Morgan Lewis Jr.

The continuing decline of union membership in the United States is nothing new. As organized labor attempts to reverse this trend, it is confronted with the National Labor Relations Board (NLRB), appointed by President Bush, which some feel is biased against organized labor.

Last summer, John Sweeney, president of the AFL-CIO, wrote that the “NLRB has been perverted into a dangerous enemy of workers’ rights.”

In light of Bush’s re-election, unions are concerned. A particular worry is the pending review by the NLRB of the card check-neutrality agreement procedure. An employer agrees to recognize a union when the majority of its employees sign authorization cards. During this procedure, the employer agrees to remain neutral.

This procedure completely bypasses the NLRB’s established representation procedure. Critics say that this neutrality agreement denies employees an important statutory right and is abused by unions through intimidation or bribery.

If the pending NLRB review results in elimination or a severe restriction of this procedure, unions are once again stuck with the “enemy.” As a result, unions and their supporters in Congress have reintroduced the Employee Free Choice Act. The proposed section dealing with union recognition is as follows.

  • If a majority of employees in a unit appropriate for bargaining have signed authorization cards, the union is certified as the bargaining representative.

  • There will be no representative election and no opportunity to persuade employees that a union is not necessary. As a result, unions avoid an employer’s election campaign. Unions often feel that employers use these campaigns to force employees to oppose the union.

The act also calls for the creation of procedures requiring mandatory bargaining, mediation and arbitration to reach an initial union contract. This represents a major and unprecedented change in bargaining, preventing an employer from implementing a final offer after an impasse is reached. The section states:

  • The parties shall meet and make every reasonable effort to reach an agreement within 10 days, or as otherwise agreed from the written request of the collective bargaining representative.

  • After the expiration of 90 days from the date that bargaining began, either party may notify the Federal Mediation and Conciliation Service of the existence of a dispute, and a mediator will be appointed.

  • After the expiration of 90 days from the date that bargaining began with the mediator, either party can request that the service refer the dispute to an arbitration board.

  • The arbitration board shall resolve the dispute, and its decision shall be binding upon the parties for two years, unless amended during that period by written consent of the parties.

The act also adds new, stronger remedies for unions against employers.

  • Violations of this section will be subject to a mandatory injunction in federal court sought by the board.

  • Triple back pay will be awarded.

  • A civil penalty of up to $20,000 per violation may be imposed.

What kind of effects could this act have, if passed?

  • Incorporating card checks into the National Labor Relations Act and mandatory first contract arbitration marks a radical change which effectively deprives an employer of its free speech rights under section 10(c) of the act by precluding any opportunity to communicate with its employees before certification.

  • Since bargaining will result in arbitration, the normal willingness to give and take will be replaced with posturing for position in arbitration.

  • The legislation reflects the unions’ belief that the NLRB certification procedure is fatal to successful union organizing. Under the proposed procedure, the unions would no longer have to deal with the enemy in the certification process.

C. JOHN HOLMQUIST JR. is of counsel in the Bloomfield Hills office of Dickinson Wright. He has been practicing in the area of labor and employment relations for nearly 30 years. For additional information, please visit www.dickinsonwright.com.

Thursday, 26 February 2004 10:01

Survivor

In February 2000, Pete Kight's online bill payment service CheckFree Corp. purchased its No. 1 competitor TransPoint, a joint venture of Microsoft and First Data, the world's largest processor of credit card payments.

That acquisition, combined with the craze that was the Internet bubble, shot Norcross-based CheckFree's NASDAQ-traded stock up to $114 a share. While many dot-com CEOs of that era would have thrown a million-dollar party to fete the feat, Kight - who started the company about a decade before anyone had even heard of the Internet -- was miserable.

"To me, it always seemed like that that was a number that I had to then go serve," Kight recalls. "The night that our stock hit $114, when I got in my car and I was driving home, I didn't feel excited -- I felt challenged because I'm driving home, thinking somebody bought CheckFree stock today for $114 a share, and I've got to go serve that person tomorrow with the expectation that they think the stock is going to go up from there."

The stock didn't rise.

It, like so many of the Internet stocks that CheckFree had the misfortune to be associated with, dropped throughout 2000 and 2001, dipping below $10 a share in the middle of 2002. Unlike many Internet companies, however, CheckFree was never near collapse. Kight admits that he dramatically increased spending and took his share of gambles during that heady time, but the company was never in danger.

"We spent a ton of money eating up a lot of things that we were doing because the Internet allowed us to do so," Kight says. "But we never lost sight of the fact that it was unreal."

The moment the bubble burst, he says, it took CheckFree less than six months to pare back its spending to pre-boom levels while not missing one payroll. At the close of its most recent fiscal year, CheckFree posted $551 million in sales, up 12 percent from the previous year, and earned $72.2 million in profits on a pro forma basis, up from $17.1 million from the previous year.

"Our growth strategy has always been, prove you can survive, and then progressively make bigger bets," Kight says. "But don't ever be in a position where those bets are going to take over."

Going public

Kight is glad the Internet bubble days are ancient tech history. He never liked being lumped in with the Pets.coms and Webvans of the world, not just because his company had been around for 15-plus years longer than most dot-coms, but because CheckFree was based on a proven business plan and wasn't reliant on millions of dollars of venture capital.

"The amount of money that was being poured into stupid ideas that were competing against us, (they)had no right to even exist, and yet we had to deal with it because they were muddying up the market," Kight says. "They were slowing down rational things that we were doing; they were confusing our customers."

It was in 1995, a few years before the peak of the Internet craze hit, when Kight decided he needed to take CheckFree public. One of its competitors - now out of business - had an unusual concept for electronic bill paying. Instead of waiting for PCs to connect, the founders thought, why not attach small computer screens to telephones and pay bills over the phone?

Believe it or not, investors bought into this concept and took the company public. Besides the fact that it was an absurd idea, the competitor was also poorly managed.

"They understood this clever idea of how to make the phone into a screen phone, but they didn't really know how to do bill payment," Kight says. "And yet, they were really causing a lot of problems in our market because they had gone public, sort of on a lot of bluff and dubious claims."

Yet the competitor was receiving generous media attention. And here was CheckFree, which had been in business since 1981 and was quietly forging partnerships with major banks, not to mention Internet forefathers CompuServe and Quantum Computers, later to become America Online.

"Everybody knew about them, and we discovered the difference between a private company that had invented this market and was doing good, solid things, versus a company that wasn't doing nearly as well, but was public," Kight says. "We were really concerned that they were going to create a big problem for us, and we needed to do a better job of selling our story."

Going public not only helped CheckFree gain more press, it brought much-needed attention from the banking community, which saw companies like CheckFree either as a fad or as a threat. But Kight knew that for CheckFree to achieve dynamic growth, it needed to be sold to consumers through their bank brand.

"For every one that signed up (with us), 10 were waiting for their bank to offer it because they felt safer," Kight says. "We needed to get bigger faster in order to sign up the banks, because the banks weren't going to deal with a company as small as ours."

It was a key acquisition in the Atlanta area that allowed CheckFree to get on the banks' radar screens. SSI, formerly Stockholders Systems Inc., provided the vast majority of electronic funds transfer software for banks. In fact, SSI's software was the reason CheckFree was even able to connect to the banks.

"Ultimately, we got to buy the company that enabled us to get founded in the first place," Kight says.

SSI also had a long history of being among the most bank-friendly and bank-supported software companies in the country.

"They were our No. 2 competitor because they had bought the only other bill payment company," Kight says. "So we both acquired the No. 2 competitor, and we immediately acquired a premier position as a bank-friendly organization, and we immediately signed up Nation's Bank."

With the acquisition of SSI, CheckFree moved from its Columbus, Ohio, headquarters to Atlanta.

"I hadn't intended to move down here," Kight says. "But when I came down here to head up the integration, over the course of six months, it became very clear that it was a lot easier to hire a higher level of business executive for the company."

Vision quest

Kight was managing Nautilus health clubs in Texas when the inspiration for CheckFree struck him.

Frustrated with having to renew members to yearlong contracts, Kight thought there must be a way they could pay off the yearly contracts monthly rather than in a lump sum, even though no one in the industry was doing it at the time.

"[I] kept looking for a better way to sell a membership, but obviously, you can't bill on the monthly basis because the health club is the only bill that gets paid after the dentist and cable," he says.

That's when Kight learned of the Automated Clearing House network. Established by the Federal Reserve in the early 1970s, the ACH network was created to combat the overwhelming growth of paper check transactions by allowing more electronic funds transfers. By 1981, though, the ACH network had not expanded widely in the private sector.

But when Kight heard about it, he knew it would be the future not only of the health club industry, but of all of bill payment.

Kight moved back to his hometown of Columbus, Ohio, to start working on the idea and pitched his business plan to then-Bank One president John McCoy.

"[He] kind of got this smile on his face and said, 'I don't think it's going to work, but I wouldn't miss the chance to see you try,'" Kight recalls. '"So as long as you apply by the rules, and follow what our guy says, I'll give you the shot and you can use the bank to try this.' The bank didn't give me any money or take any real risk, but they did give me the time of a guy who ran their electronic funds transfer system. And without that, I would've had a hard time getting started."

Working out of his grandmother's basement, Kight made a deal with a friend who owned apartment complexes. If he would buy a computer, Kight would sign up the friend's tenants to pay their rent electronically. The apartment owner agreed.

"I knew it wasn't going to happen overnight, and I'm sort of a Midwesterner - I'm as excitable about our vision as any other entrepreneur and as overly as optimistic as anybody else," Kight says. "But we always understood that we had to survive before we could do great things. We were always positioned to survive, never came close to missing a payroll, never funded the company with personal credit cards. We stayed in the basement until we could afford to rent a room. There are always ways you can figure out to get things done without spending money if you're willing to put in the sweat."

By CheckFree's industry projections, as many as 50 percent of households will be paying bills online in the next four years, while only about 10 percent do it now. Kight says CheckFree will be ready.

"Between now and then, that is a lot of growth that we have to understand in order to be able to continue to lead it and to be able to continue to drive it in the direction we want," Kight says. "It's obviously a nice challenge, but nonetheless, it's a big challenge, and it's humbling."

How to reach: CheckFree Corp., (678) 375-3000 or www.checkfree.com

Thursday, 26 February 2004 09:42

The Don File

Born: 1965 in Chicago

Education: B.S., University of Pennsylvania Wharton School, 1987; MBA, Kellogg School of Management, 1992

First job: Caddy at Northmore Country Club

Career moves: Worked at division of JMB Realty Corp., 1987-1988; investment banker, Salomon Brothers, 1988-1989. Joined Edward Don & Co. in August 1992 as a sales rep.; became district sales manager; operations manager in Atlanta 1994-1996; vice president of business of development in 1996; COO in 1998. Named CEO January 2002.

Boards: Food Service Equipment Distribution Association, Kellogg School of Management Alumni Advisory Board

What is the greatest business lesson you've learned?

Ours is a family business. While you're trying to make change, don't forget what brought you to where you are. We've changed a lot, but we also preserved everything because there's a ton of good stuff here.

We've been in business 83 years. We've tried to make positive change when also making sure we've preserved all the quality and history that got us to where we are today.

What is the greatest business challenge you've faced, and how did you overcome it?

When you have 1,000 people in an organization, it's getting the message down throughout the organization. It's all about people. You can have the greatest plan in the world, but it's the people that get it accomplished.

We spend a lot of time having update meetings with our employees. We then get together four times a year with our management team and go over our results.

I took over right after Sept. 11. It's been challenging, but it's been rewarding. When you put a plan in place, you see the people that you work with execute that plan and see all of that come to fruition. It's easy to come up with a plan; it's getting people to execute it that is the tough part.

The biggest surprise has been the economy. From 1992 to 2002, it had been a boom economy for us. Most of the people in my management team had never seen any kind of downturn. For us, when the bubble burst, I don't think a lot of people saw it coming.

Whom do admire most in business and why?

Ray Kroc. He started out as a Multimix salesman. He actually sold the milkshake machine.

Then the McDonald's brothers in California bought (the machines) from him, and he went to California, saw what they were doing, and bought the company for almost no money.

Howard Schultz from Starbucks pretty much did the same thing. He was selling kitchenwares, and the guys from Starbucks -- they didn't even brew coffee in the first Starbucks -- they were just selling coffee beans.

Monday, 02 February 2004 05:40

Spin doctors

Public relations used to be one-person job. Your spokesperson talked to the newspapers, the paper printed the quote and the public saw your message the next day.

That's not the case anymore. With the Internet and dozens of 24-hour news and sports channels, the public is better informed than ever, and controlling the message of your company has become more challenging.

That's why firms like Edelman, the world's largest independent PR firm, have become more specialized over the past two decades, says its U.S. president and COO, Pam Talbot.

Edelman, founded in 1952, maintains two global headquarters, one in Chicago, another in New York. The company has evolved from a general consumer products public relations firm into a highly diverse worldwide business comprised of teams of experts focused in areas including health care, technology, financial services and others.

"The business has become intensely specialized," Talbot says. "Twenty years ago, it wasn't. We didn't really differentiate between all the different skill sets."

Talbot has led Edelman's work on such high profile accounts as Microsoft, Kraft Foods, KFC and the NutraSweet Co. She has also been recognized as a "Public Relations All Star" in the consumer products field by Inside PR Magazine.

Talbot dropped the PR spin to discuss with Smart Business the changing face of public relations and how CEOs can do a better job delivering their company's message.

How has the public relations industry changed in the last 20 years?

Twenty years ago, most of us were generalists, and there were a few people who specialized in different areas. People generally floated back and forth between marketing public relations and corporate public relations, and health care was usually marketing people.

Now, we have people who are so specialized, it's hard to move from one area into another area. They know different areas very deeply.

Second, the Internet has made a huge change in our business in the ways we reach out to different audiences. We reach them more directly; we have a whole different media set we're dealing with. Things are much more instantaneous, and because of the Internet, we've gone into what is essentially a 24-hour-a-day news cycle. There's no news cycle anymore; it's just a constant updating of information.

The media set beyond the Internet has changed dramatically. Everyone has talked ad nauseum about the proliferation of media. Certainly, for our business, that has posed huge opportunities and huge challenges to go along with it.

We're not dealing with mass audiences the way we once did. We're dealing with audiences that are much more focused on areas that have special meaning to them, and tend to be more knowledgeable. We're dealing with audiences that are smarter and better informed in areas they really care about.

What specific changes have you made at Edelman?

We celebrated 50 years last year. We started off as a consumer products public relations firm. In that, our people sort of did everything within that and moved back and forth.

So now, not only do we have people who only do health care, only do financial services, only do crisis, only do technology, but even within those groups, people are specialized. There are consumer tech people. There are people who only do food. There are people who only do nutrition within food.

In addition, we have added people who only do research. We have a whole group that does nothing but interactive media and work on the Internet. Those are just some of the ways we have diversified to stay competitive in the industry.

What emerging trends do you see in the industry, and how are you responding?

There has been much more emphasis on measurement, and we're doing that by including online measurement tools that we can share with our clients and use on a real-time basis, so we're able to assess what's happening in the media on a real-time basis. Who's saying what, how we're doing versus the competition, whether our messages are being picked up as we hoped they would be or whether we need to change our messages. That is very helpful to us.

We're working now to enhance our capability to embed messages successfully in entertainment programs because we think that's going to be critical going forward. We've done that in the past with some of our health care clients being able to reach them through programs like "ER," where illnesses are covered, and we want to raise the awareness level of certain illnesses.

What is the biggest public relations mistake that CEOs make?

If you look at the last couple years, one of the biggest mistakes that CEOs tend to make is when their companies come under scrutiny or are criticized for financial performance or anything else. CEOs tend to go very dark. They don't communicate with the media.

They don't want to make themselves available, including CEOs who before, when things have gone well, have been all over the place. They couldn't get enough ink for themselves, and suddenly, when things get bad, just don't want to talk to the media or just get very angry.

So when they're talking to media, it's kind of an argumentative style instead of trying to understand why they're being criticized and explain themselves, explain their companies and show what they're going to do and how they're going to change things.

They take on a bunker mentality with the media, and that's a huge mistake because they can get really ripped apart. And when they come back to talk to media, there is more skepticism and more anger from the media, and it makes it very hard for them to turn around their companies.

Have you grown your crisis communication practice?

We have. What we're trying to do, which has been successful, is to pair our crisis and issues capability with experts in the area. For example, when we're dealing with obesity, we might have people from our issues group, but they're working very closely with people from our food and nutrition and health care and public policy team.

It's much more complicated team structures than we've ever had to deal with before.

How to reach:
Edelman, (312) 240-3000 or www.edelman.com

Monday, 02 February 2004 05:16

Skyscraper

Carter, Atlanta's top office builder, emerged from 2003 in much better shape than other area commercial developers.

The firm finished the year with some high-profile projects completed, including the BellSouth Metro Plan with three business centers totaling 2.8 million square feet, and the Georgia Tech Stadiums Project, a joint venture with Turner Construction.

The key to Carter's success -- in a market with an office vacancy rate of 23 percent -- is its skill with at-risk projects, in which the final price is guaranteed and any overage is the responsibility of the builder. One of Carter's recent at-risk projects was the $45 million administration building for the Atlanta Public Schools.

"(We) spell out that we're going to deliver, and then we take the risk," says A. Trent Germano, executive vice president for development at Carter. "At the end of the day, we represent a single point of responsibility for our owner-clients."

Germano is responsible for the operational oversight of a 44-member team of development and support professionals who manage the development of nearly 7 million square feet of office, industrial, educational and medical projects throughout the Southeastern United States.

Germano spoke with Smart Business about the state of commercial real estate in the Metro Atlanta area and how to avoid delays with your next big construction project.

What were some hot areas for commercial development last year?

Probably the hottest was in-fill housing, multifamily housing for condominium development on a low-priced end, which attracted a lot of first-time buyers.

Obviously, apartment development and apartment housing fell off quite a bit this past year, and the office market was very, very silent, as you can imagine.

The industrial market continued at a pretty decent pace. We had some success there.

We are seeing now -- I wouldn't say it was hot -- but we are seeing a lot of corporate users starting to look and rethink their needs, and finding despite the glut of space on the market, it doesn't necessarily fit their requirements. We are seeing just the beginnings of some built-to-suit activities for owned or leased space. But we have a tremendous amount of vacant office space in Atlanta, and it's going to be a long time before we're down to a 10 percent or lower vacancy level.

The good news here is most of the projects that were built in the 1990s were well-capitalized and underwritten, and also have a lot of institutional investors involved, so it's not a high-leveraged situation as it had been in the 1980s.

Last year was a good year for you. What's your secret, when the rest of commercial development was so slow?

One of the things we have done, and we started this over 10 years ago, is to move ourselves into the service business. We have developed a lot of projects for third-party users, in addition to building projects for ourselves, but the main focus was on really being a service provider for the industry. We have been doing educational projects, for example, for over 10 years.

We have done over 50 buildings and projects on college campuses, everything from major stadium renovations at Georgia Tech, for example, to new business schools, to student centers, dormitories, and we've worked on about 25 different campuses.

We have done probably 15 medical office buildings over the last 10 or 12 years. The most recent completion is St. Joseph's in Atlanta, a 200,000-square-foot medical office building. We also do a fair amount of public sector work: courthouses, other public works projects.

How do you decide which projects to bid on?

When we look at an opportunity, we've got to feel that we can really provide the value, that it's got enough complexity and enough of a challenge where we can provide the benefit for our clients.

If we're doing a project for our own account, such as New Manchester, which is an industrial project which we own, or the Lindbergh (City Center) retail project, we drive that differently because we can control all the factors internally. We look at what we can produce in terms of economic results. We do that with our clients, certainly, but in order to get involved in the project, we've got to feel like we can really provide value for them.

We try not to be all things to all people. There are some projects that look tempting to us, but everything that we do takes time and energy, and basically that's what we have to offer.

We can invest in projects when we need to and when it makes sense for us financially, and when we feel like there's the potential for value creation. But a lot of the projects we go after are really projects with no investment opportunity; they are simply more of a delivery or implementation type project.

How can CEOs avoid costly building schedule delays?

The first thing that we try and do with any customer is really understand what they want to accomplish, in terms of the big picture and what their real estate needs are or what their facility requirements might be. In understanding what their needs are, we also need to understand the constituencies involved in that decision-making process, planning process, so we can truly understand the input for the requirements.

It's really the planning on the front end, and the process that's set up and carried out that makes the difference in delivering projects on time. It's not setting overly conservative benchmarks; you need to be realistic.

If someone needs to be in a facility by a certain period of time, as long as you plan the process correctly, you can usually accomplish that goal.

One of the things that we try and really work at is to make the process of development understandable, a little bit fun, and good for our clients. If one of our clients is confused about what we're doing or confused as to what the cost is or concerned as to whether it's going to come in on time, then we're not doing our jobs.

So, we've got to make sure that the process is a smooth process.

How to reach:
Carter, (404) 888-3000 or www.carterusa.com

Thursday, 18 December 2003 07:02

Built to last

Herman J. Russell was only 16 years old when he bought a vacant lot in Summerhill from the city of Atlanta to build his first rental property. He hasn't stopped building since.

Since he announced his retirement as chairman and CEO of H.J. Russell & Co. in October last year, the 72-year-old Russell continues to work on the redevelopment of the Castleberry Hill historic district where his office is located. Russell has invested more than $300 million in the area on features including a 200-room hotel, a 450-unit apartment complex, loft apartments, a restaurant and retail.

Russell says the Castleberry Hill redevelopment is probably his proudest achievement. But over 50 years, he has helped change the skyline of Atlanta with the construction of the Hartsfield Atlanta International Airport, the Coca-Cola world headquarters, the Georgia World Congress Center, Turner Field, the Georgia-Pacific building and Westside Village.

While a senior at Tuskegee University, Russell started the H.J. Russell Plastering Co., which in 1953 became H.J. Russell & Co. Throughout the early 1960s, he developed rental properties, and in 1962, he received the coveted project of plastering the Atlanta Fulton County Stadium, which helped build a name for his firm.

In 1968, Russell became the largest U.S. Department of Housing and Urban Development housing builder in the Southeast. That same year, he picked up projects including the Equitable Building downtown and the Citizens Trust Bank.

H.J. Russell continued to grow through the 1970s, but it was in the 1980s that the construction firm saw its most dramatic growth with the Hartsfield project, as well as the Atlanta Gas Light headquarters, Coca-Cola headquarters, Wachovia Bank Operations Center, Atlanta City Hall Complex and the Lakewood Amphitheater.

In the 1990s through today, Russell's notable projects include the Georgia Dome, Turner Field and Phillips Amphitheater, as well as the Castleberry Hill redevelopment.

"I was able to realize that the area had lots of potential," Russell says of the Castleberry Hill neighborhood. "The area had lots of potential because it was only a 15-minute walking distance from the heart of downtown Atlanta."

Today, H.J. Russell & Co. employs nearly 700 people, posts more than $225 million in annual revenue and manages more than 12,000 apartment homes or public housing units.

Russell spoke with Smart Business about his career in the construction business and how the region has changed in the last half-century.

Why did you decide to retire?

It's time for me to turn it over to new leadership. My son (Michael) is totally ready for the job. He is well-trained for the job.

Why did you decide to stay within the family to choose your successor?

My son was working for us ever since he was 8 years old, and he has been around the company enterprise all his life. He went to the University of Virginia, studied civil engineering and got his MBA, and he has his Ph.D. from the Russell Institute of Hard Knocks, so he's ready. It was very easy for me to make that decision.

When he finished college, he went to work for one of the well-known architects in Atlanta -- John Portman -- and he worked for him for about four years. And he called me and said, 'Dad, I'm ready to join your organization' after the four years.

He has worked in all fields. First, he was a laborer in the ditches. I put all of my kids to work; as soon as they were able to pick up a pick, they start digging.

What is your favorite development project of your career?

There are so many. I wouldn't say I have a favorite one. There are just so many significant projects that I have had the good fortune to build. I would say probably what I'm doing now in the area of my office building is the most significant one because I built my office building 45 years ago and the area that I built in was a rough area, lots of crime, lots of heavy industry.

It was not really suitable at that time for our office building. But I was able to realize that it had lots of potential. The area had lots of potential because it was only a 15-minute walking distance from the heart of downtown Atlanta.

We've invested over $300 million in revitalizing that area. I just finished, over two years ago, a 200-room hotel, a restaurant, loft apartments, retail, a 450-unit mixed income apartments. It's just exciting.

What has been the biggest challenge of your career?

Of course, the biggest challenge is always bringing along your people, qualified people. The human resource part of getting people ready to be leaders with good training, keeping your eyes on the ball, making sure you have the best education program for your people.

That's always been our No. 1 philosophy. Your people are greatest assets. They can make you or break you.

How has commercial development changed around Atlanta since you started?

It's a different city. When I first started, the population of Atlanta probably was about 40,000. Now you have a half a million. In the metropolitan area, you have over 4 million. It's a big difference.

It's one of the finest education cities in the country. We have developed high tech, we have some of the largest Fortune 500 companies headquartered out of Atlanta, so it's just a good area to be in.

Did you always know you wanted to be in construction?

There's no doubt about that. I've been an entrepreneur ever since I was 8 years old. I had a paper route, and a shoe shine parlor.

But my Dad was in it, I was born in it, and there is such satisfaction to the soul when you can build a building that you know will always be there for generation after generation. And it's a part of improving the quality of life for people, so you get great satisfaction from that.

What do you plan to do now with your spare time?

You must remember that I have my pet projects and that I'm still building for my personal portfolio around the neighborhood where my office is. I bought the land years ago.

I have about 65 acres right in the neighborhood, and it will probably take me the next five years to complete the project with everything I want to do.

What is the greatest business lesson you've learned over your career?

To be honest. Make sure that you give your best every day. With every project, you have to give 100 percent. Make sure that you never take on any more than you can oversee. How to reach: H.J. Russell & Co., (404) 330-1000 or www.hjrussell.com

Thursday, 18 December 2003 05:56

Wired for growth

It's been more than a year-and-a-half since Garry Betty has seen a pop-up ad on his computer screen. It's been more than six months since he's received a single piece of spam in his e-mail in-box.

But the CEO of $1.4 billion EarthLink Inc., the nation's third-largest Internet Service Provider, hasn't stopped surfing the Web or writing e-mails. Betty's just been using two new features of his company's Internet software that block these nuisances.

"The two things people do most on the Internet right now are e-mail and surfing the Web," says Betty. "The things they hate the most, which are not surprising, are spam and pop-up ads. Our stuff really does work."

While EarthLink doesn't claim the market share of AOL or Microsoft's MSN Internet service, it does differentiate itself in the highly competitive market by offering value-added features such as user controls and filters. And those differences are starting to pay dividends.

EarthLink, which celebrates its first decade in business this month, has been profitable since 2002, has more than 5 million subscribers and more than $460 million in the bank, and is set to take more subscribers away from its top rivals in its next decade by being an innovator instead of a follower.

"We really did beat the odds," Betty says. "And all the people who said we would never be successful and never create a successful business model have been proven wrong. We're still proving that on a day-in and day-out basis."

Find the money

Charles Betty, who goes by the name Garry, had worked for several high-tech firms before a group of his friends told him to invest in a growing Internet company called EarthLink.

Betty had been CEO of Digital Communications Associates Inc., where he brought the company out of a two-year slump, built revenue to $242 million and sold three of its underperforming divisions.

Before that, he served as senior vice president of sales, marketing and international operations at Hayes Microcomputer Products, best known as the first company to put modems in virtually every computer.

Betty's career began, however, at IBM, where he worked in purchasing, materials management, corporate contracts, product management and management of subcontracted manufacturing operations.

"Having been at IBM when the PC was announced, I saw (that unit) grow from 23 people to 10,000 in two years," Betty recalls. "Then, later, having had a chance to be with Hayes during its heyday growing from $6 million to $180 million in three years, nothing is more fun than to be part of a company that's on the early end of a sea change."

That same feeling hit Betty when he visited EarthLink founder Sky Dayton in December 1995.

Dayton, who was the company's 23-year-old CEO at the time, had built EarthLink out of sheer frustration with the busy signals, poor customer service and the technical complexity of Internet service. In response, he simply bought 10 modems and opened his own ISP out of a tiny Los Angeles office.

When Dayton met with Betty, EarthLink was growing at 10 percent to 15 percent a week, but spending just as rapidly to keep up with the growth.

"It was an amazing company," Betty says. "It was probably functionally bankrupt. In the service business, you have costs you incur upfront to acquire customers. You have capital expenditures that you need to incur prior to begin providing services, and because you're growing so fast, you have inefficiencies when all your systems aren't necessarily set up for scale."

Betty signed on in January 1996. He brought a business and a financial discipline to the growing firm that it desperately needed and quickly rose to CEO. But, more important, he was an excellent salesman and was able to land investors in the late 1990s, when every tech company was looking for financing.

"My principle concern was raising money, implementing business systems, elimination of waste and creating an infrastructure that would allow us to be a lot bigger company," Betty says. "I only focused on those four or five things that were absolutely critical to the company's development, and other things had to take a backseat."

Under his guidance and thanks to a flat-rate dial-up fee that it launched in late 1995, EarthLink grew from 30,000 subscribers to 350,000 in 1996, then from 350,000 to nearly 1 million the following year.

"A packaged-rate software product, access numbers that they actually didn't get busies on and a support organization that they could call and get help when they needed it was a big deal back in 1996," Betty says.

Yet even with all this growth, AOL was by far the king, and EarthLink still battled with similarly sized competitors like PSINet, Netcom and Atlanta-based MindSpring. Consolidation was inevitable.

Joining forces

"It was amazing the similarities," Betty says of EarthLink and MindSpring, which created the second-largest ISP when they merged in February 2000.

MindSpring's Charles Brewer and Earthlink's Dayton founded their companies within 90 days of each other. They landed their first customers at the same time, and their companies were built on the premise of better service and support than AOL offered, but they were on two different coasts -- Dayton in Pasadena, Calif., and Brewer in Atlanta.

"It was very obvious to both of our companies that we would be better off trying to compete against the likes of AOL together than trying to do it apart," Betty says. "The reality that two companies should be together was so strong (that) what really became points of negotiation was what was the company going to be called, who was going to run the combined companies, where the headquarters were going to be and what were the relative roles for the rest of management."

Despite the synergies, it wasn't an overnight success. EarthLink and MindSpring might have been a merger of equals, but the two companies had disparate systems. They needed to converge to a single e-mail platform, a common authentication platform and a billing system, and EarthLink needed to move its headquarters to Atlanta. In total, the back-end synchronization took about year and a half, Betty estimates.

"Putting two companies together as a merger of equals is probably the hardest thing that you can do," Betty says. "You basically have to recreate how you do business."

The next decade

With the merger activity subsiding, Betty has been in the forefront in the fight against spam. In July 2002, EarthLink won a $25 million judgment against a Tennessee man who used stolen credit cards and passwords to create e-mail accounts to send unsolicited e-mail. K.C. Smith reportedly generated more than 1 billion unsolicited e-mails and profited $3 million from the activity.

In May 2003, EarthLink won a $16 million judgment against a Buffalo man who sent more than 825 million illegal e-mails through a ring of accomplices.

"Back in '96, no one had even heard of spam," Betty says. "Now, it's front and center. The biggest thing people hate is spam."

But it's not just customer demand that is driving this campaign against spam. It's costing ISPs a lot of money. In July, Betty testified before the U.S. Congress that unsolicited e-mail comprises half of EarthLink's server traffic, costs the company more than $10 million a year and is responsible for more than $10 billion in lost business productivity nationwide.

"Spam costs virtually nothing to send," Betty told the U.S. House Subcommittee on Telecommunications and the Internet. "Instead, the costs of spam are borne by ISPs which must handle this junk e-mail and by consumers who get their in-boxes filled with it."

EarthLink released its spamBlocker software in May as a free feature to use with its Internet software. This followed the release of a similar feature, which blocks pop-up ads from appearing on the user's screen. Several months later, AOL followed suit and copied similar versions of these features for its software.

"It's paying dividends," Betty says. "Our premium narrowband loss is declining. We continue to have a great deal of success in the broadband space despite a very competitive environment. We provided guidance for (the fourth quarter of its fiscal year) of 175,000 net customer growth. It's the strongest organic growth quarter we've had in almost three years."

Nonetheless, challenges remain.

Aside from AOL and MSN, Betty must contend with growing rival NetZero and Juno Online, which merged in 2001 under the parent company name United Online. While NetZero and Juno Online boast the same number of subscribers as Earthlink, about half of those customers use only free Internet access.

EarthLink must also battle phone and cable companies, which are gaining a strong foothold with residential broadband Internet access by bundling it with other services.

"I hope we're a whole lot bigger, a lot more diversified," Betty says of EarthLink's next decade. "You'll see us offer a much broader range of products and services to consumers."

How to reach: EarthLink Inc., (404) 815-0770 or www.earthlink.net

Friday, 28 November 2003 19:00

The wow factor

Walk into a Galyan's Sports and Outdoor Adventure store for the first time and you're likely to step back outside and look at the sign above the door.

This is not your father's sporting goods store. This is Nordstrom meets the Gravity Games.

There are the neatly piled stacks of the latest fashions from adidas, Reebok and Nike and racks of tops and jackets sporting other famous brands. But then you catch sight of the board shop, where the walls are festooned with neon-colored skateboards and wakeboards. In the outdoors area, half a dozen canoes and kayaks appear to drift above shoppers. And then there is the climbing wall -- all 46 feet of it -- soaring toward the ceiling.

"It's a dramatic, engaging experience," says Robert Mang, chairman and CEO of the Plainfield-based retailer which has stores in 19 states, from Nevada to New Jersey. "The only con is that it can be a little intimidating to some people. Some consumers like to be able to see everything from the front door, and that's just not possible with the size of our stores."

Galyan's 43 stores stock products for more than 150 sports and outdoor activities -- in addition to run-of-the-mill athletic apparel -- in their 80,000 to 100,000 square feet of space. There are 15 specialty shops with 40 departments in the typical store, and each store generates an average of $20.5 million in sales each year, compared with $9.4 million at competitor Dick's Sporting Goods.

But the sluggish economy and uncooperative weather have been a drag on profits of late. After earning $18.7 million on sales of nearly $598 million in fiscal 2002, ended Feb. 1, 2003, the company has posted losses in each of the last two quarters due to higher occupancy costs and increased depreciation expenses.

If Galyan's is to continue its remarkable growth rate -- based largely on new store openings -- it needs to keep customers coming back. For Mang, that has meant rethinking store design, adding a low-price guarantee and even changing the company's name.

Making change

"Consumers come here to see what's new -- what's next," Mang says. "Customers are wowed the first few times they come to the store. We want to wow them the 50th time."

Toward that end, the company formed a cross-functional team in 2001 to develop a vision for upgrading the stores. It also put together customer research study groups and discovered that customers felt the floor plan and atmosphere were confusing and dark.

"We are significantly increasing lighting levels, taking out a lot of the timber and making the stores easier to shop," says Mang. "We have improved the segmentation by gender and zone."

Research also showed that the climbing wall was a favorite store feature, so there are plans to move it from the back to a more prominent position near the center of the store.

"The research validated a lot of the opinions we were hearing from people within the company," Mang says.

Some changes are noticeable before customers even enter the door. The company has changed the name of its stores from Galyan's Trading Co. to Galyan's Sports and Outdoor Adventure to better reflect its product mix and positioning relative to the competition. The corporate name remains Galyan's Trading.

Mang says that while the name of a competitor -- The Sports Authority -- tells you what it feels it is, the name Galyan's Trading Co. didn't do the same thing.

"We felt Galyan's Trading Co. didn't express clearly who we are," he says. "Trading what?"

Another issue that needed to be addressed was the perception in the marketplace that Galyan's is more expensive than its competitors.

"Because we carry upscale lines that other stores don't carry, we have the image that we are expensive," Mang says. "We are not the high-priced alternative."

To battle this image -- and combat price slashing by competitors in a weak economy -- the company launched a 110 percent price guarantee: If a customer finds the same product at another local store for less, he or she can return the product bought at Galyan's and receive 110 percent of the purchase price back.

But what drives people to the store and builds the company's profits is the depth and breadth of its product offering, not the prices.

"The major sporting goods stores drive customer traffic with big sales," Mang says. "And you can turn inventory that way. Wall Street loves it when you turn inventory. But there are trade-offs."

Galyan's tries to focus on profit margins instead, he says.

"We have a high penetration in footwear and apparel, which have better margins. That's part of our unique business model," Mang says.

Galyan's also relies on its associates to drive sales, hiring sports enthusiasts and paying them competitive wages.

"We have never had any trouble finding qualified sales staff," Mang says. "Everyone has an avocation. Working at Galyan's offers that person the chance to combine work with what he or she loves to do. Arming them with product knowledge is easy. And we pay well; with commission they can make a good living."

Mang says the company also emphasizes to its staff that they are not salespeople, but enablers.

"They are here to help people find the equipment and footwear they need to enjoy their passion," he says. "We don't necessarily look for people with retail experience. We give them a test, and if they are friendly and enthusiastic, they pass."

The online test gives the company a better way to judge whether a potential employee has the personality or desire to serve the customer.

"A biking enthusiast that's an introvert doesn't do me any good," Mang says.

Racing over the speed bumps

Despite the changes, Galyan's still faces challenges.

"Our biggest operational challenge is managing our growth," Mang says.

The company opened three stores in October -- in Illinois, Ohio and New York -- bringing its total to 43, up from just stores in July 1999.

"Our goal is to open nine stores a year," Mang says. "It's an operational challenge we've just had to grind through. We've hit our speed bumps and glitches; we've had our share of growing pains."

One was the company's new merchandising and warehousing system.

"Any time you have a new system that is integral to the business, there is an adjustment period," Mang says. "There was nothing fatally flawed, no big issues that caused us to crash and burn, just management difficulties."

The company faces financial challenges as well. This year's second quarter sales were good, but expenses have increased and margins are down. So although sales were higher, general and administrative expenses were, as well. And margins were impacted by discounts and bad weather in the company's East and Midwest markets.

But William Blair & Co. analyst Ellen Schlossberg Zickman is not worried about Galyan's financial future.

"Fifty percent of the new stores are financed through the landlord," says Zickman, whose firm also provides investment banking services for Galyan's. "And the company has a newly negotiated line of credit. I'm not concerned that the company can't fund its growth."

Mang says the company will continue to look for new store locations in the Northeast and Midwest.

"We look for areas that experience a lot of seasonality," he says. "Eighty percent of our football business is done in six weeks. Seventy-five percent of baseball is completed in eight weeks. There's always a season being kicked off and one dying down."

Galyan's chooses its locations based on the percent of affluent families with young children in the area, among other factors.

"If 20 percent of the families in the area have annual incomes of $75,000 or more, that will support the store," he says. "We also look at the number of hunting and fishing licenses that are issued. That gives us a sense of our outdoor market penetration."

The company is also testing the waters for going into smaller markets or supplementing larger ones with a smaller store. Two cities -- Peoria, Ill., and Madison, Wis. -- operate 65,000-square-foot stores, smaller than the average Galyan's.

"Instead of two levels, these stores have one," Mang says. "They carry the same product lines but (with) less breadth and depth."

So far the stores are doing well, he says.

Mang feels that if Galyan's is successful in changing the consumer's perception that price is an issue at the chain, it will be smooth sailing.

Zickman agrees.

"Customers understand they can go to Galyan's for the best selection and service," she says. "But the perception is that they are high-priced. Our research shows on like items Galyan's prices are actually the same or lower. Galyan's needs to do a better job educating the customer."

How will it do that? Mang says the company prints its 110 percent price guarantee on all its marketing material and has it prominently displayed on signs throughout the store.

With 28 years of retail experience that includes department store management and a job as a supplier of product to stores, Mang is ready to meet the challenge.

"There's never a day when you don't have a challenge," he says. "In other industries, you have to wait months to receive numbers to know how you're doing. We receive a sales sheet every day.

"You have to learn to shuck and jive. The minute you think you have the consumer figured out, he changes his mind."

HOW TO REACH: Galyan's, (317) 532-0200 or www.galyans.com

 

The trees outside Crate and Barrel's newest store were vibrant when Gordon Segal visited Cleveland in late October.

Segal was in Ohio to rally his troops for the store's grand opening in a new outdoor mall called Legacy Village. A gorgeous view of intense crimsons, oranges, and yellows lined the back windows of the store, the company's first in the state.

It was obviously autumn outside, but inside it was already looking like Christmas, as Segal, Crate and Barrel's founder and CEO, points out.

"A month ago, this was all browns and oranges. Now it's all reds and blacks," says Segal, pointing to a display of Christmas throw pillows, stockings and dishes. "We have more and more collections of goods come in, so changeability of the store is very important."

Crate and Barrel's evolving store design has been crucial to the upscale housewares and furniture retail chain's success. When it was founded in 1962, dishes, flatware and martini glasses were displayed on the packing crates and barrels in which they arrived. Today, merchandise is meticulously presented, with the highest attention to detail.

In the chain's newest store, "vignettes" of drinking glasses, coffee cups and serving dishes are stacked on six-foot-high shelves and practically glow under track lighting. You'll see design details like unfinished wood ceilings, white brick, cultured stone and corrugated metal wall panels.

"Every store is an evolution," says Segal, seated on a clay-colored leather sofa in the store's furniture collection. "We try and make the collections unique, and we try and make them different. At the same time, we want everything a consistent high quality and comfortable."

Equal attention is given to where Crate and Barrel opens a new store. The chain has 123 stores in 23 markets, with an estimated $800 million in annual sales, although it doesn't reveal exact figures.

The expansion over the chain's 41-year-history is not as rapid as that of competitors like Williams-Sonoma, Pottery Barn or up-and-comer Restoration Hardware. But Segal, who privately owns the business with German mail-order company Otto Versand, isn't interested in rapid growth at the cost of quality.

"We've always made profits, we've always done well, and we've kept the quality consistent," he says. "Its very easy to open stores. It's very hard to run them well."

Entrepreneurial spirit

When Gordon and Carole Segal returned from their Caribbean honeymoon in 1962, Gordon was inspired as he washed a set of Arzberg dishes the couple had bought during the trip.

"How come nobody is selling this dinnerware in Chicago?" he asked his new bride. "I think we should open a store."

And thus the idea behind Crate and Barrel -- to offer European and other contemporary housewares not easily found in the United States for a reasonable price -- was born.

"We thought there had to be other young couples like us with good taste and no money," Segal says. "So I said, 'Wait a minute, there must be a market for this.'"

Both 23 years old, with no retail experience, the Segals opened the first Crate and Barrel with $17,000 in a 1,700-square-foot abandoned elevator factory. The rent and inventory ate up all their start-up funds, so they built shelves using crating lumber and displayed products out of packing crates and barrels, hence the name of the store.

"We were so nave, we were so lacking wisdom. If we would've been any older, any more intelligent, we wouldn't have had the energy or would've had the wisdom not to do this," says Segal, who can now laugh about the couple's youthful hubris. "We had no idea how to price things because the invoices for much of the merchandise hadn't arrived yet, so we wound up selling stuff below what it cost us."

Luckily for the Segals, the St. Lawrence Seaway had opened just a few years earlier, allowing goods to be imported directly to Chicago from foreign markets. Accessible jet travel allowed them to find smaller factories, ateliers and other vendors in new foreign markets.

"All of a sudden, the world was becoming smaller," Segal says. "More direct transportation, quicker means for people to travel. People were getting more worldly, people were getting a better sense of what was going on elsewhere. All of this started happening in the early 1960s."

Suburban sprawl

In 1968, the assassination of Martin Luther King Jr. prompted riots in most major American cities, including on Chicago's West and South sides. Between April 6 and April 8, the city battled widespread looting, violence and arson.

Buildings on Division Street burned to the ground, just six blocks from Crate and Barrel's store on Wells Street.

"With the political issues that were going on at that time, we started getting a little afraid of just having one store in the city," Segal says. "We thought, 'Well, maybe we should have a suburban store.'"

Crate and Barrel's second store opened in the Plaza del Lago shopping center in Wilmette. The chain's first large mall store opened three years later in Oak Brook.

"Those things became so popular that we realized that there was a concept there," Segal says. "People like (design and display director) Ray Arenson started joining us in those days, and they evolved into our store display people, and they figured out how the architecture should work and how things should be built."

Segal was careful not to oversaturate the Chicago market, and the first store outside the Windy City opened in 1977 in downtown Boston. With the arrival of that store, and one later near Harvard Square, Segal diversified the chain's products by offering more furniture, such as living room and bedroom sets.

Initially, he planned to keep furniture and housewares stores separate. But when he brought the furniture concept to Crate and Barrel's flagship store on Michigan Avenue, he decided to combine the two, which was a turning point for the chain.

"This combination of a bigger store, housewares and furniture is what truly made us really, really successful," Segal says. "In this era of a lot of competition, this has brought us a whole level up to where we wanted to be."

Staying consistent

It was Segal's friend and mentor, Stanley Marcus, former CEO of Dallas-based Neiman Marcus, who prompted Crate and Barrel's first store in his city, and the first location west of the Mississippi.

"He liked us a lot," Segal says of Marcus, who died in 2002. "He had such a long-term perspective on what he was building, and he brought such excitement to a retail environment -- certainly a very upper-end retail environment."

Crate and Barrel expanded throughout Dallas, Boston and other existing markets throughout the 1980s and '90s, and tapped new major cities on the West and East coasts and a handful of cities in the Midwest. The chain opens about five stores a year.

"Many of our competitors have more stores than we do," Segal says. "What we've always believed in is we'd rather be the best than be the biggest. We don't have public shares, so we're not trying to make other people rich, we're just trying to satisfy ourselves and satisfy our customers and our staff."

Part of Segal's security in staying private comes from $12.4 billion Otto Versand, the Hamburg-based mail order giant that purchased a majority of Crate and Barrel in 1998. The firm maintains a hands-off policy with most of its 90 subsidiaries, and allows Segal to operate and expand the company under his guidance.

"We don't need to have a public constituency because they have a totally different motivation," Segal says. "We've always decided that we'd be a better company psychologically as a private company rather than a public company."

Customer focus

Perhaps borrowing from his mentor Marcus, who preached customer service throughout his career and later wrote a newspaper column on the subject for the Dallas Morning News, Segal is a strict customer service advocate. He invests in exhaustive employee training, promotes almost exclusively from within and structures each store to include several levels of supervision.

"Gordon Segal is the only retailing executive I have met who purposely seeks to hire school teachers to work as sales associates in the store," wrote Leonard J. Berry, a professor of marketing at Texas A&M University. "Segal has a clear vision of what he wants Crate and Barrel to be."

That vision may look a little different than that from the small abandoned elevator factory run by a husband-and-wife team. But according to Segal, it's actually not that far removed from the original spirit of that quirky shop on Wells Street in Old Town.

"We went into this business to make customers happy, to satisfy their needs," he says. "That's still our mission, 40 years later. That means if somebody buys something and for some reason they don't want it -- they got it home and it didn't look right, they showed it to their spouse and they didn't like it -- all we want when they return something is that it's a joyful experience. As joyful as it is to buy something."

HOW TO REACH: Crate and Barrel, (847) 272-2888 or www.crateandbarrel.com

Thursday, 23 October 2003 10:47

Fire inside

The question was, "What is the biggest challenge your company faces today?"

There were the usual responses -- increasing revenue, decreased sales and the economy. But the top challenge facing the 239 Northeast Ohio employers who responded to the Smart Business Network/Employers Resource Council Workplace Practices Survey is recruiting, motivating and retaining top talent.

This is the fourth year of our regional human resources issues survey, and the top challenge facing the diverse group of employers who responded has been roughly the same in each of the previous three years.

This year was different. Motivation worked its way up the list to join recruiting and retaining top talent as a concern facing employers.

It's understandable. All the concerns faced by employers are related to employee motivation. If profits are down, it affects employee morale by crimping bonuses or profit-sharing. When the economy is tough, employees can be concerned about their future with the company and not focused on the job. When health care costs increase yet again, employers are often forced to pass those costs on to their workers, decreasing morale.

Motivating employees during rough economic times is difficult. Just ask Jack Pickard, CEO of FedEx Custom Critical, which recently opened a new headquarters in Green. Pickard's business -- door-to-door ground shipping service for critical deliveries such as hazardous or temperature-sensitive materials and high-value products -- is directly related to the health of industrial production.

According to FedEx Corp., Custom Critical's revenue slipped 24 percent in both 2002 and 2001, yet during that time, the division was named one of the top 99 workplaces in Northeast Ohio by the Employers Resource Council, and the entire FedEx organization was named one of the "100 Best Companies To Work For" by Fortune magazine.

Pickard, who took over as CEO in June 2001 after Bruce Simpson retired, joined FedEx in 1986 and held positions in sales, marketing and operations before he was chosen to lead Custom Critical's 2,800 employees and contractors.

Although Pickard has several decades of corporate experience, he says his best training for motivating and managing people came when he was a company commander in the U.S. Army during the Vietnam War. Pickard ran a combat engineer group stationed in Germany.

"Our job was to go blow things up when the Huns came through the folded gap. If I told you any more, I would probably have to kill you," he says, laughing.

That kind of down-to-earth, accessible style is the hallmark of Pickard's management and an important aspect of motivating his employees. Although he altered his style when he entered the corporate world, he has found that many of the motivation tactics used in the army apply even in today's less hierarchal, less rigid corporate world.

"You have to give people a sense of worth in whatever it is they're doing," Pickard says. "The job has to be challenging for that individual, and they need to be recognized. When I say recognized, it's not just pay. They've got to be recognized for their job. ... If you create the climate, hopefully the people will become motivated themselves, because motivation ultimately has to come from the individual."

Communication

Only 53 percent of employers who responded to our survey reported using a newsletter to communicate with employees, and 40 percent don't have a company intranet.

That's too few. The most important aspect of employee motivation, Pickard says, is consistent communication, not only about the company but about the individual performance of employees.

"I don't think you can ever do it enough," Pickard says. "Key leaders and managers at all levels have to be focused on making certain that their employees are recognized, and in order for it to be meaningful, it's got to be personal."

Obviously, with more than 2,800 employees and contractors, Pickard couldn't talk with every one of his workers every day if he wanted to, but he uses several tools to keep them informed about what's going on with the company and to open lines of communication among employees.

Every month, he writes the lead article in FedEx Custom Critical newsletter, and employees receive daily e-mail updates about what's going on not only with their division, but with the overall $23 billion FedEx Corp.

Every other month, Pickard holds "Heard it in the Hallways" meetings, with employees randomly chosen from all departments. The meetings usually run about two hours and are a chance for employees to talk with the CEO and the human resources vice president directly.

"It's not for me to talk, it's for them to talk to me about what's on their minds," Pickard says. "They do it without having to go through the chain. That seems to be very effective. And the notes from that are published and sent around the organization."

FedEx's new 182,000-square-foot headquarters located on 20 acres in Green was designed for collision. The sprawling complex is arranged so hallways leading to and from various departments converge into larger open areas to encourage impromptu meetings between workers.

"The hallway meetings are sometimes the most effective ones you can have," Pickard says. "As you're walking back to a work area, there's a little area where, if you get into a conversation, you can sit down next to a coffee table, and there's a white board right there if somebody wants to make a note. We've tried to build areas where people will collide with each other."

Training

Employees get stale doing the same thing every day if they are not learning new skills or offered new responsibilities. To help top performers improve their skills, Pickard formed a Customer Response Team program, in which team members who have expertise in one operational area like logistics or customer service are placed on a team to serve the company's most challenging customers.

To offer variety, workers are offered an operations rotation in which they are pulled out of their department and placed for a short time in a new area where they might not have any experience. For example, a customer service employee could join the marketing department, or an employee from the financial team could learn how to handle logistics issues.

"When they go back to their organization, they have a different view of things," Pickard says. "I can't tell you how many times they've told me, 'Thanks, I really appreciate it.'"

Money

Money is often the best employee motivator, but you have to carefully monitor how your bonuses -- whether it's commissions, profit-sharing or stock -- are awarded. Employees tend to get very focused on the cash, and other aspects of their job are neglected.

"Sometimes there are some unintended consequences," Pickard says. "You could come up with a wonderful plan, and it may work very well for a time, but I've not yet seen any kind of financial plan that does not need changing almost constantly."

That said, FedEx Custom Critical uses a Management By Objectives system to financially reward its employees.

"If you talk to some of the HR gurus around the world, a lot of people think an MBO is old school," Pickard says. "It does go back quite a few years, but everybody in the company, including me, has a significant portion of their income based on achieving certain objectives over a course of the year."

One of Custom Critical's objectives is high scores on its customer satisfaction survey, in which customers who have used its services in the prior month are called to find out about their experience. Answers are tallied on a five-point scale between very satisfied to very unsatisfied.

"We get an actual numerical result of the relative joy of our customers over the last month," Pickard says. "Based on that, a portion of our income is paid to us in the form of an MBO bonus. Everybody understands very clearly that we value satisfied customers. That provides a certain degree of motivation."

Another employee-wide objective is a company profit goal, but there are also personal goals negotiated between employees and their manager.

"Obviously, we hear people saying, 'What can I do? I'm just a so-and-so clerk. I can't control the profit,'" Pickard says. "The fact of the matter is if that's true, I could say 'I'm just the president, I can't control the profit, it's what you people do out there.'"

Personal attention

Above all, the most effective motivation is personal recognition. Singling out someone's achievement -- even if it just a simple compliment -- is meaningful to an employee, and it doesn't cost a thing.

"Motivation, in the final analysis, is up to the individual," Pickard says. "If you're concerned about motivation, you build the climate that allows for it. Make certain that the person is doing worthwhile work, so they have some sense of achievement in whatever they're doing.

"If you reward them properly for that, and recognize when they do a good job, they're going to have to motivate themselves. If you give them all that stuff and they're still not motivated, then they're probably not right for the job." How to reach: FedEx Custom Critical, (234) 310-4090 or customcritical.fedex.com

Motivation myths

Even in these enlightened times, there are still employee motivation myths that linger in workplaces all over the country. Carter McNamara, president of Authenticity Consulting LLC, debunks five common employee motivation myths.

Myth No. 1 -- I can motivate people.

Not really -- they have to motivate themselves.

You can't motivate people any more than you can empower them. Employees have to motivate and empower themselves. However, you can set up an environment where they can best do that.

The key is knowing how to set up the environment for each of your employees.

Myth No. 2 -- Money is a good motivator.

Certain things like money, a nice office and job security can help people from becoming less motivated, but they usually don't help people to become more motivated. A key goal is to understand the motivations of each of your employees.

Myth No. 3 -- Fear is a good motivator.

Fear is a great motivator -- for a very short time. That's why a lot of yelling from the boss won't seem to "light a spark under employees" for long.

Myth No. 4 -- I know what motivates me, so I know what motivates my employees.

Different people are motivated by different things. I may be greatly motivated by earning time away from my job to spend more time my family. You might be motivated more by recognition of a job well done.

Again, a key goal is to understand what motivates each of your employees.

Myth No. 5 -- Increased job satisfaction means increased job performance.

Research shows this isn't necessarily true. If the goals of the organization are not aligned with the goals of employees, then employees aren't effectively working toward the mission of the organization. Source: Authenticity Consulting LLC, (800) 971-2250 or www.authenticityconsulting.com

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