Bill Sasser created The Management Trust in late 2005 as part of an industry rollup, merging six companies to form an employee share ownership plan, or ESOP. The community association management company is owned by its 700 employees, but it is Sasser’s job as chairman and CEO to provide value and profitability for the company’s employee-owners. As part of that, he has helped to spearhead a growth-by-acquisition strategy that has helped the company broach new markets and new lines of business.
Smart Business spoke with Sasser about the acquisition strategy at The Management Trust – which is the DBA name of The Management Association Inc. — and how to effectively implement an acquisition strategy at your company.
At the outset, what was the process like to roll all of the companies together to start The Management Trust?
We really invoke the ESOP culture quite a lot in just about everything we do, and probably our biggest cultural difference between an ESOP company and a nonemployee owned company is the degree to which we engage our employee owners. That really kind of changes the dynamic considerably. What we've done is we operate with a high degree of transparency for all of our employee owners, because they are our shareholders.
In doing so, they understand the good, bad and ugly of what our strategic vision is, what our financial performance is, all of those sorts of things. So as we are going through the post-merger integration issues, which is compounded by the recession, we would share with them the challenges we’re having. What we have found, and this is the beauty of an employee ownership culture, is even when you are sharing with them news that is not entirely positive, they feel honored and respected for being given the information at all.
Moving forward, what has been your growth strategy?
Historically, we have relied heavily on the homebuilders to fuel our growth. Obviously, over the last five years, there has not been a lot of home development. So we really found ourselves in the position of needing to reinvent the company. What we have done is a couple of things: No. 1, we realized we needed to find recurring nonvolatile revenue streams that are predictable, as opposed to the volatility of the real estate market. We went about doing that, creating some proprietary programs and so forth, and in so doing, we built a model that became scalable. So once we realized that we had built a strong business model that could prosper even in a difficult economic time, and had recurring predictable revenue streams, that is what then gave rise to the acquisition strategy.
What makes for a good growth opportunity in your situation?
I think it is a couple of things. First of all, every company's long-term strategy is going to be somewhat different. My job description is very simple: the creation and preservation of ESOP share value for our employees. That is really what I do. Parenthetic to that is a lot of different things. But as it relates to the acquisition opportunities, we look for three different things. We look for companies that are either strategic markets, meaning markets that we know we need to be in to grow this company into a national presence. We look for companies that have what we call a strategic skill set, which may be a particular area of expertise that we can leverage throughout all the positions of the management trust. Again, with the idea that we want to create a business model that is scalable. Thirdly is simply tuck-unders, where we just acquire a focused business and fold them into an existing office of the national trust. The most important criteria that we look at when we are exploring a potential acquisition opportunity is where we can create value.
What would you tell other business heads about developing an acquisition strategy?
I think if I had to identify a couple of key points for somebody considering acquisitions, the first point would be to find a point of differentiation between your company and other acquirers in that business space. If the company is simply trying to compete on price while not considering other factors, a bidding war is going to ensue, and that is not going to work. Sellers want to find a company that is going to be a good fit. So any way you can differentiate yourself from your competitors is better. I think that culture is critically important in any acquisition strategy. You need to find a company that is going to fit.
How to reach: The Management Trust, (714) 285-2626 or www.managementtrust.com
Carl Camden’s company finds jobs for people. That in and of itself could have served as a buffer against most recessions.
As the economic crisis caused untold numbers of positions to vanish at companies all across the country over the past four years, you might have thought that Kelly Services Inc., which Camden leads as president and CEO, would have had an increased demand for its services as people looked for employment and companies living hand-to-mouth looked for short-term staffing solutions.
But this wasn’t just any recession. This recession’s impact was so severe and hit so many companies across virtually every industry; it took a big bite out of Kelly Services as well. People needed jobs, but companies weren’t looking to hire, even for temp positions.
The company had to cut 1,900 positions as it lost money for the first time in its history.
“Our sales went down by a third during the recession,” Camden says. “The demand for our services was actually sinking with the recession. The whole definition of what we were as an industry changed. In coping with the recession, we had to open new product lines, new services, new types of relationships with customers.”
Camden and his leadership team had to fundamentally restructure Kelly Services as a more centralized organization, renew his employees’ focus on customer service and ensure that multiple lines of communication were accessible to everyone in the company, so that everyone was able to speak with upper management and stay informed on the progress of the changes the company was implementing.
At the same time, Camden had to react to the recession’s fallout, while maintaining a proactive approach regarding what Kelly Services would look like, and operate like, after the recession.
Form a plan
First responders in an emergency, such as a natural disaster, say their training takes over in a crisis situation. They immediately know what steps need to be taken first and what gets moved to the top of the priority list.
CEOs aren’t completely unlike first responders when dealing with a financial crisis that threatens their business.
As the recession deepened in late 2008 and early 2009, Camden and his team surveyed the situation and immediately recognized that the company needed to reduce expenses and get more efficient — with an eye toward maintaining those efficiencies after the recession.
“You first have to reduce your expense space, obviously,” Camden says. “But one of the things we tried to do in that time when we were reducing our expense space was to do it in a way that yielded structural advantages to the company, advantages that could remain as something permanent as we came out of recession.”
The solution that Camden’s team formulated was to shut down several branch locations and transfer those capabilities to a central location.
“We could then serve more customers and do it anywhere they happened to be,” he says. “They’re not reliant on a branch within the network. It was an opportunity to reduce costs and an opportunity to increase our services while we did that.”
Camden likens it to how banks have evolved. Several decades ago, banks were entirely based on a brick-and-mortar infrastructure. Now, banks offer more services to consumers, but with fewer branches.
“Growing up when I did, you had banks every two or three blocks,” he says. “Today, you can drive for quite a while without seeing a bank branch, because we do more banking with ATMs and call centers. We were able to centralize a significant part of our business in much the same way, decreasing the number of our branches while increasing the number of services we provide to our temporary employees and customers by using automated systems, online service centers and call service centers.”
In a time of head-count reductions and major change, morale can trend downward in a company. However, those who survive the cutbacks and are willing to adapt to the organizational changes can actually become more productive in the short term. Camden relied on that uptick in production to help expedite the transition for Kelly Services.
“People get very focused very quickly on what it is going to take to survive and do well and keep the customers happy,” Camden says. “I think a time of extreme economic turbulence is a better time to make the changes we made because people put aside petty territoriality or the belief that we’ve always done it this way so we should always do it this way and get a lot more focused on what needs to be done right now.”
But you can only ride that wave for so long. Those who survive the cutbacks will initially exhibit relief that they’re still employed and a willingness to do whatever it takes to keep their jobs. In any time of upheaval, there will still be an element within the company that is resistant to change, and if those who were initially on board with the change don’t see a long-term point to what is going on, over time more and more of them will become skeptics, and then outright cynics. Some can’t stay with the company.
“Of course, there is going to be some resistance,” Camden says. “There always is. Any time you are asking someone to change the nature of their job, there is always resistance because people like things to stay the same. Every time you go through a big change, you’ll have, within the normal array of responses, some people who have to leave the company because they don’t want to do what is going to be required.
“Eventually, some of those people might come back because they figured it out and understand it,” he says. “But the notion that you can make everybody wholeheartedly embrace the change is not an effective notion because they don’t, they won’t and you waste a lot of time trying to convince the ones who don’t want to believe in what you are doing. You’re better off letting them leave, and maybe they’ll come back.”
Make change interactive
If your employees are going to see a long-term benefit to the changes you are making, you need to get them involved with the change. You need a culture in which their opinions are valued and mechanisms within the company that allow your employees to share their ideas and concerns.
Camden, as a general principle, doesn’t like business meetings. But as the recession tightened its grip, he held more meetings to begin facilitating discussions that helped improve the flow of information throughout the company. Out of those meetings, Camden and his leadership team developed and emphasized a policy to solicit input from throughout the organization, on all topics.
In any time of change, employees are going to be primarily concerned with the future of their jobs, and if they retain their positions, how their job description might be altered. But employees will also be concerned with what type of company they’re going to be working for in the future.
“That is why we really opened up the company and asked people to start sending us their ideas, big and small,” Camden says. “We received lots of great ideas, many perhaps not sweeping in nature, but all contributing to an ability to simultaneously reduce our expense ratio and build more capability.
“They were as small as ways to change the time that cleaning crews are working and as big as the types of travel we engage in, and how we might be able to hold meetings across different geographies in a manner other than face to face, using more electronic types of communication. Even as the economy starts to recover, I still see a strong desire for people to have more contact with each other, but while having fewer face-to-face meetings.”
One of the ways Camden has bridged the communication gap without herding all key members of the company into the same room is by using social media platforms. Kelly Services utilizes both external, public platforms, such as LinkedIn and Facebook, and custom-made internal platforms specific to the company’s needs. Camden says social media has not only increased his ability to get messages out to the entire company, it has also improved the ability of individuals to directly address another individual within the company, making communication more of a personal matter.
“The social media platforms really promote themselves,” Camden says. “I find that the over-50 and under-30 people are the two groups that are most quickly growing in the use of social media. They’re the ones who let all of their fellow employees know what is going on. With no promotion, it’s on a nice, rapid adoption curve inside the company. Personally, I find myself able to communicate with thousands of Kelly employees via social media platforms, whereas if I had engaged them via traditional hierarchical methods, I’d be communicating to a much smaller number of people, and probably using typical, boring speeches.”
Set the stage
If you are going to increase your accessibility via different communications platforms, you also have to remember that you are being watched, all the time. As the leader of the company, everyone else is going to take reaction cues from you in a time of uncertainty. If you are panicky, other will panic. If you are calm, others will remain calm. If you dodge questions, others will fill in the blanks, often with inaccurate information.
“Your tone matters,” Camden says. “People are listening to your tone as much as, if not more so, to what you are saying. Staying calm is not incongruent with having a sense of urgency. People are looking for whether you remain calm and have a perspective on how we’re going to find our way out of the situation.”
Along with that, as you pilot your company through the change, your people are going to be looking for indications that your words follow your actions. If you don’t adhere to the mission and core values of the company in your behavior and the decisions you make, you will add to the feeling of instability and damage your ability to achieve buy-in with your employees.
“They will be looking to see that you are not changing who you are just because of the financial contingencies of the moment,” Camden says. “You have to maintain a sense of real transparency, because people don’t want to be surprised. If they read about it in a magazine before you tell them what is going on, the result is going to really suck for you as a leader. You need to step up and be as transparent and quick in your communication as you can.”
The organizational change and communication strategies implemented by Camden and his leadership team have helped aid in Kelly Service’s recovery. The company posted $4.95 billion in 2010 revenue, up from $4.31 billion in 2009.
“In a crisis, one part of my job is to assure the investment community and the banking community, along with the customer community, that all was going to be fine, and not only that, it was going to get even better,” Camden says. “But the second part of my job has been internal. To send an internal message, a culture message, to make clear what it is we are migrating to so that the response to a crisis is seen not just as a reaction but rather a proactive opportunity to take steps toward a set of improvements. You want to focus everyone not just on where you are, but what you are evolving into, what you are in the process of becoming.”
How to reach: Kelly Services Inc., (248) 362-4444 or www.kellyservices.com
The Camden file
Born: Dover, Del.
Education: Bachelor’s degrees in psychology and communication, Southwest Baptist University, Bolivar, Mo.; master’s degrees in communication and clinical psychology, Central Missouri State University (now University of Central Missouri), Warrensburg, Mo.; doctorate degree in communication, The Ohio State University
Camden on soliciting critical feedback:
You keep around yourself unpleasant people who tell you that you are messing up. Actually, I'm kind of serious about that. I often tell HR that I am not going to promote somebody because they never disagree with me. You don't want to have people high up in the company who haven’t found at least one thing you're doing that is stupid. You have to have a group of people around you who are willing to challenge you.
Camden on tuning out negative news during the recession:
You can’t disassociate the two. What you have to make clear is how does what is happening in the outside-of-the-walls part of the world influence or link to what you do. To try and separate the two and say, "Don’t worry about the man behind the curtain." Not many people are that great in compartmentalization.
You have to say, "This is how what we are doing affects us." I would say there are a whole lot of people out there who are desperate for jobs, and are looking to us to enable them to live the way they want to live. We have to step up our game to help those people find the ability to make a living. So I would disassociate myself from the realities of the economy, I would create a sense of urgency around it, in the sense of the good we can do in people's lives.
Dana Roberts could not place all the blame for his company’s problems on the recession. As the end of 2009 drew near, C.W. Driver had a few issues of its own that it needed to work out if it was going to remain a leader in the construction industry.
“There were projects out there, but we kept missing them,” says Roberts, the $500 million company’s president and CEO. “We got wind of the projects when it was too late. We were way behind the power curve from the standpoint of our contacts in the industry. We just needed more people out there knocking on more doors and being more aggressive to get the information about what’s coming out.”
Roberts’ hope had been that 2010 would serve as a springboard to better business growth in 2011. But he began to understand that even if things had worked out that way and the recession had ended in 2010, his company still needed to get more focused on what it was doing in order to achieve that growth.
“We want to be able to look at 10 projects and pick out three and say, ‘OK, we’re going to pinpoint this one, this one and this one,’” Roberts says. “We didn’t have that information. The reason we didn’t have it was our whole business development group wasn’t organized in such a way to do that.”
It was a reality that led him to make a risky decision.
“In a recession era, most businessmen say, ‘OK, we need to start cutting overhead,’” Roberts says. “We did just the opposite. We expanded our overhead and we looked at it as an investment in the future.”
Roberts wanted to get more people involved and engaged in helping the company grow. He felt the move to make significant investments, despite the recession, would demonstrate his commitment to the task.
“How do we keep our people motivated?” Roberts says. “How do we keep our people, our most important asset, well engaged? It’s by trying to do new things and trying to make things happen, not waiting for the economy and our market area to come around.”
Get to your best ideas
Roberts set out to use the vast and relatively untapped knowledge base of his employees and use it as a resource to identify those opportunities they were missing and make C.W. Driver a more effective and more efficient business.
“It’s not only reorganizing the business development and marketing group,” Roberts says. “It’s also getting every employee engaged in being aware of what’s going on out there in the neighborhoods they live in and the communities they live in so the entire company is involved in the business development effort.”
Roberts got a good response as people had numerous ideas about how C.W. Driver could expand into new markets and broaden the company’s reach. The challenge in this case wasn’t getting people to open up.
It was taking all those suggestions and narrowing them down to the few really strong ideas that really have a good chance of success.
“We may have 50 or 60 different things that we start with, but we narrow it down to a few initiatives and we develop a plan that everybody gets behind,” Roberts says. “If they can’t get past that, they’re going to dilute their efforts. You’ve got to narrow it down. You just can’t physically do everything. We’ve been through that and we’ve tried to do too much. We find that in our business planning sessions, it’s got to come down to two or three things, maybe four things at the most, that you are trying to accomplish. It’s really spending the time to build the consensus.”
Roberts opens the process to whittle the list of ideas to a select few by admitting he probably be won’t be the one providing the best suggestions.
“I tell everybody, ‘Look, I come up with some of the stupidest ideas in the company,’” Roberts says. “People tell me, ‘That is a bad idea, Dana.’ I’m the president and CEO. I want that kind of environment in the company. I want people to speak their mind. I don’t want them to tiptoe on eggshells around everybody. We’re open and honest, and we do it with respect and integrity.”
It’s important that you set expectations before you go into a brainstorming session. Give your people an understanding of how things are going to work instead of jumping right into idea generation.
“We have a whole set of ground rules within our senior management group on how we conduct our meetings,” Roberts says. “Everybody knows you have to get down to two or three good ideas. Otherwise, you’re sunk. You’re going to take a shotgun approach and you’re not going to accomplish anything. It takes a day or two, but you get there.”
If there are people who are unwilling to let go of the old way of doing things and help with what you’re trying to build, you may have to let them go.
“The one person or two people that didn’t agree with it or didn’t get a fire under their butt to get behind this whole program and to understand the urgency of it are no longer here,” Roberts says. “I don’t like to say I fired them, but it no longer became a fit. We had a change that we were going to make that we needed to make and they weren’t of the mind to be part of it.
“We want people that are out in front charging hard all the time as opposed to dragging other ones along. It’s very important that we build consensus and that everybody is in agreement and doing their part to make the change work and operate in the new environment.”
Seek outside help
Roberts isn’t afraid to seek outside help when key decisions need to be made at C.W. Driver and this particular instance was no different. He doesn’t view it as a lack of confidence in his own abilities to lead the company and adds that his team doesn’t see it that way either.
“Not once has anybody criticized anybody bringing in an outside consultant,” Roberts says. “Smart people won’t do that. We don’t let the consultant run the business. We make our own decisions, but we get input from him and other things and then we make our own decisions.”
The third-party input that comes from an outside facilitator can be invaluable when you’re trying to move from the information gathering stage to the implementation and execution phase of a transition.
“You can find consultants to do anything out there,” Roberts says. “You just have to look in the right circles. You have to understand too that you don’t know everything. I may be president of the company, but there’s a lot I don’t know. So I look for a lot of input.”
Roberts stresses that the involvement of outside consultants is a demonstration of strength by a leader, a willingness to do what it takes to get the job done.
“If companies try to do it themselves, they’re not going to end up where they want to be,” Roberts says. “They need somebody in there to facilitate them and guide them. It wasn’t like, ‘Oh, we can’t agree on anything. Let’s get a consultant in here.’
“It’s like trying to fix your own car. I’m just going to get all the manuals and read the manuals and I’m going to fix it. But you get somebody who does that every single day and you realize you really need that outside type of knowledge. If you’ve got a big ego, you’re going to have to get over it.”
There are, of course, good practices to follow when it comes to using consultants. Perhaps most importantly, especially when you’re trying to encourage engagement and teamwork, is to make sure everybody likes the consultant you’re bringing in to help.
“Don’t you select him and then he comes in and everybody hates him,” Roberts says. “That’s the first consensus you want to build. Hey, we all like this guy. The key is finding somebody that everybody relates to and everybody likes and has really good credentials coming in the door. See who he has worked for and where he has been. Talk to his references and talk to his other clients. Find out the plusses and minuses for him.”
Consultants don’t come cheap, but Roberts says when you find the right one, it will be well worth it.
“It’s a big expense,” Roberts says. “But it’s worth every dime.”
There were a couple big changes that C.W. Driver made to better respond to market demands. One was to form a special projects group that would handle smaller projects.
“We had clients that we had done big projects for, but now they only had small projects to do,” Roberts says. “And we had clients we were trying to establish a relationship with, new clients, but their projects were too small for us to compete on.”
This new segment would be able to take on those projects and free up the bigger company to handle projects it was more suited to take on.
“The people that work in this group get paid a little less so they can compete on smaller projects,” Roberts says. “So instead of waiting until the market turns, we decided to take more aggressive action and say, ‘OK, how can we compete in a market and maintain these relationships and gain new relationships for big Driver? So we opened small Driver.
“The other one is the for-rent housing market. We decided that in order to compete in that market, we have to have a separate company that focuses on for-rent housing, student housing, senior living and possibly extended stay hotels.”
The smaller companies are part of the C.W. Driver brand but can operate in a way that better fits them.
“They can operate just like a small company, but we can give them all the support of a big company without the bureaucracy,” Roberts says. “So far it’s worked out, and we’ve built a backlog of about $20 million over the last seven months.”
When you embark on a remaking of your company, you’ve got to move smartly, but quickly. Your employees demand it of you, even if they don’t always openly tell you that.
“They want to see that the company is moving forward and doing something to maintain its growth and maintain its level of business activity,” Roberts says. “They don’t want to lose their jobs. They want to know if they are going to have a job next year. That’s the most important thing in everyone’s mind right now. Are we going to have a big layoff? Are we going to lose our benefits? Is our pay going to be cut? What is the company doing to sustain itself or increase its business? They are looking to senior management to come up with those answers.”
They are looking for answers and then they are looking for follow through and execution on what you’ve talked about.
Roberts was committed to preserving jobs and finding ways to remake C.W. Driver without having to do layoffs. It’s often viewed as the harder way to go, but that may not actually be true.
“You can’t just do these wholesale layoffs because if things turn around, then you have to hire people back and that is an incredible cost,” Roberts says. “Find new people, hire them, train them and get them involved.”
You’ll probably find that your people are more receptive to change than you think if it means their position with your company is secure.
“There’s very few people saying, ‘I don’t like working on this project. I want to work on this project,’” Roberts says. “I think everybody is really happy to have a good job, have good benefits, not have their wages cut and have a company that really has a lot of empathy for its employees.”
How to reach: C.W. Driver, (626) 351-8800 or www.cwdriver.com
Dana Roberts, President and CEO, C.W. Driver
The Roberts File
Born: Los Angeles
Education: Bachelor’s degree in economics, Utah State University; master’s degree in civil engineering, University of Southern California.
What was your very first job?
I had a paper route when I was 9 years old. It was called the Valley News and Green Sheet, which is now the Los Angeles Daily News. I had 120 papers I delivered and people would pay for it on a voluntary basis.
It was 65 cents a month and I would have to go and knock on doors and say, ‘I’m collecting for the Green Sheet.’ They’d say, ‘I don’t want it; that’s a rag.’ Or they’d say, ‘Oh, we love that paper,’ and they would give me 65 cents. One lady, she gave me a dollar. And I would go to give her the change and she’d say, ‘Keep the change.’ I got a 35-cent tip. She never failed to give me that 35-cent tip.
Who had the most influence on you?
There were two things my father said to me. He said, ‘Son, I can’t afford to send you to college. But I can give you a job.’ So that’s how I got through school. Then he said to me when I became an owner of the company, he said, ‘I’ve reached the pinnacle of my career. I’ve got my kid signing my paycheck.’
He was a great influence on me. The respect he had for people. Not only the people who worked for him but the people he worked with and worked for.
David and Joshua Kahn placed a lot of faith in the strength of the automotive industry, but now it was coming back to bite them. As the recession of 2008 took hold and brought automakers, among other businesses, to their knees, sales volume at Perfection Spring & Stamping Corp. took a big hit.
“Our greatest challenge was twofold,” says David Kahn, president and co-owner of the precision metal formed component supplier. “One was to grow sales and two, to further diversify the sales base so that if another downturn did come down the road, we wouldn’t be impacted as greatly by the automotive industry.”
The Kahns concluded that their stale marketing strategy was a big part of the problem at the company, which has more than 100 employees.
“The only people that knew us were the people that knew us,” says Joshua Kahn, co-owner and executive vice president of sales. “In order to increase market share in our current markets and also obtain new markets, we needed to refocus our marketing and sales strategy.”
Joshua felt the company wasn’t doing all it could to support its existing customers, nor was it doing enough to obtain new customers and expand the business. The company’s failings at marketing were most evident on its website.
“At the time it was built in 1993, it was really about photos and fluff rather than being a user-friendly site with information that customers would go back to time and time again,” Kahn says.
He decided to get out and attend industry association meetings to learn more about what other companies were doing with their sales and marketing strategies. But before he actually went to those meetings, he met with his management team and ironed out exactly what Perfection Spring was looking to achieve.
“I made a list of all the different marketing strategies that we could come up with as a management team and then went to these meetings with eyes wide open to learn,” Kahn says. “If I were to offer one piece of advice, it would be to understand what you want to do, then go ahead and do your own research. Many things introduced in the meetings, after I came back and did research, I found were not necessarily for us.
“It was a great platform to really review our entire marketing strategy. But you still have to be wise and figure out what’s best for you, for your business and for your customers.”
Kahn says it’s easy to go to a conference or hear from an expert and simply buy in to everything that this one person is trying to sell you. But it may not be a good fit for you.
“We started doing trade shows as a result of the conferences,” Kahn says. “We redid our website. We changed our sales organization internally. We did quite a number of things. But we didn’t jump into anything.”
In fact, after attending conferences in the summer of 2009, Kahn and his team took several months to digest what they had heard and plot a new strategy for the business.
“We wanted to make sure we did it right,” Kahn says. “Not fast but correctly.”
One thing that has become very obvious to David is the need to get in front of customers on a regular basis.
“We supply parts, but we don’t supply standard parts,” Kahn says. “Everything we supply is custom. So we are in essence a service provider. The greatest service we can provide our customers is engineered solutions to their problems, not only from a design standpoint but, more importantly, from a cost reduction standpoint.”
The deeper connections that are being formed between Perfection Spring and its customers are showing results. The Kahns give a lot to credit to Thomas Industrial Network for helping them to develop an effective web strategy.
“The actual design of the website has certainly played a big role in obtaining prequalified leads and new key customers,” Joshua Kahn says. “It has let us expand into markets that we were never in before.”
How to reach: Perfection Spring & Stamping Corp., (847) 437-3900 or www.pss-corp.com
One of the most important changes made at Perfection Spring & Stamping Corp. is the effort to create a website that would enable the company to prequalify sales leads.
“Just as we are prequalifying prospects, they are prequalifying suppliers,” says Joshua Kahn, executive vice president at the precision metal formed component supplier that has more than 100 employees.
“When they put in their search terms, they are finding us and we are finding them. By the time we get a quote request, there is a good match. We go through a detailed qualification process after we get a quote request to make sure our company is on the same track with their company.”
When it comes to websites, you’ve got to know what you want since there are so many directions you can go.
“The first thing we did as a management team, we listed everything we wanted and we literally wrote it down,” Kahn says. “We brainstormed. Then when we met with the various vendors that could provide us with those services; we were sure to ask them all the same questions. Then when we met again and reviewed the answers from all the companies, very clearly as our management team saw, there were certain companies that would meet what we expected and others that would not. A website is a living, breathing thing. Even though we went live, we are constantly changing it.”
One of the most challenging tasks on any CEO’s plate is the ability to embed a simple and systematic planning process into an organization and then effectively execute upon it. All too often, planning occurs in last-minute, deadline-prompted, organizational binges and the result is goals that are not met. Either that, or the planning due dates trump the content of the plan and quality suffers.
In my experience, there are four principles that guide effective planning in the corporate world. These principles were not arrived at easily. But in concert with both a carefully thought out methodology and a detailed planning calendar, they encourage excellence.
Here are the four principles that can more effectively guide your company’s planning process:
Strategize in three key areas
The concept of strategic planning has lost some of its foundational strength in recent years as companies have abused the process and tried to strategize every aspect of their business. When you take this approach, you end up with a lot of confused employees who aren’t sure which plan they are supposed to follow.
Planning becomes more difficult, and as a result, management procrastination increases.
Great strategic thinking is really only needed in three key areas: The development of a go-to-market plan, a people plan and a financial plan. Each person, department, business unit, function and corporate entity should keep their focus on these three areas. All other plans are usually not strategic, but rather, flow naturally from these three key strategic elements.
If you keep the focus narrowed down, strategic plans are more likely to be completed in a timely manner and be well executed. These plans always outperform their labor-intensive, procrastinated, hyper-strategic alternatives.
Plan for three time periods
You should keep three time periods in mind when you’re doing strategic planning: Think about the following year, the following three years and the next 10 years. This last one is most easily expressed if you keep it simple by looking at an easy-to-remember year such as 2020 or 2025
So if you were following this schedule, your 2013 plan would have fairly precise detail, including desired activities. The 2013-2015 plan would focus on your intended three-year results. Then, as you consider your business 10 years out in 2020, you would look to focus on the very best vision for your personnel, departmental, functional, business-unit and entity futures.
Follow the natural order
There is a natural sequence to the order of planning for the future of your business. Start with the heart of your business by looking at your customer and the go-to-market plan. After reaching agreement on this stage, proceed to the people plan. Here, you’ll plan for the knowledge, skills, abilities and people needed to successfully execute your go-to-market plan. Only then should you proceed to the financial plan where financial resources and requirements must be rebalanced.
Live the planning calendar
Ask your CFO and finance team to create a calendar with specific due dates for the planning phases to serve as a timetable for the organization. This will help make planning a natural part of your year and not a binge effort as deadlines draw near.
Clearly communicate the planning process to your leaders so everyone knows what is expected of them and when. Keep this communication up throughout the process, reinforcing the importance of planning and how it is a cycle of business, not something that is ever really finished.
Every company has its own style of strategic planning. When new managers join your team and become part of the process, educate them on your specific planning calendar and budgeting methods, so they can become familiar with your expectations and deliver excellent results.
Finally, on a personal note, make sure you take time to provide encouragement and show gratitude to your people for a job well done. You can never show too much appreciation to your people.
Joseph Slawek is the founder, chairman and CEO of FONA International, a full-service flavor company serving some of the largest food, beverage, nutraceutical and pharmaceutical companies in the world.
In the late ’90s, Jim Griffith found himself among a group of young executives being groomed to lead a $2.6 billion company. With five senior-level employees at The Timken Co. — including the CEO at the time ? preparing for retirement, the succession process was in full swing. But what seemed like a great opportunity was soon lost on Griffith and his peers as the process progressed. They became increasingly aware of one alarming red flag.
“The bottom line was that the company technologically was the best in the world,” says Griffith, who is the president and CEO of Timken today. “Our products from a quality and reputation were the best in the world, and we couldn’t make any money. Our people from external validation were the best in the world, and we couldn’t make any money.”
As a result, the next generation of leaders found themselves harboring some serious doubts about Timken’s future as a profitable company.
“That’s a really troubling thing when you’re saying, ‘OK, I might have the chance to lead a Fortune 500 company and I’m not sure I want to, because it’s not making any money,’” Griffith says.
When he became president of Timken in 1999 — he was promoted to CEO in 2002 — Griffith and his top leaders embarked on what became and intense transformation to reorganize the company around its customers. Here’s how they took a 100-year-old company and reinvented it to make it profitable.
Define your value
One of the first things Griffith and his team recognized was that the company was organized around its products, a strategy that went back to its roots.
“What we concluded was that the company that was founded by Henry Timken in 1899 to manufacture his invention called the tapered roller bearing — effectively it’s a wheel bearing in a car — over the 20th century had become so product focused that we’d forgotten that the reason for being in business is to create value for customers,” Griffith says. “And when we then stepped back and said, ‘Where are the places that we create value for customers?’ they were very different than where the product-focused strategy drove us.”
One of the first moves the company’s leadership made was to restructure Timken around its markets instead of its products. Instead of having a bearing business and steel business, there was an auto business, an aerospace business, an industrial business and a precision steel components business, and the presidents were asked to focus on creating value for customers rather than maximizing sales.
“That led us down a learning journey of where does Timken really create value,” Griffith says.
The company went through a process of looking at each of its markets and asking, “How do we make money in this market?” and “What’s the value proposition?”
“Again, it was a real learning journey, because in some cases, what we found was we had to change the way we operated to be profitable,” Griffith says.
He and his team also utilized a rigorous marketing analysis to evaluate Timken’s relative profitability and relative differentiation in its current markets. One thing that they discovered was that while the company made great products, its products were valued much more in some markets than others.
“We make steel or we make bearings or we make gears,” Griffith says. “We make your car not break down. We make airliners land safely. We make jet engines more efficient. We make it possible to drill for oil 40,000 feet under the ground. That’s what we do. And there are some of those places where we were selling our products that you didn’t care. You don’t really care if you have a Timken bearing in your car, because the difference between Timken and our competitors is that if you have a Timken bearing, your car will last for a million miles. Now how many cars have you had that last a million miles? So we had competitors that were designing lower performance products, cheaper products, and putting them in those applications. And you’re happy with that.”
Early on, Griffith says the company had made far too many decisions about markets based on gut feel instead of analytics. But strategic marketing tools can be extremely valuable in helping you make decisions to guide the direction of your business.
“We learned a tremendous amount by going out and finding the best analytic tools for driving our marketing process,” he says. “When we finally did that, it made some tough decisions, like what to do with the auto industry, amazingly easy. I wish we had done that five years earlier.”
For Griffith, there were a couple of significant takeaways from the marketing analysis. First, Timken was at its heart a technology company. So to create value for its customers, the company needed to find the right technical problems to solve for them.
“When you are on an airplane, and you’re coming in for a landing and that tire hits the tarmac and it goes from zero to 160 mph in a split second, you don’t want anything but the best,” Griffith says. “So the difference is that we have maybe 15 percent penetration in the auto industry and we have effectively 100 percent penetration in landing wheels. And that learning about where are the places that Timken can create value was fundamental in most of the first half of the last decade.”
The challenge was finding ways to take the company’s core technical capability to market in a way that nobody else could and that customers would buy into — in other words, leveraging that differentiator to enhance existing products and services and expand into channels and markets where it can be competitive.
“In worlds of technology, we are the best in the world,” Griffith says. “Learning to translate that into business models and products that create customer value that’s differentiated was a critical learning for us.”
Part of that involved moving into markets or investing in areas where it could differentiate itself from competitors, such as aftermarket (replacement part) opportunities.
“The bearings in a car — one in 10 gets replaced over the life of a car,” Griffith says. “The bearings in a steel rolling mill get replaced every year. We spend a lot more time designing new products for rolling mills because there’s an opportunity for our technology to make them last longer in a way that is more valuable to the customer. They’ll pay for it and there is an opportunity to help that customer with replacement products.”
By investing in its industrial aftermarket segment, the company has grown that segment to $1 billion in sales.
“So our most profitable segment, we’ve grown five times and half of them are products that weren’t in our portfolio in 2000,” Griffith says.
The other piece is to exit markets in which you just can’t compete and be profitable.
Even though Timken was historically an automotive company, it could not get its auto market to make money on an ongoing basis. So in 2007, the company made a radical shift under Griffith’s leadership to transition out of the market. When demand for the auto market dropped in 2009, it also sold a large piece of its auto business to a Japanese company and made large cuts in auto support services.
“That put some cash in the bank for us and changed our profile,” Griffith says.
From a markets standpoint, the overall change in portfolio has been dramatic. Today, it includes markets such as mining, heavy transportation rail, heavy truck, the agricultural market and the international market.
“We went through that in every business that we have,” Griffith says. “The net result was we closed probably 30 locations around the world that couldn’t be competitive or needed to be more efficient or needed to be more effective. We built a half a dozen new locations in new markets where we were growing. So net we didn’t change the number of people but changed the structure of the way we operate. We radically changed our portfolio and radically changed our market portfolio.”
Again, the key to growth is not just investing in markets where you have the best product, but where you can deliver value in unique ways.
“Most of the products you’re going to see are things we made 10 year ago,” Griffith says. “But the way we take it to market, the mix in the portfolio and the way that we engage with customers to create value is so radically different, you might as well say it’s a new company.”
A critical driver of this transformation has been the company’s dedication to being a high-performance organization. This focus has helped it navigate numerous challenges as it implemented some major changes to reinvent the company, such as when the company’s leadership realized that Timken’s big manufacturing plants in the United Kingdom and Columbus, Ohio, couldn’t compete and needed to be shut down.
“The key to it was strategically, we were very clear where the company was going and so we knew what were the areas that had to be sustained were and what were the areas where we were going to reduce our presence,” Griffith says. “When you think about it in those terms, you take deeper cuts in the areas that you are exiting and lesser cuts in the areas that are crucial.”
Another critical time was in 2009 when demand for the company’s products dropped and its sales fell 38 percent. To improve efficiencies, the company had launched a business redesign process called Project ONE a few years earlier, which put in place an SAP enterprise management system and helped it take $400 million out of inventory in 2009. But at the same time, it still had to cut costs in any way it could, including 6,000 jobs globally.
“The concept of walking into plants that have been part of your family for a long time and saying goodbye to people is a very personal thing,” Griffith says. “The way it works at Timken — you hate to say that you become good at that — but we’ve become very good at that. We’re very open, and people understand the performance that’s going on.”
When cutting costs, Griffith says you start with strategic cuts — areas where you know you are going to lose business — and then use your performance management systems to put boxes around your stars and take deeper cuts in areas where you have low-performing people. You approach these decisions as a family, communicate openly about what’s going on, and then people will understand that as a high-performance company you need to set aggressive targets.
“It’s all about people, and having really good leaders in place is crucial, even more crucial when you’re going through a period of crisis,” Griffith says. “There’s a natural tendency, particularly in a family kind of culture, to try to support and sustain people who aren’t the absolute top people. There’s always a tendency to hang on to people too long. That’s good and bad. But from a performance point of view, that’s critical from this point.”
By transitioning into markets where it adds the most customer value and building business models that allow it to be profitable in those markets, the company has emerged a decade later outperforming its highest expectations, growing revenue 29 percent to $4.1 billion in 2010. In 2000, Timken generated roughly 50 percent of its revenues from bearings and steel in the automotive industry. Today that number is about 15 percent.
“It’s 112 years old, but it’s a new company,” Griffith says.
“We’ve retained our best people. We have shifted the portfolio of the company to much more attractive markets, markets with better aftermarket, better growth practices, more focused on the parts of the world that are growing. We have better management tools — this Project ONE capability. So better people, better markets, better management processes and then you are surprised that we’re getting record results.”
How to reach: The Timken Co., www.timken.com or (330) 438-3000
The Griffith File
President and CEO
The Timken Co.
Born: Palmerton, Pa.
Education: B.S. in industrial engineering and MBA, Stanford University
What is one part of your daily routine that you wouldn’t change?
I am an early bird — up at 5:00 a.m. or before every morning. I savor the quiet time before the family gets up — I usually walk the dog or exercise. It gives me an opportunity to think through the day ahead and be prepared to tackle whatever challenges it brings. I have done this since I was around 10 years old and continue to get up early, seven days a week.
What is your favorite part of your job?
Interacting with the people of Timken. I get to travel a great deal and interact with people all over the world. The people of Timken never cease to amaze me. Give them a challenge, hand them a tough assignment, and it never ceases to amaze me the creativity, resilience and character of the people who make up our company. My wife loves it when I come back from our plants because I always have a smile on my face, impressed with what I see. The most outstanding examples come in the most trying times — for example, in the recession of 2009, one plant in South Carolina needed to cut half of its workforce. Instead, the people decided that they should share the pain and chose to work alternate weeks, an impressive sacrifice by the most senior people. I could tell a hundred stories like this.
What’s the best piece of business advice you’ve received?
I’m a believer in people. I believe in people. I’m a natural delegator. And if you’re a natural delegator then you’ve better surround yourself with the best people that you can find, people whose judgment you trust, and set the parameters, set the objectives back to being aligned on the strategy. This is where I get real sensitive about, ‘Look what Jim Griffith’s done at Timken, because it isn’t what Jim Griffith’s done at Timken. …The sum of the decisions and capabilities of that leadership team is massively larger than the influence I could have. My influence is to get them aligned in terms of what that vision and objective is. Then frankly it’s stay out the way so that I don’t mess up the decisions that they make.
What is the culture like at Timken?
The answer is it is a family culture. For those of us that have been around a long time it’s kind of an emanation of the fact that the Timken family started it. But that’s not what makes us a family culture. What makes us a family culture is we tend to be people who come here, stay a long time, get to know each other, know each other and their families, work together on things outside. So we really are a very close-knit culture. Even people who come from outside become family.
1) Figure out where you create value.
2) Structure portfolio for value creation.
3) Optimize your performance.
Rakesh Sachdev did not see this day coming. Sure, he and Jai Nagarkatti had talked about leadership transition and succession planning at Sigma-Aldrich Corp., but that was years down the road.
Sachdev insists the thought of being CEO of the 7,890-employee life science and technology company had not crossed his mind for even a moment.
“Obviously, this came as a surprise to all of us,” Sachdev says.
The “this” Sachdev is referring to is the unexpected death in November 2010 of Nagarkatti. He had been with Sigma-Aldrich since 1976 and had served as CEO since 2006 and chairman since 2009.
“It was hard for me to know we had lost somebody like Jai the way we lost him,” Sachdev says.
It was perhaps even more difficult at that moment because everything seemed to be going so well with the company.
“We had been implementing a lot of initiatives, so we pretty much had a game plan of what we wanted to do for our customers, with our products and with our facilities,” Sachdev says. “We had also been embarking on more acquisitions as part of the company’s plan to grow inorganically. That was all going on.”
And now this. Sachdev found out while on a plane preparing to fly back to St. Louis.
“It was Saturday morning and I got a call from our general counsel to inform me of what had happened,” Sachdev says. “It was a very brief conversation because I had to shut my phone off. There were a lot of things racing through my mind as I flew back to St. Louis. By the time I landed, I wanted to call the board and discuss it with the board, which I did. To the board’s credit, they had already met and they had made some decisions. I spoke with the board late into the night and we had a plan. That’s what happened.”
The plan was in place and the very next day, a news release was sent out reporting that Sachdev had been elected as the $2.3 billion company’s new president and CEO. A conference call was scheduled for that Monday to address the situation publicly.
The next step would rest with Sachdev. How would he address any concerns that employees might have about what had happened? How would he respond to customers or other stakeholders in Sigma-Aldrich who might be concerned? Suddenly, this was all his responsibility.
Show your strength
Sachdev may have had a few moments of anxiety about his sudden ascendance to the top at Sigma-Aldrich, but he didn’t let anyone know that.
“For the most part, I felt pretty confident,” Sachdev says. “I felt confident because I knew that we had a company that had great people. It’s not just about the leader, although that’s important. We’ve had an outstanding team here. So I never had any doubts that the future or what we were going to do with this company would be any different. I think we were on pretty solid footing.”
Dealing with the unexpected, including tragedy, is something that you’ve got to be prepared for. There’s too much at stake for you to think, “Oh, that would never happen to us.”
“Just being prepared is the mark of a great leader,” Sachdev says. “I look at my own career and I say this to a lot of the young people here. You have to step out of your comfort zone if you want to do big things and great things. I’ve always done that. I’ve changed industries. I’ve lived in different geographies. To me, that’s very fascinating to put yourself in an uncomfortable situation and try to wrap your arms around it as quickly as possible. I think that’s helped me personally.”
By putting himself in situations where he didn’t initially know exactly what to do in every situation, Sachdev says he learned to adapt.
“When you do have an incident like the one we had with Jai’s passing, having stepped into difficult situations, I guess I was quite prepared,” Sachdev says. “I would say, be prepared and be organized in terms of working the things that are going to be really important. You can really get defocused. Being focused at a time like this is very important, as you were pointing out. Who are you going to talk to? Why are you going to talk to them? How are you going to communicate? Have the communication story. What is said and how it’s said is very important to a lot of these people.”
In the aftermath of Nagarkatti’s death, Sachdev knew he needed to talk to people. Initially, it was to serve as a sounding board for their grief. But it was also to give them reassurance about the company’s future.
“There’s a professional side and a personal side anytime something like this happens,” Sachdev says. “They want to be reassured that a transition like this is not going to have any adverse impact on them or the company. Giving that reassurance is very important, not just for the employees, but most of the stakeholders. The other thing is there’s a human side when this happens.
“Given that in Jai’s situation, he had spent over 30 years with this company and given a lot, they want to hear how the company is thinking about a leader who has just passed away and just passed away suddenly. We had a lot of conversations with our employees about the great memories they have of Jai as a leader. You have to address both the human side and the professional side. That’s what employees want to hear.”
As you’re talking to your employees, you also need to think about the people outside your company who want to be contacted and informed about what’s happening in the wake of this difficult situation.
“All our stakeholders are important, but there are some very important stakeholders we have and you want to make sure the message got out to them immediately with me calling them,” Sachdev says. “Typically these calls are pretty short, so we were able to arrange these calls. This is not a very long conversation. We prioritize who we were going to call. We had an agenda for hour by hour what conversations were going to take place with the employees and where and with customers and with whom and even with suppliers and community leaders.”
You should use your gut and go with it to help determine who gets a personal phone call and who can be informed through other means. The key thing is not to try to rush through it to get back to your normal day-to-day routine.
“Unless there is a crisis in a company, which was absolutely not the case at Sigma-Aldrich, my advice to any leader would be take the time,” Sachdev says. “You’re stepping into a new role and even though you think you know the company, it is a new role. Now you’re responsible for the business and all the employees and their future. Err on the side of listening.”
As time marched on, Sachdev says he found the planning that Sigma-Aldrich had done to be ready for change was paying off in a big way.
“This incident happened in mid-November of last year and I think we had a period of I would say a couple weeks where we went through a lot of communication,” Sachdev says. “But I would say after a couple weeks, we were back in the saddle and running hard.”
Indeed, planning did pay off for Sigma-Aldrich. Sachdev says it’s something every company should do no matter how the leadership team views its situation.
“Succession planning isn’t only about succeeding in events like what happened with Jai,” Sachdev says. “It’s about succeeding in the event someone were to leave the company or where we actively develop people by moving them into other positions so you have somebody to succeed behind them.”
You’re trying to build cohesion and camaraderie during the quiet times so that when the unexpected happens, you already have a foundation on which you can work and get things done.
“As the CEO, I had a very supportive board,” Sachdev says. “I was able to pull the whole senior management team together. We were all very aligned, so it worked. If you have your support system that isn’t well-aligned, that just adds more complexity. That’s why it’s important for senior management and boards to be thinking about being prepared and having alignment so when an incident like this happens, you don’t find yourself in a situation where there is misalignment.
That would be a very difficult situation. You have a situation happen in a company where there wasn’t alignment in the first place, something like this just opens up a huge crack. I would be more concerned about that. That would be fairly destabilizing in an event like this. Because we had done such good work in the alignment around the strategy and what we were going to work on, that was not the issue.”
Another thing to keep in mind, however, is that it’s not just your chair that you need to be concerned about.
“That’s true for many critical positions in the company,” Sachdev says. “We go through this process at Sigma-Aldrich and we embrace it. Every year we go through a very detailed succession planning process that oversees the top several hundred people. We try very hard to identify if someone were to leave or if something were to happen, we have a plan to put someone behind that in fairly short order.”
Keep moving forward
Of course, there does come a time when the business of the company must take priority once again. It’s then when you need to talk to your people about what makes your company great and get them energized about work.
“It’s creating excitement with our customers and when people come here to work every morning, they’re absolutely enthusiastic that they are working for the right company and they are making a difference,” Sachdev says. “Sigma-Aldrich has always been a company where employees come and feel they are working for an enterprise that is making a big difference for mankind. We are a science-based company and we do lots of interesting things. So as CEO, it’s my job to make sure that enthusiasm not only stays, but becomes infectious and that we’re able to get all our people fired up about what they are doing.”
You won’t get this kind of response if you’re the type of leader who only issues commands and doesn’t look deeper into what your people do each day.
“You have to make the effort,” Sachdev says. “You cannot as a CEO be a desk pilot and fly the plane from your desk. You have to get out and you have to be with the people. I enjoy it, because it gives me the ability to understand what our people are really thinking about. It’s very important.”
Sachdev moved Sigma-Aldrich forward in part by getting everyone focused on assisting the company’s customers. The fact is that while many of his employees mourned the loss of their leader, many of Sigma-Aldrich’s customers had no idea who Nagarkatti was.
“They are looking for value, product, reliability and getting things that help them succeed, not that help us succeed,” Sachdev says. “At the end of the day, it’s all about how do we as a company help our customers succeed. If we see it that way, it’s not important about individuals in our company such as the CEO or anybody else.”
And in the end, no one likely understood that fact better than Nagarkatti himself.
“As I told our people, Jai himself would have wanted us to be back on the agenda,” Sachdev says. “That was the kind of guy he was. We paid a lot of respect to Jai. He did great things for the company. But very quickly, we moved on to the agenda of the company and doing the things he or anyone else would have wanted us to do.”
How to reach: Sigma-Aldrich Corp., (314) 771-5765 or www.sigmaaldrich.com
The Sachdev File
Rakesh Sachdev, CEO, Sigma-Aldrich Corp.
Born: Ratlam, India.
Education: Bachelor’s degree in mechanical engineering, Indian Institute of Technology, New Dehli, India; master’s degree in mechanical engineering, University of Illinois; MBA from Indiana University, Bloomington, Ind.
What was your very first job?
Growing up in India, you don’t have the opportunities that kids have here to do part-time work. Basically as a student, you just end up studying and you don’t work for money. You don’t have part-time jobs. My first job was really when I was in college. I worked as an apprentice to overhaul Airbus engines at the airport in Calcutta.
Who has been the biggest influence on you?
My dad was an incredibly hard-working guy. He had very humble beginnings and he worked his way up to a fairly significant position with what he did. Hopefully I picked up a lot of the good qualities of just seeing the way he worked.
What is the best advice anyone has ever given you?
Be proactive and be focused and just get things done. We all have only so much time in a day. What I talk to the people here about is to just try to focus on what’s important. Don’t procrastinate. Be proactive and get it done. You’ll be surprised how much you can actually do.
What one person would you like to meet and why?
I would have liked to spend time with Steve Jobs, who, of course, is no longer here. But he was somebody who was creative with guts and was very focused. And as I was saying, he got a lot of done in one lifetime. I have a lot of respect for people who can accomplish a lot and not just be a flash in the pan with one success.
As a former client of Quest Fore Inc. Ken Cuccinelli had always known the company had great people and produced a great product. That’s why when the company came up for sale in 1999, he jumped at the chance to lead the 47-employee strategic marketing company forward.
Cuccinelli, owner, chairman and CEO, liked what he saw in his new business. However, there seemed to be something missing. The company needed processes in place and a strategic direction to help guide it.
“What they needed was better processes and financial controls as well as a strategic plan,” Cuccinelli says. “They were working mostly on a project-to-project basis. The first thing we wanted to do was move the company from being a project company to more of a strategic partner with our clients.”
Cuccinelli helped the company grow to that next level by adding direction.
Smart Business spoke to Cuccinelli about how to implement a strategic plan and add more value to your business.
Develop a strategy.
The important part of having a strategic plan is if you don’t have a plan, you don’t know where you’re going. If you’re just searching for the perfect wave, you might get lucky and find it, but you may not. Unless you have a plan and a direction, those day-to-day decisions that we each have to make if you’re not matching them to where you’re ultimate goal is, you may be taking yourself in the wrong direction. That doesn’t mean that a strategic plan doesn’t need to be looked at and revised at all times, but the bottom line is, you’ve got to know where you’re going or any path will get you there.
The real challenge people have is, they mix up strategy and tactics. That has been one of the elements of what we’ve been trying to help people understand. A strategy is more of a higher level of what we want to attain.
It gets to be a three-fold input. You have to talk to your employees because they see and hear things you don’t see and hear. The second thing is, you have to try to meet with your clients without any goal of selling, but just listen. How’s everything going? How are we doing? What could we do better? What do you foresee as your upcoming issues? In five years, what do you think is going to impact your business? You are trying to extract that information.
The third thing is to try and listen to what your competitors are doing. Maybe they’ve seen or heard something you haven’t and you can pick it up. Then you have to try and bring those three pieces together on a regular basis.
Measure your plan.
If you can’t measure it, you can’t manage it. The strategy doesn’t need to be complicated and it doesn’t need to fill tons and tons of books, but it needs to be the direction where you want to go and it needs to be understandable by everybody involved in it. When that happens, you’ll find that employees and staff will come up with the right kinds of programs, because they’re going to see how it’s going to get them closer.
A good strategic plan has three elements: it has a competitive analysis, it has an internal analysis, and it has a market analysis. Each of those has to be done to have a good strategic plan. Who are your competitors? How do you rank against your competitors?
We actually funded a third party to talk to all of our clients to see how we were doing and clients who we didn’t win bids on to do a lost-order analysis. We found out from that study that we had competitors we didn’t know about and people we thought were competitors were really not competitors. People really need to know who truly they’re competing against.
Know your value.
Value is a function of benefits divided by cost. You need to, from a strategic point of view, truly find out what your value is by knowing what your benefits are. You’ve got to talk to the clients. Look at each of your customers and study their business a little bit and see where it’s going. Is there consolidation going on? Is there technology advances going on? Be aware of what they are and see how you can help them get through those changes because change is pretty tough on a lot of companies.
There are three steps in any kind of selling process or in any relationship. The first one is people have to be aware that you exist. The second one is, they have to have a favorable opinion. The third thing is, they know now that you exist and they like you, then they’ll change behavior. So many people try to go into the behavior change piece right away. If you think of your own dating or relationships and things like that, it’s a multistep process.
HOW TO REACH: Quest Fore Inc., (412) 381-6670 or www.questfore.com
When we look at potential investments, particularly in service, business service and niche manufacturing companies, the most important valuation attribute is the likelihood of sustainable revenue and profit growth that can be enhanced. As such, consistent, strong, multiyear historical growth at the rate of 15 to 25 percent annually generally will create more value than a very significant single year jump — even if that jump is as much as 50 or 100 percent. Technically, that valuation difference is because a buyer will want to average the earnings over a several year period, because the “big jump” year is so unusual.
Philosophically, that valuation difference is because buyers generally believe that consistent historical growth is a far better predictor for consistent future growth. So, unless there are circumstances that support the continuation of a hyper-growth year, a company for sale that has consistent historical growth will be credited with more future earnings and a higher valuation multiple. The tortoises usually win that race.
In our experience, if a company wants to generate solid, sustainable growth, there are a few areas where executives should pay particularly close attention. One is the urgency with which they run their organizations, the second is investment in their sales and marketing, and the third is taking the time to think strategically.
Have the right amount of urgency
A great rule of thumb is to run your company as if you are going to sell it in five years, even if you have no intention of selling. By simply putting this five-year mentality in place, the right amount of urgency and focus is created throughout the organization, from CEO to the shop floor. This urgency will help with tough personnel decisions. It also often will motivate innovation in product offerings, cost savings and other areas of the business. However, this rule of thumb may not apply to significant long-term capital investments that won’t increase short or medium term earnings, but are nonetheless necessary.
Evolve your sales effort
Growth requires investment. The most successful, consistently growing companies typically have a focus on sales talent, process and discipline, while creatively looking for new products and markets.
It takes a focused effort to find quality sales talent. One of the operating partners that we work with is truly an expert at this. He has a couple of practices that we believe are part of his consistent success. When he recruits new talent, he typically does not limit his search to individuals that have expertise in the company’s industry. For example, even for a software company we invested in, he recruited a highly successful salesman that had no technical expertise and had never sold software. However, he had a track record of success selling to the same type of customer. The other thing he does is review sales performance on a regular basis and replaces nonperforming members of the sales team.
While sales talent is paramount, it also is important to have process and infrastructure to organize, monitor and support the team. Tighter accountability standards and consistent discipline on meeting realistic goals often are areas of opportunity for improvement and more consistent growth.
In our experience, the most successful and valuable companies take the time to look beyond the day-to-day and current-year budget to develop a strategic vision for the company’s future — say three to five years — and how it’s going to get there. This is not a budget. It is a detailed picture and a path. The process of developing the strategic plan will bring the company together, and give leaders at all levels of the organization a better basis for making decisions. If consistent growth is part of the strategic vision, it is much more likely to occur than if there is no plan.
Successful focus on these three areas will facilitate consistent growth, improvement and valuation creation.
Dan Lubeck is founder and managing director of Solis Capital Partners (www.soliscapital.com), a private equity firm headquartered in Newport Beach, Calif. Solis focuses on disciplined investment in lower-middle market companies. Lubeck was a transactional attorney and has lectured at prominent universities and business schools around the world.
Mike Duggan always found it offensive that hospitals profit more when a patient’s health problems are more severe.
“It’s really true: Hospitals make more money the sicker you are,” says the president and CEO of the Detroit Medical Center. “If we recycle the same sick people through hospitals over and over, the doctors and hospitals make more money from that. The fact is, the worse off patients are, the better the doctors and hospitals are, which never made any sense to me.”
Last May, Duggan and his leadership team at DMC decided to do something about it by applying to become one of 32 medical systems nationwide that will participate in the Medicare-operated Pioneer Accountable Care Organization Model program. DMC was officially named a program participant in December. As part of the program, DMC will receive money from the federal government based on its preventative-care track record moving forward.
“It started off as a moral question, and most of the DMC physicians agreed with it,” Duggan says. “Doctors went into this business to keep people well, and the idea that you succeeded more if you keep patients well appealed to a lot of doctors, it appealed to us, but you are going to find that most hospitals in the country didn’t apply for the Pioneer ACO, and really are resisting that direction.”
One possible reason for resistance is the fundamental changes required at the operational level. The ACO model requires a high level of coordination between doctors and hospitals to ensure that patients receive adequate preventative care and are maintaining follow-up doctor appointments after a hospital discharge. For doctors used to running their own practices, Duggan says they can experience some culture shock when placed in an environment where they and hospital administrators have to hold each other mutually accountable for a patient’s care.
That is the challenge that Duggan has faced, and will continue to face throughout the year. With 14,000 direct employees, and more than 1,000 physicians positioned as 50 percent stakeholders through DMC’s physician hospital organization, Duggan has to keep 15,000 people focused on a new approach to health care by emphasizing the reasons for change, and keeping everyone plugged into the organization’s progress.
Give them the paintbrush
When outlining any rationale for change, you have to spell out the reasons behind the change if you want to get buy-in throughout your organization. In DMC’s case, however, Duggan tried to put the change in the hands of his doctors and employees as much as possible. He outlined the resources at DMC’s disposal, the business model, and how the resources and model, if properly implemented and utilized, would make the ACO model a success. From there, he wanted the 1,000 stakeholder doctors to put two and two together, and come to the conclusion that this was the right way for DMC to operate.
Duggan wanted the stakeholder physicians to see that DMC had a highly integrated electronic medical records platform, a doctor-driven operational structure and a constructive relationship between doctors and administrative staff.
“We were the first system in Michigan to become 100 percent electronic, and that system is now being rolled out to the doctors’ offices,” Duggan says. “That means we’ll have someone in a central control capacity that will be able to see that Mrs. Jones was discharged on Dec. 7, she has a follow-up appointment with her doctor on Dec. 11, and then we can see if she showed up to her appointment. If she didn’t, we’ll be on the phone asking if she needs a ride or needs a nurse to come to her house.”
The real-time electronic updates have fostered a positive working relationship that is essential when implementing a system that requires coordinated movement from many different parts within an organization. Ultimately, no matter how you accomplish it, in order to develop the strong working relationships that can help smooth a large transition, the right hand has to know what left is doing. If there is a sense of disconnect, communication has broken down and problems can arise in your plan’s implementation.
“The great thing about this is I have been providing administrative support, but this has been a doctor-driven process,” Duggan says. “The doctors are driving the medical side, and we have been working together seamlessly. If you talk to doctors at a lot of other hospitals, there is a contentious relationship with them and the hospitals. When you have people that want to be a part of a big change like this, you have to keep them close and connected. I think we’ve been effective in doing that.”
Another factor working in favor of Duggan’s plan is the fact that doctors have, in a very real sense, bought into DMC’s future. In December 2010, the health system became a physician hospital organization. The 1,000 doctors that paid $1,000 to join the organization represent nearly half of DMC’s 2,500 affiliated physicians. By literally buying in to DMC’s future, the doctors who joined the PHO have become advocates to their peers for the switchover to an ACO-based operating model.
With that level of engagement, Duggan has had a great deal of help in aligning the organization.
“I don’t spend a lot of time with skeptics,” he says. “I just say, ‘Here is the reason why I think it makes sense to sign up; if you don’t want to sign up this year, you could sign up a year from now after you see how it all works. It’s your own choice.’ But so many doctors have gone and persuaded their colleagues that this is the right thing to do. And it’s because we’ve taken that approach. The key is to be totally honest and direct, and don’t twist anybody’s arm. If you believe this is the direction to go, it’s going to be a lot of fun. If you don’t believe in this direction, nobody is going to criticize you, and you can reevaluate a year from now.”
Build on the momentum
When you’re trying to build support for a large-scale organizational change, it’s nice to have people take up the cause and advocate to their peers, even if you don’t ask for the help. But as the leader, you often can’t just wait for that support to sprout on its own. You have to cultivate it. And the way you cultivate it is by searching for the dreamers and the complainers in your company.
The dreamers are the people who still have a sense of idealism about their work. They still want to change the company, the industry and the world for the better. The complainers might seem like a destructive force on the surface, calling your decisions into question, but Duggan sees something else.
“The person who is always calling you, complaining that you aren’t doing enough, that is normally where I start looking for my change agents,” he says. “The person who doesn’t care enough to call up with a company probably isn’t your guy. But I’ve always relied heavily on the people who care enough to call up. I engage those people, because while some complainers are just complainers, a lot of complainers are problem solvers who just want a shot to make things better. Your most vocal critics are often your best change agents when you’re trying to promote a change like this.”
Duggan points to one of the other administrators at DMC, who has been a highly antagonistic critic ever since Duggan was hired as CEO. Duggan has repeatedly sought his critical colleague out for service on panels, knowing that he’ll bring a different perspective to the table. When you’re trying to facilitate a major change, it might seem counterintuitive to give a voice to your harshest critics. But bringing them to the discussion can accomplish two things — it can bring a fresh outlook to the proceedings, and it can win over not just the critical person alone, but also like-minded skeptics who see you accepting a differing viewpoint.
Duggan got his dreamers on board during a trip to a seminar in Minnesota last June.
“We had a couple of private doctors who have had a drive their entire life to change the way medicine is practiced,” Duggan says. “When the feds had the seminar in Minnesota, I got those doctors to go along with me. After three days, they were very excited, and we came back to Detroit with that attitude. I’m picking people who are leaders and change agents by their nature. If you engage them and allow them to take an active role in the direction you’re headed, you don’t have to do anything. They’ll just take over and embrace what’s happening.”
Duggan placed his dreamers and complainers in influential positions, leveraged their passion to improve, and allowed their attitude to become contagious to the rest of the DMC organization. Once the doctors bought in, administrators and staff members followed the example and started to believe in Duggan’s plan.
“I think once the hospital staff and administrators heard the doctors talking with more enthusiasm, we started to see more interest in our meetings,” he says. “Now, I think you’ll find the leadership at all of our hospitals deeply involved in the planning. But it’s like any new idea. It takes awhile to catch on.”
Any major change is going to challenge your ability as a communicator. Even after the initial rollout of your plan, you’ll need to keep your message in front of your people, and continually give them opportunities to offer their opinions and ask questions.
Like many leaders of large organizations, Duggan has created numerous touch points between himself, doctors and hospital staffers, in an effort to ensure that their engagement level doesn’t wane as the ACO model moves from a novel concept to an everyday way of life. Duggan says communication is still a work in progress.
“If the doctors have one criticism, it’s that we have not communicated frequently enough,” he says. “There is a whole series of steps involved, and we’ve been putting more rigor around it. I wanted a monthly newsletter, but it didn’t go out every month. We were busy, so we stopped and said ‘You know what? This is going to be a priority from now on. This is going out every month.’ I think we’ve improved, but there are a lot of grind-it-out details that you have to keep executing on. There hasn’t been any magic to it.”
To an extent, the challenges Duggan faces are not unlike a franchisor. The leader of a franchise-concept company might have more control over the customer experience, but Duggan still has to get independently owned businesses under the same corporate umbrella to adhere to a uniform set of standards and practices, as DMC forges ahead into uncharted waters in the U.S. medical field. So far, Duggan believes the results have been good, but it will be an ongoing process for quite awhile.
“That’s what is going to be fascinating about all of this,” Duggan says. “The doctors have agreed to the standards and protocol, they’ve agreed to be on electronic records and be measured, and now we watching all these different businesses find a way to implement new standards in a way that works for their practice. It’s going to be fascinating to watch.”
How to reach: Detroit Medical Center, (888) 362-2500 or www.dmc.org
The Duggan file
Education: B.A. and juris doctor, University of Michigan
What is the best business lesson you’ve learned?
I don’t tolerate feuds among the management team. That is a guiding principle in business, for everyone to see the team as unified. You can’t drive change with people bickering with one another. You can disagree, but you can’t allow people to hold grudges.
What traits or skills are essential for a leader?
Honesty. Really, beyond that, anything else is secondary.
What is your definition of success?
Essentially, it is succeeding in making the world a better place than how you found it.