The fact that Tom Strauss sees some major flaws with the national health care system shouldn’t just raise eyebrows for hospitals or the patients in them. As CEO of one of the largest integrated healthcare delivery systems in Ohio — employing 10,000 people and more than 1,000 physicians across seven hospitals — Strauss knows the problem is one that affects every person in the country.
“I think everybody would admit that what we have in health care in this country today is unsustainable,” says Strauss, the president and CEO of Akron, Ohio-based Summa Health System. “When you’re spending $2.5 trillion, 17.6 percent of the GDP on health care and the health premium now for a family has exceeded what a minimum wage worker makes in a year — think of that … it’s going to affect the way that we do business.”
The glaring problems with the current care model have been compounded by the increasing number of people without health insurance, which creates a shrinking base of patients from which hospitals can generate any income — the sick ones.
“We’re really a sick care system, which means when we get paid traditionally in hospitals, it’s only by treating a bunch of sick patients,” Strauss says. “So if a good flu season rolls in … our beds are full and we’re billing a lot of revenue, but we have a lot of sick patients. There’s something wrong with that picture.”
With mounting costs, anticipated reimbursement declines and payment model that rewards based on sickness rather than health, Strauss and his team finally said enough is enough. After spending two years devising a new vision for the organization to evolve and improve the system, Summa Health launched a pilot program for an accountable care organization, called NewHealth Collaborative. In January 2011 it moved 11,000 patients in its SummaCare Medicare plan to the new collaborative.
“Some of these places are holding onto the revenue as long as they can because they believe there is a way to survive that,” Strauss says. “We don’t think there is.
“So with us, it’s what do you do to transform yourself to focus differently to create true value in health care.”
Here’s how Strauss has led the implementation of the accountable care vision across the seven hospitals.
Because Summa Health is one of the first organizations in the community to create a prototype for accountable care organizations, Strauss knows it will be an example for future organizations in the way it implements its vision and strategy. To make sure the shift toward population health management is successful, one of the first steps is putting in place the right tools, processes and infrastructure to support it.
“You’ve got to know where your vision is, where you’re going and what your objectives with the strategy are and then put in place the executing tactical plans to make that happen,” Strauss says.
Strauss says that a key problem with the old system of that care was it could be very fragmented. With different physicians in charge of different services, handing off tasks and having limited knowledge of a patient’s needs, an estimated 30 percent of what is conducted in health care and in hospitals today is unnecessary.
So part of the transformation has been changing the organization’s siloed infrastructure to create multi-disciplinary approach to services, eliminating the overtreatment of patients and saving costs by keeping everyone on the same page, including the patient.
“People like me have to start to prepare ourselves structurally to be able to do these things for population health and population management,” Strauss says.
“What’s nice is it’s easier to do the right care, the appropriate care, and eliminate this 30 percent that’s unnecessary than to not do it. So we’ve made it easier for physicians to do that.”
Frequently inefficiency is the result of lack of communication and knowledge-sharing. So a critical step to becoming more organized and efficient is looking for ways to improve your technology.
“Some organizations are used to living on very high revenues,” Strauss says. “When you realize that eventually that is going to go away, you have to reposition your organization to be able to function at lower rates of reimbursement.”
Strauss says that the organization is investing $80 million in IT over the span of five years. It has already added a new call center so physician’s phones roll over to the 24/7 call center with care nurses during off hours. The system’s Akron City and St. Thomas hospitals also became some of the first in the country to have computerized physician order entry so physicians can access and manage orders through a portal at any time.
The other piece was implementing new evidence-based medicine protocols and procedures in the care delivery process to integrate the 10 service lines for increased efficiency.
By structuring your organization for more effective collaboration, you can align the people on shared goals and your new vision. At the same time, you give people a clearer idea of how their role contributes to the big picture of your mission and vision.
“Those are the kinds of structures that you have to have in place to be able to thrive under this new health care reform move towards population health and population management,” Strauss says. “So it’s more than just technology.”
Be an open book
Once they came up with the model, Strauss and his leadership team presented it to the physicians and the board and held retreats to walk employees through the vision, its benefits and how the transformation would occur.
“I think most physicians understand that the old way of doing things is not very effective,” he says. “The days of fee-for service — the reimbursement is just going to be cut and cut and cut. It will be death by a thousand cuts. They understand they can’t survive the way that it is today, so we have to do something differently.”
With most people on board, the real challenge was making sure the 400 physicians and other employees involved could understand, execute and share the vision. Developing strong partnerships among the hospitals and other care providers requires strong alignment on goals as well as new patient care protocols and procedures. So for Strauss, the key to success has been having the organization be as open as possible with employees about the vision, what it involves and any changes being asked of them.
“It’s creating a vision for the future and getting people to understand what that vision is and then educating the components to engage in that process when it might be different than what they were used to in the past,” Strauss says.
“If you don’t, and they don’t believe in where you are going you will be unsuccessful. So for us, we really took the time and even after it was implemented went back to reinforce the vision of why this is so important.”
By explaining how a new vision complements your organization’s core values, mission and culture, you can get more buy-in by aligning people behind shared goals as well as a shared culture. So aside from instituting training and education programs for employees, Strauss has spent a lot of personal time working to put the vision into a clear framework. His efforts include teaching a class for employees called “The Philosophies of Summa,” speaking at monthly new employee orientations and hosting monthly “Talks with Tom” for several hundred employees with representatives from each department.
“There are no secrets,” Strauss says. “I give them financials. I talk about what’s happening good and bad and ugly, and it’s been very effective. It’s information. It’s listening. It’s being by their side and nurturing them when they are down.
“We believe that the employees that work here are the soul of the firm. Your employees represent your greatest strength or your greatest weakness. So they have a culture that supports them — servant leadership — and it says if I’m not serving that patient I’m going to serve you.”
Strauss says that another goal of the open communication is to reciprocate the attitude and culture he wants to drive in the system, which is one of servant leadership and mutual caring.
“The moment of truth is the first 15 seconds when you come in contact with a patient in need, and it’s how you seize that moment to make the difference to satisfy their needs,” he says.
“If you’re too busy or you’re having a bad day or the Browns lost or the Steelers lost, and you translate that at work to your patient, we will fail as an organization.”
To strengthen the mindset they want all employees to have, Strauss has charged managers to be more active in talking to employees and patients to see what their needs are and helping them carry out the vision for accountable care.
“If you’re engaging your work force to go after a vision, then you need to give them as much information as you can about the reason for that vision,” he says. “That’s one of the pieces that I love to do.
“We’re actually making a concerted effort to do rounding with a purpose. You’re going to see every leader at Summa being out more on the floor talking to patients, talking to employees both on satisfaction and safety.”
But once you give people the information, you then want them to drive its success as much as possible. To help employees feel like they have a stake in that vision so they will drive it with enthusiasm, Summa Health has tied more employee financial incentives to the positive patient outcomes it’s seeking from the new care protocols and procedures.
For example, all employees in the system receive a bonus each year based on the company’s financial performance and levels of patient satisfaction.
“We’ve paid out millions of dollars to the employees,” Strauss says. “This is beyond managers. This is all of the employees. We want them to feel like if they produce, if they work with us, if they exceed the expectations of the patients — that’s the definition of quality — they will benefit, their organization will benefit, and we will be the provider and employer of choice.”
Eventually, seeing the positive results of changes helps employees realize that your vision is a viable one.
As a result of its technological innovation, the NewHealth Collaborative received 2012 certification from the federal government for its ability to meet standards of meaningful use guidelines. Its Akron City and St. Thomas Hospitals will acquire $5.1 million in federal incentives, which will be distributed to the hospitals and its doctors.
“In the old days you would just throw services out there and market those services and try to grow this population of sick patients,” Strauss says. “Now we’re going to get paid on the population’s health.”
Although he’s been with Summa Health for 13 years, Strauss believes that the organization is just starting to scratch the service in the excellence it can achieve by transforming the community’s health. Despite the uncertain future of health care reform, he sees more and more people are now realizing that action needs to be taken to change the industry.
“When you deliver that kind of quality and safety and you see the savings we’re starting to generate, you realize that there’s an answer here,” Strauss says.
How to reach: Summa Health System, (800) 237-8662 or www.summahealth.org
1. Put the structures in place to implement your plan.
2. Help infuse the vision with transparency and an open-door policy.
3. Offer employee incentives to drive results.
The Strauss File
President and CEO
Summa Health System
Education: Duquesne University for undergraduate and graduate schools. B.S. in pharmacy in 1975 and a doctorate of pharmacy in 1978
What do you like most about working in health care?
That you are caring for patients at their most vulnerable time, you can make a difference in every patient’s life and you can make a difference in employees’ lives. We’re the largest employer in five counties, so for us we take that pretty seriously. And improve the health status of the communities, not only once you educate and take care of patients but you can go out into the communities and you can make a difference.
What mistakes can you make in a growing business?
The first thing you’ve got to realize is that you can’t make everybody happy. That’s the hard one, especially for somebody like me who really prefers to have people holding hands singing ‘Kumbaya.’ The other area is trying to micromanage. You cannot in this environment micromanage. You’ve got to empower your people and let them go. They will make mistakes and that’s OK as long as they learn from their mistakes. I would think trying to stay in the old system, trying to stay in the old ways was a mistake that got us starting to transform toward population health and population management.
What’s the best business advice you’ve received?
Love what you do. If you think about the hours we all work, that gets pretty challenging if you don’t love what you do because I probably put in as many hours here as I do at home, unfortunately. So that’s one. Make sure you love what you do, and if you don’t love what you do, go find something you will.
Vlad Shmunis built his company the old-fashioned way, one customer at a time. Starting with zero users, he’s grown RingCentral Inc. to deliver cloud-based business phone system solutions to more than 200,000 customers across three continents and employs approximately 500 people.
“It’s very clear that there is an amazing amount of demand,” says Shmunis, the founder and CEO of the San Mateo-based company. “It was at the right time, right place. So it’s just trying to hit it on all cylinders.”
To stay ahead of the competition in the business communications industry, Shmunis now looks to invest in areas that grow the business with new customers while also meeting the needs of current ones.
Smart Business spoke with Shmunis about how he invests in RingCentral’s long-term growth.
Invest in top performers.
As we’re growing, the focus is more the sense of the overall vision and culture understanding and making sure that everybody is on the same page. As far as the people we want to hire, how do we incentivize them? How do we keep them excited about what they do?
This is a constant quest. We try to have an A-team in every respect. We have well-accomplished people in the key positions. So that’s taking a lot of my time now and probably will continue for the foreseeable future as the company grows.
The slowing down of the economy did not slow our growth down and did not slow our customers’. The people that work for us have options. So how do we keep them here and productive?
Invest in infrastructure.
People understand that emphasis is on continuing to delight existing customers. So we’re not going to do anything that would jeopardize their well-being and in any way destabilize the service. We do invest a lot into the infrastructure, so we’re definitely putting our money where our mouth is. We’re running our own cloud. We invest a lot in the support systems — software and people most importantly — making sure that you have 24/7 coverage … that people will be woken up in the middle of the night whenever something serious happens.
These are people trusting us with their businesses, and if their phone line goes dead, it’s not a good thing. If things do happen, which is hopefully not a very common occurrence at this point, we have procedures that are well-defined.
Time of response is extremely important. So if there’s an outage, we will immediately post updates to the website to keep them up to speed. We are active in social media so we use Twitter. We use Facebook, our own website, anything we can to make sure that we’re not asleep at the wheel and that we’re still here and the service will be brought up as soon as humanly possible.
Invest in quality.
We make it easy for people to refer people to the service. But really the most important thing is that we’ve invested heavily into a product that will be liked. You can’t pay a person enough to have them recommend something that the person doesn’t like. The product speaks for itself. So we just make sure that it does what it’s supposed to. It does it well. It does it reliably, which is immensely important for our customer base. The rest takes care of itself.
The general position is saying, ‘Look, while we’d really to grow and take over the world and have tens of millions of customers, none of that is going to happen unless we keep our existing customers happy.’ One positive reference may bring you another lead. One negative reference can lose you 10 leads, if not more. Just continue the emphasis on quality of service.
Invest in your vision.
We’re not trying to veer out from our main task, and main task is enterprise-level communications to small businesses. We’re not trying to bring them additional services. We’re not trying to be a generic cloud platform. We’re not trying to become a broadband provider or call center operator or any of those things. Many of our competitors might be going into those tangents under the belief that there is low-hanging fruit there, and maybe there is. But I believe in focusing.
It’s fairly rare to find a world-class football player who is also a world-class baseball player. People have tried. Most of them did not succeed at the other sport after owning one sport. I feel the same thing here. If you want to be really, really good at football, play football. If you want to be really, really good at business communications, do business communications. We’re at the size where if we are to retain our world championship status, we need to work really hard.
How to reach: RingCentral Inc., (888) 528-7464 or www.ringcentral.com
To follow the trends in the market, Marc Blumenthal decided that his company needed to broaden its product and service offering for customers. While it was easy to make this decision from an organizational standpoint, the real challenge was moving this idea from thought to reality.
“Everything tends to have a ripple effect,” says Blumenthal, the owner and CEO of Tampa-based technology services firm Intelladon. “Every little decision that gets made, I have to get a few dozen people to change the way they do things a bit.”
By implementing new ideas to drive growth, Blumenthal has led Intelladon’s expansion from a handful of employees into a 40-person company.
Smart Business spoke with Blumenthal about how he floats new ideas to take hold in the organization.
Build critical mass.
Usually I’ll bring an idea through some level of gestation. I tend to incubate things first a little bit from the team as a whole until I get some critical mass around the idea and some validation.
I might talk to some of our customers. I might talk to some fellow CEOs. I have a whole lot of people that over the last 25 years I’ve gotten to know and I can run things by.
Then I bring the team in. The benefit is that I don’t disrupt the team on every idea that ever comes up, because there are many more ideas that get generated that never even get evaluated and still fewer that actually get implemented. The penalty I pay is that I have to work backward to catch them up when an idea has reached critical mass and it’s time for them to get involved. But if I got them involved in every idea that came up, they would never have time to do their jobs.
Involve your leaders.
I usually will meet with the person who has the greatest knowledge of subject matter expertise on that topic and vet a few things with them along the way. Usually one member of the leadership team has a little more experience in the area I might be working on. I sit down with them over lunch or coffee and brainstorm a little bit, and say, ‘Well, what would you think if …?’ If the feedback is positive I will take it to my COO, who is really the guy that runs the company on a day-to-day basis. His name is also Mark, but I call him the anti-Marc. He’s the opposite of me. I pull him out of his comfort zone and he pulls me back. In the end, we end up in a good place between the two of us.
Present ideas with a purpose.
My approach has been for every 10 ideas that I have, I may only present two or three, and only one may make a lot of sense. Don’t present all of your ideas, because people have a tendency to think that all of your ideas are supposed to be run with. Ideas need baking. In the early days of the previous company, I used to throw out all these ideas and we’d have a brainstorming session with the leadership team. Then I’d come in the next day and a couple of people started working on some of them. I’m like, ‘What are you doing? That was just an idea.’ You have to be careful about discerning between what ideas are and what you are actually asking for. So I try to be very careful about what I put forth and when I put it forth.
Help people to run with it.
It’s really important to give the team the opportunity to change, refine and make the decisions to make it their own, what gets changed and what doesn’t. At that point, you can step away from it and it’s no longer your idea, it’s the company’s. It’s the team’s. Once that happens, you are almost assured of success.
I try and pull the team along a little bit. I try to be a little bit disruptive, but not too disruptive. I like to be the sand in the oyster. So a pearl forms because I’m rubbing up against them, pushing them a little bit. We end up being a little bit better, growing a little bit faster, trying a few new things that might not otherwise get done or get tried if I wasn’t pushing and pulling a little bit.
Part of that is I’ve learned that if you give the team the power to make great decisions, they elevate to that in most cases and they actually do a better job than I might do by infusing myself in a lot of decisions.
How to reach: Intelladon, (813) 814-2345 or www.intelladon.com
Think of all the great successes in history: the American space program that landed men on the moon, the construction of the pyramids of Egypt and the triumph of the Allied forces during World War II to name a few. What do they all have in common? General MacArthur didn’t say, “Hey, let’s send a few boats over there and see what happens.” Nor did a handful of ancient Egyptians decide to drag a few stones in place to see how they would look. These and almost every significant achievement in this world came about because of meticulous planning.
When it’s time to get serious, you must have a master plan. And when you’re talking about business and the financial stakes are very high, it’s essential to give yourself every chance at success. As John Wooden, the legendary UCLA basketball coach once said, “Failing to prepare is preparing to fail.”
No matter what issues I’m dealing with — business, family, or my physical and mental health — it always comes down to goal setting. What that entails is being honest with myself and looking at my successes to see how I can capitalize on the things I did right and my failures, to determine what I need to change to avoid repeating them.
Whether it is quiet time on your porch, or during an evening walk, or an hour or two early in the morning before the kids are up, be sure to make time for yourself. If you don’t find a place to address the big issues of your life, including business, the months and years will tick away and nothing will ever happen. Start by writing down your goals, as well as your strategy. We can say to ourselves that we’re going to do something, but until it’s written down, it is not imprinted in our brains and you’re sure to lose momentum before you’ve even started. Remember that without a plan on how to actually achieve your goal, the goal itself becomes absolutely meaningless.
As you outline your plan of attack, make it a priority to be a leader, not a follower. Of course we’re all aware of the shaky economy the past few years and how it has taken more than its share of business casualties. But the truth is that even in good times, unless you make a concerted effort to stay current and relevant, it is very easy to get swept away in the tide of changing tastes, competition and new ways of conducting business.
In 2011, fitness equipment was among my top sellers, but I ran into a big problem when some of my suppliers informed me they were in imminent danger of closing their doors. They simply didn’t have enough business from others to keep going much longer. Because of the scale of their operations, I wasn’t able to keep them afloat by myself. I wound up in the ironic position of possibly losing the ability to deliver products that were in great demand. So what was I to do? I sat on my back porch and came up with new goals for my business.
First, I looked for new fitness equipment suppliers. Next, I looked to diversify, seeking out both new fitness products (from suppliers who could still assure delivery for me), as well as new product categories that could potentially make up the difference in my company’s revenues. In the end, I found a new supplier for one of my existing exercise chairs and also found a company that could deliver a new, high-end chair, thus expanding my reach into a different market sector altogether.
Opportunities are always there, but you have to proactively look for them or you’ll be left behind in the dust. Dare to dream big, then go out and draw up your best game strategy. While you are doing so, be mindful to learn from past mistakes, and be flexible enough to adjust on the fly, always having a contingency plan ready. You can’t avoid bumps and bruises along the way, but never accept failure. If 2011 was a good year for you, wonderful. Now plan for 2012 to be a great year.
Tony Little is the president, CEO and founder of Health International Corp. Known as “America’s personal trainer,” he has been a television icon for more than 20 years. After overcoming a near-fatal car accident that nearly took his life, Tony learned how to turn adversity into victory. Known for his wild enthusiasm, Tony is responsible for revolutionizing direct response marketing and television home shopping. Today his company has sold more than $3 billion dollars in products. Reach him at firstname.lastname@example.org.
When Ken Kemerer looks at the 80 percent revenue growth SilMix Ohio has achieved since 2001 when it was purchased by Wacker Chemical Corp., he gives a lot of credit to getting involved in industry associations.
Not that it was the only factor ? a rebranding effort three years ago was also part of the mix ? but being an active member of industry groups was a must.
“That’s where the networking is huge,” says Kemerer, director of SilMix Ohio, a manufacturer of custom silicone compounds. “We have added 50 customers since 2009, and we truly believe this branding and networking has resulted in the new customers.”
To get going with industry group networking, you need to research the organizations through universities, libraries or the Internet.
“In the rubber industry for instance, the American Chemical Society is an umbrella group that has a rubber division and a subset for regional and local groups,” Kemerer says. “You want to support financially and technically through manpower and participation all those groups. We support basically all those groups in North America now.”
In terms of support, it means more than paying membership fees.
“You can sponsor their websites, sponsor their fundraising, their golf outings and donate to their scholarship funds,” he says. “The regional groups have technical meetings. You can give technical presentations at their meetings. The technical service is important because other companies may not have an expert on site and you can provide that technical side of the industry.”
The fact that you are at a regional conference giving a presentation and answering questions about your specialty goes far in establishing your brand.
“It’s all about the networking in getting the name out, so that if people are not familiar with your specialty, and they have questions, yours will be the first name they think of,” Kemerer says.
One thing that obviously helps the initiative is encouragement from company ownership.
“Our owner is a corporate citizen, which means we have a responsibility to the industry,” he says.
This attitude should underlie your involvement in the industry groups ? you are not just giving a presentation as a sales pitch for your company.
“The industry groups had been the only place to get knowledge unless you hired somebody who had been trained by somebody else,” Kemerer says. “As the Internet has come along, and online training, they have changed, so the industry groups are really providing networking opportunities on a high level. It’s almost more of an awareness than technical training. These opportunities are out there.”
With your interaction in the industry groups, you are advancing your knowledge throughout the sector.
“There are not that many technical experts out there if you are in a niche,” he says. “Yes, it’s self-serving when you present, you may get your name known as somebody who has the answers, but it is not just about that. It’s also about corporate citizenship.
“There are many opportunities to present new and innovative things if you can in particular areas such as the medical field. That’s on the cutting edge as is helping customers in the industry become aware of new ways to do things or new developments.”
One other fact to keep in mind while attending or presenting at a conference is that your competition may be present, and while it is wise to guard what may be trade secrets, with care, you can still deliver an effective presentation. Don’t use it as a soapbox to show your differentiation.
“We do see competitors, but we see them more on a regional level,” Kemerer says. “We all have the same general purpose products. Some competitors may also be your customers ? so you want to keep good relationships, a good working knowledge and make sure you don’t cross any of them.”
How to reach: SilMix Ohio, a division of Wacker Chemical Corp., (330) 628-5017 or www.wacker.com/silmix
Formula for rebranding
If your company can’t decide where your rebranding should start, do what Ken Kemerer did at SilMix Ohio: look to your “Pillars of Success.”
“We identified our ‘Pillars of Success,’ that’s what we call them ? our customer service, our technical service and our flexibility, and we made them our focus,” says, Kemerer, director of the custom silicone compound manufacturer.
With that simplified mission statement, it gives you a basis to build a branding and marketing effort that will represent your company well.
“We built three different advertising ? let's say modules ? based on those,” he says.
“Identify your pillars of success, and then customize your advertising both visually and verbally along those lines so you can publish it in different media ? magazine, newsletter and website. Have a variety of pictures, so they don't get stale. Use text that describes each pillar of success.”
Then to help support the industry groups, use the same collateral to expand your brand to that outlet as well.
“It worked out real well for us for the past three years, and now it is a good time to have a new angle and still build off the same things ? and more as video opens new opportunities,” Kemerer says.
Integrity. Peace of mind. Working hard. No surprises. These aren’t just the types of adjectives Dave Michelson hopes his employees, customers and investors associate with National Interstate Corp. They are the very words that these groups used to describe the company when asked to participate in its recent rebranding campaign.
“We developed focus groups and we hired a consultant, just getting descriptive words about what it means to be working here, doing business with us,” says Michelson, president and CEO of the transportation insurance company headquartered in Richfield, Ohio.
Rolled out in 2011, the people-focused branding campaign features the new corporate tagline “an insurance experience built around you.” This line aptly sums up Michelson’s strategy for growing National Interstate since he became CEO in 2008. This involves continual growth through new value-added products and services for customers.
“People in businesses have to buy insurance,” Michelson says. “So it’s really just a matter of finding the niches that we want to be in, attracting new customers and retaining our current customers.”
Here’s how Michelson leads National Interstate and its 494 employees to take advantage of strategic growth opportunities.
When you reach a certain size as a business, growing in new niches is no longer enough to significantly impact sales.
“When we were a smaller company, way back in the ’90s and didn’t have a lot of sales, we were growing rapidly on a percentage basis year over year, but you could move the needle pretty easy by writing one new $10 million program if you were only $30 million in overall sales,” Michelson says. “Whereas when we got bigger and bigger, it’s harder to move that top line needle. We recognized that while we’re still innovators and creating new products and product extensions, in order for us to continue to profitably grow we needed to look at other ways to do it.”
So in 2008 and 2009, Michelson gathered a handful of senior managers from his leadership team to begin searching for acquisition opportunities. In this initial evaluation process, there were several things they looked for in a partner. First, they wanted to marry up. Michelson and his team specifically looked at acquiring expertise in industries that complemented or enhanced the business’s existing insurance products so that they could offer customers a deeper value proposition.
“One of my successes is that I married up,” Michelson says. “I think if you do that, you’ve got a fighting chance being a world class company that I think we are.”
You also need to make sure that your companies have aligned interests. So just like in marriage, it’s important to partner with companies that are honest and transparent about their goals. The rewards are much greater when you take the time to find the right partner instead of rushing the process only to discover serious differences in opinion down the road.
In August 2009, the company began M&A discussions with Vanliner Insurance Co., a moving and storage industry insurer based in outside of St. Louis, Mo. Michelson knew that National Interstate was in the running with several other companies that were looking to buy the business. Yet you don’t want to use the preliminary period just trying to win over your potential partner. It’s also about making sure that the match is right by sharing goals and developing an understanding about expectations of the partnership.
“You’ve got to kiss a lot of frogs to find the prince or the princess,” Michelson says. “So we do that and it takes a lot of time from the entire senior management, … but it’s one of the ways that we’ll be able to strategically and profitably grow this company.”
As you get more serious about the opportunity you can ratchet up the level of involvement from your team.
“If we want to forward with it, we’re going to involve at least another half a dozen senior managers if we think it’s going to be taken to the next step,” Michelson says.
Because the company doesn’t have an M&A department, it spent months performing due diligence prior to closing the deal. However, this was an important step in ensuring a smooth transition and identifying potential roadblocks moving forward.
“We knew that there were some things that we were going to have to do and we did them,” Michelson says. “There were a few small bumps, but by and large we had no major surprises.
“Ultimately they liked us better, and we actually liked them from the get-go. They were very straightforward, very honest. I think we pride ourselves on that as well. So we hit it off.”
Build a team
In June 2010, the company acquired Vanliner from its parent company, Unigroup Inc., for approximately $130 million. After taking control of the business in July, Michelson knew it was going to be challenging on the home front. Inevitably, merging the companies resulted in staff redundancies and there were people who now had jobs that weren’t relevant to the new strategy. In both cases, those employees received a severance package.
“We shed some premium out of their overall portfolio because some of their business we were actually already doing here in Richfield, Ohio,” Michelson says. “So we saw no need to compete with ourselves. As a result, we right-sized that business by about 40 percent downward, but then we had a great moving and storage platform in St. Louis.”
As you make changes within the new company, you have to be cognizant of employee feelings, especially when it involves job restructuring or making cuts that can negatively impact morale. “You want your communications to be straightforward,” Michelson says. “You don’t want to mislead anybody. You have to understand the sensitivities that are involved.”
At the same time, you need people to buy into why the changes are an important part of the long-term growth strategy. Once the ink is dry on an acquisition or you begin to pursue a new niche, it’s your employees who will have to work together carry out the changes.
One way to unite everyone in the success of the company as a whole is to give them the same scorecard. Michelson says the company has all employees on the same bonus plan matrix, which is based on underwriting profitability and how the company performs on sales relative to plan.
“It’s a beautiful thing,” he says. “If we’re all working together towards the same goal and they move those numbers in the right way, everyone benefits to the same degree because they’re on the same plan. That financial aspect I think carries forward into how people interact and work together in the workplace.”
Transparency about results throughout periods of transition is also critical. It not only motivates employees as they see progress but encourages camaraderie as they spot challenges together. When everyone is aligned on companywide performance goals, they see the value of helping out where they are needed instead of just doing their jobs.
“We talk about our results at our monthly employee meetings,” Michelson says. “It’s very transparent and open so everybody knows where the results are and who is driving them favorably and unfavorably. It also creates an environment where if somebody approaches a coworker and needs some assistance, they’re more inclined to drop what they’re doing and help them out.
“They know if there is a product that’s not hitting on all cylinders, in a nice way, they might say to that product manager even walking by in the hallway, ‘Hey John. Hey Sue. What’s going on with your product? You know are you addressing this or that?’”
Lastly, it’s important to articulate the vision of the company so that as more people come on board and changes are made, employees see how they fit into the picture. Part of the reason for the company’s recent rebranding strategy was re-engaging people in the vision, mission and values that continue to drive company’s success and strategy for new growth opportunities.
“We’re not changing who we are or our culture,” Michelson says. “It’s really just more about confirming how we feel about ourselves and how our various constituencies feel about us. So we’ll use this in ads and other things, and it will be fun and it’s something that the employees will own. I found the effort and the tagline to be interesting in that we’re not one-size-fits-all.”
Michelson says that the company takes a conservative investment strategy when pursuing new niches in order to avoid growing irresponsibly.
“Growing is fun, but growing in the wrong niches or growing in the right niche at the wrong pace will generate very bad results,” Michelson says. “That’s not fun and it’s not fair to shareholders. Having that discipline on the operations side is extremely important.”
This strategy has helped company establish a footprint in a number of underserved and difficult niches where it thinks it can make a difference relative to its competitors long-term, for instance, in insuring high-hazard types of vehicle exposures.
You want always to be pursuing opportunities but with the right knowledge and understanding of your business strategy and your capabilities.
“We have to grow our competencies, our skills, our employee base with passion but also in a somewhat patient manner because we want to attack it every day,” Michelson says. “We don’t want to come out passively, but you’re just not going to be able snap your fingers and change some aspect over night. You want to stay on it every day.”
To accomplish this, Michelson relies on his management team to help him evaluate growth opportunities from all sides.
“The feeling that I get in my gut is usually the right feeling but you want to confirm it,” Michelson says. “I’m more of a collaborator in my style, so I tend to get the views of others on my management team. I might not always agree with them, but I seek them out. It helps you make better decisions and more grounded decisions.”
Equally important to having a capable management team when pursuing growth opportunities is having a company culture that embraces innovation at all levels, which casts a wider net for success.
That’s why Michelson tries to step away from the innovation process until his managers have already performed due diligence to evaluate a new niche in terms of size, competitors, barriers to entry, technology and other areas. By letting them drive that part of the business, he can be more long-term in his focus.
“The new business growth and finding new niches is much deeper in the organization, where it should be,” Michelson says. “We’ve got professionals who are going out to industry trade shows and talking to people who run businesses that are in new niches. We’ve got our HR function using recruiters and getting leads on people out in the industry, and we’re getting leads from customers who are really pleased with our service.”
Michelson says he tries to keep an open mind whenever his managers want to enter a new niche, specifically because he knows they’ve done their homework. The key is to ensure that the company grows responsibly, but doesn’t rule out an opportunity just because it’s unusual or challenging.
“If somebody comes in with new or different, I’ll let them show me what new or different is,” he says. “We’ll try things that are well thought-out and if they don’t work we’ll adjust them.”
As the company grows its value proposition, its revenues have followed suit. The company has also achieved double-digit raises for its shareholders annually since 2005, and generated $438.6 million in revenue in 2010, a year-over-year increase from 2009. The financial results of the Vanliner deal are also already meeting expectations just one year later.
“So we’ve opened up our minds as to the different ways you can go at niches and not try to just have one playbook, but have something that’s pretty flexible and scalable,” Michelson says.
How to reach: National Interstate Corp., (330) 659-8900 or www.natl.com
1. Partner with businesses that add value.
2. Engage people to drive growth together.
3. Be patient evaluating investment opportunities.
The Michelson File
President and CEO
National Interstate Corp.
Born: Grand Rapids, Mich.
Education: Bachelor of science degree in business administration, Miami University; master of business administration degree, University of Alabama at Birmingham, 1991
What part of your daily routine would you never change?
I wouldn’t change my 5 a.m. alarm. With the early start, I’m able to work on top priorities before the meetings, phone calls and e-mails.
What makes a good culture?
You want to have fun working with the people that are here versus you see somebody walking down the hall and you just want to walk the other way. We don’t have that here, but I’ve been at companies where it existed and it wasn’t fun. You didn’t want to be there as much because it just wasn’t comfortable being in that building around some people that you just didn’t want to interact with. So the group we have here is an interesting group. It’s a fun group. We’re not perfect and we’re looking to get better every single day here, but the people are our secret sauce.
If you could have dinner with one person you’ve never met, who would it be and why?
Bill Gates. I’d be interested in his perspectives on entrepreneurship and running a fast-growth company. But, of as much interest, I’d want to learn about his views on philanthropy as he gives away the vast majority of his wealth.
Before Zalmi Duchman founded The Fresh Diet in 2006, he’d been on the other side of the employee accountability problem.
“I was the guy taking the extra lunch and taking the extra break and kind of slacking off where I could as a worker,” says Duchman, the founder and CEO of the Miami-based fresh food delivery company with 160 employees and approximately $18 million in revenue.
That’s why in running his own company, Duchman understands the importance of creating a culture that motivates people but still keeps them accountable for progress.
“By realizing that I’m too laid back, I’ve been trying to find that middle ground,” he says. “I don’t want to be this strict company and not a fun company, but I don’t want to be this company that’s not getting anything done because everybody is partying all the time.”
Smart Business spoke with Duchman about how to create this middle ground by improving communication.
Have an open-door policy.
As long as the managers or myself or the other executives are sitting at their desks or they’re online or they’re on their BlackBerry, and they are in real time responding to issues and not pushing it off 24 hours and 48 hours, that will go a long way in making sure there is communication, because you’ll nip it in the bud right away. If you see there is an issue, you can narrow it down to how did this issue happen and who didn’t communicate. And sometimes it’s not a communication issue, but a lot of times, it is.
I don’t come into work in a suit and a tie every day, but I make sure that I’m here. I make sure that there’s an open-door policy. I make sure that everybody knows that even if your title is customer service, at the end of the day if you have a food request or if you have a suggestion in marketing, everybody wears ten hats. Because the guys upstairs and the executives, we don’t just stick to what we do and we all put our hands into everything else, I think that that’s created a culture where people know that if they have an idea they’re not going to be shunned. They’re not going to be told to shut up. It’s very, very open and everybody feels like the business is theirs and they feel like it is one big family. They feel that if they think there is a problem they won’t be scared to say it.
There’s no question that being more involved in day-to-day projects and having a better handle on it and making sure that everybody’s communicating every day has turned into growth, dollars and cents. If you’re on top of the situation, then people can’t really slack off as much. They have more of a drive if they know that the CEO is going to get down to the nitty-gritty instead of asking once or twice a month about projects. It’s also establishing weekly meetings and establishing better lines of communication. It’s definitely helped the projects move faster and the overall quality of the team is better.
I want to have that culture of it’s not based on how long you sit at your desk but what you accomplish. But at the end of the day, you have to have a median. Just managing projects better, keeping a tighter ship by using software online like Basecamp or project management software, that allows me to see that the communication that’s being given is actually being followed. So making sure that I have my hand in more of what’s going on has helped make the workplace smaller in a way.
Be proactive on issues.
When there are very few problems, it means that the communication is flowing and it means that people are talking to each other. If there is a problem, it’s almost always going to come from communication, because this person didn’t tell the correct person or this person thought that they could do this themselves and didn’t bring it to someone else. So I feel that monitoring on real-time basis, especially in a business like ours with so many moving parts — if you’re monitoring the issues of the day, you’ll know right away if there are communication issues.
Usually what would happen is that a company would be in a bad place and then they would realize that, oh my God, we’re in a bad place and it probably happened because no one is communicating and it got out of control. I would tell them to stay positive … and deal with it. Don’t continue to put it off. Establish weekly meetings. It’s a lot easier to talk about it than to implement it, but I feel like you ‘fake it till’ you make it.’ So even if you’re in that bad place, just make a decision that this is going to change and it’s going to change today.
How to reach: The Fresh Diet, www.thefreshdiet.com or (866) 373-7450
As the new president of Burger King Corp.’s North American business, Steve Wiborg was charged with leading a brand suffering from declining sales and a limited menu. Under siege from a market flooding with fast food hamburger competition, it was struggling to keep its foothold in its narrow niche of 18- to 34-year-old male burger consumers.
Yet at the same time, the company was initiating a four-pillar strategy to enhance its menu, overhaul the restaurant image, streamline operations and improve marketing communications, even phasing out the company’s Burger King mascot. Wiborg had the opportunity to apply his 20 years of experience in the Burger King system to help the No. 2 hamburger chain start fresh and expand its appeal.
“When we’re looking at a larger consumer base, we’re really expanding our target to Quick Service Restaurants,” says Wiborg, who became the president of North America and executive vice president of Burger King Corp. in October 2010.
“Any of these changes has to do with focusing on 100 percent flawless execution. That’s really what everything is focused on right now in order to make everything we do or any of those four pillars come to life.”
Today, Wiborg is leading the roll out of these initiatives across 7,200 restaurants. Here’s how he drives execution to help is team deliver results and grow Burger King as a quick-service authority.
Engage your team
To make the brand more competitive, improvements in the new strategy called for the company to add new products, such as salads, desserts and breakfast items, as well as improve upon some existing products, such as a new french fry recipe. Wiborg was also responsible for implementing the company’s new “20/20” design at all of its North American locations, which would create a more attractive and brighter environment for guests. Coming in, he and his leadership team examined research to see where the brand stood in terms of cleanliness, speed of service, food quality and operations.
“That’s always going to be a challenge as we look to innovate off of different platforms and make sure we’re looking at our opportunities from competition,” he says.
But to make the sweeping changes the brand had in mind, Wiborg knew he needed to go outside of corporate to involve people in the process, especially because 90 percent of the company’s restaurants are owned by franchisees.
“It’s really our restaurants and employees that make the change in the end,” he says.
In the past year, Wiborg has added numerous programs and initiatives designed to increase collaboration between franchises and the corporate office. By inviting more employee and franchisee participation, it’s been easier to get people on the same page with consistency and alignment on goals.
“It’s a big system … and getting them all to agree is never going to happen,” Wiborg says. “You get a majority of them to agree, and as long as the other group understands where you are going and what their part of it is, then you’re going to have the best success.”
Because menu innovation was a change that would affect many franchisees, who would end up implementing it at their restaurants, Wiborg selected a handful of franchisees that had been in the system a long time and brought them to the company’s headquarters in Miami. Along with the brand’s vendors and suppliers, they spent three months working with R&D to update the menu to appeal for a broader audience.
“We had to take a look at every single item on our menu and make changes,” he says.
Recent menu additions include everything from funnel cake sticks to a Chef’s Choice burger and a variety of breakfast menu items.
Wiborg says that collaboration with franchises, combined with the initial research the company did in 2010, revealed the areas of the company’s menu and marketing strategy that had strong appeal — flame grilling and the Whopper, for example. But it also helped clarify areas for improvement and opportunities to reach more consumers, such as adding a dessert platform with soft serve ice cream.
Again, many changes in product often come back to execution. For instance, the decision to start cutting lettuce and onions in restaurant creates higher quality sandwiches but also requires more labor.
“There are a lot of things that go into the menu innovation process and how we roll that out,” Wiborg says. “Engagement of our franchisees has helped every step of the way.”
One way the company has improved employee engagement is by making sure everyone works together to set priorities rather than having the corporate office in Miami hand them down. Wiborg says that engaging your team is vitally important.
“I think you’ll be pleasantly surprised at the engagement that you get from your employees when you make them part of the process and not just the execution part of the process,” he says.
To increase collaboration between corporate and the restaurants, the company created a marketing council, a restaurant council, a people council and a diversity council, each made up of approximately 13 franchisees and corporate members.
While Wiborg thought he’d initially have to twist some arms to get people involved, it was actually the opposite. It was just a matter of ensuring the councils were formed to represent a diversity of opinions. So to get a well-blended group, the company’s directors picked half of the council members and let the National Franchise Association, which a majority of the system belongs to, choose the other half.
“The great thing is there is a wide range of thinking on these councils,” Wiborg says. “It’s not everyone thinks the same and we all move cohesively. But if we can come to agreement in these councils of how to move the brand forward, I know we can move the system forward.”
For example, when the people council recognized a new way to improve communication at restaurants through virtual learning, the company introduced the initiative in 2011.
“It has been a great way to actually get things done within the system because it’s not just me of Burger King in Miami saying that this is the way we should do things,” Wiborg says. “It’s a group of 13 franchisees plus Burger King that all across the United States and Canada are coming up with the ways to move forward.”
To build a better and stronger brand, Wiborg also knew that the company needed to narrow the range of excellence. So another challenge of execution was getting franchisees and employees operating in one consistent way across the system.
“We have all levels of excellence,” Wiborg says. “You may go to one Burger King and it’s your favorite Burger King, and then you go to another one and it’s less consistent. So it’s really about consistency.”
Wiborg says that for any brand that has national or global locations, improving brand consistency is often the result of how much support people have out in the field.
“So when you’re talking restaurant image and you know that that’s a very capital-intense decision, in order to move in the right direction, it was about coming up with programs that enable people to do that type of stuff,” he says. “It’s one thing to say we want to do 1,000 reimages in here in 2012. It’s another thing to be able to get there. So just because people know what I’m doing and I’ve been in Burger King a long time, you have to create ways for people to execute.”
That is true for each one of the four pillars the company is implementing. So to help franchisees and employees execute the numerous changes, the company launched a field optimization restructuring program in September to double its number of sales and operations coaches nationwide.
“When you look at operations, it’s one thing to say, ‘We want to have cleaner restaurants serving the best food with the best people and the fastest service,’” Wiborg says. “It’s another thing saying, ‘I’m going to double the field staff for Burger King.’”
Instead of having 80 field people working on operations, the company now has 160 people helping franchisees identify strategies to improve their businesses and offering field support.
“If I’m serious about being the best restaurant and operations company, I think I need to back that up by putting more people in the field working on becoming the cleanest restaurants, the fastest service, the best quality service, and that’s what we’ve done over the last six months here,” Wiborg says.
This added support has helped people stay focused on execution across the board so that no one area or location suffers. If one restaurant needs more help, the company has available resources to accommodate people.
“We have more touches now and we have more people in order to get that more consistent brand up there,” Wiborg says.
Be part of the process
Even through Wiborg felt employees trusted his leadership in implementing changes because of his history with the organization, he also knew getting them to buy in wholeheartedly would take personal investment.
“You have to be part of the process and lead throughout that process in order to be a good leader,” he says. “It’s one thing to say you want the process, it’s another thing to be part of the process.”
To help restaurants embrace the new menus, store images, marketing and operational improvements, Wiborg has been actively involved in discussions and implementations with restaurants. When they began to do the reimaging, Wiborg went out and visited franchisees in a 13-city tour. In the meetings, he worked with franchisees to take them through the new programs and help them understand the timelines, details and execution process.
The company did the same thing with the menu platform rollout. Wiborg often invites groups of franchisees from the NFA or larger franchisees in before rolling out new programs to get their feedback and figure out what support they need to be successful.
“I roll them out for them first and they help kind of shape things a little bit and work on the communication piece,” he says. “So it’s not just about Burger King. It’s about our franchisees and Burger King. If they are more successful, we’re more successful.
“The key to success of Burger King is helping all of our franchise businesses be more profitable and the best QSR business out there. Their engagement, the councils, working hand in hand helped us overcome that and get everyone moving in one direction.”
Wiborg says the four pillars — menu, restaurant image, operations and marketing — probably won’t change but will continue to evolve at different levels. For instance, the restaurant reimaging has already begun, with much of the progress anticipated to take place in 2012. On the other hand, menu innovation is something that Wiborg says is ongoing.
“I think Burger King is two things,” he says. “One is it’s a restaurant company and the second is it’s an operations company.
“Our biggest opportunities are moving all of those four pillars constantly and making those changes with the menu innovation, restaurant image and so on.”
While the company’s global revenue for the third quarter of 2011 was slightly higher than in 2010 — with $608.1 million — only time will tell how these changes play out and how consumers and employees will embrace them.
“I’ve seen a lot of success in the building blocks of what’s to come,” Wiborg says. “Now it’s about the executing part over the next year.”
How to reach: Burger King Corp., (305) 378-3000 or www.bk.com
The Wiborg File
President of North America and executive vice president
Burger King Corp.
Education: B.S., Northern Illinois University
Burger King fast facts:
- Founded in 1954, Burger King is the second largest fast food hamburger chain in the world.
- The company operates more than 12,300 locations serving more than 11 million guests daily in 76 countries and territories worldwide.
- In 2009, BKC was recognized by Interbrand on its top 100 “Best Global Brands” list and Ad Week has named it one of the top three industry-changing advertisers within the last three decades.
- In October 2010, the company was purchased by global investment firm 3G Capital, which is focused on long-term value creation.
Wiborg on menu innovation: Every time we roll out a menu, we look how that fits into our brand. The different things that we’ve rolled out, whether it be toppers or different products or Chefs Choice Burger, it really needs to take the place of something else but be a higher quality. … So it really doesn’t stretch our brand it really stretches the ability for our consumers to want to go to Burger King.
1. Get your team engaged in key changes.
2. Provide support in areas of focus.
3. Be personally involved in the transition.
In the late ’90s, Jim Griffith found himself among a group of young executives being groomed to lead a $2.6 billion company. With five senior-level employees at The Timken Co. — including the CEO at the time ? preparing for retirement, the succession process was in full swing. But what seemed like a great opportunity was soon lost on Griffith and his peers as the process progressed. They became increasingly aware of one alarming red flag.
“The bottom line was that the company technologically was the best in the world,” says Griffith, who is the president and CEO of Timken today. “Our products from a quality and reputation were the best in the world, and we couldn’t make any money. Our people from external validation were the best in the world, and we couldn’t make any money.”
As a result, the next generation of leaders found themselves harboring some serious doubts about Timken’s future as a profitable company.
“That’s a really troubling thing when you’re saying, ‘OK, I might have the chance to lead a Fortune 500 company and I’m not sure I want to, because it’s not making any money,’” Griffith says.
When he became president of Timken in 1999 — he was promoted to CEO in 2002 — Griffith and his top leaders embarked on what became and intense transformation to reorganize the company around its customers. Here’s how they took a 100-year-old company and reinvented it to make it profitable.
Define your value
One of the first things Griffith and his team recognized was that the company was organized around its products, a strategy that went back to its roots.
“What we concluded was that the company that was founded by Henry Timken in 1899 to manufacture his invention called the tapered roller bearing — effectively it’s a wheel bearing in a car — over the 20th century had become so product focused that we’d forgotten that the reason for being in business is to create value for customers,” Griffith says. “And when we then stepped back and said, ‘Where are the places that we create value for customers?’ they were very different than where the product-focused strategy drove us.”
One of the first moves the company’s leadership made was to restructure Timken around its markets instead of its products. Instead of having a bearing business and steel business, there was an auto business, an aerospace business, an industrial business and a precision steel components business, and the presidents were asked to focus on creating value for customers rather than maximizing sales.
“That led us down a learning journey of where does Timken really create value,” Griffith says.
The company went through a process of looking at each of its markets and asking, “How do we make money in this market?” and “What’s the value proposition?”
“Again, it was a real learning journey, because in some cases, what we found was we had to change the way we operated to be profitable,” Griffith says.
He and his team also utilized a rigorous marketing analysis to evaluate Timken’s relative profitability and relative differentiation in its current markets. One thing that they discovered was that while the company made great products, its products were valued much more in some markets than others.
“We make steel or we make bearings or we make gears,” Griffith says. “We make your car not break down. We make airliners land safely. We make jet engines more efficient. We make it possible to drill for oil 40,000 feet under the ground. That’s what we do. And there are some of those places where we were selling our products that you didn’t care. You don’t really care if you have a Timken bearing in your car, because the difference between Timken and our competitors is that if you have a Timken bearing, your car will last for a million miles. Now how many cars have you had that last a million miles? So we had competitors that were designing lower performance products, cheaper products, and putting them in those applications. And you’re happy with that.”
Early on, Griffith says the company had made far too many decisions about markets based on gut feel instead of analytics. But strategic marketing tools can be extremely valuable in helping you make decisions to guide the direction of your business.
“We learned a tremendous amount by going out and finding the best analytic tools for driving our marketing process,” he says. “When we finally did that, it made some tough decisions, like what to do with the auto industry, amazingly easy. I wish we had done that five years earlier.”
For Griffith, there were a couple of significant takeaways from the marketing analysis. First, Timken was at its heart a technology company. So to create value for its customers, the company needed to find the right technical problems to solve for them.
“When you are on an airplane, and you’re coming in for a landing and that tire hits the tarmac and it goes from zero to 160 mph in a split second, you don’t want anything but the best,” Griffith says. “So the difference is that we have maybe 15 percent penetration in the auto industry and we have effectively 100 percent penetration in landing wheels. And that learning about where are the places that Timken can create value was fundamental in most of the first half of the last decade.”
The challenge was finding ways to take the company’s core technical capability to market in a way that nobody else could and that customers would buy into — in other words, leveraging that differentiator to enhance existing products and services and expand into channels and markets where it can be competitive.
“In worlds of technology, we are the best in the world,” Griffith says. “Learning to translate that into business models and products that create customer value that’s differentiated was a critical learning for us.”
Part of that involved moving into markets or investing in areas where it could differentiate itself from competitors, such as aftermarket (replacement part) opportunities.
“The bearings in a car — one in 10 gets replaced over the life of a car,” Griffith says. “The bearings in a steel rolling mill get replaced every year. We spend a lot more time designing new products for rolling mills because there’s an opportunity for our technology to make them last longer in a way that is more valuable to the customer. They’ll pay for it and there is an opportunity to help that customer with replacement products.”
By investing in its industrial aftermarket segment, the company has grown that segment to $1 billion in sales.
“So our most profitable segment, we’ve grown five times and half of them are products that weren’t in our portfolio in 2000,” Griffith says.
The other piece is to exit markets in which you just can’t compete and be profitable.
Even though Timken was historically an automotive company, it could not get its auto market to make money on an ongoing basis. So in 2007, the company made a radical shift under Griffith’s leadership to transition out of the market. When demand for the auto market dropped in 2009, it also sold a large piece of its auto business to a Japanese company and made large cuts in auto support services.
“That put some cash in the bank for us and changed our profile,” Griffith says.
From a markets standpoint, the overall change in portfolio has been dramatic. Today, it includes markets such as mining, heavy transportation rail, heavy truck, the agricultural market and the international market.
“We went through that in every business that we have,” Griffith says. “The net result was we closed probably 30 locations around the world that couldn’t be competitive or needed to be more efficient or needed to be more effective. We built a half a dozen new locations in new markets where we were growing. So net we didn’t change the number of people but changed the structure of the way we operate. We radically changed our portfolio and radically changed our market portfolio.”
Again, the key to growth is not just investing in markets where you have the best product, but where you can deliver value in unique ways.
“Most of the products you’re going to see are things we made 10 year ago,” Griffith says. “But the way we take it to market, the mix in the portfolio and the way that we engage with customers to create value is so radically different, you might as well say it’s a new company.”
A critical driver of this transformation has been the company’s dedication to being a high-performance organization. This focus has helped it navigate numerous challenges as it implemented some major changes to reinvent the company, such as when the company’s leadership realized that Timken’s big manufacturing plants in the United Kingdom and Columbus, Ohio, couldn’t compete and needed to be shut down.
“The key to it was strategically, we were very clear where the company was going and so we knew what were the areas that had to be sustained were and what were the areas where we were going to reduce our presence,” Griffith says. “When you think about it in those terms, you take deeper cuts in the areas that you are exiting and lesser cuts in the areas that are crucial.”
Another critical time was in 2009 when demand for the company’s products dropped and its sales fell 38 percent. To improve efficiencies, the company had launched a business redesign process called Project ONE a few years earlier, which put in place an SAP enterprise management system and helped it take $400 million out of inventory in 2009. But at the same time, it still had to cut costs in any way it could, including 6,000 jobs globally.
“The concept of walking into plants that have been part of your family for a long time and saying goodbye to people is a very personal thing,” Griffith says. “The way it works at Timken — you hate to say that you become good at that — but we’ve become very good at that. We’re very open, and people understand the performance that’s going on.”
When cutting costs, Griffith says you start with strategic cuts — areas where you know you are going to lose business — and then use your performance management systems to put boxes around your stars and take deeper cuts in areas where you have low-performing people. You approach these decisions as a family, communicate openly about what’s going on, and then people will understand that as a high-performance company you need to set aggressive targets.
“It’s all about people, and having really good leaders in place is crucial, even more crucial when you’re going through a period of crisis,” Griffith says. “There’s a natural tendency, particularly in a family kind of culture, to try to support and sustain people who aren’t the absolute top people. There’s always a tendency to hang on to people too long. That’s good and bad. But from a performance point of view, that’s critical from this point.”
By transitioning into markets where it adds the most customer value and building business models that allow it to be profitable in those markets, the company has emerged a decade later outperforming its highest expectations, growing revenue 29 percent to $4.1 billion in 2010. In 2000, Timken generated roughly 50 percent of its revenues from bearings and steel in the automotive industry. Today that number is about 15 percent.
“It’s 112 years old, but it’s a new company,” Griffith says.
“We’ve retained our best people. We have shifted the portfolio of the company to much more attractive markets, markets with better aftermarket, better growth practices, more focused on the parts of the world that are growing. We have better management tools — this Project ONE capability. So better people, better markets, better management processes and then you are surprised that we’re getting record results.”
How to reach: The Timken Co., www.timken.com or (330) 438-3000
The Griffith File
President and CEO
The Timken Co.
Born: Palmerton, Pa.
Education: B.S. in industrial engineering and MBA, Stanford University
What is one part of your daily routine that you wouldn’t change?
I am an early bird — up at 5:00 a.m. or before every morning. I savor the quiet time before the family gets up — I usually walk the dog or exercise. It gives me an opportunity to think through the day ahead and be prepared to tackle whatever challenges it brings. I have done this since I was around 10 years old and continue to get up early, seven days a week.
What is your favorite part of your job?
Interacting with the people of Timken. I get to travel a great deal and interact with people all over the world. The people of Timken never cease to amaze me. Give them a challenge, hand them a tough assignment, and it never ceases to amaze me the creativity, resilience and character of the people who make up our company. My wife loves it when I come back from our plants because I always have a smile on my face, impressed with what I see. The most outstanding examples come in the most trying times — for example, in the recession of 2009, one plant in South Carolina needed to cut half of its workforce. Instead, the people decided that they should share the pain and chose to work alternate weeks, an impressive sacrifice by the most senior people. I could tell a hundred stories like this.
What’s the best piece of business advice you’ve received?
I’m a believer in people. I believe in people. I’m a natural delegator. And if you’re a natural delegator then you’ve better surround yourself with the best people that you can find, people whose judgment you trust, and set the parameters, set the objectives back to being aligned on the strategy. This is where I get real sensitive about, ‘Look what Jim Griffith’s done at Timken, because it isn’t what Jim Griffith’s done at Timken. …The sum of the decisions and capabilities of that leadership team is massively larger than the influence I could have. My influence is to get them aligned in terms of what that vision and objective is. Then frankly it’s stay out the way so that I don’t mess up the decisions that they make.
What is the culture like at Timken?
The answer is it is a family culture. For those of us that have been around a long time it’s kind of an emanation of the fact that the Timken family started it. But that’s not what makes us a family culture. What makes us a family culture is we tend to be people who come here, stay a long time, get to know each other, know each other and their families, work together on things outside. So we really are a very close-knit culture. Even people who come from outside become family.
1) Figure out where you create value.
2) Structure portfolio for value creation.
3) Optimize your performance.
“One of the hallmarks of successful companies is being open-minded and receptive to ideas for improvement from the employees, who are closer to the work than the executives are. It’s kind of built into your DNA. Either you are or you aren’t receptive. You have to be curious and receptive and then be willing to work with it. Then you need to set up a pattern and a tempo of consistency on this topic. If you do it once, and it goes away — a flash in the pan idea — it becomes not effective. If you do it every year, you’ve been doing it for 10 years, people come to expect it, and it becomes part of the culture.” — Chip Perry, President and CEO, AutoTrader.com
- Be receptive to ideas for improvement.
- Foster a collaborative environment.
- Reward employees who suggest innovations.