Inside out Featured

7:00pm EDT January 26, 2009

Gerry Salontai’s greatest lesson as the president and CEO of The Kleinfelder Group Inc. is that successful change initiatives always begin within the organization. When Salontai first attempted to reposition the nearly 50-year-old engineering and consulting firm to meet the emerging needs of global clients, he launched a rebranding effort targeted toward changing the external perception of the firm. But the firm’s internal perception never changed, and employee owners continued to make autonomous decisions about which of the firm’s vertical markets, such as energy and education, they would support in each of the firm’s offices. Ultimately, the rebranding strategy failed. Then the firm’s largest client, Exxon Mobil, declared that it would reduce its contracted consulting firms from 50 to 15, and Salontai once again initiated change in order to meet the shifting customer needs. But this time, he started inside the firm.

“Given the changing needs of our customers, the obstacles to our long-term growth strategy soon became apparent,” Salontai says. “We’d be better off focusing on fewer markets, fewer clients and provide them with a wider array of services, but we didn’t have the service model to compete with larger firms. We really needed to build our technical capabilities and our employee owners’ disparate vision of our firm was an impediment to growth.”

Salontai faced the challenge of negotiating the most radical change in the history of the firm. Given the employee ownership structure, the only way to sustain growth at the then-$80 million firm was to work through the firm’s existing staff in forging a new vision of the firm as well as a new business plan and model.

Craft a new vision

Historically, Kleinfelder had followed a geographic expansion strategy, and the firm’s previous leaders had drawn a line in the sand at the Mississippi River in creating the firm’s eastern boundary. About 75 percent of the firm’s business came from California and now clients needed global coverage. In addition, acquisition had been the primary method for driving growth, but the transactions left the firm with a patchwork of fiefdoms, where each local manager selected his or her office’s area of specialization primarily based upon their own technical strengths and passion.

To build consensus among the firm’s employee owners about steering in a new direction, Salontai turned to a strategic planning process. He says setting a new direction through strategic planning is most effective when leaders coax and persuade people to change, rather than demand compliance. While the notion of using a business plan as a change agent may not be original, Kleinfelder’s business plan structure is unique. The written plan outlines the firm’s growth strategies over a five-year period on a single sheet of paper that contains only three goals, with each one defined by four strategies. Salontai insists that the plan’s brevity forces everyone on the team to decide what’s really important as they built consensus about the firm’s direction.

“The value of a short plan is that every word matters,” Salontai says. “The goals support the core values and the long-term vision, and everyone in the organization gets a copy. Because it’s brief and easy to understand, it’s easy for our leaders to drive the plan throughout the entire organization.”

A survey of 150 employee owners, who represented the top 10 percent of the company’s leaders, provided input about the changes that were necessary for growth. A 17-member planning committee sifted through the feedback and created the plan. One of Salontai’s key strategies was creating a planning committee composed of diverse, emotionally neutral people who could take an unbiased look into the future when crafting their recommendations.

“The committee came from all areas of the company, such as human resources and accounting and across the various geographic and market sectors,” Salontai says. “I avoided people who would dominate the conversations or sway the planning process toward their own vested interests.”

The original plan dovetailed with Salontai’s vision of a reinvented firm, narrowly focusing on fewer vertical market segments that would be universally supported by all the firm’s offices. To create a sense of urgency about the need for change, Salontai continually reminded the committee that the firm faced two options: It could move forward and become an industry consolidator or remain behind and be part of the consolidation.

While the planning process created some initial consensus about the need for change, convincing a group of professionals who are also owners isn’t easy, and Salontai says that when he initially floated the idea of narrowing the firm’s focus to fewer market segments, some of the firm’s 12 senior leaders were not on board with the idea. So his next tactic involved winning over a group of key influencers to help spread the word and bring along the balance of the staff.

“I have a sounding board that’s composed of roughly 12 champions who are principal owners in the firm,” Salontai says. “I worked on convincing a few of them at a time and they, in turn, convinced their direct reports that this was the right strategy. It’s like using a phone tree to build consensus. It’s natural that people gravitate toward certain key influencers; I just won them over so they could help me drive the change.”

Build up your capabilities

As Salontai narrowed the number of vertical markets supported by the firm, he began increasing the firm’s technical capabilities offered under each major market segment. The consolidation and expansion decisions were reached by reviewing client expectations, the needs imposed by the increasingly global economy and recommendations from a previous peer review.

“In 2003, we went through a peer review and one of their suggestions was that we restructure vertically to accommodate our clients,” Salontai says. “We took their recommendations and then began a phase of organic growth by developing our existing staff and hiring additional employees. Both moves have allowed us to increase our technical offerings for each market. As a result, we’ve opened more offices and have made only two small acquisitions in recent years.”

Another belief of the firm’s previous leaders was that the firm could function like a basketball team, because employees were capable of playing above their heads in meeting client demands. But the technical requirements in the expanded client contracts couldn’t be achieved solely through a stretch environment, so Salontai began building the firm’s technical expertise. However, he soon discovered that the firm’s senior leadership team was stretched too thin to support an aggressive organic growth strategy.

“We only had four or five senior leaders, and they were all wearing multiple hats,” Salontai says. “We had one person functioning as both the CEO and COO, and some people were running several states as well as handling training and development. They couldn’t do anything well, so they were really bogging down the company.”

Salontai hired two new senior leaders and reorganized the responsibilities of the senior leadership team, so that each manager could focus on specific tasks. Now, a firm chief operating officer focuses strictly on operations and that move has doubled the firm’s profitability. Salontai also appointed a chief marketing officer, a chief administrative officer and a chief technical officer, who expanded the firm’s technical capabilities by providing clarity and clout to the firm’s narrowed vertical market focus. Many of the key strategies designed to enhance the firm’s technical capabilities were developed through the strategic planning process.

“Now more than 40 future company leaders are learning from their more experienced peers, and we’ve organized formal mentoring programs, which support each practice group,” Salontai says.

He also notes there wasn’t a single indicator that pointed to the need to reorganize the firm’s senior leadership team, rather he observed managerial stress and missed milestones, which influenced him to make the change. He says leaders often make observations in a number of areas before making critical decisions and refer to it as their gut instinct. Salontai says that bringing people through such a radical change process was a difficult and challenging task.

“Not everyone saw the value in these structural changes,” he says. “Some people questioned why we needed the additional overhead and worried about how adding additional management would reduce their access to Gerry. They saw that the firm was moving from being a family organization to more of a corporation, like General Electric, and not everyone was comfortable with so much change.”

Create continued support for change

Despite the fact that the firm has achieved substantial growth, Salontai says he knows some doubters of his vision still remain. But he says the tipping point toward change occurred as the firm started to achieve success under the new plan, and he used the results to sway the majority of the holdouts. Showing that the company achieved $301 million in fiscal 2008 revenue, up more than $120 million from just three years before, certainly helped with that process.

Salontai uses a formal communications plan to continually reinforce his vision and travels to more than half of the organization’s 16 regions each year to review the firm’s strategic plan with the firm’s employee owners using a town-hall setting. Then, during the course of the year, he conducts conference calls for employee owners every six weeks that detail the company’s results and ties them back to the firm’s progress toward its five-year strategic plan.

“Really the top tactics for driving growth and change are authoring a strong message, believing in it and then communicating it over and over again,” Salontai says. “Then once you’ve achieved success, be sure and point that out to people because they will start to believe once they see that it will actually work.”

As an example, Salontai says that some employee owners were initially concerned that marketing additional engineering and technical services to existing clients wouldn’t be backed up by seamless execution and that unhappy clients would defect. In fact, the opposite happened. Marketing additional services to clients and expanding the firm’s technical capabilities created synergies, referrals and additional business opportunities. By continually reinforcing the positive outcomes from increased teamwork and the firm’s new cross-selling strategies, Salontai has engendered greater levels of behavior change.

“People really fall into three categories when it comes to dealing with change,” Salontai says. “There are those who are afraid of change, the group in the middle who tend to be supportive but are unsure, and those who are knocking down the door to initiate change. It’s really the CEO’s job to bring the changes forward, bring the middle group along and pacify the last group. But you have to do that without letting the group that needs comforting bog you down.”

HOW TO REACH: The Kleinfelder Group Inc., (858) 320-2000 or www.kleinfelder.com