Laura Green

To follow the trends in the market, Marc Blumenthal decided that his company needed to broaden its product and service offering for customers. While it was easy to make this decision from an organizational standpoint, the real challenge was moving this idea from thought to reality.

“Everything tends to have a ripple effect,” says Blumenthal, the owner and CEO of Tampa-based technology services firm Intelladon. “Every little decision that gets made, I have to get a few dozen people to change the way they do things a bit.”

By implementing new ideas to drive growth, Blumenthal has led Intelladon’s expansion from a handful of employees into a 40-person company.

Smart Business spoke with Blumenthal about how he floats new ideas to take hold in the organization.

Build critical mass.

Usually I’ll bring an idea through some level of gestation. I tend to incubate things first a little bit from the team as a whole until I get some critical mass around the idea and some validation.

I might talk to some of our customers. I might talk to some fellow CEOs. I have a whole lot of people that over the last 25 years I’ve gotten to know and I can run things by.

Then I bring the team in. The benefit is that I don’t disrupt the team on every idea that ever comes up, because there are many more ideas that get generated that never even get evaluated and still fewer that actually get implemented. The penalty I pay is that I have to work backward to catch them up when an idea has reached critical mass and it’s time for them to get involved. But if I got them involved in every idea that came up, they would never have time to do their jobs.

Involve your leaders.

I usually will meet with the person who has the greatest knowledge of subject matter expertise on that topic and vet a few things with them along the way. Usually one member of the leadership team has a little more experience in the area I might be working on. I sit down with them over lunch or coffee and brainstorm a little bit, and say, ‘Well, what would you think if …?’ If the feedback is positive I will take it to my COO, who is really the guy that runs the company on a day-to-day basis. His name is also Mark, but I call him the anti-Marc. He’s the opposite of me. I pull him out of his comfort zone and he pulls me back. In the end, we end up in a good place between the two of us.

Present ideas with a purpose.

My approach has been for every 10 ideas that I have, I may only present two or three, and only one may make a lot of sense. Don’t present all of your ideas, because people have a tendency to think that all of your ideas are supposed to be run with. Ideas need baking. In the early days of the previous company, I used to throw out all these ideas and we’d have a brainstorming session with the leadership team. Then I’d come in the next day and a couple of people started working on some of them. I’m like, ‘What are you doing? That was just an idea.’ You have to be careful about discerning between what ideas are and what you are actually asking for. So I try to be very careful about what I put forth and when I put it forth.

Help people to run with it.

It’s really important to give the team the opportunity to change, refine and make the decisions to make it their own, what gets changed and what doesn’t. At that point, you can step away from it and it’s no longer your idea, it’s the company’s. It’s the team’s. Once that happens, you are almost assured of success.

I try and pull the team along a little bit. I try to be a little bit disruptive, but not too disruptive. I like to be the sand in the oyster. So a pearl forms because I’m rubbing up against them, pushing them a little bit. We end up being a little bit better, growing a little bit faster, trying a few new things that might not otherwise get done or get tried if I wasn’t pushing and pulling a little bit.

Part of that is I’ve learned that if you give the team the power to make great decisions, they elevate to that in most cases and they actually do a better job than I might do by infusing myself in a lot of decisions.

How to reach: Intelladon, (813) 814-2345 or www.intelladon.com

As the economy took a hit over the last few years, Fred Stock saw the demand for his organization’s services grow dramatically. That’s because the result of a down economy is more and more people seeking out more of the services that Jewish Community Services of South Florida has been providing for years. But keeping up with the higher demand has not been easy, especially when coupled with the funding challenges of operating as a not-for-profit entity.

“There’s an increased need corresponding with a reduction of available dollars,” says Stock, the president and CEO of the Miami-based social services agency, which services the Dade County community.

As fundraising in the overall community has dropped, so has the amount of funding dollars coming into the organization.

“So we need to figure out ways to cover the overhead for the agency,” Stock says. “One of the ways is that you reduce those costs by being more efficient.”

Stock says that this is a challenge many more not-for-profit organizations are dealing with today.

One way he says these agencies can manage costs is by providing a mix of free and paid services. By expanding in areas that have a “fee for service,” such as home care, the organization is able to cover costs of the services that it provides for free.

“We’re trying to expand our capabilities to provide services that can reimburse us for our costs, and we can generate some surpluses to pay for the programs that people don’t have the ability to pay for,” Stock says.

However, the crux of the agency’s strategy to become more efficient involves developing partnerships with organizations that share its service goals and funding model.

“We have definitely taken on the belief that in order to be successful, we need to partner,” Stock says.

“By combining, we can serve more people, create operational efficiencies, expand our reach, and it will allow us over the long haul to create more opportunity to serve people.”

While many smaller not-for-profit agencies are quality organizations, they are often limited in what they can do because they don’t have the infrastructure or funding sources to expand and grow. Leading a larger agency, Stock is now working harder to partner with smaller entities so both parties make progress on shared goals. An example is how the agency is partnering with assisted living facilities and HUD 202 housing projects where there are large constituencies of people who need its services.

Stock says you want try to align yourself with agencies and programs that relate to where you can provide services but also with agencies that have a similar mission.

“You maximize their capabilities and their expertise,” Stock says. “You bring that expertise now into this affiliated entity … and then you can expand your service capability because potentially that service can be located in a community that you’re not serving.”

The other advantage of partnering is the potential to combine operations or share resources where appropriate, which can increase efficiencies for both parties. So if two entities are doing billing with a number of grants, there is an opportunity to combine that billing for cost savings.

Stock says constantly monitoring and improving efficiency is something that not-for-profits and businesses should be doing whether or not there are funding issues. By partnering up, the agency continues to find strategic ways to carry out its mission and deliver its services more efficiently.

“We’re a $15 million agency,” Stock says. “We can bring some of that infrastructure — the funding, the marketing, to that new agency and enhance that agency’s effort to create revenue. And then you can create revenue for a larger organization and you have a whole lot more clout, because you have a whole lot more reach. You’re serving more people. In that process, you can find savings within that entity that you can then put back into your programs to yet provide more services.”

Start inside

Many not-for-profit entities have faced funding challenges as a result of the economic recession. Jewish Community Services of South Florida, which provides its services at no cost, is funded primarily through grants and fundraising. But that funding is limited and most of the agency’s funding sources do not provide enough money for its administrative component. To maintain services as money becomes scarcer, president and CEO Fred Stock has led a number of initiatives to be more efficient in this area.

“We’ve had to become much more efficient in the way we provide services and in the way we fund our administrative component,” Stock says. “In an agency, you have direct services and then you have the infrastructure that you need in order to run these services, things like billing, rent, offices and all of that, which are fixed expenses to some degree.”

To increase efficiency in the administrative component, the agency has consolidated some of its offices and begun looking at ways to utilize space better. It’s also started to streamline processes in internal operations such as billing, maintenance and systems.

“We’ve been able to save a substantial amount of money in these areas that has allowed us to continue to provide services at the same rate,” Stock says. “So even through we’ve suffered from reductions in funding, we’ve been able to still maintain the levels of service that we’ve provided over the last few years.”

How to reach: Jewish Community Services of South Florida, (305) 576-6550 or www.jcsfl.org

Lisa Huntsman knows that the key to success in today’s economic climate isn’t just finding ways to do more with less but, in many cases, just doing more with the same.

“Those that can respond quicker with good information are the ones more than likely that will get awarded the business,” says Huntsman, the president of the New Philadelphia, Ohio-based manufacturer Lauren Manufacturing.

Huntsman has been focused on this task since the recession first impacted the manufacturing industry and Lauren’s 250 employees back in 2008.

“There is a whole crunch of everything has to be the same quality but just continue to push it on the lead-time standpoint,” says Huntsman. “I think we’re doing a good job of delivering on that.”

To keep up with increasingly shorter lead times, get the highest return for shareholders and meet the needs of new and potential customers, the company had to reevaluate its systems and staffing to make efficiency the top priority.

“If we just keep doing what we do then we’ll always get what we get,” Huntsman says.

“There’s a lot of revenue invested from the company’s standpoint to get new projects launched, and we’re really working closer with our sales teams and with our customers to make it quicker when possible and make sure we’re not dropping the ball anymore.”

The first step was looking for inefficiencies in staffing, including duplicate personnel or areas of waste in the administrative process.

“It’s not just saying, ‘OK, it’s just getting too busy over here,” Huntsman says. “It’s do we look at the job content? Are there some things our folks are doing that seem unnecessary?”

The organization has also been more conscious about adding new people, ensuring it builds its team with talented people, who have targeted roles and are capable of making informed decisions to drive results.

“We all make mistakes, but there are some people who are very conservative and are never willing to put themselves out there,” she says. “We’re looking for the people that are willing to take a very educated set of information and say, ‘Let’s go with this.’”

Empowering employees to make decisions enables a faster speed to market for products and services by elimination bottlenecks in decision-making that slow progress.

“We believe in driving the decision-making process to the front line as much as possible from customer service and engineering, giving them the tools so they can make those decisions and feel empowered to do that,” Huntsman says.

Part of that empowerment is also the result of coaching. Huntsman says she takes time to talk to employees regularly on an informal basis or after the big meetings in order to learn their challenges and figure out how the company can facilitate and empower their decision-making.

“I think knowing that they have our support that it’s OK,” she says.

Huntsman says the other key to increasing operational efficiency is setting clear priorities so that people don’t get distracted from the most important goals, for example, speed of service. By making sure that your company continues to partner with the right customers, work on the right projects and keep people focused in the right areas, you can continue to deliver at a competitive level.

“No. 1 is making sure that we don’t get distracted trying to be everything to everyone, and then nothing gets accomplished,” Huntsman says.

By being able to do more with its people, operations and systems, the company was able to achieve 12 percent sales growth in 2010.

“We have made positive strides,” Huntsman says. “Our business has continued to increase in sales, and I think everybody, not just Lauren, has to work harder with less people than we did prior to the recession. I don’t see that changing.”

How to reach: Lauren Manufacturing, (330) 339-3373 or www.lauren.com

Divide and conquer

One of the reasons Lauren Manufacturing has accomplished growth despite operating in a challenging industry is by continuing to be diversified in the business sectors that it serves.

“We have a couple targets that we’re always going after,” says President Lisa Huntsman. “It’s just trying to keep a balanced portfolio of customers in the industries that we’re in that has been the key to our success. That’s how it started and that’s how we continue to move forward.”

This diversity gives the company the advantage of increasing penetration in a range of industries, including transportation, solar and lighting. While many of these sectors haven’t grown on their own, the company has taken more of the market share from its competitors by targeting business opportunities and focusing its efforts where they are most needed.

“I always go back to say making sure that we don’t put all of our eggs in one basket keeps the company healthy,” Huntsman says. “We really try to make sure that no one customer has more than 10 percent of our business to make sure that we’re serving multiple sectors.”

Again, this is only achieved by having team of people who can effectively make good decisions based on their knowledge of customers and the business.

“In our business, from the time you quote to the time when you can turn it into production can be six to 12 months,” Huntsman says. “So you’ve got to make sure you’re making the right decisions upfront, because that’s going to have an impact down the road.”

Integrity. Peace of mind. Working hard. No surprises. These aren’t just the types of adjectives Dave Michelson hopes his employees, customers and investors associate with National Interstate Corp. They are the very words that these groups used to describe the company when asked to participate in its recent rebranding campaign.

“We developed focus groups and we hired a consultant, just getting descriptive words about what it means to be working here, doing business with us,” says Michelson, president and CEO of the transportation insurance company headquartered in Richfield, Ohio.

Rolled out in 2011, the people-focused branding campaign features the new corporate tagline “an insurance experience built around you.” This line aptly sums up Michelson’s strategy for growing National Interstate since he became CEO in 2008. This involves continual growth through new value-added products and services for customers.

“People in businesses have to buy insurance,” Michelson says. “So it’s really just a matter of finding the niches that we want to be in, attracting new customers and retaining our current customers.”

Here’s how Michelson leads National Interstate and its 494 employees to take advantage of strategic growth opportunities.

Marry up

When you reach a certain size as a business, growing in new niches is no longer enough to significantly impact sales.

“When we were a smaller company, way back in the ’90s and didn’t have a lot of sales, we were growing rapidly on a percentage basis year over year, but you could move the needle pretty easy by writing one new $10 million program if you were only $30 million in overall sales,” Michelson says. “Whereas when we got bigger and bigger, it’s harder to move that top line needle. We recognized that while we’re still innovators and creating new products and product extensions, in order for us to continue to profitably grow we needed to look at other ways to do it.”

So in 2008 and 2009, Michelson gathered a handful of senior managers from his leadership team to begin searching for acquisition opportunities. In this initial evaluation process, there were several things they looked for in a partner. First, they wanted to marry up. Michelson and his team specifically looked at acquiring expertise in industries that complemented or enhanced the business’s existing insurance products so that they could offer customers a deeper value proposition.

“One of my successes is that I married up,” Michelson says. “I think if you do that, you’ve got a fighting chance being a world class company that I think we are.”

You also need to make sure that your companies have aligned interests. So just like in marriage, it’s important to partner with companies that are honest and transparent about their goals. The rewards are much greater when you take the time to find the right partner instead of rushing the process only to discover serious differences in opinion down the road.

In August 2009, the company began M&A discussions with Vanliner Insurance Co., a moving and storage industry insurer based in outside of St. Louis, Mo. Michelson knew that National Interstate was in the running with several other companies that were looking to buy the business. Yet you don’t want to use the preliminary period just trying to win over your potential partner. It’s also about making sure that the match is right by sharing goals and developing an understanding about expectations of the partnership.

“You’ve got to kiss a lot of frogs to find the prince or the princess,” Michelson says. “So we do that and it takes a lot of time from the entire senior management, … but it’s one of the ways that we’ll be able to strategically and profitably grow this company.”

As you get more serious about the opportunity you can ratchet up the level of involvement from your team.

“If we want to forward with it, we’re going to involve at least another half a dozen senior managers if we think it’s going to be taken to the next step,” Michelson says.

Because the company doesn’t have an M&A department, it spent months performing due diligence prior to closing the deal. However, this was an important step in ensuring a smooth transition and identifying potential roadblocks moving forward.

“We knew that there were some things that we were going to have to do and we did them,” Michelson says. “There were a few small bumps, but by and large we had no major surprises.

“Ultimately they liked us better, and we actually liked them from the get-go. They were very straightforward, very honest. I think we pride ourselves on that as well. So we hit it off.”

Build a team

In June 2010, the company acquired Vanliner from its parent company, Unigroup Inc., for approximately $130 million. After taking control of the business in July, Michelson knew it was going to be challenging on the home front. Inevitably, merging the companies resulted in staff redundancies and there were people who now had jobs that weren’t relevant to the new strategy. In both cases, those employees received a severance package.

“We shed some premium out of their overall portfolio because some of their business we were actually already doing here in Richfield, Ohio,” Michelson says. “So we saw no need to compete with ourselves. As a result, we right-sized that business by about 40 percent downward, but then we had a great moving and storage platform in St. Louis.”

As you make changes within the new company, you have to be cognizant of employee feelings, especially when it involves job restructuring or making cuts that can negatively impact morale. “You want your communications to be straightforward,” Michelson says. “You don’t want to mislead anybody. You have to understand the sensitivities that are involved.”

At the same time, you need people to buy into why the changes are an important part of the long-term growth strategy. Once the ink is dry on an acquisition or you begin to pursue a new niche, it’s your employees who will have to work together carry out the changes.

One way to unite everyone in the success of the company as a whole is to give them the same scorecard. Michelson says the company has all employees on the same bonus plan matrix, which is based on underwriting profitability and how the company performs on sales relative to plan.

“It’s a beautiful thing,” he says. “If we’re all working together towards the same goal and they move those numbers in the right way, everyone benefits to the same degree because they’re on the same plan. That financial aspect I think carries forward into how people interact and work together in the workplace.”

Transparency about results throughout periods of transition is also critical. It not only motivates employees as they see progress but encourages camaraderie as they spot challenges together. When everyone is aligned on companywide performance goals, they see the value of helping out where they are needed instead of just doing their jobs.

“We talk about our results at our monthly employee meetings,” Michelson says. “It’s very transparent and open so everybody knows where the results are and who is driving them favorably and unfavorably. It also creates an environment where if somebody approaches a coworker and needs some assistance, they’re more inclined to drop what they’re doing and help them out.

“They know if there is a product that’s not hitting on all cylinders, in a nice way, they might say to that product manager even walking by in the hallway, ‘Hey John. Hey Sue. What’s going on with your product? You know are you addressing this or that?’”

Lastly, it’s important to articulate the vision of the company so that as more people come on board and changes are made, employees see how they fit into the picture. Part of the reason for the company’s recent rebranding strategy was re-engaging people in the vision, mission and values that continue to drive company’s success and strategy for new growth opportunities.

“We’re not changing who we are or our culture,” Michelson says. “It’s really just more about confirming how we feel about ourselves and how our various constituencies feel about us. So we’ll use this in ads and other things, and it will be fun and it’s something that the employees will own. I found the effort and the tagline to be interesting in that we’re not one-size-fits-all.”

Grow responsibly

Michelson says that the company takes a conservative investment strategy when pursuing new niches in order to avoid growing irresponsibly.

“Growing is fun, but growing in the wrong niches or growing in the right niche at the wrong pace will generate very bad results,” Michelson says. “That’s not fun and it’s not fair to shareholders. Having that discipline on the operations side is extremely important.”

This strategy has helped company establish a footprint in a number of underserved and difficult niches where it thinks it can make a difference relative to its competitors long-term, for instance, in insuring high-hazard types of vehicle exposures.

You want always to be pursuing opportunities but with the right knowledge and understanding of your business strategy and your capabilities.

“We have to grow our competencies, our skills, our employee base with passion but also in a somewhat patient manner because we want to attack it every day,” Michelson says. “We don’t want to come out passively, but you’re just not going to be able snap your fingers and change some aspect over night. You want to stay on it every day.”

To accomplish this, Michelson relies on his management team to help him evaluate growth opportunities from all sides.

“The feeling that I get in my gut is usually the right feeling but you want to confirm it,” Michelson says. “I’m more of a collaborator in my style, so I tend to get the views of others on my management team. I might not always agree with them, but I seek them out. It helps you make better decisions and more grounded decisions.”

Equally important to having a capable management team when pursuing growth opportunities is having a company culture that embraces innovation at all levels, which casts a wider net for success.

That’s why Michelson tries to step away from the innovation process until his managers have already performed due diligence to evaluate a new niche in terms of size, competitors, barriers to entry, technology and other areas. By letting them drive that part of the business, he can be more long-term in his focus.

“The new business growth and finding new niches is much deeper in the organization, where it should be,” Michelson says. “We’ve got professionals who are going out to industry trade shows and talking to people who run businesses that are in new niches. We’ve got our HR function using recruiters and getting leads on people out in the industry, and we’re getting leads from customers who are really pleased with our service.”

Michelson says he tries to keep an open mind whenever his managers want to enter a new niche, specifically because he knows they’ve done their homework. The key is to ensure that the company grows responsibly, but doesn’t rule out an opportunity just because it’s unusual or challenging.

“If somebody comes in with new or different, I’ll let them show me what new or different is,” he says. “We’ll try things that are well thought-out and if they don’t work we’ll adjust them.”

As the company grows its value proposition, its revenues have followed suit. The company has also achieved double-digit raises for its shareholders annually since 2005, and generated $438.6 million in revenue in 2010, a year-over-year increase from 2009. The financial results of the Vanliner deal are also already meeting expectations just one year later.

“So we’ve opened up our minds as to the different ways you can go at niches and not try to just have one playbook, but have something that’s pretty flexible and scalable,” Michelson says.

How to reach: National Interstate Corp., (330) 659-8900 or www.natl.com

Takeaways

1. Partner with businesses that add value.

2. Engage people to drive growth together.

3. Be patient evaluating investment opportunities.

The Michelson File

Dave Michelson

President and CEO

National Interstate Corp.

Born: Grand Rapids, Mich.

Education: Bachelor of science degree in business administration, Miami University; master of business administration degree, University of Alabama at Birmingham, 1991

What part of your daily routine would you never change?

I wouldn’t change my 5 a.m. alarm. With the early start, I’m able to work on top priorities before the meetings, phone calls and e-mails.

What makes a good culture?

You want to have fun working with the people that are here versus you see somebody walking down the hall and you just want to walk the other way. We don’t have that here, but I’ve been at companies where it existed and it wasn’t fun. You didn’t want to be there as much because it just wasn’t comfortable being in that building around some people that you just didn’t want to interact with. So the group we have here is an interesting group. It’s a fun group. We’re not perfect and we’re looking to get better every single day here, but the people are our secret sauce.

If you could have dinner with one person you’ve never met, who would it be and why?

Bill Gates. I’d be interested in his perspectives on entrepreneurship and running a fast-growth company. But, of as much interest, I’d want to learn about his views on philanthropy as he gives away the vast majority of his wealth.

When Paul Gaffney became president and CEO of AAA Northern California, Nevada & Utah, the company had more than 4.3 million members, a century of history and $2.6 billion in revenue. At the same time, it was essentially a startup.

That summer the milestone decision had been made by the California State Automobile Association to split up its two big operating businesses, a motor club and an insurance carrier, into two separate companies.

“Whenever you have things combined that have some different business drivers, you end up being inefficient in surprising places,” says Gaffney, who assumed leadership of the auto club in 2010.

He wasn’t surprised to find that the 111-year-old company had gravitated toward a hierarchical culture, but he realized that the transition was a perfect time to reengage employees at the “new” company in a culture that was participative and would drive the kind of ideas needed to excel in the service business.

“So we really wanted to invert that leadership pyramid and put the folks who are on the front lines with our customers at the top,” Gaffney says. “That’s a change for people. People actually like where that’s going, but it’s different than their historical experience. So we’ve had to do a lot of work to explain to people what we mean by that.”

Raise engagement

When you’re coming into hierarchical culture, not everyone in the organization may be jumping to start sharing his or her ideas. So the first step for Gaffney was to get people at all levels of the company motivated to play a more active role.

One way to do this is by reminding people how they fit into your company’s vision and mission. Because the company’s heritage had been lost a little bit when it was tied to the insurance business, Gaffney began highlighting aspects of this history using storytelling, for example, the fact that the club invented the eight-sided stop sign.

“We have a historian on staff and we try to make those rich elements of the history of the club very apparent to our employees and in our Via (member) magazine,” Gaffney says.

He encouraged his leaders in the organization to utilize meetings and other internal communications as opportunities to share member stories and anecdotes.

“One thing that we’ve done very proactively is to make sure that our club member is always front and center, even if the thing that we’re working on might seem so ‘back-officey’ that you don’t know how it could be connected to the member,” Gaffney says. “So we tell a lot of member stories. That’s a very important part of our culture, is to remind everyone why we’re here.”

Sharing stories about your company helps employees to connect to your customers and your business in a more participative way, because it facilitates a more personal response.

“It just seems to work well though because it is a tool that lowers the barriers to having dialogue versus monologue, because people can tell you what parts of a story resonate with them, what parts they have questions about and what parts trouble them,” Gaffney says. “Storytelling just seems to be a medium that unlike PowerPoint, really draws people in.”

Another way to motivate employee participation is to ask more questions. This helps draw out people who may be more reserved in bringing their ideas to the table.

“When you ask folks, they usually have things they want to tell you, but when you don’t ask they generally don’t want to bring them up,” Gaffney says. “It’s the rare individual that will proactively bring up something that they know could be improved. But when you ask them, most people respond to that invitation.”

Gaffney now asks everyone in a leadership role at the company to double their question-to-statement ratio.

“The way we find inefficiencies is we try to make the environment one that is really conducive to everyone being curious, because you can’t find inefficiencies by having some specialized group looking for them or by expecting that a couple people at the top will do things,” Gaffney says. “You actually have to have the whole company constantly looking at things and saying, ‘Why do we do this that way? Could we do this more efficiently?’ That has yielded for us a lot of great opportunities that we might not have otherwise uncovered.”

Get with your top people

Gaffney knew his top leaders were historically used to a top-down culture. So to facilitate the transition, he has spent a lot of time coaching the company’s management to help them shift toward a bottom-up leadership structure.

“I spend a lot of time with the folks at the top couple layers of the official org chart, just talking to them about what it means to be in service to the folks who are in service to our customers — so in service to them rather than in charge of them,” Gaffney says.

Providing a model for what you want leadership to look like is important in helping people evolve their approaches and buy into the changes.

One way Gaffney offered this was by implementing a training program to help people examine different approaches to leading. He also decided to run the program personally.

“It’s a leadership development program that is based on reading about leaders in other situations and engaging in a group dialogue of how did those leaders approach the situation, and how did they model the kind of leadership that we’re looking for,” Gaffney says.

In the process, Gaffney realized he had to make some changes in his own leadership style to be more inclusive. As CEO, you are the number one model your managers will look to copy.

“In wanting to be a great role model for how we want every manager and leader around here to behave, that’s helped me even more focus on ‘Hey, am I asking enough questions and reducing the amount of statements that I make?” Gaffney says. “Becoming more aware of that boundary line of when do you really need to tell the organization to do something versus giving it a lot of room to be a healthy organism — that’s a line that is difficult for any CEO to find.”

Because his ideas could easily dominate the conversation, Gaffney says he must make a concerted effort to delegate lower level projects and push decision-making out in the company.

“I don’t think there’s any circumstance where the CEO doesn’t make a couple calls, but out of 100 things, is it 12?” Gaffney says. “Certainly a couple years ago, I think I would have been more toward the ‘We’ve got to get this done and we should do this this way,’ and moved more toward ‘You know what there are only a few things that I’m actually going to weigh directly in on and I’m going to work more aggressively on the other things to make sure that the way that those decisions are getting made is as participative as possible.’”

Although it may require some personnel changes — which it did at AAA — Gaffney says that the real driver of the change in your leadership team is getting people to see the benefit of doing things differently. And this is a more gradual process.

“What I try to do and what I encourage the people who report directly to me to do is to be very aware that we’re asking for a transition in a collection of learned behaviors,” Gaffney says. “To me, the successful way to coach folks through that is not to criticize their historical approach but to ask them some questions about how they might do things differently if they really wanted to be in service to others rather than in charge of others. That takes a lot of time but it can be a very important ingredient in the transformation.”

In this kind of transformation, Gaffney recommends making sure that your top leaders are high in their sense of urgency. Those will be the people who will be worth the big investment of your time.

“Do they tend to be the kind of person who when there’s something to work on, they own it?” Gaffney says. “When there’s something to work on, they believe they have the capacity either to work on it themselves or find the right kind of help to work on it, versus someone who has low urgency and someone who tends to look at circumstances outside themselves to explain why they can or cannot fix something. It’s very difficult to help someone if they’re low in their own sense of urgency. It’s very unlikely that my investment in them is going to help make any change.”

Create an idea system

A bottom-up culture is most successful when you can actually implement ideas into your company to solve problems, innovate and improve. So with more people involved in the decision-making process, you need to teach employees how to evaluate ideas so the best ones rise to the top.

“Everyone is in touch with the emotional goodness of coming up with an idea,” Gaffney says. “It’s a little bit more of a challenge to get people to balance their emotional enthusiasm for something that sounds right and seems to intuitively be a really good idea and then put it through the rigor of could it possibly be big enough for us to actually work on and be excited about.”

Gaffney says to first acknowledge the quality of the idea, particularly if it’s being delivered enthusiastically, then ask questions to turn the thought process back on the employee.

“When trying to flesh out an idea — even if I know instinctively that it could never be big enough or it couldn’t make a profit — instead of sharing my point of view, I try to be in a place where I ask the employee, ‘OK, if you were to run this business, how much do you think you’d sell this for, and how much do you think you’d sell, and how would you go about figuring that out, and what did you think the costs of this thing would be?’ Really what I’m trying to do is get all 2,200 of these folks to think through those things all the time, even in their day-to-day operation.”

Even if the idea doesn’t end up working, pushing employees to find solutions themselves teaches people how to come up with ideas that will work.

“I’m sure there are some people who would rather not have to do that, but those ideas don’t make it anywhere anyway,” Gaffney says. “I think a lot of people react to that by realizing, ‘OK maybe this one wasn’t good enough, but I now know a lot more about what ingredients need to be in my next idea.’”

That also pushes decision-making down in the organizations, which frees your senior leaders up to focus on other priorities and pursue new opportunities as well.

“I think the number one advantage is people have wider ranges of responsibility now,” Gaffney says. “They go to fewer meetings. They have to prepare fewer presentations and that inspires them to just get things done.”

As an example, the company was able to deploy its new finance, HR and payroll backbone in just four short months.

“We were able to do that that quickly because the people that had to do the work had that insight that ‘Hey, there are so many opportunities here, we need to unlock them right away and take a little bit of risk in moving quickly onto a new platform,’” Gaffney says.

“It’s perhaps an inevitable consequence of making an organization leaner, but it’s also the kind of environment that you encounter in a startup, where there’s more work to do than there are people and you have good people in the roles. You give them authority. You let them make decisions; and in my experience people embrace that kind of environment with great enthusiasm.”

How to reach: AAA Northern California, Nevada & Utah, www.csaa.com or (800) 922-8228

Takeaways

1. Engage people through dialogue

2. Be a model of participative leadership

3. Help people evaluate their own ideas

The Gaffney File

Paul Gaffney

President & CEO

AAA Northern California, Nevada & Utah

Education: AB in Computer Science from Harvard College, Cambridge, Mass.

What’s the best piece of business advice you’ve gotten?

Essentially to never stop learning. That has come in a variety of forms, some of them more harsh than others. One of them is to remember that even in moments of great success, you’re just a human being and something else is going to go wrong tomorrow and you better not rest for any period of time on success.

Why do people like working for you?

I’d hope they would tell you that we try to do this in a pretty fun way, and it’s an environment where all 2,200 people in the company speak to everyone else on a first-name basis. I’m Paul out in the field. I’m not the president. And I think that helps people see their work as a pretty natural extension of their life.

What do you like most about your job?

What I love about this company and the businesses that we’re in and the people that are in it is we have no inherent conflict between any other party and the needs of our customers. We don’t have stockholders to please – this company is essentially owned by its members. We have a pretty clear business model that articulates making just a small amount of profit each year that helps sustain the long-term viability of the company and provides great value to members. We don’t sell anything, and as long as I’m here we won’t sell anything where the nature of the sale benefits someone in a way disproportionate to how it benefits the customer. It’s really a blessing to not have any of those conflicts. And most other business it’s not nefarious, it’s just easy for those conflicts to creep up.

Terry Cunningham knows that you need to have a compelling story for potential customers if you want their business. So when he joined EVault, A Seagate Co., around three years ago, his first objective was finding out how well the company’s story resonated with its customers and its 400 employees.

“We spent of time looking in the mirror and saying, ‘Well, would you buy it, and if not, why not?” says Cunningham, the president and general manager of EVault. “What’s not true about it? What is it that the customer would say, ‘I don’t really buy that story and here’s why’?”

Often, the problem isn’t that you don’t have a compelling story, but that you’re not communicating it correctly. Cunningham realized this was the case at EVault, which provides online backup and disaster recovery using cloud-based systems.

“So they had the right idea — the previous generation of the company,” he says. “It just wasn’t told in a way that had a broader market appeal.”

At the time, the company was serving only a small niche of industries that were legally required to backup their data anyway. But Cunningham knew that there was an opportunity to communicate to more consumers and markets that the cloud was a better way to handle their data protection and disaster recovery.

So how do you go about broadening the appeal of your story? Cunningham says the first step is floating the idea with people who may not think that they need your product.

“You begin with getting to the prospect that isn’t compelled buyers or compelled markets,” he says. “Go beyond the regulated industries that are required to do it and get to somebody that doesn’t care.”

Even if they seem unenthused at first, if you can open up a dialogue you will probably be able to identify some pain points.

“So now we get to the prospect or customer that at first doesn’t care that much because he thinks everything is OK, but then in the conversation, you discover that there are some challenges that they’re facing,” Cunningham says. “So OK, what’s the first problem you’re trying to solve, … what’s the second problem you have to solve … and so on.”

As you find these pain points, you can walk the customer through what a new solution might looks like and how a new story could meet them.

“Then it’s the usual sort of discovery process,” Cunningham says. “Let’s say we did have all of this. How much would you pay for it? When would you do it? What are all the other issues?”

Using this feedback, the company has been able to retool its story with pricing, packaging and other specifications that reach a broader spectrum of consumers. Now, Cunningham says the key to growth is being able to tell that story in a way that is simple and memorable.

“The early stage of that is to get out and tell the story and tune that story in the simplest possible way so that people can retell it,” he says. “If I give you the pitch, can you turn around and give it to somebody else easily?”

To help employees communicate it effectively to others, Cunningham regularly travels around to the company’s different offices to talk about the new story and why it is significant.

“The ultimate goal here is to communicate a story that gets told and retold by others, and we don’t have to keep doing all the heavy lifting,” he says. “If this is a better way, then eventually the world adopts it as proof that is really is a better way. You need everyone in your company to be able to communicate the story passionately and with the same enthusiasm.”

How to reach: EVault, A Seagate Co., www.evault.com or (877) 382-8581

The next best thing

When Terry Cunningham goes out to dinner, he loves to eat at restaurants that have paper on the table. That’s because when the whiteboard is out of reach, he has a spot to sketch out the next great idea for his technology business.

“They used to deliver crayons for the kids, now they deliver crayons for people like me to draw pictures while we’re talking about something,” he says.

As you continuously recast the story of what your business means to customers, you always want to be asking yourself, “What’s the next step?” even if it means sketching out the plan in Midnight Blue.

“[It’s] what’s changing from our customer’s perspective and how does it affect us to make sure that we’re not becoming irrelevant without even knowing it,” Cunningham says.

“There isn’t a technology company on the planet that isn’t sort of assessing where they’re at because the world is changing very quickly. So they’ve got to sort of reassess and figure out what the customer, target or prospect is looking for today.”

The key to long-term growth is to consider what the customer or the market is saying today, but never stop looking forward and innovating.

“I see a lot of companies and people I’ve worked with just chase the current model or market and they basically end up saying ‘me too,’” Cunningham says.

Before Zalmi Duchman founded The Fresh Diet in 2006, he’d been on the other side of the employee accountability problem.

“I was the guy taking the extra lunch and taking the extra break and kind of slacking off where I could as a worker,” says Duchman, the founder and CEO of the Miami-based fresh food delivery company with 160 employees and approximately $18 million in revenue.

That’s why in running his own company, Duchman understands the importance of creating a culture that motivates people but still keeps them accountable for progress.

“By realizing that I’m too laid back, I’ve been trying to find that middle ground,” he says. “I don’t want to be this strict company and not a fun company, but I don’t want to be this company that’s not getting anything done because everybody is partying all the time.”

Smart Business spoke with Duchman about how to create this middle ground by improving communication.

Have an open-door policy.

As long as the managers or myself or the other executives are sitting at their desks or they’re online or they’re on their BlackBerry, and they are in real time responding to issues and not pushing it off 24 hours and 48 hours, that will go a long way in making sure there is communication, because you’ll nip it in the bud right away. If you see there is an issue, you can narrow it down to how did this issue happen and who didn’t communicate. And sometimes it’s not a communication issue, but a lot of times, it is.

I don’t come into work in a suit and a tie every day, but I make sure that I’m here. I make sure that there’s an open-door policy. I make sure that everybody knows that even if your title is customer service, at the end of the day if you have a food request or if you have a suggestion in marketing, everybody wears ten hats. Because the guys upstairs and the executives, we don’t just stick to what we do and we all put our hands into everything else, I think that that’s created a culture where people know that if they have an idea they’re not going to be shunned. They’re not going to be told to shut up. It’s very, very open and everybody feels like the business is theirs and they feel like it is one big family. They feel that if they think there is a problem they won’t be scared to say it.

Get involved.

There’s no question that being more involved in day-to-day projects and having a better handle on it and making sure that everybody’s communicating every day has turned into growth, dollars and cents. If you’re on top of the situation, then people can’t really slack off as much. They have more of a drive if they know that the CEO is going to get down to the nitty-gritty instead of asking once or twice a month about projects. It’s also establishing weekly meetings and establishing better lines of communication. It’s definitely helped the projects move faster and the overall quality of the team is better.

I want to have that culture of it’s not based on how long you sit at your desk but what you accomplish. But at the end of the day, you have to have a median. Just managing projects better, keeping a tighter ship by using software online like Basecamp or project management software, that allows me to see that the communication that’s being given is actually being followed. So making sure that I have my hand in more of what’s going on has helped make the workplace smaller in a way.

Be proactive on issues.

When there are very few problems, it means that the communication is flowing and it means that people are talking to each other. If there is a problem, it’s almost always going to come from communication, because this person didn’t tell the correct person or this person thought that they could do this themselves and didn’t bring it to someone else. So I feel that monitoring on real-time basis, especially in a business like ours with so many moving parts — if you’re monitoring the issues of the day, you’ll know right away if there are communication issues.

Usually what would happen is that a company would be in a bad place and then they would realize that, oh my God, we’re in a bad place and it probably happened because no one is communicating and it got out of control. I would tell them to stay positive … and deal with it. Don’t continue to put it off. Establish weekly meetings. It’s a lot easier to talk about it than to implement it, but I feel like you ‘fake it till’ you make it.’ So even if you’re in that bad place, just make a decision that this is going to change and it’s going to change today.

How to reach: The Fresh Diet, www.thefreshdiet.com or (866) 373-7450

Britt Massing realized that his company needed to get creative if it was going to weather the turbulent economy in 2009.

“We could see that a lot of clients, instead of having four or five or maybe 10 orders a month, were going to one, two or three orders a month and constantly saying, ‘We might be having layoffs,’ or, ‘We’re trying to maintain our costs and cut costs etc. at this point in time,’” says Massing, president of The Staffing Resource Group Inc., which employs 93 contractors and a staff of 11. “That’s what we had to deal with.”

Today, the staffing company is one of the fastest-growing businesses in the Tampa Bay area. Smart Business spoke with Massing about how to use economic uncertainty as an opportunity to grow your business by better serving your clients’ needs.

What is the first step when you realize that your clients are struggling?

I think that a lot of companies didn’t react quickly enough to making changes. They thought maybe that renegotiating might not be the best thing for them. A lot of them also didn’t think about going back to as grassroots as taking a look at the income and the profit and loss report and thinking look at all the vendors and going back and talking with them.

The first thing we knew was that a lot of our competitors were going to be going out of business, and for us, it was if we make it through this, we’re going to be good. So what we did was we renegotiated with a lot of our clients our terms, and we also then renegotiated with almost all of our vendors.

We did one-year contracts where we’ve reduced our rates some. We were flexible when other companies were not flexible. We’ve listened to what our clients needed and if it worked for us from a business standpoint, we renegotiated until the turnaround started to happen for us. That was a big part of how we survived when a lot of other companies did not.

How do you stay aware of how to meet your clients’ needs?

We were asking our clients what they needed. Some clients, because of the technical aspect of our business, weren’t hurt as much as other clients, but the ones that were having some difficulties and asked us about flexibility, we decided what made good business sense and we ran with it.

Outside of that kind of strategic aspect, instead of not calling clients when they didn’t have needs at that time, we’ve maintained our relationships with everyone throughout that period. People would be like ‘You know you don’t need to stop by and say hello to us right now. We don’t have anything for you.’ Our response always was, ‘Well, we know you will in the future and when you do, we want you to remember us.’ We wanted them to know that we treat all of our clients like it’s a relationship and it’s a partnership. So we spent a lot of time staying in front of them. We’re in direct contact either via phone, e-mail, in person, breakfast, lunch, dinner etc., with our clients every week. We have a very grassroots effort to make sure that we’re constantly in touch and in front of all of our clients.

As the contracts had ended and then needed to be renegotiated, depending on how the companies were doing, we had opportunities to renegotiate our prices back to where they were or above where they were before; we’ve been able to do that as each contract has come up. A lot of them were experiencing the same thing that they had to do for their businesses as well. Many of the people that understood and partnered with us were going through it themselves, and for the most part, were very appreciative of what we did to help people get through those times.

What advice would have in employing this kind of strategy?

Don’t be afraid to ask for help. … We [the owners] are always constantly in communication and talking and bouncing ideas off of each other and taking that to the team. When the team is involved in any policy changes or any changes with the company, it gives them ownership of it and they take pride in seeing it through and making it happen.

We knew that we had to maintain the relationships because we work with what we feel is a great book of business and when we got with our team, we told them, ‘Every customer that we have will continue to get the same amount of service as they’ve gotten before and that’s what will happen in 2010 and beyond after we get through 2009.’

How to reach: The Staffing Resource Group Inc., www.srg-us.com or (877) 774-7742

As the new president of Burger King Corp.’s North American business, Steve Wiborg was charged with leading a brand suffering from declining sales and a limited menu. Under siege from a market flooding with fast food hamburger competition, it was struggling to keep its foothold in its narrow niche of 18- to 34-year-old male burger consumers.

Yet at the same time, the company was initiating a four-pillar strategy to enhance its menu, overhaul the restaurant image, streamline operations and improve marketing communications, even phasing out the company’s Burger King mascot. Wiborg had the opportunity to apply his 20 years of experience in the Burger King system to help the No. 2 hamburger chain start fresh and expand its appeal.

“When we’re looking at a larger consumer base, we’re really expanding our target to Quick Service Restaurants,” says Wiborg, who became the president of North America and executive vice president of Burger King Corp. in October 2010.

“Any of these changes has to do with focusing on 100 percent flawless execution. That’s really what everything is focused on right now in order to make everything we do or any of those four pillars come to life.”

Today, Wiborg is leading the roll out of these initiatives across 7,200 restaurants. Here’s how he drives execution to help is team deliver results and grow Burger King as a quick-service authority.

Engage your team

To make the brand more competitive, improvements in the new strategy called for the company to add new products, such as salads, desserts and breakfast items, as well as improve upon some existing products, such as a new french fry recipe. Wiborg was also responsible for implementing the company’s new “20/20” design at all of its North American locations, which would create a more attractive and brighter environment for guests. Coming in, he and his leadership team examined research to see where the brand stood in terms of cleanliness, speed of service, food quality and operations.

“That’s always going to be a challenge as we look to innovate off of different platforms and make sure we’re looking at our opportunities from competition,” he says.

But to make the sweeping changes the brand had in mind, Wiborg knew he needed to go outside of corporate to involve people in the process, especially because 90 percent of the company’s restaurants are owned by franchisees.

“It’s really our restaurants and employees that make the change in the end,” he says.

In the past year, Wiborg has added numerous programs and initiatives designed to increase collaboration between franchises and the corporate office. By inviting more employee and franchisee participation, it’s been easier to get people on the same page with consistency and alignment on goals.

“It’s a big system … and getting them all to agree is never going to happen,” Wiborg says. “You get a majority of them to agree, and as long as the other group understands where you are going and what their part of it is, then you’re going to have the best success.”

Because menu innovation was a change that would affect many franchisees, who would end up implementing it at their restaurants, Wiborg selected a handful of franchisees that had been in the system a long time and brought them to the company’s headquarters in Miami. Along with the brand’s vendors and suppliers, they spent three months working with R&D to update the menu to appeal for a broader audience.

“We had to take a look at every single item on our menu and make changes,” he says.

Recent menu additions include everything from funnel cake sticks to a Chef’s Choice burger and a variety of breakfast menu items.

Wiborg says that collaboration with franchises, combined with the initial research the company did in 2010, revealed the areas of the company’s menu and marketing strategy that had strong appeal — flame grilling and the Whopper, for example. But it also helped clarify areas for improvement and opportunities to reach more consumers, such as adding a dessert platform with soft serve ice cream.

Again, many changes in product often come back to execution. For instance, the decision to start cutting lettuce and onions in restaurant creates higher quality sandwiches but also requires more labor.

“There are a lot of things that go into the menu innovation process and how we roll that out,” Wiborg says. “Engagement of our franchisees has helped every step of the way.”

One way the company has improved employee engagement is by making sure everyone works together to set priorities rather than having the corporate office in Miami hand them down. Wiborg says that engaging your team is vitally important.

“I think you’ll be pleasantly surprised at the engagement that you get from your employees when you make them part of the process and not just the execution part of the process,” he says.

To increase collaboration between corporate and the restaurants, the company created a marketing council, a restaurant council, a people council and a diversity council, each made up of approximately 13 franchisees and corporate members.

While Wiborg thought he’d initially have to twist some arms to get people involved, it was actually the opposite. It was just a matter of ensuring the councils were formed to represent a diversity of opinions. So to get a well-blended group, the company’s directors picked half of the council members and let the National Franchise Association, which a majority of the system belongs to, choose the other half.

“The great thing is there is a wide range of thinking on these councils,” Wiborg says. “It’s not everyone thinks the same and we all move cohesively. But if we can come to agreement in these councils of how to move the brand forward, I know we can move the system forward.”

For example, when the people council recognized a new way to improve communication at restaurants through virtual learning, the company introduced the initiative in 2011.

“It has been a great way to actually get things done within the system because it’s not just me of Burger King in Miami saying that this is the way we should do things,” Wiborg says. “It’s a group of 13 franchisees plus Burger King that all across the United States and Canada are coming up with the ways to move forward.”

Provide support

To build a better and stronger brand, Wiborg also knew that the company needed to narrow the range of excellence. So another challenge of execution was getting franchisees and employees operating in one consistent way across the system.

“We have all levels of excellence,” Wiborg says. “You may go to one Burger King and it’s your favorite Burger King, and then you go to another one and it’s less consistent. So it’s really about consistency.”

Wiborg says that for any brand that has national or global locations, improving brand consistency is often the result of how much support people have out in the field.

“So when you’re talking restaurant image and you know that that’s a very capital-intense decision, in order to move in the right direction, it was about coming up with programs that enable people to do that type of stuff,” he says. “It’s one thing to say we want to do 1,000 reimages in here in 2012. It’s another thing to be able to get there. So just because people know what I’m doing and I’ve been in Burger King a long time, you have to create ways for people to execute.”

That is true for each one of the four pillars the company is implementing. So to help franchisees and employees execute the numerous changes, the company launched a field optimization restructuring program in September to double its number of sales and operations coaches nationwide.

“When you look at operations, it’s one thing to say, ‘We want to have cleaner restaurants serving the best food with the best people and the fastest service,’” Wiborg says. “It’s another thing saying, ‘I’m going to double the field staff for Burger King.’”

Instead of having 80 field people working on operations, the company now has 160 people helping franchisees identify strategies to improve their businesses and offering field support.

“If I’m serious about being the best restaurant and operations company, I think I need to back that up by putting more people in the field working on becoming the cleanest restaurants, the fastest service, the best quality service, and that’s what we’ve done over the last six months here,” Wiborg says.

This added support has helped people stay focused on execution across the board so that no one area or location suffers. If one restaurant needs more help, the company has available resources to accommodate people.

“We have more touches now and we have more people in order to get that more consistent brand up there,” Wiborg says.

Be part of the process

Even through Wiborg felt employees trusted his leadership in implementing changes because of his history with the organization, he also knew getting them to buy in wholeheartedly would take personal investment.

“You have to be part of the process and lead throughout that process in order to be a good leader,” he says. “It’s one thing to say you want the process, it’s another thing to be part of the process.”

To help restaurants embrace the new menus, store images, marketing and operational improvements, Wiborg has been actively involved in discussions and implementations with restaurants. When they began to do the reimaging, Wiborg went out and visited franchisees in a 13-city tour. In the meetings, he worked with franchisees to take them through the new programs and help them understand the timelines, details and execution process.

The company did the same thing with the menu platform rollout. Wiborg often invites groups of franchisees from the NFA or larger franchisees in before rolling out new programs to get their feedback and figure out what support they need to be successful.

“I roll them out for them first and they help kind of shape things a little bit and work on the communication piece,” he says. “So it’s not just about Burger King. It’s about our franchisees and Burger King. If they are more successful, we’re more successful.

“The key to success of Burger King is helping all of our franchise businesses be more profitable and the best QSR business out there. Their engagement, the councils, working hand in hand helped us overcome that and get everyone moving in one direction.”

Wiborg says the four pillars — menu, restaurant image, operations and marketing — probably won’t change but will continue to evolve at different levels. For instance, the restaurant reimaging has already begun, with much of the progress anticipated to take place in 2012. On the other hand, menu innovation is something that Wiborg says is ongoing.

“I think Burger King is two things,” he says. “One is it’s a restaurant company and the second is it’s an operations company.

“Our biggest opportunities are moving all of those four pillars constantly and making those changes with the menu innovation, restaurant image and so on.”

While the company’s global revenue for the third quarter of 2011 was slightly higher than in 2010 — with $608.1 million — only time will tell how these changes play out and how consumers and employees will embrace them.

“I’ve seen a lot of success in the building blocks of what’s to come,” Wiborg says. “Now it’s about the executing part over the next year.”

How to reach: Burger King Corp., (305) 378-3000 or www.bk.com

The Wiborg File

Steve Wiborg

President of North America and executive vice president

Burger King Corp.

Born: Chicago

Education: B.S., Northern Illinois University

Burger King fast facts:

  • Founded in 1954, Burger King is the second largest fast food hamburger chain in the world.
  • The company operates more than 12,300 locations serving more than 11 million guests daily in 76 countries and territories worldwide.
  • In 2009, BKC was recognized by Interbrand on its top 100 “Best Global Brands” list and Ad Week has named it one of the top three industry-changing advertisers within the last three decades.
  • In October 2010, the company was purchased by global investment firm 3G Capital, which is focused on long-term value creation.

Wiborg on menu innovation: Every time we roll out a menu, we look how that fits into our brand. The different things that we’ve rolled out, whether it be toppers or different products or Chefs Choice Burger, it really needs to take the place of something else but be a higher quality. … So it really doesn’t stretch our brand it really stretches the ability for our consumers to want to go to Burger King.

Takeaways

1. Get your team engaged in key changes.

2. Provide support in areas of focus.

3. Be personally involved in the transition.

In the late ’90s, Jim Griffith found himself among a group of young executives being groomed to lead a $2.6 billion company. With five senior-level employees at The Timken Co. — including the CEO at the time ? preparing for retirement, the succession process was in full swing. But what seemed like a great opportunity was soon lost on Griffith and his peers as the process progressed. They became increasingly aware of one alarming red flag.

“The bottom line was that the company technologically was the best in the world,” says Griffith, who is the president and CEO of Timken today. “Our products from a quality and reputation were the best in the world, and we couldn’t make any money. Our people from external validation were the best in the world, and we couldn’t make any money.”

As a result, the next generation of leaders found themselves harboring some serious doubts about Timken’s future as a profitable company.

“That’s a really troubling thing when you’re saying, ‘OK, I might have the chance to lead a Fortune 500 company and I’m not sure I want to, because it’s not making any money,’” Griffith says.

When he became president of Timken in 1999 — he was promoted to CEO in 2002 — Griffith and his top leaders embarked on what became and intense transformation to reorganize the company around its customers. Here’s how they took a 100-year-old company and reinvented it to make it profitable.

Define your value

One of the first things Griffith and his team recognized was that the company was organized around its products, a strategy that went back to its roots.

“What we concluded was that the company that was founded by Henry Timken in 1899 to manufacture his invention called the tapered roller bearing — effectively it’s a wheel bearing in a car — over the 20th century had become so product focused that we’d forgotten that the reason for being in business is to create value for customers,” Griffith says. “And when we then stepped back and said, ‘Where are the places that we create value for customers?’ they were very different than where the product-focused strategy drove us.”

One of the first moves the company’s leadership made was to restructure Timken around its markets instead of its products. Instead of having a bearing business and steel business, there was an auto business, an aerospace business, an industrial business and a precision steel components business, and the presidents were asked to focus on creating value for customers rather than maximizing sales.

“That led us down a learning journey of where does Timken really create value,” Griffith says.

The company went through a process of looking at each of its markets and asking, “How do we make money in this market?” and “What’s the value proposition?”

“Again, it was a real learning journey, because in some cases, what we found was we had to change the way we operated to be profitable,” Griffith says.

He and his team also utilized a rigorous marketing analysis to evaluate Timken’s relative profitability and relative differentiation in its current markets. One thing that they discovered was that while the company made great products, its products were valued much more in some markets than others.

“We make steel or we make bearings or we make gears,” Griffith says. “We make your car not break down. We make airliners land safely. We make jet engines more efficient. We make it possible to drill for oil 40,000 feet under the ground. That’s what we do. And there are some of those places where we were selling our products that you didn’t care. You don’t really care if you have a Timken bearing in your car, because the difference between Timken and our competitors is that if you have a Timken bearing, your car will last for a million miles. Now how many cars have you had that last a million miles? So we had competitors that were designing lower performance products, cheaper products, and putting them in those applications. And you’re happy with that.”

Early on, Griffith says the company had made far too many decisions about markets based on gut feel instead of analytics. But strategic marketing tools can be extremely valuable in helping you make decisions to guide the direction of your business.

“We learned a tremendous amount by going out and finding the best analytic tools for driving our marketing process,” he says. “When we finally did that, it made some tough decisions, like what to do with the auto industry, amazingly easy. I wish we had done that five years earlier.”

Differentiate yourself

For Griffith, there were a couple of significant takeaways from the marketing analysis. First, Timken was at its heart a technology company. So to create value for its customers, the company needed to find the right technical problems to solve for them.

“When you are on an airplane, and you’re coming in for a landing and that tire hits the tarmac and it goes from zero to 160 mph in a split second, you don’t want anything but the best,” Griffith says. “So the difference is that we have maybe 15 percent penetration in the auto industry and we have effectively 100 percent penetration in landing wheels. And that learning about where are the places that Timken can create value was fundamental in most of the first half of the last decade.”

The challenge was finding ways to take the company’s core technical capability to market in a way that nobody else could and that customers would buy into — in other words, leveraging that differentiator to enhance existing products and services and expand into channels and markets where it can be competitive.

“In worlds of technology, we are the best in the world,” Griffith says. “Learning to translate that into business models and products that create customer value that’s differentiated was a critical learning for us.”

Part of that involved moving into markets or investing in areas where it could differentiate itself from competitors, such as aftermarket (replacement part) opportunities.

“The bearings in a car — one in 10 gets replaced over the life of a car,” Griffith says. “The bearings in a steel rolling mill get replaced every year. We spend a lot more time designing new products for rolling mills because there’s an opportunity for our technology to make them last longer in a way that is more valuable to the customer. They’ll pay for it and there is an opportunity to help that customer with replacement products.”

By investing in its industrial aftermarket segment, the company has grown that segment to $1 billion in sales.

“So our most profitable segment, we’ve grown five times and half of them are products that weren’t in our portfolio in 2000,” Griffith says.

The other piece is to exit markets in which you just can’t compete and be profitable.

Even though Timken was historically an automotive company, it could not get its auto market to make money on an ongoing basis. So in 2007, the company made a radical shift under Griffith’s leadership to transition out of the market. When demand for the auto market dropped in 2009, it also sold a large piece of its auto business to a Japanese company and made large cuts in auto support services.

“That put some cash in the bank for us and changed our profile,” Griffith says.

From a markets standpoint, the overall change in portfolio has been dramatic. Today, it includes markets such as mining, heavy transportation rail, heavy truck, the agricultural market and the international market.

“We went through that in every business that we have,” Griffith says. “The net result was we closed probably 30 locations around the world that couldn’t be competitive or needed to be more efficient or needed to be more effective. We built a half a dozen new locations in new markets where we were growing. So net we didn’t change the number of people but changed the structure of the way we operate. We radically changed our portfolio and radically changed our market portfolio.”

Again, the key to growth is not just investing in markets where you have the best product, but where you can deliver value in unique ways.

“Most of the products you’re going to see are things we made 10 year ago,” Griffith says. “But the way we take it to market, the mix in the portfolio and the way that we engage with customers to create value is so radically different, you might as well say it’s a new company.”

Prioritize performance

A critical driver of this transformation has been the company’s dedication to being a high-performance organization. This focus has helped it navigate numerous challenges as it implemented some major changes to reinvent the company, such as when the company’s leadership realized that Timken’s big manufacturing plants in the United Kingdom and Columbus, Ohio, couldn’t compete and needed to be shut down.

“The key to it was strategically, we were very clear where the company was going and so we knew what were the areas that had to be sustained were and what were the areas where we were going to reduce our presence,” Griffith says. “When you think about it in those terms, you take deeper cuts in the areas that you are exiting and lesser cuts in the areas that are crucial.”

Another critical time was in 2009 when demand for the company’s products dropped and its sales fell 38 percent. To improve efficiencies, the company had launched a business redesign process called Project ONE a few years earlier, which put in place an SAP enterprise management system and helped it take $400 million out of inventory in 2009. But at the same time, it still had to cut costs in any way it could, including 6,000 jobs globally.

“The concept of walking into plants that have been part of your family for a long time and saying goodbye to people is a very personal thing,” Griffith says. “The way it works at Timken — you hate to say that you become good at that — but we’ve become very good at that. We’re very open, and people understand the performance that’s going on.”

When cutting costs, Griffith says you start with strategic cuts — areas where you know you are going to lose business — and then use your performance management systems to put boxes around your stars and take deeper cuts in areas where you have low-performing people. You approach these decisions as a family, communicate openly about what’s going on, and then people will understand that as a high-performance company you need to set aggressive targets.

“It’s all about people, and having really good leaders in place is crucial, even more crucial when you’re going through a period of crisis,” Griffith says. “There’s a natural tendency, particularly in a family kind of culture, to try to support and sustain people who aren’t the absolute top people. There’s always a tendency to hang on to people too long. That’s good and bad. But from a performance point of view, that’s critical from this point.”

By transitioning into markets where it adds the most customer value and building business models that allow it to be profitable in those markets, the company has emerged a decade later outperforming its highest expectations, growing revenue 29 percent to $4.1 billion in 2010. In 2000, Timken generated roughly 50 percent of its revenues from bearings and steel in the automotive industry. Today that number is about 15 percent.

“It’s 112 years old, but it’s a new company,” Griffith says.

“We’ve retained our best people. We have shifted the portfolio of the company to much more attractive markets, markets with better aftermarket, better growth practices, more focused on the parts of the world that are growing. We have better management tools — this Project ONE capability. So better people, better markets, better management processes and then you are surprised that we’re getting record results.”

How to reach: The Timken Co., www.timken.com or (330) 438-3000

The Griffith File

Jim Griffith

President and CEO

The Timken Co.

Born: Palmerton, Pa.

Education: B.S. in industrial engineering and MBA, Stanford University

What is one part of your daily routine that you wouldn’t change?

I am an early bird — up at 5:00 a.m. or before every morning. I savor the quiet time before the family gets up — I usually walk the dog or exercise. It gives me an opportunity to think through the day ahead and be prepared to tackle whatever challenges it brings. I have done this since I was around 10 years old and continue to get up early, seven days a week.

What is your favorite part of your job?

Interacting with the people of Timken. I get to travel a great deal and interact with people all over the world. The people of Timken never cease to amaze me. Give them a challenge, hand them a tough assignment, and it never ceases to amaze me the creativity, resilience and character of the people who make up our company. My wife loves it when I come back from our plants because I always have a smile on my face, impressed with what I see. The most outstanding examples come in the most trying times — for example, in the recession of 2009, one plant in South Carolina needed to cut half of its workforce. Instead, the people decided that they should share the pain and chose to work alternate weeks, an impressive sacrifice by the most senior people. I could tell a hundred stories like this.

What’s the best piece of business advice you’ve received?

I’m a believer in people. I believe in people. I’m a natural delegator. And if you’re a natural delegator then you’ve better surround yourself with the best people that you can find, people whose judgment you trust, and set the parameters, set the objectives back to being aligned on the strategy. This is where I get real sensitive about, ‘Look what Jim Griffith’s done at Timken, because it isn’t what Jim Griffith’s done at Timken. …The sum of the decisions and capabilities of that leadership team is massively larger than the influence I could have. My influence is to get them aligned in terms of what that vision and objective is. Then frankly it’s stay out the way so that I don’t mess up the decisions that they make.

What is the culture like at Timken?

The answer is it is a family culture. For those of us that have been around a long time it’s kind of an emanation of the fact that the Timken family started it. But that’s not what makes us a family culture. What makes us a family culture is we tend to be people who come here, stay a long time, get to know each other, know each other and their families, work together on things outside. So we really are a very close-knit culture. Even people who come from outside become family.

Takeaways

1) Figure out where you create value.

2) Structure portfolio for value creation.

3) Optimize your performance.