Robyn Davis Sekula
In 2000, Joel Allison assumed the leadership role as president and CEO of Baylor Health Care System in Dallas. The system, which has 15 hospitals and 16,000 employees, was a large player in the area’s health care arena and was functioning well. But Allison and others at Baylor began to ask an important question: How could it be better?
The conclusion they reached was the organization could improve if it focused on quality.
Allison, previously the health care system’s chief operating officer, wanted everything in the health care system to be the best it could be, all the way from the meals that are served to patients to the cleanliness of the floors to ensuring surgeons operated on the correct leg.
The nonprofit health care system, with $2.9 billion in operating revenue for fiscal 2007, implemented a new vision and mission statement that pushed every staff member to focus on quality, and it found a way to encourage its employees to care about how the hospital was perceived in the community.
It put forth the vision of “To be trusted as the best place to give and receive safe, quality, compassionate health care.” Around this vision is a flywheel of four major initiatives to implement that vision: people, quality, service excellence and stewardship/finance.
“We wanted to go to the next level with our commitment to quality,” Allison says. “Our board actually passed a resolution on our commitment to quality and said not only will we meet, but we will exceed all benchmarks on quality.”
Allison says you don’t improve quality by mentioning it during orientation and letting it go at that.
“It’s through communication, communication, communication, and it’s through constantly living that message and walking the talk,” Allison says. “I truly believe that what you have to do is continue the message to your health care team and to your employees. We do everything we can to reinforce our vision statement, our values, our mission and why we are here. ... (Employees) make up the culture of your organization, and, at the end of the day, they sustain it. We want to be very much in touch with our health care team.”
Quality at the top
Baylor officials started by hiring someone to be in charge of quality.
“We wanted to have a very focused approach to quality and have someone identified as a chief quality officer to help us evolve in that particular space for the long term,” Allison says.
The candidate they wanted would have to come from a strong health care system with a good reputation for quality care. Dr. David Ballard was recruited to Baylor to become the organization’s chief quality officer in 1999.
Ballard helped Baylor set up measurements for quality, which helped employees know what the goals were and how to achieve them. Baylor officials looked for industry standards, and then set the bars even higher.
Allison says the key to quality is making sure that every employee in every department cares about the quality of the work that he or she does. To send this message, Baylor added quality into the components measured and discussed during its performance awards program offered to upper-level managers. The annual performance awards are incentives given to managers who meet certain performance goals in the areas of finance, patient satisfaction and now quality, with all three areas getting equal weight in the evaluation process.
Also, three times a year, Baylor gathers its top 1,000 managers from across the company for its Leadership Development Institute, which has as its ongoing goal to revisit the four major emphases of Baylor: people, quality, service and stewardship/finance. In the most recent leadership development meeting, Baylor brought in an outside consultant to discuss behavioral interviewing with managers to help them hire the right people.
Overall, the institute strives to emphasize quality in every aspect of the organization. Allison personally attends each Leadership Development Institute.
“We have actual matrix, and we talk about measuring them, and we talk about how we can motivate and encourage people to make that daily commitment to delivering safe, quality, compassionate care,” Allison says. “... We want to have a cascading of a very common message that engages the employees. Everyone wants to know, ‘What does that mean to me?’ The engagement of your team is important because it’s the combination of your employees’ motivation or commitment and their ability to know how to make an organization successful by having this clear line of sight. They really are committed to help the organization succeed. It’s how you treat people and how you sustain relationships that helps build your culture.”
Communicate at all levels
Baylor emphasizes listening just as much as talking with its employees, and executives are encouraged to listen to concerns of employees. Also, employees are surveyed every other year, with some 79 percent taking part in the most recent survey in 2006. Baylor also has focus groups with employees and also has an ethics hot line, in which employees can anonymously report violations of company policy. The calls are routed to a third-party vendor who handles the calls to assure the review is objective. Every call is reviewed by Baylor’s chief compliance officer, who reports directly to Allison.
“That helps us to find out if there are any issues or concerns about any problems or early warning signals to pay attention to,” Allison says. “It’s all back to quality. It’s all back to service. It’s about commitment to patient care and value of integrity and openness that we want to be the best organization we can be and to be trusted as an organization that is delivering the highest quality of service.”
The two-way nature of the conversation engages employees in contributing to quality. Allison’s own e-mail address is made available to all employees, and he tries to answer every e-mail he receives, even if it is just to let the employee know he’s forwarded his or her question to another manager. Surprisingly, employees aren’t abusive of having it, and they often have valid points or concerns that they bring to his attention.
Employees have to feel valued, and one of the ways to do that is to be responsive.
“They are critical to you being successful,” Allison says. “They are the ones who are out there, 24 hours a day, seven days a week, taking care of patients. I think it’s a CEO’s and management’s responsibility to stay in touch with your employees. You have to engage them. You have to know what they are thinking and what they can do to help you, how they can make it better for the patient. I’m a big believer in building strong employee relationships and being out with the people. We encourage all of our senior executives and the presidents of our facilities to do that.”
Rewarding quality also helps motivate employees to keep quality standards high. When a patient writes a letter of thanks, Allison makes a point to share it with the company leadership, and he and the leaders also take the time to thank the employees who delivered that great service.
“We share stories of grateful patients who write back to tell us how their care was delivered,” Allison says. “We reinforce to our people the good work that they are doing. We write thank-you notes. When anyone does a great job or delivers great service, we have our leaders write thank-you notes to them.”
In 2007, Baylor held its first Quality Summit. Employees submitted quality programs for awards, and prizes were given for the best initiatives. The first place winners were invited to give a presentation on their quality programs. Many of those initiatives became best practices throughout the health care system. Allison says the program was a big hit with employees. Some immediately began talking about next year’s contest, which shows their enthusiasm for the program.
“It’s a message from top management that we’re putting a focus on quality, such that we will recognize quality and reward it by saying, ‘You have achieved a level of quality that is recognized by your peers and a panel of judges,’” Allison says.
Future quality goals
Future goals toward raising the bar of quality even higher include reducing turnover, which is a goal for 2008. He plans to accomplish this by adding a people portion to the performance awards program for managers, which will measure retention of employees.
“We want to make sure we are hiring the right people and retaining the right people,” Allison says.
The right people, he says, make all the difference in the organization’s success. He tries to be one of those right people himself.
“I believe very strongly in surrounding myself with the best and brightest people, empowering them and letting them do their job, and being of service to them and help them find the necessary resources to accomplish their tasks,” Allison says. “I try to be available and visible. I try to really continue to communicate the message and live the values of the Baylor Health Care System.”
He says creating a program that concentrates on quality can change your organization, but only if you practice it and believe it yourself.
“Create a vision around quality for your organization, and communicate that to everyone in your organization,” Allison says. “You need measurements. How are we going to achieve the vision and set milestones on how your employees will be recognized on achieving quality? Make it very much a part of your every day conversation, and make it a part of your culture. Really emphasize that quality is important and anything short of less than excellence in quality is not acceptable. You want only the best. Your patient or customer truly deserves the best.” <<
HOW TO REACH: Baylor Health Care System, www.baylorhealth.com
But for Bill Darling, president of Frisco-based Darling Homes, his company was not positioned for that market. It was focused on more seasoned homebuyers, particularly those looking for a custom-built home with high-end options and lots of details.
As it turns out, those customers were mostly employed in the technology industry in Dallas, and many were unemployed as the tech sector went bust around 2001.
“As the industry was flourishing and all over the headlines, Darling Homes was struggling in the marketplace, because our buyers were without jobs,” says Darling. “Four-and-a-half percent interest rates don’t mean anything if you don’t have a job. ... Our big decision was, should we chase that market like everybody else was doing? That’s easier said than done, especially with a business model like ours that calls for paying more for a customized home and a little higher-quality product.
“That’s a whole different mindset and a whole different set of people within our company. We would have had to start a whole other company to satisfy that customer.”
Founded in 1987 by Bill Darling and his brothers, Bob and Steve, Darling Homes started out building patio homes but now builds custom homes and employs 220 people. In 2006, the company had $264 million in revenue, selling 709 houses.
As tempting as it was to go after that red-hot first-time buyer market five years ago, Darling Homes decided not to chase the money but instead continue to do what it had always done well: build custom homes for the middle- to upper-class market. The company kept its team together rather than scaling back and decided to get better at what it was doing. Bill Darling believed the market would turn. And it did.
“That’s one of the reasons we just had our best year ever in 2006,” Darling says. “We were prepared for the turn, and other companies were readjusting from having to go after that market.”
Keeping the faith
Instead of going after an entirely different market and changing the face of the company, Darling Homes seized an opportunity to move into the Houston market in 2001. A developer working on an upscale, master-planned community just north of Houston approached Darling and wanted the company to build in the developer’s community.
Darling didn’t leap, though, without examining the opportunity closely, and he spent nine months researching the Houston market before committing. The key to analyzing the market was looking at the city’s economic base.
“I spent a lot of time down there myself, as well as my brothers,” Darling says. “Some of the same research companies who are here were there, and we had a relationship with them, and we sat down and analyzed it. We looked at future job growth in that marketplace.”
One of the attractions was Houston’s reliance on the energy market. While Dallas leaned heavily toward technology, Houston was focused on the gas and oil business, and the two markets could balance each other.
Darling also looked at the competition and didn’t think anyone was offering what his company could offer. He didn’t see as many companies concentrating their efforts on offering homes with custom options, allowing customers to make changes to the types of finishes and interior styles to a home and upgrade to higher-end materials. Darling Homes’ business model emphasizes allowing customers to make changes.
“We felt like there was an opening in those communities for our product,” Darling says.
Once the company made its move, it was all in. It opened an office in Houston and began working in four developments at the same time. As Darling sees it, the best use of the company’s money was in economy of scale.
Creating the Houston operation and managing that market taught Darling a lesson. When opening a remote office, Darling recommends appointing someone who’s already on staff at headquarters to manage the new office, which keeps its vision and operating processes consistent with the home office.
In the case of Houston, Darling hired from the outside, and it didn’t work. The person he hired didn’t understand how Darling Homes wanted to operate. Two-and-a-half-years after opening the office, Darling had to send in an executive from the home office to run the Houston office, and that person is still there.
“I would do it differently,” Darling says. “We would be much more prepared today to take something like that on because of our management team, the common vision and the common message we all have. We weren’t as mature as a management team back then. If we were going to do another marketplace today, we would send someone from our corporate office to open up that office.”
Today, Houston generates 40 percent of Darling Homes’ revenue, proving it was a wise investment. The only danger is making sure the Houston operations stay fully integrated within the company. The management changes helped, but so does the annual meeting Darling Homes holds for all employees to help the offices’ employees get to know each other.
Quarterly, Houston’s and Dallas’ leadership councils meet for two days to share ideas. It’s tough to get busy managers to take that much time away from their offices for the meetings, but Darling says it’s vital to the success of the company.
“We’re so committed to the growth of our people and everybody being on the same page that we wouldn’t think of investing our time elsewhere,” Darling says. “It’s a great use of our time and resources. ... We all have the feeling of being on the same team.”
Controlling your own destiny
Darling Homes’ management team examined the market and found that developers were satiating the need for inexpensive homes geared toward first-time homebuyers, not building the kind of developments that Darling Homes’ buyers want to live in. Its buyers want open space and larger lots, and sometimes, gated communities, which were not plentiful and were not in the works, either.
It became apparent that within a few short years, it would run out of places to build, so the answer became to get into the development business.
“We like to have product lined up a good three years in advance,” Darling says. “We didn’t see we’d be able to satisfy the portion of our product mix that was higher up with what was coming. We felt like we would either partner with a developer or develop ourselves, if need be, to satisfy that requirement.”
The Darlings were presented with an opportunity to partner with a local family, the Newmans, to develop its land. Newman Village, the master-planned community in Frisco, will break ground this year.
Darling says most of the decision was simply financial. Partnering was a good solution for the company and has kept its debt lower than it otherwise might be. He says he and other key executives within the company are cautious about buying too much land because they don’t want to mire the company in debt. The home-building business is already capital-intensive, and Darling says it’s important to know your limits.
“We didn’t want to warehouse a lot of land,” Darling says. “There wasn’t the same kind of risk as purchasing 260 acres of land. This was the right deal and the right location.”
Keeping the team together
Retaining executives and other employees has been key to continuing the company’s mission to build quality custom homes. Darling says that people stay because of the company’s culture, where innovation is encouraged and employees are respected for the gifts they bring to their jobs.
“Culture is about treating people the way you want to be treated and letting them spread their wings some,” Darling says. “It’s about everybody having the same values and having the right work and personal life balance. That’s something that Bob, Steve and I were interested in developing for ourselves from Day One, and it’s been attractive to people over the years.”
One way the company cultivates its employees is by offering a variety of training opportunities. Within the past few years, it has consolidated all of its training programs under one umbrella, called Darling University. Employees who are interested in training can go through a catalog of classes and request to take various courses. Some 125 classes are listed in the guide, which is divided into departments such as sales and construction.
When enough people indicate interest in a particular class, the company sets it up.
“It’s not a question of whether you graduate from the university,” Bill Darling says. “It’s more knowing what programs are available to you, and your manager knowing what programs are available.”
About 75 percent of the courses are taught by Darling Homes’ own staff; the other 25 percent are led by consultants. Darling says the University’s first full year was 2006.
“It’s shown a commitment to our people and their development,” Darling says. “It’s excited people that they won’t be stagnant in their position. People are excited to learn something new. We’ve been able to attract some new leadership because we’ve shown our commitment to developing people and their career paths.”
With a good team in place and the company firmly established in two growth markets, Darling is nothing but positive about the direction of his company. Referring to Jim Collins’ words in the landmark business book “Good to Great,” he says the company has the right people on the right seats on the bus.
“I love the fact that we have a mature management team,” Darling says. “We are positioned to not stand still. ... We are open to innovation, which our industry needs greatly. With that said, I think we are positioned to doubling our size within the next five years.”
HOW TO REACH: Darling Homes, www.darlinghomes.com or (469) 252-2200
Education: Bachelor’s of business degree, Boise State University, 1977
What is the most important business lesson you’ve learned?
I would say three things, and I say them all the time. People support what they help to create. What gets measured gets managed. What gets rewarded gets repeated.
What’s the best work advice anyone has ever given you?
The best advice was, 90 percent of your problems are process, not people. Fix the process, and people will be hugely successful.
What are some of your favorite business books?
The most important book I’ve ever read in my business career is Peter M. Senge’s “The Fifth Discipline” and the whole concept of systems thinking. The management team read “From Good to Great” and used it in managing the business.
Birthplace: Hornell, N.Y.
Education: Bachelor’s degree, English, Hope College, Holland, Mich., 1970
What’s the biggest business challenge you’ve faced?
When I came to ShowBiz and Chuck E. Cheese. I knew the risk was high, but I thought if we could buy ourselves some time to get things turned around, we could get it done.
What is the most important business lesson you’ve learned?
Believe in your people and earn their trust.
What is your work philosophy?
To make sure that my priorities are clear and that I remain extremely focused.
What’s the best work advice you’ve ever been given?
Keep it simple. Make sure you are focused on the right things.
Frank on failure: I’m a big believer in business that if you don’t have some failures along the way, you aren’t doing enough. I think sometimes in business, people get all caught up in making the right decisions.
I think it’s equally important that you have a company or culture where failure is not only tolerated but accepted, accepted in the sense that if the thought process was right, if the strategy and tactics are well-thought-through, if the execution of what you’re doing is done in a quality way, and it doesn’t work, I’m OK with that.
Then you need to step back and say, ‘Where did we miss? What in our thought process or strategy was wrong?’
As a member of the board of directors, Thomas D. Karol was already familiar with Elk Corp. before he became its chairman and CEO in 2001.
Karol was intrigued by the company’s mix of businesses and by the challenge of making Elk into something better.
“What attracted me to it was that my kind of modus operandi is to try to find what companies do well and exploit or optimize the potential based on the strength of the company,” Karol says. “Elk, I felt, had better potential, and we just needed to figure out what kind of sustainable advantages we had and how to commercialize and exploit those.”
Elk manufactures laminated, architectural asphalt shingles for steep-slope roofing, a product line that was performing well and driving most of the company’s growth. But it also had a puzzling array of other businesses that were performing weakly or losing money.
Those other businesses had evolved from the company’s founders five petroleum engineers from Midland who were natural-born inventors and tinkerers. They would often tackle challenges presented by customers and colleagues, and when they came up with a solution, they’d form a subsidiary around it.
“To a great extent, that’s one of the strengths of our company,” Karol says. “We have an innovative bent.”
The founders had also bought some businesses that didn’t fit in very well with Elk’s strongest performing business its roofing products and none of the subsidiaries made much money.
“They had been in a lot of other businesses, but they had never really, really made a lot of money or done anything else that had been a standout,” Karol says. “So I said, ‘Let’s look at what we do in this business.’... We made the decision that we really were a building products company, and anything that was not in some way adding to or was tangential to that business, we didn’t need.”
Despite his energy and drive, Karol former president, CEO and owner of L.D. Brinkman Corp., a carpeting manufacturer and flooring distributor that he sold in 2001 was not in a hurry. His first order of businesses was to examine those tangential businesses and make them healthier, positioning them for sale in the process.
“To a certain extent, you want to sell something when it’s all dressed up in a wedding dress, having dieted and exercised and with a tan,” Karol says. “We said, ‘Let’s see if we can make these better businesses, to see if someone else will want to own them.’”
The two businesses Karol decided to sell were Cybershield and Ortloff Engineers Ltd. Neither fit in with Elk’s core building products Cybershield made plastic shielding used in the cell phone industry and Ortloff handled matters related to the natural gas industry.
Karol’s theory proved correct; growth did, in fact, come after a severe pruning. In fiscal 2005, when Elk sold off those two tangential businesses, Elk’s revenue bounced up to $761.7 million for the fiscal year ending June 30, up from $574 million for 2004.
“When I came in, the earnings were 41 cents for the year and the stock price $14,” Karol says. “This year, our earnings should be in the $2.25 to $2.40 range, and the stock price is $37. To be honest with you, I think that’s been OK. We can do better.”
Karol and the board of directors also intend to sell Chromium, which supplies chrome-plated finishes for abrasive environments such as locomotives. So far, though, they have found no buyers.
“When we exit a business, we want to make sure it’s a good deal for everybody, that we get a fair price and that the employees have a good opportunity and that the buyer is getting a fair opportunity to succeed as well,” says Karol. “We have not found that opportunity for Chromium yet.”
In the meantime, Karol has made that subsidiary profitable by paring it down to one manufacturing plant in Cleveland and improving its manufacturing operation, lowering the sale price significantly. He says the company will keep Chromium for now, and he even sees opportunities to turn it into something more if it doesn’t sell. He sees applications in manufacturing and other fields that use fast-moving machinery, as plating can help prevent costly wear-and-tear.
“There is a whole industry that uses very high impact ceramics or very hardened steel,” Karol says. “We said, ‘We can use our hard chrome plating technology to improve wear on machinery in manufacturing.’ That’s a growth opportunity we see down the road.”
Losing fat, adding muscle
As the company is shedding the extra weight, it’s also adding muscle to its product lines. Since its concentration is in building materials, Karol has worked to buy out other manufacturers that create products that fit.
“We’ve invested in four business platforms that all use, in some manner, similar technology or processes, have similar distribution channels and all complement our brand position as a quality leader in building products,” Karol says.
Because the company is a leader in high-quality architectural shingles for roofs with a steep pitch, it made sense buy out a low-slope roofing company. Elk also sought out other complementary building materials, buying a composite lumber business and a composite railing business.
Karol is particularly bullish on the composite lumber business, which creates products made from a blend of plastic and wood fiber. The blend creates a longer-lasting deck and other wood for exterior use.
“The composite technology is really what I think is the next big thing because you can extrude in a continuous fashion, not a batch process, various profiles or shapes of materials that have enhanced features, including that you can put color in it, you can make it more moisture-resistant, and give it strength,” Karol says. “We are believers that the composite technology will be the next big engineered wood breakthrough.”
The company’s third product line revolves around specialty fabrics used as backing on carpet tiles, the facing for gypsum board and underlayments for flooring. VersaShield, a fire and moisture-barrier fabric, is part of that product line.
The fourth product line is what the company calls VersaShield Building Solutions that go underneath the exterior building products it makes.
Of all four lines, roofing is still the strongest performer, accounting for 90 percent of the company’s sales, but other lines are making strides.
“We make good money in each area,” Karol says. “Composites has been losing money, but we feel we are within one or two quarters of profitability there.”
Investing in the company
Elk has invested in two things that Karol says will continue to lead it into more profitable pastures: a new manufacturing plant in Lenexa, Kansas, that provides greater efficiencies, and a research and development laboratory in Ennis, Texas, which has undergone two expansions in the past five years.
“True innovation is how you succeed best in business, in my opinion,” Karol says. “Our job is to give better products that the consumer gets more value out of. We are big believers in true innovation, either that we can lower the cost to the consumer or give them more features for less cost.”
Growth will come as the company continues to expand its product lines through inventions.
“We’re developing various products in each of our business platforms that we think are very cool products that will provide more value and better performance,” Karol says. “We prioritize and work on certain things at a faster pace than others.”
Karol wouldn’t say what, exactly, the company plans to introduce, but says there are plans for siding and trim created from the composite materials business, and it will introduce a solar product this year to go on top of roofing materials and allow homeowners to capture solar energy.
Elk is making a move to promote itself beyond the builders and developers who know its products, Karol says. With help from a new advertising agency, Elk is making a push to become a brand that consumers recognize and request.
With its new tagline, “Confidence Built-In” and a slogan, “For confidence and peace of mind, ask for Elk,” the firm wants to make its brands known among consumers, who are building homes and making improvements at record rates.
Elk has concentrated its advertising in magazines sold commonly in home improvement stores, and Elk products have been featured on several national home and garden shows, including ABC’s Extreme Home Makeover. What Karol wants for his company is the same kind of name recognition that Kohler has gained for its faucets and Pella has for its windows and doors.
“The basic premise is we want people to have enough awareness of our brand that they would consider us,” Karol says. “If you are going to think about putting a roof on, or a deck or siding, we want you to think, ‘I know Elk. That’s a good company, and I will consider them in our choices.’ That’s all we want to do with our brand.
“Then we want to let the channels work to our advantage. They will then talk to their contractors or go to Lowe’s or Home Depot and hopefully, they’ll say, ‘Do you have any Elk?’”
Karol says the exposure is working since the advertising campaign began, Elk’s Web site traffic is up, as are inquiries from contractors.
As Karol sees it, growth takes time, and he hopes to build on the net income of $46.9 million on sales of $761.7 million posted for fiscal 2005.
“The basic philosophy we have is that we are money managers, if you will,” Karol says. “The investors want us to employ the money in things where we have a competitive advantage. They don’t want us in things that we aren’t good at.”
How to reach: Elk Corp., www.elkcorp.com
When Kathleen Mason joined Tuesday Morning Corp. as its president and CEO in July 2000, the upscale discount retailer had a lot going for it.
Customers were loyal and loved the bargains on high-end brands, and they even formed lines on occasion to get into the stores at the start of a sale day. By all accounts, the stores were a hit.
But the company wasn’t doing as well as it could be. Mason, a veteran of the retail industry who previously served as president of Homegoods, thought Tuesday Morning’s balance sheet was bloated and its technology lagging; she notes that Tuesday Morning didn’t even have voicemail when she came onboard.
The company also had way too much inventory, scattered in warehouses across the country to feed the chain of stores. And its marketing wasn’t nearly as savvy as its customers were. As Mason saw it, having a strong brand and bloated balance sheet was an ideal situation.
“It was not looking good from an operational management perspective,” Mason says. “That’s a great set-up for success because as long as you know who your customer is, you have all of the right components for success. ... It was an opportunity to return to some great operating margins and be a very profitable business and be a very low-cost operator so that everything we delivered was value to the customer.”
Tuesday Morning’s formula for success is this: Sell great merchandise at deeply discounted prices and close stores for periods of time, so when they reopen with new merchandise, it’s an event. And the stores are always open on Tuesday mornings, hence the name.
The Dallas-based company, which opened its first store in 1974, operates 732 stores in 46 states.
Mason has made the company profitable, with increased earnings each year. In 2004, it reported net income of $62.6 million on sales of $898 million, compared to net income of $24.6 million on sales of $587 million for 2000.
From the top down
Mason’s plan for success started at the top with the reorganization of the management team.
“We restructured organizationally,” Mason says. “We were able to take some of the people who had made the company great and get them in the right positions. We added, too. We brought in some new people and changed the organizational structure to reflect the best of both of the inside and outside.”
Shortly after Mason’s arrival, Tuesday Morning appointed as chief operating officer/executive vice president Mike Marchetti, who is responsible for distribution, computer and communication systems, and loss prevention. He also helped Mason address the company’s sticky distribution issues as they brought in new buyers to hunt down merchandise.
“I’ve learned that you hire good people you can trust,” Mason says. “You keep in touch, but stay out of the way.”
After reorganizing the management team, Mason tackled the distribution of merchandise.
“First of all, we closed 16 regional warehouses,” Mason says. “We had a lot of inventory sitting in warehouses waiting to go to different regions and stores. We really didn’t need those warehouses, and we lost control of those warehouses. We closed those distribution centers. We expanded our existing facility in Dallas, and that gave us much greater control over our inventory. We improved our systems, our information systems.”
Tuesday Morning purchased new computers and software for the distribution center to help track what was coming into and going out of the warehouse to keep better tabs on the merchandise. It also replaced warehouse distribution and sorting equipment.
“We got the inventory in line with reasonable levels,” Mason says.
Mason wanted to update Tuesday Morning’s image through television advertisements and hired a new agency to help it. The company hired Lauren Bacall to serve as its spokeswoman three years ago.
“I can’t think of a classier woman than Lauren Bacall,” Mason says. “She really speaks well for us and speaks to the brand. Sometimes celebrities can be iffy and have checkered backgrounds. Lauren Bacall fit our needs very well. She represented a fine taste level. Since she was a shopper, she loved Tuesday Morning. She loves our product.”
It’s hard to say if the ads have directly led to increases in sales, but Mason thinks they are at least partially responsible for the company’s growth.
“It has given us greater visibility as the value provider that we are,” Mason says. “It has reinforced our message of being a great place to find first quality brand names at fantastic prices.”
And it’s helped the company reach customers who perhaps had never heard of the stores or weren’t sure what they offered, says Mason.
Mason also uses technology to reach its customers more effectively. Tuesday Morning notifies most customers about upcoming sales via a mailed flyer, capturing addresses at the cash register for future mailings. Some 7.5 million shoppers have signed up.
“We don’t sell that list,” Mason says. “We hold it close to our heart. We take care of our customers by giving them notification of some of the more fantastic buys we find throughout the world.”
Mason says about 10 percent of those 7.5 million people receive e-mail notification of sales, called eTreasures, something she started for the company. Those customers access an online catalog that is essentially the mailed flyer posted on a Web site for their perusal, with daily new arrivals. The company doesn’t sell anything over the Internet.
Taking chances on stores
With the major operational challenges addressed, Mason began leading the company on an aggressive push for new markets for stores.
During her tenure, the number of stores has grown from 415 in 2000 to 732, with plans to reach 1,000 by 2010. She doesn’t shy away from small cities but says a new market must meet specific criteria, such as median income. Tuesday Morning aims for communities with an average household income of $60,000 but doesn’t consider that a hard-and-fast rule. Executives also look at other factors, such as average educational levels, that help them get an understanding of the community and whether it will support a store.
“They do have to have more of an aspirational customer, a customer who really wants quality at a price,” Mason says. “That can still cut a pretty wide swath. Even a young customer on a limited budget wants quality. If they recognize a name brand, nothing else will do. ... We are opportunistic in everything we do, so we might bend the rules a little bit. But there are a number of metrics that we look at.”
To keep costs down and profits up, Tuesday Morning looks for bargains in real estate, sometimes settling for locations that other retailers might pass up because it knows that customers will make the effort to find the store.
It has been aggressive and taken on some risky markets, but there has only been one that simply didn’t fly, Mason says. A store in Cheyenne, Wyo., opened in February 2001 and closed in June 2002.
“That was a real stretch for us,” Mason says. “Although it is an upscale community, there are just not enough people there who are interested in shopping. It’s too spread out, too remote.”
Mason says her only other flop was attempting to make the stores more attractive with better-looking shelving. But after several tries, she abandoned that effort because the new shelving was difficult to work with and didn’t seem to matter to shoppers.
“We thought it was a way to pretty up the stores and better display merchandise,” Mason says. “It was expensive and too specific. Our customer is used to the treasure hunt and doesn’t mind that. We are not for everyone, but the customers who have come to appreciate our no-frills format really do benefit by finding some of the most fantastic things from around the world.”
Mason also has increased the number of days the stores are open. When she came to Tuesday Morning, they were open about 250 days a year and closed in January, July and between sale events. Now, they are open about 300 days a year.
“There is always that risk of hurting that sense of urgency that was part of our formula,” Mason says. “But we had to balance that with the consumer’s desire for convenience. It was a clamoring request, especially from younger customers who say, ‘Look, I’m a working woman and I can’t pay attention to when you are open and closed.’”
Mason and other Tuesday Morning executives give a lot of thought to that customer, who she is and what she wants. They want to know who those customers are, how much they make, where they live and what their shopping habits are.
In 1998, before Mason came to the company, Tuesday Morning did a complete analysis of customers through surveys to get that information. It recently completed another year-long survey, and the results will likely guide future decisions.
“It helps us really refine our understanding of who is buying at Tuesday Morning and to be more pointed in addressing that customer in terms of communication in every way,” Mason says. “It’s like when you give a speech, you need to know your audience. You don’t communicate with everyone the same way. The more you know that person, the better you are able to communicate with them.”
The survey results are still being tabulated, but Mason says it appears that the Tuesday Morning customer is very much the same person she was six years ago.
“We still have a wonderful core customer who is an upscale customer,” Mason says. “She really appreciates and recognizes brand names. They really have to be a shopper.”
HOW TO REACH: Tuesday Morning, www.tuesdaymorning.com
When Donald W. Hultgren became CEO of SWS Group Inc. in August 2002, the organization had just completed its first on-record year of losing money.
The company had posted fiscal 2002 revenue of $335 million, with a net loss of $6.2 million.
Hultgren had been working at the company since 2000, and he knew the company could be great again. In his mind, the reason the company was losing money was because of one problem: lack of focus.
“The company was a very strong company,” Hultgren says. “It entered some businesses that were core. It had also entered some businesses that were not core. Some of the non-core businesses were using too much capital to fight wars that we probably couldn’t win. I felt at that time that it was important to streamline the company to get focused on our core competencies and stop spending money on things in areas that were not core to our business.”
Focus, he says, is essential to building a solid business. Communicating that focus to the employees and others associated with the company was key to rebranding and rebuilding.
“If a business has a focus that is clearly understood by all of the constituents, that being the employees and the customers and the shareholders, then that focus can really help you drive the firm in the direction you want it to go,” Hultgren says. “I think it is critical to an organization to be focused on what the firm is attempting to accomplish in the marketplace.”
Evaluate the businesses in which you are involved
Hultgren’s task from that first day of work was to begin evaluating which of SWS Group’s businesses would be the best choices to keep. He says he would have been open to keeping any one of the company’s lines if he thought SWS could be a leader in that field.
Hultgren says he took his time looking at the options and didn’t make any snap judgments. He and his management team examined each business by looking at that segment’s performance for SWS, and then they looked at the competition. In evaluating the competition, he looked at those companies’ market share; then assessed whether or not the competition had any weaknesses that could be exploited.
He also considered which segments SWS had been invested in the longest and had the most expertise running.
“The approach was taking a look at the company and saying, ‘In what businesses can I be a leader?’” Hultgren says. “That turned out to be the three core businesses. And (then we asked), ‘In what businesses could I not be a leader?’ That turned out to be the non-core businesses.”
For example, SWS owned an online brokerage firm called MyDiscountBroker.com. The household names in online brokerages at the time were E*Trade and Ameritrade.
“It was pretty obvious that E*Trade and Ameritrade were not going to be beaten by MyDiscountBroker.com,” Hultgren says. “On the other side of the coin, in the clearing business for example, we are today one of the top five clearing firms in the country. That’s an area where we can see that we can be the leader in an industry and get a nice share of the market.”
Other businesses that seemed to pair well with the clearing business were the firm’s banking business and its brokerage, so those were kept, while in addition to the online brokerage, it also exited the general technology, subprime auto lending, investment management and trust services, and institutional equity and research businesses.
“It made sense to grow that bank, grow that clearing business and grow that brokerage,” Hultgren says.
Hultgren and his management team kept an open line of communication with employees so they would understand why the changes needed to be made. As it turns out, that was an easy sell, at least initially.
“Because the times at the firm were so difficult, we had a couple of years where employees did not get raises,” Hultgren says. “Much to my surprise, they understood, and they worked as hard as they had ever worked. It’s a unique characteristic of SWS, that employees here care for each other and care for their customers, and they really care for the firm.”
But Hultgren faced a tough hurdle with the employee base when he realized that some layoffs would be necessary. Because employees had gone so long without raises, he decided against salary cuts, as that would be too demoralizing for employees. The layoffs were among the most challenging parts of the rebuilding process.
“It is the worst part of being a manager,” Hultgren says. “Any manager would tell you that. I don’t know if there is any good way to do it; it is always difficult. It was something that needed to be done. I felt it was better to sever our relationship with some employees than cut the pay for all of the employees. I thought it was best to have the employees who were here compensated fairly.”
Hultgren says opening up communication with employees has been key to getting the company back on its feet financially. He created an environment in which employees would feel free to discuss concerns and bring suggestions to him.
“I want to hear all of the news, good and bad,” he says. “I solicit people’s opinions, and ultimately, the responsibility lies with me. I am always welcoming the help I get in the decision process.”
Hultgren started a twice-monthly newsletter for employees as a first step to opening the lines of communication. He also strongly supports a program in which employees are invited to go to a group lunch with members of senior management during the week of their birthday and ask questions. Employees can anonymously submit questions ahead of time, and Hultgren or his staff will answer them during their lunch. The questions and answers are also printed in the employee newsletter.
“Employees find that really lets them know what’s going on,” Hultgren says.
A companywide employee meeting is held annually to give employees another opportunity to interact with senior management.
“That meeting will last until the last question is asked,” Hultgren says.
He says he’s also made it known to employees that they are welcome to call his assistant and schedule a meeting to talk with him if they want to do so. Some have brought suggestions that have saved the company money; others have problems they’d like Hultgren to solve. Either one is welcome.
“Some do take advantage of it, and I very much appreciate it when they do,” Hultgren says. “I’ve gotten some very good ideas from employees.”
Hultgren has relied on his employees to help rebuild the company, and he says it has worked well. He’s proud of the progress they’ve made together.
“I really think what has really driven our focus has been basically repeating the direction of the firm over and over again,” Hultgren says. “Everyone on the management team understands the three things we’re trying to do, and I think everyone at the company has been able to absorb the three things we’re trying to do. It’s something I talk about whenever I have an opportunity, if I’m meeting with employees or meeting with shareholders. It all comes back to growing the brokerage, growing clearing and growing the bank.”
While Hultgren likes to get input, and meets with his executive team of 12 people once a week, he thinks debate that goes on for too long is distracting. Company executives recently held a strategic planning meeting and one of the items on the agenda was to decide, once and for all, if SWS was going to get involved in a particular business venture or, conversely, never talk about it again. The executives had debated it and discussed it for three years, and Hultgren thought it was time to make a final decision. In the end, the group decided against the business venture.
“You spin your wheels, talking about the pros and cons, and you never really sit down and weigh them all,” Hultgren says. “It can be very distracting. Do something, even if it’s wrong. Sometimes, you have to force yourself to set a time frame.”
Avoid past mistakes
Hultgren’s refocusing of the company has paid off. Today, SWS is coming off of fiscal 2007 revenue of $470 million with net income of $37 million.
He can now turn his focus to growing the company rather than fixing it, and one way he’s doing that is preparing for tough times.
With any business that’s directly tied to the stock market, business fluctuates. Hultgren, who added the title of president in 2007, likes to be prepared for the downturns to keep the company on a more even keel. In fact, preparing for the business’s rainy days can be a key growth strategy.
“The strategy is that in a downturn, you want to be one of the firms that still has money left,” Hultgren says. “You want to go out and accumulate either acquisitions or producers. When we first started this, we were in a bear market, and I kept telling everyone we were going to buy straw hats in the wintertime. A bear market is a good time to expand your firm if you can afford to do it.”
In fact, Hultgren sees 2008 as a potential bear year, and he’s preparing for that by looking for acquisitions. The company has announced one acquisition as a means of growth and wants to do more.
“You want to have liquidity,” Hultgren says. “You don’t want to have too much or it affects returns. You want to be there with the checkbook when times are rough.”
He says a good business opportunity has to fall within the core business and its values. Don’t be tempted to go outside of that. It won’t pay off.
“I told you we made a decision to specifically stop talking about a particular business, and the very next week, someone called me up with a business that was for sale in that area,” Hultgren says. “I was able to say, ‘No, thanks.’ No way. I don’t care how good it was; I wasn’t going to swing at that pitch.”
Hultgren feels good about where the company is now. He sees the company as poised to grow and prosper.
“We have done the things we needed to do to get the efficiencies in the company, and we are just now beginning to accelerate using the new platform,” Hultgren says. “Today, the focus is all about growth, as opposed to all about saving money.”
HOW TO REACH: SWS Group Inc., www.swst.com or (214) 859-1800
On his first day of work, Aug. 1, 2000, Jeff Morris was given the keys to a company that included 300 employees, one refinery and nothing else. The new enterprise didn’t even have a name.
“We started this company,” Morris says. “We didn’t have a name. We don’t have cards. We don’t have letterhead. We don’t have a payroll system. We have nothing. It’s me and 100 good people (at the corporate office), and we have payroll to make in two weeks.”
Morris had been head of a division that energy company FINA wanted to sell. ALON Israel Oil Co. purchased the division in 2000, creating ALON USA Energy Inc.
Morris was hired by the new company as the president and CEO, and he began to assemble his executive team before the purchase was complete.
“I always had a little bit of an entrepreneurial bent in me, and I thought that was an intriguing idea,” he says.
Morris and his new colleagues had two weeks to cut the first paychecks for the company’s 300 workers. He had 90 days to vacate the FINA office space, meaning he had to find new office space, sign a contract and build it out to the specifications he’d need for his coming staff.
“We went and found an office space in Dallas, built it out, installed a whole new computer system and moved 100 people in 90 days,” Morris says. “And we built and started up a complete new back office in a year. Over the first year, we created a company from fundamentally nothing.”
Morris accomplished all of this by creating a plan and sticking to it. He made a list of things that needed to be done, assigned tasks to each person, gave them a budget and set them loose to do the task at hand. He didn’t have meetings and discuss strategy or ask for daily updates; he simply let them go to work, trusting that they would make good decisions, and he knew that they would come back to him if they encountered problems or needed him to reallocate their resources. If they needed more staff, money or time, he worked with them to smooth it out.
“It taught me at that time the real professionalism and quality of the people with which I worked,” Morris says. “Any one of those tasks would be a challenge for any organization to do effectively. Finding a new office and moving and setting up a new e-mail computer system and moving in 90 days, nobody does that. Nobody builds a whole receivables, payables, back-office accounting system in a year. But the people here did that. It was a great experience but not an experience I want to repeat.”
Those early days set the path for a high-growth approach that is still very much in the style the company operates today.
“I’m a big believer in a disciplined business plan approach,” Morris says. “We have today a business plan that we set for the coming year. We spend a lot of time developing it. It has specific objectives inside of it with deadlines. It has operating budgets and capital budgets. It’s all part of the plan. We all develop it together.”
Here’s how he’s conquered the biggest growth challenges to take ALON USA to new levels of success.
Morris says a CEO’s job is to allocate resources. “You have a certain amount of resources,” Morris says. “You have a certain amount of people. You have a certain amount of money. You have a certain amount of time. What you have to choose and prioritize is how to use those resources. You always have more to do than you have resources to do them.”
Great CEOs know how to delegate resources, especially people, and empower their staff to make decisions. They trust their staff but keep an open door to offer assistance if need be.
That’s been Morris’ job since he built ALON USA from the ground up starting in 2000, and the company reported $3.2 billion in revenue in 2006.
He says there are two keys to getting a high level of performance from a team. The first is hiring great people. The second is trusting them.
“You have to say, ‘Go do the payroll system,’ and you can’t be asking every hour on the hour, ‘How are you doing?’” Morris says. “It’s not a management-by-objectives system. It’s not something where you set objectives, and you have weekly staff meetings to see how people are doing, and you update and have interventions to make sure you stay on course. We didn’t have time for weekly staff meetings. We are a group of doers. We hire doers; we don’t hire watchers. I don’t have anybody around here whose job is to make sure that something happens or that XYZ person is doing their job or following up.
“We have doers. If you are the HR person, you do the HR. If you are the IT person, you do the IT. If you are the top mechanic, you fix the pumps, and we aren’t going to have someone stand over your shoulder and make sure you do it appropriately. That’s really helped our cost structure, but it’s also created a culture of doers. You can trust them if they perform, and they do.”
So what happens if someone doesn’t do their job? It happens, Morris says, but that is a situation that usually doesn’t require his intervention.
“What would happen is that everybody depended on everybody else to such an extent that no one could fail in their assignment because if they failed, everyone failed,” Morris says. “If a person was not carrying their load, very quickly that person would become very uncomfortable if they were not contributing and would likely resign and move on.”
Morris says the company’s swift action keeps it growing. ALON USA approached its need for capital in much the same fashion as its start-up: Company leaders determined a course of action and executed quickly. In 2005, Morris took the company public through an initial public offering of stock, mostly to help the company obtain the capital it needed for growth.
“From the time that we called investment bankers and said, ‘We are ready to start this process,’ to the day we priced the shares was 91 days,” Morris says. “No one does it in 91 days. It was an amazing pace.”
To accomplish this, Morris put together a team of six people and tasked them with focusing most of their energy on the initial public offering. That team included himself, plus the company’s general counsel, the controller, the head of mergers and acquisitions, the head of the supply group, and the chief financial officer. Morris says this kept the rest of the company from becoming distracted by the IPO and losing focus from the things that it was doing well.
“The last thing you need during the process of going public is to have some event or issue occur,” Morris says. “We didn’t want to dilute that focus.”
Morris and his colleagues set up a series of deadlines for tasks that needed to be accomplished to hit those goals, and much like he approached the company’s start-up, he doled out the tasks among the team. And they didn’t waste much time with more meetings.
“Because of the pace we [were] working at, we didn’t have time for spreadsheets and follow-ups and weekly status meetings and things of that sort,” Morris says. “We would know that the S-1 needed to be filed on Friday. Well, the general counsel knew his work had to be done on Friday. He would get it done. He didn’t worry about our controller because he knew our controller would have her information ready by Friday for sure because he could rely upon her and vice versa.”
Quick pace is important when doing an initial public offering because the market changes fast.
“You never know what the market is going to do,” Morris says. “The pricing was right; the environment was right. This is a very volatile business, and you never know what might occur. There have been many, many, many IPOs that have failed or were not priced well because the business environment varied substantially from the time they started until the time they finished. When you can do it, you do it.”
Going public allowed ALON USA to continue to grow through acquisitions and buyouts. Morris particularly likes to buy companies that are what he calls “good steel,” meaning built well, but undermanaged. Poor management is easier and cheaper to fix than the physical structure of a facility.
“When we buy something, we spend dollars, money equity, and we spend sweat equity,” Morris says. “The highest leverage is sweat equity. If we buy something that’s good steel and well-managed, then our sweat equity opportunity is less. It’s easier, but we don’t create as much shareholder value. When we do our best is when we buy good steel that is underman-aged.”
Morris recognizes that the reason ALON USA has been successful is because of his staff. He believes just simply recognizing people for their hard work and saying thank you regularly, goes a long way.
Morris spends some time once a quarter having lunch with the staff of the company, and every month, the company executives choose one event or accomplishment to celebrate as a theme for the luncheon.
After the company went public, for example, Morris recognized the members of the team who put the deal together.
“We had them stand up, and we had a little slide show, and we recognized them,” Morris says.
He also makes sure to individually thank people who are doing good work on a daily, casual basis.
“For high-performing individuals who hold themselves to a high standard, a simple thank you means a lot,” Morris says.
It’s all part of maintaining a culture made of people who “do” instead of observe, and it all starts with Morris.
“Companies have personalities,” he says. “Personalities of companies will be significantly affected by the leadership. That’s a very, very heavy and deep responsibility. It’s a fact that, in reality, the company will never perform any better than I do.”
Morris wants to continue to lead the company forward and has created plans that will continue to help the company grow.
“I’m very optimistic today, but we are at one of those critical transition points for the company,” Morris says. “Our objective is to double the size of the company, and then to double again after that. But to do that, when you grow like that, you have to sustain your essence. It is very difficult to do so, whenever you are growing at a very fast pace. This is where many companies fail. They grow, but somewhere along the way, they lose their essence. That’s my challenge today.”
HOW TO REACH: ALON USA Energy Inc., www.alonusa.com, (972) 367-3600
Kip Tindell, co-chairman, CEO and one of the founders of The
Container Store Inc., wanted to build a strong team of great people
that could help grow his store of home and office organization
products into a national chain of stores dedicated to helping consumers organize their lives. Since the store’s founding in 1978,
he’s done that, and he’s proud of what the company has achieved.
But Tindell says the success has come as a result of one key focus:
quality. He wants his stores located in the very best locations for
his potential customers, even if that means waiting for the right
location. More important, he only wants the best employees, even
if it means spending more — a lot more — than the industry average to get them.
“The most difficult and frustrating and rewarding and wonderful
part of any business is the people aspect of it,” Tindell says. “I’m a
big advocate of the fact that you can’t achieve uncommon results
unless you are surrounding yourself with people who are awesome. If you’re going to have a golf team, why not have Tiger
Woods on it?”
The $550 million Dallas-based retailer has 39 locations and 3,500
employees, and has never shuttered a store. The company has
grown at a steady pace of 15 to 20 percent annually.
Tindell’s commitment to quality calls for careful analysis and a lot
of patience, regardless of whether it’s real estate or people. For
Tindell, rushing would lead to a dilution of the company’s quality,
and that, in turn, would put the entire company in jeopardy.
Great customers make great employees
The Container Store’s success starts with knowing its customers,
and knowing them well. By simply collecting phone numbers of
customers at the checkout point, the store knows who shops,
what they buy, where they live and even their average income.
Tindell says The Container Store’s strongest customers have a
household income of $100,000 and up, are highly educated and
highly likely to be female.
And here’s what’s interesting: Tindell sees those people as great
potential employees. Tindell says if they like shopping at the store,
they’ll love working at it, and he’s been proven right, time and
To capture those potential employees, The Container Store’s
staff members have little cards on hand that they are free to hand
out any time they meet someone whom they believe would be a
great employee. The card invites the recipient to apply for a job at
the store, and this doesn’t just happen when a store has openings,
The Container Store invites anyone to apply at any time and
begins training new employees before others leave so the company’s always ready when a vacancy occurs. Not that it happens
much: Annually, the retailer’s turnover is in the single digits. The
company hires about 6 percent of those who apply.
“We always have backups,” Tindell says. “We are very big on succession planning. I run across a lot of great retailers and business-people that I’ve admired over the years that, as they became older,
they didn’t have any succession planning, no one chosen to replace
themselves or their top people.”
Almost two decades ago, Tindell adopted the one-equals-three
philosophy, where one great person is the equivalent of three good
ones. Instead of staffing a store to the max, Tindell’s philosophy is
to hire only the very best people.
“If you really believe that, you can afford to put your money
where your mouth is,” Tindell says. “It takes a lot of bravery to pay
50 to 100 percent above industry average, but it works because
everybody wins. The employee wins because she is getting 50 to
100 percent more money than someone else might pay her, and the
company wins because it is getting three times the productivity for
only 50 to 100 percent more pay, and the customer wins because
they are getting this really great person who is thrilled about their
compensation and loves to come to work every day.”
Employees aren’t paid on commission, because that tends to
encourage them to sell more than a customer needs. Instead, they
are trained to help customers solve problems.
A good example is a customer who wants something to organize
his or her shoes. The employee is trained to ask deeper, more probing questions of the customer about that person’s entire closet. If
his or her shoes are disorganized, chances are, so is that person’s
closet, and The Container Store sells a variety of products that can
help tame that troubling, disorganized beast.
Ultimately, the store will sell more products by helping customers solve problems rather than just meeting the immediate
need that brought that person to the store, and Tindell says the
customer is happier in the long run.
Part of what keeps employees working for The Container Store
is the company’s level of investment in them. It spends about 240
hours training employees before they start work, and continues
the training as they continue to work so that they are always up to
date on the latest products.
“You can’t lose them once you do that,” Tindell says. “Once you
have that kind of investment in an employee, you need to have a
very, very low turnover rate, which we do.”
That’s at least in part because of a few great perks. Besides its
higher-than-average pay, employees receive a 40 percent discount
on products. Because many of them are already storage aficionados, that’s a really nice perk, and it encourages them to continue to
get to know new merchandise as it comes in. Tindell says the more
merchandise they know, the more products they can demonstrate
and the more customers will buy.
For a new store, Tindell has a very deliberate process to staff it.
The company opens up a nice office near the store that’s set up as
if it is a location of The Container Store. Applicants get the look
and feel of how the store will operate.
Before their group interview, applicants are given a homework
assignment: Find a product on the company’s Web site or in its
store that they like and give a presentation on how the product
works and its major features. Applicants are interviewed in
groups, and product demonstrations take up most of the initial
interview time. That shows how potential employees sell and
how they interact with others.
“They get a good flavor in this group interview for the quirky
culture of The Container Store,” Tindell says. “People leave the
interview and go home and say, ‘Oh my God, I hope I get this
job.’ It’s a thrilling process.”
After the first cuts are made from the group interviews, the
company’s representatives from its home office and retail locations personally interview potential associates in several oneon-one interviews.
“We start months in advance,” Tindell says. “We hire our
employees a couple of months before the store opens so that
they are fully trained. They participate in the set-up of the
store. Most retailers hire employees a day or two before the
store opens because they don’t want to pay them for the previous month or two. We hire them as early as possible.”
Group interviews continue year-round, even though stores
might not have openings, to ensure every store has enough
employees whenever they are needed.
Tindell says one key change has helped the company redefine
how it thinks about recruiting: Recruiting is under marketing
at the company; The Container Store has no human resources
“We just wanted to break the mold on that whole concept,”
Tindell says. “The people who are in charge of recruiting for
the company understand that it’s not their job to go out and
recruit great people for The Container Store. It’s their job to
make sure that the rest of us are constantly recruiting great
people to work for The Container Store. A key part of everyone’s job is to find other great people to come and work for
The Container Store.”
The recruiting card is a handy tool for doing that, even if it
means giving them out at a family gathering.
“We are happy to have friends, cousins, relatives,” Tindell
says. “People know which of their cousins are great and which
are not. ... It takes a little bit of boldness to recruit a soccer
mom at a soccer game. We are huge on the concept of our customers make our best employees.
“Employees get recruited right off the sales floor. We really
want our employees to be people our customers can relate to.”
Part of what keeps The Container Store strong is knowing its limits. Similar to his philosophy on employees, Tindell says he’d
rather have one great location than three good ones. He concentrates on finding the very best retail locations for stores, which, as
it happens, are in plaza-style, outdoor shopping centers that allow
the stores to be on one level.
Customers are buying large, bulky items, in many cases, and
wouldn’t want to carry them around a mall.
“There is a limit of how fast we can grow,” Tindell says. “We are
not limited by capital. Money has never been our limiting factor.
Our limiting factor has always been the people aspect of things. We
have learned we can grow at 15 to 20 percent a year. It’s right for
us. We take the best real estate development locations we can
Currently, The Container Store has some 29 markets it is examining, and the company waits patiently for the right space in those
markets. And until it taps out the U.S. market, Tindell won’t consider international markets, as he says that’s a whole other type of
market. He says there are more than 100 cities he’d like to locate
in, and as he sees it, that means The Container Store has decades
of potential growth ahead of it without ever sacrificing its quality.
“It’s the most exciting period in our history,” Tindell says. “We are
in this adolescent stage. Even though we’ve been in business since
1978, everything just keeps getting better. Now, everybody wants
us in their shopping center.
“That wasn’t always the case. Now, everyone seems to want
to work for us. The average person we hire is better and better
and better. The products we are able to develop with manufacturers are getting better. ... It’s so much fun and so exciting
because it just keeps snowballing. We are really hitting our
stride right now.”
HOW TO REACH: The Container Store Inc., www.containerstore.com
Delisted by the NASDAQ and having suffered numerous rounds of layoffs, it wasn’t even clear that i2, a supply chain management technology company with annual revenue of $337 million, would survive. Customers weren’t sure about buying its products because they didn’t know if the company would be around to support them. Employees were shaken by the layoffs, the company was losing money and debt was piling up.
But McGrath, who was on the board of directors, couldn’t walk away from a company that he knew could be great again. The board had repeatedly offered him the job as head of the company, and after a futile six-month search for a new CEO, he decided to tackle the job himself.
The company had several things going for it, and those pluses told McGrath he could not only make the company profitable again but grow it.
“Some of the best and brightest people in the world work at i2,” McGrath says. “I am continually impressed by the employees there and their dedication. They are absolutely brilliant.”
Another plus was the passion of its customers for i2’s products.
“They’ve had great results and seen great benefits,” says McGrath. “They weren’t just content, they were passionate.
“The third thing was the technology. i2 had invested about a billion dollars in developing some of the most advanced software technology for supply chain management and related areas. It had a lot going for it. The challenge was to harness those advantages into building a very successful company.”
On his first day on the job in February 2005, he laid out his three objectives at a companywide meeting: Achieve financial stability, strengthen the management foundation of the company and reignite the company’s growth.
“When you are making an abrupt change like this, it is very, very, very complex,” McGrath says. “But you have to have a simplifying theme or direction. You have to be able to state it clearly. You have to stay on message so people won’t get confused or frustrated.
“When you are in a leadership role and you are trying to get a lot of people whether they are customers or investors or employees to follow you through some difficult thing, you have to make it very clear and simple and be consistent. That builds their confidence, then, that those things were the important things, and we are really achieving them.”
Achieving financial stability
To make the company financially stable, McGrath first and foremost had to cut expenses. As he saw it, the company was very top-heavy, and he needed to eliminate jobs. There were about 120 executive-level presidents and vice presidents earning high salaries stemming from the company’s late 1990s-boom days. He told employees that he would be cutting jobs disproportionately at the top, and that helped him earn their respect.
“I promised them two things: This would be the last cut we make,” McGrath says. “The second thing was I promised them that the cuts would come disproportionately from the highest levels of management and the highest-paid people. I kept track as we did the cuts of the top 75 paid people in the company, who were all executives, and I cut 50 percent of those. ... They heard me say it, and then I actually did it.
“For years, people had been at the company saying the problem we have is too many vice presidents and too many highly paid people. So I did something about it.”
The remaining employees were then willing to make other adjustments to expenses as a result. McGrath changed the company’s travel practices, taking a closer look at meetings with clients and its own internal meetings. For example, in the past, i2 had sometimes flown as many as 10 people to a client location for a one-hour meeting, which wasn’t always necessary. Now, whenever possible, internal meetings will be done by teleconference, and client meetings are more closely examined to make sure that everyone going is necessary.
McGrath also cut back on cell phones, which the company had purchased for every employee. And he ended some telecommuting relationships for some employees who worked within 30 minutes’ driving time of offices. McGrath says those telecommuting relationships were expensive, because the company paid for things such as high-speed Internet service and some equipment. Consulting contracts were cut, too.
All told, the company realized some $100 million in annual savings as a result of the cuts.
And in June 2005, McGrath sold off two divisions that weren’t aligned with the company’s core business to generate $50 million in cash.
Building toward growth
With the company stabilized, McGrath turned his sights toward growth.
For i2 to grow, it had to keep its existing customers and attract new ones. The key to doing both would be advertising its upgraded financial status.
Its annual i2 Planet event, which hosts customers and partners at a resort location to present the company’s newest products, has been one of the ways it has promoted its stable financial status.
McGrath also has the company printing a new magazine, Supply Chain Leader, that includes information presented in an engaging, readable style for customers and clients.
“It establishes leadership and generates a lot of leads for the sales force,” McGrath says.
McGrath also changed the organization of the sales force and the company’s sales approach. Previously, i2 had sales representatives divided up by geography. Now, they are divided by type of industry. That change has been in place for more than a year and has helped employees increase the depth of their knowledge of products.
He’s also changed how the company finds potential salespeople. McGrath says it’s easier to train a technical person to sell than it is to teach a salesperson the technical aspects of its products, so he began hiring people with technical savvy to handle sales. McGrath says the company’s reliance on people with a sales background but no technical expertise was one reason it had such a high travel budget: A tech person always had to go along to answer questions about the product.
“It is a common mistake, particularly in the bubble years and the last few years,” McGrath says. “People still do that. It’s inefficient and very expensive. That’s how you end up with unhappy customers. A sales guy in that situation would tend to say things that he doesn’t know what he’s talking about.”
All the moves McGrath made paid off when the company was relisted on the NASDAQ, boosting morale among employees and helping it gain better financial footing.
“Getting relisted was a major step,” McGrath says. “We had a big employee event” to celebrate.
In 2004, i2 posted a loss from continuing operations of $4.8 million. Under McGrath’s leadership, income from continuing operations in 2005 was $43.5 million.
Going forward, McGrath is leading the company into what he calls new generation supply chain management. He sees it as a way to go forward, encouraging more growth and establishing the company as the leader in its field. With i2 finally stable, he doesn’t spend as much time answering questions about whether it is viable, instead talking about what the company has to offer.
“We’ve got everything stable, but we’re also building on top of that stability again,” McGrath says. “We are in a very strong position now.”
How to reach: i2, (469) 357-1000 or www.i2.com