Kelly Tomkies

Friday, 29 October 2004 07:27

The Metzger file

Born: Nov. 26, 1946

Education: Bachelor of science degree, University of West Florida

First job: Cost engineer at Avondale Shipyard

Career moves: President, Thermador Corp. (a Masco company); CEO, Bosch-Siemens Home Appliances; CEO, Mill's Pride Cabinets (Masco); President, Delta Faucet Co. (Masco)

What is the greatest lesson you've learned in business?
Listen to your customers and know more about them than your competition does.

Past or present, whom do you admire most in business and why?
There are two. First is Jack Welch of GE for his commitment to leadership and excellence. The other is Dr. Peter Zinkann of Miele, for his commitment to employees, innovation and product excellence.

What was the best business advice you've received?
Trust your best asset, your employees. Remain committed to team empowerment and continuous improvement.

Monday, 27 September 2004 11:56

Rolling with the punches

If there is anything Fishel Co. President and CEO John Phillips has learned in the last three years, it is how to be flexible and fast on his feet.

In the late '90s, he says, the Internet and telecom industries were booming, so the utility construction company's executives took the time to do some strategic planning. Their goal was to leverage the skills and experience of the company and its employees and make the most of numerous opportunities on the horizon.

"Our customers would call us and say, 'Here are all the projects we plan to do in the next two years, pick what you want,'" says Phillips. "The industry was growing so fast we needed to do some planning to identify what we could do to grow and handle the opportunities in the near future."

So Phillips and his management team spent the year 2000 talking to industry experts, customers and teammates -- the name Fishel Co. calls its employees --about the direction the company was headed. The result was a new strategic plan and vision the company rolled out in April 2001.

But shortly after that, the bottom dropped out of the market, and Fishel found itself facing unexpected financial challenges.

"The stock market dried up, and most of our customers experienced financial difficulties," says Phillips. "By the summer of 2001, we were in significant financial turmoil."

Nineteen of the company's top 32 customers declared bankruptcy.

"We were writing off significant receivables," says Phillips. "The telecom industry was a train wreck in 2002."

But Phillips was no stranger to handling these kinds of financial challenges. After working for Deloitte & Touche for two years, he joined Team Fishel in November 1983 as its corporate controller and was promoted to chief financial officer in 1989.

"We went from the penthouse to the outhouse in a short period of time," he says.

Fishel survived, thanks in part to Phillips' ability to cut costs across the board and react quickly to the rapid changes in the marketplace. He and his management team didn't throw out the company's strategic plan and start over. Instead, they used the same basic plan and strategic planning process to refocus company resources where they counted most.

Says Phillips, "We identified 14 markets where we could play a major role with our skill sets."

Back to basics

One thing Phillips continues to believe in is the telecom industry.

"For us, the communication industry has been a historically better market," he says. "Ken Fishel started out in 1936 as an AT&T communications contractor, and it has always been our stronger market, our core." Energy and cable companies are also bread and butter markets for Fishel Co.

"Power utility companies are just getting their feet on the ground after Enron. They are starting to look at how to upgrade their systems, especially after last year's blackouts."

But Phillips has learned not to depend too much on any one industry.

"We are diversifying to spread our risk," he says.

The fiber optics industry is one of the most promising in those 14 markets Fishel is targeting.

"Fiber optics to the home is a big opportunity for us," Phillips says. "Verizon is the most aggressive player in that field. They plan to have 1 million homes completed by the end of the year."

Another potential market for Fishel Co. is the WIFI (wireless fidelity) industry, which is just beginning to emerge across the nation. the city of Dublin hopes to be the first in Ohio to go wireless, enabling all who use computer devices to access the Internet and communicate without the need for plugging in.

The $1.5 million project is still in the planning phase, says Phillips, and the city has turned to Fishel Co. for direction.

"The city is purchasing material from us and using as consultants to develop a Request for Proposal for the project," he says.

And he's not ruling out the possibility that the company will be chosen to complete the project.

"It depends on where we come in with the RFP," he says.

The growth potential of Fishel isn't limited to new industries; it also encompasses geographic locations, although the company considers itself conservative when it comes to expanding its boundaries.

"The mantra in our industry and business is that volume kills, profit thrills," says Chairman Jeff Keeler.

If anyone at Fishel understands this, it's Keeler. He joined the company in 1967 and learned the business from the "underground" up. Keeler says because of the risks involved, it pays to grow slowly.

"In our business, you can bite off more than you can chew," he says. "If you try to do too many projects, you can't manage them properly and you end up with losses rather than profits."

That doesn't mean the company is choosing not to grow; Fishel does business in 27 states out of 22 offices, and recently launched operations in Richmond, Va.

"As opportunities present themselves in the right geographic areas, we will consider them," says Phillips. "But we feel it is wise to leverage our current areas."

However, identifying industry and geographic markets alone won't bring in the business that Fishel is looking for. What lands the jobs, say Phillips and Keeler, is the value the company brings its customers.

"It boils down to operational excellence," Phillips says, "being the low-cost provider of quality service."

And both men believe that Fishel can be that low-cost provider because its teammates are always looking for ways to reduce the costs of jobs, which saves the customers money.

"We constantly work at finding ways of doing things quicker, better and faster," Keeler says. "We do believe time is money, and we watch our labor and equipment costs.

"We are able to get more done with fewer man-hours, so we make a profit. We think profit is a beautiful word."

Music to their ears

When Keeler says the company believes in making a profit, he means it. Every employee who has been with the company for more than one year shares in a split of one-third of the profits before taxes on a quarterly basis through its profit-sharing plan.

Keeler developed the plan to foster team spirit, and it has worked.

The plan has been in effect for more than 20 years, and Keeler and Phillips say it continues to provide benefits that have helped the company survive.

"I would say our customers and our teammates are equally our greatest strengths," says Keeler. "Our teammates feel like shareholders. They have an interest in our success. They feel empowered - even though that's an overused word."

Keeler says the company's employees look for ways to cut waste as well as to improve efficiencies, and they scrutinize the company's expenditures carefully.

"Even though we are a privately-held company, we are an open book company - we post our financial results on a monthly basis," he says. "The teammates see how much we made or lost. When we make money, I use green paper, and we use red for losses. Generally, we have two or three of those [red] letters in the wintertime."

Still, Fishel Co. teammates have enjoyed an average of about six-and-a-half weeks' extra pay each year.

"The highest was 26 weeks' additional pay, the lowest was one week's, the first year we started the program," Keeler says.

Thanks to Fishel's ability to get through the tough times, Keeler says many of its customers have stayed loyal to the company.

"We have a lot of long-term customers in the energy and information industries," Keeler says, "as well as telephone companies, electric and gas companies. The customers are the same, although what we do for them may be different."

But in the end, it is Phillips' and Keeler's focus on the company's customers and teammates that remains the one company constant. Both men say they have learned that the rest of the company's strategies need to evolve as it works to meet new challenges.

"Keeping pace with technology in relation to serving our customers is a big challenge for us," Keeler says. "We will alter our service offerings to provide what our customers need. And maintaining a quality, trained work force is also a challenge. We need to make the construction industry more attractive to potential teammates."

Explains Phillips, "Developing our strategy and vision is not a static process. It is an ongoing process, and we will continue to give it our best shot."

How to reach: The Fishel Co., (614) 274-8100 or www.teamfishel.com

Monday, 30 August 2004 13:15

Political allowances

In a few months, another presidential election will be decided.

With a 3-year-old son, we watch a lot of television for children, and I've noticed that one network, Nickelodeon, is encouraging children to learn more about the political system and to vote as an adult.

When I was growing up, we were taught the importance of voting both at school and at home. But as adults, we can lose sight of the impact of our vote amid our busy day-to-day work and personal lives, especially during a nonpresidential election year. Despite the fact that the polls are open flexible hours, it can still be hard, especially for younger employees not used to voting, and for parents, to make it to the polls to vote.

That's where employers can help by making it as easy as possible for employees to have the time during the business day to vote. That doesn't mean closing for the day or driving employees to polling locations, but there are things employers can do to encourage employees to vote.

* Post signs a few weeks before the election reminding employees to vote.

* Advise managers and supervisors to give employees extra time during breaks or lunch hours if needed, and let employees know they have that time.

* Remind employees during meetings of the upcoming election and the importance of voting.

* Have interdepartmental contests to see which department has the most voting employees, and give them a reward, like pizza.

* Stay bipartisan -- the goal is to get employees to be more active politically, not twist their arms to vote according to your standards.

I'm sure there are more creative ideas that can be implemented. Developing employees' political consciences is not the job of the employer, but creating an atmosphere that is flexible and encouraging is a great way to plant that seed.

Friday, 20 August 2004 10:09

Keeping it fresh

John Myrland relishes the challenge of finding fresh ways to tackle the business issues Indianapolis faces. After nearly 25 years with the chamber of commerce, the last 14 as president, he's seen his share of ups and downs.

"Continuing to be effective and engaged for anyone in this business for that long is a challenge," he admits.

But focusing on the changing needs of members, as well as those of the chamber, keeps Myrland on his toes. Although the primary need of most members --dealing with employment issues -- hasn't changed over the years, the increasing intensity of that need has.

"Presenting a value proposition to potential employees can make or break a small business," says Myrland.

Despite high unemployment rates, companies continue to compete for skilled labor, and each business seeks to differentiate itself when it comes to benefits. But this can be expensive, so the chamber offers its members health care benefits, a limited number of free employment screenings and member discounts to places like Office Depot that companies can share with their employees.

Myrland says the more benefits companies can offer employees, the more value they see in their chamber memberships, making membership a win-win for the company and the chamber.

Add to that growing competition and members who seek high visibility for their membership dollars, and Myrland's job never grows stale.

Twenty years ago, when a new business located in Indianapolis, one of the first orders of business was to join the chamber. Today, a multitude of professional and industry associations and organizations that compete for membership dues. And business owners expect to receive more tangible benefits from their memberships. So Myrland and his staff have focused on bringing more of them to the chamber and maintaining high member retention rates.

Myrland says more companies are including chamber dues as part of their marketing budgets and, because of that, expect more publicity. Other organizations offer recognition for sponsorship opportunities, but the chamber has traditionally not done so, and this is one of the areas where Myrland is re-evaluating the way the chamber does business.

Smart Business spoke with Myrland about the community's changing needs and the state of the region's business environment.

 

How have the needs of your members changed over the past three to five years, and what has the chamber done to meet them?

 

They (business owners) are much more concerned about employment issues -- how to provide health care benefits to retain employees. The costs of hiring new employees can be enormous, and sometimes a company can't produce a product if it doesn't have enough trained employees.

Every dollar to a small business makes a big difference. Health care benefits are attractive to employees. Even in an economy in which people need jobs, you still need to provide competitive benefits.

There may be people looking for jobs out there, but are they skilled? Companies need to differentiate themselves and keep employees by providing benefits.

Our focus is providing discounted group health care packages to members, and one of our members is offering three free employment screenings to members. We also have a member-to-member discount program, which attracts companies to the chamber. It is attractive to the employee because he can go to an Office Depot and receive a significant discount. We rely on businesses' support, but so do other community organizations. We have to show value to our members to help us grow. If we can provide answers and change our product mix to meet members' needs, we'll be successful.

 

What are your members' biggest challenges, and how does the chamber try to address them?

 

I divide the chamber's business into two parts -- direct services, like health care benefits, and the advocacy part. We used to think that small businesses did not care about public policy issues. But we've found that that is not true.

They do care how local governments work and how the government can make a successful community. That's why we provide the health insurance and networking opportunities, and also public policy advocacy, because they really do care about the issues.

A dry cleaner, for instance, is very much interested in environmental issues. Small businesses care about transportation issues, street repairs, education for their children and employees' children. We now get a lot of our members involved in developing our policies on these issues.

 

How has the Indianapolis business environment changed during the last decade?

 

Like everywhere else, Indianapolis has become less focused on heavy manufacturing, and there is more emphasis on technology, advanced manufacturing and other industries along those lines. In Indianapolis, however, we already had a diversified economy.

We have been strong in the insurance industry, pharmaceuticals, education and, more recently, sports is a big industry for us. Convention and tourism is now a $2 billion industry in the state. At the same time, we are concentrating our efforts on attracting technology businesses through a combination of university and business partnerships.

Our biomedical research incubator is called Biocrossroads. We hear about the success of the program, of new businesses locating here, so it is growing.

The difference is that when new factories located here, they hired 1,000 employees. You don't have a lot of that anymore. It changes your mentality. You focus on a lot of small hits instead of waiting on one big deal.

Another big change in the community is that while we have never been a big headquarters city, we have lost in the last 10 years ownership of a lot of our banks, hospitals, utilities and newspapers. It used to be we could get five people in a room and get something done. We can't do that anymore.

That's not necessarily bad. It's just harder to find people to head initiatives and get resources and approve expenditures.

 

What challenges does the chamber face in the next few years?

 

The first big challenge is competition. There are lots more organizations going after the same corporations and businesses for support. These organizations are art organizations, business organizations and nonprofits, all going to the same list of people for support.

The second challenge is relevancy. We are a large organization with basically a horizontal membership. We need to successfully serve all segments, which can be problematic.

It used to be that people joined the chamber because it was the right thing to do. When you started a business in a new town, your first call was to the mayor, and the second order of business was to join the local chamber. That's not the case today.

Our volunteer leadership is working hard every day to find ways to make our value proposition sing with the people making the decisions. We have one significant member that reminds me every year that he pays significant membership dues but doesn't get any recognition for it. More members want visibility, and they can get that by sponsoring a nonprofit event, not through chamber memberships.

Companies are combining dues budgets and marketing budgets, so they want more visibility. We are re-evaluating that visibility aspect.

 

Have your strategies to attract new members changed?

 

We do a lot more marketing and a lot less selling. We used to read the paper and see who's new in town and send them material. Now, our sales force spends a lot of time talking up front to companies, asking them what's important to them and what we have to respond to their needs.

When they join, we have better members. We also spend a lot of time on retention. I send a card to every member, some every month, and on many, I include a personal note.

We have a pretty good retention rate, and I think we distinguish ourselves through our value proposition. We are one of three finalists nationally in a membership competition. We started an effort in 1991 to retain our members, and membership numbers keep growing. If it continues at this rate, we'll have more members than we've ever had. We didn't think that we could grow, but we have grown almost in spite of ourselves.

 

What are the region's biggest strengths when it comes to attracting new businesses?

 

Our location and infrastructure are a few of our biggest strengths. We have good highway systems, streets and a great, vibrant downtown with a diverse economy and educated work force, although we still have some challenges in some areas. We distinguish ourselves with our public/private partnerships. We have had strong mayors that are helpful in those efforts.

 

How do you think Indianapolis can improve when it comes to attracting new companies?

 

Venture capital, putting packages together to help finance early stage companies, is still a challenge here. We also have pockets of weakness in the educational system. The inner city schools have some issues, but there are a lot of educational options.

We also have a very conservative mentality and lack of desire to change. It took us 20 years to change our banking laws. By the time we did it, it was too late; the local banks had been bought out by bigger, out-of-state banks. There's the 'We're good enough' mentality that we need to get over.

We're great at being good. We have to get over that. We don't want to rock the boat and change as the economy changes. That doesn't work anymore.

 

What are your biggest personal challenges in managing the chamber?

 

Probably staying interested and engaged. I've been in this business 27 years, I've been president for 14 years, so continuing to be effective and engaged is a challenge for anyone in a business for that long.

People who care about this are divided into three camps. There's one camp that says, 'He's been here a long time, aren't we lucky?' Another camp can't wait to get rid of me, and the last asks, 'Why are you still here?' And I don't begrudge any of those thoughts.

The answer is to keep changing and looking for opportunities. I try to change my MO to some extent; it keeps you focused, challenged and excited about what you're doing. How to reach: The Indianapolis Chamber of Commerce, (317) 464-2200 or www.indychamber.com

Wednesday, 21 July 2004 11:28

The Zacks file

Born: March 11, 1933

Education: Graduated The Ohio State University, 1955, College of Commerce; attended Dartmouth College 1951-53

First job: Sales clerk at Lazarus Department Stores

Career moves: Hired at R.G. Barry Corp. in 1955, named president in 1965, chairman in 1979 and senior chairman March 2004

Boards: Has served or currently serves on the board of directors of the American Cancer Society, Ballet Met, Capital Club, Children's Hospital, Columbus Jewish Federation, Governor's Business & Employment Council, Ohio Development Center, American Red Cross, United Way of Franklin County, Young Men's Christian Association

What is the greatest lesson you've learned in business?

Beware of your greatest strength because it can ultimately prove to be your Achilles' heel.

What is the biggest challenge in business you've faced?

Taking over the role of president after my father's death.

Past or present, whom do you admire most in business?

Les Wexner. He has been a visionary with the courage and tenacity to pursue his vision. He is not afraid to take risks and is willing to confront adversity and reinvent himself as conditions in the marketplace change. He has demanded respect and has integrity and a commitment to public service.

Friday, 16 July 2004 09:43

The Evans file

Born: April 19, 1949

Education: JD from Indiana University, 1975; bachelor of science in political science and economics, Indiana University, 1971

Career moves: Worked for the mayor; clerked at law firms while attending law school, then as Gov. Otis Bowen's campaign manager in 1976; practiced law starting in 1977

Boards: Chairman of Indiana Legal Foundation; on the board of directors of BioCrossroads, Indiana Health Information Exchange, Indianapolis Downtown Inc., Indianapolis Chamber of Commerce and Indiana Health Industry Forum

What was your greatest challenge in business and how did you overcome it? I was chairman of the Federal Home Loan Bank board in Washington, D.C., at the peak of the savings and loan crisis in 1989, a year after the S&L bailout legislation was passed, operating in an environment of incredible distrust of regulators. I had to convince the business community and banking system that the regulators could be trusted. It meant a lot of time on the road with business leaders all over the country.

Past or present, whom do you admire most in business and why? Bernard Baruch, a famous investment banker and national leader of some note. He was focused and contributed in public life and business life to the communities that he served. He had a business mind and a social conscience, and I value that.

What is the greatest lesson you've learned in business? Stay in touch with your customers and your colleagues at the same time. This morning, for example, I spent an hour and a half talking only with maintenance workers on every floor of one of our hospitals. Why? Because they know what's going on -- whether it's good or bad, they hear and see everything, and I learn an incredible amount from them.

Wednesday, 30 June 2004 04:37

Capital ideas

John Aplin, managing partner of CID Equity Partners, brings both academic and business experience to the table, a combination that lends itself well to the potentially risky business of investing in developing and high-growth companies.

Aplin says he finds the challenges and uncertainty of the business exciting.

"The challenge of exploring new and creative ideas is what attracted me to the company," he says. "I enjoy the variety."

Variety is definitely part of the mix at CID. Since 1981, the company has been considered a leading provider of private equity and debt financing to high-growth companies throughout the Midwest. From offices in Indianapolis, Chicago and Columbus, it actively manages seed, venture and mezzanine capital funds that total nearly $440 million.

CID targets the information technology, life sciences, business services and manufacturing industries, which coincides with the state's and Indianapolis' economic development plans.

But Aplin says CID's interest in the life sciences sector began much earlier than these initiatives.

"We have been spending a lot of time in the life sciences," he says, "especially in the Midwest, and we have been historically successful."

CID works closely with its investment companies, working to build what it calls "solid organizations staffed with talented people." And with Aplin at the helm, CID is well-positioned to accomplish this goal. The former Fuller Brush Co. president and CEO also holds a Ph.D. in business, and was a faculty member of the Graduate School of Business at Indiana University and chairperson of the school's master of business administration program for nine years.

He's not afraid of the inherent risks that come with investing in growing businesses, pointing out that CID has a strong track record.

"I think our rate is a little better than the industry average," Aplin says.

But, he adds, it takes copious amounts of research and intense due diligence before deciding to invest in a business. Aplin says that for every 1,000 business plans CID reviews, it invests in fewer than 10. And CID reviews myriad factors before making that decision, among them the market breadth, quality of the management team and quality of the science.

Smart Business spoke with Aplin about the challenges and risks of private equity investments.

 

What are the differences between running CID and running the Fuller Brush Co.?

 

The biggest difference is the nature of the business. We are involved in a variety of companies. We invest in life sciences companies, supporting management buyouts and a lot of other activities.

At Fuller, there was more routine -- problems reoccurred a lot more, there was consistency. Here, we deal with many issues, make complex decisions, and it is challenging. There is a higher degree of uncertainty. Frankly, these are the very things I like about CID.

Way back, I did work with high-growth companies, and that experience has helped here -- like when we help companies with strategy and, more than anything else, management and personnel issues.

 

What are the pros and cons of focusing on Midwest companies? And are there any plans to expand your reach?

 

The biggest pro is that we can spend a lot of time with the companies we work with. Being in close proximity, we can work closely with them. If the companies were not close, the nature of the relationship would also be distant -- we could not provide as much support.

The cons are that we have a narrower market when it comes to deals. The Midwest only generates a certain number. And given that, not all of the companies succeed, and we only choose companies with the highest probability of succeeding.

If we opened our geographical boundaries, there would be a higher number of investment opportunities that we'd review. We are not planning in our offices to expand, though.

We have venture partners outside the Midwest that ask us to review companies, and we will review them on a case by case basis and invest in the best companies that we can find.

 

What are the benefits and inherent negatives of targeting start-up and mid-market companies?

 

The pros are that we have a great opportunity, getting in on the bottom floor of breakthrough companies and technologies. With a reasonable amount of capital, we can have a major impact on these companies. For example, we had the opportunity to work with a company five years ago that has grown and developed into a leader in cardiac therapeutics called Stereotaxis in St. Louis.

The cons are that these companies are higher-risk investments. There are market risks, and the management teams are just developing in early stage companies, so you are exposed to a higher risk factor.

 

Are there particular industries you target?

 

We have been historically successful in the life sciences, and we have invested a fair amount in manufacturing technologies. We also invest in later-stage companies, companies that are in buyout or recapitalization situations. They have a need for capital, which we can provide. More of those companies are involved in manufacturing, and business services are also very attractive industries.

 

With the slower economy, have you reduced the number of companies you've invested with in the last few years?

 

No, our investment activity has been very high. Because of the slower economy, companies have needed additional capital to support their growth plans. 2003 was the biggest year for investment that we've experienced.

 

What are the biggest changes you've seen in private equity investment in the last five years, and how have they affected operations?

 

With the precipitous drop in public markets, the major impact on us has been on exit opportunities. We normally view investments as five- to seven-year terms. These last few years have not been good for exiting, and it is more work for companies to exit.

But that is changing, and exits are starting to occur now. The economy as a whole is improving, and companies are more aggressive with capital spending. It's not happening overnight, and we'll see more merger and acquisition activity as well.

 

How often has CID invested in a company which hasn't survived? And how do you minimize the losses?

 

In the industry as a whole, one-third of the companies don't make it, one-third does OK and one-third does quite well. We do a little better than that historically. In the Midwest, in general, we vary from the national average.

During the dot-com boom, we didn't invest in as many of those companies in the Midwest. When that boom failed, it didn't hurt us as badly. The Midwest exhibits a higher degree of conservatism. What you try to do is, first, invest effectively. It takes a lot of effort and due diligence to review these companies, and determine which as the highest likelihood of success.

We see about 1,000 business plans each year, and we'll invest in less than 10 of them. It takes a tremendous amount of research, identifying the most attractive companies. The key is working very closely with them, helping them weather and deal with their issues. The number of things we look at is enormous, the questions we address remarkably large.

One of the most important questions is, does the company have the potential to capture a significant market? Do its products or services deal with a major issue or problem? The second most important question is the quality of the science.

Does the company have good solid science and technique to back them up? Does it have intellectual property protection for its ideas?

And we also look at the fundamental quality of the management team. Can they deliver on the promises in their business plan? That's a hard question to measure, and why we work closely with the companies we invest in to help them achieve their goals.

 

Are there certain industries or companies in the portfolio that are outperforming the rest?

 

I think in every industry sector, there are companies that are doing exceptionally well. For example, in the life sciences sector, out of the seven or eight companies in our portfolio, two or three are doing exceptionally well, two or three are doing OK and the remainder are doing poorly. And it's like that in all our sectors.

 

What are your biggest operational challenges, and how do you meet them?

 

The biggest challenge is to simultaneously perform management activities within the firm while managing my own portfolio of companies. It's like managing a law firm, where you have your own clients to serve.

I also serve on several boards and I travel frequently, so handling my management responsibilities here and working as a team operation, just communicating and being in touch, can be a real challenge. Thanks to e-mails, laptops and cell phones, I can keep in constant communication with everyone I need to.

My biggest challenge is probably setting priorities. With the five or six boards I'm on, looking at new deals, getting time, controlling time and keeping my hands-on approach is a challenge. I keep working on it. I work longer hours and make sure that, whenever possible, I focus on the most urgent priorities and get support from others on the investment team.

 

What areas are you working to improve?

 

I think that we should constantly be developing and improving our research and due diligence. Because we ask thousands of questions, the one we don't ask may be the most important. I'm constantly asking how can we improve and really understand the company and know what the critical questions are we should be asking.

The second area we can improve on is we could do a better job marketing ourselves. We are very focused on our work, and when we are not researching new companies, we are working on existing ones, not marketing. We need to have new investments, a good flow of new deals.

We do a lot of presentations and network with contacts. We visit those contacts and try to identify other companies in the market that could benefit from capital. We participate in conferences and give a lot of speeches and presentations, and we do a lot of phone calling. How to reach: CID Equity Partners, (317) 269-2350 or www.cidequity.com

Tuesday, 22 June 2004 12:48

Bait and switch

No company can afford frequent employee turnover. And if you have it at your company, it might be because the job description you advertise is not what the actual job entails.

A friend of mine recently left a large company because the job he was doing was not the job that was in his job description. And no one had mentioned a possible discrepancy during the interview process.

He didn't leave without first discussing the situation with his supervisor, who told him that eventually, the job would develop into a match with the description. But the supervisor could not say when "eventually" would be.

Another friend was hired as a marketing/public relations professional when the company actually needed a graphic designer.

These discrepancies not only lead to disgruntled employees; the company also winds up short on the skills it needs. For example, in the marketing example, my friend had basic graphic design skills, but her real expertise lies in marketing. The longer she worked for the company, the more it became evident that her basic design skills were not enough to satisfy the job requirements.

You can avoid this problem by identifying company/department needs before you start the search for an employee. Perhaps your needs have changed since you created the position, and the job has morphed into something different.

During the current employee's exit interview, ask if the job responsibilities changed over time or if he or she expects the job to change in the future. When a person leaves a key position, it provides a prime opportunity to look at your current and future needs and revise the job description and even title.

And if you require different abilities, determine which are most important to the company. In today's specialized world, it is harder to find a jack of all trades. If you feel it is most important to have a person with marketing strategy skills in that position, then outsource your graphic design needs, for example.

And don't forget to advise the potential employee if you expect the job responsibilities to change, and accurately portray the current job responsibilities. You'll not only retain an employee, you'll make sure that employee has the skills you really need.

Tuesday, 22 June 2004 12:39

Enough protection?

Businesses face new risks and challenges every day. With a global economy and Internet business methods, companies have to be more cognizant than ever of the associated risks of doing business.

"It (unawareness of potential risks) can be really damaging to a company," says William Failor, executive director of Marsh Inc.'s Columbus office.

He says one of the most damaging situations arises when a company doesn't have enough coverage or is uninsured against certain risks.

Companies conducting business outside the United States must consider the risks of doing business overseas and how to manage them, says Failor. For example, if your company purchases a factory in France and wants to cut costs by reducing or eliminating employee benefits, you could run into trouble.

"In France, you have to have the agreement of the employees to reduce benefits," says Failor.

Risk management consultants such as Marsh can reduce these risks because they have local offices around the world, and the employees who staff them are versed in the local employment laws and risks.

"If you think you can apply American business philosophies, you could be in error," Failor says.

There are no limits to who might sue your company, says Failor. It's not just shareholders who can instigate a lawsuit; in today's post-Enron environment, employees, customers or vendors could get involved in a class action suit against a company's directors and officers if they feel they misrepresented the company's financial picture.

Failor says that although directors and officers insurance premiums have risen substantially in the past five years, it is still a good investment.

Smart Business spoke with him about the risks companies face and how they can address them.

Which insurance products are most popular with businesses today?

Our principal business is risk management. We serve a consulting role. We analyze a company's exposures and determine its insurance needs, and we go to the marketplace to find carriers that meet the company's needs.

We serve as an intermediary between the client and the insurance marketplace. The consulting arrangement is successful for companies because of our size. We have leverage with the carriers to get things done and get better pricing than smaller companies could get on their own. And this service is also our most profitable.

We provide all kinds of services, like claim management, but risk analysis and management is our signature capability -- it is certainly our bread and butter and one of the things we're known for.

Many companies don't consider liability issues until it's too late. How damaging can it be for a business to neglect risk management?

Uninsured losses can be damaging. A company would have to have significant cash reserves on its books to cover a loss. If you don't pay attention to risk, it will hurt you.

The thing about Marsh is that our services grow with the size of the client. We have professionals that can take a company through its infancy and expand with it. As a company grows, its needs can be more significant than a smaller company.

If you're in a business of distributing products, there is more exposure to the producer's liability. Our relationship is like that of a CPA and lawyer's; we guide the company through the landmines so the company can do what it does best -- running the business.

Directors and officers liability issues have become more prominent, partially due to Sarbanes-Oxley. How has this impacted Marsh's business, and with how much understanding does your typical public client come to you?

It has had major impact. Enron has caused an upheaval, and more people are looking for solutions than ever before.

Most companies never thought they were susceptible to suits. The average claim against a company in 2001 was $7 million; now it is $23 million. Obvious causes are injury to a representative of the company.

Lawsuits put companies in a difficult position. They take the focus off running the company as it defends itself. Companies were aware of shareholder class action suits, but now know that employees, customers, vendors and regulatory firms can also get involved in directors and officers claims.

If a company overstates its earnings and then restates its financials, it opens a can of worms and the potential for a D&O suit. D&O coverage is grossly misunderstood. We do presentations to boards describing what it is and what it isn't, how to avoid the pitfalls and craft coverage that minimizes exposure.

Along with the size of claims, the cost of coverage has gone up. Publicly traded companies will have a substantial outlay of money for the premium. But that is starting to slow down a bit. The premium is still substantial but is less than the significant potential costs involved in a suit.

What can businesses do to better mitigate international risk?

As an international broker, we can provide a great deal of information in each domicile. We also put the company in touch with local officers for cultural concerns.

A client wanted to buy a company in France and determined he could cut its costs by reducing or changing employee benefits. He then discovered that, in France, a company has to have the agreement of its employees to reduce benefits, so the cost reduction was never going to occur.

We obtain accurate information from local governments and provide cultural resources.

How have your clients' needs changed over the past five years, and how have those changes affected your services and operations?

We have come through a very hard market the last three years. Prices have gone up, and availability of products and limits were reduced.

But the economy is getting better moving forward. Clients have been looking for better ways to manage risk over the last four years. Some larger companies have set up a number of captive insurance companies -- wholly owned subsidiaries that act as an internal insurance company. These captive companies take the burden of risk off the company in a more cost-stable way.

Have more companies initiated crisis plans since Sept. 11?

Yes, but we've also seen this as an outgrowth of Sarbanes-Oxley, changing management practices and how one company relates to another. Because of Sept. 11, we all learned that we need a better understanding of where our employees are and that we should develop a plan to get back in business after something horrible happens. How to reach: Marsh Inc., (614) 460-8152 or www.marsh.com

Wednesday, 26 May 2004 12:35

The Cardinal rule

Robert Walter, a mechanical engineering graduate, started his professional career in 1971 as an engineer at a large corporation.

He didn't like it.

Six months later, Walter left and bought his own company.

"I just wanted to find and run my own business," he says. "I never thought too deeply about the level of success. And I could never have envisioned what transpired over the past 30 years. When I purchased a food distribution company in 1971, I could have no way of knowing we would become such an integral player in the health care industry."

Like any budding entrepreneur, Walter did his homework. He researched how to raise money, write a business plan and other Business 101 essentials. Looking back, he admits that what should have been his two greatest weaknesses -- youth and inexperience -- actually worked in his favor.

"I had never started a business before, so nothing seemed insurmountable," he says. "I had no preconceived ideas of how it should work."

Walter spent a considerable amount of time studying business in the library, but also hit the streets and talked with successful business owners.

"As a result, I raised the capital necessary to purchase the company that would become Cardinal Foods," he says. "I found a way to work through each new challenge. This doesn't mean that I didn't make mistakes. But I learned from them and tried not to make them twice."

It definitely was no mistake when Walter decided to shift the company's focus from wholesale foods to health care. He says he looked around and believed there was little room to grow in an already crowded wholesale food industry. But, he realized the company's distribution expertise could be leveraged in a different marketplace.

"The food distribution industry had already consolidated by the time I entered the market in the early '70s," Walter says. "We had a great business, but opportunities for growth were limited, whereas the pharmaceutical distribution industry was fragmented and had tremendous growth potential. Around 1980, we decided to apply our core distribution skills to the pharmaceutical industry, and soon thereafter, purchased The Bailey Drug Co."

Over the next 15 years, Walter invested heavily in Cardinal's new drug distribution business.

"Through greater automation, innovative logistics changes and a focus on our customers, we are now responsible for distributing a major portion of the nation's drug supply," he says.

While that sounds impressive, it is an understatement. Cardinal Health distributes 2.5 million pharmaceuticals every day -- a statistic Walter does not take lightly.

"We take very seriously the important role Cardinal Health has to ensure the safety, cost-effectiveness and easy access to pharmaceuticals in this country," he says.

And Walter's efforts over the past 10 years have underscored that belief, helping Cardinal Health grow considerably, diversify its products and services portfolio, expand to offer drug development, delivery, packaging and manufacturing services to health care and biotechnology companies. His company has become a global leader in the health care industry, boasting annual revenue of $56.7 billion and 55,000 employees worldwide.

Fostering entrepreneurship

Despite his position as the founder and head of a multibillion dollar world leader, Walter remains steadfast in his dislike for large corporations. He has spent the last three decades fighting bureaucracy in his organization and working to maintain the atmosphere of a smaller, more nimble company.

"We still operate with this entrepreneurial spirit today," Walter says proudly. "We try to keep bureaucracy to a minimum. We take calculated risks. And we tend to be relentless in efforts to improve. I believe it is good to have a healthy fear of the future, and that notion keeps us on our toes."

Walter, who has been compared to Wal-Mart founder Sam Walton, keeps this entrepreneurial spirit alive by focusing on customers and the company's employees.

"I'm very proud of the success of Cardinal Health," he says. "But what is most gratifying is to see how thousands of people have worked so hard to shape the company into what it is today. We have a culture geared toward success and helping customers."

Tony Rucci, Cardinal's chief administrative officer, says this is a common mindset among the company's senior executive team.

"We are always on guard when it comes to maintaining our culture," Rucci says. "We talk about it at executive committee meetings. We ask, 'Have we done anything too bureaucratic? Are there too many approval levels?'"

And, Rucci says, preserving the entrepreneurial culture is a primary consideration when evaluating potential acquisitions.

"We spend even more time and energy to determine whether a company we are interested in acquiring is a fit with our culture and values than any other factor," he says. "We have walked away from deals that fit our strategic and financial criteria but aren't a cultural fit."

Ascending the health care food chain

For most of its life, Cardinal Health focused on its biggest strength- distribution. But Walter has relied on acquisitions as his primary means of achieving growth.

"Cardinal has been extremely active," says Rucci. "Especially in the last 10 years."

But Walter doesn't discount the company's ability to delve deeper with existing relationships.

"We have acquired a number of companies (nearly 100)," he says. "But we have also experienced strong organic growth in key business segments."

It was just about 10 years ago when Walter and his executive team decided to diversify.

"Acquisitions have helped diversify the business and grow in important markets," Walter says. "In 1995, we made an important decision to diversify our business and provide more value to health care customers than just distribution services. At the time, this was a real strategic challenge."

Walter says about the time the company started this transition, its earnings were $60 million, exclusively from drug distribution. In its most recent fiscal year, earnings had increased to about $2.5 billion. More important, Walter says, 60 percent of those earnings came from businesses Cardinal built to complement the drug distribution side. Today, the company has four business segments -- provider services, pharmacies, manufacturing,g and research and development - each of which make a strong contributions to the company's bottom line.

Walter's acquisition strategy has ensured that the companies Cardinal acquires blend in well with the existing corporate structure.

"Our strategy is simple," Walter says. "First, an acquisition must be a strategic fit in the health care industry. We see a lot of interesting proposals, but if they fall outside health care, we aren't interested. Second, the company we acquire must have a culture and values that fit with Cardinal Health. We are an ethical, performance-driven company, and we want to match with people that share those values. And third, it must make financial sense for our shareholders. We look for market leaders, which typically aren't bargains. But that's OK, as we expect to add value to the acquired company."

Rucci puts it another way.

"The companies blend easier because they share similar values," he says. "And because of those values, we can trust the newly folded company's leadership to choose to do the right things. That is the key that distinguishes our strategy and why we've been so successful integrating companies we've acquired."

But this strategy is not without its challenges. Rucci says even as Cardinal continues its growth mode, it is in the midst of a radical shift in its drug distribution model.

Previously, because of its size, Cardinal enjoyed deep purchasing discounts from the big pharmaceutical companies.

"We could buy product and hold it, then sell it at a later time," says Rucci. "As a result, we realized gains because of price increases."

But recently, he says, drug manufacturers have reversed their policies, saying that too much product has been pushed into the distribution channel and, therefore, are no longer allowing advance purchasing. To counter this trend, Cardinal is transitioning to a fee-for-service business model.

"We have met with 63 of our largest suppliers and shown them the improvements we can offer," Rucci says. "Faster service and more information. We have found that they are gratified with what we are offering."

Despite this business model transition, don't look for Walter's acquisition appetite to dwindle. Rucci says the health care industry is expected to grow, comprising up to 18 percent of the country's Gross National Product over the next 10 to 15 years. Cardinal's financials (the company expects this year's cash flow to be $1.3 billion) have put it in great position to purchase more companies. And Walter is confident that his acquisition strategy will translate into more successful purchases.

"I believe our track record speaks volumes," he says. "We have an excellent history of successful acquisitions, which has helped us build market leadership and deliver great value to customers." How to reach: Cardinal Health, (614) 757-5000 or www.cardinal.com


The Walter file

Born: 1945, Columbus

Education: Bachelor of science, mechanical engineering; MBA, Harvard Business School

First job: Engineer with a large corporation.

Career moves: Tried a large corporation (left after six months); in 1971, started the company that became Cardinal Health

Boards: American Express, Cardinal Health, Viacom, Battelle Memorial, Ohio University

What is the biggest challenge you've faced in business?

Our challenges today are around attracting and retaining great people, ensuring we have a motivated and diverse work force, staying abreast of the changes in our vast industry and challenging ourselves to always look for ways to increase the value we can bring to customers.

What is the greatest business lesson you've learned?

The seller always knows more than the buyer. We started Cardinal Health as an acquisition, so I've always been comfortable acquiring companies.

What I learned early was that the seller always knows more about their business than the buyer ever will. For this reason, it is important to pair with market leaders and ensure there is a strong cultural fit between the two organizations. Through nearly 100 acquisitions over more than 30 years, I've tried to never forget this simple rule.