People skills are hard to teach employees. Yet how well employees read customers and interact with them leaves a lasting impression.
You might think the best insurance against poor customer relations would be to hire chatty, bubbly employees to staff your front line. They'll come across as friendly and interested.
Not necessarily. You still have to train them so they know when to turn on the charm and when to keep their heads down and simply do their jobs.
Not long ago I went shopping at a new supermarket to see how it compared to the store where I usually buy groceries. It was late, and I only had a few items to pick up, so I figured it was the perfect opportunity to make a quick run through the place -- which also happened to be closer to my house than the grocery I typically patronized.
I expected to spend a few extra minutes navigating my way through the unfamiliar store layout to find what I needed. What I didn't expect was to spend nearly 25 minutes at the check-out when I was the only customer in line and had fewer than 12 items in my basket.
The clerk apparently didn't notice I was in a hurry -- despite the fact that I had my credit card out and ready the moment she started scanning my purchases. She wanted to talk. And talk she did.
So much so that she actually stopped scanning to show me the subject of her incessant rant: an article she'd been reading in Rolling Stone magazine.
As the clerk droned on, I began to wonder whether her boss considered her a good worker. She was careful to bag my pears separately from my canned goods, so as not to bruise them. She handed me my Tic-Tacs after scanning them rather than tossing them in the bottom of a bag for me to dig out on the way home. She smiled a lot. She was well groomed and upbeat.
Yet her inability to recognize that I was tired and in a hurry -- or that her chosen topic of conversation was one I cared nothing about -- was annoying enough to overshadow all that. She was wasting my time. And I value that more than carefully handled fruit.
This situation could have been avoided had the clerk been trained to be more aware of and sensitive to customer moods. The cues are usually there. She just needed to be taught how to read them.
While some customers will readily speak up if an employee is aggravating them, others will take a more passive approach in expressing their feelings. Both, however, will leave upset -- and that's never good for business. Nancy Byron (firstname.lastname@example.org) is editor of SBN Magazine in Columbus.
Companies expect innovation from Carl Kohrt. No wonder. The president and CEO of Battelle Memorial Institute oversees a work force, which, over the years, has developed life-changing technology, such as the first office photocopier, automotive cruise control, UPC codes, compact disc technology and cut-resistant golf balls, just to name a few.
Naturally, Kohrt, who joined Battelle in 2001, hasn’t been there for all of that, but as the leader of this Columbus-based innovation machine, he’s come to appreciate what it takes to maintain a 20,000-strong work force bent on discovering the next great idea.
“It’s really hard, and you have to have a thick skin,” Kohrt says of managing innovative types. “They don’t particularly care about titles. And generally, they think management is overrated. So the sense is that I, as the leader, have to find ways to help them have resources appropriate resources and help them facilitate their use.”
You also have to be clear about what kind of innovation you are expecting.
“Looking for the unusual is only one part of innovation,” Kohrt says. “You can spend all your time doing that and finding nothing. The second part of innovation is doing it with a purpose. Companies that know their business, that know their industry, that know their customers can innovate for product extensions or product improvements.
“Then there’s innovation of looking for a new problem to solve or a new way of doing it. Many entrepreneurs work in those areas. They’re looking for the pain in the industry and a new solution to that pain that someone is willing to pay for.”
All three types of innovation-seeking go on at Battelle, which conducts $4.1 billion in annual research and development for government agencies, private sector customers and corporations around the globe. Last year, 13 of those quests were successful enough to be named among the 100 most significant scientific and technological innovations in the world.
Here’s how Kohrt continues to build on Battelle’s reputation and how your company could develop a more innovative work force.
Seek ideas outside your company
The days of developing great new products or services exclusively within your own four walls are fading fast.
“The new wave of R&D is to not do it all yourself but rather to have core capabilities, and then to also have sophisticated ways of identifying, acquiring, supporting and bringing back ideas from others,” Kohrt says. “It’s an R&D network.”
That doesn’t mean you have to give away or farm out all your potentially great concepts. But being able to brainstorm with other individuals and organizations, whether they’re across the street or two continents away, can help you develop better solutions more quickly.
“It’s hard to go outside your own company,” Kohrt says. “It takes different people and different management. You can’t just take the same people who have done it internally forever and now expect them to be effective doing it externally without some help.”
Kohrt suggests seeking out workers to lead up R&D networking who are naturally curious, good communicators and open-minded about where they look for potential ideas.
“They have to have fairly eclectic taste because the easy thing to do is to always look at the world through the same filter,” Kohrt says. “They really need to be able to envision outside their experience base and have a willingness to engage with people where they don’t know as much as the other person does. You have to strongly value and demand individual expertise and excellence but also seek horizontal networks across disciplines and across cultures.
“Can you value what others have done without judging? Because there’s a lot of different ways of accomplishing the same thing. Some of those ways are not best done by how you do it in Columbus.”
Look, for example, at water purification. “We’re used to an infrastructure here that others don’t have in India, Bangladesh or other parts of the developing world,” Kohrt says. “So proposed solutions for purifying water there can’t follow the usual formula.
“How do you do that in a town that has no electricity and shallow wells? Solving that problem there may give you a simpler solution for solving it here.”
Case in point: hand-cranked radios and lights. Kohrt says this technology was first developed for use in African villages without electricity, but it has caught on in the United States, as well.
“I’ve got a hand-cranked radio down in my basement and one of those flashlights that you shake in every car,” he says. “It’s actually a fairly interesting market. Was there an impetus for us to do that here? No. But working in other cultures gives you opportunities to be innovative about how you look at a problem.”
Respect employees even in failure
“Innovation is a very human process,” Kohrt says. “We take pride in that. It’s gratifying.”
Yet many CEOs tend to overlook the need for innovators to feel respected and honored for what they do even when things go wrong.
“It is hard because they’re all passionate about what they do and intolerant in your lack of interest or knowledge in what they do and yet want very much to be respected,” he says.
“What helps, but also makes it difficult, is valuing the mistakes. Often, the most important thing you can learn is what doesn’t work. Because that narrows the field of what does work very rapidly. Yet, if it’s viewed as a mistake because it doesn’t work and therefore, you screwed up, that will cut the spirit faster than almost anything.”
Instead, Kohrt says, ask, “What did you learn?” Then move on. “A corollary to that are incentives,” he says. “I think it’s underestimated quite often, the role of recognition, even if that recognition doesn’t result in a monetary reward or product. Probably the bane of my existence is trying to define what type of incentives, if any, one wants or should use.
“You have to be very sure that, as the management, you really understand what the consequences and unintended consequences are of your incentive system. You may think you’re helping when, in fact, it has the opposite effect.”
Kohrt offers an example from his days as a senior researcher at Kodak Laboratories.
“Someone had the bright idea that, from a cost-effective point of view, all of the doors would be locked after 6 o’clock,” he says. “The people who were running the physical plant facility were getting (incentivized) on power costs. So if you keep people out of the building, power costs go down.”
The inherent problem with that was it also limited researchers’ access to their work.
“Now, I can’t get in at 8 o’clock to look at my experiment,” he says. “Who the hell’s idea was this? It didn’t last very long, but that’s why you have to think of the incentives from a system point of view and be sensitive to that.”
Battelle’s incentives include recognizing teams and individuals for the number of patents they receive, profit sharing on certain inventions and holding Inventor of the Year competitions. The winner of this competition gets a reserved parking space, among other accolades. Battelle also has a call for ideas to compete for internal research and development funds.
“The most important aspect when we give these recognitions is that spouses and families are invited,” Kohrt says. “There’s gratification in receiving recognition from others they respect: their peers and, to a lesser extent maybe, management.”
But being able to share those moments with family makes them all that much sweeter.
Beware of burnout
Constantly pushing employees to be innovative or even just having innovative employees who push themselves too hard can elevate stress levels and cause burnout.
The trick, Kohrt says, is to vary what employees do. “We have people who may be working on two or three projects simultaneously,” he says. “That’s part of the appeal of working at Battelle: You get to try lots of different things.
“The people here work phenomenally hard. If there’s burnout, it tends to be because there are not enough hours and too many demands, so it’s more of a physical burnout than a burnout based on, ‘I don’t have any more ideas.’
“One way to avoid that is to get people different experiences especially early in their careers. It’s one of our initiatives to focus on getting people broader experience so they can be more adaptive.”
Not only does that challenge different parts of their brains, but it can help a talented innovator avoid obsolescence.
“The world changes rapidly, and if you’re best at a narrow area, that area may become irrelevant,” Kohrt says. “And knowing the most about the least important thing is not very valuable.”
A small pat on the back can also help recharge the batteries in an otherwise overworked or overwhelmed employee.
“The best thing is for me or other managers or leaders to wander into the laboratories and just show curiosity,” he says. “They love to talk about their work.”
So much so that Kohrt devoted one entire board of directors meeting at Battelle this past winter specifically to innovation.
“We had several of our actual researchers there, and they had poster sessions where our board members spent two hours going poster to poster listening to and talking to our staff and having dinner afterward,” he says.
It was a real motivator. “And word gets around that management values creative ideas,” he says.
Be a mobile manager
Innovative types have a reputation for being hard to manage, but it doesn’t have to be that way. All it takes is a manager who will show interest in what his or her innovators are doing, who can communicate well and who knows his or her stuff.
“They need to be technically competent in the arena they’re expected to lead because the staff values what you know, not your position except when they really need you to do something,” Kohrt says.
That doesn’t necessarily mean your best innovator should be put in a leadership position.
“Unfortunately, the most technically competent person may not be the best manager,” he says. “I don’t pretend to be the smartest guy in this organization. The skills on how to communicate and how to sell ideas and how to envision how individuals in an organization can contribute, those are abilities they need to have.”
Kohrt says he, himself, often underestimates the importance of good communication in an environment filled with innovators.
“In any organization there’s a particular level through which top-down messages and bottom-up messages just don’t seem to penetrate,” he says. “Sitting at the top, I can preach, but often, I don’t know what happens.”
That’s why he gets up and walks around. “When a CEO maintains the right to talk to anyone in the organization, the quality of the information transferred is much higher,” he says. “You know the boss is going to find out anyway.
“I’m very accessible. Some would say to a fault. This is effective both for managing an organization and for innovation because it lets the staff know at all levels what’s valued and what’s of value in an organization. If, in the course of that, you’re wandering into a lab and they’re doing something cool and you act like you’re at least interested, it’s amazing how that story gets out. Organizations run on stories as much on stories as on fact.”
Don’t forget front-line innovators
“What I’m still learning after 45 years of doing this is you can be just as innovative in the mail room as you can be in the lab or the factory,” Kohrt says. “And you should celebrate it the same way.”
After all, innovation isn’t just about selling a new, improved service or product. It’s also about working smarter.
“There are a lot of hidden costs,” Kohrt says. “I believe the organization always has more knowledge about how they can operate more effectively than management gives them credit for. So we’re now trying to get the staff to step back and say, ‘Do you have a better idea?’
“It comes in many different arenas some of them seemingly mundane but it can improve your cost position or your competitive position in unexpected ways.”
“You just have to be open to it. It’s not just the product. It’s innovation in many different areas.”
HOW TO REACH: Battelle Memorial Institute, (614) 424-6562 or www.battelle.org
“There was a tendency years ago to have hospital-centric systems,” says Claus von Zychlin, who became president and CEO of Mount Carmel Health System, a member of Trinity Health, in July 2006, and quickly diagnosed this long-standing flaw in how the system was organized. “Our hospitals generate the largest volume, so a lot of these things became like a department of the hospital somewhere. They kind of got lost in the milieu.”
That stifled growth in certain areas and caused frustrating mismatches between leadership skills and organizational duties in some cases.
For example, the education division which includes the Mount Carmel College of Nursing as well as the graduate medical education program that trains aspiring physicians during their residencies has historically reported to one of the hospital administrators at Mount Carmel.
“At the time, they really had very little knowledge about graduate medical education, and it really got the attention only when something was broken, not the attention of, ‘Where do we go tomorrow?’” he says.
To fix these types of problems, von Zychlin tossed out the old organizational chart and created four new divisions one each for education, ambulatory care, managed care and physicians and put them all on equal footing with the hospital division. He also hired or promoted administrators with specific expertise in those areas to head up each of the five divisions within the $1.1 billion organization.
“By separating them out into divisions, with each of them having an executive sponsor, they each have the time and attention they need rather than being buried underneath some department of the hospital,” says von Zychlin. “That has added to their accountability, their ability, and, I think, in general, to the psyche of the people who work there. They realize they’re an actual division that has the same level of responsibility and visibility as the hospital traditionally had.”
The results have spoken for themselves. Expenses have dropped by $61 million between fiscal 2006 and 2007, thanks to a systemwide efficiency review. In that same time frame, supply costs have decreased $1.5 million and Mount Carmel College of Nursing’s operating performance has improved by 38 percent.
Here’s how von Zychlin’s eye for reorganizing and creating equality and collaboration within Mount Carmel is helping the system reach new heights.
Von Zychlin did not adopt a separate-but-equal philosophy for Mount Carmel’s five operating divisions. Quite the contrary; he believes the whole is still greater than its parts, and he expects teamwork, collaboration and partnerships across all divisions. After all, the common goal, as with any service-oriented business, is to increase customer satisfaction.
“We need continuity of care through all levels,” von Zychlin says.
“If you look historically, health care has been rather episodic. If you are seeking health care, you go to a doctor’s office. That’s one episode of care. If your doctor sends you to a hospital, that’s another episode. If he sends you to an outpatient center, that’s another episode of care. Those episodes or encounters were not very closely linked to each other in the past. We hope one day to create better and better links, better continuity between those episodes.”
That means better communication not just within Mount Carmel’s flagship division the four hospitals, which traditionally had a lot of individual autonomy but also between all the divisions that could share customers, or patients.
“If a patient registers at Mount Carmel West, then the next time registers at Mount Carmel St. Ann’s, not only will that information transfer with the patient, but key clinical processes and procedures that the patient may find comfort in will have commonality,” he says.
Commonality in systems and procedures across Mount Carmel’s divisions can also increase efficiency.
“If you look at how we go about overseeing quality of care, we track hundreds of indicators,” von Zychlin says. “It’s a whole lot easier for us to track those indicators if everybody is collecting data the same way, if it’s reported the same way and if the teams who work on improving quality of care work together so we’re not reinventing the wheel.”
Commonality can also save time. “If, for instance, a physician practices at more than one location, there is a lot of value in the procedural work and processes we engage in being the same so the physician doesn’t have to learn different processes at each hospital,” von Zychlin says.
The advantages are enormous fewer opportunities for mis-communication, less time spent training on procedures and more time spent with patients as well as vital to better serving Mount Carmel’s “customers.”
That said, there is still room for pioneering new ideas within various divisions.
“On occasion, we will pilot something at one of the sites, and if that pilot seems to be effective, then it can be rolled out to all the sites,” he says. “So there is also the benefit of the individual initiative and effort.”
Balance your goals
Despite the push for increased uniformity across the Mount Carmel Health System, the market still plays a role in how things are done at times.
“You have to be able to recognize the value of interdependence and recognize the value of market independence,” von Zychlin says. “When I look at our College of Nursing, I’m looking not only at how can it benefit Mount Carmel Health System, but how does it benefit nursing education and the growth of nursing education in the region that we serve. I can’t just look at how it will help me fill my nursing vacancies; I also have to concentrate on how it can be responsive to its students and the community that needs more nurses. How do we take it to the next level?”
That’s where having the head of Mount Carmel’s College of Nursing reporting directly to von Zychlin rather than two levels removed from him comes in handy. Ann Schiele, president and dean of the college, now has the resources and attention she needs to constantly look ahead to what’s next, stay competitive and, by doing so, help the system as a whole.
“Can we build into the curriculum and the practical, clinical experiences a way to show how doctors work with nurses in partnership and nurses work with doctors in partnership rather than just training nurses to be nurses and doctors to be doctors?” von Zychlin says. “We can take it beyond just the corridor of training in their respective professions.
“We have lots of ambulatory sites. Does it make sense to open nursing education into those sites and create a broader experience? Same thing with physicians.”
The winners in all of this, again, are the customers. With better, multifaceted training upfront, nurses are apt to adapt more quickly to any medical environment in which they are called to serve. Therefore, patients should receive better care.
“Those are some of the things we are looking forward to in creating the synergy between the hospitals and the College of Nursing and graduate medical education,” von Zychlin says.
Still, it’s a continual balancing act. “You have to be able to weigh internal benefit with external benefit,” he says. “If you concentrate too much on the outpatient or external side, then you have to question what’s the value of having that division as part of your health system. Does it add value? Because it takes management time, it takes capital, it takes lots of things; so if it can’t add to the value of the system and all it’s doing is external, then you have to really question whether that division makes sense for you to have or not.
“Vice versa, if you only concentrate on how it supports your organization, you may lose the value and quality of the best students and its success in the community. If students perceive us as being 100 percent internal-focused around how do we fill our own vacancies, then they’re going to say that doesn’t give me the broad experience I’m looking for as an individual nurse for my future growth and career path. So we have to look at it and say, ‘How can we do both?’”
Evaluate your progress
Although the organizational chart has been modified and the mission of cooperation between divisions has been clearly set, there’s still plenty of monitoring and evaluating taking place. There always will be.
“This is a journey,” von Zychlin says, adding that the role of technology in the ever-changing medical field is likely to have significant bearing on how to best create operational efficiencies under the new, five-division internal structure at Mount Carmel.
“I have it as a priority that we are looking at things in a systematic way,” von Zychlin says. “What’s the best way to provide this particular service? Does it make sense for it to remain specific to the individual sites with some oversight? Or does it make sense to consolidate it into a single department that operates at four different locations or more? What makes the most sense from a quality of practice standpoint? Is it more cost-effective one way or the other? I suspect sometimes we’ll consolidate and find out that the market or technology has changed, and it might make more sense to decentralize again.”
Take, for example, the medical laboratory. “Rather than duplicating expensive lab equipment, it’s probably better to consolidate certain components of the lab and get critical mass at one site,” von Zychlin says. “If you look at today’s world, with digital equipment, once you get the sample to the lab, reporting back out is instantaneous because it’s done by a computer. But technology changes. As it does, we will determine whether it still makes sense to centralize or whether it needs to be reconsidered for decentralization.”
Even if decentralization ends up as the best choice in the long run for certain services at Mount Carmel, that doesn’t equate to complete independence.
“For me, it’s more around coordinated and decentralized or centralized,” he says. “I can’t think of anything that is so decentralized that there’s no coordination going on.”
Whichever way the pendulum swings at any given time in the future, the ultimate goal will remain clear.
“If you look at the core or genesis of it, it is patient care,” von Zychlin says. “We are a people business.”
HOW TO REACH: Mount Carmel Health System, (614) 234-5000 or www.mountcarmelhealth.com
The reasons to go paperless were piling up around ProCentury Corp. quite literally for some time before the executives there saw the light.
Stacks upon stacks of critical documents and carefully labeled file folders covered the desks, stuffed the file cabinets and lined the shelves at this Westerville-based insurance holding company.
Yet the time it took to manually file and retrieve documents daily, not to mention locate the occasional misplaced file, simply became too much. Ditto for the cost of storing all that paperwork and shipping files back and forth among ProCentury’s offices in Columbus, Phoenix, Houston and Boston. It just wasn’t efficient.
“We made the determination to become a paperless environment because we knew we had to achieve significantly greater efficiencies to increase our competitiveness,” says Edward Feighan, ProCentury’s chairman, president and CEO. “That was an enormous task. We literally scanned and archived millions upon millions of documents. But the benefits have been enormous in terms of productivity. It’s saved us millions of dollars in just the past few years.”
It also made the company more than $100 million more.
When Feighan was named to the top spot at ProCentury in late 2003, the company’s gross written premiums the closest equivalent to revenue in the insurance business were $149.7 million. Last year it recorded gross written premiums of $283 million, an 89 percent increase in less than four years.
“There’s no question about it,” Feighan says. “Our investment in technology has been a major centerpiece of the success we’ve had over the past few years.”
Here’s how three high-tech strategies increased efficiency, productivity and financial performance at ProCentury.
No more paper trails
Before taking the paperless plunge, executives at ProCentury did some figuring.
“We analyzed all the work hours involved in the maintenance and retrieval of physical files,” Feighan says. “We took into account the limited access to physical files. For example, if a person in Ohio has a file on his desk, a person in Phoenix has to wait for that file to be shipped to him.”
They also attempted to calculate the time lost and opportunity to be responsive created by the limited access to paper files. And don’t forget the cost of copying and buying the mountains of paper required to support the company’s traditionally document-laden lifestyle.
“It was not a particularly difficult analysis,” Feighan says.
Once the decision to go paperless was made, ProCentury created an in-house scanning department.
“They began the Herculean task of scanning in those millions, those tens of billions of pages, policies, correspondence and claims that were filed into our system,” he says. “Simultaneously, we began training our employees to access a digital file.”
After all, during the multiyear process of converting to a paperless system, some files remained accessible only in a paper format, while others were only available digitally.
“The biggest cost was running the dual system of physical files and digital files because we relied so heavily on personnel,” says Feighan. Training personnel to use the new technology, however, wasn’t an enormous challenge.
“The average age of our employees is about 35, so our employees are typically quite comfortable working in a digital environment,” Feighan says. “By and large, they welcomed the opportunity to have the added flexibility. Today, we can have someone in the Columbus office reviewing some dimension of an insured’s file, and their colleague in Phoenix can be looking at another aspect simultaneously. It’s much easier to work on a collaborative effort online than with a physical file.”
Training agents and client companies on the software presented a bit more of a challenge.
“Some of them had only recently started using e-mail,” Feighan says.
Some hand-holding and additional training were required, but even that hurdle has been largely overcome in the past couple years.
“Now when we get a submission from a client, it typically comes in digitally,” he says. “But if it comes in faxed, we digitize it.
“We are a virtual environment and are virtually paperless,” he says, noting that all paper documents are destroyed after they are scanned into the system.
It’s a notion that may sound frightening to some CEOs. Feighan says it shouldn’t be.
“We back up our system every day,” he says. “It’s all stored off-site. When you’ve seen significant increases in productivity and you know you have multiple backups, it’s not at all unnerving.”
Warehouse your data
While converting to a paperless environment increased efficiency and reduced costs at ProCentury, Feighan says the most essential investment his company has made in technology is creating a data warehouse. “As an insurance company, our analysis of data is the lifeblood of our business,” he says. “It builds the foundation for much more sophisticated business intelligence.”
That’s why it’s a strategy just about any company could benefit from embracing.
“Any industry that has a significant customer base, I believe, needs some sort of data warehouse,” Feighan says. “It can be used to do an ongoing analysis of pricing or to get a detailed understanding of customer needs.”
For ProCentury, data warehousing allows the company to put itself and its agents under a more powerful microscope.
If Feighan wants to know how much business an agent in Atlanta is producing monthly and at what loss ratio, for example, he can access that information. If he wants to measure productivity by looking at the premium volume per employee, that’s in there, too.
The trick, he warns, is not just collecting the data.
“It’s having the data in a form that can be easily accessed,” Feighan says. “It sounds simple, but it’s pretty challenging to achieve.” ProCentury used an outside consultant, Chicago-based WhittmanHart, to build its data warehouse.
“They started with an enormous amount of data,” Feighan says. “We’d been in business almost 30 years. So what they did was build the warehouse so it would segregate the data in ways that we could easily and logically extract it. They said, ‘Tell us what you want and how you want to look at it.’ Now we can get data instantaneously.”
Data such as the time it takes to get back to clients on inquiries and quotes, and the number of potential clients declined or accepted for insurance coverage are captured in real time and can be mined in any number of ways. “It wasn’t that long ago that it was impossible to extract data at that level of complexity within moments of capturing it,” Feighan says. “It remains remarkable to me. Mysterious and remarkable. And as a result of having the data warehouse, we can become far more granular in the analysis of our business.”
Listen to your customers
When assessing new technology, Feighan says he keeps one thing in mind: “We’re not making these investments to make life easier for us. We’re doing it to make life easier for our agents and our clients. We’re doing it to make it easier for them to do business with us.”
That’s what prompted ProCentury in 2005 to develop a Web-based insurance rating and quoting portal called Century Online. It al-lows agents to immediately quote premiums for potential customers and, with a single keystroke, write and send the policy directly to the customer either digitally or via mail.
“Our agents need to be responsive to customers as quickly as possible,” Feighan says. “It’s as or more important to them to beat their competition in responsiveness than price. This is one more tool we’re giving them to do that.”
When Century Online was being developed, it was done with a group of agents.
“We wanted to be sure we were being responsive to their needs,” he says.
“That’s the absolute starting point [with any new technology]: What will enhance your customers’ use of your service or products? What needs can you address? The time that is spent upfront on an assessment of your customers and of your internal needs makes the rest of the process easier and more logical and compelling.”
In the case of Century Online, the technology was fundamentally changing the way ProCentury did business. It redefined how the company differentiated itself in the market. To get everyone on board, it had to be easy to use. “The ultimate test was, when it was completed, I had to sit down and rate, quote and bind a policy on my own,” Feighan says. “And I know if I can do it, anyone can. I was able to do it the first time. It is that intuitive of a system.”
ProCentury’s emphasis on using innovative technology to drive its business earned the company accolades last fall. Century Online was a finalist for A.M. Best Co.’s E-Fusion Award, which recognizes outstanding, resourceful uses of technology.
Feighan seems to enjoy being a bit of a pioneer in his industry when it comes to trying out new technology. In fact, he’s not at all worried about getting arrows in the back. Other businesses financial institutions, medical offices and the like have been using similar technology for years.
“To me, it’s not even on the radar as risk,” Feighan says. “It’s an essential investment. It’s what we must do to remain competitive.”
HOW TO REACH: ProCentury Corp., www.procentury.com or (614) 895-2000
It was a simple mistake.
Instead of choosing among four East Coast housing projects to go after, executives at The Wallick Cos. decided to build them all — at the same time. It seemed like a great growth opportunity for the then-$135 million company. Instead, it financially crippled the Reynoldsburg-based builder and manager of affordable housing.
Thirty-seven straight years of profits went down the tubes, and revenue plunged by $50 million in less than 48 months. In addition, more than a third of the 1,000-strong work force had to be laid off. “I came in the middle of it, so I didn’t see it at its worst,” says CEO Tom Feusse, who began working with Wallick as a consultant in May 2005, about a year after the company sold its ill-fated developments in New Jersey and the Carolinas to cut mounting losses. Still, Feusse heard the stories and saw the numbers. “We were like an individual who is very healthy for a long time but then gets a serious illness,” he says. “The early part of that is very intense. You start in critical condition, then move to ICU, then to a regular hospital room. ... In this case, it took us two years to get well.”
Here’s how Feusse, who was hired as CEO in July 2006, is nursing Wallick back to health.
The diagnosis was fairly easy.
“We tried to do too much too fast,” Feusse says. “That was our problem.”
His prescribed cure: Add discipline and go back to basics.
That means reining in the geographic reach of the business to maintain more control. It means adding internal processes — specifically in human resources and finance — to better position the company for future growth. It means exploring only those opportunities that fall within Wallick’s established niche of affordable, multifamily housing. And perhaps most important, it means developing a clear strategic plan to map out the future of The Wallick Cos. “It is a journey,” Feusse says.
But before Wallick could begin that journey, executives needed to address an underlying, yet vital, condition within the business: ownership control.
Jack Wallick, who founded the company in 1966, maintained majority ownership of the business until his death in 1995. At that time, control of the company went into a trust, managed by The Wallick Cos. board of directors and a voting trust. “That’s pretty impersonal, and it’s pretty hard for employees to understand and identify what that means,” says Feusse. So when Jack Wallick’s children, Howard and Julie, regained family control of the company in May 2006, it helped in many ways. “Jack Wallick was very, very well respected,” Feusse says. “So the fact that it’s now in the hands of Jack’s family again is very positive. I think it’s more personal now. It feels like a family-owned business.”
It was a pivotal first step on Wallick’s road to recovery. Another step was hiring Feusse.
“They had things under control at that point,” he says “We still had a lot of work to do, but we could see the path and how we could successfully work through it.”
After the sale of the East Coast properties and after the Wallick family regained control of the company, the bleeding seemed to stop. The company returned to profitability in 2005 and was profitable again in 2006.
The next step was making sure the company remained stable.
“That’s where we are now,” Feusse says. “When I think of stable, I mean assuring the quality of our services and making sure we have our long-term capital sources in place.”
Along those lines, Wallick has put in place a long-term bonding facility with Travelers Insurance, so bonding is secured for the future.
Stabilizing Wallick also means adding structure and accountability where there wasn’t much before.
“The company has been run as a pretty small company — smaller than they really are — in terms of discipline and process,” Feusse says. “I’ve talked to people who have told me they’ve been here 16 years, and they’ve never had a performance review. It’s been run like a small business in that if I had something to say to [you], I would say it. I didn’t need to write a performance review. But there is value in the process.
“We need to be disciplined in the fact that people understand what their goals are, what expectations are, that those expectations are measurable, that they’re paid on performance, that they have feedback.”
Still, Feusse doesn’t want to bog down employees with too much paperwork and procedure.
“I think we can bring enough process that we can drive performance, but not so much process that it begins to feel bureaucratic,” he says.
The money side needed more structure, as well.
“Financial is the other place we need process in terms of providing the people running the business with good actual financial information that’s timely,” says Feusse, who previously served as CFO, corporate controller and senior vice president at The Scotts Co.
Monthly financial statements were typically distributed at Wallick about 30 days in arrears, Feusse says.
“For example, July’s would come at the end of August,” Feusse says. “That’s not so unusual in a business that’s been run like a small family business. But in a disciplined financial organization, you get statements within five days of the end of the month — and a financial analysis along with it.”
That’s the direction Feusse is driving Wallick now.
“And it’s not just financial statements,” he says. “There’s a reporting side, too. What’s the actual information people running this company need to make timely decisions? The underlying financial information driving the statements needs to be timely, too. And that doesn’t necessarily mean monthly. It could be weekly or daily.”
Feusse’s quest to add structure to the business is expected to culminate with the completion of a detailed strategic plan for the Wallick Cos.
“I’m a big believer in planning,” Feusse says. “It’s critical that people know where the company is heading and how we’re going to get there.”
Feusse uses a travel analogy to illustrate his point.
“Let’s say we’re sitting here in Columbus, Ohio, and we generally know we want to head west,” he says. “Everybody in the car knows we’re heading west. But it’s critically important to know if the destination is San Diego or if the destination is San Francisco or if the destination is Vancouver. Because along the way, you’re going to hit thousands of intersections and at every intersection you hit, you’re going to have to make a decision: Am I going to turn left? Am I going to go straight? Or am I going to turn right?
“If you’re just generally heading west, then at every intersection, you’ll have to pause and think. But if you know you’re going to San Francisco and everyone is energized to go to San Francisco, every intersection decision is clear. You’re all on the same page and, as an organization, you’re so much more efficient and so much more effective.”
Positioned for growth
With the worst clearly behind it now and stability achieved, Feusse says The Wallick Cos. is nearing a position to move forward again.
“The third step is growth,” he says. “Even in the short term, I think we can grow [revenue] probably 5 to 10 percent.”
In the long term, he’d like to see 10 percent growth per year, but he’s in no rush to ramp up. The company finished 2006 with about $100 million in revenue.
“We’re not trying to come in and triple the business in three years,” he says. “We’re not trying to be explosive on the growth side. We want to be consistent and meaningful in the growth we do.”
That’s why Wallick’s geographic focus will remain in the Midwest for at least the next couple of years.
“That’s where our core business is,” Feusse says.
Wallick operates facilities in Arizona, North Carolina, South Carolina, Kentucky, Indiana and Illinois, but 80 percent of its facilities are in Ohio.
“Longer term, in five years, we’ll be expanding into more warm weather regions,” Feusse says. “We need to be selective in where we go. There are a number of opportunities out there, so it’s a matter of being disciplined about it. Every business has scarce resources, so you can’t choose everything. You have to be careful what you work on.”
And he knows what he’s talking about.
“I believe that you’re more successful if you stay close to your core and you work on opportunities within your core before you go outside your core,” Feusse says. “I don’t see Wallick being a national player in five years. For us to grow 10 percent each year, if we compounded it, we’d be 50 to 70 percent larger than we are today.
“That’s not a national business, but it is substantial growth.”
HOW TO REACH: The Wallick Cos., (614) 863-4640 or www.wallickcos.com
Bob Peterson, president of Columbus Serum Co., didn’t have to make it his concern. After all, he was in the midst of growing his South Columbus veterinary supply distribution business into a $170 million company. Yet, Peterson couldn’t turn a blind eye to his long-term employee’s plight. So he kept that employee on payroll the entire time he was battling cancer. “We continued to pay him while he was off for two years,” Peterson says. “He tried to come in if he was having a good day, but he just couldn’t work on a regular basis.
“If we hadn’t paid for him, he wouldn’t have had any income.”
Peterson says that the employee eventually filed for disability with Social Security, but even that wouldn’t have been enough to get him through.
Unfortunately, the story does not have a happy ending. The employee died in October 1995. Yet the impact of that one employee’s situation has been profound.
“I made the determination then that we needed to look at getting a better benefit policy in place,” Peterson says.
Today, Columbus Serum offers a whole array of benefits and insurance options and continues to pay at least two-thirds of every employee’s health care premiums. That’s no small feat in the face of double-digit health insurance increases year after year.
Still, Peterson says, it’s worth every cent.
“You’re only as good as the people you have working for you,” he says. “Woody Hayes said, ‘You win with people.’ I believe that’s true.”
Peterson’s belief has translated into great loyalty and stability within his work force. “We’re fortunate we’ve got a lot of long-term employees here,” Peterson says. “Inside sales, I’d probably say, stay five to seven years. Outside sales ... probably 10 years plus. We’ve got some salespeople who have been here since the early ‘80s. We’ve got a lot of employees that have been here as long as I’ve been here. And I’ve been here 28 years.”
Right off the top of his head, Peterson lists three employees who have been with the company more than 30 years. One of them is his younger brother, Bruce, who holds the title of senior vice president and shares both the leadership and the ownership of Columbus Serum equally with Peterson.
“I think they enjoy working at Columbus Serum,” Peterson says of the long-term employees at his 84-year-old company. “Although we’ve become a fairly good-sized company, we still try to keep that family atmosphere. We’ve been successful; they’ve been successful. I guess successful people like doing what they’re doing, and we’ve really given them no reason to leave.”
What he has given them are plenty of reasons to stay. Here are a few of them.
Radical upgrades in the company’s benefit plan began in the mid-’90s, when both long- and short-term disability insurance were added.
“Having experienced what we had to do for that one employee, we wanted to make it available to others,” Peterson says. “We also improved our life insurance coverage.”
Employees can now get coverage up to double their annual earnings, as well as accidental death and dismemberment insurance. Disease-specific policies for cancer, stroke, heart attack and the like are also available.
“We just had a long-term employee who passed away from cancer in April, and when she was diagnosed with leukemia last fall, she had just taken out a cancer policy through one of the insurance companies,” Peterson says. “And when she went in for her initial round of chemo, she received a check for $30,000. That covered all of her out-of-pocket expenses and she had some money left over.
“Unfortunately, she had to go back in two more times. But she thanked me, personally, for making that benefit available, although she did pay for it.”
Columbus Serum also offers dental insurance, a 401(k) plan and a flex plan, where pre-tax dollars can be set aside for health-related expenses such as eyeglasses, prescriptions, co-pays, childcare and even for some over-the-counter drugs such as aspirin. But that’s not all.
“Long-term care, we also made that available four or five years ago,” Peterson says. “Assisted living is very costly. You can buy this policy very inexpensively, and it would cover you for however many years you determine, either at home or in an assisted living facility.”
It sounds like a lot to offer employees, but Peterson says he would have it no other way. “That’s how we look out for employees,” he says. “You want to make sure they have the coverage.”
Training and promotions
Peterson also wants to make sure employees have all the tools to succeed, and that means teaching them how to handle change. At a company growing as much as Columbus Serum has in the past few years, change is almost constant.
Since 2000, the company has grown its work force by 67 percent, its sales by 70 percent and its geographical reach by 93 percent. “You’ve got to be able to embrace change,” Peterson says. “There’s so much change that has happened in the last few years, and you have to be able to adapt yourself and be able to take chances.”
Peterson strives to make change as seamless as possible at his company by leaning on technology to ease the added workloads caused by company growth and new regulations. He also makes sure the impact of every possible change is well thought out.
“We’re making decisions for 250 employees and their families,” Peterson says. “We’ve got to be sure we make the right decisions not only for ourselves but for them. Too many times, people make decisions based on what’s best for their own needs, but you have to take into consideration your employees.
“Bruce and I usually consult with our managers to get feedback from them to make sure (a proposed change) makes sense or they come forward and make suggestions to us, and we’ll evaluate what they tell us. We have a management team that helps make decisions.”
The team includes both Peterson brothers, Peterson’s son Craig, the CFO and the manager from whichever area would be impacted most by the change.
“If it affects the warehouse, then we’d include the warehouse director of operations, or we’d bring in the inside sales manager if it affects inside sales, or outside sales if it affects outside sales. I’m not sitting up here saying, ‘We’re going to do this.’ I’m getting input from our managers before we do any changes. If they’re not going to buy into it, it’s going to make it a difficult transition. I will add, though, that 99.9 percent of the time they’re in agreement.”
For example, sales reps now have vital information literally at their fingertips thanks to a decision to ramp up technology.
“All our sales representatives carry laptops,” Peterson says. “And they get their sales downloaded every morning along with a current inventory, so if they’re in a doctor’s office, they know if we have products in stock if the doctor or his staff asks.”
Soon, online ordering will be added to the sales reps’ arsenal, as well.
“Most of our competition has online ordering, and we probably have lost some business by not having it,” Peterson says. “We’re testing it right now.
“The communication is just so much quicker than it used to be.”
Peterson’s sales force also benefits from ongoing job training and sales powwows. “We have two sales meetings a year where we have product training, and then we might have conference calls over the year,” he says. “We’ll also have local meetings that our people will attend.
“At the sales meetings, we still talk about how they can better utilize the technology we have made available to them to make them more efficient.”
All of this helps keep his sales force equipped to succeed and prone to stick around. For those who do, advancement could be in the cards.
“We try to promote from within,” Peterson says. “We’ve gone outside and hired, but I’d say the majority of our promotions are from within. Sometimes the position, like a CFO, [forces] you to basically go outside.”
Good products and big territories
Attracting and keeping good employees is always easier when a company is successful, Peterson says. So positioning within the market is paramount.
“A big key is aligning yourself with the key manufacturers who are going to bring out blockbuster products, because if you don’t have the right products to sell, you’re not going to be successful,” he says. “And if you’re not successful, you’re not going to keep the good people. They’ll go to other companies.
“Right now, we represent all but two of the key manufacturers, so we feel pretty good from that standpoint.”
Columbus Serum’s vendors, which number more than 150, include Hill’s Pet Nutrition, a popular pet food manufacturer owned by Colgate-Palmolive; Frontline Brand Products, makers of flea and tick repellents; Heartguard Plus, known for its heartworm prevention medicine; Pfizer Animal Health; and Abbott Laboratories Animal Health.
“We represent a lot of Fortune 500 companies,” Peterson says. “We’ll never be recognized as the biggest distributor, but we’re usually at the top in growth each year. And in the areas we service, from a marketshare standpoint, we’re usually No. 1, 2 or 3.”
That’s particularly impressive since the company’s reach now extends through 27 states.
“At one time we thought we could stay regional and be successful. But we discovered that we needed to get bigger. There are costs associated with doing business, and if you don’t have enough of a sales base to cover those costs, it’s hard to compete against the current environment we’re competing in.”
It appears that bigger has translated into better for Columbus Serum.
“I think the key thing is getting good people,” Peterson says of his company’s success. “You’re always looking for good employees. That’s always been a challenge.
“Being able to grow the business successfully and seeing people succeed ... that’s been the reward.”
HOW TO REACH: Columbus Serum Co., (614) 444-1155 or www.columbusserum.com
Oil prices were skyrocketing and the stock market was plunging. The nation’s terrorism alert had been elevated because of threats against specific financial targets, including the World Bank and the New York Stock Exchange. The Dow Jones Industrial Average and the S&P 500 closed at new lows for the year.
Yet in the midst of all this economic turmoil, on Aug. 5, 2004, Mervin Dunn, president and CEO of Commercial Vehicle Group Inc., was set to take his company public.
“You’re sitting there toward the end of it and you’re thinking, ‘Damn! I might have to do all this again,’” Dunn recalls of the days leading up to CVG’s initial public offering.
In fact, a dozen other companies across the nation threw in the towel at the last moment and decided against going public at that time. Five withdrew their planned IPOs that second week of August 2004. Another seven postponed their offerings due to unfavorable market conditions.
But Dunn stuck it out, and his confidence paid off.
Shares in the New Albany-based company, which supplies interior cab systems for commercial trucks, opened at $13 (less than the $16 originally predicted) but raised $120 million. It was more than enough to repay investors, who earlier had discussed a leveraged buyout of CVG a move that CVG management opposed to recoup their investment in the company.
“With the beating the market was taking that week ... it was just a tough time to come out, but it worked out well for us,” Dunn says. “We may have been the only one in the manufacturing sector that made it out. That says that we had a pretty strong story and a good, strong underwriting group and, hopefully, a good management group.”
In mid-December, CVG’s stock was trading in the upper-$18 range.
“And if you believe what the analysts are saying,” Dunn says, “they’re saying that we should have a $28 stock. Our stock is performing very well.”
So is the company.
Since the offering, CVG has shed itself of its remaining equity investors and acquired three high-profile, complementary businesses, sending its revenue shooting upward from $279.2 million at the close of the third quarter 2004 to $554.4 million at the close of the third quarter in 2005. Even more impressive is the company’s triple-digit earnings growth during that same timeframe.
“Since the IPO, we have grown the top line by 99 percent and the EBITDA [earnings before interest expense, income taxes, depreciation and amortization] line by 117 percent, so the earnings have gone up even higher than the revenues,” Dunn says. “We’re very proud of that.”
Here’s what it took to make that happen.
Dunn and his management team pride themselves on adhering to stringent financial controls and measurements within their company.
“We’ve always run a very clean balance sheet, a very clean company,” Dunn says. “Our CFO and myself are very dedicated to not having to lose sleep at night over issues that are just wrong, that are not the way to run a company, public or private.”
Still, the Securities and Exchange Commission has specific hoops every company interested in going public must jump through. That meant slicing and dicing the financials the way the SEC wanted to see them. It also meant complying with all the disclosures and disclaimers required by the Sarbanes-Oxley Act, an accounting reform and investor protection law passed on the heels of the Enron debacle.
Part of the calculated risk of doing the IPO was the amount of work and money required to meet all of the regulatory requirements, taking time and effort away from running the business itself.
“The biggest thing was the paperwork,” Dunn says. “All the filings required was an immense undertaking to do the IPO. We brought in some tax people, but much of that was for Sarbanes-Oxley.”
The result of completing all that paperwork was a big hit to the corporate wallet.
“It is very expensive,” Dunn says. “It’s probably cost us over $2 million worth of profit the first two years, and that’s the tangible. The intangible the people not focusing on cost reductions and running the companies is probably much greater. But it’s a requirement, so that’s what we do.”
Fortunately, in CVG case, the payoff was worth it.
Most top executives enjoy talking about their companies. But try doing it every day, 10 times a day, for two weeks straight, in numerous major U.S. cities to high-powered, deep-pocketed would-be investors who hang on and often dissect every word, and it loses its appeal pretty quickly.
“The road show was grueling,” Dunn says. “The first day, your adrenaline is pumping so much because it’s so new to you and you’re so afraid that you’re not going to come across the way you want to.”
And you have to be very careful what you say, especially in off-the-cuff responses to investor questions.
“In this day and age, you’re so afraid of saying the wrong thing,” says Dunn. “Before Sarbanes-Oxley, I could sit here and brag on my company. I could tell you everything. But when you’re doing the road show, with the way things have changed, you have to be so particular: ‘This is what I think it could be.’ ‘This is based upon ... ’
“I feel like I’m reading one of these warning labels for drugs or something before I get ready to talk. By the time you get through reading the warning labels, you’ve almost terrified yourself of saying anything.”
Yet the show must go on. And on. And on.
“You’re having to give the same story over and over and over, and you’re answering the same questions over and over and over,” Dunn says.
The repetition may get tiresome, but it makes giving carefully worded responses easier most of the time.
“A lot of people don’t have expertise in your business,” Dunn says. “They are experts at what they do. We consider ourselves experts at running our company and at knowing our customers and knowing our markets, and sometimes you get some questions that you wonder if they’re trying to find the answer or if they’re just trying to incite you.”
Maintaining a tough exterior and answering every question no matter how inane it might seem is paramount, however. And it’s something you may as well get used to, Dunn says.
It’s not going away after you’re public. To the contrary, it often gets worse.
Answering to stockholders
Investors want results. So does Dunn. Problem is, their timeframes often differ.
“I think a lot of investors are trying to make companies live from quarter to quarter,” Dunn says.
That’s just not his style. It’s not what got the company where it is today.
“There’s very little understanding of what you’ve done with the company, what you’ve taken it from, where you’ve got it targeted,” he says. “People are getting in the middle of the boat in the middle of the stream.”
That can be aggravating.
“[For years] we’ve run our own company,” he says. “We’ve made our own decisions about what was best for the company, what was best for the customers. And you go in now, after you’re public, and everybody has questions on why did you do this or why did you do that.
“You have to realize it’s not personal when investors ask you a lot of questions. It’s their business. They put their money in here.”
He does take issue, however, with analysts who roll their eyes at his often-conservative financial projections.
“We don’t like to disappoint ourselves or anyone else,” Dunn says. “I get in some heated discussions with analysts when we have our quarterly [teleconference] meetings. I’m going to be very frank and very honest with how I run my company. Everybody that’s on the phone and there are usually 75 to 100 people on the phone calls they all have an opinion. Hopefully they put their trust in me.
“They put their money in my company with me at the top to make the best decisions for the company, not for each one of them because they all have different mindsets. Some of them buy it for growth, some of them buy it for returns.
“We’re just not going to live quarter to quarter. We plan on being in the business for the long term and being a good solid company that creates wealth for investors, creates security for the employees and creates value for the customer.”
Going full throttle
Three key management decisions played a role in CVG’s recent eye-popping success.
One was orchestrating a secondary offering in July 2005, which allowed the company’s major investor, Onex Corp., to exit the company with aggregate net proceeds of roughly $165 million. Onex’s initial investment in Commercial Vehicle Group, made in 1997, was $69 million.
“Now the only ownership is what was originally in the company the management team and the public sector,” Dunn says. “It feels pretty good.”
The second key decision was ramping up its acquisitions-based growth strategy. Buying complementary companies, such as Mayflower Vehicle Systems, which makes truck cabs, and striking development agreements with big names such as Volvo and Freightliner helped CVG become more diverse in its offerings and less dependent on a single revenue stream.
“We’ve taken a lot of steps since going public to fulfill more of a strategy that we had, which has lessened our dependence on the Class 8 [heavy-duty truck] market,” Dunn says. “When we first started this company, we were about 90 percent Class 8 truck in North America. Today, in North America, Class 8 truck is about 44 percent of the revenue.”
The third prong of the strategy was to go global. CVG now has 39 locations in eight countries and 5,500 employees.
“We had to make the company a truly global company to be able to land the contracts we needed to land the Volvos, the Mercedes, the Freightliners, the Internationals of the world,” says Dunn. “That was our strategy.”
It has worked beautifully. But without a successful public offering, who knows what might have happened.
“When you’re doing it, you don’t realize the full impact of what you’re doing,” Dunn says. “But when you look back after it’s all over and done and you say, ‘Damn! I took a company public!’ It’s like winning the Super Bowl and looking back and saying, ‘Wow! We did that?’ Because there are not that many people who have seen the success that we did. I’m so proud of what we’ve done.
“We want the results to speak for themselves.”
HOW TO REACH: Commercial Vehicle Group, (614) 289-5360 or www.cvgrp.com
Yet it was completely ignored in one multimillion-dollar deal that turnaround artist Kevin Vasquez got stuck sorting out for an employer years ago. The results could perhaps should have been disastrous.
“It was a deal cut 30 miles off North Carolina in a fishing boat,” says Vasquez of the merger agreement between Fermenta Animal Health and Tech America. “The president and CEO of the business called me into his office one morning and said, ‘We just bought a company and now you need to go out and look at it.’ It was a company that was losing $8 million on $35 million in sales. The cultures didn’t align. The businesses didn’t align.
“I saw where they had, honest to God, 500 years worth of finished goods inventoried given the level of sales that they had on some products. That acquisition darn near took down both companies.”
Somehow Vasquez and the other senior executives at Fermenta managed to make it work.
“We spent two years losing money pulling that one together,” he says. “It was almost to the point that the whole thing went bankrupt. But we pulled it out and we got it back on track.”
It’s an experience Vasquez has never forgotten.
Vasquez, now president and CEO of Butler Animal Health Supply, a recently merged $850 million company based in Dublin, learned a lot from his former employer’s mistake. Perhaps that’s why this merger appears to be going so well.
Employee turnover within the company’s sales force, for example, is actually down since the July 1 merger of The Butler Co. with Burns Veterinary Supply Inc.
“Our turnover in the field, which is very key because it’s a relationship-driven business, has been less than 3 percent since the merger,” Vasquez says, noting that turnover previously lingered around 4 percent to 5 percent.
In addition, the full integration of the two companies into a single, unified business is far ahead of schedule.
“Our integration plan, when we put it together it outlined an 18-month plan,” Vasquez says. “We’re going to have this integration done in nine. We could have it done in less than nine months.”
Then there’s the chasm the merger created between Butler and its competitors in the veterinary product distribution industry.
“If you look at the two combined businesses of Butler and Burns, we have a 29 percent share of the companion animal business in the United States,” he says. “The nearest competitor has a 13 percent share.”
It’s an impressive story. Here’s what Vasquez did to make it reality.
Show me the money
Butler wasn’t actively looking be acquired or take on a partner when opportunity knocked in mid-2004. But strong growth in the market, paired with the company’s No. 1 position in the industry, simply created a climate in which Butler suddenly became a hot commodity. Heritage Partners, the private equity firm that owned it, quickly hired a broker to float a prospectus.
“Within a very short period of time, there were 37 companies that had a strong interest in acquiring Butler,” Vasquez says.
So Vasquez and now-retired Butler Chairman Howard Deputy, along with CFO Leo McNeil, began narrowing the field first to 13, then to six. Their initial litmus test? Capital.
“We had to go through the painstaking process of evaluating which ones fit the best, based upon what they felt the enterprise value was of the company, what their ability was to really pull off a deal from a capital investment standpoint, getting the funding and what have you,” he says.
The message was clear: You can’t pay, you don’t play.
“As we looked, this possibility came up where we could join forces with the fourth largest companion animal veterinary company in the United States,” Vasquez says.
That company was Texas-based Burns.
While the prospect of merging with another top-tier company was extremely appealing, Vasquez was careful to cover his bets.
“You don’t eliminate everybody except for one [candidate] because you never know what’s going to happen,” says Vasquez. “You never know who’s going to back away from the table. You never know what small, minute issue might cause a collapse of the whole process.”
So keeping a handful of other suitors at bay, Vasquez and his entourage penciled in their front-runner and started to dig deeper.
Mission, vision and culture
Despite Burns’ stellar balance sheet, there was still plenty of investigating to do to make sure the match was as promising as it appeared on the surface. Dissecting the mission, vision and culture at Burns became the next priority.
“Every decision we’ve ever made that has made this company No. 1 in the industry always pointed directly to our mission and our vision,” Vasquez says. “When we looked at our mission and studied it one more time, and when we looked at Burns Veterinary Supply, we saw where their mission and their vision although it wasn’t verbatim what ours is it really did start to line up. Then we dug into it further to look at the cultural fit.”
Vasquez did this by looking at Burns’ approach to the marketplace, which focused largely on value instead of price. The success of that strategy was evident in the company’s profit and loss statement.
“If you dug down and looked into the ratios return on assets, return on net sales and the margins, the companies pretty much mirrored each other in those percentages on those key ratios,” says Vasquez. “What that told us is that our philosophy in the marketplace of being value added and solutions-driven ... was very much aligned with theirs.
“We have competitors who have a low pricing strategy, and that’s what they do. But that’s not our culture. Our culture is value-added ... and we’re very successful at that. And Burns did the same thing. We saw right away that we think a lot alike.”
It also didn’t hurt that Vasquez and Burns President Kim Allen had known each other for 18 years six as competitors and 12 as channel partners. He was very comfortable with her and how she ran her company.
“Are there going to be personality differences? Are there going to be stresses and strains? Are there going to be different things that both companies are going to have to get used to from a systems standpoint? Sure,” Vasquez says. “But we saw very clearly from the personalities we knew and the relationships we had, coupled with their financial performance and their approach to the market, that our cultures were aligned. It was a pretty unique situation.”
Integration and communication
On April 18, 2004, Butler and Burns publicly announced their intention to merge. Yet becoming a unified company as solid in practice as on paper would still take months of work.
“No matter how beautiful an integration or a merger seems to be on the surface and how aligned the cultures seem to be, there are always issues,” Vasquez says. “There are always problems. And you have to try to decide early on in the game how big those differences might be.”
Fortunately for Butler Animal Health Supply, those differences seemed to be fairly small.
“We’ve had some challenges on the systems side,” Vasquez says, noting the inside sales reps probably bore the brunt of the storm.
“We were operating off two different systems and we may have moved too quickly in some areas [to integrate them] because it really stressed people out,” he says.
To help alleviate those problems, Butler recently hired a director of national telesales.
“There are so many little things,” Vasquez says of integrating two companies successfully. “As you put out five fires, there are three more right behind it.”
The key to keeping the fires from blazing out of control, he says, is information.
“You communicate and you communicate and then you communicate more,” he says.
For Vasquez, that meant making dozens of trips throughout the country when the merger was first announced to meet face-to-face with employees in town meeting formats. It has also meant publishing a monthly employee newsletter to give updates on the integration process, not only about what’s working but about what could work better.
“We don’t hold anything back from employees,” he says. “If it’s been a challenge, it’s been a challenge. They know it more than anybody else does.”
Vasquez also adheres to an open-door policy to encourage feedback from all levels on the integration process and he meets with team leaders monthly to assess the company’s progress toward complete unification.
“They have to report exactly what’s been accomplished, what was in the plan, what were the challenges, what were the successes, what’s the plan going forward,” he says.
“When you’re going through a merger process, an integration process, it is so complex and so involved that it hits every element of the business. If you don’t stay on top of it, if you don’t stay close to the employees and close to the clients and close to the business, it can come unraveled.”
Making tough decisions
Vasquez doesn’t mince words about what can destroy a corporate merger.
“One is the culture clash. Two is system integration. And No. 3 is a lack of expediency in decision-making,” he says.
The third one is the one that many CEOs struggle with most.
“There are certain decisions that have to be made quickly,” Vasquez says. “They have to be communicated and everybody has to understand. When you can make those types of decisions, it eases the pain. It creates a more sound mind and body amongst the employees.”
Vasquez says Butler’s executive team had to make hundreds of decisions prior to the announcement of the merger.
“So when people said, ‘Well, what’s going to happen next?’ we were able to lay out, at the very top level, what was going to happen,” he says.
Those decisions included:
- Who is going to run the company?
- Who’s going to be the top-line management team?
- Where is the headquarters going to be located?
- Who’s going to oversee the integration process?
“In my experience I’ve been in the executive level for 19 years people generally look for two things,” Vasquez says. “They look for hope and they look for leadership. If you can provide them with hope and leadership and, through that, establish confidence in the leadership, then you can move mountains.”
Employees also need to know: What is good about this? Why did we do this? What benefit does it provide, not just to clients and suppliers but also to employees?
“When you lay it out, then they can sit back and say, ‘Hey, this thing is great. This thing has potential,’” Vasquez says.
“If you create the hope and the leadership, they will, by and large, work hard to make sure this happens. They’ll take ownership of it in their own mind. This is their company, and they’re going to do whatever they can to pull it off. [But] until they believe in the process and in the company and in what they’re doing, it’s not going to happen.”
Although the Butler-Burns merger is only six months old, Vasquez is very optimistic about its long-term success.
“This merger was about growth,” he says. “It was about maintaining that share in the marketplace, that strength of position. It was about bringing the best of the best together and eliminating some of the inefficiencies that both of us had. And to grow at a faster pace than the two were growing separately. That’s taking place.”
And with full integration ahead of schedule, Vasquez is banking on next year being even more exciting for the company.
“That’s when we can focus in on growing the business again,” he says. “Now we’re focused on nothing but integration. Then we’re off and running. And there will be other decisions to make at the end of 2006, which will be: Do we acquire more? Or, if we have a good year in ’06, which I think we will, do we go public?
“It’s going to be an interesting year.”
HOW TO REACH: Butler Animal Health Supply, (614) 761-9095 or www.AccessButler.com
“We have a guy who’s been here for 30 years; another for 31,” says Don Casto, a principal with the $175 million Columbus-based real estate company. “A couple of our maintenance guys have been here over 40 years ... and I’ve been to retirement parties for people who have been here 44 or 45 years. It’s mind-boggling. These people can get a paycheck anywhere, but they choose to stay here.”
Casto credits the family atmosphere that he and the other executives at CASTO strive to maintain at the 350-plus employee company.
For example, none of the top executives at CASTO has a title, he says.
“We sort of pride ourselves on that fact,” Casto says. “We’re highly unstructured in that way. We’re all first among equals.”
It’s an attitude that permeates the company.
“When we have a new hire, I make a point of telling them, ‘I’m not Mr. Casto. I’m Don. We’re resolutely not hierarchical here. You can walk into anybody’s office at any time.’”
In addition, Casto maintains that a family that works hard together should play hard together.
“I think people are more productive if they’re having fun,” he says, noting that golf outings and other socially driven company functions are commonplace. “Ours is a family-friendly work environment, but we’re also very professional. It’s a great place to work because everybody likes everybody.”
That mutual kinship is especially evident among the eight partners, he says.
“We all care about each other personally and I mean sincerely care,” he says. “We travel together; we go to each other’s kids’ sporting events. We almost function as a family. There’s not a single member of our management team that thinks of himself or herself first. I’m not sure there are a lot of other businesses like that.”
Of course, running a flat organization with no clear-cut CEO comes with its own set of challenges, Casto says.
“When you have eight people that need to make a decision, the decision-making process can be very cumbersome,” he says. “A decision that in a normal hierarchy would take a couple of hours to make, in our environment can take a couple days. There’s a lot of pushing back and forth, a lot of significant disagreement, but that’s part of dealing with a large-base partnership.”
The upshot, he says, is the confidence his company has in the thoroughly debated decisions.
“It helps prevent mistakes when you have to convince eight people that your project is one we ought to do,” he says. “We make a lot fewer mistakes than other developers because we have a self-correcting mechanism. You know the saying that two minds are better than one? Well, eight are better than two. If everybody can’t be persuaded, we don’t do it.”
It’s that type of mutual respect and caring at the top that feeds the sense of family throughout CASTO.
“You really have to care about the people you work with and who work for you,” Casto says. “You have to really care that they succeed both financially and in their professional and personal growth.
“I am well-paid for what I do, but the biggest compensation I receive is watching my associates and my partners grow professionally and have financial success. I take real, genuine pleasure in helping them succeed.”
HOW TO REACH: CASTO, (614) 228-5331, www.castoinfo.com
Wally O’Dell, chairman and CEO of Diebold Inc., doesn’t have to visualize it. His company accomplished it.
In 1999, when O’Dell joined North Canton-based Diebold, the company had $1.3 billion in revenue. In 2004, that number had skyrocketed to $2.4 billion. This fall, the company’s sales had reached $2.7 billion.
His secret? Global growth.
“The return on investment was immediate,” O’Dell says. “In every year we’ve been doing this, we’ve made profits.”
Five years ago, Diebold was primarily a U.S.-based manufacturer of automated teller machines, voting machines, safes and other security products and was just beginning to dabble in international markets.
“We had a distributor in Brazil. We did some exports to Latin American countries. We had small joint ventures in China and India,” O’Dell says. “We built on all of that. Now we’re represented in almost all major markets in the world.”
O’Dell says many U.S. businesses could replicate Diebold’s growth strategy.
“Good companies who are thoughtful and thorough can find the international opportunities and they should,” he says. “You need that global footprint to be the most agile, to have the best cost points, to see the latest trends and technology, and to apply those to what you’re already doing.”
That doesn’t mean CEOs should act blindly.
“Certainly you have to look to be sure there is a market for what you have and whether the solution you have will fit that market and if you can export it and manufacture it locally,” he says. “You also have to understand cost - what the customer would buy, what they are buying now then do the math to make sure it’s a viable economic solution. If you do it wrong or if you’re not ready or your product isn’t right, you can spend a lot of time and money and get nothing for it.”
O’Dell says it was “very natural” for Diebold to venture into the international arena.
“Clearly there’s a global market for ATMs,” he says. “It wasn’t like we were trying to see if we could develop a market. The major markets had ATMs that were made by international competitors. We just had to go in and go after the market with good solutions.”
Although Diebold’s product line also includes business security products and voting machines, its ATMs and other financial self-serve products make up roughly $1.9 billion or 70 percent of its annual sales today.
The global success of Diebold’s ATMs and financial self-serve products has sparked the 14,000-employee company to expand a second segment of its business overseas.
“We had a strong security business in the U.S. Now we’re taking it on a global perspective,” O’Dell says. “That’s a big work in progress for us. We started with China and Australia, and now we’re going after the U.K. and other related European opportunities.”
The relationships Diebold has developed in the past five years with international banks in the ATM business should help with this global expansion, O’Dell says.
“The security business works very well in the banking industry as well as other industries,” he says. “We’ll be doing some small acquisitions and adding some capabilities in some European countries and tying that together to the self-serve business.”
After all, why not leverage every advantage?
“You build on the success and the relationships you have, step by step,” O’Dell says. “Those are very important.”
HOW TO REACH: Diebold Inc., (330) 490-4000, www.diebold.com