Tuition can be expensive, and business owners have a right to expect that employees have learned something that they can take back to the company and apply in a tangible way, says Elden Monday, state vice president, Pennsylvania, for the University of Phoenix.
Smart Business spoke with Monday about ways businesses can ensure that the money spent on sending employees back to school is not wasted, and, most importantly, how to make certain that the education an employee gets is a win-win for both the employee and the business.
How can a business ensure that it gets a good return on investment from continuing education for employees?
The key is for the business owner or manager to become involved in the process and manage the outcome of this endeavor. Good managers will keep track of their employees’ educational pursuits.
To be clear, keeping track is not just asking employees whether they got a passing grade. More likely, it is a system that demonstrates the knowledge that employees gain from education, and the ways that knowledge will be applied to their jobs. The most successful measurement systems include an assessment before the employee begins attending class; an ongoing review process while the employee is in school; and an evaluation of the knowledge the employee gained at the end of the program.
A distinct advantage of continuing education is that it produces nearly immediate and ongoing return. It is reasonable to expect that long before an employee has a new degree in hand, he or she will begin implementing skills, approaching challenges in new ways and generally performing at a higher level.
What should a business owner or manager do before sending an employee to take a course or obtain a degree?
The first step is for the manager or CEO to take a close look at the curriculum the employee proposes to take and determine whether it fits with both company and employee needs. Many companies have succession plans in place and have a good idea what an employee needs to learn in order to move to the next level.
Does the employee need a degree in accounting in order to move up in the company? Does the employee need extra courses to beef up on new online marketing techniques?
Another way to protect the investment is to ask employees up front how they will apply their new knowledge to their jobs. Employees and managers share responsibility to determine how the course or degree will ultimately help the company.
How can a manager stay involved in the process once the employee has signed up?
Through performance reviews or regular coaching sessions, managers can have conversations with the employee about the course work and how new knowledge can be applied to the workplace. One opportunity for immediate ROI is to encourage the employee to identify workplace projects that can be introduced as a real-world challenge in the education setting. This scenario leverages the knowledge of students and faculty by using a real-life business problem as a classroom or an employee’s individual project.
Once an employee has completed a course or obtained a degree, how can a business owner assess whether the money was well spent?
There are several ways to assess the ROI. Is the employee utilizing his or her skills in the workplace? Are managers making better decisions because they have gone to a decision-making class? Are they better at critical thinking because of a critical thinking class — or are they still using their gut?
The question business owners need to ask themselves is this: Do you have a better department or company because of the money you spent on educating your employees? The difference — before and after — should be tangible and visible.
As a business owner, how can you ensure that employees don’t jump ship once you’ve invested in their education?
A nationwide work force survey showed that employees are more likely to remain loyal if they have paths for growth in both responsibility and salary. It’s true there is some risk that an employee will seek a higher-paying or more challenging job with a new degree in hand.
For this reason, business owners often incorporate clauses in their companies’ tuition reimbursement agreements, defining a minimum duration of employment after the degree or training is complete (usually at least six months).
Elden Monday is the state vice president for the Pennsylvania campuses of University of Phoenix, a national leader in higher education for working adults. Reach Monday at Elden.firstname.lastname@example.org (610) 989-0880, ext. 1131.
In the process, Kan has found new ways to expand his chain of car wash and gasoline station combinations. His company, with 20 locations in the Philadelphia area, posted $60 million in sales in 2005, up from $40 million when he joined it in 1999.
But Kan’s progress has come with no small measure of pain and effort, and his growth plans would be of little value if he hadn’t taken steps to bolster his management and retool the way the company does business. Since taking over the family-owned business and assuming half-interest in the company once held entirely by his father-in-law, Reinhards “Ron” Bets, Kan has struggled to impose some fundamental business discipline on the company.
Before he arrived, there was little demand for accountability from supervisors and managers. Indeed, employees were rarely dismissed for any reason except dishonesty, and that meant deadwood in the company’s operations. And meeting the standards of a performance-oriented organization meant some long-time employees had to go.
Since taking over, Kan has professionalized his management team, making it accountable for operations and offering incentives for outstanding performance. He’s introduced financial and operational discipline and is developing a training program to impose uniformity across all of his operations, provide a better work environment for his 300 employees and take the first step toward franchising The Gentle Touch Car Wash concept in tandem with the company’s recently introduced Griffin gasoline brand.
Kan talked with Smart Business about how he’s building his carwash and gasoline business with a performance-oriented culture and proprietary brands.
How have you changed the management of the company since you came on board?
The big thing for me is accountability, so one of the changes I made immediately was to meet with my four district managers ... once a week on Thursday morning. I want to see them in my conference room, and one at a time they report to me the previous week’s numbers.
If they’re behind target, I want them to tell me why and what they’re going to do about it. If they’re exceeding their targets, I want to know why that is and what the other district managers can learn from their success.
They know that these numbers have an effect on their careers. That Thursday meeting is how I keep everyone on the same page, make sure everyone is reporting to me what they’re doing in executing their business plans for each of their profit centers.
How do you and your senior managers keep tabs on the company’s overall performance?
We all have our own dashboards. Mine is more macro, and as you go down, there’s more dials on theirs, if you want to use that analogy.
Their numbers become more micro. I look at the large numbers and I say, ‘There’s a problem here.’ Sometimes if you miss a problem, by a month later you’ve lost 50 grand. I look at the big numbers and if I see a problem, I kick it down to my operations guy. And he identifies, as he should, a lot of problems before they get to me.
How have you changed the gasoline business model?
Three years ago, we went from a dealer classification to becoming a distributor for BP Amoco. ... They would supply us, tell us how much it’s going to cost every day, and that’s it. Everything had to get their approval.
One of the advantages of being a distributor is a much lower buying price. Now, as a distributor, we have the capability of supplying other stations as well as our own. We can get into another stream of business, which is supplying other dealers.
Why did you make the change to wholesaling and establishing your own brand?
Traditionally what we’ve done is buy locations that we saw as a good deal. What we’ve done is buy those locations without much of a strategy; we’d just buy them as they became available. We built the business with the lowest gas price possible, and with that low price attract customers to come in for a car wash, our high-margin item.
Unfortunately, the market has changed. What we’ve been seeing is a huge emergence of large, independent gasoline brands coming to the Greater Philadelphia area and beyond, all along the East Coast. I saw that back in 1999, that it was going to be a problem for us. It was exactly the same as our model.
It used to be very much a mom-and-pop business. Starting on the gas side, I started to try to figure out how to reposition ourselves.
Why are you offering your own brand of gasoline and how does it benefit the company?
The easy answer to why we’ve done it is price. The reason we decided to go with our own brand is that we’ve seen that, over the years, customer behavior has greatly changed, and the more gas prices go up, the greater the change.
Customers, for the most part, don’t care about brand, they care about price. Oil companies used to enjoy brand loyalty. There were customers who wouldn’t use anything but a particular brand and there still are a few of them and the oil companies didn’t compete on price.
We came to the realization that it didn’t make sense to pay a premium price for this brand while the market share was being eroded. We just opened a new Griffin store. We took down a Mobil sign, put up a Griffin sign and our business went up 50 percent and our margin increased.
That’s the clearest indication to me that brands don’t matter much to the customer anymore.
How are you developing the Gentle Touch Car Wash concept?
The carwash brand, Gentle Touch, is something we’ve been developing for several years. One of the first things I realized when I came to the company was that we had to launch a brand for the carwash.
We have a product in our carwashes that no one else uses on the East Coast, which is a lamb’s wool material. It’s a feature that we wanted to promote, so we came up with a logo with a lamb holding a washing mitt.
I standardized our uniforms, created a training manual so that service will be, as much as possible, standardized.
We created detail centers for customers who wanted that kind of service at eight of our carwashes. We try as much as possible to have uniform pricing and an aggressive advertising campaign on radio, TV and sponsorship of sports teams.
How are you strengthening the Gentle Touch brand?
The new thing we’re working on is Carwash University. I’m following the McDonald’s model of Hamburger U. They’ve probably got the best corporate training program to standardize their service.
I said we need the same thing. We need to be a true brand, not just locations with a logo on them.
We hired a local company with a training camp, and we’re developing a training curriculum for everyone from assistant manager and up. It will be a two-day course and it won’t just be all on the technical aspects of running a carwash location.
It will be on management skills, it will be on some of the human resources issues that we all face now. We’re very excited about it, and I think it will really set us apart. It will also assist in the next phase of our strategy, which is another change on the carwash side.
How will you implement that next phase?
There are some locations that make sense for us financially to run ourselves and there are places that don’t. There are locations where an entrepreneur and his family, for instance, can run very profitably.
For us, it might not be possible to run the same location at a profit. I want to grow the company, but I don’t see doing it simply by buying locations and staffing them. It’s not the most effective way to grow it. We’re not just going to go out there and buy anything available at a good price.
Going forward, I can see us purchasing locations but not necessarily running them ourselves; that is, to franchise the brand. Potential franchisees need to see a value in having your name on their building, and we want to provide that to them.
How to reach: American Auto Wash Inc., www.gasnwash.com; Griffin Petroleum, www.griffinpetrol.com
In 2005, the General Assembly voted to raise the pay of its members 16 percent to 34 percent, prompting a flurry of outrage by citizens groups and more than one biting editorial in local newspapers. Perhaps smarting from the criticism it received over its new compensation, the General Assembly now seems poised to pass a bill (House Bill 257) that would amend the Minimum Wage Act of 1968 to increase Pennsylvania’s minimum wage in three stages to $7.15 an hour.
Pennsylvania’s minimum wage is $5.15 an hour, the federal minimum wage. If passed, the new law requires that employers raise the minimum wage to $6.00 an hour effective sixty days after the passage of the legislation; to $6.75 an hour effective January 1, 2006; and to $7.15 an hour effective January 1, 2007.
These raises would be further augmented by modest cost of living increases based on the regional Consumer Price Index (CPI) effective each January 1 thereafter. The legislation, which is based on a similar statute passed in New York last year, is also not unlike new minimum wage laws now in effect in 17 states and the District of Columbia.
Groups on both sides of the issue have been waging a policy battle over the merits and demerits of the proposed increase. Pro-business groups cite studies that indicate a raise in Pennsylvania’s minimum wage would result in more than 10,000 lost jobs in the Commonwealth and would cost the state’s economy more than $350 million.
On the other side, proponents of the bill argue that an increase in the minimum wage would benefit more than 750,000 Pennsylvanians, many of whom barely live above the federal poverty line. With the looming specter of rising oil prices this winter as a result of Hurricanes Katrina and Rita, the bill’s sponsors argue that the proposed legislation will give economically at-risk Pennsylvanians a much-needed boost.
Proponents further argue that nearly 45 percent of Americans now live in states with higher minimum wages than mandated by federal law and that Pennsylvania needs to join this growing trend.
Gubernatorial politics will also play a role in the issue as Governor Edward G. Rendell, preparing to run for a second term, promised to make the pay raise a top agenda item. As a candidate in 2002, Rendell was opposed to a raise in the state’s minimum wage.
With labor on board and Rendell seeking to woo a potential voter pool of 750,000 minimum wage workers, the governor has made the issue a top priority.
Administration as well as Hill-watchers do not feel that Republican opponents of the bill will be able to muster enough support from legislators still reeling over the furor created by their 2005 legislative pay raise to stop the minimum wage bill from becoming law.
If Pennsylvania enacts the new law, approximately 16.3 percent of the work force would benefit from the increase. Most workers affected are adults between 19 and 25; seniors and women also make up a strong percentage of the minimum wage population in Pennsylvania.
Business owners in hospitality, food service and other areas which rely heavily on a generally low-skilled work force will be most directly affected by the changes. While the minimum wage law is not yet a reality in Pennsylvania, affected business leaders should begin preparing now for several years in which their labor costs will rise.
While public policy reasons will certainly fuel the rise in the minimum wage, state politics will, as ever, be a strong motivator behind what the legislature and the governor eventually do.
Jack Thomas Tomarchio is a shareholder in the Philadelphia and Washington, D.C. offices of the law firm of Buchanan Ingersoll PC. He is a member of the firm’s Government Relations Section and co-chair of the firm’s National Security Practice Group. Reach him at email@example.com.
Addis was right. Providing comprehensive audits of potential clients and advising them on ways to cut their risks and insurance costs brought a deluge of business and performance levels for The Addis Group that beat competitors by a mile. With its insurers enjoying loss ratios with Addis Group clients a fraction of industry averages, revenue per employee twice that of competitors and reduced insurance costs for clients, Addis built his agency, now at 40 employees, without a sales force or marketing effort.
But the growth challenged Addis, president and CEO of the company, when it came to making sure that relationships with clients, insurance companies and his own employees remained warm. To ensure closeness with those groups as the company grew, Addis introduced a program he calls “Acres of Diamonds,” inspired by a fable that advises the reader to take care of treasures closest to home.
The effort, Addis says, has succeeded in maintaining strong ties with clients and insurers and in preserving entrepreneurialism in the company, a factor he says has been critical to The Addis Group’s success.
Says Addis: “I think we’ve been cognizant of how we go ahead and continue growing, having the systems in place but making sure the entrepreneurial spirit remains.”
Smart Business spoke with Addis about the challenges of growing his business and maintaining relationships as he does so.
What’s been the biggest challenge to growth for The Addis Group?
Our mission statement states that our clients represent the foundation upon which we build our dreams. If you think about it, without having a sales force here, the only way we grow is by having raving fans, not just satisfied customers, (but) people who say, ‘I just can’t believe the work you’re doing for me.’ We don’t even ask for referrals. When you think about it, we must have very enthusiastic I call them stakeholders, and stakeholders are obviously our customers, but it includes ourselves, the insurance carriers, law firms, the community itself. The biggest challenge has been ... how do we put in place strategies to stay close, not only to our customers, but to our other stakeholders?
How have you approached that issue?
About a year ago, we instituted what we call a formal stakeholder intimacy program. What we did was call the program “Acres of Diamonds.” What I keep reinforcing on a weekly basis is because it’s such common-sense, you know, people forget it sometimes sitting right in front of you are diamonds.
So the exercise that we’ve done with our staff is say, ‘OK, who are our diamonds?’ I think it starts with ourselves. We’ve got to make sure that everybody here feels they’re treasured, they’re polished, they’re cared for.
Then it gets into our clients, it gets into (law and accounting firms), insurance carriers. So for every one of our diamonds, we literally have a formal program and an action plan for staying close to them.
What motivated you to start a stakeholder intimacy program, and how does it benefit the company?
Our audits take a lot of time, a lot of energy. I personally got involved in a majority of audits. On the back end, there are tremendous service requirements. It could be acquisitions, claims, all sorts of internal issues that companies might have, so there’s a tremendous service component.
I know we have great people here, but I’m a Nervous Nellie, and I just needed to make sure that every client is being cared for in a very significant way. I’m very confident now that there’s a lot of creativity and freedom as far as how we handle each client.
I know there’s a definite program in place for each client, and we can measure that in all sorts of ways, measure it through referrals, through retention, through our quality assurance survey.
How do you stay close to the various groups?
I think the most critical thing we’ve done is come to the realization that we cannot grow without staying close to our customers. An example might be, for our clients, building a formal quality assurance process or a risk management education forum.
For insurance companies, we actually have an intimacy program on a quarterly basis. They receive a token of our appreciation. It could be chocolate pretzels from Zitner’s in Philadelphia, Johnson’s Popcorn from Ocean City, Virginia Peanuts, thanking them for all the work they’ve done on our behalf, as well as having a casino night
What lesson have you learned while leading a fast-growth company?
Any business starts with entrepreneurial spirit, and I think what ends up happening over time is that you have to put in systems and controls to make sure that quality assurance is there, that customer service standards are there. I think we’ve been very cognizant of how we go ahead and continue growing, having the systems in place that make sure the entrepreneurial spirit remains.
How do you keep that spirit alive?
The best way I can phrase it is we look at it almost like a football field. We say to people, ‘Play within the boundaries, do as you wish.’ We know we have to do certain things, but giving people the freedom to play within those boundaries, I think that’s been appreciated.
How to reach: The Addis Group, www.theaddisgroup.com
Born: Newark, N.J.
Education: Lafayette College, Drexel University and Stanford Executive Program
First Job: Second lieutenant, U.S. Army
Whom do you admire most in business and why?
My father-in-law, who was an executive in the chemical business. His advice was to work hard and be humble. I also admire CEOs that do not make themselves bigger than the companies they run.
What is the most important business lesson you’ve learned?
You need people who are willing to grow with the company and who will be loyal to you. And, you have to be flexible with people everyone grows differently.
What has been your toughest business challenge?
Finding the right people, managing the technology available today and managing the supply chain, in regard to us moving up the integrated solutions food chain.
Describe your leadership style.
Collaborative, candid, loyal, honest and direct.
Thanks to a variety of bank services and technology, you have some options today to protect your business.
Despite the increasing popularity of electronic payments, nearly 60 percent of all business-to-business payments today are made via a paper check. Here are some ways to ensure your checks are secure.
- Use checks that are imbedded with watermarks and microprinting. These features deter fraud by making reproductions more difficult.
- Use checks made of heat-sensitive ink and paper, which are more difficult to reproduce using basic photocopying equipment.
- Use electronic bank account statements if available. Paper bank account statements put you at greater risk by making sensitive information accessible through the mail.
- Keep track of your checks. It may seem obvious, but one of the best ways to protect your business from fraud is to keep track of where your physical checks are at all times. Don’t leave checks sitting out for others to steal.
- Add a positive pay or payee positive pay service to your business accounts two add-on services available through most banks. For a nominal charge, any checks processed through your corporate checking accounts will be carefully scrutinized.
A positive pay service starts with you sending a list to your bank of all checks issued. The bank matches the check number, dollar amount and account numbers of all inbound checks against your list.
Any checks that do not match your list are flagged for review. With most positive pay services, you can go online to review images of your checks that are flagged as exception items. You reduce disbursement risk by easily reviewing suspect items and alerting the bank whether to pay them or to return them.
With payee positive pay, when providing your bank the check number and dollar amount of checks issued, you also include the payee. Again, you may review exception items online and alert the bank to pay or to return the check.
Technology is helping businesses secure their payables and receivables when electronic payment formats are being used.
- Automated clearinghouse payments (ACH). It is cost-effective for suppliers and customers to pay via ACH. However, you must provide your bank account information before an electronic payment can be initiated. While necessary, it puts your accounts at risk. With a Universal Payment Identification Code (UPIC), you can receive electronic payments without disclosing confidential bank information.
Your UPIC number serves as a universal remittance number and masks your real account numbers. UPIC technology also limits account activity to credit payments and blocks all debits. If you should move your accounts, the UPIC number remains the same.
- Credit card payments. To protect credit card payments, both VISA and MasterCard have implemented universal precautions for businesses that accept credit card payments.
The standards require companies to follow certain procedures when handling cardholder data and include a number of criteria, such as quarterly network scans and audits by qualified independent security assessor,s to ensure merchants and service providers protect cardholder data.
- Purchasing cards. New technology is available to enhance controls on purchases made by employees with purchasing cards. This technology enables your organization to instantly manage the available credit on individual purchasing cards.
Technology advances also let you to limit purchasing activity through an array of card-spending controls, including monthly and per-transaction limits, as well as merchant spend categories that only permit use of the card with certain merchants. Some card programs provide online access to manage these parameters directly from your desktop computer.
This was prepared for general information purposes only and is not intended as specific advice or recommendations. Any reliance upon this information is solely and exclusively at your own risk.
William Friel is sales manager for corporate banking in Philadelphia at PNC Bank, National Association, member of The PNC Financial Services Group Inc. Reach him at (215) 585-5242.
While many businesses sat patiently through the past few years to ride out the sluggish economy, many are now prepared to pull the trigger on their growth plans. Capital is the key to turning these plans into reality, with many businesses looking to the syndicated loan market to finance acquisitions or to pay down more expensive debt.
Overall, syndicated loan volume grew 24 percent from $1.02 trillion in 1999 to 1.35 trillion in 2004, according to Loan Pricing Corp. Mid-sized companies defined as $20 million to $500 in annual revenue accounted for $168 billion of syndicated loans in 2004, compared to $107 billion the prior year.
Why a syndicated loan?
Lenders both banks and institutional providers tightened their belts for a couple of years, scrutinizing deals to minimize their risk or exposure. While lenders today may be cash-heavy, they are not looking to throw cash at every deal that crosses their desks. Lenders today may be reluctant to hold large amounts of debt from a single corporate customer, opting instead to take a piece of the deal and syndicating the remainder to other banks or institutional lenders. This strategy spreads the risk or exposure among multiple lenders. As the borrower, you benefit by increasing your borrowing capacity with multiple credit providers. And there are additional benefits.
- Less-expensive financing than bonds lower interest rates and upfront costs
- Prepayment may be available without penalty or premium
- Expanded access to noncredit products such as capital markets solutions and expertise
- Short-term loans, traditionally up to five years
- Reliance on any one lender is reduced with multiple providers
- Competitive pressure often results in more market-driven structures and price
James Florczak, treasurer of Arch Coal Inc., once compared the loan syndication process to buying a new car. You know you really need do to it; you are really excited about getting the deal done; but the process ... well! Coming into the process prepared and educated can really be an advantage. First, you need to get yourself an agent bank. Sometimes referred to as the lead arranger, your agent will structure the deal, arrange and manage your loan. The agent is responsible for shopping around your deal to other banks or institutions, and tracking payments and other administrative responsibilities. Like Hollywood agents, your agent bank is paid a fee for this service based on multiple factors.
- Size of the financing
- Complexity of the financing
- Your company’s credit risk rating
- Underwritten vs. arranged structured
If the credit facility is underwritten, your agent commits (subject to certain conditions) to fund the entire amount of the financing if it does not find other lenders to provide a portion of the financing. If arranged, sometimes called the best-efforts option, your agent commits an amount less than the full amount of the financing and then markets the remainder to other lenders.
If this is your first loan syndication, meet with several different lenders and request a work up of the numbers in the form of a term sheet. Your agent bank should evaluate your financial needs over the next three to five years, not just the financing for your current project. And, be sure to inquire about the banks’ track records before awarding your business. From start to finish, you can expect the loan syndication process to take, on average, eight to 10 weeks. Discuss all of your options with your financial advisor as you embark on the new adventure of the loan syndication process.
This was prepared for general information purposes only and is not intended as specific advice or recommendations. Any reliance upon this information is solely and exclusively at your own risk.
Bob Kane is a senior vice president for Corporate Banking in Philadelphia at PNC Bank, National Association, a member of The PNC Financial Services Group Inc. Reach Kane at (610) 725-5724.
“The single biggest mistake business owners make is focusing on the product and not the people,” says Thurman, chairman and CEO of Viasys, a $600-million medical technology company that has sealed six deals in the last few years, three of them in January 2005.
This acquisitions spree is hardly spontaneous. Thurman’s eyes are fixed on Viasys’ three-year strategic goals to identify new business opportunities, invest in product research and development, and achieve greater growth.
Already, the chosen few are producing numbers that fall in line with Thurman’s expectations. Viasys holds top positions in each market of the medical technology industry that it serves respiratory care, neuro care, medical systems and orthopedics. In the last three years, Viasys has invested more than $90 million in product development to achieve “best in class” status in the major products for each business. Through the first half of 2005, revenue has increased 19 percent over last year, operating income jumped 56 percent and its stock price has jumped 60 percent in the last year.
Thurman’s expansion strategy is paying off, and he attributes some of the company’s success to its entrepreneurial management structure.
“Viasys is really a company of companies,” Thurman says.
In position to purchase
A strong balance sheet and ample cash flow position Thurman to consider expansion through acquisition, but Viasys wasn’t always this financially comfortable. Like most start-ups, Viasys was cash poor and deep in debt when it was spun off of financial holding company Thermo Electron in 2001. Thurman was recruited to lead the launch.
“The first two years, our primary goals were to eliminate the debt and improve the cash flow from the business operations,” Thurman says.
Viasys introduced new technology to the marketplace, building off of its first major product, the VMAX system for respiratory diagnostics and, immediately following, the AVEA ventilator. But products weren’t enough to generate the cash flow necessary to expand. So to further strengthen the company’s profile, Thurman consolidated facilities and simplified management structures, keeping a discriminating eye on cash flow and eliminating excessive operations costs.
“Every aspect of running a more profitable company, whether it was better products, reducing our costs or paying attention to the balance sheet, we did it all,” he says.
By 2004, Viasys was primed for expansion through acquisition. The company had chipped away all of its debt, accumulated more than $100 million in savings and generated annual operating cash flow of $50 million.
“This [financial picture] provided us with a competitive advantage in that we can move quickly to acquire companies that meet our strategic objectives,” Thurman says.
That’s the tricky part finding businesses that fit Viasys' profile and Thurman’s standards.
“The challenge is finding high-quality companies and not just acquiring anything that comes along,” Thurman says.
Thurman estimates he evaluates 10 times the number of companies he actually pursues. This year, three made the cut Micro Medical Ltd., Oxford Instruments and Pulmonetic Systems Inc. Each transaction rounded out Viasys’ product and distribution portfolio in its respiratory diagnostics, critical care and neuro diagnostics businesses.
Thurman believes each acquisition will drive earnings in 2006 and beyond.
“Strategically, these businesses moved us into higher growth segments and moved us into new channels of distribution, such as home care and the physician’s office,” he says. “Our acquisitions have allowed us to accelerate our overall growth and position us for outstanding long-term success.”
The significant six
When Thurman whittles down prospective acquisition potentials to candidates that suit Viasys’ mission and market objectives, he refers to six principles. First, the company must align strategically with Viasys’ core business segments.
Next, prospective companies must introduce new market opportunities or growth opportunities in existing segments. And financial criteria are critical. Thurman want to realize a 20 percent rate of return on acquisitions, and he prefers that companies’ earnings are accretive to Viasys’ overall earnings within the first full year following acquisition.
Then, he looks for companies with products that can be quickly introduced in Viasys’ vast international distribution structure.
Finally, Thurman looks for strong leadership managers who will thrive in Viasys’ entrepreneurial structure and play an important role in the company’s future. This human element, Thurman says, is the deciding factor. He recalls one of Viasys’ first acquisitions, when the personnel part of the equation was neglected.
“We focused solely on the value of the products they were bringing and we overlooked some important human resources issues,” Thurman says. “We ended up not retaining many of their key people because of that.”
Since then, Thurman tunes into the human assets a company can bring to the table, not just how the tangibles will benefit Viasys. This experience confirmed a lesson he learned in 1990 when he led the integration of U.S.-based Rorer and the French company Rhone-Poulenc. Marrying two corporations with sharp contrasts in management structure and communication style was difficult.
“It was like combining capitalism with socialism,” he says. “The Rorer company was more entrepreneurial we were less bureaucratic than the French business culture. In the U.S. business culture, we give more responsibility to individuals to make decisions, where in the French business culture, decisions tend to go through multiple layers of management and committees.”
The French called Thurman “Rambo.”
“They saw me as quick to make decisions, quick to take action they just weren’t used to that,” he says. “The decisions we used to make in an American company based on two businessmen talking in the hall would take a month to move through the levels of bureaucracy on the French side. It was culturally a very difficult integration to accomplish.”
Thurman refers to this experience today when considering which companies will adjust and thrive in Viasys’ environment. Earlier this year, Viasys was considering the purchase of Pulmonetics Systems or a French company. But he didn’t envision a cultural match between Viasys and the French company.
“One of the factors that really became important was that we felt that the cultural dynamics of Pulmonetics was more in line with the culture of Viasys,” Thurman says. “That was the key aspect that led us to acquire Pulmonetics and not [the other company.]”
Thurman facilitates a meaningful initiation process regardless of whether an acquired company operates independently or integrates. First, he shares with its employees his six acquisition criteria and identifies why each person is important to Viasys’ success.
“We certainly articulate how important they are to our future,” Thurman says.
Thurman spends time walking the halls of newly acquired businesses so he can introduce himself to employees. He wants them to be able to put a face to the Viasys name.
“For an acquisition to be successful immediately, the people who are running that company have to feel like they are part of Viasys and an important part of our future, and they have to be integrated into the culture of our company,” Thurman says. “We spend the time and energy to do that.”
New personnel are enrolled right away in Viasys’ incentive programs all employees can participate in a stock ownership plan. And if Thurman thinks Viasys needs to “put our money where our mouth is,” he initiates retention programs to show employees he is serious about keeping them on board.
Still, each acquired business maintains a certain level of autonomy, something Thurman says executives appreciate.
“Generally speaking, I think employees find the cultural transition to a company like Viasys to be much less of a change than they expect,” he says.
Within Viasys’ core business units, each segment has its own division president, and each president has substantial autonomy and significant investment backing for product development, marketing and distribution.
“In many instances, the companies we acquire are still run by the original founder or scientist that invented their technology,” Thurman says. “Even though we have become a large company, we pride ourselves on the fact that we maintain aspects of a young, entrepreneurial company.
“Running a company within Viasys is much more akin to running your own business than it is being a part of a bigger company. That culture is very important to our future.”
Best in class
Research and development is also critical to sustaining growth and market share in the medical technology industry.
“In order to compete globally, you must be committed to innovation,” Thurman says. Viasys has confirmed its dedication to delivering new products to all of its markets with a $90 million investment to ensure its systems and services are best in class. The slogan refers to an initiative to fine-tune every part of the Viasys machine, from the way products are developed to how they reach customers and the support that follows every sale.
Heightening standards and constantly reaching for the next level defines Thurman’s acquisition practices and his commitment to sustaining Viasys’ healthy balance sheet. Just as in the early days, when Thurman notices a weak link, he considers what resources are necessary to rebuild. The Neuro Care business was one of those weak links. Some products were out-of-date, and new competition threatened Viasys’ position. But in the last couple of years, the division has undergone a complete overhaul.
“We started with new leadership to run Viasys Neuro Care and we redeveloped our core products, which the team did in two years,” Thurman says. “We had to rebuild customer relationships that had been allowed to deteriorate.”
In the second quarter of 2005, the Neuro Care division achieved 75 percent growth over 2004. It now boasts talented management, a new product portfolio and strong sales.
Neuro Care accounts for 25 percent of Viasys’ overall business; Respiratory Care accounts for half of total revenue, and the remaining 25 percent is divided between Medical Systems and Orthopedics.
In each business, Thurman challenges leaders to identify growth opportunities and the ways their respective markets can maintain best in class status. Many times, these assessments result in acquisitions to broaden market reach or extend the family of products.
“Traditionally, we’ve been the strongest competitor worldwide in the respiratory diagnostics side of the business,” Thurman says. “So, we challenge them to [determine] what products or business segments we could move into to increase our growth. As a result, we started a business in clinical services.”
When Viasys acquired Micro Medical this year, it gained access to promising distribution opportunities in physicians’ offices and home care markets. While certain subsegments of Viasys’ critical care business were strong, such pediatric ventilation, other segments were untouched.
“In that case, we developed products in our R&D labs to address some of those markets and we acquired a couple of companies to address other higher growth markets,” Thurman says. “Our balance sheet will allow us to continue to be opportunistic. In the next three years, customers can expect to see new products and services developed internally and a reasonable number of acquisitions that will help us meet our strategic goals. The combined result of that will continue to generate higher overall growth than the industry average.”
Although Thurman’s children are the only ones who still occasionally refer to him by his action-figure moniker, he uses that no-nonsense approach to leadership and view on expansion and success.
“Lead, follow or move aside,” he says.
And integrity is an absolute.
“A lot of times when you acquire companies, they come from a box mentality,” Thurman says.
“And many people think product companies just build boxes.
”We don’t build boxes. The systems that we develop and manufacture change people’s lives literally save people’s lives. We are in the business of improving the quality of human life. When companies [we acquire] learn our mission, right away they find it inspiring.”
How to reach: (610) 862-0800 or http://www.viasyshc.com
“You have to be an enterprise that sometimes is willing to say, ‘I messed up,’” says Nevels, chairman of West Chester’s The Swarthmore Group.
There’s been plenty of pleasure to go with the pain, it would seem. Although Nevels and his team have grown The Swarthmore Group, launched in 1992, into an enterprise with nearly $2 billion in assets under management, that growth came during an era when erratic changes shook the confidence of investors in the markets and their money managers.
In some respects, Nevels’ business accomplishments pale when compared to the challenge he has faced as chairman of the Philadelphia School Reform Commission, a team put together in 2001 to fix Philadelphia’s public education system.
Nevels took on what seemed to be the impossible job of reviving a public school system of 200,000 students and 15,000 teachers that was in trouble on nearly every front. Nevels coaxed the state into allowing creative refinancing of the district’s debt and helped float new debt issues to fix crumbling infrastructure. He also engineered agreements with teachers and administrators to put the best teachers in the most troubled schools and to make educators accountable for results.
His term on the commission has helped him understand the challenges his firm faces as it grows and its structure becomes more complex.
Nevels talked with Smart Business about what it takes to be a successful investment manager, his schooling in business and the business of schools.
How has your training as a lawyer influenced your business management style?
It has affected it greatly. No. 1, I am a big picture person from the standpoint of business, but the law has really affected me in terms of my view of how things work together, how things fit together.
There is really something to the (notion) that when you go to law school and graduate, you’ll never think the same way. I can be incredibly analytical when need be. I found that I could be a well-informed consumer of legal services, but I don’t pretend to practice law anymore. I know just the right questions to ask, and the law prepares you in just the right way to ask the hard questions. And I found that is a gift, that’s a capability that’s incredibly valuable.
The thing that I am a little manic about is that I need information, I need information to know those details are taken care of. I can get very frustrated by not knowing those details are being taken care of.
Why did you make the transition from lawyer to entrepreneur?
I realized that I had an interest and an aptitude in commerce and in business. And in terms of practicing law, in terms of documenting those transactions, doing the legal work for a financial transaction, I realized that perhaps I was thinking at some point more like a businessperson than a lawyer.
And besides that, it became clear to me that the businesspeople had all the fun. I didn’t want to stay up all night working and drafting things for them when they were having the fun and doing the deals.
I saw it as exciting, but I also saw that there was a creative aspect. There was an analytical aspect, which the practice of law satisfied, but then there was an additional factor of creativity that I may not have been getting as much of in practicing law.
How do you lead an investment management firm successfully through the ups and downs of the market?
I think that the thing in any business, particularly in the investment advisory business, is maintaining strong relationships and the primacy of the most important thing in a business, the client. I know that sounds so elemental, but it becomes critically important to talk to and realize that the client is the coin of the realm and the most important factor in any business.
Because if your clients are happy and well treated and well attended to, everything else works out. When we started at The Swarthmore Group, we started as an equity only, stock only investor. We had the good fortune and sometimes it’s better to be lucky than smart we started in the equities market during the most robust equity market in the history of the republic.
You’re looking at 20 percent returns, incredible performance. What happened was my CEO, Paula Mandle, and I realized that this could not be the party that was never going to end, that the equity surge would have to end for any number of reasons. But then the critical thing that happened was our clients started talking to us about the following: How do you feel about this market?
Clients were saying, ‘I’m feeling uncomfortable about valuations in the equity markets.’ Our response was, ‘Would you feel comfortable about taking some of those gains off the table and placing them in the fixed income arena?’
And by listening to them, we were able to move into the fixed income arena, which has grown mightily in the last five years. The firm has $1 billion-plus in fixed income. That’s an illustration of what you do in difficult markets; you listen to your clients and you use your best judgment to assist them.
What do you look for in employees of The Swarthmore Group?
What we look for are individuals who understand the client is king or queen, and what that refers to is being responsive to client requests, being responsive to client servicing and making absolutely sure that the client is in the forefront for them.
The second is that we hire people with the utmost integrity, because I think that’s the sine qua non in the investment business. Integrity, in some ways, is the easiest, in that you talk with people that know them, you talk with prior employers. We follow up on references.
And the other way to screen is you sit down with the candidate and see if they’re comfortable with the environment of The Swarthmore Group, and you can read that pretty easily. Are they comfortable with the other people, are they individuals who seem like they are likely to get along with other people?
What are the most important qualities for success in the financial management field?
Valuing relationships and your integrity, and I know I keep coming back to that, but your word is your bond. You keep your word even when it’s uncomfortable to. I will tell you that you would be amazed how difficult it is for people to do that.
You don’t B.S. the client because the client will always find you out. I would also include intellectual honesty in that. If you’re not self-analytical, it’s hard to be financially successful in the investment advisory business. There are going to be times when you’re going to look in the mirror and say, ‘You know what? I made a mistake on that call, got to get out.’ Or, ‘Nothing has changed, I’ve got the courage of my convictions.’
How did you approach the job of chairman of the Philadelphia Commission on School Reform?
The way I approached it was, one, to identify the client. Again, simple and elemental; the clients are the children. You’ve got to focus on the children and their families. I learned the art of triage very quickly; what are the worst problems, how do you deal with them and how do you resolve them on behalf of the kids.
The other thing that was critical and remains is the focus on the children. I don’t make a statement without referencing the children, because ultimately, it’s not about the teachers, the teachers’ union, the principals, it’s not about the adults. It is the children’s business. I also knew it would be critical to find a crack jack CEO. The commission members and I worked studiously on a search to get the best CEO in place and then to act as a corporate board would, and that is to establish policy.
How do you get the disparate groups to work together for reform?
By establishing credibility, which affords the commission and the CEO the ability to have ... an accumulation of what I’ll call capital, it’s intellectual capital, it’s political capital. Because with improvements, you have credibility.
And then you do everything you can to be fair to all of the members of the partnership ... but there has to be that added conversation, to look across the table and say the children come first. Yes, it’s important to have a living wage and living benefits and so forth, but every nickel that gets saved goes back into the classroom to benefit the ultimate client.
What have you learned from your experience on the commission that influences how you think about your business?
While we’re getting larger in terms of number of people, we’re also getting larger in terms of assets under management, and what has become important is that (our CEO) choose members of her team ... the chief investment officer, the senior marketing officer, assembling that cadre of leaders is very important.
You can draw a big circle around that portion of the organization and see how important it is to the longevity and viability and service to our clients, and I have certainly seen that in a far larger organization called the Philadelphia School District.
How to reach: The Swarthmore Group, http://www.swarthmoregroup.com