Good to great Featured

5:48am EDT June 30, 2005

In search of fat-free operations, companies look for places to pinch costs, tighten resources, save time and ultimately, sustain a healthy bottom line.

It's a process that IKON Office Solutions knows well. The $4.65 billion company, the world's largest independent channel for document management systems and services, tackles the issue for its clients every day, turning up pounds of unnecessary paper flow. Now chairman and CEO Matthew Espe, who earned his management stripes at General Electric Co., is putting those same management principles to work at IKON.

"Clearly, the slower economy we've all experienced has people focusing more on efficiency and productivity across the board," says Espe, who spent 22 years at GE, rising to CEO of its GE Lighting unit before being recruited by IKON's board in 2002 to boost revenue and profitability at the Fortune 500 company.

Once on board, Espe set to work clearing the internal jams that were holding back IKON, a company that was created through hundreds of acquisitions during the 1980s and 1990s. Those acquisitions gave it 40 percent of Canon's total distribution in North America and made it Ricoh's largest distributor in the region.

"We've engaged in a lot of activity that will help us significantly improve our profitability," he says.

Leading with a "tough and candid" management approach, every business division has been put under the microscope as Espe and the IKON team work to meet the company's most critical factor for success -- customer satisfaction.

Fast-forward solutions

Espe knows that service is the deal-clincher in the maturing document management industry.

"Our industry is slowly entering a new maturity phase," he says. "This phase is categorized by a commoditization of technology, slower growth and a consolidation of the channel."

As the document management industry matures, Espe is guiding IKON through its own coming of age, developing processes and evaluating profit opportunities as the industry changes. Hardware is now digital, equipment is less expensive and customers are wired with laptops and the latest technology, and IKON must catch up with its clients.

As a result, Espe has shifted IKON's business model away from being a product distributor to being a service provider. His goal is capture the robust service market segment, which is expected to increase approximately 8 percent to 10 percent this year, while equipment sales could decline 2 percent.

"As our customers, large and small, deal with the slower economic environment, they turn to every corner of their company for productivity, and they are discovering opportunities that improve efficiency by taking a more strategic look at their document workflow," Espe says.

Customers' need for speed leaves little room for dated equipment, clogged mailrooms and hefty copy/print demands.

"Working closely with customers is No. 1," he says. "No. 2, we have to position ourselves in segments of our industry that offer growth."

Selling solutions to customers is more difficult than showing clients a product, and gaining market share requires a consultative style. Fusing the two offerings will blend IKON's industry strengths -- strong supplier relationships and a staff prepared to provide customers with solutions.

"Hardware is more flexible, and that allows us to combine workflow solutions and equipment -- the software and hardware -- to provide more of an integrated system for our customers," Espe says.

IKON's Enterprise Services allow customers to partner with its 6,000 professional analysts, who assess long-term solutions for companies based on their document needs, costs, processes and expectations. Enterprise Services comprises half of the company's revenue and employs 16,000 associates in three groups: Professional Services, Managed Services and Customer Services. The goal is to deliver total document management solutions to customers, from managing mail services to printing, binding, graphics and general office support.

Because being a distributor in today's supply chain calls for a greater commitment than does doling out catalogs and logging equipment orders, Espe considers the back-room resources IKON will need to continue to deliver on its service promise.

"We are hard at work improving our own processes and working on our own efficiency so we can reign in costs effectively," he says. "The last thing you want to be is a channel that adds a lot of cost and not a lot of value."

Tough calls

Espe has made several success-driven decisions in the last couple of months, tough calls but all measures that position the company for growth and fulfill that value proposition. He's scaled back operations in Mexico, closed 17 underperforming legal document services locations and exited business document services.

"The days where you need a country overhead structure in Mexico or Europe are over," Espe says. "You have to approach each geographic market on its own terms, and you have to learn how to make money in each geography."

Sometimes, a company learns that the hard way.

"A little more than two years ago when I got here, I sat down with leaders in Mexico and I said, 'You have two years to break even,'" Espe says. "We worked closely on a monthly operating review cycle, we worked on measuring achievements, progress or lack of progress, and we gave [management] everything they asked for. In the end, you have to say, 'This was a line in the sand.' We made the call."

IKON was not a competitive player in the Mexican market, Espe says. It employed 300 people and generated between $15 million and $20 million in revenue, but consistently lost $6 million a year. Today, the company maintains a modest commercial presence to help manufacturers facilitate large accounts.

"We believe in the market in Mexico, but we thought our model was flawed," Espe says.

Identifying weak spots in the company is easier than finding a cure for them. But making the tough call is a skill Espe picked up at GE, and doing so is a business philosophy that guides his management style today.

"One thing that great companies do, whether GE or Dell, is they understand how to compete and they make the necessary tough calls to compete," he says.

Deciding to close the business document services division wasn't difficult after the numbers were laid out and it became apparent that the operation posted an $8 million operating loss on $50 million in revenue, Espe says. As for the legal document services closings, Espe trimmed 17 unprofitable facilities from its 82 locations.

These strategic moves are helping the company establish growth platforms, expand financial flexibility and drive operating leverage, Espe says.

"When you get to the decision point, you can't blink," he says.

A simple plan

Among all of Espe's business decisions, there is one that he considers his greatest challenge to date, a customer service center conundrum that taught him to favor simplicity over complexity.

Espe calls it "The Big Kahuna."

When IKON centralized its back room operations and consolidated 40 service centers into three large facilities in Atlanta, Houston and Phoenix, it forfeited one of its calling cards -- customer intimacy. IKON had figured that centralizing the facilities would reel in operations and help the division run more smoothly.

"We organized it around how we set up a service contract, how we get meter reads from the equipment in the field, how we bill service agreements," Espe says.

But customers had appreciated the special attention the regional centers had provided.

"We overthought it and overcomplicated it, and we organized the [customer service centers] around our internal processes and away from the customer," Espe says.

Today, IKON is concentrating on molding its customer service structure to meet customers' expectations.

"We had a huge opportunity to organize around the marketplaces and customers that these centers serve, not our own processes," Espe says. "That will give us improved customer intim

acy and responsiveness.

"You have to favor simplicity over complexity. I think companies run into trouble when they overcomplicate things. A simple, straightforward strategy with simple, measurable initiatives with a simple, unbundled organizational structure -- these are the things that enable companies to execute better. Signs, signals and messages that are clear and concise."

In his search for simplicity, Espe spends 50 percent to 60 percent of his time in airports and local centers and in meetings with sales representatives, who are asked very simple questions. Does this work? Why not? How can we do it better?

He gets feedback from his field managers and then practices what he says is the most difficult part of managing the business: patience.

"I'm not the most patient guy in the world," he says. "It's easy to develop a crystallized view of where we need to go. I know what good looks like. The challenge is managing my own patience and balancing my impatience with the rate and pace of change."

For Espe, a team of "great people working hard" is accelerating the pace of change.

"A strong leadership allows you to move fast," he says. "And, frankly, this team is not shy about pushing back on me. We have strong, independent thinkers who understand this industry, and we all share common values."

Already, IKON has celebrated a number of milestones. By selling its captive leasing business to GE last year, it cut its corporate debt in half, allowing it to invest in future growth programs, Espe says. There are the service centers that IKON is restructuring to meet its No. 1 priority, its customers. And it has expanded its footprint in Europe, growing revenue 5 percent year over year in the second quarter.

"Our targeted revenues are to grow 1 percent, and that is very soft," he says. "But that is nice progress."

Espe's patience is paying off. Still, he asks, "How quickly can we get IKON to be what we know it will be, in which it is the strongest channel in our industry?"

One thing he is sure of is how the company will approach its growth strategies.

"The one thing that you absolutely can't wink or blink on at all is integrity," he says.

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