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In January 2002, Theodore Zampetis took over as president and CEO of a struggling Shiloh Industries Inc. The leading manufacturer of advanced metal product solutions for high-volume applications in the North American automotive, heavy truck, trailer and consumer markets was $290 million in debt and the banks would not finance the company any further.

Zampetis had only a few weeks to either file a 10K with the SEC or file for Chapter 11 bankruptcy. Rather than roll over and give in, he began to execute a strategy, and he had to do it quickly.

“I got together with my president and my plant head and said, ‘Here’s what I am going to do. Here’s how I’m going to reduce cost and start creating cash flow tomorrow,’” Zampetis says.

Most people had all but kissed Shiloh Industries goodbye but not Zampetis. He knew he could turn the company around.

“We held a teleconference with the banks and all 12 entities were in on the call, and we explained the plan,” Zampetis says. “‘Here’s what is happening, here’s why it’s happening, and here’s what I’m going to do in the next 15 days, 30 days, three months, six months,’ and on and on.”

With time being of the essence, everybody started signing on quickly. Zampetis went around to each customer and plant to tell customers and employees what has happened, why it has happened and what the company’s plan was.

“I told them, ‘You will look back in six months and be proud of what you accomplished,’” Zampetis says.

Here is how Zampetis nursed Shiloh Industries from the edge of bankruptcy and brought it back to life.

Stop the bleeding

Once Zampetis made everyone aware of the dire situation the company was in, he began to focus on stabilizing the business.

“It was execution in three areas: No. 1, I’ve got to stabilize the company because the company was sick, demoralized and it was dying,” Zampetis says. “Once we stabilized the company, the next thing was figuring out what was the root cause of the problem.”

Zampetis had to understand where the company made money, where it lost money and why it was making or losing money.

“Once we started characterizing the process at each plant internally and focusing internally, it became clear to me what the priorities were in the bigger picture of the company and what I had to do,” he says. “Yes, there were a thousand problems, but I didn’t care about the thousand problems. I only cared about the top 10 problems and how I could attack them quickly one by one.”

At the same time, there were external pressures. For instance, one of Shiloh’s main customers had good news for the company. It still had a multimillion-dollar program with Shiloh that it wanted to continue with the organization. The only problem was that Shiloh had no cash to fund the program.

“I said … ‘We are going to the customer and let me talk,’” Zampetis says. “The next day, we were at the customer talking to the highest level in purchasing, and I told him that, in my 31 years in the business, I never thought I would go to the customer and politely, but with tears in my eyes, tell him that he’d better take the contract he awarded to us and give it to someone else, because we simply have no cash.

“‘Under your terms and conditions, we cannot do it. However, if you help us, we can probably do it and do it better than anybody else in the world.’”

With the banks unwilling to budge because the company was $290 million in debt, Zampetis and the executive director of purchasing at the customer company negotiated back and forth until they agreed to help Shiloh Industries fund the program for them.

“I knew one thing; even though this would be a battle going forward, there was only one way to go, and that was up,” he says. “From that point on, Shiloh Industries started climbing and generating cash flow and applying that cash flow back into the company to protect our critical skills and technologies.”

Shiloh’s critical technologies were devastated. The company needed to understand how to bring them up to be best in class and, at the same time, not to let any program down or make any customer dissatisfied.

“We started generating cash flow and applying it intelligently and above all, started deleveraging the company,” he says.

Remain laser-focused

Once the company began to slowly recover, Zampetis had to make sure to communicate throughout the organization so people stayed focused and kept moving forward strategically.

“If we are going to reinforce a culture of transformation, we have to communicate and we have to communicate not only our problems but give our employees, from top to bottom, an idea of what is the source of the problem,” he says. “You have to have a disciplined mind to characterize the process quickly and identify and measure the impact and analyze.”

Moving forward, Zampetis made sure that any decision he made was strategic.

“When the company is in deep trouble, you’ve got to make decisions strategically about all the wonderful ideas that got you into the problem to begin with,” he says. “The old management team did not learn their lesson.”

Shiloh had three objectives: No. 1, to stabilize the company and start generating cash flow, No. 2, to apply that cash flow to deleverage the company and rebuild the company internally, and No. 3, to develop its people to be disciplined so such past situations never happen again.

But just as the company was regaining its footing, the recession of 2009 hit. Chrysler and GM, which make up 60 percent of Shiloh’s business, filed for bankruptcy.

“Everybody thought we were done,” Zampetis says.

Be forward-thinking

As signs that the economy might be in trouble began to spread, Zampetis and Shiloh Industries were taking precautionary measures.

“If you look at our records and look at what happened in November 2008, I took my salary down to almost nothing because I knew there was going to be a disaster,” Zampetis says.

Shiloh’s sales went down 53 percent, its variable manufacturing cost went down 49 percent and its fixed cost, including Zampetis’ salary, went down 39 percent. However, the company made sure to protect its critical skills during the recession.

“I showed our leadership that in a moment of crisis I wasn’t thinking about lining my pocket,” he says. “I told them, ‘We are suffering and sacrificing right now, but at the end of the day, you will look back and be so proud.’”

During 2009 when all of this was happening, Shiloh Industries ended up generating $18 million extra free cash flow and reduced debt.

“In 2010, we were expecting the industry to start picking up because some of our competitors went bankrupt in 2009, and we picked up a lot of their business,” he says. “Our sales revenue from 2009 to 2010 went up 69.7 percent.”

The company’s productivity nearly doubled, its technology became extremely efficient, quality was exceptional and the employees were pumped up about the company’s progress.

“The year 2011 was a wonderful one, and 2012 was a very good year,” Zampetis says. “We now are a clean-balance-sheet company. We have advanced technologies that are the best in the world.”

Today, Shiloh Industries is a $600 million company with 1,400 employees. With the company back to pre-crisis levels, Zampetis decided to retire as president and CEO in December 2012. However, he left the incoming leadership with a very stable company.

“It will be a two-point approach,” he says. “One is to maintain all the good disciplines and don’t water them down because that would be a big mistake. But then the company’s mission looking forward is growth.” ?

How to reach: Shiloh Industries Inc., (330) 558-2600 or www.shiloh.com     

Published in Cleveland

The financial meltdown that rocked the economy in late 2008 damaged U.S. businesses in myriad ways — but LeasePlan USA Inc. was one of the unfortunates that got hit from several angles at the same time.

LeasePlan, which provides automobile fleet management services and manages about 385,000 vehicles for its clients across the United States, is basically in the business of financial services. It helps companies finance and service their vehicle fleets. When the meltdown happened, liquidity and credit dried up practically overnight, making things very tough for LeasePlan.

“All of a sudden, these things became a huge issue for us,” says Mike Pitcher, LeasePlan’s president and CEO. “In that environment, a lot of our clients were under a great deal of financial pressure. And so were we, with regard to liquidity, cost of funds and simply doing business as usual. Financial services and the entire industry were very challenged.”

At the same time that liquidity and credit were drying up, the recession began to stifle many sectors of the economy, sending some of LeasePlan’s key corporate clients into downturns of their own. Consequently, those companies started looking for ways to save money. And one of the line items they began to scrutinize closely was vehicle fleet costs.

“Some of our clients were starting to downsize,” Pitcher says. “Their fleets were getting smaller, and they started looking at different options for vehicles as well.

“A telltale sign for us was that, before this downturn, the six-cylinder engine was always the predominant engine in our industry. Nobody ever ordered four cylinders for fleet. But we started seeing some of that. We started seeing some of our clients not only downsizing the number of vehicles in their fleets but using smaller vehicles. And they were holding onto vehicles longer instead of replacing them.”

All of these factors put strong downward pressure on LeasePlan’s business.

“In ’09 and ’10, we saw our overall fleet — the total amount of cars we finance — go down quite a bit,” Pitcher says. “I can tell you that our overall fleet went down by thousands of vehicles. It was a substantial drop. It got our attention. These were significant client behavioral changes we were seeing. It was an indication that some fundamental changes were happening in our industry.”

Focus on controllables

Pitcher pulled his management team together to come up with a practical plan aimed at pulling LeasePlan out of the down spin it was falling into.

“One one hand, we knew we had a credit crisis going on,” Pitcher says. “The availability of credit and liquidity was a serious issue for us. But that was really at a macro level and largely beyond our control.

“So what we decided to do as a company and as a senior management team was we started talking about how we could get back to the basics and get all the basics right.”

The result of these deliberations was a new five-year strategic plan dubbed Triple Crown, which LeasePlan put into effect near the end of 2009.

“Our Triple Crown initiative was based on our performance in serving our three main groups of constituents,” Pitcher says. “Those constituencies are our employees, our clients and business partners, and our shareholders. And we said that none of those were more important than the others. Each was critical and fundamental to our business.”

LeasePlan’s Triple Crown five-year plan set forth concrete objectives regarding how effectively the company serves each of those three stakeholder groups. The plan laid out methods to measure employee engagement and client loyalty and goals to be reached in both of those areas based on those measurement methods.

LeasePlan’s shareholder return objective was to achieve a double-digit percentage increase over the five years covered by the Triple Crown initiative.

“We started to measure employee engagement — not just satisfaction but employee engagement,” Pitcher says. “We started to measure customer and client loyalty — again, not just satisfaction but loyalty — with the key definition of loyalty based on whether the client would refer us and whether they had an intent to repurchase and do business with us again.”

LeasePlan hired a consulting firm, TNS, to periodically survey its employees as a means of measuring their level of engagement in their work.

One of the initial findings was that LeasePlan has an unusually high percentage of workers classified as “drivers” — that is, passionate, already highly engaged employees who act as if they have an ownership stake in the company and work hard to deliver exceptional service every day. They learned that with such a high percentage of “drivers,” communication becomes even more critical than usual.

“We learned that with a group like this, you can never communicate too much,” Pitcher says. “Part of the reasoning for this is that in the absence of truth, people will start to make stuff up. If you don’t tell them the truth — clearly and consistently — they’re going to make something up. And usually it’s something far worse than things actually are.

“So we started having regular town-hall-type meetings and monthly communications from myself and our CFO regarding our financial performance and monthly emails from our chief sales and marketing officer talking about accounting and departures.”

LeasePlan also pledged not to lay off workers except as an absolute last resort and managed to live up to that pledge, even through the recession’s darkest days. The company implemented a two-days-a-week, casual-dress program and a weekly “dress for success” day, as well as an employee health program called HealthyU that includes free biometric testing, a weight-watching program and a running group that participates in 5K races — all of which have been popular and have helped increase the company’s employee engagement scores.

“We’ve received great feedback from our employees,” Pitcher says. “They love these programs. They’re great morale boosters, and they cost the company little or no money.”

Gauge allegiance

As part of its Triple Crown five-year strategic plan, LeasePlan engaged an outside firm to interview its clients by phone to measure their degree of loyalty as well as their perceptions about LeasePlan’s customer responsiveness, its level of innovation, its technological know-how and the value of its service vis-à-vis how much it charges for that service.

“Client loyalty is really about a lot more than client satisfaction,” Pitcher says. “It’s about a client’s intent to repurchase. Will (clients) be willing to spend additional dollars with you as a vendor? It’s about expanding services and share of wallet and whether they’re willing to be a referral for you if another client would call. Those are the factors that drive client loyalty.”

Pitcher proudly notes that LeasePlan is now laying the groundwork for a new five-year strategic plan because it achieved all the goals of its Triple Crown five-year plan in just three years.

“We laid out a five-year plan, but our team hit all the metrics we set forth in that plan within three years,” Pitcher says. “We achieved them all during 2012. This plan brought us back to pre-credit-crisis levels of profitability.

“We hit our metrics in all three areas — employee engagement, client loyalty and shareholder return. So now we’re back to the drawing board, looking at what our next five-year plan is going to look like.”

Asked what key pitfalls he has learned to avoid while leading LeasePlan through the credit crunch and financial downturn, Pitcher says he strongly suggests resisting a common mistake.

“One of the biggest pitfalls is surrounding yourself with people who always tell you you’re right,” he says. “If you get a big enough audience with very diverse and original ideas, you’re going to find out you don’t have all the answers. As a CEO, you can become very insulated, and people won’t bring you the real problems and the real challenges. You have to stay away from a group of advisers or managers that simply always tell you you’re right.”

Pitcher also recommends empowering the rank and file to help find the solutions your company needs when it gets in a tight spot — and be sure to acknowledge those contributions.

“One of the things we learned is that your team members really want to be part of the solution,” Pitcher says. “They want to be heard. And they usually know best how to attack a problem or an opportunity and find the solution. Our best recommendations and suggestions almost always come from front-line employees.

“The other thing is — and I know this sounds trite, but it’s really not meant to be — people want to be recognized for a good job. People do a lot of good things, and it’s leadership’s responsibility to catch people doing things right, make a point of to others and say thank you.”

How to reach: LeasePlan USA Inc., (770) 933-9090 or www.us.leaseplan.com 

The Pitcher File

Mike Pitcher

President and CEO

LeasePlan USA Inc.

Born: New Orleans, La.

Education: Bachelor’s degree in marketing, University of Louisiana at Lafayette; MBA, Emory University

Looking back over your years in school, do you recall any important business leadership lessons you learned that you still use today?

That you can learn from any experience, good or bad. From good leaders you can learn good aspects of leadership — but you can also learn from bad leaders, what not to do. There are role models on both sides of that coin, and if you take every experience as a learning experience, I think you can become a very well-rounded leader.

Another important lesson is that attitude is everything. In the face of crap, you can say, “The whole world is falling apart, and there’s nothing I can do.” Or you can say, “This is an opportunity.”

What was the first job you had, and what business lessons did you learn from it?

I was a painter and sandblaster on oil rigs in the Gulf of Mexico. I worked 21 days straight, 15 hours a day. In other words, I worked a 105-hour week for three weeks in a row. And the lesson I learned is that I wanted to make a living with my mind, not my back.

Do you have a main business philosophy that you use to guide you?

It simply would be that people have an inherent desire to be successful, and management’s main objective should always be to harness their passion and find ways to show them how they can succeed.

What trait do you think is most important for an executive to have in order to be a successful leader?

If I had to pick one, it would be integrity.

What’s the best advice anyone ever gave you?

Never do anything your mama wouldn’t be proud of. My older brother said that. Having been raised by my mom for a long time, I would say that’s up there.

Published in Atlanta

Bob Duncan was taken aback a little when he went to a meeting last year as the new Indianapolis International Airport executive director.

There were only three people at the meeting. It was the employee engagement committee.

“I said, ‘What’s going on? Where are the rest of them?’”

It turned out the committee hadn’t been maintained that well. The group needed new leadership and was ready for a revival.

When Duncan along with the HR director breathed new life into the committee, it was re-energized into a much more interactive and robust employee group.

“So that’s worked really, really well in the last year,” he says.

It turns out that making things work well is Duncan’s signature. He had been with the Indianapolis Airport Authority for nearly 40 years and previously served as general counsel and COO. Duncan was closely involved in the planning of the airport’s new midfield terminal, which opened in 2008. Add serving as interim executive director in 2012 to his resume after the previous director and the board of directors parted ways.

As he came into the leadership post, he was fortunate that he had a fairly clear picture that the culture under the previous administration was not as collaborative as he would have liked. He already got to know over the years hundreds of employees by their first names, so the territory was familiar.

“But I viewed the culture as tense,” he says. “Kind of silo-ish. You hear that a lot, that people had developed silos, which was not efficient in my mind. With the reorganization that I did, I broke down the silos.”

Here’s how Duncan eliminated the silos, built up teamwork and put his signature on the culture at the Indianapolis International Airport, which had revenue of $193 million in 2011, serving 7.5 million passengers.

Instill a sense of teamwork

If you’ve determined that your mission is to make your organization’s culture more collaborative, the most important sense to instill is that of teamwork.

Duncan realized that he needed to focus on the senior team members as well as the line service. He wanted to gain their trust, which would increase their commitment.

As a first step, Duncan recommends making yourself known.

“I made it a point to get out and about at virtually all hours,” Duncan says. “I have been known to show up at 5 o’clock in the morning and go to police roll call. I show up on Saturdays just to talk to people, particularly on second and third shifts, to let the folks know that I am interested in what they do and how they do it.”

As you cover your territory on foot, you will get to know your people better.

“I insist that my employees call me by my first name so that we can develop a team spirit,” Duncan says. “At the same time, you have to establish trust in management so that they know when a decision is made that may impact them, they understand why it doesn’t come as too much of a surprise.

“Be credible. Be open. Be approachable. Recognize the type of workforce that you have. I want them all to call me by my first name.”

As an example of building trust, he cited a recent instance when the airport’s public safety officers, which are not law enforcement personnel, were privatized. Rather than eliminating the 38 jobs, Duncan found a private security firm that would start to re-employ the officers at the airport in similar roles.

“So everybody that day walked out knowing they had a future,” Duncan says. “That is the right thing to do when that happens. It established trust in management, that we were sensitive to the feelings of the people, and I didn’t want people walking out with a change like this without the security that they knew they were going to have a job and benefits. That’s what we did, and it worked really well.”

Look for inefficiencies

A shakeup will always cause people to sit up and take notice. It’s a sign that you are in charge and want to try a better idea, hopefully to get better results.

Duncan reorganized his senior leadership staff, and it resulted in the reduction of some positions. However, it not only shrank the senior management numbers, it improved the organizational efficiency.

“I literally abhor bureaucracy,” Duncan says. “We are a quasi-governmental entity so there is a certain amount of statutory bureaucracy that we have to deal with. But what you deal with about internal planning and internal decision-making, you try to cut down layers of the approval process so that you empower people to make decisions and do that in a collaborative manner.”

A sore subject for some executives is the number of hours of meetings they often have on their calendars. Duncan is a firm believer that such time often could be spent more productively.

He took 18 hours of senior-level meetings a month down to four.

“Let’s say there was a senior-level meeting, and then two days later, there would be a senior-level meeting with the director-level people,” he says. “So there are five hours of just talking. What I’ve done is to have all the senior managers meet at the same time with most of the directors at 9 o’clock every Monday morning.

“Everybody brings everybody up to speed, and then once a month, we bring in directors, managers and supervisor levels so anything that they want to talk about, we can bring up. That’s worked really well for me.”

Spending less time on unproductive discussions forces managers to organize their thoughts and prioritize issues. It’s important that everyone gets together on the same page, and it should be done at least once a month.

“We have a project coordination meeting; it doesn’t last very long,” Duncan says. “We go down all the projects, so all the department heads know what projects are, where they are and what’s going on with them. So that’s the kind of attitude I want. I don’t want anybody sitting in their chair without getting up and talking to other department heads.

“Let senior directors and their directors develop their own action plans, their goals and initiatives,” Duncan says. “I can count on one hand and two fingers the number of times that I have gotten directly involved and changed something. That is because I know a lot of these people, and I trust their judgment, they trust mine, and that’s really important to the effective operation of the organization.”

Duncan says it is essential that the CEO encourage his team to challenge the leader’s ideas without fear of any potential negativity. It’s part of being flexible.

“I can remember when I reversed myself twice in the same day,” he says. “Someone came up to me and said, ‘You sure you want to do that?’”

Members of a team should feel free to make mistakes and get the experience of surviving through them.

“I always ask folks that I come in contact with, ‘Do you know what experience is?’ I will get a wide variety of answers,” Duncan says. “Then I will say, ‘No, experience is the exercise of good judgment,’ and you get experience through the exercise of bad judgment. Everybody is going to have some of the bad judgment experience.

“Let people know that if they make a mistake, they are not going to get their head chopped off. As a team, we will work around those kinds of problems the best we can.”

You don’t necessarily have to say you’re not an asset to the organization because you just made a mistake.

“I don’t do that, I mean, there are certain folks that sometimes you try to do all you can to improve them and like all organizations, there are just sometimes when you have to say this just isn’t working,” Duncan says. “I work real hard not to have that happen.”

Nurture success and keep it alive

There comes a point in your effort to build teamwork that you want to know if your approach is working. If you aren’t seeing more employee engagement, it’s not working. Employees should feel a more collaborative effort. They know that you are in charge ultimately, but without teamwork, there is no progress.

“I think as an executive director or CEO, sometimes you have to keep your ego in check,” Duncan says. “At the same time, you are earning the respect of the people that you’re working with and maintaining that respect. You do that by empowering people.”

Also, look at your turnover rate.

“At the senior director, manager director level, we don’t have much turnover,” he says. “Since we do run three shifts a day, we have a little higher turnover rate in third shift janitorial services. But I am trying to figure out how I can reduce that rate of turnover, and it could just be the hours that the third shift works or things like that.”

Once the operation shows improvement, don’t get complacent about communicating with employees — and fall into the lure of email’s convenience. Duncan believes email has become too impersonal.

“If you are not careful, you can say things in emails that don’t mean or that people take the wrong way,” he says. “It is much better to walk around and talk to people — more of a face-to-face thing. Again, that’s part of my concept of openness and having people come in. I have two doors in my office and they are always open. People can walk right in anytime they want. “That’s the way I like it; some people don’t. I do.” ?

How to reach: Indianapolis International Airport, (317) 487-7243 or www.indianapolisairport.com

The Duncan File

Bob Duncan

Executive director

Indianapolis International Airport

Born: Philadelphia. I lived in New Jersey until I was 15. Then I moved to Indianapolis. I learned to fly when I was 16 years old, and I was a professional pilot when I went to law school. Flew all day, went to law school at night.

Education: Bachelors’ degree from Hanover College in Indiana, with a major in history and political science. I went to law school at Indiana University.

What was your first job and what did you learn from it?

I worked in service stations. I pumped gas, cleaned windshields, and I was a pretty good car mechanic back in the early to mid-’60s. Then I started flying.

What is the best business advice you ever received?

The gentleman that hired me, Dan Orcutt, executive director of the airport for 25 years — I’ve had the deepest respect for. I think part of my business attitude came from him. It was kind of what I have already said. He said, ‘Be credible. Be trustworthy. Be firm but be fair.’ I think that that works because sometimes in business negotiations, you have to be firm, sometimes vocal, but you always want to be fair. We work hard at being fair to ourselves and our business relationships but also to our customers and tenants. Sometimes we have to say no, and they don’t like hearing it, but they will always understand why and why the decision is what it is.

Who do you admire in business?

To be perfectly honest, I don’t know if I could drag it down to one particular industry. The aviation industry — one is Elaine Roberts, the president and CEO at the Port Columbus International Airport. She started here at the airport. I always admired her sense of fairness and her sense of doing the right thing, and at the same time making very sound business decisions. I really kind of admire her in my particular industry.

What is your definition of business success?

For me, it would be respect, that people shoe respect knowing that they would be treated fairly in dealings with the airport, that we are recognized for our integrity. That would be business success for me in addition obviously to positive financial results.

 

Published in Indianapolis

Larry Dorfman, APCO’s chairman and CEO, learned a cold fact of life the hard way: If your business is heavily dependent on another market sector and that sector takes a hit, you’re going to take a hit too.

And, boy, did that other sector take a hit. New car sales in the U.S. fell by almost exactly half in a little more than a year, says Dorfman, whose company sells extended warranties at 1,800 franchise auto dealers around the U.S. and commonly goes by the name of its extended-warranty brand, EasyCare.

“New vehicle sales dropped from 16.9 million to 8.7 million, basically in a 15-month period,” he says. “Used car sales suffered significantly too, but the hardest hit were clearly the franchise dealers.”

Dorfman didn’t have to go looking for danger signs. They came rolling at him like a tidal wave.

“You could literally see the volumes starting to slide, and we were attached directly to the number of cars that get sold at any given store [dealership],” he says. “If a store sells 100 cars, then you know they’re going to sell a certain number of extended service contracts. And if that 100-car store suddenly starts selling 50, then both of us have a problem. That’s just the way it is.”

It didn’t take long for Dorfman and his leadership team to figure out what they needed to change. APCO’s business was too dependent on car sales. The company had to find a way to broaden its base.

“Our benefits at the time totally focused on how many cars got delivered to a customer at a franchise dealership,” Dorfman says. “We started to recognize that we were on what we call a two-legged stool. Whichever way the car business went, that’s the way we would go too. Now, our company was founded in 1984, so we had been through a couple of recessions. We’d been up and down on a couple of these rides. Of course, nobody knew what this one was going to be like. But you sure could feel it coming.”

Set the table

APCO’s leaders quickly concluded that the stool on which their company’s fortunes were perched needed a sturdier base. Dorfman and his team knew that building that third stool leg would be absolutely critical to APCO’s long-term health, so they attacked the project meticulously and deliberately and from several angles at once.

In fact, APCO’s leadership team had set the table for these base-broadening measures before the downturn really started to seriously kick in — just as they began to sense it coming. Ford Motor Co. had bought APCO back in 1999 and had been operating as a subsidiary for about seven years.

For the first few years, that arrangement had gone swimmingly. But as Dorfman saw vehicle sales leveling off and creeping downward in late 2006 and early 2007 and with Ford increasingly sinking into debilitating debt and cash-flow problems in mid-2007 after more than a year of deliberation, APCO’s employees and equity partners purchased the company back from Ford.

“We bought it back, and then, from that point, the market continued to dribble down a little bit,” Dorfman says. “And, fortunately, we were able to start making some decisions — some investments — that we could not have made under Ford. This was one of the critical reasons that we wanted to buy the company back. We could see that they weren’t going to invest in our company.”

Then the stock market crash hit in 2008, and business went into free fall virtually across the board in the U.S., including automobile sales and, consequently, APCO’s business.

“One of our key financial measures is trailing 12-month EBITDA,” Dorfman says. “We watch that very carefully. And we went from $28.7 million at our peak — that would’ve been about ’06 — to $12.5 million after the crash, in ’09. So what do you do?

“Well, you know, the first thing you do is you take the gun out of your mouth. No, I’m kidding. Obviously, this didn’t all happen in one week. But it did happen pretty darn quick.”

As they saw the nose-dive gathering steam, APCO team members started looking for ways to get their company off of its two-legged stool and build a firm third leg for balance.

“The first thing we did is we looked at how we approach the business,” Dorfman says. “What we saw was that our business was totally affected by whether the dealer sold a car today or not. We knew that had to change. So we asked ourselves, ‘How else can we do what we do and stay who we are but, at the same time, move away from being so dependent on car sales?’”

APCO decided to focus on what it saw as an underappreciated and neglected area of its dealerships: the service department. It developed a software program called EasyCare SOS — Special Owner Services — to help its dealers better manage their customer relationships.

“It’s literally a CRM [customer relationship management] program,” Dorfman says. “It helps dealers manage their customer relationships throughout the ownership life cycle of the vehicle. We built this software to make sure consumers are approached the right way — that they’re notified properly but not overnotified when their vehicle is due for service, what specials are available, etc.”

The program has worked so well that APCO guarantees dealers a 500 percent return on their investment.

“We started that piece, EasyCare SOS, from scratch in late ’07 with two people,” Dorfman says. “Today, it has 36 people in it, and it contributed 8 percent of our profit this year.”

Invest in technology

In addition to forming EasyCare SOS, APCO made other investments. The company formed a retail division, it created a certified used car program in partnership with Motor Trend magazine, and it bought a company called CoVideo that had developed a sophisticated video email technology.

“The CoVideo technology allows you to create and send a video email as quick and easily as you could type and send a text email,” Dorfman says. “It’s very personal and immediate. You’re looking right at the person’s face: ‘We want to let you know it’s time for your vehicle to come in for service. Click here for an appointment.’ Or: ‘Hello. Thanks for the time on the phone. I enjoyed it. I look forward to seeing you when I come in next week. We appreciate your business.’”

APCO invested $900,000 in the CoVideo technology to build the infrastructure and create apps to deliver large quantities of video email efficiently to an array of mobile devices: iPhones, iPads, Androids and BlackBerrys. The company plugged the technology into its EasyCare SOS program so its dealers can use it to send video updates to their customers instead of regular emails.

“We did all of this during a down market,” Dorfman says. “In so doing, we turned digital customer interaction into a much more personal process.”

All of the investments have begun to pay off for APCO. The company’s key metric, trailing 12-month EBITDA, is growing again, and the company has paid off a substantial portion of the debt from its buyback from Ford Motor Co.

“Trailing 12-month EBITDA is back up to about $16.7 million from a low of $12.5 million in ’09,” Dorfman says. “So we’re back up 25, 30 percent. And that’s while making these major investments to grow the business.

“Also, we’ve paid our debt down to about $20 million during very tough times. We’ve built a broader base, which has expanded us further into our own business and actually outside the car business with CoVideo. This puts us in a strong position to continue to make more investments to grow the company.”

Choose partners wisely

Asked what advice he would offer business executives whose businesses are facing similar challenges, Dorfman ticks off several suggestions: Choose your business partners carefully, focus on delivering more than is expected of you, keep a finger on the pulse of your business, and stay ahead of the game with regard to expense management.

“You’ve got to have great partners, great clients and great employees,” he says. “You can’t ask more of somebody than the time and effort that you’ve taken to build a relationship with them. You can’t go to the bank and make a $300 deposit and then go back five days later and take $10 grand out. The bank doesn’t do that. And neither do customers, partners, investors.

“Your chances of being able to make a withdrawal are a lot better when you’ve made a substantial deposit. And what we did for a few years before and during this downturn is we continued to make deposits with the people we work with so we had a base to work from. Building that base really helped us.”

Dorfman says the most important thing he has learned while leading APCO through the financial crisis is that executives should never let market conditions dictate the pace of their business.

“If you buy in to everything people say about the market, you’ll be out of business in no time,” he says. ?

How to reach: Automobile Protection Corp., (678) 225-1000 or www.easycare.com

 

The Dorfman File

 

Larry Dorfman

Chairman and CEO

Automobile Protection Corp.

Born: Brooklyn, N.Y.

Education: University of Georgia

What was your first job, and what business leadership lessons did you learn from it?

I grew up working in our family’s office equipment business. I was in sales. I was given a car at age 16, and I had to pay for the gas and insurance with the money I made selling. My dad was my mentor — actually somewhere between my mentor and tormentor — and in both cases, he did a good job. He exposed me to a lot of opportunities, like learning how to go out and make cold-call presentations to businesspeople. And, you know, at 16 or 17, that’s a pretty interesting game plan. You learn quickly. And my dad was always there to go back to and talk about what worked and what didn’t.

Do you have a main business philosophy that you use to guide you?

One of the key things we learned as we went through the recession is we changed our philosophy from the hard sell to building a relationship with customers. I grew up in a hard-sell environment. But I think people have changed. They don’t like to be hard-sold anymore. Salespeople have to understand that you can’t ask more from a customer than what you’re willing to give them — your time, your effort, your knowledge.

What trait do you think is most important for an executive to have in order to be a successful leader?

Don’t be afraid to make a decision.

What’s the best advice anyone ever gave you?

You can’t take more out of a relationship than you put into it. I learned that from an instructor at a communications course I took in 1985 that was geared toward getting people to understand and learn to communicate better. It was a personal and business growth course.

Published in Atlanta

When the recession rocked the auto industry in 2008 and 2009, Automobile Protection Corp., which sells extended service contracts to car buyers, got rocked just as hard.

Larry Dorfman, APCO’s chairman and CEO, learned a cold fact of life the hard way: If your business is heavily dependent on another market sector and that sector takes a hit, you’re going to take a hit too.

And, boy, did that other sector take a hit. New car sales in the U.S. fell by almost exactly half in a little more than a year, says Dorfman, whose company sells extended warranties at 1,800 franchise auto dealers around the U.S. and commonly goes by the name of its extended-warranty brand, EasyCare.

“New vehicle sales dropped from 16.9 million to 8.7 million, basically in a 15-month period,” he says. “Used car sales suffered significantly too, but the hardest hit were clearly the franchise dealers.”

Dorfman didn’t have to go looking for danger signs. They came rolling at him like a tidal wave.

“You could literally see the volumes starting to slide, and we were attached directly to the number of cars that get sold at any given store [dealership],” he says. “If a store sells 100 cars, then you know they’re going to sell a certain number of extended service contracts. And if that 100-car store suddenly starts selling 50, then both of us have a problem. That’s just the way it is.”

It didn’t take long for Dorfman and his leadership team to figure out what they needed to change. APCO’s business was too dependent on car sales. The company had to find a way to broaden its base.

“Our benefits at the time totally focused on how many cars got delivered to a customer at a franchise dealership,” Dorfman says. “We started to recognize that we were on what we call a two-legged stool. Whichever way the car business went, that’s the way we would go too. Now, our company was founded in 1984, so we had been through a couple of recessions. We’d been up and down on a couple of these rides. Of course, nobody knew what this one was going to be like. But you sure could feel it coming.”

Set the table

APCO’s leaders quickly concluded that the stool on which their company’s fortunes were perched needed a sturdier base. Dorfman and his team knew that building that third stool leg would be absolutely critical to APCO’s long-term health, so they attacked the project meticulously and deliberately and from several angles at once.

In fact, APCO’s leadership team had set the table for these base-broadening measures before the downturn really started to seriously kick in — just as they began to sense it coming. Ford Motor Co. had bought APCO back in 1999 and had been operating as a subsidiary for about seven years.

For the first few years, that arrangement had gone swimmingly. But as Dorfman saw vehicle sales leveling off and creeping downward in late 2006 and early 2007 and with Ford increasingly sinking into debilitating debt and cash-flow problems in mid-2007 after more than a year of deliberation, APCO’s employees and equity partners purchased the company back from Ford.

“We bought it back, and then, from that point, the market continued to dribble down a little bit,” Dorfman says. “And, fortunately, we were able to start making some decisions — some investments — that we could not have made under Ford. This was one of the critical reasons that we wanted to buy the company back. We could see that they weren’t going to invest in our company.”

Then the stock market crash hit in 2008, and business went into free fall virtually across the board in the U.S., including automobile sales and, consequently, APCO’s business.

“One of our key financial measures is trailing 12-month EBITDA,” Dorfman says. “We watch that very carefully. And we went from $28.7 million at our peak — that would’ve been about ’06 — to $12.5 million after the crash, in ’09. So what do you do?

“Well, you know, the first thing you do is you take the gun out of your mouth. No, I’m kidding. Obviously, this didn’t all happen in one week. But it did happen pretty darn quick.”

As they saw the nose-dive gathering steam, APCO team members started looking for ways to get their company off of its two-legged stool and build a firm third leg for balance.

“The first thing we did is we looked at how we approach the business,” Dorfman says. “What we saw was that our business was totally affected by whether the dealer sold a car today or not. We knew that had to change. So we asked ourselves, ‘How else can we do what we do and stay who we are but, at the same time, move away from being so dependent on car sales?’”

APCO decided to focus on what it saw as an underappreciated and neglected area of its dealerships: the service department. It developed a software program called EasyCare SOS — Special Owner Services — to help its dealers better manage their customer relationships.

“It’s literally a CRM [customer relationship management] program,” Dorfman says. “It helps dealers manage their customer relationships throughout the ownership life cycle of the vehicle. We built this software to make sure consumers are approached the right way — that they’re notified properly but not overnotified when their vehicle is due for service, what specials are available, etc.”

The program has worked so well that APCO guarantees dealers a 500 percent return on their investment.

“We started that piece, EasyCare SOS, from scratch in late ’07 with two people,” Dorfman says. “Today, it has 36 people in it, and it contributed 8 percent of our profit this year.”

Invest in technology

In addition to forming EasyCare SOS, APCO made other investments. The company formed a retail division, it created a certified used car program in partnership with Motor Trend magazine, and it bought a company called CoVideo that had developed a sophisticated video email technology.

“The CoVideo technology allows you to create and send a video email as quick and easily as you could type and send a text email,” Dorfman says. “It’s very personal and immediate. You’re looking right at the person’s face: ‘We want to let you know it’s time for your vehicle to come in for service. Click here for an appointment.’ Or: ‘Hello. Thanks for the time on the phone. I enjoyed it. I look forward to seeing you when I come in next week. We appreciate your business.’”

APCO invested $900,000 in the CoVideo technology to build the infrastructure and create apps to deliver large quantities of video email efficiently to an array of mobile devices: iPhones, iPads, Androids and BlackBerrys. The company plugged the technology into its EasyCare SOS program so its dealers can use it to send video updates to their customers instead of regular emails.

“We did all of this during a down market,” Dorfman says. “In so doing, we turned digital customer interaction into a much more personal process.”

All of the investments have begun to pay off for APCO. The company’s key metric, trailing 12-month EBITDA, is growing again, and the company has paid off a substantial portion of the debt from its buyback from Ford Motor Co.

“Trailing 12-month EBITDA is back up to about $16.7 million from a low of $12.5 million in ’09,” Dorfman says. “So we’re back up 25, 30 percent. And that’s while making these major investments to grow the business.

“Also, we’ve paid our debt down to about $20 million during very tough times. We’ve built a broader base, which has expanded us further into our own business and actually outside the car business with CoVideo. This puts us in a strong position to continue to make more investments to grow the company.”

Choose partners wisely

Asked what advice he would offer business executives whose businesses are facing similar challenges, Dorfman ticks off several suggestions: Choose your business partners carefully, focus on delivering more than is expected of you, keep a finger on the pulse of your business, and stay ahead of the game with regard to expense management.

“You’ve got to have great partners, great clients and great employees,” he says. “You can’t ask more of somebody than the time and effort that you’ve taken to build a relationship with them. You can’t go to the bank and make a $300 deposit and then go back five days later and take $10 grand out. The bank doesn’t do that. And neither do customers, partners, investors.

“Your chances of being able to make a withdrawal are a lot better when you’ve made a substantial deposit. And what we did for a few years before and during this downturn is we continued to make deposits with the people we work with so we had a base to work from. Building that base really helped us.”

Dorfman says the most important thing he has learned while leading APCO through the financial crisis is that executives should never let market conditions dictate the pace of their business.

“If you buy in to everything people say about the market, you’ll be out of business in no time,” he says. ?

How to reach: Automobile Protection Corp., (678) 225-1000 or www.easycare.com

The Dorfman File

Larry Dorfman

Chairman and CEO

Automobile Protection Corp.

Born: Brooklyn, N.Y.

Education: University of Georgia

What was your first job, and what business leadership lessons did you learn from it?

I grew up working in our family’s office equipment business. I was in sales. I was given a car at age 16, and I had to pay for the gas and insurance with the money I made selling. My dad was my mentor — actually somewhere between my mentor and tormentor — and in both cases, he did a good job. He exposed me to a lot of opportunities, like learning how to go out and make cold-call presentations to businesspeople. And, you know, at 16 or 17, that’s a pretty interesting game plan. You learn quickly. And my dad was always there to go back to and talk about what worked and what didn’t.

Do you have a main business philosophy that you use to guide you?

One of the key things we learned as we went through the recession is we changed our philosophy from the hard sell to building a relationship with customers. I grew up in a hard-sell environment. But I think people have changed. They don’t like to be hard-sold anymore. Salespeople have to understand that you can’t ask more from a customer than what you’re willing to give them — your time, your effort, your knowledge.

What trait do you think is most important for an executive to have in order to be a successful leader?

Don’t be afraid to make a decision.

What’s the best advice anyone ever gave you?

You can’t take more out of a relationship than you put into it. I learned that from an instructor at a communications course I took in 1985 that was geared toward getting people to understand and learn to communicate better. It was a personal and business growth course.

Published in Atlanta

Ralph Sanese Jr. was pondering what to do with a substantial drop in revenue for his food service, vending machine and in-house cafeteria business that was started in 1946 by his father, Ralph Sanese Sr., and his uncle, Al Sanese. The drop had been a one-two punch: after Sept. 11, revenue was slipping, and then when the 2008-09 recession hit, the national vending industry dropped almost 30 percent in revenue.

The founders had accomplished a rags-to-riches dream, starting from scratch and taking the company above the $50 million mark in 50 years and — Sanese wasn’t about to give up.

“We were fortunate, our revenue only dropped about 20 percent, but still you have to manage a declining number, and it’s very difficult when you are a paternalistic organization — you’re trying to take care of people, and you have less revenue coming,” says Sanese, president of the 750-employee Sanese Services Inc.

“It was one of the toughest times, the declining revenue and all your people looking at you saying, ‘Ralph, what are you going to do about it? What do we do? What do we do?’”

Over the years, Sanese had sought help from several consultants. The results were mixed, and in one case, detrimental.

“I’ve been that route with the wrong consultants and sometimes we went the wrong way, and it cost us the worst financials that we ever had,” Sanese says. “They didn’t understand the business and what it took to really make it work, and even though we weren’t doing everything right, we were doing some things right.”

But as time went on, he was as determined as ever to get his company on the right track. He would try another set of consultants, but this time, the experience was unlike any Sanese Services had ever been through.

Here’s how Sanese vetted his next set of consultants, took the suggestions they made and parlayed the proposals into profitable results each month.

Lay the groundwork first

If a company that is several decades old doesn’t adapt to meet changes in customer tastes and preferences, it could very well suffer a decline in business or eventually go out of business, regardless of the economic climate. This time around, Sanese knew that he had to bring in an outside company to help him reconstruct and find a way to run a business model that definitely needed to be updated since its 1946 inception.

“That was difficult because we felt we knew everything about this industry,” Sanese says.

“If you need some outside help, that’s the first thing. Do you need outside help or can you internally make some changes work? A lot of times, the old rule of thumb is consultants are people that you bring in to say something to your folks, something you know you should do but what you can’t say. It has to be done. It’s the truth. Get somebody else to say It. For us that’s how that worked for some matters.

“The one thing that I did learn is that before, in my younger years, I would have said, ‘This is what we’re doing, guys, and that’s it.’ What I did this time, I brought this company in, I interviewed them and I felt good about them.”

Sanese attended a presentation a firm gave at the Conway Center for Family Business in Columbus.

“I liked what they had to say, and I got references from customers” he says.

But once bitten and twice shy, Sanese decided he would visit companies where the consultants were on the job. That way, he figured, he could see them in action and decide if the firm was a good fit and could deliver for Sanese Services.

“We actually went to this facility, and we went right into the shop floor where they were helping this company with its manufacturing processes — and I walked the floor with the owner of the company,” Sanese says. “He told me quite frankly at first he didn’t believe the consultants. But he said, ‘I am going to tell you, here’s what they did,’ and I walked the plant without the consultants, with the owner and he showed me how it was working.”

Sanese also visited a couple of other companies to make sure that the consultants had a vested interest in what that company needed — and not what they wanted to bring to it.

“I would definitely check their references, that helped us, and I would check those references to the nth degree,” he says. “That’s what we did.”

Decide on the core issues

When considering a company makeover, turnaround or whatever you want to call it, it’s best to focus on a minimum of key issues. Trying to solve too many problems the wrong way could lead to a letdown.

One of the approaches was to appoint a team of trusted employees to work with the consultants. The team members will be the go-betweens and should be able to vigorously defend their positions if they feel strongly about a particular matter.

“I brought in a team that was going to help me make it happen, and I let them go through their motions with the consultants,” Sanese says. “I brought in our people because we had been through consultants before, trying to find that silver bullet. I brought in the right people to help me execute a well laid-out plan to improve our core business.

“And once you decide that this is the right thing to do, make sure that the team embraces it and that they are going to be a part of this process and not buck the movement.”

The two teams hammered out a two-pronged approach: reducing product costs and getting delivery routes and labor costs more in line.

“Those were the key things, so you start out with a couple of key fundamentals that you want to get a handle on,” Sanese says. “We showed them what we had and they wanted to expand upon those tools with an improvement in software and managing.”

The company put together a dashboard website that provided current financial information on the company’s revenue and expenses. It was a way for employees

to get right into their own financials and understand their business division.

“They would be able to understand the key components and the key indicators of what each business division works off and how they could help to manage and navigate their own business division to make better and quicker decisions,” Sanese says.

The introduction of new technology to manage financials may come with some bumps along the road, however. There may be issues with employees not wanting to accept change and with others nervous about the openness of financial information.

“We’ve gotten better using some of the technology,” Sanese says. “Some folks had to change — they didn’t want to use technology. Some of these guys have been around for a lot of years and they didn’t want change. So you have got to go through some of those things with them. We have had to make several changes with people that had been with us for a while.

“Then you have to share the financials with every employee. We share everything so that they know how we are doing. We’re very transparent. I don’t hide anything. I just think it pays you dividends in the long run. I don’t think showing too much is a big mistake.”

Sanese found that sometimes, financial officers were not always comfortable about sharing information.

“You never want to be vulnerable to one person anymore,” he says. “What I wanted to do was to have our folks, including me, be stronger at our home company financials to understand where they can make responsibilities and make changes and make them quickly.

“Transparency is what employees want nowadays,” Sanese says. “They want to be a part of something. They want to see if they can make improvements to the organization. They want to be measured on that.”

This contrasts with some older or more conservative attitudes that in previous times, you didn’t want to share too much. You were afraid the wrong eyes would see the data.

“That’s what they did back in those days,” Sanese says. “Close to the vest. Don’t tell them everything. Don’t ask how we are doing. Your business heads had to wait for your financial people to tell them how they did.”

Build enthusiasm with successes

Many business experience seasonal problems with cash flow problems, Sanese Services included. But the company put itself on the road to a better performance by using its new dashboard reports — and other plans to increase business.

“We’ve done an analysis on each business division every week for the last 2.5 years and before, we would always lose money in January, June, July and August,” Sanese says. “Always. Not anymore. Now we consistently earn a profit, not a lot during those months, but turning a profit versus a loss is a great swing.

“So that’s what you need to do when it comes to improve each of the businesses and then your business heads don’t wait for your financial people to tell them how they did ? they already know it. They are measuring it with metrics.

“You know the old saying, ‘Measure twice, cut once’?” Sanese asks. “Well, now we are measuring a whole lot more than just twice, I can tell you that. And it’s working.”

It helped the company with everything from keeping track of product transfers from a tractor-trailer, to products being processed, ordered and shipped to the actual location and how it’s tracked.

“Our own folks got enthusiastic because they could see the differences that they were making, and they could see if their costs were shrinking, let’s pick an average of 52 percent product cost, and our goal was set at 42.5 percent — they wanted to see how they were doing toward that goal,” he says. “Then we rewarded them, and did other things for them. To this day, we have a managed cost per route and that’s how we operate this business today.”

To help keep costs down, the up-to-date financials gave a picture of what was given away or wasted.

“We have to give away a lot of product in the food service industry,” Sanese says. “But we never did know how many cases of napkins or forks, knives and spoons went out; or a gallon of gas or diesel fuel that went in the truck; or waste of product, if you are loading too much on a truck.

“So we employed the consultants’ recommendations to help us control our waste on these routes, and that was a big and important part.”

While looking at the concepts a modern business model needs to employ as compared to the traditional one if you want to increase revenue, it is valuable to stick to your core business but yet find ways to diversify.

“We knew that we needed to diversify the organization because our business was changing,” Sanese says. “Manufacturing was being hurt in Ohio. I couldn’t keep feeding the manufacturing folks; their numbers were down. I knew I had these kitchens, so I had to find a way to keep our associates working and find other places where we could distribute fresh product.”

To expand your market, finding prospects that are extensions of what you already do can be the answer.

“We got into the school business, and then we got into the senior meal-feeding business,” Sanese says. “We know that’s a growing market because there are a lot of seniors. So that’s how we diversified the business because we had a fleet of refrigerated trucks, we had certified food safety people, and we know food. If we could stick to the core business of what our company is really known for, making fresh food on somebody’s site like a big in-house café operations, then we would be OK.

“It’s a new way to do business and you don’t lose the values of what your company was founded on; it’s just the improvements matching what the industry is being called to do now.”

How to reach: Sanese Services Inc., (614) 436-1234 or www.sanese.com

The Sanese file

Born: Columbus, Ohio

Education: Franklin University. I earned a degree in business. I put myself through school. It was one of the things my father made me do: ‘If you ever want to be an officer in this corporation, you are going to have to go to college, and by the way, I am not paying for it.’

What was your first job?

I had a lawn cutting business and I had all the neighborhood yards, and I did mulching and all that. By the time I was 16, I probably had $5,000 in the bank. That was back in the early ’70s. I bought a Pontiac Firebird with that money, and I drove myself to school.

What is the best business advice you ever received?

I was always taught to hire people that were smarter than you were and that could help you to complement the skills that you did not have. I probably haven’t done a good enough job of that, but I’m still trying. I’m still trying to do that. And ask for advice. Ask for help.

Beyond that, my dad and uncle would tell me some of the greatest things in the world These are some of the principles and fundamentals with which I was raised:

Look a man in the eye and tell him exactly what you’re going to do and live by your word no matter what. You don’t need a piece of paper to tie into it. Shake a man’s hand, that’s what you mean, period. You never you give up on being an ethical, principle-driven person. No matter what, you have to always do the right thing. No matter how tough it is, you have to always do the right thing. You have to work harder than everybody else does. Lead by example — you have to do it. And always protect the entity, because it will protect you. Protect it first. Take care of it first.

Whom do you admire in business?

I loved John McConnell of Worthington Industries. Of course, he’s passed but he would be my all-time choice. Doing the right thing was at the center of everything in his life. I just think the absolute world of the man.

What’s your definition of business success?

The people in your own organization reaching heights they never thought they could obtain. And then having a company resistant to losing business and gaining new business, modest growth every year. I always wanted to be the biggest — but I don’t care about that anymore. I just want to be the very best at what we do and protect that reputation.

Published in Columbus

Craig Shular is an upbeat guy, but even he accepts that things had gotten pretty ugly at GrafTech International Ltd. in the early 2000s. Debt had surged to more than $1 billion despite net sales in the $500-million range. Shareholders couldn’t flee the publicly owned company fast enough.

“Most people had written us off,” says Shular, chairman, president and CEO at the manufacturer of carbon and graphite products. “The banks had frozen all our facilities. Suppliers were making us pay cash on delivery. It was that kind of environment.”

Big problems often require big cutbacks and this situation was no different. The company ended up going from 10 graphite electrode plants to five and reduced its employee count from 5,000 to about 2,200. Benefit programs had to be completely redone.

“Brutal,” says Shular, when asked to describe the steps that had to be taken at the company’s low point. “A very tough process.”

The challenge for Shular was that in the midst of all this turmoil, he had to find a way to get the employees who remained at GrafTech to buy into his plan to get the company back on its feet.

He had a vision he hoped reflected an optimistic view of the company’s future, but he had no way of really knowing if it could be fulfilled. It was something to work toward, and so it was up to him to take that optimism and build off of it.

“Unless you have a very clear picture at the senior management level and you can articulate that to all your teammates everywhere around the world, you’re going to have a tough time propelling the team forward,” Shular says. “The team is not going to be able to embrace the types of changes you’re asking them to make. That very clear vision that is very well-articulated to every team member is fundamental to enabling and embracing the type of changes that have to happen.”

Shular firmly latched onto that optimism and hoped his employees, who he prefers to call teammates, would join with him and do the same.

Lay it all out there

Shular needed to make it clear to his leadership team how deep the company had sunk and he had to do that before he could move forward with his recovery plan. In that situation, you really can’t afford to sugarcoat the truth.

“Do not hold anything back,” Shular says. “Give the team the exact, blunt, clear picture of your current reality. Here’s where your customers are. Here’s the quality of the product. Here’s what the balance sheet looks like. Here’s what your cash flow looks like. All the various metrics you use to drive your business. Here’s what we look like today and make very clear how that’s just not going to be able to continue. It’s not going to allow us to be successful.”

Shular didn’t stop at his leadership team. He wanted employees throughout the company and around the world to understand that the leadership team was not in denial about the need for change at GrafTech.

“So when someone in South Africa or France or Brazil goes home at night and their spouse says, ‘Gee, what was your day like? What’s going on in the company,’ that individual can articulate the current reality,’” Shular says. “Here’s what it looks like.”

As the cuts were announced, the climate at GrafTech was quite bleak. It was a necessary condition, but not one that Shular wanted to persist for too long. He needed to act with compassion, but also with a bit of urgency.

“If you continue to roll those out over a period of time, you’re going to get a team that is constantly looking over their shoulders,” Shular says. “What’s going to happen next? When is it me? When is it my family? So another very important part of any turnaround is to the maximum extent possible, lay out your plan and roll it out all at once.”

Shular wanted people to understand where the company was and the steps he was now forced to take. But he also wanted them to see a picture of where he felt the company could get to in its recovery.

“What we told everyone was that this was what we have to get done,” Shular says. “If we can get this done, and it will take months and in some cases a couple years to execute on all these, then we have a very good shot of getting to our vision.”

When you’re in a situation where you’re making significant cuts, you’ve got to keep the plan in everyone’s mind. The idea that they might lose their job doesn’t fade easily from the mind of your employees.

“You’re going to have to continue to overarticulate the vision and articulate where you are on the milestones,” Shular says. “Having some short-term milestones where the team can be successful and acknowledging them, highlighting them and celebrating them will help the team toward more of a view forward.”

It’s those little victories that can start the momentum you need to achieve bigger victories, or at least instill a little more confidence in your people.

“Preferably, they are some shorter-term milestones where the team can start to see two months from kickoff, ‘Oh, look what we did,’” Shular says. “So you’ve got to have some near-term successes that you believe you can knock off early in that game to continue to build the confidence in the team. Then you have to celebrate the hell out of those successes. Highlight them, celebrate them, have fun. If you don’t have fun in a turnaround, you’re going to lose a lot of people.”

Get in front of people

Shular couldn’t meet with every one of his employees around the world in the time period he needed to.

So he had to make the visits he could make really count and then rely on technology to fill in the gaps to ensure everybody had a clear idea of the direction he wanted to take. To that end, it wasn’t just meeting with top management at each location and having a catered lunch in the executive conference room when Shular arrived in town.

He wanted to interact with as many people as he could at the locations he visited, even it took all day and night.

“Don’t go in and just meet the day shift,” Shular says. “There are two other shifts. The other two shifts are going to get the message with or without you and I think it’s much better if they hear the message directly from the CEO. I have found that there is nothing more powerful than being on the third shift as the CEO is on the plant floor conducting a town hall.”

If you don’t have second and third shifts, the philosophy still applies. You’ve got to meet with people from throughout your company if you want them to believe that you value their place in the organization.

“Walk the plant floor and spend time with the operators, the men and women who actually make the products and provide services to the customer,” Shular says.

Take the time to field questions and do it with an attitude of patience, not one that conveys a feeling of being late for your next appointment.

“It gives you some direct feedback on maybe how the message is not coming through clearly or is not playing clearly in these countries,” Shular says. “They misinterpreted it. It lets you see that and get it rectified.”

One aspect that you might overlook in delivering information to your people is the mode of travel that you use to get to those meetings. At a time when someone’s good friend at the plant or in the office has been laid off, first-class airfare and fancy rental cars can easily become an example of insensitivity on your part.

“Everybody flies economy,” Shular says. “When you’re in a facility asking them and challenging them to drive continuous improvement every day, whether it’s productivity, quality, on-time delivery, inventory turns, it’s important that not only the CEO, but the entire leadership team walk that talk. So for the CEO to pull up in a big full-size rental car, that doesn’t work for us. I’m going to be in the cheapest, smallest car I can get. I’m going to arrive in economy. You’d be surprised how clear those messages trickle through the entire team.”

To help drive that message home, Shular instituted a policy where no one, himself included, would fly anything other than economy no matter how far or long their flight might be.

“Because of our global network and all the travel we have, for us, that was over a $6 million savings a year to get everybody in economy,” says Shular, who says he flies about 150,000 miles a year.

If you’re trying to balance the cost of travel with the importance of face-to-face communication, Shular says look at what you’re trying to gain from the trip and think about the message you want to convey to your people.

You can’t be ruled by cost but you also can’t be limited by it if it could help your business. It’s often a tricky line to navigate.

“Are we growing customers? Are we taking care of customers? Are we penetrating new markets? Is it going to allow us to be more successful in the future? Is it going to drive cash flow and profitability?” Shular says.

“As a business person, we would weigh those kinds of decisions all the time. We are very careful not to get to a place where we’re so driven by cost that we lose the view and drive toward what is propelling growth. Propelling profitable growth is our No. 1 mission. So the day that we let cost become the decider or the overriding decider, we won’t be in a good place.”

Focus on family

Shular hoped to instill optimism with his people at the same time he was delivering bad news through his approach, particularly with pay cuts.

“We cut salaries, but what we did was all that money that was cut, we put it into our global bonus plan,” Shular says. “What we said to the team was if we hit 1 ½ times target for that year’s goals, we’ll pay out all the bonus money plus all the salary money that had been cut. In addition, we said all the officers’ salaries, which were cut 10 percent, they can never get that money back. That will go into the pool and it will be paid out to all the other teammates if we hit 1 ½ times target.”

Shular wanted to show people that he wasn’t just slashing to reach a number and that things would never be the same again. He wanted to provide a sense of hope that if people worked hard, they would be rewarded for it.

He also wanted to show a sense of understanding that a recession and cutbacks are generally tougher on employees than they are on management.

“Significant portions of the management team cannot get any bonus unless the people get a bonus,” Shular says. “We don’t have a situation where the senior management team made a pretty nice bonus and the rest of the team got nothing or a very meager bonus. We all sit in exactly the same bonus pool and we all have the same metrics and we’re very much aligned. Having the right well-aligned incentive compensation program is very important to driving teamwork.”

As it turned out, his people did work hard and did earn that money back.

“The team that year hit 1.8 times target,” Shular says. “All that money, including the officers’ money, got paid out to all the teammates.”

If you show yourself to be an ally of entry-level employees and middle management as well as top management and the leadership team, you’ll fare a lot better earning support for the things you want to do. And you’ll probably find the results are better too.

Shular recalls something one of the employees said at a meeting he had with the third shift at a plant that GrafTech had acquired as part of its turnaround.

“He stands up and says, ‘Gee Craig, do you think we could get our fishing competition back?’” Shular says. “And I say, ‘Fishing competition? How is that work? What’s that all about?’”

Shular discovered that employees at this location at one time had an annual redfish competition that had become a company event. The previous owner had let the event fade away, and Shular was being asked if he could help get it back on the calendar.

“I said, ‘As long as you invite me,’” Shular said with a chuckle. “And so we reorganized and reinstituted it. It was last October. We have 150 teammates at that site and 78 joined the competition over a weekend. … It’s important that leadership drive fun. Work should be a fun process. When you think about it, we spend a majority of our time at work. In my view, the only reason we all work is for our families. If you don’t believe that, look at any individual that gets a promotion or a success at work or accomplishes a hard-fought goal. The first person they call is somebody back home. So we’re all here because of our family.”

Keep driving forward

One area that wasn’t touched during the company’s recovery was research and development.

“In fact, we grew R&D,” Shular says. “It was so paramount to us that we would have to invest in R&D and spend a lot of time on innovation that we moved our global headquarters here to Parma to be right next door and under the same roof as our R&D operation.”

The relocation of headquarters, along with the acquisition of several companies that broadened the expertise and capability of GrafTech, was evidence that the company wasn’t just looking to recover, but that it was looking to continue growing.

GrafTech had made some significant strides. The banks were looking at the company much more fondly and the company’s market cap had jumped to $3.2 billion.

But Shular was already thinking about the next downturn and what could be done to lessen the blow it and keep the growth momentum going.

“We knew a recession was going to come eventually, they always do,” Shular says. “I don’t think anyone knew when, but one of our mantras each day was, ‘We’re a day closer to the next recession.’ So we didn’t want complacency to fall into the company. We had done a great turnaround and everyone was patting us on the back. We didn’t want to fall into the usual trap of, ‘Hey, we’re pretty good.’ So we kept a mantra that we need more new product development, more patents, more innovation and continued relentless drive on cost structure and productivity.”

The next recession did come, of course, and it was a big one. Net sales took a dive from $1.2 billion in 2008 to $659 million in 2009. But sales got back over the $1 billion mark in 2010 and GrafTech reached $1.32 billion in 2011 with a market cap of $1.9 billion. 

The company is also back up to 3,181 employees.

“Today, we sit with almost 800 patents and patent-pending operations, one of the largest in our space,” Shular says.

“So that’s the turnaround, that’s building a spectacular balance sheet and that’s having a great balance sheet and a great team that is very, very nimble in the trough and can still play offense. So we expect as these economies continue to recover to emerge with a bigger, better and stronger business model and be the clear low-cost producer in our industry with a lot more science, technology and patents than when we entered this recession.”

How to reach: GrafTech International Ltd., (216) 676-2000 or www.graftech.com

Takeaways: Be honest about your problems. Consider costs. Always prepare for the next recession.

Published in Cleveland

When Dr. Paul Klotman took over in 2010 as president and CEO of Baylor College of Medicine, the school had been losing up to $70 million a year — for the previous five to six years. The financial books were not a pretty sight.

A previous conflict had developed between Baylor and one of its hospital affiliates and a different pathway was chosen for the two. Unfortunately, it cost Baylor about $40 million a year.

“It was not huge in size as part of a $1.5 billion revenue stream, but it was a fair amount,” Klotman says. “We had a new financial challenge that presented itself, and because we were in the process of building some facilities right before the housing market burst, we had a significant problem with debt service and negative cash flows.”

But Klotman was ready to jump into the challenge for which he had been hired. He was no stranger to turnarounds. He had been involved in a major financial about-face at the Mount Sinai School of Medicine in New York as the chair of the Samuel Bronfman Department of Medicine. He moved the department to a top-tier academic program by expanding the faculty practice, increasing basic and clinical research revenue and focusing on the educational mission.

“I felt very comfortable in what had to be done,” Klotman says. “Taking the job was actually easy, because Baylor is such a fabulous organization and all the fundamentals were extremely solid. It was just an issue of dealing with the budgetary deficit and turning around the institution’s financial operational deficit.

“I had been at a Veterans Administration hospital, I was a federal employee at the National Institutes of Health for years as a scientist, I was at Duke University in the private sector, and I was at Mount Sinai in a very competitive clinical world, so it helped to have those experiences. I have to say as difficult as the situation was, there was very little that surprised me.”

Klotman set out on a path to initiate new processes to let the faculty do its own thing by following some traditional business principles — such as managing its budgets.

“It’s not rocket science, but it is surprising that it is not that common in academic organizations to worry about your margin, your expenses and making sure you’re maximizing your revenue,” he says.

“When I first came in, we focused on doing just that. We created zero-based budgeting that was all mission-based. In a very short time, within two years, we went from a $70 million deficit on an annual basis to where we are basically cash positive.”

It wasn’t just a matter of spreadsheets and figures. A change in culture from varying processes to one with solid business principles is an unsettling process, and is indeed sometimes not undertaken because it is so disquieting.

“I think one of the hardest parts is gaining leadership’s support of converting to the business sentiments,” Klotman says. “All of the leaders were supportive. All of them were willing to give it a shot. We would never have turned it around as quickly as we had if it weren’t for the leadership of the chairs, the senate directors and the faculty.”

Here are Klotman’s keys to stem the bleeding at Baylor and engage the leadership in new types of financial management.

Face the situation

One of the things that a crisis does is that it gets every employee’s attention. Once the stark news is delivered, the workforce should be able to know and understand the financial realities.

“The crisis allowed us to change the budget process at a time when it otherwise might not have been very accepted,” Klotman says.

Unfortunately, keeping the status quo is not an option. There is going to be change.

“When the boat has to go in one direction you’ve got to have everyone rowing in the same direction,” he says.

Some organizations may call in a consulting firm to dissect the financial and management processes and it can be beneficial. In other cases, the analysis by an outside group is just that – an outsider’s look at internal problems.

“Before I arrived, a consulting firm had been there, and I would say the faculty and leadership were probably not as responsive to the consultancy, because the consultants didn’t have any of the same experiences,” Klotman says. “You could see the cultural rift. When I first arrived and saw the interaction with the consulting group, which actually did a fine job in getting us in the right direction, you could see the disconnect between faculty and leadership and the consulting group, because they did not speak the same language.”

The most important action to take as the first step in the cultural makeover is to be transparent in all the processes.

“Show the data,” Klotman says. “If you show them the information, there are not a lot of arguments that you can have about your situation. If you’re not transparent about it, it’s very easy to blame everybody else. But if you just are transparent with the data, it’s simple to establish accountability.”

But transparency is something that is very hard to get if your data is disorganized. If it lacks uniformity and completeness, it is crucial to get the data in order.

“Getting transparency may be complicated, because there may be a lot of dollar movement from one bucket to another bucket,” he says. “Part of it is where you assign expenses to the right unit — making sure that you are allocating expenses correctly, and that you are attributing revenues to the right sources. Otherwise you can’t make good decisions.

“Part of our first year was cleaning up that kind of data — and we still have issues with it today.”

The better and more accurate the data is, the better you will be able to manage your financial situation. It may take a year to get the data to the point so that you can provide accurate information about your mission – so accurate utilization of data is needed about billing and collections, efficiency processes, revenue, expenses, space density, etc.

“There are hundreds of metrics that you can do,” Klotman says. “Once we collated all the data, we were able to create a report that all the leaders get. Have your financial people help them interpret that, then get together quarterly and review it together. It’s something we call Numbers Day.”

Holding a Numbers Day is an effective way to review your mission-based budget. Any department or division of a business should earn its operational budget based on its performance the year before.

“Everybody gets to see all the data, including where everyone sits financially so it’s completely transparent,” Klotman says. “If there are disagreements about the data, discuss it. It’s an iterative process so they can ask questions about it; you can make sure that it’s accurate.

“But the main thing is that it provides the leaders with management tools so they can then break it down by department or mission base, look at their own business unit and see how they can improve it.”

This is an obvious key factor in driving improvements. If you measure processes and performances and show your managers, they will have the tool to improve matters.

“If you do it in a way that everyone sees the data, then it is hard to really argue with,” Klotman says. “That’s why it’s an iterative process. You need to have that public forum where people can discuss it.

“It also helps to unify everyone with the understanding, ‘Well, these are the things that are important to executive leadership because they are measuring them.’”

Most of the leaders should be happy to have the data. Initially there may be some arguing about its validity. Ultimately, it provides them with management tools — and it also helps C-level executives understand who can manage, because some of them use the data very well and improve their operations and others just won’t get it.

“You can see that in the long run you may have a certain number of leaders that probably have to be replaced,” Klotman says. “The point is that you are giving them tools to use. There should be no one who really objects to the data.”

Communicate and get feedback

You’ve heard it over and over. Communication is critical for success in any organization and even more so in large ones. The most effective approach lies in the old adages that one size does not fit all and the more, the better.

“You will need to focus on your internal communications to reach more people,” Klotman said. “We had certain levels of publications before, but we created a whole new set of ways to communicate internally from hard copy to Web-based publications.”

He also used town hall meetings where he regularly met with groups and held small staff meetings.

Despite all those things, you still may have issues with communication because each form of communication only hits a certain population.

“We will have a town hall meeting where we are thrilled because 200 people show up,” he says. “Well, we have 7,500 employees. So we have to find multiple ways to constantly say the same thing and get the message out. Of all the things that you will face, I think communication remains one of the biggest challenges.”

In addition to finding other communication routes, you can create feedback committees to represent departments or specialties.

“You can do this through input committees; we have those that represent clinicians, researchers and even students,” Klotman says. “We combine in a council so we can get feedback from the various constituencies and that helps inform us of the kinds of communications that we have to give back to them.

“One of the great things that our director of communications has been able to get members to do is to come with both positive and negative statements about the institution so it never turns into just a complaining session.”

This is extremely helpful in figuring out the things your organization does well in addition to the things you do poorly.

“You’ll get both the benefit of knowing you should continue to do certain things because they are working, and you’ll learn what things aren’t working well so you can begin to focus on them,” Klotman says.

“But you can’t fix things unless you get feedback about the problems, and if you look at the most highly functioning organizations, they almost always have a very robust feedback system where line employees, people on the ground and the rest, can send feedback to you about problems.

“We’ve received individual complaints from staff across our organization where I would say that 95 percent of the time we immediately fixed the problem,” he says. “We’ve had things like the glare in a window where all we had to do was install a shade.

“These are the things that if you create a culture where people feel that they can give you feedback, then you can actually improve things much more dramatically than if everyone was waiting around for a CEO to fix a broken lock.

“You want people to actually give you legitimate feedback about things that are broken and the processes that don’t work, as long as they understand there are some things that you can fix and some things you really can’t.”

Your employees should understand there is no risk in reporting a problem, that there’s no punishment for saying something is broken.

“My favorite example is the aircraft carriers of the world that function with 19-year-olds in the most dangerous, high-risk places where they have almost no accidents,” Klotman says. “We are in health care and education, and every day, we screw up about 100 things, so we ought to be able to do something better. Part of the difference is the culture in the aircraft carrier: everybody reports a problem.”

Give merit rewards

While a new management system and better ways to communicate will go far in helping an organization begin to turn around, a rewards system will help it even further. With the new data available, metrics can be established to ensure that goals are being met.

“You take your leaders and based on their ability to manage their margin and the mission values that you have, allow them to pick a few metrics that they think are important in their own particular area so they can earn bonuses based on that,” Klotman says.

You can implement this as far down the labor ladder as you want, the lower, the better.

“Once again, this is to get them in line with upper management,” he says. “That way it’s a self-correcting ship. Middle management is really important in great companies, and you need middle management to be active managers to make sure they are going in the direction that you want.”

Give your employees 10 things that you want to have happen, and say, “You pick your four, and we will measure you on those.”

“There is one collective goal: The organization as a whole has to be on a positive margin for you to bonus the leaders,” Klotman says. “People earn their budgets and they earn their salaries. If you’re on margin, and if the departments are on margin, then there will be bonuses available based on producing results that are a combination of ones the CEO picked and ones they have picked.

“As I mentioned before, one of the keys is having things that you can measure. Make sure that you create metrics that can show whether you are getting better or you aren’t.”

How to reach: Baylor College of Medicine, (713) 798-4951 or www.bcm.edu

Paul Klotman, M.D.

President and CEO

Baylor College of Medicine

The Klotman file

Born: I was born and raised in Cleveland, Ohio. My father’s from Cleveland. My mother was born and raised in Galveston, Texas. I went to Western Reserve Academy in Hudson, Ohio.

Education: University of Michigan. I studied zoology and entomology. I went to medical school at Indiana University. You may wonder, I followed my parents — and got in-state tuition wherever I went. I also trained at Duke University Medical Center.

What was your first job?

I was folding pants as a 16-year-old in downtown Detroit. It was a very popular African-American suit store. I also was a day camp counselor there during the 1960s’ race riots. I was right there, and it was actually a wonderful experience. They never touched my car — I was providing a service to the community.

Who do you admire most in the business world?

There are a couple of people that I think are really interesting. One is Tom Kaplan, who I met in New York and who founded Panthera Corp. He’s probably the biggest leader in the gold movement. I’ve gotten to know him personally, and he is just a really remarkable person. The other person that I admire greatly is Norbert Bischofberger, who is the number two person at Gilead Sciences Inc. Of all the people I’ve met, he’s one of the few people who just cares about understanding everything he can to make a difference to help people.

What was the best business advice you’ve ever received?

I know it seems silly but the importance of cash. The CFO at my old organization was really, really talented, and had a huge role in turning around the old hospital focusing on the details of your cash position.

What is your definition of business success?

I view my role in every place I’ve been as a steward of the program, and I think your success is if you leave the place better than when you came. That’s not a measure of personal success; it’s not a measure for a for-profit company but for a not-for-profit organization. I think there is a level of stewardship that is greater than in other areas, and I think that your responsibility is to improve the institution.

Published in Houston

Dick Giromini had never seen the likes of it ? a drop in business that would bring just about any company to its knees.

Giromini, president and CEO of Wabash National Corp., was in shock as he and other executives in the transportation equipment industry saw the recent economic downturn cause nearly an 80 percent drop from the peak in 2006 to the sinking operating levels in 2009.

His challenge was one of survival. In the first quarter of 2009, Wabash National sales dropped by more than half from the same period in 2008. The manufacturer of flatbed trailers, dry freight vans and refrigerated vans wanted to avoid what other companies ended up facing ? a restructuring filing.

“We were burning cash. It was really trying to find a way and a means to carry the company through the toughest period it ever faced,” Giromini says.

All the traditional cost optimization moves were made, including consolidation of plant operations and idling of work locations. Unfortunately, some 40 percent of the salaried work force and nearly 70 percent of hourly employees were laid off.

A shared-sacrifice approach was taken with the remaining workers: senior executives took 17.5 percent pay cuts; all the rest of the salaried workers took 15 percent; and hourly workers took a 5 percent pay cut.

“However, the drop in volume required us to do even more,” Giromini says.

What he did next ? to keep the company operating and indeed to rebound ? was to secure a private equity cash infusion of $35 million.

“We met with many potential investors and went through an assessment process. A number of them made investment proposals, we selected one and then went forward.

“The process took several months. It was nip and tuck as we continued to manage cash availability to be able to continue to pay suppliers, and I give a lot of credit to them with their extended payment terms as being part of the solution that helped us get through this.”

It was the final touch that saved the company, and after 14 months of astute management and economic recovery, Wabash National was free of its commitment to the private equity firm, and was back to being a public company. Many laid-off workers returned to work.

Here’s how Giromini took the steps to douse the fire that was burning Wabash National’s cash and injected fresh air into the $1 billion company.

Get the data and be decisive

When faced with financial challenges, you cannot afford to stall or appear uncertain of what to do.

“One of the most important things I learned early in my career was to be decisive,” Giromini says. “You can’t be afraid to make the decisions. You have to collect as much information as you can, but there is an element of gut-feel that has to come into this and also knowing that you’ve got to move.”

Taking a long period of time, for instance to wait and see what the market will do or the fear of acting lest it be a mistake, can be detrimental.

“I had one boss who would use the expression, ‘paralysis through analysis,’” he says. “That’s the one thing you have to avoid in business. You have to be able to collect as much information as possible, but you have to do it in an expeditious fashion. Then you’ve got to go.

“Never be afraid to make decisions, because you’re probably making far more decisions than the fellow who is afraid to make them since he may think he is batting 80 percent on decisions, but only makes 10 decisions. You make 100 decisions, bat 50 percent and you make 50 good decisions in that light.

“That’s the way I’ve always tried to operate, and I think leaders need to be decisive and act fast when faced with that kind of challenge.”

You’ve got to trust your judgment on that, and take the actions and move forward. That is critical to your success. Employees have to see that you are in charge and have a plan to execute.

“They have to buy in, they have to understand the burning platform that exists, the need for quick action, the need to buy in, and so I think it is very important to keep them informed about the process to assure that the support is there to be able to implement the actions necessary,” Giromini says.

Get a grip on fear and rumors

If you have a good relationship with employees when an economic downturn starts, consider yourself fortunate. If you communicate well with them, it probably will increase your chances of getting the buy-in needed to help turn around the situation. However, it may make the human side of employee cutback decisions more miserable for you.

That’s not a case for building only superficial relationships between management and labor so you can avoid some pain during financial straits. In the least, you have to take stock of your emotions and communicate to your work force that you are doing all you can do to survive the situation and to lessen fears.

“Fear is in the hallways, in the office, and in the aisles of the plants,” Giromini says.

“Those were tough, tenuous times. The work force and the community all understood when they didn’t see trailers in the lot waiting for customer pickup. That’s not a good sign, and when they didn’t see cars in the parking lot and saw all but one shift and not even that on Fridays, that’s not the normal way our business operated.”

When facing a dire situation, company employees may resort to drawing conclusions of their own and starting rumors. Management should expect that this is probable and should have a game plan to deal with them.

“Your senior management needs to go out and make sure that the message was received,” he says. “You’ll need to get in front of the work force to deliver a message, and you have to make certain that the communications are frequent and to the point so you can minimize as many of those rumors as best as you can.”

You’re never going to get them all. But you have to do the best you can to reduce them.

“My role was to be out there to continually reassure the work force, both the salary and hourly work force, that we were doing everything that we could and that we were going to get through this thing ? and to stick with us and see it through,” Giromini says.

“When I was able to communicate the actions that we had to take, they also understood that that we were doing it on a basis of who could deal with it the best. The executives and salaried workers took the bigger cuts, and we tried to preserve as much of hourly workers’ earning power as we could.”

One advantage that will be in your favor is if your corporate offices are connected to your main manufacturing operations. This will help break down the barriers that can prevent the flow of communication, and barriers in general.

“We don’t have any exclusive executive cafeteria, or any of those types of things,” Giromini says. “We don’t have reserved parking for executives. So I park where everybody else parks, and it’s first-come, first-served. I dine where everyone else dines. Our folks tell me, they know me by first name, they understand and trust when I tell them what the situation is.”

Meanwhile, during a downturn, your management team will be gaining experience that only comes once in a great while. It will make them a lot more knowledgeable, a lot more capable, and they also will go forward with confidence that no matter what any economy throws at them in the future, they are going to know how to deal with it.

“I’m really proud of them,” Giromini says. “It’s made them all better leaders as a result of having gone through the experience they went through in 2009.

“I like to tell them that they added tools to their toolbox that others who may be in the industry for 40 years and never have the chance to have those tools added. What we hope is that we never have to utilize some of those tools ever again. But they’re there.”

This is also time to build strong, healthy relationships with your suppliers as you do with your customers. You will accomplish long-range benefits if you view your suppliers as partners.

“You are only successful in this if you have strong relationships with your suppliers,” Giromini says. “They are only successful if you succeed also, so believe in reaching out. Have a high level of engagement with your suppliers. Start regular webcam teleconferences with them on a monthly basis so that they know what’s going on in your business. Also invite all of your major suppliers in for an annual supplier conference.

“We’ve enhanced the engagement with suppliers as the years have evolved but I think having an episode like we all faced in 2009 ? and many of our suppliers faced a very similar challenges that we faced ? I think it always does bring you closer. I think any time you face that kind of a challenge, it’s just going to make partners truly realize who their real partners are.”

Diversify and develop

While your company is trying to keep its head above water during an economic slowdown, remember you have to be ready for the finish line. Many companies learned the hard way when a customer that accounted for a large part of its business went under. It’s time to keep a focus on diversifying and developing.

“Never lose sight on diversification efforts for your business,” Giromini says. “Stay focused on finding ways to diversify from a sole dependence upon an industry to leveraging both the physical assets and the intellectual assets you have as an organization into other areas.”

Once you establish your survival game plan, it’s an opportunity to go revisit your core values, especially that of developing solutions for customers, to strengthen your position when the recovery picks up steam.

For instance, Wabash National formed a products group for its Duraplate composite panels. Rather than being used only in trailers, the panels are used in the manufacture of all PODS storage containers.

“Developing solutions is based on working with customers, identifying what their needs are,” Giromini says. “That’s the value you bring to the customers in the area of innovation; working with them and saying, ‘What are the problems that you have? What are the things that could make you more cost-effective, make you more productive, could help enhance your bottom line, relative to your product?’

Then you go back and your engineers work with your customers to develop solutions to those problems.

“Now with the recovery picking up steam and hopefully with the work we’ve done and the diversification efforts in our business, we’ll continue to grow and actually be able to have record levels as we go through the cycle over the next three to five years,” Giromini says.

How to reach: Wabash National Corp., (765) 771-5310 or www.wabashnational.com

The Giromini File

Born: Syracuse, N.Y.

Education: I have a bachelor of science degree in mechanical and industrial engineering and a master of science in industrial management, both from Clarkson University, in Potsdam, N.Y

What was your first job?

There are three or four that all could’ve been clearly characterized as my first job: babysitting, mowing lawns, shoveling snow or my paper route. I did all of those. Interestingly, as I think about it, I was in high demand, and I know now why because I only charged 25 cents an hour. I don’t think I was very smart as a salesman, but I could sure bring in the volume.

Whom do you admire in the business world?

Rather than focusing on a single person, I tend to think about what attributes that I admire. I really do admire those individuals who are able to lead their companies to outperform what the norm may be for their industry ? finding ways to be creative, innovative and having a business model that provides for long-term sustainability of their business but that has flexibility to allow them to adapt and adjust to the ever-changing business and economic environment that they face.

When we look at that, we look at the sustainable models of year-over-year improvement ? those are the businesses, and there are many of those. I think it’s unfair to single out a person because industries are so different.

On a more personal basis, the person that I certainly respect and admire is my dad who really is the one who taught me those basics that live with you forever. He said no matter what job you ever accept, for whatever pay you’ve accepted, you do that job to the best of your ability because that’s what you’ve agreed to. That’s a contract that you have entered into.

I’ve always believed that, and I kind of think it follows along with ‘your word is your bond.’ So that was the way we were raised, and he always taught us just good solid, core values of relationships and doing business that I never thought would translate into how I would act or perform years later.

What was the best business advice you ever received?

I had a boss when I was just a young graduate out of college who was talking about decision-making. He said, ‘You never want to be afraid to make a decision.’ His point was not to shoot for a 50 percent success rate but to make good decisions. The only way you can do that is to make a decision in the first place. So I’ve always remembered that throughout the years.

What is your definition of business success?

It goes in line with the attributes that I admire. I would like to look back and say that we were able to build a business model that was sustainable, we were able to build one that was flexible, we were able to adapt to whatever the operating environment this economy would throw at us ? it’s a global economy now. There are challenges continually that you have to be aware of and you have to be able to adapt to. That’s how I would view success, as being able to have that model that is sustainable, that means you are able to create jobs, sustain jobs, provide for families and be recognized as good corporate citizens that support the communities that you operate within.

Published in Indianapolis

John Kanas and the new owners of BankUnited knew that they had a big task ahead of them. They had just spent $45 million of their own funds to buy a bank that was hemorrhaging money and had cost the Federal Deposit Insurance Corp. nearly $6 billion in losses.

“For maybe a year or more, the company was fighting all of the rumors about its demise,” says Kanas, the chairman, president and CEO of BankUnited, which employs 1,300 people today. “Its earnings were collapsing. People were guessing as to what was going to happen with the company. The morale of the employees was very low… so you can imagine that emotions were running at fever pitch.”

After a lengthy selection process, the bank bid had been awarded to a group of private equity firms led by Kanas, the former head of North Fork Bancorp and a veteran in the banking industry. The group had made it publicly clear that their intention was not to tear the bank apart, but with a new strategy and the right people, rebuild the failing institution. As they entered the bank the day after winning the bid, they were met with a rush of flashbulbs, newspaper reporters and what seemed like a small army of FDIC officials. It was time to get to work.

Communicate the strategy

Kanas and his investor team knew early on that they wanted to transition BankUnited from a wholesale, residential mortgage originator into a commercial bank. When you are undertaking a new strategy, it’s important to quickly let people know where they fit in or don’t fit in to mitigate uncertainty and get started down the new path.

“The first thing we did was immediately seek out those people that we knew we wanted to retain as partners, that we knew could play a very important role in the company in the future under its new structure and assure them that their jobs were safe, that they would in fact be retained and that we would be relying on them to help us in our partnership in the future,” Kanas says.

Months before winning the bid, Kanas’ group had used an extensive due diligence process to gain access to a number of the company’s employees and identify which ones would be helpful in executing their new strategy.

“It was an ongoing process, but we knew the day we walked in who some of those people were,” Kanas says. “So for two or three days, we did nothing but sit down and explain ourselves to those people so that they could buy into our strategy moving forward. I would say the week was largely dedicated to getting people comfortable with who we were and understanding where everyone stood.”

There are also employees who likely aren’t going to be relevant to your strategy. Managing the expectations of these people also needs to be a priority.

“So we very quickly reached out to those people and let them know that there wasn’t going to be a role for them,” Kanas says. “Then we explained to them what our severance policy would be for them, gave them time to adjust their personal lives and made it clear that we intended to move swiftly to do that.”

You need to be very transparent with employees to allay their fears during this initial transition period when tensions are likely to run high.

“It was important to sit down with the people who were left and say, ‘OK, look, this is an unpleasant business — identifying these people and then sort of paring down the ranks,’” Kanas says. “‘We want to do this very quickly but we also want to do it intelligently and not make mistakes. You’re going to have to bear with us for a few weeks.’ And when the process is over … we promised that we would then sit down and let the core of our employees know that we’re done with this. Those of you that have been selected to stay now have a job. Some of you will have a job for one or two years depending on what your function was in the bank and some of you we hope to retain for the rest of your career. We tried to get to those people quickly and let each one of them know where they fit in that spectrum.”

Get buy-in

Kanas knew that Florida would be the perfect home to structure a commercial bank that could gear its success toward products and services for midmarket and small businesses. The next step was convincing people to buy in so they could go out and execute that strategy with enthusiasm.

“So first is get the right people on the bus,” Kanas says. “Second is get those people in a room and overcommunicate with them every day. Make it very, very clear what the strategy is and leave no room for misinterpretation that anyone could misunderstand where we were going, how we intended to get there and what we needed from them as a buy-in or commitment if they wanted a commitment back from the company.”

Kanas and many of the investors had successful backgrounds in business, particularly at North Fork, which had grown from $28 million in assets to one of the largest banks in America under Kanas’ leadership. Pointing to this past success, they diligently spent the first couple of months meeting with the retained employees one-on-one, with small groups or even up to 300 employees at a time, to talk about the new model and why it would work. They were also transparent about the fact that they had literally bought in to the turnaround strategy by committing their own money to buy the company.

“So it was important for our new partners and our new employees in Florida to understand that we were very, very serious about this,” Kanas says. “We’d put our family money into this and we intended to work hard along side of them to help them create the vision.”

To get buy-in for your vision, it also helps to give people goal-connected incentives. Offering stock in your company is one way to achieve that short term and long term. From the beginning, Kanas’ investment group was clear about its hopes to take the bank public but also let people know that whoever helped the company achieve that goal would share in its ownership.

“We did take it public earlier this year and we have about 120 people who are equity partners with me in the company who have major roles in the institution,” he says. “So they are not just employees. They’re owners. To the extent that we will be successful in the future, these people will be able to share in that success directly.”

As you move forward, you can then maintain employee buy-in by communicating your company’s progress on the strategy.

“It’s continuing to let people know that the company’s strength is building every day,” Kanas say. “The earnings stream of BankUnited is very strong so its book value is going up every day. So for those people who own part of it with me, the value of their investment is going up every day… and everybody knows that eventually people recognize the intrinsic value of a company over time. So I think that it’s not hard to keep our people encouraged because they’re so proud of the success that they’ve achieved on a quarter to quarter basis.”

Build your talent pool

In the end, the bank let go about 350 people. So in addition to retaining the key employees, the company needed to find and attract new employees who had the skills to execute its new strategy.

“We were looking for people who had extensive experience in the Florida market, who had existing customer relationships that we could attract to the bank and would help lead us to build a commercial bank,” Kanas says. “We said that we were going to start immediately mining the market for that talent.”

One way to attract talent is to share your vision in a way that communicates it simply and memorably.

“We actually coined in that first couple weeks the term ‘building Florida’s bank,’” Kanas says. “We said, ‘We think we can come here and take the skeleton of this company and build Florida’s bank on it, and you can be part of it.’”

To reach a national talent pool, the company also put out an advertisement in The Wall Street Journal and The Miami Herald.

“It said, ‘If you’re an unhappy Florida banker and you’d like a new home, call us. We’ll change your life,’” Kanas says. “We ran that both on the Internet and newspapers for 10 days and we got 7,000 applicants and 3,000 from New York alone and the rest from Florida.”

As they narrowed down the potential candidates, the company also looked for one, a successful track record and two, the right personality.

“We’ve had great success with hiring people outside of the industry, not bankers, who have come from other industries that require the kind of skills that we think are important in banking today, people who can sell, people who are confident in themselves, people who are engaging and like other people and communicate well,” Kanas says. “So we try to find those people and we find it’s much easier to teach them the technical side of banking than it is to try and change their personality.”

After going through half a room full of resumes, the company was able to hire roughly 250 people to come in and help retool the company.

“We knew that there was a level of frustration among people in Florida who were good bankers stuck in institutions that for one reason or another couldn’t go forward,” Kansas says. “Either they were handcuffed by regulators or handcuffed by inadequate capital positions or some combination of both. We invited them to bring their careers to us and it was overwhelmingly accepted.”

Instead of just trying to fill jobs, Kanas looks to hire people who can complement the company’s strategy, and then works them into it.

“We believe very strongly that the key to the success of any large company is embedded in its human talent,” Kanas says. “So unlike other banks that will go build a branch on the corner of Fifth and Main and then a month before it opens put an ad in the newspaper to try and find somebody to go manage it, we don’t do it that way.”

Instead, the growth strategy is to find the best of the best, get their buy-in and continue to build the company with talented people who can grow the business. For example, the company went ahead and hired a group of people in Orlando before it even had a branch in the market, using those employees to open two branches there more than a year later.

“So we build little energy centers all over the state around successful people who can come to understand our strategy, and we will do that anywhere in Florida,” Kanas says.

He says the key to building a strong company is also not trying to do it on a shoestring.

“We didn’t try to find bargain basement employees,” Kanas says. “We found people who were truly distinguished in their field, and we pulled them out of very good jobs at other banks. I guess that’s another way of saying it’s more expensive than you think it’s going to be. It’s more work than you think it’s going to be. But it’s also a lot more rewarding than you think it’s going to be if you succeed.”

Last January, BankUnited went public in one of the largest bank IPOs in U.S. history. Today it is one of the most capitalized banks in the country, with more than 90 branch locations and $11 billion in assets.

“This is a company that has a clear purpose and a laser-like vision that I believe that our employees understand,” Kanas says. “We’re growing organically at a rate that impresses even me. If you take the second quarter growth in loans and annualize it, we’re growing the commercial component of the bank at over 60 percent a year —and in Florida that’s really saying something. … So I guess the only similarity between the old company and this one is the name.”

How to reach: BankUnited, (877) 779-2265 or www.bankunited.com

Takeaways:

1) Identify new business strategy and which people support it.

2) Get the buy-in of the people who are staying.

3) Build your talent pool to complement the strategy.

The Kanas File

John Kanas

Chairman, president and CEO

BankUnited

Born: South Hampton, New York

Education: Long Island University

How do you retain good people in this environment?

Because we’ve shared our vision with them and continued to share ad nauseum, we keep them excited about where the company’s going. And, of course, they can look over their shoulder at the tremendous success that we’ve had so far and know that they’re part of it. So there is a high level of enthusiasm and excitement in our bank. And frankly in the banking business today, it’s hard to find a place that’s growing and that breeds a level like this of enthusiasm any place else, certainly any place else in Florida if not the whole country.

Kanas’ turnaround takeaways:

  • One of the things is don’t ever underestimate the complexity of the problem and realize that when you’re reshaping a company that’s had a failure, that there are probably a lot of other bad things that you’ll find out six months into it that you didn’t know when you took the first step. So always make the assumption that it’s going to be harder than it looks and be prepared to deal with that.
  • These things are always much more work than you think that they’re going to be. For people who are going to take a challenge like this, it’s important to understand that you cannot do this halfway, that this is a total and complete immersion and it’s a total and complete commitment and you have to be committed with every bone in your body and every molecule in your brain to make it a success…Probably most people haven’t been as successful as they thought they would be because sometimes from the outside, a good management team, and I don’t mean me but the team, can make a job look easy, but it’s not.

Published in Florida
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