Leverage human resources across the experience spectrum. What we see a lot of is people discounting people in that retirement age group, where there is a wealth of experience to learn from. We have quite a few on staff now, and it’s amazing you put them in the right environment and see how they get invigorated.
We’re not asking them to run the business, we’re telling them, ‘Here’s the ball, go run with it as part of the team, here’s where you can be part of the team.’ ... It depends on where the need is and where the fit is. You couple that with strong middle management and also bring in young engineers and build for the future.
So, you’ve got to balance the combination of a certain amount of young engineers as they’re coming up, and you’ve got to teach them, and at the same time, you’ve got another group of engineers who are carrying the ball. And you’re also bringing up older, more experienced people. So we look in a lot of directions for the best combination of our team.
Run a lean operation to survive the business cycle. You can’t eliminate it. It’s a matter of being able to flex and bend with it. That’s why I talk about the automation. The automation allows us to ramp up. When we need to stop or slow down, we can move people around. What we’ve been able to do is smooth it out a little and keep it a profitable company on both sides of the cycle by being a lean facility, by being a low overhead facility. We’ve been able to retain our people; we haven’t had to have layoffs.
Anticipate where the market is going so you get there first. If you always wait until it’s a perfect time, you’re going to miss the boat. We have our own forecasting models, and then it’s being completely in time with your market. It’s being intimate with the market.
We eat it, we drink it, we sleep with it. What we saw coming in the build rates from the publicly available information from working with our customers at Boeing and Airbus, they were projecting build rate increases. We’re an industry that traditionally never believes it. They don’t react until they’re in it.
At that point we said, ‘Here it comes,’ and we believed it. We were looking at the 20-year forecast and we said, ‘This has merit to it. Let’s make plans to double our capacity by 2006.’
So over the course of ’04, ’05 and ’06, by January 2006, we had doubled our capacity. So we are in a position now to support all the capacity that we’re going to need by 2010. Sometimes you make decisions, not based on return on investment but on whether it’s going to be able to ensure your livelihood.
If you don’t make the investment, are you going to be around in 10 years? Are you going to be around in five years? Next year?
Stay focused on the present and the future. Are we concentrating on today’s market? Absolutely, but you’ve got certain sectors within your company saying, ‘let’s run today’s business.’
These guys are worried about today’s product this is what I’ve got to make, this is today’s focus, this is what we’ve got to do for the overall company. I don’t have to worry about them; they’ve got my back. Then you come up a level, and you’ve got your managers that are going to be managing the groups. Then I’ve got my directors that are going to be working on today, the month and the year. Then it comes up to our group where we’re going to be looking at the vision, and that comes up to the executive group, usually myself and my father, where we’re looking at 10 or 15 years down the road. What do we need to look like, what do we need to change into, are we prepared for the growth? In our vision, we’re looking out 10 and 15 years at a pop.
Look for entrepreneurial spirit. If I have to manage people, this isn’t the right team for them. You’re going to get the ball; I’m going to let you run with it.
I’m going to support you, I’m going to block for you, but don’t expect me to pick you up on my shoulders and have to carry you. Our biggest strength is to be able to find those people. We don’t find them all the time. We’ve been wrong.
It’s almost finding that entrepreneurial spirit in all of your employees. When we’re out there talking to people, looking in the industry, talking to people in other industries and meeting people, they kind of stick out if you know what you’re looking for. You can find the ones that are willing to give the extra effort and are willing sometimes to put their neck on the line. Those are the kinds of people we look for and we have found.
HOW TO REACH: Perryman Co., www.perrymanco.com
It would have been an ambitious proposal for just about any organization, but a plan rolled out to its board in February to spend a half-billion dollars on a capital expansion was particularly bold for Children’s Hospital of Orange County, an institution in genuine danger of financial failure a decade before.
“We just took a plan to our board to build a new patient tower that has a price tag of $510 million, and we’re moving forward with it,” says Kim Cripe, president and CEO. “It really is ironic. Exactly 10 years ago, I was sitting in front of them explaining how we’re going to turn this place around and obviously people were wondering if we were going to make it, and now we’re sitting in front of them with a plan to spend $510 million, and we’ve got the financial wherewithal to do it.”
That’s nothing short of remarkable, given the hospital’s situation when Cripe was promoted from chief operating officer to president and CEO in 1997. The hospital had been in a downward spiral of financial loss for several years, which threatened to close it down. It would continue to lose $48 million between 1997 and 1999.
The hospital slipped into danger primarily because of a fundamental change in 1996 in the reimbursement scheme for hospitals mandated by the state’s Medicaid insurance program for the indigent population, a group of patients that the hospital, by its charter, is required to serve regardless of their ability to pay. The change in reimbursements also had the effect of steering patients to other hospitals, eroding its market share.
“The fundamental incentives within the reimbursement system changed, and you were providing a high level of care, so the kind of simple answer is we weren’t able to cut our costs as fast as reimbursements were reduced to us, and we found ourselves quickly in a loss position over time,” Cripe says.
To counter shrinking market share and the effect of stingier reimbursements from Medicaid, Cripe put together an aggressive blueprint for new and expanded services that would make it a provider of high-value, high-tech services, which would set it apart from other hospitals in its region, and a plan to streamline the hospital’s operations, thereby cutting costs.
While cost-cutting was an imperative in the recovery, her objective was to take a two-pronged approach to reviving the hospital’s finances by taking an aggressive stance on cost reduction while leveraging its strengths in the marketplace.
“The first thing to do was to sit down with my executive management and the medical staff leadership and develop a business plan,” Cripe says. “It was really a twofold plan. It was certainly a financial turnaround plan, but I constantly refer to it as a twofold approach. A large piece of it really was dealing with cutting costs and dealing with the reimbursement side of it renegotiating contracts, those kinds of things. But we also needed to increase our market share because of the kind of hospital we are to maintain the scope and the breadth the depth we are committed to, so clinical services, research and education we needed to build up the critical mass. It wasn’t just the typical financial turnaround where you’re focusing completely on reducing your expenses, gutting staff, those kinds of things.”
Increasing market share meant building the high-value, high-tech services within medical specialties like orthopedics, oncology and cardiac care. That exclusivity would be a magnet for insurers who wanted to cover certain advanced services available only at Children’s, thereby steering more patients to the hospital.
A new team
For Cripe, the challenge was to get a new team together in time to turn the ship around before it sank.
“I think the overarching risk was we needed to recruit an extremely new management team, and could I get a management team in place quickly enough to stop the bleeding and support the investment in the service lines,” Cripe says.
The task turned out to be more than simply replacing a few positions. Cripe and the hospital’s board decided that the task before them required an entirely new team with different skills than the one in place. Over an 18-month period, Cripe replaced all 13 members of the hospital’s senior management team.
“I needed a different type of team to run the hospital in the manner that the plan described,” Cripe says. “We needed to run the hospital like a business, and I needed people that had that skill set and experience.”
Rather than replace the existing members exclusively with managers who had experience in a health care environment, in some cases, Cripe recruited individuals with business skills that were not narrowly focused on health care.
“I was looking for people with strong financial skills who could achieve a financial turnaround,” Cripe says. “There were key areas where I needed that expertise finance, IT, those kinds of areas but I was also committed to growing the operation and the enterprise, so I hired someone in a business development position, hired someone in marketing from outside the industry, hired a new human resources vice president from outside the industry. I needed a blend of executives with a diverse set of skills. We couldn’t wait and do this part over the next 18 months, and then shift gears and move over and do that part.”
As a bridge across those 18 months, Cripe tapped the management expertise of another hospital to fill in gaps left as she changed out the executives.
But even with the outside management assistance, Cripe needed to be sure she selected the right in-house managers. She says that having a precise vision of where she wanted to take the hospital was key when it came to selecting a new management team.
“I think the whole key, and I don’t think it matters what business you’re in as an executive or CEO, is to be real clear on where you’re trying to take your company,” Cripe says. “Then, when you’re interviewing people, depending on what their particular responsibilities are, being really clear on, over the next three to five years, what success would look like in that particular area, what you need that person to accomplish, and then the interviewing is so much cleaner. It’s really amazing how simple it is, but if you’re not sure as the president of the company where you want to go, then it’s the old adage, ‘Any path will take you there.’ I think that’s really true when you’re hiring people.
“I needed a sophisticated team with a good track record. One of the really fortunate things was the quality of the care at the institution was really outstanding. I think having been there and knowing that, it wasn’t a matter of having mediocre health care taking place. It was really the business acumen that needed attended to strategic planning, business planning. We had some terrific clinicians, but the business part fell apart.”
Hiring the right people
While she didn’t have direct knowledge of the requirements of each position she was hiring for, Cripe says that identifying the right people for the leadership team was a matter of determining what an individual would have to accomplish in each position.
“You can’t have complete knowledge of them technically of how you do them, but I have found that you can have a really good feel for what you want that person to get done,” Cripe says. “Then, when you’re interviewing people and you’re talking to them about what they like to do or don’t like to do, I found if you listen carefully, you can get a pretty good indication of whether someone’s a builder or a maintenance person, those kinds of things, their chemistry, their passion.
“I think the one thing I’ve learned is how critical it is to really understand the job you’re hiring someone to do. You can say, ‘I want to hire a great CFO,’ but what in particular do you need that person to do? Like a COO, are you talking about someone to build facilities or something else? So I think you have to be really clear on the direction you’re taking the company and what you need that person to do, and then hiring the absolutely best and brightest person that you find with that skill set and not be intimidated by people who are smarter than you or know more than you know.”
Her strategy has paid off. By 2000, the hospital went into the black and had revenue of $185 million. By 2006, its revenue more than doubled to $377 million.
While Cripe needed a team with a strong business orientation to turn the hospital around, leading a team that is more business-oriented and entrepreneurial in its approach than a traditional hospital team can be a challenge. She looks for a variety of personality types to maintain equilibrium.
“With a large team I try to find balance,” Cripe says. “Thirteen Type A people in a room can be a challenge.”
Cripe says the key to keeping the team focused is to make sure everyone knows what the goals are.
“It’s a very dynamic team, and if I don’t pay close attention to it, it could potentially go in different directions,” Cripe says. “But if all of us are clear over the next quarter or the next 12 months that we need to accomplish whatever it is we’re working on, it’s amazing how well people can work as a team when they’re trying to accomplish it together. I think we’ve learned that by focusing together, the results are much greater when we work as a team.”
Cripe says the key to staying on track with both long-term and short-term objectives is planning, planning and more planning.
“We spend a tremendous amount of time on strategic planning,” Cripe says. “We meet a minimum of every two weeks, and we go on executive planning retreats quarterly, and we really stay focused on the strategic plan. We’re updating it annually, and every three years, we adopt a new strategic plan. I think just staying focused on the plan and on our vision and on the strategic initiative for the year are critical to keep people moving in the same direction.”
Cripe is a CEO who insists on remaining visible in the organization as well as in the community, but she also believes that whether an organization is in a turnaround or a growth mode, it’s critical that the CEO remain visible and engaged with her team.
“I can’t imagine going through something like that and sitting in your office all day,” Cripe says. “Your staff needs to know it’s going to be OK and that you’re there for them, you know what they’re doing, you know how hard they’re working.”
HOW TO REACH: Children’s Hospital of Orange County, www.choc.org
When Al Neupaver came to Wabtec Corp. as its new president and CEO at the beginning of 2006, his charge was to get the rail products company back on a strong, long-term growth track.
It wasn’t that Wabtec needed an overhaul, because the previous CEO had done a solid job of slashing debt and improving financial performance.
The company, a provider of technology-based products and services for the railroad industry, just needed to start focusing on moving to the next level.
“It was a very lean company, very focused on cash generation, very focused on technology, but there wasn’t a lot of focus on growth,” says Neupaver. “So from the get-go, we spent a lot of time talking about growth. How do we change that vision of ours from just generating cash to a growth company?”
Neupaver started by proposing to double the company’s $1 billion in net sales in five years.
“I think we were used to following the market, and when the market’s growing at the rate it was from 2002 to 2006, that was OK, but we want to establish Wabtec as a consistent growth company through the cycles in the market,” Neupaver says.
When meeting with some managers, it became evident to Neupaver that a strong rail products market over the previous several years had helped the company grow organically but really hadn’t encouraged a proactive approach to sustaining growth and positioning Wabtec for the inevitable cycles that the industry experiences.
“Some of the things we would ask them were questions like, ‘How are you going to double the size of your business?’ and they’d look at you like you were from outer space,” says Neupaver. “I’d ask them what their sales were going to be next year, and they’d say that it depends on how many railcars were built or how many locomotives were built instead of on their own initiative. That’s the kind of culture we’re trying to change, and each division is being asked to contribute to that growth. And before that, not that growth wasn’t important, but I don’t think everyone was as focused on it as they could have been.”
Starting an evolution
Neupaver and his team met a few weeks after he came on board to put together a strategy for growth. They reinforced Wabtec’s three existing strategies: global and market expansion; aftermarket products and services; new products and technologies; and added acquisitions as a fourth. They decided all four strategies were to be supported by applying the Wabtec Performance System, a process already in practice at Wabtec that combines continuous improvement and lean manufacturing.
“Lean manufacturing is critically important to us,” says Neupaver. “We strive to continue to improve our manufacturing. You’re never going to reach a point where you can’t improve anymore, and continuous improvement is what it’s about. The importance of that is you’re going to grow a business, and if you can’t add value through your operating systems, you’re not going to be a good company long term.
“A good example is if you acquire a company and you can’t provide some kind of synergy through your performance systems, you’re going to have a Company A and a Company B. You could put them in your portfolio and have the same value as A and B, but if you bring them in and add value through your operating systems, then it makes more sense.”
Outlining the plan was pretty straightforward, but getting buy-in was the key to execution.
“The real key way to establish that vision and support it was to visit the operations, talk about it, and then ask them to come in to work on our strategic planning process,” says Neupaver. “That was conducted during the summer months of last year, and then followed up with the budget cycle later in the year. It was to put in a structure, it was to have a vision, have strategies, the tactics all the way down to the budget cycle.
“Let’s talk about acquisitions (for example). The objective is we want to grow the business through strategic alliances and acquisitions. That’s a well-stated strategy. That strategy would be part of the annual performance plan for all of my direct reports. They would have a goal for the year of identifying and exploring and analyzing so many companies that are potential acquisitions, and then they get different incentives on whether they close on an acquisition.”
This same thing would drive down to the next level. The general managers out in the divisions have a similar type of goal.
“Now, if it’s a division where we didn’t have an interest in acquisitions, we wouldn’t have much emphasis there, and we probably wouldn’t take it too far down into the specific division because they would really not be working on that strategy,” says Neupaver. “But if it’s a cost-saving strategy related to productivity, efficiency, sourcing or whatever, that would go all the way down. In the case of sourcing, (it would go) to the purchasing manager at the division.”
Neupaver tracks the results on a document Wabtec designed that it calls a “bowling chart,” dubbed as such because it resembles a bowling score sheet, with targets and actuals noted in successive blocks associated with each month.
“On a monthly basis, we track how much savings we got from that objective,” says Neupaver. “It’s a fantastic tool.”
Providing the incentives
Neupaver employs a combination of short- and long-term incentives to encourage his team to meet the corporate goals, based on performance at the individual, business unit and corporate level.
“We have both short-term and long-term incentives, with everything tied into our corporate strategic objectives, which are to grow through global and market expansion, new products, aftermarket products and services, and acquisitions,” says Neupaver. “Our short-term incentives are based on hitting annual targets for earnings and working capital improvements. They are driven by a combination of personal performance, business unit performance and corporate performance, depending on your management level and responsibilities. Our long-term incentives are based on hitting certain targets for economic profit over a three-year period.”
While financial performance is the endgame, Neupaver says pure strategy sessions at a division level are just as critical as a direct focus on purely financial issues.
“Each division has its own opportunities, it has its own issues, it has its own gaps and it’s critical that you have a session of strategic planning where you don’t talk about the budget, you don’t talk about finances,” Neupaver says. “We really talk about the marketplace, our competitive position in that marketplace, the attractiveness of that particular industry or approach we’re trying to take. It’s paramount that you have the involvement of as many people as possible. It’s impossible to have everyone involved, but we’re really big here on trying to get as many people as we can in on those sessions.”
To reinforce the message of growth and the strategies, Neupaver uses a combination of internal communications tools that go to every employee in the company.
“We have a number of publications,” says Neupaver. “WabTrax is a quarterly internal newsletter that we send to every employee in the company, and it repeats the same four growth strategies plus our commitment to the Wabtec Performance System again and again,” says Neupaver. “And, we reinforce it when they come in for their strategic planning process.”
Neupaver is decidedly hands-on, and he enjoys and values face-to-face contact, making it a point to visit all of Wabtec’s sites on a regular basis the company has manufacturing operations in nine countries and get reports from them directly on how they are progressing on the strategic goals.
“We try to visit every division, every plant each year,” says Neupaver. “They’ll have their whole staff in the meeting. We talk about the Wabtec Performance System, how they are doing. They have to report on their performance related to our corporate strategic objectives. That’s the kind of leadership I think is needed, making people accountable to those objectives.”
And, Neupaver says, that kind of engagement helps him to continue to expand his knowledge of Wabtec and the industry.
“I think you have to do a tremendous amount of reading and talking and meeting and traveling,” Neupaver says. “You can’t do it from behind the desk, it just doesn’t happen like that. I think you learn a lot by working with the people, going out to the operations, spending time with the people operating out in the field, that’s where you learn the business.
“There’s a tremendous amount of knowledge and talent that people have, and they’re usually pretty anxious to talk about it. But you’ve got to listen more than you talk.”
HOW TO REACH: Wabtec Corp., www.wabtec.com
Chris Begley knows who the king of business is.
It’s cash flow.
Begley, the CEO of Hospira Inc., a pharmaceutical company spun out of Abbot Laboratories in 2004, knew his company would have to pay homage to the king if it was going to survive and thrive on its own.
“When you’re part of a $20 billion operation, cash flow is not king,” says Begley. “You’ve got plenty of cash. When you’re becoming a new company, cash becomes king.”
Without a spigot at the mother ship to turn on for cash when it was needed, Hospira would have to figure out ways to generate it on its own.
“So instead of thinking about business from simply a P&L [profits and loss] standpoint, we transitioned the organization to thinking about cash flow,” says Begley.
He was also going to have to keep a close eye on spending, reducing costs wherever possible. If he didn’t do these things, the growth of the company would be limited.
“We knew that we had to improve our margins and cash flow to fund the R&D and international expansion to fuel the top-line growth,” says Begley. “Before the separation, sales in those product areas were flat, margins had declined, products had become commodities.”
Begley instituted a program to educate managers about the importance of cash flow while at the same time cutting costs and reducing spending. The results have been impressive.
While net sales in 2006 were $2.7 billion and relatively flat during the last three years, the company has generated $1.4 billion in cash flow from operations in that time frame.
This cash has been used to fuel R&D investment that has averaged 15 percent growth annually and to repurchase $300 million of stock. It’s also enabled the company to float $2 billion in investment-grade debt this year to acquire a pharmaceutical company that doubled Hospira’s international sales volume.
Here’s how Begley has conquered the challenges of cash flow at Hospira.
Educate your managers
Begley wanted to make sure that managers across the company, regardless of their individual responsibilities, understood the effect that their decisions and actions had on cash flow.
For an inventory planner, for instance, it’s easy to have a tendency to plan for a lot of inventory so the service levels are high and they don’t get grief from the marketing people because they’re not getting their products to customers on a timely basis.
“Better understanding that service level is important, but inventory level is important too, because that drives cash flow,” says Begley.
To illustrate how various factors can affect cash flow, Begley and his team invented a game that takes individual scenarios, a business problem or an opportunity, and plays them out to find out how they affect cash flow.
“We did not take the game out to all of our employees but we did take it out to all of our managers because what we wanted them to understand, for example, was if you reduce your inventory level without jeopardizing your service level to your customer, the amount that you reduce inventory — let’s say you reduce it by $10 million — that’s $10 million in cash that can then be spent somewhere else,” Begley says. “So it was taking them through scenarios like that so that they could see the impact as they were making decisions.”
Begley says the cash flow game works better than using abstract concepts or business school case studies, because it puts real-world scenarios in front of employees who may not have a background in finance.
“Remember, we’re taking it to all of our different managers,” says Begley. “If you don’t have a business background and you start talking about cash flow, it can get really confusing. I know, and have seen people at very high levels in organizations not understand the difference between a P&L impact and a cash-flow impact. That’s a simple concept for a person who has a business degree or a finance degree or an MBA, but if you have an undergraduate degree in music and you’ve been in business for 20 years as an inventory planner, it’s harder to make that connection.”
Cash flow can be complicated, but there are aspects of it that are incredibly simple. For example, eliminating expenses frees up cash. Don’t spend any more money than you absolutely have to, because even small expenditures can add up.
“We use a term we call financial fitness that we use in our everyday speaking and that means that we spend every dollar as if it were our own,” says Begley.
Hospira does just about everything short of counting paper clips to cut costs. The entire company uses one kind of inexpensive pen to save money. Executives fly coach on a contract that reduces expenses and pares back charges for their lodging when on the road with a similar arrangement.
“We have a corporate agreement with an airline company and we use that agreement,” says Begley. “We don’t have a corporate plane that we fly around in. We try to minimize our travel expenses. We have a set group of hotels that we’ve negotiated with. We use those versus staying at luxury hotels. What’s important when you stay at a hotel is it’s got a clean bed and the shower works. Four Seasons are great, but you don’t need to be staying at a Four Seasons.”
The cost-consciousness extends to virtually every corner of the company. In some cases, convenience gives way to cost considerations.
“We have a printer initiative,” says Begley. “Everybody ends up with a printer on their desk, and those printers cost money, they take maintenance. We’ve gone to having a number of large, high-speed printers located on each floor.
“Everyone sends everything that needs printed to those printers. What does that mean? Everyone’s got to get out of their seat and get the document when they print it, but it does save money from an overall IT standpoint.”
Begley uses the same kind of scrutiny when it comes to big-ticket items. When Hospira had to make a decision about an IT platform, he and his team looked at ways to cut costs without sacrificing efficiency.
“Abbott had installed SAP, the new modern enterprise system on the front end of the business, meaning the commercial piece, pricing etc., but had not figured out how to afford to implant it in the middle section or the back end of the business, the manufacturing piece,” says Begley.
Hospira would have had to implement an SAP-customized solution, a project that would have taken several years, cost plenty of cash and missed a tax advantage. So instead of implementing its own customized legacy system, Begley turned the situation on its head and opted to adapt Hospira’s processes to an off-the-shelf SAP platform rather than endure the costs and time to build one to conform to its processes.
“The only way we could do that in two years — because we had to get it done in two years because of the tax rule as it relates to the separation — was to take an off-the-shelf SAP system and modify our business processes to fit the SAP system,” Begley says. “The reason that people can’t afford the time or the expense is because everyone wants everything customized.
“What everyone gets hung up on is we’ve done it this way for 20 years and I don’t want to change it. So we held back and said we’ll get a new system, a robust system we can grow with, but we’ve got to change our processes, we can’t customize it. Well, lo and behold, we got it done in two years and now we have SAP implemented and people around the Chicago area marvel at the fact that we got it done that quickly.”
HOW TO REACH: Hospira Inc., www.hospira.com
While the institutions had strong labor forces and physician staffs, uncertainty had taken its toll among the ranks between the time that giant Tenet Healthcare had put them on the block and when Integrated Healthcare took the keys.
“One of the biggest challenges was resurrecting facilities that had been in a state of impairment for probably years,” says Mogel, CEO of the company. “Our transaction took about 18 months, and the divestiture announcement was made before that. So for almost two years before we could get inside the hospital and make changes, people were facing uncertainty: ‘Who are these guys, will the deal close, what are they going to do, will they strip it down to the chassis, will there be major layoffs, will they honor contracts, will they get along with the physicians?’”
Mogel was fully aware that the first thing he had to do was to stabilize the hospitals, just as a physician would do with a sick patient. The four hospitals offered up for sale by Tenet were losing money, but Mogel and his investors were convinced that they could turn them around by gaining and keeping the trust of their employees and physicians. That, he reasoned, would allow for leaner administrative overhead and stronger profitability.
“In any new emerging corporation, there are a lot of different changes,” Mogel says. “I think the first thing that we looked to do was create stability, get people to accept the different changes while we built a new infrastructure and to gain confidence in the management team and the organization and how we’re going to operate.”
If Mogel was unable to retain the hospitals’ employees in a tight labor market for health care professionals, streamline administrative costs and improve financial performance, the prospects for survival, let alone success, were dim.
An entrepreneurial team
Mogel wanted to make sure that each of the hospitals held its management team in place when Integrated Healthcare took over.
His vision was to give each hospital CEO more control over his or her facility, reversing the top-down corporate structure that Tenet had in place with a more entrepreneurial environment and, at the same time, limiting the size of its corporate-level staff. Once the agreement to acquire was struck, Mogel and his investors met with key employees at each hospital to explain their plans.
“One of the things we made certain of was once we got to the point where we were identified as the successful bidders and it came to the point where we needed to close the transaction, we were able to meet with the CEOs, CFOs, chief medical officers in the facilities, talk with them about our strategies, talk with them about the direction we wanted to take and what kind of views we had about this,” says Mogel. “I think that gave them a lot of comfort.”
And it gave them a degree of confidence in the company, enough so that nearly all stayed on with Integrated Healthcare.
Mogel says the model has worked well, with the individual hospital CEOs putting their energies into running their respective institutions more efficiently.
“Take the same people, put them in an environment where they have three or four levels of approval, where creativity and entrepreneurial spirit are not necessarily the hallmark, it’s not something that people are rewarded for, necessarily, and put the same people in an environment where they have the freedom to do what they know how to do,” Mogel says.
“If you give people that freedom, you can be amazed at what you see. Here, in the environment that we have, there are three decision-makers at a corporate level, and we put as much responsibility down to the CEOs as possible so that they are, in fact, the leaders of their organizations.”
The entrepreneurial approach has led to improvements initiated at the hospital level. Mogel says CEOs have introduced cost-cutting measures, recruited physicians and established new programs, efforts that would have been difficult while the hospitals were under Tenet.
The CEOs are freed up from spending time with many of the routine administrative tasks because, while management responsibility for the hospitals is disbursed, the IT systems that manage functions like payroll or patient data are centralized on a common platform.
“In terms of the support process, what we like to do is first give them the ability to have confidence in the basics,” says Mogel. “They shouldn’t be spending their time wondering how payroll’s going to get done or if financial or patient data or any of those things are functioning properly. We have a solid platform where those things are now given and don’t take any of their time, so they can go about the business of improving the facilities, providing better quality medicine, attracting physicians that meet the needs of the community.”
Mogel says handling things such as insurance, billing and collections, and human resources at the corporate level saves a substantial amount of money.
“We’ve put them all on a single platform, and while there are some minor variations from hospital to hospital, it’s basically the same platform,” Mogel says. “We do one set of negotiations for insurance, one set for collective bargaining and so on. That’s a very efficient model.”
Mogel says with a smaller organization than Tenet maintained and a flatter management structure, decision-making is fast when needed. With a corporate staff of fewer than a dozen and no secretaries, even the senior-level officers answer their own phones.
“We’re very lean, we’re self-sufficient and sharp businesspeople, and we try to create a dynamic environment, where if we need to do something, instead of running it up through the corporate headquarters, if there’s an immediate situation where something needs to happen and we have to spin on a dime, we do,” says Mogel.
To boost the top line, Mogel’s team set out to increase insurance reimbursements that it found too low. In many areas, Integrated Healthcare was the lowest paid or below market on reimbursements for the services it provided.
“The day we took over these hospitals, we set out on a strategy to renegotiate higher rates for doing the same types of services because we felt we were drastically underpaid in many areas,” says Mogel. “We were successful on many contracts, totaling millions of dollars in reimbursements for the same book of business.
“We took a very hard look at that, renegotiating a lot of the contracts, and were able to save millions of dollars while providing the same services and, in some cases, better services. We were able to do better in our insurance portfolio than
Tenet was able to do with, at one time, over 100 hospitals. You would think that they would have better leverage, but we did better almost across the board than they did in virtually every facet of insurance. And we have substantially reduced rates now from what we were able to negotiate initially because of outstanding claims management and performance over the last three years.”
Keeping the work force
Mogel says it was critical to keep the employee population intact as much as possible to ensure the success of the acquisition. To stabilize the work force and ease speculation around job security, Integrated Healthcare offered jobs to every employee in the four hospitals.
There had been horror stories circulating around California, some of them about divested Tenet hospitals, where services had been cut or employees hadn’t received checks. Those stories fueled speculation about the stability of anyone who might acquire a hospital.
“The first thing to do was to make sure the day we took over that any of the things that were patient- or employee-related, that we were on solid ground,” says Mogel. “We switched a payroll system for 3,000-plus people and we didn’t have a glitch.”
Integrated Healthcare agreed to honor all contracts, including labor agreements that Tenet had committed to not long before it decided to sell the hospitals. “We made a commitment that we would assume responsibility for all contracts, and we kept that promise,” Mogel says.
“And we promised to honor all collective bargaining agreements that Tenet had made.”
Tenet had signed what is referred to as a peace accord with two unions, which included model contracts and election procedure agreements. The election procedure agreement described how elections would be held in the future, and the model agreement was the agreement for all of the facilities, subject only to negotiations of some items at individual hospitals.
“So when we inherited the facilities, we were in the midst of local bargaining with each of the facilities, so we were kind of thrown immediately into that framework,” says Mogel.
To deal constructively with the unions, Integrated Healthcare identified someone at each hospital responsible for keeping the union stewards informed.
“When we planned to have layoffs, we brought the unions in and told them about it,” says Mogel. “We did what that contract said we should do and fully joined the union as a partner in those decisions. In fact, in some cases where there were seniority issues ... we essentially let the unions tell us what they wanted and abided by that to the extent that we could.”
As a result, union issues have been minimal over the last two years. The company also promised and delivered a better benefits package to its employees.
“We added a world-class benefits system which, in our view, is better than what the employees had in about every category, including a free HMO for all of our employees who opted for it for themselves and their families,” says Mogel. “We improved the benefits structure without spending a lot of money doing it.”
While Integrated Healthcare hasn’t completely turned around the four hospitals, it has made significant progress in two years. For the nine months ending Dec. 31, 2006, it posted an operating loss of $7.3 million on net operating revenue of $264 million, compared to an operating loss of $14.8 million on $262 million in revenue during the same nine-month period in 2005.
Says Mogel: “So much of this is about retaining the key people that you want, and the strategies to do that are communication, living up to your word, doing exactly what you say you’re going to do, and making sure, from Day One, the little things that upset people or cause them to leave, that all of those things are taken care of.”
HOW TO REACH: Integrated Healthcare Holdings Inc., www.ihhioc.com
Geraldine Laybourne saw something that the guys didn’t notice: Women not only make up a larger share of the population than do men, they are also making more decisions and controlling a growing portion of the money spent in the marketplace. So after turning money-losing Nickelodeon into the top-rated 24-hour cable channel and doing a stint at Disney/ABC, Laybourne co-founded Oxygen with Oprah Winfrey, Marcy Carsey, Tom Werner and Caryn Mandabach. Oxygen’s latest venture is oomph.net, which Laybourne calls a virtual back fence where women can gather to chat, for advice and information, and to meet people with similar interests. Smart Business spoke with Laybourne about the value of vision, putting problems in front of everyone and why you should avoid the brainiacs.
Trust your instincts. In general, what bothers me about business today is there’s so much emphasis on PowerPoint presentations and analysis and decks and strategic planners. I feel that we’re losing that intuitive gut that takes in so much information, so much more than any PowerPoint could ever present, and that we’re fixated on the form and that people think they’ve made a good presentation because their PowerPoint is neat.
Don’t think, ‘Get rich quick.’ I am worried about the level of thinking about problems and the level of passion that people bring to the table. I was on an airplane a few years ago and I had a press packet for Oxygen. This guy sitting next to me said, ‘My goodness, you’ve had a successful career. How can I make money quickly?’
I said, ‘I hate to tell you this, but you’ll never be successful with that question.’ For me, it’s standing for something, believing in it, taking your bumps, getting back on the horse and sticking with it, not relying on outside consultants, really asking yourself honest questions and being open to learning negative things.
If it’s worth doing, it’s going to be hard. You have to really stick with it.
Choose people who put vision ahead of ambition. I think the single most important quality is, is this person able to think of the greater good, as opposed to building their career. It starts with the vision and it starts with articulating that and then finding people who want to be part of something.
You could pretty much tell who were the people in the room who wanted to help you build the vision and then execute the vision from the ones who didn’t really want to participate, who didn’t really want to be part of the team. They didn’t enjoy the process.
I took exactly the same group of people at Nickelodeon, and by getting rid of the boss and me being the boss, the same people turned the network from a low-rated network to the highest-rated network on cable television.
Stay close to the ground. People will often talk about the glass ceiling as it relates to women. I think the thing that’s scarier today is the glass floor that most executives stand on, where they’re protected from consumers, they’re protected from employees by a layer of management that’s trying to package information for them. My advice to executives is to trust your gut, keep your eyes open. You have to be with your consumers ... you have to listen to what the people using your product are saying and not listen to brainiacs who never had any operational experience.
Stay connected to the marketplace. I’m constantly reading, I’m constantly out in the world, I’m going to focus groups. I’m trying to find those people that have a different point of view and trying to integrate all of that.
There’s no shortcut to knowing your customer, and anybody that thinks that they can learn something by reading a research report, they can’t. You might learn something, but you really learn it if you see if for yourself.
Keep the problems on the table for everyone to work on. Oxygen has five people on the executive team, and we sit once a week and put all of the problems of the company on the table. At Nickelodeon, we called it the PIT program, presidents-in-training.
The training program was a pact. If you come and think about the problems of the network and don’t just think about the problems of your department and don’t just be territorial, you will learn how to become the president of a network. You’ll be solving all the problems all the time.
Look ahead of the curve. I really believed that my cable brethren had not done a very good job for women. Really, to have just one brand, Lifetime, for 52 percent of the population, that’s not super-serving your audience. Lifetime was very defined and for an older woman, and had a definite personality, but I didn’t think that was the only thing women were interested in, so I saw a market opportunity. I convinced cable operators that when they started out as cable operators, men paid all the bills, and since then there’s been a huge shift and now women are paying 85 percent of the bills. I thought we could help them market to women. I also thought that the advertising community was eventually going to realize that women weren’t buying just soap suds and feminine hygiene products, but they were buying electronics, cars, houses, everything.
Editor’s note: Geraldine Laybourne will be the keynote speaker at the “Building a World-Class Business” conference, presented by e-magnify at the Westin Convention Center on March 20. For details and registration, visit www.e-magnify.com.
For Lee Roberts, the biggest decision he’s had to make at FileNet Corp. was both one of easiest and one of the most difficult.
It was easy because it was apparent what the company needed to do to stay at the competitive vanguard of its industry. It was tough because the economic indicators were headed in the wrong direction.
Like lots of IT companies in 2001, FileNet was caught in a sluggish market. The choice was to either hunker down and wait out the soft market or come out swinging and prepare to seize the advantage before its competitors did.
“The company had been growing 6 percent, 7 percent, 8 percent a year, so we didn’t have exciting growth,” says Roberts, chairman and CEO. “We were operating in a world where these Internet companies were going crazy, and we as a company felt that if we weren’t careful, we were going to get blown off the road.”
The hard part for FileNet was the timing. By 2001, in the wake of a big runup in hardware and software purchases in anticipation of Y2K, and facing a soft economy, software purchases were not at the top of corporations’ shopping lists.
“We made a strategic decision to invest over $300 million to build P8, which is the flagship product we have today,” says Roberts. “That decision was made pretty much as a bet-the-company decision at a very difficult time. That was when the Internet bubble popped.
“Our software revenue dropped by 40 percent, the company was barely profitable, which was actually comparatively good. But at that moment in time, we recognized there was a need in the market and, collectively with the board, made a decision to make an investment.”
It was a hard decision because the enterprise content management software company would have to ramp up its research and development spending in a marketplace that was, to say the least, uncertain in the wake of the Internet bubble and the telecom crash. For the then-public company, that meant trading profits in the near term for research and development and convincing shareholders that it was the right decision. “It was just one of those situations where market conditions weren’t good, but we knew if we waited a year until times got better and then we would have invested in P8, that would have taken us out of being the market leader to a follower,” Roberts says. “We would have delivered P8 to the market behind somebody else instead of capturing and defining the market.”
In technology, being first often means grabbing the largest share of the market. Coming in second often relegates a company to also-ran status. “If you live in a world where product cycles are quick and where being the first guy to market usually means you’re going to win, you just don’t have the luxury of taking forever,” says Roberts.
The investment wouldn’t be simply in a new product. The vision FileNet and Roberts had was in a platform that would combine all of an organization’s enterprise content management under a single architecture that would work together smoothly and efficiently rather than in a patchwork of applications that didn’t always talk to each other all that well.
Even though market conditions weren’t ideal, the decision was not one that FileNet could afford to put off.
“I think we would have been eclipsed in the market and we would have been less relevant to our customers and probably potentially at some point seen the revenue of the company go negative,” Roberts says.
Roberts assembled a team of individuals from every part of the company to put together a plan for the development and launch of P8. Roberts says having a skilled team in place is critical in a large project. “You’ve got to build a team to get it done, whether you’re building P8 or an airplane or a new car,” says Roberts. “At the end of the day, the CEO doesn’t have all the skills to do that. CEOs are all Type A, everyone’s got an ego, everyone’s driven, and there are probably moments when you think you know it all. That’s when it’s dangerous. That’s when you’ve got to stand back and realize that you don’t know the answers and you’re going to make a lot of mistakes. “You’ve got to have the ability to change and adapt and recognize that you’re not perfect and try to surround yourself with people who aren’t clones of you but maybe are complementary to you.”
Roberts says FileNet evangelized for P8 at every level of the company, including senior management.
“Obviously, the evangelism was going out to customers over and over again and convincing them that rather than buying six different products that don’t communicate together and maybe solve one or two problems, why not buy an integrated solution through FileNet,” Roberts says. “A lot of it was done face-to-face between our salespeople and our customers. And it was also done at conferences that FileNet hosted.
“For example, every year we would bring all of our customers together in Europe or North America, usually 1,000 at a time, and we’d bring all of our executives development, marketing, myself and we’d talk about where the market was going and why customers should buy a P8 platform.”
Roberts took an active role in talking up P8 and pushing it out the door.
“The place where I spent most of my time was talking to senior executives,” says Roberts. “I would very frequently be calling on senior vice presidents. So I spent my time with customers talking conceptually about the products and what they could do.”
Roberts says FileNet took advantage of every opportunity it could to get the message out.
“We’d do it with Webcasts, we’d do it with one-on-ones, we’d do it with one-on-many, with the consultant community,” he says.
“I think we were very thoughtful about it. We kept customers in the loop about what we were building to make sure we were on target with what we were bringing to the market. Without a doubt, it was the single biggest development event in the history of the company.”
FileNet went beyond its customers and took the message to the group that its customers often go to for advice about technology trends and products, consultants such as the Gartner Group and Forrester Research. “These are the people who our customers go to and say, ‘Should I buy FileNet?’ Roberts says. “We also had to evangelize to the evangelizers, so it was very important to us to shape the opinions of the opinion leaders, which were the consultants.”
Roberts had to convince the investment community that a lag in profitability would be worth the ultimate long-term gain that P8 would provide. “The challenge for us was to go to the investors, the people who owned the company, and say, ‘Look, we’re going to make a deliberate decision to spend 22 percent to 24 percent of the revenue that comes into the company on product development for the next two-plus years instead of giving it back to you, the shareholders,’” says Roberts. “If you look at the average R&D costs for most companies, it’s about 15 percent of revenue. “We were spending somewhere between seven and 10 points more than other companies, so we had to go out to the investment community, the people that owned our stock, and explain the strategy, explain why we were doing it, and we got asked a lot of questions.”
Roberts knew that some investors wouldn’t have the patience to wait out the development cycle or gamble on a play that they perceived as too risky. On the other hand, there was a group of investors with longer-term horizons that would stick with the company, even though it would be putting a large share of its assets into R&D to come up with a breakthrough product.
Roberts spent plenty of time speaking to analysts and investors to explain to them where FileNet saw the market going and why P8 was going to transform enterprise content management. “It’s really not a matter of persuading, it’s more a matter of informing,” says Roberts. “Some are very short-term-oriented, but some of our investors have a long-term view. So when we articulated it in the context of ‘We’re going to make a long-term investment today, I think we’re going to get a great return in the future,’ and articulated it in a way they understood and made sense to them, most of them stayed with us.”
Taking the long view
FileNet posted a net loss in 2001 of $16.6 million on revenue of $335 million but posted gains every year after, through 2005, when it earned $40 million in net income on $422 million in revenue.
In 2006, the company was acquired by IBM Corp., something Roberts says was much less likely to occur had FileNet not been able to develop its new product and, as a result, beat IBM in the marketplace 70 percent of the time it faced the IT behemoth.
FileNet had to roll the dice to put itself in a position to be market leader, and that decision, to some degree, is up to the CEO, Roberts says. While there is tremendous pressure on CEOs to meet short-term financial goals, their real purpose and value are in looking much farther down the road and guiding their companies into the future.
Making the tough calls, such as leading the initiative to develop a new product in a slow market, is just part of the job.
“The CEO’s job is not just the here and now, are we going to make the numbers this quarter,” says Roberts. “The CEO’s job is, ‘Are we going to be viable five years from now, can we double and triple the size of the business.’”
Making such a vision work requires a team that is focused on the company’s future and the CEO’s ability to bring the team together to drive the business to success but not do it all himself.
Says Roberts: ‘The game may be won by the quarterback through a 90-yard pass in the last two seconds, but the team probably got there and won the game because the head coach and the coaching staff, together with all the players, worked to win it. You can’t mandate things to happen, so you’ve got to bring in great people that can help you get that done. “If you can bring everyone together and you can get everyone focused over the same common targets, everyone speaks the same language, everyone trusts and believes in each other as a team, people don’t get wrapped up in what their titles are but are really more focused around the success of the company, you’re going to be successful.”
HOW TO REACH: FileNet Corp., www.filenet.com
When Greg Kenny, president of General Cable Corp., was given the additional title of CEO in 2001, there was little doubt that he was taking on a tough job. For General Cable, things had gotten about as bad as they could get.
The telecom industry had melted down taking many key customers with it and a general recession started to choke the cable and wire manufacturer’s balance sheet.
“I became CEO in 2001, when we began to see some of that happening,” says Kenny. “Some of it was the Y2K aftermath, some of it was exacerbated by the 9/11 tragedy.”
The end result was tough times for everyone in the industry.
Kenny saw competitors getting squeezed by lenders, their margins shrinking or disappearing as they struggled to retain market share. Shareholder value was being eroded, and companies were losing control of their destinies. “I think it was critical to really both see to the appreciation of the share price over time and the protection of both the lenders’ and the shareholders’ investments in the company,” Kenny says. “That’s part of the equation. The other part is, if you don’t get better and you lose control, you also lose your best customers, you can lose your best people, and when you start doing that, you start losing the company. I think it would have been a grim outcome.”
To avoid a gloomy result, Kenny and General Cable took a two-pronged approach to revitalizing the company by improving its processes across the enterprise and by establishing the company as a global business with more diverse product offerings and capabilities. Because most of the products General Cable made are commodities, the way to protect profitability was to lower production costs.
And to hedge its bets, establishing a global presence in multiple business lines would spread its risks and give it access to additional markets.
Kenny says the industry meltdown led General Cable to the conviction that the necessary first step was continuous improvement in processes that would cut costs.
As a result, he instituted Lean Sigma, a process that focuses on best practices and elimination of waste.
Kenny empowered his workers to come up with improved processes to cut waste and time by eliminating steps and improving throughput. Giving the shop floor workers a chance to participate engaged them in the process and secured their buy-in. “You need to do projects early that immediately change the lives of that work force, where they have the tools to do that job, where they feel responsible for that job, as opposed to simply manning a machine and being told what to do,” says Kenny.
And the company extended the Lean Sigma process through the entire company, improving processes at the support and administrative levels as well as in the manufacturing plants.
“What we did was adopted some of the best practices to our industry and then took it not just to the shop floor but also to how we touch a piece of paper,” says Kenny.
A customer order, for instance, was studied for how it comes in, where it goes, who touches it, how quickly it’s responded to and whether there were quality or delivery issues.
“We carried that to Europe and the Asian-Pacific region, so now it’s something that’s going on globally and it’s not just a U.S. phenomenon,” says Kenny.
The Lean Sigma approach cut costs and, in the early stages, helped General Cable stay solvent in a market with heavy price pressure.
“This was a journey that we started very early in 2001,” says Kenny. “It allowed us to take out a couple of percent in costs a year, and that was critical in keeping us in business ... because while we were pulling costs out, we were giving it away in terms of pricing concessions.”
The process has also helped the company establish closer relationships with customers and vendors that have helped to shave costs for all three parties by working collaboratively to improve processes.
“We learned this years ago, in part from some of the retailers, where they would sit down with us and say, ‘Let’s discuss everything we do to waste money and annoy each other,’” he says. “You put it all down on paper and then attack it systematically. We do the same thing with our suppliers.”
The company looks at every step of the process, not just the part at General Cable. For instance, with the help of its suppliers and customers, it follows copper from the time it is mined to the time it appears in product form on a customer’s shelf. The process helps identify waste that occurs anywhere in the supply chain or within General Cable itself.
Every little bit helps, because Kenny says the cable business typically experiences operating margins no higher than about 12 percent, making cost-control king.
“So this notion of continuous improvement and integration with our customers and suppliers builds very strong bonds and builds very low-cost models,” says Kenny.
Acquisitions for diversification
Once General Cable had developed low-cost production and operations best practices, it could leverage that expertise by acquiring companies and instituting similar cost-saving measures, all while diversifying its own markets and product lines. “I think the second big decision for us as we began to recover was to look at what core skills we have,” says Kenny. “Instead of running away from our industry, which can be cyclic and can be tough, especially when demand falls, we said, ‘We’re really good at certain things.’ “We looked at core skills around continuous improvement and even around the way we organize business teams, and said, ‘We can globalize this company and not be dependent on any one client or any one market segment but be very focused on wire and cable.’”
Kenny saw the high-voltage cable industry, which provides cabling for large power companies, as an emerging opportunity. Utility infrastructure, much of it built between the 1920s and the 1960s, was in need of upgrades in the developed world, and the developing world would require such expertise as well as it built out infrastructure for the first time.
To build such capabilities in-house would require decades and millions of dollars in investment, so Kenny sought to acquire businesses that could provide that expertise. One of the businesses it found was Silec Cable, a French company with a long history in the high-voltage cable industry that General Cable began to pursue in the late 1990s and finally closed on its purchase last year.
Kenny says the bet is paying off. Silec, which had done about $220 million in revenue and was barely making a profit prior to the acquisition, is now running at a profitable $400 million.
“I think the globalization of the company and picking a market before others were focused on it and having the courage to stay with that conviction, even though the market went sideways or down for awhile, was probably critical to this company and really positioned us for where we are today,” says Kenny.
Instead of maintaining a dedicated mergers and acquisitions team, General Cable’s approach to growth is to assemble a team of executives who investigate opportunities to grow both organically and by acquisition. “We’ve said we’re going to train the top 20 or 30 people to think about growth, both internal growth and growth through acquisitions or joint ventures, and trust them on these sensitive matters not to speak about them as we work on them,” says Kenny.
Having a core team that follows an acquisition from the first explorations to the integration creates ownership for the initiative. It also creates a responsibility to find added value by effectively integrating the acquisition into General Cable and maximizing its value by applying Lean Sigma or other processes to improve performance. “If you don’t create ownership as soon as you buy one of these things and it needs work, if there hasn’t been that buy-in upfront, often these acquisitions fail because they become orphaned,” says Kenny. “If no one takes ownership, it just exists, and you don’t make it better.”
And the group’s membership doesn’t remain static; its composition may change from project to project, depending on its requirements.
“In general, I’d say there are 10 to 20 people touching the growth equation in a general way, sometimes in small groups or together,” says Kenny. “Part of getting a broader group of people involved beyond simply a mergers and acquisitions functional office is you create those human connections, the vision, power and will to finish that acquisition.”
All group members have other jobs within the company, so they have full-time responsibilities in addition to their growth-team commitment.
“What we’ll ask them to do in some ways it’s part of educating that team around the world we operate in is to open up their eyes and their vision beyond simply what they manage and control today,” says Kenny.
He calls it a broad educational process of the top executives, learning the best practices and the worst practices from the acquisitions the company’s done.
“We continue to improve what we do, then are fanatical about the integration and synergies that we’ve identified, measuring and marking any new ones and taking any ones that don’t work off the list,” says Kenny.
His changes have helped grow the company from $1.7 billion in revenue in 2001 to $2.4 billion in 2005. A net loss of $2 million was turned into net income of $39.2 million in that same period.
The stock price has rebounded from single digits several years ago to around $50 in recent months, fulfilling Kenny’s vision to protect shareholder value.
Says Kenny: “That’s a four-year movement and really born from some big bets we placed, as well as a culture that says let’s keep getting better and never stop getting better and an expectation that we remove cost every year so that in a business that’s supply-and-demand driven in terms of profitability, we are always the low-cost producer or, if not, we plan to get there.”
HOW TO REACH: General Cable Corp., www.generalcable.com
At Achieva, Marsha Blanco faces the challenges of any business leader resources are limited, talented people are always a challenge to find and you need to have a passion for your mission to find success. In her 30 years at Achieva, Blanco, president and CEO, has found her labor of love in helping people with disabilities. The nonprofit, which had a $52 million budget in 2006, operates several businesses that provide employment for people who might otherwise find it tough to find a job. Smart Business spoke with Blanco about recruiting talent, conducting instead of managing and following your instincts.
Tailor your management approach to the individual. We tend to hire very talented people who have very different backgrounds. One of the things that I bring to the table is I look at each coworker and figure out what they need in terms of supervision to best motivate them. Figuring out for each individual what makes them tick and adjusting my style of supervision and coordination to what that person needs in terms of supervision is what I do [best].
One person may need more direction, another may need more support or less support. Some of the folks are so talented here that they may not want or need me to do much more than keep them on track on a weekly basis with a five-minute conversation about the strategic plan and whether we’re hitting our target or missing it. Other people need a pat on the back daily.
It’s a style that came to me naturally and fits with the overall organizational style. If somebody isn’t having a great day, you’ll see the people behind them picking up what needs done.
Follow your instincts. Very early in my career, one of our trustees suggested that I not feel that I had to manage as a man would. In human services, it’s almost always been the case that the majority of employees have always been female, but certainly when I entered this field, most of the managers were males.
We had lunch one day and he suggested that I be myself, that I didn’t have to emulate my male counterparts, to follow my instincts in managing. That was good advice.
Otherwise, there would have been more rigidity in style, more hierarchy in the organization. I was pretty young at the time and the board was taking a pretty big risk in saying we want you to try to lead this thing.
Always as a young manager, you’re struggling with that whole thing, what is my style, how close should I be with others, what should my role and relationship be with trustees.
Love conquers all business problems. If you love what you do, you’re always going to find ways to turn around business downturns.
Maybe you need to get a new product, maybe you’ve got to get back to basics if you’ve gone too far from your mission or your primary product. It just seems to me if you love what you do, if you love your product, if you love your customer, you’re going to find ways to do things differently, more creatively, to dig yourself out of any kind of hole.
In any business, there’s got to be passion behind it to be successful, even if it’s making widgets, because if you can make widgets better than anyone else and you’re providing a service that your customer needs, you can be happy with it.
Trust the trustees for advice. Our trustees regularly meet, they set the agenda through the strategic plan.
It’s wonderful to have all this talent in people who are volunteering their time. There are some pretty high profile [people] on this board, a lot of entrepreneurs. When I have an issue, I pick up the phone. It’s a great resource for me.
Keep the lines of communication open. Everyone in the organization has access to the strategic plan.
We have it looped in such a way that folks can access it online and see the daily progress. Everybody in the organization provides input as to what they’ve accomplished in a week or a day toward those strategic objectives.
So I have a running tally of things going on in the organization on a daily basis, and know what major things have been accomplished toward our strategy. We make corrections as we go along.
This is a living, breathing, working plan for the organization, and if we’re not hitting the mark on an objective, then we pull the team together and find out why not. Maybe it was a bad objective and it needs to be revised or maybe we’ve got to try to do something different.
HOW TO REACH: Achieva, www.achieva.info
The 1990s weren’t particularly kind to John Ryan III and Mine Safety Appliances Inc. Indeed, they tested the mettle of the chairman and CEO who took the top job in 1991.
The company, which manufactures safety equipment, saw its growth rate slow in the late 1990s. Much of its safety equipment was produced for industrial workers, but employment in traditional factories in both the United States and Europe was falling, lessening demand for products aimed at those markets. “Our whole business was transformed by Joseph Schumpeter’s theory that economic growth is a process of creative destruction,” says Ryan. “We saw a lot of the latter in the 1990s.”
There was too much reliance on the old way of doing things and on old products in old markets. MSA had to change to adapt to new market realities.
To pull the company through the turmoil, Ryan had to fix unproductive manufacturing practices and regain the spirit of innovation and development that had kept MSA at the forefront of its industry since Ryan’s grandfather co-founded it in 1914.
Ryan faced a tough choice 10 years ago. One of MSA’s U.S. factories had to be shuttered, and the decision came down to either its lowest-performing facility in Murrysville or a plant in Rhode Island, where the end of a defense contract meant either a shutdown or transfer of work to it from the company’s other facilities. “We had to shut one of them down because the economics were overwhelming,” Ryan says. “Murrysville really had the worst numbers, but we had to give them a chance. They didn’t know what was at stake. Therefore, we went out there and told them the productivity of this factory is not good, it’s the worst in the business because we probably didn’t ask you to do some of the right things, and we tolerated some things that we shouldn’t have.”
Ryan didn’t pull any punches when it came to leveling with the plant’s management and workers. He gave the factory, which was sputtering at about 75 percent productivity by the company’s measures, a year to shape up, with tough but achievable goals. “We told them what the consequences would be if we can’t get to our goals; we’d have to shut this thing right down,” says Ryan.
Ryan assembled a team of his managers and outside consulting help to tackle the problems at the Murrysville plant.
“We looked at the overall results,” Ryan says. “Our president of North America and our manufacturing manager and our financial people looked at it and said, ‘What goals do we have to achieve to make this a productive factory so that our products could be made competitively?’ At that point, we set the productivity goals and brought in some know-how, much of which was in our organization already, to determine how we could be more productive and what are the processes needed to make us more productive.
“Then we basically told the organization, ‘Here’s what we have to achieve, and you have to figure out how to achieve it, because you know more about the plant, you people collectively in the Murrysville plant know more than we or anyone in the outside world will ever know.’”
The plant’s management introduced processes such as lean manufacturing and Six Sigma, and performance evaluations for each employee. Managers met with each production worker every month and reviewed performance based on quality, productivity, safety, delivery and attendance.
Ryan says giving employees more of the responsibility to check their own work increased productivity by improving the plant’s quality.
“So the idea was, let’s have self-inspection, let’s have the operator right there, give her or him the tools that every so many parts they pull out, and they do the checking,” Ryan says.
While the threat of a shutdown provided an incentive for employees to work hard on improvement, Ryan realized that the specter of job loss wouldn’t be enough in the long run. So he introduced a goal-sharing plan, the company’s first, at the plant, with quarterly cash payments for hourly and salaried employees, tying them to factors such as quality, safety and attendance. He also instituted a classroom training program for employees in subjects such as ISO 9001, process control and calibration.
Ryan says he took a key role in making the decision to improve the plant’s performance, in setting goals and in monitoring progress but took a more hands-off approach when it came to the execution. “The more you delegate, the more you use people in a positive way, the more you ask them for their ideas, the more effective you’ll be because you’ll have more people with different insights,” Ryan says.
By the end of 1996, plant productivity had jumped to 86 percent. By 1999 the plant was posting productivity of 95 percent.
Instead of closing down because of poor performance, the Murrysville plant turned into a top manufacturing operation, earning IndustryWeek magazine’s award in 2000 as one of the 10 best in North America.
Ryan says the key to success was involving every employee at every level in the process.
“It was figuring out what had to be done and making clear what had to be done with a team of people at the management level and at the workbench level, the maintenance level, the tool shop and everywhere in between,” says Ryan. “They knew we were all in this together, and they knew we weren’t playing a game and knew that we were doing this because we had to.”
By 1999, the company had little room to wiggle when it came to meeting its financial forecasts, but all through the 1990s, Ryan insisted on keeping the research and development engine fueled.
“When things were really difficult in 1999 and 2000, we had some pretty stern goals that we had to achieve,” says Ryan. “We absolutely had to meet them. It was the nadir of our situation because so much had changed in the world. You had your biggest source of profit in Europe and your second-biggest source of profit in America disappear just like that, and you had to adjust for all of this. At this time more than ever before or even since, I really felt under the gun, that we had to make the numbers.”
Ryan’s commitment to innovation was tested in the late 1990s. At the time, one bright spot for the company was its thermal imaging cameras, a new product used by firefighters to locate the source of fires and find their way out of burning buildings. Mine Safety Appliances was jobbing them for a manufacturer that had developed the cameras.
Then Ryan got news late on a Friday afternoon that could not have come at a worse time. The supplier said it wouldn’t be able to supply a new camera that Ryan had been counting on. Despite the tight financial situation, he decided to press on with the company’s own development program for the cameras. “We came to the conclusion this market was moving so fast that we had to give our R&D people more money to catch up because otherwise, we would get so far behind that we couldn’t catch up,” says Ryan. “Other people would get solid market share, and we could never do it. So we gulped and gave them the $500,000, which we weren’t in a position to cut out of anywhere else. We had no basis of knowing where we were going to get that back because we weren’t going to get any sales from it that year. We just had to have the faith that somehow, somewhere, we’d make the number anyway.”
That experience reinforced Ryan’s contention that his company would have to be an innovator in the market, much like it had been in its earlier history.
“You have to be ahead of the technological curve,” says Ryan. “So we had a strategic initiative that resulted in a global new-product strategy. We put together teams from around the world and teams from cross-functional areas of the company and made it our goal to be the technological leader, not just the most durable products, ones you could count on, which we did have, but how could we be out front and recognized as innovative and a company that is meeting new needs of the market?”
Ryan says the emphasis on new product development has paid off.
“That new product development process, where now I think we’re world class, a company people could and sometimes do benchmark to, made a huge difference,” says Ryan. “When we started, our goal was that 30 percent of sales would come from new products introduced in the last three years. At the time, that seemed difficult. The last two years in North America, it’s been 40 percent, almost a level that’s hard to sustain beyond that, although there are certain parts of our product lines where the number’s 100 percent, where there was nothing three years ago.” Ultimately, Mine Safety Appliances was able to weather the tough times not by finding the magic bullet but by sticking to the things it had done best and not straying into ventures that weren’t close to its core business. In 2005, it posted net sales of $908 million, a $400 million increase over what it was doing just five years ago.
Says Ryan: “It’s rarely one great innovative thing in a year that turns it around. You’ve got to work on it for several years. The strategy that will most likely work is one that builds to the strengths of your organization, to the skills that it has now. Improve their skills, make them better, learn things from the outside world, but down deep, count on what your organization does well. You want to let people know what the situation is, what the challenges are, that there won’t be some magic to get you where you want to be.”
HOW TO REACH: Mine Safety Appliances, www.msanet.com