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How Jon Kirchner broke up DTS Inc. without losing the support of his team Featured

8:01pm EDT April 30, 2012
How Jon Kirchner broke up DTS Inc. without losing the support of his team

Jon Kirchner could feel the tension looming on the horizon just as sure as if he were watching a movie where the storyline was about to reach a climactic turning point. DTS Inc. was trying to do too much and it was threatening to tear his company apart.

The company had launched in 1993 to support the development of better sound equipment for movie theaters. But as home theater systems began to take off in the 2000s, the company discovered there was a huge market for people who wanted to create a great movie-watching experience at home in their living room.

“We proceeded down the path of building both of these businesses,” says Kirchner, the 228-employee company’s chairman and CEO. “Then in the mid-2000s, we realized strategically that the theatrical business was on a completely different trajectory and in a very different environment than the consumer business in terms of the investment required and in terms of the risk that lay before that business.”

The rapid evolution of digital cinema was bringing significant change to the theaters where moviegoers would flock for new releases. As he looked at the future, Kirchner realized two very different approaches would be required in order to achieve growth in both the theatrical and home consumer markets. It put him in a tough spot.

“How do you manage a portfolio with two very different businesses with different investment requirements and different horizons?” Kirchner says.

Kirchner had an idea in mind about how to solve this dilemma. He felt the best thing for the company was to divest itself of the theatrical business and focus exclusively on the home consumer market.

It wasn’t an idea that drew rave reviews from everyone.

“The internal reaction was definitely quite challenged by the idea, because it was so much a part of our identity,” Kirchner says.

“Change is not easy because change is about people. But if you handle these things in a very respectful, open and communicative way where your reasoning is not hidden, but is very transparent, ultimately people will navigate through the various stages of change in terms of shock and anger and transition into the new normal.”

Consider your options

Before Kirchner went public with his idea to split DTS and focus on the home consumer market, he took about a year to consider the pros and cons of the idea on his own. He had to decide if the company was up to the challenge of successfully spinning off its theatrical business.

“I thought about it on the people angle, who is likely to be pro-change and who is likely to be anti-change and why,” Kirchner says. “I thought about it along the financial dimension, along the strategic and competitive dimension and then I thought about it from a customer dimension as well, since in our case, we do business with all the major studios. Part of each studio was a customer for one part of our business and another part of the studio was a customer for the other part of our business. How do decisions like this ultimately impact them?

“It ultimately leads you down a path of trying to lay out from a sequencing and tactical standpoint, as well as a communication and messaging standpoint, internally and externally, who you need to get comfortable and how. Ultimately, that’s what I did for about a year before I brought it up with my own team.”

The actual idea to divest the theatrical business came from Kirchner, but the topic of what to do with the two sides of the business was front and center on the minds of all the company’s executives.

“The executive team had a lot of dialogue around managing the tension between two different divisions and two different groups of people, both of whom were driving incredibly hard to be successful in their respective markets,” Kirchner says. “But as the ultimate referees, our executive team of myself, our CFO and our general counsel, really sat down and thought critically and discussed what are the alternatives.”

Kirchner felt confident that DTS was strong enough to address any concerns that would arise once the move was made. He believed that the company’s leaders would be able to work through those concerns and do what needed to be done.

“You need to do everything you can to increase the odds of successful outcomes,” Kirchner says. “What that really means is you need to take stock with the people you have in the organization. Who is likely to be able to quickly adapt to a new vision and support you? Who is likely to struggle? Pick the right extent of change in part around your team and your organization’s capabilities.

“I had made the decision in this case that we had enough strength in certain areas to weather the storm that this was going to induce. But at a different point in our life cycle, I may not have been willing to make that decision, because even if you knew what you wanted in the end, the organization may not have been able to get there without exposing itself to undue risk.”

It’s all about knowing your organization and its strengths and weaknesses and being honest with yourself about its ability to handle change.

“If you don’t believe you’ve gotten all the pieces of the puzzle in place, then my experience has been you’re better off making smaller incremental changes to position the organization,” Kirchner says. “Then go with the big change when you think you’ve not only thought it through, but you’ve got all your contingency plans and you think you have enough to get you to the finish line.”

You run into trouble when you can’t be honest with yourself about what your company and its people can or can’t do. You try to make the move anyway under a false premise and odds are, it doesn’t work out like you had hoped.

“It’s the lack of objectivity that causes people to stumble into places where you end up with the ‘Oh my God’ scenario and you need to do drastic things to change out of it,” Kirchner says. “A lot of change can be predicted and actually can be driven if you are really objective about where you are.”

Walk before you run

As Kirchner began to go into more detail with his leadership team about what would need to be done to split off the theatrical business, he still took a deliberate approach.

“We talked about it on and off for four to six weeks, socializing it with all the key people and being very transparent about the reason why and also being very transparent about the objectives in the divestiture process, which in our case were to support the team that was running that division right up and through a successful sales process,” Kirchner says. “That, of course, did not alleviate all the anxiety.”

The fact is you’ll never have a perfect transition when major change is being considered.

“It’s never clean, smooth and simple,” Kirchner says. “You’re constantly dealing with people and personalities and mental models around things and emotional trust. It invariably goes through its own emotional cycle. The best approach is one where you’ve thought it all the way through to a reasonable degree of granularity as it relates to the what, the when, the where, the why and the who. Invariably, there will be a couple things you don’t anticipate. But I would submit there’s a lot you can anticipate.”

Common sense, at least when it comes to being a CEO, can fill in many of the blanks in your plan.

“If you’re on the top deck of the boat and you’ve got your binoculars or your telescope out, you should see a lot of these things coming well before hand,” Kirchner says. “If you’re mindful of this, there is often the ability to begin to make these changes, the changes you need to prepare you for bigger changes when the time comes.”

This is, of course, contingent on your ability to be honest with yourself. One safeguard against that is the use of executive coaches or consultants to help guide you through important decisions.

“Really effective organizational development consultants or coaches can help shine an external light on things executives might not be seeing or may not want to see,” Kirchner says. “Once the light is shining some place, it’s really up to the team to do something about it.”

It’s a continual process of trying to locate potential problems ahead of time so you can prepare for them and be ready, rather than end up in a situation where the unexpected threatens to derail your project.

“It’s not just about having a plan,” Kirchner says. “It’s spending the time necessary to understand where your plan, if it doesn’t go as you thought it would, what your contingency would be or how you’ll deal with things. As a result, the time you spend on the backside with unexpected things tends to be a lot less and you can really focus on the business.”

Don’t forget the people

Kirchner tried to address every aspect of the DTS split as it related to the organization as a whole. But it was just as important, if not even more important, that he address the impact the move would have on personnel.

“There are two buckets of concerns you may want to focus on in the planning,” Kirchner says. “One bucket is what I’ll call general concerns, concerns that everybody is going to have, regardless of position. It’s thinking through and being prepared with clear and concise answers. Or in the cases where you simply don’t know the answers, being clear and transparent about the fact that you don’t know and as soon as you do, you’ll inform people. There is more credibility in that than there is in painting a picture that turns out to be not credible later on.”

The second bucket is concerns at the executive level in terms of people whose individual presence will play a key role in the success or failure of the move you’re looking to make.

“You really need to take it down, based on what you know about that individual and their impact on the business, to how you’re going to address their specific concerns,” Kirchner says. “Maybe somebody wants to leave that business and join the other business. You need to think about whether that makes sense and how it will impact you.”

In the end, it was a pretty clean split of the theatrical business from DTS.

“There were people in what I’ll call more corporate support functions that we needed,” Kirchner says. “One of the planning items was thinking through what kind of administrative infrastructure or support infrastructure did each entity need. In some cases, we went to people in those departments and literally offered them an opportunity to pursue either course. In other cases, we pre-identified that we really wanted certain people to go in certain places and made those decisions and communicated that.”

Communication is key, both from you and from the people who have direct reports who may be changing positions.

“The flow-down method is important because people need to hear certain messages from the managers and leaders they most directly work with,” Kirchner says. “But there are also times and places where there is no substitute for people hearing it directly from the top in the CEO’s words. Oftentimes, if the CEO is the one driving the vision, they are going to use different language and sometimes different emotion. At times, they are better able to articulate things that managers in the ranks may not be able to. You need to do both.”

As Kirchner looks at DTS today, he sees evidence that the split was the right move to make. Revenue has risen from $60.2 million in 2008 to $87.1 million in 2010.

“We basically spawned a much more focused and much better business, certainly from a financial performance,” Kirchner says. “I’m not saying we did everything correctly but by and large, it went pretty much exactly as planned.”

How to reach: DTS Inc., (818) 436-1000 or www.dts.com

Takeaways: Take the time to make sure that you’re sure about what you’re doing. Anticipate that there will be unexpected problems that will arise.

Don’t forget that there are people involved in every decision you make

The Kirchner File

Jon Kirchner, chairman and CEO, DTS Inc.

Born: Ada, Okla.

Education: Bachelor of arts degree, economics, Claremont McKenna College, Claremont, Calif.

What was your very first job, and what did it teach you?

When I was young, I looked older than my age. I was already eager to begin working, and with the help of my parents, I made business cards that I handed out to neighbors, offering help for general chores like shoveling snow and mowing lawns. By the time I was 13, I had quite a clientele, and my family moved.  When I told my clients I was leaving, they thought I was going away to college. So from an early age, I learned the value of selling and believing in yourself, and that there’s no substitute for hard work and persistence.

Who has had the biggest influence on your life and why?

My parents. My mother and father were both professors and experts in their field. They were driven professionally, but were also very family oriented and created a very supportive environment. They encouraged an independence, a curiosity and a passion for learning that has been influential throughout my entire life; my optimistic, positive supportive and driven outlook is a reflection of what I saw every day at home.