Less than two years after David Scheible assumed the helm of Graphic Packaging, things had taken a turn for the worse. Its stock price had fallen to $1 per share and the distinguished New York Stock Exchange was threatening to delist the company as shareholders bailed and the economy soured in 2008.
“Because we had grown primarily through acquisitions, we were 6.8 times levered which means we were functionally bankrupt,” says Scheible, president and CEO. “We needed to generate cash in order to pay down debt and become a legitimate public company.”
A survey of Graphic Packaging’s employees revealed that the provider of paperboard and flexible packaging for such notable clients as McDonald’s, General Mills and Coors was slow to make decisions and that its divisionally-focused management team was disengaged from the company’s broader goals.
The candid feedback inspired Scheible to set a new course. Under his leadership, the $4.3 billion industry giant has strategically realigned itself. He’s reduced debt by $1.3 billion and strengthened Graphic Packaging’s market share by tethering its operations to the consumer products industry. His efforts have boosted the company’s share price to just more than $8 and produced 11 percent year-over-year earnings growth for the most recent quarter.
Here’s an in-depth look at Scheible’s efforts to repackage Graphic Packaging.
Turn up the volume on accountability
It seems that decision making wasn’t Graphic Packaging’s only shortcoming.
“Our employees said our managers were good at storytelling but not good at holding people accountable or creating a culture of accountability,” Scheible says. “There was no doubt in my mind that we needed a cultural revolution to get to the next level.”
Scheible turned up the volume on accountability by replacing 80 percent of his leadership team. While he acknowledges that jettisoning incumbent managers is never an easy decision, he maintains that it’s more expedient to start over than to try to change the attitudes of veterans who saw no reason to change and preferred the status quo.
“It was a gut-level decision but I thought we needed an upgrade,” he says. “We needed results-oriented leaders who possess the ability to interpret data and make speedy decisions. People who realize the difference between achieving a good result and telling a good story.”
It turns out that Graphic Packaging had other lagging issues that were impeding decision-making and accountability, as its history of acquisitions had left the company was disparate IT systems, goals and reward programs.
“Each division was tracking cash, inventory and various operational metrics,” Scheible says. “Which made it difficult to conduct comparisons and identify the underperforming units. It turned out that some divisions were doing well while others were not.”
So Scheible eliminated Graphic Packaging’s divisional fiefdoms by introducing a company-wide set of operational KPIs and replacing patchwork software programs with what he calls a plain vanilla version of SAP. Finally, he created a uniform compensation plan linking managerial pay and bonuses to the company’s overall performance.
“The good news was that our employees liked working here and said they would recommend our company to a colleague, so our survey proved that we were doing some things right,” Scheible says. “I wanted to make sure that we had the leaders and resources to build on what we were doing well while eliminating the bad.”
Narrow your focus
Downsizing or eliminating vertical markets is always risky, especially for CEOs of public companies whose moves are scrutinized by shareholders. However, Scheible was convinced that Graphic Packaging’s array of sub-sized businesses was hindering the company’s potential.
As one can imagine, making a package for a pharmaceutical product requires different materials and equipment than making a carton to hold six bottles of beer. Graphic Packaging’s limited presence in pharmaceuticals and cosmetics made it difficult to maximize the company’s investment in manufacturing equipment. Moreover, the company needed a plethora of manufacturing plants to support its diverse customer base.
“It’s not that the business was bad or unprofitable,” Scheible says. “But we couldn’t leverage our assets because we lacked critical mass in some segments.”
“Since we were better at some things than others, I thought we’d be better off by doubling down on the business we knew and focusing on industries that offered the most stable growth for the foreseeable future,” he says.
So Scheible scaled back the company’s position in pharmaceuticals and cosmetics and sold the plastics division before tethering its operations to consumer products, with a strong focus on the packaging needs of the food and beverage industries.
He based his decision on the projected growth and stability of the consumer products industry and its ability to generate a steady cash flow. Scheible also felt that consumer products offered enough diversity to mitigate the risk of putting the company’s eggs into a single basket. So far, his hunch seems to be right.
Despite, the overall slowing of net sales growth rates in 2012 food, beverage and household products companies experienced positive net sales growth of 7.0 percent, 5.5 percent and 3.2 percent respectively, according to the 2013 Financial Performance Report by the Grocery Manufacturers Association and PwC US.
In addition, his move has helped Graphic Packaging eliminate excess capacity in its plants resulting in closing 21manufacturing facilities since 2008. While his downsizing strategies weren’t always popular with employees, shareholders have benefited from Scheible’s efforts to reduce operating expenses as Graphic Packaging’s operating profits soared from $219 million in 2010 to $322 million in 2012.
“Sometimes you have to make tough decisions,” Scheible says. “While closing a plant impacted some people, our consolidation efforts ultimately benefited the people who are with us today. We’ve boosted employment at our remaining plants and now employ 15,000 people.”
After reducing debt and narrowing the company’s focus, Scheible consummated five strategic acquisitions and a merger as part of a deliberate effort to increase GPI’s market share, global footprint and capabilities in the consumer products industry.
Some purchases fostered European expansion while others, like the 2011 acquisition of Sierra Pacific, provided Graphic Packaging with a strategic location to service customers on the West Coast while upping its ante in the fast-growing craft beer and litho-printed laminated wine box markets.
“We’re far and away the leading producer of folding cartons for beer, but our recent moves have further propelled us into the rapidly growing craft beer segment,” Scheible says.
“Our improved financial performance afforded us the opportunity to stretch on the acquisition front and we’re taking advantage of it,” he says. “We’re focused on opportunities in under-served markets like China and Japan that provide us with a first mover advantage,” he says.
In some cases, Graphic Packaging’s first mover advantage comes from its commitment to sustainability and its ability to create more efficient packaging out of recycled materials, especially in emerging countries.
“The fact that we don’t have to dig up dinosaurs to make a package gives us a competitive advantage and makes us more efficient at the same time,” he says. “For instance, in the U.S. we’ve replaced the plastic clamshells at Panera Bread with a smaller, paper product. And that kind of innovation gives us a leg up on many local or regional competitors.”
Scheible has gone to great lengths to ensure the thorough and seamless assimilation of the Graphic Packaging’s recent acquisitions by refining his assimilation plan and adopting the principals described by authors Mark Feldman and Michael Spratt in “Five Frogs on a Log: A CEO's Field Guide to Accelerating the Transition in Mergers, Acquisitions and Gut Wrenching Change.”
“We’ve created an office of integration that reports to me,” Scheible says. “It’s staffed with 12 full-time employees who have backgrounds in legal, HR, finance, IT and operations. They can spring into action at a moment’s notice.”
The expense of maintaining a dedicated team is more than offset by the identification of synergistic reductions in overhead following an acquisition. For instance, analysts project that Graphic Packaging will realize more than $70 million in cost savings this year as the company integrates its recent acquisitions.
“I’ve learned a few things about assimilation from my successes and failures,” Scheible says. “First, don’t acquire a company unless it supports your core business and second, always retain the best person when you’re deciding between an incumbent and a newly acquired manager.”
How to reach: Graphic Packaging International (770) 240-7200 or www.graphicpkg.com
Create a culture of accountability.
Improve your financial performance by narrowing your focus.
Acquire market share through acquisitions.
The Scheible File
Name: David Scheible
Title: Chairman, Cresident and CEO
Company: Graphic Packaging International, Inc. is a wholly owned subsidiary of Graphic Packaging Holding Company headquartered in Sandy Springs, Ga.
Birthplace: Evansville, Ind.
Education: He has a bachelor’s degree in biochemistry and a master of science degree in industrial administration with a concentration in finance from Purdue University.
What was your first job?
Given my background in chemistry, I went to work for B.F. Goodrich right out of college where I sold chloride and rubber treatment chemicals in Latin America. My role prepared me for my future career by teaching me how to interface with customers, how to prioritize their needs, how to navigate the international marketplace and best of all, how to speak Spanish.
What’s the best advice you’ve ever received?
My boss at Avery Denison taught me that speed beats perfection every time when it comes to decision-making. You’ll never have all the data you need so make the best decision you can, adjust quickly and keep the organization moving forward.
Who do you admire most in business and why?
I admire Steve Jobs for his clear vision and unwavering desire to change people’s lives and Warren Buffet for the way he executes his strategy. He doesn’t fall in love with an industry or product; he falls in love with a management team and its ability to carry out its vision and strategy.
What’s your definition of business success?
What I would tell you is that success is a journey. It’s about setting goals, achieving them, being accountable and making corrections when you don’t. Then doing it over and over again.
What’s your biggest obstacle to future growth?
Our aging workforce and a lack of interest in manufacturing careers by Gen Y’ers is a challenge that we’ve identified and are trying to overcome. We’ve defined the career path for our employees and created a rotational training program to help us engage Millennials. Some of our local plants are conducting sophisticated training programs as part of a conscientious effort to develop a qualified workforce. We’re not sexy like Yahoo! but there are some good reasons why young people should consider a career in manufacturing.
Chris MacFarland was on his way to manage a startup when Royce Holland, chairman of Masergy, asked him to take a hard look at his company. Although the eight-year-old provider of networking services had reached nearly $100 million in revenue and survived both the nuclear telecom winter and dot-com crash, Masergy was stuck in that awkward adolescent stage just as the economy was slowing.
“Masergy’s board wanted me to consult for a year, offer advice and position the company for a possible sale,” MacFarland says. “After assessing the financials and current solution set, I thought it was possible to grow the business but the steps wouldn’t be easy.”
The telecom veteran and self-professed computer nerd, who taught himself structured programming languages as a child, found a company that from a macro standpoint was pretty good, but not great. Specifically, the staff was passionate about customer service but lacked the tools and systems to deliver, growth had stalled, the CEO had resigned and after bankrolling the company for the past eight years, the firm’s venture investors wanted liquidity.
“The top leaders needed to go, we needed a more collaborative environment and a change in ownership,” MacFarland says. “I was brutally honest in rendering my assessment because Masergy’s board trusted me to make the right call.”
Masergy’s board bought in. MacFarland became COO in 2008 and was promoted to CEO in 2010. Under his watch, the firm has matured from a rudderless organization to a major industry disrupter with revenues of $170 million for fiscal 2013, which ended in June.
Here’s how MacFarland pushed Masergy out of its mid-stage funk.
Build a healthy foundation
MacFarland initially planned to reposition Masergy during the recession, then satisfy investors’ need for liquidity by filing for an IPO as the economy rebounded. Given his goals and his assessment of Masergy’s issues, it’s not surprising that he started by replacing the company’s leadership team.
“There was a lot of infighting among our management team,” he says. “We needed leaders who could deal with investors and water the culture in order to get to the next level.”
MacFarland wanted to eliminate the fiefdoms that were hindering collaboration as part of a comprehensive effort to create what he calls a healthy company.
“You need trust between the leaders and departments to garner commitment for initiatives, core objectives, financial objectives or new product introductions,” he says. “And we didn’t have that. In fact, our environment had become so unhealthy it was stifling growth.”
Next, he weeded out underperformers and raised the bar for new hires by sourcing candidates who wanted to drive the bus instead of ride it. Paring the staff led to productivity gains and a 35 percent increase in profitability.
“Smaller firms need passionate ‘A’ players who will take the initiative,” MacFarland says.
“The economy propelled us from 2005 to 2008 and during that time, people became somewhat inefficient and we ended up with a lot of ‘C’ players.
“Cultural fit and synergy are critical in a mid-market tech company like Masergy because we’re not IBM. We can’t drive the business through operational measures, we need passionate, capable people to carry the torch.”
At the same time, he established a new set of core values before setting his sights on improving the company’s technical platform.
“For example, one of our values is that everybody has to be engaged and involved,” MacFarland says. “If an employee sees something they don’t agree with or understand, instead of sitting back we want them to ask about it and offer up suggestions.”
Despite MacFarland’s best efforts, Masergy encountered significant head winds from 2008 to 2010. He ended up shelving the IPO and recapitalizing through another venture firm, ABRY Partners, in the summer of 2011. But upgrading Masergy’s staff, culture and leadership team has continued to pay dividends.
“Sure, I could lay out a vision but a CEO needs cohesive leadership and engaged people to carry it out,” MacFarland says.
Improve the customer experience
Competing against the likes of AT&T and Verizon isn’t easy. Industry leaders tend to offer a full portfolio of voice and data products, coupled with above-average service and support, wide global coverage and competitive pricing according to MacFarland.
“Our platform wasn’t stable which impacted customer satisfaction and hindered sales,” MacFarland says. “To make matters worse, our network admins and customer service staff couldn’t always see our customers’ screens which made it difficult to resolve their issues.”
Moreover, customers will defect if they don’t have a strong value proposition and a reliable global network, so MacFarland reset the bar by spending millions upgrading Masergy’s platform.
His team now has the ability to monitor the network in real time, while customers can run voice, video conferencing and applications while viewing the same interface from anywhere on the planet. And because the new structure is scalable, MacFarland says it can sustain Masergy’s growth to $500 million.
“Our 360-degree view of the customer is unique in the industry,” he says. “Plus, customers get to speak with a real person instead of an interactive voice response system or IVR when they call. And our customer service reps are experts at relating to prospects who aren’t technically savvy.”
While some of the values that MacFarland is credited with helping to instill at Masergy may seem rudimentary to outsiders, his mandate to treat customers and business partners equally is regarded as innovative in the networking services industry.
“Treating everyone equally is a fundamental shift in thinking for our industry,” he says. “It helps us build healthy relationships and a robust supply chain which is critical to sustaining growth.”
MacFarland isn’t solely relying on technology to improve the experience of Masergy’s customers. He’s using good old-fashioned feedback and metrics to track customer sentiment and improve their satisfaction. And he’s putting his money where his mouth is by offering customers SLAs and credits if the firm falls short of its promises while giving employees bonuses for improving their experience.
“We weren’t engaging in deep analytics because we lacked actionable data and metrics,” he says. “Being a global company we need to keep our fingers on our customers’ pulse and monitor how we’re viewed in the marketplace.”
He’s also using spot surveys to track customer reactions and the rise of Masergy’s Net Promoter Score (NPS), which measures the loyalty that exists between a provider and a consumer by asking if they would recommend the service to a colleague.
A positive NPS is good, and a score above 50 is excellent and regarded as a harbinger of profitable, sustainable growth. Masergy’s dreams of delivering exceptional service have been realized based on the firm’s most recent NPS of 59.3 percent.
“The first year we scored around 30, which is OK for our industry but not for a broader tech firm,” MacFarland says. “We need loyal customers to become a valuable partner and achieve our goal of competing on a bigger stage.”
After building a healthy foundation and improving the customer experience, MacFarland turned his attentions to Masergy’s lagging top line. Admittedly, sales was not one of MacFarland’s strong suits so he hired a new sales leader and charged him with reinvigorating the company’s base of channel partners and resellers.
“As a technology firm, we rely on solution providers, systems integrators and telecom agents, as well as consultants and network and video equipment manufacturers to sell our solution,” he says. “Clearly, we needed new partners to jump-start growth.”
MacFarland’s sales guru reinvented the company’s sales methodology and rolled out new partner levels in 2011, offering Masergy’s top producers rewards and incentives for selling its WAN solutions. Gold and platinum partners receive higher commissions, spiffs and access to benefits such as customized joint-marketing strategies, co-marketing funds, special events and co-branded case studies.
As a result, Masergy saw its platinum partner base go from five to 12 over the past year, while its total number of partners rose to more than 100. In fact, some partners’ year-over-year sales grew roughly 30 to 40 percent, thanks to MacFarland’s well-timed entry into the cloud and cloud-based managed network services.
To explain, MacFarland took advantage of Masergy’s recapitalization by acquiring Los Angeles-based Broadcore in July 2012.The move catapulted Masergy into cloud services and gave the firm a complementary presence in hosted PBX and UC services, a segment that is expected to achieve robust growth over the next few years.
“We’ve experienced double-digit revenue growth after recapitalizing,” MacFarland says. “And to sustain that we have to roll out a new product every other year.
“We’re not looking for a value play, it has to be a cultural fit and meet certain criteria. But given that we have significant market share within the networking services segment developing or acquiring new capabilities is the best way to sustain growth over the long haul.”
For a guy who says he knew nothing about sales coming into the job, MacFarland has been very successful in driving top line growth. Masergy has acquired numerous marquee customers such as Unisys Corp., Akamai Technologies, Dolby Laboratories Inc. and the Hallmark Channel. The firm is forecasting revenues of $170 million for 2013.
“Technology is a high stakes game,” he says. “It takes significant investments and efforts to succeed but you increase your chances by building a healthy, transparent company.” •
- Build a healthy foundation
- Improve the customer experience
- Jump-start growth
The MacFarland File:
Name: Chris MacFarland
Company: Masergy Communications Inc.
Birthplace: Born in Hobbs, N.M.
Education: He studied computer science engineering at the University of Texas at Arlington.
What was your first job and what did you learn from it? I worked in a tire store changing tires and repairing flats when I was 16. The work was so hard that it encouraged me to pursue a career that would utilize my brains instead of my brawn.
What’s the best advice you’ve ever received? During my early days in the telecom industry I got to know Michael Russell, co-founder of American City Business Journals. He taught me that there’s strength in numbers. In other words, your company will go farther and grow more quickly by having a strong team rather than a handful of strong individuals.
Who do you admire in business? I tend to admire leaders in different industries for their strengths and accomplishments. For instance, I admire Bill Gates for being an extremely shrewd business person, his problem-solving skills and his remarkable philanthropic spirit. I admire Jamie Dixon for his ability to manage through the global banking crisis. And I admire Herb Kelleher for creating a dynamic brand and culture.
What’s your definition of business success? You’re successful when you achieve a profit without compromising your integrity. Although many tech companies were successful in the late 1990s, they engaged in questionable business practices and weren’t transparent. True success takes place on multiple levels.
Learn more about Masergy at:
How to reach: Masergy (866) 588-5885 or www.masergy.com
It’s easy to forget about costs when you’re embroiled in a lawsuit, but you could end up winning the trial and losing the fiscal war if you let the litigation tab spiral out of control.
“Business owners can be bamboozled by a litigation attorney when they’re in the heat of battle,” says Kim Karelis, a partner and expert witness with Ropers Majeski Kohn & Bentley PC. “Avoid disputes by negotiating a reasonable fee schedule in advance.”
Smart Business spoke with Karelis about the best ways to avoid and resolve a legal fee dispute.
What is a legal fee dispute?
Attorneys usually charge a flat fee for routine tasks like reviewing a contract or setting up an LLC, so novice executives may experience sticker shock when they receive a bill from a litigation attorney if they don’t perform adequate due diligence. The lack of a formal fee schedule can sometimes lead to a dispute and additional litigation if the two parties can’t resolve the issue.
What should business owners know about hiring a litigation attorney?
Refuse block billing and question vague descriptions for services when negotiating a retainer agreement so you can compare and determine whether an attorney’s fees are reasonable and customary. Only the senior partner should bill for in-house strategy meetings involving several staff members and you shouldn’t pay bloated fees for photocopies, phone calls and secretary time.
Consider the cost for expert witnesses, court filling fees and depositions, and estimate your true ROI by comparing the total tab to what you may gain or lose by going to trial.
Finally, be wary of an attorney who seems unreasonable or wants to bill for every single second. Lawyers should be willing to negotiate, especially in this market.
What else can business owners do to prevent legal fee disputes?
Hiring a referral from a trusted colleague is probably your best bet, but you still need to get everything in writing and seek an outside opinion before signing an agreement if you’re unfamiliar with litigation costs.
Establish a budget and a goal for the action and consult several attorneys to see if they’re reasonable and attainable.
Lastly, nip potential problems in the bud by reviewing invoices and questioning any unreasonable charges you find in a timely basis.
What happens if a dispute arises?
Clients have the right to seek arbitration by a panel consisting of neutral attorneys and a layperson who will decide the appropriate amount of attorney’s fees through an informal, low-cost proceeding administered by the local bar association. The losing party has the right to pursue a court trial. However, they must act quickly and file the paperwork within 30 days of the loss.
What are the legal standards that apply to legal fee disputes?
A signed retainer agreement takes precedent when a fee dispute arises. If none exists, the court will attempt to determine a fair charge for the attorney’s services, in part by assessing whether the attorney’s fees are unreasonable or unconscionable.
While the courts tend to side with clients, especially when the attorney’s charges are vague, there’s little sense in taking chances when the problem is avoidable.
How are legal fee disputes usually resolved?
Most executives and attorneys don’t want to air their dirty laundry in public, so they try to resolve their disputes through informal, private discussions and by consulting an outside expert.
While few disputes end up going to trial, the chances increase when emotions run high and business owners don’t do their homework. ●
Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC
Tim Taft learned the art of feeding a crowd at an early age — he was one of 11 kids. His family dining adventures led to a career in the restaurant industry, where he started as a pot washer at a local steakhouse and went on to become the president and COO of Texas-based Whataburger and the CEO of such notable chains as Grandy’s, Souper Salad and Pizza Inn.
Given Taft’s track record, it’s not surprising that Carrols Restaurant Group recruited the retired gentleman rancher when it decided to expand in 2011. Carrols wanted to focus on its 570 Burger King restaurants by bifurcating Pollo Tropical and Taco Cabana to form Fiesta Restaurant Group.
“The theory was that the two brands were worth more on their own, since some people don’t want to invest in Latin restaurants, while others don’t want to invest in burgers,” says Taft, who serves as Fiesta’s president and CEO. “In addition, Carrols’ board thought that a dedicated management team would bring focus and a fresh perspective.”
The challenge was that Pollo Tropical, which offers Caribbean-inspired fare, wasn’t known outside of Florida and folks outside of Texas hadn’t heard of Taco Cabana. Worse yet, Pollo Tropical’s five under-performing stores represented the brand’s lone foray into the Northeast. Still, after visiting nearly 50 restaurants, the affable Taft willingly traded his branding iron for a spatula and hasn’t looked back.
Under his direction, Fiesta’s stock price has risen from $12 to a high of $40 per share since the spinoff in May 2012, making it one of the fastest-growing restaurant stocks in the country. Revenues increased 9.4 percent in the third quarter of 2013 to $140.9 million, compared to $128.8 million in the prior year period. And the newly formed group has opened 34 domestic and 15 international restaurants, with dozens more planned.
Here’s a look at the key ingredients in Taft’s recipe for growth.
Assess strengths and weaknesses
The revenue numbers for Taco Cabana and Pollo Tropical convinced Taft to join the fiesta.
“The revenue was off the charts,” he says. “No matter what else I found during my due diligence, I knew that they had to be doing something right.”
Taco Cabana restaurants were averaging $1.6 million in annual revenue, while Pollo Tropical stores were averaging $2.3 million. To give you some perspective, Wall Street darling Chipotle averages about $2.1 million per store.
Another selling point was the fact that fast casual restaurants have seen client traffic soar by an average of 6 percent over the last three years. When Taft observed a broad range of customers dining at the restaurants he was convinced that he could drive sales through both new and existing stores.
“There were guys in white starched shirts eating next to construction workers,” Taft says. “The customers were ethnically diverse which told me that both brands have unlimited appeal.”
Results from the recent quarter seem to confirm Taft’s initial hypothesis. Same store sales at Pollo Tropical increased 6.4 percent while Taco Cabana stores posted an increase of 1.1 percent.
But viewing the restaurants through the eyes of the customer also exposed a few problems. While the food was good, the dishes varied by location. Taft discovered that someone named Connie originally developed Taco Cabana’s recipes, but the exact formula was a mystery because the recipes weren’t written down.
The look and feel of Pollo’s décor didn’t support the brand and some of Taco Cabana’s restaurants hadn’t been updated in years. There were no standard processes for food preparation or delivery and the staff didn’t always greet customers when they entered the restaurant. And outside focus groups thought Pollo Tropical served Mexican cuisine. Unless Pollo’s brand was clearly defined, expanding to Texas could potentially erode Taco Cabana’s market share.
“You need to develop a strong brand and transferable concept before you expand,” Taft says. “My first goal was to develop a prototype and fix what we had.”
Build a prototype
Taft used the results of his SWOT assessment to position Pollo Tropical and Taco Cabana for growth.
He started by relocating Fiesta’s headquarters from New York to Dallas and hiring a management team.
“In my mind, Dallas-Fort Worth made sense because there are so many restaurants headquartered in this area,” he says. “We needed to build a management team from scratch, and there are a lot of experienced professionals in the area.”
Next, he gave aging Taco Cabana stores a facelift and completely overhauled the Pollo Tropical brand.
“We didn’t want Pollo to be perceived as Mexican,” he says. “So we changed the design and décor of the restaurants and our promotions to reflect a Caribbean feel.”
He appeased shareholders by executing strategies to increase sales and productivity. For instance, he invested millions in new kitchen designs and equipment and set his sights on improving customer satisfaction by installing his trademark five points of focus system and retraining the staff.
“Our operating philosophy is predicated on five points of focus, which include great food, cleanliness, hospitality, order consistency and accuracy, as well as well-maintained facilities.” he says. “If we execute on these restaurant basics, we can positively impact the guest experience, and improve their frequency and loyalty.”
To that end, he upgraded Fiesta’s POS system to speed-up the ordering process, improve accuracy and help stores fulfill customized requests. He added Web-based technology so customers can order online and request a specific pick-up time. And he recertified the chefs to make sure everyone uses the same recipe to prepare rice and beans.
“Goodness knows how many orders we got wrong because we had a high tolerance for errors,” he says. “We’ve cut the amount of mistakes in half, but we still have a ways to go.”
Finally, Taft focused his management team on expansion by closing Pollo’s struggling New Jersey stores.
“Operating a restaurant isn’t rocket science, but you need to consistently meet customers’ expectations and have a strong brand identity,” Taft says. “You can’t have everyone heading in a different direction, you need clear operational standards carried out by passionate, like-minded employees.”
Although Taft plans to move Taco Cabana east, Pollo Tropical west and fill in the areas in between, his target demographic, site selection and expansion strategies have evolved over the last two years based on the results of extensive research.
“We originally thought that Pollo Cabana was a Latin-centric brand, but our consultants told us to quit breathing our own fumes,” he says. “They advised us to target a more general audience by locating new stores in upscale centers that cater to big box retailers.”
Given the eye-opening data and the competitive landscape for Mexican cuisine, Taft decided to backfill Texas with new Taco Cabana restaurants in the near term and use Pollo Tropical as Fiesta’s primary expansion vehicle for the foreseeable future.
“Our development team has completed value-engineering our Pollo Tropical prototype,” he says.
“So we plan to accelerate new openings over the next several years as we backfill Florida, increase our penetration into Georgia and Tennessee and build a scalable footprint in Texas.”
Expanding Pollo gives Fiesta the opportunity to leverage its dynamic, family-oriented culture that Taft says is the impetus behind the brand’s phenomenal success.
“Many early employees defected from Cuba, came ashore in Key West and have been with Pollo for more than 20 years,” he says. “What’s challenging about managing growth is retaining the things that have made a company successful while leaving behind the things that have caused you to stumble in the past.
“We want to make sure that Pollo doesn’t lose its el corazón, which is Spanish for heart.”
With that in mind, Taft’s team has taken steps to nurture the passion of Pollo employees for the brand’s culture and cuisine. For instance, Pollo employees have a shot at promotions or the opportunity to transfer to a newly opened store. Historically, more than 45 percent of Pollo’s field managers have started as hourly team members.
“A good number of Pollo’s general managers came up through the ranks and we want to continue that practice because it helps to maintain the culture,” Taft says. “For many employees, this is the only job they’ve ever had and running a $2 million operation is humbling.”
To further support Pollo’s family-oriented culture, Fiesta recently launched a 501(c)(3) called the Fiesta Family Foundation. The employee-funded nonprofit provides financial assistance to employees and their families who are affected by an emergency or personal hardship.
“One of our brands is 35 years old and the other is 25 years old,” Taft says. “But because we’ve formed a new company and hired a new management team, in many respects it feels like a startup. My job is to respect the past while pushing Fiesta into the future.”
How to reach: Fiesta Restaurant Group (972) 702-9300 or www.frgi.com
Assess your company’s strengths and weaknesses.
Build a prototype to establish a brand.
Honor the past while expanding strategically.
The Taft File
Name: Timothy P. Taft
Title: President and CEO
Company: Fiesta Restaurant Group
Birthplace: Vermillion, S.D., raised in Tampa, Fla.
Education: He studied business at the University of Texas, Austin.
What was your first job and what did you learn from it?
I washed pots and pans in a local steakhouse for a $1.90 an hour. I leaned what a difficult business this is and how hard it is to get it right. But there’s something about the camaraderie and everyone working hard toward a single goal that gets into your blood. I have a great deal of respect for anyone who succeeds in the restaurant industry where you’re literally as good as your last meal.
What’s the best business advice you’ve ever received?
Someone once told me that information is not power. Selfless leaders who share information and give others credit are ultimately more successful.
Who do you admire most in business and why?
Bill Prather, the former CEO of Hardee’s and executive vice president and head of worldwide operations for Burger King, because he listens well and acts boldly. It’s hard to find people who do both of those things well.
What’s your definition of business success?
I tend to agree with Herman Cain who refers to success as a journey and not a destination. When you’re opening more restaurants than you’re closing, selling more meals and hiring new people, you’re headed in the right direction. But you can’t be satisfied because there’s always someone out there looking to steal your piece of the pie.
Social Media Info:
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David Passman’s classic remake of Carmike Cinemas is garnering rave reviews from Tinsel Town to Main Street. After falling into a state of disrepair, the nation’s fourth largest theater chain, through Passman’s efforts, has boosted the fortunes of film distributors and once beleaguered shareholders as well as the appetite of moviegoers.
“Hollywood didn’t like us, our shareholders didn’t like us and our employees were driving customers away,” Passman says. “Every option was on the table from bankruptcy to revival or something in between when I came out of retirement to become Carmike’s president and CEO.”
Known as “America's Hometown Theater Chain,” Carmike operates some 245 theaters and 2,476 screens in small to midsized communities located throughout 35 states. Despite enjoying quasi-monopolistic conditions, Carmike’s ticket sales were declining, the stock price had fallen to $1.30 per share and the company had restated earnings three times shortly before Passman traded his board seat for a corner office in 2009.
He’s remodeled aging theaters, paid down debt and consummated strategic acquisitions since taking the helm. After logging net losses for three straight years, Carmike produced net income of $96 million on revenues of $539 million in 2012, driving the average stock price above $20 per share.
Here’s a look at Passman’s steps behind his Hollywood-style success story, which just happens to include a fairy-tale ending.
Undertake the easier tasks first
After conducting secret shopping excursions to several theaters and evaluating competitors’ financial statements and operating metrics, Passman concluded that Carmike was worth saving.
Best of all, his due diligence revealed enough “low-hanging fruit” to produce modest improvements in revenues and profits while he executed a burgeoning slate of long-term strategies.
“Competitors with the same raw attendance numbers in similar markets were turning a profit, yet we were broke,” he says. “My analysis revealed that our operating costs as a percentage of revenue were substantially higher than Regal or Cinemark.
“If you think the underlying fundamentals are OK, then it makes sense to put all your efforts into fixing the problems,” Passman says. “If the underlying fundamentals are unsound, then you stop renewing leases and prepare an exit strategy.”
His stealth visits to Carmike’s rural theaters also revealed poor sanitation, broken marquees and scruffy-looking employees who dissuaded customers with their indifferent attitudes.
“Customers were staying away because the prior CEO tried to manage earnings by deferring repairs and maintenance,” Passman says. “That attitude was further reflected in the appearance and actions of our employees who had become disenchanted with the company.
“I stole a page from Jim Skinner’s playbook,” Passman says, referring to McDonald’s CEO, who steered the floundering company to the best financial performance in its history. “We needed to have a clean, friendly environment before asking customers to return. In other words, we needed to clean up our act.”
Passman replaced under-performing theater managers, authored new hiring and performance standards, retrained the entire staff and spent millions repairing broken signs and theater seats. Admittedly, he took some heat for making substantial repairs and booking a multimillion-dollar impairment charge, but through it all, he remained committed to the idea that improving the customer experience would boost loyalty today and pay dividends down the road.
“Our investments in training and repairs increased attendance, customer loyalty and concession stand revenues,” he says. “The key to getting the most from part-time workers is to hire for attitude and give them training. That’s why Disney is so successful.”
He also asked Carmike’s vendors to sharpen their pencils as part of a comprehensive effort to bring the company’s operating costs in line with those of competitors.
“The conventional wisdom is that you can’t renegotiate contracts until they expire,” he says. “We asked everyone from our refuse removal service to Coca-Cola to give us a better deal even if their contracts were in the middle of the term.”
The revised vendor pricing not only lowered Carmike’s operating costs but boosted customer goodwill and concession revenue by allowing Passman to reduce prices for beverages and snacks.
Although Carmike has traded margin percentage for margin dollars at the concession stand, it’s come out ahead as concessions and other revenue increased to $54.9 million in the most recent period compared to $43.6 million for the same period in 2012.
Repair vital relationships
After witnessing Carmike’s dramatic slide, constituents had not only lost money but faith in the company’s leadership. Since their support was critical to Carmike’s long-term success, Passman launched a series of steps to build goodwill and repair damaged relationships.
For starters, he garnered shareholder support by reducing the company’s debt by $120 million over three years. The company’s highly leveraged position had left shareholders vulnerable and fearful, especially when the economy faltered in 2008.
“Ultimately, deleveraging the company would free up cash, reduce our debt service cost, mitigate shareholder risk and give us more choices,” Passman says. “We stopped paying dividends and put every available dollar toward retiring bank debt.”
Next, he solicited revenue-generating ideas from theater managers, who were initially stunned by his request. After some prodding, however, the managers offered-up great marketing tips including a promotion called Stimulus Tuesday.
“The problem with discounting tickets to drive attendance is that it impacts studios who get a percentage of box office receipts,” Passman says. “You don’t want to bite the hand that feeds you in an effort to increase sales.
“Instead, we offered $1 popcorn on Tuesdays,” he says. “We immediately got a 35 percent increase in attendance and best of all, it didn’t diminish ticket sales on Mondays or Wednesdays.”
Not to be outdone by rank and file employees, Passman’s marketing team introduced a rewards program, allowing moviegoers to accumulate points and earn discounts on concession items and movie tickets.
He conveyed his revenue-boosting strategies during personal visits with distributors and studio executives who had experienced a falling out with Carmike’s former CEO. His cross-country trek not only bolstered the firm’s relationships with Hollywood moguls, it quashed their fears that the chain might file for bankruptcy.
Carmike’s marketing strategy has led to big gains in ticket and concession sales. Second quarter admissions revenues grew 24.7 percent year-over-year and 13.9 percent on a per screen basis, significantly outperforming the domestic cinema industry increase of 7.8 percent. Beyond the strong gains in admissions receipts, second quarter concessions and other revenue per patron increased 6.9 percent to a new all-time record, extending Carmike’s year-over-year per patron spending growth to 14 consecutive quarters.
Best yet, giving theater managers a voice has created a sense of ownership, improved theater cleanliness, boosted attendance and reduced annual turnover from 40 to 20 percent.
“Not everything we tried worked,” Passman says. “But we kept trying. In fact, my idea of offering graduated concession packages actually decreased revenues based on the results of a 12-theater pilot.
“My philosophy is that you can’t fail as long as you keep trying and CEOs need to lead the way by acknowledging their mistakes.”
Armed with an improved balance sheet, Passman went on another shopping spree in late 2011. But this time, he didn’t travel incognito. In the cinema world, he’s widely recognized as a savvy buyer.
The top four exhibitors control about half of the country's 40,000 screens and many smaller players are looking to sell out. In fact, during the firm’s July 22 conference call, Passman characterized the market as “very buyer-ripe,” adding that Carmike “is inundated with opportunities to purchase assets.”
“After analyzing our income statement, I realized that we could support an additional 300 theaters without adding to our headquarters’ staff,” Passman says. “We were able to use mostly cash to consummate a number of purchases due to our improved performance and balance sheet. Plus, we raised $60 million by issuing additional stock.”
Passman isn’t looking for fixer-uppers or aging venues in declining markets. Rather, he’s looking for turnkey properties in stable locales that stand to benefit from his marketing expertise and Carmike’s highly efficient infrastructure.
“We had a chance to leverage our efficiency and G&A by making strategic acquisitions in maturing markets where the owners don’t have the ability to lower costs and boost their profitability,” he says.
Carmike has purchased 366 screens since the end of 2011. It’s also building new theaters, both to replace existing venues and open new locations. For instance, Passman built three new theaters in the first half of 2013, closed several under-performing locations and raised an additional $88 million in order to hone Carmike’s portfolio amid a maturing market.
“In 1991, the Atlanta Braves became the first team in the National League to go from last place one year to first place the next, and we may be the second team to achieve that feat,” he says. “Our stock has rebounded after hitting rock bottom. Which proves that Wall Street still believes in fairy tales.”
How to reach: Carmike Cinemas: (706) 576-3400 or www.carmike.com
- Start with the easiest tasks.
- Repair vital relationships.
- Use strategic acquisitions to leverage G&A.
The Passman File
President and CEO
Birthplace: Bay Shore, N.Y., raised in Ocala, Fla.
Education: He attended the University of North Florida and received a bachelor’s degree in accounting from the University of Florida. Passman is also a CPA.
What was your first job and what did you learn from it?
I learned how to run a successful concession operation when I was just 13 and sold milkshakes at the local Burger Chef. Later, I learned what it takes to be a successful entrepreneur when I joined the audit practice at Deloitte. I spent the better part of 20 years helping small businesses grow and became a partner. Having a horizontal view of everything that goes on in a company helped me understand what it takes to be successful.
What’s the best advice you ever received?
Attitude trumps aptitude. I’ve met a lot of very smart people who never achieved success because of their attitude. On the other hand, I’ve seen folks with average IQs and a positive outlook rise through the ranks. A positive attitude is how Jim Skinner became CEO of McDonald’s, and it’s one of the main reasons why he was able to save the company.
Who do you admire most in business and why?
Warren Buffet because he’s involved but not overbearing, he’s trusting but not naïve. He’s successful because he sticks with what he understands. He doesn’t invest in unfamiliar businesses; he knows his limitations.
What is your definition of business success?
You’re successful when you improve the return for shareholders, empower people and instill the right values. Ultimately, a leader is successful when he or she leaves a company better off than he or she found it.
Cost center managers tend to lay low during times of change, but not Stephen Mooney. The latent entrepreneur in 2008 proposed the idea of splitting off the patient financial services division of Tenet Healthcare into a stand-alone company to take advantage of an opportunity he saw in the marketplace and to capitalize on the strong relationships already in place with Tenet's network of hospitals.
To understand what Mooney faced getting this idea off the ground, consider Tenet’s situation: The organization was in the midst of selling more than half of its 110 hospitals when he floated his idea by Tenet’s CEO. That meant significant change, and during a time when organizations typically are hesitant to champion new start-up initiatives.
“My idea didn’t have a lot of fans at first, but it did get our executives thinking about the future instead of our current dilemma,” says Mooney, who serves as president and CEO of Conifer Health Solutions LLC, a subsidiary of Fortune 100 company Tenet Healthcare.
Mooney was convinced that health care organizations would jump at the chance to boost revenue cycle performance and focus on patient care instead of billing and collections. So Mooney sold his vision to everyone he encountered, turning a $200 million cost center into an outsourcing success story, adding some 7,000 employees and 600 clients in just five years. Here’s how he did it.
Build a strong foundation
Providing revenue management to non-Tenet hospitals and health systems would require a hefty investment in technology, a cultural shift as well as the development of a sales and marketing arm. Still, Tenet execs were intrigued by the idea and pledged their support if Mooney could find some way to fund his revolutionary venture.
“My initial forecast had us losing money for the first two years,” he says. “Under the circumstances, the company couldn’t afford to lose a single dime. And since venture funding wasn’t an option, I had to find the cash in our operating budget.”
With the executive team behind him, Mooney set out to achieve buy-in from other constituents. He alleviated any concerns by sharing his vision and offering each group a customized slate of benefits. Servant leadership and creating vested partnerships was his goal.
For example, he grandfathered existing rates during the initial transition period. And, he lowered the cost of processing rudimentary transactions by offshoring selective technology and call center services, using the savings to build a robust technology platform.
“We’re not a tech company, we’re a tech-enabled company,” Mooney says. “I needed to enhance our IT platform so we could drive more volume through our machine and offer our clients greater efficiency and value.”
Next, he approached Tenet’s suppliers and asked them to partner with the company. Could they make near-term concessions by thinking long term?
“I shared my business plan with our suppliers,” he says. “I wanted them to see that they had the opportunity to grow with us if they were willing to reduce their fees. Plus, you need to establish strategic alliances from the outset because you’ll need them to manage growth.”
Tenet’s suppliers recognized the opportunity and jumped on board. But after several years of change, Mooney knew his larger task would be with his own team members.
“Getting this thing off the ground would take a lot of work, so I absolutely needed our employees’ support,” Mooney says. “You need to make sure that everyone’s behind you before you start approaching customers.”
Mooney emphasized the benefits of growth to garner support from workers. Having the opportunity to control their own destiny and career opportunities were his main selling points.
“I had to explain my vision to employees, get them engaged and help them understand that short-term sacrifices would yield long-term gains for them and also add tremendous value to our external clients," he says.
Mooney credits his team’s enthusiasm and willingness to embrace change with Conifer Health’s early financial success.
“We were supposed to lose money in the first year and to everyone’s surprise, we actually broke even,” he says. “I credit employee engagement for allowing us to achieve a budget-neutral position in our very first year.”
Hit a home run
Convincing a prospect to relinquish operational control of vital functions like billing and patient communications isn’t easy.
Mooney and his sales team made ends meet by selling point solutions while devising a strategy to close their first major end-to-end outsourcing deal.
“We bought time in the first year by hitting a few singles and doubles, but we needed to land a big fish to prove our concept,” Mooney says.
“Our executives were wondering if this was going to work, but health care organizations were wary of turning over their entire business office to an outsider from Mars.”
The sales team set its sights on landing a major deal with a member of a faith-based, not-for-profit system. Mooney knew that signing a member of this prestigious fraternity would encourage others to follow. But he and his team would have to sway a host of skeptical attorneys, consultants and stakeholders to ink their illusive inaugural deal. They emphasized their industry experience, their servant leadership model, and cultural alignment.
The looming impact of the Affordable Care Act finally proved to be the tipping point, as Conifer Health signed a number of major deals including a long-term agreement with Catholic Health Initiatives (CHI) to provide revenue cycle services for 56 hospitals across the nation.
“Even CHI's consultants agreed that their current model was unsustainable given the changes under health care reform,” Mooney says. “The market was aligning with partners and we finally convinced our prospects that they couldn’t wait to act.
“All I can say is don’t give up,” he says. “Our first deal died more than once, but I remained involved, and we continued to push the benefits that mattered to our prospects like improving the patient experience and the revenue cycle until the timing was right.”
Close service gaps and accelerate growth
Mooney worried that Conifer Health might lose its competitive edge given the massive changes imposed by health care reform. He hired experienced leaders, invested $200 million in the firm’s technical infrastructure and paid another visit to Tenet’s CEO where he presented a plan to leapfrog Conifer Health past its competitors.
“The market was in a state of flux due to health care reform,” he says. “Clients wanted turnkey solutions, and we needed to close a few service gaps to help them transition from a fee-for-service to a fee-for-value environment. The question became, ‘Should we build or buy these capabilities?’”
Mooney proposed a series of strategic acquisitions, and this time he not only garnered support, but funding from Tenet’s executive team and board.
In recent months, Conifer Health has added new services like clinical integration, population health management and financial risk management to its arsenal as well as data modeling and analytics. In the process, the firm has acquired a host of new clients and employees.
While acquisitions can boost revenues and a firm’s capabilities overnight, assimilating an outside organization can be tricky. Depending on whose research you believe, mergers have a failure rate of anywhere between 50 and 85 percent primarily due to a lack of cultural compatibility and the hasty departure of key employees who possess critical institutional knowledge.
Mooney has been successful in assimilating acquisitions by getting Conifer Health’s acquired companies to embrace his unique philosophy and vision for the company.
“We try to retain or find other opportunities within Conifer Health for everyone we acquire,” he says. “If we do lay someone off, we give them severance and outplacement assistance because everyone deserves the right to leave with dignity.”
He’s created new business units within Conifer Health to help him retain key leaders and staff from an acquired firm. He’s also bolstered retention by allowing employees to telecommute as Conifer Health expanded its footprint to more than 40 states.
“The key is empowering people to make decisions so they can serve the client,” Mooney says. “We’ve expanded what we offer our clients, and they’ve embraced them because they add value to their mission and their communities. I keep our staff engaged by relaying our success stories. That's critical feedback as it validates the work they provide our client every day.” ●
- Build a strong foundation before you approach customers.
- Prove your concept by hitting a home run.
- Close service gaps and accelerate growth.
The Mooney File:
NAME: Stephen Mooney
TITLE: President and CEO
COMPANY: Conifer Health Solutions LLC
Birthplace: Margate, N.J.
Education: Bachelor’s degree in accounting from Stockton State College in New Jersey and a master’s degree in business administration with an emphasis in accounting from Pepperdine University.
What was your first job and what did you learn from it? I restocked the ice cream vendor on the boardwalk of the Jersey Shore. I learned that every person is important because the business couldn’t operate without a runner. Plus, it taught me responsibility because I couldn’t take a day off unless I found someone to take my place.
What’s the best advice you ever received? Put people first because it increases their engagement. In turn, they’ll take care of your customers and the bottom line. For example, we let people go home when an ice storm is approaching and they make up for it the next day. They respond because we trust them to do the right thing.
Who do you admire most in business and why? Jack Welch, former chairman and CEO of General Electric, because he was incredibly focused and a great developer of people and leaders.
What is your definition of business success? Your business is successful when it’s turning on all cylinders, and it’s sustainable. In other words, you could walk away, and it would just keep going. We’re not there yet because we’re only a five-year-old company, but I believe that we’re on the path to sustainability.
Conifer Health Solutions Social Media Links:
How to reach: Conifer Health Solutions LLC (877) 266-4337 or www.coniferhealth.com
After four years, the inability to manage change often results in the premature demise of 37 percent of information industry startups.
John Marshall, co-founder of AirWatch, sees the validity of that statement, but relishes in the fact that his company isn’t a part of the statistic. It’s a modern day miracle that a small firm like AirWatch has not only endured, but found a way to ride the crest of the technology tsunami.
“Coming up with a good idea is hard, but executing it is even harder,” says Marshall, who is also president and CEO. “You need to have the right team with the right vision and strike a balance between ideas and execution or you’ll never get out of the gate.”
After bootstrapping AirWatch since its launch in 2003, Marshall orchestrated what he describes as a strong pivot three years ago. His well-timed pivot gave AirWatch the opportunity to cash-in on the “bring your own device” to work trend, establishing the firm as a pioneer in the management of mobile assets.
The BYOD craze was rearing its head — almost 70 percent of workers who own a smartphone or tablet use it to access corporate data, according to Ovum. The problem is that most IT departments were caught off-guard by the mobile computing frenzy and lacked the staff and systems to securely manage a barrage of different employee-owned devices.
AirWatch has taken the lead in mobile management, scoring more than $200 million in funding and adding more than 1,400 employees to provide mobile device management and security to 8,000 customers, including Lowe’s, Toyota, United Airlines and Delta Air Lines.
Here’s a look at how Marshall turned a rather unremarkable Wi-Fi service provider into a market leader with revenues of about $100 million in 2012.
Catch a wave
Once Marshall decided to consider the mobility space, he made sure his decision was neither rash nor fortuitous. He evaluated data and anecdotal evidence before asking 15 developers to create an enterprise program to manage smartphones.
“The key to market timing is to look at everything,” he says. “I keep a lot of data points in my head. I not only assessed user adoption rates, but whether the cab driver in Singapore was using a smartphone. Misreading the adoption curve can be fatal, especially for a small tech company.”
For instance, Marshall knew that wireless service providers were switching to 3G networks and offering “all-you-can-eat data” plans as users became addicted to mobile devices. In addition, businesses were looking for new ways to lower costs and create efficiencies as the economy was taking a nosedive in 2008-2009.
Providing 24/7 access to data and communications seemed like a viable and affordable way to boost worker productivity. Marshall, however, remained on the fence until a fateful conversation with an Apple executive provided the tipping point. The knowledgeable source described the ongoing development of smartphones and tablets and the migration from desktops and laptops to mobile computing. So when Apple released iOS 3, Marshall decided it was time to act.
“My conversation with the Apple executive gave me the confidence to move forward,” Marshall says. “The ecosystem was forming and I could see that it would be maturing over the next few years. I wanted to be ahead of the wave, not paddling from behind.
“You need to understand the growth phase to take advantage of it,” he says. “Invest too early, and you’ll spend all of your time educating the customer. Invest too late, and you’ll be forced to play catch-up. In this case, our timing was just about right.”
Build a nimble organization
While amassing information before taking an initiative is important, the project needs to advance once it is ripe. Check your company’s foundation and feel confident it can handle change.
AirWatch’s infrastructure functions like a bumper car. When change occurs, employees absorb the shock, reposition and step on the gas.
“You can’t labor over decisions or shoot for perfection when you’re in a hurry; you need to get a product out the door,” Marshall says. “You can’t be afraid to make changes or give stuff away during the early phases of development. It’s a stressful and somewhat lonely time, but you have to push forward.”
AirWatch has a fairly flat organizational structure because Marshall believes that hierarchical decision-making begets fiefdoms and impairs speed-to-market.
“Ambiguity and management by committee won’t work when you need to move quickly,” Marshall says. “It’s better to fail fast and fail early.”
He filters and communicates competitor intelligence or feedback from AirWatch’s early adopters to the company’s core leadership team on a weekly basis.
“You can’t communicate everything to 1,500 people or everyone will head off in a thousand different directions,” he says. “I strategically share information with our core management team, and they pass it along. We use concentric circles to transmit critical information.”
Marshall’s finely honed communications strategy helps his team develop what he calls a tactical cadence to clients’ evolving needs. For instance, initially customers wanted a tool to manage mobile devices, but data security soon emerged as a top priority as companies created a plethora of mobile applications.
“We don’t waste a lot of time in meetings because we constantly communicate,” Marshall says. “Our product developers, marketers and other team members sit together on the floor. They collaborate, white board issues, make quick decisions and write new code. Eighty percent of our product changes are ad hoc.”
The company’s 400 developers utilize a rapid application development methodology and release product updates every two weeks. In fact, the entire company is built around the notion of two-week sprints that keep staffers from working too far ahead.
“We’re experts at executing course corrections; it’s woven into our DNA,” he says. “It may seem like organized chaos, but it’s a natural movement for us that works.”
It’s easy to veer off course when you inject 1,300 new employees into a dynamic work environment over a span of two to three years. But through trial and error, Marshall has developed a comprehensive plan to keep AirWatch workers aligned with the company’s vision.
“If you bring someone on too early, they won’t have enough to do, and they’ll end up working on things that aren’t strategic,” he says. “I’ve learned that you need to hire at the right time and clearly define roles and responsibilities to make sure everyone’s working on the right product at the right time.”
For example, Marshall says he met the perfect candidate to launch a European division, but AirWatch wasn’t ready to expand. Instead, he focused on building the North American market and refining the company’s solution suite while waiting three years to extend an offer.
“He would have failed if I hired him when we first met,” Marshall says. “I waited until the time was right and now we have 270 people working in our European division.”
Also, his recruiting team has improved its success rate for new hires by assessing a candidate’s ability to thrive in a fast-paced environment. Then, they quash ambiguity and foster line-of-sight from the outset by putting new hires through an intense two- to three-week training course.
Every AirWatch employee knows how daily activities align with the broader mission, Marshall says. In addition, employees have clearly defined roles and responsibilities, which is the secret to keeping people focused during periods of rapid change and growth.
“One of the things I borrowed from Steve Jobs was the concept of the ‘directly responsible individual’ or DRI, which is critical to managing growth,” Marshall says. “Under DRI there’s a point person responsible for solving every problem or driving every initiative to completion.”
Apple summons speed and accountability by inserting the name of the DRI next to every item on a to-do list, Marshall says. As a result, there’s rarely any confusion about who should be doing what.
Also, Marshall prevents scope creep, which can be the nemesis of tech firms that develop cutting edge products for rapidly evolving markets.
“Don’t let one customer get you off track,” Marshall says. “Learn to say no to requests for customized products or one-off solutions that deviate from your broader mission. You have to know what you want to be when you grow up; otherwise it’s easy to lose your way.”
Finally, he waited until the time was right to pursue strategic acquisitions. For instance, AirWatch acquired Motorola Solutions Mobility Services Platform last June, adding some 1,500 customers to the firm’s portfolio.
“You can’t integrate another firm or technology platform when your company or team isn’t mature; it’s a recipe for failure.” Marshall says. “We waited until we had 1,200 employees and a mature management team before consummating an acquisition. And we got there by being crisp, focused and developing one product at a time.” ●
- Develop a great sense of timing.
- Build a flexible organization.
- Focus is the key to sustaining growth.
The Marshall File
Name: John Marshall
Title: President, CEO and co-founder
Birthplace: Racine, Wis., and raised in Charlotte, N.C.
Education: Bachelor’s degree in industrial engineering from the Georgia Institute of Technology.
What was your first job and what did you learn from it? I started cutting lawns when I was 9 or 10, grew the business, and had anywhere from five to 15 people working for me throughout high school and college. I learned that there’s no substitute for hard work, the importance of hiring the right people and why it’s critical to make course corrections, even as a small business. If you don’t hire reliable people, you’re not going to meet customer expectations, which is vital when you’re trying to build a business.
What’s the best business advice you ever received? One of my mentors told me that the grass is greener where you water it, which essentially means that any company can be successful. Now, you have to be aligned with a market that’s doing well and you have to execute, but if you do those things, every firm can succeed.
Who do you admire most in business and why? Steve Jobs because he was a pioneer in the mobility space and definitely understood the importance of market timing. He also built a flexible infrastructure that allowed him to capitalize on new ideas and changing product cycles.
Why is AirWatch based in Atlanta instead of Silicon Valley? Atlanta has a good economy and an ample talent pool. How can a small firm like AirWatch compete for talent against Facebook or Google? I would never start a tech firm in Silicon Valley.
AirWatch Social Media Links:
Google +: https://plus.google.com/u/0/106579500291096176030/posts
How to reach: AirWatch (866) 501-7705 or www.air-watch.com
International expansion is a great way to grow as the U.S. economy slowly recovers, and the population and per capita gross domestic product of countries such as India and China continue to rise.
But finding funding for exports can be difficult, unless you leverage a government-backed program.
“Why turn away sales when you can get working capital assistance through government programs to penetrate red-hot foreign markets?” says Alfred Ho, vice president and enhanced credit specialist with California Bank & Trust.
Smart Business spoke with Ho about the benefits of leveraging guaranteed export financing.
What is the working capital guarantee program?
U.S. manufacturers were struggling to compete overseas, as foreign sales and receivables are generally excluded from traditional lending programs.
So, to spur exports and domestic hiring, the federal government offers guaranteed financing programs administered by the U.S. Small Business Administration (SBA) and the Export-Import Bank of the United States (Ex-Im Bank).
The loan proceeds under these programs can be used to purchase supplies and equipment, hire staff or, in the case of the SBA’s Export Express program, even attend an overseas trade show.
And because the terms are flexible, owners can use the loan proceeds to fulfill a large contract or several small deals.
How do the programs help small businesses?
The programs encourage banks to lend to small businesses by guaranteeing 90 percent of the loan amount and allow loan officers to consider foreign receivables and work-in-progress during the underwriting process.
Plus, if a standby letter of credit is required to support a bid bond, advance payment guarantee or performance bond, the collateral requirement to have one issued is only 25 percent, instead of the 100 percent in traditional cases. This provides an edge for a U.S. company in its quest for overseas contracts.
How much can companies borrow and what does it cost?
The SBA Export Working Capital program permits loans below $5 million. It charges an upfront fee of 0.25 percent of the loan amount and an annual utilization fee of 0.55 percent, which is assessed monthly.
There’s no limit to how much you can borrow from Ex-Im Bank, and its upfront fees range from 1 to 1.5 percent of the loan amount. The loan interest rate is based on the prime lending rate plus a spread. Interest rates for larger loans are based on the London Interbank Offered Rate.
What are the eligibility requirements?
Requirements differ among the programs but they all require a firm purchase order prior to advance and, minimally, shipment from a U.S. port to a country acceptable to Ex-Im Bank. Goods and services shipped must have at least 51 percent U.S. contents.
Certain products are excluded from the programs. A company must also have a positive net worth and be profitable for the last three years to qualify.
For other qualifications and restrictions, talk to your lender or visit the SBA or Ex-Im Bank websites.
How can business owners find a participating lender?
Your local SBA or Ex-Im Bank representative can provide referrals, but you can look for a Delegated Authority lender who has the ability to expedite your loan.
Your banker can walk you through the lending process and share helpful ideas. The banker should be able to suggest ways to lower the risk of international commerce.
The important thing is: Don’t venture into the international marketplace alone. Find a competent banker to serve as your guide. ●
Insights Banking & Finance is brought to you by California Bank & Trust
Carpet made from discarded fishing nets? It may sound far-fetched, but not to John Wells, president and CEO of Interface Americas, a wholly owned subsidiary of Interface Inc., the world’s largest manufacturer of modular carpet tile.
The company recently launched an eco-friendly collection made from recycled Philippine fishing nets, thanks to a newfound penchant for risk-taking, innovation and social responsibility.
“We see innovation as a way to lower our manufacturing costs, give customers the products they want and reduce our environmental impact,” Wells says. “It’s a way of doing business — not a stand-alone initiative.”
If you think carpet manufacturers and environmentalists make strange bedfellows, you’d be right. The carpet industry has garnered criticism for its environmental footprint based on widespread use of petroleum and fossil fuels in manufacturing and the fact that some 5 billion pounds of carpet and padding end up in U.S. landfills every year.
Interface’s epiphany and massive mid-course correction started in the mid-1990s when its late founder, Ray C. Anderson, acknowledged the industry’s errant ways and vowed to eliminate any negative impact on the environment from its operations by 2020.
In Interface’s case, viewing the carpet manufacturing process through a green lens has led to an expansion of ideas, profits, cost savings and new markets.
“In many respects, innovation has become a survival strategy for us because we’re not a low-price, commodity player,” Wells says. “It’s led to reductions in operating costs and greater value for our customers, which is critical when you make a high quality product.”
Forty-nine percent of the company's raw materials are now recycled or biobased, and the company has reduced greenhouse gas emissions by 41 percent. And since eco-friendliness is now a priority for about 65 percent of carpet shoppers, Interface Americas has been able to expand its reach by introducing more sustainable product lines.
Wells, whose U.S., Canada and Latin America operations account for $575 million of Interface’s $932 million in annual revenues, has been instrumental in directing the company’s mid-course correction and fulfilling Anderson’s promise.
Here’s how the industry veteran reinvented Interface Americas by focusing on footprint reduction, innovation and cultural change.
Build an innovation framework
A company’s culture has a profound impact on business innovation. The key to success? Deliberately shaping the environment to inspire creativity and invite risk-taking across the enterprise.
“Culture is critical to innovation, and it exists whether you do anything to influence it or not,” Wells says. “Executives have to lead the way by being intentional in their actions as part of a comprehensive and orchestrated effort to foster creativity.”
Wells and the Interface executive team studied the philosophies of author and researcher Marcus Buckingham and extensive research from the Gallup organization before deciding that a strengths-based culture would provide the ideal framework to encourage innovation.
In a nutshell, the strengths-based concept promotes the idea that people get the best results by recognizing and maximizing their strengths while downplaying their weaknesses or perceived deficiencies.
“We all have inborn talents,” Wells says. “Our managers are charged with drawing those out as part of our strengths-based development program. It helps our people maximize their talents and from what we’ve seen, it’s driving results.”
Furthermore, strengths-based hiring debunks the idea that creativity is limited to engineers. Workers are hired for their strengths, placed into roles that leverage their talents and assigned to teams based on an inventory of their personal assets. As a result, all employees — from managers to shipping clerks — across the Interface enterprise are involved in the quest for new and better ways to manufacture and distribute carpet.
“The journey toward change starts with a vision and a mission statement; ours is ‘Mission Zero,’” Wells says. “It creates engagement by giving our workers a sense of purpose. They honestly believe that they can change the world.”
For instance, Interface's assistant vice president of co-innovation became so enthralled with the idea of recycling Philippine fishing nets that she developed the Net Effect concept, engaged conservationist groups in the pilot and helped develop the new product line.
Finally, the Interface executive team invited cultural change by developing “Play to Win” training, which teaches employees to view sustainability as a challenge, not a threat, and encourages them to change their thinking and behavior to foster individual and collective success.
“We changed our culture by changing what people do every day,” Wells says. “Our employees don’t see themselves as manufacturing carpet; they see themselves as making a difference, and that’s weaving innovation into our DNA.”
Champions of organizational innovation must demonstrate enthusiasm for risk-taking and foster a penalty-free environment. But too many mistakes may give executives cold feet, especially when they have to please fashion-conscious customers such as architects and designers who live on the cutting edge of trends.
Wells developed a three-pronged strategy that encourages risk-taking by creating safeguards that take the sting out of failure.
“You tend to have more failures when you develop products or ideas in silos,” he says. “We give people a common goal and utilize blended or cross-functional teams to keep people from competing against each other or having to grapple with divergent interests when developing new products or green manufacturing processes.”
Next, he installed a mass customization production system in Interface Americas’ U.S. plants. That way, the company can offer customers a wide array of products and fill orders on demand, eliminating the pitfalls of inaccurate sales forecasting, overstocking or purchasing delays.
“We only expect a 20 percent take-up rate on new products,” Wells says. “But that’s OK, because we have the ability to manufacture product on demand so we don’t maintain large inventories. Ultimately, our production system lets us introduce more products because it gives us a fairly low investment on the front end.”
Finally, by narrowing the supply chain and creating more products from the same raw materials, he reduced the cost of beta testing. Having fewer feeder inputs hastens the product development process, lowers raw materials costs and makes it easy to fulfill specific customer requests.
“We’ve taken steps to facilitate risk-taking, but you really need to take a long view and test, test and retest before you launch a new product,” Wells says. “Otherwise, it’s easy to slip back into old habits when you fail.”
A cultural shift is a work in progress, and to keep up the momentum, it’s a smart idea to utilize collaborative tools. Interface’s latest effort involves the sharing and development of ideas with diverse, global teams through the use of a social collaboration tool called Jive.
“We’re using an open architecture system to connect people in various capacities all around the globe,” Wells says. “It’s fascinating to see the energy it creates and the speed and execution of ideas as we discuss specific customer problems.”
Wells initiated the collaboration process by posing questions to a small group of participants through the tool. He slowly broadened the talent circle, organizing staffers into project teams and assigning them specific problems as discussions took on a life of their own.
“Online collaboration accelerates the innovation process because you can socialize ideas quickly, gauge feasibility and decide where to invest,” Wells says. “We’re able to solicit feedback from engineers, R&D, product development and sales people all over the world, which eliminates silos, hastens decision-making and reduces the risk of developing new products.”
Since the launch of “Mission Zero,” Interface Americas’ employees have developed the world’s first carbon neutral carpet, selling more than 204 million square yards, and retiring more than 2.9 million metric tons of verified emission reduction credits through 2012.
The company has reduced both the face weight and backing weight of its carpet tile products, decreased the amount of raw materials to produce a square yard of carpet by 10 percent and invented a glueless carpet tile installation system. In addition, seven of nine Interface factories now operate on renewable electricity while the plant in LaGrange is powered by methane gas harvested from a local landfill.
“Our mantra is to innovate and achieve our business goals but to do that through a lens of sustainability,” Wells says. “We’ve done it by changing our culture, using our talent to drive innovation and literally doing more while taking a whole lot less from the environment.” ●
- Build an innovation framework to re-invent your culture.
- Encourage risk-taking.
- Farm innovation through online collaboration.
The Wells File
Name: John Wells
Title: President and CEO
Company: Interface Americas
Birthplace: Wells was born in Dalton, Ga., which is often called the carpet manufacturing capital of the U.S. Mills within a 65-mile radius of Dalton control more than 80 percent of the U.S. carpet market — which supplies 45 percent of the world’s carpet.
Education: He received a bachelor’s degree in industrial management from the Georgia Institute of Technology; he also completed the executive education program at UNC, Chapel Hill.
What was your first job and what did you learn from it? I did accounting and engineering work for a carpet manufacturer as part of a co-op program during college. They offered me a full-time position in R&D and product development after graduation, but I soon realized that I wasn’t wired to be an engineer. I moved into sales and was hired by Interface in 1994 as vice president of sales.
What was the best business advice you ever received? I was fortunate to work for a number of great managers early in my career. Those who developed their people to their greatest potential tended to be the most successful, so I make a habit of following their lead and their advice.
Who do you admire most in business and why? That would be Ray C. Anderson, the founder of Interface Inc. He was a beacon in the industry who had the courage to stand up and say we’re doing this all wrong. He launched the greening of the carpet manufacturing industry.
What is your definition of business success? For me, it’s the ability to combine financial success with a noble purpose. When a company meets its fiduciary and social responsibilities, then I believe it has achieved success.
How to reach: Interface Americas (800) 336-0225 or www.interfaceglobal.com
Succeeding a popular, long-term CEO is never easy, but it’s especially hazardous in the IT services industry where even the slightest change can disrupt a firm’s delicate equilibrium. But then again, the industry really hadn’t seen the likes of Tony Doye. He’s the charismatic leader of CompuCom Systems Inc. who was hired as divisional CEO and heir apparent to veteran CEO Jim Dixon in November 2012.
Historically, sloppy leadership transitions in the tech world have led to the mass exodus of scarce professionals, customer defections and shareholder revolts, and as Doye says, there is always nervousness when a new leader comes in from outside the company.
“In addition, our styles and approach to the business are totally different,” he says. “Jim comes from the sales side, and I’m operationally-driven, so I’m sure people were concerned about how I might impact the company’s growth and future.”
Even CompuCom’s board was anxious, and for good reason. Research has found that when companies fail to effectively integrate senior executives, they face lost opportunity costs of about 10 to 20 percent of the executive’s salary. Worse yet, failures can lead to public distrust, resulting in loss of productivity and social costs of about $14 billion per year. Hewlett-Packard’s infamous botched succession sent the high-powered brand spiraling into decline, and its leaders are still struggling to right the ship.
Although CompuCom’s board initially wanted a longer transition period, the ex-IBM’er with a dry sense of humor and beguiling British accent quelled their fears, ascending to the helm of the $2.3 billion firm last May.
Here’s an in-depth look at Doye’s well-thought-out and expertly executed transition strategy.
Get off on the right foot
Transitions are a critical time for outsiders who haven’t established trust or credibility with the staff or the board. Missteps made during the crucial first three months can jeopardize a CEO’s success and career.
To avoid a fumbled handoff, Dixon branded Doye as a capable successor who could take CompuCom to the next level by winning major clients and the attention of industry analysts. Moreover, he touted Doye’s operational expertise as a much-needed resource for creating sustainable growth including the firm’s expansion into emerging areas such as mobile device management and cloud services.
“No one could deny the facts about what the company needed,” Doye says. “But the emotional, cultural side of a transition is difficult to navigate because it’s not straightforward.”
Offering value instead of criticism is the best way to get off the ground with tenured employees, especially when you’re taking over a healthy operation where change is needed but the staff is content with the status quo.
“I didn’t brand myself as a replacement or someone who was coming in to make a lot of changes, although both Jim and I knew that some things needed to be changed,” he says. “Instead, I presented myself as someone with unique strengths who could add value to the organization, especially in the marketing and operations area.”
Doye did a lot of listening during the first 30 days and used Dixon as a barometer to gauge workers’ reactions and his progress while attending meetings and strategy sessions.
“You don’t want to come off as a know-it-all or someone who has all the answers,” he says. “You have to listen and understand the situation and the culture before offering your opinion.”
After waiting patiently for 45 days, Doye finally got a chance to strut his operational stuff when he immersed himself in the delinquent budgeting process and got things back on track by sharing his insights and recommendations.
“I got a sense of the company’s structure and political landscape by participating in the budgeting process and used the umbrella of naïveté to offer my two cents,” says Doye. “Immersing yourself in a major process or sales effort is a good way to get a feel for an organization because you have a chance to view things from the ground level.”
Build credibility and mindshare for your ideas
After achieving fame as a budget rescuer, Doye sensed that it was time to seize control. He created a SWOT analysis and presented his assessment of CompuCom’s strengths, weaknesses, opportunities and threats to the board and members of the executive team.
“A SWOT analysis is a safe and palatable format for showcasing your ideas because it highlights the good things that should be preserved and frames shortcomings as opportunities,” he says. “I wanted to present my ideas before I became imbued in the culture and was viewed as part of the problem instead of part of the solution.”
He socialized his ideas, solicited feedback from the staff while cementing a list of initial priorities and an action plan. Even reluctant staffers gave credence to Doye’s recommended changes after hearing his on-point assessment of the company’s strengths.
“If the company is struggling, then you can start calling the shots immediately because the staff tends to fall in line,” Doye says. “When you come in as part of a succession plan, then I think you need to build support for your ideas before taking action or challenging the way things are done because employees aren’t expecting a lot of change.
“I used the SWOT analysis as a way to stimulate a dialogue at a very high level about change without firing a rifle shot across the bow,” he says. “Even though CompuCom is a billion dollar company, you need to respect its history and family-oriented culture.”
Within 60 days, Doye had moved from socialization to action by launching a series of initiatives. By prioritizing programs that address widely accepted needs, you can avoid friction.
“Everyone agreed that we needed to clarify our message and get it out there, so we launched a new marketing communications plan and worked on portfolio management,” he says. “Meanwhile, I gathered evidence and continued to engage people in ongoing discussions.”
Conquer fear with facts
It’s difficult for an outsider to inspire change when the staff doesn’t share your view or recognize the problems.
“The challenge is trying to convince people to change when they don’t know what they don’t know,” Doye says.
So Doye referenced data and insight collected from one-on-one dialogues with customers to validate the opportunities in his SWOT analysis while slowly garnering support for his seemingly renegade ideas.
“I wanted to remove the emotion of change by engaging our staff in fact-based discussions, so I reiterated what I heard during customer visits because their opinions aren’t disputable,” Doye says. “At the same time I collected data to highlight our operational shortfalls.”
For example, he wanted to rationalize the company’s portfolio by discontinuing one-off services that weren’t scalable and squandered valuable resources. In addition, he sought to streamline the assimilation of new customers by aligning delivery and sales, adopting new guidelines and approval processes for pending deals and deploying uniform performance and customer service measures across all service lines.
While he says he didn’t want to create a bureaucracy, he continued to link the need for structure, clear decision-making processes and greater visibility into the company’s performance to sustained growth and attainment of CompuCom’s long-term goals.
“It’s easier to invoke change if you adjust your strategy to leverage the culture,” he says. “In our case, the customer is king, so the staff was more likely to support my ideas if they improved the customer experience.”
When Doye encountered resistance, he kept his cool, reiterated his goals and kept listening.
“It may take a little longer, but if you listen to people and continue to lay out your case, most of them will eventually come around,” Doye says. “If they don’t, then you have to have a conversation, and if that doesn’t resolve the issue, you have to move on.”
Doye refers to his ascension to the helm of CompuCom as a journey, not a destination, as he continues to muster support for his strategies.
“I’ve succeeded by being smooth, calm and persistent,” he says. “I wasn’t perfect but I did enough to convince Jim, the board, the shareholders and the employees that I’m the right person to lead CompuCom.” ●
- Get off on the right foot.
- Build credibility and mindshare for your ideas.
- Conquer fear with facts.
The Doye File
Name: Tony Doye
Company: CompuCom Systems Inc.
Birthplace: Doye refers to himself as Cockney, because he was born near St. Paul’s Cathedral in the center of London.
Education: Doye become a telecom apprentice at 16 and joined IBM at 20. He completed the Stanford University Graduate School of Business Executive Program and post-graduate work at The Open University and Cambridge University’s management program for executives.
How did your early days at IBM prepare you to become a CEO? IBM had great management training in those days. I made a number of lateral moves, working in everything from customer-facing roles, sales and engineering and got my first exposure to outsourcing there.
What was the best business advice you ever received? I learned several key lessons from my managers during my 10 years at IBM. First, stay in touch with the business when you become a manager, otherwise you won’t be able to keep up with technology changes. Second, you’re always on when you move from manager to leader, so keep your guard up at all times.
Who do you admire most in business and why? Mike Laphen, the former CEO of CSC, mentored and coached me, but most importantly, he taught me to take chances when it comes to people. He taught me to avoid ‘group think’ by mixing people and diversifying teams and having the courage to stand by your decisions.
What is your definition of business success? IT services is second only to the retail industry in terms of difficulty. It’s competitive, margins are slim, things commoditize quickly and the employee value proposition is difficult. You’re successful when attrition is reasonable, shareholders are happy, customers are happy, margins are reasonable and morale is good. It sounds easy, but it’s not easy to achieve.
What are your tips for a successful leadership succession? Don’t hide in your office; get out there and talk to people. Fix easy problems right away while you build support for the more difficult items on your agenda. Avoid the appearance of picking favorites. Give every one equal time. Don’t react too quickly. Count to 10, keep listening and keep your game face on.
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How to reach: CompuCom (972) 856-3600 or www.compucom.com