.
8. Get your cross functional team very engaged during the due diligence phase. That way, you can begin integrating the two staffs, which will help the company you are acquiring get to know the people and get adjusted to your corporate culture.
While the acquisition process is a long, tough transition for all involved, if the right fit is found between two companies, it can make a world of difference for your company’s growth moving forward.
Matthew P. Figgie is chairman of Clark-Reliance, a global, multidivisional manufacturing company with sales in more than 80 countries, serving the power generation petroleum, refining and chemical processing industries. He is also chairman of Figgie Capital and the Figgie Foundation.
Rick Solon is president and CEO of Clark-Reliance and has more than 35 years of experience in manufacturing and operating companies.
Mike Shumsky’s timing wasn’t the greatest when he joined CiCi’s Pizza as CEO in September 2009. It was right about that time the recession began to pummel the Coppell, Texas-based restaurant chain’s sales.
“We had started to see the effects of the softening economy in different segments of the restaurant industry six to 12 months before that,” says Shumsky, who before joining CiCi’s parent company, CiCi Enterprises LP, held similar executive positions with La Madeleine restaurant group, Sonic restaurants and Johnny Rockets.
“In late 2008 and early 2009, we started to see sales slow down at some of the higher-ticket restaurant companies,” he says. “We thought we’d be a little bit more immune to it at CiCi’s, though, because we’re at a lower price point. But toward the end of ’09, we started to feel the softening of the economy in our own business. That’s when it really started to reach us.”
The recession insinuated itself on CiCi’s and its segment of the restaurant market with a sort of slow-motion, delayed-reaction effect.
“In late 2008, when things started slowing down throughout the economy, all of us in the restaurant industry could sense that, yes, things were starting to change, but we went through an initial period of disbelief,” Shumsky says. “Then there was a period of unfamiliarity; that’s what I’d call the next cycle we went through. Then all of a sudden you started to really see it firsthand and believe it. So you go through these levels of consciousness of where the economy is headed and how it will affect you. That’s what I think a lot of people were trying to figure out.”
Sales began to slow appreciably in late 2009, and that’s when it became clear that CiCi’s and its competitors in the lower-price segment of the restaurant market would not remain immune to the recession’s effects.
“We started to see it in the softening of our top line — our sales numbers, our year-over-year growth numbers,” Shumsky says. “And because we basically have a daily sales cycle in the restaurant business, it started to become evident to us pretty quickly that things were starting to slow on the sales side.”
Drill down, do triage
Once the reality of the economic downturn started to settle in, the CiCi’s leadership team took steps to ensure that the data it was receiving from its nearly 600 restaurants in 36 states was timely and accurate. Then it made moves to rein in the company’s growth plans and spending in several areas.
“First, we made sure we had good information and that the results we were getting were reflective of the actual things that were happening in the marketplace,” Shumsky says. “We shored up our communication systems, our internal reporting systems, our financial reporting systems. We converted to more of a daily focus on our business. We started tracking sales daily instead of weekly. We started to drill down deeper into our business.
“The other thing we did was put in conservative stops around the growth plans we had, to make sure we had a good handle on it and that we were growing at a pace that would reflect the new marketplace. We slowed down our people hiring and slowed down some of our growth initiatives.”
Overall, the battening down of the hatches amounted to roughly halving the company’s projected growth rate, and CiCi’s leadership team analyzed its markets to concentrate the slowdown in parts of the country that it deemed riskier in terms of expansion.
“The company had been growing at a rate of roughly 50 stores a year, and we slowed that down to 25 — and that was over time, it wasn’t overnight,” Shumsky says. “In our business, we have a pipeline of real estate and a pipeline of franchisees that would have started a couple years earlier. It takes a number of years to get a franchise approved and to get a piece of real estate approved. So we went back and re-evaluated all of those transactions, and looked at the ones that were high-risk pieces of real estate with the economy changing.
“Those markets that were getting worse — which for us were the Southeast, the Arizona market, the Vegas market, and some markets on the East Coast and in Florida — we looked at those, and where we had development and growth planned in what we considered to be markets that were going to be hit the worst, we went back and re-evaluated them, not only in terms of the franchisees in those market, but also the growth expectations.”
In the company’s core markets where it already had significant penetration and larger, stronger bases of franchisees, it didn’t pull back as much.
“It was kind of a triaging effect,” Shumsky says. “We wanted to make sure we were isolating the more difficult, higher-risk areas of our growth, and then reinvest in those areas that were fundamentally stronger.”
The company used a site analysis tool to determine which geographic areas to invest in and which ones to pull back from.
“We ran the demographic and statistical information through that model to define our top 70 markets in the country, and then broke that down into smaller groups of restaurants,” Shumsky says. “We made sure we were honed in on the quantitative side of our business, both in terms of the financials and in terms of our growth modeling plans. We ran it forwards and backwards, and out of that we identified what markets were at risk and what markets were less risky, and then we worked our way forward from there.”
Listen and support
Next, the CiCi’s leadership team “circled the wagons,” as Shumsky labels the process they went through. They went out into the field and talked to as many of the company’s roughly 570 franchisees as they could — Shumsky estimates they were able to talk to about 85 percent of the franchisees in all — to find out what they needed help with in order to improve their restaurants, in terms of both diner experience and profitability. They did this in the form of a “listening tour” — a series of regional meetings in which the company’s franchisees were invited to talk about what they needed from their franchisor company to run their restaurants more effectively.
At these meetings Shumsky and his team learned there were several aspects of the business that the company needed to improve in order to help its franchisees improve their customer service and their bottom lines. These fell roughly into three areas: marketing support, training and service call response time.
“There were a number of things franchisees told us were important to them in terms of how we can support them better from a franchise support and service perspective,” Shumsky says. “From answering a phone quicker to responding quicker to dealing with their business issues quicker, whether it be R&D or manufacturing issues or product issues.”
A recurring theme the company’s leaders heard was that CiCi’s franchisee training program needed to be streamlined.
“We came back with a message that we needed to revitalize and simplify our training program,” Shumsky says. “This is a restaurant business, and if you have an operations manual that is two inches thick, that’s too complicated for franchisees. We received an awful lot of feedback that we needed to revise our training program, which we have now done. We’ve made it much simpler, much more concise, and we’ve gotten rid of some of the fluff that was in it.”
CiCi’s also reorganized its operations group to make it more responsive and supportive toward franchisees.
“For our district managers, which typically are responsible for supporting franchisees — each one is responsible for 25 to 30 stores — we changed their title to brand excellence managers, and we revised their job description to be more business consultants than managers,” Shumsky says. “We wanted them to be more than auditors auditing franchisees’ operations. We started directing them to provide more advice, more counsel, to transfer more business knowledge to franchisees and their operators. So it wasn’t just their job title that we changed. It represents a significant change in the type of people and the skill sets we now require in those positions.”
Another result of the listening tour is that CiCi’s is providing more detailed and tailored marketing support to franchisees.
“We changed the marketing function, because that was one of the key findings of the listening tour,” Shumsky says. “We’ve added a whole field marketing structure that didn’t exist before. So we now have regional marketing managers that work toward helping franchisees on the local issues they have. These regional marketing managers are not involved in national media at all. We still do national media, of course, but all of the local activities that can allow the local restaurant manager to get out in his or her community to help drive the business on a more localized level, we’ve added a lot of marketing resources in that area.”
CiCi’s Pizza had its annual company convention earlier this year. Attendees at the convention included restaurant franchisees, vendors and corporate staff. The event’s themes were “brand renewal” and “the start of something big.”
“We’re starting to feel like we’re turning the corner,” Shumsky says. “First of all, the economy seems to have bottomed out and we’re starting to see some life there. It’s not exactly vibrant, but you get a sense that there are things starting to happen. And secondly, all the things that we’ve done to invest in our business — technology, training, marketing, changing our organization around — they’re starting to have an impact. So we’re optimistic.”
The company has instituted a handful of improvement initiatives for 2012. The keys initiatives revolve around improving restaurant profitability and growing the company in a cautious fashion geared toward the realities of economic projections for the restaurant business over the next few years.
“We’ve put in a target of saving $70,000 a restaurant for our franchisees this year,” Shumsky says. “In other words, we plan to improve profitability by $70,000 per restaurant. And $70,000 a store is a lot of money. We have a number of test projects in place, and from those tests, it’s looking like we can save at least half of that amount very quickly.”
Key components of the company’s restaurant profitability system include a new labor scheduling system, a new food-cost model, a new point-of-sale register system, reformulation of some food products, centralizing the placement of condiments in stores, changing pizza box designs to use less cardboard, and changing the design and layout of the restaurant buffet to reduce the amount of food wasted by diners.
Lastly, CiCi’s has modified its growth plan to fit economic expectations moving forward.
“We’ve come out of this planning process with a new look at our business, and we’ve labeled it sustainable growth,” Shumsky says. “It used to be ‘Grow at all costs’ in the restaurant industry. You know: ‘Let’s just grow; let’s grow 100 stores, 200 stores.’ You heard all of these industry experts out there talking about the growth they were going to achieve, and none of them delivered.
“So our deal now is sustainable growth. Let’s build a fundamentally conservative, realistic growth model that can grow at a rate of 25 or 30 stores a year over the next eight to 10 years, and do an awesome job with it, making sure we have good site selection, good franchisee selection. We call it our QQ strategy — quality franchisees and quality sites. So that’s what we’re going to do.”
HOW TO REACH: CiCi Enterprises LP, (972) 745-4200, www.cicispizza.com
THE SHUMSKY FILE
NAME: Mike Shumsky
COMPANY: CiCi Enterprises LP
Born: Traverse City, Mich.
Education: Bachelor’s degree in accounting, California State University-Fullerton; MBA, Pepperdine University
What’s the most important thing you learned in college that you use today in your work?
Financial discipline — I learned that in college. And analyticals — the analytical skills have helped me a lot in my business life.
What was your first job?
I worked at Knott’s Berry Farm in Southern California as a candy maker’s apprentice. I worked at Knott’s for 10 years, through high school and my college undergraduate years, and when I got out of school, they hired me in their accounting department.
What important business lesson did you learn from that job?
Persistence. That’s a huge one for me. I’ve gone through lots of turnaround situations, and sometimes you just have to hang in there and stick with it.
Do you have any overriding business philosophy that you use to guide you?
Yeah, I do: ‘Good, better best, never let it rest, until the good are better and the better are best.’ That’ll be on my tombstone. Everyone who knows me knows that about me. There’s always an opportunity to get better at what you do.
What traits do you think are most important for a CEO to have in order to be a successful leader?
Honesty and integrity. Character. People see what kind of person you are through the things you do.
What’s the best advice anyone ever gave you?
‘It’s just tacos.’ I’m one of those driven kind of guys, never happy, never satisfied. One day, a manager I was working with at Taco Bell said to me, ‘Mike, it’s just tacos.’ In other words, don’t take everything so seriously. There’s always a way to figure out the problems you’re dealing with. Be patient, think things through, don’t overworry, respect your own judgment, respect the people around you and lighten up a little bit.
When the Orange County Business Journal published the newspaper’s annual listing of the region’s Top 50 Employers, the MemorialCare Health System showed a 19 percent increase in its workforce over the previous year — the highest gain among the top businesses.
That growth is part of MemorialCare’s expansion of its physicians, hospitals and outpatient services, including within its six Southern California hospitals, as well as with innovative programs and partnerships.
Smart Business Magazine turned to Barry Arbuckle, Ph.D., who serves as president and CEO of MemorialCare Health System.
How is today’s marketplace impacting health care systems?
While all U.S. health care organizations are being challenged by today’s current economic climate, lower reimbursements and the move by payors to value-based purchasing, organizations such as ours are growing their capacity to improve health care in our communities. We’re expanding our ambulatory care, adding hospitals and broadening outpatient offerings. Our goal is delivering the best value on a consistent basis at all of our sites, improving quality and lowering costs. The expansion of the MemorialCare family of providers enables our integrated health care system to deliver even better and more comprehensive care.
The constant pursuit of bold goals in both clinical and service excellence and steadfast fiscal discipline are essential to the ability to pursue new dimensions in health care. So, too, is the commitment to stay ahead of the curve by implementing new approaches that ensure patient satisfaction, physician partnerships and also employee engagement.
Where does continuum of care fit in?
An important focus for health organizations is to provide the most comprehensive and coordinated care for community members in all their stages of life. That commitment means offering the finest quality care for patients and their families, enabled by best medical practices, the clinical expertise of top physicians and innovative technology.
MemorialCare’s wide geographic coverage in Orange and Los Angeles counties offers a full continuum of care with about 1 million annual patient encounters. This coverage is important to the health plans that are increasingly moving to narrow networks, which only include providers demonstrating that they can offer excellent care, while managing costs. Partnering organizations tell us collaboration offers an unparalleled opportunity for future growth and success.
To further this continuum of care, we added Community Hospital Long Beach and established one of California’s fastest-growing medical foundations. There are also several outstanding medical groups that are part of MemorialCare Medical Foundation, including the MemorialCare Medical Group. Recently more than 400 Greater Newport Physicians’ primary and specialty physicians serving 100,000 patients in Orange County joined us, creating the new Independent Practice Association (IPA) division that offers more physician alignment opportunities. Nautilus Healthcare Management Group now leads the MemorialCare Medical Foundation’s IPA division and practice management services.
What other services are included?
An important growth area is retail health that offers accessible, convenient care for minor illnesses and injuries, including MemorialCare HealthExpress retail clinics located inside ALBERTSONS/Sav-On Pharmacy Stores in Huntington Beach, Irvine and Mission Viejo.
Electronic Medical Records are also critical to the care continuum and available at our hospitals as well as physician offices and ambulatory sites. Personal health records are accessible online to many patients. Through this technology, patients will receive more coordinated care with clinicians accessing information on their condition, allergies and medications — all at the caregiver’s fingertips.
How is staff engaged in these efforts?
MemorialCare is one of just 27 businesses worldwide and the only one in California to receive the prestigious 2012 Gallup Great Workplace Award. Gallup compares employee engagement results of 7.5 million survey respondents from 965,000 work teams in 177 countries and evaluates strategic plans and best practices to select winners that establish new global standards for engaging employees.
According to Gallup, engaged employees are safer, they are more productive, customer-centric and successful. They establish a new global standard for engaging people. When compared to millions of workgroups studied, awardees create an environment that values people. They go far beyond the norm to ensure each employee has an emotional connection to their company’s mission and growth and create an environment that values people, MemorialCare’s 11,000 plus employees, 2,500 affiliated physicians and 2,000 volunteers all contributed to this tremendous honor.
What about health and wellness?
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When Bill Nuti took the reins at NCR Corp. in 2005, he inherited a troubled company. As he describes it, NCR at that time was a stagnant 120-year-old technology conglomerate that had developed “muscle memory on how not to grow.”
Eight years before Nuti came aboard, NCR had been spun off by AT&T as an independent company after having been owned and operated as a unit of the telecommunications giant for six years. From the point of that 1997 spinoff until Nuti took the helm at NCR in 2005, the company’s revenue growth had been practically nonexistent. In fact, Nuti says, NCR’s compound annual growth rate for that eight-year period was less than 1 percent.
“We had bad habits,” he says. “We were not fast-moving or agile or entrepreneurial enough, and we were not taking enough risks as a company. We had a culture that had simply learned how not to grow.
“Now, [NCR] was still making profits during this period, but it was doing it the wrong way, by cutting costs — costs that were not sustainable in nature,” Nuti says. “They were making cuts in areas like training and development, innovation expenses, costs around research and development. You just can’t do those things. But we were doing them in the early part of the last decade, because we made everything about the current quarter versus building a great company for the long term.”
What NCR needed to fix itself went well beyond mere makeover. The company’s problems were deep-seated. Some were cultural, some were structural, and they needed to be addressed directly.
“What we needed to do, essentially, was to reinvent our company,” Nuti says. “We needed to reinvent the iconic brand that NCR is. And reinvention is a completely different business process than a turnaround, and much more difficult.
“You know, ‘Chainsaw Al’ does turnarounds,” he explains. “We don’t. We’re not in here to cut the costs and get the short-term profits up. We’re in here to build a long-term sustainably growing company that is meaningful to our customers, that can attack new market opportunities, and can also continue to grow its profit while building a stronger and larger customer base on a global basis.”
Quicken the pace
Nuti says one of the first things he did when he joined NCR was to address what he calls the company’s lack of agility by installing a new system to give managers more timely, useful company-performance data to base their business decisions on.
“We installed a management system in the company that was designed to speed up — like an engine’s RPM would speed up — the way the company works, in order to report on what was going on with our business and our customers.”
The new management system, Nuti says, has “a very strong, regular cadence.”
“We started to review our business, the key metrics that run our company, on a weekly basis, something we hadn’t usually done on a quarterly basis [in the past],” he says.
Among the metrics that NCR’s management team now reviews once a week are orders, revenue, services, “file value” or backlog, customer loyalty data, operations by country, data about the company’s manufacturing plants and their effectiveness, accounts receivable, and accounts payable, as well as a deep dive on every business line the company operates.
“We have a two-to-three-hour meeting per week now to discuss all of those key metrics and customers,” he says. “What this does is it very quickly ferrets out who can run at that speed and who cannot. So you almost have people self-select, based on this increased speed and momentum of the business you install.”
Fix broken contract
Another area Nuti turned his attention to early in his NCR tenure is what the company calls its social contract with its employees. This pact encompasses items such as compensation, health care benefits, retirement plans, the company’s culture and personality, its work environment, which includes facilities and the tools provided to workers to do their jobs, and employee training and development.
Nuti and his leadership team assessed the status of NCR’s social contract with its employees and were deeply dissatisfied with what they found.
“Candidly, it was broken,” Nuti says. “We had broken the trust with our employees. We had not been well focused on these elements that we feel make for a better company.”
While virtually all aspects of the social contract needed upgrading, some parts of the it were in much worse shape than others.
“We had OK compensation; we had OK benefits; we had less-than-OK facilities, at the time,” he says. “But those things could be fixed relatively easily over time.”
The element that needed the most work was employee training and development.
“We had been haphazardly cutting costs for the sake of [quarterly profits], without understanding the long-term impact on the company and our people,” he says. “As a result, training and development was destroyed.
“If you know the history of NCR, going back 127 years, we were well known for training and development. In fact, we invented sales training and many other contemporary sales training techniques today. But we had gone on a rampant cost-cutting campaign. We took out the training and development department, all of their people. We sold our training center in Dayton, Ohio. We removed virtually all aspects of training — leader-led training, online training and so on. And therefore, from that perspective of the social contract, we had broken that bond.”
With a lot of sweat, a lot of nerve and at considerable investment cost to the company, Nuti says he and his leadership team put NCR’s employee training and development program back on track to sustain the company’s success over the long haul.
“Today, NCR is 180 degrees from the NCR back in 2002-2003 that I described to you,” Nuti says. “At the height of the Great Recession in 2009, we rebuilt NCR University in Peachtree City, Ga. It’s a university system we have down there. We have a staff, a dean who runs our university. We flew in and trained over 5,000 people last year at that facility. And in 2009, we invested in online e-learning. Last year alone, we had about 230,000 registrants for training online. That’s about 10 courses per person at NCR.
“We now do training of our people in multiple countries around the world,” Nuti says. “We have completely revamped and reinvested in training at NCR, to the point where I would say we’re back at our height in terms of our company capability and in terms of delivery on that piece of the social contract. The most important element keeping NCR competitive long term is having people who are well trained and developed to do their jobs.”
Move the rocks
Another important move to rebuild NCR that Nuti’s team set in motion was a trio of company infrastructure changes. The first was to build a global manufacturing footprint by closing its plant in Scotland and building five new plants around the world. The second was to spin out Teradata, NCR’s highly profitable database software division. And the third was to move the company’s headquarters from Dayton, Ohio, to Duluth, Georgia.
Up until 2007, NCR had a single 40-year-old manufacturing plant in Dundee, Scotland, that served the globe for all of the company’s automated teller machine needs. Today, NCR operates manufacturing plants in Columbus, Ga., Manaus, Brazil, Budapest, Hungary, Pondicherry, India, and Beijing, China.
“We knew that longer term, we needed to be better positioned in the emerging markets, to have a balanced geographic footprint and revenue contribution coming from higher-growth emerging countries,” he says. “So, tactically, we had a program to move out of Scotland and build five plants around the world.”
Nuti says when NCR started the ball rolling with the change in global manufacturing footprint in 2007, the company got some tactical short-term gain in terms of cost savings, because it was moving from high-cost manufacturing locations to lower cost.
“So it helped us in the short term,” he says. “But over the long term, of course, the investment was significantly higher, and therefore you recycle those savings into building your longer-term strategy. And as you do that, you gain more traction in those other markets.”
When NCR spun out Teradata in 2007, the database software unit was the company’s most profitable division. “People thought we were crazy,” Nuti says.
“The problem was, Teradata was essentially getting all of the resources in the company, and the rest of NCR was starving,” he says. “We knew we needed to spin out Teradata for several reasons, one of which was that they served a different marketplace with a different technology and required a completely different infrastructure to be successful long term.”
The Teradata spinout has been a resounding success. In 2006, just before the move, the combined market cap of NCR and Teradata was about $6 billion; the combined market cap of NCR and Teradata today is more than $12 billion.
“It might go down as one of the best spinouts in history in terms of market cap appreciation,” he says. “We not only created a lot of value, we took two great companies that weren’t getting enough resources internal to themselves, and gave them enough resources and focus, and now they’re both thriving.”
In 2009, NCR moved its headquarters from Dayton, Ohio, to Duluth, Ga. Nuti says the move has had multiple benefits, the main one being cultural.
“We brought in a couple of thousand new people, new ideas, best practices from other companies, and a lot diversity,” he says. “It has made a big impact on NCR culturally. It’s been very positive.”
“So, strategically, we had a long-term view, but we knew we had to do things tactically to get us there — that would benefit us in the short term and medium term while helping us to achieve our long-term goals. And those are three big rocks that we moved.”
All of the infrastructural and cultural changes at NCR are starting to bear fruit. The company has put together two straight years of solid growth and strong financial results. And Nuti notes that in the fourth quarter of 2011, the company posted a record year-on-year revenue increase, which was up 17 percent, as well as records in operating income, cash flow, and earnings per share.
“All of those numbers are the best we’ve ever achieved, on top of a tough [comparison year], because 2010 was also a very good year for NCR. We had a good growth year, a solid growth year, and a great profit year. So we’ve now strung together a couple years of significant growth and expansion of profits.”
HOW TO REACH: NCR Corp. (800) 225-5627 or www.ncr.com
THE NUTI FILE
NAME: Bill Nuti
TITLE: Chairman, president and CEO
COMPANY: NCR Corp.
Born: Bronx, New York
Education: Long Island University, Bachelor’s Degree in Finance and Economics, 1986
What was your first job, and what did you learn from it?
I started as a newspaper boy when I was 9. I delivered newspapers for the New York Post. And I learned that hard work pays off. I used to deliver papers roof to roof. Because I lived in the projects, I would actually walk up one building, and my last paper would be delivered on the top floor, and then I’d go over the roof to another roof, and I’d start delivering papers from the top floor to the bottom floor. And then I’d go to another building, start on the bottom floor to the top floor. So I actually delivered papers by jumping over buildings and rooftops. I was kind of like Batman.
Do you have an overriding business philosophy that you use to guide you?
Do the right thing when no one is looking.
What trait do you think is the most important one for a CEO to have in order to be a successful leader?
I think the most important trait is a willingness to learn, and continue to be a learner. You know, when you get to this level, people think that you’re supposed to have all the answers, and that if you don’t have the answer, it’s a sign of weakness. And I think that you have to recognize that life is a continuous journey for learning. In this job, listening and learning is critical.
How do you define success?
I define success as being the most important business to your customers in the sector that you participate in.
What the best advice anyone ever gave you?
It would have to be John Chambers, my boss at Cisco [Systems Inc.], and his advice was, ‘Don’t be afraid to take risks — always.’