Banker, lender what’s the difference? Your banker lends you money: true. And a lender is a banker: also a fact. But business owners who partner with an individual only interested in approving (or disapproving) loans or pushing paperwork through the financial institution’s web of red tape are missing out on a key adviser.
“Many people can lend you money, but most clients forget that a good banker can be a strong financial ally,” says Dewey VanHoose III, executive vice president and chief lending officer for Sky Bank in Akron/Canton.
Does your banker work for you, keeping in mind yours and the bank’s best interests? Or are your conversations abbreviated and communications limited? “All bankers are not interchangeable,” VanHoose says.
Here, VanHoose provides insight on how to find and establish a lasting relationship with a banker who is a stake-holder in your business and interested in your success.
What is the real difference between a banker and a lender?
A banker is a lender, and a lender is a banker. But the difference is that a lender, per se, is a loan officer who waits for clients to call when they need something. Lenders tend to be reactionary. They are order-takers who listen to requests, process them through the bank’s systems, report loan approvals or declines to clients, and let the relationship go at that.
On the other hand, a banker is proactive throughout the year. Bankers know their clients’ companies well enough to understand their borrowing histories, whether long-term debt, revolving lines of credit, small business loans or real estate transactions. Because bankers understand their clients’ goals, they can plan for future lending needs. They can plant a seed in the organization and alert members of the bank’s loan committees that ABC Company will be expanding down the road and eventually need extensions of additional credit.
What questions can business owners ask to learn whether a banker has their best interests in mind?
Ask them what type of companies they serve in their client base. If you are in the mold business, does your banker work with other clients in the plastics or steel industries? Does your banker know that the price of resin can fluctuate? What does he or she know about the type of business you are in? Does your banker know it is seasonal or cyclical?
In turn, your banker should offer you insight on his or her background. For instance, I tell clients that I’m a CPA. I’ve sat on the other side of the desk; I’ve had to deal with bankers. You may not learn a lot about the size of your banker’s client portfolio because we are a very confidential industry. But you can certainly find out years in service. Ask about their experience.
Any warning signs that your banker is more interested in lending than partnering?
One sign is if a banker is noncommittal and doesn’t speak his opinion or know enough about the bank to talk about it and answer questions. Does the banker seem genuinely interested in learning about you and your company? Also, is the banker asking you the right questions?
What are the right questions?
Questions that pertain specifically to your industry and are not general business questions. For example, if you are in the nursing home industry, an intuitive banker might ask how new regulations will affect your business. This shows that the banker took time to see how regulations and current events are impacting your business. Knowing this will help your banker prepare for the future, whether explaining to loan committee members why numbers might be lower than usual or helping you make decisions to position your company to rebound. A good banker will help you in good and bad times.
How should business owners communicate with their bankers so they can build this give-and-take relationship?
Your relationship with a banker is like a marriage. There are ups and downs. There has to be a loyalty factor, and that’s a two-way street. Don’t wait for your banker to call you to schedule a meeting or arrange a lunch. If an event occurs that is significant to your business say you lose a big client your banker should know about it.
As a business owner, you don’t want any surprises. Neither does your banker. If both parties practice open communication, your banker can go on the offensive in down times and establish the best plan for the future.
Still, irreplaceable employees deserve reward for their contributions to the company, and owners can’t afford to lose them.
Nonqualified key employee incentive plans, otherwise known as nonqualified deferred compensation, give valuable management their just desserts if they promise to stay loyal to the business.
“Employees are looking for other sources of supplied post-retirement income, and nonqualified plans can provide that,” says Richard Gary, associate director of SS&G Financial Services in Akron.
What closely held businesses must know is which program design will best fit their needs and how to administer these plans so they serve as the “golden handcuffs” that keep employees on board until retirement.
Smart Business talked to Gary about planning for post-retirement income.
What sort of plans focus on providing post-retirement income?
There are defined benefit, defined contribution and profit-sharing plans that reward employees with additional compensation after a predetermined period of time.
For example, say you want to reward a manager who helped grow the company, and you’d like to do more than give him a year-end bonus. You could create a plan that promises to pay him an additional 50 percent of his final pay for 10 years after retirement at age 65. You can also design a plan that promises to pay the manager $50,000 a year for 15 years after age 65. You can design several variations to create a plan suitable for your business.
A defined contribution or a profit-sharing plan provides more flexibility and control for the business owner. Say you deposit 20 percent of the manager’s base salary in an account and then credit the account with a competitive interest rate. The manager cannot claim funds until he reaches the designated age.
Can business owners design a plan that models public stock to appeal to managers who are accustomed to this benefit?
You might be familiar with the buzzword, phantom stock. This is how one variation works: For every year the manager works at the business, you agree to consider crediting his account with a contribution of up to 10 percent of the value of the business. Say you agree on 1 percent for the current year. If the business is valued at $1 million, you would contribute $10,000 the employee’s account. On the other hand, if the business loses money that year, the manager also takes a loss by a reduction in his account balance. The theory is, since you are ‘sharing’ the business, when the company goes down, everyone goes down. The incentive motivates managers to help the business grow, so they can also add profit to their personal accounts.
Is a nonqualified deferred-compensation plan an alternative to qualified programs, such as profit-sharing or 401(k)?
Absolutely not; your employees should maximize all qualified plans. Nonqualified deferred-compensation plans cater more to business owners who want to model a supplemental plan for their key employees in addition to the qualified benefits plans they already offer.
All benefits paid out under a nonqualified plan, whether to a survivor or the employee at the time of retirement, are taken out of the business as ordinary income. In other words, employees must pay taxes on the compensation, and corporations then take a deduction for tax purposes.
What are business owners’ key concerns with nonqualified plans?
Initially, their greatest concern is that the funds they credit to deferred plans add a liability to their financial statements because they are promising to pay managers in the future. Many closely held business treat themselves like public companies when it comes to financial reporting, and many banks have loan covenants that need to be considered.
Also, nonqualified plans are technically unfunded, unsecured promises to pay benefits in the future. They have to be unfunded and unsecured for two reasons. First, you want to avoid reporting and disclosure requirements. The only paperwork the Department of Labor requires is a one-time letter at the inception of the plan that states its existence. Plans must be unfunded because you do not want your employees to incur taxable income before they retire and actually receive the funds.
How can owners match funds for the future so they can cover nonqualified plans?
If you are uncomfortable with waiting to pay the benefit from future earnings, you can choose to match assets against the liability of a nonqualified plan. Some ways of doing this are through stocks, bonds, mutual funds and corporate-owned life insurance.
RICHARD GARY is an associate director of SS&G Financial Services in Akron. Reach him at (330) 668-9696 or email@example.com.
“You should do your homework on any commercial real estate you buy as a risk mitigation tool,” says Craig Johnson, president and CEO of Franklin Bank, Southfield, Mich. “You don’t want to realize later that there was a leaking tank under the property.”
Brand-new buildings and decadent landscape can cover up what lies beneath. Contaminants can leach into groundwater, contaminate soil and offgas into the environment without your knowledge.
Basically, ESAs protect anyone who enters into a real estate agreement. The borrower generally picks up a $1,500 to $2,000 tab for a Phase I study (Phase II tests can cost up to $5,000), but this investment serves as a type of insurance.
Environmental Site Assessments (ESA) are a matter of due diligence. “They alleviate risk for the banker and the borrower,” says Johnson. “Whether you are paying cash or acquiring property through a land contract or some other mechanism, you need to do your homework. Get advice from an environmental attorney, a reputable environmental consulting firm, or go to a bank and ask for recommendations.”
Smart Business asked Johnson to explain why even business owners who do not obtain bank financing for real estate should engage in ESAs.
Why do banks require ESAs?
If for some reason the borrower doesn’t pay back the loan and we have to foreclose on the property and become the owner, we want to make sure it is clean. The type of environmental study a bank will require depends on the loan size and known prior uses of the property. If it is vacant, residential land, we may only ask for a transaction screen. That is a database record search that reports who owned the property historically and whether there were underground tanks or documented environmental issues. If the screening is questionable, then we’ll ask for a Phase I and/or Phase II study.
What happens during a Phase I assessment?
Phase I tests are an assessment of the overall property. They involve physical site inspection and interviews with current and past land owners. An engineering firm or environmental consultant performs the assessment. They might review aerial photographs, maps and city directories, and agency records, including local fire, health, building and water quality. A visual survey will note any asbestos-, lead- and PCB-contaminated materials.
When must a borrower also obtain a Phase II study?
If the Phase I assessment identifies potential risks, the next step is a Phase II. Generally speaking, the Phase I won’t tell you what the problem is, it will just tell you there is a problem. Phase II digs deeper. The engineering firm will send out drill trucks to collect soil samples and analyze them for contaminates.
Can a business owner still purchase the property if it is contaminated?
Yes; the important part is that you disclose environmental information with the bank. For example, we worked with a dry cleaner that created environmental issues with regard to their cleaning solvent. Chemicals leached into the soil. We ordered an environmental consultant to review the property, and he gave us an estimate of how much it would cost to clean it up. We escrowed for this amount and closed on the loan.
Also, in Michigan there is a mechanism called a Baseline Environmental Assessment (BEA). A buyer can purchase a piece of land that contains known contaminants and be indemnified from any cleanup risks. BEAs allow for properties to transfer at full market value.
Say you wanted to purchase a former gas station site. The gas tanks were demolished and removed, but there was a leak. The buyer can get a BEA and buy the property knowing that he will not be liable for subsequent cleanup costs. Also, the government-sponsored BEA program allows the bank to be more comfortable with the buying and selling of properties that contain known contaminants.
Where can a business owner find a consultant to conduct ESAs?
Your bank can suggest several reputable engineering firms or environmental consultants. Banks align themselves with firms that provide true value.
CRAIG JOHNSON is president and CEO of Franklin Bank, Southfield, Mich. Reach him at (248) 386-9860 or firstname.lastname@example.org.
First job: I was an insurance defense attorney at a Detroit law firm. Meadowbrook was one of my clients, and I got to know them. I joined the company in 1987 as the general counsel. I was their 85th employee.
Whom do you admire most in business and why?
I admire people who start their own businesses and put their blood, sweat and tears into them, grow them and involve their employees in the equity and ownership. Merton Segal (Meadowbrook’s founder and chairman) is an example of that. He had a vision and the dedication to continue to put money back into the business.
What has been your toughest business challenge?
Making sure we maintained a culture of discipline as we returned to profitability.
What is your greatest lesson learned?
You don’t want to see people sinking back into the mindset of, ‘Now that we are making money, maybe we can delve into things outside our specialties.’ Stick to what you know and don’t take unreasonable risks.
Describe your leadership philosophy.
I listen a lot and I make sure that I hear what people have to say. You don’t shoot the messenger if he brings you bad news. You work with him to create a solution.
We have a very open communication structure here open-door is putting it mildly. We interact on a daily basis, and I try to keep things light. Humor plays a large role in how you release stress and keep things from getting to overwhelmingly serious.
Education: Pennsylvania State University, bachelor’s and master’s degrees, business administration
First job: Not counting the paper route and the gas station, when I got out of school, I worked for an accounting firm as a CPA.
Whom do you admire most in business and why?
First, the people I work with. If you have an effective management team that works together, you have to admire them. I admire my immediate predecessor, George R. Gunn Jr. He was the CEO here for 10 years.
I also admire Marvin Heaps, our board chairman who, at one time, was the president of ARA. Another individual is Sidney Miller, the vice president and controller of former American Medicorp. He was also an officer at Universal Health.
What was your toughest business challenge?
Migrating from COO to CEO, which means letting go of details. You must recognize that you work with effective people and give them a chance, and they can handle the issues.
Describe your management philosophy.
I try to have a participatory management style. There is a phrase that says, ‘To be a great teacher, you have to be a great learner.’ You also have to make decisions and stick with them, so you have to be faithful.
What is the company vision?
ACTS started in early 1970-1971, and it is a result of an individual in a local church being concerned about the care of the seniors in their congregation. They went out and built the first community, which was in Fort Washington.
The demand led to the opening of the second. From there, the company evolved. All that is in fulfillment of the commandment that says to honor your father and mother (from the Book of Acts in the Bible, from which the company derives its name).
That is part of our overall philosophy. We have a dedicated board that is very supportive of that intent.
But in an industry where every tenth of a cent counts and profits are hard to come by, no company can afford to be just another business.
Keith Albertie, vice president of Romulus-based RKA Petroleum, knows this all too well. So with the help of managers and family members including brother Kyle Albertie and sister Kari Elliott, the leadership team has laid a foundation to differentiate RKA in a competitive marketplace.
The strategy is paying off: Last year, RKA made a swift leap from mid-sized petroleum company to major market player, with annual revenue jumping from $150 million to $250 million. Its growth and market share increases are thanks to aggressive planning that focuses on carefully choosing customers to limit risks, expanding capabilities and market reach, and using technology to maximize efficiency.
Elliott, who manages retail branding, says the family has been tooling these initiatives for some time by re-evaluating the business and focusing on how to be a survivor in one of the nation’s toughest fuel markets. Last year, their efforts finally clicked.
“I don’t think there was anything in part that made it all happen for us,” Elliott says. “We had goals and ideas that we structured for our company, and new business has surfaced and finally come around in the last couple of years.”
Because energy is an essential element of most businesses, Keith Albertie knew RKA’s prospect base was large, but he didn’t want to market to everyone, particularly on the retail side.
“Everyone buys fuel from us at one point or another,” Albertie says. “For us, it’s just deciding who we want to market to.”
Ten years ago, the company owned and operated more than 10 retail gas stations in Michigan, and in the 1980s, it co-owned more than 40 locations. But these ventures were costly and time-consuming for RKA’s retail division because of operation expenses and the risk associated with co-owning gas stations.
Today, every one of RKA’s retail customers is independent, which alleviates liability. And in the last couple of years, the company has avoided collections problems by making conservative decisions on which retail customers it will serve.
“We have taken a hard look at our customers,” Elliott says. “RKA is being picky and choosy as far as who we do business with. We want quality customers that will be around.”
How does RKA separate sustainable retail customers from risky business?
“We watch their credit closely,” Elliott says, noting that RKA will not supply fuel to customers with credit scores that dip below 650.
And it no longer accepts personal guarantees; station owners must have collateral such as property or home mortgages to back up their credit.
Such prequalification is just a smart business, Keith Albertie says, recognizing that RKA could not continue with lax credit and retail contract policies. One load of fuel can cost $30,000, and customers must prove that they can back up the credit on that delivery before RKA will enter a supply agreement with the retailer. Daily, weekly and monthly evaluations determine whether the customer deserves more or less credit with RKA.
“We actually turn away business on the retail side,” Elliott says.
A tough Michigan economy calls for conservative decision-making, and one mistake can hurt cash flow.
“We don’t throw credit to just anyone,” Keith Albertie says. “With the economy, you have to watch that, or you’ll take a hit.”
The terminal difference
RKA’s terminal with its 20-million-gallon storage capacity is the hub that serves as the foundation for the company’s growth and its edge over the competition.
When RKA purchased it in 1998, it was considered a mild investment opportunity but has since become a major driver behind the company’s success.
“We are lucky to be well-positioned with our terminal facility,” says Kyle Albertie, who serves as the company’s transportation manager and oversees deliveries and terminal operations.
Not only is the terminal conveniently located with rail access, its size allowed RKA to build a 30,000-gallon tank for biodiesel, with room for another 1.68 million-gallon ethanol tank it will add in the next couple of years. It’s all part of a strategy to make sure the company is poised to take advantage of increased demand for alternative fuels.
Already, 90 percent of RKA’s retail customers supply alternative fuel, and many of its wholesale customers purchase blended products and alternative fuels. The challenge in banking on alternative fuels is the risk associated with any new concept and the investment in tanks. With a 30,000-gallon heated tank already installed, Keith Albertie is optimistic about seeing a return on the investment.
“We are gambling a bit because it is alternative fuel, but if you look at the price of diesel and our dependency on the Middle East, it makes sense to move toward biodiesel,” Keith Albertie says.
The terminal allowed RKA to pull all operations in-house. Now, rather than getting fuel from other distributors’ terminals and transporting it to customers, RKA can work directly with suppliers and store fuel in its own terminal, saving transportation time and costs of going to other terminals to fill trucks with product.
“We are just like a warehouse,” Keith Albertie says. “The terminal is another part of our business. We lock up deals with suppliers they own that product and issue the credit to us for that. But we house that product in the terminal.”
RKA also can sell its fuel product to other distributors, so in a sense, it never truly loses a sale. Even if it loses a wholesale or retail customer to the competition, that distributor may choose to pull fuel from RKA’s terminal to supply that customer, especially if its prices are attractive.
“If the diesel is cheaper in our terminal, why would our closest competition drive 20 miles down the road to another terminal to pay 20 cents more for fuel?” Keith Albertie says. “They are not necessarily buying the product from us, but they are pulling the product from our terminal.”
RKA has also assembled partnerships with some of the industry’s top suppliers, including Citgo, Marathon, BP, Mystik and Valero.
“We look for cutting-edge suppliers who will be competitive in our marketplace, and that is why our competition comes to our terminal,” says Elliott.
RKA competes with a half-dozen other fuel distributors in the immediate Detroit area, the most difficult area of the company’s six-state market. That is resulting in consolidation as companies struggle to compete.
RKA hasn’t ignored this trend; in fact, it acquired Wixom-based Chain Oil Co. last year, delivering new customers to RKA, along with trucks and tanks. But it primarily has focused on organic growth and solidifying its infrastructure so it can maintain its momentum.
“We store the product, we sell the product and then we freight the product,” Kyle Albertie says. “We have all three major parts of our industry locked into one company.”
Expanding market reach
With roots in Detroit, RKA concentrated on solidifying business there first. Two years ago, 90 percent of its customers were based in Michigan. But many were multistate operations, and Keith Albertie recognized an opportunity for RKA to stretch its market reach.
“We can do business in 50 states if we want to, it just comes down to getting the proper systems in place,” Albertie says.
So RKA designed a process for scouting and securing out-of-state business. It starts close to home.
“We find a few customers that we know branch out to other areas of the country,” Albertie says. “We lock them into a local contract, then we talk to them and find out how we can manage their fuel needs elsewhere. That gets us in to other states.”
Sounds simple enough, but what about terminals and trucking the infrastructure pieces RKA does not have in other states?
“The suppliers know us and give us credit lines in other states,” Keith Albertie says.
Supplier relationships formed in the Detroit market are important in building a business relationship so that RKA can access fuel outside of its home market. Instead of making expensive infrastructure investments, it contracts with trucking firms in other states to deliver the fuel, pulling it from partner suppliers’ terminals and delivering it to out-of-state customers.
Customer service is vital to maintaining those contracts, so Keith Albertie implemented a hands-on program for sales representatives that starts in the trucks and continues in the field.
“They need to understand what really happens in the field when a driver makes a delivery,” Keith Albertie says. “We provide many different products on-road, off-road, blended with ethanol. We want our customer service representatives to know how a driver makes sure he or she is delivering the right product.”
Technology has played a significant role in fine-tuning RKA’s delivery processes to make the company more efficient.
Jason Hittleman, information systems manager, leads software and alternative fuel initiatives two evolving and promising ventures for the company. First, communication technology allows sales representatives to service customers more efficiently.
“Most of our salespeople are empowered with mobile devices so they can communicate from the field to the office,” Hittleman says. “We make sure they have the tools in the field that they need.”
Just as important is RKA’s remote monitoring system, a software system that reports the number of tanks in the field and the volume in each tank.
“We know exactly how many gallons need to go to each company,” Hittleman says. “That means we can (service) more customers with fewer trucks.”
For example, rather than scheduling regular fill-ups for retail customers, the remote monitoring device communicates to RKA’s in-house software system the fuel level of each tank in the field. When they run low, RKA sends a truck with a delivery.
It’s all part of RKA’s strategy to be the most efficient organization it can be so it can continue to grow in a crowded marketplace as it evolves.
Elliott says the fuel market will look drastically different 10 years from now, and RKA’s success will depend on conservative decisions but aggressive ideas. Keith Albertie agrees.
“We can’t just be an oil company,” says Keith Albertie. “We need to focus on being an energy company and continue to position ourselves for growth.”
How to reach: RKA Petroleum Cos., www.rkapetroleum.com or (734) 946-2199
As its customers began to push across international borders, Chairman and CEO Ronald Naples knew it was time for the Conshohocken-based business to change the way it looks at the world.
“Companies have been international for a long time,” Naples says. “These companies operated all around the world, but they operated as if they are units all over the world. Quaker was the same way.”
Quaker’s offshore offices had matching logos and sold the same products, but this uniformity didn’t cover its disparate systems. For example, it separated its European and U.S. income statements, its regional offices collected and stored information in different ways and managers measured progress for regional businesses. Quaker’s worldwide offices were linked but not integrated.
“The crux of being a global organization is not a matter of being everywhere but in operating as if you are in one place,” Naples says.
To do this, Quaker needed to connect its regional operations by unifying its systems, reorganizing its management structure and changing the way customers thought about its products.
“That’s a tall order,” Naples says. “As you look at the world, you have to ask yourself, ‘Can you afford to look at your company as discreet businesses alone, or do you need to look at it as a global whole?’”
The answer was simple.
“The how is always more difficult than the what,” Naples says, adding that he prefers to think of the company’s global strategy and the destination statement he wrote “To deliver everywhere the best from anywhere” as his way of leading the company toward progress, not change.
In fact, Naples is sensitive about not calling Quaker’s global strategy change management.
“I like to talk about progress management,” he says, “And we think (our global strategy) is a way we can deliver value to our shareholders while we recognize the reality of the world we operate in and what we need to do strategically to remain strong as our customers change, shift, consolidate and become more global themselves.”
Quaker’s customers are largely industrial businesses, steel and metalwork manufacturers that produce consumer durables such as cars. More than half are based outside of the United States, and all of them purchase specialty chemical products that Quaker develops, produces and distributes at its worldwide facilities.
Customers purchase a product, which is a solution to a specific problem. But Naples realized that Quaker’s real asset is knowledge. Take the steel industry, for example.
“Our market share in steel is such that we have been inside every steel mill in the world,” he says. “That means we know more than anyone else, and our organizational challenge is to turn what we know into a competitive advantage a competitive advantage everywhere.”
So Naples considered why customers depend on Quaker and divided the answer into three areas: product technology, process knowledge and application know-how.
“As we looked at them more, we realized that building the business regionally and basing business on disaggregating our assets wasn’t the best thing for us,” Naples says.
Quaker’s asset knowledge was dispersed among its geographic locations rather than cultivated and sold as its No. 1 product.
“If the customer sees us as a provider of a customized lubricant, that is one thing,” Naples says. “But that is not what we want to be. We want them to understand this lubricant is only the vehicle for what we have to offer special value to them. We were shifting what customers think we can do for them.”
To measure the value of an intangible product such as knowledge and leverage this asset on a global basis, Quaker needed a structural makeover. Naples could not show customers that what Quaker knows about steel in Japan applies to the automobile industry in Detroit until systems were integrated. To do this, he needed a revised technology platform, management structure and communication tools, along with employee buy-in.
So in 1999, Naples pulled the rug out from under the old international set-up and built the foundation for the $400-million global business that Quaker is today.
The global movement
Naples talks about the power of the common purpose, an ideal he learned as a U.S. Army Ranger that also applies to the corporate world.
“One of the toughest things that managers and leaders in a company have to do is help people understand the common cause,” he says
So Naples confronted every aspect of how Quaker collected, shared, marketed, researched and sold its knowledge. Employees bought into the plan, he says, because they understood why it was critical to the company’s future success.
“Our folks identified with the changed world and shared a willingness to respond to it by adopting new practices, doing business in a different way and reporting to new people,” Naples says.
Employees viewed Quaker’s globalization efforts differently, depending on their roles in the organization.
“If a production employee works in a plant in Holland, the fact that we have a plant in the U.S. doesn’t affect his life,” Naples says. “But globalization changed the life of a production manager in a plant who could measure how he is doing versus another plant.”
Connecting these worldwide operations introduced myriad accountability issues.
“Someone may have worked in a European organization and understood his or her impact on the business,” Naples says. “Now, all of a sudden, one’s impact was more remote. What someone did in Holland may affect what someone did in the U.S., but it was harder to feel the impact of that, so they felt removed from the results of their actions.”
Naples fine-tuned communication tools to ensure that employees realized their critical role in the company’s processes.
“The one safe assumption you can make about any company is no matter how much you communicate, it is never enough,” Naples says. “We now focus more closely on how we communicate, who is communicating and what they are communicating.”
Global managers travel more often, meet employees more regularly and address the company’s strategic goals so each of Quaker’s 1,200 employees understands why their world quickly got a lot bigger. E-mail plays a key role in delivering daily company updates, and time zone differences are less troublesome when communicating this way as opposed to by telephone, Naples says.
The second piece of globalizing personnel was to centralize leaders in corporate headquarters. Rather than having regional leaders with regional resources such as research and development, marketing and technology, Naples collected these divisions and created global units.
But similar accountability and management oversight issues surfaced.
“There is the whole expression to think globally but act locally,” he says. “As you move toward a global organization, those things really become more real to you. We were trying to do as much globally as possible and we thought that was the way to focus on knowledge and value, the two things we felt were most important. Much of what we did was still locally executed, but it was all directed from central business unit management.”
He says Quaker never ignored the importance of thinking locally, but at first, its focus on worldwide integration went a bit too far. In 2005, Naples concentrated on pushing certain decision-making and execution responsibilities back to regional management, while Quaker maintained its global product management, key account management and R&D.
“That way, we can look at what resources we have in local markets and see how we can reallocate these resources,” Naples says.
Accountability for financial results now lies in the hands of local managers. This allows regional operations to understand their costs and evaluate their contributions to Quaker’s bottom line.
As part of the integration, technology also had to be upgraded. Legacy software suited Quaker’s regionally fragmented business model, but the information collected and stored in these systems wouldn’t function well in a global organization.
“You have to collect information the same way,” Naples says. “Information has to mean the same thing to managers [in different countries.] We had to get rid of legacy systems that caused us to have different views on how the business was doing around the world.”
Quaker needed to measure and allocate its resources, and the way to do that was to upgrade to an integrated system.
“We needed to make sure we were aligned with a world that worked through the World Wide Web,” Naples says. “And if you have systems that aren’t modern, that will give you problems.”
The five-year process of installing an enterprise management system eventually allowed Quaker to operate on a single technology platform the foundation for its global strategy.
“Knowledge goes into a system that allows us to share and use knowledge around the world,” Naples says.
Now, Quaker must manage the learning side of the equation.
“We know what we know technology- and product-wise, but because we have people calling on customers every day, our people learn every day,” Naples says. “They learn about a problem a customer has and how to solve it. We don’t want that learning to reside with one person.”
An online sharing tool allows employees to input information they learn in the field. These nuggets are indexed so others can access them through the global technology platform.
“In the past, someone may have sent out an e-mail asking, ‘Who knows about this problem on rolled steel?’” Naples says. “Before, an e-mail would have gone out and (getting a response) was always hit or miss.”
Quaker’s sharing tool eliminates time as a hindrance to getting information. Rather than hoping that a co-worker will see, read and respond to an e-mail inquiry, the employee can access the global knowledge index and even compare field information and findings from China or Brazil.
Technology allowed for improved customer service by indexing knowledge and accessing vital information from anywhere in the world.
Customer service functions such as call centers for marketing and sales stayed local despite global initiatives. But customer management in terms of identifying products and technology to suit each customer is a different story.
“Car companies in Detroit operate in China and Brazil all over the world,” Naples says. “It shouldn’t matter if our customer is in Detroit and China; we operate as if that customer were one.”
Now, Quaker employees can leverage what they know about steel production in the United States and what they know about the industry in China. Technology and integrated systems allow them to access pricing, marketing, sales and product information from facilities around the world, making Quaker a more valuable partner to its customers, Naples says.
Maintaining the mission
Following through with Quaker’s mission to “deliver everywhere” is a job that’s never done. Naples constantly considers how the company can reallocate its regional resources, leverage global knowledge and strike a balance between local and global execution.
He can tweak and modify these variables, but he can’t control climbing crude oil prices or reverse changes in customers’ markets. He can, however, maintain a diverse customer base to guard the business during tough times.
“We have a good portfolio in terms of the kinds of manufacturers we serve, and this usually works to our advantage,” he says. “A piece of business may be down and another may be up, and the combined result is OK.”
Operations in China and Brazil thrive, capturing new business for the company. And despite economic challenges, the automobile industry is steady.
“We are trying to build our business with the manufacturers that are growing, as well as continue to serve key American manufacturers who are very important customers to us,” Naples says.
Quaker’s global platform will allow it to penetrate this customer base by offering, for example, chemical management services, a promising business segment. Today’s customers demand Quaker’s chemical knowledge, not just its products.
“Leaders need to deal with the way things are as they find them, not as they wish they were,” he says. “On the other hand, in moving forward, you need to think about what you wish the organization could be. Then you will find the guide to the right destination.”
How to reach: Quaker Chemical Co., http://www.quakerchem.com or (610) 832-4000
Education: One semester at Villanova University. Dropped out of college to pursue a retail career. A ski-tuning business he started in his parents’ garage when he was 13 grew to Mike’s Ski Shop, a five-store, $2 million enterprise by the time he graduated from high school.
First job: I worked at The Gap (as a teenager). It was the only time I ever worked for anyone else. I didn’t last long there, but I did win a lot of contests for selling corduroys.
What is the most important business lesson you’ve learned?
Hire the right people. Through time, you learn that the whole business is people, and you have to have the right people.
What inspires you as an entrepreneur?
Having fun learning and growing. I’ve always been a focused individual, and as long as I’m in here every day growing the business, I’m having fun.
What does it take to be successful?
You have to be a risk-taker. A lot of people talk about great ideas, but they never do anything about them. You have to take the risk and go after your goals.
What has been your toughest business challenge?
Making the change from Global Sports to GSI, from a market leader in sporting goods to a market leader in e-commerce. Our strategy was right, but sporting goods didn’t have the greatest opportunity in total e-commerce.
Describe your leadership style.
Entrepreneurial. I’m a good listener and I’m street smart, and I give people the ability to do their jobs. Examples are some of the e-commerce capabilities we’ve added and the way we continue to add more value for partners.
In the music industry, there are plenty of prima donnas, big egos and star-studded attitudes, but you won’t hear Handleman Co. plugging itself or negotiating for face-time.
It doesn’t need to employees at the Troy-based distributor of prerecorded music are more than happy to brag that Handleman is a pretty cool place to work.
“You can say you’re a value-driven company and an employer of choice, but when your own employees go to a third party and say, ‘This is a cool place, you have to take a look at us,’ that resonates,” says Stephen Strome, chairman and CEO of Handleman Co., which stocks more than 50,000 music titles each year for major retailers including Wal-Mart, Best Buy and Kmart in the United States, Canada and United Kingdom.
The company was one of 60 companies deemed a “Cool Place to Work” in Michigan by a local publication and has a four-year run as one of Metropolitan Detroit’s 101 Best and Brightest Companies to Work For by the Michigan Business & Professional Association.
Handleman rolls out the red carpet for its employees: Accessible management and an open-door policy foster a culture in which each person is instrumental to success. The company recruits and trains staff in the science of music distribution so Handleman can maintain its top-billing position in the industry with more than $1.3 billion in sales.
Without employees working together, success would be impossible to maintain, Strome says, and he works hard to make sure he’s getting the most out of every person
“You can have the brightest, smartest, most intelligent CEO in the world, but without the people who are out there servicing the stores every single day, checking inventory, putting out product and shipping product to vendors, you don’t have a company that works,” Strome says.
The guiding culture
With its latest acquisition Crave Entertainment Group, a distributor of video hardware, software and accessories Handleman now employs more than 2,400 people. But despite its size, the tight culture doesn’t allow any member to drift.
There’s a family feel to the work environment. Posters decorate hallways, and music plays from employees’ computers. Strome himself might pop into a worker’s cubicle to get feedback on which markets are selling more of Jessica Simpson’s new CD.
Strome describes his management style as skimming and diving. He says successful CEOs manage with an aerial view but hone in on problems that appear on the radar.
“You look at your organization from a 30,000-foot level, but when you see a problem, you must be able to dive in and get it fixed,” Strome says.
Take Handleman’s 2004 technology conversion from a legacy computer program to an enterprise resource planning platform. While the process was planned with milestones to measure success, Strome worried about the effect conversion challenges might have on the business. So he called daily meetings to discuss and chart the conversion progress and hash out concerns and roadblocks as the company made the major switch.
Strome keeps his management style loose, not limiting people to their job descriptions, and always asks for feedback. And this culture starts at the top.
“He sets the tone for the whole building,” says Mark Albrecht, senior vice president of human resources and organizational development. “Our sales were $1.3 billion, but if you walked through the building, people say, ‘Hi, Steve,’ and Steve knows their names. They look to him and feel comfortable.”
Strome attributes the comfortable culture to core values of honesty and integrity, accountability, continuous learning, and a focus on stakeholders, which includes customers, employees, vendors and shareholders.
Handleman Co. is upfront about these core values when it recruits and is diligent about reminding employees of them as they build their careers. Ensuring that field sales personnel feel just as connected to the company as employees with offices down the hall from corporate executives is a challenge, Strome says.
“One of the toughest things is to maintain (our culture) in the field,” he says. “We have, right now, more than 1,000 people out in the field in the U.S., Canada and U.K. Some of them work out of their cars. What is Handleman to these folks?”
What is Handleman besides a laptop, a distribution map and mileage? People. District managers oversee field sales representatives, and weekly conference calls help them keep tabs on their employees. So does the quarterly publication Handleman Today. When field sales representatives are hired, they attend training sessions at Handleman’s corporate facility to gain a full understanding of the company’s roots. And Strome makes a habit of sending e-mails and letters to each employee at least five times a year.
Full-time employees attend annual meetings, where senior officers listen and mingle.
“We try to get a good representation of people at these meetings, and (executives) don’t just stand up, say hello and talk,” says Strome. “We stay for the meeting, we go to dinner with employees, I make a point of sitting down at different tables and talking to different people so they know who I am. And we communicate.”
Handleman’s first tracks weren’t in the music business at all. Before 1953, it called on drug and grocery stores rather than mass merchants, and it sold pharmaceuticals and beauty aids rather than music.
The music business was miniscule for Handleman in 1953, but by 1980, sales had escalated to about $200 million, climbing steadily to today’s $1.3 billion. And it uses sophisticated systems to plot strategy.
“The business is more of a science than an art,” Strome says.
Handleman analyzes demographics, predicts which albums will sell and which will flop and measures sales in every market to determine who needs what. Should Wal-Mart in Detroit get more Britney Spears albums and fewer Garth Brooks cuts? How will Latin dance music do in this store instead?
Handleman Co. tailors the inventory of more than 3,500 stores in the United States and Canada, and just as many in the United Kingdom, to appeal to each market’s tastes.
You can’t graduate with a major in this business, so training has been invaluable to Handleman’s ability to succeed as a top category manager with a cool reputation. This is especially important because it recruits two-thirds of its new hires from college campuses and industries outside of music.
“We hire people from the consumer products industry who understand category management,” Strome says. “We hire people with IT backgrounds. We hire people with marketing backgrounds and we hire people with strong logistics backgrounds. Those are the areas that are core to managing our business.”
Additionally, Handleman scouts annually for fresh talent at college campuses. Because of the nature of the business, recent college grads tend to seek out Handleman, and the company reviews 150 applications for every college recruit it hires.
Ten- to 12-week training programs focus on management associate, operations management and field sales management. The point is to help establish career paths for college graduates, and these types of programs illustrate a diversity of tracks each employee can follow.
Strome launched the programs in 1994, realizing that such a specialized industry requires formal training. He also recognized the importance of feeding the company with a constant stream of talent and new ideas.
“We bring in people from the outside to get new ideas, new thoughts a different perspective on the way we run our business,” Strome says. “We don’t have all the answers, and it’s important to inject new thinking, new ideas.”
Remix and reinvent
Perhaps another factor that plays into Handleman Co.’s we-are-family management style is the way Strome extracts new ideas and different ways of thinking from employees. Rather than asking an IT person how to ramp up technology and a marketing associate how to promote an album, he’ll flip-flip their roles.
Employees don’t always think this is good.
“Forcing people into other areas from their core competencies and strengths is always a difficult process,” Strome says.
But this doesn’t keep him from mixing up employees’ to-do lists and switching their job descriptions.
“We’ll take a marketing person and put them in IT, take an IT person and put them in finance,” Strome says. “We take people out of their comfort zones and expose them to different areas. You get a convergence of ideas from different viewpoints, and we mix them up a bit. And that has been a formula for success here.”
He calls it cross-functional development.
“It adds to that family feeling,” he says. “You’ve worked in IT, finance, customer service you know how other areas operate, and it builds a better, more collaborative team.”
Handleman produces a number of success stories from this mix-and-match tactic. The account manager for its Wal-Mart team joined the company 10 years ago and has worked in most departments. The CFO began his career at Handleman nearly 20 years ago as head of its internal audit department. He joined after leaving a middle-management position in another industry.
The senior vice president joined the company 10 years ago in the IT department. The head of the internal audit department is now running a customer team.
“Some people don’t want to do it, but others accept the challenge,” Strome says.
These types of moves allow Handleman to continue promoting employees from within. When Strome “forces” a switch, employees continue to learn and grow. And this, to him, makes Handleman a pretty good place to work.
“Every single job and person is critical to making us function well,” he says. “The people in the organization make it happen you can never forget that. You can’t do this job by yourself.”
How to reach: Handleman Co., www.handleman.com
Born: Garden City
Education: Eastern Michigan University
First job: I had paper routes when I was younger, but my first real job was at a Dairy Queen not far from my house, where I worked summers.
While in college, I worked on the line at Ford and hung out with my friends, who worked at this pizza place. That pizza shop was the converted hamburger shop Jim Hearn [Hungry Howie’s founder] opened. I left college before graduating because there were few teaching jobs available in the 1970s. I quit Ford Motor Co. and I opened up Hungry Howie’s No. 2.
What is your greatest business challenge?
Franchisees come to us because they want to fulfill the American Dream. They want to be in business for themselves, but they want to come to us to learn a business.
To manage those entrepreneurs is a challenge. We have to be able to channel their spirit and teach them new things in a way they will accept them.
What is the most important business lesson you’ve learned?
You have to be able to identify people’s strengths and don’t ask them to do more than they are capable of doing.
Whom do you admire most in business and why?
I admire people like Ray Kroc, Colonel Sanders and Dave Thomas. When Kroc and Sanders started their businesses, Ray was in his 50s and the Colonel was in his 60s.
There is never a timetable on success there is never a time you can’t say there is a new opportunity in life. Some people get focused on what they are doing and are afraid to change. When you look at leaders like that, it renews your interest and belief that anything is possible at any time in life.