Douglas R. Waggoner uses ideas from Generation-Y to grow Echo Global Logistics Featured

8:00pm EDT August 26, 2010

Visitors at Echo Global Logistics Inc. ask Douglas R. Waggoner about the buzzing energy that makes the Chicago headquarters feel like a Wall Street trading floor.

“I jokingly say, … ‘If you take 1,000 24-year-olds and put them in a small enough room, the culture creates itself,’” says Waggoner, the CEO. “It’s a joke, but there’s also truth to that.”

The truth is Generation Y is strongly represented at Echo, (NASDAQ: ECHO), a provider of technology-enabled transportation and supply chain management services.

Waggoner, who previously founded SelecTrans LLC and served as CEO of USF Bestway, always felt like the young guy in the business. But when he stepped into Echo in December 2006, he realized the millennials there had their own way of doing things.

“I came from the world of command and control, hierarchy, corporate structure and work charts — how many stripes are on your sleeve,” he says. “That doesn’t work here. At Echo, our culture is largely defined by the millennial generation.

“People don’t really care what your title is or how long you’ve been around. It’s more like, ‘I’ve got a job to do; how are you going to help me do it?’ and, ‘These are the problems we’re facing; how are you going to help me deal with them?’”

Basically, he learned that his more than 1,000 employees are full of ideas for getting results. He just needs to create an open environment for those and then stay out of the way.

Those fresh perspectives have grown Echo’s revenue from $95.5 million in 2007 to $259.6 million in 2009. But that’s not all.

“I’ve grown as a result of being around a lot of people that thought differently about things than I did,” Waggoner says. “I came into the company with the idea that I was going to teach them a thing or two about the industry. More than that happening, I’ve learned a lot about what I didn’t know. You’ve got to be open-minded about the potential for better ways of doing things that might be foreign to your experience pattern.”

Create an open environment

For the most part, Waggoner’s focus is external and strategic. He deals with investors, customers, suppliers and other forces that affect Echo’s position in the marketplace.

But what happens inside, happens on employees’ turf.

“Whether it’s a dress policy or processes and procedures internally, the best things bubble up from within,” he says. “I may be part of the approval process. I may have power of veto. But I don’t see it as my job to sit around and design how the company operates.

“You get the power of ‘two heads are better than one’ times a thousand, and the best decisions come from that. My role is to create an environment where smart people can come up with good solutions and get out of the way.”

The key to creating that is providing pathways for ideas to come out as well as a culture that encourages openness.

“Everybody wants to be heard,” Waggoner says. “People that are deep into a process and doing it every day have a much different feel for it than somebody sketching it out on a whiteboard. … You’ve got to create an avenue for those ideas to bubble up to where they can take action.”

Echo’s avenues include the basics, like a suggestion inbox where employees can e-mail ideas. Waggoner personally responds to each one. If the issue doesn’t fall into an area of his involvement, he’ll forward it to the appropriate person and ask that he or she follow up.

He also created an independent committee — separate from management — as Echo Connect. The group is sort of like a mediator between the front line and the boardroom.

“I gave them basically three guidelines,” Waggoner says. “I said, ‘Whatever you do, it has to be good for employees, shareholders and customers. You can’t be overbalanced in the direction of employees, and yet, you guys are an employee advocate committee. Your job is to hear what the employees have to say, bring it to the executive group and also be willing to take the feedback from the executive group to the employees in a way that it’s credible because it’s coming from their peers.’”

Waggoner selected a chair for the group, then stepped aside. He didn’t care who other members were as long as they knew they had access to him to vet ideas.

While Echo Connect is one means of getting suggestions from employees to management, people don’t have to be on the committee — or jump through any hoops at all — to score a meeting with the CEO.

“I grew up in a world of hierarchy, and my new goal in life is to not have hierarchy,” Waggoner says. “You’ll always have some amount of hierarchy, so you’ve got to be willing to ignore it a little bit — which means walking around talking to people, having them feel free to walk in your office.

“People shouldn’t feel like they have to absolutely follow the chain of command. If somebody wants to come tell Doug Waggoner a great idea that they have, they should know that they can do that without any fear of retribution or political disfavor.”

To make employees comfortable with approaching him directly, Waggoner reaches out to smaller groups by hosting monthly lunches with five to 20 employees.

“I use half of the meeting to give them an update on the company, and then I use half the meeting to essentially interview them,” he says. “It’s a very nonthreatening environment; they’ve always got me outnumbered. I just simply drill down on some area and I ask, ‘What’s going on in the marketplace? How could we attack it better?’”

Even then, some employees will feel intimidated broaching ideas with you. Many will open up in their functional teams, but Waggoner uses anonymity as a catchall.

“Some people are prone to speak up and some are not, so you have to try to draw things out of people,” he says. “When there’s anonymity, people will say what they think. So we do periodic employee surveys to take a pulse of everything from, ‘How’s our culture working?’ to ‘How can we serve our customers better?’”

Regardless of what avenues you set up, the way you respond to ideas will determine how open the environment is.

“You can’t shoot people for taking a position or speaking their mind or even being critical,” Waggoner says. “If people recognize that you’re not going to overreact to things based on emotions and opinions, then they bring things forward.”

Dig into ideas

To keep a constant flow of ideas, Waggoner encourages them all. But not all transpire into something workable, so you need a way to evaluate them.

The first step is categorizing ideas into buckets. The big one at Echo is technology; then there are also sales, marketing and general business process ideas. Then, prioritize within each bucket.

“There’s a financial aspect,” Waggoner says. “So you’ve got to say, ‘What is it going to cost us to build this idea? What’s the return? Is it a nice-to-have or is it a need-to-have or is it a strategic needle-mover?’”

Just because something isn’t absolutely necessary, bursting with ROI or strategic in nature, doesn’t mean it c

an’t jump to the top of your priorities. Waggoner breaks ideas down into major projects and quick fixes. The latter can still make a difference, so consider, for example, how much value a quick fix could add.

“Making a user interface on a computer screen easier to navigate doesn’t mean a lot of money for the company, but it might be an aggravation to a thousand people that click on it a hundred times a day,” he says. “Oftentimes, those things can be done in a few man-hours of IT time. When you make a change like that, you’re bringing relief to an entire organization and it doesn’t cost a lot.”

If debate alone isn’t enough to distinguish good ideas, Waggoner pauses the process to gather data.

For example, Echo has been dipping its toe into an e-commerce initiative for several months. They’ve been debating who’s in the market for the product and whether the economics make sense. But the real clincher comes from reviewing actual data.

“We’re looking at very rich metrics: What’s the cost per click, what’s the cost per acquisition, what percentage of customers return and do business with us in the month following registration?” he says. “It becomes pretty mathematical. We had various opinions on whether we should go forward on this or not, but any reasonable person that sees the data, including me, I had to say, ‘I didn’t think this was as good as it’s turning out to be, and I stand corrected. We should invest more money in this.’”

In any case, the further along an idea moves, the more research it requires. Echo’s formal IT prioritization process offers a good glimpse into that. Waggoner can see which ideas make sense strategically, but because he doesn’t know the specifics, he sends good ideas to an IT business analyst.

The analyst, in turn, bounces ideas off of a group of “power users,” or key customers. If they seem to form a consensus, then the analyst specs out the project.

Next, it goes into a queue, where it gets weekly consideration from an IT steering committee, composed of the executives, some business analysts and some IT people.

“We review all of the IT projects from large to small, and we review the available resources,” Waggoner says. “Some things might keep getting pushed out, and things that have a high value-to-cost ratio might get slipped ahead. We’re just continuously reprioritizing as things come up.”

Whatever your decision on an idea, explain it to the employee who originally suggested it.

“Whether you do it or don’t, you’ve got to get back to the employee and tell them, ‘Yes, we’re going to go forward with this,’ or, ‘No, and here’s why,’” Waggoner says. “As long as they were heard, I think they’re happy to be in the inner circle of why decisions are made … and they’re encouraged to come back next time they have an idea.”

Visibly monitor projects

Sometimes, Waggoner apologizes to employees for putting them through so much change — but it’s an indicator of Echo’s agility.

“We’re willing to make adjustments quickly,” he says. “We’re not mired down in hierarchy. We try something; if it doesn’t work, we stop doing it and we try something else.”

Your work is never done. Once an idea is activated — and you’ve given credit to the employee who suggested it, of course — continue monitoring to make sure it achieves expectations.

Waggoner watches for red flags in three areas.

“You do it with the intention that it’s going to make things better, right? That’s the thesis going in,” he says. “What you look for is, A.) Do service levels decline? Does our cost-per-transaction increase? Then finally, does our contribution margin deteriorate? The amount of revenue that falls to the bottom line that’s associated with this process or business unit, if that’s deteriorating, then it was probably a bad idea. As long as we could tie the cause and the effect together, we would stop doing it.”

Waggoner tracks those and other metrics that define each project’s success. Plasma screens throughout the floor display stats in real time — contributing to the Wall Street intensity visitors feel. Overall company performance is monitored in two-hour intervals against five-day, 30-day and 60-day averages. He also measures the performance of sales and operations — both on team and individual levels — to hold everyone accountable to a project’s success.

“Transparency and visibility make everybody accountable so you don’t really have to manage people,” Waggoner says. “When I’m a salesperson and my up-to-the-minute performance is up on a screen where all my peers can see it, nobody has to tell me to work. It’s kind of like playing a football game and looking up at the scoreboard; you know if you can toast or if you’re going to have to work a little harder.”

By balancing those tight operations with an environment open to ideas, Waggoner welcomes Generation-Y innovation.

“I would say, culturally, we’re very laissez faire,” he says. “But operationally, we’re very intense and we’re very data-driven and we’re very metric-driven. That’s the yin and yang of the thing that allows us to be this way.”

How to reach: Echo Global Logistics Inc., (800) 354-7993 or http://www.echo.com/