Chris Simchick and Scott Barnyak must have missed the memo that companies are supposed to hunker down and not hire while times are tough. The two principal partners of SDLC Partners LP, a 230-employee business and technology consulting firm, hired 100 employees last year and have big growth goals planned for the company.
Founded in 2004, SDLC saw 2011 revenue of more than $24 million, which Simchick hopes to turn into $120 million by 2020. With a focus on strategic planning, cultural values and hiring top-level talent, Simchick and Barnyak are well on the way to making that goal a reality.
“That kind of growth creates tremendous opportunity, but it also creates those challenges for people to step up in a time frame that is meaningful to the business,” Simchick says. “It’s the expectation if you’re going to be a partner at SDLC Partners that you are responsible to challenge ideas, challenge thinking and come up with opportunities.”
It’s this type of mentality that has put SDLC in growth mode. To take full advantage of the opportunities that present themselves, the company plans for the future.
“About 2.5 years ago we embarked on a strategic planning process,” Simchick says. “We engaged an outside firm … not just to facilitate but to bring a process to the table that we then implemented and institutionalized within the company which links both the growth and culture.”
The management team meets once every quarter with the outside strategic steering partner to drive the plan forward.
“No. 1, our team walks out of that room very aligned around the most important things we believe will have the greatest impact for the company this business year. No. 2, we have a plan of attack and an owner of each of those initiatives for the next 90 days.”
Utilizing an outside party helped SDLC see things they might have otherwise missed.
“If you’re not using some outside objective help to do that, you’re probably missing an opportunity,” Simchick says. “The guys that we’ve engaged and worked closely with have gotten to know our business, have gotten to know our people and have held our feet to the fire in terms of being honest and challenging ourselves.”
It is also critical to keep an open mind and listen to other perspectives.
“You have to admit that you don’t know it all and use that as a theme for when you engage both outside help and when you’re looking to hire into the company,” Barnyak says. “One of the challenges that leaders need to be aware of is it’s real easy to hire people like us. You have to make a conscious effort to hire complementary people who bring different skills, techniques and personalities to the table to help you think differently.”
The hiring process is often the most difficult part about running a growing business. Simchick and Barnyak make sure they are always looking for potential new hires.
“One of the biggest challenges is identifying and hiring enough of the right type of people that fit well into the firm,” Simchick says. “If there’s one thing that we’ve continually talked about, it’s how do we accelerate that hiring curve.”
As SDLC has grown and hired new people, Simchick and Barnyak have made sure to keep one thing constant: the company’s culture.
“As the company continues to grow, holding true to that culture that we’ve built is front and center,” Barnyak says. “It’s culture first, skills second. As hard as it may seem at times, particularly while you’re growing fast and you need that technical skill in the company today, hiring to the culture and growing that person in the long-run tends to have the better impact, particularly if culture and core values and those things are important to your organization.”
HOW TO REACH: SDLC Partners LP, (412) 373-1950 or www.sdlcpartners.com
Diversify your services
While strategic planning and hiring the right talent have played a big role in the growth of SDLC Partners LP, principal partners Chris Simchick and Scott Barnyak look to diversify the company’s services to create new opportunities.
“We looked at horizontal offerings that would apply to almost any industry in a generic sense,” Barnyak says. “It’s leveraging your core and seeing what could be transferable. The trick is finding the right amount of domain expertise to blend with that to lend you some credibility in that area.”
You have to challenge your people to think differently to find ways to leverage the investments that you’ve already made.
“Those become the differentiators that both clients recognize and are where we gain big wins internally because someone stepped forward and identified an opportunity,” Simchick says.
No matter how appealing an opportunity may seem, you have to keep focused on what you’re best at.
“It takes discipline because it’s real easy to get distracted from your core and the things that you do well,” Barnyak says. “If you’re doing something really well and it’s within the core business, extending that core to another industry is viable, but you have to be careful that you don’t get easily distracted and take yourself away from the things you do really well.”
John Kanas and the new owners of BankUnited knew that they had a big task ahead of them. They had just spent $45 million of their own funds to buy a bank that was hemorrhaging money and had cost the Federal Deposit Insurance Corp. nearly $6 billion in losses.
“For maybe a year or more, the company was fighting all of the rumors about its demise,” says Kanas, the chairman, president and CEO of BankUnited, which employs 1,300 people today. “Its earnings were collapsing. People were guessing as to what was going to happen with the company. The morale of the employees was very low… so you can imagine that emotions were running at fever pitch.”
After a lengthy selection process, the bank bid had been awarded to a group of private equity firms led by Kanas, the former head of North Fork Bancorp and a veteran in the banking industry. The group had made it publicly clear that their intention was not to tear the bank apart, but with a new strategy and the right people, rebuild the failing institution. As they entered the bank the day after winning the bid, they were met with a rush of flashbulbs, newspaper reporters and what seemed like a small army of FDIC officials. It was time to get to work.
Communicate the strategy
Kanas and his investor team knew early on that they wanted to transition BankUnited from a wholesale, residential mortgage originator into a commercial bank. When you are undertaking a new strategy, it’s important to quickly let people know where they fit in or don’t fit in to mitigate uncertainty and get started down the new path.
“The first thing we did was immediately seek out those people that we knew we wanted to retain as partners, that we knew could play a very important role in the company in the future under its new structure and assure them that their jobs were safe, that they would in fact be retained and that we would be relying on them to help us in our partnership in the future,” Kanas says.
Months before winning the bid, Kanas’ group had used an extensive due diligence process to gain access to a number of the company’s employees and identify which ones would be helpful in executing their new strategy.
“It was an ongoing process, but we knew the day we walked in who some of those people were,” Kanas says. “So for two or three days, we did nothing but sit down and explain ourselves to those people so that they could buy into our strategy moving forward. I would say the week was largely dedicated to getting people comfortable with who we were and understanding where everyone stood.”
There are also employees who likely aren’t going to be relevant to your strategy. Managing the expectations of these people also needs to be a priority.
“So we very quickly reached out to those people and let them know that there wasn’t going to be a role for them,” Kanas says. “Then we explained to them what our severance policy would be for them, gave them time to adjust their personal lives and made it clear that we intended to move swiftly to do that.”
You need to be very transparent with employees to allay their fears during this initial transition period when tensions are likely to run high.
“It was important to sit down with the people who were left and say, ‘OK, look, this is an unpleasant business — identifying these people and then sort of paring down the ranks,’” Kanas says. “‘We want to do this very quickly but we also want to do it intelligently and not make mistakes. You’re going to have to bear with us for a few weeks.’ And when the process is over … we promised that we would then sit down and let the core of our employees know that we’re done with this. Those of you that have been selected to stay now have a job. Some of you will have a job for one or two years depending on what your function was in the bank and some of you we hope to retain for the rest of your career. We tried to get to those people quickly and let each one of them know where they fit in that spectrum.”
Kanas knew that Florida would be the perfect home to structure a commercial bank that could gear its success toward products and services for midmarket and small businesses. The next step was convincing people to buy in so they could go out and execute that strategy with enthusiasm.
“So first is get the right people on the bus,” Kanas says. “Second is get those people in a room and overcommunicate with them every day. Make it very, very clear what the strategy is and leave no room for misinterpretation that anyone could misunderstand where we were going, how we intended to get there and what we needed from them as a buy-in or commitment if they wanted a commitment back from the company.”
Kanas and many of the investors had successful backgrounds in business, particularly at North Fork, which had grown from $28 million in assets to one of the largest banks in America under Kanas’ leadership. Pointing to this past success, they diligently spent the first couple of months meeting with the retained employees one-on-one, with small groups or even up to 300 employees at a time, to talk about the new model and why it would work. They were also transparent about the fact that they had literally bought in to the turnaround strategy by committing their own money to buy the company.
“So it was important for our new partners and our new employees in Florida to understand that we were very, very serious about this,” Kanas says. “We’d put our family money into this and we intended to work hard along side of them to help them create the vision.”
To get buy-in for your vision, it also helps to give people goal-connected incentives. Offering stock in your company is one way to achieve that short term and long term. From the beginning, Kanas’ investment group was clear about its hopes to take the bank public but also let people know that whoever helped the company achieve that goal would share in its ownership.
“We did take it public earlier this year and we have about 120 people who are equity partners with me in the company who have major roles in the institution,” he says. “So they are not just employees. They’re owners. To the extent that we will be successful in the future, these people will be able to share in that success directly.”
As you move forward, you can then maintain employee buy-in by communicating your company’s progress on the strategy.
“It’s continuing to let people know that the company’s strength is building every day,” Kanas say. “The earnings stream of BankUnited is very strong so its book value is going up every day. So for those people who own part of it with me, the value of their investment is going up every day… and everybody knows that eventually people recognize the intrinsic value of a company over time. So I think that it’s not hard to keep our people encouraged because they’re so proud of the success that they’ve achieved on a quarter to quarter basis.”
Build your talent pool
In the end, the bank let go about 350 people. So in addition to retaining the key employees, the company needed to find and attract new employees who had the skills to execute its new strategy.
“We were looking for people who had extensive experience in the Florida market, who had existing customer relationships that we could attract to the bank and would help lead us to build a commercial bank,” Kanas says. “We said that we were going to start immediately mining the market for that talent.”
One way to attract talent is to share your vision in a way that communicates it simply and memorably.
“We actually coined in that first couple weeks the term ‘building Florida’s bank,’” Kanas says. “We said, ‘We think we can come here and take the skeleton of this company and build Florida’s bank on it, and you can be part of it.’”
To reach a national talent pool, the company also put out an advertisement in The Wall Street Journal and The Miami Herald.
“It said, ‘If you’re an unhappy Florida banker and you’d like a new home, call us. We’ll change your life,’” Kanas says. “We ran that both on the Internet and newspapers for 10 days and we got 7,000 applicants and 3,000 from New York alone and the rest from Florida.”
As they narrowed down the potential candidates, the company also looked for one, a successful track record and two, the right personality.
“We’ve had great success with hiring people outside of the industry, not bankers, who have come from other industries that require the kind of skills that we think are important in banking today, people who can sell, people who are confident in themselves, people who are engaging and like other people and communicate well,” Kanas says. “So we try to find those people and we find it’s much easier to teach them the technical side of banking than it is to try and change their personality.”
After going through half a room full of resumes, the company was able to hire roughly 250 people to come in and help retool the company.
“We knew that there was a level of frustration among people in Florida who were good bankers stuck in institutions that for one reason or another couldn’t go forward,” Kansas says. “Either they were handcuffed by regulators or handcuffed by inadequate capital positions or some combination of both. We invited them to bring their careers to us and it was overwhelmingly accepted.”
Instead of just trying to fill jobs, Kanas looks to hire people who can complement the company’s strategy, and then works them into it.
“We believe very strongly that the key to the success of any large company is embedded in its human talent,” Kanas says. “So unlike other banks that will go build a branch on the corner of Fifth and Main and then a month before it opens put an ad in the newspaper to try and find somebody to go manage it, we don’t do it that way.”
Instead, the growth strategy is to find the best of the best, get their buy-in and continue to build the company with talented people who can grow the business. For example, the company went ahead and hired a group of people in Orlando before it even had a branch in the market, using those employees to open two branches there more than a year later.
“So we build little energy centers all over the state around successful people who can come to understand our strategy, and we will do that anywhere in Florida,” Kanas says.
He says the key to building a strong company is also not trying to do it on a shoestring.
“We didn’t try to find bargain basement employees,” Kanas says. “We found people who were truly distinguished in their field, and we pulled them out of very good jobs at other banks. I guess that’s another way of saying it’s more expensive than you think it’s going to be. It’s more work than you think it’s going to be. But it’s also a lot more rewarding than you think it’s going to be if you succeed.”
Last January, BankUnited went public in one of the largest bank IPOs in U.S. history. Today it is one of the most capitalized banks in the country, with more than 90 branch locations and $11 billion in assets.
“This is a company that has a clear purpose and a laser-like vision that I believe that our employees understand,” Kanas says. “We’re growing organically at a rate that impresses even me. If you take the second quarter growth in loans and annualize it, we’re growing the commercial component of the bank at over 60 percent a year —and in Florida that’s really saying something. … So I guess the only similarity between the old company and this one is the name.”
How to reach: BankUnited, (877) 779-2265 or www.bankunited.com
1) Identify new business strategy and which people support it.
2) Get the buy-in of the people who are staying.
3) Build your talent pool to complement the strategy.
The Kanas File
Chairman, president and CEO
Born: South Hampton, New York
Education: Long Island University
How do you retain good people in this environment?
Because we’ve shared our vision with them and continued to share ad nauseum, we keep them excited about where the company’s going. And, of course, they can look over their shoulder at the tremendous success that we’ve had so far and know that they’re part of it. So there is a high level of enthusiasm and excitement in our bank. And frankly in the banking business today, it’s hard to find a place that’s growing and that breeds a level like this of enthusiasm any place else, certainly any place else in Florida if not the whole country.
Kanas’ turnaround takeaways:
- One of the things is don’t ever underestimate the complexity of the problem and realize that when you’re reshaping a company that’s had a failure, that there are probably a lot of other bad things that you’ll find out six months into it that you didn’t know when you took the first step. So always make the assumption that it’s going to be harder than it looks and be prepared to deal with that.
- These things are always much more work than you think that they’re going to be. For people who are going to take a challenge like this, it’s important to understand that you cannot do this halfway, that this is a total and complete immersion and it’s a total and complete commitment and you have to be committed with every bone in your body and every molecule in your brain to make it a success…Probably most people haven’t been as successful as they thought they would be because sometimes from the outside, a good management team, and I don’t mean me but the team, can make a job look easy, but it’s not.
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.”
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
Think of all the great successes in history: the American space program that landed men on the moon, the construction of the pyramids of Egypt and the triumph of the Allied forces during World War II to name a few. What do they all have in common? General MacArthur didn’t say, “Hey, let’s send a few boats over there and see what happens.” Nor did a handful of ancient Egyptians decide to drag a few stones in place to see how they would look. These and almost every significant achievement in this world came about because of meticulous planning.
When it’s time to get serious, you must have a master plan. And when you’re talking about business and the financial stakes are very high, it’s essential to give yourself every chance at success. As John Wooden, the legendary UCLA basketball coach once said, “Failing to prepare is preparing to fail.”
No matter what issues I’m dealing with — business, family, or my physical and mental health — it always comes down to goal setting. What that entails is being honest with myself and looking at my successes to see how I can capitalize on the things I did right and my failures, to determine what I need to change to avoid repeating them.
Whether it is quiet time on your porch, or during an evening walk, or an hour or two early in the morning before the kids are up, be sure to make time for yourself. If you don’t find a place to address the big issues of your life, including business, the months and years will tick away and nothing will ever happen. Start by writing down your goals, as well as your strategy. We can say to ourselves that we’re going to do something, but until it’s written down, it is not imprinted in our brains and you’re sure to lose momentum before you’ve even started. Remember that without a plan on how to actually achieve your goal, the goal itself becomes absolutely meaningless.
As you outline your plan of attack, make it a priority to be a leader, not a follower. Of course we’re all aware of the shaky economy the past few years and how it has taken more than its share of business casualties. But the truth is that even in good times, unless you make a concerted effort to stay current and relevant, it is very easy to get swept away in the tide of changing tastes, competition and new ways of conducting business.
In 2011, fitness equipment was among my top sellers, but I ran into a big problem when some of my suppliers informed me they were in imminent danger of closing their doors. They simply didn’t have enough business from others to keep going much longer. Because of the scale of their operations, I wasn’t able to keep them afloat by myself. I wound up in the ironic position of possibly losing the ability to deliver products that were in great demand. So what was I to do? I sat on my back porch and came up with new goals for my business.
First, I looked for new fitness equipment suppliers. Next, I looked to diversify, seeking out both new fitness products (from suppliers who could still assure delivery for me), as well as new product categories that could potentially make up the difference in my company’s revenues. In the end, I found a new supplier for one of my existing exercise chairs and also found a company that could deliver a new, high-end chair, thus expanding my reach into a different market sector altogether.
Opportunities are always there, but you have to proactively look for them or you’ll be left behind in the dust. Dare to dream big, then go out and draw up your best game strategy. While you are doing so, be mindful to learn from past mistakes, and be flexible enough to adjust on the fly, always having a contingency plan ready. You can’t avoid bumps and bruises along the way, but never accept failure. If 2011 was a good year for you, wonderful. Now plan for 2012 to be a great year.
Tony Little is the president, CEO and founder of Health International Corp. Known as “America’s personal trainer,” he has been a television icon for more than 20 years. After overcoming a near-fatal car accident that nearly took his life, Tony learned how to turn adversity into victory. Known for his wild enthusiasm, Tony is responsible for revolutionizing direct response marketing and television home shopping. Today his company has sold more than $3 billion dollars in products. Reach him at firstname.lastname@example.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.”
As the leaders of Clark-Reliance, we attribute much our success to first looking inside the company for ways to grow. While things may appear stagnant, there may be some opportunities internally to afford your company the chance to expand and become more profitable.
Despite challenging economic times, it is possible to cultivate your business simply by looking inward. Clark-Reliance, a global leader in the level indication and control, sightflow indication and filtration and separation industries, continues to flourish, and in the past five years, we have experienced 46 percent growth.
We offer a four-tiered approach to growing, simply by evaluating internal operations and looking for creative ways to expand.
Never believe that you are in a mature or nongrowth industry.
If executive staff and employees continue to tell you that you are in a mature or nongrowth industry, politely ignore that advice. There is always room to grow. Your customer base is always evolving and they probably have specific production or process problems that would provide you with sales growth. Also, there may be possibilities to acquire market share from within the industry.
For example, if a competitor gets acquired, relocates, or goes through a major change, talk to their customers. These types of changes cause quality issues and increased lead times that will often force customers to reevaluate their previous business relationships. Look at this as your opportunity to engage them, provide solutions and ultimately convert them to your products.
Review your sales channel to maximize your opportunity to sell the most products.
Often, a modification to your sales channel can help stimulate growth. The first step is to look at what geographic areas are important due to high-potential customers and then determine the best sales channel. A precision-based sales approach in specific geographic areas targeting high-potential customers will outperform a blanket sales approach over a larger geographic area.
For example, we identified the Middle East as an important market due to the potential and concentration of oil and gas customers. In order to gain market share, we hired a regional manager who targeted some customers directly while managing the existing sales representatives. This change allowed us to increase market penetration with a “hybrid” sales channel, leading to significant sales and market share in this region.
Look at noncore industries and markets and determine if there is an opportunity for product permutation.
Look at market possibilities that have not been part of your core business but have similar technical applications for your products. Slight adjustments to an existing product can allow it to be sold in a completely different industry. Redesigning an existing product may give you the ability to bring “new” products to a noncore market in a short time frame. Also, product permutation cost is generally low so you can grow sales while improving profit through utilization of existing fixed costs.
Utilize the knowledge of your employees and stakeholders to find more opportunities for growth.
As the barometer of product innovation, improvement and market expansion, employees and stakeholders are the key to interacting with customers and can identify needs that you may not realize exist. Make it a standard procedure for employees and stakeholders to ask existing customers for suggestions.
For example, one of our instrumentation product managers learned of a level control problem being experienced in the flash freezing of food. He opened a dialogue with us about solving this problem that led to a product permutation of an existing magnetic level gage. This allowed us to solve the problem for the food application and we were also able to use the new product in difficult applications with our oil and gas customers. Profitable growth opportunities are presented because of our culture of employee involvement.
We have built a culture that allows our employees and stakeholders to communicate ideas and potential opportunities to us in a frank, open dialogue. Your employees that make up your sales team, inside sales support, engineering and product management, interact with your customers and markets daily. If you couple their ideas with the knowledge of significant stakeholders like your supplier base and sales representatives, you will find many profitable growth opportunities.
Matthew P. Figgie is chairman of Clark-Reliance, a global, multidivisional manufacturing company with sales in more than 80 countries, serving the power generation, petroleum, refining and chemical processing industries. He is also chairman of Figgie Capital and the Figgie Foundation. Figgie is a member of the University Hospitals’ board of directors, corporate co-chairman for the 2013 Five Star Sensation and chairman for the National Kidney Walk.
Rick Solon is president and CEO of Clark-Reliance and has more than 35 years of experience in manufacturing and operating companies. Solon is chairman of the National Kidney Foundation Golf Outing and past chairman of the National Kidney Walk.
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.
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.”
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
1. Partner with businesses that add value.
2. Engage people to drive growth together.
3. Be patient evaluating investment opportunities.
The Michelson File
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.
For Shigeki Terashi, March 11, 2011, marks a day that affected millions of fellow Japanese, but it also marks a day that greatly impacted production for Toyota Motor Corp. The earthquake and tsunami that hit Japan that day caused manufacturing production levels for the auto maker to drop to 50 percent capacity in Japan and 30 percent in the U.S.
The damage and destruction affected many of Toyota’s suppliers throughout the country, caused a scarcity in parts supply around the world and as a result reduced production levels for the better part of a year.
Terashi, president and COO of Toyota Motor Engineering & Manufacturing North America Inc., the 2,500-employee division of Toyota responsible for engineering design and development, R&D, and manufacturing activities in the U.S., Mexico and Canada, had to help the company and its suppliers overcome obstacles to return production levels to normal as quickly as possible.
“Once we ensured that our team members and employees at dealers, subsidiaries, vehicle manufacturers and suppliers and all their respective family members were safe, our team members and suppliers focused their effort to normalize the production,” Terashi says. “In response to the earthquake and tsunami … Toyota Motor Corp. established a companywide emergency task force to assist the situation.”
Toyota is known for its exceptional practices and processes of efficiency and the onset of these obstacles put those systems to the test. Here’s how Terashi focused on communication, continuous improvement and new risk management processes to help the company overcome unforeseen circumstances.
Assess and communicate the situation
Following the disaster, production levels plummeted. Roughly 150 different parts were involved in the workflow between Japan and the U.S.
“A big impact to TEMA suppliers was one supplier could affect many parts, technology related parts sourced from Japan,” Terashi says. “TEMA implemented practices and policies across the region, which included multisourcing. Some parts are unique, and if we move toward more standard parts, we can buy all over the world. We view this as more of a risk management issue. Regarding production, we adjusted week by week and day by day as we went along.”
That constant adjustment required the efforts of a team that met to continually monitor the situation and the progress being made.
“We had to be very team-oriented,” Terashi says. “We established a risk management team at TEMA and every day, every morning, and every night we had meetings. Through these meetings we gathered and calculated information from Thailand or Japan and we shared that information in order to make a quick decision. Those decisions were shared with team members and the management level and we announced our next week’s production schedule.”
Even at the low production levels the company had dropped to during this time, Toyota never laid off employees. They put their downtime to other uses.
“This is the Toyota way,” he says. “We use nonproduction days for training and kaizen. The founding principle of our company’s foundation is respect for people and continuous improvement. We rely on our foundation to show us the way.”
Since production days were cut, schedules were altered and changes were being made daily throughout the recovery process, it was critical to communicate what was happening to keep things running smoothly.
“There has to be a lot of communication with team members,” he says. “At this moment the North American business affiliates with these huge organizations and how to communicate is always a very big first priority with team members. You have to announce to the team members for total understanding.”
This communication was not only critical to keeping processes running well, but it also served the important purpose of keeping employees informed and not receiving wrong information from unofficial sources.
“Open information is a very risky situation and so a quick response to the team members is very important,” Terashi says. “This is important because team members can get information from outside sources like the media or something like that; however, team members want to hear direct communication and direct information from the company. If your team members get information from someone else it may not be accurate. Through our past experiences we figure out new ways of how to communicate with team members and how to share information. This is our top priority always.”
These initiatives helped bring up production levels, which following the disaster were expected to reach 100 percent by November or December. By June, production increased in the U.S. from 30 percent to 70 percent.
Use the experience as a lesson
Toyota has always been known for its leading practices in efficiency and ability to solve problems quickly. The company learns from its experiences and this was no exception.
“You have to gather correct information quickly to assess the situation and to make quick decisions and then communicate,” Terashi says. “My role in TEMA was to make quick informed decisions and support recommendations to Japan. We had experience with impacted production, but we needed larger scale countermeasures. So we had plans for minimal disruption, but we did not have plans for a large-scale disruption.”
Just as in the past, the company used this experience to help prepare for the future.
“Through our experience we found one area has an impact around the world,” he says. “As the result of issues in Thailand and Japan, we developed a target and brought our risk management up to scale. In the organization of a consensus you need to bring the team together quickly to make an informed decision that countermeasures can support. We now have a larger scale plan for a more comprehensive and wider scope of risk management processes. At Toyota, we always look for a systematic approach to the problem. You begin by making plans for all scenarios.”
One of the steps the company took was to buckle down on its risk management process so that if and when a similar situation ever happened again, the company will know exactly how to handle it.
“We had to do that and it’s now global risk management,” Terashi says. “We tightened our risk management process, and recently we had an issue with a parts supplier from Thailand. So our experience with that supplier in Thailand allowed us to have a process in place and we made a production adjustment. We tweaked and expanded our countermeasures.”
TEMA and Toyota use these experiences as opportunities to understand where things can be improved throughout the business.
“The last couple of years have been difficult for the industry and Toyota because so many of the challenges are beyond our control,” he says. “So we view these challenges as opportunities to improve and tighten our processes and response to issues. You have to constantly look for productivity improvement, cost reduction, and marketability improvement.”
Toyota calls this ongoing process PDCA, or plan, do, check and action.
“It’s a systematic approach to problem solving, running an organization and outside strategy,” Terashi says. “You ultimately reflect on the processes and how to improve. You do not want to think you already have the best ideas. You always have to look for a better way. In that changing spirit we benchmark our automotive companies to improve our risk management group. You have to breakdown the problems to make things better for the process. A very fundamental portion is being able to find that root cause of those issues.”
The root cause of the reduced production levels was that all the automotive parts were coming from Japan. There was no place else the company could go and so it was stuck waiting. Toyota is now giving more responsibility to Terashi and the U.S. manufacturers.
“At this moment we are accelerating in North America in every area,” he says. “Many of the responsibilities were transferred from Japan to the United States in process. We’ve been instructed to accelerate more localization to avoid these kinds of disasters. In the past we were supported by Japan for vehicle development or production preparation. Now we can do that. Additionally we have had more localization that’s unique to each vehicle.”
The company has put more people in charge of individual vehicle models.
“In the past Toyota hasn’t had a local chief engineer for vehicle development,” he says. “At this moment we have three local chief engineers for the future of production.”
Additionally, the company has started an export business from the United States.
“In the past the volume was very low; however, this year we’ve started a Sienna project to export to South Korea and this is just a starting point,” Terashi says. “In the future, we’d like to increase more export business from the United States to all over the world. We are accelerating our self-reliance and localization processes through the direction of Toyota’s Global Vision.”
The constant effort from all Toyota employees, the formation of a risk management team, and the increase in self-reliance and localization of U.S. manufacturers brought production to 100 percent in mid-September, a full two months ahead of predictions.
“During the last few years we had a very severe situation,” Terashi says. “We look forward to a bright and eventful future with production of a safe quality vehicle that makes people smile.”
HOW TO REACH: Toyota Motor Engineering & Manufacturing North America Inc., www.toyota.com/usa or (859) 746-4000
- Understand what and where your obstacles are.
- Communicate the situation to keep people informed and move progress forward.
- Implement countermeasures to fix and prevent future problems.
The Terashi File
President and COO
Toyota Motor Engineering & Manufacturing North America Inc.
Born: Kobe City, Japan
Education: He studied mechanical engineering and earned a bachelor of engineering degree and a master of engineering degree from the University of Kobe.
What was your first job, and what did you take away from that experience?
I cleaned up the vehicles in the preparation division of Toyota. I have been working for Toyota for more than 30 years. I learned genchi genbutsu, which means to go and see or do things for yourself.
Whom do you admire in business?
For a long time I have looked up to Takeshi Uchiyamada, executive vice president and representative director of Toyota Motor Corp. in Japan. He is the father of the Prius.
What do you enjoy most about the auto industry?
I love driving all the different kinds of vehicles.
What is your favorite Toyota car?
What are you most excited about for the future of Toyota?
We look for the industry to continue to recover and to pick up. We are in an excellent position to take advantage of the rebound in the marketplace during the coming year. We will benefit from the biggest influx of new and updated product in our history.
Darryl Jones has watched each year as the number of convention attendees who travel to St. Louis drops a little bit more. Jones is managing partner at D&D Concessions LLC and is responsible for food service at the America’s Center Convention Complex in St. Louis.
“Now that we don’t have the 20 million people coming in, we may have six or seven million people coming into St. Louis,” Jones says. “It’s a challenge. So in our business, what do we do? We have to look outside the box because we can’t get the big conventions here anymore.”
In short, Jones had to reinvent his business. It was either that, or close up shop for good, and he wasn’t prepared to do that for his 350 employees.
“You have to have the presence to always look at the landscape and see how it’s changing,” Jones says. “At one time, we depended on X amount of conventions to generate 80 percent of our revenue. Now that number is only generating 50 percent. So how do we make up this gap?”
The simple answer is you look for other means of generating revenue. But you take caution to not make every idea out to be the grand solution to all your problems.
“You try to win people over by saying, ‘OK, look. Let’s just try it like this. Let’s tweak it a little bit.’ You try to compromise,” Jones says. “If it doesn’t work or we don’t see any change, we can always go back. There’s nothing wrong with going back. There’s nothing wrong with saying, ‘Hey, we made a mistake.’”
You may not even have to trot out a new idea if one of your competitors has tried a new initiative to get their business going again.
“Instead of reinventing the wheel, you look to see what they’ve done and you try to tweak that,” Jones says. “Very rarely will you have that one person to jump out there. If that person has jumped out there, you look at it, analyze it and you say, ‘OK, we can tweak this just a little bit better. They may not have thought about this. They’ve changed the landscape a little bit, but let’s take it a little further.’”
The key is to take a measured approach to change. If your idea works, great. But if it doesn’t, your people will still be ready to follow you with the next option.
All this relies, of course, on your ability to get out there and get engaged with your people.
“If you’re the CEO that’s always behind closed doors and you’re always meeting with senior staff and you never engage the junior staff and the hourly folks, you may have a problem,” Jones says. “You’re going to become like an untouchable.”
Get to know your people and let them get to know you. Not the polished and controlled you that only engages in small talk. Be the leader who really gets to know what your people are all about and what they like about their work and what they find challenging about it.
“You have to know them,” Jones says. “Once you engage them, you have just as much passion about their families as they have. Once you buy them over, they will do it for you. It will be a place where they think, ‘Hey, I can go to the boss’s office anytime I want to.’”
You may be thinking to yourself, ‘I always talk about my open-door policy.’ But if you don’t have anyone coming through your open door to see you, maybe you’re putting other signs out there that convey the message that you really don’t want to hear from your people.
“If the hourly employees can see you get out there and you sit down and you put that pattern together and you say, ‘Hey, this is how you’re supposed to do it,’ they’re going to say, ‘Wow, this person really knows what they are talking about,’” Jones says. “They will do anything for you if they know you care.”
How to reach: D&D Concessions LLC, (314) 429-3400
If you’re feeling out of touch with your customers, Darryl Jones has a suggestion on how to reconnect that you may not have thought of before. But he insists it will produce results.
“You can probably incorporate any business you have when you start looking at fashion magazines,” says Jones, managing partner at D&D Concessions LLC. “Those guys are always on the cutting edge. The auto industry didn’t get to where it is by saying, ‘Hey, we’re going to go with the same old-style look. They started looking at those fashion magazines and saying, ‘Hey, you know what? These are the colors people are looking at.’
“They are looking at tech magazines and saying, ‘We need to incorporate these things. These young adults, they want this type of experience in a car.’”
Jones believes much can be gained from the younger generation that is establishing itself and setting the trends for the future.
“You’ll pick up a lot,” Jones says. “What do you like? What type of atmosphere are you looking for? What types of colors do you like? Talk to the younger generation because that’s your next source of revenue.”
And everyone should be taking part in that dialogue.
“It’s everyone’s responsibility,” Jones says. “From the guy sweeping the floor to the guy signing the checks, it’s everyone’s responsibility because everyone is traveling in different circles.”
Alfred P. West Jr. sums up his company’s ongoing challenge in one sentence:
“You can’t stay still, you have to continually innovate or you’ll die.”
West is the chairman and CEO of SEI Investments Co., a wealth management solutions business he founded more than 40 years ago. He has grown the company entirely through organic methods, meaning he has relied solely on the intellectual fuel of his employees to power his company’s engine. Organic growth has lifted SEI to $900 million in 2010 revenue, after posting revenue totals in the billions prior to the recession. But the recession’s effects, coupled with an ever-changing industry, has driven home to West and his team that SEI needs to remain responsive to client needs — and to do it, they need to stay a few steps ahead of industry trends.
“We always have to be watching where our clients’ problems are coming from,” West says. “We really have to stay ahead and keep track of emerging needs, and be able to sort out today’s needs from the needs that are going to be emerging, because most of the time, a client or somebody in the market, if you ask them, they’ll tell you what they need right then and there. But usually it’s not much that you can build on. By the time you get the product developed and built, particularly if it’s a technology product, the need is no longer there.”
West has needed to make innovation a key component of the culture at SEI by promoting the development and exchange of ideas, but also ensuring that new ideas stay true to the mission and vision of SEI by managing the innovation process on a macro level. The balance between freedom and setting boundaries is something that West has needed to master over the course of decades.
“We seem to innovate every 10 years,” he says. “We’re in an innovation phase right now, which has lasted longer than 10 years, thanks to the external environment that we are going into. It’s a much bigger change at the end of the day than we probably anticipated.”
Manage the process
When it comes to innovation, and innovating to serve customer needs, West says companies tend to do four things — and three of them are bad.
Companies will do the right things right, the right things wrong, the wrong things right or the wrong things wrong.
“When you do the right things right, you’re doing the things that are really critical to get done, and the right thing to do, and doing those things correctly,” West says. “You can also have the things that really need to get done, but maybe you don’t do them so well. That’s doing the right things wrong. Those are the tasks that you’re continually trying to get into the ‘right things right’ category.
“Then, you can do the wrong things right, where it just kind of creeps up on you. Maybe it was the right thing to do at some point in the past, but times have changed and whatever you were doing doesn’t fit anymore. You have to continually work to find those things out.
“Finally, doing wrong things wrong is the worst. You’re doing something you don’t need to be doing, you’re doing it poorly and you’re upsetting clients and customers.”
Innovation is all about taking the intellectual power of your team and harnessing it in a way that propels your business forward. At SEI, West encourages his team to think beyond the prescribed procedure for how to arrive at a solution to a problem, to challenge themselves to create new concepts and come up with new, more effective and efficient solutions that will allow the company to better serve its clients.
“A good example of questioning the process was when we had this very large report for one of our largest clients,” he says. “It took two hours a night, one night a week to run the report. It was so large; we were running out of space to finish all the rest of their work and get everything up and running by the morning. So finally we went back to our source and said ‘Can we do something about this report?’
“They said, ‘We don’t need that report? Who are you even doing that report for?’ And yet, they were receiving this report on a weekly basis. It illustrates how you need to figure out the things you really need to be doing for your clients, and how you might be taking up resources on a needless task. That is the biggest source of doing wrong things right.”
You can promote innovation in the form of new products and solutions, but often, the best innovations weed out inefficiencies inside your own organization, which has a direct effect on the service you can provide to your customers. West says you need to follow the chain of where your resources end up. As a business with finite cash reserves and a certain number of employees, you have a set amount of resources from which you can draw. Designing new processes that improve your company’s performance has a cascading effect that can carry your ability to improve the products and services your customers purchase from you.
“You follow that chain of where your resources are going,” West says. “If something is wrong, you do an analysis. We call it a root-cause analysis. Sometimes, the analysis will come back and show us that we don’t need to be doing the task in question anymore. Sometimes it comes back and shows us that we’re not doing it as right as we could be, and there are some changes that we could make.”
Ultimately, managing the innovation process comes back to effective change management. You want to position your processes and your people to move quickly and produce ideas that will help your company take advantage of business opportunities when they arise — which can be a hard-to-predict game.
“It all starts with the culture, because most things do start with the culture,” West says. “A big part of it is pushing collaboration, which starts when you hire an individual. A collaborative mindset is one of the most critical characteristics we look for because creating new innovations is a process that takes more than one person. So you start there and set the ground rules that everybody’s ideas are the same and have the same value. You tell your people that you need to have these ideas come forth, no matter where they are in the organization.”
West promotes the idea of collaboration leading to innovation through, among other things, the structure of SEI’s offices.
“We have no offices and everyone sits at the same desks,” he says. “I sit in the middle of the floor at the same type of desk as everyone else. You cannot tell hierarchy in the company by just looking around. It sends the message that you don’t have to go into this big office to tell someone your idea, and you don’t have to be intimidated by someone who is higher up in the organization than you are. It sends a message that everybody here is equal in terms of their ideas.”
Listen for innovation
Managing the process of innovation is only part of the equation for building an innovative culture that can leverage the brainpower of your team members to meet customer needs. You also need to create opportunities for dialogue with your employees and customers.
At SEI, West and his management team use multiple channels to spur everyone to talk about, and listen for, innovative ideas.
“We recently produced a site called ‘SEI Ideas,’” West says. “It is a social media site that has so far been very successful in ferreting out a whole lot of ideas, and then having people pick up on those ideas kind of virally. We are getting a lot of traction on ideas with methods like that. It has been far more effective than comment boxes or simply pushing for ideas through team leaders.”
The use of social media is part of an overall philosophy of collaboration that West has fostered. Because the best innovations often come as the result of multiple employees putting their heads together, West tries to ensure that employees are meeting and sharing ideas on a regular basis.
Ideas often cross-pollinate throughout the organization when someone with an idea and the passion to promote the idea is able to connect with others who are open to new ideas but might bring a different perspective to the table that allows the idea to be further shaped and refined.
“When we organize groups, we usually go through the process of finding people who are keen on the idea, and they bring it forth,” West says. “We have multiple segments or business lines with all of them trying to grow their business, and in doing so help to inspire innovation. So through that, we’re pushing for innovation on an everyday basis.”
Listening to customers is another key to a well-built innovation strategy. To know how you can best leverage your ideas to serve customers, you should talk to the people who will be using the products and services that are spawned from your employees’ initial ideas.
It’s an area that West says SEI needs to work to improve.
“We don’t do as good of a job as I would like to do on that,” he says. “We certainly get our clients involved in the prototyping stage. But it also helps that, if an idea is initially marketed, that you do have clients who are innovators as well. We call them ‘early adopters,’ and we usually take things by them.
“But what is even better than that, and what we haven’t been able to do, is actually put a client on the team. You can talk to them, but if you can take it a step further and actually have them put a representative on the innovation team, that way, if something goes a little wrong and you need to correct it, you can do that sooner rather than later. A lot of times, things go wrong during the process because you didn’t understand what the customer wanted as well as you could have. That is a concept we are working on.”
Building customer representation into the innovation process can help you, as West calls it, fail quickly. If there is a mistake in the design or implementation of a new product, you can find out and correct it in short order.
“Innovation really is a process of learning by failure,” West says. “A fear of failure is often what squashes an innovative culture. That is why you want to promote the idea among your people that it is OK to fail, and fail quickly. You push it, fail quickly, fix it, fail quickly and fix it again. If the failure is the result of trying to do something, you learn from your mistakes.”
Learning from mistakes, and doing so in rapid-fire fashion, is the best way to speed the process of turning wrong things done right, and right things done wrong, into right things done right.
“The reason you want to fail quickly is if you drag a failure out, it costs you a lot more,” West says. “You probably found out it was a failure pretty early. The people who hang on do so because they are afraid that this was their only chance to prove themselves, so if they admit failure, they basically feel like they’ve lost their job. You can’t allow people to feel that way, or you’ll never have any innovation.”
How to reach: SEI Investments Co., (610) 676-1000 or www.seic.com
The West file
Born: Brooksville, Fla.
Education: Aerospace engineering degree from Georgia Tech; MBA from the Wharton School, University of Pennsylvania
West on what it takes to build an innovative culture: You first have to be dedicated to it. We only grow one way, and that’s organically. We really have nothing that we can hide behind so by definition in our business, we have made it a very important thing to do. I know there have been other organizations, 3M has always been, as has Google — and Apple was probably No. 1 — that are held up as great innovative companies. And it is all about doing things that have never been done before, but meeting a need.
Apple is a great example. They met needs that people didn’t even know they had. That is the definition of emerging needs. If you innovate properly, you end up doing that. We’re doing things that are much more mundane with investments and investment technology, but we still have to look out and ask where is all this going. Most of the time, people won’t know that it is a need.
What you’re doing in marketing terms is creating a new category. And new categories are tough to bring out. Because we can come up with a new category, people didn’t know they needed it, but once they tried it out, it really does have an exponential curve if it is a successful innovation. It turns out we have successful innovations every year, but we have a major innovation about once every 10 years.
West on predicting the future needs of customers: We look at industry trends. They’re usually predictive of some major changes. When it looks like something new is coming, that is when you gear up to design new products. You have to keep your ear close to the ground in one sense, but also looking out for good ways, and you are definitely looking at trends.
One big trend we caught in the ‘90s was advisers who were moving from commission to fee-based visits. That changed an awful lot in that industry, and we came out with an offering that moved in to fee-based, and we did very, very well for a period of time. That was the case of a big industry trend where you could see the handwriting on the wall, but a lot of the people doing day-to-day business were not willing to give up a commission-based business model. It wasn’t until later when they had to give it up.