Connie Swenson

Tuesday, 30 October 2001 06:00

Creative minds

In March, Jeffrey Saxon left an accomplished career in private industry to help prepare the next generation of business leaders for success.

Saxon is the new president and CEO of Camp Invention, a program of the National Inventors Hall of Fame that runs 388 camps in 34 states for children in grades two to six.

Students who attend the camps are taught how to develop critical thinking skills, which, it is hoped, will aid them in every aspect of their lives and prepare them for a higher level of success in business. Saxon, who has held the positions of executive vice president and corporate officer for LTV Corp., and group vice president, specialty plastics, for BFGoodrich Co., says there are many similarities between fostering creativity in a classroom and in a workplace.

But right now, he's content working with children.

"It's pretty easy to get motivated about marketing a program like this as opposed to plastic or steel parts," he says.

From your experience with adult workers, which applications transferred most easily to the programs and methods you've implemented at Camp Invention?

We work very hard at Camp Invention to create an environment that fosters creativity and critical thinking skills. Part of the way to do that is that the culture has to be conducive to that.

In these classroom settings that we have, we create an immersion for the students. For example, one of our modules is called the Ancient Pueblos. In that module, we recreate the environment of the Native American Indians from 1,000 years ago. They were the first North American inventors.

It's so different from a normal classroom setting where there's rigidity. Not that it's necessarily right or wrong for a classroom setting, but it's definitely not right for an environment that fosters creativity. You want to be out of the box. You want them (the students) to feel as if there's not a wrong answer; you're not looking for an outcomes-based kind of approach.

In business, many parts of an organization will strive to do things the same way (as their competition), yet do them a little bit better. That's not a bad business model. But if you want to create an environment that fosters creativity, you have to get out of that box.

You can't just be looking for incrementalism. You need to be going for the big idea and thinking blue sky. You need to set a culture or an environment where that kind of thinking is encouraged.

One of the business buzzwords that is germane here is the term empowerment. That's what we're doing with the students in the camp, we're empowering them. You take the ball and run with it. You figure this out. That's such a stark change for them from the normal classroom.

Can the process of creative thinking be taught to adults who are already entrenched in their jobs and set ways of doing things?

The answer is clearly yes. There are creativity and critical thinking seminars and there are consultants that will come into your business.

They all have different methodologies, but they're mostly based on academic research that's been done on what drives creativity. How do you develop critical thinking skills?

Which of the skills learned at Camp Invention are thought to help people later succeed in business?

In the traditional school setting -- and I'm not trying to diminish the teaching of the basics because it's very important -- there's reading, writing and arithmetic, science, history and social science. They are things that you have to learn. You have to learn that two and two equals four.

But if you think about a business person, a business person is not just dealing with facts all of the time. You're being hit with some things that are facts and some things that are perception. You have to be able to synthesize all of those things.

It's widely recognized that there are different levels of knowledge and thinking skills. The lowest level of the thinking process is base knowledge. The highest level is synthesis and evaluation. The highest skill level is knowing what to do with all of that knowledge.

How do you put that together? How do you invent something? How do you create a business plan? You're taking disparate pieces of data and perception and intuition and solving a problem with it. That's basically the concept of what we're trying to foster in our program. Many liberal arts schools say their purpose is to teach students how to think. We're trying to do that at a much earlier age.

We're also teaching social interaction. I think back to my education, and I went all the way through (grade school, high school and college) without hardly ever collaborating with anybody. When you think about success in business, there aren't many lone rangers out there.

You're almost always working with somebody else. You've got to make decisions as a team. That's another element of setting up a culture for creativity to happen. You've got those disparate people on that team, and everybody's looking at it differently.

Give an example of an invention that is used in your curriculum and why it was chosen.

There are a couple of things that we're trying to weave into the programming. Every year, we revise which inventors and which inventions we talk about to keep it fresh.

We have several objectives for the kinds of inventions that we talk about. We try to bring the element of diversity into the decision. It is widely believed that inventions, historically, have all been made by white males. We blend in white male, African American and female inventors, so that we're giving a balanced view. And believe me, there's plenty of fertile ground to pick from.

For example, one of the inventors that we're featuring this year is Stephanie Kwolek, a retired scientist from DuPont, who invented Kevlar, the material used in bulletproof vests, an extremely hard polymer. Here's an example of a woman who made an important contribution to society.

How to reach: National Inventors Hall of Fame, (330) 762-4463
Connie Swenson (cswenson@sbnnet.com) is editor of SBN Magazine.

Tuesday, 23 October 2001 10:49

A different standard

E-commerce is a topic we write about every month, in some way or another. It's one of the few topics that has an effect on the way every one of our readers conducts business.

Before you claim to be the exception, consider this: Even if you have one of the few companies today without a Web site, can you truly say that your company has never purchased a supply or service over the Web? Probably not.

This month, one of the articles in the Managing Your Business section of SBN addresses e-commerce from the consumer side of the B2B marketplace. SBN talked to several businesspeople who make purchasing decisions for their companies to find out why they are using the Internet to buy products and services for their businesses. Overwhelmingly, they agree that the Internet provides ease of use, reliability and immediate feedback on delivery status.

Additionally, many of the purchasers we talked to said their Internet purchases had saved their company money, not to mention time.

Because businesses are more open to purchasing over the Internet, vendors in the B2B marketplace enjoy a higher success rate than their counterparts on the consumer side. So as many consumer sites are failing, many B2B sites are thriving.

I talked to author and business consultant Jack Ricchiutto about the article he wrote, and he thinks B2B sites have a better survival rate because B2B buyers are more market savvy than their consumer counterparts. For one, many businesses that use the Web for purchases already have the infrastructure in place. They have grown accustomed to automated operations, from billing monthly office supply orders to confirming travel arrangements.

In addition to savvy customers, successful B2B Web sites have other characteristics in common. Here are a few our reporters have discovered while covering B2B e-commerce:

1. Successful B2B e-businesses offer more to their customers through supportive partnerships they've created with other industry players.

2. Business customers demand a high level of security and confidentiality. A successful B2B site offers both.

3. Most boast integrated offerings, such as local or phone-based customer service, and real-time status reports.

4. They respond quickly to customer requests. It's not uncommon for e-mail messages to be returned within an hour.

5. These sites are frequently updated. Special promotions and graphics are changed often.

6. Lastly, while cost savings is one of the main draws of a consumer-product site, B2B customers are less likely to scoff at paying shipping charges if the above standards are met. Connie Swenson (cswenson@sbnnet.com) is the editor of SBN Magazine.

Tuesday, 23 October 2001 10:49

A different standard

E-commerce is a topic we write about every month, in some way or another. It's one of the few topics that has an effect on the way every one of our readers conducts business.

Before you claim to be the exception, consider this: Even if you have one of the few companies today without a Web site, can you truly say that your company has never purchased a supply or service over the Web? Probably not.

This month, one of the articles in the Managing Your Business section of SBN addresses e-commerce from the consumer side of the B2B marketplace. SBN talked to several businesspeople who make purchasing decisions for their companies to find out why they are using the Internet to buy products and services for their businesses. Overwhelmingly, they agree that the Internet provides ease of use, reliability and immediate feedback on delivery status.

Additionally, many of the purchasers we talked to said their Internet purchases had saved their company money, not to mention time.

Because businesses are more open to purchasing over the Internet, vendors in the B2B marketplace enjoy a higher success rate than their counterparts on the consumer side. So as many consumer sites are failing, many B2B sites are thriving.

I talked to author and business consultant Jack Ricchiutto about the article he wrote, and he thinks B2B sites have a better survival rate because B2B buyers are more market savvy than their consumer counterparts. For one, many businesses that use the Web for purchases already have the infrastructure in place. They have grown accustomed to automated operations, from billing monthly office supply orders to confirming travel arrangements.

In addition to savvy customers, successful B2B Web sites have other characteristics in common. Here are a few our reporters have discovered while covering B2B e-commerce:

1. Successful B2B e-businesses offer more to their customers through supportive partnerships they've created with other industry players.

2. Business customers demand a high level of security and confidentiality. A successful B2B site offers both.

3. Most boast integrated offerings, such as local or phone-based customer service, and real-time status reports.

4. They respond quickly to customer requests. It's not uncommon for e-mail messages to be returned within an hour.

5. These sites are frequently updated. Special promotions and graphics are changed often.

6. Lastly, while cost savings is one of the main draws of a consumer-product site, B2B customers are less likely to scoff at paying shipping charges if the above standards are met. Connie Swenson (cswenson@sbnnet.com) is the editor of SBN Magazine.

Tuesday, 23 October 2001 10:48

A new era for Tangier

Edward George, owner of Akron's Tangier Restaurant & Cabaret, may be able teach us all a lesson in staying modern. His 60,000-square-foot restaurant and entertainment facility has been know for years for its ostentatious '70s-style glamour and glitz.

But when George and his wife, Cynthia, decided it was time to give their local landmark a facelift, they shunned the idea of a modern décor, and instead turned back the clock to the 1930s.

The last time the Georges renovated was nearly 25 years ago.

"In 1977, we spent $7 million -- people thought we were nuts," says George.

The $7 million renovation included a major expansion: building the Cabaret, a ballroom and a parking deck. At the same time, they had the entire facility redecorated to emulate a lavish Lebanese palace.

But the joke was on the critics who thought George was a little crazy. For years after the '70s renovation, Tangier was known as a hot spot, attracting world-famous entertainers and even a president or two.

But as the Georges found out, you can't be the hot spot forever, which is why they are now undergoing another million-dollar renovation.

"You have to sit down and say, 'What's it going to take?' When you fall, you fall hard," George says.

He decided last year that it was time to give Tangier another facelift. This time, his goal was to attract a third generation of customers -- the children and grandchildren of the crowd that used to keep the restaurant roaring until the wee hours of the morning 25 years ago.

The Georges are banking on the idea that today's 30-somethings are not interested in spending their evenings in a cold new-millennium stainless-steel environment, which is why the new style they chose is warm, yet sophisticated. In the front areas, walls have been removed to make room for a larger dining/bar area that includes several intimate seating areas, a fireplace, an open kitchen and a piano bar that begs for a Gershwin melody. Light wood and stone floors replace the bright carpets that covered the floors for years.

Cynthia George even took her time hiring a new bartender until she found one with 30 years of experience who knew how to make a dozen varieties of the Stinger.

"We're making a real commitment to our third generation and to this location," says Edward George. "There's no place in the country left that keeps a place this size going. We've survived the changes."

After spending $1 million just on the front area, the Georges plan to continue the renovation to include the main dining room and banquet facilities.

"We're back ... and we won't stop fighting," he says.

And the Georges won't forget their loyal clientele who have come for years to dine in the glamour of the formal dining room; the waterfall and vivid murals will remain. The room will just be updated a bit, Cynthia George reassures.

Some habits are just not meant to be broken. How to reach: Tangier Restaurant & Cabaret, (330) 376-7171.

Tuesday, 23 October 2001 10:48

At your service

If free expert advice were available to you on one of the most important areas of your business, any time of the day, and as close as your phone, would you use it?

Even though it is available, many companies don't take advantage of one of the most valuable resources they have.

If you're thinking I'm going to say your customers, you're only partially correct. That's because you'll probably find more useful advice comes from your ex-customers. Unless they no longer need your product or service, something enticed them to switch to one of your competitors -- and wouldn't you like to know what that was?

One of the most competitive new industries is the cellular phone industry. It seems as if everyone's trying to get your business with special air time and equipment deals that change daily. As a loyal GTE customer for many years, I made the decision to switch providers after GTE became Alltel last fall and suddenly service started to falter.

I think phone service is one of those commodities that you don't give much thought to until things start to go wrong. Suddenly, I was waiting on hold for half-hour periods, no one knew who the local rep was who had sold me the phone, or who had replaced him.

With competition so fierce, the decision to switch was easy, especially since I knew of a local entrepreneurial company that acted as an agent for both Sprint and Nextel. I had a choice of two national cellular providers, backed by local customer service reps who report directly to the owner of the company.

When I called Alltel to tell them I was dissatisfied and ready to cancel my service, they did what you'd expect a company to do: the rep on the other end of the phone tried to dissuade me. In fact, she was so adamant about keeping my business, she told me that if I left, I would be billed $300 in addition to my normal monthly rate because I broke a contract. No questions about why I wanted to cancel, just a threat.

I was confused. The only contract I signed was three-and-a-half years ago, for a two-year term. No matter how you do the math, it clearly had expired. "No," she replied. "You renewed the contract for another two years when you called last fall to adjust your rate plan."

While I knew how outrageous this was, because I certainly would never have agreed to another contract with Alltel, I tried for a month after that to find the right person within the company to talk to about it. The two sales reps I'd dealt with locally at various times were long gone. No one at the company's 800 number had the authority to even discuss my predicament.

When I asked to be transferred to a supervisor, I was told to call the manager of a local Alltel store. The sounded a bit strange to me, since I had never even stepped foot into an Alltel store, but I followed the advice. It must have sounded strange to that store manager, too, because she wouldn't return my calls.

I'm still trying to reach someone at that company who has the authority to act reasonably. While I want to get that fee waived from my account, I'd also like to tell them, as an ex-customer this time, to take a look at one of the greatest employee handbooks ever written.

It's the handbook for Nordstrom employees, but it's not about selling shoes. It's just one piece of paper that simply says, "Use your good judgment at all times." Connie Swenson (cswenson@sbnnet.com) is editor of SBN Magazine.

Tuesday, 23 October 2001 10:48

Service you can count on

When the call came from Russell Vernon requesting a customer service training program for his employees, Connie J. Young's response was, "You've got to be kidding."

Although Young had been running professional development programs for local and national companies for more than 10 years, she was caught off guard when Vernon, founder and chairman of West Point Market, called.

"Who gives more service than West Point Market?" says Young, president and owner of CJ Young & Associates. "Those guys are the friendliest people in town."

But after a short deliberation, Young realized the market's reputation of having the friendliest people in town is the direct result of an employer who values customer service training.

"Sometimes I get called in after some incident has happened -- some customer sued the company or they have employees who are bickering -- and then they'll call me in to do customer service training," she says. "Normally, by that time, it's a little late. For some reason, companies don't think about customer service until a little later, and they need to think about it first."

West Point Market is just one example of a business whose reputation hinges on the service it gives. While it's certainly not the only company in town which offers great customer service, there are far more company owners who say they have exceptional service than who have actually earned the reputation for it.

Start with your front line

Vernon, who took over the day-to-day operations of West Point Market from his father last fall, says the market's service counter employees set the example for everyone else. For those positions, his human resources director seeks out applicants who enjoy interacting with people.

"We have a very intense environment here," admits Vernon, CEO. "Customers and employees are face to face all day long. There's a lot of potential there for things to go wrong."

West Point Market employs 170 people, most of whom hold positions that require customer interaction. On a typical Saturday, Vernon says 100 to 120 people are working in the store.

The low employee-to-customer ratio not only means shoppers get immediate assistance, but they also get an immediate answer or resolution to any problem.

Employees know they don't have to seek out a manager to get a problem resolved.

"We let them know, as far as the customer is concerned, there are no rules," Vernon says. "We let them know, as long as you have the customer in mind, you're going to be fine. They feel comfortable taking care of the customer right there -- which is great."

Young says too many employers focus on training and empowering their managers, but neglect their front-line employees.

"I do a lot of training with secretaries, because I believe secretaries are the heartbeat of the office," Young says. "(Employers) will take a lot of time to hire a vice president or a manager of a department, but they take five minutes to hire a receptionist. I tell bosses, 'Do you know that's your biggest mistake? They're the first contact anybody has with your company. They are on the front line.'"

Go the extra mile

Not every employee has the charisma to win over customers with their personality alone. But someone on every staff should know how to schmooze.

At the Hilton Akron/Fairlawn, restaurant manager Paul Cincotta not only knows all of his regular customers' names, he also knows their favorite soups.

"We have a lot of customers that really like our soups," says Hilton General Manager Timothy Winter. "So when someone expresses a liking for a certain soup, Paul will ask them if they'd like to be on the soup list. He takes down what soup they like, and when the chef is running that soup, he calls those people and they come in for lunch that day."

Cincotta also gives out his e-mail address to traveling guests so their breakfast orders will be waiting for them the morning after they arrive. And he's been known to win over some of the regular ladies-who-lunch with affectionate nicknames like Gorgeous and Beautiful.

Cincotta's go-the-extra-mile attitude hasn't gone unnoticed within the Hilton organization. He was recently chosen out of 71,000 Hilton employees as the company's Team Member of the Year.

"It's great for business," Winter says of Cincotta's efforts. "He fills up our dining room every day. ... He has really built up a nice clientele for us."

Shirley Matz may not share Cincotta's style, but still has earned a reputation for providing personal attention to customers. Matz, who owns Matz Bookkeeping Services in Akron, started her career as Raymond Firestone's personal bookkeeper. She founded her own company eight years ago and still pays personal attention to each one of her clients, even if they are assigned to someone else on her staff.

"At least once a month or so, depending on their needs, I will talk directly with each client, even if I am not doing the work," she says.

She is updated on each client's business through regular staff meetings.

"Plus," she adds, "the clients know that my door is always open."

Matz, who still counts the Firestone family among her clients, is not limited by the typical job description of a bookkeeper. She takes the time to brainstorm with her clients on "ideas, people and places," she says, that will help them promote their businesses. She has also earned a reputation for promoting her clients' businesses outside the office.

"If I run into someone who could use their services, I'll pass their name along," she says.

Hire the right people

Rick Vernon says great customer service starts well before training. You have to hire the right people, he says, then use training as a reinforcement tool.

"It happens way before training," he says. "Our philosophy is, if you don't hire the right people in the first place, you're not going to have that level of customer service."

While not many single-location retailers have a human resources department, Vernon says his HR director and assistant are critical to the business.

"We look for people who fit our culture," Vernon says. "It takes a little longer for us to find the right people, but once we do hire the right people, it's a good base."

He keeps his turnover low by offering flexible schedules, paying well and offering hours that don't include Sundays or late evenings. Those things also help him overcome the problem of finding food service employees in a tight job market.

"We also have more of a laid-back kind of culture," he says.

In addition, many employees want to work at the West Point Market to learn about the culinary arts.

"We get a lot of people who want to work here," he says. "We do things differently than most other stores. There's nowhere else in Akron you can learn from a CIA-trained chef how to prepare chateaubriand."

Cincotta knows the difficulties involved in recruiting and retaining employees in the food service industry. One of the things he has done, at no cost to the hotel, is set up a trade with a local dry cleaner so his staff members do not have to pay to have their uniforms cleaned. And he saves all of the gratuities he receives throughout the year to use as incentives to get employees to work on holidays.

"Consequently, he never has a problem covering shifts," says Winter. "The staff really appreciates his generosity." How to reach: West Point Market, (330) 864-2151; CJ Young & Associates, (330) 867-8562; Hilton Akron/Fairlawn, (330) 867-5000; Matz Bookkeeping Services, (330) 877-4180

Tuesday, 23 October 2001 10:47

Planning ahead

According to Bruce Harris, founder of Conferon Inc., the largest independent meeting planner in the United States, innovation comes from continually questioning the way things are done.

"I took what was the norm, and I challenged it. I said, 'Isn't there a better way to do this?'" he says.

Harris -- a 2001 Innovation in Business Master Innovator -- founded Conferon 31 years ago on an idea that came to him while working for a friend's hotel rep company. In talking to a client one day -- which happened to be Parker Hannifin Corp. -- about booking rooms at the hotel he was representing, the client mentioned that hotels "just don't get it about business meetings."

Shortly after that conversation, Harris' friend left the company, and Harris took over and converted it into a meeting planning organization.

Harris' ideas for his new venture came from asking questions.

"The more I got involved, I realized it was the planner who didn't understand," Harris recalls. "They didn't understand how to communicate with the venue: the vocabulary, the time needs, how to order information ... "

First he learned the hotel's side, then he went back to the corporate planners and began to organize their thoughts, so that when those ideas were presented to the hotel, all parties were speaking the same language. He set up standards for the way meetings are planned and run; those standards are now used by most of today's $100 billion hotel industry.

"Part of innovation is listening and being observant about aberrations and things that are not working well," he says.

Harris found more opportunities to question his industry when the editor of an industry trade magazine asked him to write a series of columns. In searching for topic ideas, he started to challenge the widely accepted processes and methods used in the hotel industry. Again, by questioning the norm, he was able to come up with better ways to do things.

"I was just looking for a standard of fairness," Harris says. "I wasn't looking for an advantage to the planner, I wasn't looking for an advantage to the hotel. We were the first to challenge what was going on in the industry and make changes."

One of the methods he challenged and subsequently changed was the way in which hotels charge a corporate client for an open, or corporately hosted, bar.

"Liquor is where the client loses the most money," Harris says. "Hotels were using a pour top at a cash bar, but when it was a hosted bar, they'd put speed pours on."

If the bartender poured a couple more ounces of liquor into a drink, the client was charged for a drink and a half, or a double. So Harris bought his own pour tops, and insisted on using them at his clients' hosted bars.

"There was a lot of resistance from the hotels, because the hotels did not want to treat the client the same way back then as they treated themselves," he says. "It ended up saving tremendous amounts of money. For one company, they had been charged for seven drinks per person in an hour. Of course they didn't drink that much. We dropped that down to less than two (drinks per person per hour) at the first function."

He also challenged the way in which hotels decide on meeting room sizes. Conferon now uses mathematical formulas to figure out how many people will fit into a particular size room.

"In the past, hotels could be off 40 to 50 percent in terms of what their capacities were. And the buyer had to beware," he says. "So for the first time, we were able to give some real consistency and quality to what was going on."

On the audio-visual side, he also challenged the standards.

"Oftentimes, the standards were set up by the suppliers wanting to sell as much of what they could. The standard wasn't determined by, 'What is the highest quality for the participant?'" Harris says. "So we changed the focus to quality for the participant, instead of being a supplier focus. That ended up being radical."

One of the most drastic industry changes Conferon instigated was to the way contracts are written.

"We used to have a handshake for contracts," he says. "When it went from a handshake to a written contract, it was totally one-sided. You signed what the hotel gave you. And that was it."

Harris completely revamped that process, creating contracts that served both the hotel and the buyer. The company made a significant and lasting change to the way hotels drew up their contracts.

"The changes that we made are now basic in most contracts you see in hotels all around the country today," he says.

The contracts used today are based on the simple premise of, as Harris puts it, "what is fair, what is right."

With 220 employees in offices in Boston, Washington, D.C., St. Louis, Chicago and Denver, Twinsburg-based Conferon is the largest meeting planner company in the country.

"I guess I'm known as the father of independent meeting planning," Harris humbly admits.

While he had almost no competition when he founded the company in 1971, there are now nearly 5,000 independent meeting planners in the United States.

In purchasing 1.5 million hotel rooms a year, Twinsburg-based Conferon is the largest single buyer of hotel rooms in the world.

"If you were to talk to the VP of Hyatt, Marriott, Sheraton or Hilton, and ask them, 'What's different about Conferon?' they'd say, 'What isn't different about Conferon?' I'm really proud of that." How to reach: Conferon, (330) 425-8333 or www.conferon.com

Connie Swenson (cswenson@sbnnet.com) is editor of SBN Magazine in Akron and Stark.

Tuesday, 23 October 2001 10:47

In praise of innovation

Look up the word innovate in the dictionary and you'll find it means "to introduce new methods, devices, etc."

But not every successful company has introduced a new method, product or service to the marketplace. There are plenty of examples of prosperous companies that have built their customer base on the simple principles of quality, value and/or exceptional customer service.

There are also countless examples of highly innovative companies that have fallen hard and fast. Think of all the defunct dot-coms that unabashedly threw their concepts out on the Web for the world to scrutinize.

But there's something heroic about the failed entrepreneur who risked everything to take his or her innovation to market. That coffee shop that couldn't make it on Main Street just doesn't bring the same sentiment.

Four friends come to mind who, in the last two years, gave up lucrative careers and risked their families' and friends' wealth to join or found dot-com ventures that now lie in a cyberspace graveyard. They are struggling with debt as they search for ways to support themselves and their families.

One waits for his first child to be born as he lives, jobless, on his family's farm. In one year, he risked and lost $1 million on a Web site concept he believed in. Do we write this off as eccentric stupidity? Most wouldn't. The timing may have been wrong, but the idea had a lot of potential.

I know he and many others will recover, not because they will find secure jobs in corporate America, but because they will try again and again until they find an economy and marketplace that are more accepting of their ideas.

That perseverance is what we are celebrating in the section in this issue on SBN's third annual Innovation in Business Awards.

All of these companies have found success by turning their innovative ideas into sound business models. Some are in the rocky high-tech industry, some in more traditional industries, like public relations and marketing and overnight shipping. The common bond among all the winners this year is that they overcame some degree of trial and error to achieve their dreams.

Read their stories and find inspiration. Connie Swenson (cswenson@sbnnet.com) is editor of SBN Magazine.

Tuesday, 23 October 2001 08:34

Planning ahead

According to Bruce Harris, founder of Conferon Inc., the largest independent meeting planner in the United States, innovation comes from continually questioning the way things are done.

"I took what was the norm, and I challenged it. I said, 'Isn't there a better way to do this?'" he says.

Harris -- a 2001 Innovation in Business Master Innovator -- founded Conferon 31 years ago on an idea that came to him while working for a friend's hotel rep company. In talking to a client one day -- which happened to be Parker Hannifin Corp. -- about booking rooms at the hotel he was representing, the client mentioned that hotels "just don't get it about business meetings."

Shortly after that conversation, Harris' friend left the company, and Harris took over and converted it into a meeting planning organization.

Harris' ideas for his new venture came from asking questions.

"The more I got involved, I realized it was the planner who didn't understand," Harris recalls. "They didn't understand how to communicate with the venue: the vocabulary, the time needs, how to order information ... "

First he learned the hotel's side, then he went back to the corporate planners and began to organize their thoughts, so that when those ideas were presented to the hotel, all parties were speaking the same language. He set up standards for the way meetings are planned and run; those standards are now used by most of today's $100 billion hotel industry.

"Part of innovation is listening and being observant about aberrations and things that are not working well," he says.

Harris found more opportunities to question his industry when the editor of an industry trade magazine asked him to write a series of columns. In searching for topic ideas, he started to challenge the widely accepted processes and methods used in the hotel industry. Again, by questioning the norm, he was able to come up with better ways to do things.

"I was just looking for a standard of fairness," Harris says. "I wasn't looking for an advantage to the planner, I wasn't looking for an advantage to the hotel. We were the first to challenge what was going on in the industry and make changes."

One of the methods he challenged and subsequently changed was the way in which hotels charge a corporate client for an open, or corporately hosted, bar.

"Liquor is where the client loses the most money," Harris says. "Hotels were using a pour top at a cash bar, but when it was a hosted bar, they'd put speed pours on."

If the bartender poured a couple more ounces of liquor into a drink, the client was charged for a drink and a half, or a double. So Harris bought his own pour tops, and insisted on using them at his clients' hosted bars.

"There was a lot of resistance from the hotels, because the hotels did not want to treat the client the same way back then as they treated themselves," he says. "It ended up saving tremendous amounts of money. For one company, they had been charged for seven drinks per person in an hour. Of course they didn't drink that much. We dropped that down to less than two (drinks per person per hour) at the first function."

He also challenged the way in which hotels decide on meeting room sizes. Conferon now uses mathematical formulas to figure out how many people will fit into a particular size room.

"In the past, hotels could be off 40 to 50 percent in terms of what their capacities were. And the buyer had to beware," he says. "So for the first time, we were able to give some real consistency and quality to what was going on."

On the audio-visual side, he also challenged the standards.

"Oftentimes, the standards were set up by the suppliers wanting to sell as much of what they could. The standard wasn't determined by, 'What is the highest quality for the participant?'" Harris says. "So we changed the focus to quality for the participant, instead of being a supplier focus. That ended up being radical."

One of the most drastic industry changes Conferon instigated was to the way contracts are written.

"We used to have a handshake for contracts," he says. "When it went from a handshake to a written contract, it was totally one-sided. You signed what the hotel gave you. And that was it."

Harris completely revamped that process, creating contracts that served both the hotel and the buyer. The company made a significant and lasting change to the way hotels drew up their contracts.

"The changes that we made are now basic in most contracts you see in hotels all around the country today," he says.

The contracts used today are based on the simple premise of, as Harris puts it, "what is fair, what is right."

With 220 employees in offices in Boston, Washington, D.C., St. Louis, Chicago and Denver, Twinsburg-based Conferon is the largest meeting planner company in the country.

"I guess I'm known as the father of independent meeting planning," Harris humbly admits.

While he had almost no competition when he founded the company in 1971, there are now nearly 5,000 independent meeting planners in the United States.

In purchasing 1.5 million hotel rooms a year, Twinsburg-based Conferon is the largest single buyer of hotel rooms in the world.

"If you were to talk to the VP of Hyatt, Marriott, Sheraton or Hilton, and ask them, 'What's different about Conferon?' they'd say, 'What isn't different about Conferon?' I'm really proud of that." How to reach: Conferon, (330) 425-8333

Conferon website

Friday, 30 August 2002 10:52

Cutting through ESOP's fables

What do Honeywell, Procter & Gamble, Lowe's and BellSouth have in common? Besides being successful Fortune 500 companies, their leaders at some point made a decision to share that success with their employees through an ESOP (Employee Stock Ownership Plan).

There are approximately 11,500 ESOPs in place in the United States, covering 8.5 million employees who own some stock in the companies they work for. The legislation that encouraged the establishment of ESOPs is part of the Employee Retirement Income Security Act of 1974.

While an ESOP can have its drawbacks -- especially if it is not specifically tailored to the company putting it in place, experts say -- it can also be a great way to maintain a motivated, bottom-line-oriented work force, as well as provide tax benefits to the company.

The Ruhlin Co., a construction management company based in Sharon Center with an estimated $92 million in revenue, has had an ESOP in place since 1977. When it was established, the plan held 15 percent of the company's stock. Today, 88 of the company's salaried employees own 81 percent of Ruhlin's stock. (The other employees -- whose number ranges from 100 to 300 depending on the season -- are hourly, unionized workers who don't qualify for the plan.)

According to company President James Ruhlin, the ESOP's benefits outweigh any problems that might come along with the plan.

"It's an excellent vehicle to share the wealth," he says. "No one person in a company this size makes a company go or not go. They get to share in the rewards of their efforts."

Ruhlin, who has been president since 1996, says the company's current ESOP fits with his family's long-time philosophy of sharing profits with those who have helped make the company a success. Ruhlin's father, Jack, and uncle, Bill, started a profit-sharing program in the 1960s, before ESOPs existed.

The Ruhlin Co.'s ESOP is set up so that shares in the company are distributed yearly to employees. Those shares are allocated to individual employee accounts within a trust account, and cannot be disbursed until an employee retires or otherwise leaves the company, after a vested amount of time.

The shares' value depends on how well the company performs, and typically, the stock must be valued by an independent appraiser before shares are put into the ESOP.

"The ultimate benefit to the company is that you have employees who have a financial interest in the company, other than just a paycheck," Ruhlin says. "When people know they're going to own a piece of the pie, it's going to make a difference."

Ruhlin says the ESOP gives him a competitive advantage when it comes to luring qualified workers in an industry that has "typically not been popular with the younger generation."

Only about 10 percent of companies in the construction industry have ESOPs in place, he says.

"It gives us an advantage in our hiring ability."

But while an ESOP has its advantages, it's critical that company leaders put certain programs in place to help employees understand how the plan works and what their rights are as stockholders, advises Steve Clem, program coordinator for the Ohio Employee Ownership Center at Kent State University.

"When you go into one of these things, management has to be careful not to oversell," says Clem. "If this is something that management wants, and they want the employees to go along with, they have to be careful not to oversell and have people thinking that they're going to have input on every little decision that comes down the pike -- because that doesn't happen.

"Sometimes it's sold as though you're going to be in charge, and you can fire the supervisor that's been treating you badly all these years -- it isn't how it works," Clem says. "It runs just like a regular company, except that the employees who are part of the ESOP have an opportunity to have some input and to accrue an extra benefit."

Ruhlin agrees difficulties can arise when employees take the word "ownership" literally and falsely assume they can make direct decisions about how the company is run.

"The hardest part is that when you use the term 'employee owner,' the word 'owner' carries a connotation in peoples' minds that they run the place," he says. "That's not always a negative thing, but they are really a stockholder. You get all the rights of a stockholder, but not an owner."

Ruhlin says at The Ruhlin Co., shareholders elect the seven-member board of directors, which then makes executive decisions such as appointing the company president.

"People need to understand that an effective board provides advice to management -- it's not an employee watchdog group," he says.

Ruhlin, an engineer, was hired by the board six years ago to run the company, after it decided he was the best candidate for the job, regardless of his family name.

"I had to pass that test, or I'd just be a Ruhlin," he says.

His performance is evaluated by the board every year, and while he is the third generation of Ruhlins to run the company, there is no guarantee that a Ruhlin will always occupy the corner office. (Prior to 1996, a nonfamily member ran the company for two years.)

Ruhlin says some of the complications of an ESOP can be worked out through ongoing education of employees and management. As a member of KSU's Ohio Employee Ownership Center, Ruhlin participates in roundtable discussions with leaders of other ESOP companies, and Ruhlin's employees attend training classes.

When asked if he would recommend the ESOP structure to other businesses, he says only if it fits the needs of the ownership and is carefully crafted.

"We're basically a private company, but I've had to learn to run the company as a public company," he says. How to reach: The Ruhlin Co., (330) 239-2800; Ohio Employee Ownership Center at Kent State University, (330) 672-3028 or www.kent.edu/oeoc

Tax incentives

Congress has granted a number of specific incentives meant to promote increased use of the ESOP concept.

Deductibility of ESOP contributions

As with all tax-qualified employee benefit plans, contributions to ESOPs are tax deductible to the sponsoring corporation up to certain limits. Contributions can be either in cash (which is then used by the ESOP to buy employer securities) or directly in the form of employer securities.

When employer securities are contributed directly, the employer may take a deduction for the full value of the stock contributed.

The deductibility of contributions to an ESOP becomes even more attractive in the case of a leveraged ESOP. Under this arrangement, an ESOP takes out a cash loan from a bank or other lender, with the borrowed funds being paid to the sponsoring employer in exchange for employer securities.

Since contributions to a tax-qualified employee benefit plan are tax deductible, the employer may thereafter deduct contributions to the ESOP which are used to repay not only the interest on the loan, but principal as well.

This makes the ESOP an attractive form of debt financing for the employer from a cash flow perspective. Each year, the company can deduct contributions of amounts up to 25 percent of the covered payroll, plus any dividends on ESOP stock, which are used to repay the loan.

Any contributed amounts used to repay interest on the loan are deductible without any limit.

ESOP rollover

An additional incentive allows a shareholder, or shareholders, of a closely held company to sell stock in the company to the firm's ESOP and defer federal income taxes on the gain from the sale.

To qualify for this "rollover," the ESOP must own at least 30 percent of the company's stock immediately after the sale, and the seller(s) must reinvest the proceeds from the sale in the securities of "domestic operating corporations" within a year. The seller, certain relatives of the seller, and 25 percent shareholders in the company are prohibited from receiving allocations of stock acquired by the ESOP through a rollover.

Deductibility of Dividends

Employers are also permitted a tax deduction for cash dividends paid on stock which has been purchased with an ESOP securities acquisition loan, to the extent that the dividends are passed through to the employees. The dividends are taxable as current ordinary income to employees.

A deduction is also available for dividends paid on ESOP leveraged stock to the extent that the dividends are used to reduce the principal or pay interest on an ESOP loan incurred to buy that stock. Source: The ESOP Association, www.esopassociation.org