In the late ’90s, Jim Griffith found himself among a group of young executives being groomed to lead a $2.6 billion company. With five senior-level employees at The Timken Co. — including the CEO at the time ? preparing for retirement, the succession process was in full swing. But what seemed like a great opportunity was soon lost on Griffith and his peers as the process progressed. They became increasingly aware of one alarming red flag.
“The bottom line was that the company technologically was the best in the world,” says Griffith, who is the president and CEO of Timken today. “Our products from a quality and reputation were the best in the world, and we couldn’t make any money. Our people from external validation were the best in the world, and we couldn’t make any money.”
As a result, the next generation of leaders found themselves harboring some serious doubts about Timken’s future as a profitable company.
“That’s a really troubling thing when you’re saying, ‘OK, I might have the chance to lead a Fortune 500 company and I’m not sure I want to, because it’s not making any money,’” Griffith says.
When he became president of Timken in 1999 — he was promoted to CEO in 2002 — Griffith and his top leaders embarked on what became and intense transformation to reorganize the company around its customers. Here’s how they took a 100-year-old company and reinvented it to make it profitable.
Define your value
One of the first things Griffith and his team recognized was that the company was organized around its products, a strategy that went back to its roots.
“What we concluded was that the company that was founded by Henry Timken in 1899 to manufacture his invention called the tapered roller bearing — effectively it’s a wheel bearing in a car — over the 20th century had become so product focused that we’d forgotten that the reason for being in business is to create value for customers,” Griffith says. “And when we then stepped back and said, ‘Where are the places that we create value for customers?’ they were very different than where the product-focused strategy drove us.”
One of the first moves the company’s leadership made was to restructure Timken around its markets instead of its products. Instead of having a bearing business and steel business, there was an auto business, an aerospace business, an industrial business and a precision steel components business, and the presidents were asked to focus on creating value for customers rather than maximizing sales.
“That led us down a learning journey of where does Timken really create value,” Griffith says.
The company went through a process of looking at each of its markets and asking, “How do we make money in this market?” and “What’s the value proposition?”
“Again, it was a real learning journey, because in some cases, what we found was we had to change the way we operated to be profitable,” Griffith says.
He and his team also utilized a rigorous marketing analysis to evaluate Timken’s relative profitability and relative differentiation in its current markets. One thing that they discovered was that while the company made great products, its products were valued much more in some markets than others.
“We make steel or we make bearings or we make gears,” Griffith says. “We make your car not break down. We make airliners land safely. We make jet engines more efficient. We make it possible to drill for oil 40,000 feet under the ground. That’s what we do. And there are some of those places where we were selling our products that you didn’t care. You don’t really care if you have a Timken bearing in your car, because the difference between Timken and our competitors is that if you have a Timken bearing, your car will last for a million miles. Now how many cars have you had that last a million miles? So we had competitors that were designing lower performance products, cheaper products, and putting them in those applications. And you’re happy with that.”
Early on, Griffith says the company had made far too many decisions about markets based on gut feel instead of analytics. But strategic marketing tools can be extremely valuable in helping you make decisions to guide the direction of your business.
“We learned a tremendous amount by going out and finding the best analytic tools for driving our marketing process,” he says. “When we finally did that, it made some tough decisions, like what to do with the auto industry, amazingly easy. I wish we had done that five years earlier.”
For Griffith, there were a couple of significant takeaways from the marketing analysis. First, Timken was at its heart a technology company. So to create value for its customers, the company needed to find the right technical problems to solve for them.
“When you are on an airplane, and you’re coming in for a landing and that tire hits the tarmac and it goes from zero to 160 mph in a split second, you don’t want anything but the best,” Griffith says. “So the difference is that we have maybe 15 percent penetration in the auto industry and we have effectively 100 percent penetration in landing wheels. And that learning about where are the places that Timken can create value was fundamental in most of the first half of the last decade.”
The challenge was finding ways to take the company’s core technical capability to market in a way that nobody else could and that customers would buy into — in other words, leveraging that differentiator to enhance existing products and services and expand into channels and markets where it can be competitive.
“In worlds of technology, we are the best in the world,” Griffith says. “Learning to translate that into business models and products that create customer value that’s differentiated was a critical learning for us.”
Part of that involved moving into markets or investing in areas where it could differentiate itself from competitors, such as aftermarket (replacement part) opportunities.
“The bearings in a car — one in 10 gets replaced over the life of a car,” Griffith says. “The bearings in a steel rolling mill get replaced every year. We spend a lot more time designing new products for rolling mills because there’s an opportunity for our technology to make them last longer in a way that is more valuable to the customer. They’ll pay for it and there is an opportunity to help that customer with replacement products.”
By investing in its industrial aftermarket segment, the company has grown that segment to $1 billion in sales.
“So our most profitable segment, we’ve grown five times and half of them are products that weren’t in our portfolio in 2000,” Griffith says.
The other piece is to exit markets in which you just can’t compete and be profitable.
Even though Timken was historically an automotive company, it could not get its auto market to make money on an ongoing basis. So in 2007, the company made a radical shift under Griffith’s leadership to transition out of the market. When demand for the auto market dropped in 2009, it also sold a large piece of its auto business to a Japanese company and made large cuts in auto support services.
“That put some cash in the bank for us and changed our profile,” Griffith says.
From a markets standpoint, the overall change in portfolio has been dramatic. Today, it includes markets such as mining, heavy transportation rail, heavy truck, the agricultural market and the international market.
“We went through that in every business that we have,” Griffith says. “The net result was we closed probably 30 locations around the world that couldn’t be competitive or needed to be more efficient or needed to be more effective. We built a half a dozen new locations in new markets where we were growing. So net we didn’t change the number of people but changed the structure of the way we operate. We radically changed our portfolio and radically changed our market portfolio.”
Again, the key to growth is not just investing in markets where you have the best product, but where you can deliver value in unique ways.
“Most of the products you’re going to see are things we made 10 year ago,” Griffith says. “But the way we take it to market, the mix in the portfolio and the way that we engage with customers to create value is so radically different, you might as well say it’s a new company.”
A critical driver of this transformation has been the company’s dedication to being a high-performance organization. This focus has helped it navigate numerous challenges as it implemented some major changes to reinvent the company, such as when the company’s leadership realized that Timken’s big manufacturing plants in the United Kingdom and Columbus, Ohio, couldn’t compete and needed to be shut down.
“The key to it was strategically, we were very clear where the company was going and so we knew what were the areas that had to be sustained were and what were the areas where we were going to reduce our presence,” Griffith says. “When you think about it in those terms, you take deeper cuts in the areas that you are exiting and lesser cuts in the areas that are crucial.”
Another critical time was in 2009 when demand for the company’s products dropped and its sales fell 38 percent. To improve efficiencies, the company had launched a business redesign process called Project ONE a few years earlier, which put in place an SAP enterprise management system and helped it take $400 million out of inventory in 2009. But at the same time, it still had to cut costs in any way it could, including 6,000 jobs globally.
“The concept of walking into plants that have been part of your family for a long time and saying goodbye to people is a very personal thing,” Griffith says. “The way it works at Timken — you hate to say that you become good at that — but we’ve become very good at that. We’re very open, and people understand the performance that’s going on.”
When cutting costs, Griffith says you start with strategic cuts — areas where you know you are going to lose business — and then use your performance management systems to put boxes around your stars and take deeper cuts in areas where you have low-performing people. You approach these decisions as a family, communicate openly about what’s going on, and then people will understand that as a high-performance company you need to set aggressive targets.
“It’s all about people, and having really good leaders in place is crucial, even more crucial when you’re going through a period of crisis,” Griffith says. “There’s a natural tendency, particularly in a family kind of culture, to try to support and sustain people who aren’t the absolute top people. There’s always a tendency to hang on to people too long. That’s good and bad. But from a performance point of view, that’s critical from this point.”
By transitioning into markets where it adds the most customer value and building business models that allow it to be profitable in those markets, the company has emerged a decade later outperforming its highest expectations, growing revenue 29 percent to $4.1 billion in 2010. In 2000, Timken generated roughly 50 percent of its revenues from bearings and steel in the automotive industry. Today that number is about 15 percent.
“It’s 112 years old, but it’s a new company,” Griffith says.
“We’ve retained our best people. We have shifted the portfolio of the company to much more attractive markets, markets with better aftermarket, better growth practices, more focused on the parts of the world that are growing. We have better management tools — this Project ONE capability. So better people, better markets, better management processes and then you are surprised that we’re getting record results.”
How to reach: The Timken Co., www.timken.com or (330) 438-3000
The Griffith File
President and CEO
The Timken Co.
Born: Palmerton, Pa.
Education: B.S. in industrial engineering and MBA, Stanford University
What is one part of your daily routine that you wouldn’t change?
I am an early bird — up at 5:00 a.m. or before every morning. I savor the quiet time before the family gets up — I usually walk the dog or exercise. It gives me an opportunity to think through the day ahead and be prepared to tackle whatever challenges it brings. I have done this since I was around 10 years old and continue to get up early, seven days a week.
What is your favorite part of your job?
Interacting with the people of Timken. I get to travel a great deal and interact with people all over the world. The people of Timken never cease to amaze me. Give them a challenge, hand them a tough assignment, and it never ceases to amaze me the creativity, resilience and character of the people who make up our company. My wife loves it when I come back from our plants because I always have a smile on my face, impressed with what I see. The most outstanding examples come in the most trying times — for example, in the recession of 2009, one plant in South Carolina needed to cut half of its workforce. Instead, the people decided that they should share the pain and chose to work alternate weeks, an impressive sacrifice by the most senior people. I could tell a hundred stories like this.
What’s the best piece of business advice you’ve received?
I’m a believer in people. I believe in people. I’m a natural delegator. And if you’re a natural delegator then you’ve better surround yourself with the best people that you can find, people whose judgment you trust, and set the parameters, set the objectives back to being aligned on the strategy. This is where I get real sensitive about, ‘Look what Jim Griffith’s done at Timken, because it isn’t what Jim Griffith’s done at Timken. …The sum of the decisions and capabilities of that leadership team is massively larger than the influence I could have. My influence is to get them aligned in terms of what that vision and objective is. Then frankly it’s stay out the way so that I don’t mess up the decisions that they make.
What is the culture like at Timken?
The answer is it is a family culture. For those of us that have been around a long time it’s kind of an emanation of the fact that the Timken family started it. But that’s not what makes us a family culture. What makes us a family culture is we tend to be people who come here, stay a long time, get to know each other, know each other and their families, work together on things outside. So we really are a very close-knit culture. Even people who come from outside become family.
1) Figure out where you create value.
2) Structure portfolio for value creation.
3) Optimize your performance.
Two months into his role as president of American Beverage Corp., Kevin McGahren-Clemens was looking at a company that had realized a $40 million loss. The 500-employee, $150 million beverage company was in a dire situation.
It was January 2009 when American Beverage’s parent company, Royal Wessanen, had trouble with its European business. In order to raise cash to focus on that area, the company decided it would need to sell its U.S. divisions, starting with its strongest, American Beverage. That April, American Beverage’s previous president left the company for a job with a competitor. McGahren-Clemens, who had been hired in 2006 to aid with some of Wessanen’s other divisions, was called on to run the day-to-day operations until American Beverage was sold. However, within a couple of days on site, he realized the business wasn’t in good shape.
“Due to poor fundamental management over time, results were becoming impossible to deliver so financials began to be increasingly manipulated to achieve targets,” McGahren-Clemens says. “No reliable financials existed, meaning no clear picture of profitability by product line, channel or customers existed either.”
Not only did the company have an unclear financial picture but prior management also had built an organizational structure with little involvement, communication or transparency with the broader work force and its focus as a consumer products company was wrong.
“The company had been managed for quite some time with a very short-term focus of delivering quarterly earnings instead of building any sustainable value for the long term,” McGahren-Clemens says. “Very little time or money was ever invested in consumer research or marketing as the organization’s focus was on short-term sales customers and not relationship building with consumers.”
The company was taken off the market and a turnaround effort began with McGahren-Clemens at the helm.
Evaluate the business
American Beverage’s previous president led the company behind closed doors. Since very little information was shared throughout the organization, McGahren-Clemens had to evaluate everything within the business to understand where to start.
“It was a situation where we really had to start from scratch because this person who was running the company, everything went through him and he was now gone,” he says. “In some ways it was easier that way. We literally just revisited and challenged everything. Basically, we just took the company apart over the next three to nine months to really understand what we had.”
Since a lot of information was unclear, McGahren-Clemens had to prioritize and become clear on the fundamentals.
“I put together a top 10 ABC priorities list, and that’s literally how I explained to everybody what we were going to do,” he says. “The first step literally was confirm and clarify financials because we had no idea what we were working with. Nothing was as it seemed. Things weren’t as possible as they looked and thoughts were not in the right place, and everything was manipulated. It was like driving a car that had no speedometer, no gas gauge, no anything, yet you had to operate it day to day.”
Establishing those fundamentals was critical, but the way to do that was to make sure everybody in the company was involved, which was not the way things were set up before.
“It was really getting everybody involved, breaking down walls between functions, making sure everybody was talking, making sure everybody had input, gathering information from everybody we could,” he says. “Everybody knew a piece, but they didn’t know how it all worked together. So it was gathering all the information and getting all the brutal facts on the table so that we could say, ‘What do we have? What do we go do?’”
When your employees are not clear about how the company is performing or what is truly driving the performance, you have to gather that information.
“It’s kind of a combination of doing your own analysis and getting as much information as possible and just objectively looking at it versus what does everybody think it is,” he says. “You have to look at customer lists, your profit by customer, your product line, what’s selling and what isn’t selling. In time, you really do have to contact all the people in the company who have knowledge and have more of a dialogue with them and try to pull out of them what’s working and what isn’t working. How else will you know beyond the numbers and what the numbers are telling you what’s working and what isn’t working? There’s no manual for gathering this information when it’s not clear what’s true and isn’t true.”
Before going any further, ABC needed a new senior leadership team to help turnaround the company.
“I started by first working on ultimately gathering the strongest senior team possible because you can’t do anything difficult within a fairly large organization alone,” he says.
“As we stand right now today, there’s only one holdover, which was the HR person. Operations, sales, marketing, finance, and IT all turned over. There’s usually a transition period like that because in a situation like this or anywhere, it’s hard to really attract the talent you want until you have some stabilization. You have to work with what you have, and that’s what we did for a while. As we began to get some stabilization and I had a better handle on the situation, I could go out and recruit people. I could very clearly explain what they’re getting into and, at the same time, explain the opportunity, which was fantastic because it is a lot of fun being apart of building something from scratch.”
The next step in the turnaround was to confront the brutal facts and communicate those throughout the organization.
“The key is being very objective about the state of the business absent biases about what it used to be or you want it to be — you have to focus on what it is now,” McGahren-Clemens says. “In my mind, this is the single most critical step in any recovery because nothing matters if you don’t fix the right things. Next, with the help and full buy-in of the senior team, you need to set very clear priorities as a team that, in turn, are clearly communicated to the entire organization in a very candid, transparent way. It is important to then create a true dialogue with everyone in the entire company by truly maintaining an open-door policy and walking around a lot to gain input, answer questions and dispel rumors. And then provide regular updates, both by e-mail and in person about your progress.”
To do this McGahren-Clemens met with 100 of the company’s employees one-on-one to gain a better understanding of what could be done and explain where the company needed to go.
“I believe the key is engaging everyone in an ongoing dialogue about how they personally fit into the big picture and why elevating their own game is crucial to our success going forward,” he says. “Once our situation had stabilized and moved out of crisis mode, since I only had around 100 salaried employees, I felt it important to sit down with each person individually for about an hour to connect directly. I would start by asking each person if they knew what had happened and why and whether they understood where we now were and what challenges we faced. Inevitably, people underestimated the seriousness of our situation, both past and present. Most importantly though, I would then ask everyone what performance barriers or morale issues they face plus what they thought we still needed to do to improve the company and our ability to complete a full turnaround and begin driving profitable growth.”
He had to be careful during this process not to scare his best employees away from the company but also make it clear that the company needed a change.
“From the very beginning, it was always challenging striking the right balance between creating a sense of urgency by explaining to people how dire the situation really was without being demoralizing or scaring people,” he says. “It’s a balance of painting a picture of, ‘This is a very, very challenging situation, but we can get out of this,’ and, ‘There is a lot of upside for people who help us with that.’ With the one-on-ones, you can tailor that message and tailor the questions much more specifically by reading the individual. How much do they understand or not understand? Some of them just had no idea how much the company made before or how little we made now or what the problems were. Some people want to know, and some people don’t want to know, and the reality is you’re trying to get a read on who those people are because that’s who you need going forward.”
To help get ABC to sustainability, McGahren-Clemens needed to find those individuals within the company who had the ability to be leaders.
“One thing I’ve always found to be true is, in general, there are some hidden gems within your organization that can move up to the next level,” he says. “Don’t immediately think you have to do everything externally. It’s going to be better if you can pull somebody from within who has some knowledge of the organization. Who’s acting without asking and doing the right things? When you really ask around and start to talk to people, they all know who’s who and who’s pulling their weight and who makes a difference and the same names begin to come up. You have to get out there and ask because it’s not going to be necessarily evident, but in times of crisis, it becomes a little more evident than normal.”
Now that a leadership team was in place, the right people were found and brought in, and progress was being made on understanding the circumstances of the company’s struggles, it was time to start putting plans in motion.
“It was very clear to me from day one that it wasn’t a situation where we could just cut our costs. It was about fixing the business and growing out of it. I believe all sustainable growth begins with a thorough knowledge of target consumers combined with engaged employees who have full access to information and the necessary tools to do their job — such as clear priorities and budgets — and none of those conditions existed.”
McGahren-Clemens had to switch the focus of the company from the short term to a long-term focus on branding and consumers.
“In the consumer marketing world of products, it always starts with spending, and there is a delayed gain on the profit because you’re going to have to invest first in market research to understand consumers, understand your competitors, understand what your product brings to the party, what gaps there are and its further investment to go fix those gaps,” he says. “We had products we had to improve the quality of. We had to add vitamins to our juice products, we had to change the packaging, we had to add benefits, and that’s time and money based on the consumer research. Then you have to go out to the market and support those products. Those are the basic steps that most brand companies do ongoing, but we literally had to start.”
Not only did the focus of the company need to change, but the employees needed to start thinking differently as well.
“It was getting everybody internally to understand that it is ultimately what the consumer thinks that matters, not customers,” he says. “Customers are very, very important, but those retailers and distributors care most about what the consumer says too. We had to go out and say, ‘We don’t know how good our products are. Let’s go do taste tests. Let’s get consumer thoughts.’ There were a lot of brutal facts that came up that you have to go out and be willing to hear. That commitment was something we had to build internally.”
With McGahren-Clemens’ leadership, the hard work of ABC employees and a renewed focus, the company has made a rebound.
“The company has been totally made over, and we have a great foundation from the ground up,” McGahren-Clemens says. “You can go in and renovate a house or you can take the whole house off and start over and that’s what we did. We know all the pieces and feel very good about the infrastructure and the talent and processes and the potential, and we feel we are just starting to scratch the surface. All of the investments we’ve made in consumer research, product enhancements, innovation and marketing the last three years are just starting to bear fruit.”
The journey from 2009 to today has been a long one. It took teamwork, communication and a unified focus to get there. The biggest key for McGahren-Clemens was to never let the task at hand bring him down.
“Don’t get too caught up in the enormity of the situation or the challenges or the tasks and just take it one day at a time,” he says. “Focus on ultimately where you want to be and know you can be and just work toward that. Trying to stop and think about how much has to be done can be overwhelming.
“I wish there was one clear formula or one sequential order of steps that would make it very cut and dried for people in a similar situation, but I liken it to a football game where you’re calling audibles along the way. You have a game plan, you practice it, you have a lot of ideas, you’ve studied your opponent, you know what has to happen, but the reality is you’re still going to have to make adjustments throughout. You have to be flexible enough to do that. You have to have a series of steps you’re ready to pursue and an order to them and a way you’re going to approach things, but you also have to be open to reading new information as it arises because it’s going to arise all the time.”
HOW TO REACH: American Beverage Corp., www.ambev.com
You need evaluate the business to understand what the problem areas.
Once you know the situation and where to start, communicate those facts to your employees.
Once you have buy in, put your plans in motion.
The McGahren-Clemens File
American Beverage Corp.
Born: New York City
Education: Studied economics at William and Mary and received a MBA from Northwestern
What were your biggest fears during the turnaround?
Looking back, I didn’t really think that much about it because it wasn’t productive. But if some of our biggest customers had said, ‘We’re not going to buy your product anymore.’ We wouldn’t have been able to get through the stabalization period. If Wessanen had not supported us and just decided to shut it down, but they did support us and were great throughout. Or if a lot of our talented people had walked out saying, ‘This is too big a risk. I don’t know how it’s going to turn out; I’m just going to leave.’ Any of those scenarios, particularly losing the talent we did have, would have been very damaging.
What has been the best business advice you’ve ever received?
I remember having a manager once where we were in a pretty bad business situation where things weren’t going the right way. We were managing a cheese business at the time and he just stepped back and said, ‘All right everybody, remember it’s just cheese.’ The whole room just burst into laughter. I’ve used that so many different times and kind of had to use it in this situation.
What is your favorite American Beverage product?
It would be the one that’s selling the best right now; the Daily’s Frozen Pouch. It really is a great product. I also like the Little Hugs. I buy cases of it for my kids and the whole neighborhood drinks it and I drink it as well.
If you could switch places with somebody for a day, who would you switch with?
It would be fascinating to be the chairman of the Communist Party of China right now. They are such a hybrid between old-line communism and new-age capitalism and there’s no script for what they’re trying to accomplish as they become a global power economically, but at the same time their social freedoms are lagging behind. It’s fascinating how that’s going to play out and I would love to understand all the different tensions within the country.
Nick Fortine had to face a 40 percent drop in business as the retail sector put on its capital expenditure brakes in 2009.
Fortine, the president of CSC Worldwide’s Retail Specialty Group, which makes fixtures such as fitting rooms, display walls and cash register stands, was startled, but he knew he had to act soon.
“I was particularly surprised by the level at which capital expenditures stopped in the specialty retail sector,” Fortine says. “We had to create a strategy rather quickly based upon our new reality.”
Once Fortine examined the landscape, he made a bold decision to downsize personnel but to invest ? by adding people ? to the sales team. The company hired a handful of sales associates at the time it was laying off an equal number on the operations side.
“At the beginning of ’09, we knew the future was far from certain,” he says.
“We also knew that if we took our foot off the gas on our selling efforts, our pipeline would quickly dry up.”
Fortine knew that in many businesses, including fixture manufacturing, relationships with prospects and opportunities to sell usually take from several quarters to years to develop.
“So when spending picks back up, you need to have new opportunities queued up,” Fortine says.
In the meantime, when the dust is settling, it’s time to get started with your new strategy.
“As a leader during periods like these, first of all, your team needs to know you have a plan,” Fortine says. “Then they need to understand the plan, believe in the plan and buy in to the plan. They need to know that you are a part of a plan. You are there to support and assist them and to successfully execute that plan.
“A natural result of adversarial times in a workforce is tension, fear, doubt and uncertainty about the future,” he says. “During periods like those, open and frequent communication about the state of the business, the strategy, the goals and measurements against those goals is really critical. In fact, it’s always critical in a business, in good times or bad.”
A key factor is to make sure that everyone understands the steps you are taking to move the business forward given the environment.
“People are much more effective at doing their jobs when they know that they are aligned with the overall goals of the company,” Fortine says. “People perform much more effectively when they are not running scared but rather when they feel like they are empowered to go make a difference in the business. That is the biggest challenge and how you overcome it is by making sure that the people left truly understand what their role is in turning this situation around.”
You need to be positioned to find and win new opportunities all the time.
“While the economic environment is still unpredictable, you have to keep selling throughout,” he says. “You need to be positioned to find and win new opportunities all the time. When the market experiences the inevitable upswing that will come in the future, and those levels of spending return, you will be very confident in your position to take advantage of that.”
While the new sales representatives were getting their feet wet, Fortine was coaching the remaining employees on the new strategy to keep selling and to do more with less. It was critical for them to understand their new roles.
“We needed to explain that if we wanted to sustain our business long term, you don’t do that by laying off sales people,” he says. “You’ve got to always be selling.”
While this wasn’t a company culture makeover, Fortine felt it added a new dimension to the culture.
“I really believe it changed us culturally,” he says. “Your associates should really learn to think creatively about new approaches to managing the business. You have to continually ask yourselves and challenge each other, ‘What can we do to make this better?’ and ‘What can we do to make this easier, more economical, take less time?’”
How to reach: CSC Worldwide, (614) 850-1460 or www.cscww.com
Recreating positive sales and service experiences is an effective way to add to your bottom line ? once you know your strengths and weaknesses.
“You grow by continuously finding ways to do what you do more effectively,” says Nick Fortine, president of CSC Worldwide’s Retail Specialty Group. “You become more honed in doing what you do best.”
The best way for you to hone your business performance is to review the customer satisfaction level.
“Your clients will be very clear about how they believe you are doing,” Fortine says. “Continually ask them. If you are growing, if you’re profitable, and if your clients are happy, you know you are doing the right things.”
You should also believe also that your strength is your domain knowledge in the market.
“Knowing what it takes to pull off a world-class product rollout and translating that knowledge into exceptional service and program results ? that’s your differentiation in market,” Fortine says. “Believe that you do that as well as anyone in market.
“Spend all your time trying to recreate those success patterns by finding opportunities and serving more of them. Become really focused at what it is you do well and knowing what it is you don’t do well. Spend your time concentrating on just getting better and better at what you do really well.”
Rick L. Hull liked the world of a small community bank, where he had lots of individual loan authority and was able to interact with clients. The problem was he was the CEO of a large regional bank and just wasn’t happy in what was not a kinder, gentler world.
So he hooked up with a private equity firm and struck a deal to acquire a woe-begotten bank so he could breathe new life into it. And after 18 months, regulators declared the bank safe and sound (although Hull had hoped for about a 12-month time span).
“I really just had to follow my own advice,” says Hull, president and CEO of Premier Bank & Trust, formerly Ohio Legacy Bank. “I had spent my entire career telling everybody who worked for me that life is too short to be unhappy. If you find you wake up in the morning and you really don’t want to go to work, do something different.”
Hull knew change had to start with changing people if the bank were to thrive.
“There was a real stagnancy about the place but there were folks who really wanted to do something,” he says. “I think some of them simply just did not want to get re-energized. So you have to go and take care of that quickly.”
Once Hull excised the deadwood, he knew he had to assure those who were left that stability would return as guided by new management.
“I think you have to be quick to make change; it will resonate with others in the organization ? ‘OK, there was a willingness to make the tough decisions and do those for the benefit of the organization.’”
If you have a basic philosophy such as Hull’s ? life is too short for you to be miserable ? this was the time to explain it.
“I should have written the book, ‘The No Asshole Rule: Building a Civilized Workplace and Surviving One That Isn’t,’” he says. “Robert Sutton wrote it, and it exposits the theory that I have always had ? if someone is making you miserable, you don’t want to be party to that.
“We really invoked that and made some changes quickly. I’m a big believer that you need to make those changes fast. You have to be willing to hemorrhage for a short period of time as opposed to a slow bleed-to-death. You want to get everybody back to that feeling, ‘OK, there is some certainty. I wasn’t one who was released. I am part of this team.’”
Once Hull formed his team, it was time to get out the playbook and make sure everyone was on the same page.
“You need to meet everyone in the organization,” he says. “Take a humanistic type of approach ? you want them to be happy. If they do not think this is the place for them, then please, they should look someplace else.”
An important part of the plan is your expectations for the employees during a specified time frame, for instance, 90 days.
“Track that about every 30 days, giving a kind of periodic update,” Hull says. “Here’s where we are relative to this point ? staffing issues, things relative to systems, processes, procedures, all those types of things.”
If you want your vision to resonate with the staff, even though you come from a larger institution, stress the familial aspects.
“You want to define both internally and externally who you are and what you are looking to do,” he says. “Take the time to make certain there is really a family feel to it.
“If folks respect you as a leader, they’ll certainly do a lot of things for you,” Hull says. “If they really care about you and know that you care about them, I think they really will want to succeed. They have a sense of pride themselves. They also want to make you proud.”
How to reach: Premier Bank & Trust, (330) 499-1900 or www.mypremierbankandtrust.com
Committing to a sales culture
When Rick L. Hull was resuscitating the former Ohio Legacy Bank, he noticed it was missing something quite important.
“This little bank did not have any type of sales culture,” says Hull, president and CEO of the bank now known as Premier Bank & Trust. “They had never made a proactive sales call, ever.”
To develop a sales culture, you have to target with whom you want to do business ? small business owners, doctors, lawyers, accountants ? the ones who may have not been getting great service from one of the bigger players.
Next, your assignment is to institute strict guidelines for the sales department.
“I want you to make three outbound calls per day, and I want to know who you are going to talk to, what you are going to talk to them about,” Hull says. “I’m going to ask for your commitment, then somebody’s actually going to follow up at the end of the day to see if you did that. It’s a responsibility. If I ask you to do something and value your time enough that I’m actually going to follow up with it, you will feel a sense of ownership in it.”
Finally, make certain that everybody commits himself or herself to the process.
“Evoking a sales culture here was really embraced by some; it wasn’t embraced by others,” Hull says. “The ones who didn’t embrace it are no longer here.”
How to reach: Premier Bank & Trust, (330) 499-1900 or www.mypremierbankandtrust.com
Jeffry Quinn had to stop the bleeding at Solutia Inc. When he took over as the company’s CEO seven years ago, it seemed like the best thing he could do at that moment. Solutia was a company that was in a lot of trouble.
“I became CEO just a few months after the company filed for Chapter 11 reorganization,” Quinn says. “We had a failing business that was beset by a number of problems. Some not of our making, but some of our making. So it was a transformation that had to occur rapidly in order to create a future for the company.”
Much of the difficulty that the company was experiencing could be tied back to the split from Monsanto in 1997.
“The company got spun off,” says Quinn, who is now chairman and president in addition to CEO. “It was loaded up with all these legacy liabilities. It was not given some of the businesses that arguably might even be viewed as chemical business that were defined as agricultural businesses and stayed with Monsanto.”
So Solutia, a performance material and specialty chemical business, had lost some of the businesses it needed and was tied to a number of businesses it did not. The result was turmoil.
“We had a significant series of issues that related to businesses that we had not been in for decades,” Quinn says. “Businesses that weren’t even part of the company at the time it was spun off from Monsanto in 1997. It was pretty obvious that was the biggest source of many of the company’s difficulties. What was not as obvious were the performance issues relating to the businesses that we were running. There was more potential to be realized from those businesses than we had created.”
Quinn was under a lot of pressure. He arrived at Solutia in January 2003 as a senior vice president and general counsel. Six months later, he was chief restructuring officer, helping to prepare the company for bankruptcy. Less than a year after that, he was CEO.
“I was the first officer-level person that had not worked at Monsanto before the spinoff,” Quinn says. “When I started in 2003, no one would have thought a little over a year later, I would become CEO of the company. It wasn’t the Solutia way.”
But it was the reality that Quinn faced.
“It’s kind of like a doctor in the ER triaging a patient,” Quinn says. “You get the patient stabilized first and then you can figure out what the cause is.”
Stop the bleeding
Quinn looked at the situation at Solutia and began to cut away at expenses. It had to be done before the company could talk about a recovery.
“We had to do things relating to benefits,” Quinn says. “We had to do things relating to our pension plan. We had to do a lot of things that were not very pleasant at all, but they were necessary in order to put the company on better financial footing.”
As each cut was made, Quinn made a point to clearly explain to people what was being cut and why.
“It was direct, candid conversations to really talk to employees through global video town-hall meetings, through visits to our plants, to discussions with the leadership team,” Quinn says. “It was just dealing with people in a candid and open manner. ‘Here’s the facts, here’s where we are, and here’s what we need to do.’ The process of making these decisions, the decisions weren’t difficult analytically. The decisions were difficult emotionally.
“For example, we had a pension plan that was significantly underfunded and we made the decision to freeze benefit accruals under that plan. What I told employees at that time was that freezing the plan was what was necessary in order to save the plan.”
Quinn was surprised to find employees were actually pretty receptive to his message, despite the gloom.
“We had gone through a period here at Solutia where many of the employees saw the issues and saw the problems and perhaps felt like the organization had not dealt with the problems directly and proactively,” Quinn says. “So the employee population was very receptive to, ‘Here’s the problem, here’s what we’re going to do, and here’s how we’re going to take aggressive action.’”
When you have big cuts that need to be made, you’ll probably find it easier to earn support if your employees feel like there’s a reason for the action and a bigger goal in which that action is contributing toward achieving.
Quinn didn’t want the recovery at Solutia to be about hitting a number.
“We had a vision of what this company could be and everything we did from day one was focused on that vision of what Solutia could become,” Quinn says. “We couldn’t have gotten employee buy-in if it was all about slashing and cutting to a certain number. It had to be about fulfilling an ultimate vision.”
Create a sense of purpose
Quinn didn’t learn how to create a vision in college. And you won’t find the perfect vision for your company in this story or in any other business magazine or at any industry forums, trade shows or leadership conferences.
“You have to develop these from the heart,” Quinn says. “They have to be things that you truly believe in and truly want your organization to believe in. You have to be willing to pattern yourself that way and pattern your organization that way. You can’t just give lip service to something like this. You have to be candid and realistic with yourself and be able to look in the mirror to ask the difficult question: Is the organization living up to your expectations in that regard?”
Quinn sat down one evening shortly after becoming CEO and wrote down 10 statements that he felt Solutia needed to stand for. The list included such things as, ‘Be good stewards of our business,’ ‘Set high expectations for ourselves and our colleagues’ and ‘Give our people opportunities to make a difference.’
“These weren’t written by a consultant, they weren’t written by good communication people or the HR organization,” Quinn says. “They were written by me.”
The key to this list was what Quinn did with it. He put together a team that he called the Solutia Transformation And Revitalization Team, also known as START. It was a group of about 80 people from across all parts of the business. Quinn’s tenets would be the foundation for this team.
“It was not necessarily hierarchal in terms of organization level,” Quinn says of the team. “But it was certainly comprised of the influencers, the people who had internal credibility and people who had positions in HR and other functions that were very visible. We wanted the people who could really go out and tell the story to our own employees.”
You can develop the best plan in the world. But if it doesn’t involve your people or if you don’t let them play a large role in how your plan is carried out, it won’t do you any good.
This kind of inclusion was not a priority at Solutia before Quinn arrived.
“I thought a situation had developed where there were two or three people at the top of the organization and everyone else was at the second tier,” Quinn says. “I didn’t want the mentality of people looking around the room and saying, ‘What are those guys going to do about this?’ I wanted it to be more inclusive. I wanted to create a greater expanded accountability where our employees and our management team felt like, ‘Hey, I’m accountable for what happens here. I can make a difference. I’m involved and I’m part of the team.’”
It’s that type of feeling and not just clever clichés that you need in order to earn support for a vision.
“There’s nothing you can do in a four-sentence vision statement or mission statement that will get employees excited,” Quinn says. “You need some statement of the ultimate destination. But the way you build excitement is through communication and dialogue around that statement. What does it mean? How are we going to do it? What does it mean for me? If it was as simple as writing a catchy four- or five-line vision statement, the communication people would be running the world. It’s kind of a statement of who we are, but it’s also a statement of who we strive to be.”
Manage your team
Of course, as Quinn was working to develop this purposeful and inclusive organization at Solutia, he was also working through bankruptcy and the challenges that presented on a daily basis. He did his best to keep things separate.
“I felt like I had two jobs for those four years,” Quinn says. “One was running the company and the other was running the bankruptcy process. We tried to keep those separate.”
Quinn says going through bankruptcy isn’t what many people think it is.
“It’s not really your creditors you’re dealing with,” Quinn says. “It’s new money investors and all the hedge funds that flood into your capital structure and buy up all your capital structure bringing new money investment into it with the anticipation of making incredible profits from the process. So the bankruptcy became a battle between warring hedge funds located in New York a few blocks apart.”
This battle was important, but there was nothing most employees could do about it. So Quinn encouraged the START team to continue focusing on building a purpose-driven organization and turned his own attention to his management team, where he felt more change was needed in pursuit of the vision.
“You make your own observations,” Quinn says. “You know just from being involved, unless you’re very withdrawn and detached, you know when the team is hitting on all cylinders.”
Quinn looked at his management team and he still believed there was a problem with how it interacted with employees. The team was not being the standard bearer for his vision that he wanted it to be. So he made changes.
Some people were pretty unhappy at not being deemed worthy of being leaders at Solutia anymore. But Quinn felt strongly that he owed it to his employees to make the changes. They were the ones who had shown such loyalty to him because they believed the tough decisions he had made were in pursuit of a better future for Solutia. So he owed it to them to find leaders who were a better fit for the plan.
“The thing I would say is not to be complacent,” Quinn says. “Making changes is difficult, and it’s easy to fall into a trap of not wanting to create disruption. We were falling short of where I wanted us to be in terms of communication, collaboration and information flow. That candid dialogue is so important. I thought in some areas, we had fallen into too much of the manage the message, manage the information and manipulate and control as opposed to the transparency that I like.”
Quinn wanted to show his people that their commitment to him and the trust they had shown in him both to deal with the bankruptcy process and guide them through the development of a new vision had been worth it.
“What helped was keeping employees focused on the vision of where we were going and keeping employees focused on the fact that as difficult as this was, we were going to make those difficult decisions in order to create a future for the company,” Quinn says.
It’s not done yet, but Solutia is out of bankruptcy and the company had a gross profit of $608 million in 2010 with revenue of $1.95 billion. Instead of 23 businesses, the company is now comprised of three businesses. The leaner business model and slimmer portfolio brought EBITDA from a 4 percent margin in 2003 to better than a 25 percent margin in 2010.
Quinn says the key to turning your company around and being the leader it needs is not the depth of the cuts you make or the clever sound bites you write into your speeches. It’s getting people to believe in you and believe in what you stand for.
“The challenge is not to be constrained by some of the conventional wisdom of organizational structure,” Quinn says. “Who are those people who can influence your organization? Who can be your ambassadors? Who will truly buy in to what you’re trying to create and be advocates for that within the organization?”
How to reach: Solutia Inc., (314) 674-1000 or www.solutia.com
The Quinn File
Born: Sturgis, Ky.
Education: Bachelor of science degree, mining engineering; juris doctorate, University of Kentucky. I always joke that I’m a reformed lawyer.
What was your very first job and what did the experience teach you?
I wrote a column about high school sports. I also I worked in underground coal mines and put myself through school. All my experiences taught me that everything is hard work. Any job, whether it’s being a world-famous sports columnist or being a CEO or being an engineer or working day to day in a manufacturing plant, it’s hard work.
Who has been the biggest influence on you?
My dad was in the mining business, and he did not have the opportunity to go to college, but he rose up to become vice president of operations for a significant company in the mining business. He did that through hard work. But my dad was one that was especially known for being concerned about his employees. He wasn’t a guy who tried to get by on bluster and bluff and rhetoric like a stereotypical person in the coal industry would at that time.
If you could talk to just one person, who would it be and why?
That’s a very easy question for me. I have an 18-year-old daughter, Grace, who is a special needs kid. Grace is functional to some degree and she verbal approximates and you can communicate with her. But really the opportunity to sit down with her and talk with her like you would a typical kid is probably what I would wish, to see what’s really going on in her mind.
Phil Derrow had been kicking around the idea of investing in the future of his company, Ohio Transmission Corp., for some time. One way or another, he was going to do it, but the question was this: Should he spend the cash when business was so bad during the bottom of the recession or wait?
With several locations outside of the state, it was simple to see that it was time to drop the “Ohio” tag from Ohio Transmission and Pump Co., a division of the corporation, because it was becoming more of an issue as the company grew.
“It wasn’t that much of an issue; we were able to deal with it, but when you’re down in Kentucky, they want to work with Kentucky people, not Ohio people,” says Derrow, president and CEO. The situation was the same in West Virginia. “You know, people have a sense of place; they have a sense of their own community, and being an outsider is never a positive thing.”
Not only that but the types of products offered and the focus of the business had changed since 1963 when it was founded by Derrow’s father, David Derrow. Also, the website needed a major makeover.
The second division, Air Technologies, also needed some investments along the lines of staff and production facilities.
Deciding if the projects, which would include rebranding and capital improvements, were worth the money during a recession hinged on a feeling that the recession had bottomed out ? and a belief in the future. The moves put the company back on the growth track.
Five years ago, the corporation had 290 employees and annual revenue of $100 million. Now, it has 360 employees across seven states, and 2010 revenue was $116.5 million.
The new website brought results almost immediately. More traffic was seen on the first day than what was seen in the previous six months. The switch to the name OTP Industrial Solutions brought all positive reactions.
Here’s how Derrow used belief in a better future to take action and grow the company.
Have confidence and believe
Change is said to be the only constant thing in life. When business is going really well, it’s easy to forget the fundamentals, such as that the economy will change at some point. Derrow believed that rather than pull back, he would opt for change.
Derrow was considering ideas for both divisions. Ohio Transmission and Pump Co. needed to be rebranded; Air Technologies needed to expand to fill the growing demand for industrial air compressors. The only question was, “Why spend money now when things are so challenging?”
The recession was tightening its grip on the company. With nearly 15 years under his belt as CEO, Derrow had been following good business practices. They put the part employee-owned company in a position to hopefully weather the storm. The company was not overleveraged and it didn’t get too far out on a credit limb with customers. In addition, it had employment practices that had some self-adjusting mechanisms, for instance, a compensation structure that was somewhat self-correcting, linking company financial health to wages.
“Business was down quite a bit, and our sales teams and managers were trying to figure out how to maximize business as much as we could,” Derrow says. “We decided not to conduct layoffs, we had plenty of people, and it was a decision to go ahead and do this now because we believe in the future, we know recessions end, we have the fat, let’s go ahead and make this investment.”
He saw some indications that the recession had bottomed out, and while he doesn’t quite call it a hunch, he felt it was time to take action.
“If you believe and know recessions always end, then there is frankly no better time to invest in the end of the recession than during the recession,” Derrow says.
Prices for labor and material are likely to be bargains, and through investment, you may be able to increase your market share even though the market is contracting.
“Continuously invest in yourselves and your company,” he says. “I make a big deal about the fact that investment is a continuous and ongoing process, and it is an essential statement of a belief in the future. If you believe based on knowledge that recessions always end, then you continue to invest. It’s no more complicated than that.”
You have to have the confidence to know that recessions end and act accordingly. If you don’t believe things are going to get better, and you aren’t prepared to act accordingly ? act in ways that they will get better ? then it is difficult to take advantage of the opportunity.
The reality is the United States economy follows a cycle, although expansions and recessions cannot be pinpointed ahead of time. Recessions happen about every five to seven years ? the National Bureau of Economic Research notes recent recessions happened in 2007, 2001, 1990, 1980, 1973, 1970, 1960, 1957, 1953, 1949 and 1945.
“There will be another recession,” Derrow says. “There will be another recovery. And so on and so forth. Even as each one is different, there are enough similarities in actions to take before, during and after that it isn’t impossible to make a plan.”
Darrow’s strategy was to rebrand Ohio Transmission and Pump Co. into OTP Industrial Solutions, with a new logo and website, and to invest in employees and a new factory for Air Technologies. With those as objectives, he set out to energize the troops.
“Actually, I would say if there were any concerns, it was over not doing it,” he says. “In most of our markets outside of Ohio, we were downplaying the Ohio element of it anyway. We were going to market as OTP rather than Ohio Transmission and Pump. So there wasn’t much of any resistance. But to the extent that there was any, it was, ‘Well, gee, this isn’t free. Why should we spend money now when things are so challenging?’
“That is where leadership is so important to demonstrate to people by action that your core values actually mean something,” Derrow says.
He found it more important than ever to reinforce the company’s core values of integrity, achievement, balance and, especially, investment. By showing that a core value (investment) was being shored up with the decision to spend during a recession, it elicits trust and confidence from employees.
Derrow took advantage of the culture of collaboration that had been built at Ohio Transmission Corp. to get the employees engaged in the investment “fever.”
“We talk about everything,” he says. “Involve your management, executive management, local management, sales people and staff people. We talked about the entire process, what the name was going to be, what the logo was going to look like, we talked about all of it.”
Cultural collaboration eliminates a sole deciding figure. Accordingly, decisions are those of a team.
“There isn’t one person who gets to say, ‘We’re doing this,’” Derrow says. “Even in my position as chief executive, one would think that I can, and maybe even should, simply say, ‘We’re doing this and everybody has to follow along.’
“I may have a good idea, and I certainly do have responsibility to set primary strategic goals, but even that is a process of talking to your folks, listening to your folks, listening to what your customers say and in making decisions that are collaborative no matter what your role is.”
If you don’t have a culture of collaboration, bring in outside resources that have the talent or skills you need.
“It is still then a matter of what you want to do as a company, where are you trying to go, and what is your objective,” Derrow says. “Ultimately, you end up collaborating. You have a culture of collaboration of some sort whether you like it or not, even if you are bringing in outsiders. It’s a collaborative process for you to tell the outside entity, the consultant, what it is you are trying to accomplish and you work together to get the outcome.”
You have talented people who built your success and are best positioned to make decisions about where you’re going next, and you can bring in outsiders to help you go where you want to go rather than tell you where that ought to be.
“An interesting part of this is I was not involved much at all in the details of the rebranding process and the website design,” Derrow says. “That was something mostly our team did. My role was to say yes to the investment, and I do care about the design looked like, so I had input what the logo was and color scheme and such for the website, but other than that, our team and our service providers ? they made all the decisions.”
A new logo was designed for OTP Industrial Solutions, along with a new, interactive website.
Meanwhile, Air Technologies received a large investment in not only a new factory, but in a decision to keep all employees on the payroll and even add some sales representatives.
“We were not sure that we would be able to regain profitability during the recession, because it was a deep one,” Derrow says. “Yet we believed that our people are the ones who are responsible for our success and that when times get tough, it’s not our way to just toss people overboard.”
The decision to invest in production facilities was made before business had fully recovered. The company’s Direct Air product, which is compressed air as a utility much like natural gas, has been a fast-growing business for Air Technologies. The new factory went online last year.
“Those (the staff and the factory) were significant investment decisions when business was still pretty bad,” he says.
Don’t forget the human factor
Even though the strategies were accepted and the rebranding and expansion projects were going ahead, Derrow still had to contend with managing during a recession.
“Our sales volume dropped very rapidly and that’s always one of those things that comes as a surprise, and is not a particularly positive surprise,” he says. “So I guess for us, and this really gets back to the notion that each company is unique, each company’s culture is unique, the attitudes and objectives of the owners and leaders of each company are unique, so there isn’t one right answer on how to manage through a recession.”
For Derrow’s company, it was a matter of collaborating with the people and talking openly with the teams.
“We have 360 people now, and you can’t manage through such a challenging period without engaging the people in the organization,” he says. “We believe in being open and honest with our people and telling them what’s going on, telling them the company’s position, telling them our strategy and making them part of the process from start to finish.”
Within a small group of options, communication methods are fairly standard. What Derrow found important was that the more effective you want your message to be received, the more methods you should use.
“Have meetings, send out e-mails to folks, to all of your associates, share what’s going on and what you are doing on an ongoing basis through multiple means,” he says. “Have corporate-level meetings and all-associates type e-mails, local meetings and one-on-one conversations with people. People get nervous. People have families to take care of. They have their own mortgages to pay.
“There are individuals who work for you who have their own lives and so during a tense period, you have to be receptive to the fact that there are real individual human beings involved,” he says. “So you could have global e-mails and meetings, but at the end of the day, you have to be one-on-one with people and listen to their fears and concerns and show them the way forward.”
The good thing is that your managers are people, too ? they have their own fears. They carry it out in the same way that the executive team carries it out with them.
“So if you start there, and make it clear that you expect that the kind of conversations you’re having with the executive team the executive leaders are having with their managers, expect their managers to have those very same kinds of conversations with the people on their teams all the way to the line-level people that work there.”
How to reach:Ohio Transmission Corp., (614) 342-6123 or www.otpnet.com
The Derrow File
Phil Derrow, President and CEO, Ohio Transmission Corp.
Birthplace: New York City. But I was only there for three days, or for however long they kept my mother and me in the hospital. My family lived in New Jersey at the time, and the hospital was in New York. I’m from Columbus. My family moved there when I was 3.
Education: I am a graduate of The Ohio State University. I was a marketing major. I suppose you could say I minored in engineering, but my degree did not say engineering. I took mechanical engineering classes and then moved to the business school and got a marketing degree.
What was your first job?
My very first job out of college was with a local car dealer, selling cars. That particular profession has a lot of negative things associated with it, and the reality is I worked for a good guy, and I learned how to sell. I learned that the best way to sell is to listen to customers and let them sell themselves. It was a straight commission job, and if I wasn’t any good at it, I didn’t make any money. No draw. I would say there were some valuable lessons and there were also some valuable lessons about how to manage differently, shall we say. I didn’t want to manage others the way I was. I was there six months.
What was the best business advice you ever received?
The best business advice came from watching my father who was the founder of the company along with a partner. So this kind of takes the form of a story. Leadership and management are always about others. It isn’t about you. So that’s how I would phrase the best business advice. And the story is, I think I was about 8, and I wanted something as most 8-year-olds do, and my father said no. I said, ‘How come?’ and he said, ‘Because we can’t afford it.’ I said, ‘Why not? You’re the boss; why don’t you just take more money?’ His response was something along the lines of, ‘There are other people who work for the company, and if I just take more for me, then I’m not treating them with the respect that they deserve. They’re the ones who are helping to build the company along with me.’ So it was one of those lessons that said it isn’t all about you. It’s about others.
What’s your definition of success?
Getting back to the best advice ? it isn't about you, it’s about others ? my definition of success would be defined as creating a workplace where others can be successful together and create a thriving and successful business.
For Jack Fusco, the first day on his new job was anything but laidback. Calpine Corp., a major U.S. power company that owns, leases and operates power plants across the country was in complete disarray in 2008. The company had just come out of bankruptcy and its stock was hovering in the $4 range. Morale in every area of the business was as low as it could be and to make matters worse, the economy was just starting to take a dive. Fusco, the new president and CEO, had his hands full.
“My first day on the job was extremely hectic,” Fusco says. “The company was announcing its second quarter earnings on the morning that I started my job here at Calpine. The business processes or systems were antiquated and didn’t keep up with what you would expect for a publicly traded company. So it was extremely hectic getting the financial numbers together and presenting those to the street. It happened to be the very last day that our [earnings report] could be filed on. That’s something I try to forget about is my first day of my first week.”
Fusco didn’t let a bad first week get in the way of his determination to overhaul and turnaround the struggling power company. Here’s how Fusco boosted morale, created a vision and mission and led the company through a dark time.
Asses the situation
Calpine Corp. got itself into trouble because the company was too focused on growth instead of paying attention to the factors that allow for growth.
“I wasn’t here, but from what I can asses, it was the typical founder’s dilemma, which is build, build, build,” Fusco says. “Whether it’s grocery stores or drugstores or whether it’s power plants, they get into really focusing on new stores or new power plants and not keeping your eye on the ball. It was a phenomenal growth that the company had undertaken and the economics of it just didn’t keep up with the growth projections. They basically ran out of cash flow.”
As the organization came out of bankruptcy, there were a lot of different moving parts within the company and it was up to Fusco to make sense of it all and begin to make changes for the better.
“The company still had an enormous amount of consultants that were in running the company in various forms and fashions that were legacies from the bankruptcy,” he says. “So working through the organizational structure and trying to define a structure that made sense where we would have full-time Calpine professionals in those seats rather than consultants was something I had to address within those first weeks of being on the job.”
Due to the uncertainty that bankruptcies carry with them and the worry of what the future held, morale in the company was awful.
“The employee base had just come through an extremely difficult bankruptcy,” he says. “A lot of reorganizing and reorganization had taken place and there wasn’t a whole lot of organizational clarity on who was doing what, so there was a lot of overlap and people were worried. There was a lot of worry that the company was going to be sold, so morale was bad. I think there are still folks and I know there are still employees that worry that the company may be sold or that we won’t survive.”
Despite the tough situation, Calpine had its best financial performance during the worst economic recession and that hasn’t been easy. It’s required the company to increase productivity through a lot of reductions in headcount.
“We tried to do it swiftly,” Fusco says. “You have to try to get it done as quickly as possible so you can start recovering. It doesn’t always work that way, but we tried. We tried to do it on a voluntary basis. If we knew that we were getting rid of one whole group or one whole area, we would do a voluntary program first versus an involuntary program. You have to move quickly and don’t let the company suffer from a 1,000 cuts.”
Calpine didn’t just let go of ground-floor employees, it had to restructure its management team, as well.
“Most of the other management team either left or were asked to leave prior to or at bankruptcy,” he says. “The people that I brought in from the outside were replacing bankruptcy consultants. Bringing in somebody in that case that was going to be a Calpine employee stabilized that position rather than having a third-party consultant firm. Some of them were folks I have worked with in my past, others were here. As I got into the organization and got down a few layers, I uncovered a lot of very talented individuals and gave them an opportunity to rise to the top. They were rough-cut jewels. It makes a much bigger impact if you are able to utilize the existing work force.”
Once cuts had been made and people were put into key roles, it was time to get the company stabilized and moving forward.
“Remember, when I started it was right at the beginning of the recession and our stock dropped into the $4 range very quickly,” he says. “So stabilizing the company and making sure that we could strengthen our balance sheet, keep an eye on our cash flow and understand where all the cash is going so we didn’t run into any tough situations again was paramount. We came out of that very, very well. That was probably the most challenging part of taking over was just the time of when I took over and then having all the other forces outside of us that collapsed.”
Address the issues
The next step in Fusco’s turnaround was to develop a vision for the company that would allow it to be a great organization without overextending itself as it did prior.
“The company went through a couple of different cultures,” he says. “The first culture of Calpine was build, build, build. It was very much a development company run by developers. They would acquire sites and construct power plants. That rapidly changed to a company that was focused on trading in a very large commodity trading floor here in Houston. I wanted to change the company to be more asset-centric, to be more focused on power plant operations and not speculative trading and not building for the sake of building. That’s where we developed a vision to be the premier independent power plant company in the U.S.”
To make a significant change like the culture of your company, you need to take a good hard look at your business and what you ultimately want to achieve.
“You need to figure out what your strengths and weaknesses are as an organization or at least try to be nimble enough to anticipate where your sector is going,” he says. “It’s a little bit of a double-edged sword. We were very fortunate that we had great people already in place that could move the company forward for where we thought the sector was headed. In other cases, I can envision a CEO may have to acquire or divest businesses.”
Fusco not only had to review the organization to make changes, but he had to make sure his management team was behind the idea as well.
“We ended up pulling together the executive officer team to develop the new vision, mission and value system so we were all bought off on it,” he says. “I think it is imperative, because it is more than just a one-person job that at least the core group of officers are all bought off on the new direction that the company is heading before it gets rolled out to the work force.”
When moving forward with a new vision, mission and value system, it is critical that once they are changed and put in place that they remain constant.
“For me I know what has been successful is we didn’t change our values or vision or mission. We stayed true to it and we’ve held it steady. We’ve tweaked it a little bit, but for employees to have that consistency and that focus, and they’re not trying to shoot at a moving target, I think is very important. You have to stay true to it until you feel like you’ve achieved it and everybody feels like they’ve achieved the original mission.”
Along with a change in the culture came a change in the company’s focus. Calpine didn’t want to get caught up in too much as they brought the business back from bankruptcy.
“We’ve had a crystal clear focus to be in the wholesale power generation business, period,” Fusco says. “We haven’t tried to confuse the work force by getting into other aspects of the business. We weren’t running off building electric vehicles or trying to build recharging stations or getting into other flavor-of-the month types of strategies. We said, ‘We’re just going to be the absolute best company at providing wholesale electric power to the utilities and retail aggregators.’ That’s what we stayed with and that seems to be rewarding us.”
Once the key organizational changes had been put in place, Fusco turned his focus to the customers and mending those relationships.
“When I came on board, I asked for a list of our top 10 electric customers and our top 10 natural gas providers, and then I proceeded to call them and introduce myself and my No. 1 electric customer wouldn’t take my phone call,” Fusco says. “I had to work through one of the regulatory commissioners to get them to force the CEO to meet with me just so I could introduce myself. That’s how bad the relationship was. I had to start at the highest levels. It really had to start from CEO to CEO.”
With the company’s new direction came an increased drive to give customers what they needed and that took cooperation on both sides.
“The other key was [customers] giving us time to get our house in order so we could prove to them that we could be the premier operator in the space,” he says. “We focused on delivering above and beyond what the customer expected and not just having a smiling happy person on the end of the phone line to take a phone call when they were upset. Organizationally, we actually created customer origination teams in our different regional offices where they could focus on developing products and services that the customers needed. It was somebody’s full-time job instead of just something they were supposed to do on the side.”
Implementing changes throughout the entire organization takes a lot of communication to make it work. You can’t communicate enough and you can’t give up.
“Don’t assume that the communications are effective at all the different levels in the organization,” he says. “I find even as much as we try to communicate with the work force, it’s never quite enough getting everybody on the same page and getting them all aligned. I’m a firm believer that if everyone has the information that we have, we’d all end up in the same place. So trying to go a little bit deeper and describe why we did what we did and what we expect to get out of it I think is very important organizationally for the employee base.”
Fusco and the Calpine management communicated in a variety of ways. From personal visits to filming quarterly DVDs, they made sure to keep up communication through the change process.
“You need to be clear about what your expectations are,” he says. “Be consistent and follow through when something doesn’t turn out the way you had expected or if somebody’s not following your value system that you enforce it appropriately so that everybody understands that you mean it and it’s not just writing on the wall.”
While communication plays a huge role in driving the company through change, not everyone will get onboard and you need to be prepared.
“That’s the harder part is trying to give people ample time to get onboard with the new vision or the new mission or the new company and when do you cut the cord versus when do you keep continuing to counsel or work through the issues,” Fusco says. “It’s not always going to work. In some cases it may just be better for the employee and for the company for them to move on.”
While letting someone go who isn’t willing to adapt to change is the right move, no one wants that to happen. You have to be out in front of employees and customers making sure you are aware of what is going on.
“I’m a very informal person, so on the employee side, I just like to show up at the plant and talk to them,” he says. “Since I have been in power plants most of my career, I actually understand what the issues are and the technology that they’re dealing with. So I think that helps add some credibility. It’s the same with the customers; I think I’m an approachable person. Getting the customers to trust the new management team was important and part of that trust was that we actually heard what they were telling us and we made changes to make it better for them. Reorganizations are hard. Change is hard for everybody and we’re all human beings. You have to be fair.”
A turnaround is the hardest thing a company will ever go through, and it takes a strong group of employees to help drive a company through such a hard time.
“The biggest factors for success as a company today have been our employees,” Fusco says. “They’ve been extremely professional through all the change and extremely hard working. You have to get a great team. It’s much too big for any one person and you’ve got to surround yourself with great people that you all trust and you all work together seamlessly. That’s the No. 1 most important thing for a CEO.”
Through Fusco’s hard work and determination the company is once again in a good position. Relationships with customers are strong and operations have improved.
“We focused a lot on our customers and making sure we were meeting the needs that they needed from us, which was very important,” he says. “We focused on our operations and our productivity. Here at corporate, we put in a new business system that helped us process our financials a lot faster and much more transparent. At the plants, we put in a new scheduling and operating system that helps us plan our work better and actually got us to figure out more of the root cause of our problems we were having. We fixed those and we got our fixed outage factors to come way down from where they were in the past. So we were delivering a much more reliable product that our customers needed and wanted, and they felt more comfortable with our operations and in return we got higher-priced, longer-term contracts from them and that helped stabilize the company quite a bit.”
Things have improved to the point where growth is back on the agenda. Last year, the company bought Connective Energy for $1.6 billion in cash.
“That to me is a real success story to go from bankruptcy to where you’re buying a former competitor and consolidating that into the business,” he says. “I think we’re in an era now where we have stabilized the company.”
Today, the company employs more than 2,100 people and had operating revenue of $6.54 billion in 2010, up from $6.46 billion in 2009.
“We are Calpine, and we’re back and we’re strong and we like our position in the market, and we applaud our employees for everything they’ve been through and now we’re moving forward.”
HOW TO REACH: Calpine Corp., (713) 830-2000 or www.calpine.com
The Fusco File
President and CEO
Born: Modesto, Calif.
Education: Bachelor of science degree, mechanical engineering, California State University in Sacramento
What was your first job, and what did you learn from it?
The first power plant job I had was when I was a junior and senior in college. I worked out at Rancho Seco Nuclear Power Plant. My first job ever was working for my father in his janitorial business. At about the time I could walk, I worked for my dad washing windows, picking up wastepaper baskets and cleaning bathrooms. That’s where I got a lot of my work ethic from were those early days.
What was your biggest fear when you took over as president and CEO of Calpine?
My biggest fear was that we were going to have to file for bankruptcy again. I’m well beyond that today, but when I started, when you’re fresh and the economy does what it did within the first month of being on the job, it was very uncomfortable.
Who is someone you admire in business?
Jack Welch. He changed the way I thought about work when I read his first book, “Control Your Destiny or Somebody Else Will.”
What is your definition of success?
For me, it centers on employee development. If I can take the treasurer and help him become the best CFO, I get a lot of satisfaction out of that. We spend an enormous amount of time on our succession planning throughout the whole organization. So trying to create something that’s long lasting and sustainable that has multiple layers and professionals on the bench means more to me. Concurrent with that would be our reputation. When people think of Calpine, they have good thoughts that we are a leader in the space or a leader in environmental quality and not something else.
Jim Hallett sees his termination as a CEO in a 2005 corporate shakeup as a very humbling experience.
“It was a good thing,” he says. “I needed to leave the company because the culture was getting so bad, and I needed to go away, but from the day I went away, I always knew I was going to try to raise the money and be able to come back.”
But that goal was not out of vengeance.
“There was no retribution whatsoever,” he says. “I was not interested in retribution; I was not interested in getting even. I was interested in getting the company back, getting my job back and putting people in place with the passion, experience and energy to run this company.”
The company, ADESA vehicle auction and its finance division, was doing well financially when Hallett was fired, but by 2007, times had changed, particularly with its culture. Unbeknownst to Hallett, the company had put itself up for sale while he was looking for backers.
“The building was not a very happy building,” Hallett says. “I would be taking over a company that was floundering ? a company that was not performing, a company that was bureaucratic, political, stale. People didn’t enjoy their jobs, people didn’t like to come to work, people didn’t talk to each other. They didn’t interact with each other.”
Hallett solidified a $3.7 billion deal with the help of private equity investors for ADESA, a finance division and a salvage auction division, named it KAR Auction Services Inc. and as CEO, set out to transform the culture in 60 days.
Here’s how he accomplished it in 30.
Lay the groundwork
Turning around a company culture takes analysis and effort. But Hallett had a position of advantage with his firsthand experience. He was familiar with the players in the organization, and even after his termination, he followed the company, tracked the stock and anecdotal information on the street.
He was faced with the realization that turning around the dysfunctional situation would be his biggest challenge.
Hallett would be the CEO, the cheerleader as it were, and he envisioned a loyal and passionate work force listening to his encouragement.
“A cheerleader is what companies sometimes lack,” he says. “They need that guy who can rally people, who can create a culture, create a vision, and then get everybody to line up and march in the same direction.”
Hallett told his new management team he would have the company marching in lock step in 60 days. By using his skill at getting people to line up and buy in to a common vision, it took half that time.
Evaluating the senior management was a critical experience, and it led Hallett to decide to clean house.
“I looked at everybody,” he says. “Every one from the old guard left. I brought some people back into the organization. I recruited some people into the organization. The most senior management completely exited the building. They did an ‘exit left’ and I entered right.”
The evaluation process was straightforward and involved a simple formula.
“I was really identifying people who knew and understood this business, who had experience, who were passionate about this business and loved what they do every day and then who were relationship-driven with our employees internally and our customers externally and with the industry,” Hallett says.
“Anybody who had any of those qualities was shoved aside when I got fired because the new chairman didn’t want to have anything to do with anybody who had dealt with me. If he thought they were somehow still speaking with me, they were history.”
The procedure requires a bit of intestinal instinct as well.
“You use your gut,” Hallett says. “Use your uncommon common sense, street sense, people sense and knowledge, passion and drive for the business. Know what the company needs and know what the industry wants.”
About three to four months in advance of the takeover, Hallett had the plan for his team in place.
“Know exactly who you want, know exactly what you want the organizational chart to look like,” he says. “Quietly and confidentially put the chart in place and have everyone show up on the first day.”
Spread the culture
Sharing the message among employees that a new culture is entering the building takes the skill of a negotiator and the charisma of a leader. Sometimes a bold statement at the beginning of the transformation shows it’s not business as usual anymore.
Hallett removed the main entrance reserved parking spaces for management executives on the first day, and the message was clear ? all employees were going to be treated equally.
“So if you get there first, you should pick your parking spot,” Hallet says. “That in itself says more about the culture without saying a word. You’ll hear, ‘Oh, my God. All this reserved parking’s gone. We don’t have to look at the expensive cars. We don’t have to go by these things when we walk into the building.’”
Next on the agenda was setting the frame of mind for management. Much as military forces have rules of engagement in dealing with the enemy, management alignment spells out standard operating procedures and rules.
“Then hold a management alignment meeting; it could take a couple of days,” Hallett says. “What you’re doing is aligning management and establishing the rules of engagement with your senior management team saying, ‘This is the way we are going to behave. This is the way we are going to talk to each other. This is how we are going to conduct ourselves, how we will handle conflict, how we will handle these different situations. This is how we are going to act with each other.’”
Management needs to commit to the program.
“If you can’t sign up, then walk out,” Hallett says. “Because you know what? The biggest thing we do as human beings is we need to know how to talk to each other.”
It’s important that the CEO and senior managers need to be secure.
“They need to understand what they do well,” Hallett says. “They need to understand what they don’t do well. They need to give everybody the opportunity to be able to express themselves and bring a good idea to you.
“Sometimes the best ideas come from the most unlikely sources. We just need to give them an opportunity to tell us. And I have to be willing to talk about it without feeling threatened or without feeling somebody’s overstepped their bounds or that someone’s taken over my job.”
Being direct needs to be the standard approach.
“When I want to say no, I need to say, ‘No, we’re not going to do that,’” Hallett says. “On the other hand, people have a hard time doing that. They want to beat around the bush, and they want to hem and haw, and they want to take days to do something that you can do in 10 seconds.”
Establishing the rules of engagement allows you to create a culture where employees feel that the door is open.
“They can walk in and we can agree to disagree, but we are always going to be respectful of one another,” Hallett says. “Have the rule in writing. So when senior management agrees to that, make sure you take that a level down, to your direct reports, and make sure your direct reports take it to their direct reports and all of a sudden, it filters through the entire company, and you’ve really created a culture.”
Along with the rules of engagement, Hallett created a mission statement and core values. “The first thing is, somebody said, ‘If you don’t stand for something, you stand for nothing,’” Hallett says. “So you’d better stand for something. We created our core values, such as honesty, integrity, customer service. So what do those core values do? You need to reference those whenever you’re making decisions. That’s how simple it is.
“When you have to think about whether you’re going to do something or not, whether something is within integrity or whether it has to do with employee relations or customer service, or if it has to do with one of the values of the company, you reference your values, and they’ll pretty much guide you as to what decision you ought to make.”
Build the success
Getting employees to engage in the new culture is a process that is accomplished a little bit at a time. It requires coaching, with frequent huddles to make sure everyone is on the same playbook.
By holding breakfast meetings every Friday with 20 employees from different areas of the company, Hallett got the chance to meet the entire company over a year and a half.
“I told them about me, the history of the company, the vision for the company and some of the things we wanted to do and where we’re going ? however we are going to get there ? and got them to tell me something about them,” Hallett says.
“I’d start those meetings with, ‘OK, let’s go around the room, and let’s tell the group something that nobody in the room would know about you.’ It’s amazing how people engage. Then tell them something they didn’t know about you.”
Gestures like that established employee willingness to buy in to the culture. To make the transformation less intimidating, managers should be aware that cultural learning experiences will be many, and at many locations.
“Culture happens in the hallways, culture happens in meetings, culture happens in the parking lot, in the coffee shop,” Hallett says. “Culture happens everywhere around you.”
Watch for red flags that could derail the infusion of company culture ? gossiping is a sign that there could be a problem.
“Nobody would ever walk into my office and complain about somebody else without bringing the other person with them,” he says. “When you feel people being political, people might be saying something but meaning something else and that’s just street sense — you know the guy’s full of it. He’s really making a statement about something else but he’s really trying to make a statement about himself. That just comes to bad street sense, right? It’s pretty hard to get that stuff past me.”
Hallett says that he must not only set an example for employees but set the pace.
“The speed of the boss is the speed of the game,” he says. “I know that everybody watches what I do, what I say, how I behave. I think that rubs off very quickly. I’ve gone to people and said, ‘Hey, you know what? I think you maybe need to not have sharp elbows — maybe you need to be a little more careful with the way you handled that situation or the way you spoke to that person.’ I’m not afraid to tell someone, ‘You know what? That probably wasn’t the best way to handle that situation.’ We are really a company that tries to focus on these values.”
Aside from the intangible aspects, tangible improvements such as upgrading technology go far in enhancing company culture.
Hallett realized that employees were becoming disenchanted with outdated computer systems and had to address the situation and those feelings. It meant spending enough to bring office technology up to speed.
“First of all, it really reinforces to your employees that you are committed to the industry, and you’re committed to them,” Hallett says. “Secondly, the customers absolutely feel it in the way that they do business and transact with you. If they’re not feeling the technology spend and the investment in technology, quite frankly, they’re not going to trust you to do business with you.”
The results of the culture change were dramatic, and business exploded at KAR Auction Services for its 13,000 employees. Revenue topped $1.8 billion in 2010.
“It was like hitting a light switch,” he says. “Customers were basically saying, ‘Where do you want me to send cars?’ ‘How can I help you?’ I mean, not every single customer, but our business took off like a rocket.”
If management is committed to employees, that fact will encourage a harmonious working relationship that leads to longevity — and low turnover.
“Make everybody feel like they’re loved, and they’re well-compensated and they’re fairly taken care of ? and yes, there will be challenges, like everybody else,” Hallett says. “But at the end of the day, nobody will be looking to get out the door.”
The Hallett File
Born: Kingston, Ontario, Canada, on the beautiful St. Lawrence River. My father was a railroader and my mother was a stay-at-home mom with three little babies. My dad died when I was 8 months old. So I never knew my dad and my mom never remarried. We were dirt poor. I lived in a house that burnt coal in the winter and had an outdoor toilet.
Education: I went to Algonquin College in Ottawa, Canada. I got a degree in recreation management. I was going to college because all my friends were going to go, and I didn’t want to have to study anything really hard.
What was your first job?
I mowed lawns and shoveled snow. Then I became a newspaper boy. If you’ve ever had a newspaper route in the country ? in the city, you can deliver 100 newspapers in 20 minutes ? in the country, it would take you an hour and a half.
What is the best business advice you’ve ever received?
A guy once told me, a great mentor, a great friend of mine, ‘You know what, Jim? There’s nobody better than you.’ And he elaborated, saying, “You’re no better than anybody else, but there’s nobody better than you.’ The same guy also told me, ‘You know what is the difference between you and the guy you admire or the guy that you look up to or the guy that you want to be?’ And his answer was, ‘One good year.’ And that’s the truest thing that’s ever happened in my life. It took me one good year. That’s all it took.
Whom do you admire in business and why?
I admire a guy by the name of Pat Butler. He owns multiple car dealerships and multiple RV dealerships in Canada. I admire him because, first of all, of his entrepreneurialism. He is very quick, very fast, very decisive, very agile — all those words that go with an entrepreneur. I’ve kind of modeled myself after that. I like the fact that on the outside he’s a crusty, rugged old character and on the inside he’s the most compassionate man I’ve ever met in my life. We talk every week.
What’s your definition of success?
Professionally, when everybody wins. Employees, customers, shareholders. And you know, that was really the big thing. When that management team was here for two years, there were some that took care of themselves and ran off with a pot of gold. When I’m done, there will be hundreds, thousands of people that will be taken care of. I think I can say that with a great deal of clarity.
How to reach: KAR Auction Services Inc., (800) 923-3725 or www.karauctionservices.com
Today, the picture of St. Mary’s Medical Center is much different than when I first walked through its doors as CEO four years ago. We have improved many areas, including programs, services, medical staff, quality, patient services, employee morale and financial stability.
It took a hospitalwide movement to shift St. Mary’s into the hospital that stands today, as well as a lot of hard work and dedication from the executive leadership team, medical staff, board and employees. As I reflect on the many changes that we’ve implemented to turn around the hospital, I can identify four key elements that drove our success: embracing change, engaging employees, building upon strengths and inspiring innovation.
In today’s market, change has to be the executive’s friend. We live in a constantly changing environment and when internal and external forces evolve, businesses need to do the same. For any organization considering a new direction, it’s important to refocus the executive leadership team to evaluate where improvements can be made in the current business model and develop a strategy for action. This often involves creating a new brand or image for your organization that reflects both the legacy of the organization and its new vision.
The next critical element is employee engagement. It’s vital to understand employees’ perspectives and discover what they need to be satisfied in their work. To reflect a new image, employees must be actively involved. They must feel engaged and take pride in the organization for which they work. At St. Mary’s, we immediately established an employee relations program with a designated employee relations staff member. Directors and managers should also be encouraged to boost morale by positively reinforcing employees that exemplify a job well done. With these resources, we were able to develop specific programs to improve our employee and physician satisfaction as well as more organizationwide celebrations and activities, consistently recognizing employees for their merit within the organization.
When implementing change, you also have to secure the support of all the people who make the organization tick. As a hospital, St. Mary’s dedicated a lot of resources to expanding our physician relations program and to supporting a medical leadership that had our patients, the hospital and its legacy’s best interests in mind. We increased communication with physicians to get them more invested in our hospital’s success. We also developed a new governing board that could evolve the medical staff leadership into a more cohesive, cooperative group that worked together to envision the St. Mary’s of the future.
With a strong and dedicated workforce, an organization has the tools to better execute its strategy for growth and development. But when deciding how to prioritize and manage strategic capital investments, it’s always important to make sure they are realistic and within your organization’s resources. At St. Mary’s we are equipped to care for very high-risk patients with our trauma center, Level III Neonatal Intensive Care Unit and Children’s Hospital. Therefore, we set out to grow and expand services that support this infrastructure, such as our Advanced Orthopedics Institute, Neuroscience Program and our Comprehensive Stroke Program.
Lastly, it’s essential to have an organization that embraces innovation from the top down. St. Mary’s has achieved great success in the last four years; however, there’s much more to come. It’s my job to first get people thinking, and second, get people motivated for action. I’m constantly asking questions and proposing new ideas and new ways to look inside our hospital and within our very competitive market. This insight helps us predict what might affect us in the future so we can shift our business plan accordingly. Innovation drives us to look ahead, embrace change and continue to evolve.
Davide Carbone has been CEO of St. Mary’s Medical Center and the Children's Hospital at St. Mary's since 2006. Prior to assuming his role at SMMC, he served as vice president of operations and market initiatives for the Hospital Corporation of America, and CEO of Aventura Hospital and Medical Center in Aventura, Florida. Reach Davide at (561) 844-6300.
Michael Glimcher had a lot to worry about in March 2009. The stock price for shares in Glimcher Realty Trust (NYSE: GRT) was hovering right around $1. The company had a massive pile of debt, and confidence in the real estate industry was slipping with every new foreclosure.
“We’re a capital-intensive business,” says Glimcher, the 552-employee company’s chairman and CEO. “When the banks were shut down and they didn’t want to lend money out and they just wanted to be paid back, it put us in the most precarious position that we’ve ever been in as a company in our 50-year history.”
Glimcher really needed to raise some cash and get rid of this debt that was strangling his business. But where was he going to find the money to get it done?
“How are you going to come up with $200 million?” Glimcher says.
This money wasn’t going to come from patrons at the malls and shopping centers that Glimcher managed. The economy had hit them hard, too. So he told his people not to spend time worrying about things over which they had no control.
“I basically told everyone here at the company, ‘If you want to pontificate about what’s going to happen to the overall economy and what’s going on in the outside world, you can do that all you want when you’re at home,’” Glimcher says. “But during the workday, if we can’t affect it, we’re not talking about it. It’s not an option.’
“We can control what our operating expenses are. We can control the morale within our organization. We can control how safe and clean our malls are and make sure they are great environments that people want to shop in. So there are a lot of things we can control.”
Glimcher felt that setting aside these uncontrollable factors would allow his team to get laser-focused on what could be done to get the $308 million company turned around.
Get people engaged
Glimcher needed $200 million. So the first thing he did was go to his people. He wasn’t looking for handouts to pay down the debt. Rather, Glimcher sought to assure employees that he was going to find a way to raise the money and pay off the massive debt.
“I made it real clear to everyone, ‘We’re going to win here,” Glimcher says. “‘We’re going to get through the issues we have to get through. Everyone who believes that we can get through it should be here. If there’s anyone who doesn’t believe we can get through these issues, you shouldn’t be here.’”
Glimcher wanted to express both confidence and resolve in his ability to turn the company around. But he was blunt about the steps it might take to accomplish this feat.
“Rather than giving people part of the story or half the story, we said, ‘Here’s exactly what’s going on,” Glimcher says. “‘We might be selling your mall.’ Frankly, we needed the help of the team to market the asset so we could get people excited about it. We had different potential investors coming through.”
So how do you get employees engaged in a battle to save a business when they may not even be part of that business when all the dust settles?
You get them doing whatever they can to make that move of last resort unnecessary. You get them focusing on the things in their world that they can control.
“The message is, if you do your job and if you do what you’re responsible for and you do it really well, it’s going to be a lot easier for us,” Glimcher says. “You need to instill confidence in the team.”
That begins with getting out of your office and becoming more visible with your employees. The more you hide, the more you raise suspicions.
“People are uncomfortable and nervous,” Glimcher says. “People want to be assured of what’s going on. I’d tell our company officers, ‘Get out of your office. Walk around. Meet with your department. Sit down and have a cup of coffee. Tell people what’s going on.’”
As you encourage your leaders to be more visible and more available, you should be working on getting the message out about the big picture.
“We called a state-of-the-company meeting and I outlined every issue we were dealing with and what we had to do to be a healthier company,” Glimcher says. “‘Here are the three or four most critical issues we have to correct. Here are the things we absolutely have to do, and when we do X, Y and Z, we’ll be in a much better place.’”
You’re not making promises that anyone’s job is untouchable. But you are engaging your employees in the effort to get things fixed and you’re showing them that you and your team is working right along side them in order to make things right.
“If you treat people nicely and you genuinely care about them and you’re incredibly honest with them about what’s going on, I think people really appreciate that,” Glimcher says.
Keep an open mind
If you’re truly seeking feedback from your employees that can help you work through a difficult time, you need to show them that their opinion has influence. So when someone brings Glimcher an idea, he tosses it right back in their lap.
“I try to never guide the decisions,” Glimcher says. “If someone presents something to me and they ask me, ‘Do you want to do A, B or C?’ I don’t answer them. I ask them, ‘What would you do? Why would you do it? Why would you recommend doing that?’ It’s empowering them to make the decision and make the recommendation. Guess what? I don’t always agree with it. But I want to know what someone thinks we should do.”
Glimcher recalls an asset financing deal where he did not see things the same way as his chief financial officer and his chief investment officer.
“I had made up my mind of what I wanted to do,” Glimcher says. “Our CFO and chief investment officer, they had a very different idea. And they were right and I deferred to them. I didn’t go in there and tell them, ‘Here is what we’re going to do.’ I actually went around the table and I got everyone else’s input and then I told them, ‘That’s not what I was planning on doing, but I think what you’re recommending makes sense and I think the reasons you’ve given me make sense, so I’m going to support it.’”
Glimcher had an opinion about how to pay down his company’s debt. But he respected the expertise of his leadership team to help him reach the best decisions to accomplish that goal.
“You have to rely on your people to play their position well,” Glimcher says. “Ultimately, I’m going to set the game plan, but I’m also going to set it with a lot of people’s input. There are some times where we come down to decision making and I feel very strongly. I believe this the right thing for the company and going in a different direction would be detrimental. I’ll override whoever I have to override.
“That’s how it goes. In the example I cited, I thought we would have been better off, but we’re not going to be hurt in any way by going in that direction. I’m not going to hurt the company just to make somebody happy. If everybody has input and we make a good quality decision, even if it’s not my decision, I’ll support it.”
One of the ways to help you judge if your people are making a smart decision, aside from gathering more feedback, is to make sure you know their history.
“Is this an area where they are really strong?” Glimcher says. “Is this an area where they are OK? Or is there an area where they are weak? If someone is passionate about something and you’ve seen through experience that that area is a weakness for them, you probably don’t listen to them as much. If it’s a strong area for them and they’re passionate about it, you probably better listen a little bit better.”
Glimcher knew it was going to take more than a good attitude and some elbow grease to erase his company’s debt. But as he pondered the big decisions that would have the most impact, he still wanted to show employees that their effort mattered.
So he began looking at the incentive program that was in place to help properties keep their tenants.
“We had an incentive program in place where if you renewed someone, say The Gap was in your mall and you got them to stay, you got a one-time commission,” Glimcher says. “If they were already there, the idea was it’s not that hard to renew someone. If no one was there and you got a new store to go in there, you got two times that amount of money. We put a higher value on new production versus keeping what we had. It was perceived to be a lot easier to keep what you had.”
But in the midst of a challenging economy that played a large role in the company’s debt predicament, Glimcher decided it was time to tweak this incentive program.
“In an environment where things were really tough, just keeping what you had was a big deal,” Glimcher says. “So we actually went in and we altered our compensation method. We said, you know what, renewing a deal is as valuable as getting a new deal. We’re going to pay the same amount for both. We knew No. 1, we wanted to keep the good salespeople working here. And No. 2, keeping the revenue we had was every bit as valuable. And frankly, that was what could be done in the environment.”
You need to take every opportunity in a stressful situation to show your people that you’re all marching toward the same goal. In your case, you need to show people that you are aware of any unique challenges they might be facing as they try to do their jobs.
“Do the goals of your incentive program match the goals of the organization?” Glimcher says. “If they do, it will probably work for you. If they are incongruent, they probably won’t work for you. We woke up one day and said, ‘You know what, the goals we set were fine for before. But they’re not fine for right now.’ As things get back to normal, it will probably go back. I think everybody respects that.”
The good news at Glimcher Realty Trust is that no mall properties had to be sold to erase the big debt. Revenue dropped to $275 million in 2010, but joint venture partnerships were arranged and a total of $300 million of equity was raised.
One of the biggest deals involved a joint venture purchase of Pearlridge Center in Hawaii.
“We’re going to be an 80/20 partner,” Glimcher says. “They’ll own 80 percent of it. We’ll own 20 percent, and we’ll operate the asset. Good things can come out of tough times. Now we’re growing with a partner when really we were contracting by bringing them into an asset. That worked out really nicely.”
Glimcher says the key in any tough situation is to keep your cool.
“When you’ve panicked in the past, has that been an effective mechanism for you?” Glimcher says. “If you yell at someone, are they going to feel good and want to do something for you? Ore are they going to feel kind of down and think you’re a jerk? People who are treated nicely usually wind up doing better things. If I thought people were going to be a lot happier and we were going to make a lot more money because I could go around yelling at everybody, maybe I’d start doing that. I don’t believe that’s true.”
How to reach: Glimcher Realty Trust, (614) 621-9000 or www.glimcher.com
The Glimcher File
Chairman and CEO
Glimcher Realty Trust
Born: Columbus, Ohio
Education: Bachelor of science in political science, Arizona State University
What was your very first job?
I did work at Youthland, which was a children’s clothing store. I worked there for a couple summers and part time over Christmas break. It was me and five women. I changed the light bulbs and I’d sit in the back room with the steamer and steam all these little miniature clothes. Anything that involved getting on a ladder and moving things around was my responsibility. I can still wrap a gift really nicely.
Who has had the biggest influence on you?
It’s probably a compilation of people. Obviously, I’ve spent a lot of time with and worked a lot with my dad, so he’s obviously had a huge amount of influence on me. You learn different things from different people’s management style. I’ve been fortunate to be exposed to a lot of pretty interesting people over the years.
What’s the best advice anyone has ever given you?
A great piece of advice I got was, ‘Put everyone else before yourself.’
If you could sit down with anyone, past or present, who would it be and why?
President Ronald Reagan. When you think about my style of relying on great people, delivering the right message, being positive and trying to inspire people, he certainly inspired me.