Nearly four years ago, when Tom Salpietra joined EYE Lighting International of North America Inc. as its president and COO, a woman approached him interested in operational development at the company.
Since Salpietra was a new leader, it was expected that he would make changes within the company to improve EYE Lighting International while keeping the best things about the company intact.
“Everybody is going to have things wrong, but if you preserve what’s right, that’s where the secret is in organizational development and implementing change,” Salpietra says. “If you screw up the things that are right, that’s where you go wrong.”
Salpietra worked with her to develop questions to interview the employees about what they liked at the company. Since this was an appreciative inquiry the study only focused on what the employees thought was sacred about EYE Lighting International, not about what needed to be fixed.
The study found that every employee was extremely engaged in the company and its business.
“This was how we developed the four basic principles around the customer,” Salpietra says. “We made the customer the center of the business and did process improvement to all the things that we do on a day-in and day-out basis.”
EYE Lighting International is a nearly $100 million U.S. division of Iwasaki Electric of Japan. The company designs and manufactures high performance lamps, luminaries and lighting-related products that serve major commercial, retail, industrial, utility and specialty application lighting markets in North and South America.
Since Salpietra’s arrival at EYE Lighting, he has been focusing on efforts to develop new technology and to keep the organization’s sights on the next big thing in the lighting industry all while maintaining employee engagement levels.
Progress your company
EYE Lighting International’s unique competitive advantage is how the company doses the arc tube of its lighting products (dosing refers to the mix of metals inside the arc tube). The market is currently producing a lot of high intensity discharge (HID) lighting but soon the market will move to LED lighting. While LED works in certain applications, it is expensive, and there are still kinks to work out in other applications where it’s not ready for prime time.
“We’re trying to shift the company from just making HID lamps to offering broader solutions in our market segment,” Salpietra says. “We’re not going to stray from our core competency, which is dosing the arc tube and making unique types of lamps. The challenge we have is if we don’t move in that direction, our years and decades of existence will start to decline.”
As a management team, EYE Lighting knew that the company didn’t have to change too much to succeed, but if it didn’t start changing and moving in a certain direction, it wouldn’t be in that same kind of comfort zone it has been three, six or 10 years from now.
“We’ve taken it very seriously that what we do today will impact the company years down the road,” Salpietra says.
With the lighting industry making a slow transition into LED, Salpietra and his team had to look for opportunities that better suited EYE Lighting’s general lighting purposes until LED is ready for the applications where the company would primarily use it.
“The merging of the two traditional technologies into ceramic metal halide gave us the ability to continue to do what we do, which is making lamps,” Salpietra says. “If that technology wasn’t there, we’d be lost and everybody would be rushing to do LED more quickly.”
What EYE Lighting has been able to do is make the regular technology much more efficient and deliver white light, which creates good color rendering and color temperatures to be able to see both in the day time and at night.
“It’s been proven that white light versus a yellow light or a blue light make a big difference in being able to see,” he says. “If you can make your light create the spectrum that matches the way the human eye wants to see the spectrum and discern it, you’ve just enhanced the way you do it.”
On top of developing new technology to enhance the company’s core offerings, EYE Lighting has been looking for broader applications to its technology and has its sights on potential partnerships that could benefit the company.
“When we do our strategic planning, we look heavily at our core competencies and what we think we can do with new technologies,” he says. “Part of every good company’s strategy has to be looking at the M&A side of things as well; you want to grow organically, but what should you do to augment that growth with outside skills and services?”
Salpietra and his team are keeping their options open for potential strategic alliances, mergers, joint ventures or buying a company outright.
“In order to grow and thrive and create jobs and create value for our customers, shareholders and employees, we’ve got to look at the overall business and determine what we can be looking at to expand our business beyond what we do day-in and day-out,” he says.
A big move that EYE Lighting made in November 2012 was the acquisition of Aphos Lighting LLC, which expedited EYE Lighting’s move into LED. The products acquired are LED-based luminaires that carry with them 14 different design patents for their optical, mechanical and thermal management performance. EYE Lighting will maintain the Aphos name for this new line that will expand its business by introducing LED luminaires to municipalities, utilities and industrial customers.
“As we’ve looked in the general lighting market space, we ask ourselves what’s our core competence and where do we want to go. We get involved in a lot of unique things that stem from our core technology.”
The other areas in which EYE Lighting participates, in addition to the general lighting market, are institutional, educational and hobby markets.
“Because we dose that arc tube differently than anybody else in the world, we’re able to recreate some spectral distributions of light,” he says. “Not just the color of light, but the intensity and what light rays are being emitted from the lamp.”
Due to this ability, EYE Lighting can make lamps that enhance plant growth, as well as lamps that can simulate solar power for use by companies or universities doing solar tests. The company also makes solar aging equipment for businesses such as Sherwin-Williams, Behr paint, automotive companies that make windshield wipers, roofing companies, and anything that’s outdoor-oriented.
“Those types of companies want to test in a lab whether or not they’re going to get a 30-year warranty, but they don’t want to test for 30 years,” Salpietra says. “The equipment nowadays has you test six to nine months to be able to project a 20- or 30-year lifespan.
“We make a machine which is called a super UV. You can put samples in the machine and within three weeks we can equate 10 to 15 years. We can also put more than just UV rays on it; we can also put water on it and chill it.”
These types of broader offerings are due to the highly engaged employees that EYE Lighting has been able to keep around the business over the years.
Keep employees engaged
With a Japanese parent company, EYE Lighting puts a lot of focus on lean manufacturing and kaizen events, and 130 employees are quick to recommend how to better the business.
“What is unique about us is that every employee on the factory floor changes positions at least once a day,” Salpietra says. “Everybody is highly cross-trained and capable of performing at least two different jobs.”
Some employees remain in the same department and move upstream in the process versus downstream. Others will go from one department that transforms the raw material, and then they go to the end of the line to do packaging.
“It allows us a tremendous amount of flexibility,” he says. “The employees love it because they don’t get bored in their daily job. Ergonomically it’s good for them because they’re not doing the same repetitive task day-in and day-out when they come here. It helps keep them alert and safe, especially when they know different jobs and how to behave around different pieces of equipment.”
One thing missing from EYE Lighting that most other manufacturers utilize is a suggestion box. Salpietra says his employees will come forward with ideas on their own, making a suggestion box unnecessary.
“Everything emanates from the floor,” he says. “When the employees change jobs by going upstream or to another department, they see the product of their work or the beginning of what comes to them to pass on to somebody else. So they inherently get together to have a kaizen event over a particular issue.”
To aid in employee’s abilities to help the company further its growth and development, Salpietra and his team implemented four core principles: customer-centric, process improvement, financial focus and talent development.
“We did this rather simplistically to make sure that it was easy for everyone to recite and keep it close to them day-in and day-out,” Salpietra says. “We keep our customer at the center of our business. We deal with process improvement, which is part of our DNA as a Japanese-owned division.
“And everyone in every organization wants to improve and enhance the skill set of employees, so we push our people to get out of their comfort zone.”
Develop your talent
To keep EYE Lighting employees on their feet and thinking about different aspects of the business, Salpietra made talent development a big part of the organization’s core principles.
“We added talent development because that captures what we do on the factory side that we want to do throughout the whole organization, which is work out of your comfort zone,” Salpietra says. “You’re going to become more knowledgeable and more valuable for yourself.”
To allow your employees to grow and develop, you have to be willing to give them the tools and resources to do so.
“You need to have an open-door policy,” he says. “The leadership, especially new leadership, has to develop two things primarily — trust as a leader and then respect comes. Then you can develop the feeling of hope. If the employees see that there’s hope in things and they become a part of that, it will help engage them.”
That engagement will also help when your company has to make a tough decision or make a change in direction.
“It’s very important that you get a lot of group interaction so that when you go to make a decision or implement a change, everybody is onboard with that,” he says. “If you engage your people and say, ‘Here’s what we’re going to do. We’re going to move in this direction and we’re going to need your help. We do not know all the answers.’
“They love to hear that because they will have questions and suggestions for the company. As much as you engage your employees, they will become engaged on their own. All of a sudden ideas and suggestions will start surfacing.”
How to reach: EYE Lighting International of North America Inc., (440) 350-7000 or www.eyelighting.com
Keep yourself in tune with your industry and where it’s going next.
Always think about ways to broaden core offerings.
Develop talent and keep employees engaged in the business.
During a difficult economic environment or in markets with significant price pressure, sales growth is often elusive and seldom a near-term solution for increasing the profitability of a business. Cost reduction, on the other hand, can have an immediate positive effect.
When companies do a “deep dive” analysis of their cost structure, they can almost always find ways to cut costs without sacrificing quality or customer service, and that “win-win” drops right to the bottom line.
In our experience, a 30-day review of costs will yield extensive insight that can translate directly into cost reduction. We recommend a “quick and dirty analysis” led by a strong cross-functional team. We suggest two specific techniques for conducting this kind of analysis:
This is a tool used to conduct a quantitative assessment of a company’s financial statements. Ratios are evaluated by comparing each major cost category to prior years. This internal analysis can then be compared to a peer group of companies.
Ratio analysis of financial statements encourages decision-makers to look at the trend of costs versus activity levels (sales) over time. It enables you to spot trends in the business and compare current performance with the best ratios of prior years.
To get a complete picture, the ratios should be measured against peers’ ratios, as well as comparing the business’ performance over several years. We suggest paying special attention to when and how any unfavorable trends may have developed.
When looking internally, the business should evaluate at least five years (ideally, up to 10 years) of historical numbers in fundamental areas such as sales, materials and labor costs, overhead, gross profit, selling, general and administrative costs.
A macro analysis requires the team to identify the best ratio in each category. For example, if the third year has the best ratio in a category, then that ratio provides a snapshot of the “ideal” situation. Once the other best historical ratios in each category are identified, the business will then have a complete picture of what’s possible.
We recommend conducting a macro analysis not only internally but also against a peer group. The macro analysis should be done with the major cost categories on your company’s profit and loss statement.
As a next step, a micro analysis allows the business to drill down into the specific cost elements in each major category. For example, if the macro analysis category was general administrative, that area could be segmented into salary, wages, fringe benefits, supplies, travel and entertainment. These segments would then get a similar ratio analysis conducted upon them.
While this type of analysis is often laborious, it can provide very clear indicators of what can be done to “claw back” unnecessary costs.
The purpose of micro and macro ratio analysis is to take the best ratios of each cost category and build a target profit and loss statement utilizing those best ratios. You then try to get your current P&L statement to replicate those best ratios. The benefit of cost reduction is that it requires little capital cost and no working capital or debt.
Constant dollar sales per employee
This technique measures the average revenue generated by each employee of the company, and is calculated by dividing a firm’s revenue by the total number of employees.
Revenue per employee is a rough measure of how productive a particular company is utilizing its employees. In general, relatively high revenue per employee is a positive sign that suggests the company is finding ways to leverage more sales out of each of its employees.
The reason for measuring constant dollar sales is that the CDS calculation removes inflation. Labor needs vary from industry to industry and labor-intensive companies will typically have lower revenue per employee ratios than companies that require less labor.
Hence, a comparison of revenue per employee is generally most meaningful among companies within the same industry. Ultimately, increasing your constant dollar sales per employee will lead to expanding margins and improved profitability.
Matthew P. Figgie is chairman of Clark-Reliance, a global, multi-divisional manufacturing company with sales in more than 80 countries, serving the power generation petroleum, refining and chemical processing industries. He is also chairman of Figgie Capital and the Figgie Foundation, a member of the University Hospitals Board of Directors, corporate co-chairman for the 2013 Five Star Sensation, and chairman of the National Kidney Walk.
Rick Solon is president and CEO of Clark-Reliance and has more than 35 years of experience in manufacturing and operating companies. He is also the chairman of the National Kidney Foundation Golf Outing.
Steve Phillips doesn’t understand why customers in today’s world wouldn’t want help from a salesperson. But he’s not so stubborn that he refuses to believe it is true.
“My son keeps talking about stranger danger, that customers don’t want to be approached by salespeople anymore,” says Phillips, president and CEO at Phillips Furniture Co. and six Ashley Furniture HomeStores in the greater St. Louis area.
“As a leader in my position, this is where I’m going to have to rely on these young people to make decisions that will put us in a great position for younger customers.”
Phillips Furniture is a family-run business that launched in 1937. Phillips doesn’t see things the way his father did. His son, Michael, the company’s vice president of advertising and merchandising, doesn’t always agree with his father’s point of view.
But it’s their ability to respect each other’s differences and then reach a consensus on how to operate the business in today’s world that allows the company to succeed.
“I’m hearing what they want, and I’m OK with what they want,” Phillips says of the younger generations that are becoming a larger part of both his customer and employee bases. “It’s just foreign to me. But as a leader, I have to be willing to let them try things that I’m not familiar with.”
Phillips says it’s not always easy to move away from behaviors that you’ve grown up with and used to achieve success. And he doesn’t always believe it’s necessary to shift away from something that has become a proven success. But if it is necessary to change, doing so beats the alternative every time.
“It is tough,” Phillips says. “But it’s tougher if you fail. If I keep dictating policy and how we’re going to do things based on how we did it in the past, I know we will die and that’s not good. So I just really trust these young people, and I trust the organization. If we truly have the customers’ best interest at heart, we’re going to do what they want, not what we want.”
It’s that idea of constantly seeking a better way to please customers that drives Phillips and his 330 employees.
Set a foundation
Perhaps one of the reasons Phillips is more agreeable to accepting new ideas is that he has been reluctant to follow the crowd when it comes to furniture salesmanship.
“The furniture business has not had the greatest reputation for integrity,” Phillips says. “A lot of people give false high prices and fake savings, and I didn’t want to do business that way. We have one price on a piece of furniture.”
The problem for Phillips is that many employees who have worked in the industry for a number of years were trained to take the misleading approach.
“There was a very specific way we wanted to do things that was not normal in the furniture business,” Phillips says. “That’s why we don’t necessarily want people who have been in the furniture business because we don’t know what their training background is.”
The solution for Phillips was to create a training program that new employees must go through before they are allowed to speak to a customer.
“So everything that we do structurally and integritywise is ingrained before they talk to their first customer,” Phillips says. “As a matter of fact, we probably don’t spend enough time talking about product. It’s more about how we do things. We have leadership round tables every month also. We have our leaders come in and we just go through what’s important to our customers.”
The goal is to have a sales team that doesn’t just talk a good game when it comes to pleasing the customer, but they can actually show how they’re going to do it.
“They have to role-play to show us, not just tell us, but show us they know how to service customers the way we want them to,” Phillips says.
That’s the end result. The steps for getting to that point where employees have the ability to display those skills must be dutifully followed if training is going to work.
“You can’t train or correct anything until you can measure it,” Phillips says. “We know how many pieces per hour some of our furniture assemblers can do and what the standard is. We know how many pieces per hour one man can unload on a truck. You can’t manage and train until you know what the issue is, which is only done through measurement.”
Once you have that data to work off of, you’ve got to put what you want to do in writing and then make sure you do it.
“If it’s not in writing, it’s not real,” Phillips says. “So everything is in writing, and you just go over it step by step. They can’t be promoted until somebody observes and there is a physical check-off that this is what they can do.”
If you don’t believe you have time to conduct training with an already cramped schedule, you’ve got to find a way to make it work.
“Training has to be a priority,” Phillips says. “If you get caught in the treadmill of doing business all the time, you’ll never get off the treadmill and start training. If you train and make it part of your culture and your business religion, you don’t think about it as being a disruption of your normal process. It is your normal process.”
Take a visible role
Many leaders will talk about how important a training program is, but then they personally move on to other things and leave the team to figure out the best way to make it work.
Phillips says you have to do more than that as CEO.
“Every training class we have for salespeople, I’m the first presenter,” Phillips says. “I take the first hour or so and tell them about the company and what we stand for.”
The company’s COO tackles the next segment and then training responsibility shifts to Phillips’ brother, Matt, who heads up training at Phillips Furniture.
“What we want these people to see is that everybody at the top also believes in everything we do,” Phillips says. “The fact that we spend so much time with them, we certainly hope that’s what they believe.”
As a way to encourage leaders to want to take part in the training process, Phillips suggests rewards for leaders whose direct reports receive promotions.
“A lot of leaders withhold knowledge or training for fear of somebody rising above them,” Phillips says. “Our managers are rewarded for having someone promoted from beneath them. We love store managers who want their assistant managers or their team leaders to be promoted. They don’t feel threatened by it.”
Focus on core values
The other piece of the puzzle for Phillips is core values. While he is open to changing training methods and operational policy, he leaves no wiggle room on his commitment to the company’s core values.
“No matter what processes or changes you make in your business, you can still hold tightly to your core values,” Phillips says. “That’s the one thing I will never negotiate — how does it look with our core values. You have to keep that out there in front.”
Arriving at the three core values that define Phillips Furniture was no easy chore. Phillips and a team of more than a dozen leaders left the company’s headquarters and headed to a remote cabin in the Ozarks. Once they arrived, it took three days to finish their work.
“There were a lot of great ideas,” Phillips says. “I just didn’t want a lot of them. We could have had 10 great core values, but I wanted to be able to sink our teeth into three or four. Once you get past three or four, they start becoming a little redundant. These were three that nobody could ever argue with.”
The three core values they decided on were “integrity above all else, honesty in all we do and service to others first.”
“If you can get your entire organization to buy in to those three things, you have a much easier time finding great leaders because leaders want to buy into something greater than a dollar,” Phillips says.
Some companies consider “making a profit” a core value and Phillips says he understands, even if he doesn’t agree with it.
“We think that’s the result of doing the first three,” Phillips says. “So we wanted the core values to produce the results that we were looking for.”
Phillips says his company wants to make a buck as much as anyone. But by focusing on other things, such as the customer experience, employee readiness and job satisfaction and giving back to the community through charitable efforts, everybody comes out ahead.
“It’s imperative that a company stand for more than a dollar,” Phillips says. ?
How to reach: Phillips Furniture, (314) 966-0047 or www.phillipsfurniture.com or Ashley Furniture HomeStore, (314) 845-3084
The Phillips File
President and CEO
Phillips Furniture Co. and Ashley Furniture HomeStores/St. Louis
Born: Dayton, Ohio
Education: I went to the University of Missouri for three years. I got married when I was 20, and I got tired of being broke, so I quit school and took a job.
What was your very first job?
Raising vegetables and selling them door-to-door. I’m an avid gardener, and I still am to this day. My first full-time job was in the furniture store while I was going to school at Mizzou.
What got you into gardening?
My dad had an extra lot next to the store. I always wanted to be a farmer my whole life, and now I do own two farms. There is something really neat about getting your hands in the soil. He gave me this plot of ground, and I had a wagon. I would load it with vegetables I grew and picked and I would take them door to door to our neighbors. I didn’t have prices. I always said pay me what you think they are worth and I got taken advantage of quite a bit. So I learned not to do that the next year.
Who has been the most influential person in your life?
It would have to be my mother and my father. From a business point of view, it would have to be my father. He was the most patient and kindest man you ever met. I never saw him raise his voice ever. I don’t know that I got those traits from him, but I’ve always admired those traits. My mother had six kids and she’s a phenomenal woman.
Don’t be afraid to change.
Make the time to do training.
Don’t choose too many core values.
Corporate entrepreneurship is picking up a few nicknames as it becomes a trending topic in discussions. “Intrapreneurship,” a term used by Steve Jobs in a Newsweek article in 1985, will still drive your autocorrects and spell checks crazy.
But a quick online search of the term will find an increasing number of articles racing to define the buzzword for the current era. Why the refreshing discussion on the topic of entrepreneurship inside the walls of a corporation? When well-run, these efforts can be a virtual lottery of profit for the company who manages it correctly. Let’s take a stab at addressing the concept and what it means today.
Jobs was, of course, referring to the Macintosh team, the virtual garage band of loyal workers who were long on hours and ingenuity and provided the basis of a new line of computer products that began to lead the company in new directions.
The Mac team exemplified a culture of innovation and made a good case for a strong investment in talent, coupled with a healthy budget for research and development. In the view of many, this remains the current model for companies today.
But daydreaming about inventing the next Mac, iPod or iPhone might be mitigated by reminders of failures, such as New Coke, Clear Beer, Crystal Pepsi or Netflix spinning off their DVD business to Qwikster, the most recent major blunder by a corporation.
Here are a few steps to take on your path to becoming more tolerant of risk while never forgetting to keep a close eye on the costs.
Empower a team.
Keeping the lines of communications open will inform you of breakthroughs before they happen. Define the goal and how success should be measured. Then establish a funding level and clarify your time horizon to reaffirm the commitment. It will help you monitor progress or regress directly and you’ll be able to spot pitfalls while there’s still time to react.
Consider meeting with different people so that you can gain multiple perspectives. Walk the group’s area and they’ll know they have the interest of top management.
Recognize and cultivate top performers.
Support them with complementary people who think like they do but consider fostering an environment of teamwork, not necessarily one of competition with each other.
Resources for the project need to be ample but not extravagant. The team will understand the venture itself should be considered like a start-up, and while they’ll enjoy the same benefits as your other employees, they may relish the opportunity to “rough it” and be considered noncorporate types.
Reward extraordinary performance.
An opportunity for the team to be compensated based on viable success must be a part of the equation.
Entrepreneurs will be highly motivated to share in the long-term value and upside they create. This also will aid in retaining the capability and high-quality talent in your organization. It will come back to your bottom line in spades, so don’t forget to share. Reward efficiency and frugality as well.
Set the pace.
Set, monitor and share data on progress against agreed upon milestones. Hitting goals will energize the team and provide the necessary information to tweak their overall plan and make adjustments. The allocation of resources can also be measured at this time, and if you’re knocking on the door of a breakthrough, you’ll know it. ?
Tony Arnold is founder and principal of Upfront Management, a St. Louis-based management and executive consulting firm. He can be reached at (314) 825-9525 or email@example.com.
Edward Kennedy is an experienced chief executive with a successful track record of creating value at companies in the communications equipment industry. So it’s no surprise that his ascent within Tollgrade Communications Inc., a more than $50 million, 120-employee provider of network assurance solutions for the utility and telecommunication industries, was a quick one.
Kennedy was named to the board of directors in June 2009 to help the company from a strategic standpoint. He became chairman of the board in March 2010, and just three months later, he became Tollgrade’s president and CEO. In his more than two years in the role, he has helped Tollgrade grow in several ways.
“Our customer base is the who’s who of telecom players, both here in the United States and Europe — AT&T, Verizon, Quest, Frontier, British Telephone and more,” Kennedy says. “We have a very strong footprint — roughly about 250 million lines under test — 140 million in the U.S. and 110 million in Europe.
“Because of all that, we have over the years, developed some very, very sophisticated software that allows us to maintain this leadership role in testing.”
Beyond Tollgrade’s core service of testing telephone lines, Kennedy has helped the company break into the smart-grid business with a product called LightHouse.
“As utilities globally look at how to become more efficient with their distribution of electricity and also how they manage different types of electricity generation, such as renewables and how that comes into the network, the ability to monitor your network becomes key and that’s what we do with our smart-grid product,” Kennedy says. “That’s a high-growth area for us.”
While Tollgrade’s core business and its new smart-grid business are similar technologies, they are vastly different businesses, and trying to grow a new business while maintaining the other has been Kennedy’s biggest challenge.
Here is how Kennedy is balancing Tollgrade Communications’ growth of a new business while maintaining its core service to take the company to the next level.
Create investment opportunities
Along with the challenge Kennedy has of balancing a new growth opportunity and an existing business, he also needed to find ways to invest more in the future of the company.
“One of the things we did back in May 2011 is we went off of the NASDAQ and went from being public to being private,” Kennedy says. “The motivation to do that was we saw the requirement to make larger investments in new products and larger investments in increased infrastructure inside the company.”
As a public company, you’re measured on a very tight set of parameters. All of those metrics don’t lend themselves when you want to do an investment for the future.
“In a public company it’s kind of a catch 22 — you don’t really have enough money to invest the way you want to grow the business, but if you don’t invest, the business won’t grow the way you need it to maintain increasing stock price,” he says.
Tollgrade decided it needed to look around and see what it could do to unlock some of the investment dollars. The best way for the company to do that was to go private. The company was then bought by a large private equity firm out of California called Golden Gate Capital, a $12 billion fund that invests in all sorts of technology companies.
“With that we are allowed the flexibility to make investments the way we need to grow the business,” Kennedy says. “It allows us to invest for the future, which these days is pretty challenging. Keeping one step ahead of the competition, but also having the next generation of products is going to be key to keeping your business vital.”
Strike a balance
Tollgrade’s ticket to keeping the business vital is through the growth of its LightHouse product in the smart-grid area.
“The smart-grid area has the largest potential for growth and is the one that is the most challenging because we are in so many different areas and applications,” Kennedy says. “The utility environment itself is in a period of change and the requirements for electricity are ever increasing.”
Utilities are looking at how to better manage their grid, which opens up a huge opportunity because the power grid has been the same for many decades.
“Now what’s happening is the issue of different types of power generation where it’s not just nuclear plants, coal plants, hydro plants; it’s also wind farms, cellular rays and things like that,” he says. “There’s a whole new set of demands that have to be addressed and that’s what we are going after.”
While Tollgrade is investing heavily in the smart grid and is one of the market leaders in the sensing and monitoring of that for the utility group, its telecommunications business is also still vibrant and growing. Kennedy has to make sure that Tollgrade is successful at striking a balance between both the new business and the existing business.
“Having multiple business lines in very different market areas is challenging and where it becomes challenging is you want to make sure you put enough investment in the new products to grow it, but you’ve got to make sure you’re not hurting the overall profitability of the business by investing too much,” he says.
Where companies get in trouble or get offline is they don’t sit and think about what the metrics are for success along the process.
“Everybody says, ‘I want to grow this from zero to $100 million in sales,’” he says. “But what are the major steps along the way and what are the definable milestones that you can figure out whether you’re making progress toward that? If you’re not making the progress you thought … what are the issues preventing you from hitting the milestones?
“Having that kind of environment where you’re analyzing in real-time how your business is doing makes people gloss over a little bit because they’re so busy trying to grow the business. As a CEO your primary role is to step back and think on a more strategic and global basis to understand how the company is doing.”
If you’re not keeping tabs on how all your business segments are performing, it is very easy to lose track of one or more of them.
“The core business can’t be seen as an orphan or a stepchild because all the fun and excitement is in the new products,” Kennedy says. “People have to realize that maintaining and growing the existing business is as important, or sometimes even more important, than the new initiatives because the new initiatives aren’t paying for anything if they are still in the investment mode.”
When focusing on a new business, you have to put together some milestones to get to a certain amount of revenue in a certain amount of time and highlight what needs to happen in order to get there.
“As you move forward with your plan, you need to compare that to what’s actually happening and have a feedback loop to understand if you were too aggressive or not,” Kennedy says. “You have to constantly improve your model to better predict how you’re doing moving forward.”
There is a different set of metrics that you put on a new product or a new business area because you have to take increased risks that you wouldn’t take in your existing business because you no longer need to.
“Sometimes these risks work out and sometimes they don’t,” he says. “Failure isn’t not achieving a goal. Failure is not trying hard enough to achieve the goal.
“You focus in on your core strengths and what you know and what you don’t know and by having a very clear conversation with the team that’s running the new business, you can have a view of what progress is and how you measure it and figure out if it’s doing what you think it’s doing.”
The biggest key to having successful growth of a new or existing business is the people who drive the company every day.
“It is crucial to have very motivated and smart people under you that get it,” Kennedy says. “You have to give them an environment where they want to go out and grow the business and they’re rewarded for growing the business and success is seen as management of risks and rewards versus making sure that they stay in their comfort zone.” ?
How to reach: Tollgrade Communications Inc., (724) 720-1400 or www.tollgrade.com
- Create opportunities that enable investments for the future.
- Strike a balance in how you grow a new and existing business segment.
- Set goals and create milestones to measure growth.
The Kennedy File
President and CEO
Tollgrade Communications Inc.
Education: Has a B.S. in electrical engineering from Virginia Tech
What was your very first job and what did you learn from that experience?
My first job was cutting lawns around my neighborhood. I’ve always been kind of a high-energy-driven kind of guy. I learned that you have to work hard to get ahead.
What is the best business advice you’ve ever received?
Be tenacious and thoughtful and think about what you want to do and then be relentless to get it.
What are you most excited about for the future of Tollgrade?
I’m excited about the fact that we have a huge installed base in the telecommunications side that we can continue to grow and help our customers globally to provide better service for their customers. On the smart grid side there is a huge opportunity to help the whole energy marketplace in a better and more efficient delivery of electricity. That’s going to be a major social trend and a major business trend and we can be a pretty significant player in that.
If you could speak with someone from the past or present, with whom would you want to speak with?
I would like to sit and talk to Winston Churchill. He was a man who faced incredible situations and had the weight of a lot on his shoulders, and it would have been interesting to see in his time what he was thinking.
If you had the chance to do something dangerous one time, without consequence, what would you do?
If I couldn’t get hurt, I would want to try flying around in one of those squirrel suits. As long as I land safely, that would be fun to do.
As a 20-year veteran of the insurance industry, Charlie Rosson has seen his fair share of financial uncertainty, economic downturns and business struggles. So when he was promoted to CEO of Woodruff-Sawyer & Co. on Jan. 1, 2008, Rosson recognized rather quickly that his tenure was going to coincide with all three.
“Right from the start, like everybody, we were thrown a pretty difficult set of circumstances to deal with,” says Rosson, CEO of the San Francisco-based insurance services firm. “So many businesses were impacted in terms of their sales and access to capital and their business overall. The recession impacted our clients directly, and we were challenged to respond to that by coming up with more aggressive programs for them to quickly save them money and to help a lot of them through survival mode.”
Although clients were losing revenue and facing serious financial struggles of their own, the firm still needed to find ways to keep business profitable. But many clients could also no longer afford the firm’s services and products at the same rates or prices as in the past.
Like most professional service firms, Woodruff-Sawyer needed to find ways to keep clients’ businesses afloat but also avoid losing their business.
“Obviously, we had to become more efficient in the way that we do business, and we had to recognize in a lot of cases our clients weren’t willing or didn’t have the wherewithal to pay the same type of fees or commissions that they might have before the difficult time,” Rosson says.
“The way we would structure an insurance program before the financial crisis or before things got really difficult obviously wasn’t implacable anymore. So we had to kind of come to terms and help them with declining values and property, shrinking payrolls and overall downturn.”
Finding creative ways to deliver the same types of programs for clients more affordably wouldn’t be simple, especially because each client’s business was so different.
Rosson knew that the firm needed to work much more closely with clients to figure out win-win solutions.
“We had to negotiate greatly reduced premiums for them and come up with coverages that met their needs but were at a price point that they could afford,” he says.
So as Rosson and his team began talking with clients about their changing risks and opportunities, they also asked each client for a list of must-haves.
“We really had to dig in and find out what are the things our clients truly value and what things are sort of “nice to haves” that they didn’t value as much, and frankly, weren’t willing to pay for,” Rosson says.
“We’re fortunate that the clients we serve we have a great relationship with and normally have a pretty deep dialogue with them and attempt to fully understand their business,” he says. “So we can go in and talk about the services we deliver, how they’re delivered and how the team is structured, then drill into what things are important to them. Then we ask them honest questions about what things they can live without.”
Knowing your customer’s “deal breakers” can help you pinpoint the exact value that you add for them, allowing you to identify and recommend business solutions that are cost-effective but that still meet that customer’s needs.
“What clients are looking for is value, and in our case, it’s quality of advice,” Rosson says. “It’s how do we help our clients become more successful? And oftentimes when we partner up with them and really understand their business, we can help them execute a strategy that maybe they wouldn’t be able to execute without us.”
You may see opportunities to meet the future needs of your customers as trends emerge of where their businesses are moving and as new technologies come along. For example, the recession spurred the firm’s investment in technology to help address client issues.
“The current generation of buyers has already adopted technology as a core part of the way they do business, and that curve is only going to get steeper as newer generations come into the workforce and become leaders of companies,” Rosson says. “They’re going to expect that they can interact with service providers and professionals through some sort of technology medium. They’re not going to expect the traditional back and forth model that’s defined our industry for quite a while.”
Trim the excess
Once you identify your clients’ pain points and priorities, you can begin looking for ways to serve their needs more efficiently.
Rosson realized that although Woodruff-Sawyer continued to deliver valuable services and advice for clients, the firm could save time and cost by streamlining its approach — as could its clients.
“We had to get much more efficient in terms of the way we structured our teams, and we had to use technology in ways that we hadn’t before, in terms of delivering things through the Web that may have been done before either face-to-face or through some other lower-tech way to deliver service and advice,” he says. “So we are using technology in different ways, and we’re just more careful in terms of how we assign resources to client teams.”
Rosson restructured the company’s practice teams to put the focus on having the right people in the right roles, instead of just more bodies, to cut down on unnecessary costs.
“Don’t get swept away by how much revenue you think somebody can generate or how dazzling somebody is,” Rosson says. “Really do your homework and find out what that person is all about. Are they really a fit for the organization? Do they really have the client’s best interests at heart? Can they collaborate well with others? Those are really important things.”
Another way Rosson saw to improve efficiency was integrating technologies that could make communication more user-friendly for clients. Most of the technologies Woodruff-Sawyer has deployed are collaborative, meaning they enable communication between clients and associates outside of the traditional email and face-to-face meetings. In addition to saving its clients cost and time, many changes have streamlined the firm’s processes overall.
For example, the firm now issues all of its certificates online and deployed a portal called Passport, which permits document sharing and collaboration with clients over the Web to expedite projects.
Since seeing the positive impacts, Rosson has continued to pursue a direction that involves technological innovation. Recently, the firm launched an online portal for small businesses called, BizInsure, hired a chief information officer and has made investments in online business to ramp up its overall technology component.
“I’m absolutely convinced that emerging technology is going to have a disruptive impact on our business,” he says. “And I believe it’s going to be in a positive way, and we’ll be right there to capitalize on it. The way that we’re going to interact with our clients in the future is going to be different that our traditional model.”
Enable a responsive culture
Of course, it’s difficult to devise efficient and cost-effective solutions for clients if you don’t empower employees to be creative and test their ideas. Businesses that run their organizations with a heavy-handed, top-down leadership structure can easily stifle the kind of creative, engaged culture it takes to provide the most value to clients, Rosson says.
“To be a top-tier professional services firm, by definition, you want to have professionals — and you need to treat them that way,” he says. “The way to treat them that way is to respect what they do and be there if they need advice and guidance. You have to have a certain amount of structure, but listening and not being overly prescriptive or top-down in our approach has really paid dividends.”
Rosson avoids a command and control culture at Woodruff-Sawyer by furthering the firm’s corporate vision to remain an independent brokerage firm. Being a 100 percent ESOP firm gives the company a flexible infrastructure where top people feel empowered to make decisions and operate with more freedom, he says. With no shareholders, employees are able to focus on the client and do things for clients that might be difficult under a different leadership structure.
“We’re able to do things for clients in terms of being flexible and the people who are working with clients have a lot more authority to get things done for them, deploy resources and make decisions that our competitors who might have a different ownership system can’t,” Rosson says.
“Our independence is a key part of our competitive advantage and a big part of our culture.”
The independent structure has also helped the firm attract talented employees who value autonomy and the ability to be responsible to a client’s needs. And for companies that can’t do an ESOP, leadership comes into play even more. As a CEO it’s important to set the tone for your direct reports and other employees by showing that you trust their decision-making abilities.
“I truly believe that we have the best people in the industry,” Rosson says. “These are people who have arrived at a place professionally. They don’t need me to look over their shoulder or a leader to second-guess what they are doing.”
Rosson says in the future, the firm will continue to be prudent and watching the bottom line while making investments in technology and internal perpetuation to keep the firm independent. By successfully delivering insurance services in an efficient and user-friendly way for clients, the firm has not only retained clients, it’s also been extremely successful in adding new business.
“The vast majority of our growth is organic growth through just going out and telling our story,” Rosson says. “With a lot of our competitors, and the large ones, it can be very difficult or very expensive to access very sophisticated resources. What we do is deliver those same resources or the same level of advice — or even better — but do it in a way that’s less expensive and much more user-friendly.”
As a result, Woodruff-Sawyer has grown its revenue approximately 40 percent since 2007, generating approximately $70 million in revenue in 2011.
“Like so many businesses, the downturn forced us to work smarter and more efficiently and embrace technology,” Rosson says. “As the economy has slowly improved and our clients’ businesses has improved, we’ve found that we’ve been able to leverage our technology and we haven’t had to increase our costs at the same rate that maybe we would have. So we’re actually seeing that our business is healthier now, after the downturn, than it was before.” ?
How to reach: Woodruff-Sawyer & Co.,
(415) 391-2141 or www.wsandco.com
Ask customers where your business provides the most value.
Utilize technology to cut down on time and cost in customer interactions.
Empower employees to help clients by avoiding a top-down culture.
The Rosson File
Woodruff-Sawyer & Co.
Born: San Jose, Calif.
Education: B.A. in history from UCLA
On growth: If you’ve got a very strong core business — I’m so bullish on the insurance business — you don’t need to take on too much debt or be overly grandiose in your expansion plans. Expansion and acquisitions all should be driven around acquiring people who fit into the organization, really bring something to the table and add to your organization rather than just executing a geographic growth strategy or putting pins in the map. All of your expansion should be for the right reasons, with the right people with client in mind, rather than trying to fill out (geographically) with different offices all over the place.
What is your favorite part of the business?
The best part of the business is getting out and meeting with clients and prospects. That’s why most of us got into this business and what really drives the passion for it. A lot of our relationships with clients go back 10, 15 and 30 years even. That’s the most fun part of it. I think it’s also really gratifying to successfully run the business and see the impact that you can have on employees’ lives.
What would you be doing if not for your current job?
Teaching English in Argentina
What one part of your daily routine would you never change?
Interacting with our clients and prospective clients
How do you regroup on a tough day?
I try to exercise every day.
What do you for fun?
Cooking, traveling, reading, coaching kids’ sports
When Paul Davis joined Coinstar Inc. in 2008, the leading provider of automated retail solutions had recently acquired 18 different businesses and was at an inflection point, capable of moving in several directions. The Bellevue, Wash.-based company had gone from a single line of business — coin counting — to five lines — money transfer, electronic payment services, Redbox DVD rental, entertainment and coin counting.
Davis had the task of reining in these different businesses that the company had acquired and deciding where to go next.
“One of the first things I did when I joined the company was a deep dive to understand and get alignment throughout the organization about what our core was,” says Davis, CEO of Coinstar Inc.
As a result of that deep dive, Davis landed on the automated resale platform as the company’s core, which two of Coinstar’s businesses — Redbox and coin counting — were focused on. Davis and his team then did an analysis of the remaining 17 businesses, which revealed that they weren’t the right fit.
“Of those 18 companies that were acquired, we sold off 17 in the first two years, so it was a major reshift,” Davis says. “We ended up with our two core businesses today, which are our coin-counting business and Redbox.”
With a much clearer focus on the company’s future direction, Davis was able to play to the strengths of Coinstar. His execution on the strategy to grow the coin-counting business and Redbox earned Davis a No. 4 ranking on the Fortune 500 list for technology visionaries in 2012.
Here’s how Davis evaluated the company and placed Coinstar on a path that would leverage its strengths.
Find your direction
Coinstar, a more than $2 billion, 2,700-employee company had primarily been growing through acquisitions before Davis became the CEO in 2008. By divesting the majority of those acquisitions, Davis shifted the focus of the company and its growth strategy to a more organic one.
The company was a clear leader in the DVD rental space, not No. 1 at the time, but it had the clear potential to get there, and in coin counting, it had more than an 80 percent share of the market.
“In these other businesses, they really didn’t leverage what we knew,” Davis says. “Money transfer had very little to nothing to do with kiosks. E-pay had very little to do with kiosks. In the business that they called entertainment, it was a fairly antiquated business that was capital-intensive and we weren’t seeing any growth.”
When Coinstar focused on Redbox and its coin-counting business, it found that all of its money and all of its growth were coming from those two businesses. The other businesses were drains on the bottom line.
“They were prohibiting us from doubling down on those growth sectors and realizing our potential,” he says. “It meant that we had to get rid of these other businesses that had not been integrated.”
Davis’ biggest key to finding Coinstar’s next direction was asking what the “core” of Coinstar was and how the company could leverage that.
“I see a lot of companies, and we were the same way, doing a lot of things that were outside of the core,” he says. “If you think in concentric circles, once you’ve identified the core, we were two, three and four jumps out in terms of concentric circles.
“What ends up happening is it creates a culture where you’re not winning, you’re not in the leadership position, and you start to potentially lose some credibility with your retail partners because you’re not coming to the table as the true leader.”
In Coinstar’s two core businesses, the company was the clear leader and Davis saw great opportunities if the company could leverage that, take advantage and grow that circle.
“The first thing we needed to do was gain alignment around the fact that we thought there was decades of growth in this (automated retail) space,” Davis says. “We did a lot of analysis and saw that there were all these macro-trends around consumers not having time available. Time-starved consumers are comfortable with technology and they love to control their own destiny.”
Coinstar also found that its retail partners could greatly benefit as well.
“We concluded that this was a great space for us to be in and there was a lot of growth potential,” Davis says. “We thought of the category as the intersection between brick and mortar and e-commerce.”
Grow and innovate
To build on the opportunity in that space, Davis and his team started their new strategy by focusing on Redbox, because it was a business with immense opportunity. Coinstar had a joint venture with McDonald’s on the Redbox business, so its first step was to buy out the rest of the company.
“We doubled down on Redbox,” Davis says. “At the same time, we said, ‘We’ve got to shift the focus of the company from all the growth through acquisition and instead focus more on organic growth.’”
Coinstar started a new ventures team and put leadership in place to start vetting ideas. The company got ideas from venture capital firms, private equity firms, idea contests, whiteboard contests and an inventor’s network.
“We started getting ideas from all sorts of different pockets and corners of the country,” he says. “Once we saw ideas and thought this had some real potential, this team that we put in place started vetting them.”
Today, Coinstar has eight new ventures on top of both its coin-counting and Redbox businesses. Six are organic and two are strategic investments.
“We looked around as we focused on this automated retail space and there really weren’t a lot of people doing things in there that would be companies we would acquire, so we needed to create the category on our own, and we’ve had quite a bit of success at doing that,” Davis says. “The seeds are at various stages — some are in their infancy with just a few kiosks and others we have multiples of hundreds.”
The company follows a very similar launching process for each of its new businesses.
“We go out and vet it and we look at the size of the category and see if we think that there’s ways or an opportunity for a new solution that’s more convenient and leverages what we know,” he says. “Then we go out and hire someone with deep domain expertise and give them a bucket of money that we tightly control and we put a clock on them to go out and prove the concept.”
The new ventures start with one kiosk and are compared to Redbox and Coinstar in their infancy before being allowed to grow.
“As they clear the hurdles, they get permission and more money to go from three kiosks to 30, 30 to 300 and 300 to 3,000,” Davis says.
The process Coinstar has made so successful is a result of having an innovative culture that breeds creativity.
“You have to be pretty disciplined about creating a culture of innovation,” Davis says. “We really encourage people to try stuff. The way we have managed innovation internally is we think really big. We start small, and once we land on an idea, we scale quickly. But if you fail, you fail cheaply. That’s what we have tried to do over and over again.”
Under Davis’ leadership, Coinstar has grown tremendously. The company has more than 42,000 Redbox kiosks and 20,000 Coinstar kiosks. Redbox recently celebrated its 10-year anniversary.
“Our market share now is 10 points over the next closest competitor in the physical space,” Davis says. “That business at the end of 2007 was about a $500 million business, and we are projected to be over $2 billion for 2012.”
The company’s success in its two main businesses and its new ventures stems from maintaining an innovative, hardworking environment.
“There’s a certain paranoia we have inside the company and a need to constantly innovate and stay focused to deliver,” Davis says. “That’s the mindset that we’ve adopted across the company.” ?
How to reach: Coinstar Inc., (425) 943-8000 or www.coinstar.com
I was recently having lunch with a private company CEO and the topic of private equity came up. When asked if he had ever considered seeking a private equity partner to fund and support his planned growth initiatives, his answer was expectedly, “No, we don’t want to sell the business yet. We want to focus on growing the business.”
While I can certainly appreciate his perspective, that opinion is consistent among many business owners and leaders. Namely, that private equity is primarily a liquidity mechanism, not a preferred tool to fund and support company growth. Moreover, many business leaders often see their growth plans as incompatible with private equity, which they associate with high leverage and limited financial flexibility.
This perspective of incompatibility was also on display during the recent presidential election. Private equity firms were broadly characterized as opportunistic value extractors, rather than enablers of company growth and job creation.
While the purpose of this article isn’t to defend private equity (there certainly are some firms worthy of this negative characterization), significant evidence exists to suggest that, in general, private-equity-backed companies experience proportionally greater growth. This is particularly true for small-to-medium-sized businesses.
Private capital a key to growth
According to studies performed by GrowthEconomy.org between 1995 and 2009, U.S. private-capital-backed business grew jobs by 81.5 percent and revenue by 132.8 percent, compared to 11.7 percent and 28.0 percent, respectively, for all other companies.
In California, over the same period, the story was even more favorable to private equity. Private-capital-backed businesses grew jobs and revenues by 123.1 percent and 155.2 percent respectively, compared to 11.3 percent and 26.4 percent for all other California businesses.
While each situation is unique, there are many reasons why private-equity-backed companies experience greater growth.
Access to capital
With the continued tightness in the credit market for small-to-medium-sized businesses, private equity can be a source of capital to support growth initiatives.
Additionally, private equity firms often have preferred relationships with lenders, giving businesses more access to attractive and flexible debt financing where appropriate. With greater access to capital, companies can more quickly, nimbly and opportunistically implement growth initiatives.
Strategic guidance and ongoing operational support
A private equity partner can provide much-needed strategic and operational resources to support the company’s growth initiatives and ongoing operations. This often leads to more thorough and refined growth strategies, as well as more effective plan execution and implementation.
Private equity firms often have large networks of industry experts and experienced operators that they can bring to bear to support company growth and operations.
Increased capacity for acquisitions
Private-equity-backed companies are significantly more acquisitive than other private businesses. Acquisitions can be an attractive source of growth, allowing companies to increase their customer footprint, expand geographically, create greater scale and enhance capabilities in a relatively short time frame.
However, successfully identifying, executing and integrating acquisitions can be very difficult. Many business leaders don’t have the time or experience to effectively pursue acquisitions. Private equity firms generally have expertise executing acquisition strategies and can be valuable partners in supporting companies as they identify, negotiate, execute and integrate acquisitions.
Private equity can be a compatible and effective tool to support and achieve company growth — not simply a mechanism to achieve liquidity. While private equity is not appropriate in every situation, and not all private equity firms are growth-oriented, business owners and leaders should carefully consider a private equity partnership when evaluating their ongoing growth initiatives and funding options.
Josh Harmsen is a principal at Solis Capital Partners (www.soliscapital.com) a private equity firm in Newport Beach, Calif. Solis focuses on disciplined investment in lower middle-market companies. Harmsen was previously with Morgan Stanley & Co. and holds an MBA from Harvard Business School.
Twenty years ago, McKinley Inc. was a company with 450 employees. Ten years ago, the company, which specializes in real estate investment and management, had a single operating platform for all of its businesses.
That was then, this is now.
Today, Ann Arbor-based McKinley has more than 1,400 employees and six different divisions contributing to its $273 million annual revenue figure.
It’s a long way of saying that growth has been a fact of life for CEO Albert M. Berriz. That’s a good problem to have, but it still comes with a series of challenges that must be met and overcome if Berriz is to have a financially and culturally healthy company on his hands for years to come.
“There are a couple of basic disciplines that we are very methodical about,” Berriz says. “One is we maintain a very flat organization. I believe that the distance from where I am sitting to where our customers are sitting is really no more than two heartbeats. I have six divisional CEOs who report to me, and they are flat with the people in the field, who are our customers.
“The second thing is, the six individuals who run each of the businesses have a lot of autonomy. They really get a lot of freedom to run their businesses as their own.”
For Berriz, managing growth is about managing the distance between people. Though he oversees a company with assets in 25 states, he wants as few levels and geographical barriers as possible to exist between management and field employees, between management and customers and between peer-level employees in the field.
But to maintain that type of connectivity, Berriz has needed to constantly work on strengthening his company’s cultural values and refining his communication strategy.
“Anything we do is really not top-down; it’s really integrated throughout the organization and is customer-driven,” Berriz says. “Everything we do needs to be driven by our responsiveness to our customers.”
Promote your core values
Though Berriz gives his division heads a high level of autonomy regarding how they manage, he still requires them to hire, make decisions and lead based on McKinley’s core values and core purpose, which is posted on the company’s website: “To enrich the quality of life in our communities.”
Berriz wants his executives to lead with their own leadership styles, but he has learned that a company will not be able to grow and adapt effectively without every employee’s compass arrow pointing in a common direction. That fact only becomes more critical as your company continues to expand and add people.
“While I’ve basically given them liberty to run their businesses, and I’m not a micromanager, we do still have a commonality regarding what the core values are and what the core purpose is,” Berriz says. “Even though each member of my team might be hiring differently, their standards are the same and the core values that they’re hiring for are the same.
“That is how you continually promote your core values throughout the organization. Even though we’ve grown to 1,400 people, when we do employee surveys, it’s not uncommon for 90 percent of our employees to have a full understanding of what our core values and core purpose are.”
When McKinley’s management talks about those values to the company’s employees, they use individual examples whenever possible. Berriz says if you can put a face on the behavior you want emulated, it has a much better chance of taking root and becoming something that your company embraces as it grows.
“It has to be something that is done throughout the organization, as opposed to top-down,” Berriz says. “If you look at our core values and the things that signify our core values, we helped to reinforce them by talking about individual people in the organization. We didn’t just write it on the wall. We actually took examples of great people in the organization and used those examples to help fashion our values.
“Say we have an employee named Jeff, and we want to have Jeff as our positive example. We ask what makes Jeff a great person in the organization. That is how we got our core values. We didn’t do it backwards, just by coming up with things and writing them on the wall. You take a look at your seasoned people in the field, people who are successful and embody certain positive characteristics, and say ‘That is how we want our people to be.’”
Hire with a purpose
If your culture is both formed and driven by your people, you need to hire managers and employees who embody the traits and principles you want to emphasize. Technical skills can be taught, but values, ethics, adaptability and a willingness to put the customer first are, in most cases, a product of personality before training.
Identifying and hiring the best possible management team members is a crucial first step. If they are on board with your cultural principles, they’ll hire like-minded people as part of their teams, and those people can, in turn, attract more of the same — a factor that can work to your advantage in a big way if you are eyeing a period of aggressive growth.
“Great people attract great people, and that’s huge, because you can’t have an organization like ours with mediocre people,” Berriz says. “And once you have great people, they expect to retain the great people they’ve hired.
“I think one of the biggest reasons people leave or stay with an organization is their boss. The six CEOs I have serving under me all have very high standards, so they serve as the litmus test. They are going to be the ones who expel mediocre people and attract great people.”
Berriz says you should never forget that any given person’s impression of the company, its mission, its values, its growth plans, and his or her relevance to accomplishing it all is predicated largely on the boss-employee relationship. It’s why each person at every level of your organization needs to strive to embody and lead by your company’s values.
“Associates can know the name of a company, they may understand what a company does, they may know their job,” Berriz says. “But at the end of the day, the real relationship is with their boss.
“If it’s a sour one, their view of the company and what the company does will be sour. If it’s a good relationship, their view of the company is a good one. That’s why people stay with or leave a company because of their boss. It’s rarely because of other issues.”
Berriz takes that philosophy a step further, trying to promote a positive relationship between upper management and all McKinley’s employees in the field. He sets the tone himself by setting up multiple channels for communication and dialogue focused on the company’s present and future growth plans.
“There is a difference between autonomy and not having a common culture,” he says. “One of my most important responsibilities is attracting and retaining great people, and I need to do that culturally — not just with my six CEOs, but I have to do it right down through the organization.”
Berriz describes himself as an “old-fashioned guy” when it comes to communication. He prefers in-person interaction whenever possible, but given the number of people McKinley employs and the size of the company’s geographical footprint, it’s impossible to maintain a consistent level of personal contact with every associate in every corner of the company.
Berriz has needed to find other ways to engage his people. One of the primary ways he’s attempted to bridge the gap is by embracing social media as a communication tool.
“For instance, if you go to my Facebook page now, you will see news about what is happening in the company,” Berriz says. “I’m making four or five posts today to Facebook, and my Facebook page is tied to our company website, as is Twitter. So if you are a team member and you want to stay in touch, you can go to my Facebook page. If I didn’t put that effort out there, if I didn’t utilize those social media platforms, I don’t think my communication would be as effective.”
Berriz has recognized that a large percentage of his workforce is composed of those who came of age in the era of the Internet. Younger employees have lived their entire professional lives in an environment that includes high connectivity through electronic media.
If you are going to connect the company’s purpose to younger workers and maintain a dialogue with them, you need to consider the value of Facebook, Twitter, blogs and other electronic media platforms in your communication strategy.
“A big portion of our population at McKinley is in the 18-to-35-year-old category,” he says. “That means social media and how we are communicating in real time can be very powerful in terms of developing and maintaining a common culture. I travel around, but there is no way that I can touch every person in the company through traveling. You have to make other efforts, otherwise you’ll be out of touch.”
How to reach: McKinley Inc., (734) 769-8520 or www.mckinley.com
The Berriz file
Albert M. Berriz, CEO, McKinley Inc.
History: I was born in Havana, Cuba. My family moved to the U.S. in 1959, when I was three years old, as a result of the revolution in Cuba. I grew up in Miami, where I graduated from the University of Miami with a degree in architecture and engineering. I later received an MBA from Northwestern University.
What divisions do your CEOs oversee?
We have five real estate divisions — two commercial and three residential — and one division that covers acquisitions, finance, partnerships and new ventures. Five of them are based out of the Ann Arbor office, but they are never here. They are always out in the field. We have one individual covering the Carolinas, Texas, Nevada and Arizona; we have one individual who does Florida, Michigan, Indiana, Illinois; and another one who has a third overlaid geographically.
For me, nowadays, it doesn't really matter where they live. I have one CEO who works down in Florida and actually keeps an apartment down there, which is great because that person stays closer to our people and closer to our customers.
What are the keys to staying in touch with your direct reports?
It is all personal. I am on the phone with a few of them every day, or talking in person once every couple of weeks. I am very connected with those people. I am not a micromanager, it is not my style, but we have an understanding and expectation of what the results need to be and what the culture needs to be. But after that, it is really up them to lead in their own style.
What are those conversations like?
It is very high-level. We have a very transparent organization, so you are either on or you’re off. We have dashboards here that are always available in real time, so I am always aware of good or bad developments. So the results part is easy, and the culture part is easy too, because I have a good sense of what is happening in the organization.
We have a well-run organization, so I am mostly focused on the future, where we are headed in 12 months, in five years and 10 years, as opposed to the problems of today. If there is an occasional problem today, I will deal with it, but to be candid, the problems are infrequent, so they are seldom an issue.
Define your company’s purpose.
Hire people to fit that purpose.
Utilize multiple avenues of communication.
The term “intellectual property” applies to more than just a copyright. Here are some questions for companies to consider about their IP when security is a concern.
Q. What is considered intellectual property but is often overlooked when deciding what to protect?
A. When people think of intellectual property, they most often think ’patent’ or ‘copyright.’ There are other forms. One that’s often overlooked is trade secrets.
As noted in an influential restatement of the law, a ‘trade secret is any information that can be used in the operation of a business … that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.’ They take a wide variety of forms, including product formulas, data compilations, customer lists, manufacturing techniques and other types of business know-how.
Q. How might a company’s trade secrets be vulnerable?
A. A business has to identify its trade secrets before it can protect them. Common sense goes a long way here. Business owners should start by asking, ‘What does my business do better than the competition, which the competition doesn’t know about?’ The answer might qualify as a trade secret.
Q. What policies or procedures should a company put in place to protect its trade secrets?
A. There are no hard and fast rules, but a business must take ‘reasonable steps’ to protect its secrets. This could include password-protecting computers, limiting access on a need-to-know basis, keeping documents under lock and key, and/or requiring employees to maintain secrecy during and after employment.
Q. How has social media affected a company’s ability to protect its trade secrets?
A. It has made it more difficult for businesses to argue that it has trade secrets — a point underscored in Sasqua Group Inc. v. Courtney, No. 10-528, 2010 WL 3613855 (E.D.N.Y. Aug. 2, 2010), where the court held that compiled customer data was not a trade secret because the information was also available on the Internet and social media sites.
There are no easy answers, but one thing seems clear: Businesses must take care when posting to social media sites and educate employees about using social media sites.
P. Andrew Fleming is a partner with Novack and Macey LLP. He represents individuals and small, midsize and large companies in complex commercial litigation.