Current economic conditions offer M&A bargain hunters a variety of strategic opportunities. But executives focused on plans for expanded product lines and market reach often overlook the need to consider the financial risks, not the least of which includes integration of employee benefit programs such as retirement and medical. The complex process might entail meeting future obligations and complying with both U.S. and international regulations and disclosure requirements.
The accompanying costs are often characterized as minor when the deal price is under negotiation, but with these costs rising around the globe and an increase in administrative and reporting complexities, a lack of proper planning and due diligence may undermine the success of M&A transactions.
“World-class acquirers assess the financial risks with benefits and plan the integration strategy during due diligence. It’s those that wait until after the announcement that run into trouble, since they don’t know what they are getting and can’t change what they’ve agreed to in the purchase agreement,” says Alex Young-Wootton F.I.A., F.S.A., senior international consultant with Watson Wyatt Worldwide. “Risks associated with cost and compliance for employee benefits often arise when the buyer begins to integrate two disparate benefit plans onto a universal platform, only to find the financial impact and integration strategy weren’t given due consideration when the deal price was calculated.”
We have all read about how many M&A deals fail to meet their objectives due to insufficient integration planning. Recent tough economic times only serve to reinforce the necessity for success.
Smart Business learned more from Young-Wootton about the hidden benefit risks that threaten M&A success and the steps executives should take to mitigate them.
Why is due consideration of employee benefits a key driver for M&A success?
Benefits assessment and their subsequent integration play a major role in assessing the true economic value of the target and in retaining key employees, which directly impacts the success of the newly combined organization. Also, it is critical to be able to correctly identify, quantify and allow for the financial implications of the liabilities being inherited.
In addition, the M&A transaction may necessitate compliance with additional regulations, either because a change in control subjects the organization to another country’s laws or the size of the newly combined organization mandates that additional benefits be offered to employees, which need to be reflected on the company’s balance sheet.
The recent fall in equity markets has highlighted the significant risk that pension provisions represent, however in addition to economic factors, a multitude of other factors affecting volatility, cost and competitiveness of the benefits provided need to be considered. Long-term obligations may be underfunded and require future cash infusions to plug these deficits, which can be offset during price negotiations if the financial risk is known, quantified and understood.
Why are employee benefit costs frequently overlooked?
Executives may perceive that retirement costs are relatively fixed and just look at what’s currently on the balance sheet, thus requiring no further investigation, without realizing that they bring with them compliance complexities and integration issues critical to the success of the M&A process. However, many inherited liabilities may bring with them previously not required disclosure requirements and, given the sign-off requirements imposed by Sarbanes-Oxley, executives need to include identification of these costs and risks as part of the early review process.
Which techniques reveal these hidden risks?
Simply, better due diligence, including integration planning before the transaction is complete by examining each element of your company’s benefit plans and those of the target organization. Sometimes the identification process may reveal hidden liabilities, especially around mandatory benefits outside the U.S., because those costs are frequently overlooked, especially by organizations that believe they only have a global ‘DC’ strategy in place. Many companies get confused with the term mandatory, assuming its state or government paid, but this is not the case; the state determines you have to offer the benefit, but the company pays for it.
Identify any accounting implications, including the need to comply with additional disclosure requirements, as well as how the transition to the post-deal benefits platform will take place. Once the liabilities are identified, quantify their value using an approach and assumptions that are appropriate for the purpose. Dollarizing the liabilities will help executives understand their impact on the transaction as a whole and potentially impact the deal price.
What other risk mitigation techniques are effective?
Once the risks have been examined during due diligence, additional techniques can reduce their impact.
? Attempt to leave the employee plans and their related liabilities with the seller as part of the negotiation process (and get the employee onto your plans for future service).
? Introduce indemnity agreements that result in post-acquisition price adjustments as a hedge against unforeseen benefit costs or lackluster asset performance.
? Communicate the possibility of an acquisition to your HR staff early on so they have time to conduct effective due diligence and reflect risks in final purchase price.
? Don’t lose sight of the need for a competitive package and its value when contemplating the long-term risks associated with employee benefits.
Louis Provenzano can tell his employees how great Language Line Services is, and he does so every chance he gets. He can talk about all the potential his company has for future success, and he does that, too.
But in order to achieve those lofty aspirations, Provenzano would need to get his employees to believe his words and be willing to put their own skills to use to reach those goals.
“Play to everybody’s strengths, provide them the opportunity of using their own individual strengths and continue to excel,” says Provenzano, president and chief operating officer at the interpretation service provider. “When you’re a successful company, people expect more. My biggest challenge is how do I make people do more and really feel good about the direction of the company.”
Language Line provides over-the-phone interpretation service in more than 170 languages through the company’s 7,000 employees. The key to future growth would be Provenzano’s ability to tap into his employees’ talents and fuel their drive for personal and companywide success.
Smart Business spoke with Provenzano about how to build a team that can help drive growth.
Set clear goals. I had to set the standards to make sure everybody would sing to the same music and have a methodology of going out into the market and explaining our value. It really is making sure that the team really understands their roles, how they can prosper in their roles and how they can use the tools that we currently have in the organization.
Goals have to be very well articulated from the president’s office. You have to ensure that the entire company understands what needs to be accomplished. Setting the goals and objectives and requirements has to be well-articulated. Everybody needs to understand that and understand what their contribution is to achieving those company goals.
Build strong bonds. The thing that a good leader does is they bond with their people, their customers and with their shareholders. Listen and pay a lot of attention to suggestions. We’ve introduced kaizen here at Language Line, which is a continuous improvement methodology.
If you spend a lot of time in the trenches and a lot of time with your customers and ask what their biggest pain points and challenges are and what they need to be more successful, guess what? They will tell you.
I travel an awful lot, not only for speeches and various interpreter sessions, but I’m out there in the market with customers and employees. I’m constantly asking: What can we do differently? What can we do better? What do we need to change? What do we need to do better?
I try to get to a lot of the managers’ meetings on a regular basis throughout the course of the year. I’ll ask what’s on their mind. What went well with our customers this week? What did not go well? What are some of the challenges we’re currently having?
Reward enthusiasm. Encourage people to participate. If they are in an environment where they feel they can contribute openly and honestly and that their feedback is going to be taken into consideration, people will do more of it. People will recognize if you reward for good behavior and you reward when there is great success.
I personally believe in picking up the telephone and making X amount of calls every week to key employees when I see something that is noteworthy that needs recognition. Getting a letter or a phone call from the president of 7,000 employees is very difficult to do from a timing standpoint, but it’s extremely important.
Success always begets success. If you have an open environment where you encourage people to perform at their highest level of achievement and you publicly recognize the top performers, it encourages a healthy environment for everybody wanting to be a part of that excellence.
Develop accountability. People will get paid for great performance. People recognize that management is in this with every single individual in the company. We try to make very transparent what everybody has to do. In doing so, we also make very transparent what people have not done.
Everybody has a personal responsibility to sign up and agree to do their fair share to make this company continue to be a success. Everybody has some objective they are very closely monitored on.
Find out what your customers need and let’s try to be creative in addressing a solution that adds value. You hear people say to think outside the box. There is no box. The sky is the limit.
Follow up on goals. Objectives that were set by the president at the beginning of the year and the objectives carried out throughout the group are reviewed every single week. How are we doing with what we said we were going to do? Where are we ahead? Where are we behind? If we are behind, why are we behind? What are we going to do for corrective action?
If there is a problem in a given part of the business, then it goes back to the communication. We all bond with that problem, and we collectively agree that we need to do the following changes to get ourselves back on track.
Always strive for solutions. With every individual within our company, we have personal challenges and professional challenges. If you have a challenge or you have an issue, acknowledge it and be open about it. But let’s encourage people to be empowered to come up with the solution.
Don’t just bring up the problem. What is your best recommendation for solving the problem? If every one of our managers and executives ask for encouragement on solving the problem, people will feel empowered to come with, ‘Here’s the problem and six suggestions on how I think we can fix it.’
Encourage people to showcase their passion and rise to their level of talent. Give them the opportunity to speak out. If you empower your people to do something with it, chances are you’re going to have a very successful solution.
How to reach: Language Line Services, (800) 752-6096 or www.languageline.com
Executives need to garner increased levels of employee productivity and unabashed business innovation to drive their companies out of the recession. But capturing the hearts, minds and imaginations of workers has never been more difficult. With business plans in flux, budgets slashed and goals no longer attainable, employees are languishing under the weight of uncertainty, workplace stress and shifts in strategic direction. Executives can reap the benefits of an energized work force by capitalizing on engageable moments and creating a culture of continuous engagement.
“It’s difficult to align the efforts of employees with the company’s mission if the plan has become muddled,” says Matthew Kamensky, office practice leader for organizational effectiveness at Watson Wyatt Worldwide. “Leaders who set achievable goals, communicate continuously and capitalize on engageable moments can position their companies to emerge from the current crisis.”
Smart Business spoke with Kamensky about leadership strategies that engender a culture of employee engagement.
What’s the benefit from increased employee engagement?
Our Watson Wyatt research continues to validate the gains from employee engagement. Employees with high engagement work at companies with 26 percent higher revenue per employee and 13 percent higher total returns to shareholders over five years. Our research also shows that highly engaged employees have lower turnover and absentee rates, are more resilient and are better able to deal with the ambiguity of shifting business priorities than their lower-engaged counterparts. Furthermore, executives have a tendency to lean on the most engaged players to drive the company out of recession.
How do recessions impede engagement?
Engagement occurs when employees are committed to help the organization succeed and when they have line of sight — that they understand the business goals, the steps being taken to achieve those goals and how their roles and individual performance impact the goals of the organization. Recessions require constant course corrections, causing employees to lose their compass, so productivity suffers. Also, when goals become unattainable and monetary incentives are reduced, employee morale declines and stress increases, resulting in diminished focus on the business plan.
Which messages are most effective in driving an engaged environment?
Employees don’t expect executives to have all the answers, and it’s better to err by communicating more, rather than less, during challenging times. Engagement is bolstered by frequent executive communications, especially around milestone attainment leading to annual goals. But when milestones are missed and executives are struggling for answers, they are often reluctant to communicate just when it’s needed most.
Provide transparency around the difficult decisions you’ve faced, such as those involving staff reductions. Explain the reasons behind your actions so employees will understand why the moves were necessary. Capitalize on an engageable moment by educating survivors about why their performance is even more vital.
What other techniques bolster engagement?
Review past employee engagement surveys or conduct focus groups to discover employee hot buttons that don’t require increased budgets. Look to understand what drives engagement for the employee groups that have the greatest impact on the business. Recognizing employees for innovative ideas or cost saving tips doesn’t have to be expensive — yet public recognition of achievements offers an engageable moment and creates a culture of continuous engagement.
Look to your existing programs to create engageable moments. Any program or benefit, such as annual performance reviews or the launch of an open enrollment period, can offer an engageable moment if employers take the opportunity to connect those benefits to the value proposition employees receive for their contributions. Opportunities for engageable moments happen all the time; it’s just a matter of recognizing them and leveraging the moment.
What steps can executives take to reduce workplace stress?
Uncertainty, layoffs and pressure for results lead to workplace stress, which, if left unchecked, actually has a paralyzing effect on employees and is the leading cause of turnover. Expanding the company’s circle of core contributors reduces stress and bolsters engagement. Refocus employees on achievable goals that will not only help the company emerge from recession but enhance individual and company growth.
As an example, when layoff rumors persist, employees react by going into survival mode and become inwardly focused. Re-energize your employees around external goals, such as increased customer satisfaction, which is achievable in any economy. And, in the process of working more closely with customers, employees may even discover ideas for new products or services that will help the company emerge from the recession.
Matthew Kamensky is the office practice leader for organizational effectiveness at Watson Wyatt Worldwide. Reach him at (303) 575-9742 or matt.kamensky@WatsonWyatt.com.
You’re looking at your expenses, and that health care cost is just glaring at you. If only you could chop that number.
In fact, many employers are. The economic downturn has caused 60 percent of employers to change their health plan or strategy, according to a National Business Group on Health/Watson Wyatt Worldwide study. With the median health care cost per employee estimated to reach $7,400 this year, many employers are transferring costs to their employees.
That may be an idea of your own or a route you’ve already taken. But insurance providers and health care experts are cautioning you to think twice if you want true savings and you want to hang on to your employee base.
“There’s a great temptation I think to short term save dollars, but long term, it’s not a good trade-off,” says David Joyner, senior vice president, large group and specialty benefits for Blue Shield of California. “In the long term, I think employers and employees will save money if we’re able to influence lifestyles because a tremendous amount of life care costs are linked ultimately to lifestyle and diseases that are connected to lifestyle choices other than genetics.”
More than 75 percent of employers’ health care costs and productivity losses are linked to employee lifestyle choices, according to the Centers for Disease Control and Prevention.
Cutting or renegotiating your health benefits can save money. But until you understand what’s driving your costs — your employees’ bad habits — you’re not going to reach the root of the problem. The bottom line is, the more your employees use their insurance, the more you’re paying.
Understand what you’re paying for
To really control costs, you have to understand what they are.
Sit down with your broker or third-party administrator to discuss your claims. You need to understand the specifics of your population and how employees are using their insurance, meaning what services they’re seeking, what medications they’re on and perhaps discern the top illnesses they suffer from.
Larger companies dedicate time every week or once a month to go line item by line item and chart trends, but for smaller companies, it may take months to paint a clear picture. The overall goal is to carve out a specific area your employees are using a lot of and try to find a more efficient way of dealing with the health need. For example, finding out your employees use the emergency room as a physician’s office or pay three times the price of a generic drug for brand-name medication can empower you to seek cost-saving solutions for you and your employees.
“One of the realities of health care is there’s a huge difference in the cost of the health care depending on where it is provided,” Joyner says. “Employers can encourage their employees to make smart choices around health care purchasing. It saves the member money because their out-of-pocket will be lower; it saves the employer money because ultimately employer premiums are driven by, at the end of the day, what the health care costs are of their employees.”
Once you have a better understanding of where you’re spending money, don’t be afraid to look to your broker or health plan provider for advice on the next step. Much of your costs can be deterred by simply educating your employees, and most health insurance providers and local hospitals offer informative tools and programs as aids.
Understand what to educate your employees on
You don’t need to know the specifics, like the annual median cost increase for health care is estimated at 7 percent for 2009, to know costs are rising. And your employees probably notice the difference in their paychecks.
There’s no better time to proposition your employees with ideas that can better their health and save them money. Plus, emphasizing healthy living can quickly boost workplace morale and productivity, which can’t hurt in these uncertain times.
In order to provide your employees with pertinent information, you have to understand what risks they face. Many employers are opting to screen their employees, hiring a local clinic or hospital to come to the office and perform body mass index tests. The anonymous results are later given to you as a snapshot of your employees’ health.
Costs for the screenings vary dramatically. But another option is having your employees fill out a health assessment, which may cost nothing and take little time. Most insurance providers offer online health assessments, which may even be an incentive connected to your health plan. If you opt for an assessment, the provider then takes the information and directly contacts your employee with wellness information and advice.
Either route you go, the group you seek out can help you devise techniques that will speak to your employees’ needs and interests.
Step into action
Now you know the services your employees are using and the health risks that force them to seek care. However, you’re pinching pennies, and investing in a full-blown wellness program, which is estimated at the high end to cost $400 per employee, to support healthy living is the furthest thing on your mind.
But some food for thought: Wellness programs tend to see a 2-to-1 or sometimes even a 3-to-1 return on investment. And results usually can start to be seen in a year.
But wellness programs aren’t needed to see results.
“The big problem with much of the lifestyle change work is actually doing it,” says Dr. William B. Stewart, medical director of the Institute for Health & Healing at California Pacific Medical Center. “Most people have a pretty good idea of what to do, and there are lots of recipes out there for what to cook and how to exercise and how to do all these things, but the big challenge is to actually get off the couch or get your walking shoes on and initiate the actions that actually can benefit us.
“Educating people and making them aware of what the risk factors are and how those risk factors can be ameliorated by healthy choices.”
Some behaviors can be directly impacted at work with no added cost by changing vending machine options, starting a walking club or banning smoking. Ask your broker or a local health association to hold monthly seminars at your office. Ask your provider what free services it offers.
To really get employees to perform, the need for incentives still holds true. Companies have seen immediate savings in paying for employees’ medication if they buy generic.
Another idea is linking an employee’s program participation to his or her health plan. If employees reach lower targets in weight and cholesterol, consider paying for their insurance. Their healthier lifestyle means less risk for chronic diseases and probably fewer medications and doctor visits.
Research will tell you there’s room for creativity. But whichever route you take, you must see it as an investment in your employees and include them in the process.
“In different settings they want different things,” Stewart says. “The more employees are included in the decision-making around which activities are or aren’t provided gives them a sense of inclusion and will enhance participation.”
Tim Guertin has three questions he continuously asks his employees to answer to ensure that Varian Medical Systems Inc. continues growing.
“Obviously, growth comes from people wanting to buy your products in ever greater numbers, so the first question you have to ask yourself is, ‘Why would they do that, and how do you make them do that more?’” he says.
Next, he asks how to make the products more efficient and make people happier using them. Lastly, he asks how Varian can get more people who aren’t customers to buy its products, which are medical devices and software used to treat cancer patients.
If you can find the answers to those three questions, then it’s likely that success will follow.
“Do those three things well, I think you’ll grow,” says Guertin, president and CEO of Varian.
He has learned that in order to answer these questions effectively, he and his employees have to focus on their customers, be open to criticism and also be inspirational. As a result of doing these things, the business has grown from $1.6 billion in fiscal 2006 to $2.1 billion in fiscal 2008.
Focus on customers
When Guertin first started in the business, one of his managers made him go to a clinic for two days to watch patients be treated. It helped him better see what the problems were and what the customers liked and disliked.
“You should spend a lot of time talking to customers and having people in your organization talking to customers,” Guertin says. “You need to understand your customers viscerally and spend enough time with them [so] that you do.”
You have to be strategic about it though and make sure you’re spending that valuable time with different demographics.
“You watch new users and see how long it takes them to learn something,” he says. “You talk to the people who have to educate customers and ask them how it’s going and what things are the hardest for the customers to learn. You talk to experienced users and get their opinion.”
The problem with expert users is that they know so much that they often get on tangents, and you don’t learn what you really wanted to learn. Because of this, you have to also hit your intermediate users, who use the product but infrequently. These users may know how to do something but sometimes forget between usages.
“Intermediates represent the bulk of customers, and they’re the most easily frustrated,” Guertin says. “You have to talk to them and figure out how to design your products such that those people stay happy.”
When you talk to customers, open up the meeting by letting them talk. Guertin says that if he’s having a daylong meeting with a customer, he lets them talk for an hour before his first PowerPoint slide even comes up.
“You have to know where they’re coming from,” Guertin says. “Most people go into a conversation knowing where they’re coming from and not knowing where the other person is coming from.”
While listening entails using your ears, it also involves observations. For example, if Guertin sees a glimmer of distaste come across somebody’s face, he’ll ask what bothered him or her.
“There’s a little bit of detective work involved,” he says. “If you’re a detective and if you’re questioning a suspect, you can’t just have a planned interview. You have to follow things up.”
You also should reach out to people who aren’t your customers.
“You have to go talk to the people who aren’t interested in your product, and you try to figure out why and what’s going on in their head,” he says.
It may be your product or it may simply be the way you advertise your product, but you’re not going to know unless you ask them.
“You have to teach your sales force to do this,” Guertin says. “The sales force’s job isn’t just to talk. It’s to talk to people who don’t want to buy the product. It’s actually to talk to cold prospects and learn from that.”
Throughout all of these tactics, remember that you have to be somebody your team can emulate.
“You have to demonstrate the behavior yourself because people will watch the boss,” he says. “If I go into a room and spend all my time telling customers instead of listening to them, I’m not modeling that behavior.”
Be open to criticism
The second way you’re going to answer those three questions is to talk to the critics within your organization and customer base.
“Sometimes the best people to talk to you are your critics, which is no fun to do,” Guertin says. “You go talk to them and listen to what they have to say, and then you walk away feeling like you should kill yourself, but the next day you may have a better idea of how to make things better.”
For example, one of Varian’s customers decided to buy a different product offering, so Guertin called the customer and asked an honest question.
“I said, ‘I know we lost, but will you have dinner with me, and let’s talk about it?’” he says. “’I’m not here to change your mind. I just want to talk about where we went wrong. It’s my job to build a better Varian — can you tell me how to do it?’”
The customer said OK, so the two went to dinner, and Guertin was shocked when it lasted four hours.
“I spent dinner going, ‘OK, so we did this wrong. Good. What else?’” he says. “My job was to say, ‘What else?’ and extract a whole list from him.”
Guertin then wrote a letter to his team about what he had learned so they could fix themselves instead of being mad. It’s important that when you get feedback, you recognize what to listen to, so Guertin goes back to his three questions.
“If those are the goals, then when you get feedback, you sort of match them up against those goals,” he says. “If someone says your service organization screwed up, then you get details about how they screwed up, and then you ask yourself, ‘OK, how is this thing working against us in answering one of those three questions?’”
In addition to taking criticism from your customers, you also need to seek out the internal critics.
“In a lot of companies, the people who tell you all the ways in which something will fail are not welcome,” he says. “But you need to have those people.”
Guertin likes to seek out one particular person to run his ideas by.
“He’s one of those people who can see every possible and conceivable way it can fail,” he says. “If I can walk into his office and discuss an idea and survive the failure discussion, and at the end of it, he’s starting to smile and look interested, I know we’ve got something.”
It’s not easy to welcome criticism, but it’s something you have to train yourself to do. Guertin suggests an exercise that an organizational development person showed him years ago to help set aside your defensiveness. That person told him to take a group of employees into a room and ask them to finish the statement, “My job would be better if _____.” Then write down all the things they say, but you can’t change or argue with anything they say. When you’re all done, you may have 60 or 70 things. Ask people to vote by secret ballot for the top five, and then you’ll see where the consensus is for problems.
“Since you’re the boss, if you don’t react defensively, and if you just write it down, the longer the meeting goes on, the more you’ll get things that are crucially important to them and really are bugging them,” he says.
Guertin recently heard a quote from Bob Noyce, one of the co-founders of Intel Corp., who said, “Don’t be encumbered by history. Go off and do something wonderful.”
You have to keep looking beyond what your reality is to pull in people who don’t use your products yet.
“If you just pay attention to history, you’ve been misled about what the future should be,” he says. “Don’t automate the cow paths. Don’t look at the cow paths and decide where the roads ought to be. If you think originally about what customers want, you can sometimes see that an evolutionary step is the wrong step. You need to rethink what people do in order to imagine a new solution.”
Guertin points out the creation of the iPod as an example.
“Sony should have thought of the iPod,” he says. “They made disk drives, they made everything necessary to do it, but they missed it because they were encumbered by their own history. That’s one thing you don’t want to do.”
When you’re thinking revolutionary, your products will inspire people and get them excited. For example, the typical house has a kitchen, living room, dining room, bathrooms, bedrooms and a garage.
“A person who is not a designer can pretty much draw a house, but a great architect can draw a house that’s an inspiration to the person who lives in it every day,” Guertin says.
He points out Frank Lloyd Wright’s Fallingwater as an example.
“The houses of that day compared to Frank Lloyd Wright, you can see that he went to a place nobody had ever gone before,” he says. “That’s what great designers do.”
But often when you look at your own abilities, you realize that your skills are more preschool-like rather than Picasso-like.
“You have to hire people, who by their life experience, have learned how to do that,” Guertin says. “... You have to have those people in your organization.”
To get those people into your organization, you have to spark their passion in the interview process by asking what they’ve most enjoyed in their career. Their response doesn’t matter. What does matter is that you drill down by asking them to tell you more and to explain it in great details. You’re looking at what that answer stirs up inside of them.
“If it was, in truth, something that they really enjoyed and something that they learned a lot from, they’ll be able to tell me a tremendous amount about it, and the more they talk, the [more] enthusiastic they would be,” he says. “By the depth of knowledge they display and the enthusiasm that they show, I can tell what kind of person they are.”
If you can find that passion in someone, you know they’ll also find a passion for your business and products and work to make both more inspirational.
“People put on an interview face, but frankly, most people’s interview faces aren’t that good,” he says. “Passionate people don’t put on that face. … They show love and affection for doing a good job. If someone doesn’t show me love and affection and a good job in an interview, they probably won’t show it to me in the job.”
How to reach: Varian Medical Systems Inc., www.varian.com
When Bill Wilkinson bought GreenLeaf in 1993, the produce distributor was wilting fast. One of the previous owners had died, and the company hadn’t been the same since. Service was poor, customers were leaving and GreenLeaf was on the verge of bankruptcy.
And Wilkinson, recently retired after a successful career in the hotel industry, wanted a new project.
“I insisted on the high standards GreenLeaf had and put those back in place,” he says.
“We made it perfectly clear to people around that they could trust us. We didn’t have much in the way of a management team. But the people who were going to be running the produce business now, they had to be honest and straightforward — no monkey business — disciplined into doing what was right.”
Wilkinson’s focus on rebuilding GreenLeaf has resulted in healthy revenue growth — from about $4 million in 1993 to $54 million today.
Smart Business spoke with Wilkinson about how to add an air of professionalism to your business and why investing in your employees pays dividends.
Communicate constantly. Do it, and do it often. We talk on a regular basis. We have leadership meetings on a regular basis where we discuss all kinds of issues that come up and how we’re going to handle them.
Our leadership meetings are every Monday at 1 p.m. Our general manager chairs the meeting. All the things we have going on are reviewed and voted on. The various department managers report on where they technically are on things. The other various department managers report on how training is going with their employees. So everybody knows what’s going on.
If somebody is stuck, the employees who are reporting to them get together and then discuss the issues. Then they solve the problem. There is very little mystery in any of these businesses.
Train your work force. Any training is good training. We do a lot of training — both with management staff and with all the staff at different levels.
When I started with GreenLeaf, everything was done by hand. We began to build on the needs of the company, and you’ve got to have computer skills. So we’d bring people in and have formal teaching methods to help people pick up the skills.
We have a book club. Employees, the managers take a book and they will all read a chapter of it. One of the employees, the managers will lead a discussion about what they learned that week in the book.
They make recommendations themselves. For example, our general manager went off to Stanford for a course. He came back and reported on how he was trained and what he learned at Stanford. It takes them and builds their skills, builds their self-confidence. It opens their minds to a different way of doing things.
They discuss it in relation to their work, and they basically wind up living it.
Be a coach. We build incentives in jobs, so they get paid for performance. So they can do quite well in their jobs, and there is performance accountability at all levels. So they know they can get paid well.
You have the mechanics of evaluating productivity and measuring that kind of thing, so we can judge performance that way. It’s just accountability and management. If they’re not performing, the numbers show it.
If we have an employee who is stuck, who isn’t performing, we help them. We coach them. Most people want to do a good job, and they want to be associated with people who do a good job. At the same time, you want to be compassionate and understanding.
You find yourself with employees who don’t know what to do, so they avoid the doing. In that case, you just sit down with them. You don’t reprimand them; you coach them. You treat everybody like they want to do a good job, because people do want to do a good job.
You have to coach them privately. Give them a hand, then ask them what they may be having a problem with. Say they don’t know how to buy a truck. So you sit down and work with them and say, ‘Well, you get bids and make sure they’re the same. You check the references,’ and things like that. And they learn.
If people who get a new job don’t do well, then we coach them. If that coaching doesn’t work, we replace them.
Create an enjoyable workplace. Employees should be treated nicely. If there is a problem at GreenLeaf, they will get an airing and a decision will be made. If, indeed, something has been done unfairly, it will be undone and done fairly.
I used to walk around and know all employees on a regular basis. I don’t know them as well as I used to. But they understand they’re going to be treated fairly, and they expect it. If not, they are going to say something about it and we’re going to get it sorted out. You bring in their supervisor and you’ve got to take them aside and say, ‘Listen, I don’t know how you worked at the last place you worked, but here we don’t treat people that way.’
When you start in the produce business, you’re working on a cold loading dock or in a refrigerator in the middle of the night. It’s not glamorous work. Even the employees who are working in the refrigerator, they’re treated very well. It makes it a positive, cheerful place to work.
How to reach: GreenLeaf, (415) 647-2991 or www.greenleafsf.com
When Dave Hitz co-founded NetApp Inc. in 1992, he went through the typical growing pains of a start-up. But when he grew to about 50 employees in size, things started getting really crazy. Revenue and head count were doubling each year, and he found himself buying a Polaroid camera and running around taking photos of every employee, writing their names on them and hanging them on the board because nobody knew each other.
These new challenges clued him in that a new era was emerging at his storage and data management solutions company.
“You start to see you’re doing things like that, and it should raise alarm bells in your head of, ‘Is this the early sign of a new era, and if it is, what might that mean?’” Hitz says.
Just like with a country’s history, companies have eras, as well.
“I would define an era as when the strategic issues are completely different from the things you focus on during the period before or after,” Hitz says.
Sometimes those eras are very clearly defined, and sometimes they tend to blur together, but Hitz says you have to recognize when eras are changing.
“If you can predict a future era, that would be awesome,” he says. “I’m not even sure it’s possible in general to predict future eras, but the next best thing to predicting one is to get an early hint that your era might be changing.”
Hitz has been through a few eras at NetApp start-up, crazy growth, tech crash, building back up to pre-tech-crash numbers and, most recently, the recession. Similarly, your company may be facing a new era right now. Hitz has survived it all, and last fiscal year, NetApp did $3.3 billion, but it’s taken tenacity and adaptability to weather the ups and downs of all the eras he has encountered. No matter the era, you have to always be looking for new opportunities and creating a new vision to ensure that your business will be around 10 years from now.
Look for new opportunities
When NetApp hit the tech crash, obviously people freaked out across the industry and went into safe mode.
“A lot of people look at a downturn and they say, ‘That’s the time to dig in. Whatever you’re doing, hunker down, and do it a little more efficiently,’” Hitz says. “I think that can be a big mistake. A downturn of the magnitude that we’re seeing now and certainly for tech companies, the dot-com crash, it’s almost certainly a new era. Whatever the key strategic stuff you were doing before, that has to be different.”
NetApp’s vice chairman, Tom Mendoza, always told Hitz that customers only open their wallets when they’re in pain, so while you may look out at the market and say people aren’t going to spend money right now, also remember that they’re in pain, so you have to find their pain and then show them how you can ease it.
“Downturns create a lot of new pain,” Hitz says. “A whole bunch of customers who whatever they were doing before, it’s not working anymore, and all of that pain they have is now opportunity.”
You need to talk to both your current customers and people you’d like to see as customers in the future.
“Hang out with them,” he says. “They’ll tell you. The interesting thing about customers is customers often will tell you what they wish you would do, and when they do that, I think they’re often wrong.”
He acknowledges that you’re supposed to say that the customer is never wrong, but sometimes customers aren’t quite sure what they need.
“They’re not necessarily the expert on how your product works or how your service should work, but dig behind the thing they tell you to do, and say, ‘I’d like to understand more. What’s the problem you’re trying to solve when you ask me to do X, Y, Z?’”
For example, when meeting with one customer who wanted NetApp to create a new feature for them, Hitz’s team dug deeper and discovered that the solution to the customer’s problem could be found in another product they already made. Had they not pushed, they would have wasted time and development efforts creating a whole new product.
On top of actively listening and probing deeper, you also have to learn to be persistent.
During the dot-com boom, about 70 percent of NetApp’s customers were Internet and technology companies, which made NetApp’s senior leadership very nervous. They wanted to find customers in other industries, so they kept calling up companies on Wall Street and explaining the cool features they offered and how they could do things less expensively than their current providers. They got laughed at. Things were good, and they had money, so they didn’t care about cool features or cheap costs. Enter the tech crash, and then things changed.
“After the crash, everybody we talked to said, ‘Oh my God! You can solve the problem for cheaper? Oh my God! You have features that let me do it a different way!’” Hitz says. “Suddenly a zone of customers that we had locked out of ended up being our key target.”
Now clients may not be willing to spend as much money as they were before, but they still have to run their businesses, so look for ways you can help them do that more efficiently and cost effectively.
“If you can help them do that in a different way, that can be a great opportunity,” he says.
As NetApp started to grow by capitalizing on new industries, the face of the company changed. When it reached the $1 billion mark the second time, only 30 percent of its business was in the technology and Internet fields, and it had expanded into all of those areas it previously wanted to be in. Instead of being a tech-heavy company, now it sells primarily to Fortune 1,000 companies.
“It’s tough in the downturn, because you don’t necessarily have the opportunity to do as much new investment as you want,” Hitz says. “You’re probably cutting it back, but what do you have in your portfolio of business that allows you to solve all the new problems that have just emerged out there?”
He says to spend time brainstorming and focusing efforts around that question in order to move forward during this hard time.
“It doesn’t feel like that’s the right thing to be doing, but at least spend some time saying, ‘Is there a group of people that suddenly have some pain that’s just what we know how to solve that never would have considered us before?’” he says. “It could be an opportunity for transformation.”
Create a new vision
After Hitz grew NetApp back up to $1 billion in revenue after it dropped during the tech crash, he was suddenly faced with a new challenge. When the company was doubling, he obviously just doubled the previous year’s numbers to create the new goal. When he was coming out of the tech crash, his goal was simply to get back to where he was before. This was uncharted water since he had never been above this mark.
“For the first time, I was very confused because for the first time, I didn’t have a good idea what our mission was,” he says.
He was so confused that he drew inspiration from literature to create a vision for NetApp. At the time, Hitz was reading Robert Heinlein’s “Future History” series, a story about what 500 years from now looks like and what happened in between to get there.
While Hitz didn’t go that far forward, he looked out a few years and saw NetApp at $3 billion in revenue, so he took a past-tense approach to determine how he would have gotten there in order to develop a new vision.
“Vision is describing as well as you can what the future should look like, but doing it in the, ‘How did we get there? What steps happened?’” Hitz says. “Talk to people from all different departments about what would have needed to work.”
Hitz did internal interviews and talked to every person in the CEO’s suite because a chief financial officer will have a different view than the chief operating officer. He walked people through his era concept and asked them to think about past eras. In defining an era, don’t be shortsighted.
“Think back as far as your company goes and just ask, ‘What are these big eras?’ not six-month things, but typically two, three, five years kind of things,” Hitz says. “That gets your head a little bit in a better space, and you get more of the right time scale. Thinking of long periods in the past can help your head explore longer periods in the future.”
He also asked them to think about key drivers in past eras and key drivers for future eras.
“Our CEO once gave me advice on strategic planning,” Hitz says. “He says the goal of every strategy should be to gain market share, and therefore, every strategy should begin with a market analysis. Who else are you competing with? What other products are there? That’s the starting point.”
He also asked them to picture who their customers were and what they needed. What products and services do we know how to develop or what do we need to do different? How will they reach those customers, and how do they like to buy? Do we need offices in India or do we need better HR systems here to support who we hire?
He used all of this input to help develop steps to reach that $3 billion mark, but there was another element to creating a vision that is important to him, and that’s to take a positive approach, despite any problems you face. Although he founded the company, Hitz stayed a programmer evangelist until it hit about 1,000 people and was asked to run all of engineering, which was about 250 people. Upon doing so, he realized that when he complained, people ran around trying to fix the things he complained about.
“My first lesson from that is if I’m going to whine, I should whine as accurately as possible because if I don’t whine accurately, they’re likely to fix the wrong thing,” he says. “So I’m trying to do management by whining accurately, which perhaps isn’t the most inspiring way a boss could be.”
Through this management strategy he had an epiphany though.
“Whining is the evil twin of vision,” Hitz says. “When you’re trying to whine accurately, you’re describing as carefully as you can how you wish the world was not. The whole point of vision is to describe as accurately as you can how you wish the world would become. If only you can flip it around from a whine of all the things that you don’t like into a vision of the way things would be different. It’s almost the same stuff, but I can tell you that the vision version is a lot more inspiring than the whining version.”
For example, take the proverbial glass half-full versus half-empty concept. Most would say you’re either positive or negative when looking at that glass, but Hitz takes a different approach. He sees the glass and says it’s twice as large as it needs to be to hold the contents, so how can he better make the glass.
“You flip it from, ‘Jeez, that glass is too big who designed it too big’ to, ‘Wow, we could save some glass if we made it smaller,’” he says. “It’s just expressing yourself a different way.”
How to reach: NetApp Inc., (408) 822-6000 or www.netapp.com
Innovations in the banking sector have transformed the way that business is conducted. In order to fully take advantage of such technological advancements, it is imperative to partner with a bank that communicates how new products and services on the market can improve your company’s efficiencies.
“If it’s been over a year since you’ve had a conversation with your bank about new innovations and the banking services you should have at your disposal, then you are probably being underserved,” says Syd Saperstein, senior vice president, division manager of Comerica’s Special Corporate Financial Services Division.
Smart Business spoke with Saperstein about what products and services should be expected from one’s financial institution.
How would you define the term ‘underserved’ as it relates to banking?
The banking industry has grown, as all industries do, and has come up with innovations, new cost-effective services and labor-saving solutions to handle problems that businesses face in the electronic age of the 2000s. We have consolidated and developed a lot of services that used to be spread around many different banks or many departments within a bank — now they are often seamlessly available in one place. Most customers, however, have not been given a road map on how to interface with their financial institution. And most financial institutions have done a relatively poor job of educating their customers about what improvements have been made. Consequently, customers are not getting the full benefit of the banking relationship that they could.
How can a business determine if it is being underserved by its bank?
Start by asking some questions: When was the last time my bank spent the time to educate me on the improvements in their world? When was the last time they pointed out improvements to the interface between businesses and banks? How can changes in treasury management services and the work that banks do internally translate into cost savings for me by taking over some of my work?
If you haven’t had a conservation like that, then chances are — just by the sheer increase in new products and services that banks develop and the passage of time — you are probably being underserved.
What advancements in the industry have occurred in the past decade or so?
Complicated multilevel transactions are now handled electronically, and there are advanced methods for batch file handling and consolidation. Internal accounting and subaccounting systems have developed within the most progressive banks. These sophisticated systems enable a bank to slice and dice their customers’ business and deposit relationships into regions, territories and sales offices, for example. In the past, a company’s employees used to have to keep track of all this information. Now, it can be handled within the bank, which saves the customer on personnel expenses.
What specific industries are most commonly underserved?
The ones we find most underserved are either the newest industries or the oldest industries. A company that starts today may ‘think small,’ go to a local branch and find the expertise that exists on the street level within a banking structure is not sophisticated enough to handle its needs.
On the other end of the spectrum are old companies with a lot of mature management, such as law firms or insurance companies. Law firms are often run by a management committee composed of the most senior partners. While their skill sets were probably well suited to manage a banking relationship 25 years ago, they may be very different from the skill sets that are being taught and used most effectively today. In order to keep their company as progressive as possible, they could very well benefit from partnering with a bank that is able to give them some up-to-date advice about what should be improved.
What products and services should be expected from one’s bank?
First, businesses need to take a look at the nature of the relationship. If they’re not having a conversation with their bank about innovations at least once every six months then something is wrong. Innovations within the banking world happen that frequently.
Second, you should investigate how the bank can take over labor-intensive transactional activities that are currently being handled internally. A specific example is processing 1099 Interest Income statements. Law firms frequently have to dedicate lots of staff time or even add staff in January and February so they can handle the processing of 1099 forms for the individual taxpayers whose funds are sitting in trust accounts with them. In today’s world, the 1099 work can be done by the bank for each component of a trust account. What’s worse is that, based on our experience and what we have learned by survey, the error rate on 1099 work done by nonfinancial institutions is around 20 percent, which can be very costly. Our error rate, for example, is far less than one-tenth of 1 percent. This is an area where businesses could avail themselves of using a bank’s services at low or no cost and replace a cost that is very high to them.
SYD SAPERSTEIN is senior vice president, division manager of Comerica’s Special Corporate Financial Services Division. Reach him at (415) 477-3246 or email@example.com.
Born: Beijing, China
Education: Bachelor of science and master of science degrees in electronic engineering from Tsinghua University in China; also attended Stanford University
What’s the best advice you’ve ever received?
The best advice I have ever received has come from a variety of sources throughout my life and career, but it boils down to one thing: Success comes from clarity of focus.
What was your first job ever as a child?
As a child, I had a fascination with all things electronic. My hobby was repairing radios, TVs and VCRs, which I turned into a job in my high school and college years. I had a small business fixing electronic devices around the neighborhood and later led a team in college, trading and fixing electronic gadgets.
As a child, what did you want to be when you grew up?
I wanted to be two things: To turn my electronic assembly/disassembly hobby into a business and to become a professional volleyball player. At 6’6”, I was quite good at volleyball and trained at a top sports school from the time I was 9 years old to about age 17. While good enough to join the Chinese National League, I decided instead to attend college at my parent’s insistence that I get a college degree.
What’s your favorite board game and why?
My favorite game is called Go, a strategic board game for two players that is popular in China, Japan and Korea. Go originated in China, where it has been played for more than 2,500 years. The object of the game is to strategically maneuver black and white stones on the game board in order to control a larger portion of the board than the opponent. I like Go for its strategic nature, as players balance defensive and offensive positions to defend and gain territory — and it offers good mental exercise and lessons for winning in business. It’s easy to play the game but very difficult to be good.
Companies looking to retain accounting firms as their service providers often go through as rigorous an interviewing process as they would when hiring their own employees. Applying their own hiring standards enhances the possibility of retaining the accounting service providers that meet their specific needs and can help them immediately.
One way companies can identify the best match is to look at the standards accounting firms apply in their own recruiting programs and develop a list of questions to ask them based on those criteria. Asking those questions can improve companies’ chances of creating the viable, long-term partnerships that benefit both participants.
Smart Business spoke with Beth Baldwin of Burr Pilger Mayer to get a general idea of the criteria accounting service providers look for when hiring accountants. Those criteria are the foundation for a list of factors that companies might consider as they interview potential accounting service providers.
Should potential clients inquire about the continuity of the accounting service provider’s recruiting program and balance in the level of experience?
Successful accounting service firms experience turnaround. How accounting firms replace departing employees is important. The new employees might be experienced hires, recent college graduates, interns or a combination. If the accounting firm maintains a balance of employees at different levels of experience in its work force, that is a positive factor. Companies should look at the balance and continuity of an accounting service provider’s work force when considering it as a partner.
Should companies worry about working with newly hired professionals at accounting firms?
There are a lot of factors to consider here. Some of the issues involve the types of degrees the accountants have earned, where they obtained them, how early in their employment they got to work with partners and whether they completed internships with their firms. In the case of experienced new hires, it might be helpful to learn about where they gained their experience, e.g., at a ‘Big Four’ accounting firm or at a one-person operation. Knowing those things can provide insights into the level of the experienced employees’ technical and client-oriented skills and shed some light on whether they have track records of being successful. Companies should take the answers to these questions into account when considering which accounting service providers to work with.
Is there a benefit to knowing what types of degrees accountants at prospective accounting service firms have?
Yes. For example, it would be helpful to know whether accounting service providers prefer to employ people who have accounting degrees, rather than finance degrees. Hiring people with accounting degrees accelerates the new employees’ learning curves, since they are already familiar with the accounting principles clients do not want to wait for them to develop. Employees with other types of business degrees may take a little while longer to acquire in-depth knowledge of those principles, which inhibits how quickly they can get up to speed with clients.
Is it advisable to ask about the colleges from which the accountants earned their degrees?
The information can be helpful. For instance, some colleges in the company’s area of coverage might have better, more established accounting programs than others and better track records in placing graduates with the more prestigious accounting firms. Others might focus on general business majors, rather than accounting specifically. Accounting firms take those differences into account. Their clients should, too.
It might also be helpful to learn how long a firm has worked with a particular college. Some accounting firms form close working relationships with people in a college’s career development centers and become well known at the schools. Consequently, the students become familiar with those firms and their reputations. Those longstanding relationships create pipelines for the firms, and provide employment and internship opportunities for students. Eventually, the benefits of those relationships filter down to the clients.
How do internships influence newly hired accountants’ experience?
Internships familiarize the accountants with their firms’ cultures, areas of specialization, etc. The experience they gain in internships provides them with the knowledge they need to apply when they become full-time employees and gets them involved in the firm’s operations more quickly. They are better prepared to work with clients as a result.
How do the factors discussed above benefit long-term relationships between companies and their accounting service providers?
Once the companies realize that the service providers can offer a beneficial mix of experience and skill sets, they will feel more comfortable working with them. That is particularly true if the accounting provider employs professionals who are ready to start working at once. That saves companies time and money, and provides a good starting point for the long-term relationship that benefits them and the accounting service provider.
BETH BALDWIN is the director of human resources at Burr Pilger Mayer. Reach her at (415) 677-3300 or firstname.lastname@example.org.