Mike Shumsky’s timing wasn’t the greatest when he joined CiCi’s Pizza as CEO in September 2009. It was right about that time the recession began to pummel the Coppell, Texas-based restaurant chain’s sales.
“We had started to see the effects of the softening economy in different segments of the restaurant industry six to 12 months before that,” says Shumsky, who before joining CiCi’s parent company, CiCi Enterprises LP, held similar executive positions with La Madeleine restaurant group, Sonic restaurants and Johnny Rockets.
“In late 2008 and early 2009, we started to see sales slow down at some of the higher-ticket restaurant companies,” he says. “We thought we’d be a little bit more immune to it at CiCi’s, though, because we’re at a lower price point. But toward the end of ’09, we started to feel the softening of the economy in our own business. That’s when it really started to reach us.”
The recession insinuated itself on CiCi’s and its segment of the restaurant market with a sort of slow-motion, delayed-reaction effect.
“In late 2008, when things started slowing down throughout the economy, all of us in the restaurant industry could sense that, yes, things were starting to change, but we went through an initial period of disbelief,” Shumsky says. “Then there was a period of unfamiliarity; that’s what I’d call the next cycle we went through. Then all of a sudden you started to really see it firsthand and believe it. So you go through these levels of consciousness of where the economy is headed and how it will affect you. That’s what I think a lot of people were trying to figure out.”
Sales began to slow appreciably in late 2009, and that’s when it became clear that CiCi’s and its competitors in the lower-price segment of the restaurant market would not remain immune to the recession’s effects.
“We started to see it in the softening of our top line — our sales numbers, our year-over-year growth numbers,” Shumsky says. “And because we basically have a daily sales cycle in the restaurant business, it started to become evident to us pretty quickly that things were starting to slow on the sales side.”
Drill down, do triage
Once the reality of the economic downturn started to settle in, the CiCi’s leadership team took steps to ensure that the data it was receiving from its nearly 600 restaurants in 36 states was timely and accurate. Then it made moves to rein in the company’s growth plans and spending in several areas.
“First, we made sure we had good information and that the results we were getting were reflective of the actual things that were happening in the marketplace,” Shumsky says. “We shored up our communication systems, our internal reporting systems, our financial reporting systems. We converted to more of a daily focus on our business. We started tracking sales daily instead of weekly. We started to drill down deeper into our business.
“The other thing we did was put in conservative stops around the growth plans we had, to make sure we had a good handle on it and that we were growing at a pace that would reflect the new marketplace. We slowed down our people hiring and slowed down some of our growth initiatives.”
Overall, the battening down of the hatches amounted to roughly halving the company’s projected growth rate, and CiCi’s leadership team analyzed its markets to concentrate the slowdown in parts of the country that it deemed riskier in terms of expansion.
“The company had been growing at a rate of roughly 50 stores a year, and we slowed that down to 25 — and that was over time, it wasn’t overnight,” Shumsky says. “In our business, we have a pipeline of real estate and a pipeline of franchisees that would have started a couple years earlier. It takes a number of years to get a franchise approved and to get a piece of real estate approved. So we went back and re-evaluated all of those transactions, and looked at the ones that were high-risk pieces of real estate with the economy changing.
“Those markets that were getting worse — which for us were the Southeast, the Arizona market, the Vegas market, and some markets on the East Coast and in Florida — we looked at those, and where we had development and growth planned in what we considered to be markets that were going to be hit the worst, we went back and re-evaluated them, not only in terms of the franchisees in those market, but also the growth expectations.”
In the company’s core markets where it already had significant penetration and larger, stronger bases of franchisees, it didn’t pull back as much.
“It was kind of a triaging effect,” Shumsky says. “We wanted to make sure we were isolating the more difficult, higher-risk areas of our growth, and then reinvest in those areas that were fundamentally stronger.”
The company used a site analysis tool to determine which geographic areas to invest in and which ones to pull back from.
“We ran the demographic and statistical information through that model to define our top 70 markets in the country, and then broke that down into smaller groups of restaurants,” Shumsky says. “We made sure we were honed in on the quantitative side of our business, both in terms of the financials and in terms of our growth modeling plans. We ran it forwards and backwards, and out of that we identified what markets were at risk and what markets were less risky, and then we worked our way forward from there.”
Listen and support
Next, the CiCi’s leadership team “circled the wagons,” as Shumsky labels the process they went through. They went out into the field and talked to as many of the company’s roughly 570 franchisees as they could — Shumsky estimates they were able to talk to about 85 percent of the franchisees in all — to find out what they needed help with in order to improve their restaurants, in terms of both diner experience and profitability. They did this in the form of a “listening tour” — a series of regional meetings in which the company’s franchisees were invited to talk about what they needed from their franchisor company to run their restaurants more effectively.
At these meetings Shumsky and his team learned there were several aspects of the business that the company needed to improve in order to help its franchisees improve their customer service and their bottom lines. These fell roughly into three areas: marketing support, training and service call response time.
“There were a number of things franchisees told us were important to them in terms of how we can support them better from a franchise support and service perspective,” Shumsky says. “From answering a phone quicker to responding quicker to dealing with their business issues quicker, whether it be R&D or manufacturing issues or product issues.”
A recurring theme the company’s leaders heard was that CiCi’s franchisee training program needed to be streamlined.
“We came back with a message that we needed to revitalize and simplify our training program,” Shumsky says. “This is a restaurant business, and if you have an operations manual that is two inches thick, that’s too complicated for franchisees. We received an awful lot of feedback that we needed to revise our training program, which we have now done. We’ve made it much simpler, much more concise, and we’ve gotten rid of some of the fluff that was in it.”
CiCi’s also reorganized its operations group to make it more responsive and supportive toward franchisees.
“For our district managers, which typically are responsible for supporting franchisees — each one is responsible for 25 to 30 stores — we changed their title to brand excellence managers, and we revised their job description to be more business consultants than managers,” Shumsky says. “We wanted them to be more than auditors auditing franchisees’ operations. We started directing them to provide more advice, more counsel, to transfer more business knowledge to franchisees and their operators. So it wasn’t just their job title that we changed. It represents a significant change in the type of people and the skill sets we now require in those positions.”
Another result of the listening tour is that CiCi’s is providing more detailed and tailored marketing support to franchisees.
“We changed the marketing function, because that was one of the key findings of the listening tour,” Shumsky says. “We’ve added a whole field marketing structure that didn’t exist before. So we now have regional marketing managers that work toward helping franchisees on the local issues they have. These regional marketing managers are not involved in national media at all. We still do national media, of course, but all of the local activities that can allow the local restaurant manager to get out in his or her community to help drive the business on a more localized level, we’ve added a lot of marketing resources in that area.”
CiCi’s Pizza had its annual company convention earlier this year. Attendees at the convention included restaurant franchisees, vendors and corporate staff. The event’s themes were “brand renewal” and “the start of something big.”
“We’re starting to feel like we’re turning the corner,” Shumsky says. “First of all, the economy seems to have bottomed out and we’re starting to see some life there. It’s not exactly vibrant, but you get a sense that there are things starting to happen. And secondly, all the things that we’ve done to invest in our business — technology, training, marketing, changing our organization around — they’re starting to have an impact. So we’re optimistic.”
The company has instituted a handful of improvement initiatives for 2012. The keys initiatives revolve around improving restaurant profitability and growing the company in a cautious fashion geared toward the realities of economic projections for the restaurant business over the next few years.
“We’ve put in a target of saving $70,000 a restaurant for our franchisees this year,” Shumsky says. “In other words, we plan to improve profitability by $70,000 per restaurant. And $70,000 a store is a lot of money. We have a number of test projects in place, and from those tests, it’s looking like we can save at least half of that amount very quickly.”
Key components of the company’s restaurant profitability system include a new labor scheduling system, a new food-cost model, a new point-of-sale register system, reformulation of some food products, centralizing the placement of condiments in stores, changing pizza box designs to use less cardboard, and changing the design and layout of the restaurant buffet to reduce the amount of food wasted by diners.
Lastly, CiCi’s has modified its growth plan to fit economic expectations moving forward.
“We’ve come out of this planning process with a new look at our business, and we’ve labeled it sustainable growth,” Shumsky says. “It used to be ‘Grow at all costs’ in the restaurant industry. You know: ‘Let’s just grow; let’s grow 100 stores, 200 stores.’ You heard all of these industry experts out there talking about the growth they were going to achieve, and none of them delivered.
“So our deal now is sustainable growth. Let’s build a fundamentally conservative, realistic growth model that can grow at a rate of 25 or 30 stores a year over the next eight to 10 years, and do an awesome job with it, making sure we have good site selection, good franchisee selection. We call it our QQ strategy — quality franchisees and quality sites. So that’s what we’re going to do.”
HOW TO REACH: CiCi Enterprises LP, (972) 745-4200, www.cicispizza.com
THE SHUMSKY FILE
NAME: Mike Shumsky
COMPANY: CiCi Enterprises LP
Born: Traverse City, Mich.
Education: Bachelor’s degree in accounting, California State University-Fullerton; MBA, Pepperdine University
What’s the most important thing you learned in college that you use today in your work?
Financial discipline — I learned that in college. And analyticals — the analytical skills have helped me a lot in my business life.
What was your first job?
I worked at Knott’s Berry Farm in Southern California as a candy maker’s apprentice. I worked at Knott’s for 10 years, through high school and my college undergraduate years, and when I got out of school, they hired me in their accounting department.
What important business lesson did you learn from that job?
Persistence. That’s a huge one for me. I’ve gone through lots of turnaround situations, and sometimes you just have to hang in there and stick with it.
Do you have any overriding business philosophy that you use to guide you?
Yeah, I do: ‘Good, better best, never let it rest, until the good are better and the better are best.’ That’ll be on my tombstone. Everyone who knows me knows that about me. There’s always an opportunity to get better at what you do.
What traits do you think are most important for a CEO to have in order to be a successful leader?
Honesty and integrity. Character. People see what kind of person you are through the things you do.
What’s the best advice anyone ever gave you?
‘It’s just tacos.’ I’m one of those driven kind of guys, never happy, never satisfied. One day, a manager I was working with at Taco Bell said to me, ‘Mike, it’s just tacos.’ In other words, don’t take everything so seriously. There’s always a way to figure out the problems you’re dealing with. Be patient, think things through, don’t overworry, respect your own judgment, respect the people around you and lighten up a little bit.
Cynthia Kaye’s company, Logical Choice Technologies Inc., has been on a fast-growth track for many years, and since its business is education-based — the company provides schools with educational technology such as interactive whiteboards, teaching software and the like — its revenue stream is highly seasonal. Those factors have created a sometimes bumpy ride for the Lawrenceville, Ga.-based company, particularly with regard to its banking relationships.
Logical Choice went through one especially rough stretch four years ago during which it bounced its accounts from one bank to another to a third bank within about a year’s time. The problems were rooted in changes in the management and business philosophies of those banks. As a result, Kaye’s company got stuck in a precarious spot and had to lay off more than a dozen employees just as its annual busy season was bearing down on it.
“That was an extremely tough challenge for us,” Kaye says. “We had been with the same bank — we’ll call it Bank A — for about seven years, and they had a change in management and decided they didn’t want a lot of fast-growth companies in their portfolio anymore. It had been a good partnership, but then they had a shift. I’ve seen this happen before. I’ve run this business for 18 years, and there’s a pattern — when there’s management change at a bank, there’s a new philosophy that comes in. And every bank has its own risk tolerance for different types of businesses.
“So they said, ‘Cynthia, we’re in no rush, but our new management doesn’t want too many fast-growth companies right now, so you might want to keep an eye out for new banks.’ It was nothing serious; we hadn’t missed any loan covenants. So we said, ‘All right, we’ll keep that in mind.’”
The negative news from her company’s longtime banking partner surprised Kaye.
“It was a little weird,” she says.
Other banks started calling on Logical Choice, and after a few months, the company moved its business to another bank that had been courting it — Bank B, as Kaye refers to it. That relationship went swimmingly for about nine months. But in the first quarter of the following year, as Logical Choice moved into its annual slow season, the relationship began to sour. Kaye says she thought Logical Choice had been very clear with Bank B about what to expect in terms of the seasonality of its business.
“Our company sells to education clients only, pre-K through college, so by nature we’re a very cyclical business,” she says. “Bank A had been used to this and had no issue with it. And we explained it to Bank B: ‘Here are our financials. Here’s how it works. This is very normal.’ They seemed to understand it.
“Then nine months into our relationship, we hit our slow season, and the numbers started going down. January was bad. February was bad. That month we got a call from the bank. They had changed analysts, and as I’ve learned, different analysts have different levels of risk tolerance. And they said, ‘We’re moving you into our workout group.’ They put restrictions on us and said you’ve got to make X profit with the next 30 or 60 days or we’re pulling your line of credit. Now, our line of credit is in the millions. If they pull your line of credit, you’re done. This stunned us. We had been very upfront with them.”
Logical Choice was less than two months from the start of its annual busy season, and in order to meet Bank B’s stipulated profit target, the company had to lay off 14 employees — out of a total of about 200 that the firm employs.
“The majority of them were key to our continued growth,” Kaye says. “We had to lay them off immediately to meet our profit numbers, so the bank wouldn’t do anything drastic.”
About a month later, Logical Choice’s customer service representative at Bank B, who was extremely unhappy with the way his employer had treated Kaye’s company, left that bank and took a similar position at another bank — Bank C.
“He felt so bad about how it had been handled that he resigned,” Kaye says. “He went over to Bank C and convinced them to come in and take us over. So Bank C came in and said, ‘We believe in you. We’ve seen your history, and we’re going to take you on.’ So they did.
“Then we went forward and had a record sales summer,” she says. “It was nuts.”
Guiding her company through the bank revolving door and layoff ordeal was one of the toughest challenges Kaye has faced in the 18 years that she has led the company.
“It was traumatic,” she says. “I really had to overcommunicate with my people about what was going on — being honest but not fearful. You know, ‘If we pull together, we’ll get through this. It might be painful, but we’ll get through it together. And here’s what’s happening. Here’s the plan.’ They really need to hear the plan.
“I had to keep the communication updates going, and everybody really rallied. It was terrible to lose those people. Eventually we were able to bring some of them back. But there were some we couldn’t bring back because they’d already gotten another job. Having to let go of good people when you know it’s not necessary because you’re just going through a regular seasonal downturn — that was painful.”
On top of that, there were uncertainties about the transition, about having a new bank and doing business with new people and new personalities.
“It was tough because it distracts you,” Kaye says. “Instead of focusing on your customers and your sales, you’re distracted working behind the scenes, having to let people go, meeting regularly with the bank, putting together documents. And you’re having to do these things weekly. So it’s a distraction from just focusing on your regular day-to-day business with your customers — and then having to constantly communicate with my staff: ‘Here’s what’s going on. Thank you for all you’re doing. Let’s rally together.’ It puts an extra burden on you. But you do what you’ve got to do. And in the end, we wound up with a much better bank. We’ve been extremely pleased with them.”
An important learning point that Kaye and her leadership team have taken from the ordeal is the importance of cultivating a strong relationship with your banker. And it’s best to try to nurture those connections as far up within the bank’s chain of command as possible.
“One of the biggest things we’ve learned from this is that you need to try to get the relationships as high up as you can go in the bank — not just your local rep,” she says. “You need to know all your analysts, your senior analyst, your senior analyst’s boss. If you can get to know the president, even better. That way, once you know them well, you can help your local rep fight with you, if it comes to that.
“Now that we have a new bank, we make it a point to know everybody, all the way up to the president,” Kaye says. “They’re great people.”
Cultivating relationships with other banks in addition to your regular bank is equally important.
“It’s always good to have relationships with two or three other banks while things are going well,” she says. “We learned that the hard way, too. Keep those relationships up, because when something happens — and eventually something will — you’ve got some other friends that you’ve developed relationships with. Different banks have different appetites at different times. So don’t lose hope if something like this happens. Start talking to your other banks, let them know what’s going on, and be upfront with them. Eventually you’ll find another bank that will work with you.”
Another point Kaye says she has learned is that it’s important to instill discipline in your company’s business dealings and to avoid becoming complacent when things are going well.
“You have to structure your company to run lean in the good times as well as the off times,” she says. “Sometimes when things go well for a long time, you can get lax in your discipline. You might have a few more employees than you really need. And then when times get tough, you have to scale back. Now, sometimes that will happen anyway. But if you can try to stay disciplined during the good times, it will definitely help you in the bad times, because it’s just a matter of time when those are going to hit. It’s not if; it’s when.”
Work toward balance
A related challenge Logical Choice has faced is one that all companies whose revenue is seasonal must grapple with: how to generate more balanced revenue throughout the year. Years ago, Logical Choice served corporate and government customers as well as schools, and that helped to minimize some of the feast-and-famine revenue extremes. But the company later decided it made more sense to concentrate its efforts solely on the school business.
“Because we’ve decided to focus on our education customers, our business remains very seasonal, so we have to contend with that annually,” Kaye says. “We think about it all the time. The problem is that I want to lead something that I’m passionate about. At one point, we had a corporate division and a government division in addition to our education division. That was fine and good, but my heart was always in education. It distracts you — you have to help your corporate customers and your government customers, and I felt we were not giving 100 percent to our education customers. So we decided we really just want to be an education company who’s making a difference in the lives of teachers and kids throughout the country.”
A new group of products that Logical Choice is developing could help level out the company’s revenue because the products have consumer appeal, Kaye says.
“Something’s happened recently that over time might help fix [the seasonality issue],” she says. “We’ve invented and developed our own software package called Letters Alive. It’s really cool.”
Letters Alive is a supplemental reading program that teaches literacy skills with alphabet cards on which animals spring to life via a 3-D animation technology called Augmented Reality.
“I took a portion of our profits and we brought in programmers and a leader, and I said, ‘I don’t know what I’m doing, but I think if we can make a cool product with a one-year curriculum, we can really help kids learn to read.’ And that’s how Letters Alive was developed.”
Logical Choice is also developing a related product line.
“It teaches reading, and it’s got interaction and games to reinforce skills,” Kaye says. “These products have potential consumer market attraction beyond just their educational appeal, so we think this will help smooth out our cyclical business — over time, of course. It won’t happen overnight.”
HOW TO REACH: Logical Choice Technologies Inc., (770) 564-1044 or www.logicalchoice.com
THE KAYE FILE
NAME: Cynthia Kaye
TITLE: Founder and CEO
COMPANY: Logical Choice Technologies Inc.
Born: Smithtown, N.Y.
Education: Bachelor’s degree in elementary education from Florida State University, 1987
What’s the most important thing you learned during your years in school?
Before I graduated, I did an internship teaching a fourth grade class for three months. The classroom had an Apple II-E computer, but they didn’t know how to use it because the Apple II-E was brand new. I had learned how to use it during my last year in school. So I got the kids excited about technology, and it increased their writing scores and their reading scores — everything went up because I used the computer all the time. And that’s when I decided that’s the type of work I wanted to do.
Tell us about an early job you had and an important lesson you learned from it.
I took a temp job in Manhattan one summer during college. It was phone and reception work, and I hated it. It was not my calling. I realized then that I have to do something that I’m passionate about, that’s going to make a difference, so that I’m excited to get up every morning. That was a wakeup call for me.
Do you have an overriding business philosophy that you use to guide you?
Be kind, and be gracious and forgiving. Not that I’m good at doing these every day, but it’s something I aspire to. People matter, and I’ve pulled that into our culture in this company. Our core values are teamwork, respect and support each other, have honesty and integrity, be the best at what we do, work hard but have fun, and have happy customers.
What traits do you think are most important for a CEO or business executive to have in order to be a successful leader?
Being persistent and having vision. And your vision has to be bigger than yourself. It has to be something that people will want to rally around.
The city of Roswell, Ga., is in the final stages of creating its first strategic economic development plan, with an eye toward more aggressively attracting small companies to do business within its borders.
A major component of the plan will be finetuning the list of business types the city seeks to target, says Bill Keir, Roswell’s economic development manager.
“We have a list we’re looking at that will be refined,” Keir says. “It includes health care and social assistance, technical research, consulting and corporate operations, entertainment and recreation, and local and regional data and goods distribution. And each of those categories have a number of subgroups within them. We’re going to narrow that list down, based on who we have here now, who’s been moving here, what companies are in a growth mode, those kinds of factors.”
Asked to list the characteristics of Roswell that draw small businesses, Keir cites the city’s highway accessibility, labor costs, tax exemptions, occupancy costs, construction costs, state and local incentives, crime rate, and the quality of its schools. Roswell consistently ranks high in all of those areas in surveys conducted by the trade magazines Site Selection and Area Development.
One important incentive the city offers businesses is the Roswell Opportunity Zone, a job tax credit program administered by the Georgia Department of Community Affairs.
“We have the only Opportunity Zone program in Fulton County north of the Chattahoochee River,” Keir says. “That has been a competitive advantage for us.”
In order to become eligible for the program, a company needs to create two new jobs in a single year.
“Those jobs receive a $3,500 tax credit per job for five years,” Keir says. “We’ve had the program for a year, and we’re in it for at least another nine years. So anywhere in that period of time, if a company adds a couple of jobs or more in one year, they can get into the program and stay with it. Obviously, that can add up to significant savings.”
Roswell doesn’t have much vacant land available for development. It’s a city of small businesses, and it’s destined to remain that way. So attracting small companies will remain its focus.
“We’re fairly well developed,” Keir says. “We have a few parcels that are not fully developed, or not developed at all — but just a few.
“So that’s who we are. We have approximately 5,200 businesses. Twenty-seven of those have 100 or more employees. All the rest have less than 100. That’s normally considered small business. That’s who we cater to.”
HOW TO REACH: Roswell Economic Development Department, (770) 594-6170, www.roswellgov.com/index.aspx?nid=173
Population: 88,346 (2010 Census)
Land area: 42 square miles
Government system: Mayor-Council
Mayor: Jere Wood
City Administrator: Kay Love
Phone: (770) 641-3727
When Peter Beck took over the top spot at his family’s Dallas-based construction firm two decades ago, he had worked for the firm for about 10 years, and that work had given him broad ground-floor knowledge of the acute inefficiencies rooted in the process of designing and constructing buildings.
Beck decided it was time to find ways to get rid of those inefficiencies, and that pursuit led him and his team on a quest that culminated in a revamp of the company’s business model. In so doing, his firm, The Beck Group, became one of the first in its industry to merge the functions of building design and construction under one roof.
That process didn’t happen overnight. In fact, Beck and his team went through a long series of false starts and trial and error that ultimately lasted a decade and a half before The Beck Group began to reach the point of successfully integrating the building industry’s two main functions.
“It’s been a long process,” Beck says. “It’s certainly taken more time than we originally thought it would. A lot more.”
The inefficiencies Beck took aim at, which cause building projects to take longer to complete and to cost more than they should, are rooted in the traditional way construction projects are done, with the main players — architect, engineers, consultants, general contractor, subcontractors — going about their jobs with very little coordination and sharing of ideas about the best ways to perform the multitude of tasks that go into a project.
“There are a lot of parties involved with unique and separate bottom lines,” Beck says. “And because of that, there’s little optimization for the benefit of the project. In other words, there’s little incentive for all these parties to do what’s best for the project. You have a lot of silos, and everyone is focused on their own bottom line.”
The silos needed to be opened up and aired out — or maybe even torn down.
Attacking the problem from the angle of its background in general contracting, The Beck Group’s initial focus in its quest to make building projects run more efficiently was to find a more sophisticated way to estimate construction costs.
“We started having discussions internally in our organization,” Beck says. “They were fairly energetic debates, actually. There were some people who felt we were already really good at providing estimates on projects. So we discussed whether we actually were doing a good job at what we call preconstruction — and really, whether our industry as a whole was. I like to think we were one of the best at doing it. But we debated whether we were actually doing it as well as we could. And that led to, ‘OK, if we’re going to try to do it better, how would we go about it?’”
Beck and his team spent a good deal of time, effort and energy researching different types of software and other technologies that would help the firm integrate building design and estimating. Eventually they found a project cost estimating tool in England that they felt, with some tailoring, would be able to perform the sophisticated modeling and estimating that The Beck Group sought. The program the firm settled on was akin to the technologies Boeing uses to design aircraft and Ford and Toyota use to design cars.
“It’s a very similar technology,” Beck says. “The difference is that we have millions of parts that go into buildings, where jet engines, while they have some similar parts, they don’t the have millions of different types of parts.”
The Beck Group bought a license to the British technology and began developing software applications based on it. That led to the creation of a software product called DProfiler that enables the user to model a building in great detail, to determine the cost quickly, and to make design changes and see how the changes affect the cost. The Beck Group began licensing DProfiler to the industry five years ago.
Gradually, though, while the firm was going through the process of developing these software applications, Beck and his team began to realize that technology alone wasn’t going to solve the most pressing problems the firm and its industry faced in terms of inefficiency in building projects — that while technology could make the firm more efficient in estimating project costs, in the end, it would not break down the silos.
“We saw that this was just a small microcosm of the overall issue about the industry, and that there was no incentive for anybody to produce a tool that would marry the cost of a project with the design of the project,” Beck says. “We had people that were motivated to produce the design, and there were great technologies to do that; and there were great technologies to estimate [building costs]. But there wasn’t any integration between the two.”
Beck says he and his team had mistakenly convinced themselves that technology would solve all of the problems related to inefficiency in the design and construction process.
“In fact, as we got further into it, we realized it was more of a business model and process issue,” he says. “Yes, you do need better tools — there’s no question about that. But you also need a better process, a better business model.
“And that’s when we decided that we really needed to integrate design and construction internally, to create common incentives between designers and builders to produce better projects and reduce costs, to increase speed and improve the quality.”
Beck’s first move in the direction of integrating the design and construction functions was to go out and hire some architects to join The Beck Group.
“We started by trying to attact architects to the firm,” Beck says. “But as a general contractor, we had great difficulty in doing that.”
The concept of merging with an architecture firm began to take shape, and, after looking around for some time, The Beck Group found a viable candidate in 1999: Urban Architecture of Dallas, a company that Beck was collaborating on a project with that coincidentally had recently reached a similar conclusion — that it needed to find a way to get closer to the construction industry.
“We started having discussions about merging,” Beck says. “Those discussions worked through, and we came to the conclusion that a merger made good sense.”
The companies didn’t rush into the union. It took a couple of years to coalesce.
“We hired a firm out of California to do an assessment of both firms,” he says. “We did a lot of different types of analyses of our strengths and weaknesses, our characteristics, our personalities, and so forth, and we matched them. Where we found that we were different, we assigned internal teams — we had three or four of these — populated with people from both firms to identify how we would get alignment around some of these potential differences between us — and then to hold us accountable after the merger for at least a year. Some of these teams actually continued for two years after the merger.”
As long as it took the marriage to come together, it took even longer for it to become a union that was sufficiently comfortable and smooth-running that the combined firm could fully realize the benefits of integrating design and construction under one roof.
“For a long time before this merger, we had worked closely with architects in team approaches on many projects going back several decades, so we thought we understood architects very well,” Beck says. “And the architects we merged with felt like they really understood contractors, what motivated them, etc. And I’ll tell you, nothing could have been further from the truth. We spent a number of years trying to marry these two disciplines successfully. It was challenging.”
How long was that “number of years”?
“Let me put it this way,” Beck says. “It took at least five to six, maybe seven years before the best of the best in either discipline could laugh at their own proclivities in the presence of the other. In a way that may sound silly, but it was, behaviorally speaking, a reflection of, ‘When do you arrive at a point where you’re comfortable in your own skin, and you can admit that you can do things better, you can ask for advice, you can share concerns, and have fierce, meaningful but constructive discussions, and walk away friends?’ That takes time. And I’m not saying we’ve totally accomplished it. But we’re miles from where we used to be.
“There’s a natural proclivity in these disciplines to not share information,” he says. “If you’ve built a house or been involved in a construction project, you know this as well as I do, or better.”
Those tendencies had to be whittled away, and as The Beck Group learned, the whittling became, of necessity, a gradual multiyear process.
Beck started to see solid signs that the union was beginning to work — that significant efficiencies were being realized — about three years after the merger was completed.
“There was a project we built for a good customer of ours that we did on an integrated basis,” he says. “I distinctly remember visiting the jobsite and walking up the stairs. Now, we use a material called Bondo on stairs because when you’re building them, you have the railings and everything else, and — up until recently with some improvements and some more sophisticated tools we have now — the stairs were always wrong. And whenever you have metal that has to be attached to metal, you weld it and put Bondo over it. Then eventually it all gets painted, so it disappears. A lot of the waste in construction is in the rework that has to be done.
“But I remember walking that job, and walking that set of stairs and not seeing any rework, along the rails or the channels or anything. And then later we looked at the overall [building] delivery time, and we had cut it down significantly. So that was an important job for us, because it was one of the first ones we did that way [with design and construction fully integrated], and we got a bit of an ‘aha’ — like, you know, ‘We can really make this work.’”
The most eye-opening efficiency The Beck Group has gained from integrating design and construction has been in the speed of getting projects done.
“When you see the statistical results of an integrated project — when you do a regression analysis on conventionally fast-tracked projects versus integrated projects — the efficiency becomes pretty apparent,” Beck says. “The delivery speed is 18 to 25 percent faster.”
Ultimately, The Beck Group’s grand experiment in merging the design and construction functions is about trust between workers and departments performing the many tasks needed to complete an extremely complex project. It’s about everyone being motivated by a single goal. And it’s about eliminating everyone’s ability to pass the buck — to point at one of the other parties involved in the project and say, “It’s their fault, not ours.”
In the end, it’s about good customer service — delivering a higher-quality building faster and at lower cost.
“When you’re rewarded as one bottom line across the disciplines, [as a designer] you have a much stronger motivation to produce accurate, complete and timely information from which to build,” Beck says. “And when you’re a builder in that environment, you have much stronger motivation to help those producing the information to get it right the first time. Those motivations don’t exist when you have several separate organizations working on the project.
“It drives a different kind of behavior. You can’t look across the table and say, ‘This is the other guy’s problem.’ You become more responsible in a deep and visceral way.”
HOW TO REACH: The Beck Group, (214) 303-6200, www.beckgroup.com
THE BECK FILE
NAME: Peter Beck
TITLE: Managing director and CEO
COMPANY: The Beck Group
Education: Princeton University, Bachelor’s Degree, Civil Engineering, 1977; Stanford University, MBA, 1981
What was the most important thing you learned during your years in school?
In business school I studied organizational behavior, and broadly speaking, I learned a lot about people’s motivations, and that how you design system models is critical in terms of how it impacts people’s behavior.
What was your first job, and what did you learn from it?
I was an office engineer on the construction of Reunion Arena in Dallas, and the thing I remember most is the rolls of drawings I was responsible for. Whenever a change was issued by the architect, we’d have to hand out multiple rolls of drawings with rubber bands around them. There must have been 50 of them. And I remember thinking how wasteful it seemed, the amount of paper we were consuming, and that there had to be a better way to do it.
Do you have a business philosophy that you use to guide you?
Our company has benefited from leaving the last dollar on the table for the other guy. This allows you to develop a good reputation working with customers. What you want to do is delight the customer. And if that costs money sometimes, then it costs money. As an underlying philosophy, that’s critical to our culture.
What trait do you think is most important for a CEO to have to be a successful leader?
Listening well and having empathy. Having an understanding of the predicament, the opportunities and aspirations of your people, your customers, your peer companies, your joint venture partners. It’s about understanding other people.
What’s the best advice anyone ever gave you related to business leadership?
My father impressed upon all of us children the importance of being financially conservative. He said it a lot of different ways, and often.
When Bill Nuti took the reins at NCR Corp. in 2005, he inherited a troubled company. As he describes it, NCR at that time was a stagnant 120-year-old technology conglomerate that had developed “muscle memory on how not to grow.”
Eight years before Nuti came aboard, NCR had been spun off by AT&T as an independent company after having been owned and operated as a unit of the telecommunications giant for six years. From the point of that 1997 spinoff until Nuti took the helm at NCR in 2005, the company’s revenue growth had been practically nonexistent. In fact, Nuti says, NCR’s compound annual growth rate for that eight-year period was less than 1 percent.
“We had bad habits,” he says. “We were not fast-moving or agile or entrepreneurial enough, and we were not taking enough risks as a company. We had a culture that had simply learned how not to grow.
“Now, [NCR] was still making profits during this period, but it was doing it the wrong way, by cutting costs — costs that were not sustainable in nature,” Nuti says. “They were making cuts in areas like training and development, innovation expenses, costs around research and development. You just can’t do those things. But we were doing them in the early part of the last decade, because we made everything about the current quarter versus building a great company for the long term.”
What NCR needed to fix itself went well beyond mere makeover. The company’s problems were deep-seated. Some were cultural, some were structural, and they needed to be addressed directly.
“What we needed to do, essentially, was to reinvent our company,” Nuti says. “We needed to reinvent the iconic brand that NCR is. And reinvention is a completely different business process than a turnaround, and much more difficult.
“You know, ‘Chainsaw Al’ does turnarounds,” he explains. “We don’t. We’re not in here to cut the costs and get the short-term profits up. We’re in here to build a long-term sustainably growing company that is meaningful to our customers, that can attack new market opportunities, and can also continue to grow its profit while building a stronger and larger customer base on a global basis.”
Quicken the pace
Nuti says one of the first things he did when he joined NCR was to address what he calls the company’s lack of agility by installing a new system to give managers more timely, useful company-performance data to base their business decisions on.
“We installed a management system in the company that was designed to speed up — like an engine’s RPM would speed up — the way the company works, in order to report on what was going on with our business and our customers.”
The new management system, Nuti says, has “a very strong, regular cadence.”
“We started to review our business, the key metrics that run our company, on a weekly basis, something we hadn’t usually done on a quarterly basis [in the past],” he says.
Among the metrics that NCR’s management team now reviews once a week are orders, revenue, services, “file value” or backlog, customer loyalty data, operations by country, data about the company’s manufacturing plants and their effectiveness, accounts receivable, and accounts payable, as well as a deep dive on every business line the company operates.
“We have a two-to-three-hour meeting per week now to discuss all of those key metrics and customers,” he says. “What this does is it very quickly ferrets out who can run at that speed and who cannot. So you almost have people self-select, based on this increased speed and momentum of the business you install.”
Fix broken contract
Another area Nuti turned his attention to early in his NCR tenure is what the company calls its social contract with its employees. This pact encompasses items such as compensation, health care benefits, retirement plans, the company’s culture and personality, its work environment, which includes facilities and the tools provided to workers to do their jobs, and employee training and development.
Nuti and his leadership team assessed the status of NCR’s social contract with its employees and were deeply dissatisfied with what they found.
“Candidly, it was broken,” Nuti says. “We had broken the trust with our employees. We had not been well focused on these elements that we feel make for a better company.”
While virtually all aspects of the social contract needed upgrading, some parts of the it were in much worse shape than others.
“We had OK compensation; we had OK benefits; we had less-than-OK facilities, at the time,” he says. “But those things could be fixed relatively easily over time.”
The element that needed the most work was employee training and development.
“We had been haphazardly cutting costs for the sake of [quarterly profits], without understanding the long-term impact on the company and our people,” he says. “As a result, training and development was destroyed.
“If you know the history of NCR, going back 127 years, we were well known for training and development. In fact, we invented sales training and many other contemporary sales training techniques today. But we had gone on a rampant cost-cutting campaign. We took out the training and development department, all of their people. We sold our training center in Dayton, Ohio. We removed virtually all aspects of training — leader-led training, online training and so on. And therefore, from that perspective of the social contract, we had broken that bond.”
With a lot of sweat, a lot of nerve and at considerable investment cost to the company, Nuti says he and his leadership team put NCR’s employee training and development program back on track to sustain the company’s success over the long haul.
“Today, NCR is 180 degrees from the NCR back in 2002-2003 that I described to you,” Nuti says. “At the height of the Great Recession in 2009, we rebuilt NCR University in Peachtree City, Ga. It’s a university system we have down there. We have a staff, a dean who runs our university. We flew in and trained over 5,000 people last year at that facility. And in 2009, we invested in online e-learning. Last year alone, we had about 230,000 registrants for training online. That’s about 10 courses per person at NCR.
“We now do training of our people in multiple countries around the world,” Nuti says. “We have completely revamped and reinvested in training at NCR, to the point where I would say we’re back at our height in terms of our company capability and in terms of delivery on that piece of the social contract. The most important element keeping NCR competitive long term is having people who are well trained and developed to do their jobs.”
Move the rocks
Another important move to rebuild NCR that Nuti’s team set in motion was a trio of company infrastructure changes. The first was to build a global manufacturing footprint by closing its plant in Scotland and building five new plants around the world. The second was to spin out Teradata, NCR’s highly profitable database software division. And the third was to move the company’s headquarters from Dayton, Ohio, to Duluth, Georgia.
Up until 2007, NCR had a single 40-year-old manufacturing plant in Dundee, Scotland, that served the globe for all of the company’s automated teller machine needs. Today, NCR operates manufacturing plants in Columbus, Ga., Manaus, Brazil, Budapest, Hungary, Pondicherry, India, and Beijing, China.
“We knew that longer term, we needed to be better positioned in the emerging markets, to have a balanced geographic footprint and revenue contribution coming from higher-growth emerging countries,” he says. “So, tactically, we had a program to move out of Scotland and build five plants around the world.”
Nuti says when NCR started the ball rolling with the change in global manufacturing footprint in 2007, the company got some tactical short-term gain in terms of cost savings, because it was moving from high-cost manufacturing locations to lower cost.
“So it helped us in the short term,” he says. “But over the long term, of course, the investment was significantly higher, and therefore you recycle those savings into building your longer-term strategy. And as you do that, you gain more traction in those other markets.”
When NCR spun out Teradata in 2007, the database software unit was the company’s most profitable division. “People thought we were crazy,” Nuti says.
“The problem was, Teradata was essentially getting all of the resources in the company, and the rest of NCR was starving,” he says. “We knew we needed to spin out Teradata for several reasons, one of which was that they served a different marketplace with a different technology and required a completely different infrastructure to be successful long term.”
The Teradata spinout has been a resounding success. In 2006, just before the move, the combined market cap of NCR and Teradata was about $6 billion; the combined market cap of NCR and Teradata today is more than $12 billion.
“It might go down as one of the best spinouts in history in terms of market cap appreciation,” he says. “We not only created a lot of value, we took two great companies that weren’t getting enough resources internal to themselves, and gave them enough resources and focus, and now they’re both thriving.”
In 2009, NCR moved its headquarters from Dayton, Ohio, to Duluth, Ga. Nuti says the move has had multiple benefits, the main one being cultural.
“We brought in a couple of thousand new people, new ideas, best practices from other companies, and a lot diversity,” he says. “It has made a big impact on NCR culturally. It’s been very positive.”
“So, strategically, we had a long-term view, but we knew we had to do things tactically to get us there — that would benefit us in the short term and medium term while helping us to achieve our long-term goals. And those are three big rocks that we moved.”
All of the infrastructural and cultural changes at NCR are starting to bear fruit. The company has put together two straight years of solid growth and strong financial results. And Nuti notes that in the fourth quarter of 2011, the company posted a record year-on-year revenue increase, which was up 17 percent, as well as records in operating income, cash flow, and earnings per share.
“All of those numbers are the best we’ve ever achieved, on top of a tough [comparison year], because 2010 was also a very good year for NCR. We had a good growth year, a solid growth year, and a great profit year. So we’ve now strung together a couple years of significant growth and expansion of profits.”
HOW TO REACH: NCR Corp. (800) 225-5627 or www.ncr.com
THE NUTI FILE
NAME: Bill Nuti
TITLE: Chairman, president and CEO
COMPANY: NCR Corp.
Born: Bronx, New York
Education: Long Island University, Bachelor’s Degree in Finance and Economics, 1986
What was your first job, and what did you learn from it?
I started as a newspaper boy when I was 9. I delivered newspapers for the New York Post. And I learned that hard work pays off. I used to deliver papers roof to roof. Because I lived in the projects, I would actually walk up one building, and my last paper would be delivered on the top floor, and then I’d go over the roof to another roof, and I’d start delivering papers from the top floor to the bottom floor. And then I’d go to another building, start on the bottom floor to the top floor. So I actually delivered papers by jumping over buildings and rooftops. I was kind of like Batman.
Do you have an overriding business philosophy that you use to guide you?
Do the right thing when no one is looking.
What trait do you think is the most important one for a CEO to have in order to be a successful leader?
I think the most important trait is a willingness to learn, and continue to be a learner. You know, when you get to this level, people think that you’re supposed to have all the answers, and that if you don’t have the answer, it’s a sign of weakness. And I think that you have to recognize that life is a continuous journey for learning. In this job, listening and learning is critical.
How do you define success?
I define success as being the most important business to your customers in the sector that you participate in.
What the best advice anyone ever gave you?
It would have to be John Chambers, my boss at Cisco [Systems Inc.], and his advice was, ‘Don’t be afraid to take risks — always.’
A growing number of business executives are taking to blogging, and with good reason. The benefits of well-executed CEO blogs are significant and vast. But blogging from the C-suite has plenty of pitfalls, too, particularly legal ones. So it’s essential to plan strategically to make sure your digital journal exploits the power of the form while avoiding the legal traps associated with executive-penned blogs.
“There are obviously terrific benefits to be gained from executive blogging,” says Tim Van Dyck, a partner in the Boston-based law firm Edwards Wildman Palmer LLP. “More and more CEOs are part of the Google generation and, therefore, feel more comfortable about blogging than, certainly, people in my generation do.
“The executive blog is a wonderful egalitarian method of communication,” adds Van Dyck, who chairs Edwards Wildman’s labor and employment group. “It can be a very powerful marketing tool. It can be a very effective means to recruit employees and to communicate and organize knowledge. It’s a great way to share information with clients and vendors. And it’s also a wonderful opportunity to put a human face on a company and to offer an exclusive look at the inner workings and culture of a company that traditional media can’t parallel.”
Nancy Flynn, executive director of the ePolicy Institute and author of several books on corporate blogging and social media, concurs, noting that blogs “can be a great way for C-level executives to communicate with customers, prospects, potential employees, decision-makers, the general public and the media.”
Watch for potholes
Those are a few of the benefits CEOs can realize for their companies by blogging. But those potential benefits are surrounded by serious hazards, says Flynn, whose books include “Blog Rules” and “The Social Media Handbook.”
“CEO blogging opens the organization up to a broad range of potentially costly risks, including workplace lawsuits, regulatory fines, lost productivity, public relations nightmares, security breaches and mismanaged business records,” she says. “Any time any employee or executive, right up through the CEO ranks, blogs on behalf of the organization, you really have to take a strategic approach to that blog, and you have to adhere to your organization’s blog policy, your content rules, your ‘netiquette’ guidelines and all of your other employment policies, including harassment and discrimination, code of conduct, and on and on.
“Long story short, you have to be mindful of the fact that content creates risk, so the easiest way to control electronic risk is to control your content,” Flynn says.
So what’s the best way to control that content? According to Van Dyck, having a corporate blogging policy is a must — and not merely having such a policy in place but steadfastly enforcing it.
“The company’s blogging policy needs to be clear and unambiguous in terms of explaining what kinds of blogging are appropriate and what kinds of blogging are inappropriate,” Van Dyck says. “And that policy needs to be enforced uniformly so that all employees, including executives, are subject to it. Particularly with respect to executives, who come into daily contact with proprietary insider information. The company should identify a gatekeeper, such as an in-house counsel, who reviews any executive blogging material before it’s posted. In other words, there needs to be a filter before it goes out.
“Obviously, both the executive and the company need to make clear that the blog is being monitored by the company,” Van Dyck says. “The executive, I think, needs to make sure that whatever is being blogged about is not subject to misinterpretation. Even something as innocuous as an executive saying, ‘Something big’s going to happen with the company,’ is a potential minefield. That could be construed as the company going public or the company being bought or entering into a new product line. And all of those things really need to be kept confidential.”
The corporate blogging policy should extend beyond the executive who is writing the blog. Comments appended to blogs by readers have to be monitored, as well, Flynn says.
“If CEO bloggers are going to allow third parties to comment on their blog, then you want to post a policy on your blog — your community blogging guidelines — to let those third parties know that, ‘Yes, you’re welcome to post your comments on our blog in response to our CEO’s posts, but here are the rules — here’s what’s allowed, here’s what’s not allowed.’ And you want to, either through technology or through a human set of eyes, monitor those comments,” Flynn says. “You definitely want to review those comments before they go online. Because you don’t want something posted that is unlawful or uncivil or a poor reflection on your company.”
Vet, vet, vet
Another must for executive bloggers, in order to avoid falling into one of the many legal traps associated with the form, is to have all blog posts reviewed by a legal expert before they’re launched into cyberspace.
“I know that the blogosphere doesn’t like to hear this, but I think having blog posts vetted before they’re published is a great idea,” Flynn says. “It’s something that I recommend to all of my clients. Here’s why: You wouldn’t publish your organization’s annual report without having it reviewed by your marketing department and your legal department. You need to think in terms of your blog posts as reflections on your company. And that content in those blog posts is as fraught with potential risks as any other kind of literature your company puts out.
“Just because blogging is electronic doesn’t mean that you can play fast and loose with the language,” Flynn says. “It is a more casual way of communicating, but in spite of its casual nature, it’s still fraught with real potential problems. So I do think it’s a good idea to have legal take a look at blog posts, particularly if it’s the CEO, because the CEO is the last person who you want to be making a gaffe and creating potential problems for your company.”
Van Dyck agrees about the importance of having executives’ blog entries vetted before they’re posted.
“I think that’s a very good idea,” he says. “At least with respect to posts that are authored by high-ranking executives. It gives the executives more protection, and it gives the company greater protection. There’s no downside to having those posts vetted by, if not in-house legal counsel, at least somebody who is aware of and knows what to look for in terms of the risks.”
The trend toward mobile blogging makes preliminary legal review of blog posts even more crucial.
“Technorati recently reported that 25 percent of bloggers are now engaged in mobile blogging,” Flynn says. “So if your CEO uses a smartphone or a tablet to post to your corporate blog, chances are, in that kind of circumstance, the writer might be inclined to take some shortcuts. You might be working a little faster and abbreviating language and maybe not taking as much time to reflect on whether this is really what you want to say or how you want to say it or whether this is something that’s really appropriate to put in the blog or whether this could get us into any trouble. So that’s another reason why I think it’s a good idea to have legal vet those blog posts.”
Keep secrets secret
What’s the most horrible thing an executive blogger can do when he or she writes a blog? What are the worst kinds of messes to avoid stepping in? According to Van Dyck, one of the most egregious errors a CEO can make is to slip up and reveal a trade secret or a similar type of proprietary company information.
“I think the greatest risk is the inadvertent disclosure of confidential and trade secret information,” Van Dyck says. “As we all know, high-ranking executives come into daily contact with company trade secrets and proprietary information. And the advent of executive blogging has dramatically affected who can communicate with whom, when, how, why, and where. Blogging’s availability means that executives can now transform their previously informal personal communications into a published, public document. And that’s a capability that is very much at odds with trade secret laws’ reliance on limited communication.
“In my view, executive blogging has significantly enhanced the likelihood of catastrophic disclosures of trade secrets and other proprietary information, so I think that’s probably the most significant risk associated with executive blogging.”
Van Dyck notes that he’s had firsthand experience with this type of circumstance.
“I had a situation where we represented a company who wound up using information that had been posted on a competitor’s blog,” he says. “The other side came back and explained that it was confidential. And we had a wonderful defense to that, because the information had been disseminated to the public by way of a blog.”
Flynn agrees that it’s critical for executives not bring up anything remotely related to proprietary company information in a blog.
“You have to keep your company secrets close to your vest,” Flynn says. “You want to be real careful that you don’t disclose confidential company information. You don’t want to reveal your secret recipe or expose your trade secrets or talk about your business partners’ trade secrets. Because once the secret’s out there, it’s no longer a secret.”
Flynn points out that it’s also crucial to make sure CEOs’ blog posts don’t violate any regulatory rules.
“Let’s say you do business in the financial services world,” she says. “Let’s say you’re publicly traded. You definitely don’t want to jump the gun and publish any posts related to sales or revenue in advance of the SEC’s specific guidelines on when that information should be released and how it should be released.
“Similarly, if you’re in the health care arena, if you were to post any content that violated HIPAA — if you revealed confidential protected health information related to a patient — you could be in trouble,” Flynn says. “At the end of the day, you really have to look at your blog the same way you should be looking at your e-mail, and make sure you’re adhering to the law and to regulatory rules and to your own organizational guidelines.”
Ultimately, when executives write blogs, they become the online face of their companies, so they had better keep their game face on.
“What C-level and executives and all executives need to bear in mind is that a business blog is different from a personal blog in that it is a reflection of your individual professionalism, it is a reflection of your organization’s corporate credibility, and it does present the organization with a lot of potential risk,” Flynn says.
If the CEO blogger commits a serious misstep, Flynn says, “It’s not the CEO who’s going to be sued, it’s the whole organization.”
HOW TO REACH: Edwards Wildman Palmer LLP, www.edwardswildman.com; ePolicy Institute, www.epolicyinstitute.com
Few tasks are more central to effective leadership than communicating well and making sure your charges are doing so too. Communication pitfalls are rife in business. Maybe you have a tendency to rush through strategy sessions, or to be too subtle, to not spell things out clearly enough. Maybe you find yourself becoming so dependent on a PR person or group of PR people that you start to feel inaccessible. Maybe you have a manager who’s basically good at articulating his thoughts, but when his mouth opens, his ears snap shut. Here, from the pages of Smart Business Dallas, are some ideas from business executives on how to avoid such missteps and keep everyone in your company connected.
“When most people hear [communication], they’re thinking of transmitting, so we really tried to put the emphasis on receiving. It’s making it a part of the leadership culture to emphasize listening well and asking appropriate questions to enhance absorption of what’s really being attempted to be communicated. That’s not a natural skill. People typically default to being better at transmitting than receiving. You can see that in a variety of ways, but one way you can see that is when a discussion of reasonable intensity is going on and one party is communicating to another, you can almost see that other party stop listening to start formulating what their response is going to be on what they’ve heard so far.” — Carlos Sepulveda, President and CEO, Interstate Batteries
“Communicate early and often. You can almost overcommunicate. Make sure you’re sharing the vision — that it’s not just that there is a vision, there is a strategy behind this. …You overcommunicate and begin to share capabilities and really point out the most important thing to both cultures, and that is we’re a client-first organization. I try to compare it to something the group has been through before, if it’s possible. It’s not always possible, but if you can compare it, make it relative; I do find that to be helpful in many ways.” — Jeff Markham, Regional Managing Director, Texas Region, Merrill Lynch
“I don’t have a PR agent. I’m probably the easiest CEO in America to find and e-mail and get ahold of. It’s more efficient and takes less time to deal with things directly via e-mail than it does for someone to go through your e-mails and not know what you’re missing and then have them communicate to you and you communicate back to them. The time it takes for you to answer an e-mail or hit the delete key, if it’s not worth responding to, is probably about 20 percent of the time it takes to go through one, two, three assistants. I go into Hollywood and I see four assistants sitting outside somebody’s door, and I’m like are you [expletive] kidding me?” — Mark Cuban, Dallas Mavericks Owner and HDNet Chairman, President and CEO
- Emphasize the importance of listening.
- Don’t cocoon yourself with intermediaries.
- Hit the nail on the head; repeat as necessary.
“One of the hallmarks of successful companies is being open-minded and receptive to ideas for improvement from the employees, who are closer to the work than the executives are. It’s kind of built into your DNA. Either you are or you aren’t receptive. You have to be curious and receptive and then be willing to work with it. Then you need to set up a pattern and a tempo of consistency on this topic. If you do it once, and it goes away — a flash in the pan idea — it becomes not effective. If you do it every year, you’ve been doing it for 10 years, people come to expect it, and it becomes part of the culture.” — Chip Perry, President and CEO, AutoTrader.com
- Be receptive to ideas for improvement.
- Foster a collaborative environment.
- Reward employees who suggest innovations.
It was the middle of 2008, and G. Brint Ryan was uneasy about his business. Overall, he was confident that the Dallas-based tax firm he’d founded 17 years earlier was on solid ground and was poised for continued success. But one thing was bugging him: Workers had been leaving the company in growing numbers. Ryan LLC’s annual attrition rate — though still below the accounting industry norm of 27 percent — had been creeping up. Eighteen percent. Twenty. Twenty-two.
Then, one day late that summer, as Ryan recalls, “the critical event” happened: One of his firm’s fast-rising employees, a young woman a couple years out of college, asked to meet with him. Her request got his attention. It felt urgent.
“Her name is Kristi Bryant,” Ryan recalls. “At that time, she was a brand-new team leader. She came in and said, ‘Brint, I have to tell you, I love this company. I love the work I do. I find it challenging; I find it rewarding. I just love this place … and here’s my resignation letter.’
“I said, ‘Whoa, time out. Tell me why you’re leaving. Are you going to a competitor?’ She said no; then she repeated, ‘I love this place, I love the work. … But, you know, I’m recently married, and I’ve decided to start a family, and we’ve made the determination that work at Ryan is incompatible with a life outside work. It’s just not possible.’”
The words hit Ryan like freight train.
“It laid me out,” he says. “It’s one thing when you have a marginal performer that leaves; you don’t shed a lot of tears. But this was different. When your very top people [opt out] because of the work environment — well, that’s a problem.”
Strike a deal
So Ryan cut to the chase with Bryant. He said, “Look, Kristi, I don’t want to lose you. But more importantly, I see you as a representative of a large class of our younger top performers. So I’ll make a bargain with you: If you’ll stay and give me a chance to work on this, then I’ll let you head up the initiative, and we’ll figure out what’s wrong with this work environment, and we’ll change it.” She said, “Well, let me think about it.”
“So she went away and thought about it for a couple days, then she came back and said, ‘Now, look: If you’re sincere about this — I mean, if you’re truly ready to embrace meaningful change — then I’ll stay and I’ll lead the initiative.’ And I said, ‘Fine, you’re on.’ So that’s what we did.”
Ryan next sat down with his company’s human resources team, and together they decided that their first step toward determining what the company’s new work environment should look like would be to conduct some research to assess how the accounting industry was changing. They quickly did that, and their findings underscored some tectonic shifts in the marketplace that the company’s leaders were aware of but hadn’t been paying much attention to. The accounting industry had changed dramatically from the time G. Brint Ryan began working in the 1980s. It had gone from a male-dominated sector to a female-dominated one. And in response to that shift, some of Ryan LLC’s big competitors had installed flextime and telecommuting programs to make their work environments more suitable for families and women with young children.
Ryan’s firm, conversely, hadn’t made any such moves and was gaining a reputation for being, as the CEO puts it, “a sweatshop” — especially on college campuses, where accounting and tax firms compete for the young talent that feeds their business.
“I had started [the company] in 1991, and at that point I had a little over three years of professional experience,” Ryan says. “I was very much a product of public accounting. And public accounting in the 1980s was very rigid. People wore the amount of hours they worked like a badge of honor. It was very inflexible. And we adopted that model. From 1991 to 2008, we operated in that fashion. We had mandatory work hours of between 50 and 55 hours a week year-round. We communicated to new hires that that was our requirement. We expected people to be in their seats at 8:30, and we expected them to be here until the work was finished. There wasn’t a lot of give in that model. And it worked fine. … I mean, we were successful.”
Seek fresh input
Clearly, though, signs were pointing toward the need for change. That old model wasn’t necessarily working fine anymore. Ryan LLC’s attrition rate was inching up, and it was getting tougher to recruit and retain young talent. So Ryan brought in a consulting firm that had experience working with companies in similar predicaments.
“This [consulting] firm had done a number of assignments and had coined the term ‘results-only work environment,’” Ryan says. “Their idea was truly radical: You throw out the work schedule, you throw out the work location, and you basically just measure people on results. You tell them, ‘I don’t care when you come to work; I don’t really even care if you come to work. Here are the things I want you to accomplish. And as long as you accomplish them and do them well, your life is your own. There are no rules.’
“We were intrigued by that. We saw it as a way to catch up; we saw it as a way to even leapfrog our competition. Because we knew that success comes, for us, by creating a talent magnet: a work environment where everybody wants to be here, where people from other firms are envious and want to be here. We knew that was critical. We knew we could not continue losing our top talent because of a set of work rules that didn’t fit today’s professionals.”
The consulting firm sold Ryan on its results-only approach, and shortly thereafter, Ryan announced to his employees that the company was going to institute the system, initially for a three-month pilot program in the last quarter of 2008.
“We knew this was a radical change, but the old rules weren’t working for us anymore,” he says. “So we ripped off the Band-Aid. I told the organization we’re moving forward with this.”
Not surprisingly, the younger employees at Ryan LLC were elated. They embraced the new system — immediately, enthusiastically. But most of their bosses did not. In fact, many of the senior staffers hated the concept. Ryan says he had expected there would be some discomfort; change is always unsettling. He had even anticipated a few pockets of resistance throughout the firm. But he was taken aback at the intensity of the disapproval from many of his upper and middle managers.
“I greatly underestimated the organizational resistance we were going to get,” he says. “I was caught pretty much flat-footed by it. I had senior partners coming to me and saying,
Look, we don’t know what’s happened to you, but you’re going to tank this place. This won’t work. People will not show up to work. If there’s not somebody standing over them making sure they’re producing, then production’s going to go in the tank. And by the way, Brint, we get paid for the time we put in on the services we provide to our clients.’
“I said, ‘Well, you know, that may be right, but I’m willing to take that chance, because I want to create something that is truly dynamic, and we’re 20 years behind the curve. We’ve not only gotta catch up, we’ve gotta get in front of the competition. And this is the only way that I see that we can do it.’”
Ryan knew he was taking a big risk. He knew the results-only system represented a drastic shift for his organization. But he sensed that the firm needed to make a deep-seated change and that he had to be aggressive in making it happen.
“We knew the old way didn’t work,” he says. “And to be honest, we didn’t know if this new way would work or not. But we knew we had to do something. And I felt deeply that we had to do something radical — that an incremental change was not going to get us where we needed to go. We felt like we were too far behind to just incrementally, you know, put a Band-Aid on it and keep going.”
Ryan and his leadership team knew they had an uphill battle ahead of them, but they were determined to push through it.
When they installed the new system, Ryan says the firm encountered a lot of what he calls “malicious compliance,” as well as some outright noncompliance, mainly on the part of some of the managers. In some cases, people were so adamantly opposed that they ultimately had to leave the firm.
“That was one of the unintended consequences of this,” Ryan says. “When we went to this program full time, we found that there was a small subset of our population that simply couldn’t work under those arrangements. They needed constant supervision. They needed somebody directing them on a day-by-day, hour-by-hour, sometimes minute-by-minute basis. And within a relatively short period of time, those people left the firm. And frankly, overall that’s good for the organization — and it’s good for them too because they need to find an environment that’s suitable for them.”
But overall, Ryan and his leadership team were able to convince most of the firm’s managers to give the new program a fair shake.
“Here’s the way we got most of our management team on board,” Ryan says. “When you look at those teams that have low attrition rates, they are dramatically more productive and more successful than those that have high attrition rates. So we sat our management team down and said, look, whether you philosophically agree with this or not, the key to your success is developing a team environment — just like our overall [company] work environment — where people want to come to work, they’re happy with the leadership they get, and there’s flexibility so they can achieve a work-life balance. And the sooner you get on board with that, the more successful you’re going to be.
“So one by one, we chipped away at it. One by one, we moved them in that direction. And while we still have some issues that we encounter from time to time — where managers have their own interpretation of how the program is supposed to work — for the most part, we have the team on board. And now it’s become expected.”
A little more than a year after Ryan LLC initiated its results-only work system, Ryan says his risky move started to pay dividends.
“At the end of 2009, a miraculous thing happened,” he says. “When we looked at the metrics at the end of the year, we had done some remarkable things. First, we had reduced our turnover from 22.5 percent all the way down to 8 percent. We had to go back and recheck the numbers because we thought, wait, that can’t be right.
“In addition, we posted the highest revenue we’d ever posted as a firm, and a record profit, in what was one of the absolute worst economic environments I’ve seen in my professional career. So we were beside ourselves.”
Ryan says he and his leadership team are now fully invested in the results-only work system for the firm.
“We’re big believers in creating a work environment where people can do their best work, not one where we try to second-guess when they should come to work, or where they should work from,” he says. “We know that people work differently. Some people like to get up early in the morning and knock things out. Other people work later in the day, or they work at different times. And sometimes they’re more effective when they’re away from the office than when they’re in the office.”
Perhaps most importantly, Ryan says the flexible work program has made his firm a hit on the college recruiting trail.
“It’s become one of the most valuable recruiting tools we have,” he says. “When you can go to a college campus and say you’ve won several best-place-to-work awards — and, oh, by the way, here’s how the program works, and this is the type of flexibility you’re going to have — they’re overwhelmed. So we’re getting more than our fair share of the top talent as a result of the program.”
HOW TO REACH: Ryan LLC, (972) 934-0022, www.ryan.com
THE RYAN FILE
Name: G. Brint Ryan
Title: Founder, CEO and Managing Principal
Company: Ryan LLC
Born: Big Spring, Texas
Education: University of North Texas, bachelor’s and master’s degrees in accounting
What was your first job, and what did you learn from it?
I was a newspaper carrier for the Big Spring Herald. That was one of my most difficult collection jobs. But you know what? You learn that if you don’t collect the money, you don’t eat. So it was a valuable skill. Also, there’s nothing like dealing with the public, dealing with the retail trade, to put your mind in the right frame of reference. Because you deal with all types of people. And the objective is to get them all to take the paper and to pay on time. So you learn to be persuasive, and you learn to be persistent. You get turned down more times than bedsheets, yet you just keep on going.
Do you have a core business philosophy that you use to guide you?
Since the beginning of this firm, the thing that’s always guided me is that if you take good care of your clients and you do your best work, everything else falls into place: the money, the opportunities — they are all byproducts of just doing the best job that you can.
What trait do you think is the most important one for a a business leader to have in order to be successful?
Probably the one that’s most important is communication. The ability to connect with people, the ability to understand and empathize with people, is a critical leadership skill. You can’t do anything big by yourself, so you’ve got to be able to build and lead teams to success. And you can’t do that if you can’t communicate — if you can’t identify with and connect with the people you’re trying to lead.
The old saying that the sun never sets on the British Empire applies well to Atlanta-based Global Payments Inc. Daylight is always shining on some part of this company’s domain, too.
In the company’s decade of existence, Paul Garcia has led Global Payments from its birth as a $300 million-a-year spinoff from National Data Corp. to its current status as a $2 billion-a-year Fortune 1000 company with more than 3,700 employees living in 26 nations around the world.
Doing business in far-flung locales presents an interesting set of geographic and cultural challenges for the electronic payment processing firm’s leadership team. Garcia, Global Payments’ chairman and CEO, recently talked with Smart Business about the nature of those challenges and about how he and his team work to surmount them.
Q. Looking back over the last few years, what is the greatest leadership challenge you’ve faced?
I would say it stems from having almost 3,800 employees in 26 countries. We are strong believers in our company’s values, but those are sometimes very tough to translate. You have cultural issues, you have language issues, and you also have time zone and distance issues, obviously.
Today, I spoke to our colleagues in Asia. They’re 13 hours ahead of us. If it’s morning your time, it’s night there. So you’re in very different ‘head spaces,’ you know? Their day is over, and they’re thinking about going and getting a cocktail somewhere, and your day is just starting. Or vice versa.
Obviously, [everyone] wants to go home at night. So we do our best to mix it up. And that’s a challenge. All those geographies, all those cultures, all those time zones. And there’s always something going on. You have things happening 24 hours a day, literally. So sometimes you have to disconnect. Sometimes you have to put your BlackBerry down.
Q. At what stage in your company’s development did this start to become a significant challenge for you and your team?
Let me give you a little history. We just had our 10th anniversary. Ten years ago we had about $300 million in revenue, and we were all basically from the U.S. Today we’re at $2.1 billion, with 45 percent of it coming from outside the U.S. So we have significantly more revenue outside the U.S. than we had in entire-company revenue when we began.
These challenges started to become evident pretty quickly, because we started doing deals outside the U.S. right away. The first was Canada, which in some ways is not that big an adjustment from the U.S., but, you know, it’s still a different country. In fact, in my opinion Canada is more like Europe than it is the U.S. in a lot of important ways.
Then we did a deal in Asia. And that immediately created challenges with distance and cultural differences. Then we added the U.K. to that. Then we did deals in the Czech Republic, and Russia, and now we’re also in Spain, and Brazil. …
So it happened quickly. When I took over this company, I looked at the opportunities, and I said, you know, the most dramatic opportunities are outside of our borders. So that’s what we focused on.
Q. Let’s talk about the specifics of some of the difficulties posed by doing business around the globe. What’s a typical situation that you run into with time differences?
Well, take this interview, for example. If you wanted to chat with me and you were in Hong Kong, it would now be midnight your time. So we’re only going to have a skinny window. You’re going to talk to me at 7 or 8 o’clock [p.m.] your time, which is going to be 6 or 7 a.m. my time. Then if we go too much later, I’m now really cutting into your evening, and you’re really cutting into my morning. So it creates practicality issues, in terms of just finding a good time to talk. And ultimately, management is about people talking to people.
Culturally, it’s a different type of challenge. For example, on Dec. 31, you would wish me Happy New Year. But if you were talking to someone in one of our 11 Asian countries, you would be mistaken, because their New Year starts three weeks later. And right after that — right around now, in fact — they have what they call Golden Week, which is their big shopping time, when all the merchants are very busy. So this is a huge peak period for our business there. But this time in the West is not a busy shopping period at all. It’s just the opposite.
So it’s very different. There are different cultures; there are different shopping patterns; there are different consumer behaviors; there are different expectations from employees. And you have to ‘get’ all of that.
Q. With such distant business units, how do you structure your management team?
One of the things we do is that, unlike a lot of American companies, we don’t say, you know, we created this whole merchant credit card environment, in terms of automation and sophistication, and consequently we’re going to make sure we have people from our head office in all of these regions running these businesses. We do the opposite. So we have a really smart Russian guy that runs [our business in] Russia. We have a really smart Chinese guy that runs China. A very accomplished Indian lady who runs India. We’ve got a top-notch English guy that runs England. We have a great Spaniard that runs Spain. A Brazilian that runs Brazil. … All the way down the line.
So they’re running their country or region. And they ‘get’ the cultural differences, because they’re from there. And they know what they need. Our job is simply to provide support to them. Where we can provide assistance, we do. But most of the time we stay out of their way.
Q. What else have you done to overcome the geographic challenges?
I know this sounds trite, but the most important thing is to hire good people and empower them and give them objectives.
So this is how we do things here. If you’re in charge [of our business] in a given country, you’re really in charge. You have a lot of latitude to run your business. Now, if you make your numbers, you’re going to do well. You’re going to be rewarded; you’re going to make your bonuses; you’re going to receive equity compensation; you’re going to be given even more latitude. If you you miss your objectives, then, frankly, unless we all understand that there were extenuating circumstances, you’re probably not the right person for that job. Because we ask you to set the objectives. We have realistic goal-setting, and we expect people to make those numbers.
Now, that doesn’t mean make them at any cost. You always do so in an ethical, honorable way. But we do expect production. That’s the capitalist world we live in.
Q. Can you give an example of a situation where a translation mistake was made or where there has been confusion or misunderstanding because of the way something was translated?
Here’s a good one; it shows how even the best intentions can lead to unintended consequences: We had a meeting once, right after we did a deal in China, and we told the people there that it’s really not part of our culture to work six days a week, so we won’t be requiring people to come in to the office on Saturday. We expect you to get enough production in the five days a week, and it would be an exception that you would have to come to work on a Saturday. And the staff seemed upset by this. So I said to the guy running it, what am I missing here? He said, if they don’t come to work on Saturday, all their neighbors will think they’ve been fired. So they’re going to put on a suit and go somewhere.
Q. How did you respond to that?
We said, you know, that isn’t what we meant to convey; that isn’t what we’re trying to accomplish. So we will continue to adhere to what you’re doing in this region. The office will remain open [on Saturdays], and we’ll continue to serve the beverages, and we encourage you to come in. And I apologize because we weren’t being culturally sensitive.
Q. Your company has grown quickly, and a lot of the growth has come from acquisitions. What types of challenges does that pose?
There’s an old expression — it’s kind of corny, but it’s true — that the first word in merger is ‘me.’ When you merge companies, you’ve got to answer the ‘me’ questions. What about my job … my pay … my location … my boss … my products … my future … my retirement? And you’ve got to encourage people to ask those questions, because they’re important. They’re providing for their families, they’re working for that reason, so you need to have answers. And we have good, crisp answers for every one of those questions. That’s how you start off a new relationship properly.
Q. Let’s delve into what you’ve learned as you’ve addressed this challenge. For example, let’s say I’m the CEO of a company and I’m thinking of expanding into a country in Asia. What’s the most important thing I should know? What should I be watching out for?
The first thing you have to do is answer this question: What exactly can you do that will advance things — whatever service, whatever product, whatever business you’re in — what can you do to make that business better? But if going in and doing it is going to cause some serious cultural shifts, don’t even think about it.
Also, always look for good local management. Those are the two keys that I have never violated, and it absolutely has paid dividends.
So those are the things that you have to do, and you have to be very honest about them. And if you’re talking about, OK, we are going to have to change this wholesale; we do it this way in this country, but they don’t do it this way in that country — forget about that. That’s a disaster.
Q. So when you say forget about that, what would you do instead?
Well, you have to look at things that you really can do. And if the answer is, I don’t know if I really can make this better, then save your shareholders the write-off. Don’t do the deal.
Q. Don’t go into that country at all?
Yeah. Let me tell you: The road is littered with companies that do deals internationally and they fail. Because they’re either arrogantly thinking they can run it from the United States, or they don’t understand the local markets, or they try this one-size-fits-all [approach]. It doesn’t work that way.
Q. So you’ve had situations where you’ve given serious consideration to expanding into a country and reached the conclusion that it’s a bad idea and backed out of it?
We’ve had several. Several [markets] that I’d really like to go into that have tens of millions — in one case, hundreds of millions — of people. But I haven’t done so because their payments market is different. It’s either priced in a way that you can’t make money, or the relationships you have with the merchant and the card-issuing bank are not defined in the same way. We’ve resisted going into those markets, until either we can think of a way that we can help — I mean, if we get to the point where we really believe we can change it — or it changes on its own. So you’ve got to be disciplined about that.
Q. I gather that your company has a very decentralized management structure, with a lead person in each country who has a lot of autonomy. Would you say that’s an accurate description of how your business is set up?
Absolutely. And I think that translates into a couple important things to remember. No. 1: Management is simply people taking care of people. Your job as a manager is to help someone do their job. And to always be a moral example, to make ethical decisions that are above reproach.
And the other thing to remember is that people want to do well. It’s very important for someone’s life — what they do, how fulfilled they feel, coming to work feeling that they’re doing something that’s meaningful, receiving appreciation in an environment that’s conducive to success. And that’s the CEO’s job. It starts with one person, then it filters down from there.
HOW TO REACH: Global Payments Inc., (770) 829-8000, www.globalpaymentsinc.com
THE GARCIA FILE
Name: Paul Garcia
Title: Chairman and CEO
Company: Global Payments Inc.
Born: Newburgh, N.Y.
Education: Ithaca College, Ithaca, N.Y.; bachelor’s degree in history, 1975
What was the first job you had?
I started working when I was 14, and I’ve had some doozies. I worked in a factory at night. I drove a laundry truck. I was an industrial plumber. I was a form setter. I’ve been a waiter. A busboy. … Then, post-college, my first job was with Citigroup in New York. I got into the payments business, travelers checks, commercial instruments at that point. It was very exciting.
What’s the most important business lesson you learned from that job?
Show up. Just, be there. Be there on time, keep your nose down, raise your hand when someone needs a volunteer. And don’t give up. Don’t get discouraged. It’s not perfect. I mean, I was naive to think that, ‘Boy, Citigroup, they’re going to have the most enlightened managers.’ It wasn’t necessarily the case. So you have to hang in there. It’s amazing what you can accomplish if you just hang in there.
In a nutshell, how do you define success?
That’s a tough one. The first thing you would say is, ‘What’s your return to your shareholders?’ I mean, this is capitalism, so you’re expected to make money. But I think it’s deeper than that. I think you could have significant shareholder return, but if you’re a [company] that is not helping your community, not helping your people, and not providing a true service to your customers, that’s built on a house of cards. That’s going to collapse. So while ultimately the bottom line is the most important thing, it has to be a sustainable bottom line. There has to be true service, with employees who are loyal and customers who are loyal.