Charles Hallberg bet the farm several times in the early days of MemberHealth Inc. He says when your business is small, every risk is great, but you must attack it to succeed.
Hallberg, president and CEO of the Solon-based prescription benefit management company, has led MemberHealth through a tumultuous time of tremendous growth.
At the end of 2005, the company had $215 million in revenue. By the end of 2006, that number had grown to $1.2 billion.
With rapid growth like that, Hallberg had to make some major adjustments. One of them was allowing his pharmacists to utilize their training in tasks other than counting pills. Hallberg thought the six years of education and training pharmacists receive was underutilized. So, MemberHealth provides an incentive program for pharmacists who are able to safely and economically convert patients from expensive branded drugs to much less expensive generics.
Hallberg’s approach to employees is guided by MemberHealth’s core values. He encourages employees to be innovative and competitive, and in return, the company provides an environment that nurtures those who want to achieve greatness.
One of the company’s innovations in team communication is the “huddle.” Huddles are a tool for improving communication speed and value throughout management teams, across departments and project teams.
The huddle provides several specific benefits to the managers. In less than 15 minutes, it allows them to learn whether or not every staff member knows his or her priorities. It also gives opportunities to say “good morning” to teammates or congratulate them on a job well done. A quick team huddle allows a manager to be confident that no new problems remain unexposed for more than 24 hours, and it also allows managers to make changes on the fly to take tasks off a too-busy person’s plate.
Hallberg says the company culture is more open because employees are empowered and expected to discuss any concerns with their direct management. Team members freely collaborate to solve problems and improve on ideas, in the way that Hallberg designed.
HOW TO REACH: MemberHealth Inc., (440) 248-8448 or www.mhrx.com
There’s an inside joke at The Davey Tree Expert Co. that most people come there to work until they find a real job..
That was R. Douglas Cowan’s plan when he joined Davey in 1974. He considered Davey a stopover until he could find something better.
Eleven years later, Cowan was president of the company. By 1988, he was also CEO.
In 1979, Davey had revenues of $60 million and 2,800 employees. Today, the company has 6,000 employees and revenue of about $470 million. The growth has been consistent as well, with revenue increasing 46 percent since 2002.
Cowan’s been there through the company’s tremendous growth, he was there when the Davey family decided to sell the company, he was at the table when the ESOP [employee stock ownership plan] agreement was signed 25 years ago, and he’s instilled a commitment to train the next generation of leaders to make sure the company’s success keeps on going.
Cowan stepped down as president and CEO at the end of 2006, remaining as chairman.
Now, he jokes that after 32 years, he has finally decided Davey Tree is a good place to be.
Here’s how Cowan has approached some of the challenges he’s faced in building a successful company.
Despite Davey’s tremendous growth, Cowan doesn’t spend time worrying about revenue numbers.
“I’ve never been terribly enamored with top-line growth,” Cowan says. “I know a lot of CEOs particularly of public companies are hell-bent on it. They grow at double-digit growth rates, year after year, even to the point of doing like-kind mergers with companies their size to double their size.
“I’m just not into that. I’m much more into cash flow and the bottom line. Can we live within our cash flow so we don’t go terribly into debt to grow?”
Over the last four years, Davey has grown through acquisitions, purchasing 15 to 20 small companies.
Davey’s growth process involves acquiring companies that are located close to an existing Davey operation.
Having a strong Davey operation near the target company is a prerequisite for the deal. Cowan says Davey gives its managers “wingspan” the authority to make big decisions throughout his or her area. The best managers get the most wingspan, and Davey will only make an acquisition if the local Davey manager will be able to take control.
“One of the worst things you could do would be to buy a good company and put it in with a mediocre manager because he’s just going to fall on his face,” Cowan says. “If you take one operation doing $1.5 million and you bought one doing $1.5 million, now you’ve doubled that guy’s size. If he doesn’t have the wingspan to manage that new $3 million operation, you just made a huge mistake.
“We’ll buy a company that might double a guy’s territory only if we know he’s one of our best managers, and we know he can handle the next couple of years. So we pick managers first, then we pick the city we want to expand in.”
Cowan says that company culture is another important factor when deciding whether or not the acquisition should be made.
“Too many companies make big mistakes by acquiring companies that are too big,” he says. “The cultures don’t mix. Our culture is so unique, I don’t know that there’s a company out there that we could indoctrinate quickly enough to make it profitable. So, we’re going to grow within our opportunity to manage it.”
The role of the CEO
After many years in top executive positions, Cowan has learned a few things about what makes a good leader.
“The higher up you go, the less you should be involved in the dayto-day operations. But you should be involved in the people aspect. You’ve got to know where the talent is and you’ve got to keep nurturing the talent.
“Frankly, the higher up you go, the more vague your job gets. You’ve got to be more into long-term visions, management succession and development of the next generation. It becomes a lot less hands on, and a lot more abstract.”
The CEO should have zero input on the day-to-day operations to be effective.
“Instead, he’s got to be the chief cheerleader,” says Cowan. “He’s the person who has to convince all the employees that he’s honest and genuine and what he says can be taken at his word. His role is to develop the next generation of managers. He’s the people guy.”
As the company’s chief cheerleader, the CEO is responsible for keeping those people happy. The most important key to that, Cowan says, is creating an environment where employees feel valued. However, he says efforts to directly motivate employees may not be the best way to go.
“You know the old saying that all stress is self-induced? I believe that all motivation is self-induced,” he says. “I’m not sure the leadership can motivate. I think leadership can create an atmosphere where people can motivate themselves better than other places.”
To create that atmosphere, CEOs need to realize their power doesn’t come from the select group of managers surrounding them it comes from the employees themselves.
“They need to put their employees and people as their first priority, their customer second, and their shareholders third,” Cowan says. “The employees need to be No. 1. When you do that, people perform incredibly well.
“All your authority comes from the bottom up. It doesn’t come from the top down. The employee group will make you as successful as they can if they think you really believe in them also.”
Selling a vision
Getting buy-in from employees is key to executing any vision, and the best way to obtain that is through solid communication.
Davey Tree’s operations are spread out across 40 states, which can make it difficult to keep everyone on the same page. Cowan says a leader can never communicate enough, and one of his solutions is the President’s Council, a rotating group of 12 field managers from around the country that meets to discuss business issues.
Several times a year, Cowan and the other top executives at Davey bring in all the members of the council and their spouses for a meeting. The idea behind the council is to see what problems are surfacing and how field managers are dealing with them.
“We listen to them and talk about what’s good for the company and what they’re doing in Houston versus Boston versus Calgary,” Cowan says.
Sometimes Davey representatives in one region have already come up with an innovative solution for a problem that just appeared in another region. The council strengthens the bonds between the company’s various regions, and each field manager on the council serves as a voice for his or her employees.
“These are now the people who are leading the company all over the country,” says Cowan. “One of the things that comes out loud and clear in these meetings is that these folks genuinely care about the people in the company.”
But Cowan doesn’t just communicate by having people come to him. He’s continually traveling the country to brand Davey’s strategic plan into the minds of his managers. The plan is called Vision 2010, because it entails where the company wants to be in the year 2010.
Every five years, Davey management from across the nation gets together to design the plan.
“Clearly the CEO has the biggest input, but he’s got to have input from all the key leaders or it doesn’t work,” Cowan says. “Unless everybody buys in to it, you can’t possibly dictate it. So, once the top management group decides where we want to go, why we want to do it, and how we’re going to get there, all of us try to spread the word. And as you go down the organization, hopefully they’re all saying the same thing.”
After the long-term goals are created, the vision is tweaked every year to allow for changes based on what’s happening with the market, technology or because of environmental issues.
“It has to be something that will take a stretch to get to, but it also can’t be outside the realm of possibility either,” he says. “People have to be able to achieve it, or it’s not going to be worthwhile. We think at the end of 2010, we can be at $650 million in revenues. If for some reason we’re faster than that pace or slower, we may adjust it next year, but for right now, that seems like a pretty good target.”
Once the top managers agree to the vision, they have to put a plan in place to achieve those goals. If one section of Davey’s business is projected to grow at 20 percent each year, that section may have to make some acquisitions to reach that benchmark if it can’t grow that fast organically.
The flexibility and authority given to management creates a feeling of ownership. And if management believes in the company’s vision, they’ll do a much better job of explaining it to the employees under them.
“Once the top folks are comfortable, it’s a matter of selling it to the next layer down and the next layer down,” Cowan says.
The next generation
Another important part of leadership is preparing the next generation of leaders. When asked to define success, Cowan laughs and says success should be measured in the long term.
“Success is a journey, not a destination,” he says. “Do they have the right folks in the right positions to succeed me, and do they have the right people in position to succeed them? The corporation has to endure lots of us. You’re here for a short period of time, and I hope that before I die, I see the company at 10,000 employees, 5,000 of whom own it, and we’re doing a billion dollars.”
Davey’s culture is very focused with the long view of things, so it has made training future leaders a top priority. And that’s leaders not managers. Cowan says there are too many managers and far too few leaders on the horizon, and so the training at Davey focuses on making leaders who can manage.
When searching for the next generation of leadership, Cowan looks for several basic traits: honesty, hard work, perseverance, positive mental attitude, caring for people and especially communication.
Communication is the one skill that Cowan says every leader needs to spend time on, because public speaking, in particular, is so difficult to improve. So the future leaders are pressed into situations that test their mettle at the podium.
“Public speaking is a talent that can only be developed one way, and that’s by doing it,” Cowan says. “So we try to get our future leaders into places where they have to speak. If they’re close to the V.P. (level), we get them in front of the board of directors. Most of us learn the hard way and learn from mistakes. So you try to get them into positions where they can learn and make mistakes without hurting themselves or the company.”
There is one other variable that is considered when picking the next vice president at Davey, and it may be easy to see, but it’s hard to measure.
“We really don’t promote the prima donnas,” Cowan says. “If you’re not going to be a team player, you won’t like it here. Only once has a person come in from the outside at a V.P. level and survived. We’ve tried, but we’ve found this company is like a giant white corpuscle we kill everybody from the outside that comes in.”
That type of culture may turn some people off, but it builds loyalty throughout the organization.
“It reassures everybody on the inside that their pain and suffering and hard work is worth it,” Cowan says. “The board or company won’t go to the outside and bring in a new CEO or president that they don’t know.
“What we do isn’t rocket science. I don’t think you need somebody that was groomed at GE to come in here and change course or cut costs. It’s about the team. It’s not about the person in charge. We’re never going to go to the outside to look for leadership. We have plenty of it here.”
HOW TO REACH: The Davey Tree Expert Co., (800) 445-TREE or www.davey.com
It’s a lesson Zalesky carries with him to this day, and it is also a cornerstone of the culture at CMI Market Research, the marketing and research firm he founded.
Smart Business spoke with Zalesky, president of CMI, about why accountability can make or break you as a CEO.
Q: What are the key skills that a business leader needs?
No. 1 is a vision for the future.
It’s critical that we can look into the future, see what our clients are going to need and transfer that vision to my key executive team so they can begin a collaborative plan for the future with initiatives, resources and staffing.
Another thing is keeping those critical client relationships fostered. Not on a day-to-day basis but on a semiannual basis, so they understand they are very important to us.
They have the critical time we need inside this organization. I also need to foster my staff in ways that say, ‘You are very important to our future, and we are going to do everything in our power to mentor and grow you.’
Lastly, financially I need to make certain this organization is on course for growth and has the resources to do it.
Q: How do you do that?
We’ve been growing at a compounded 20 to 30 percent rate for the last four years. We quickly realized the opportunity for us to collegially interact was occurring infrequently.
So we have regular activities where we get together as a company from a team-building standpoint now, where we relax and share time in a nonbusiness way. We try to work on professional development for all of our staff. Whether it’s training seminars that are external to the company, or internal training on a regular basis, we’re really trying to foster those opportunities so they can see this is the best place to be culturally rather than anywhere else.
Q: How did you set up that culture?
I played Division I college sports, and it became apparent that you’re allowed to compete. I roomed during camp with the gentleman I was competing with for the starting position. It became quite apparent that you can compete in a very healthy way and still be friends. The organization here is collaborative, but you still need to be accountable to each other on what we say we’re going to do for our clients in terms of time and deliverables. It’s OK to have those discussions that say, ‘You’re not doing what you promised you would do’ in a way that’s honest, fair, respectful, and we live up to those expectations of each other.
Titles and egos stay at the door. We gain respect in this organization based on the ideas and actions we can bring to bear, not on some title we’ve been bestowed.
Q: How involved in operations should a leader be?
A leader can’t be involved in the day-to-day operations in any great way. It is a battle that growing companies face and I face constantly.
You moved from being the technician and knowledge source to the leader. In that process, there can be voids or gaps, but you need to be working on the business rather than in the business. That requires growing and nurturing a senior staff that can do the things that need to be done.
Q: What is the greatest challenge you’ve faced in business?
Evolving from a researcher to a president and CEO. It meant acknowledging the fact that I have to lead with a vision and focus the organization on being accountable for developing initiatives and plans to move us forward.
Q: How did you overcome that challenge?
I live with change and I’m comfortable with change, but when you’re moving into an arena you’ve had no experience in, you need to find others who have already done it. I’ve been fortunate to join a Vistage CEO group of peers to hear from others what it was/is like to forge that path. [Vistage International is the world’s largest CEO membership organization.]
There are 18 CEOs, from companies with revenues anywhere from $10 million to $85 million organizations of similar size. We learn from each other and get the opportunity to share best practices.
I belong to an industry association, and I sit on the board. It’s comprised of presidents in the research business. That, while very meaningful because of issues related to my field, is not going to help me grow my business from a strategic sense. The day-to-day issues a CEO/president faces are dealt with within my Vistage group.
HOW TO REACH: CMI Market Research, (888) 311-0936 or www.cmiresearch.com
With growth comes challenges, and Thomas & Associates have met those challenges by investing in technology and training for its employees and improvements to its facility.
In 2006, the practice hired an Expanded Functions Dental Assistant, who can handle more tasks than a regular dental assistant. Having two EFDAs on staff reduces Thomas’ workload, allowing him to treat patients and then quickly move on. It also improves customer service by reducing the time a patient waits in the chair.
As a way to give patients the consistency they desire, Thomas & Associates has developed a “minor-league” system that is designed to groom understudies for key positions. A bare-bones staff is vulnerable if a key person gets relocated because of marriage, divorce or needs to take time off because of pregnancy or family issues. The system’s goal is to prevent the paralyzation of the office if a key person leaves the practice unexpectedly.
As a capital investment, the practice recently purchased a house adjacent to its property. The basement provides space for storing a library of orthodontic cases and the upstairs is being used as a day care for employees’ infants and toddlers. The easy availability of day care has reduced employee call-offs and improved employee job satisfaction.
Another innovative expansion for the practice isn’t on land, but in cyberspace. The practice’s Web site was developed during the past two years with the aim of educating the community about dentistry while reflecting the family-focused demeanor of the practice.
Thomas & Associates also donated more than $21,000 to charitable efforts in 2006.
HOW TO REACH: Thomas & Associates D.D.S., (330) 494-2111 or www.thomas-dental.com
Joseph M. Carroll nearly went out of business 100 times in the first decade after starting Hudson & Keyse LLC.
He founded the debt resolution agency in 1986 as a one-person operation, and by the mid-’90s, realized that to truly achieve success, he needed to learn to trust other people to handle the daily operations.
“When you’re wearing 50 different hats, you don’t have a lot of time for strategic thinking,” he says.
Bringing more managers on staff gave Carroll, president and CEO of Hudson & Keyse, the freedom and time he needed to focus on strategic issues, fueling the agency’s growth. The company has grown revenue 880 percent in the last five years and plans to add 30 employees to its 130-person work force this year.
Smart Business spoke with Carroll about why a CEO has to know what’s going on in the company and why every employee should be treated with respect.
Q: How involved in the day-to-day operations should a leader be?
A leader should be very involved in day-to-day. The strength is in the operations. It’s really all about your core competencies, and if your core competency is collecting debt, then that needs to be the hub around which everything flows. If your core competency is building cars, then that’s what you need to focus on.
The CEO or president should be the prime motivator to make sure those competencies are constantly being refined, improved. He or she is the person who sets the tone for rest of the company.
Q: How do you do that?
I’m constantly reminding people that the details are really what are important as the key to keeping people focused and honest. That shows that we’re really paying attention to what puts a paycheck in our pocket.
A CEO or leader really needs to understand exactly how everything is working at every level. You need to be able to trust the people who are managing those processes for you, but at the same time, you need to make sure things are working the way you envision they will be. Because in the end, you’re the last line of defense.
That’s the prime role of a leader: It’s not to be a rock star or rule by personality; it’s to make sure the business is running the way it should be. If you really don’t know what’s going on under the hood, I don’t know how you could do that.
Q: How do you empower employees?
By creating a culture of performance and accountability, you empower everyone to do their best. Our philosophy around here is everyone is an expert at what they do, and they can become experts if they aren’t already.
If you create a culture like that and people feel they have ability to excel on a long-term basis, you end up with a very motivated, stable, satisfied work force.
Q: How do you create that culture?
We treat everyone with respect, from the chief operating officer all the way down to a clerical employee who started last week. Everyone who works here understands that the company’s success is a reflection of how successful each person is in their particular job and with each particular task.
That’s how we train people; that’s how we assess performance. We let each employee know and fully believe that ultimately the company’s success is dependent upon their ability to do their job well.
On the recruiting end, we look for employees in management and nonmanagement who have a track record in our industry. We look for people who have stable work histories — who have been with prior employers for more than five years. We look for people who want to make a career out of what they do, or someone who has ground away at a large company for a lot of years.
Although they’ve been successful, they want to have larger impact. It’s hard to have that impact working for a Chase or a Discover or a Bank of America.
Q: How does your vision for the company change over time?
We all pick and choose what our competencies are when we build our businesses. The key is as you grow and evolve, remind yourself why you succeeded in the first place.
It’s easy to lose sight of what made you successful. For example, if you’re in the mortgage loan business, your core competency had better be in originating mortgage loans. If it’s not, eventually there will be a train wreck.
Your competencies can change over time as you make strategic changes. But inherently, that’s what you need to build your business on: What you do best and what makes you different from everyone else.
HOW TO REACH: Hudson & Keyse LLC, (800) 654-5391 or www.hkllc.biz
Bill Watson wants to make sure his employees never get a case of the Mondays, so he sometimes creates change simply for the sake of creating change. “It keeps the people energized and excited; it shakes things up,” says the president of Grimes Horticulture. “You can’t let your employees get bored into the mundane ‘9 o’clock: Drink coffee; 12 o’clock: Eat lunch; 1 o’clock: Call everybody who owes me money’ sort of routine.”
So he changes schedules, avenues of communication, promotions and anything else he can to keep employees from slipping into a rut. The strategy has translated into $10 million in 2006 revenue for the gardening supplies vendor.
Smart Business spoke with Watson about how to inspire passion and trust in your employees.
Q: How do you motivate employees?
If the leadership of the company is smiling and enthusiastic about the day, the rest of the employees will just fall right in suit.
If you’re an employee, you want to know that your company is doing well. You want to know that things are going in the right direction, the environment is stable and secure. And the leadership of a company does that by being upbeat, smiling, moving forward on a positive way.
If I walked in the door every day frowning, saying, ‘Woe is the company, woe is me,’ we would fail. You have to just give the image that you’re not afraid of failure. What separates the men from the boys is simply the guy who keeps moving forward.
Q: How involved in the day-to-day operations should a leader be?
You need to spend 10 to 20 percent of your time working on what’s going on in your company. And when you do that, you have to have an outside-in viewpoint.
As a manager, it’s pretty easy to get involved with what’s going on internally inside your company. That matters, but what matters more is how your customer sees you. The only way you can see that is to get involved with the day-to-day operations of how your company is communicating with your customer.
As a manager, you’ve got to ask yourself, ‘How did I treat myself today?’ You’ll get some real realizations of how dumb you can be in how you’re treating your customers. Once you become a customer of your own company, there are some light bulbs that go, ‘Pop!’
Q: What is the greatest challenge you’ve faced in business?
You can’t let the business world set your goals, your aspirations or values. Every day, it’s a challenge not to let the business world take you down a path full of quick fixes, lack of integrity and poor ethics. The challenge is not this one thing you go after it’s every day. You’ve got to fight making those short-term decisions that will take you in the wrong direction quick.
It’s so easy as a business leader to take the shortcut, to do something wrong to make the Enron kind of decisions. It’s tough, and every business leader fights that because people expect quick results. Unfortunately, quick results sometimes conflict with good ethics, good morals and business sense.
Q: What pitfall should a CEO avoid?
Lack of trust. If you don’t have trust in your employees and your employees don’t trust you, then you’re not going in the same direction together. You’ve got to have a company that is a team.
Without trust, you don’t have that. We spend a lot of time discussing where the industry is going and where our company fits in with the industry. But if people don’t trust you, it’s just words.
Q: How do you inspire trust in employees?
It starts at the top; you have to demonstrate it first. You have to walk the walk and do what you say you’re going to do.
As a business leader, before I say something, I better make sure I can do it. Or, at least tell them I’m not sure. Because if I say we’re going to go right and then tomorrow we go left, I’ve lost their trust.
Q: How can you improve your leadership skills?
Read. Find any book you can find about leadership and how to manage people. As the CEO of a company, you’re never going to be the one who does anything. You’re going to be the person expected to lead.
There have been so many phenomenal leaders in history. If you go down to the bookstore today, you could probably come out with 500 books on leadership. Read every one of them, because every one has a good idea in it or a good method you could learn from.
You’ve got to be a leader, and that’s not something people are born with. A lot of people think, ‘He was a born leader.’ Pardon my French, but that’s a bunch of crap.
HOW TO REACH: Grimes Horticulture, (800) 241-7333 or www.grimesseeds.com