After battling a lackluster economy for years, most executives are out of ideas for increasing revenue and lowering operating costs. But the smart execs are reviewing history to predict which customers will buy more or splurge on high-end products and enticing them with strategic advertisements. And some are analyzing data to hone inventory purchases or decide how to optimally deploy resources.
The savvy executives don’t have a crystal ball, but they have invested in software and staff to conduct data mining and predictive analytics. Research from Accenture confirms that high-performance businesses are five times more likely to use analytics strategically when compared with low performers.
“Business leaders can avoid mistakes and predict future demand for products and services by utilizing data mining and predictive analytics,” says Dr. Zinovy Radovilsky, professor of management for the College of Business and Economics at California State University, East Bay. “Unfortunately, most don’t know where to start, so they continue to make decisions based on managerial opinion instead of facts.”
Smart Business spoke with Radovilsky about the opportunities to control costs and increase revenue through mining and predictive analytics.
What are analytics and data mining?
Analytics is a diverse field of statistical, qualitative methods and models used for predicting future business trends and customer behavior, and savvy executives are using the practice to make opportunistic business decisions. The process starts when professionals extract or mine data so it can be analyzed and used to identify relationships between the predicted parameters and other factors. The analysis phase is called descriptive analytics, which helps organizations discover what happened in the past, why it happened and how these events impacted the business. Predictive analytics uses the results of both data mining and descriptive analytics to make predictions and optimize business decisions.
How can mining and analysis turn data into dollars?
Analytics may highlight ways to increase customer retention or cross-sell certain additional products and services. At the same time, predictive analytics can reduce operating costs by predicting demand so companies can better forecast inventory or reduce wasted resources. The need for predictive analytics is spreading across various industries and business functions, like marketing, finance, operations, supply chain and human resources.
Predictive analytics and data mining help executives forecast future demand by analyzing customer behavior and profitability by market segments, so they can boost revenue and profit margins by selling additional high-value products and services to certain customers. For example, 1-800-FLOWERS.com attracted 20 million new customers and increased repeat business 10 percent by employing a real-time decision manager that uses predictive analytics applications, business logic and historical purchasing data to motivate customers by offering flower arrangements that appeal to their personal preferences.
How can predictive analytics and data mining reduce operating costs?
These examples illustrate how data mining and analytics can reduce operating costs.
- Predicting future demand helps operations and supply chain managers develop accurate inventory forecasts, purchase the right amount of supplies and eliminate unnecessary waste.
- Predictive analytics can substantially improve allocation of critical resources including equipment, labor and material. For example, after developing and implementing an optimization model to allocate small boat resources, the U.S. Coast Guard reduced its small boat fleet by some 20 percent and overall fleet operating cost by around 5 percent.
- Response modeling allows companies to identify repeat customers from the outset of the relationship and reduce the cost of mailing or calling by targeting only those who are likely to respond. The bottom line is that companies can cut marketing costs by targeting fewer customers while getting the same response.
How does a lack of data analysis or an inability to forecast future events restrict a company’s success?
Companies have accumulated a substantial amount of quantitative business data about their products and services, customers and suppliers. But, their ability to create a competitive advantage by utilizing the data and employing appropriate quantitative models varies significantly. In fact, two-thirds of U.S. companies surveyed by Accenture acknowledged that they need to improve their analytical capabilities. Some organizations still rely on executive opinion instead of using data and analysis to predict the future and make prudent business decisions.
What should executives consider before embarking on a data-mining mission or investing in software or experienced personnel?
Implementation of data mining and predictive analytics can be very time consuming and requires changing the existing decision-making processes and culture, hiring analytical staff and making investments in computer technology. Executives should consider several important things before implementing and managing predictive analytics projects.
First, clearly formulate strategic goals of using predictive analytics and data mining, and identify where the tools will likely make a difference. Then, prioritize the goals by their business impact and ease of implementation and utilization. Finally, identify prospective return on investments before purchasing software, hiring staff and training current managers to use analytics.
Dr. Zinovy Radovilsky is a professor of management for the College of Business and Economics at California State University, East Bay. Reach him at (510) 885-3302 or firstname.lastname@example.org.
Tom Swidarski may not be a secret service agent, a bouncer at a night club or a front desk manager at a high-profile office building, but as president and CEO of Diebold Inc., his job’s focus is similar to all three — security.
On one hand, Swidarski’s job is to supply security solutions for his customers, which include financial institutions, government operations and commercial businesses across 600 worldwide locations. However, in addition to handling security for customers, Swidarski is also responsible for ensuring the security of Diebold’s 150-year-old legacy, a part of his job that presents its very own set of challenges.
When Swidarski became president of Diebold in 2005, he was tasked with the weighty challenge of eliminating $100 million of cost out of the company over three years — a program dubbed the “SmartBusiness 100.”
“We weren’t sure exactly how we were going to do that,” he says. “But we said, ‘Hey, Charles Diebold probably had ‘SmartBusiness 1.’ He got the first dollar out. It’s our job to get the $100 million.’”
Building a profitable business is a matter of controlling costs as much as it is generating revenue, and amid the global economic slump, Diebold’s SmartBusiness cost-savings initiatives have been a key part of increasing Diebold’s profitability and securing its position in the competitive global landscape.
Since 2005, Swidarski has not only led Diebold to achieve the SmartBusiness 100; but in the last year, the company has already launched SmartBusiness 300, and begun its third $100 million tranche of cost reduction. The company’s shares rose 18 percent last year, with fourth quarter revenue increasing nine percent to $791 million.
“Hopefully, the economy turns and things move in the right direction, but in all of our businesses, you can control the cost side of the equation,” Swidarski says. “You can’t control the revenue side — so it’s making sure that we have a good understanding of the cost side.”
Get the info
One way to better understand the cost of your business is to utilize your information-gathering and research tools. By having focused research to use in your company’s strategic planning, you’ll know where resources are most needed for your business to become faster, more nimble and more cost-effective, whether that’s in setting up new operations or proactively adjusting value points with spending to meet changing customer needs.
Before you decide how to allocate your company’s physical and financial resources, you have to make sure information about your customers, industry, competitors and so on, is collected and evaluated similarly throughout your organization. In Diebold’s case, Swidarski added paperwork for all of his global market managers to analyze industry activity in detail.
“What we tried to put in place was a similar process that we could use across the board in terms of the evaluation,” he says. “Then we put it incumbent upon each of the country managers to fill out the documents and forms. At first, people looked at is as, ‘I’m filling out documents and forms.’… Now they understand that to get the R&D effort that we need for a place like Thailand, we need to know the specifics and granularity of the competitive landscape there and how that differs from Brazil, because they are different competitors. To get a group of diverse people across 90 countries focused on the priorities, everybody has to understand the endpoint. So collecting that information became very important.”
Implementing new information-gathering procedures in your business is sometimes necessary to ensure you have all the knowledge needed to make financial decisions.
For example, Swidarski recognized that Diebold could better plan for global operations by moving its $70 million per year R&D — previously based in the United States — out to its top revenue-generating countries and develop micro-market plans to map out each market’s strategy.
“In those micro-market plans, we know exactly what gaps we have, what technology from a software-hardware service standpoint and what we need to do to create competitive advantage,” Swidarski says. “Those countries — they drive about 80 percent of our total revenue — so [there is] very focused effort there.”
Having focused research for specific markets also helps Diebold identify which markets need new capabilities and which could be served by the company’s existing technology.
“Other countries may fall out that are going to use the technology we develop for a China or a Brazil or a United States or a France,” Swidarski says. “So though we may not develop something specific for a smaller country in Europe, we still have the technology that we developed that may be specialized for France that we can use there. That helps us hone our resources not only on the front end but on the back end.”
Look at the big picture
Another way businesses can learn to be more cost-effective is by changing the way they analyze their operations. There are many different parties and steps involved in operational processes such as product design or engineering, so it’s difficult to gauge how cutting costs in one area might affect another. To understand where costs can be streamlined, you need to look at entire processes as whole, complete puzzles instead of as their separate pieces.
“You may make a module less expensive, but then you have to service it out in the field,” Swidarski says. “So for us, it’s looking at all aspects of it and the intelligence you want to build in the module that may give you savings on the backend. That is even more important than saving $2 on the front end if you are going to save $5 or $10 on the backend by having a sensor that helps you have reduced inventory.
“Probably some of our biggest innovations come from our treasury. Our day sales outstanding in the United States have dropped from 60 and 75 days to about 30 days because of process improvements with less people. That’s really where we get the biggest gain. How do we handle everyday processes and look at them wholistically, rather than ‘my little piece of it.’ When you look at an order-to-cash process, where are the areas of ways you call pull out of that? And through that, you get cost savings, as well. We need to do that based on the competitive environment that we are in.”
By looking at the big picture, you’ll have a better sense of how different parts of a process interact and affect one other and, therefore, recognizing how to trim, alter or consolidate costs in one or more areas without sacrificing quality in others.
“There’s more to come out from a process-improvement standpoint than there is from working with suppliers and saying, ‘I want that for 3 cents versus 4 cents,’” Swidarski says. “That gets you a little bit. But it doesn’t change the process.
“It’s not only the design aspect of what’s needed in the marketplace; it’s what are the other aspects of what that device is doing and the connective tissue of it as to what the total cost is and how we attack that wholistically. So we’ve brought our engineers from our service organizations in earlier. We brought manufacturing into design. We brought software in and where we use to test serially, we now test entire pieces wholistically. It really has made a tremendous difference.”
Recognize your value points
You can’t have a good understanding of cost if your strategic analysis doesn’t take into account how the value points that your customers are choosing constantly change. So lastly, to understand the cost side of your business, you need to follow your value points.
The real value a business brings to its customers is shaped and changed based on the competitive landscape. Swidarski sees that more and more of the value Diebold provides customers today is in the service side of its products such as ATMs; so he’s led Diebold’s transition into services-focused organization rather than a manufacturing one.
“The way I view it is: If someone defines you as a manufacturer, you may or may not be,” Swidarski says. “That may be a little part of what your value is. … In our case, if you use a simple device like an ATM, the knowledge of how that needs to be incorporated within an environment is much more important — the software associated with that, the intelligence you can put on that to make it more valuable, the ability to self-heal a remote device. So as we look at it, manufacturing may be a phase that 10 or 15 years down the road, doesn’t have to be something that we absolutely do. Now, today, we do that, but I wanted to make sure that the value points, that the bank that my customer’s choosing, I recognize what those value points are.
“There’s 80 percent that’s spent on managing an ATM that has nothing to do with how much that hardware costs. It’s that 80 percent that has the services that have the greatest value that we spend a lot of time focusing on.”
The point is, you don’t want to define your value it in a way that may not be relevant for your customers changing needs and interests.
“When I met with the first CEO from one of the biggest banks in India, he said to me, ‘You know, your ATM costs four times what it costs for me to buy a car,’ and I said, ‘Well, my ATM’s about 40 times more reliable than your car,’” Swidarski says. “The point is, as you deal with different folks from a different perspective, there are different issues that are the most important issues in their decision process. Having something over-engineered and developed from very sophisticated U.S. folks may not make it to the marketplace because the price points might be wrong.”
When you better understand the cost of doing business, you don’t just learn what strategies are needed to save money and be more efficient. You also learn you can focus your financial resources where they can have the most impact, so as your customers value points change, your business can adapt and grow to meet them.
“It’s in viewing the value chain and how you fit in,” Swidarski says. “Not limiting our thought process in that regard has allowed us to move the value points and allows us to generate over half our revenues from recurring revenue.”
“Now we are about managing high value of networks, creating and managing complex networks. That’s really what we do. It happens to be an ATM today. It happens to be security devices. But in the future it can be anything.”
How to reach: Diebold Inc., (330) 490-4000 or www.diebold.com
The Swidarski File
President and CEO
Education: Bachelor’s degree in marketing and management at the University of Dayton; master’s degree in business management from Cleveland State University
What is a typical week in the life of Tom Swidarski when you are not in the office?
Quite a bit of my time — maybe 40 or 50 percent — is spent traveling. And a lot of that is international. That’s really for me to get in front of customers as well as our associates and understand and make sure that we’re meeting customer needs and where we have holes or gaps and making sure that the information we’re getting in. It’s important for customers, especially larger customers that are maybe spending $100 million or $150 million with you, that they see the CEO and that he’s committed to it. So China is important in that regard. Brazil is important in that regard. For me, it’s also important to not only go see them but also to view our operations, to sit with our top team as well as always spend time with our folks internally.
How do you get employees to buy in to your vision?
If you can demonstrate in the deepest, darkest hours the humanity of making tough calls and doing it appropriately, that really helps people buy in to the vision of what you are trying to accomplish, regardless of how good you are at communicating. Regardless of how good your vision is and how fancy it is, it comes down to do people trust you. For me, that’s what it’s about.
Executives frequently face gut-wrenching decisions while seeking alternatives to cash-guzzling call centers. Off-shoring the work is a popular choice, but it eliminates jobs for U.S. workers and alienates customers who have to overcome language and cultural barriers while conducting phone transactions with overseas agents. Some companies have even relocated centers to lower-cost states or counties, but they are dismayed to find that the move produces only a temporary reprieve from exorbitant turnover and growing labor expenses, as competitors often follow and ignite a recruiting war.
While most executives continue to grapple with the problem, a few innovative companies have solved it by quietly tapping underutilized pools of talent and allowing the employees to work from home.
“The benefits of this model far exceeded the expectations of most firms who participated in our recent study,” says Gloria Gowens, director of Towers Watson’s Rewards, Talent Management and Communications initiatives for call centers. “Retention was so much better that brick-and-mortar cost savings were just the icing on the cake.”
Smart Business spoke with Gowens about the unexpected benefits of deploying virtual contact centers.
What can we learn from studying the success of early adopters?
We surveyed 16 companies, most of which utilized the model for a period of one to six years and deployed 18 to 1,500 home-based workers each. They expected to reap savings from closing or repurposing facilities, but, surprisingly, 75 percent discovered that home-based workers outperformed their on-site counterparts as measured by key performance indicators such as productivity, work quality and customer satisfaction. And, 40 percent found the engagement scores for home-based workers were higher than the scores for their counterparts in brick-and-mortar operations. Turnover of home-based workers averaged just 5 percent to 28 percent, which was an improvement when compared to the attrition rate for on-site agents.
Why is the virtual model so advantageous for talent management?
Essentially there are no boundaries when recruiting home-based workers, so employers can tap less-competitive or even rural areas to source the best talent. In fact, employees only need reliable high-speed Internet service, a quiet space to work and a landline phone, so the talent pool is practically endless. Working from home also attracts non-traditional part-time employees who need flexible hours, like students, teachers and stay-at-home parents, and who often have a hard time finding suitable supplemental employment. Benefit cost for some at-home workers tends to be lower, because they average about 20 hours per week. A key satisfier for home-based workers is that they don’t incur the ancillary costs of working outside the home like commuting, parking and business attire.
Is it difficult to manage a remote work force?
Contrary to popular belief, the data shows that remote workers don’t need constant supervision and in-person bonding opportunities to thrive and, though it sounds like a cliché, these employees have lower absenteeism and are more productive because working from home suits their lifestyle and preferences. New workers can be trained in the brick-and-mortar site, or in a virtual classroom. Thin client technology and automatic call distribution makes it easy to monitor agent activity, add or delete users, and route calls to home-based workers; in fact agents can even bump difficult calls to supervisors. Managers enjoy greater span of control since they communicate with employees via chat rooms, instant messaging and traditional conference calls; in fact, one innovative manager engages his group by holding virtual donut-eating contests. Best of all, some firms found it’s easier to staff difficult split shifts and they no longer worry about phone coverage on snow days.
How can executives assess the viability of transitioning to a virtual model?
Employers should conduct a feasibility study that considers the critical success factors and lessons learned by those with successful deployment experience; include these factors:
- Structural considerations. Develop the work force configuration model, deployment strategy and the projected costs.
- People considerations. Establish the desired candidate profile, recruiting and selection strategy, compensation and benefits structure and the performance expectations for remote workers.
- Process considerations. Consider employee training, scheduling, agent career paths and the communication process.
- Technology considerations. Assess the equipment requirements, tech support needs and the protocol for system downtime.
- Management considerations. How will team leaders coach the agents and keep them motivated and engaged?
What are the next steps once the feasibility study is completed?
Employers could launch a pilot program, assess the outcomes and refine the model before scheduling full deployment. Early adopters found that hiring new employees wasn’t the best way to test the model, because it compared the performance of rookies with veterans. Instead, allow experienced agents to work from home during the pilot and slowly integrate new hires, because it simulates a realistic scenario. They also resoundingly endorse the need for structured deployment, as it allows companies to optimize savings by strategically shuttering one call center at a time.
Gloria Gowens is director of Rewards, Talent Management and Communications at Towers Watson. Reach her at (949) 735-2933 or email@example.com.
This morning, despite the $3.50 per gallon price tag, Jay Holgate fueled his Prius for about $21. That’s great, considering he’ll get about 50 miles to each gallon. And that’s even better, considering he has to multiply those numbers across the seven vehicles in his courier fleet.
“When we first started back in 1999, we were doing what every other courier company was doing, which was putting a lot of miles on cars, using a whole lot of fuel to get things delivered,” Holgate says.
Then, around 2007, several factors forced him to reconsider how he did business. One, of course, was the economy; the real estate dive hit the courier industry hard, and several competitors closed shop. On top of that, Holgate’s son was diagnosed with autism at a time when authorities suspected environmental factors as a cause.
Deciding to make better use of resources for the sake of the city and the people in it, Holgate’s company rebranded as Green Express. It began distancing itself from the traditional courier model of chugging fuel and averaging 20 miles per gallon. Holgate began evaluating every operation through “green” lenses that matched his new fleet of hybrids — which earned Green Express status as the first courier company in the country to go green.
“For us, it really just had to do with doing the right thing,” says Holgate, the managing partner. “In a city with 5 million people, if you have the ability to use cars that use less fuel and put less emissions in the air, you should do it.”
He soon learned otherwise: In the business world, doing the right thing isn’t always good enough. Sure, some customers were drawn to green alone, but the majority still asked prices first.
“Ultimately, in this town, every good decision is based on the bottom line,” he says. “Unless a businessperson can find a financial reason to do it, they’re most likely not going to do it. Our market is still price-driven, so I would never tell anybody to go out there if they’ve got a great green idea and just go do it based on doing the right thing. It doesn’t matter how good the idea is if it doesn’t save people money. It’s got to have a lot more value than that.”
The green appeal may work in good times, but when a recession washes half of your business away and leaves money tight, you need a new approach. Fortunately, a green business can also be an efficient, cost-effective business.
Working with Georgia’s Clean Air Campaign, Holgate closed down Green Express’s central Alpharetta office. Out of the gate, that cut the brick-and-mortar overhead of maintenance, heating and cooling — not to mention the hidden costs that accumulate when employees drive to and dress for the office.
“I’m not using as much dry cleaning now because I’m not going into the office in a dry clean shirt every day; I’m working from home,” Holgate says. “We’re just not using nearly the resources that we once were.”
The company made other cuts, too, like going paperless by e-mailing bills instead of printing, labeling and mailing invoices. Everyone is now mobile, with drivers relying on GPS — which cuts down on the fuel wasted by getting lost or taking longer routes. Holgate is also consolidating deliveries, so instead of having three drivers come from different directions to all travel toward, say, Duluth, they’ll drop their packages in Dunwoody, one employee will deliver them all, and they’ll split the ticket.
“Wherever we were using natural resources, we just said, ‘How can we cut it?’” Holgate says. “We try to use more common sense. We just try to do it as efficient as possible. And with the pressures of the economy, it kind of forces you to be frugal where you can, too.”
By making those adjustments across the board, Green Express has become not just more sustainable but more streamlined. That efficiency even transfers over to price — which is, after all, the most critical customer driver.
“With what we’re doing, our price is the same as the competitors,” Holgate says. “The difference is that we’re not putting a bunch of emissions into the environment. So if the price is the same, why not go green? It’s hard not to join in that argument.”
How to reach: Green Express, (770) 394-3131 or www.greendelivers.com
One of the attention-getters at Ideas Are Us LLC is the Elephant Poo stationery. It’s not a common commodity around Atlanta – which is exactly why Ruksana Hussain saw a niche for eco-friendly Fair Trade gifts and décor handcrafted in India by local women’s groups.
Seeking an entrepreneurial venture after moving to the U.S in 2006, she used the Fair Trade Federation website to connect with groups near her hometown that supported women without education or training. Now, working with Fair Trade certified suppliers and pursuing her own certification, she offers their handicrafts wholesale.
With that social responsibility comes environmental responsibility.
“It was interesting to see that, even at that grassroots level, there was this awareness of having to be green,” Hussain says. “To see that these people are not educated about being green and yet they’re using the resources around them to make the best of what of they have, that was what occurred to me as being very special.”
Likewise, she looks for opportunities to be greener in business – which unfold into other benefits, too.
“You know, for every single thing that you can use, there’s so many other ways that you can make it more effective and make a less negative impact for the planet,” she says. “There’s definitely a lot of untapped potential.”
Easy tips for being green
Ideas Are Us is green in its products, which are made from natural resources like banana fiber and the aforementioned poo. But Hussain is also green in her practices. Here are three simple tips you can borrow from her:
- Stay home. “I’ve tried to stay out of having a brick and mortar store, and I think it removes one big cost and one big (environmental impact). I’m selling retail only through the shows I do and any stores (that) will feature my products. But my website is going to be solely wholesale. If you do have a brick and mortar place, I would strongly suggest getting an energy audit done. If you can prove that you have certain criteria covered, there are tax benefits to that.”
- Stop printing. “Secondly, I would focus on paper usage. You start printing out everything and you start filing, and it’s a lot of paper. And after a year of having that paper, everyone’s just going to shred it, and not everyone goes around recycling. You don’t have to print everything. Just back up things virtually; put it on a hard drive. For promotional (materials), I have a business card and a post card and that’s it. If somebody wants a catalog, I mail them a PDF catalog of my products. There is no printing involved. You can do your transactions online. It even eliminates having to send out checks; you can do payments online. There’s really a lot you can do without having to waste any paper.”
- Don’t dump. “The third is to make sure that all of your electronic equipment is recycled the right way, including printer cartridges and eco-friendly [light] bulbs. Don’t just throw it in the trash. All office equipment needs to go to the right place, so go to a recycling place.”
Going green saves green
As simple as green can be, it has a snowball effect in terms of savings. That’s a desirable competitive edge for any business in this economy – especially small ones like Ideas Are Us.
“Being a small business, you want to keep your costs low so that you’re not adding to your price points in any way,” says Hussain, who works with interns to save labor costs and, at the same time, prepare future entrepreneurs.
Because her business is home-based, she avoids the overhead of maintaining an office – even saving on supplies like paper and ink because she keeps paper usage to a minimum.
“Being eco-friendly also helps to be cost-effective, just because I don’t do any printing except for what is completely necessary,” she says. “Now I don’t have printing costs, so that helps to keep the business cost low.”
If green practices equate to cost savings, then why do eco-friendly products seem so expensive? Think about where you buy them.
“The minute you go into a big mall and buy something made from dried grass, you’re obviously going to pay a price that’s worthy of you having gone into that big mall,” Hussain says. “It really depends on how you market your products. If you keep your product local and you (remain a) small business, you can still afford to give people pretty good price points on your products.
“Once you start involving more people in the chain, then that’s how many people are trying to make a profit out of it. You will have that much more percentage added to the actual product.”
By working directly with the women’s groups, Hussain’s price points only account for two parties. As an added bonus, because she visits India annually, she can see how the women use the money – like building the foundation for a cresch to house children while mothers work.
If instead, she worked through a middleman who provided products to a department store, she’d add rungs to the profit ladder.
“When you buy a bamboo table from a big furniture store, you’re obviously not just paying for the table,” she says. “You’re paying for the store and the employees and the electricity bill, and everything that goes to keeping the bamboo table in there.
“A lot of people go by that, and then they’ll be like, ‘Oh, these things are so expensive. They say it’s eco-friendly but then it costs so much.’ Well, look where you’re going to buy it!”
Smart consumers can save with eco-friendly products, but only when businesses are operationally smart.
“You can make eco-friendly choices and it can definitely be healthy on your purse strings,” she says.
Developing green habits
If green can be both easy and cheap, why isn’t everyone greener? Old habits die hard.
“For a lot of people, it’s still something that they’re not able to completely identify with,” Hussain says. “When you use terms like ‘global warming,’ it’s just a scientific term and they have no relation to it, and therefore, they don’t necessarily see that their actions are going to affect that.”
Even though the green buzzword is everywhere, people need to see examples in action before the urgency sets in. It will take a domino effect, like being surrounded by an eco-minded community, to bring people onto the green bandwagon.
“It’s not their intent that they don’t (act green) – they do try – but it takes a lot of practice,” Hussain says. “I mean, it took me a while before I could take cloth bags to go grocery shopping. It’s the simplest thing you could do, but you forget, take it home and forget to put it back in the car.
“It’s a pretty consumer-heavy society; you just use a lot of stuff and the whole idea of reuse, recycle and reclaim is pretty new to a lot of people. Small businesses are the ones that need to educate people on this. Start small – if you teach the next five people that you can do this, then that’s how many more people will learn from them. It’s just little things, but we tend to forget these things.”
Between being green and cost-conscious in small ways, and helping women make better lives in much bigger ways, Hussain is propelling Ideas Are Us forward.
“When people hear that you’re trying to help someone else lead a better life, you’re trying to help other people earn fair wage and you’re being eco-friendly,” she says, “all of these things help to put yourself apart from other businesses.”
How to reach: Ideas Are Us LLC, (404) 934-6181 or www.ideas-are-us.com
See the company's Ele Poo products in Fast Company.
In these tough economic times, the ability for companies to become more profitable is being challenged not only by a more competitive business climate but tremendous business uncertainty, which is caused by the government. Moreover, many organizations must deal with inflation, which is increasing commodity costs in an environment where these additional expenses are difficult to pass along to customers.
In such a situation where everything is in flux and everyone, it seems, is demonizing business while simultaneously asking it to hire more and increase its costs, you must do everything you can to become and stay profitable.
These are the steps I would prescribe to help your company become and stay profitable.
1. Eliminate waste at every level, scrutinize every cost, and do it publicly. The worst thing you can do is allow an environment to flourish where workers believe management does not care about costs.
2. Have no sacred cows. Look at everything from a fresh perspective.
3. Be transparent. Some managers may be concerned about sharing too many facts with workers, but the reality is rumors can be much worse than the reality you share. If your company is in a cash crunch, discuss how you plan on getting out of it and how the team can come together to help you get through it.
4. Talk to the star performers separately — let them know how valuable they are. Be sure to do everything you can to keep them with you as you navigate tough times. Offer them incentives to stay on and continue doing positive work.
5. Use technology and cloud-based applications from companies like Google and Salesforce.com that are often a fraction of the cost of in-house solutions that require servers and a tech support team.
6. Explore unified communications and VoIP to save money and allow you to take advantage of lower-cost workers who are not physically located in your office.
7. Find freelancers to help lower costs and pay them based on performance. Use sites like Craigslist and Elance and others specific sites in your industry.
8. Consider a shorter workweek — four days instead of five or a week off over the holidays or summer. Unemployment payments from the government will offset some of the financial pain this could bring on.
9. Solicit ideas from your team on how you can lower costs, and give a reward to the best suggestion.
10. Do not cut the little things like bagels, doughnuts or other cultural cornerstones of your company.
11. Remind everyone that most companies and industries go through cycles: GE was thought to be going bankrupt; GM needed government assistance to survive and so did AIG and myriad banks.
12. Look at recognizing top performers in other ways besides using money: Give awards for best performer, best team player and best customer support, etc.
13. Hold regular meetings to ensure people see you are confident about the company’s future. Remember, your fear and concern about the future can be amplified by your workers and can do worse harm to your business than the original problem.
14. Do not be aloof or act in any way that will make your workers think they aren’t appreciated.
15. Have a vision for the company’s future and share it frequently — nothing is worse than working in the dark in an uncertain economy.
Rich Tehrani is CEO of TMC, a global media company serving the communications and technology markets and reaching more than 2 million global decision-makers each month. Many of the ideas above have been gained from navigating a publishing company through the tech and telecom bubble bursts of 2001 and transforming an organization relying on revenue from printed magazines into one which generates most of its revenue online. His company can be reached at www.tmcnet.com and his blog is located at www.tehrani.com.
Al Bell saw the future for Moochie & Co,. and it looked quite promising. It was 2008 and the pet supply retailer was about to close a transaction with a private equity firm that would have made available significant growth capital.
And then suddenly, the opportunity was gone.
“Due to the stock market and economic conditions, they walked away,” says Bell, the 102-employee company’s CEO. “They put us in a difficult situation with our lender.”
At the time, Bell was part-owner of the business. He owned 35 percent, a partner owned 35 percent and seven other investors owned the remaining 30 percent. Bell knew his business had growth potential, so he made a bold move to basically go it alone. He felt it was the best path to realize the potential he saw.
“I’m a strong believer in the company and our niche in retail and the growth of the pet industry,” Bell says. “That led me to essentially acquire full ownership of the company, renegotiate our store leases and really focus on cutting expenses.”
Expense reduction was critical. Bell wanted to take things back to square one and be a whole lot more careful about how money was being spent.
“Instead of accepting the historical expense model as a given, we built our expense structure from the ground up and really challenged and explored every expense,” Bell says. “We also asked the entire organization to accept the challenge and bring forward their best ideas, and we acted upon the better ones.”
When looking at expenses, you need to separate fixed costs from variable costs.
“We looked at every variable expense and we said, ‘Is there a way to control that?’” Bell says. “In our case, we’re looking at the percentage of revenue spent on a given expense at a particular store. So if utilities were excessive at a given store, you went in and tried to discover why that was and if there were opportunities to reduce it.”
You also need to get your employees involved to make any initiative effective.
“I very clearly set out specific objectives for the company, one of which was expense reduction,” Bell says. “It was a detailed review of the full-year profit and loss statement on a unit-by-unit basis and then a line-by-line basis. You begin to decide what are truly variable expenses that can be attacked as compared to fixed expenses that you have to accept.”
Bell did not hold back when explaining the importance of this investigation into expenses.
“One of the rallying cries I shared with the group is, ‘You may have bigger jobs at some point in your life, but you’ll never have a more important job than you have right now. We’re talking about the survival and potential success of a small company of which you are an integral part,’” Bell says. “I believe the team really embraced the opportunity to play a vital role.”
The result of Bell’s effort was a new business model that everyone at Moochie & Co. strongly believed in.
“We started with very modest revenue increase expectations and then examined every expense line carefully,” Bell says. “As the leader of the business, it fell to me to make the difficult decisions.”
The tough choice was two stores in Detroit had unacceptable occupancy costs and needed to be closed. But that proved to be only a bump in the road as the company soon was in a position to begin growing again as the economy began to recover.
The company had gone from 10 stores to eight, but it now has 12 stores and 20 Mini-Moochies at pet boarding resorts and veterinary clinics.
“Our major expenses have been brought down to affordable levels, and we have a culture within the company of challenging every expense and trying to reduce every dollar spent,” Bell says.
How to reach: Moochie & Co., (877) 666-2443 or www.moochieandco.com
Find your leaders
Al Bell wanted to reduce expenses at Moochie & Co., so he needed to find out who was ready to march with him on his quest.
“I’ve always believed in management that you need to articulate the goals, share as much information as is reasonably possible and then listen and be receptive to suggestions,” says Bell, CEO at the pet supply retailer. “It is a process that allows you to really learn who is with you and who is not.”
When you are open about a plan and forthcoming with details, you’ll be able to see who is buying in to the plan and who isn’t interested.
“Be brief, be clear and be consistent,” Bell says of your communication strategy. “You ask a lot of questions and give encouraging responses when people contribute.”
When you’re having a meeting, give people a clear sense about what it’s going to be about.
“We actually prepared and promoted the meeting for two months prior and gave people topics and an agenda and really tried to set the tone that it was going to be participatory and not a monologue,” Bell says.
John C. Orr learned the importance of partnerships from a boss and a shoeshine kid.
When Orr was director of manufacturing for The Goodyear Tire & Rubber Co.’s Latin America Division, every place to which he traveled with his boss, his boss would create a partnership — even with the boy shining shoes in the hotel.
“When he needed something, he would call the shoeshine kid and the shoeshine kid would get it for him,” Orr says. “The partnership was created because he spent some time talking to the guy; he gave him time and effort and created a relationship.”
Orr has tried to replicate his observations ever since.
“You have to build partnerships with your employees; you have to build partnerships with your customers and your shareholders,” he says. “To me, a partnership means communication, it means openness, and it means a willingness to tackle things.”
Never has that theory proved more important then in the recent economic conditions. As president and CEO of the manufacturer and distributor Myers Industries Inc. (NYSE: MYE), Orr has worked hard to strengthen customer and employee relationships and, in return, strengthen the company.
Myers’ net sales were $701.8 million in 2009 and were up 7 percent at the end of the first nine months of fiscal 2010. While part of that growth is due to the uptick in the economy, part of it is due to Orr’s three keys to managing during difficult times, which, not surprisingly, are all linked to strong relationships.
Knowing that the recession was hitting most businesses hard, Myers tried to maintain constant contact with its customers to understand their situations and their needs.
“In a downturn, a lot of people try to do without,” Orr says. “They try to last longer with the same material handling products or our automotive and custom products. Talking with them and encouraging them to tell us what they need allowed us to innovate some new and exciting products during that time.”
In difficult economic times, good communication with your customers becomes even more essential as their needs and cost structure shift to deal with their own struggles.
“The worst thing you could possibly do is put your head in the sand and say, ‘Well, we’ll see you when things get better,’” Orr says. “You’ll be out of business as easy as that.”
One of the ways you can deepen that relationship, besides communication, is by being visible. And that isn’t limited to your sales team. Sure, Myers emphasized that members of its sales team should make regular calls and hopefully take orders on new products, but the company also pushed for its people to get past the purchasing desk and into the customer’s facility. Not only does it show that you’re interested in understanding more about their business, but it allows you to actually observe operations, see where your products or services might help and see where innovation may be needed with new products and services.
“Innovation starts with our people,” Orr says. “Our people have to get out there and find out what it is we can do to help our customers. They do that with feet on the street. It’s getting into their business; it’s looking at it with the idea that we have a different value proposition than perhaps what they’re using. Why not use reusable plastic containers that save you money on many trips, rather than using a cardboard container or a wooden pallet that gets two or three trips and then you have to throw it away?”
Ask the basic questions to understand your customers’ needs and make sure you’re helping them focus on their cost structure.
“You have to always ask, ‘What can I do to help?’” Orr says. “That’s probably No. 1. No. 2, ask, ‘What is your objective? What are you trying to do? Are you trying to lower your cost? Are you trying to put a better product out to your customer?’
“To me, it’s really kind of common sense. What is it that we can do for you? We want to be here to help you.”
Your salespeople shouldn’t be the only ones asking those questions. You and your managers need to make an effort to follow up with customers and show what the partnership you have with them means to you and the company.
As the leader, you set the example. Orr tries to visit at least the company’s top 25 customers. For instance, Myers has been in Brazil for five years.
During a recent trip to a trade show in Brazil, Orr made time to visit customers. But it’s nothing for the managing director of the company’s material handling segment to be on the road five or six days a month calling on customers and listening to their feedback.
“What’s important about it is sometimes salespeople tend to want to bring back and give to management what management wants to hear, ‘We’re doing great; don’t worry about it,’” Orr says. “Then we start to see numbers that show our business is falling off with that particular customer. In some cases, the salesperson might not be doing the job. That reflects on us.
“It’s important that you understand and hear it from the customer directly: ‘How are we treating you? How are our salespeople doing? How are our sales engineers doing? How is the quality of the product? How is the delivery?’ It’s very, very important to make sure that that happens. By management doing it, we’re making sure it’s actually happening.”
A greater presence and emphasis on your customers during difficult times will pay off in the long run.
“It’s really about communication and making sure you have their hand with your hand and you’re walking forward together in trying to help get through the situation,” Orr says. “I’ve found that customers are really appreciative of that. Even if you can’t maybe do something for them, at least they realize that you’ve been there, you’ve tried. As things pick up, things get better, they remember that. I’ve found that we secure additional business down the road when things do get better, because you were there trying to help.” Keep an eye on cost
Myers’ costs were high going into the recession, because it was still running at full capacity. But as business started to wane and plants began running at less than maximum capacity, they took the opportunity to restructure, which meant closing facilities, laying off employees and investing in more efficient technology.
Depending on your industry, your cost analysis might be directed at people or the price of your product and, to no surprise, you need to constantly monitor whether reductions need to take place.
“When you get into a downturn, that has to be one of the top three items that just absolutely has to happen,” Orr says.
So when do you make a reduction or even an investment? Before the recession, Myers was analyzing making changes to its material handling and lawn and garden businesses, so management took a deeper look at the metrics and weighed the cost against the long-term benefits.
“First off, you have to look at an objective,” Orr says. “What is the goal? Is the goal cost, quality or what is the end all? Let’s take, for instance, cost. If you’re looking at cost and you decide we’re in a downturn situation, we have an excess capacity [and] we probably don’t need that capacity in years to come. If we do, we would buy new or better capacity or equipment. The analysis comes in around what is it going to take to make that change.
“All in all, there has to be a fundamental goal to why you go ahead and do it, because they’re not easy decisions and they’re not fun. Anytime you’re involving people in the situation where it might reduce your manning of your employment, that’s a very, very tough decision, and we certainly don’t take it lightly.”
While all of those steps are crucial in maintaining the strength of the company, you can’t forget the aspect of cluing employees in on your decisions or even involving them in the decision-making process. Clearly communicating an investment in technology is a plus compared to closing down a plant, but good or bad, conversation has to happen.
“It’s very important to communicate,” Orr says. “I’ve always found that people are more willing to cooperate if they understand why. Before we take on a project, we make sure in our businesses that we have communication, discussions whether they be meetings or whether they be one-on-one information-type meetings to explain to our people why we have to do what we have to do. In a lot of cases with those projects, we try to enlist ideas and thoughts from folks who are actually doing the job, because I think that’s where you actually get the biggest bang for your buck.”
In a time when you’re probably looking for more efficiency and making operational changes, directly ask your employees for ways to streamline processes and perhaps save money. You not only gain respect but also the cooperation needed from employees for the company to move forward and succeed.
During Orr’s years running manufacturing plants, he realized no one knows the job and knows how to do it better than the person actually in the position. Orr brought a process with him to Myers that analyzes work. Called “Block of Work,” the company even has a room dedicated to walking through the process.
“What’s interesting about it is that you actually get the people who are doing the work involved in it,” he says. “It’s a brainstorming session, and they put up on the wall little 3-by-5 cards that are each pieces of the work that they’re doing. What you find is that when people look at it that way they understand sometimes, ‘Gosh, I may be doing some things I don’t really need to do. It’s an extraneous step in the process, so we can eliminate that.’ One of the things we’ve found is we’ve improved the efficiency of our operations by using that particular Blocks of Work technology, which allows people to have input.”
In the end, your cost structure and employees’ ideas on how to make a process run smoother come back to the metrics by which you understand your business.
“You need something to drive your business,” Orr says. “If you don’t have objectives or goals, you’re certainly not going to get there. … You’ve got to have metrics and you’ve got to be able to analyze how the business is doing with those metrics and analyze the parts and pieces of it, whether it be people, whether it be equipment, whether it be safety. You have to have something to measure. If you measure it, you’ll move it.”
Watch the cash
One thing Orr is proud of is Myers’ balance sheet. While the board of directors pushed the focus, Orr and his team made sure they held on to the company’s cash in recent years. Holding on to your cash means making sure you’re collecting from people who owe you money and you’re making wise investment decisions.
“Sometimes people are out looking for acquisitions or they’re spending money on equipment and they haven’t necessarily thought it through,” Orr says. “When you’re in a downturn situation, there might be something that is appetizing, but we believe at Myers don’t go to the grocery story when you’re hungry because you end up buying a bunch of stuff you don’t need.”
Another decision, which has positioned the company to add shareholder value and reinvest in capital in the long term, is using the last few years to pay down debt.
“We’re cautiously optimistic that the economy will get better in 2011,” Orr says. “We feel we’ve gone through this recession and we’ve learned a lot about going through it. If it happens again, and usually the economy does cycle, we’ll be even more ready and prepared to defend ourselves.”
How to reach: Myers Industries Inc., (330) 253-5592 or www.myersindustries.com The Orr file
President and CEO
Myers Industries Inc.
Education: Bachelor’s degree, organizational communication, Ohio University
What is your definition of success?
I think success in my particular case is seeing that Myers is succeeding, that our people are succeeding, that we’re meeting our objectives and our goals. What I want to do is make sure that we return the shareholders their investment. It’s been tough the last two years, quite frankly, because of the economy. But success shows up every day. When I see people with a smile on their face, they’ve done something well or they come up with a new order or they’ve created a new product, then I feel successful.
What was the last book you read?
It’s called ‘Healing Hearts’ (Dr. Kathy Magliato). It’s a memoir of a female heart surgeon. I read it because I have a daughter who is a third-year resident anesthesiologist at Virginia Commonwealth, and I’m always amazed at what she has gone through — 36-hour (shifts) and that kind of stuff. I can never get her to tell me what it’s like, so I read this book because that is what this book is about. It’s about this lady’s life as an intern and a resident. It was interesting because she was a resident at Akron General Hospital and I’m on the board at Akron General. She was very, very successful. I think there are only 1,000 female heart surgeons in the United States. I’m proud of my daughter because that’s what she does all day long; she’s in those types of surgeries and trauma surgeries.