Operating in the network storage space, the biggest challenge for Michael Klayko hasn’t been growing his company, but growing it fast enough to keep up with customer demand.
“I’ve gone to pretty much every country in the world, every vertical segment, any type of industry and asked the question, ‘Whose information isn’t growing at triple digits?’” says Klayko, CEO of Brocade Communications Systems Inc. “I haven’t had anybody raise their hand and say, ‘Me.’ No matter where I go, it’s ubiquitous. It’s an issue around the world.
“Just around managing information in a company, there are 8,000 laws around the world on how do you manage, protect information, and now that varies between different industries. … When you look at it from that standpoint, I think opportunities become unlimited — you know, how do you solve very specific issues? Because the issues supply customers face, which is the [Forbes] Global 2,000 companies, are daunting. They are just absolutely daunting. You talk to some of the CIOs and some of the business owners, and they’re scratching their heads going, ‘How can I get ahead?’ They’re trying to just catch up.”
Having grown up in the networking space and data storage, Klayko saw when joining the company in 2003 that the $2.1 billion company was in the position to be the challenging brand — as long as it could adapt fast enough to changing technology and increasing consumer demand for the newest products.
“Fifteen years ago we were four guys, a dog, were a very prototypical Silicon Valley startup,” Klayko says. “And now, today, we’re roughly in every country — about 160 countries in the world, a little more than 5,000 people — and growing quite nicely, frankly because networking storage continues to grow.
“A lot of this has to do with the fact that there’s been one very large networking company, and they didn’t have to innovate. What they had to do was provide features and functionality, and it was good enough. Today, it’s not good enough.”
Klayko has kept Brocade on track for growth by ensuring innovation is paramount in the minds of employees. By nurturing a culture of innovation, Klayko has continued to strengthen Brocade’s foothold in the crowded IT and data storage marketplace.
His strategy for building this culture begins with setting performance-based innovation metrics that keep his employees thinking one step ahead. When you are a company with competitors ten and 20 times your size and revenue, you have to be able to offer customers the newest and latest products. To give Brocade the edge with customers, Klayko knows Brocade needs to make those products readily available on an ongoing basis.
“There’s only one weight class in networking — it’s heavyweight,” he says. “There are no different weight classes. There’s one weight class. So we have to compete like that. And one way we do this on innovation is we constantly like to stay anywhere from 12 to 18 months ahead of our competitors. We have to. That’s how we are actually not just surviving but growing.
“I think every company, when you go back the last couple years, is trying to figure out not how to grow, but how to survive and stay alive. We’re fortunate. … We happen to be in a segment where information, traffic and data traffic is growing triple digits.”
Klayko uses metrics to track the company’s quarterly percentage of innovation. The benefit is two-sided. For one, having innovation metrics gives your employees a benchmark to aim for in terms of continuous improvement, but also, your ability to meet these goals signals to customers you can consistently provide them with the newest products.
“No one wants to sit around and say, ‘Yeah, I don’t innovate, I just kind of collect money,’” Klayko says. “Everybody is innovative. But we do it a little bit differently in terms of we have the innovation metric. How do you measure it? Ours is we want 60 to 80 percent of all of our current revenue to come from products introduced in the previous six quarters. So if you think about that, I have to reinvent myself every two years.
“Now that sounds like a lot. The reason it’s not is that any one point in time about 2/3 of my customer base is going through an acquisition, a consolidation. They’re actually getting rid of a company or so forth. So their data centers and their information requirements are evolving and changing. Everybody wants the shiny new product, and so if you have the shiny new product at that point in time, you will be considered.”
Look for the disconnect
When you are in a rapidly advancing industry, keeping innovation steady at 60 to 80 percent can be a huge advantage in staying ahead of competition. But continually innovating doesn’t mean you are placing your bets on anything that’s new and different either. It’s important to take calculated risks so you don’t bet too big on an area that never takes off.
“Our biggest challenge sometimes is where do we go, how do we put scarce resources, because if you make a bet on a certain area or a certain vertical and another one grows faster, your competitor can actually grow faster than you, even though you are growing, because you made that wrong decision,” Klayko says.
But how do you find those areas for employees to innovate in ways that add new value for customers yet haven’t yet been exploited by your competition? Klayko does it by asking them to look for a disconnect or a contrasting position.
“By 2020, there’s going to be 35 billion devices connected to the Internet, I think, to 6 or 7 billion humans,” Klayko says. “So every time someone comes out with a smartphone or a new iPad or anything that creates digital data, it just more and more burden on that network that needs to get bigger pipes, faster, larger.
“You’ve got network traffic growing at 100 percent, data traffic growing at 100 percent. Budgets aren’t growing at 100 percent. So there is a huge disconnect going on. Whenever there’s that big of a disconnect, there’s an opportunity.”
By identifying contrasting market positions on common issues, beliefs, pieces of technology and so forth, your team can visualize new ways to solve emerging problems as an industry evolves and customer needs change.
“If you go back, how we originally started with this is the contrasting position that’s around simplicity,” Klayko says. “The last couple years, the recession really affected the data centers in terms of personnel. They were the first people to go in many companies, and so they would continue to buy the equipment but the human beings to run the equipment were released. So costs were really disconnected again. We just said, let’s focus on simplicity. What if we could actually have equipment go into a network and self-discover, self-manage, self-heal if it broke? What a contrasting position.
“We always look for an area where we can provide contrasting positions. Anybody that goes into a market says, ‘Oh, I’m a lower cost or I’m a little bit faster,’ — in my business, technology is always improving. You’re always getting better price performance. So you need a relatively different way to approach the market. We said from a contrasting position, ‘What are the real issues?’”
Lead the vision
Setting a culture of innovation involves a lot of decision-making on the part of a CEO. You have to get the right people on board and give them the resources they need to innovate. But once the culture is set up as an idea-making machine, it’s your job to grease the wheels. To get people thinking creatively about new opportunities, you first need to get them excited about what that innovation means and the effect it has on driving your company’s vision.
One way to do that is by engaging your key creative people in new projects or areas of potential growth. For example, when recently bringing a new category to market, Klayko made sure he assigned his long-term engineers to the project. The piece of technology, called Ethernet Fabrics, was 15 years in the making for Brocade.
“We actually made a big bet that this technology was going to be the future of the company and so we just redirected the people from some of our core businesses into this new technology,” Klayko says. “Then we backfilled our core business with new people who were brought into the company.
“That’s what gets engineers excited, working on the new project and so forth. So there was accommodation and new folks that we brought into the company, but primarily we repositioned a lot of folks that were in the company and gave them the opportunity to work on this project.”
Building an innovative culture starts with leadership. In the end, it’s largely your call on what risks the company takes and which it doesn’t. You also set the precedent for areas such as accountability, performance, entrepreneurial thinking and of course innovation, which is why Klayko doesn’t just have metrics for his team’s performance, he has them for himself.
“You have to lead from the front,” he says. “I do a thing in the company called a performance contract. I list top six areas that are going to be a focus to me. I put my metrics down, and every quarter, I do a broadcast to all 5,000 people and I give myself a report card. I give myself a public appraisal every quarter, but when I walk to see you, I expect you to do the same thing. It’s all about accountability and setting the culture.
“We have a lot of bright people, and there’s a myth that CEOs create strategies. What they do is they participate in the creation with very smart people. So my job is to ask a lot of Socratic questions and push and say, ‘Is this the right thing to do?’… I have to be the chief cheerleader when times are good and times are bad. When times are good, I have to tell people, ‘Don’t get complacent.’”
In the end, while successful innovation probably involves a little luck, good marketing, the right timing and other factors, it all starts with setting a culture where people are inspired to compete and improve their industry and company every day.
In fact, while achieving first quarter year-over-year revenue growth, this year Brocade was also named one of Fortune’s 100 Best Companies to Work for in 2011.
“I ask a question on our employee survey every year that tells the truth about the health of the company: ‘Would you ask your best friend to quit their perfectly good job and come work with you at Brocade?’” Klayko says. “When I first came in, that number was at 8 percent. In fact, I answered it no, which was a telltale sign. … That number is 91 percent right now. So we’ve obviously focused on the right things.”
How to reach: Brocade Communications Systems Inc., (408) 333-8000 or www.brocade.com
The Klayko File
Brocade Communications Systems Inc.
Education: Bachelor’s of Science in Electrical Engineering from the Ohio Institute of Technology
Affiliations: Klayko currently serves on the Boards of the Silicon Valley Leadership Group and The Tech Museum of Innovation
On his decision to join Brocade: One of the inherent issues of storage area networking is you just built these flat networks and we saw an opportunity to route between different networks. There was no product in that space. We got a bunch of smart people together. We had about 100 people together when we ended up selling the company to Brocade. We built the routing technology that is now the industry standard. That was the impetus is we found that there was a huge opportunity with nobody looking at it, and we went, ‘Wow, why is nobody going after this? It’s possible.’ And so that’s what we focus on.
On transforming the networking space: We’re taking those principles, applying it into the IP site, which is the Ethernet, and your Internet connections and so forth. By applying that knowhow and that technology, we’re bringing a new category to market, which is going to challenge all of the incumbents.
We took 15 years of heritage and created a new product and a new category called Ethernet Fabrics, and where it’s going to apply in the data center. And by the way, what we’re addressing in this market is measured in the tens of billions of dollars. So there’s a big opportunity and frankly, there hasn’t been a large piece of innovation or significant piece of innovation in the networking space for a decade.
Marc Graham has seen it all unfold. He knows where the automotive industry stands.
If you’ve listened to any of the news coming out of Detroit in the past two-plus years, you know the automotive industry has seen better days. And it’s not just the automakers; it’s the service providers and component suppliers that rely on the automakers for their business.
So when you find out that Graham is the president and CEO of AAMCO Transmissions Inc., in charge of piloting 5,000 employees and franchisees through the recession, you might think he’s been bailing water in earnest, just like the rest of the industry.
You’d be wrong. AAMCO is actually growing, for a very simple reason: It service the cars that increasing numbers of consumers are keeping in lieu of making new auto purchases.
“This is one of the few areas that actually lives quite well in a recession,” says Graham, who also heads AAMCO’s parent company, American Driveline Systems Inc. “As we’ve gone through the last couple of years, in a situation where consumers cannot or do not buy new cars, they’re leaning back toward an area where they’re taking care of an older car. In the past, when they reached a certain point with maintenance costs, they’d just buy a new car. Today, they’re investing in that vehicle and bringing it back to an as-new mechanical condition. That works extremely well for the automotive aftermarket, and specifically AAMCO.”
But converting AAMCO into a full-service aftermarket auto repair brand has been the prevailing challenge that Graham has faced over the past several years. For more than 40 years of its existence, AAMCO specialized in transmission repair. But as transmissions started to resemble computers instead of mechanical components, Graham began to realize that his company needed more than transmission repair to sustain itself.
“If you’ve driven an older car, you might remember a transmission slipping or feeling a clunk or a grind,” he says. “But in recent years, transmission failures have become more electronic. You might have a light come on in the dashboard or a symptom that feels more like a fuel starvation. So as we looked at that, we said that we really have to start covering the entire car if we’re going to protect our transmission business.”
Graham needed to convert AAMCO from a niche player in auto repair to a comprehensive auto maintenance company. He had to build the case and convince thousands of franchisees — most of whom were running successful AAMCO stores under the old model — that it was a necessary move for the long-term health of the company.
Build your case
This wasn’t Graham’s first business transformation. As the head of Jiffy Lube, Graham oversaw a similar diversification from a core oil change business to a preventative auto maintenance business.
“We were quite successful with that, years ago,” Graham says. “We added about half a billion dollars of profitable revenue to their franchises.”
But AAMCO was even bigger, and even more entrenched in their market niche, with almost half a century of living by a successful transmission-based business model. Graham had to meet his 5,000 employees and franchisees head on, with some corporate vision-based evangelism — though based far more on data than cheerleading.
“What we did, and what we continue to do now, is maintain that constant exposure to doubters of what is working and what is not working, what the successes are, and doing it in a very factual formula,” Graham says. “For me to sit in front of an AAMCO franchisee and say, ‘This is the right thing to do, just believe me,’ works for some situations. But when you talk about the true dissenters, they need to see facts. I’ve dealt a significant portion of my life with the mantra, ‘You can’t hide from facts.’ So as you look at your successes and you’re able to show increases in revenue and strong return on investment, show strong profitability, and continue to show that to the doubters and dissenters, little by little that group erodes into a group that is now the adopter.”
But hammering away on the facts is one thing. Showing your people how your planned company shift will benefit them is something else. You have to put the new business model in a frame of reference that shows each person the benefit on an individual level.
Graham could see the revenue-based benefits that awaited a diversified AAMCO brand. But what his franchisees wanted to see was how the change would affect profit at the store-operator level.
“All of us at the CEO level, we talk about revenue, revenue, revenue,” he says. “But one of the things you hear a lot from the AAMCO team is profit, profit, profit at the operator level. So I’m not showing them revenue. I’m showing them an income that they can attain, and I’m also showing them how this strategic direction supports them in an eventual sale, in the increase and equity of their business.”
Graham and his leadership team constructed the message by breaking down AAMCO’s business from the standpoint of sales, revenue and profit elements as it pertained to their core business of transmissions. Then Graham took the new business and did the same dissection.
“We proved to them that there is a significant amount of volume in the new business, and that volume could be transferred at an equal income rate as the core business,” Graham says. “On a global level, we showed that the opportunity was significant, and underneath that, we showed that it wasn’t just revenue, it was profit. And the last part of the message was underscoring that this great transmission business could be enhanced by total car care. If you take total car care, here are all the reasons why it is going to support and grow the transmission business. That is the hardest thing to hear and understand when, after 40-plus years, they’ve been running a business in a very specialized, one-method platform.”
Work with the stragglers
Graham had to get his franchisees to think about the business in new ways, which meant getting them to realize that each store could utilize its resources in new ways. For most simple auto repairs, such as brakes, AAMCO stores were already outfitted with the tools and manpower to take on the added responsibility, meaning very little in the way of capital investment. But for more complicated repairs, such as air conditioning, investment was required on the store level, increasing the skepticism of some franchisees regarding Graham’s plan.
“If you look at what you have to have in a facility, first of all they already have an average of six or so bays, and they have the technicians with the skills to service a complicated part like a transmission. So for them to transition to brakes, it requires almost nothing in the way of investment,” Graham says. “But some areas do require an investment, and I tried to emphasize that it’s purely a cash issue. If you can get a quick return, that cash issue goes away pretty quickly. So ultimately, it’s a fairly low capital investment to get hundreds of thousands of dollars in new revenue.”
In communicating with reluctant franchisees, Graham kept coming back to the concept of return on investment, and holding up some of the early franchise successes as examples.
“Something we communicate to every franchisee, and something that I’d tell all CEOs, comes back to return on investment,” he says. “Capital, in and of itself, looks like nothing more than cash. When put against the opportunity of profitability and ROI, it becomes far more measurable.”
To leverage his leading-edge franchise successes with the new business model, Graham started to create a dialogue among franchisees, and dispatched members of the company’s franchise support group to maintain personal contact with franchise owners.
“You have to expose everyone to your successes,” Graham says. “Our franchisees came to a website called myaamco.com, which only the AAMCO centers can access. They can see the exposure of the successes. They can see the top 50 and top 100 stores, and how much they’re doing, how beneficial it is to those centers. It drives them harder to get out to those same levels of achievement.”
The franchise support group has been retrained on the sales and marketing, and profit and loss aspects of the company’s business, so that when they go into an AAMCO store and talk to the franchise owner, they can talk about the ways in which revenue and profit can be improved.
“They can sit down with the owner, walk them through the improvements in revenue, items that can improve the revenue, how they can attain profitability and how they can market,” Graham says. “That is a big separation from how it has been done in the past.”
Graham says that currently, most AAMCO centers are involved in the service items that required a more substantial capital investment, and are showing the returns on investment that Graham initially projected.
“Now we have a great story to tell from the standpoint of ROI,” Graham says.
Continue to set goals
Sometimes, Graham’s operations heads do a double take when Graham comes to them with a new opportunity. But for Graham, it comes back to setting goals for the company that are aggressive yet attainable. You find that sweet spot outside of your comfort zone but within your company’s capabilities, by looking at the metrics of the situation.
“Here is how I lay out the metrics, and then I sit with my operators and they lay out back to me how they see the metrics,” Graham says. “What comes from that is the believability that the opportunity is scalable. Then, back to the question of goals and what is palatable on an annual basis.”
When setting goals by which to advance a new plan, you can find yourself tempted to lose patience. There is a new market that needs conquering, and you don’t want to wait. But the data you collect, and the process by which you analyze it, can go a long way toward restoring your nice, steady pace.
“When you see a business that you can grow at a 4x or 5x level, and an existing business that can grow at a nice number, your patience level as a CEO isn’t high,” Graham says. “So a lot of the goal setting, at least in my experience, is offset by an understanding of what is palatable and achievable.
“I was asked years and years ago how I looked at a company that I was getting ready to operate, and I said, ‘I’ll look at a wall, and on that wall are all these different knobs I can turn. Every single knob can create a dynamic that would give us more opportunity and profitability, but I know that if I turn too many, we flood.’ So that whole idea of goal setting, it comes more to an understanding of what level of patience should be applied. You make sure that you’re accelerating the opportunity, but the people in the facilities are able to keep up and enjoy it at an appropriate rate.”
Several years into the new business model, AAMCO is succeeding in becoming known for more than just transmissions.
“On our whole strategy, our franchisees were quite engaged, are still quite engaged, and we have gotten adoption on it,” Graham says. “The big key is to step back and look at the entire landscape. Don’t dive into it. See what the other side thinks, and then try to re-convince yourself from the standpoint of, in our case, the franchisee. Why should I believe this plan? As you break it apart and dissect the landscape, you should be able to convince yourself whether this is the right path to take. Then, you have to listen to your constituency and make sure you are working with them to knock down the barriers to the opportunity.”
How to reach: AAMCO Transmissions Inc., (800) 292-8500 or www.aamco.com
The Graham file
Born: Monterrey, Calif.
Education: Stanford Business School
What is the best business lesson you’ve learned?
Step back, stand in the corner and watch what is going on around you. It’s a fantastic business lesson because the people who are high performers do all the work, but they could perform at an even higher level if someone in your position would be able to mentor them.
What traits or skills are essential for a business leader?
The biggest skill is going to be an open mind. It’s so simple for someone in my position to mandate what I think is right, but you have to refuse to impart direction in that way. You want the entire team pushing forward, which you get far more as a collaborator than as someone who is only dictating rules.
What is your definition of success?
Success means everybody in the process understands what they are doing, they’re driving toward a common goal, can explain the goal and perform at a level that is satisfactory to everyone involved in the process.
Fundamentals. Vision. Strategy.
Nancy Schlichting knows they’re all business buzzwords. You execute on fundamentals, you strive for your vision, and you focus on your strategy. You teach your team about it, you reinforce it to them all the time. After some time, just hearing those words is enough to make your eyes glaze over.
But before you dismiss them as a few others in a long list of business clichés, Schlichting thinks you should reconsider. Every business needs guidelines, beliefs and practices that provide a template for how management and employees should operate on a day-to-day basis.
Without some kind of outline, a business has no direction. Which is why Schlichting structured her strategy and vision around the fundamentals that she wants to promote at Henry Ford Health System, the $4 billion health care network where she serves as president and CEO.
“We always start with our fundamentals,” Schlichting says. “We have seven pillars of performance that are really constant for us. Every year, we have to focus on our people, patient safety, service, growth strategies, our academic mission with research and medical education, a strong focus on the community and a strong focus on continuing to be stable financially. Those pillars really form our base. If we don’t perform well on those, there isn’t going to be money to make new investments and new strategic changes for the better.”
To allow everyone at Henry Ford Health System to execute on those pillars, Schlichting needs to put them at the center of all of her strategic planning, her vision for the future, and make them evident throughout her day-to-day interactions with her executive staff, physicians, nurses and other staff members throughout the 23,000-employee system.
What follows are some of the ways in which Schlichting promotes the system’s vision and strategy through all the avenues available to her, and some of the lessons she has learned along the way.
Though she runs a medical system, the way Schlichting and her leadership team form a strategic plan isn’t much different than the way a retailer or manufacturer might. Schlichting’s team identifies areas of competitive advantage, and tries to leverage as many ways as possible to accentuate those areas.
“When we focus on those areas of excellence, we try to take advantage of what we think are our areas of competitive advantage,” she says. “Frankly, it’s what any organization does — create a competitive advantage by trying to design and execute on strategies that others can’t copy easily. Then we try to take advantage of that model continually, always trying to figure out new ways to meet consumer needs, employer needs and community needs. It really gives us a great platform on which to build.”
For Schlichting and her staff, the market differentiators include the system’s medical group and insurance structure. Schlichting says Henry Ford is unique among area health systems in that it employs a salaried group of physicians in addition to private practice physicians under the organizational umbrella. The system also owns a health insurance plan with about half a million members, which gives Schlichting’s team an avenue to get closer to customers, major employers and community entities on the plan.
All of the information that the leadership team receives from the front lines helps the entire health system continue to identify and pursue the differentiators that will continue to ensure Henry Ford’s place as a leader in the regional health care field.
It’s a universal lesson that any business leader needs to learn when it comes to strategic planning: Stay in tune with what the market wants, and figure out new ways to give the consumers of your products and services what they need. That is how you turn customers into repeat customers.
“It’s isn’t just looking at the environment, it’s really looking at what is needed in the industry, looking at quality issues, service issues and access to the product,” Schlichting says. “It’s trying to focus on being comprehensive in your approach to business. That allows you to hopefully be proactive, as opposed to reactive, to the environment around you.
“You have to ask yourself what is specifically unique about your business, what you can create with the assets you have, what you can really try to achieve that is right for your organization. You have to have a vision for what has to be accomplished. If you have that vision, you can start to get creative around the strategies you need to form in order to get there. From my perspective, that is what we do here. We try to take full advantage of our organizational assets.”
Create a vision
Before you can plan to get somewhere, you have to know where you want to go. In that sense, a well-defined vision is the single foundational key to executing on fundamental principles.
The vision needs to outline goals that are ambitious yet attainable, and needs to be something that can link back to each person in the organization, so that everyone under your umbrella can feel a connection to it, and feel like their job contributes to the overall goal of realizing the vision.
Schlichting says corporate visions also need to have staying power. You can’t scrap a long-term vision for your company and reinvent the wheel every few months. Major crises, like the recession of the past few years, might force you to alter your goals. But unless your hand is forced to an extreme degree, you should strive to keep your vision consistent.
“The vision is hopefully something you can stay with for a period of time,” Schlichting says. “That’s because it has to be both inspirational and aspirational. The vision is typically not something you’ve already achieved. It’s something you’re working toward.”
At Henry Ford, Schlichting makes her vision personal for each employee by doing something very basic in concept, yet large in scale: She relates the customer experience to each employee.
“We’ve had a vision here for 10 years, and that vision is to provide the same quality of care and comfort that we want for ourselves and our family members,” she says. “What that has allowed us to do over the past 10 years was to really have a personal connection to a vision of excellence for every single person in the health system. There is not one individual working here at Henry Ford who doesn’t understand what it’s like to be a patient, or be a family member of a patient. It has allowed our housekeepers and dietary workers, our nurses and doctors, to all connect around that vision. It has been a highly motivating vision for us.”
As foundational as your long-term vision might be, there will be opportunities to take an alternate path and explore a new opportunity. You can’t get so locked in on your goals that you can’t see an opportunity. The key is to know when to make a detour and when to stay the course.
Schlichting says the opportunities you act upon should ultimately help you realize your goals, though maybe via a slightly different route.
“You have to have perseverance and commitment to what your strategy is, but you also have to have some agility,” she says. “There are things we’ve done over the past 10 years that have been strategic — what we wanted to do is what we did — and other things that were more opportunistic, such as the acquisitions of Henry Ford Macomb Hospital and Henry Ford Medical Center – Cottage. Those were things that emerged as opportunities, and based on us having our antenna up, and us being agile and flexible in terms of things we thought would help the organization.”
Your ability to remain opportunistic is largely reliant on having an open mind and, within reason, an open wallet. If you want to have the latitude to make an opportunistic move, you need to save enough in other areas to develop a financial reserve.
“You have to be open to those types of opportunities, and some leaders are often not as able to be open like that,” Schlichting says. “So you do need to have a financial position that gives you some latitude to be able to finance these opportunities as they come along. The financial structure and the leadership position both need to have strategic and opportunistic elements, and afford you the ability to react and move quickly as the opportunity arises. You need the frame of mind along with the financial resources that are available.”
Learn to say yes
It’s one thing to have fundamentals. It’s one thing to develop core values, a vision and a strategic plan. It’s one thing to say you’re going to execute on all of it. But it’s entirely another to get all of your employees to buy in and work alongside you.
“Engagement” is another business buzzword that you’ve likely heard countless times before, but no matter the terminology you want to use, the need to have employees on board and moving in the same direction with you is a universal need in business. If you don’t have your employees with you, you won’t be successful.
You get your employees on board by enabling them to have a hand in helping your organization to realize your vision. And there is a three-letter Swiss Army knife of a word that you can use to empower employees in a variety of situations.
“I always tell our leadership that the most important word in my vocabulary is ‘yes,’” Schlichting says. “You don’t want to create a culture that is supposed to embrace innovation, or a culture that allows you to take advantage of important opportunities, unless you have that kind of view of the world. Because people don’t come to you twice. If they come to you with their exciting new idea that they thought through and are committed to and you say no enough times, people aren’t going to come forward anymore. You’re also not going to have people in the outside community think that you’re an organization that is open to new ideas and opportunities. It’s those kinds of messages that are important.”
That doesn’t mean you let everyone run free with their ideas. You still need your people to innovate in the same general direction. “No” is still an option, but one you should use only when the idea or suggestion does not fit. And if you tell someone ‘no,’ show them why you can’t use the suggestion.
“At the same time, you need to have discipline around the operating metrics, around performance strategies. You still need to have that fundamental discipline, but it’s also helpful to have an attitude that says ‘yes’ more than ‘no,’” Schlichting says.
How to reach: Henry Ford Health System, (800) 436-7936 or www.henryford.com
The Schlichting file
Education: Bachelor’s degree in public policy studies, Duke University; MBA in hospital administration and accounting, Cornell University
Schlichting on having a positive attitude: We all wake up in the morning with either an attitude of optimism or pessimism. I think it has to come from within. As an individual, you really have to be a positive person. And there are days when I act a bit more, come in on stage and perhaps acting more than I believe it. But you have to do that some days. Not to be unbelievable, but to be encouraging to others. We all have those points when things don’t go well, and those are the true tests for leadership. Because how leaders handle those tough times frankly are your defining moments. People watch us.
Schlichting on building a leadership team: It is probably the most important job of a leader, making sure they have the right team around them. And with the right team, it can make your life a lot easier, it can make things go very well and smooth. But with a team that is not engaged in that way, it can be very challenging. I think it starts with the values of the individuals. When I interview people for my leadership team, one of the first questions I ask them is ‘What do you stand for as a leader?’ Sometimes they look at me like I’m a little nuts, like they’ve never thought of it that way, and that tells me something.
Schlichting on internal communication: The direct manager is the most important person from a communication standpoint. We create tool kits and cascading information in the organization, and we have a communications team that I meet with every month. So we strategize about the messaging, about how we’re helping managers, supporting them, doing often with videos and tools that help them communicate effectively.
If you follow baseball in the Los Angeles area, Dennis Kuhl, chairman of the Los Angeles Angels of Anaheim, wants you to know one thing:
“The Dodgers are not my competition,” he says. “When I go out and speak, people ask me about the Dodgers being my competition. But my competition is Southern California sunshine. You have to talk a family of four into coming to the ballgame instead of going to the beach. So you’d better have some things going on that are exciting.”
Kuhl came on board with the Los Angeles Angels of Anaheim shortly after owner Arte Moreno purchased the club in 2003. The team’s 2002 World Series title predates Moreno’s ownership, but under the leadership of Moreno and Kuhl, the Angels have become a perennial playoff contender and one of the leading attendance draws in Major League Baseball.
Moreno has bankrolled the talent that has led to the team’s on-field success, but Kuhl says it has been a group effort to keep fans in the stands at Angels Stadium of Anaheim, from the front office all the way down to the janitors, ushers and parking attendants that interact with fans before, during and after games.
It’s really no different from any other business: a respected brand plus great customer service leads to repeat customers.
“Our brand itself is well-known, but we also wanted to demonstrate great customer service,” says Kuhl, who served as the team’s president until 2009. “But that is only part of it. You have to reach out to the community in which you live. We have to let our fans know they’re a big part of us being here in Orange County and Los Angeles. That means you still constantly have to promote your brand, even with a well-known image. I tell everyone in the organization that they’re a salesman. You’re representing the Angels and you’re selling Angels everywhere you go.”
Know your colors
Kuhl and the Angels leadership team picked three items to serve as the outward identity of the organization: the color red, the name “Angels” and the club’s capital “A” logo. The use and appearance of all three factors is carefully managed to promote brand association throughout the fan base.
“You’ll never see our ‘A’ in camouflage or a different color,” Kuhl says. “It’s always red. We specifically picked the color red, and in our merchandise store, everything is red. Everything we give away is red. And the third item is the name ‘Angels.’ We don’t put ‘Los Angeles Angels’ on our stuff. We put ‘Angels.’”
The goal was to create a distinctive brand image, one that employees want to support and promote, and one that fans want to embrace. The Angels nickname and the club’s capital ‘A’ logo have been around for decades, but the club’s transfer to a red-dominated color scheme in 2002 is something Angels management views as the final ingredient, what makes the whole branding recipe work.
“Too many organizations tinker with their logo, change it every year, and we have not. We have taken that brand into the market and kept it the same, kept our uniforms the same. People have responded, because when you come to a game, you see a sea of red. They’re getting it.”
Kuhl says it’s counterproductive for a business to focusing on being many different things to many different people. You have to zero in on what it is you are trying to be as an organization, and work hard to put those essential elements in front of your customers on a constant basis.
It might be exciting to revise your company’s image and try new looks on for size. But if you water down your image with too many differing messages, you’re going to confuse your customers as to what you really stand for as a business.
“You can’t focus on 20 different things,” Kuhl says. “You have to focus on a small number of things and work hard on branding that name. When we go to a dinner or to a Rotary Club meeting, we take a bunch of inexpensive hats with us, and every kid there gets a hat. A lot of people think if you give away hats, they won’t buy them in the store. We don’t care right now. We want to see every kid in Orange County, in the whole Los Angeles area, wearing an Angels hat. You start with the kids, and if you walk into a store around here now, you see more red than you ever have before. It’s because we’ve stuck with our image and focused on it.”
Kuhl says the Angels aren’t looking to other baseball teams for branding inspiration. They’re looking at companies like IBM.
“You have to focus and pick your brand, and develop your mission,” he says. “Like with us, our mission is youth. You have to, as an organization, pick what your goals and brand are, and tie it in with the surrounding community. And you have to develop the culture within the organization. We have to have people buying in to what we are doing, what Arte’s goals are. That has to come internally.
“I’ve seen other great organization do that. In college, I watched what IBM had done, how they built their brand, and their brand is as strong as it gets. Nike is the same way. They believe in their culture, and that’s what we want from our people.”
Project your culture
One of the oldest axioms in the business how-to book says your culture isn’t what you say it is — it’s what your people believe it is. It’s also what your people project to your customers.
Even though the Angels have carved out a large and loyal fan base throughout Orange County and the Los Angeles area, they can’t take that as an indicator that they’ll reap the benefits of bumper-crop ticket and merchandise sales. As with other businesses, it still takes diligent work to constantly improve customer service and enhance customer experience. A guy in Orange County might have an Angels pennant hanging in his house, but Kuhl still needs that guy to take the step of driving to the stadium, buying tickets and taking in a game with his family.
To make it happen, Angels games need to be a customer-focused experience from the parking lot to the stadium and back. Which means everyone who works at an Angels game is an ambassador for the team.
“The people in the office, like myself, we might touch the fans, but we don’t touch them like the ushers, like the parking lot attendants, janitorial people and concessionaires,” Kuhl says. “Those are the people who have direct contact. We need to educate them on the service we want to see from our employees. We want them to smile, say thank you and look customers in the eye. We want them to know if customers aren’t getting good service. That’s why I say we have team ambassadors.”
Turning employees into ambassadors for your organization takes training. But as part of the training, it takes a great deal of dialogue. Employees won’t feel empowered to represent the business if they don’t feel engaged in the process.
Kuhl wants his employees to know how to provide a good customer experience. But he also wants the people who work at the many customer interface points at an Angels game to tell the management team what needs to be done better, and where new ideas could potentially flourish.
“When we meet with game day employees, the first thing I do is go talk to them,” he says. “I thank them for the job they did the previous year, I ask them if they have any questions about the organization. It’s important that those questions come from the top. But then, we let them speak out, and we want to hear some of the problems that they’ve had and some of the areas where they think we could be doing a better job.
“When you let people speak out and give them the opportunity to tell you what is going on in the stadium, you can find out what is missing, what else we need to do. If someone in the stadium needs a wheelchair, we don’t want them to find you. You go get it, and you don’t have to ask. Just go do it. That gives them a sense of belonging. That gives them a sense that ‘I belong to this organization, I am a representative of this organization, and I’m going to do the best I can.’”
Feed yourself some feedback
Fans write letters to Kuhl all the time. He takes the time to read them all, but he’s particularly interested in letters that provide some sort of constructive criticism regarding how the Angels can make the game day experience better.
“Last year, one of our issues was that there were not enough healthy alternative foods at the games,” Kuhl says. “So we go together with our food service partners and put together a menu selection with some more gluten-free choices and other health-food alternatives. We developed it, we’ll promote it on the scoreboard and we’ll see how it goes over the course of the season. You have to take a look at what people are looking for.”
And if people aren’t finding what they’re looking for and they’re taking their dollars elsewhere, you need to find out why.
If a season ticket holder doesn’t renew for the following year, Kuhl and his staff want to know the reasons why. It might be related to the recession, or it might be something that the Angels could have done better.
“Our customer service representatives call every season ticket holder after the season, then again around Christmastime,” he says. “It’s amazing the feedback you get. But you have to make the effort to go out and reach out to these people. If somebody didn’t renew their season tickets, we want to know why. We want to know what we could have done better. If you’re not interested in season tickets, would you be interested in a mini plan? Things like that. But you have to go out to the market; the market is not going to come to you. You need to set up a customer service organization within the company, go out and seek them.”
In the end, Kuhl says, you’ll probably find that customers want a good product that doesn’t break their budget. If you have those two factors, you’re off to a good start.
“You sit down and say ‘OK, what do the fans want?’” he says. “In baseball, people want a winner, and Arte’s been working to put a good product on the field. Off the field, you want to get the people into the seats. And once they’re in the seats, maybe they buy a hot dog. And if you get them in here and they enjoy the experience, maybe they come back again. That’s why you concentrate on having that good fan experience, good customer experience. We have to focus on giving them value for their dollar. That’s the way I feel, and that’s how our plans are constructed.”
How to reach: Los Angeles Angels of Anaheim, (714) 940-2000 or losangeles.angels.mlb.com
The Kuhl file
Born: Boonton, N.J.
Education: Business administration degree, University of Arizona
First job: I was a caddy in a country club in Boonton when I was a kid. It was interesting being around a lot of successful people. They had money and belonged to a country club, and you kind of looked up to them. You respected them. And they always treated us very well. I was always impressed with the way most of them treated the caddies. And what I learned was that you always treat people with respect. That made an impression on me at age 12 or 13, and I’ve always carried that with me.
What is the best business lesson you’ve learned?
One of the things I wished I was better at was being more of a visionary. I’ve been working a lot of years with Arte Moreno, and he’s a very visionary person. One of the lessons I’ve learned from him is to never make decisions looking at the past. Always make decisions for the future. Don’t look to the past; always move forward as you’re running a business.
What traits or skills are essential for a business leader?
A real business leader has to see four or five years down the line, and then communicate a plan to the employees. You have to hire the right people and know who to put in charge. You need to really believe in your vision and communicate it to your team.
Kuhl on changing the club name to Los Angeles Angels of Anaheim in 2005:
We believe our baseball team is in a big time market. We want to make sure we acted like a big market team, not small market. We wanted our advertisers to know we live in a very large metropolitan area. We felt this was one of our steps that we needed to take to let everyone know that we are a part of the Greater Los Angeles area, and it has helped us to be recognized as a big market team.
Andy Alexander had his work cut out for him. It was April 2009 and he had to continue to get Red Roof Inn on solid financial footing. The company was letting the dust settle from ownership and leadership changes and economic doldrums were causing a downturn in the travel industry. The new owners and Alexander agreed: The iconic brand needed to get back to basics.
In his role as interim leader, and later officially as president, Alexander had to overcome customer perception that the icon was dragging a bit.
“We were a brand that needed a push,” Alexander says.
Customer reviews said Red Roof’s midscale lodging experience at an economy price was at best, something they didn’t think the company still had, or at worst, or something that had been lost.
Returning the 4,500-employee company into the groove started with patience and persistence. After a year and a half, things were looking up. The portfolio size was increasing, the revenue per available room was 14 percent higher than the competition and perhaps most telling, Red Roof Inn was garnering high customer satisfaction scores in online hotel review sites.
Here are steps Alexander took to breathe new life into the brand.
Define the vision
The lodging chain’s new owners were adamant about reinvigorating the brand, so much so that it built new headquarters in Columbus where it all began in 1973.
“Being downtown and part of the Columbus community is a very important aspect to reinvigorating the brand and bringing it back to those roots,” Alexander says. “The theme kind of does a 360 back to that aspect.”
Over the years, the number of competitors in that segment grew and made it more difficult for Red Roof Inn to stand out.
Alexander was no stranger to the hospitality industry, and he brought with him an important piece of advice that he learned from his former boss at another lodging company.
“He said for a brand to succeed, you have to know what you’re best at,” he says.
Defining the company’s core competencies is an important initial step. This involves meeting with employees and the management team until a mission statement is developed.
“That was the first thing I asked the team here ? what are we best at?” Alexander says.
“What we found was that we are best at the basics.”
You have to come up with your core competencies and work from there. Mold and manipulate the information until a concise statement is developed. Brand recognition, customer service and consistency are critical areas that should be part of the vision ? and the mission.
“You want to impress your customer with outstanding service and give them what they are expecting time after time ? that same consistency,” Alexander says. “I think the brand consistency is what sells; it helps us to sell both to consumers and franchisees. Without that consistency, and the consistency of service and product, you’re likely to become a brand that’s much more a commodity.”
The analogy of gasoline stations illustrates the dangers of becoming just that.
“You come up to the corner and if one’s two cents cheaper, you choose that one over the other one, regardless of what the brand is,” Alexander says. “When you lose your consistency and people can’t count on receiving that high quality and value, they’ll just come to the corner and look at the various prices or look on the Internet and choose the cheapest.”
When you are developing the vision, add a heavy dose of customer feedback into the mix. Rely not only on customer surveys, but also on consumer sessions, discussions with members of a loyalty or rewards club if you have one and face-to-face chats with customers.
Surveys, if done properly, help a great deal in narrowing down the strengths and weaknesses as seen by customers. Avoid the short-answer questions that usually result in answers but not the reasons for the answers.
“There is advanced technology so surveys really lead the customer to give more precise detail without burdening the customer with lots of open-ended fill-in questions, which you know if you’ve taken a survey, you don’t like,” Alexander says. “What you want is to be led through the question-and-answer tree so you reach the point where you make a specific point and tell why. Whatever the customer’s issue might be, surveys now give the ability to get in much finer detail the information needed. That’s a big area for feedback.”
Along the lines of technology and feedback, social media is proving to be a useful tool.
“It was not that long ago that if you had a big enough marketing budget, you could go on television or radio, in print, and over and over again say, ‘We’re great, we’re great, we’re great,” Alexander says. “Eventually the public believes you because they’ve heard it enough, they’re not sure where they’ve heard it from but they know you’re great.
“Social media has put an end to that because with social media, you can’t just say you’re great ? you need to be great,” he says. “It’s really leveled the playing field, and for a company that had a smaller marketing budget, it puts it in a great position.”
Social media can bring a double shot of benefits when you are fine-tuning the vision. Not only can it define what customers are saying and would like to see, but it can give you prompt feedback on the action you have taken
“Two years ago, as WiFi became more important, our guests said one of the top things they wanted was free WiFi,” Alexander says. “So we rolled out free WiFi, and the guests responded. I think our performance has improved as a result, and that’s just a testament to making sure you’re listening to your customers and responding when they have need.”
Once the vision and mission are defined, you have to get to know your employees before launching action to reinvigorate the company and secure employee buy-in.
“You can’t just be a leader who is out traveling around the country as a figurehead,” he says. “Be a working CEO, day to day, and work with your team to understand them, their personalities, the way they like feedback, they way they work among the team when they need support ? and when they need to be left alone.
“But each is different. Some players, if you don’t touch base with them 10 times throughout the course of a project, you end up getting off track. Others you touch base with them 10 times, and you just slow them down. It depends on the individual, but if you’re a figurehead, or someone who’s just offsite, you’ll never learn the traits of your people.”
A leader often has to walk an imaginary tightrope when it comes to delegating responsibilities.
“Individual department heads have to be accountable for results, but they can delegate to achieve results within their department,” Alexander says.
Think of delegation as a method to recommend proceeding with less guidance or more guidance, whatever is needed.
Today’s ever-changing technology poses challenges at times, but a peer approach to designing and teaching can have good results if for instance, you’re installing a new computer system or upgrade.
“Change is always difficult and getting employees to buy in is important, but the best way to do that is to have as many of them as possible, at least many of their peers, involved in the process,” Alexander says. “Use individuals who aren’t managers and use them in the process of determining which system to choose. Obviously, that helps when not only do you get a better result, but you get buy-in because the people who have to actually implement the project were part of the process.”
Buy-in efforts should include designing the proper team to help ensure the mission statement is carried out.
“A CEO can come up with a vision, but without a team that can achieve results and achieve superior results to see a vision, it will fall by the wayside,” Alexander says.
“Use this approach: spend a significant amount of your effort in not only just creating the vision but in putting the team in a position, in a sense, to overachieve ? to reach their highest potential, both as individuals and as a team.”
Nurture the effort
The final step is to nurture the changes. Management should next identify employees who are willing to step out of their comfort zones and try something new.
“I’ve seen it as I’ve worked at different levels with peers as well as people who have worked for me that most people have much more inside them than what they give,” he says. “It’s not that they don’t want to give it; they just aren’t given the opportunity.
“Encourage them even if they sometimes fail, and do not punish the failure but reward the attempt. In a way, it’s a social science that’s really developing. People are more and more recognizing that missed opportunities are more harmful to an organization than taking the opportunities and failing.”
Work hard to make sure all employee ideas are rewarded with recognition and support that inspires confidence. Employees need to be given the chance to put their ideas into play to advance the company where they feel they can.
“What makes one person overachieve will not work for another,” Alexander says. “It’s important as a leader to figure out what the right buttons are to push and what are the right incentives to make each individual succeed and overachieve. Avoid treating everyone the same and trying to push them along the same way.”
Changes often will take time, but an incentive program can reward employees for their success and can help them stick it out.
The commonly used multi-tiered incentive in the form of a bonus that balances quality, service and financial performance is workable for the manager level. At the coordinator-type level in which there is frequent customer contact, use a different approach.
“Focus, obviously, much more on what they can make a difference in, toward things they can affect,” Alexander says.
If you have a survey system in place which applies to the coordinator level, report results quarterly. Tally them so they can compete against other company divisions or regions.
“They take great pride in that they’ve earned the most and correct points in their region, and it’s a rallying point for them,” he says.
Energized employees will help reinvigorate the brand. And if you’ve been successful in getting across your message that you’re not abandoning the core of the business, your people will support the plan.
“Don’t try to be a brand that’s something different than you’ve been,” Alexander says. “Just try to be better than you’ve been.”
How to reach: Red Roof Inn, (800) 733-7663 or www.redroofinn.com
The Alexander file
Education: George Washington University; Case Western Reserve University School of Law
What was the best business advice you were ever given?
This was at my first hospitality job. When I arrived, the CEO took me inside and said, “What I’d like you to do is before you jump in, I’d like you to watch, listen and learn before you speak.” It was great advice. It allowed me to learn the culture, understand the strength of the team and understand the vision and goals of the company before I inserted my personality and my own agenda into the company. I give that advice to everyone ? everyone wants to hit the ground running but you need to have something underneath your feet first. That was the advice that gave me that foundation. Then when I started running, I was actually able to get somewhere.
What’s the favorite part of your job?
It’s maybe not a part of my job, but fortunately I have an opportunity to visit the different inns and observe both the customers as well as the employees. The most rewarding thing is when the customers tell me that we met or exceeded their expectations and my employees tell me they loved where they work.
Alexander on doing business:
We’re doing business without a net. That’s how I would describe it. Seventy-five percent of our reservations are either made or walk in the day of that night. So we don’t know what is going to happen that day. We have a lot of data to tell us what should happen that day, but we are very focused on a world that can change on a dime for us. It means that while we look at data and we have a ton of it, we have to make sure our people are focused on the meaningful.
In the first 30 to 60 days after Phil Rykhoek announced that his company, Denbury Resources Inc., would be buying Encore Acquisition Co., his phone rang constantly. On the other end were angry shareholders who didn’t understand why he was doing the acquisition.
“You just have to work through it, and you have to see what their concern is and focus on their concern,” the CEO says. “Many of the phone calls, particularly there in the first couple months, would go for an hour and a half, two hours, because you had to walk through the whole thing.”
He had one-on-one phone calls. He had had road trips with senior management. He had conference calls. It wasn’t fun most of the time, but he knew this was the right choice for the oil and gas company.
“There were days when it was kind of difficult, but we all believed that this would be a good deal for Denbury, and it would turn out to be a long-term, very strategic, profitable acquisition. That’s the message we had to get back to shareholders,” Rykhoek says. “We tend to be a longer-term-focused management team in that we try to make decisions that were going to help us long term. Unfortunately, Wall Street is a bit more short-term-focused. It was a little bit of a disconnect there. We had to convince them this was going to make sense in the long term.”
Add to the stress of trying to convince shareholders from both companies of the merits of the acquisition, but he also had to deal with moving both companies to a new, combined headquarters and the normal responsibilities of carrying out an acquisition.
“It was just a lot of extra work that comes from putting two companies together that puts a strain on everybody, and in the meantime, you have to keep the company operating, so the day-to-day work didn’t go away.”
Get employee buy-in
While Rykhoek fielded angry shareholder calls, he and his team also had to convince employees at both companies that this was a good thing.
“We tried to be very upfront with employees right away,” he says. “We had several group meetings and employee meetings right after we announced the deal and talked to them about our plans and how this was going to benefit the combined companies.”
When you present news like this to employees, be prepared for not everyone to see it how you do.
“You always get a mixed reaction,” he says. “Some people love it — the ones that are more aggressive and wanting to grow and get excited by the change. Those people love it, but a lot of employees don’t adapt to change as well, and those are the ones that will resist it.”
It’s critical to get everyone to buy-in. First, he wanted to make sure his current employees knew where Denbury was going and how the acquisition plays into that.
“You try to, one, point out how important this is to Denbury and how it’s going to benefit the future growth, and that’s the reason you came into this acquisition,” he says. “You try to get that message out, and then you try to give existing Denbury employees assurance that this is not going to hurt them — this is going to help them. The company’s growing — it presents new opportunities and presents opportunities for growth in different areas, so you try to present that side.”
But it’s not just your current employees that are affected. Rykhoek also knew he and his team needed to communicate well with the Encore employees, as well.
“The new employees from Encore are harder because they’ve just had their company sold out from under them, so to speak, so we spent a lot of time letting them get acquainted with us and spend time with management and spend time with HR in the different areas and see we’re not a bunch of bad guys, and it’s a fun place to work,” he says.
It was important for them to point out the fun aspects of Denbury to the new employees and tell them about the culture and how the company has extremely low turnover because employees are generally happy. He also explained how the compensation strategy is team-based.
“We all get paid based on how well the company does, and we really try to reinforce the team concept rather than disjointed, free-for-all, where people try to point out individual performance or, ‘I did this, I did that,’” he says.
As such, to get people excited about the acquisition, they told employees that they would increase their target bonus by 25 percent, and that would be evaluated based on how well the transition went.
He hoped that sharing the benefits of a team-based culture would get them excited about the new combined organization.
“Basically, sell the company to them,” he says.
Create a team
Once he had repeatedly and effectively communicated the reasons behind the acquisition to both sides, Rykhoek had to work on merging both sides into one team.
“When you’re trying to integrate, you of course want to present that culture to them, but you want to get them into the team as fast as possible,” he says.
This required a couple different approaches, starting with face time between the two sides. They rented out a place and had a food and music get-together event after work in Fort Worth, where Encore was headquartered.
“We took a load of Denbury people over and gave them a chance to interact and meet one another,” he says.
The bus also went both ways — they brought Encore employees over to the Denbury headquarters in Plano.
“We brought the Encore folks over in different batches by department or by discipline and gave them tours of our office and had several of the managers spend time with them,” he says. “They could answer their questions and get acquainted and get a feel for what Denbury is like. … It was just trying to get face time, if you will, between Denbury employees — in particular the managers — with the Encore employees.”
In addition to getting both sides comfortable with each other, he had to also physically merge them into one location. While many acquisitions bring layoffs, this wasn’t the case with the Denbury-Encore acquisition. While there were a few isolated cases where some people weren’t needed, for the most part, all employees were invited to come on board. Despite that invitation, only about half of the Encore people did.
“It wasn’t like there was a big dislike of Denbury,” Rykhoek says. “It turned into a geographical issue. The corporate headquarters are about 45 miles apart, so depending on where you lived, in some cases, it was impractical for them to commute to Plano.”
Because of that, they wanted to make it easier for employees and offered them a relocation package to move closer, but still many didn’t accept it because they didn’t want to uproot their families.
Rykhoek and his team also did something many would see as crazy — they paid out severance packages to anyone who didn’t want to come over.
“One of the criteria in most severance plans is if you have to go more than X miles to the new company, you could leave for good reason and get severance,” he says. “In their severance plan, the criteria was 50 miles — we were less than 50 miles. In theory, we could have been a little bit more hard line and said, ‘Tough, you need to come work for us, or we’re not going to pay you,’ but we chose not to take that approach.”
They told employees that they understood it’s a tough commute and asked them to at least stay on to help with the transition. They put a time limit on the transition period so employees had an end in sight, and then they rewarded those who stayed to help.
“We said that if they would stay with us until we could transition that we would pay them all the normal severance that they would have gotten, so we gave them an economic incentive to stay,” he says. “People were cooperative with that, so that helps us.”
Merge your systems
With people on board and his employees merging, one of the other key steps Rykhoek needed to do was get the systems merged between both companies. This is one of the many areas that Rykhoek depended largely on his team to effectively complete.
“Generally, the CEO’s role is overview, strategy, direction,” he says. “I do quite a bit of communicating with shareholders, and as part of the negotiations, I was pretty heavily involved in the negotiations to acquire Encore. … But the day-to-day decision of which software package to use, most that I had very little input, if any, because that was handled by the experts in those areas.”
Instead of having a team at the top decide which systems to use, he charged the people in each department to make those decisions for themselves.
“People are aware of using the different software packages in the industry and in their area,” he says. “If you’re an engineer, you know what the options are. If you’re an accountant, you know what the options are.”
He gave them very loose guidelines so as to not micromanage and ensure the best decisions were made.
“The guidelines were just, ‘Figure out which has the better system, and let’s go with that,’” he says.
It was critical that both sides worked together to come to a conclusion to avoid the us-versus-them mentality when they started using the systems side by side. Encore people took the time to explain their systems and how they worked, and the Denbury people listened. If both were similar and there wasn’t evidence heavily leaning in either direction, then there was a tie-breaker.
“If it got to be that close, if it was a real tough decision … then we probably kept the Denbury system because Denbury was slightly bigger, and if you look at the transition and the conversion, it would have been more difficult to convert Denbury to Encore than vice versa.”
These decisions were made within several months, but some of the conversions took almost a year. Most of the operational and technical systems could be integrated more quickly, but they also had to consider Sarbanes-Oxley and didn’t want to do anything that could disrupt that, so the accounting system didn’t move over until Jan. 1.
The acquisition was complete in March 2010, and now Rykhoek is seeing real benefits.
“Most people got better with it as time went on,” he says. “The Encore people got more comfortable with Denbury and vice versa.”
He’s amazed at how well his people responded throughout the process. The employees made a huge difference, and, as a result, those target bonuses that were increased by 25 percent if the integration went well were paid out at the full 25 percent as a reward for the extra efforts.
“There was a lot of overtime and a lot of extra effort put into it, and we couldn’t have done it without everybody’s help,” he says. “It’s just wonderful to have a group of dedicated employees that put forth the extra effort when you ask them.”
The acquisition also took Denbury from $889 million in total revenues in 2009 to $1.9 billion in 2010. Looking into the future, Rykhoek is excited about Denbury’s future.
“We have a much larger company, our leverage is good, our balance sheet is very strong,” he says. “We’re an oil-focused company, and obviously oil is doing very well in today’s market, and we have a lot of potential, so we think we have a great future.”
And Rykhoek’s phone has stopped ringing as much as it was because even the shareholders are now happy about the deal.
“Now, they look back at it and say, ‘This made sense,’ because what we did was we took Encore, we kept the core assets we were interested in and sold the rest to pay for the deal,” he says. “That all went smooth, we got good prices, it happened very quickly. In a period of a year, we got our leverage back down to where it was pre-acquisition. Now the shareholders look back on it and say, ‘That was not such a bad plan.”
How to reach: Denbury Resources Inc., (972) 673-2000 or www.denbury.com
Phil Rykhoek, CEO, Denbury Resources Inc.
Born: I grew up on a farm in Iowa, and I didn’t want to be a farmer so there wasn’t anything to keep me there.
Education: Degree in accounting and management with a minor in economics from Evangel University in Springfield, Mo.
What was your first job, and what did you learn that still applies?
The first real job, other than trying to sell things that kids sell, was I was working construction. I built grain bins.
I don’t know if it’s specifically on that job, but if you look back at my past, we were taught as kids to work hard, and I think that’s some of the culture you get being a farm boy. You’re put out, at a very early age, in the fields and doing chores and you had responsibilities at a pretty young age. We were taught to be responsible and taught to work hard, and that carried through my whole career. We worked very hard in construction, too. It was hard work.
As a child, what did you want to be when you grew up?
I didn’t want to be a farmer. I really didn’t know until I got into at least early college that I wanted to go into accounting and finance. As a kid, I didn’t know. Some of the work outside got to be quite hot and nasty and dirty, and I decided early on that I didn’t want to be a farmer. I remember, I unloaded the oats into the storage facility, and it was hot and nasty, and I don’t know if you’ve ever been around oats, but it’s real chaffy, and it gets all over your shirt and itches and it drives you crazy. I said, ‘There’s got to be a better life.’ Of course, I have to admit, today, the farmers have got it a little bit better for them, and now a lot of the tractors have air-conditioned cabs and climate-controlled cabs, so it’s not as bad as it used to be, but it’s still very hard work.
What’s the bed advice you’ve ever received?
Work hard and do things with integrity. We try to run the company — all four of us operate this way — with integrity. Do things right, do things the correct way, and when doing business deals, we try to do things that are win-win situations and that pays off in the long run.
The halls and rooms that comprise Turner Enterprises Inc. are more than simply office space for the entity that runs famed businessman Ted Turner’s operations. They’re partially a tribute to Turner, chairman of the organization, featuring photos and awards depicting his success, but they’re also part museum, with memorabilia and paintings decorating conference rooms and foyers that show his passions ranging from the Civil War to sailing.
Enter Turner’s assistant’s office and you’ll see more than 100 magazine covers featuring Turner from over the years adorning the walls. And from there, enter Turner’s own office — dim, as the lights are off to conserve energy — and you can’t help but notice the wall full of honorary degrees behind his desk and further evidence of his achievements and interests.
It’s all a legacy of a life of entrepreneurship and innovation by the man who pioneered 24-hour news by founding CNN and has been involved in many different business ventures over the years, including starting the Ted’s Montana Grill restaurant chain. Beyond his business achievements, he’s won 180 sailing trophies and is one the largest individual landowners in the United States with approximately 2 million acres of personal and ranch land. He’s also passionate about furthering clean-energy initiatives, and he gave a $1 billion gift to the United Nations through the United Nations Foundation, which he created to support goals and objectives of the U.N.
Turner’s accomplishments could take up pages, but constrained by word counts, simply put: Ted Turner is a legend most business owners would do just about anything to sit down and talk to, but when it comes down to it, he can summarize his success in just a few main keys.
“One common thread is hard work, and another is careful consideration and thinking through what it was that I wanted to do and going through the mental exercises of what could go wrong and being prepared for that as much as possible,” Turner says. “You can’t predict completely what’s going to happen, but you can have a plan and think it through as carefully as you can, and then once you make the decision, after very careful thought — or this is the way I did it — when I did decide to move forward, then move forward with great speed.”
Think through an idea
When Turner first thought about the concept of 24-hour news, like most great ideas, it was because he had a problem.
“I wouldn’t have done it if I wasn’t convinced I was right, and the reason was I never got to see television news because I got home after 7 o’clock when the news went off at 7,” Turner says.
He also went to bed before 11 o’clock when the news came back on, so he had to read the newspaper to keep up with current events. Twenty-four-hour radio was already successful, so he thought if 24-hour radio news could work, why couldn’t 24-hour television news?
“People came home, and it was 8 o’clock at night, and they already missed the early news, and it was three hours away from the late news, so why wouldn’t it be something some people would want to watch?” Turner says. “Maybe a lot of people would want to watch sit-coms and the talk shows, but there probably would be some people who would like to see the news and not waste their time with entertainment.”
But, like many often do, he didn’t initially do anything about it.
“The easiest thing is to do nothing, and then you’ll never get in trouble — and you’ll never get anywhere either, but doing nothing is an option, and that’s an option that most people avail themselves of in life,” Turner says. “They do as little as they can, and they don’t realize what they could have done because they didn’t do anything. That’s most people. It’s just too hard, and it is hard. It’s extremely hard, and you’ve got to be — there’s an old expression I heard somewhere — smarter than a tree full of owls to do anything like create a Microsoft or a Google or a CNN.”
He says you have to be like Yogi Bear — smarter than your average bear — and that’s exactly how Turner was as he thought through this seemingly crazy idea of 24-hour news.
“At the beginning, when I first thought that, I never thought that it would be me that did it, because I didn’t have two nickels to rub together, and I knew it was going to cost a fortune to do,” he says. “So for the first three years, I sat there and watched and nothing happened. I figured CBS or NBC or ABC would do it, or all three of them at the same time, but they didn’t. They made the choice to fight cable rather than embrace it and try to keep things the way they were with three channels.”
Create a distinctive plan
When Turner realized he would have to be the one to start 24-hour news, he made sure to think through what it would take and the possible problems.
“Let’s face it: 90 percent of all new businesses fail, so the odds are way against you to start, but that’s how you really break through,” Turner says. “You have to come through.
To really break through, you have to come up with some kind of plan that’s a little bit distinctive and hopefully a little bit different than what your competitors are doing — if there are competitors. Usually there are.”
He’s seen both — when he started Ted’s Montana Grill, there were tens of thousands of other restaurants he would be competing against but very little barriers to entry. On the other hand, with CNN, the barriers to entry for delivering 24-hour news were huge.
“They were costly, and there were limited satellite distribution capabilities at that time, and there was not very much distribution — certainly not enough,” Turner says. “There was no way CNN could be profitable with cable penetration at 14 percent, which is approximately what it was when we started.”
Instead, he recognized that it needed to be at 50 percent.
“In order to get my television channels in to people’s homes, we had to get the rest of the people in America to subscribe to cable, and cable wasn’t even in front of over half the homes,” he says.
Recognizing what he thought was the threshold for success was an important part of creating that plan.
“You make your own metrics for what success is,” Turner says. “You set up criteria and write down what you think would make you feel successful. Each person would do it differently. What success is for one person wouldn’t be success to another. If one guy said, ‘If I made $1 million, I’d be a success,’ but to another, ‘I wouldn’t be a success unless I made $1 billion.’ They’d be off by a factor of 1,000 to one.”
Sometimes you may start in with your idea and then realize you’re not going to make it unless you reach certain thresholds.
“To grow a business successfully, you have to have a successful business or have an idea of how to make the business successful if you grow it a little bit more,” Turner says. “Some businesses are a little too small and would have to reach a certain tipping point of size to where they tip in the right direction.”
When it comes down to it, you may simply not know what it will take to be successful.
“You just have to estimate it,” he says.
Turner says that comes down to judgment and using your mind.
“It’s pretty tricky, but some people know how to do it,” he says.
Turner says it’s important to stretch your mind and its capacity as much as possible.
“It helps to be born with it, I guess, because basic intelligence is inherited,” he says. “It’s an inherited trait as much as anything else, but you can develop it. Your mind is, to a large degree, a muscle like the other muscles in your body, and the more you use it, the sharper it gets, just like your body. You can take a skinny little kid and turn him into a marathon runner if they’ll train hard enough and are motivated to train hard enough, and basically my success in business and in life, it was due, to large part, I just wanted to do it and wasn’t afraid.”
When he made the decision to go forward with 24-hour news, he didn’t lollygag.
“I moved as quickly as I could, for instance, to get CNN on the air because I wanted to pre-empt CBS, NBC and ABC because once we announced that we were going to do it, it was going to make them think about it and revisit it more, and all three of them had everything they needed to start.
“They already had bureaus. They had news organizations. They had news anchors that were underutilized — they were doing two hours of news a day, and they were spending $200 million a year to do two hours of news a day, and I was going to do 24 hours of news for about $30 million.”
He planned to get CNN on the air within 10 months because he anticipated it would actually take longer, and he wanted it on in 11. Along the planning road, most things went according to plan, but he did have his share of anxieties. While he thought through most of the worst-case scenarios, he was completely caught off guard, for instance, when their satellite disappeared and they lost their satellite signal less than four months before CNN was set to air.
“It never occurred to me because I wasn’t in the satellite business — what do you mean the satellite disappeared?” Turner says. “That was my reaction. Well, that’s what it did. They never found it. It just blew up, and it’s out there floating around in space. There was a TV series called ‘Lost in Space’ and our satellite was lost in space.”
Luckily, there was a clause in the contract that anticipated this possibility, so they were able to negotiate a deal to gain access to another satellite in time for the launch. CNN launched in 11 months — as Turner had anticipated with his one-month, built-in cushion.
While he moves full-speed ahead in business, he recognizes sometimes it doesn’t work.
“We went full blast with the AOL merger right into disaster, just like the Germans when they invaded Russia,” Turner says. “They were going fast, but they were headed straight for catastrophe — they were headed for Stalingrad. So going fast can be reckless and very foolish, but you’ve got to be sure you’re right, then go ahead. But that’s not easy to do always. It’s not always easy. Not everybody can see the future with accuracy, and there are the things that happen along the way that sometimes aren’t anticipated, no matter how good you’ve done, and then you’re in real trouble.”
He says there are all kinds of ways to get into trouble in both business and life, and sometimes you won’t know right away.
“A lot of times you have to wait and see, and only history will tell if you’re right or wrong,” he says.
While Turner may have made some mistakes along the way and had his share of challenges, he’s had more success than anything, and he says it comes back to those main keys.
He says, “Those are the main things that in starting a voyage or a venture, those three things would be very carefully think through what you’re going to do, then what could go wrong — take a look at what could go wrong and anticipate that in advance and be prepared — and the third thing is when you do decide to go forward, move rapidly.”
How to reach: Turner Enterprises Inc., www.tedturner.com
On a mission
If you look in the parking lot at Turner Enterprises Inc., you’ll see solar panels, which Ted Turner installed as an energy source.
“Anyone can do that, and the technology already exists, and it works,” Turner says. “This building is going to be powered by those solar panels.”
Turner is passionate about environmental causes and encourages other business leaders to follow suit.
“They can put solar panels on a fence post — electrify your fence and keep out people that you don’t want to come in. Keep your cattle in or your bison for that matter,” he says. “We use solar electric power fences on a ranch. If you have a house, you can have a solar hot water heater.”
If you’re not quite sure if solar power is the way to go for your business, Turner suggests at least seeking outside help to identify ways for your business to make a difference.
“Hire an environmental consultant to come up with recommendations specific to your company and business for how you can cut down your carbon footprint and use less energy,” Turner says.
Beyond the big things, he points out there’s also myriad small things you can do. For example, when you walk into Turner’s office, it’s dim. He keeps the lights off to save energy and only turns them on when he needs them. Additionally, he uses low wattage bulbs. He also suggests looking around you for the obvious.“As you walk down the street, if you see piece of trash, you can bend over, pick it up and carry it to the next closest wastebasket,” he says. “Making the world a better place is as easy as picking up a piece of paper.”
When David Lingafelter became president of Moen Inc. in late 2006, the flow of prosperous times had been replaced by a plug of economic uncertainty.
Moen’s business is faucets, sinks and accessories, and it’s significantly dependent on the U.S. new construction market, which started declining in October 2006 and rapidly continued downward throughout 2007. That was hard, but then the global financial crisis hit, too.
“Just when we thought, ‘OK, is this thing going to bottom out,’ the rest of the world takes a dump,” Lingafelter says. “Everything else just goes in the swirling uncertainty. Consumers back even further away, so a business that was many, many years of record sales, year after year, you have this transition. That’s been the toughest challenge.”
Add to that, this entire decline was happening as Lingafelter was taking over his new role as president.
“The normal thing of going from a product manager to a president has its own challenges, but those are manageable compared to a business environment in one of your core markets in one of your core segments declining 70 percent,” he says. … “Most people say, ‘Wow — good timing.’”
While it was challenging, it wasn’t all hopeless. The company was strong in other areas, and he recognized that, as well.
“We’re a billion dollars,” Lingafelter says. “We have a highly recognized consumer brand, and we have a good team. So it wasn’t, ‘Oh my gosh — let’s start over.’ It was, ‘OK, what’s changed, what is changing, what does the trajectory look like, and what does that mean to us?’”
What that meant was sticking to what had gotten the company where it was — good strategic planning and accountability.
“It’s not that we’ve done it differently because of that, but it’s just more important, and what we’ve done throughout the year is we’ve had to iterate more,” he says.
Moen’s approach to planning involves aligning the leadership team, diverging and converging, prioritizing initiatives and then measuring. Sticking to this process, even in the challenging times of the past few years, has helped Moen continue to build its $1 billion brand.
“We’re still bullish on our growth in China and with the retail markets — it continues to grow as consumers look for that value in do-it-yourself,” he says. “It’s good. It’s not double-digit growth, but we’re positive. We’re positive on our growth opportunities in places, but we’re not out there spending way ahead of the growth, so we’re continuing to be cautiously optimistic.”
Align your team
Before you can do any game-planning, your leadership team has to understand what’s guiding the process.
“First and foremost, your leadership team is aligned,” Lingafelter says. “If your leadership team is not aligned, then they’re coming in with different headsets. They’re coming in with different glasses on.”
This is the time to look at your vision, mission and strategic initiative pillars to understand why you’re in business and what the purpose of your organization is. Keeping these elements at the forefront of each executive team member’s mind will ensure that your team stays on the same page.
“If everybody says, ‘OK, yes, we understand our vision, yes, we understand our mission, yes, we understand our goal, [and] yes, we believe in our strategic initiative pillars,’ then you get better alignment,” he says. “Then you have a balanced discussion. It’s still not easy, but having those guideposts to help you through the decision process, I think, is key.”
If your team isn’t aligned already, Lingafelter says you have to recognize it’s not going to happen quickly.
“You can’t do it in a [single] meeting,” he says. “It’s not like we’re going to set the vision from 9 to 10. It’s not a completely evergreen process because you don’t want to change it all the time, but I think you have to have a disciplined process of understanding your marketplace, understanding your opportunities, understanding who you are and have enough vision to say, ‘Here’s the direction that we want to go,’ and that process you need to have as much fact-based information as you can.”
At Moen, the company’s three main strategic initiatives are growth, business improvement and organizational excellence, so anything the company as a whole does has to support one of those initiatives. Then that cascades down to each business unit level, and anything that unit proposes must also support one of those three initiatives.
“We use the same language as it moves through the organization,” he says. “Common language makes communication a heck of a lot easier.”
If you can start with these commonalities, the entire process of prioritization and planning is going to be a lot easier.
“It must start with leadership alignment,” he says. “If you don’t have that, you don’t have a prayer because everybody will communicate differently. It’s OK to have a different style, but your fundamental message has to be around those strategic guideposts and those initiatives.”
Diverge and converge
Once you’re aligned with what your vision and mission are, then you have to lead your team through a process of diverging — brainstorming — and converging — bringing everyone back together again to decide what’s most important.
“The diverge and converge can happen at the team level, the group level or the corporate level,” Lingafelter says. “The process is the same — it’s exactly the same — if you boil it down.”
Often you’ll have to facilitate this process yourself because it’s not something that comes naturally to many team members.
“Allow them to diverge on the facts, and then you converge on to your strategy,” he says. … “[It’s a] process that says, ‘OK, this is what we’re going to do. We’re going to talk about our marketplace, and we’re going to get information on our marketplace — let’s all get on the same page. Let’s talk about the company. What are we good at? What are our strengths? What are those things that we think are our competitive advantage and how do those marry up with the marketplace?’”
The amount of people that you involve in this process depends on the size of your business.
“It’s tough to do on your own, but I would say, no matter what, get multiple heads in there to help you at least with the assessment because a lot of times, different views get you to a different place,” Lingafelter says.
For Moen, this happens across the organization at the business unit level.
For example, if one business unit says they want to grow with new construction plumbers, they may start by brainstorming what they know about them. What are the facts? What are the trends they’re seeing? What do they think the future state as it relates to that specific area looks like?
“This is not days and days,” he says. “It’s let’s spend a few hours talking about this, and then you get to the next session, and someone facilitates and says, ‘Let’s take off our headsets and let it run.’”
Sometimes, you need to do some pre-work to these sessions. In those cases, Lingafelter says unit managers may ask their team to brainstorm on their own and come to the table with their top 10 things that they think are challenges with new construction plumbers.
From there, the diverging has to end, and the converging begins.
“Then you do simple things like, ‘Let’s prioritize all these ideas. What do you think? Let’s bring it in a little tighter,’” he says. “It’s not rocket science. You just need to facilitate through the process.”
From there, that business unit will come to the corporate level with, say, its top three things they want to do because they feel those are the priorities as it relates to new construction plumbers. That unit would then take those three items to the corporate level and talk about not just the ideas but what they think they can return on each item and how much each will cost.
“They’ve gone through diverge, converge and this is what they’re recommending they can do,” he says. “It’s not hard, but it’s a process — you have to have a discipline.”
By doing this within each business unit, it helps the corporate level not get bogged down in initiatives that aren’t very important and focus on what will be most beneficial.
“We’ve done this long enough, and our people are seasoned enough to know that wish lists aren’t going to fly,” he says. “The more confusion that they create, the less likely they are to get their initiatives communicated.”
After every unit brings its top initiatives, from there, the leadership team has to prioritize which initiatives out of all of those most-important ideas to focus on.
“When you’re talking about strategic tradeoffs you’re not diverging anymore,” Lingafelter says. “You’re trying to converge on the decision.”
At this point, every business unit has identified what its most important priorities are, but now you have to take it a step further.
“It’s not like we have a bunch of initiatives — ‘Oh, some of these aren’t so important,’” he says. “No, we neck it down to the most important initiatives. So you say, ‘OK, now we’re going to neck it down to only the most important, and you have to make prioritization discussions.”
The vision, mission and strategic initiatives drive those discussions and help identify where tradeoffs will be. This process starts with discussion to identify the facts.
“You try to get everything on the table — have the conversation about tradeoffs,” he says. “Listen to the downside. Otherwise, if we don’t do this, here’s the implication, and you have to vet both of those because a lot of times, the premise on the upside is probably higher than it actually is, and the scenario downside is probably lower than it actually is, so as leaders, you have to try to manage the message or manage the communication a bit. It’s probably not that bad, and it’s probably not that good.”
First, he looks at what the costs are for each initiative. It’s important to look at total costs — operational, finance, IT, human resources, etc. — not just what’s on the surface, and include any of those in the total cost. Then you have to look at what the returns on those investments are.
“A lot of it comes back to getting results,” he says. “If you say, ‘Look, is this in a shorter-term strategy, where it’s within the calendar year? Is it a longer-term strategy? Is it further out than that? Is it changing our positioning?’ You look at how long it takes for that to pay off, and we make calls that way.”
You also have to look at what your company’s strategic initiatives are that everyone was aligned to.
“A vision and strategic initiatives don’t just tell you what to do — they tell you what not to do,” Lingafelter says. “When you’re making tradeoffs without having guideposts, you can naturally steer off course. You have to have leaders that say, ‘OK, wait a minute, let’s remember — what’s our strategic initiative? What’s our focus? How is this relevant?’”
For example, at Moen, Asia is a growth market for the business, so they’ll make investments there, even if they could get a higher payback somewhere else. Sometimes that means cutting one business unit’s budget to fund that other initiative. Someone may get upset and ask why his or her budget is getting cut when three of his or her projects have a higher return than what the company is doing in Asia. But Lingafelter explains to people that the company will still fund that Asia initiative because its strategic guidepost says it wants to grow internationally and diversify from U.S. new construction.
“You come back to those guideposts,” he says. “You come back to those decisions. You know why? Because everybody had the same glasses on when you elected that process. It may not have been exactly the way they thought, but everybody needs to be aligned so you can have rational versus emotional discussions.
“This is not a perfect science. It doesn’t come without stress. It doesn’t come without discussion. Compromise can be dirty sometimes, but you can end up in a better place. I believe that. Taking your marbles and going home because you’re not getting everything doesn’t work.”
It’s important as the leader that you properly facilitate this process so everyone has the opportunity to share what their priorities are and why they think they’re important.
“You try to facilitate consensus and communication because I have very skilled, very smart and very capable people, and you don’t want to disenfranchise them in the process,” he says. “You don’t want people taking their marbles and going home, so you continue to go back to, why is it important? Is it a growth initiative? Is it a business improvement initiative? Cost, quality, service, new products? Is it organizational development?”
You also don’t have all the time in the world to have these conversations and make these decisions. At Moen, they’re constrained by when they have to provide guidance to the parent company, Fortune Brands. It’s important to communicate those time constraints as well so people understand when the stopping point is.
“There are hard stops,” he says. “This is the decision time frame. This is when we need feedback. This is the discussion we’re going to have. This is the prioritization discussion we’re going to have, and we have to stick to those timelines.”
Lastly, you have to look at your budget and what, of all your ideas, is feasible within it. Fortune Brands has a performance expectation for Moen to get results, so he can’t get caught up in something that is risky or too expensive.
“It isn’t a wish list, but it’s a heck of a lot more than we can afford,” Lingafelter says. “It’s prioritized because it’s a strategic initiative that we’ve talked about. There’s never enough funding. This is no different than any other business. The government can print money — we can’t, so we have to control the budget.”
Once you’ve heard all of the initiatives and looked at the facts, then it’s time to make the important decisions of what to focus on and communicate that to your team.
“You try to listen and then repeat back, ‘OK, this is what I’ve heard. I think these are the tradeoffs, and I recommend this is how we go forward,’” he says. “Are there times a leader just has to say, ‘We’re going north?’ Absolutely.”
Taking this approach to prioritization is also helpful when last-minute opportunities arise long after you’ve done your planning.
“That gives you things on deck, too,” he says. “You can say, ‘We have a few extra dollars, where do we go?’ It’s not, ‘Oh my god!’ We can say, these are the three things on deck, and let’s go fund them.’”
Once you choose your top initiatives, then you have to make sure that people focus on them and follow through.
“Every initiative has the ability to track it,” Lingafelter says. … “Each initiative rolls back, at the end of the day, to growth, business improvement or organizational development.”
For example, a metric in organizational development could be that every employee has an individual development plan. A way to measure that is to say that every employee will have an IDP by March 1.
“That’s a metric,” he says. “That means you have to spend one-on-one time, you have to establish an IDP, log an IDP — those kinds of metrics have to be tied to your initiative.”
It’s critical to take the time to put in some sort of way to measure each initiative.
“If you’re not disciplined with prioritization and establishment of initiatives and tying a metric to it, then it will be tough to track,” he says. “Are you executing and exceeding or excelling in your initiative? You have to just be disciplined to say, ‘OK, here’s the initiative, what’s the metric — how are you going to measure it? What’s the cadence? Again, it sounds simple, but everybody has to have that same headset of process of here’s how I want to present my initiatives.”
At Moen, a new three-year strategic plan is completed every year. That plan is put in a binder or spiral bound, and each initiative is given its own page that outlines the key action, the things they’re going to do to reach it and the timing.
Then, when Lingafelter meets with the person in charge of that particular initiative once or twice a quarter, he asks how they’re doing with it in regards to both progress and timing. Each initiative is coded with green if it’s on track, yellow if it’s a little behind and red if it’s falling behind or being killed. If it’s red, then he discusses the reasons — did they have enough resources? Is the situation different than they originally thought? Have business conditions changed? Or did you just miss it?
“As long as you don’t have too many, then you move on,” he says.
Each initiative will have a plan not just for that current year but also for each year in that three-year plan.
“They’re much more detailed than the next year — a little less detailed the next year and a little less detailed the following year,” he says.
As the company moves through its strategic plan for that year and prepares the next three-year plan, because metrics are such a crucial part of measuring progress, Lingafelter can adjust numbers up or down as needed so that the next plan is likely to be achieved. For example, in the fourth quarter of 2008, numbers got worse, so he adjusted the numbers for 2009 to reflect that.
“It’s generally one of two things — most recent performance and trend lines,” he says. “We look at how we did last month, how is the quarter going and how does the future forecast look. We do a lot of modeling, so we look at what’s happening in the market and we say the trajectory looks like it’s going to be up, flat or down, and we make adjustments based on that. We use a rearview mirror on performance and we use the windshield on forecasting and trend lines so we have that dialogue all the time.”
While this is a lot of work and requires a lot of give, take and communication, Lingafelter recognizes that this process is why Moen and his 3,000 employees are still doing well despite its largest market being down.
“When your culture is built around this kind of teamwork, it helps,” he says. “Leadership’s job is to continue to facilitate that and continue to lead. I think our organization has done a heck of a job through the adjustments that we’ve had to go through.”
How to reach: Moen Inc., (440) 962-2000 or www.moen.com
Brown, CEO of the American Heart Association Inc., wants to see the cardiovascular health of all Americans improve by 20 percent while also reducing deaths from heart disease and stroke by 25 percent by 2020.
“Having a bold goal, the entire organization rallies around is one way that we’ve been able to really propel the organization and grow our revenue as well as grow our mission impact because everyone is focused on the same end point and on the same strategy to achieve the end point,” Brown says.
But getting nearly 2,700 employees focused on improvement involves more than just setting a goal. She has to actively engage them in the business and challenge them to help her find better ways of doing business.
“The day you think you’re the best as you can be is a bad day for any organization because that’s the beginning of a downfall,” she says. “There’s always ways that things can be improved or reinvented, so setting that culturally as the expectation that we can always improve, we always want to do better, there’s always new and better and different ways to improve the work that we’re doing — that creates an environment where people are willing to be open about what works and what doesn’t work.”
Create a think-tank group
One of the most important things Brown did to engage employees on improvement was to create a CEO think-tank to help her find new ideas for the business. She pulled in many of the brightest people in her organization from the areas of science, marketing, communication and business.
“Think about who the best and brightest minds are who are willing to be open and that will have significant expertise to contribute to your business goals, and make it informal,” she says. “Don’t create another bureaucracy. Make it that they are truly a think-tank providing advice and guidance and thinking. Bring them together and pose some of your most important business questions, and listen to what these experts have to say.”
She says that before you start this process with those people, you have to communicate what your expectations are for the group.
“Level-set expectations at the beginning that this is an informal group of advisers versus this is a formal committee or group that will have decision-making authority,” Brown says.
When she has these meetings, they typically last about six hours for in-person meetings and about two hours for conference-call meetings. With long meetings, you’ll need to keep people focused during this time.
“Always have an agenda for the meeting for the things that are most important for the organization,” she says.
She provides a quick overview of each piece of the agenda or the background of the status of the item at the beginning of the meeting, and she always uses strategic discussion questions during the meetings.
“It can be deadly to have a random discussion that takes you nowhere, so by having strategic discussion questions framed in advance, the discussion is more focused, and the feedback is as valuable as possible,” she says.
Brown’s think-tank came up with more than 100 ideas to sift through. When you’re trying to narrow ideas down, it’s important everybody is on the same page.
“Upfront, before you start the selection, make sure that you have agreed upon the criteria that you will use to focus on ideas, because if not, people then will lobby for their favorite idea,” she says. “If you have objective criteria upfront — say, must reach the maximum number of people possible or must generate the maximum number of revenue possible or whatever the criteria area — and you work through a facilitated process to narrow down the list, the likelihood of success is better. People will not focus on their pet project but rather on the things that can truly make the biggest difference.”
And like most communication efforts in business, Brown says you have to continue to reinforce this while you go through the selection process.
“It’s all in how you set up the discussion,” she says. “Say that often — ‘We all come to the table with our passions and the things we think are so important, but we need to really be objective because we only have the capacity to do so many things at a time, so let’s figure out the things that could have the highest return and focus there.’ It’s all in setting the tone of the dialogue.”
With expectations clearly set, she then had to start knocking ideas off of the 100-item list. Start with the obvious.
“Some of them were outside the realm of the competencies of the organization, so they were easy to come off of the list,” Brown says. “We then looked at what might have the biggest impact toward our mission and biggest possibilities for revenue, and that’s how we prioritized our ideas.”
For a new initiative, it can be a challenge to place a number on what you think it can return, but you have to try. Brown looked at the market potential, the product they would be creating and what the possible maximum impact could be. Then she looked out over a five- or 10-year span of full implementation, and they discussed how they could ramp up that business line and what the growth and net revenue associated with it could be. She says that until the business plan is actually created, these are just rough numbers.
With that approach, Brown and her team narrowed the list down to 11 ideas. Some of those were quick wins and easy to implement, and others would take longer. She’s currently building business plans for five of those ideas that the organization will move forward with.
“Have a process where you’re constantly challenging yourself,” she says. “Is what we’re doing good enough today in light of the world we live in, and if not, what do we need to do to modify our approach, our products, our services to be as relevant as possible?”
In addition to the think-tank, another way Brown engages employees to improve the business is through an employee engagement survey.
The survey is conducted at the same time each year, and every employee has the opportunity to participate. It was created by the Gallup organization and has 12 questions, and if every employee answered 5 on every question, you would have a fully engaged work force.
The organization started doing this about seven years ago and has created benchmarks specific to the American Heart Association.
“We looked over a period of three to four years,” Brown says. “Where were we getting the highest level of engaged employees, and what were those pieces of our organization doing, and how could we share that information with others?
“Take the time to have someone in your organization analyze by department or function where you’re doing best and hold up those successes for others to learn from.”
After the surveys are administered, Brown says you have to communicate the results to your employees. Within the next quarter, employees learn what the surveys revealed. Doing it within a quarter gives you time to analyze the results, but at the same time, it’s still fresh in their heads.
“Make sure to share the results,” she says. “Employee engagement surveys shouldn’t be something that you do, and the CEO and the management looks at it and never tells the employees as a whole how did we do.”
It’s not a time to try to cover up anything they said either.
“Be very open about the results, open about the places employees feel really good about and open about the places that employees think that things can be improved,” Brown says. “That way people know that this is an open forum, that their feedback is valued and that some action is going to be taken based on the feedback that is provided.”
It’s important to also show a plan for how you’re going to work on the things they brought up. This isn’t always easy to create, but it’s the effort that speaks loudly to employees.
“Some things are easily fixable, and other things take culture change, so it’s hard to give an exact [timeline], but showing that there is a plan and how management takes the feedback seriously is the most important thing, and engaging and enrolling the employees to make the changes is important, too,” she says.
She emphasizes during these sessions is that engagement is a two-way street and the dynamics of the organization are not such that managers can fix everything.
“A lot of things in organizations have to do with how employees communicate to each other or having employees feel comfortable raising issues on a day-to-day basis with managers — not waiting for a once-a-year employee engagement survey for those things to be discussed,” she says. “It’s making sure that the environment is such that this is something we’re going to work on together — not, ‘This is management’s problem to fix.’”
When you get these results back, you need to decide what to act on and what to hold off on.
“Leaders who are engaged in what’s happening in their organization, it’s likely intuitive to them the things that really matter and the things that might be important,” Brown says.
But being in tune isn’t just your job — it’s also that of your leadership team. Each leader has to ask questions and listen to people he or she doesn’t normally talk to.
“It’s such an obvious way that all of us work in organization that we each have our leadership teams that we work closely with, and those are the people we hear from most and we ask questions of most,” she says. “But it’s being deliberate about moving outside of that — going to people who are directly implementing your work or mission every day on the front line and getting their feedback is really important. Make that investment of time because that’s some of the most important time that can be spent.”
When you’re in touch with your organization, you can better decide what initiatives to focus on. Regardless of what you choose, take the time to communicate not only what you implement but also why you can’t implement some suggestions. Doing so is important to employee buy-in for anything you’re trying to achieve as an organization.
“Having employees and volunteers fully engaged and fully enrolled in what’s going on in the organization is the most critical factor for success for my business day-in and day-out,” Brown says. “Even if I can’t or choose not to act on every single suggestion that’s received, making sure people know their feedback is valued and that we’ve heard them but we’re making a different decision for X, Y and Z reason, people get that. They understand that.”
By engaging employees this way, it not only has helped improve the organization, but Brown has also seen a direct impact on the $628 million organization.
“The results of the survey have helped because, first of all, our employees know we care about what they think every single day,” Brown says. “Secondly, because the survey gauges the level of engagement of the employees, we’ve been able to tie employee engagement to lower turnover and to higher productivity, and that’s helped the organization.”
How to reach: American Heart Association Inc., (800) 242-8721 or www.heart.org
The Brown FileBorn: Port Huron, Mich.
Education: Bachelor’s degree in marketing and communications, Central Michigan University
What was your first job, and what did you learn from it that still applies today?
Scooping ice cream at Stroh’s Ice Cream Parlor when I was 15 years old. [I learned] hard work and the importance of customer service — the customer is first.
As a child, what did you want to be when you grew up?
I wanted to be a broadcast journalist. It was funny, when I went to school, I gained a huge interest in debate and communications, and then I realized that the opportunities for me would be broader if I focused on broad business and marketing.
What’s the best advice you’ve ever received, and who gave you that advice?
Listen with an open mind. [That’s from] an early mentor of mine in one of my first professional jobs.
What’s your favorite board game and why?
My favorite board game is Monopoly. And why is it Monopoly? It’s probably Monopoly because I love to focus on generating revenue and raising money.
If you weren’t doing your current job, what would you do?
I think I would love to some day teach at a university in a business school, because I love to interact with people who are eager about their future and interested in learning, and I would like to be a part of that.
When Jeffrey Bowman stepped into the president and CEO role at Crawford & Co., he knew it wasn’t just the top leader that was changing — the organization was going to need to, as well.
“I use the term ‘acting with a sense of urgency,’” he says. “It was changing the speed to be a global organization and being able to demonstrate that we were a global organization with global clients. … Crawford is actually 70 years old this year as an organization, so a lot of organizations around the 60- to 65-year mark really get themselves to where they have to go through some cultural changes.”
One of the things he saw that needed to change was how the company shared its plans with employees. Typically, plans weren’t shared at all with those working at the insurance company. When nobody knew the plan, people tended to not care what other areas of the organization were doing, so silos had been built across the business.
“We had silos in our organization between various divisions,” he says. “We weren’t sharing best practices around the globe in either management information or technology. We had a very siloed effect around what we were doing around that. We didn’t have a head office that was really dictating to our overseas operations exactly how we expected them to behave as a public company and as a large organization.”
To get the organization acting more as one, he knew he would need to come up with a good plan and hold people accountable. His hope was that in doing these two things, Crawford would start to act more cohesively and become better positioned for the future.
“It’s a journey, and your strategy helps you lay that journey out because you can never change a culture immediately,” Bowman says. “You have to work at cultural changes, and you have to work at the messaging in organizations.”
Create a plan
The first thing Bowman had to do to get the company operating more cohesively was create a strategic plan.
“It’s like a journey — you have to have a point you want to get to,” he says.
Start with what the basics of your organization are — why you exist and finding a way to support that.
“It was really a case of bringing it to a focus of, ‘That is where we start — our mission, vision and value proposition are critical to the organization,’” he says. “Then your strategy comes out of that. … It becomes the focal point of what you do. It’s how you send your messages out. Your vision has to dictate how you behave.”
Bowman looked at many different facets of the company in creating a plan, including talent management, products, financials, dealings with clients and company culture for employees.
“You have to have different parts in the strategic plan,” he says.
As you identify the things that you want as part of your plan, you have to be open to changing it based on what other people say, regardless of whether that person is a clerk or a senior person.
“You have to outline those issues which are important, and what you want to do is make sure you can talk to anybody in the organization about it,” Bowman says. … “They have to have an understanding of what you’re trying to do.”
Bowman and his team created the strategy for Crawford within his first 100 days. They also mapped out what they called the storyboard, which was a breakdown of what they were trying to create in their overall strategy.
“Do you know all of the constituent chapters within the storyboard?” Bowman says. “Does it match the strategic goals we’ve set from the group point of view? Don’t overengineer it. Make sure the execution over a one-year or three-year goal is possible. It’s like MapQuesting something — you start somewhere, and you have an end-direction of where you want to get to. Your vision becomes your destination.”
Another key to creating your plan and map for getting there is to make sure you clearly define what you’re saying you want to do.
“You can wordsmith sentences that become ambiguous,” Bowman says. “What you have to do is create a series of effectively executable plans that are then absolutely easily translated.”
For example, you might say something such as, “We’re going to increase sales around the world,” which is a very wide open statement.
“Increase is a good word,” Bowman says. “Sales is a good word. Around the world? What does that mean? It has to be more defined than that. What’s the marketplace? What is the product we want to grow? That’s where a lot of strategies have to be planned in the sessions that you do prior to laying those strategic plans out.”
Once they had set a three-year plan, he put it up on Crawford’s website, which may not seem like a significant thing to do, but for this company, it was.
“The strategic plan was a very interesting part of it because No. 1, the company had never really communicated with its employees what the strategic plan was,” Bowman says. “We created that within the first 12 weeks, and then we put it on our website, so not only did our clients see what the strategy was, our employees did, our investors did, our bankers did and anyone else did — and our competitors did, and I think that was a very good thing.”
Even in having finished creating it, he knew he would have to continue to refer back to this plan and storyboard as he moved the organization forward.
“A strategy document is a living document,” he says. “Events change, and you have to change an organization to implement the goals.”
Once he had an overall plan in place, Bowman then had to create goals that would both advance the organization but were also achievable so he could hold people accountable to meeting them.
“The biggest issue is taking it and translating it into executable goals,” he says. “It’s a very simple process with a strategic plan. You make people accountable for the results that come out of it. That’s by spending a lot of time understanding the benchmarks that we talked about and making sure that it’s a sensible plan, and it’s not an academic exercise. There are a lot of strategic plans that are more academic than they are practical. We’re looking for accountability. We’re looking for results. If you have a script and a way you’re working, then people are much more inclined to follow that journey.”
One of the things that Bowman and his team spent a lot of time doing was dissecting the number of goals that were achievable.
“You can put down lists and lists of goals — you’re not going to achieve all of them,” he says.
They look at which goals are most important, and they make that distinction by looking at them as they relate to the vision and mission.
“You then link that to the goals you’re trying to achieve,” he says.
There had to be consistency in terms of strategy, financials and the objectives that they were trying to achieve.
Another element of this process was Bowman had each country leader prepare an initial budget and objectives, and those went up to regional reviews. After that, they went to the head office, and he and his team would go through those to make sure there’s a link between what the company is trying to do at a corporate level and what’s going on in those regions and make sure they eliminated duplications around the world.
For example, as part of the efforts to eliminate the technology silos, Bowman appointed a global chief information officer for the first time in the group’s history. Previously, there had been an IT director in the United Kingdom, United States and Asia-Pacific. Before this, they may have only talked once a year and were each doing their own thing. By creating one head position, it would eliminate those duplicate efforts and put the whole company on the same IT strategic road map.
Bowman also made sure to hold people accountable to meeting goals. Just as the board of directors rates his performance each time he announces the quarterly results, he needed to do the same for his people.
“Make sure people understand what they’re accountable for,” Bowman says. “They do things that they understand much easier than things that they don’t understand.”
The key to doing this effectively is using data to help you determine what’s best for them to focus on.
“The world we live in, you get swallowed up in the amount of data you’ve got,” he says. “You have to cut through and say, ‘What is the important data that you’re going to measure people on?’”
He says you have to decide what’s important and track that. Crawford creates a lot of dashboards and produces a lot of analytical information to make sure it’s using its assets in the best way.
Bowman also uses financial incentives to make sure people stay on track. He put a compensation program in place for senior management, which went a long way in the organization. In this plan, 20 percent is based on the group, 60 percent is based on their division and 20 percent is based on their personal performance. By dividing their incentive up in this way, it causes them to look beyond themselves. As a result, he sees more cross-selling among divisions.
“It effectively brings in an approach where people are interested in what’s going on in other divisions,” he says.
Aside from silos breaking down, Bowman has seen other clear changes in Crawford over the past three years.
“Nobody gets frightened about strategic planning,” he says. “People understand what they’re accountable for. It enables us to do more detailed return on investment calculations, understand areas that we need to manage better and where we need more urgency.”
Crawford did struggle as many of its clients suffered through the recession — one whole unit depends on workers’ compensation claims, and with 9 million people relying on unemployment benefits, that area certainly took a hit. But despite those challenges, it has gotten through well. While revenue went up and down during the recession, total revenue has grown overall from $1.05 billion in 2007 the year before Bowman took over to $1.11 billion last year. As the organization looks forward, it will continue to tweak its strategic planning to ensure it stays on track and doesn’t get stuck in the past.
“The thing about a strategic plan is it’s a living document,” he says. “You’re always looking at accountability and making it better. It’s a mindset.”
How to reach: Crawford & Co., (800) 241-2541 or www.crawfordandcompany.com
The Bowman file
What was your first job as a kid, and what did you learn from it that still applies?
I worked in my father’s engineering company handling payroll. I was 15. It wasn’t a huge company. I played soccer and that was one of my passions. [I learned to] work hard and keep your nose clean.
As a child, what did you want to be when you grew up?
Professional soccer player. I nearly got there. That was still my passion.
What’s the best advice you’ve ever received?
I’ve had quite a lot of mentors — I have a father who was an engineer and things were very straightforward, as most engineers are. There’s a logical approach to it. His advice to me was make sure you understand and communicate with people in the right way.
During my business life, before I got into the insurance industry, I worked in a couple of different industries. I worked in the record industry. … My age comes out here. ‘Saturday Night Fever’ and ‘Grease’ — I was involved in those, managing the distribution of the records. I had a boss at that time who was a northerner from the United Kingdom who was probably the most frightening individual I’ve ever worked for, but he was the most direct, he was the most honest, and he told it to you exactly as it was. What I think a lot of people don’t like these days is they don’t like being told the truth, and this guy managed me with a steel fist in the organization and taught me attention to detail, and that was a really big thing from my point of view. That stayed with me. Read it properly. Understand it before you say something.