When Michael Hilton looks at a soda bottle, he isn’t thinking about whether it tastes good or if it will quench his thirst. He is thinking about all the ways his company can incorporate better applications to make the bottle.
Historically, bottle labels were applied by rolling the bottle in a pot of glue, which would result in the adhesive dripping and covering areas of the bottle that didn’t need to be. The application Nordson Corp. developed was a pattern spray on the bottle. The leading edge of the label is placed on the bottle, it is wrapped around and receives a coating on the trailing edge, which saves 20 to 30 percent in adhesives.
“It’s a big seller for our customers,” Hilton says. “That’s one way to drive growth — create applications with technology.”
Driving growth is what his objective has been since being named president and CEO at the beginning of 2010. Nordson Corp., a more than 4,000-employee manufacturer of products and systems used for dispensing adhesives, coatings, sealants and biomaterials for several end markets, has been a strong company, even during the recession years. When Hilton arrived, he saw the company as an $800 million organization that could become a $2 billion or $3 billion business.
“If you step back, [Nordson] was surrounding the customer [with a] globally well-positioned [team], a talented team, and a team that executed,” he says. “That’s a very good foundation to build on.”
Globally, Nordson has a presence in more than 30 countries and has been well-established in locations such as China, India, Brazil, Europe and Japan for a long time.
“For a company our size, that’s a great global footprint to have to take advantage of opportunities for growth,” Hilton says.
To benefit from those opportunities he had to evaluate the business and understand the key areas that needed attention and resources.
Here is how Hilton is improving the operations and processes of a good company to make it a great one.
Cover all the bases
Coming into a company as its new president and CEO usually carries a lot of weight. Hilton didn’t want to just come in and make random changes. He had developed a relationship with his predecessor Ed Campbell, and he used that relationship to listen to any advice Campbell provided to understand the business.
“Initially, I spent the first couple of weeks largely with Ed getting a download on everything you would expect from the business to the customers to the investors to the organization, and he was pretty helpful in terms of his long history at Nordson,” Hilton says.
Hilton’s time with Campbell was short-lived, but impactful. The keys to the company soon belonged to Hilton and he had to now get out of the headquarters facility and visit the business around the world.
“As soon as I could I really looked to take the opportunity to travel and meet some customers, see our facilities globally and get a better handle on what we do day-to-day,” he says. “There is only so much research you can do from afar and only so many reports you can read, and until you have an opportunity to touch it and feel it, you don’t really have the same perspective.”
It was obvious to Hilton that Nordson was a very good company and performed very well in a difficult time. The company was fairly solid and there were strengths in its business model.
“If I step back and look at what were the key strengths that I found, one was how we surround and support the customer,” he says. “If you think about the underlying technology, the direct sales approach and really a service organization that is incredibly responsive to its customers, that’s as good as I have seen.”
Hilton has previously operated in a number of different businesses all with one major company, but six different business models.
“I think I have a pretty good operating field of different approaches in everything from commodity businesses to specialty businesses and high-performance businesses, and this is very high-performance, so it was a great foundation to inherit,” he says.
The biggest key for a new incoming CEO to understand what a business is about and how it operates is to listen.
“I didn’t rush to form any particular opinions,” Hilton says. “It’s a complicated business so you need some time to get to a level of understanding before you can sort through and think about what has to happen next and take the company forward.
“As somebody who’s been in the industry 30-plus years before I came here, you can have a tendency to feel like you know what needs to be done. You have to wait a little bit and make sure you have enough input. It’s a bit of drinking from the fire hose, but it does give you a good perspective of the day-to-day.”
While listening is crucial to a CEO’s understanding of the business, visiting different locations in person is also important.
“You have to get out to facilities so that you better understand what you do and how you win in the marketplace and there’s no substitute for that,” he says. “Also, you have to take time in the nonbusiness environment with folks, whether that’s on the weekends or at dinners just getting to know people in the organization.”
Those same things go for getting to know your leadership team. Demonstrating that you’re a regular guy is a crucial step to cementing relationships.
“It is really trying to put the leadership team at ease when you come in,” he says. “Particularly in the time when I was coming in we were just starting to come out of the recession and the best thing for the business was to figure out how we could win in the recovery phase and to win more than our fair share of the business.
“You need the team motivated to do that. I’m here to learn and I think I have some experience and value to offer, but I don’t want to come in with a preset agenda that said we have to do A, B and C, because I didn’t know enough.”
Take the next steps
Once Hilton had become comfortable and did his due diligence within the organization, it was time to take the things the company was good at and find ways to make them even better.
“If you look at what we’re really good at — the surround the customer piece, the global position and the execution — what else do we really need?” Hilton says. “I came down to focusing on three areas. No. 1 was, ‘What can we do from a strategic standpoint to take us to the next level?’ No. 2 was, ‘How can we create more leverage across the enterprise?’ No. 3 was talent development.”
The first thing that Hilton and Nordson performed was a rigorous review of the business.
“We have these businesses, what can they deliver over the next five years from a growth and performance standpoint?” he says. “Historically, the company grew organically at about 6 percent and historically added about 1 percentage point from M&A. We concluded that we ought to be able to take that 6 percent and make it 8 percent.
“If we continued to improve our bottom line performance, we’d have more cash to reinvest, so we should at least set a goal to add from an M&A perspective, not 1 percent, but at least 2 percent and maybe more. So how do we go from something that looks like 7 percent growth to 10 percent growth on a sustained basis?”
First, Nordson looked at ways to exploit emerging markets by improving technology and applications.
“If you think back from a strategy standpoint of how do we get more organic growth, emerging markets is a big play, using technology to create new applications, and using new technology to help our customers recapitalize are all very important,” he says. “So when I looked at what we’re spending on technology, I said, ‘Even though we’re the leader and absolutely have the best technology out there, we’re not spending enough on technology. We’re spending too much on supporting our existing products.’
“So we’re increasing the absolute amount we spend on technology and we are shifting more of our technology spend from supporting existing products to developing new.”
Another step Hilton took to drive growth was changing the strategy of how the company went about mergers and acquisitions.
“We had to add a couple of points organically,” he says. “How do we move from an opportunistic and episodic acquirer … to being a more consistent acquirer? We identified four areas of interest to us — medical devices, flexible packaging, cold materials and extending our test and inspection business. You have to use strategy to drive organic growth with technology. Use strategy to drive M&A activity in areas that make sense. We’ve made three acquisitions this year which added 4.5 to 5 percent to revenue.”
The next thing the organization focused on was what it could do across the company that would benefit each business.
“One of the assessments that I made when I traveled all around is we had done a really nice job of adopting lean technology, but it plateaued in terms of our performance results,” he says.
“Much of the company’s margin improvements from 2002 to 2007 came from the Lean initiative. We went from 12 to 13 percent operating margin to 17 percent. Last year we did 26 percent, so we’ve moved the bar quite a bit and we have more to go. We have kind of stalled out on the Lean activity.”
To drive the next wave of continuous improvement Hilton appointed a senior experienced operations employee to build a small team and give him direct reports on improvement.
“As part of that we’ve identified two things; one we’re in the middle of executing now is optimizing our global supply chain,” Hilton says. “That’s really to allow us to distribute things where the demand is and do that in the most efficient way. The second big area is around segmentation, which is understanding from a product and customer standpoint what we provide, what are our offerings, where are we making money and do we have too many products?”
The third piece of the puzzle for Hilton regarded the company’s talent. He was pleased when he traveled around the globe to see the quality of the talent Nordson had in the organization, particularly at the leader roles.
“The challenge for us, like many companies, is if you really want to grow substantially, you need to add resources and you need to do that across the globe,” he says. “To do that, we need to build up our management capability in all areas. We have good people, but just not enough to support our growth ambition.
“One of the key areas of focus is how do we enhance our overall talent development and management approach.”
When Hilton did the first review of succession planning in the organization, his direct reports went a couple of levels down and he noticed there were a lot of gaps. The company focused initially on how address that.
“We made a number of rotational moves to broaden people’s skill sets and capabilities,” he says. “Then we took a step back and said, ‘OK, for the folks that run the businesses and the functions that report to me, what kind of skill sets do we want those folks to have, both from a content or expertise standpoint and a leadership standpoint?
“Given those skill sets, what kind of positions below them would be good feeder positions that would help them develop those skill sets and capabilities and where is the key talent in the organization who could move into higher levels of leadership and management?’ We got more thoughtful in development moves and giving folks different experiences.”
Add to your strategy
Now that Hilton had spent the time understanding the business and identifying the areas where the company had the best opportunities to improve, he had to make those changes part of the company strategy.
“If you step back, these are the things that I think we need to do to help us move from that $800 million to a $2 or $3 billion company to give us 10-plus percent revenue growth and some additional leverage that gets us into teens earning growth and be a top-quartile performer,” he says.
“We had a Lean organization and one that hadn’t gone through a rigorous strategic planning approach in the past so some of the concepts were new. I brought some help in from the outside to help put some structure and discipline in and to add some resources that we didn’t really have.”
Those changes resulted in 2011 revenue of $1.2 billion. One of the keys to more organic growth was Hilton’s strong belief in leading the merger and acquisition activity in the market.
“If you can be the one out there driving the activity, you’re going to end up with a better set of deals to add to the portfolio,” he says. “If you’re driving it, you’re probably out there establishing relationships early on. It might be two, three, or four years until somebody decides they want to sell, but if you have a relationship it enhances your own knowledge of their business and therefore reduces the risk.
“It also gives you a first shot at business. The more knowledge you have, the more you understand what you’re going to do with it once you acquire it.”
For Nordson, the company looked at logical extensions of what it does today and what would fit its business model.
“We put a set of criteria together,” Hilton says. “For example, 40 to 45 percent of our business is recurring revenue through parts, services or consumables. We like that because it gives us a steady nature to our business. So when we look at things to buy, whether it has a recurring revenue component is an important area to check the box on.
“We look at whether the company is a technology leader. Is it a performance sale so that I can take advantage of my technical sales force? Is it regional, but I could take it global and use my infrastructure? We look at all those things and use a set of criteria that says this is a good deal for us.”
In June Nordson acquired two more companies, Entrusion Dies Industries and Xaloy, bringing the the total to five acquisitions in 2012. Hilton made certain these two companies fit the Nordson strategy.
Another thing Nordson is changing strategically about its M&A activity is how it manages the companies it acquires.
“Historically, we tried to buy good companies and leave them alone so we didn’t screw them up,” he says. “We like to still buy good companies but now we’re looking at what we can do to make them better, how we integrate them into the business that we have, and if it’s a new area, what else can we add to it down the road. You need to do that to deliver the performance, but also sustain the business.”
A key ingredient to sustaining the business is having top-level talent capable of keeping pace with the growth you want to see. That talent has to be intertwined with the strategy for everything to operate smoothly.
“There is no substitute for going out and spending time with your organization and making your own observations,” he says. “Talk, listen and see your folks in action. See them with a customer and then you’ll get an initial reaction, but then you have to test that with folks.”
By doing this analysis you are able to get a sense of the gaps in the organization and moving forward, it is easier to see where talent development and your strategy line up.
“If you’re doing the initial round of visits, you get a sense of what you have in the organization,” he says. “You get a sense of the skill sets and capability at a high level of one or two levels down from the folks that work directly for you so you get a sense of depth in the organization and breadth in capability. Then you weigh that up against what you’d like to do.”
The other thing Hilton did was seek out a few trusted advisors to help him while going through the talent process.
“Find one or two people that you feel pretty confident with who could be trusted advisors without any particular point of view and be objective to bounce ideas off of,” he says. “If you have that kind of open relationship, it ties into some of the other things in terms of how you gauge your own leadership.”
Most importantly, as you go through an evaluation process of your business, you have to be willing to put resources behind the things that need improvement if you truly want to create measurable results.
“Get help from outside your organization and put resources on it,” Hilton says. “It doesn’t happen without some resources on it to develop, and it doesn’t happen overnight.
“This is a really, really good company that I inherited. We’re making some positive changes. I think we can make it considerably larger and just as good in terms of the performance, if not better. I’m pretty pleased about where we’re at and about our prospects. The folks have risen to the occasion, but I don’t want to exhaust them because we have a long way to go.”
How to reach: Nordson Corp., (440) 892-1580 or www.nordson.com
On Monday morning, the watercooler talk among VF Corp. employees looks more like a Yelp review than the typical weekend replay. Employees chime in about The North Face jackets they wore skiing, the Lucy yoga pants they tested out and the Jansport backpacks they took hiking.
Steve Rendle, vice president of VF Corp. and the group president of its Outdoor and Action Sports Americas division, says this comes with the territory of being part of the world’s largest apparel manufacturer — with $7 billion in revenue and a portfolio of global consumer products brands.
“We choose not to sit in our ivory tower and predict what the consumer wants,” Rendle says. “We’re fortunate that our employees to a great degree are our consumers.”
A 25-year veteran in the outdoor industry, Rendle was president of The North Face for seven years before heading up VF’s Outdoor and Action Sports Americas unit last year. Based in San Francisco, he manages a portfolio of eight, activity-driven brands, including three worth more than $1 billion each — The North Face, Timberland and Vans.
Rendle is tasked with leading the brand strategies that will resonate with VF’s customers over the world. When it comes to front-end operations, he says there are very specific skills sets that help the company cultivate connections between its brands and consumers. The most significant is how the company develops its brand strategies: by making them a lifestyle. The company calls this “the art and science of apparel.”
“It’s that deep immersion into that consumer and understanding the consumer’s needs and expectations of our business that helps us really fine tune how we apply our business initiatives to grow our businesses,” Rendle says.
Here’s how Rendle uses these strategies to develop VF’s fastest-growing division of brands.
The first step in developing a brand lifestyle is figuring out who the brand’s potential customers are in the marketplace.
“It’s taking an approach of first understanding who the consumers are,” Rendle says. “The ‘who’ aspect is a very important part, and we invest a tremendous amount of money corporately and from our brands to understand our consumers through global segmentation studies.”
While research from focus groups and surveys is beneficial from a targeted point of view, understanding a customer’s lifestyle takes a deeper level of interaction, beyond a phone call or email. You can look at annual research or employee feedback to get ideas about what customers are going to want, but to understand who they are requires a deeper level of knowledge only possible through one-on-one interaction.
“First and foremost, we’re an organization built of passionate consumers,” Rendle says. “But that’s not enough. We want to go into the marketplace. We want to think about our brands globally and do a lot of qualitative and quantitative research to engage with these consumers and understand how they think of our brands. What do they expect from our brands? And more importantly, how would they like us to communicate with them?”
Branded events are one way that Rendle and his team get answers to these questions. Sponsoring fun, action-oriented events that engage consumers allows the company to interact with people in environments that reflect their interests and lifestyles, giving the company a better idea of “who” they are.
“We’re able to engage and understand how they’re thinking about us, how they’re thinking about this particular event and learning about their product needs,” Rendle says.
In addition to the millions of followers that Vans and The North Face have in the digital realm, both brands also generate a tremendous following by putting on popular outdoor events. Rendle frequently travels with the product and sales teams to see how the brands are represented in retail, but also attends the key brand events to learn how they are connecting with consumers.
The North Face hosts its “Endurance Challenge,” a series of endurance races across the globe that attract 1,000 to 3,000 runners per event. These races are a great opportunity to meet runners who fit the brand’s performance market as well as hold mini “expos” for families so that they can interact with the brand, Rendle says.
Similarly, Vans uses its national Vans Warped Tour, a day-long outdoor music and action sports event to connect with some of its key consumer groups, from skateboarders, to musicians and BMXers. With a history as the original skate shoe manufacturer, Vans now focuses on the broader market of men’s and women’s footwear and apparel. So as the partial owner and operator of the summer concert series — the longest running in the U.S. — it draws more than 600,000 people each year and offers a direct line to its youth audience.
“It’s a very impressive music-driven event, but it’s also an event where we’re able to touch the consumers and listen and learn as they interact with the music culture how they’re thinking about the brand, the brand’s products and how the brand is communicating from a marketing standpoint,” Rendle says. “Events are a powerful tool to not only tell the stories of our brands but to interact with those consumers.”
Ask the experts
It’s important to understand not just who your customer is but also what he or she expects from you. Because there is whole host of running footwear and running apparel competitors for The North Face, for example, the brand can’t gain market share just by resonating today’s consumer trends today. It also must stay abreast of the running lifestyle and how it’s changing. To do that, the company uses brand ambassadors.
Each of VF’s Outdoor and Action Sports Americas brands, specifically The North Face and Vans, partners with teams of professional athletes to participate with the brands at a high level, engaging with different products and contributing ideas. The North Face has more than 70 such athletes active around the world.
These brand ambassadors help provide insight into what the brand’s customers want and will want in the future.
“The North Face is the best example, where we have the mantra of ‘athlete-tested, expedition proven’ as that primary input into our product engine,” Rendle says. “We can make sure that we’re building the most authentic and technically relevant products possible that enable our consumers to enjoy their outdoor experience to the greatest degree.”
Tapping brand ambassadors is also useful for brand innovation and product development. Your “experts” in a brand lifestyle can help you identify pain points or product ideas that you may not spot or study based on customer or employee feedback alone.
A prime example is when The North Face runner Kami Semick participated in a high altitude race in the French Alps. After nearly contracting hypothermia from the cold, wet environment, she helped the brand identify a key need for lighter-weight apparel to protect athletes from adverse moisture and weather. Semick worked with the product teams to design a new technology for the brand’s fabrics that eliminates the distraction of moisture when during athletic performance. This year, the company is releasing about 100 new products featuring the FlashDry technology.
“North Face is the brand that provides the ultimate outdoor protection,” Rendle says. “So we bring that thinking and that knowledge base into running apparel.”
Concentrate your efforts
With global brands, you need to do lot of work to identify who your potential customers are. But equally important is figuring out your brand identity. To put it into perspective, brands such as The North Face are trying to capture market share in a $320 billion global market in the outdoor and action sports business, Rendle says.
Figuring out how to position these brands in the marketplace requires Rendle and his team to spend a lot of time looking at the macro-market to size up opportunities.
“That’s building the business strategies using the consumer insights and the market intelligence to help us craft very clearly focused strategies that we execute on five-year basis,” he says. “It’s always the rolling five-year plan and looking very specifically at where those opportunities are to drive our growth.”
Looking at the larger, macro market data, VF applies filters to examine the size of different opportunities:
What is the business doing specifically from a retail standpoint? What are the best ways of communicating to the consumer within those specific segments? Who are the competitors?
In this process, it’s necessary to look at brand competitors from a very critical point of view as far as what are they good at, Rendle says.
“We’re trying to understand what makes them unique — what are their points of difference and what things are more parody,” he says. “Then we look for those white spaces where we know that our brand naturally plays or places that we should be focusing to look for incremental growth.”
The points of difference are unique to your brand, whereas your points of parity are things you need to do just to stay in business — fit of garment, for example.
“It’s not really something that we would own, versus a specific focus or an innovative platform might be a unique point of difference and gives us an emotional connection to the consumer,” Rendle says.
An example is the women’s yoga brand, Lucy. While Lucy was the first brand in the women’s training space, it lost its way before VF acquired it in 2008, giving the Canadian brand Lulu a lead in sales and brand recognition.
“When we look at the difference between those two consumers — the Lulu consumer and the Lucy consumer — we see some very distinct differences in how she thinks, how she acts, how she wants to interact with her brand and honestly how she looks at those activities,” Rendle says.
The company also uses its brands’ leveragable platforms, or things that each brand does well, to position fellow brands stronger in the marketplace. The key is to utilize each brand’s strengths, without losing sight of how each brand consumer — and consumer lifestyle — is different.
“We focus on understanding the brand’s purpose and really understanding what we stand for and what our unique value to our consumer is,” Rendle says.
“It’s making sure I help those brands remain autonomous because it is those specific brand identities and cultures that make these brands successful. At the same time, it’s helping them leverage the VF platforms to scale and access capabilities at a much more effective price.”
After applying these kinds of lenses to see what a brand does well, you can learn how to build “permission” with customers to bring new lines to market where you don’t have established expertise, Rendle says.
The ability to introduce new products to consumers is a critical step in making a brand’s products part of a “lifestyle” the can continue to grow and evolve. Currently, The North Face is trying to do this with the footwear segment — using running apparel to break into running shoes.
“For us to sell footwear it needs to be uniquely different and bring some specific value that other brands are not,” Rendle says. “Where we know we have permission to compete first is in the trail, so really playing off of that outdoor heritage and enabling consumers to run off the road and onto the trail.”
The way the company creates its brand strategies is also changing the way Rendle and his employees think about the business, Rendle says. By creating brand lifestyles that resonate with consumers, the Outdoor and Action Sports Americas division has grown from less than 10 percent of VF’s total sales in 2000 to close to 50 percent.
“It’s helped us understand that this deep connection into the consumer’s lifestyle gives us a unique point of difference, and a unique way of competing against the many number of other choices that consumers have to make in their apparel purchases,” he says.
How to reach: VF Corp., (336) 424-6000 or www.vfc.com
1. Use events to connect with customers.
2. Create brand ambassadors.
3. Find your points of difference and parity.
The Rendle File
vice president and group president, Outdoor and Action Sports Americas
Born: Spokane, Wash.
Education: Bachelor of science, the University of Washington
What do you like most about your job?
I get to get up every day and come to work and participate in businesses and touch activities that I really love. I grew up skiing. I grew up climbing. I’m a very active outdoor user. I’ve dabbled in surf. I’m not a skater but I absolutely enjoy those people as much as I do those that I’ve grown up with. I get to live and play in a marketplace that I’m just deeply passionate about. To also build that passion of building success, in this case successful businesses that add shareholder value — I may very well have one of the best jobs in our company.
On his transition from president of The North Face to division group president: First you have to immerse yourself in the businesses. I’m fortunate enough that I’ve worked with each of these brand leaders as a peer for many years. But I needed to take a step back, remember that my job is not to only think only of The North Face, but to think about eight specific brands, their contributions to our portfolio and the larger VF. It is just to take a step back and forget about what I loved so much, and begin to understand that I have eight things that I get to love.
How do you regroup after a tough day?
My best tool for sorting out a difficult day is to get outside for some sort of physical activity. My favorite choice is to jump on my road bike and roll out for a long ride. No distractions. Just time to focus on the activity and subconsciously sort out my thoughts.
It’s the big day. You’ve managed to score a meeting with one of the biggest companies in the world to talk about your brilliant, one-in-a-million business concept. You can’t wait to talk with their executives and share your vision for your ideas — ideas that are guaranteed to change the face of business forever, while earning billions of dollars in the process.
One problem. Unless you’ve been diligent in protecting yourself, you might well find yourself taken advantage of, or even have your ideas stolen altogether.
Sad to say, but there have always been people out there just itching to pick your brain and take your original thoughts without paying for them. Sometimes it’s inadvertent — they may not realize that your ideas have monetary value — and at other times it’s purposeful and with ill-intent. Either way, it’s important to recognize this reality and do everything you can to safeguard yourself.
Earlier in my career, I would often find myself in a meeting, and with my inherent enthusiasm (It’s for real, folks!), I’d elaborate on everything from product concepts to marketing and sales strategies. The next thing you know, the people I was meeting with would all be whipped into frenzy and we would verbally agree to continue the dialogue and develop our business plan in the weeks and months ahead. We’d have numerous phone calls and even some follow-up meetings.
And then suddenly … nothing. When I finally managed to get hold of them again, I’d be told they had changed their minds and were not going through with the project. Yet months later, I’d find they had actually gone ahead with the product without me — and using all the ideas I had given them in our meetings. Think I wasn’t royally peeved?
Because I knew that what I had to say was worth something, after this happened to me one time too many, I decided that I needed to start protecting myself. So here’s what I’ve learned to do now: If I’m coming to someone with an idea for a product I’ve developed, before I take the first meeting, I make sure I protect my ownership. I file for a patent, trademark or copyright — everything and anything that is appropriate for what I’m offering. I also ask the people that I’m meeting with to sign a nondisclosure agreement and make it very clear from the beginning that I’m prepared to protect myself.
This doesn’t necessarily mean that others won’t still try to take my idea without my permission — patents are worked around all the time — but it does mean that I have some leverage. Without it, I’d be dead in the water.
At the moment, I have a product line that I’ve been developing for several years, for which I have four or five patents, eight to 10 trademarks and 10 to 15 copyrights. These protections give my product value for a possible third party sale in the future. When you come right down to it, if I can’t protect the ownership of my product, it has absolutely zero value.
Besides my ideas for an invention or product are the thoughts I have for developing business strategies, which I present in a meeting or conference call. This is a more difficult situation because I can’t patent, trademark or copyright these ideas. Yet, the success or failure of the product or business idea will hinge to a large degree on how it is presented to potential customers.
These days I proceed with much greater caution that I ever did before. If I’m approached by a company that wants to meet with me because of my expertise in an area, I often charge an engagement fee upfront. I won’t share my best ideas until I know we have an agreement that protects me. Half of the money is paid up front with the balance paid out of royalties or perhaps as a straight licensing fee if we decide to go ahead with a product.
You’ll never be able to stop people from trying to take advantage of you. But whether you’re talking about your idea for a new product or the strategy for how to make it a success, keep in mind that what you have to offer carries genuine value, so never let your excitement override good judgment.
Tony Little is the president, CEO and founder of Health International Corp. Known as “America’s personal trainer,” he has been a television icon for more than 20 years. After overcoming a near-fatal car accident that nearly took his life, Tony learned how to turn adversity into victory. Known for his wild enthusiasm, Tony is responsible for revolutionizing direct response marketing and television home shopping. Today his company has sold more than $3 billion dollars in products. Reach him at firstname.lastname@example.org.
As former firefighters, brothers Robin and Chris Sorensen know that quality and quantity are both important when it comes to a sandwich. So when they co-founded Firehouse Subs in 1994, their vision involved providing better service and a better restaurant experience for their customers. It also involved more meat.
“We made a list of things we thought we had to do to be different and be competitive, and it came down to the concept, and it came down to the experience at the floor level and service levels,” Robin says. “And then it came down to the food.”
Over the years, Firehouse built a reputation for its appetite worthy portions of premium meats and cheeses. With the advantage of being one of the least expensive brands in the fast-casual segment — competitors include Five Guys and Panera Bread rather than Subway — the company steadily grew its regional foothold from Jacksonville, Fla., to 300 locations in 17 states.
But at the beginning of 2007, all of that changed. The restaurants started losing traffic.
“Up until that point, we never had a down quarter,” Robin says. “We’d been building on a continuous basis, and we didn’t even realize how good we had it.”
While the brothers didn’t know it yet, the company’s problem went deeper than the economic recession. The problem was “crappy” marketing.
“What we learned is that people who weren’t eating there — they didn’t really understand what we were,” Robin says. “The Subway customer assumed when they saw our sign that we were just like Subway.”
Root out the problem
Facing some of the darkest days in Firehouse’s history, founders Chris and Robin knew that the company’s franchisees were looking to them for reassurance. Feeling that they owed it to them to look at every opportunity to revive business, they took input from owners and employees, realizing that many of the ideas weren’t viable options.
“For the first time, we could feel the weight of the system on our shoulders, almost literally looking at us and asking, ‘What are we going to do?’” Robin says.
“Some of them were saying we should cut our portions down — which my blood pressure is going up thinking about it. But we had to look at different opportunities. That whole process — all it did was lead us to say, ‘We’ve got to do something.’”
Both felt strongly that they couldn’t jeopardize the quality or quantity that defined the Firehouse Subs brand in exchange for short-term profits. But they agreed they couldn’t stand still either. So as they debated how to handle the declining numbers, the Sorensens also started taking a hard look at their advertising agency.
The company had talked about changing advertising agencies in the past. And seeing the poor results of recent efforts, its leadership offered the agency one last opportunity to present its ideas on how to resuscitate customer traffic. Needless to say, they weren’t impressed.
“Basically, we were out of options,” Robin says. “We weren’t in great shape. So we did something drastic.”
Feeling more and more that the reason for poor performance stemmed from ineffective brand marketing, the leaders proposed a radical change.
In the summer 2008, they decided to rescind the 2 percent in royalties that franchisees paid the company for its corporate marketing efforts. Instead, they told franchisees that they could keep the money — if they agreed to do their own marketing.
“We came up with a comprehensive plan on what they need to do with that money at their discretion, the old fashioned stuff — hiring sign wavers, developing catering, knocking on doors, ‘touching’ people, speaking at the chamber — all of the things that helped us build the company,” Robin says.
Then they hopped on a bus, traveling around the country to present the new marketing plan to store owners with a national founder’s tour. A key part of the presentation was showing franchisees how to execute the new, guerrilla-style marketing initiatives.
“We’d have 10 people from our office get off the bus and we’d all hit three, four or five stores depending on the city,” Robin says. “We would go out and market those stores on the ground ourselves with them to show them how to get it done. We always built sales wherever we were at. So it was radical, but we tried it.”
After six months, about 20 percent of the system was really on board and executing on the suggestions. So the brothers decided to extend the efforts for another six months.
In the end, the local marketing ramp-up wasn’t enough to stop the decline. Continuing to lose traction, the company closed out the 2008 year down 6 percent in comparable store sales. By 2009, the company was falling nearly 7 percent. The Firehouse Subs brand still wasn’t registering with the customers; and Chris and Robin went shopping for a new advertising agency.
Focus on the right customers
As they began their search, the brothers looked for a smaller agency where they would know the owners personally. So they were skeptical when their consultant proposed a meeting with Zimmerman Advertising, an agency worth $2 billion whose clients include high-profile brands such as Papa John’s Pizza.
“I said, ‘Let’s not even go down there to Ft. Lauderdale because they are too big,’” Robin says. “‘We’re going to be lost in the shuffle.’ And the consultant said, ‘They are different people down there. They are a unique agency, and I’ve seen a lot of them. … I think you guys are going to hit it off.’”
Compared to the last 20 presentations they’d gone through, Zimmerman was the only agency so far that had no marketing ideas to pitch. As they sat down to meet with the company’s leadership, its staff admitted that they didn’t know much about who Firehouse was. Instead, they pitched themselves.
The agency’s founder, Jordan Zimmerman, pointed out that both of the company’s previous agencies had pitched their ideas for the business before they even had time to research who and its customers were. But Zimmerman did things differently.
“His point was how do they know if that’s right when they haven’t had enough time or money to go out and really do thorough research?” Robin says. “And he was right.”
So when the meeting was over, they hired Zimmerman as their new agency. They also gave them the money to go out and do the necessary market research to develop their brand strategy. The agency used techniques such as intercepting customers — going into other stores and offering them a free lunch at Firehouse Subs in exchange for feedback — Zimmerman soon figured out why the company was losing customers. The brand needed to reach more people.
At the time, the company had lost about 10 percent of its traffic. But while the owners were so focused on getting those people back in the door, they’d also overlooked an essential question: are these the right people?
“The point is — they’re gone,” Robin says. “We weren’t really focusing on the 90 percent that are OK with our proposition. So we started trying to better understand who those customers are and who other customers are.”
The agency also told the brothers that it would take a 4 percent investment from each of the franchisees to execute a new brand marketing strategy.
“I said to them, ‘So you’re asking me to go our franchisees and say not only do you have to give me the 2 percent back that we let you keep temporarily, but you’re required to, and you need to give us two more that you’re not required to?’” Robin says. “It was radical.”
But while knocking on doors worked occasionally, the customer data made it clear that Firehouse Subs had to reach more consumers with its message if it was going to stay profitable.
“The simplicity of it was just 'find more people,'” Chris says. “Tell them who we are and why we’re better. With the economy down, there were a certain number of people who couldn’t afford to eat with us, and we weren’t going to get them back until the economic situation was corrected. But there were thousands upon thousands of people that we could reach, which is what we did.”
Try a new tactic
With the help of Zimmerman, Robin and Chris began making the changes to the company’s marketing and advertising. First, the company increased its emphasis on the items that make it different from competitors — its big portions of quality meats. At the heart of the strategy was the radio.
The agency suggested that, as founders, Robin and Chris should represent the brand in radio commercials. Instead of discounting the price, they’d focus on Firehouse Subs’ bigger portions and fresh-sliced, steamed meat and cheese. The commercials would also include a new slogan: “Our way beats their way. If you don’t agree, it’s free.” By mentioning the price in the commercials, customers would know exactly what to expect coming into the restaurants — a medium hook and ladder for $5.39, not a $5 footlong.
“We’re giving a guarantee,” Robin says. “So if you take one bite and you don’t like it, we’ll give you your money back. While everybody is talking about smaller sandwiches — $2 torpedoes, $5 footlongs — we’re going to be the only one talking about premium.”
At first, Chris and Robin were hesitant about going on the radio, even as they helped write and develop the spots. So they began a 10-week test run, doing radio spots in Jacksonville, Fla., Knoxville, Tenn., and Augusta, Ga.
“We were concerned about not doing it well, and we don’t want the system thinking that we think it’s all about us,” Robin says. “What if we fail at it? So Zimmerman was like, ‘If you suck, we’ll be the first to tell you.’”
Within days of starting the radio campaigns, the stores saw 10 to 15 percent lifts.
“Without discounting, without changing who we were, without coming up with the next cheap sandwich, we stuck to what’s made us who we are and just started blasting the airwaves and finding new customers,” Chris says. “And it worked.”
Bring the fight home
The company now had real data in its back pocket showing that the radio worked. But now, Chris and Robin had to go back to owners with the new marketing strategy and convince them to invest in it. In summer 2009, the company held its first ever corporate-wide conference to introduce the new agency and new marketing investment.
The brothers explained the tests and the results of radio campaigns. They explained the big picture and the vision. Because the plan to give owners the reins over marketing hadn’t worked, they felt that they had even more authority to ask franchisees to support the changes.
“If we hadn’t given them money to try it on their own, they may have demanded some other options,” Robin says.
“We said, ‘You’ve had this for a year. We tried an agency. We couldn’t get results. We gave them an opportunity to present their ideas. They weren’t good. We tried it. Check. Then we gave you the money for a year. It didn’t work enough to turn us around. Check. Now we have a new agency.”
They asked the 80 percent attendance of franchisees in attendance to double down on their investment into the corporate marketing. In the following five months, they held meetings with the other 20 percent to get their support. In the end, everybody who was eligible to be on the radio voted to do it.
“As much money as we spent, it came down to buying the right media to talk to the right group of people, and hitting it heavy with the right message,” Robin says.
“The bottom line is that it was a major risk, a double down in a bad economy, and it absolutely was the most phenomenal thing we’ve ever done.”
Since the second quarter of 2009, the company has continued to increase sales 4 to 6 percent every year, fueling its expansion to approximately 500 locations today. Revenue for 2010 was an impressive $256 million. The brothers have already invested close to $5 million of their own money in the radio campaigns. Yet there is still one thing they would have done differently a second time around.
“Fired our agency earlier,” Chris says.
How to reach: Firehouse Subs, (800) 388-3473 or www.firehousesubs.com
1. Figure out where you need to improve.
2. Rethink your market of customers.
3. Step outside your communication comfort zone.
The Sorensen File
Chris and Robin Sorensen
Born: Jacksonville, Fla.
Favorite Firehouse sub:
Robin: Smokehouse Beef & Cheddar Brisket
Chris: Smoked Turkey Breast
About the Firehouse Subs Public Safety Foundation
Mission: To buy life-saving equipment for fire, police and other public safety institutions
Robin: We’ve saved lives with the equipment that we’ve donated, and it’s really taken on a life of its own. People understand Ronald McDonald House, and that’s big part of who they are. We want the same thing with Firehouse, because not many companies have really made a great connection like that, like we have. We started it from the heart because we enjoyed it and thought it would be great. One of our agencies put it as one of our brand pillars in who we are. It’s one of the pillars of building a great business in the community.
About 50 percent of the donations come from the store and our customers. The other 50 come from our vendors, franchisees, Chris and I and our partner Steven. We’ve put in almost $600,000 of it ourselves.
What are the best business lessons that you’ve each learned in your careers?
Robin: One of the biggest failures — there’s two parts to it. One is people just aren’t willing to do what it takes to grow their business. You hear it in the way they talk about it, ‘I’m willing to do this, but I’m not willing to do that. I’m not willing to put the hours in.’ They set parameters on themselves: ‘I’ll work five days a week, but I’m not working on Saturday during the college football season.’ When we opened up, it wasn’t that we said we’ll do anything; that was our philosophy and mindset. The other part of is, are you in it for you or are you in it for the company — the frugality piece.
Chris: I was told this advice from an old mentor of mine. He told us if you want to be a smart business owner, you don’t buy expensive cars or a yacht. He told us if you can’t write a check for it, don’t buy it. My brother and I still practice this to this day.
Paul Schumacher was eager to get down to business as he addressed employees at Schumacher Homes’ 2012 annual meeting. That’s because business was good. In 2011, the company’s leads were up. Sales were up. Customers were happy. And to top it all off, it was the single best year in Schumacher’s 20-year history. All in all, the market outlook for custom home building was looking pretty great.
But if you weren’t in that meeting, you’d never know it.
“It’s probably the best time ever to build a custom home and get exactly what you want,” says Schumacher, founder and CEO of the custom home building company that has built more than 10,000 homes to date. “Low interest rates, material costs — everything is in the advantage of the customer — other than the perception that it’s gloom and doom out there.”
Schumacher understands that many prospective homebuyers remain recession-wary. Value is the new cultural mentality, and consumers are now quicker to assign labels such as “expensive” and “extravagant” to products advertised as “new” or “customized.” In fact, the company’s biggest competition now comes from the used home market.
“When you think of building a new home, people think, ‘Oh my God; it’s going to be too expensive,’” Schumacher says. “‘It’s going to take forever, and I’m going to end up in a divorce when it’s done.’ So we’ve just got to flip that on its end.”
Show; don’t tell
As a veteran homebuilder, Schumacher knows that no one in the construction industry is going to say that they don’t make a quality product. He’s seen the word “quality” exhausted by competitors and other builders. So to set the company apart from its competitor’s claims, he’s created a business model that lets customers experience its quality firsthand.
Schumacher developed the unique model early in his homebuilding career. He frequently had customers who were interested in model homes, but either wanted to build in another area or purchase the models. That meant the company needed new model homes to showcase the quality finishes, design elements and building materials for its next set of customers.
This dilemma led Schumacher to a realization. Making it easy for people to experience your value is the first step in converting new customers and showing them what you can do for them. If quality was one of the company’s key differentiators, why not display the model homes in commercial locations where people could view the quality, design and finishes any time they wanted? Then the company could build its new homes on the customer’s lots.
“It’s very different than the typical homebuilder coming in, and putting in a subdivision – going up one street and down the other — with a cookie-cutter approach,” Schumacher says.
“People can go through 365 days a year and see and experience our quality and not just talk about it. When they go through a model home they can hold us accountable, and we expect them to hold us accountable to that exact same quality that they see in our model homes.”
The “build on your lot” model also opens the company to a broad group of potential customers. While location is predetermined with all used homes and many homebuilders, Schumacher can offer customers quality custom homes that fit virtually any price range in any geographic location.
“We say, ‘We want you to live in what you love,” Schumacher says. “So in any geographic location we’ll have 200 to 300 different floor plans that we offer, but those are just a starting point.”
Today, the company builds model homes along the highways throughout where it does business. It’s no surprise that employees refer to them as “a parade of homes,” especially considering how many people pass through them each week.
From a marketing and advertising standpoint, the models help the company learn about the attitudes of buyers in different communities where it operates.
“It’s great to have big numbers coming through where we can kind of hear the same things over and over to try and identify trends,” Schumacher says.
“People really like the fact that we’re like a permanent fixture on the highway, that we’re not going anywhere. We’re not a builder that’s just going to go into a subdivision and when the subdivision is built out, they’re just going to move across town or out of town.”
Make it special
An ongoing challenge for any business is creating products that people prefer to ones readily found out in the market. While you need a product that’s affordable and good quality — of course — you also need to offer a better buying experience.
To show customers that building a new, custom home won’t blow their budget or boost their blood pressure, Schumacher developed his business around the idea that it’s all about customers getting exactly what they want.
“We say we’re not going to stop in the design process until we nail it and you’re getting exactly what you want, because our competition is the used home market,” he says. “We always tell people in buying a used home — someone else’s dream home — it just comes down to how many compromises are you willing to make. In building a new home, you don’t have to make any because it’s all designed around you.”
First, the company uses every opportunity to survey consumers and learn their new home “wish lists,” incorporating the market’s feedback into upgrades in existing models. It also adds these design options and features into its vast design database for future customers.
“You have to change,” Schumacher says. “Our whole design philosophy is we have to be able to give something to someone when they walk in a model home — it’s a blueprint that’s fun and exciting and inspiring — to get them to build, because if it’s the same old, same old, been there, done that, there’s no point in building it. They can go out and find it in the market.”
Larger trends in consumer feedback even prompted Schumacher to launch a new line of home designs called the Earnhardt Collection, which addresses a market segment that desires more informal spaces such as great rooms and open kitchens. Collaborating with the Earnhardt family — popular from the NASCAR racing world — the company launched the new line in late 2011, and it is already popular with customers.
“People really want unique, fresh homes,” Schumacher says. “They want a very relaxed and comfortable atmosphere — formal is out.”
Since the majority of people want significant customization on the outside or inside of their home, the company also emphasizes the fun, straightforward nature of its design process. To help people envision their changes, designers demonstrate them on a live monitor, using interactive, real-time design technology.
“They’re seeing the walls move before their eyes,” Schumacher says. “They’re seeing the exterior change. And the beauty of that is we’re all so visual, we can say, ‘Is this exactly what you mean or do you want to add two more feet here? Do you want to rearrange the kitchen?’ and they’re doing it all right in front of their eyes. People say this is great because you can get so much more done when you’re doing it in real time.”
Even with these design elements, Schumacher knows that price is still the major factor in building a new home instead of buying used.
“People say ‘I love the plan. I’ve designed it. I’ve customized it. It’s exactly what I want,’” Schumacher says. “But the next big question is, ‘OK — how much?’”
To answer this question, he’s spent the last 10 years developing a price quoting system that lets customers individually price every piece of their home. When you are dealing with customers who are unfamiliar with the many costs going into the final product — design, labor, building — transparent pricing is even more critical, Schumacher says.
“We put them in control so they see where every dollar is spent,” Schumacher says.
“It’s that innovation all around the whole design and buying cycle that I think really differentiates us.”
The success of the company’s business model is evident in the quick turnaround time, good communication and high quality that make up its competitive advantage. But it’s also the product of the 225 employees who contribute to the company’s goal-oriented and results-driven culture.
The backbone of this culture is a company-wide scorecard system, which rates each store location and individual employee with color-coded metrics. Metrics are built around areas such as sales, time of construction and homeowner satisfaction.
“A big part of our success is the whole scorecard system where everyone, every department knows what’s expected of them on a monthly, quarterly and yearly basis and everyone is working in the same direction,” Schumacher says. “Without those goals, a lot of it is just talk.”
Red scorecards indicate stores or employees that are below a goal, yellow indicates that they’re within 10 percent of a goal and green signifies that they’ve met or exceeded a goal. The simple and visual nature of the scorecards makes them especially effective, he says.
“Anyone in Schumacher Homes can pick up a scorecard, and without even looking at what the individual metric is, they can see a lot of green means ‘Man, we’re doing a good job! We’re on plan.’ Yellow — ‘Hey, we’ve got to address those areas’ — and red, ‘We’ve got to take note of it,’” he says.
Scorecards also show individuals how their achievements roll up into the company’s overall progress on its goals. Results are shared on the corporate Intranet as well as publicized at regional meetings.
“We’re an open book,” Schumacher says. “Whoever is in first place, it’s very well-known and whoever is in last place it’s very well-known. Everyone really strives to be the best they can, to meet their goals and then to be the best in the region and the best in the overall company.”
Schumacher uses company meetings as an opportunity to recognize top performers as well as to recognize accomplishments such as ‘most improved.’ When you discuss goals clearly and often, people can see what you trying to accomplish on a short-term and long-term basis, empowering them to be part of the success.
“You communicate the importance of the goals, in that, by hitting the goals we can get to the next level of investment or we can do these significant projects,” Schumacher says. “So everyone understands their significance, their role, and what the company is trying to do.”
Today, the company’s culture is built on green scorecards and how employees can see more of them. When visiting different offices, Schumacher notices that employees are quick to pull out their scorecards and ask for feedback.
“They’ll say, ‘What is it going to take for us to be green in whatever the metric is?’” he says. “There’s great sense of pride and teamwork in that.
“We know that we have to have a very good, straightforward, simple process that makes it fun and exciting. At the same time we have to deliver an unbeatable value, a great value.”
Out of 35,378 homebuilders in America, the company was recognized with the 2012 National Housing Quality Award, an industry benchmark award for total quality management. Coming off its best sales year ever, it’s also seeing a new spike in customer interest through leads and site visits.
“Our mantra here is we don’t really care what’s going on in the industry — we’ve got to go make our own market,” Schumacher says.
How to reach: Schumacher Homes, (877) 267-3482 or www.schumacherhomes.com
- Show your value to customers.
- Customize your customer experience.
- Get your team invested in your value proposition.
The Schumacher File
founder and CEO
Born: Canton, Ohio
Education: Western Reserve Academy, Cornell University, University of South Carolina
What is one part of your daily routine that you wouldn’t change?
Working out every day at 5 a.m. — physical stamina and mental stamina go hand in hand.
Who are your heroes in the business world and why?
My mom and dad are great role models for a strong work ethic, positive attitude and to believe all things are possible.
What would your friends be surprised to find out about you?
I had four holes in one — and climbing Mt. Kilimanjaro with my 14-year-old son in June.
On getting out of the ‘flipping’ business into the home construction business: What I realized is that all you are doing is dealing with someone else’s mess, because you’re just going in and fixing up old houses. As I got into it after a year or two I thought, man, it would be great to have your own brand new, fresh product and not be fixing up someone else’s mess from 40 or 50 years ago.
The big buzz in the insurance industry today is around Core Systems Modernization.
“Core Systems Modernization is the process of insurance companies adapting to the needs of customers by bringing their processes and technologies using the numerous possibilities available today,” says Vani Prasad, vice president of Insurance Technology for HTC Global Services.
There’s a big push toward modernization as companies continue expanding their web presence and establishing mobile solutions to make their products accessible to more customers. By using new technologies such as mobile, virtualization and cloud, companies are building bridges with their current core systems, creating new value from existing assets. Modernization is helping companies not just improve their bottom line but transform the way their core systems such as policy administration, underwriting, distribution, billing and receipts, and claims are functioning to enable businesses to grow. Some companies are going beyond operational or technology improvements and are reshaping their business models.
Many large and mid-sized insurance companies are in the process of executing modernization projects to keep up with technology and increase customer engagement through powerful analytics. The last two years have seen a big growth in modernization projects, and this wave is gaining intensity.
Smart Business spoke with Prasad about what insurance companies need to know when it comes to modernization and its effect on business.
What is driving modernization?
Modernization has come from many forces in the marketplace, such as innovation in new types of insurance products. Introduction of products poses new challenges to execute through the current operational and technology setup in an organization. This is one of the biggest drivers for core systems modernization.
From a technology standpoint, one of the prominent driving forces is popularizing the use of mobile technology for business purposes to improve customers’ ability to view and change products and their coverage. This also makes it easier to communicate with customers, for example, after an accident, getting them back on track faster. Customers today expect to get what they want, when and where they need it, making it critical for companies to connect smart devices to core insurance systems. CEOs want to address business growth and operational efficiency at the same time and are looking for smart ideas that fuse these two aspects.
Also driving modernization is analytics, the intelligent use of data stored by a company to target consumer-oriented marketing specific to customers’ needs and to develop new products. Previously, the agent was the key source of analytics. That person had contact with customers and could offer products as the need arose. But now, as customers are rarely present when deals are made, companies are using technology to do this.
What are the benefits of modernization?
Companies should modernize either to increase their top line through new sales that capture market share, or improve their bottom line through internal efficiencies. Those wanting to increase market share have to simplify processes and be able to adapt to changes and make improvements quickly. These days, customers relate to businesses differently, and the old ways of doing business aren’t as effective anymore. Businesses have to evolve and change to keep pace with the market to retain their market share. In today’s marketplace, it’s easy to take their foot off the gas pedal for just a brief moment and find themselves with lost sales or retention issues.
For example, customer inquiries need to be processed quickly. If a web page takes too long to load, the customer drifts off. If a phone call takes too long, the call is lost. If the number of pages, clicks or paths on the customer contact is too many, the customer moves away. By modernizing the technology systems, these seemingly simple adjustments are resolved. No one drops the ball on the customer and one can better capture those customers who are trying to engage and reach out to them a second time if the process was not finished quickly enough.
How does modernization differ from fixes or repairs?
Modernization goes beyond maintenance. Everybody feels they are contributing to improvements in their own way; every department has their own ‘quality circle.’ But going beyond semantics, look at modernizing from a leadership perspective and ask what will actually make a difference to the top and bottom lines. How does it help in reputation, reduce operating costs, enhance customer satisfaction, increase market share, increase earnings per share or maintain a healthy underwriting ratio? If the impacts are at that level, then that’s a modernization project.
Companies that perform maintenance work, such as keeping software up to date or fixing bugs, are still modernizing in that they use newer and better technology to better meet consumer needs. However, performing maintenance work on its own doesn’t allow companies to easily add new features or embrace new technologies. The main difference between maintenance work and the modernization described above is one of scale and adding business value: Rather than fixing and repairing smaller systems, everything is being fixed and repaired. This allows for future growth because the large-scale changes can be structured to make it easier to add features such as a mobile presence or a shift to cloud-based technology.
Some businesses put off modernization because it requires time, effort and new technology skills to execute. However, over time, the problems these companies face worsen. If a company is more than two or three generations behind in the use of technology, it is very difficult to fix even minor problems. While it is possible to sustain in the short-term, these companies are in danger of becoming obsolete in the long-term.
What are some tools used to modernize?
Insurance companies are struggling to deal with the massive amounts of information they collect. It is not enough to just add more hardware or network bandwidth if the processes are inefficient and are not yielding the desired outcomes. Sometimes, companies fear that it costs too much to modernize. However, there are numerous tools and approaches available in the market, depending on the scale of improvements intended, and the extent of modernization requirements can be taken up.
While everyone knows the power of mobile and cloud computing, companies are also looking into techniques such as crowd-sourcing to maximize their benefits. Cloud computing is not yet leveraged in many insurance companies, but it provides the ability for insurers to leverage large-scale technology with little or no investment up front. To insurers, this means easier storage of the huge amount of information coming to them, such as photographs, depositions and other documents. A lot of managers are being designated and groomed to help focus on using cloud technology and how it can reduce the bottom line. It also enables customers to access information anywhere, any time, with minimum fuss. Insurance companies can leverage the cloud to ease the transition to mobile devices, using them as vehicles for meeting the increasing amounts of data gathered and processed. It is not just technology tools alone that matter, it is the newer processes and approaches that make a big difference in modernizing.
It is also common for companies to wait for a silver bullet to remove inefficiencies. Is this the right time to modernize? Of course it is. Technology is never static, it is ever changing and driven by innovation. There are numerous options available, and these will only increase over time.
How can modernization be executed?
Strong leadership that focuses on building a solid approach to modernization is vital. Building a roadmap to modernizing with options and scenarios is a big step. Modernizing should bring a positive impact to everyone in the company for it to have lasting value.
Once an approach is chosen and an investment decided upon, it is important to dedicate specific people for the planning and implementation. Projects are initiated with the right scope based on the investment and professionally managed. Process engineers that have a broad understanding of company operational processes are vital ingredients to the modernizing journey. Sometimes, the changes to technology or a business process need to be tested on small groups to refine the approach, measure the benefits and then apply to the rest of the company.
Some companies have the aptitude and skill to modernize in house. There is a vast amount of information available online on how to approach and prioritize modernization projects. Consulting companies and third-party product and service providers can also help an organization reach its goals.
Vani Prasad is vice president of Insurance Technology with HTC Global Services. Reach him at (309) 287-0229 or email@example.com.
Insights Technology is brought to you by HTC Global Services
I have discussed the retirement process in my two previous articles and have given them the tag-line of a “retirement dress rehearsal.” Too often the concept of retirement is so esoteric that most people refuse to identify with it early on. They wait until retirement happens to them. My hope by using the terminology “dress rehearsal” is that I would persuade you to immerse yourself in that role now. I liken it to attending a live theatre performance. There are actors who “act” the part, and then there are actors who “are” the part. I’m sure you’ll agree the actor who “owns” that role gives a much more commanding performance and better outcome to the evening.
So “own” that role for the time being, and let’s explore a third facet of retirement preparedness: legacy planning. There are by no means only three phases to retirement preparedness. I will assume that you have identified the purpose, values, passion and strategic direction of your life-plan as you integrate these thoughts into your conversation with your wealth manager and life-planner. Research has shown that the graying baby boomers are starting to worry about the kind of legacy they will leave, and in what ways they can best influence the well-being of their families, friends and even the world beyond their own lives. In other words, they are seeking to plan their legacies. Legacies are too often trivialized to being re
-defined as inheritance. Today, legacy is becoming more complex than just assets and financial transfers.
A recent study by Across Generations showed that 72 percent of parents said they would like help from their financial advisor in speaking with their children about legacy issues. Furthermore, 89 percent of high-net-worth respondents said that a financial advisor would be important to help manage the assets for the surviving spouse.
In 2007, The Allianz American Legacies study was released. The opinion then and today is that the convergence of two dynamic forces will have resounding personal and financial implications during the next several decades — the largest intergenerational wealth transfer in history and the unprecedented longevity of Americans. With a wealth transfer of approximately $25 trillion, complex family structures
, and an expanding retiree segment, only 25 percent of boomers have discussed legacy and inheritance transfer with their parents.
This landmark survey commissioned by Allianz Life Insurance Company of North America (Allianz Life®), in conjunction with Dr. Ken Dychtwald, president of AgeWave, found that there is a huge generational gap on views of inheritance and legacy. The lack of communication or the "legacy gap"between boomers and their parents are among the key findings in The Allianz American Legacies study.
The key findings of the study included:
- There are significant gaps in what baby boomers and their parents expect from and define as inheritance.
- Nonfinancial items that parents leave behind — such as ethics, morals, faith, and religion — are 10 times more important to both boomers and their parents than the financial aspects of inheritance.
- Legacy gaps exist because boomers and their parents are not having the in-depth conversations about legacy and inheritance in any truly productive and meaningful ways — even though they say they are having such conversations.
- Thorough discussions about legacy planning should include talking about the "four pillars" that are the core of a true legacy: values and life lessons, fulfilling final wishes and instructions, personal possessions of emotional value, and financial assets and real estate.
What is legacy planning? In a recent article by Mark Colgan, Legacy Planning: An Emerging Industry Niche," Colgan described legacy planning as the soft side of estate planning. It is the process of helping individuals articulate, create and implement an end-of-life plan that is consistent with their values and final wishes.
Addressing these issues as part of a comprehensive financial plan may give your family and heirs peace of mind that extends far beyond the benefits of a will, life insurance and health care medical directives. Taking the steps to incorporate a legacy plan within your retirement preparedness plan puts you in charge of how you want to be remembered and gives you the opportunity to express your wishes, prevent family feuds, share precious memories and pass along family values.
The legacy component of a retirement strategy is driven by your qualitative goals: your purpose, passions and values that you intend to fulfill and transfer to future generations. As we age and enter the golden years of our life, we are faced with different uncertainties. A legacy plan can alleviate some of the stresses that accompany physical changes, psychological and emotional concerns, and end-of-life realities.
If you have personally faced a premature death or incompetency issue within your immediate family, you are very aware of how ill-prepared you may have been. My experience has demonstrated that people are often unprepared for all the decisions they must make when a loved one needs critical care or dies.
Wealth management is a life-plan strategic process, incorporating the legacy planning dimension. Shakespeare said it best in "As You Like It," that "All the world’s a stage, and all the men and women merely players."
Begin your retirement “dress rehearsal” now. Don’t just play the part. Be the part. Be part of your legacy and life plan.
Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at firstname.lastname@example.org.
Good corporate governance is still looming large in the minds of investors as the government has increased regulations and scrutiny as the result of pressure from those who lost retirement savings or homes to predatory lenders and asset advisors. And customers are taking a harder look at businesses' financial information before signing contracts with them.
As a result, audit committees are no longer the committee of last resort but instead are now a significant presence that can strengthen your company's financial credibility and bring in new business.
"An audit committee’s objective is to ensure that there's integrity and reliable financial information based on good internal control systems." says Tullus Miller, Bay Area partner-in-charge at Moss Adams, who works with and serves on audit committees.
Smart Business spoke with Miller about how to create a successful audit committee that is an asset to your company.
What is the role of an audit committee and why should a company establish one?
An audit committee assists the board of directors with its fiduciary responsibilities by providing independent oversight through the integrity of the financial reporting process, which includes internal and external financial information.
For public organizations - whether publicly traded, publicly held or for the public good, such as with a governmental or not-for-profit - audit committees usually are mandated to help ensure the integrity and reliability of their financial information. Those mandates, which dictate the committee's composition and structure, can come from GAGAS standards, Sarbanes-Oxley or the exchange the company is listed on, such as NASDAQ, the New York Stock Exchange or Eurex.
For private organizations, audit committees are not required but can play an important role if a company has shareholders and stakeholders who aren’t involved with the day-to-day governance of the organization. These committees generally take best practices of public companies in a similar industry, adapting items such as creating a fully independent board.
What steps should an organization take when creating an audit committee?
The business risks and needs of the company will dictate the composition, structure and focus of the committee. Then, define the scope and objectives of the audit committee on the charter as mandated by the board of directors. Some decisions, such as hiring an auditor, can be delegated fully to the audit committee, while other boards may prefer that the committee recommend an auditor but retain the right to approve that person. The charter allows the audit committee to know what’s expected of it and how to define success, while also communicating to constituents.Finally, consider what qualities and skills members must have to ensure that a company’s needs and risks are addressed. Do they have experience with the organization’s industry? Are they familiar with financial information and how it is extricated? Do they have the time commitment necessary?
How has the role of audit committees changed with heightened regulations and scrutiny?
Over the past five to seven years, the amount of information available to audit committee members has increased. This is a positive in that it helps audit committee members stay abreast of increased regulation and scrutiny, but it also adds to the time commitment. Being on an audit committee is no longer a matter of just attending meetings. The time commitment could be as much as one day per month, for eight to 10 hours, or for a more complicated company, two to three days per month, excluding the meeting.
In addition, accounting rules have become so sophisticated, with more fair values, estimates and judgment, that committee members must take the time to understand how those items affect the financial statements and decision-making of the company. Risks are higher today, and boards have been sued, and this changes the behavior of committee members.
What are some common challenges of audit committees?
Committees should have succession, continuity and rotation planning. You need to ensure that leadership can step up and take over if an audit committee chair must step away or if a member becomes incapacitated.
Leave enough time to vet real issues, getting information out at least a week in advance of making a decision Also, limit the agenda. Less is better, especially when talking about significant decision-making and judgment in areas of increased risk.
It can present a challenge if the CEO is also chairman of the board. If an audit committee has concerns about estimates that are too aggressive, it can be difficult for a CEO who is also the chair to determine which hat to wear. The audit committee chair needs to understand that, and where necessary challenge, the risk-taking tolerance and tone at the top.
Additionally, define who manages enterprise risk management - the governance committee, audit committee or board of directors, etc. The audit committee is already responsible for managing risk on a financial reporting level, whether internal or external, so, in some cases,this may bog the audit committee down with items that aren't within its purview.
How should the relationship among the audit committee, board of directors and management be approached?
The key is communication on all sides in order to understand risks and decisions that are being recommended and approved, including with board members who are not financially oriented. Don't wait until a meeting to communicate what is happening. The decision-making processes should be transparent, with no surprises. If you encounter dissent, it should be noted and discussed thoroughly at approval time, whether it's from auditors or audit committee members.
Tullus Miller is the partner-in-charge of Bay Area at Moss Adams. Reach him at (415) 956-1500 or email@example.com.
Insights Accounting is brought to you by Moss Adams.
When Billings Productions was looking for a new home for its dinosaurs, it found the ideal location in Allen, Texas.
The company got its start nearly a decade ago after Larry and Sandra Billings met in Jakarta, Indonesia, got married, and went to work at Dino-MAE, a company that built dinosaurs. When that company closed, Larry thought he could build more realistic dinosaurs and the couple decided to start their own animated dinosaur company.
In 2003, their first year in business, they built 60 animatronic dinosaurs. Larry passed away in 2007 after the company had started turning a profit, but the company continued to thrive under the leadership of Sandra and their son, Trey. Billings Productions is North America’s leading provider of life-size animatronic dinosaurs and is the only U.S. company that specializes in creating creatures that can withstand the outdoor elements.
Each dinosaur has an electronic brain to produce sound and create realistic movements via a pneumatic system. And its 200 robotic dinosaurs, which include more than 50 species, are in great demand in zoos, amusement parks and museums not only across the country but around the world, says Tim Brightman, director of business development at Billings Productions.
“We currently have shows going on in England, France and Spain, and next year we’ll have shows in New Zealand and Australia,” says Brightman.
Smart Business spoke with Brightman about the world of dinosaurs and why Allen will be the home of Billings Productions for years to come.
How does the business operate?
We lease out animatronic dinosaurs, mostly to zoos, but also to venues such as amusement parks and museums, for temporary exhibits that Larry Billings referred to as ‘edutainment.’ The goal is to encourage discovery and create an awareness of prehistoric life by making learning fun and entertaining. Every boy I’ve ever known, including myself, from about the age of four thinks that dinosaurs are the coolest thing in the world. It’s something you never get over, and Larry felt that way, as well.
We currently have 10 shows out and have more going out in the next few months. Our biggest dinosaur is the T-Rex, which is 45 feel long and 25 feet high. However, that collapses down so that several dinosaurs can fit in the trailers for transportation.
Exhibits generally go out for two to three months at a time. It is a fun and growing business. However, the industry is becoming more competitive and we have to keep moving forward with new ideas.
What precipitated the move to Allen?
When the business first started, it was operating in what was essentially a 20,000-square-foot old aluminum airplane hangar in Texas. We had just outgrown it. We had too many dinosaurs and too many projects we are building to remain in that space. When dinosaurs were coming back, the building was completely full and we needed more room.
Billings Productions has gone from a mom-and-pop business that was run in an ad hoc manner to being a real business. We are getting the business organized and structured, and as we continue to grow, we needed more space.
We scouted all over the place to find a location that was suitable and that had enough space, and we found what we were looking for in Allen. We looked at other locations, including a small town in Texas where fossils had been found, which seemed like a natural fit. But we were very concerned that if we moved 100 miles away, we would lose our core personnel, and we found everything that we needed in Allen. That allowed us to keep our talent and cost effectively locate in a bigger, nicer building. The new space is state of the art and doubles the amount of space we have, giving us more room to store our dinosaurs.
We moved in this spring, and so far, it’s been great. We’re still moving in, but as far as the facility goes, we’ve shipped out a couple of shows since moving there, and it’s so much easier. We have a good loading dock and other things that we didn’t have before, things that make it a whole lot easier to do business. Going forward, as we settle in to our new location, we’re looking into expanding our product lines, and eventually, we are going to set up tours so that people can come through and see how the dinosaurs are built.
In addition, the Allen Economic Development Corporation has made us feel very welcome and wanted. We’re starting to work with them on where the company is going over the next five years and some expansion plans. We plan to be in Allen for the long term and we’re excited about how that relationship will develop over time. Everyone has been amazingly helpful and generous with their time and support, and we really look forward to being here for a long time.
Tim Brightman is director of business development at Billings Productions. Reach him at firstname.lastname@example.org. Reach the Allen Economic Development Corporation at (972) 727-0250 or www.allentx.com.
Fast forward to the day you step down from your post. How will you be remembered by those left to continue the work? Will your name be thought of fondly, or will people be cheering your departure?
A leader’s legacy depends on how those who follow think about leadership. Likewise, it depends on what they value in a leader. Like an Olympic athlete, your job is to make the most difficult of tasks look easy and graceful. At least that’s what people want, but this is a tall order, says Scott Allen, Ph.D., assistant professor of management, Department of Management, Marketing and Logistics, Boler School of Business, John Carroll University.
“On what are you being judged?” says Allen. “In actuality, leadership is in the eye of the beholder. However, there are some leaders who rise above the rest and truly stand out. This is not magic, nor are people born with it. It boils down to five core elements, which make up a ‘leadership scorecard’ of sorts. Great leaders – the Olympians – have succeeded in five core areas, which I call the 5 Ps: personal attributes, position, purpose, processes and product.”
Smart Business spoke with Allen about the 5 Ps and the best practices of leaders.
What are the personal attributes of a leader’s scorecard?
These are your traits, knowledge, values, skills and abilities. Are you credible? Ethical? Trustworthy? Intelligent? A ‘no’ on any of these will be a difficult pill for many to swallow. People may not know what you know, but they know how you make them feel. So in many ways, personal attributes are all about what you bring to the role. Of course, each one of us brings great strengths and areas for development. The question is, do you have an eye on both, and who is providing you with unfiltered feedback?
How do you use the position of leader?
Is your power used to develop and build others? Or are you perceived as an individual who hoards his or her information and power? Likewise, do you use the position and your authority in a consistent manner, or do you play favorites, lack consistency and abuse your discretion?
How does the leader’s purpose answer the question, ‘Leadership for what?’
Leaders are clearly aligned around a cause or purpose and influence others to follow. Another way to think about purpose is strategy. Is your vision and the strategy behind it one that motivates and resonates with others? Some leaders inspire a shared vision and have the ability to manage that vision into reality. Others fail to inspire the troops. Think about the last time you spoke to, the masses – did they leave energized? Did you?
What practices/processes does a leader use?
The practices/processes of leadership describe how you achieve your purpose and how you move the group, organization, or community from point A to point B. For instance, is your style a democratic one where many feel a part of the endeavor, or is it coercive and autocratic?
What is the end product?
Some wonder if the success or failure of the leader can be determined prior to knowing the final result. In the end, people will determine if they feel that they are better off because of your efforts. Has your time been filled with growth, innovation, and exciting ventures? Or, have your efforts failed to achieve desired results?
Why do all five Ps matter in leadership?
As a leader, you and your senior team need to have an eye on each one of these items. You may have great success and three of the five, but fail in two, and the result is that you are not perceived as a strong leader or leadership team. For instance, you could have the first four Ps in place but lack results and suddenly your job is in jeopardy. Likewise, you could have the last four Ps in place but be perceived as unethical, untrustworthy, and unapproachable. Again, your legacy is tarnished. Just think of all the CEOs and politicians who struggled with one or more of the 5 Ps. Who stands out from your own career? Who did all five well? Who did not and how did it impact their career?
How do you better manage your legacy and ensure that each of the 5 Ps are well balanced?
First, have the 5 Ps on your radar and critically analyze your current state. How are you perceived, how do you use your position, how do you inspire a vision, and do you have systems in place to ensure results? An open and honest conversation between you and your team will likely reveal a great deal. If this culture does not exist, build it.
Next, develop outlets and access to unfiltered feedback. You may not always agree with the feedback you hear, but at least you have a pulse on how you, your vision and your team are perceived. If you are viewed as a person open to positive and negative feedback, you will have access to more information. However, if you are perceived as a person who holds grudges, or responds negatively or even abrasively, then it is likely people will avoid sharing information and honest feedback.
Finally, implementing a simple continuous improvement cycle where you and your team can receive feedback/coaching, gauge progress, identify gaps, and then adjust can take you to the next level of leadership.
Monitoring the 5 Ps will create buyin for your vision, develop trust in you as a leader, ignite employee enthusiasm and productivity, solidify your legacy as a leader and create a system of continuous leadership improvement within your organization. Leaders have a responsibility to help create a culture that is engaging, innovative, and productive. Isn’t that where you would like to work?
Scott Allen, Ph.D., is assistant professor of Management, Department of Management, Marketing, and Logistics, Boler School of Business at John Carroll University. Reach him at email@example.com.