John D. Frager does not expect his employees to die in the line of duty at Grubb & Ellis|BRE Commercial, nor does he plan to give up his life in pursuit of the company’s goals. But the values of servant leadership espoused in the 2003 film “The Last Samurai” do relate to success in the business world, says the company’s president and CEO. By always keeping his eye on the customers and setting goals that help his company serve them better, Frager has led the 200-employee commercial real estate firm to $38 million in 2006 revenue. Smart Business spoke with Frager about constantly raising the bar of expectations and why you can’t do it all yourself.
Build your team. Focus on building a strong and cohesive leadership team that’s going to help you run your company. You can’t do it by yourself. You’re trying to build a team that can lead the company together.
You have to understand a person’s skill sets, their strengths and their weaknesses. It takes time to naturally mold a team in their roles and responsibilities that fit them the best.
Our main goal is to create clarity in the organization where we’re headed, what behaviors we value within the organization, what makes us unique with our competitors and the goals that we want to achieve.
Have real clear and defined roles and responsibilities for everybody. Build regiment in your team as far as your meeting times and how you track getting things done, planning and goal-setting.
Ask questions. What makes an effective executive is when you ask a set of questions. Any time you come into a situation, you say, ‘Hey, what needs to get done here?’ Develop some action plans and get people to take responsibility and communicate the plan. Focus on the opportunities rather than the problems. Face issues and try to solve them.
Make goal-setting a priority. It all starts from the setting of performance standards and consistent achievement of those standards. When you do that, that’s what really makes a difference in the company.
It assists in getting momentum and getting things done. In the book ‘Good to Great,’ Jim [Collins] talked about the big flywheel. You have to get momentum. Those first few pushes of that big flywheel are difficult. Once you set action plans and you get people moving in the right direction, that flywheel starts to spin, and then it gets easier and easier to get it to move faster, and it builds up some of its own inertia.
Keep raising the bar. You have to create a high-performance orientation where we’re constantly raising the bar.
Establish written goals and objectives for everybody. Setting standards, and consistent achievement of those standards, really makes a difference in a company.
Look at the roles within the company and develop performance objectives. We try to do at least monthly reviews with everybody. They are not highly regimented. The first part of it is asking what’s going on in that person’s life and how things are going. Following up with, ‘How are you doing on your goals?’
As a leader, you’re saying, ‘What can I do to help?’ It demonstrates you care for them, and they know they have a leadership that is trying to help them, and they know that their performance counts.
You need to create a fun atmosphere at the same time to inspire everyone to do their best. Sometimes it can be a fine line between a high-performance culture and a high-anxiety culture. Our goal is to make our firm challenging, satisfying and a fun place to work.
The atmosphere at the office really helps create the energy and the synergy to be successful.
Aim high when hiring. You can’t spend enough quality time hiring the right people. It’s a very rigorous effort. Look for drive. It’s the need for achievement, competitiveness and optimism.
Somebody that sets high personal goals, is ambitious and is prepared to work long and hard in the pursuit of excellence. Somebody like Tiger Woods. The guy shoots a 63, and you interview him, and he’s upset because he thought he should have shot a 60.
Someone that is going to get into the game and is determined to be a top producer for us and doesn’t just give up once a challenge has been accepted. To me, that is somebody like Michael Jordan. If you were at a party with him and you played a game of ping pong and beat him, he probably is not going to let you leave the party until he beats you.
Help your employees. One key ingredient is providing strong training because that’s really an investment in people. Share with them, ‘Look, we’re going to help you develop your skills. We’re going to help you improve and build a really high-quality resume. No matter how long you’re here at our firm, you’re going to leave a better person.’
Instill a strong desire to constantly improve everybody’s skills. That helps us as far as improving our reputation. What we’re trying to build is that individual responsibility for skills development and personal growth.
We have a leadership development course that we run eight people through each year. We have them participate in a monthly class on basic leadership skills how to facilitate a meeting, how to understand different personality types, how to have a fierce conversation, building a team.
They participate in voluntary leadership roles within our organization until they get some hands-on experience at running a committee or an advisory board or one of our specialty divisions.
Balance work and life. It’s energy, not time, that is our most precious resource. You really want to manage your energy levels.
You have to learn that there is a pulse with a high-performance environment. You have to learn to balance stress and recovery periods. Some days are going to be really stressful. You can manage that and sustain that for a while, but you have to carve in some recovery time.
It’s all about physical energy, emotional energy and mental energy. All these different types of energy you really have to manage. The proper application of all that really gets you ahead. (Make time for) exercise, quality time with family and retreat. Break away.
HOW TO REACH: Grubb & Ellis|BRE Commercial, (858) 546-5400 or www.brecommercial.com
Employees at ACCESS Destination Services work hard to plan fun destination events for client companies.
And Christopher Lee, the company’s CEO, says it is important that his 60 employees also have the chance to experience fun events, so those who reach their goals are rewarded with getaways, ski trips or spa days.
Lee says these rewards create a sense of trust, loyalty and teamwork among employees and keep them reaching goals, helping grow the company 25 percent a year since 2000 to reach 2006 revenue of $18 million.
Smart Business spoke with Lee about how to create and communicate a vision that reaches the goals of both your company and your employees.
Q: What are the keys to growing a company?
It takes a grand vision. You need to have a sense of purpose for the organization, and I like our team to feel like we’re on a mission to grow. It’s not something we hope for, it’s something we plan for and pursue.
It starts at the top. People need to know that their leaders are committed to the vision and are willing to go the distance to achieve it. It’s leading by example. Not just talking the talk but walking the walk. It also includes sharing financial success by rewarding everyone as goals are met and exceeded.
Q: How do you create a vision for your company?
It has to be a stretch; it has to be something that’s beyond the horizon of where the organization is today. It needs to be realistic and measurable, and there needs to be benchmarks along the way. It has to be something that people can truly picture themselves and their organization achieving.
We ask each employee, ‘Where do you see yourself in five years?’ and, ‘Where do you see our organization in five years?’ We listen to them and what their goals are and integrate them into the bigger company vision.
It has to be communicated in clear terms to everybody in the organization. If it’s such a high-level vision that employees don’t understand it, buy in to it or see any value for themselves, you’re not going to get them on board.
Q: How do you communicate the vision?
Communication comes in many forms. There’s laying out the vision, then taking it down to the individual level and understanding and communicating what the individual visions for each person’s career are and where do they see the company. Then
it’s constantly checking with those individuals as you grow and pursue your vision.
The biggest challenge is not that somebody outgrows their position, it’s that the position outgrows the individual.
Q: What is the benefit for employees of working together to create the vision and goals?
It’s not only creating the vision and goals but living and working in an environment that has a well-defined vision, values and goals. People know where they stand and have a sense of purpose. They know what you’re going for, how it’s being measured and how they’re rewarded in conjunction with that.
It takes a lot of the ambiguity and questioning out of it. People know where they are in regards to their own career opportunities, compensation and incentives.
Q: How do you create a positive working environment?
It starts by understanding the culture of your organization. It is as simple as putting together quarterly team outings, getting people outside of the office, any type of activity where team-building is involved.
There are hundreds of ways to bring your team together in an environment that is fun, educational, and fosters bonding and loyalty. Seek out unique opportunities that people wouldn’t do on their own and think outside the box.
Q: How do you prepare and develop plans for growth?
Try and stay one step ahead of the growth and anticipate it as best as you can. Make sure you have the right people in key positions who are capable of expanding their roles as the company grows because, otherwise, the job will outgrow certain people, and that begins a downward spiral.
Constantly evaluate your marketplace, know where your competitors, allied companies, vendors and other affinity groups stand, and look at the segments of the economy that affect your business.
Monitor customer service closely. Don’t sacrifice service levels for growth and customer satisfaction because that will stop the growth as quickly as it helped it.
One mistake that a lot of companies make is that they’ll accept the rapid growth and financial rewards but won’t pay attention to the customer service. Oftentimes your customer service level is what contributed to the growth, so focusing on that throughout the growth is important.
HOW TO REACH: ACCESS Destination Services, (619) 299-2200 or www.accessdmc.com
Business owners are well aware of how expensive defending themselves in a lawsuit can be, and that the proper insurance can lessen the burden. What they may not know is that more than half of all corporate claims are brought by employees, making Employment Practices Liability Insurance (EPLI) a specialized form of coverage that’s worth investigating.
Alfonso Galvez, commercial insurance broker with Westland Insurance Brokers, points out that EPLI is often an afterthought for employers.
“Generally, people are so busy building their business, they lose sight,” says Galvez, a 20-year veteran of commercial insurance. “People are concerned about maybe the theft of a computer or a fire that might happen in their facility. But one of the most common claims that can occur would be an employee-related claim.”
Smart Business spoke to Galvez about the role EPLI plays in protecting a company’s assets in the event that it’s the target of a work-related lawsuit.
What is EPLI and what kinds of claims does it cover?
It’s specialized insurance coverage that protects employers against claims in work-related lawsuits. It includes wrongful termination, harassment and discrimination based on age, race and gender.
There’s also an option to purchase third-party discrimination and harassment insurance. For instance, in a retail store a patron may feel like he or she is being discriminated against because of race. Or it could be a situation where you have a manufacturing company and perhaps a vendor pays a visit and the receptionist harasses that individual. These are examples of third-party claims as opposed to claims that take place within the work force of a particular company.
Other employment-related suits that may be brought against an employer and are included in this type of policy are breach of an employment contract, negligent evaluation, wrongful discipline and mismanagement of employee benefit plans.
Who should consider EPLI?
I believe that every company should have this coverage in force. Companies that are most vulnerable are generally small- to mid-size companies. They may not have either the necessary capital to defend themselves against an employment-related suit or other resources, such as a human resources manager who is current with rapidly changing employment policies.
What kinds of expenses does EPLI cover?
Among the costs that are covered in an EPLI policy are such things as judgments that are handed down in court. It also includes coverage for general expenses to discover what the alleged claim is or what occurred. Also included are legal expenses, which particularly in California can rise rapidly.
How does a company assess its risk for employee-related claims?
It’s determined by the type of company it is, how many employees it has, and if it’s had any past claims history. It also depends on whether or not the company has instituted any kind of employment policies and procedures. It’s really important that the company have an actual employee handbook and policy manual to help reduce the likelihood of a claim.
Does employment law affect EPLI?
Yes, it really does. One of the challenges that most companies have is trying to stay current with all the changes in state and federal employment-related laws. That’s why it’s especially important to have this kind of coverage because it adds another layer of protection in the event something changes of which a company is not aware.
What else can EPLI coverage provide a company?
One of the newest features of many Employment Practices Liability policies is that insurance companies include free legal hotline assistance. A number of insurance companies provide a set period of prescribed time to call a designated law firm to ask questions about either employment law or a situation that has arisen within your company.
You can also get what is referred to as loss-control services. This provides assistance with the information you can include in your employee handbook and policy manual. For instance, you would include information related to zero tolerance in the workplace and state in the handbook how you would handle a report of an alleged harassment or discrimination incident.
Some policies also provide you the option of choosing your own counsel and therefore having more control over the defense and settlement of your claim.
ALFONSO GALVEZ is a commercial insurance broker with Westland Insurance Brokers. Reach him at (949) 862-3323 or email@example.com.
There’s an old saying that the best way to get yourself out of a hole is to stop digging.
The problem is that, too many times, you think there’s a treasure lurking just a few more shovelfuls down, so the digging continues. As the hole gets deeper, you keep at it because you’ve already put so much effort into it that it would be a waste to stop now.
There are many examples in business of these ever-deepening holes that eat up manpower, time and money. Sometimes, the elusive treasure is a product that’s sputtering along but just can’t quite get going like you had hoped. Other times, it is a person who has all the promise in the world but doesn’t have much to show for it other than a warm chair and a lot of frustration on your part. The “hole” might even be an entire division that is underperforming or a vendor that just isn’t meeting your needs.
Corporate America is littered with decisions that seemed like a good idea at the time but that just didn’t work out. Remember New Coke? It was meant to replace the Coca-Cola that everyone grew up with, but it lasted only 77 days before the classic formula was reintroduced to the market.
The Coca-Cola Co. wisely made the tough decision that its reformulation didn’t pan out the way it had hoped and brought back the old formula. The result was that while New Coke may have failed, the company retained its top spot. It realized the hole was getting too deep with no return in sight, so it got out.
If you’re going to be successful, then you will have to make tough decisions. No matter how close to the buried treasure you think you are, at some point, you have to take your shovel and climb out of the hole and move on.
It’s called cutting your losses. Coke executives could have stuck to their decision because every bit of market research showed that people liked the taste of the new formula better, but it just wasn’t showing up in the sales figures.
Maybe you’ve invested a lot of time and money into a product or a person, but there comes a point where you have to give up and focus your resources on more productive areas.
You can’t be afraid to make these tough decisions. It might be easier to justify further expense to keep going, but don’t wait any longer. Pull the plug.
Ending a project that’s bleeding money is an easy decision. The really tough choices come with the marginal performers people included. To know when enough is enough, you need to set up accountability for projects and people so you can measure how well things are going compared to the standards you’ve set.
If something isn’t measuring up, get rid of it. In today’s business world, profit margins are too thin to waste money on unproductive portions of your business.
You can’t afford to have a nonproductive anything be it a person, division or product weighing you down. Do everything you can to help the people affected move on, but make the decision and stick with it.
These types of decisions are never easy. You never know how they will affect your business. It will always be easier to keep going after that elusive return on your investment, but you have to hold yourself accountable, as well. If it’s not working, it’s time to make a change.
So stop digging now before the hole gets so deep that you are unable to climb back out of it.
FRED KOURY is president and CEO of Smart Business Network Inc. Reach him with your comments at (800) 988-4726 or firstname.lastname@example.org.
Workers’ compensation can be a major expense for company owners. While there is no real way to prevent workers’ compensation costs, there are many ways to limit such expenses and decrease them in the future.
Employers often look for ways to ensure safety at a job site and among employees but often overlook simple ways to reduce costs, says Jerome Shalauta, a commercial insurance broker with Westland Insurance. Many times, the way you treat your employees and the work atmosphere you create can help reduce workers’ compensation expenses. Creating a positive work environment not only reduces these expenses but increases overall productivity, says Shalauta. Often business owners need to revert back to the basics when implementing safety and determining how to treat employees.
Smart Business spoke with Shalauta about how employers can work to reduce workers’ compensation expenses and increase overall productivity.
How can an employer reduce workers’ compensation costs?
Implement safety. Employers who implement and practice safety measures on a daily basis have fewer accidents, and employees may feel more comfortable coming to work each day.
Create a positive environment. Employees who enjoy coming to work each day are less likely to file a fraudulent claim or seek excuses from work when healing from injury. Satisfied employees want to come to work each day.
Involve yourself with employees. There should not be a divide between management and employees. If employees know you are genuinely concerned, they will feel appreciated. Employees who are appreciated are less likely to litigate, and litigation can drive compensation expenses through the roof.
Hiring practices. Think about the people you hire and how they will contribute to the overall work environment.
Compensation or rewards. Offering employees compensation and/or rewards when a certain number of days pass without an accident or claim may cause employees to work more carefully and prevent them from filing frivolous claims.
How can an employer ensure safety and communicate safety procedures to employees?
Safety is crucial when workers’ compensation is involved. There is a major difference in the number of claims filed in companies that do not implement and practice safety routinely versus companies who have safety plans and ensure they are communicated effectively.
Good workers’ compensation carriers should supply a safety staff that will come out to your office or job site to evaluate the site and the employees’ actions. They can then offer an expert opinion about how safety can be increased and practiced. It is important to consider a carrier not strictly on cost alone but also on what a carrier can do for the overall safety and claims prevention for the company. Meet with the experts and let them help you.
Communication is critical. Newsletters, information postings and regular meetings can be used to communicate safety procedures. Employers can make these meetings mandatory to ensure every employee is properly educated.
How should employers treat workers before and/or after compensation claims?
It sounds so simple but, honestly, the more you communicate and are involved with an employee on a daily basis, the better your overall relationship will be with that employee. A good relationship, a positive work environment and employees who feel appreciated often lead to employees who will be less likely to file an unnecessary or grudge claim after an accident.
After an injury, you must stay in touch with the employee. It makes a world of difference if the employee knows you are concerned and that he or she still has a job to return to after recovering.
Is there any way employers can protect themselves against fraudulent or grudge claims?
There is currently a huge emphasis on eliminating fraud in workers’ compensation. Limits have been put on attorney costs in an attempt to prevent excessive lawsuits. Nuisance settlements settlements made by employers with employees out of court have also been largely eliminated.
Employers also have more control over the medical attention that employees receive. This helps ensure that employees are receiving proper but not excessive treatment for any injuries.
What can a poorly handled claim cost a company?
This depends on the type of claim filed. A serious accident can cost a company a few thousand dollars if it is handled properly. If it is not handled correctly, the costs could be debilitating. Employers must realize that this is not just one employee and one claim. Rather, this claim will affect your Experience Modification (X-MOD) that is calculated by the Workers’ Compensation Insurance Rating Bureau (WCIRB). This may mean increased workers’ compensation.
JEROME SHALAUTA is a commercial insurance broker with Westland Insurance Brokers. He can be reached at (949) 553-9700.
Iwas driving home late one night, my mind filled with a troubling challenge I was facing at work. A series of unexpected problems in a major project had rocked my team and caused my confidence to falter. With each new challenge, my fears had increased, and I could feel myself spiraling into a mind-set that I knew would only make it worse.
As I waited for the traffic light to change, my cell phone rang. Despite my inward cringe that the call would only bring another new problem, I pressed the button to answer.
“Hey man, it’s Steve!” said a voice I had known for over 20 years.
In one miraculous moment, my state of mind changed as I reconnected with one of my closest friends. Throughout the next hour, we shared the latest events in our lives, including the challenges I was facing.
When I described the problems and my concerns about the team, Steve reminded me of similar challenges I had faced in the past and had successfully overcome. When I confessed my worries that I wasn’t leading the team well enough, he spoke of his confidence in me and reminded me that others believed in me, as well. We also laughed about all the things we had been through together and at ourselves for all the times we thought our challenges would overwhelm us, only to see them resolved with patience and hard work.
Our call came to an end as I arrived home that night, but thanks to my friend, I was ready to make a new beginning when I drove to work the next day. This experience and many others like it have taught me one of the most important lessons in the business of life the power of friendship.
Is your life enriched with real friendship?
Here’s an exercise that can provide a revealing answer. Make a list of your closest friends on a sheet of paper. Now, place a star beside those whom you would call if you were sick and needed help in the middle of the night. Put another star beside those whom you would ask for money if you were in financial trouble and had no other options. Finally, place a star beside those you would confide in if you had made a major mistake in life a mistake that might carry serious emotional consequences if it became known.
How many “three-star” friends do you have?
If you have even a few, you are blessed with one of the greatest gifts in life. Although there are many levels of friendship, these three questions are good indicators of the deepest level because they reveal the friends you can count on when you are most vulnerable. If you want to create this level of friendship, here are three things you must do.
Become the friend you want to have. If you want friendships at the deepest level of trust, then be absolutely trustworthy, never revealing a confidence shared with you by a friend. If you want friends who are there for you in times of difficulty, then make time in your schedule this week for a friend in need. Begin to model the characteristics you want most in a friend and you will soon find friendships that return them to you.
Invest in the friendships that matter.
Friendship can deepen over time but only if you invest the emotional energy to be vulnerable, to listen and to share the things that really matter. Although it takes time to make this investment, even one friendship at this level of depth is more valuable than a hundred surface-level acquaintances.
Choose friends that expand your vision. Remember that your friends are a model of who you will become because, over time, their influence will shape your ideas and your character. There is real truth in the ancient teaching that says, “As iron sharpens iron, so one friend sharpens another.” If you choose friends that reflect your own values, such as integrity, fairness or compassion, they will challenge you to stay true to who you are and what you believe.
JIM HULING is CEO of MATRIX Resources Inc., an IT services company that has achieved industry-leading financial growth while receiving numerous national, regional and local awards for its values-based culture and other work-life balance programs. The company was recently named one of the 25 Best Small Companies to Work for in America for the third year in a row by the Great Place to Work Institute and the Society for Human Resource Management. Huling is also the author of “Choose Your Life!” a powerful, proven method for creating the life you want. Reach him at Jim_Huling@MatrixResources.com.
Baldur Schindler credits the ability to develop positive relationships as the key to running a successful business. As co-founder and CEO of Beacon Electric Supply, Schindler and Donald Vivier, co-founder and president, still handle sales assignments and work to maintain relationships with the company’s customers and their families. They are also careful about taking on new customers, using their chief financial officer as a gatekeeper to weed out unreliable people. Nearly a quarter century after its founding, the electric supply company has 72 employees with 2006 revenue of $50 million. Smart Business spoke with Schindler about being direct and honest with your employees.
Have a clear vision. No pie in the sky but real, measurable, attainable goals. Surround yourself with people you can trust to do their jobs with little or no guidance.
Never lose track of the fact that you can’t do it alone. It is not, ‘I did it’; rather, ‘We did it.’ We expect our people to follow our lead and not be pushed.
Walk the talk. Rather than driving and shoving the employees as a sheepherder, we tend to be more shepherds in that we lead out.
We feel that it’s important that we both have contact with the marketplace so that we know what’s going on. We still carry sales assignments even to this day. We generate a good share of the profit of the business and lead our sales force by example, rather than, ‘Here’s the map, and go do it.’
Talk to your peers. We belong to a purchasing co-op. It’s called IMARK [Group Inc., a marketing group], made up primarily of independent distributors, such as ourselves. They are all pretty much the same. The ownership or the upper level of the businesses are all entrepreneurial, such as ourselves, and are almost always hands-on people.
We have a group of 10 to 13 distributors. We meet together twice a year, and that acts like an outside board of directors. All of the owners and the hierarchy of the various organizations, we sit down and beat ourselves up and talkabout best practices, insurance, high fuel cost, all the stuff that affects our business. The basic culture of our entire industry comes out of groups like that.
Be direct about changes. Once we crossed the 50-employee mark, a couple things came to pass that are troublesome. The employee handbook. It laid down the law. You have so many vacation days. It was understood.
But when it’s put down in writing, you have so many sick days, if you take more than that, you get docked, this has to be approved by this manager. The guys that have been with us 15 or 20 years all of a sudden are saying, ‘We’re being forced to do these things that we’ve never been forced to do before.’
We sat everybody down and brought the HR consultant in and had them explain it. Guys grumbled for a while, but it went away. Just don’t be secretive about it. You have to be very open.
We don’t have very many closed-door meetings. We don’t do anything secretive. If something is up, we tell everybody.
Show the path to advancement. We’re very strong on promoting from within. We have an annual evaluation. Each department does their own people. (Employees) have to know where they are at, where they are going and what their future is. That’s paramount.
You have to have a road map for every single person. The day they come in, they have their 90-day review. That’s done very religiously. About two weeks before their evaluation is due, they get a form where they do a self-evaluation. They bring that to their appropriate manager for discussion.
That’s very critical because you need to know what you think of yourself.
Don’t overreact to bad news. Every once in awhile, a job will go foul on you, and you lose some money. We understand that. It’s just one of those things that happens to you every once in awhile.
We usually sit down and talk it through, and see what we can do to fix the problem. With an inside salesperson, if they make a $4,000 or $5,000 error, you don’t drag them through the mire and beat them up and raise holy heck.
You just sit down and talk about it. See what you can do to fix it, learn from it and go forward. Obviously, there is going to be a reprimand, but you don’t raise the roof, and you don’t drag them through the office and raise the red flag and say, ‘This guy is an idiot.’
Watch your pennies. Find the funding that it takes to fund your payables. It was always easy for us to go get business. Let’s say you went out and got a $1 million project and the bills for that job came due before you got paid. We wouldn’t be able to pay the bill.
We could actually grow considerably faster than we had the finance to back up the growth. We probably would have gone broke if it weren’t for the fact that we had a banker that helped us immensely when we first got started. Actually, he anchored us. He reined us in, if you will.
He said, ‘Hey look, guys, you’ve got to slow down here. You’re not strong enough to warrant a larger credit line, and you’re stretching things a little too far. If one of these guys goes south on you, you’re in trouble.’ We pulled back a little bit.
Be visible. I’ll be out at the counter sitting on the counter stool talking to our customers. I do that every day. I walk through the whole building every day and say, ‘Good morning’ to everybody.
I’m generally here among the first. I think that’s important that they know you’re here. Always have an open door. Anybody can come waltzing into my office any time they choose. I just never run them out. It’s always been that way. When they come, it may be one of the salespeople. They’ll have a question about one of the projects, or if they just want to shoot the bull, we’ll do that.
HOW TO REACH: Beacon Electric Supply, (858) 279-9770 or www.beaconelectric.com
The health care industry is a fluid market. Business owners should be active members in managing their health care options. Brokers and insurance providers offer guidance that is essential for keeping up with the constant changes in the market.
A business owner who remains active is likely to find better health care prices because plan designs are always changing, says David Fells, employee benefits consultant for Westland Insurance Brokers. With new cost-sharing designs, health care costs are decreased for employers, and employees are encouraged to become more active in their health care options.
Smart Business spoke with Fells about rising health care costs, methods employers can take to reduce costs and optional benefits employers can offer to enhance their health care package.
How do plan design changes and new innovations in the medical insurance market influence rising costs?
With the limited number of carriers in a consolidated medical insurance market, it is essential to compare competing programs. Comparing newly developed plan designs that will lower premiums by increasing cost sharing is necessary for any employer attempting to reduce health care costs.
Employers have the option to change plan designs during their renewal period to lower their bottom line. This is an effective way to substantially lower the premium amount by slight increases in co-pays, deductibles and co-insurance.
Employers can also introduce consumer-driven health plans (CDHP) or higher-deductible, HSA-compatible plans that allow the employees more control of their health care while keeping premiums in check.
What should business owners/employers be looking for when they sit down with a broker?
Business owners do not want confusing plan designs and benefits programs that basically become an expensive underutilized benefit because the employees don’t
understand how they work. A good employee benefits broker is a consultant first and foremost who will take the unique company factors into consideration and devise a simple, affordable program that is easy to explain and administer.
Employers should look for a broker who brings true value to the table. A good broker is the employer’s consultant and advocate. A broker should have a broad knowledge of the industry and experience in dealing with medical insurance carriers and underwriters. You should look for someone with whom you can have a rapport and who is responsive and quickly resolves any issues that may arise. Brokers should diligently shop the market, keeping a business owner’s interests and concerns first and genuinely ‘go to bat’ for the client.
How does the network of providers influence premiums?
Limited network programs are offered by most of the group insurance carriers at a substantial discount. Often when employers check their employees’ current providers, they will find that they do not need the more expensive expanded provider network. Premiums for these limited network programs are substantially less expensive.
To change to a limited network without affecting employee coverage, it is necessary to see if you are eliminating any of the physicians that your employees are currently using. A little homework before the change can make for an easy transition for you and your employees. Brokers should be utilized to hold open enrollment meetings to educate the employees so they know how to effectively utilize their plan.
What should employers be looking at when they get their annual renewal?
For groups with less than 50 employees, the employer’s Risk Adjustment Factor (RAF) is a key element in calculating the premium. There is basically a 20 percent variance in the RAF, so potentially as companies grow, there is a 20 percent discount a group can obtain given its size and particular situation. A good broker will shop the market for current RAF promotions and work to lower the RAF to its lowest possible number.
Choose only A-rated carriers and consider consolidating multiple lines of coverage with one carrier to qualify for premium discounts. Consolidating coverage will also lower the in-house administrative burden and enhance control of the policy by leveraging technology and online administrative services offered by the carrier.
How could the employer ‘sweeten the pot’ for employees when premiums go up?
Adding ancillary voluntary benefits to a group program, such as dental, vision or short-/long-term disability coverage, that would normally only be available to company employees and not individuals sweetens the pot. This enhances the overall employee benefits package offered by employers, giving employees a menu of benefits to choose without adding to the overall bottom line. This gives employees control and allows them to buy up if they desire.
DAVID FELLS is an employee benefits consultant with Westland Insurance Brokers. Reach him at (619) 584-6400 ext. 3235 or DFells@westlandib.com.
The mention of the debt collections industry frequently conjures up images of dark, smoke-filled rooms occupied by employees who utilize tough-guy tactics to demand payment from delinquent consumers over the telephone. But industry boiler rooms represent a bygone era for young, data-savvy leaders like J. Brandon Black, president and CEO of Encore Capital Group Inc.
Black relied heavily on increased employee productivity to initially turn Encore Capital Group around after assuming the position of chief operating officer in May 2000. Since 2000, he has continued to drive the company to new heights by attaining a revenue growth rate of nearly 40 percent from 2001 to 2006 and net income of $24 million in 2006 on revenue of $255 million. Along the way, those numbers also earned Black a promotion to the CEO role in October 2005.
“When I started in 2000, the company was close to bankruptcy, and we were losing almost $23 million,” Black says. “I had a mandate to make the company profitable in 90 days because in 91 days, we would be in default. I hadn’t done something like this before, but I learned to just trust my instincts. I think that sometimes when you’re a leader you can get too emotionally attached to the business to see the solutions, and that’s what had happened here. Sometimes when the plane is out of control and falling toward the ground, you just don’t think to change the pilot.”
Black became the pilot who managed to pull up on the company’s throttle just before it crashed and burned. Since then, he’s continued to grow revenue and net income by attracting a new breed of employee, harnessing the power of performance-based compensation to drive employee productivity and learning to anticipate problems before they occur. Most important, he says that he’s learned to avoid the trap of letting his emotional attachment to the enterprise keep him from conducting timely and objective evaluations of his team’s performance even when the numbers are good.
Don’t let up
With only 90 days to turn the company around, there was no time to spare. Black says that he initially looked at the big uses of cash and the return for those expenditures to take speedy, cost-cutting measures.
“In most companies, there are five to 10 meaningful places where cash is spent,” Black says. “Generally, salaries and benefits are one of those biggest areas of cash expenditures, so I looked at the return we were getting for our investment. I looked at the three different sites where we were running our collections operations and each had a different return. I think we fell into that typical 80-20 rule. We were getting 80 percent of our return from a few sites and collections teams. Then, I looked at how the employees at each site were spending their time and the return for their efforts. Because each site handles different client portfolios, it helped me rank the portfolios and the teams according to profitability. We had a number of places where we had efforts but no results.”
The evaluation helped Black make his first tough leadership decision. To stop the bleeding, he needed to downsize the company from three offices to two, and he would have to get the same or better results with 400 employees instead of 500. The financial improvements afforded by employee productivity gains proved to be a winning strategy not only during the turnaround but when applied continuously.
“One of the biggest lessons I’ve learned as a CEO is to continue to employ the same review strategies and the same level of energy toward productivity improvement in good times and in bad times,” Black says. “I think during that initial 90-day period I was extremely focused and disciplined, but during good times, you have a tendency to let up and not be as disciplined. In order to sustain growth, you have to be consistently focused and disciplined.”
After the first few years on the job, Black says that he found himself falling into the complacency trap and not managing with the same level of intensity that brought him success in the early years. As a remedy, Black initiated an ongoing site and team review process that is strictly focused on productivity and continuous improvement.
Black conducts a robust planning cycle four times per year with his management staff diving down into the detailed returns for each account’s portfolio and each collections team. In particular, he measures activity levels and the corresponding results generated by each team across the company, looking to extract the best practices and assure continuous improvement companywide.
“To drive productivity you have to focus on it, and that’s what our planning process is all about,” Black says. “It would be like the CEO of a door manufacturing company taking his management staff aside for the express purpose of focusing on what will help them manufacture doors more quickly. I’ve learned not to just look at each collection unit’s results in a silo but to compare the results of the various collections teams against each other horizontally across the enterprise. That best practice has helped me optimize productivity throughout the company because now we’re more team-focused, and we work to continuously improve all of the collections teams. When I get down into the detail and compare the units, I can ask why one group may be achieving better results than another, and we can make adjustments.”
Black acquired much of his expertise in modern collections strategies during his previous tenure at Capital One. Like so many industries, profitability in the collections business is commensurate with the cost of the labor relative to the results achieved. So maximizing employee efficiency through properly aligned incentives is vital to making money.
“I don’t generate any money in this company. It’s all about the people on the phones,” Black says. “I’ve aligned everyone’s incentives with the company’s performance goals, starting with the CEO and going five levels down because everyone has to be rowing the boat in the same direction or else it will sink. Before our variable compensation was function-specific, and it was not aligned to overall company or team goals. Since we’ve taken this step, our results have improved dramatically.”
About 90 percent of Encore Capital Group’s work force has a variable compensation plan and 25 percent, mostly the management team, has equity incentives in the form of restricted stock and stock options. Black has realigned the agents’ pay to reflect both individual and team bonus opportunities, which meshes with his team-focused business model, and it isn’t unusual for top collectors to make six-figure incomes. Black says that paying top dollar is important because good collectors, like most good employees, can find work opportunities anywhere.
Black says that he achieves buy-in from the agents for implementing new collections techniques or agreeing to a new compensation plan by protecting them from financial loss in case the new process or compensation plan doesn’t work out as expected.
“Not everything works in any business,” Black says. “I’ve learned that in order to retain top collectors, you can’t get into the production workers’ pockets. If we change something in a comp plan, we’ll run both the new and the old plan in parallel for a while, and we’ll pay based upon the greater payout between the two plans so people are encouraged to step across the line and try new concepts. In a production-oriented environment, you can’t change comp plans too often because anybody only has so much change quotient, and you have to respect your relationship with that worker because it’s like an informal social contract.”
Black points to Encore Capital Group’s voluntary average annual employee turnover of 25 percent versus an industry average of 100 percent as proof that he’s on target with his compensation plans and philosophies.
In addition to redesigned financial incentive plans, much of Encore Capital Group’s improved productivity has resulted from Black’s initiative to train collections agents to review all of the available data on a consumer before deciding on a situation-specific collections strategy. The agent also decides how long he or she will work the account before referring the case for litigation, so in this case, increased worker effectiveness and decision-making translates to profitability.
Conducting data analysis and making crucial business decisions such as these on the fly are a far cry from merely reading a script over the phone, so in many cases, upscaling the work force was vital in order to achieve Black’s vision of increasing worker productivity as a means of increasing company profits.
“When I got here, I embarked on the process of bringing in workers and new managers based upon their intellectual capabilities with no collections experience because success was commensurate with being smarter than the competition,” Black says. “It was hard to attract people to this old-school business, so you have to start in a hole and work your way out. I start by dispelling the traditional notion of the collections business and appealing to a prospective candidate’s sense of opportunity.”
Black says that he’s upscaled the company’s talent by hiring most of the company’s mid-level and senior-level managers during his tenure and favors using a series of interviews that put the candidate face to face with peers, managers and subordinates as a way of getting a behavioral read on the candidate as well as assessing the candidate’s ability to adapt to the industry. Referrals are a major source of new agents, but many of the new managers have been sourced from unrelated fields. Black says that exposing potential high-caliber employees to other Encore Capital employees who have made a successful jump to the industry appeals to the candidate’s desire to achieve similar goals.
Anticipation sustains growth
“I think one of the mistakes that I made, which I’ve learned from, is that in order to sustain growth, you can never think too far ahead,” Black says. “Since I’ve been here, after initially scaling back, we’ve increased our number of collections sites up to five, including one in India. You have to anticipate the increased demand for people that accompanies growth, so you can conduct proactive hiring.
“You also have to be realistic about everyone’s ability to continue to rise up to the increased expectations by asking yourself and your management team if anybody appears to be stretched too thin or can’t keep up with the pace of the growth. I’ve learned that anticipating potential cracks in your operation and filling them before they blow open is the key to sustaining growth.”
Black says that an outgrowth of his revelation is that he now devotes more time to forward-looking activities and conducts weekly leadership meetings with his 35- to 40-member management team reviewing strategies and people issues related to growth. The team continually forecasts forward at six-, 12- and 24-month intervals, which Black says puts it in a proactive planning mode and eventually reduces the amount of time that managers spend putting out fires. It also means that Black has had to learn to be open to hearing about potential problems.
“One of the things that was brought to my attention as a barrier to anticipating problems was a communications issue in the company,” Black says. “People said they were afraid to fail, and consequently, they didn’t want to tell me or other members of the senior management team about potential problems, and they also said that oftentimes if they did tell me, they thought I wasn’t listening. So I acknowledged the issue, partnered with a firm to help break down those communications barriers and went through outside communications coaching along with our top 35 to 40 managers. Now, I spend a great deal of my time in informal sessions with employees, and I try to willingly listen and give people the benefit of the doubt. I think I approach those situations completely differently now.”
Black says that potential cracks in the company’s infrastructure also come to light during the staff evaluation segment that is conducted as part of the firm’s quarterly planning cycle reviews. It’s also during those same staff evaluations that he’s reminded that growth not only results from anticipating problems but from using emotional intelligence in tough situations, as well.
“As I compare the productivity of the different collection teams, I can see that 50 percent of the time, the people on the lagging team just can’t keep up with the increased complexities of the job and the rapid growth, and the other 50 percent of the time, the team falls behind for other reasons that we can work on,” Black says. “Then I think about how that person stuck with us during the hard times in 2000 and realize that I’m in the trap of being emotionally tied to the business and that it’s my responsibility to make those tough calls when they’re necessary.”
HOW TO REACH: Encore Capital Group Inc., www.encorecapitalgroup.com
It’s no fluke that accountability is on the list of Gen-Probe Inc.’s core values. It’s on the list because Hank Nordhoff, chairman, president and CEO of the company, put it there.
If you ask Nordhoff why he’s succeeding in the business of developing, manufacturing and marketing molecular diagnostic tests, which is known as an investment-laden and failure-prone industry, he’ll tell you that it’s because of the performance of his employees.
“It can be a tough culture to bring, but you have to let people know if they’re messing up,” Nordhoff says. “You have to have those frank talks because you can’t accept mediocrity.”
Average is neither part of Nordhoff’s vocabulary nor a description of the financial results on the firm’s balance sheet. What makes Nordhoff’s financial performance so unique is that he’s investing 25 percent of the firm’s revenue in research and development, which is roughly double the average investment by peer firms in the industry, while simultaneously delivering top- and bottom-line growth.
Gen-Probe has increased annual revenue from $155 million in 2002 to $354 million in 2006 and full-year results for 2006 also show that the firm returned 17 percent of its revenue in profit, which beats many of its much larger competitors.
Since assuming the CEO position in July 1994, Nordhoff has taken on the giants in the industry, such as Abbott and Becton Dickinson, and delivered value to customers and a strong return to shareholders through execution and a low failure rate on new product approvals. Nordhoff credits all of those achievements to a company culture that fosters exceptional employee performance.
Nordhoff ties employee performance directly to financial rewards. It starts with stock options being given to everyone in the company but goes even further than that.
“We also offer both individual and team bonuses that are performance-based,” Nordhoff says. “There are three bonus tiers. The employee can receive a great bonus, an average bonus or zero bonus based upon how they perform. I like to set the total compensation for employees who are exceeding expectations at just above the market average for similar industry positions because I expect greater things from them.”
He establishes team performance benchmarks for each business unit because when each group achieves its goals, it contributes to the success of the entire organization. For example, in the R&D unit, Nordhoff sets expectations around delivering new products by a specified date and within the allocated budget. Performance expectations within the department trickle down to each individual team member who can earn bonuses based upon his or her solitary contribution to the departmental goal.
Nordhoff says that using variable compensation to drive performance is just one of the incentives that he relies on to keep employees motivated. Besides a pleasant work atmosphere, the company provides a subsidized cafeteria and a workout room.
“It keeps the employees on the property at lunch, and they stay focused on work because they aren’t running out for fast food,” Nordhoff says.
Employees who frequent the company cafeteria might find great bargain prices on lunch, and they might also find themselves in a one-on-one coaching session with Nordhoff.
It’s one of the many ways he keeps tabs on what’s going on in the company and allows him to help people succeed.
Nordhoff says that merely wandering around and shaking hands won’t give a CEO enough of a true feel for the work environment and the pulse of the employees. He says that he prefers to hang around the cafeteria and the hallways hoping to catch up with some employees he hasn’t seen in awhile, just so he can have an extended conversation with them. Demanding greater employee performance goes hand in hand with offering a superior work environment and coaching for improved performance, so he checks in with employees frequently and offers them advice.
Finding people who fit in to his high-performance, high-accountability culture isn’t easy. Nordhoff uses a bounty program, paying a referral bonus when current employees refer friends and acquaintances who fit the firm’s environment. In addition, he focuses on a selection process designed to weed out those prospective employees who can’t hack the performance requirements.
“We do lots of interviews with prospective candidates because we want to see if they have tough enough skin for our culture,” Nordhoff says. “We really put candidates through the ringer because we want to see if they know their stuff. We don’t have a single culture in the company. Each business unit has their own uniqueness so we want to expose candidates to that so they can understand each team’s personality and assess the fit for themselves.”
Learning from failure
As one of the smaller firms in the industry, Nordhoff says that failing to get Food and Drug Administration approval for the vast majority of its new products is a luxury that Gen-Probe simply cannot afford. However, no company gets 100 percent approval ratings in the medical research field.
In order to avoid costly errors, Nordhoff has installed a system that creates learning opportunities from failures. The management teams from the various departments that were involved in the project and the members of the executive committee meet when a new product fails to get approval. They dissect the results, understanding what caused the failure and exposing what they can learn from their mistakes.
“I started the practice of holding post-mortems with the appropriate managers of the business units if a new product fails at some point in the development or approval process,” Nordhoff says. “The idea is that we need to learn from our mistakes so we can focus on what we should have done and what we will do differently next time.
“I tell everybody this isn’t about finger-pointing, and it’s not personal, we messed up, we need to learn from it so we can do better next time. As a matter of fact, if anybody tries to throw blame on someone else during the session, I kick them out. We don’t want to dwell on our failures, but you’ve got to do it you’ve got to learn from your mistakes.”
Nordhoff credits the post-mortem process with improving the firm’s success rates and achieving a higher-than-average return on its substantial R&D budget. He also keeps a close eye on projects by following their progress via a detailed timeline and by requiring his managers to submit monthly progress reports, so he can look for early warning signals that a project may be in trouble. However, the cultural tone that Nordhoff sets in the organization requires managers to communicate all information to him good or bad and that openness in communication is what he relies on to avoid surprises.
“People really have to feel free to tell the CEO what’s happening; they can’t sugarcoat it,” Nordhoff says. “As a matter of fact, if they do sugarcoat it, you have to let them go. I don’t want to hear that everything is going great, only to hear later, that there’s a big problem. As the CEO, you really have to learn not to shoot the messenger or you will end up shooting yourself.”
Much of Gen-Probe’s financial success results from garnering a 70 percent gross profit for the diagnostic medical tests that the firm markets, which is nearly double the gross profit of other firms in the space.
Delivering near-term profit increases has not only been good for investors and employee stockholders, Nordhoff reinvests some of the firm’s profits in R&D, which reduces the need to borrow and the cost of debt. He attributes the above-average margins to product superiority, which creates customer value and the improved performance of Gen-Probe’s sales team.
Nordhoff says that initially, it was tough to persuade the sales team to be less-focused on market share and to convince them that they could sell the testing products at nearly double the going industry rate.
He provided the sales team with the necessary data confirming that the firm’s medical diagnostic tests produced fewer failures than those offered by competitors. Fewer failures would mean savings in total costs and time for customers, but the team remained reluctant to approach customers with such a large price increase. It was finally Nordhoff’s performance challenges that convinced the sales team to try selling the product at a premium price.
“We were selling the tests at half of the price that we’re getting now,” Nordhoff says. “So I challenged the sales team to go out and get the higher prices,” Nordhoff says. “They were reluctant at first, but I told them that they were better than that. When I told the sales team that they were capable of achieving more and when they started actually generating more sales at the higher prices, they were elated. As the CEO, you have to challenge your people because people need to be challenged. I couldn’t accept that we weren’t going to get the higher rates, so I challenged the sales team to achieve at a higher level. Now, I approve all pricing to make sure that we’re getting the best margins possible.”
When he’s not coaching the sales team or hanging out in the cafeteria in search of an impromptu coaching session with some of the firm’s 1,000 employees, Nordhoff is soliciting anonymous employee feedback and third-party opinions as to Gen-Probe’s status as an employer of choice. The information provides him with honest opinions and opportunities to improve the culture and the work environment.
Formal employee climate surveys are taken among the staff every other year. Nordhoff received feedback via one of the surveys that the employees wanted additional tools to help them achieve at the performance levels he was expecting. In particular, they wanted more training and development programs. As a result of the information he received, Nordhoff developed formal employee education and mentoring programs that augment the culture.
“As a result of the survey, we really stepped up our training programs,” Nordhoff says. “We teach soft skills so our management team can be adept at having performance conversations with their staff, and we teach them how to set performance measures and objectives. Providing helpful feedback to employees about their strengths and weaknesses is part of what we believe in, so we want to train our managers how to conduct an effective feedback session.”
The firm has also received external recognition for its work environment. In 2003, the company was awarded the Workplace Excellence Award by the San Diego Union-Tribune, and in 2005, the company was named as a finalist for an award given by the San Diego Business Journal recognizing Gen-Probe as one of “The Best Companies to Work For.” Those report cards tell Nordhoff that he’s on the right cultural path and the balance sheet confirms it.
“In order to be successful as a CEO, you really need to get the best people that you can, not necessarily the smartest people, but the best people and then give them a shot,” Nordhoff says. “You need to treat people as though they are your most valuable asset because they are.”
HOW TO REACH: Gen-Probe Inc., www.gen-probe.com