Sunday, 25 November 2007 19:00

Senior leadership

Andrew S. Kohlberg sees more than just a few catchy slogans

when he looks at the principles that drive Kisco Senior Living.

“We said from the very beginning, if we’re going to spend the

time to create something, we have to spend the time to have it

incorporated in everything we do,” Kohlberg says. “The hard part

is not establishing the vision and mission. The hard part is getting

it through the fabric of the organization to every level and making

it a living and breathing part of the organization, rather than something that sits on the wall.”

Kohlberg needed to develop a purposeful culture to ensure that,

no matter which location a person visited in his chain of retirement communities, each site would possess the same values and

standards of customer service.

In order for this to work, he needed to create an organization

in which employees would play an active part in developing

and maintaining the culture, says Kohlberg, the company’s

founder, president and CEO.

“People watch what decisions you make and are they consistent with the principles, values and beliefs,” he says. “They

watch who you hire, they watch who you promote, they watch

who you fire and what symbolic messages those send. ... What

you say doesn’t matter as much as what you do.”

Mission and vision statements are placed on employee business cards and recited regularly at staff meetings at the 1,500-employee company. They are talked about and analyzed during

visits Kohlberg makes to company properties, and they are

posted on the company’s Web site and included in the company’s marketing materials.

“They are in everything that we do,” Kohlberg says.

But Kohlberg is a firm believer that simply talking about

vision is not enough to make it work. And the CEOs who take

their eyes off the ball and let the culture run amok do so at

great risk.

“The culture still evolves,” Kohlberg says. “It just evolves in

some way that they may not like.”

Here’s how he drives home the culture that keeps the $120

million company moving forward.

Free your mind

If you expect your employees to live and breathe your company’s

culture, you have to give them a venue to express how they feel

about it. That collaboration has to begin with the CEO. Encourage

participation, and when you engage others in discussion, do so

with an open mind.

“If a CEO goes into a meeting with the mindset that they are

going to come out with only what they want, everyone in the

meeting gets the sense pretty quickly that all that is going to

happen is whatever the CEO wants,” Kohlberg says. “That

deflates everybody, and they kind of clam up; don’t really participate in a genuine way. There has to be a feeling on behalf of

the CEO that it’s going to be a collaborative effort.

“‘The emperor has no clothes’ is a common problem among

CEOs. They surround themselves with people who just tell them what they want to hear. They never really find out that

they are part of the problem. It just takes time.”

Getting people to offer their opinion means embracing feedback, both positive and negative.

“You cannot have negative consequences to people that say

things to you that you don’t want to hear,” Kohlberg says.

“That’s the most impactful thing to having a culture where people are free to speak their mind.”

Embracing feedback also means asking questions and making yourself available to your employees, whether it’s through

e-mail, a phone call or direct one-on-one conversation. It

means getting out of your office and following up on concerns

and complaints that may come about.

In simple terms, it means being seen by your people.

“You lose touch with reality if you’re not out in the field,”

Kohlberg says. “You really don’t know what’s going on. I’ve

heard people say the higher up you go in an organization, the

further you get from the truth. You need to spend time at all

levels of the organization trying to get a sense of what’s really

going on because people don’t always tell you everything.”

While there will likely always be a certain level of intimidation with some people about talking to the CEO, Kohlberg says

the challenge can be alleviated through regular communication.

“Sooner or later, they get the message that it’s real and

authentic, and they are a little more open,” Kohlberg says.

“They’re always going to be a little intimidated, and they’re

never going to tell you the total truth. But I’ll get a lot more

than sitting in my office.”

When sifting through ideas and concepts presented by

employees, the key is to make sure they fit together in the

overall plan before you decide to implement them.

“They have to be specific and applicable to the company,”

Kohlberg says. “Give people really specific guidelines of what the

organization stands for and where it wants to go. If they are so

vague that every company fits within it, it’s meaningless.”

Walk the talk

The phrase, “Actions speak louder than words,” may be a

cliché, but it is very true in trying to get employees to buy in to

your culture.

“You’ve got to have management walk the talk,” Kohlberg

says. “If they are doing things that oppose what’s written on

the pages of the paper, everyone thinks it’s a sham and nobody

really buys in to it.”

One example of how Kisco’s management espouses the values of the company is a program in which employees and managers travel across the border to help build homes in the poorer areas of Mexico.

“It sends a strong message of giving back to the community,

which is very consistent with our principles, values and

beliefs,” Kohlberg says. “People see that it’s real, it’s frequent,

and it’s authentic, and the senior people walk the talk.”

This philanthropic effort would not serve to enhance the

company culture if the good deeds were not in alignment with

what happens each day in the workplace.

“If all a company cares about is the bottom line and making

numbers and they get rid of people instantly who don’t make

their numbers, and they go out and do a charity event, there is

an inconsistency there,” Kohlberg says.

“It doesn’t have as big of an impact. If the values of the organization are to give back to the community and be a good corporate citizen, and that’s right in the vision and principles of

the organization, and then you do charity, that’s a powerful

thing because it lines up. ... It’s impactful and meaningful when

it’s aligned with the whole organization and that’s what people

believe in.”

You need to realize that every decision that is made and every

word that is spoken are being received and processed by

employees.

“If you’re firing all the people that fit the culture and keeping

the people that don’t, that obviously says a lot,” Kohlberg says.

“If you’re not getting rid of poor performers, that says a lot. If

you’re promoting your top performers, that says a lot. If you’re

promoting people who meet their numbers, but don’t fit the

culture, that says a lot. They watch the decisions that get made

and see if people are authentic to the values. Are they walking

the talk?”

Constant monitoring is needed to ensure that vision and culture are in alignment.

“Be able to articulate it and put it on paper so that people can

understand it,” Kohlberg says. “Then you have people willing

to move in that direction. Hire people and train people and

retrain people and recommunicate what that direction is.

Continually get everybody lined up. There are so many moving

parts, and there are so many different people with different

agendas. Getting everybody, year after year, to move in the

same direction is constant work.

“It’s kind of like trying to fix an airplane while you’re flying.

It’s not easy.”

Set goals

Employees can only move in the direction you want if they

know where they are supposed to be going. They need to be

given goals and benchmarks to strive for. In addition to analyzing its own practices, Kohlberg has his team research

benchmarks used at other companies, both inside and outside

Kisco’s industry.

“We look at what the turnover is at Ritz Carlton Hotels or

some other great companies that do a good job,” Kohlberg

says. “It gives you a whole framework on how to set goals and

targets. Then people can’t come back and say, ‘That’s a totally

unrealistic goal.’ You say, ‘Well, these three companies are

doing that. Why can’t we?’ Benchmarking and knowing what

your competitors are doing and also knowing what other great

companies are doing, even if they are not in your industry, is

very helpful.”

Kisco instituted a program in which a goal is set every six

months and based on that goal’s achievement, everyone in the

organization, from Kohlberg down to the lowest-level employee, gets a bonus.

“If we hit a certain resident satisfaction number, everybody

gets X number of dollars,” Kohlberg says. “It doesn’t matter

what level you’re at, you get the same amount.”

The program energizes employees and breaks down the barriers that may exist between levels in the company.

“Everybody in the organization knows that if we hit that goal,

everybody gets the same amount of money,” Kohlberg says.

Employees who aren’t meeting benchmarks and aren’t striving to achieve the goals of the company need to be dealt with.

“Good performers don’t want to be around people who are

dragging everybody else down,” Kohlberg says. “You have to be

really adamant about getting rid of people who either aren’t

doing the job or who may be doing the job, but don’t fit the culture. It’s easy to back off that and get lax because nobody likes

asking people to leave, and it’s a difficult thing to do. You have

to continue to be adamant about that.”

Those who want to succeed, but for whatever reason are

struggling to meet expectations, should be given a chance to

improve.

“We always bend over backwards to make sure we’ve given

A, honest feedback and B, time for them to develop the skills

to be a fit and be productive,” Kohlberg says. “You give people

the benefit of the doubt and time and resources to try to develop the skills and the attitude. If they can’t, you need to move

on.”

The benefit of having a purposeful culture in which leadership is

consistent whether you’re talking about mission, vision or values

is that employees know what to expect when they come into work.

“You have people that are more productive,” Kohlberg says.

“They are more motivated. They stay longer, and you have better results over a longer period of time. There is a direct correlation between a healthy culture and a healthy company. You

can have an unhealthy culture and a financially profitable one

for a short period of time, but you can’t have that for 10 or 20

years.”

HOW TO REACH: Kisco Senior Living, (760) 804-5900 or www.kiscoseniorliving.com

Published in National
Thursday, 26 July 2007 20:00

Sand castles

A few years back, a friend who runs a large hotel chain asked

Gordon “Butch” Stewart if he could help evaluate the problems

plaguing the franchise.

Stewart, founder and chairman of Sandals Resorts and Beaches

Resorts, took a tour of one of the hotels and sat in on some meetings. He immediately noticed a big gap in the little day-to-day

details that were slowing the hotel down, such as front-desk service, and the high-end conversation the executives were having.

“When we went, I saw what the problems were, and I didn’t really want to stick my nose in,” Stewart says. “But I was a little befuddled at how simple the problems were and how complex their discussion was. Eventually, I pulled my friend aside and said, ‘Why

not pull back and think about this in terms of simple fixes that cost

a lot less? What you’re trying to do is a lot cheaper than what you

think.’ I guess there’s merit in the saying, ‘Keep it simple.’”

Keeping strategy simple drives continued growth at Sandals and

Beaches, the all-inclusive Caribbean resort juggernauts, along with

their worldwide representative arm, Unique Vacations Inc., based

in Miami. With more and more vacation spots popping up, Stewart

doesn’t want to catch himself in the clouds overanalyzing problems. His success has been in the all-inclusive business, and it has

been based on a tireless focus on hospitality and improvement.

His driving force is to get that right, down to every little detail.

From his first hotel unit in 1981 to the 16 resorts and more than

8,500 employees he oversees today, Stewart focuses on getting the

basics right. He continues to move forward, with a concentration

on beating the competition by growing a company that’s well

ahead of the market. With that meticulous attention to the little

things shaping everything from how he makes improvements to

how he paces growth, Stewart has built a vacation empire.

Focus on the details

To Stewart, paying attention to often-overlooked daily details is

the easiest path to successful growth. You can have the best business plan in the world, but he knows that if you don’t keep a close

eye on the day-to-day operations, then there is room for fatal error.

Sometimes that means admitting to mistakes and starting over,

rather than trying to make something work just to grow.

“Compromise, I think, is the thing that hurts the most,” Stewart

says. “I’ve broken down concrete many times that turned out differently than we thought or planned it would be. I’ve sold beds as

soon as I can get replacements because they weren’t as good as we

wanted them to be. We’ve closed restaurants that are not performing. That list goes on forever. If something comes out wrong

or isn’t working, stripping it down to the carpet isn’t the worst

thing.

“If something is wrong, it’s wrong. You can go a lot further by fixing it early than not paying attention to it.”

While Stewart believes that growing in an industry is simple if

you really focus on the little details, he says there has to be a constant mindset to that attention to detail.

“If you’re going to be successful at any industry, then there has to

be a thought process where literally every moment of your life you

have to be thinking of things that you can improve upon,” says

Stewart. “It is true that people are going to recommend your product. To be happy enough to do that, you need to impress.”

That attention to detail can’t just be in projects, according to

Stewart. It has to be a company culture that runs from top to bottom. That enthusiasm for hospitality drives Sandals and Beaches,

and Stewart says that pushing that core philosophy is the key to

bringing in new people. If you don’t understand that hospitality is

job No. 1, then you don’t get in the door.

“We don’t announce the vision on a daily basis,” he says. “But we

know where we are going, and people around you know because

they see you living it. If you’re very strong with your fundamentals

and show that every day, then people know what’s happening and

see if they can fit in.”

And, in the same matter-of-fact manner that Stewart will rip

down a building and start over, he says that you have to be clear-cut with employees who don’t match the culture, instead of trying

to force a fit.

“Again, if it’s a mistake, level with the employee,” Stewart says.

“Tell them, ‘You’re in the wrong business. Now, you might be a

good scientist, but you don’t do a good job of making people

happy.’”

Your people, after all, are a big part of your brand. And, to

Stewart, paying close attention to that brand internally is essential.

“In the same way that you would protect your brand if somebody

is doing something to try to injure it, the biggest injury is likely to

come from your own internal, weak operation,” says Stewart. “If

you look at the whole spectrum, on one hand, you might have

some people out there that would like to do damage to your

brand. So you’re going to protect it, but really and truly, you can do

more harm to yourself than anyone else at the end of the day, so

you have to make sure you and your people are performing.”

Make it better

An eye for the daily details isn’t enough. Stewart says you have

to grow with that meticulous nature and drive to do better.

“We have never wanted to be No. 2, and we need to look over

our shoulder,” Stewart says. “We don’t spend our time copying or

imitating, we bring out product after product that, in three years

time, the rest of the gang catches up to in their own way.”

Sandals and Beaches continue to reinvent the brand, re-evaluating what the customer wants in luxury accommodations. Instead

of settling for something that hasn’t failed you, Stewart says you

have to be looking for something that will really catch the attention of the customer.

That push for innovation has led to a list of firsts in the resort

world. Sandals was the first Caribbean resort to use Jacuzzis, the

first to offer satellite TV and the first to use swim-up pool bars.

All of them have since become commonplace, so Stewart wants

to keep pushing the envelope to stay ahead of the curve.

“That’s a natural tendency,” Stewart says of making improvements. “You finish something and it’s better than the one you did

before, so there’s an excitement to do something better than that.”

Similarly, Stewart has no problem spending money to grow out

a resort that’s already successful.

In August 2005, for example, Beaches Turks & Caicos Resort &

Spa underwent a $100 million expansion to create the Italian

Seaside Village. The resort was doing well; however, the expansion

added not just 168 rooms but also included a water park and playground to improve on the family atmosphere.

“I think we have a formula, a way that we do things to ensure our

success,” Stewart says. “We have had so many situations that we

have rooms in a place or a product or buildings that really could grow into something more, and we are inclined to do that work to

update it and make it better for our customer.”

And that philosophy can be pushed to your staff. Sandals and

Beaches constantly update standards and use technology to measure performance. It’s not enough for Stewart to push a culture

where the little details are the focus, but he also wants to ensure

that it’s being done by looking at the measurables.

“We have put more accountability into standards in the last seven

or eight months than we’ve done in the last 10 years,” says Stewart.

“We use technology that generally rates the standards, and it breaks

down all the different standards of the hotels from the cleanliness to

restaurants. We measure every detail we can, from rooms to swimming pools, staff, it rates service, and it breaks that down in every

part of the hotel.”

Know your market

Stewart believes that there is no ceiling to a blossoming company’s growth potential, unless you are going in the wrong direction.

“Our limitations really are to the extent that we can replicate this

culture and keep our people excited and have guests satisfied with

our performance,” says Stewart. “If you find that you’re falling

down, then it’s time to haul back and take a pulse.”

That means you have to keep track of your core priorities when it

comes time to grow. Stewart is very clear on the fact that Sandals is

a luxury brand thriving in a niche market. To grow, he knows that he

can’t get too far from the path that made him successful.

“There are a lot of people building hotels right now. And we have

no intention of getting into the big 1,000-room hotels,” he says.

“That’s not where we are going. We are going with a unique and

diversified product. We are focused on our own independent standards and enormous luxury; we’re better at paying attention to

details like the matter in which a room is furnished.”

Keeping the market in mind, you can still take risks, but they

have to come in the proper context of what your company can do.

Sandals, the original brand, is a resort experience meant only for

couples. But Stewart realized that while the couples experience

was popular, there was a whole segment of the market that was

being shut out. That’s when Beaches was created for families, singles and couples. The attention to detail was not lost on the new

brand, but the focus of that attention shifted. Instead of focusing

on something like a romantic waterfall view for a room, Beaches

concentrated on the family element and built resorts with video-game areas for kids.

The move was a risk, but Stewart balanced it with knowledge

about his customer base. Sandals already had a solid return rate

for its guests, and there was feedback from happy customers that

there was room for more. The results of that effort have checked

in with success: Sandals and Beaches currently boast a customer

return rate of 40 percent.

“It started off in a manner where I have so much return in guests,

and a lot of them said to me, ‘Butch, I’ve been here 11 times. I have

a mother that is single, I’d like to be able to come back, but I’d like

to be able to bring her or bring the kids,”’ Stewart says.

That doesn’t mean that Beaches came into existence without taking some lumps, of course. But by keeping on a similar track and

incorporating feedback, Stewart grew out Beaches ahead of the

competition and with the same mentality he shared with that big

hotel chain, he wanted all the little details to be right every step of

the way — without compromise.

“We have our ups and downs trying to stretch out,” Stewart says.

“But what’s important is that you are willing to react to what people are telling you and admit when you make mistakes.”

HOW TO REACH: Sandals Resorts, (888) 726-3257 or www.sandals.com; Beaches Resorts, (888) 232-2437 or www.beaches.com

Published in Florida
Saturday, 26 May 2007 20:00

Outside the box

Kip Tindell, co-chairman, CEO and one of the founders of The

Container Store Inc., wanted to build a strong team of great people

that could help grow his store of home and office organization

products into a national chain of stores dedicated to helping consumers organize their lives. Since the store’s founding in 1978,

he’s done that, and he’s proud of what the company has achieved.

But Tindell says the success has come as a result of one key focus:

quality. He wants his stores located in the very best locations for

his potential customers, even if that means waiting for the right

location. More important, he only wants the best employees, even

if it means spending more — a lot more — than the industry average to get them.

“The most difficult and frustrating and rewarding and wonderful

part of any business is the people aspect of it,” Tindell says. “I’m a

big advocate of the fact that you can’t achieve uncommon results

unless you are surrounding yourself with people who are awesome. If you’re going to have a golf team, why not have Tiger

Woods on it?”

The $550 million Dallas-based retailer has 39 locations and 3,500

employees, and has never shuttered a store. The company has

grown at a steady pace of 15 to 20 percent annually.

Tindell’s commitment to quality calls for careful analysis and a lot

of patience, regardless of whether it’s real estate or people. For

Tindell, rushing would lead to a dilution of the company’s quality,

and that, in turn, would put the entire company in jeopardy.

Great customers make great employees

The Container Store’s success starts with knowing its customers,

and knowing them well. By simply collecting phone numbers of

customers at the checkout point, the store knows who shops,

what they buy, where they live and even their average income.

Tindell says The Container Store’s strongest customers have a

household income of $100,000 and up, are highly educated and

highly likely to be female.

And here’s what’s interesting: Tindell sees those people as great

potential employees. Tindell says if they like shopping at the store,

they’ll love working at it, and he’s been proven right, time and

again.

To capture those potential employees, The Container Store’s

staff members have little cards on hand that they are free to hand

out any time they meet someone whom they believe would be a

great employee. The card invites the recipient to apply for a job at

the store, and this doesn’t just happen when a store has openings,

either.

The Container Store invites anyone to apply at any time and

begins training new employees before others leave so the company’s always ready when a vacancy occurs. Not that it happens

much: Annually, the retailer’s turnover is in the single digits. The

company hires about 6 percent of those who apply.

“We always have backups,” Tindell says. “We are very big on succession planning. I run across a lot of great retailers and business-people that I’ve admired over the years that, as they became older,

they didn’t have any succession planning, no one chosen to replace

themselves or their top people.”

Almost two decades ago, Tindell adopted the one-equals-three

philosophy, where one great person is the equivalent of three good

ones. Instead of staffing a store to the max, Tindell’s philosophy is

to hire only the very best people.

“If you really believe that, you can afford to put your money

where your mouth is,” Tindell says. “It takes a lot of bravery to pay

50 to 100 percent above industry average, but it works because

everybody wins. The employee wins because she is getting 50 to

100 percent more money than someone else might pay her, and the

company wins because it is getting three times the productivity for

only 50 to 100 percent more pay, and the customer wins because

they are getting this really great person who is thrilled about their

compensation and loves to come to work every day.”

Employees aren’t paid on commission, because that tends to

encourage them to sell more than a customer needs. Instead, they

are trained to help customers solve problems.

A good example is a customer who wants something to organize

his or her shoes. The employee is trained to ask deeper, more probing questions of the customer about that person’s entire closet. If

his or her shoes are disorganized, chances are, so is that person’s

closet, and The Container Store sells a variety of products that can

help tame that troubling, disorganized beast.

Ultimately, the store will sell more products by helping customers solve problems rather than just meeting the immediate

need that brought that person to the store, and Tindell says the

customer is happier in the long run.

Part of what keeps employees working for The Container Store

is the company’s level of investment in them. It spends about 240

hours training employees before they start work, and continues

the training as they continue to work so that they are always up to

date on the latest products.

“You can’t lose them once you do that,” Tindell says. “Once you

have that kind of investment in an employee, you need to have a

very, very low turnover rate, which we do.”

That’s at least in part because of a few great perks. Besides its

higher-than-average pay, employees receive a 40 percent discount

on products. Because many of them are already storage aficionados, that’s a really nice perk, and it encourages them to continue to

get to know new merchandise as it comes in. Tindell says the more

merchandise they know, the more products they can demonstrate

and the more customers will buy.

For a new store, Tindell has a very deliberate process to staff it.

The company opens up a nice office near the store that’s set up as

if it is a location of The Container Store. Applicants get the look

and feel of how the store will operate.

Before their group interview, applicants are given a homework

assignment: Find a product on the company’s Web site or in its

store that they like and give a presentation on how the product

works and its major features. Applicants are interviewed in

groups, and product demonstrations take up most of the initial

interview time. That shows how potential employees sell and

how they interact with others.

“They get a good flavor in this group interview for the quirky

culture of The Container Store,” Tindell says. “People leave the

interview and go home and say, ‘Oh my God, I hope I get this

job.’ It’s a thrilling process.”

After the first cuts are made from the group interviews, the

company’s representatives from its home office and retail locations personally interview potential associates in several oneon-one interviews.

“We start months in advance,” Tindell says. “We hire our

employees a couple of months before the store opens so that

they are fully trained. They participate in the set-up of the

store. Most retailers hire employees a day or two before the

store opens because they don’t want to pay them for the previous month or two. We hire them as early as possible.”

Group interviews continue year-round, even though stores

might not have openings, to ensure every store has enough

employees whenever they are needed.

Tindell says one key change has helped the company redefine

how it thinks about recruiting: Recruiting is under marketing

at the company; The Container Store has no human resources

department.

“We just wanted to break the mold on that whole concept,”

Tindell says. “The people who are in charge of recruiting for

the company understand that it’s not their job to go out and

recruit great people for The Container Store. It’s their job to

make sure that the rest of us are constantly recruiting great

people to work for The Container Store. A key part of everyone’s job is to find other great people to come and work for

The Container Store.”

The recruiting card is a handy tool for doing that, even if it

means giving them out at a family gathering.

“We are happy to have friends, cousins, relatives,” Tindell

says. “People know which of their cousins are great and which

are not. ... It takes a little bit of boldness to recruit a soccer

mom at a soccer game. We are huge on the concept of our customers make our best employees.

“Employees get recruited right off the sales floor. We really

want our employees to be people our customers can relate to.”

Examining markets

Part of what keeps The Container Store strong is knowing its limits. Similar to his philosophy on employees, Tindell says he’d

rather have one great location than three good ones. He concentrates on finding the very best retail locations for stores, which, as

it happens, are in plaza-style, outdoor shopping centers that allow

the stores to be on one level.

Customers are buying large, bulky items, in many cases, and

wouldn’t want to carry them around a mall.

“There is a limit of how fast we can grow,” Tindell says. “We are

not limited by capital. Money has never been our limiting factor.

Our limiting factor has always been the people aspect of things. We

have learned we can grow at 15 to 20 percent a year. It’s right for

us. We take the best real estate development locations we can

find.”

Currently, The Container Store has some 29 markets it is examining, and the company waits patiently for the right space in those

markets. And until it taps out the U.S. market, Tindell won’t consider international markets, as he says that’s a whole other type of

market. He says there are more than 100 cities he’d like to locate

in, and as he sees it, that means The Container Store has decades

of potential growth ahead of it without ever sacrificing its quality.

“It’s the most exciting period in our history,” Tindell says. “We are

in this adolescent stage. Even though we’ve been in business since

1978, everything just keeps getting better. Now, everybody wants

us in their shopping center.

“That wasn’t always the case. Now, everyone seems to want

to work for us. The average person we hire is better and better

and better. The products we are able to develop with manufacturers are getting better. ... It’s so much fun and so exciting

because it just keeps snowballing. We are really hitting our

stride right now.”

HOW TO REACH: The Container Store Inc., www.containerstore.com

Published in Dallas
Wednesday, 25 April 2007 20:00

Donna E. Shalala

Excuse Donna E. Shalala if she isn’t overwhelmed by her $2 billion budget as president of the University of Miami. It’s not that Shalala doesn’t appreciate the weight of her leadership role at an educational institution, but after working under two different U.S. presidents, including eight years as President Bill Clinton’s secretary of health and human services, Shalala has overseen budgets of more than $600 billion. With that kind of experience comes the ability to see that making extensive changes requires a certain patience and the daily enthusiasm to start with smaller changes. Shalala uses that as her driving force as she pushes her 10,000 employees forward.

Smart Business spoke with Shalala about building momentum and keeping that presidential focus.

Push small changes to build momentum. I have always believed you should have two strategies when you’re looking toward the future — you should have the long-term strategy, which requires a lot of discipline, but in the short term, you have to give everyone the sense that there are changes going on right now.

And while the short-term strategy may not fit as well into the long-term strategy — it’s not on your list of what you would want to do first if you’re implementing your long-term strategy — the short-term strategy, the things that you do early on, creates the momentum and the patience needed for the long-term strategy.

So in the case of the university, you might do what I did when I arrived, and that is build patios with lots of places for students to sit. Or work to improve the communication between the students and the faculty.

You want to do things that people notice; you may extend library hours, for example. Now, that would not be first on anyone’s list of important goals, but we did some things at the beginning that created some momentum and good feelings and affected large numbers of people.

The most important thing is to be more responsive to the people you are trying to reach, and that’s a short-term strategy.

Stick with a core value. Working with [former U.S. presidents] Jimmy Carter and Bill Clinton was a lesson in working with two very different types of leaders. Jimmy Carter was highly disciplined, trained as an engineer and always very deliberate.

President Clinton was more intuitive, more instinctive in his leadership. But he also loved facts and loved good analysis. They were very different personalities, but from each I learned that enthusiasm and focus makes the biggest difference in leadership.

I know that I have to keep that daily. You have things that make you feel accomplished, like graduation day when you see the students walk across the stage, but you never know if you’re really successful, so you have to stay focused and keep working every day.

Balance different personalities. You have to be a juggler; you can’t be a compulsive personality with a single vision. That means you have to keep impatience in check and work on many things.

You have to understand that there are multiple cultures in this work atmosphere. At our university, for example, law schools are different than business schools; arts and science faculty is different than medical faculty.

And you have to not be a person that has to always have everything neat and clean because of that. You have to be willing to manage conflict that comes up because of all these different groups — everybody is not always going to agree with you or with each other.

My strategy is always to keep the idea in mind of trying to constantly move the institution forward. I like to think of myself as a tugboat captain. The challenge is always to handle 12 things at once, and to do that, I have to listen very carefully to see what the different groups’ agendas are and try to work with multiple agendas at the same time to fold that into the university’s plan.

The university agenda is pretty straightforward; we want to get better. So I have to hear what they’re saying to see if their agenda is something that can be part of that plan.

Find people who can work together. I feel very strongly that you create teams. So while someone may be absolutely brilliant at what they do, if they are not a team player, I’m not much interested. How the senior people get along with each other is what I’m interested in, and that’s extremely important to me.

I normally look for people with excellent interpersonal skills, as well as being very good at what they do. I’m not very interested in the brilliant loner; that doesn’t work when you’re running large, complex institutions that require different groups to work together. So I always ask a lot of questions about how they work with others and what skills they add to a team.

I look for people that are open, that will listen and that are ready to be a part of a team. If I see that they can work in a group atmosphere, then I look at their skill experience and see if they have moved around enough to acquire enough skills in the positions where they’ve been.

Use your team to keep things moving. Don’t take it too seriously. Don’t lose your sense of humor; have patience and don’t try to solve every problem all at once. I delegate a lot after I make sure people have strategies. I try to keep it light and keep the institutions that I lead moving. Part of that is to have a lot of trust in the senior people that I work with.

You can build a consensus by listening to them and by making sure you’re creating the strategy with lots of consultation by talking it over with the leaders and the governing board of the institution. That becomes an important measure and then you take that and provide the opportunities and support systems so that everyone knows that we’re in this together.

HOW TO REACH: University of Miami, (305) 284-2211 or www.miami.edu

Published in Florida
Friday, 24 November 2006 19:00

Class action

Cesar Alvarez was a better-than-average high school football player, but when he wanted to take his game to the college level, he was discouraged by his coach. “He told me, ‘Look, you’re a pretty good player, but you’re never going to make it in college. You’re not big enough. You’re not fast enough,’ says Alvarez. “I didn’t know any better. I said, ‘I guess I can’t do it.’ That was the end of it, and I moved on.”

Alvarez’s younger brother had the same experience, but he didn’t listen to his coach. “He went to the University of Florida and was a consensus all-American as a sophomore,” Alvarez says. “This kid, who they told couldn’t make it, didn’t listen, and he did incredibly well.” Ever since that time, Alvarez, president and CEO of Greenberg Traurig LLP, has refused to let anyone tell him what he can and cannot do. And he runs his business with an attitude that anything is possible. “I don’t let anybody ever limit what we can do,” he says. “It doesn’t mean we’ll be successful. I’ll take my three strikes. I’m going to get to the plate and I’m going to try to hit the pitch.”

That attitude has led Greenberg Traurig from 325 attorneys and one office in 1997 to 1,650 attorneys in 33 offices around the world today. Alvarez has built the firm by insisting on collaboration, delegating decision-making to those closest to the customer and finding the right people to carry it all out.

Encourage collaboration

Alvarez recounts a conversation with the general counsel at Enterprise Rent-A-Car Co. about developing culture. Enterprise chose to build the company based on service and made that the key factor in its approach to business. “Unless you have the highest rating for service in whatever job you have, you cannot be promoted,” Alvarez says. “It doesn’t matter what else you are doing; you have to have the highest rating for service. Guess what they’re going to achieve in that organization — service.”

One of the things that has allowed Greenberg Traurig to grow is Alvarez’s willingness to relinquish control over many areas of the company. “I have always had a decentralized view of management, particularly for a service industry,” he says. “The way I have managed, always, is by giving the power to make decisions to those who can best make it at whatever level it may be. “It would be pretty silly of me to think that I can really figure out what needs to be done in 33 other cities all over the United States and the world, that in over 25 practice areas, I’m going to be the smartest guy and figure out what to do in those practice areas.”

If an organization is going to continue to grow, Alvarez says several things must change, including the way new people are brought in to the firm and how they are motivated. “It is very clear to me, after spending some time with this, the new generation thinks about things differently than we do,” Alvarez says. “These are the folks who are going to be moving the organization forward in the next 15 to 20 years. They’re the ones who we need to motivate. “If you put your head in the sand and say, ‘Damn it, this has worked for us the last 30 years, and it’s going to continue to work the next 30 years’ — anybody who does that is making a mistake.” Alvarez needs a certain kind of person to fit in to the culture — independent thinkers who can work with others and handle the responsibility delegated to them. “We obviously understand that intellect is important, but intellect is not the only reason to hire someone,” Alvarez says. “Now we look at other traits that, in our view, are probably as important — if not more important — to ultimately determining how successful you’re going to be.”

At Greenberg Traurig, Alvarez took a similar approach to emphasize collaboration. The law simply has too many specialties for any one person to be able to handle it all, and Alvarez wants everyone working together to solve problems as quickly as possible. “When you’re dealing with 1,650 lawyers, that’s 1,650 brains that you can tap for information,” Alvarez says. “If you send an e-mail only to corporate lawyers, you’re only going to tap those corporate lawyers. We have a lot more in our brains than the area of practice that we practice in. “Things need to be right; they need to be right immediately. We don’t have a lot of time to do research and other things that we had 10 years ago.”

Alvarez has a very simple method to encourage collaboration: He pays for it. “Whatever the key factors are that you are evaluating in [your] compensation [plan], that is what you will get,” Alvarez says. “If people know that you are putting dollars [behind collaboration], then collaboration is important. If they get negative reviews on collaboration, then their compensation is going to be less, and you’re going to get a lot more collaboration.”

At the end of each year, Alvarez and a few of his top managers review reports from each of the partners. “The first page of questions deals with collaboration — ‘Who has helped you? Who has collaborated with you? And who has not collaborated with you?’” Alvarez says. “I get this for 600 partners, and I read them all. That’s how I can focus and know who are the folks who are living through to the right culture and which ones are not. The way you create monetary incentives will drive the culture tremendously.”

Because collaboration is so important, Greenberg Traurig simply can’t afford to have employees who can’t work with others. “I can get rid of people I don’t view to be collaborative,” Alvarez says. “I can warn them first by impacting their compensation. Then if they’re not working, move them out so you don’t have a cancer growing.”

Delegate authority

Whatever power the title may convey, when a CEO begins managing every decision, the company will suffer. “One of the biggest mistakes CEOs make is when they get that title — chief executive officer — they think their job is to make all the decisions,” Alvarez says. “If I had a perfect day, I should not have to make any decisions. It’s the opposite of what your name suggests. The more decisions you’re making, the worse it is for the organization.”

There is no argument that validates a CEO refusing to give up some control. “I can tell you why I should be making all the decisions,” Alvarez says. “I can make all the rationalizations for that. Basically, it is a wanting for complete control of what is going on. The more I do of that, the less control I have. You’re much better off letting the people that are closest to the information make those decisions and let them go. My rule is no one in senior management is allowed to come up with good ideas. Our job is not to come up with good ideas. Our job is to help those who are really operational in running offices, running practice areas, running departments — help them implement their good ideas. “Ultimately, that’s how it’s worked for us. It’s highly decentralized. What keeps us together is a very strong culture. On paper, I have great powers. But that’s not the way it really runs. It runs because I have a tremendous amount of respect for the people that are out there making the decisions. I’m here to help. I’m not here to tell them what to do.”

Instead, Alvarez works to promote communication and get employees to work together to promote the company’s culture of collaboration. “My job is to create a collaborative environment so those folks don’t feel threatened and they can talk to each other and they feel good about the process, instead of me being the one that sits here and decides, every day, there is nothing that can be done in the firm without talking to me about it,” Alvarez says. “There are plenty of people who do that. You just don’t get a good management system out of that.”

The most effective way to accomplish that is to lead by example. “Culture develops through leadership,” Alvarez says. “If you have a very controlling CEO, that’s the kind of culture you’re going to have. It’s not going to be a creative culture. It’s not going to be an open culture where everybody throws out ideas.”

Alvarez says there are right and wrong ways to develop a culture. “I see too many enterprises where they get some consultant to tell them what the right culture is,” Alvarez says. “They decide this is the culture they’re going to preach to everybody. You can preach it all day long, but it doesn’t mean anything because you’re not aligned that way — both in your recognition and your financial incentives and what the top management does. Until you do it, it’s not going to happen. “You can say you’re an empowering culture, but if you have an authoritarian CEO — you can preach it all the time, you can have as many sleek brochures as you want — it’s not going to happen.”

Find people who fit the culture

The company now looks at leadership skills and business acumen in addition to their law school grades. “When you look at people’s resumes, when you talk to them, you want to have people that have done more than just gotten great grades and graduated from great law schools,” Alvarez says. “That’s a given. You’ve got to be able to do that, but you’ve also got to see what they have done from a leadership position.”

Alvarez has also changed who is doing the recruiting. “Instead of sending the same folks to recruit, the more junior partners, we have turned that around, and we send the most senior partners who can make judgment calls on those other subjective factors,” Alvarez says. “We’re making sure that we hire to retain instead of hiring 100 associates (and) some will survive and some won’t survive.”

For newer employees, the turnover rate in the last two years has dropped about 4 percentage points from the industry average of about 22 percent. “Our attrition rate this year went down to 18 percent, which may not seem like a lot, but going down 3 to 4 percent is significant,” says Alvarez. “Turnover is very costly for any organization, particularly any service organization. If you have turnover, you have people that you have to bring up-to-date, not only into your business but also the clients’ businesses that you are representing. “It is a costly process on two levels. The more you can create a continuity of folks who are servicing your clients, the better off the clients are and the better off the firm is over time. Training is an expensive process, particularly in the complicated field of law.”

The future growth of the firm will depend on how on-target Alvarez’s leadership decisions have been. The firm posted 2005 revenue of $860 million and is projecting 2006 revenue of just over $1 billion. Alvarez knows future success is directly tied to the changes he has implemented. “The worst that would happen is that we would decide we can motivate people the same way and we didn’t have to change that many things,” he says. “That would be the worst case, if we’re completely wrong about this. If we’re right about this, and you just don’t do anything about it, you can miss the boat big time. “I think this is clearly something that you need to examine, and think about.”

HOW TO REACH: Greenberg Traurig LLP, www.gtlaw.com

Published in Florida
Friday, 28 July 2006 20:00

Card shark

Jeffrey Weiss stands in a darkened room looking up at a picture of a cartoon character on a screen. A group of 20 or so designers sits in a semi-circle around a table where the cartoon’s creator slowly reads the back story of his creation to his peers.

Weiss, president and COO of American Greetings, a $1.9 billion company best known for its greeting cards, listens for a few minutes, then heads back out into the hallway at the company’s sprawling headquarters building near the intersection of Tiedeman and Memphis roads in Cleveland. Outside the room are displays of more familiar characters: Holly Hobbie, Strawberry Shortcake and Care Bears.

Maybe the character he saw on the screen will go on to rival the success of those classics, or maybe it will die on the drawing board. Either way, Weiss is happy. His employees are exhibiting the types of behaviors he needs to make the cultural transformation at American Greetings a success, which, in turn, will help the company reach its strategic goals.

While the company has always been focused on creativity, about five years ago, the management team knew the company needed to change to reflect new realities in the marketplace, and the culture needed to change with it.

“For better or worse, the company five years ago was heavily a sales and distribution company,” says Weiss. “The strategy we had developed in the ’70s worked very well through the mid ’90s.”

But then the market started to change. Retail was growing rapidly, but it was at the expense of small, independent stores. In their place were the large mass market retailers who could dominate a category and did so much volume they could dictate prices and terms.

Consumers were changing, too. No longer was the interest of American Greetings’ primarily female customer base limited to just a few styles promoted by network television. Instead of one mass culture, there were now many niche cultures with different demands for styles of everything from clothing to greeting cards. And if American Greetings couldn’t change to meet the demands of those niche styles, it would risk losing its appeal to its customer.

“In the ’70s, we all watched the same three channels of television,” says Weiss. “In American culture, we all related to and had an affinity for a large mass culture that was influenced by large mass media. Today, the number of television channels is up to a few hundred. I’m still watching predominantly three to five channels, and you’re still watching three to five channels, but the three to five I’m watching are probably different than the three to five you’re watching and the three to five someone else is watching.

“The influences for creative development were starting to fragment. As an industry, we were focused on creative and development models that were aligned to large mass markets or large media markets. The consumer wasn’t there anymore.”

American Greetings had to change its strategy, and the culture needed to change to support it. The company was going to shift toward being focused on content creation centered on social expression products that help people express themselves. And regardless of whether it was in the form of a greeting card, gift wrap or a new cartoon character to be licensed to someone else, it was going to take the whole company to make the strategy work.

“The culture we had was representative of that model from the ’70s ,’80s and ’90s, so we started on a path of cultural change,” says Weiss.

By clearly articulating what the goals of the company are, creating behaviors to drive the results and holding people accountable to them, American Greetings has transformed its culture to better match the company’s strategy and a rapidly changing marketplace.

Clear communications

Before you can change a company culture, you have to have clarity around your vision, mission and values. You start there, then everything else will fall into place.

“You can’t get your strategy if you don’t know your vision, mission and values,” says Weiss. “The vision, mission and values will clarify what the business is about.”

For American Greetings, the new vision, mission and values focused on driving creative value rather than being an organization focused on manufacturing and sales.

“We are going to be good at a lot of things, but we have to be great on the creative side because that is what is really going to create our shareholder value,” says Weiss.

Once clear goals are established, they have to be communicated throughout the organization. Communication is perhaps most important at the top. All the managers have to be on the same page, because ultimately, they will be developing for their departments individual plans that are supposed to be in alignment with the overall corporate goals.

Once a year, American Greetings assembles its 100 top managers for a two-day meeting.

“It’s not that we create a strategy or a brilliance of ideas come out of the two days,” says Weiss. “The two days are principally about aligning communication so that as different groups are out implementing strategies, the whole organization is in-step and aligned with where we are going and why.

“Each person is involved in the pieces parts, but they don’t know how their parts fit together. This is a way for them to get the holistic view of where we are going and what we are doing and get that alignment. The alignment is very important, because they use that to start their planning process for their operating plan for this year and the year after.”

Everyone understands their overall role and makes individual plans off of the same master blueprint.

“It eliminates surprises,” says Weiss.

Once the management team had clarity around what direction the company was going to go, the changes had to be communicated to the employees.

“Getting the alignment through the organization, so that everyone is able to say the same things, move in the same direction and have that consistency and clarity of what we are doing and why we are doing this takes iterations and responding to things and staying very focused against it,” says Weiss.

Quarterly all-employee meetings were instituted to go over the changes and explain the reasons behind them. There were brown-bag lunches, where small groups of employees could sign up to have lunch with a senior executive to learn more. The changes were emphasized in newsletters, e-mails, drop-down meetings and other company communications.

“It was both a demonstrable element of signaling change, which is important to transition a culture, as well as helping the organization hear consistent messages and help the senior team hear a clear understanding of the issues from the associates,” he says.

Weiss says the ideas you are trying to drive through the organization are more easily communicated if there is jargon involved.

“Jargon becomes very important, because it becomes the shorthand to communicate the strategies, vision and behaviors,” he says. “The ability to keep referencing in a consistent way the shorthand and understand the depth behind it helps keep everyone stay focused and aligned.”

For example, the strategy, goals and behaviors associated with American Greetings greeting card business is called “Win at Cards.” It’s a simple way to reference all the elements of the strategy with one short phrase that everyone understands and makes further communication about the strategy easier.

And while jargon may make communicating some concepts easier, it doesn’t eliminate the need for constant reinforcement of the message.

“You can’t scale back your communication, but it does get easier,” says Weiss. “When you start, you have a very rough stone and you are not even sure what your message needs to be. You start to wrap some things around key messages and initiatives, then it starts to come into clearer focus.

“Once you get the mission, vision and values, which takes some time to gel, you get to the strategy.”

Behavior matters

One of the key points communicated to employees was not only the vision, mission and values of the new American Greetings, but also the types of behaviors that needed to be used to achieve results.

“Over the last five years, we put in place performance management that is far more robust than anything we had prior,” says Weiss. “Success really starts with good communication around your goals, clarity of where the organization is going, what are the behaviors you want me to have and what are the goals of contribution you want me to deliver on. When you lay that out up front and link it back to the performance appraisal, you start to sort out individuals and how they’re contributing. You are able to recognize high performers, draft those individuals and move them along appropriately and compensate them appropriately.

“It is an important part of reinforcing the culture we want to instill and, on the flip side, giving people messages on where they are falling short, either on behavior or contributions. This is important so that people know that we expect them to deliver on their goals and make them a part of that process. It’s not just delivering the results but how did you deliver the results.”

Employees are evaluated twice a year, not just on their results but also on the behaviors they used to get them. People who score high in both categories are the top performers. They are getting results using the methods the company wants people using.

“You want to know who they are and keep broadening them throughout the organization and moving them up,” says Weiss.

Employees who score high in one category but not the other require some development. People strong on behavior but not on results may just need more time or a slightly different role.

“They are still learning how to be good at delivering results and being dependable at it,” says Weiss. “I think they are people worth investing in.”

While some organizations may turn a blind eye to those individuals who are able to get results but do it their way rather than the company way, that isn’t true at American Greetings.

“There is a short-term horizon for them [to improve their behaviors] because in some ways, they are a poison to what the culture needs to be and they send the wrong signals through the organization,” says Weiss. “It’s really damaging to nurture someone who delivers results and recognize them, yet the behaviors aren’t right. That sends messages throughout the entire organization that how you do it and how you work together aren’t important.

“They might be hitting results, but they are not optimal. If you can take that individual and get the behaviors and the collaboration and the other things right, that individual can be a superstar. Otherwise, they won’t hit their potential and they’ll hold back the organization’s potential.”

People who struggle with both behaviors and results are detrimental to the organization.

“Those are the easy ones,” says Weiss. “You have to react.”

Early on in the process, management focused a significant amount of time on how people were adapting to the goals and behaviors of the new cultural plan, and managers had to be willing to make changes when necessary.

“If someone was in the wrong place and didn’t have the tools they need, then we had an obligation to help that,” says Weiss. “We would help by moving them to the right roles or getting them the training they need, the coaching they need or the mentoring they need. We were giving them the feedback they need. It’s a partnership. In the end, if we couldn’t get it to work, we would separate.

“Loyalty alone isn’t going to be enough anymore. Loyalty is important, but performance is important. Delivering results is important, and equally important is behavior. How did you deliver the results, not just did you deliver the results.”

Weiss says to jumpstart a cultural shift and get the behaviors you want to see, you have to bring in new people who will challenge the status quo.

“It’s not that inside people are bad or wrong, but you need to create more tension,” says Weiss. “If you think of a mechanical process that creates motion, there are a set of belts that are tension points. When the tension is applied right, the machine does wonderful things. If the tension is not right and it’s not touching, the machine does nothing. If the tension is too tight, it destroys the machine.

“Tension and friction in the right balance is very critical. Bringing in different points of view, outside perspectives and opening dialogue is all part of creating that tension. Otherwise, people get very comfortable and start living in silos and start doing things they’ve been asked to do without communicating, connecting or challenging across the organization.”

American Greetings used a combination of consultants, shifting people to new positions and bringing in new executives to generate the new ideas and tension points needed for change.

The role of the human resources department is also important to get the results you want.

“HR needs to be at the side of the CEO, COO and the president during the whole transition,” says Weiss. “They really have to push for the clarity in communication, manage the temperature of the organization and know exactly the kind of culture we are aspiring for to help provide for the right kind of lenses to sort out the inside skill sets and behaviors — and be clear about the behaviors we want.”

What American Greetings’ management team wanted were employees who could handle making decisions, regardless of whether they were new to the organization or had been with the company for 10 years.

“One of the things we wanted to do was push decision-making down the organization,” says Weiss. “You want to empower people, but if you don’t give them clarity on how to sort out the decisions and have a framework for aligning decisions, you will have a lot of tugging, pulling and tension.

“You can’t move fast if you are trying to make decisions on everything [at the senior level] that is coming up and people throughout the organization don’t have clarity of where you are going and why. I think the most important thing if you want to push decision-making down is to have clarity. Without that, there is no way it can be done.”

Tolerance of mistakes is also important when pushing decision-making down.

“You can’t take someone and publicly hang them,” says Weiss. “They’re following the right behaviors. It’s really about the behavior. There will be times where someone is following the behaviors and objectives, and the outcome isn’t right. What’s really important is providing an environment that helps them feel safe and comfortable solving problems moving forward.”

By not punishing people for making mistakes, you create an environment that encourages risk-taking, and when things aren’t going right, one in which someone will bring a problem to the table before it becomes too large.

“They’ll be open as to what is working, what isn’t working and sort out why,” says Weiss. “Over time, if you have an individual that makes decisions and can’t deliver results, it goes back to either the behaviors aren’t right or they don’t have the ability to do it.”

And that’s where the performance appraisals at both mid-year and year-end help identify those people. The person will be given help, and if that doesn’t work, he or she will be replaced so the organization as a whole doesn’t derail because of a few non-performers.

While there are some financial incentives tied to demonstrating the right behaviors, Weiss says money isn’t the only motivator.

“I don’t think money is the only thing that motivates people,” he says. “I think people are highly motivated around succeeding and winning. I think personally having some skin in the game is important, but having systems that differentiate people based on behaviors, performance and results is important. It’s not just about the cost component of it.”

Cultural change is a slow and constant process, and Weiss will be the first to tell you the transformation at American Greetings is not complete. The results of changing a culture are often hard to measure, but the company has gone from a net loss of $113 million in fiscal 2001 to net income of $84 million in fiscal 2006.

“It’s a journey,” says Weiss. “It would be great if it was as easy as waking up one morning, say this is our vision, our mission and our values, this is who we want to be and how we’re going to get there, take the flag, wave it once, then start running. But it’s not that easy.”

Shifting a culture may be a journey, but it’s one that needs to be undertaken with the right companions.

“Focus on the right people, that’s the first step,” says Weiss. “Even if you are not sure what your vision and mission is about, getting the right people will help make that process work.

“If you don’t have the right people, you won’t have fun and you’re not going to enjoy it. You have to feel you have the right partners around you to help do the hard work. You need people that can create these tensions, challenge each other, raise each other and bond together. The whole is better than the pieces parts. If you have a mix of the right people and the wrong people, they will be consumed with each other.”

HOW TO REACH: American Greetings, www.americangreetings.com

Published in Cleveland
Monday, 27 March 2006 19:00

Joe Mansueto

Joe Mansueto is proof that a hobby can turn into a successful business. Mansueto had a passion for investing and in 1984, he used that passion to develop products and tools to help mutual fund investors make better investment decisions. Morningstar was born, and today, the $227 million company is a leading provider of independent investment research and caters to a variety of investors. Mansueto, chairman and CEO of Morningstar, has received the Rosenthal Award for Excellence in Investment Research from the University of Chicago and the KPMG Peat Marwick High Tech Entrepreneur of the Year Award. Smart Business spoke with Mansueto about the importance of passion and patience when starting a company, how to find the best employees and how he is making Morningstar a global name.

On starting a company

Read everything that Warren Buffett (CEO of Berkshire Hathaway Inc.) has written. Go to berkshirehathaway.com, read all the annual reports, and I think it will give you some really great advice about what are good businesses, what are bad businesses, how you can develop competitive strengths.

You have to be patient. Successful businesses aren’t built overnight. It’s going to take five or 10 years to really build a successful business. If you think you are going to do it in a few years, you are deceiving yourself. You need to be prepared for that long haul, and you have to have the patience and perseverance to see that through. Sometimes people are in such a hurry, they get discouraged when they don’t see immediate success.

Try to build a business around a passion of yours. If you can build a business around a passion, then it’s not work, it’s something you really enjoy, and your odds of success go up. If people start a business merely because they want to make money or they envy the profit margins of certain businesses, that’s probably not the best reason to start a business. It’s not going to see you through the down times. You have to have passion and exude passion for what you are doing.

Starting a business is a full-time activity. It’s more of a lifestyle choice, and it’s going to consume you. You have to prepare to run your life in a way that accommodates that. It has implications not only for yourself but those around you. If you are married, what does it mean for your spouse? If you have a family, what does it mean for your family? When I started Morningstar, I was single and unencumbered in every which way. I had no mortgages, no family, so in some ways, it was very conducive to spending a lot of hours working. Today, I have three children, and it’s a different set of circumstances.

On finding and training employees

There are a lot of liberal arts graduates who don’t quite know how to make the transition to the business world. In our early years, we did a lot of hiring of very bright people with liberal arts backgrounds who went into many roles here. The down side is, it takes a little longer to train those people, but I think over time, they can learn the finance side and you get very strong talent. We did some slightly unusual things in hiring that other financial information companies probably didn’t do.

We are always looking for the best minds, maybe looking less at the particular background of somebody but getting the right person with a good ability to reason and communicate well. It’s kind of like the sports team that hires the best athlete. He’s not so much looking to be the quarterback right now, but instead of just looking for quarterbacks, look for the best athlete to draft and then find a way to use that athlete. In a similar way, we are always looking for the best talent and not so much trying to hire a business school graduate to fit into a certain role but have a more expansive view of the kind of person we would consider. That diversity in hiring has worked well for us.

We have an MDP program — management development program — where we hire leading graduates from universities, principally in the Midwest. Typically, we bring them into, say, our product support area.

They may work a year in product support, getting to know who our customers are, supporting all of the products. Then they might rotate to our data area and spend a year compiling our databases, learning how that’s done. After a couple of years of this rotational program, they can go into more specialized roles, be it product management or an analyst role.

Once they have that body of knowledge, then they can go on. A lot of times during that two-year period, they are getting a CFA or they might be going to night school getting an MBA. We certainly support a broad-based training and educational program. We pay for MBA schools, CFAs training, etc.

On growing internationally

First, it comes down to people and making sure that you have the right group of people. We try to hire overseas people in the same way that we hire people in the U.S.

We want to have one Morningstar globally. We want to have the same kind of office space — it sounds inconsequential, but it’s really important to have the same physical space — all over the world. We have a very open atmosphere at Morningstar. There are no private offices — we support collaborative teambuilding and teamwork — so that we have the same look and feel globally.

We want the same client experience globally. If we are hiring the same kind of people, they need to behave the same way with the clients overseas. We need to offer the same kinds of products that we have in the U.S. overseas. More and more, we are creating global products, products that are developed here or overseas that are multilingual, multicurrency. We are supporting global products capabilities. Those are some of the things that we do to ensure that there is a consistent experience with Morningstar, no matter if you are in Milan, Hong Kong, Tokyo, Australia or Chicago.

HOW TO REACH: Morningstar, www.morningstar.com

Published in Chicago
Sunday, 01 January 2006 10:22

Full accountability

When Steven Gerard took over the helm of CBIZ in October 2000, the company was a mess.

The previous management team had gone on an acquisition spree that brought 142 companies into the CBIZ family from late 1996 to the end of 1999. The idea was to combine the accounting and other business services of many small providers into one larger organization that could provide the smaller entities with the resources they needed to compete, while eliminating redundancies and increasing cross-selling opportunities.

In the beginning, everything went well. The company posted net income from continuing operations of $11 million in 1999, but by the end of 2000, it posted an annual net loss from continuing operations of $107 million. The stock price steadily dropped, from a high of $16.13 in 1999 to less than $1 in late 2000.

Many of the acquisitions were paid for, at least in part, with CBIZ stock to the previous owners who were still on board with CBIZ. The rapidly falling stock price led to bad feelings from the entrepreneurs who felt cheated out of the fair value of their business, and morale dropped. And shareholders were angry, as evidenced by the seven class action suits they filed against the company starting in late 1999.

CBIZ, a $500 million company then known as Century Business Services, needed a new direction, and Gerard brought it to the company by starting with realistic expectations and a carefully crafted growth plan.

“The history of this company before the current team got here was they had more aggressive growth targets, and hindsight will tell you that they probably were not particularly realistic,” says Gerard, chairman and CEO. “It was important that we set the right tone for the company and set achievable goals.

“It’s important when you have a company that you are realistic about the markets you are in. You can try and take share from competitors, but I think it’s a terrible mistake to think that over a long period of time, you are going to double or triple the markets you are in. That typically isn’t realistic except for maybe a technology company.”

Gerard stabilized CBIZ by focusing on integrating the various business units into a more cohesive team and dramatically reduced the number of acquisitions being made. He divested 20 companies that didn’t fit the business model and worked on building a common company culture that took advantage of the synergies created by combining the resources and services of the acquired businesses.

Once the business was stabilized, he started looking at how to achieve revenue growth of about 10 percent per year. What he came up with was a three-pronged approach that focused more on maximizing what was already in hand rather than on buying more companies.

The balanced plan would focus on organic growth from existing offices, cross-selling clients [internally referred to as cross serving] by referring them from one type of service provider to another within CBIZ and through a more conservative acquisition program.

“Three years ago, we said that we are targeting growth at somewhere between 3 [percent] to 5 [percent] or 3 [percent] to 6 percent for each of those groups per year,” says Gerard. “What that was designed to do is signal that we were not going to grow primarily by acquisitions. With the three drivers, we said that over time, they would contribute about the same to give us at least a 10 percent top-line revenue growth. From our view, it was important to signal that no one of the three was going to be dominant.”

Acquiring minds
CBIZ had gotten into trouble by acquiring too many companies too fast in cities or regions that, in some cases, were isolated from other CBIZ companies. There were too many cities that had, say, an accounting practice, but nothing else. Because of the local nature of the businesses CBIZ is in, the isolated accounting firm had no one to refer business to, eliminating one of the drivers of CBIZ’s growth.

“One of the other mistakes made by this company, and a lot of companies, I think, was not ensuring you acquire a number of businesses in the same location,” says Gerard. “People were alone, in a sense.”

It was also important to consider how well the products and services of an acquisition complemented each other.

“If the business is in a location that only does business with Fortune 200 clients but the other business is doing business with Fortune 1,500 to 2,000, then that doesn’t make any sense, because then you essentially have two separate businesses with no ability to bring each other products and services.”

Gerard changed the way the company looks at acquisitions.

“We have a very focused acquisition strategy,” says Gerard. “Acquisitions will be in products and services we are already in and in locations where we already have a presence or base. The reason for that is we want to get the incremental revenue we get from cross serving.”

Gerard also won’t consider acquisition targets at which the leadership simply wants to take the money and run.

“Our acquisition strategy is not a cash-out for the seller,” says Gerard. “If we have someone who wants to turn over the business and cash out, that’s not the type of company we acquire. We acquire, for the most part, companies where the current management team wants to grow their business faster than they are able to do with their existing resources or have reached a point where, in order to get to the next level in their locale, they need to make a significant investment.

“We have a tight focus on the type of company we want, the location and kind of management team we want — someone who wants to be part of the CBIZ business model and be part of a bigger, growing company and wants to provide more products and services to their existing clients. The service businesses we are in, if you don’t keep providing more to your clients, then you are going to let someone else in.”

The sellers get the resources they need to take their business to the next level, and CBIZ gets a strong manager to continue running the practice.

Another challenge any acquisition creates is the integration of the management and staff into the acquiring company. CBIZ had made so many acquisitions in such a short time that there was a struggle for a corporate identity. Gerard has put into place an integration plan that brings each new acquisition into the fold as quickly as possible.

“When we acquire a company, you become part of CBIZ on the first day,” he says. “You are in the company, in our benefits, in our computer system, our master reporting system. You utilize immediately all of our marketing and sales tools, and you are bound by all the operating procedures and ethics guidelines and everything else we have so that you become part of us in every possible way as soon as possible.”

Part of the integration is also the welcoming of the new office. Gerard or another senior officer will go out to the new office and explain what CBIZ is, what the company’s goals are and how the new office fits into the organization.

“We have an introductory letter that welcomes them to CBIZ. We give them a small gift and make a big deal about the acquisition centrally,” says Gerard. “We post it on the intranet site, then encourage all the other businesses who are likely to interface with that unit to contact them as quickly as they can. The integration is not just into CBIZ but also with our products and services.”

Cross-selling trust
To unite what used to be independent businesses into a coherent team that is comfortable referring important clients to each other, Gerard had to create an atmosphere of trust. Without it, one of the key growth drivers — cross-selling — won’t happen.

“The other thing we do in every place that we can is co-locate [the acquired company with an existing CBIZ unit] as soon as we can so that they are immediately in the CBIZ environment,” says Gerard. “It’s not as critical for the integration of the business unit as it is for the creation of an environment where cross-serving can happen. Cross-serving has nothing to do with the way you deliver products or services. Cross-serving is a matter of trust. Do you trust your long-term, existing client relationships with somebody else who now will have primary responsibility with that client?

“One way you build that trust is we put them together. Every day, they are talking about their kids’ soccer games and they are physically next to each other. That breeds the beginning of a relationship, and trust takes a long time to build, but they are far more comfortable if they are not in a different office. You have to quickly build an environment where they can talk to one another so when the client comes to visit and complains about eight different things, you can say, ‘Well, my partner next door can help. Let’s go talk to him.’”

Cross-serving is vital to CBIZ’s overall success. Without it, there’s less to be gained in assembling complementary businesses in the same market, and acquisitions never realize their full potential return. While CBIZ does have some national practices where having a local presence isn’t important to the customer, the bulk of its services are provided on the local level.

It’s only when all the units in the same market begin referring business back and forth to each other that each unit, and thus CBIZ as a whole, will reach its growth goals.

“There are a lot of ways to get people focused on cross-serving, both where there is local capability and nonlocal,” says Gerard. “We have economic incentives for business units that do that. There are individual goals at the transaction level and economic consequences to those goals.

“We have a tracking system where every cross-serve is entered into it, tracked and tabulated when closing. I get an e-mail on every cross-serve that closes in this company. On the intranet site, there’s a chart that goes up each day by dollar amount. We make the dollar goal public. We make cross-serving part of the company rhetoric. It is very important.

“I don’t give any speech that doesn’t mention cross-serving. The same goes for the president and the group heads.”

Gerard also created the Model City program. Four senior officers adopted four cities where CBIZ had a concentration of products and services that had a high likelihood of benefiting from increased cross-serving.

Every four to six weeks, the people in those cities got together and talked to corporate about what their products and services were and who their clients were, and developed specific action plans to improve cross-serving.

“I will tell you that the four largest cross-serving cities were, in fact, the four adopted cities,” says Gerard of the program’s effect.

The program added another four cities with similar success. Gerard’s goal is to ingrain the idea of cross-serving into the hearts and minds of all his employees because of its importance to the company’s growth goals.

“Cross-serving is not natural behavior,” says Gerard. “The good news is as those relationships develop based on client success, it gets its own traction.”

Sales generated by cross-serving have increased five years in a row. In 2002, it was $6.5 million. By 2004, it was up to $10.4 million.

“When we see the aggregate dollar amounts going up every year and the percentage of revenue going up every year and, most important to me, the number of closed transactions going up every year, then we are beginning to generate some successes,” says Gerard. “No company has ever made cross-selling purely successful. Look at the model of banks and financial services.”

Many banks added insurance and brokerage services to their standard offering in the hopes of becoming a one-stop shop for everyone’s financial needs, but for most, the results have been disappointing.

“Our definition of success isn’t 15 percent incremental revenue,” says Gerard, once again making sure the company has realistic goals. “Our definition is a much smaller percentage because we are going to run out of client opportunities with the client base that we have at some point. I think that we are very self-critical in this company. I think 3 percent of our revenue is still too small, and I think we can get above that.”

Organic growth
Acquisitions will add complementary services for CBIZ employees to cross-sell into, but those acquisitions also have to continue to grow the business that they have for the company to meet its growth goals. The company also has to build on the services that it has by adding products to existing units to maximize revenue in any particular field.

“We continue to expand the product offerings within our product groups,” says Gerard. “We’re continuing to do that in accounting. We are building our audit business and tax business, as well. In insurance, we are very strong in our health and benefits, but not as strong in property and casualty as we would like. We have rolled out our human capital, which is our HR consulting business. It’s a clear segment of the service economy that is growing.”

But most of the organic growth is just a matter of the employees asking the right questions.

“When you take your client to lunch or dinner, you have to ask them, ‘What are the three things that keep you up at night?’” says Gerard. “Inevitably, one of those three things is a product or service you are not involved in. It could be their health care plan or their benefits plan or them saying their computer doesn’t work. That’s where the opportunities come.

“What you have to do to grow more business with the client is to question and collect that information. Most of our folks are very good at that — of getting all the business they can in their limited specialty — and most of our clients are good at coming to us in a limited sense. But the effort to get more business has to be to expand those comfort levels. It doesn’t even have to be out of their product area.

“If you are providing services, say accounting of some kind, and they say they are opening up a warehouse, all of a sudden there is a tax issue, a financing issue and all sorts of things that you are not specifically involved in. You have to be prepared to question within your practice.”

Gerard says the successful people running each of the company’s units are already masters of getting business from their particular specialty because most built their business on their own before being acquired. They just need to make sure they are thinking about all the potential business others within the company might be able to help them with. By providing continuing education and reinforcement about all of the company’s services, managers are given the tools they need to grow.

“If you are not talking about the things that keep the client up at night, someone else will,” says Gerard. “It doesn’t matter what the culture requires you to do. The business leaders want to morph from a single problem solver to a multi-problem solver or a solutions provider or a consultant. Our best people want to get calls from clients on different topics, and that’s not going to happen overnight.”

Employees aren’t the only ones getting an education on CBIZ. To make sure customers in all its markets understand what CBIZ is and what it can do for them, the company has committed to a well-funded, long-term branding plan.

“In most cities where we have made an acquisition, the equity value of the old firm is greater than the name CBIZ,” says Gerard. “Nobody knows who CBIZ is. We are a major factor in most of the industries we are in, but nobody knows who we are.”

The company wants to self-generate more business to help with its organic growth. The branding program, which uses a campaign in print media, public radio and national conventions to reinforce the CBIZ name, is one way of doing that.

“I expect, as a company, we need that to get the larger clients,” says Gerard. “Our branding also helps define our corporate culture. Every time you touch the company, you are going to hear something about us.”

Part of the original challenge Gerard faced was uniting more than a hundred businesses, getting them to work together in a common culture within the growth strategy.

“You gotta have a world-class team,” he says. “No one person can do it alone. You have to empower the team. And the other thing is, you can’t run a business sitting behind a desk. The information you get is filtered and it takes time to get there. You gotta be out talking to employees and visiting the offices. You have to be working as far down as you can to get a sense of their satisfaction, frustrations or involvement of the staff, and they have to be comfortable communicating with you.

“One of the things I said when the team took over was that open communication is paramount. I get 20 e-mails a day from low-level people about things I’m doing wrong or someone else is doing wrong.”

The culture, combined with the growth strategy, has produced results. In 2002, the company posted net earnings from continuing operations of $7.8 million. By 2004, that number climbed to $16.9 million. Same unit revenue increased from $467.6 million in 2001 to $495.2 million in 2004. The stock price had increased to around $6 by late last year. People were working together toward common goals and the company rebounded as a result.

“If I would offer advice to anyone, it would be to put a team in place, empower them then get out and spend time where the money is made,” says Gerard. “Corporate functions are overhead. They don’t generate revenues. Once you realize revenue is generated by the people in the field, you better be out there making sure they are getting the support and making sure you know what their issues are. You are not going to satisfy them all, but they’ll respond better.

“There’s a difference between running a long-standing culture and one that has been amassed or one where there is no corporate culture to come into. The day will come when we have a more established culture and perhaps do not have to do some of the things we do now, but while you are building that culture, you have got to get out there.”

HOW TO REACH: CBIZ, (216) 447-9000 or www.cbiz.com

Published in Cleveland
Thursday, 18 August 2005 11:07

Ron Sugar

Ronald D. Sugar may be one of L.A.’s most overlooked success stories. A product of South Central, Sugar was the first in his family to graduate high school, and he never looked back. He graduated summa cum laude from UCLA with an electrical engineering degree — at the age of 19; a year later, he had his master’s degree, and at 23, his doctorate. He added to his book smarts with executive education programs at Stanford, Harvard and Penn’s Wharton School while earning his management stripes as president and COO of defense contractors TRW Aerospace and Information Systems, and Woodland Hills-based Litton Industries. When Litton was acquired by Northrop Grumman in 2001, Sugar became heir apparent to Northrop’s legendary CEO Kent Kresa when he was named president and COO. He took over as CEO in April 2003 and as chairman six months later. Since 2002, Northrop’s sales have grown 71 percent and earnings have surged 140 percent. Smart Business talked with Sugar about the management philosophies that he uses to run the nation’s third-largest defense contractor.

All businesses go through cycles. The key in the tough times is the sooner you anticipate and take preventative action, the better you can control the outcomes. You can’t always control the outcomes, but your [role] as an executive is to manage outcomes. Business has a high degree of risk associated with it. There is a risk factor, and then there is the ability to try and manage across the risk. And management teams that can do that better than others will achieve higher value in their market capitalization.

You’ve got to understand your customer. You’ve got to think about where your customer should be thinking they’re going. You can think about that and be one step ahead of them and be there when they need you. You need to have a leadership team that has a shared vision of what you want the company to do and how you’re going to operate together. As a new leader coming in, everyone is watching you, trying to size you up. So, you need to really spend a lot of time reaching out and developing personal relationships with the key folks you depend upon for your success.

One of the things you try to do is develop an infrastructure to run the company, which is as efficient as you can make it. You take a look at every function, from janitorial services to information technology to buying office furniture, and say, ‘How can I most efficiently accomplish this?’ There are many, many things of this kind that we look at. Many companies stray.

I try to focus on the common objective. Select good people, build a team. Operate openly. Try to let the best ideas win. When a good idea is thrown on the table and it’s picked up — and it’s not my idea, it’s somebody else’s idea — it shows an awful lot to folks. If, as a leader, one would always reject other ideas, it indicates the leader has the right answer all the time. I think you won’t get a lot of other good ideas put on the table.

You always have to be thinking and imagining what the future should be. You should be putting your research investments in places that you think might be able to change the future — and not all of them will — and as you see significant underpinnings emerging, you reconcentrate your human and financial investments. If you can do that a little faster than the other guy, then you have a competitive edge.

You’ve got to engage your leadership team so they are on the same page and will carry your vision forward. Parallel (to that), you have to have direct communication to everybody. What we do is we have a message from the chairman, and if there is anything important going on, we put that out to everybody on the Web site or a hard copy is posted somewhere. If we have a major initiative in the company or a major theme or some setback, we try to communicate openly and timely to our work force. The challenge here is to engage everybody in the work and get their minds [also working for the company].

I look for executives who have integrity, imagination and initiative. Those are the three “I”s. I’m assuming, of course, they have the skills. As you look at management, those three “I”s are more important than the actual skills.

A leader must have integrity. A leader must have the ability to relate to people, to motivate people, to be able to communicate, and the ability to be able to make the tough decisions. That hasn’t changed in a long, long time.

A CEO’s most important role is to try and think about where we need to be going. Secondly, to think about the people — collecting, motivating, organizing, leading and being led by.

What I find helpful is being able to spend time in the presence of other CEOs or military or government leaders who are in key positions. It’s helpful to have quality time to talk with them about what works and what doesn’t work for them, share experiences of when we’ve done things well and when we’ve had problems. You have to read a lot and you have to listen to people because there are people who know more about this stuff than you do.

Published in Los Angeles

AutoNation Inc. is the Hummer of automobile dealerships. Simply put, it's the largest dealership in the country, and Chairman and CEO Michael Jackson's take-no-prisoners attitude suggests he's ready to run over his competitors like a Hummer over, well, anything else on the road.

Jackson was brought in as CEO in 1999 by founder H. Wayne Huizenga to retool AutoNation's hodgepodge of companies.

"Everybody who didn't do it our way, we threw out of the company," Jackson says. "We hired people who did want to do it our way. Was it a battle? Absolutely. Is it over? Absolutely. The idea that you're going to run this business with 350 entrepreneurs all going in different directions is crazy. You're not going to add any value that way."

Jackson, who began his automotive career as a maechanic, arrived from Mercedes-Benz USA LLC, where he was president and CEO. At Mercedes he led a renaissance in the luxury vehicle brand's sales and marketing efforts. He saw a similar opportunity for growth at AutoNation.

"I thought something could be done in automotive retail that had never been done before," he says. "AutoNation was the company that could do that. It (also) gave me the opportunity to work directly with one of the great entrepreneurs of the 20th century."

It wasn't long before Huizenga took Jackson under his wing.

"Wayne is an unbelievable entrepreneur," Jackson says. "We developed a relationship where he was a great mentor. Working with someone from whom I could learn so much was an opportunity I couldn't let go by. Wayne hasn't disappointed me."

Huizenga may have created the company in 1996, but it is Jackson who has built it into one of the largest and most well-run organizations in the nation.

Under Jackson's direction, AutoNation has become America's largest automotive retailer, employing 28,000 people at more than 280 dealership locations representing more than 360 new vehicle franchises across 18 states. The company boasts more than $19 billion in annual revenue and ranked No. 97 on the 2004 Fortune 500 list, outselling all other automotive retailers in the United States.

The company is also the Web's largest automotive retailer of both new and used vehicles, generating $3 billion of revenue in 2003 via the Internet. For his efforts, a group of Jackson's peers last year at the Automotive Hall of Fame voted him "Industry Leader Of the Year."

Culture builder

The automobile dealer industry is extremely fragmented. Only 6 percent of dealerships are owned by publicly traded companies; the rest are operated by entrepreneurs, who are known for their independence. That made AutoNation's growth strategy of acquiring existing dealerships to bring under its umbrella a sometimes-tricky move.

"Five years ago, when I arrived here, that was a huge cultural issue," Jackson says. "It clearly had to be addressed and was going to be the key issue of whether we succeeded or not."

To overcome that issue, Jackson made sure every executive at the company understood and was willing to adopt the newly defined role of executive. Those who couldn't -- or wouldn't -- abide by the new profile were out of a job.

"The profile basically said that we want entrepreneurial energy, high ethical and integrity standards, but combine with that executives who have an understanding of the power of process and who want to be part of something big. And, we wanted people who get extreme motivation by creating something extraordinary," he says. "It's not all about them, the individual."

And, Jackson says, he expects his management team to have passion for their work.

"We had to ask quite a number of executives to leave the company," he says. "And we had to recruit executives who fit that profile. I'm happy to say, today, that's the culture we've created. It's not an issue. Everybody who is with the company is deeply involved in discussing how we do it, but not if we do it. That cultural war is over."

Jackson does not use the word war lightly. Nearly half of the company's executives never fit the profile.

"It took a full five years," he says. "When I started, 10 percent of the executives fit that profile. Fifty percent maybe fit that profile and 40 percent did not. Today, we have 90 percent who fit that profile and 10 percent are on their way there. That's a dramatic transformation."

The result of that transformation is evident not just in the company's top-line revenue of close to $20 billion, but also in its net income, which increased nearly $200 million from 1999 to 2003 as Jackson made the tough decisions and built a new corporate culture from scratch.

Efficiency also improved as a result of the moves.

"We look at every aspect of the business, from how we buy electricity to how we interact with the customer," he says. "And we systematically bring, on a given issue, the best people in the company together to figure out what is absolutely the best practice, best process for the customer and the company, and then systematically implement that across the company."

That would not have been possible in the old days, with each dealer operating independently.

"Everyone in this company (understands) the combined power of entrepreneurial energy with best practice process," Jackson says. "It's tremendously powerful combination. Where (with) small business, it doesn't make sense for all the incremental improvement, it makes sense for us because we apply it to such a (large) scale.

"For us, every time we find a 10-basis-point improvement, it means something. It means something to the existing business, and it means something to everything we acquire in the future. Imagine, by 10 basis points at a time over five years, we have created a 500-basis point advantage of cost over our competition, and we feel we have another 200 (to go). That's a 700-basis point improvement that we're creating in seven years. That's quite something, and it's very difficult for anybody else to match."

Entrepreneur at heart

While Jackson's changes at AutoNation were necessary to grow the business, as a former car dealer, he understood the power of the entrepreneurial spirit.

"Having grown up in retail, but also having worked in a large corporate environment where you get a broader view, you understand how big corporations work," he says. "You understand the power of process, the power of strategy. Without that background, I think it would have been very difficult."

That background has made it easier for Jackson to oversee AutoNation's operations, which are spread across 18 states. The company's largest presences are in California, Texas and Florida, and Jackson says there are no immediate plans to enter the remaining 32 states with physical locations. AutoNation does, however, do business in all 50 states through its Web initiative, a strategy Jackson has supported since the beginning.

"We always believed the Internet was going to change the balance of power between the consumer and business," he says. "You were going to have an educated, informed and empowered consumer, compared to what was possible in the marketplace five, 10 or even 15 years ago. We saw this as an opportunity."

Jackson says that's because informed consumers make it easier for AutoNation to facilitate a quicker, more convenient transaction time. And, with that in mind, Jackson tasked his team with finding ways to embrace the Net.

"We have been able to dramatically reduce our transaction times over the last five years through the arrival of e-commerce," Jackson says. "By having embraced it and not resisting it, by designing all our processes to take into consideration that you have an e-empowered consumer, that has been a big advantage for our customers."

Jackson cites studies that show 80 percent of his company's customers spend time researching cars, prices and loans before they ever contact an AutoNation salesperson or begin an online transaction. The company's processes are designed to be customer-friendly, he says, in an effort to meet or exceed customer expectations.

"It's been a big win for us," he says.

AutoNation's Web component may have exploded over the past few years, but Jackson says growth through acquisition is expected to continue at a much slower and consistent pace.

"The segment has only consolidated 6 percent by publicly traded groups, meaning it's still 94 percent independently entrepreneurial," he says. "It will be a very gradual consolidation. If, in the next five years, that begins to knock on 10 percent, that's about as fast as I can see it grow."

Singularly focused

Jackson's arrival at AutoNation heralded a new era for the business in another way. In addition to sweeping away executives who wouldn't or couldn't adopt the new approach, Jackson eliminated those parts of the business that weren't focused on selling cars.

AutoNation, once part of Huizenga's Republic Services conglomerate, also owned Alamo Rent-A-Car and National Car Rental.

"The basic decision I made when I arrived was that AutoNation was going to be very good at one thing, and that's automotive retail," Jackson says. "We're going to be the best in the world at it. Anything else is a distraction."

Jackson's moves were quick. Just three months after his arrival in November 1999, the company exited the vehicle rental business. The spin off of Alamo Rent-A-Car and National Car Rental into publicly-traded ANC Rental Corp. was completed by June of the following year.

By year's end, Jackson had also exited the used vehicle megastore business, closing its AutoNation USA stores.

"Creating conglomerates is very difficult to do," he says. "General Electric has done it. They took 100 years to do it, but I don't have 100 years.

"I'm not sure with how the megastores were created in AutoNation, we could have ever had added value," he says. "There were many things that were done from a consumer point of view that were extremely positive, but the economic model was flawed. And we needed to put that behind and put our capital and our energy where we could create value."

Today, with its singular focus, AutoNation's revenue stream is divided among new vehicle sales at 61 percent; used vehicles at 23 percent; parts and service at 13 percent; and finance and insurance at 3 percent.

"The one number we would like to increase steadily is our service and parts business," Jackson says. "That's the foundation of our business. We service 25,000 vehicles a day. They are complex, highly sophisticated, technical products. We have a lot of added value and a lot of infrastructure that we've built in order to care for those vehicles.

"It's a high-margin business to do our high added value. That's a business we would like to disproportionately grow."

Based on Jackson's record, there's a good chance that 10 years from now, AutoNation will be running over its competitors in that segment of the industry as well.

HOW TO REACH: AutoNation, www.autonation.com or (954) 769-7000

Published in Florida
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