To gain a better understanding of how companies are optimizing their payables process, Smart Business recently spoke with Jeffrey Felser, senior vice president and product group manager for PNC’s Treasury Management Division.
What are the payment alternatives available to companies looking to streamline the procure-to-pay process?
Paper checks continue to be the core payment service, representing 80 percent of the $16+ trillion in business-to-business payments. However, the payments business is undergoing the largest transformation of its history, as migration from paper to electronic accelerates with businesses demanding more value, lower cost and simplicity. Aiding this transformation is technology, which is driving new forms of convenience and innovation with both ACH and purchasing cards growing in both volume and size of transactions being processed through these electronic alternatives.
How can an organization determine the optimum mix of payment options?
When thinking about how to make payment on your business-to-business transactions, we believe it makes sense to look at the economics of the various payment alternatives. The purchasing card, for example, has the most interesting economic proposition, as most banks issuing the card are willing to provide revenue sharing based on the value of the transactions being processed through a purchasing card program. Comparing the ability to generate income versus paying service fees (12 cents average for ACH transaction, 39 cents per check processed, $7 for wire transfer) creates an opportunity to pursue an optimum payment mix and a winning proposition for the payer.
Knowing that you can’t move all of your payments to cards, we think it makes sense to always think cards first, followed by ACH, then checks, to capture payments that cannot be migrated to an electronic method. Wire transfer will always have a specific role in executing timely and final payments whenever needed.
What are some of the variables that come into play when deciding how to process a payment?
There is no one solution for payment processing because different purchases call for different payment types. However, both qualitative and quantitative analysis is required. On a qualitative basis, consider contract terms, vendor relationships, current practices and protocol, as well as the sensitivity or priority for the receipt of goods or services. On the quantitative analysis side, the size, frequency and timing requirement of the payment are considerations. Additionally, the existing financial characteristics of the transaction such as cost of the payment for both the buyer and seller is an important aspect.
Are more organizations opting for one method over another, and is there a clear winner among all payment types?
Though business-to-business payments continue to migrate to electronic channels, the pace is much slower than what is occurring among consumer payments. Organizations that take the opportunity to assess their current procure-to-pay process can benefit from focusing on the payment component of this financial supply chain.
As noted previously, there is no one type of payment that ideally fits for all purchases. However, the material differences in the economics of the various payment alternatives create the opportunity to pursue an optimum payment mix. The clear winner is the organization that takes the first step in evaluating its entire procure-to-process.
This was prepared for general information purposes only and is not intended as specific advice or recommendations. Any reliance upon this information is solely and exclusively at your own risk.
JEFFREY FELSER is senior vice president and product group manager for PNC’s treasury management division. Reach him at (412) 762-9714.
Two years after the events of Sept. 11, nearly 25 percent of the nation’s job cuts were in the travel and tourism industry, according to a study conducted by Challenger, Gray & Christmas Inc. Many of these layoffs were in travel agencies.
According to Cronenberg, one of the major financial challenges travel agents faced was the airlines’ elimination of commission for booking air travel. So she took a hard look at the industry and decided to adapt Pier ‘n Port by concentrating on leisure, group travel and cruises rather than targeting corporate clients.
Smart Business spoke with Cronenberg about staying competitive in a rapidly-changing market, building customer loyalty and being a strong leader.
How do you ensure Pier ‘n Port stays competitive?
I’m a forward-thinker. I don’t believe you can stick with status quo and expect to be on the cutting edge. I routinely step out of my comfort zone and outside the box.
It’s a great quality, but it can be a double-edged sword. At times, I have stepped too far outside the box and learned that it is not always wise to be a trendsetter. So my caveat is to be patient. Let others blaze the trail at times so you can learn from their mistakes. There is a risk in being the first to try out a creative concept.
For example, I have designed trips that were too unusual and unique for my audience. The reality is that Cincinnati is a conservative city. That was a lesson learned the hard way - know your customer and cater to what is comfortable to them.
How do you build customer loyalty?
Responsiveness is the first thing that comes to mind. The quickest way to upset and lose a customer is not to respond in a timely manner. Taking care of complaints promptly and with genuine concern is essential if you want loyal return customers.
It sounds simple, but it is amazing how many businesses can’t seem to pull this off. We have so much competition that we cannot afford to anger customers by being sluggish in reacting to questions or concerns.
What do you think are the most important qualities of a leader?
Being able to lead with confidence and persuasion. Strong leaders are able to convince staff that their decisions are good ones, in the best interest of the company and the employees. It is most critical to get the support and consensus of immediate supervisors so that they can serve as advocates of the direction your organization is (going).
I also think the ability to fail gracefully and to learn from mistakes is the sign of a mature leader. I have noticed that the degree of success of leaders is closely aligned to how many times they have failed. The key is how they handled the situation.
How do you stay motivated to be a strong leader?
I’m naturally a driven person. I come from a family of entrepreneurs so I witnessed the hard work and rewards of being a business owner from a young age. What really keeps me going is knowing that we are building lifelong memories for our customers. What we do intimately affects a person’s life, and I never lose sight of that.
When a customer comes back from a trip saying, ‘Wow,’ showing me pictures and telling me what a fabulous time they had, it keeps me going. The job has many advantages but there are challenges and stresses just like any other. When we exceed someone’s expectations and can help them plan for their next dream vacation, it inspires me.
How to reach: Pier ‘n Port Travel, 1 (800) 486-5060 or www.piernport.com
When George Schaefer Jr. talks about growth, you should pull up a chair and listen.
Schaefer, president and CEO of Fifth Third Bancorp, took the helm of the institution in 1989 when it had about $5 billion in assets. It wasn’t even the biggest bank in Cincinnati. Today, it has more than $105 billion in assets and is one of the top 15 bank holding companies in the nation in terms of assets.
The last two years have been solid but disappointing by Fifth Third’s own high standards. But Schaefer, says you have to focus on the long-term plan to build an organization that generates consistent results.
“I think Fifth Third has always and will continue to take the long-term view,” says Schaefer. “This year we are planning to build 75 new offices and consolidate another 20 to 25. We are continuing to invest in the infrastructure. Those are all long-term investments we are making. They are not for the next quarter. If they were just for the upcoming quarter, there would be no new offices or additional staff. It would strictly be expense focused.
“These are difficult decisions. Every time we open a new office, we understand how much it will cost us. We understand how many hundreds of thousands that new office will cost us, but we also know that it will make us millions in the future. We have to deploy our capital so we get the best returns to continue to grow in order to continue to expand our shareholder value.”
Consistent growth has been a Fifth Third specialty. In the last 10 years, deposits, loans, assets and net income have all increased more than fivefold. And all of this has been achieved in a hypercompetitive banking industry where there are more than 300 competing banks and thrifts and more than 500 credit unions and that’s just in Ohio. It doesn’t count competitors in the other nine states where Fifth Third or its affiliates operate.
When times are tough, the temptation to slash costs is high, but that strategy is short-sighted and ultimately reduces your long-term growth. Schaefer will tell you that you cannot shrink your way to long-term success.
In a difficult economy with flat returns, many banks would be looking to scale back, but Schaefer was investing in distribution, people, customer services and technology to prepare Fifth Third for growth.
Bank branches or banking centers, as Schaefer calls them are an important part of Fifth Third’s growth strategy. They are expensive to build, but despite the rise of Internet banking, they still provide an important point of contact with new and existing customers.
“Those centers drive a significant part of our retail business,” says Schaefer. “You might want to bank at Fifth Third, but if there are no offices nearby, it will be difficult to bank with me. Those are the reasons why we continue to add offices. Those are full-service financial centers where you can make a deposit, open an account, get a loan, make investments or get a mortgage. It is a delivery system for our full product line.”
Last year, Fifth Third added 63 new banking centers and relocated others to improved locations. The year before, it added 76 new locations and made an acquisition in Florida that netted another 77 offices.
Like any other retailer, Fifth Third has an average customer profile that helps it target areas for new offices or better spots for existing ones.
“We have some good software that looks at where we are most successful,” says Schaefer. “We overlay that in new areas and try to match our profile to our target demographic. We do this throughout our entire footprint.”
The bank is primarily in 19 metro areas. Before it will add new ones, Schaefer says it makes more sense to fill in where the bank has not yet maximized its full potential.
“When we go into a market like a Chicago where we only have 3 to 4 percent of the market, there is an opportunity to pick up 96 percent of the customers in that market. If you already have 50 percent in an Ohio city, it is less likely we would expand further there, because it is much harder to get from 50 to 55 percent in one city than to go from 4 to 10 percent in another city.”
When enough locations are in a particular city, the emphasis shifts to cross-selling more products to existing customers.
When it comes to investing in people, Schaefer follows a basic principle: More salespeople usually means more sales.
“We are trying to take advantage of our presence in a market by adding more qualified salespeople to the team,” says Schaefer.
Being one of the top 15 banks in the nation as measured by deposits helps attract top talent. Last year, the bank added almost 1,400 new employees. Training from an 80-person education department helps fill specialty positions that require a high degree of expertise and keep everyone efficient.
Accountability is the key to a successful sales force. Tie in personal incentives to corporate goals to keep driving revenue growth.
“We do give everybody targeted goals,” says Schaefer. “We measure their unit sales per day or per week. We reward appropriately and make sure that we take care of our outstanding performers, and for people that are not hitting their targets, we are coaching and counseling them.
“The other nice part of it is, we have 6 million customers. We already have a natural base of customers, and not all of them have a checking account. We might sell a checking account out of a mortgage. Not all of them have a credit card, so we might sell a credit card from a checking account. We are trying to sell more to our existing customer base.”
Fifth Third wants to know what people think. The company constantly polls customers to find out what it is doing right and what it could do better.
“We poll our new customers, our existing customer and customer who have left the bank,” says Schaefer. “We survey them to find out what their experience has been. We try to learn from the surveys where we have been successful, what it is that makes us successful and where we have issues. We try to quickly identify and solve those issues.”
The company is continuously fine-tuning its processes to improve the overall customer experience. For example, customer suggestions changed how the bank assesses fees and how much authority customer service reps have to waive fees. It also led to not making collections calls on Sundays because that was poorly received by customers.
The polling also revealed a desire for better service for better customers.
“Customer segmentation has really helped us,” says Schaefer. “When you come into a branch or when you talk to us, we now know whether you are one of our best customers or not one of our best customers, and we can respond in accordance to your value here. If you are one of our best customers and you end up on a collections item because you were on vacation, we’ll know that now and won’t be giving two calls saying we missed your payment.
“We know you are a good customer and are probably traveling or something. In the past, we treated all 6 million customers the same. We found it was very important to treat them differently.”
The standardized polling also shows that the bank has better customer service than two-thirds of its peers.
Efficiency is important for growth, and eliminating excess labor and time from a process equals greater profits.
“If you walked into one of our offices two years ago and wanted a copy of a check, the request would have been transmitted downtown, an operations person would have looked it up and faxed a copy back to the branch,” says Schaefer. “The whole process would have taken two to three days. Now, every one of our teller platform people has a picture of every check written on their PC. It’s the same data that we have in the headquarters. There has been a significant improvement in efficiency there.”
Technology has also been implemented to identify theft and fraud to make sure checks aren’t being paid on two or three times.
The other way Fifth Third has leveraged technology is to better communicate with all its banks. Its model focuses on local authority and decision-making within the framework of the larger corporation.
“It allows the bank in, say, Cleveland to run like a small community bank but have all the benefits of being a $105 billion-asset highly rated institution,” says Schaefer. “When you walk into a local branch and need something, the people there know exactly who you should be talking to. In most big banks, the different lines of business are headquartered in different cities. With our banks, each individual market has all the skills right there.”
But all the banks are on the same platform, which helps not only customers who might visit a branch in different city but also employees who might transfer.
“If a teller in Naples, Fla., goes to Cleveland, it’s the same functionality,” says Schaefer. “If you walk into Orlando, it’s the same system. All the back office operations are centralized. No matter where you go, the experience is the same.”
Consistent service ultimately yields consistent results.
“I think if you look at our growth trajectory, the key drivers in our business deposits, loans and fees have all really remained intact,” says Schaefer. “Our annual growth rates have been very consistent. Our commitment to service, technology, corporate governance and risk management allows us to compete in the local marketplace while maintaining our local market differentiation.
“Financial discipline is the foundation of all great companies. We continue to invest in a manner that enhances our value while compensating us for the risks that we are taking.”
The bank made $1.55 billion in net income in 2005. The return on equity was almost 17 percent, and the return on assets was 1.5 percent.
“We continue to grow deposits well,” says Schaefer. “Our core deposit growth and loan growth is excellent. Our fee business was up double digits, and we are keeping a close eye on the expense side.”
It’s all part of Schaefer’s long-term growth plan that comes one day at a time.
“I think it’s the focus on the daily execution that matters,” says Schaefer. “It comes down to how many checking accounts, loans and what you sold today. You have to take care of the customer and make sure the customer experience is excellent. To make that all work, you have to constantly have the best employees, which is why we’ve spent a lot of time building the best team in the industry.”
How to reach: Fifth Third Bancorp, www.53.com
Van Uum who at the time was an in-law of the brothers who founded Borders was inspired by that bookstore’s success. Today, he is the sole owner of Joseph-Beth, which has grown into a chain of eight independent stores in four states - impressive in an industry in which Amazon, Barnes & Noble and Borders are competitors. Van Uum spoke with Smart Business about how he remains independent, taking risks and the importance of being humble.
This may sound counterintuitive, but in order to do well in business, you have to have a good deal of humility. And by humility, I mean the sense that I need to recognize my own weaknesses. We all need to know where our weaknesses lie.
Most businesspeople tend to fall either on the functional side or the creative side. Either you’re the kind of guy to come in every day and think about what plans you put in place yesterday and how are they working today, or you’re the type that looks at life and says, ‘Gee, I’ve got issues and problems to deal with; I need to fix them for tomorrow.’
Organizationally, you have to build your management team around you to support your weaknesses. Even then, if you think you’ve got it figured out on one side or the other, you have a sense of always learning from others and trying to understand how to get better.
All along the way, you have to appreciate the people and the relationships you form. You may need to call on them from time to time, whether it’s people that work for you that really dig in and help you solve a problem or work extra hard to get through something ... then having the sense of trying to understand how to honor those relationships and build on them.
Sometimes I look at people who fail and say, ‘You know, you didn’t listen to anybody or look to form win/win relationships.
It takes a lot of different factors to be successful. ... I believe a lot in teamwork and in a management team and it’s so important that you all have good chemistry. It’s important that (your management team) helps you blend into an organization that has all your bases covered.
And then, be willing to work pretty hard and be a good, quick decision-maker.
On being independent
I think there’s good and bad in size. Clearly, larger competitors have a lot more resources at their disposal, whether it’s inexpensive Wall Street money to grow their company, whether it’s buying leverage because they are a much larger customer to their suppliers, whether it’s the ability to leverage technology and information to better, more-efficiently operate their businesses, on and on. Large retailers have a lot of benefits.
If I had 1,000 bookstores, I would, in some ways, be smarter. On the other hand, an independent retailer is more attuned, usually, to their community, usually has management that is more empowered to be reactive instead of sitting back and waiting, and proactive in the sense that I trust the team’s opinion about what to do with this store, what changes to make and what events and what inventory will work. We move much quicker. There’s a difference, pro and con.
We have to be better than (the competition) or we would be dead. We don’t have the brand awareness they do or the buying clout all that goes with being a $5 billion company. So we have to be better at most phases of the game.
On seizing opportunity
I didn’t even want to have more than one store. I had young children and I just was really intrigued by what a bookseller could be. We opened our first store and were successful. A year later, we knocked out a wall and took the space next door and we were at 10,000 square feet.
A year-and-a-half later, the anchor tenant went out, and I said, ‘What the heck? We’re doing well, let’s move down there.’ So we moved the store and then expanded that space twice.
On making a difference
The work we do is important in the sense that ... a lot of people come here at transitional points in their life I’m getting married, I just got married, the doctor says I’ve got an illness, I’m getting ready to take a trip, I’m getting divorced. There’s a lot that happens in this store where people come to us for answers, for hope, or for escape and education.
We try to attach a sense of community to that. We are unabashed in support of local writers you write the book, we carry it.
We do a lot in the way of community partnerships and trying to understand the important organizations in town that we can work with, help, synergize with. As we look at retailing and the people aspect of what we do here, we place a lot of capability or empowerment to make this store as responsive as it possibly can be in the ... Cincinnati community.
I look at these other retailers and I don’t know that they care. I don’t know that anybody comes down and says, ‘Hey, let’s see what we can do to focus on the community.’ There are companies that do, but most companies I don’t think pay much credence.
HOW TO REACH: Joseph-Beth Booksellers, www.josephbeth.com
This theory was based largely on the experiences of CEO and President Paul Houston, who helped create the funeral services company from the bankrupt remnants of Loewen Group International.
A self-professed student of the School of Hard Knocks, Houston says: “I’ve had the chance to work in Canada and the United States, England and Japan. Having looked at different organizations and companies, and knowing that every company has financial objectives and business objectives that have to get done to keep shareholders happy, I realized really early in the process that unless we create an environment where there’s a real team spirit and people are working professionally and acting ethically, whatever we get in results for our shareholders wouldn’t be sustained.”
And without sustained shareholder results, the company couldn’t survive in the long term the fate of Loewen Group International proved that. But there were other considerations, as well. Houston wanted an environment that would foster employee growth and development, remain competitive in the marketplace and offer employees clear-cut criteria for evaluating the performance of both company executives and themselves.
Most important, Houston implemented a set of company values to ensure that Alderwoods’ customers received the empathy and respect that they needed and deserved.
“We want to make sure that when we’re dealing with a family that they’re treated with the same kind of compassion they would expect we’re dealing with them at one of the worst times in their life,” says Houston. “We want our employees to act in a very ethical, professional way, with a lot of compassion. We don’t want (customers) to think for one second that Alderwoods cares more about the business plan or more about the financial objectives than serving that one family properly and showing them the compassion they deserve based on what’s going on in their lives.”
Houston’s challenge was to create an environment to support each of these goals. He found the answer by placing a defined mission statement, vision statement and set of core values developed in partnership with employees at the heart of company operations.
Vision and values
Early on, Houston and his management team traveled to some of Alderwoods’ 613 funeral homes, 72 cemeteries and 60 combination funeral home and cemetery locations across North America., holding meetings with employees to help define the company’s direction. During those meetings, company executives presented their ideas for the vision statement, mission statement and values, and asked for employee input.
“We told them that we really care about what they say, what they feel, and we’ve also got to understand the history of where they’ve been in order to set the set of values and go forward,” says Houston. “We asked them specific questions ‘When you think about integrity, what specific things jump into your mind? What are the things that would make you feel comfortable about measuring (it)? What does it mean to you? What does it mean to the company?’”
While it was not easy to include employees the company held about 50 meetings over nine months with more than 400 employees Houston felt doing so was vital to the company’s success.
“(The values, vision and mission) are just as important as the financial measures of the company,” Houston says. “We had no choice but to say we’ve got to put the time and effort into making sure that all of our team members and all of our associates at Alderwoods know what we represent, what we stand for and where we want to be five, 10 years from now. And that was why we spent as much time and money as we did developing ... the values.”
After nearly a year of meetings, Houston and Alderwoods’ management team met to begin to define what would become the compass for conduct at Alderwoods. They poured over hundreds of pages of notes and boiled them down to five defined values (integrity, teamwork, communication, compassion and creativity), a vision statement (“Using imagination and leadership to exceed customer expectations”) and a mission statement (“We will create value for families, employees and shareholders by being the superior provider of seamless funeral service. We will attract outstanding people and nurture their development. We will be the leader in the communities where we operate.”) that would direct the company from that day forward.
Creating the culture
The next step was to position the vision, mission and values at the center of the company’s culture. Houston did that by inundating Alderwoods’ offices and employees with visual reminders of them.
First came the plaques Houston commissioned plaques with the vision, mission and values engraved on them, to be hung in each of Alderwoods’ funeral homes. Then the company produced handbooks highlighting company policies and the vision, mission and values. When employees received their business cards, the three guiding principles were printed on the back.
And last but not least, Alderwoods’ management team embarked on another tour of meetings.
“We had a full push on trying to get (the values, vision and mission) integrated into the organization,” Houston says. “We had meetings where we rolled out and explained the values to employees, explained to them all of the meanings and explained to them, how did we take those pages of notes that they gave us and translated them down to that value.”
Being surrounded by the guiding principles didn’t guarantee that employees would accept them and live them. But Houston addressed this, as well.
“I like to live the values so that (employees) can measure myself and the management team on the way we act in the organization, to see whether we believe in them and if we’re practicing the values,” says Houston. “Those are times when the values will get credibility by osmosis. (It’s a matter of) practicing what you preach.”
Above and beyond management practicing the vision, mission and values, the guiding principles were also incorporated into human resources. Prospective employees are evaluated against the vision, mission and values will these job candidates help reinforce this core part of Alderwoods culture?
And once employees are hired, living the values and mission is a requirement for staying with the company.
Houston says: “If you look at our employee valuation, it actually talks about, how well do you communicate? Are you a good team player? Do you act with compassion? We actually measure performance against these same values so there’s not a double standard and there isn’t confusion within the organization.
“We’ve found that it’s now easier to find someone who’s not following the values they stand out pretty quickly. Now that we’ve defined the environment that we want, when we get somebody who doesn’t decide that they’re going to communicate, doesn’t decide that they’re going to be a team player, and starts to act with no integrity, they jump out at you.”
The company also implemented award programs that recognize employee contributions and highlight employees who exemplify Alderwoods’ guiding principles.
Establishing the company’s vision, mission and values has had enduring benefits within Alderwoods. After four years in operation, the company posted revenue exceeding $700 million in 2004, compared to a net loss of more than $217 million from continuing operations at the end of 2002.
By the end of 2003, it posted net income from continuing operations of more than $10 million, and through the first three fiscal quarters of 2005, that number was $33.8 million.
“If you can create an environment for continuous improvement and an environment where people think they’ve been respected, results will be sustainable because everybody’s looking to do better and better,” says Houston. “And I think that’s what’s helped sustain Alderwoods’ program over the last three or four years in terms of the actual progress we’ve made as a company, financially and operationally.”
In addition to the financial results, the guiding principles have helped the company establish and maintain the same level of care and service across each of its funeral homes and cemeteries.
“Because we’re really a geographically diverse business, it’s very important for us to say that we can have the same professional impact at that one location down in Florida or that new location in Vancouver, Canada,” says Houston. “Each believes in what we’re trying to accomplish as an organization and understands that even though they’re by themselves, there is a guiding light that helps them make the right decisions.”
“And I’ve always told (employees) in all my town-hall meetings, if you get lost on the path and you don’t know where you’re going, if you look to the values and make the decisions based on those, you will not make a mistake.”
HOW TO REACH: www.alderwoods.com
“The U.S. Chamber of Commerce and the Institute for Legal Reform report that America’s civil justice system is the world’s most expensive,” says Kirk Barry, team lead for complex casualty claims at Westfield Insurance.
Smart Business discussed with Barry how business owners can take a proactive approach to litigation risk and respond effectively to lawsuits to avoid unnecessary costs.
Why do business owners need to be prepared for a lawsuit?
Lawsuits have time limitations that require the defendant to answer a complaint (lawsuit) within a specific period of time, normally 30 days or less. If the defendant does not respond in time, the court can award damages to the plaintiff, to be paid by the defendant without the defendant having any opportunity to defend himself or herself.
A business owner may have insurance coverage that provides a defense against allegations covered by the policy. If the business owner fails to promptly notify his or her insurance carrier about the lawsuit, the business owner may forfeit coverage.
Business owners should contact their insurance agent immediately to determine if there is any insurance coverage for the lawsuit. Insurance agents and insurance carriers can help guide business owners through the process and let them know (whether) they need to hire their own attorney to provide an answer to the complaint and represent them against the allegations.
What preventive actions can companies take to minimize the chance of a lawsuit?
Training employees about how to conduct themselves and represent the business reduces the chance of being sued.
Create a company vision statement that includes ethical conduct as a key to the company’s success, and then live it and breathe it by communicating it to all levels of the organization. Create and distribute an employee handbook that is rigorously followed, and have each employee sign and date an acknowledgment that he or she has reviewed it.
Conduct meetings to educate employees on matters that can affect both them and the company as the result of certain actions or inaction. Standard reporting procedures for employees involved in on-the-job accidents protect the company and also potentially protect employees. Use corporate counsel or an outside vendor if necessary. Some investment upfront may save the company in the long run.
Be proactive. Watch for trends that may affect the business and its stakeholders. As appropriate, move to change the way the business is handling situations.
Another issue to consider is that contracts with other companies can expose business owners to defending or indemnifying other individuals and entities for their actions. Read contracts and understand how they can affect the business. Having an appropriate party review contracts is a proactive step in litigation avoidance.
In addition, business owners may be able to transfer risk to another party via contractual language that commits the other entity to buying appropriate insurance coverage for both companies.
How can companies be prepared to respond to a suit?
Prior to being sued, identify individuals within the organization who have authority to accept the service of a suit and train them on appropriate action steps. This provides consistency and helps avoid missing deadlines, which could lead to a default. It’s also important to educate employees about what to do if they are sued directly.
Throughout the process, open and honest communication with the attorney and insurance company assists in the planning, strategy and execution of any available defenses from the start. New or changed information during the litigation process will only hurt a defense later. When a company is legally liable for its or its employees’ actions, a prompt response helps protect those involved.
A business will need to provide all documents to its insurance company and attorney, but it is also important to keep copies, including postmarked envelopes, for its records and to immediately record the date of service of suit. Do not discuss the allegations with or provide documents to anyone outside of the business other than the insurance company and your counsel until appropriate guidance is provided.
Kirk Barry, team lead for complex casualty claims, can be reached at (330) 887-0248 or email@example.com. In business for more than 157 years, Westfield Insurance provides commercial and personal insurance services to customers in 17 states. Represented by leading independent insurance agencies, the product Westfield offers is peace of mind and a promise of protection is supported by a commitment to service excellence. For more information, visit www.westfieldinsurance.com.
For a lot of businesses that emerged during the dot-com era, unrealistic expectations for growth proved deadly. For Bostick, president and CEO of IT consulting firm Lucrum Inc., the experience provided a painful but valuable lesson.
Lucrum landed on Cincinnati’s Fast 55 list more than once and on the Inc. 500 list of fastest-growing private companies. And Bostick was a regional Ernst & Young Entrepreneur Of The Year Award winner in 2000 in the e-commerce category.
But then the tech bubble burst, and Lucrum found itself in serious financial straits as the domino effect of crashing tech companies left it with piles of invoices it couldn’t collect on.
As a result, Lucrum’s bank essentially took control of its purse strings for 14 months. Today, the company is back on the growth track, with $21 million in annual revenue and 120 employees, and Bostick says he learned some valuable lessons about growth assumptions and how a CEO should lead.
Smart Business spoke with Bostick about how he refocused on the basics that made his company successful, he says, putting it on the rebound.
How did Lucrum get into trouble?
I took my eye off the daily habit of managing the financials and having tight financial controls. I took my eye off making sure that customer satisfaction was truly there and personally leading the charge in that effort.
I took my eye off where the market was going and where the overall economy was going. (People) may have the need to use you, but if their budget got cut, all of the wishing in the world’s not going to matter because they’re not going to buy it. That’s an external economic factor that you’ve got to watch.
When did you realize that you had to make a change in how you were leading Lucrum?
I went through this financial period when I had weekly and daily reports to the bank. I understood that for me to manage my way out of that, I needed to get back onto a momentum of identifying new business and new customers and continue to go back to old customers and make the market that way.
To me, it was all about continuing momentum through positive vision and optimism and leadership, and also just a lot of hard work.
What did you learn from that experience?
I had a very tough lesson because it was a very painful lesson. At the same time, it’s made me a heck of a lot better CEO. I can anticipate things up front.
Even though I’m more conservative in some areas, I’m a more educated risk-taker in some other areas, so I wouldn’t say that I got so conservative that I didn’t make any decisions anymore. I just try to remember my natural inclination to potentially go too fast in certain areas and slow myself down.
I get other people to do certain areas where my abilities may not be the best.
How has your management style changed as a result of your experience?
I’ve always been hands-on, leading from the front, and then when the dot-com bubble happened and we were all looking at company valuations and company success and growth for any reason, if you will, I became enamored. I got intoxicated in that, and it only took a short time for the intoxication to trash a company through some mistakes I shouldn’t have made.
When businesses have struggles, they come faster and more furiously than you’d ever expect them to come. So stylistically, I’m back to my hands-on approach. I’m not meddling in my managers’ affairs. They know who is to execute what.
I act as an adviser or leader in that area now, but in the past, I probably exercised too much micromanagement. I was emotionally involved to the point that I thought I had to make a lot more decisions than I needed to.
Where do CEOs in fast-growth companies go wrong?
I think a lot of CEOs become very internally focused about their company and themselves, yet their success originally was because they understood the external market and took advantage of the marketplace. In my opinion, very few CEOs spend too little time on internal factors.
The internal factors tend to be the politics in the company, the company’s product line, the balance sheet and financials, its board, its business strategy. It’s easy to get very wrapped up in that and not enough in what’s happening externally and how can it affect my market.
CEOs have to lead from the front of the business, not from the back of the business. Of all the generals on the battlefield, the best ones led in the front, not in the back.
If I’m having a customer satisfaction issue ... that means don’t have your people call him. You, personally, as CEO, lead the charge and you call them, you go over there and talk to them and listen to what’s going on.
How to reach: Lucrum Inc., www.lucruminc.com
Exposure to these international risks does not require a company to have an international location. Employees traveling abroad or simply sending faxes or other correspondence overseas can create an international exposure for a company.
Regardless of the degree of the exposure, a company may be uninsured or underinsured with a domestic insurance policy. Even the worldwide endorsement used by many U.S. insurers can leave gaps in your coverage.
Companies should thoroughly review their current insurance programs and make sure prospective carriers fully understand the nuances of the global market and provide a broad range of products and services to address the unique exposures of international business.
Four key areas where due diligence should be performed before going global include the following.
Does the insurance carrier understand the local market? This includes legal jurisdictions, economic climate and the language.
Various countries have unique nuances and insurance requirements that range from environmental impairment in Germany to natural catastrophe pools throughout Europe. The insurance carrier should also be able to keep you abreast of any major changes in the legal and economic climate.
The foreign landscape opens a box of exposures rarely considered.
Currency devaluation, political risk and tax liability are all issues. An insurance carrier should be able to offer a wide array of products to meet your needs as overseas expansion occurs. Ideally, a company should be able to grow with their insurance carrier from the early beginnings in international operations to full manufacturing and service operations based overseas.
A routine overseas business trip may not be as simple as it first appears. As an employer, you must consider workers’ compensation issues, automobile liability and property theft exposures. Purchasing these lines of coverage individually may be costly, but many insurance carriers can package these programs to ensure adequacy in coverage along several lines.
This simple package may later require local admitted insurance policies (those recognized and required by local countries) as your company grows. This requires an insurance carrier that understands the local insurance market and legal requirements imposed on business owners.
While it is important that your insurance partner provide a wide array of international insurance products, it is equally important that they support their products with an experienced global network of service providers.
Your carrier should provide local claims handling ability and medical assistance programs to help in the event of an injury or sickness overseas. Examples of incidents that might require global services include:
- A business traveler has a car accident and the doctor does not speak English
- A business traveler is robbed and needs help re-establishing identification
- A business traveler gets arrested and jailed for a seemingly minor infraction
In 2003, nearly 25 insurers went insolvent. In addition, many carriers left the international insurance arena, or decided to reduce their global services, which adversely affected the value of their product.
Carriers should have the financial stability and commitment to fulfill their obligations and be a long-term competitor in the international market. It is crucial that the carrier have the financial strength to make good on its promise to pay and be there in the hour of need. Common insurance carrier financial strength rating benchmarks are provided by A.M. Best, Standard & Poor’s and Moody’s.
John Sence has more than 10 years of experience in the insurance industry. Since joining Schiff, Kreidler-Shell, the Midwest’s leading independent insurance agency, he has developed key areas of expertise in international insurance and construction. For a review of your current insurance program, contact Sence at (513) 977-3198 or firstname.lastname@example.org.
What is a donor-advised fund?
A donor-advised fund is established by gifts to a separate account at a public charity, which acts similarly to a charitable checking account. However, unlike a checking account, the donor-advised fund is an asset of the charity, and the donor has the right to name the fund, recommend grants from the fund, and, in some cases, suggest how the fund is invested.
How do I start a donor-advised fund?
Donor-advised funds are offered by community foundations, larger charities and many investment firms. You may take a tax deduction each time you make a gift to a donor-advised fund. Investment returns on the fund increase the balance from which the donor may recommend grants in the future.
Who can be advisers for a donor-advised fund?
Often, the donor and his or her spouse are the initial donor advisers who recommend grants from the fund. Most charities allow the appointment of successor donor advisers.
Why must the charity have the authority to approve or deny recommended grants?
A donor to a public charity must relinquish control over the gift before it qualifies for a charitable tax deduction. Typically, a charity’s governing board only denies grants suggested to organizations that do not qualify for public tax-exempt status, or where the donor will receive personal benefits from the grant.
What are tax-wise ways to use a donor-advised fund?
- Unusually high taxable income in 2005 can be offset by the charitable tax deduction from a gift to a donor-advised fund, perhaps equal to several years of anticipated charitable gifts. In future years, you can recommend grants from the donor-advised fund to make the charitable gifts.
- Recurring annual gifts can be accumulated in a donor-advised fund to make a substantial grant in the future - for example, to establish a scholarship fund or endowment.
- A donor-advised fund can be the recipient of annual distributions from a charitable lead trust, a future distribution from a terminating charitable remainder trust or the designated beneficiary of an IRA, providing a charitable legacy for future family giving.
- Donors can involve grandchildren in their charitable giving by making contributions to a donor-advised fund, from which grandchildren research and propose grants. During a family gathering, grandchildren present their choice of charities to receive grants from the family’s donor-advised fund.
- Smaller private foundations, which incur sizeable costs to administer and file tax returns, can be terminated by transferring the assets to a donor-advised fund. The fund provides the same family identity and generations of donor advisers for making charitable gifts, with considerably less cost.
Michael D. Barnes, Esq. is president of the Johnson Charitable Gift Fund, a public charity providing donor-advised funds, and vice president of Johnson Trust Co., a division of Johnson Investment Counsel Inc., which manages over $3.2 billion in assets. Reach Barnes at (513) 661-3100.
“We’re not in the business of running the businesses,” Strike says. “We are coaches and trainers, people who consult and help people run their businesses.”
And that is the bare bones behind Martin Franchises’ management style. The company isn’t hands-on, and it doesn’t micromanage. Instead, it places its trust in the store owners.
“Our feeling is that franchisees run a better store than we can run ourselves, because they are on-premise and focused on the success of that store,” Strike says. “We think our expertise is in bringing franchisees together in a way that works synergistically for everyone’s benefit.”
That highlights two of the main benefits to running a franchise operation plenty of experience to draw from and the ability to specialize. Store owners are allowed to focus on what they do best running the store and Martin Franchises then has the time and resources to do what it does best focus on the big picture.
And that is revitalizing the Martinizing Dry Cleaning brand. The first Martinizing Dry Cleaning stores opened in 1949, and by the 1960s, there were thousands. But when business started to dwindle, the company stepped back to take stock.
In 1987, it designed a new franchise agreement, offering improved support in the form of marketing and advertising packages, public relations consulting and equipment assistance in exchange for a royalty of 4 percent gross annual sales and an advertising fee of 0.5 percent monthly sales. And it’s taken steps to hone in on its target customer, households with median income of $60,000 or more. Martin Franchises does this by keeping prices pretty average neither the highest nor the lowest in any market while providing the best service.
“We’re not going to be the lowest-priced cleaner in a market; we don’t want to be,” Strike says. “That does not give us the revenue we need to provide our customers the service they want. We try to provide an excellent service, excellent quality at a very reasonable price really provide an excellent value.”
This approach is one of the benefits of more than a half-century of business experience.
“It’s just a question of training,” Strike says. “[It’s from] working with a lot of stores over a long time and a lot of different markets, gaining that experience, sharing that experience between franchisees and developing slowly, over time, that reputation with customers.”
And today, the company is taking that experience and reputation into new areas in the United States and abroad.
“We’ve been around for a long time more than 50 years,” Strike says, “and a lot of the stores are older stores, so as demographics change and neighborhoods change and stores and shopping centers change, a lot of those old stores are dropping out, closing. It’s just a natural lifecycle, if you will, and we happen to have a lot of stores that are nearing the end of their lifecycle.
“But we’re replacing them with new, high-quality stores in high-growth markets. So the total number of stores happens to be dropping down in the U.S., but it’s just part of a natural growth, a natural process of aging and change.”
But while the number of stores domestically has dropped over the past five years from more than 500 to fewer than 400, the number of international stores has steadily increased from just over 150 to almost 250.
“It’s kind of like pruning in some ways,” Strike says. “We prune the stores that are no longer in the markets or neighborhoods where our key customers are. And try to put in new stores in places where we want them.”
That includes places such as Mexico, Ecuador, Peru, Hong Kong, Japan and Germany, in addition to a renewed focus on American cities such as Nashville, Orlando and Phoenix It might sound daunting to target such vastly different areas, but Strike insists that opening foreign markets isn’t all that different from opening domestic markets.
“Right now, our approach to foreign markets would be similar to what we’re doing in the United States, which is that we would like to find franchisees who are capable of opening multiple stores themselves to be the core in any particular market,” he says.
Strike says the biggest challenge to going international hasn’t been a language barrier or cutting through government red tape. The biggest problem has been distance.
“The challenge for us is being able to establish a big-enough presence in any foreign country to be able to justify the overheads involved, to provide support to the franchisees,” Strike says. “It’s more just a question of distance, distance requiring a sufficient size.”
And there are other considerations that go into market selection, whether that market is domestic or international.
“We look at markets which we feel have the potential to handle the growth of our putting in several dozen stores in a market,” he says. “And we look at stores where we have a kind of open territory, without a big presence, where we could find an area developer who really wanted to go in and put in multiple stores themselves, and we could offer them kind of an open field to do that.
“Most of these markets are areas where we’d expect there to be two, three, four area franchisees who would take parts of the market and develop them.”
Once Martin Franchises decides to open a new market, the most important factor becomes finding the right location.
“We look at the demographics, at the quality of the center, at accessibility, we look at visibility, we want to make sure we’re on the correct side of the street, we want to make sure, in short, that it’s easy for our customers to notice us, recognize us and get to us,” Strike says. “We want to provide as easy an experience as possible for them to drop their clothes off and pick their clothes up. We prefer drive-through locations, if possible, and we want to make sure there’s plenty of parking.”
Once markets are selected and store locations opened, the biggest issue becomes quality control. How, with so many different stores in so many different locations, can Martin Franchises guarantee they’re all living up to the Martinizing Dry Cleaning brand and reputation?
Training, training, training, says Strike.
“Working with our franchisees so they know what’s involved in providing a quality service to their customers,” he says. “Its not just about how you clean the clothes, it’s also about how you greet the customer, how you package the clothes, how you take care of them, how you make sure they get the clothes back, a whole variety of things that are involved in providing good customer service. Meeting the customers’ needs, promoting quick turnaround, quick service, all those.
“So what we do is, we train our franchisees and continue to work with them so that they know how to offer all those things at a price that’s reasonable and provides a good value.”
Each new franchisee must go through a training course before opening his or her store. The course consists of one week of both classroom and hands-on training at Martin Franchises headquarters in Loveland, and another 60 to 80 hours of training in the franchisee’s own store.
After the crash course in dry cleaning, headquarters keeps in touch with franchisees through multiple avenues, from annual regional meetings to a toll-free helpline. And the company drops in on owners periodically to see how they’re doing.
“We have regional managers who visit the stores, inspect, do quality checks and work to train the staff at each individual store to learn to recognize quality and produce it,” Strike says.
But there is some room for individuality in the franchise business. Strike tries to ensure that each franchisee has the power to make the business right for them, without straying from Martinizing standards.
“We try to establish a firm set of guidelines as to how to run a store,” says Strike, “And then tailor the implementation of that very specifically with each franchisee, allowing them to make decisions to run their own business.”
Built-in flexibility is essential in managing a franchise, says Strike. Because while there are definite benefits to operating through franchises the ability to expand quickly, to have many stores and still maintain close contact with each through the owners there are also disadvantages, namely dealing with varied personalities in an organization that relies on standardization.
“You have to work with multiple personalities to maintain one brand image and one approach to kind of servicing the customer,” says Strike. “And that’s the role that we play coordinating the efforts of these multiple owners and helping them get the benefits of working together. It’s not easy.”
But that doesn’t matter to Strike. He says Martin Franchises will stay on top by continuing to tweak its approach to helping store owners and keeping everything in balance.
How to reach: Martin Franchises Inc., http://www.martinizing.com