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8:00pm EDT March 26, 2009

When Alan Schultz took the helm as chairman, president and CEO of Valassis Communications Inc. in 1998, the company had tunnel vision.

The organization was narrowly focused on newspaper advertising inserts — a singular product that served a singular customer base.

“We basically had one product that served the consumer packaged goods industry,” Schultz says. “We basically had one geography, which was the U.S.”

On the surface, it was a good set-up. The company was making money, kept customers satisfied and gave employees a stable work environment. There was no apparent reason for change. But when Schultz looked at the horizon, he couldn’t deny the storm clouds that were gathering. And the storm was big.

“One of the problems with being a one-product company is we were competing against Rupert Murdoch and News Corp., and he has a reputation for being a bit of a shark at times,” Schultz says. “If we continued on as a one-product company, and Rupert Murdoch came after us and put us in his crosshairs, what would we do? We’d have nowhere else to go for revenue.”

Starting in 2002, that’s exactly what happened. Murdoch came after Valassis’ market, driving down the company’s profitability. Schultz was faced with an evolution-or-extinction decision. Either Valassis had to develop new products and find new markets to serve and get everyone in the company on board, or Schultz had to face the very real possibility that his company would be killed off by Murdoch’s media giant.

The solution was simple on paper but far more difficult in practice: Valassis had to change.

Build a culture

The only way Schultz was going to be able to change Valassis was to change the mindset of the people working there. To be able to implement any new plan that was created to diversify the company, he was going to need a cultural foundation based on innovation and risk-taking.

“You start out by telling people very specifically what you’re trying to do in terms of the culture,” he says. “That’s step No. 1 in the process. A lot of times, people are afraid to talk about what they want to change in the culture, so you have to spell out the kind of change you want.”

Schultz and his management team constructed a reward system for employees who exhibited the same willingness to think in new ways.

Among other incentives, Schultz rewarded risk-takers with opportunities for promotion.

“One of the things we wanted to do was take people and move them overseas for assignments in Europe and China and assignments in Canada,” he says. “We agreed as a management team that if people stepped up and took those kinds of assignments, when those people came back, they would get a great job. They needed to be rewarded for taking that risk.

“One of the things you have to do is get buy-in from your whole leadership organization, that you are going to reward people who take risks.”

As important, you cannot penalize innovation and risk-taking that goes wrong. When attempting to redefine your company, mistakes are part of the equation. Those are teachable moments, not punishable moments.

“You can’t have any penalties built into the system,” Schultz says. “It’s not only about a reward system; you can’t penalize folks, either. When people take risks and do things they’ve never done before, you’re going to have failures. You can’t penalize people for stepping out, taking risks and failing. You really have to view those failures as learning experiences.

“Failure becomes like scar tissue. Scar tissue is stronger than regular tissue, and people who step out, take risks and fail develop scar tissue. That makes them better and stronger the next time. What you can’t do is view it as, ‘They failed, they’re a bad person, they have no place with us.’”

Build a case

To define the company’s new direction, Schultz and his leadership team studied the core competencies of Valassis and matched them with growth areas that presented the best possible chance for long-term success.

“We first started to look at businesses that fell within our core competencies,” he says. “After we started to build the product portfolio, we started to look at things we thought were adjacent to our core competencies. For example, we expanded into newspaper delivery bag advertising. That completely tied in with all our competencies because it involved printing on bags and putting samples in bags.”

These new strategies were a departure from what people at the company were used to though. When your company undergoes a shift in culture or philosophy, you will generally be able to divide your employees into three camps: the early adopters, the initial skeptics and those who openly resist.

Schultz says the key to achieving maximum buy-in is to set an example with the most receptive of your employees, display their successes and try to use that to bring along the other two groups.

But it’s not quite that simple. Even with early adopters in place at Valassis, it still took several years for the other two groups to completely buy in.

“We really thought a lot in terms of how to make the transition faster,” Schultz says. “One of the things we learned was about the third of people who are early adopters. Those people tend to be relatively quiet because you’re taking them to a place where nobody has really been before. Therefore, they don’t know what the world is going to be like and they don’t have a lot to say about it. All they know is that it makes sense intellectually for them to buy in, so they’re going to do it.

“Then, the problem you run in to is the two-thirds that aren’t initially buying in are very vocal. They know what the history has been, they know about the success and ask why we should be doing things differently. They’re in the majority.”

The initial struggle to move the company taught Schultz a lesson: Don’t worry about the detractors and skeptics. Concentrate on cultivating a forward-thinking mentality in the employees who have already jumped on board with your plan.

“The mistake we made the first time, the mistake that cost us a lot of time, was we put a tremendous amount of time into trying to pull that two-thirds of our company along. What it does is it really slows down your early adopters. You have to let the early adopters go, you almost have to ignore the detractors, let the early adopters have success and that will pull the others along.”

Building a case for change with employees is a matter of good communication — meaning communication that conveys a message in a straightforward, effective manner.

As the company continued to diversify and the culture continued to evolve, Schultz and his managers sent out a survey that contained two key questions: Do you know what our goals and objectives are? Do you know how you can help us accomplish those goals and objectives?

If your communication strategy is working, the vast majority of your employees should be able to answer those questions. On the Valassis survey, more than 90 percent of employees were able to answer those questions.

Schultz attributes it to a communication strategy that conveyed the central goals and objectives of the company in multiple ways.

“We’ve always believed that you use a variety of different methods to communicate with folks,” he says. “You don’t communicate in just one way because individuals learn in different ways. You will have people who very much like to hear it from the leader. They learn best when they’re looking at the leader and they’re talking to the leader. Other people prefer the written word. You will have people who would rather have it in e-mail form, and others will tell you to leave them a voice mail.

“What you can’t say is, ‘This is how we communicate with our associates.’ You have to say, ‘We’ll communicate with our associates in a variety of different ways.’ That way, you’ll be able to touch everyone.”

Build a team

You can grow a change-embracing mindset in the employees already on the payroll. But to help sustain the new culture and direction of your company, you also need to hire new employees who are willing to embrace change, as well.

At Valassis, that process starts with the human resources department. As Valassis grew and evolved, Schultz realized that the company, like many others, hired according to a certain set of criteria. The company’s hiring process was systematically preventing Valassis from hiring employees who could bring different perspectives to the company.

“You start by reviewing existing hiring practices,” Schultz says. “You’ll likely find that most companies have a mold they like to fit when hiring people. So the first thing you have to do is look at your hiring practices, policies, procedures and your interviewing techniques. Then, you have to pull out anything that has a bias against people who are different. You have to pull that out of the interviewing process and the decision-making process so that you can give opportunities to people who you might have excluded in the past.

It helps if you can first hire and develop human resources employees who are open to different perspectives.

“You need to bring people in to your human resources area with a more diverse, innovative background,” Schultz says. “They are going to be more amenable to people who have a creative slant. If your human resources area is made up of people who all fit the same mold, they’ll continue to hire other people who fit that mold.

“In our hiring practice, if someone changed jobs every 18 months for the first six years of their career, we’d say they’re an unstable person and we wouldn’t want to hire them. But really, they could just be a creative person who likes to do different things. Their time at different jobs might have given them phenomenal experience. Our old hiring policy said you don’t even consider those people. Those people would send in resumes and not even get an interview.”

Today, after a remake of its culture, Valassis is now a company with an innovative work force and a diverse product line. From annual revenue of around $600 million when Schultz took over, the company’s revenue exceeded $2.2 billion in 2007. That’s in spite of a reduced advertising insert business, Valassis’ core business that took a hit when Rupert Murdoch arrived on the scene.

But change doesn’t happen overnight, and it doesn’t happen without the guidance of a goal-oriented leader.

“It is the CEO’s job to make the case for change,” Schultz says. “Once you make the case for change, then people start to get on board with you, and it starts to take on a life of its own. Once it takes on a life of its own, you start to move pretty quickly. But up until then, it’s a lot of heavy lifting for everyone.

“As the CEO, you can make a case for change, but a lot of the work to make that change happen will be done by someone else.”

How to reach: Valassis Communications Inc., (734) 591-3000 or www.valassis.com