Article originally published in the American City Business Journals on March 13, 2017
Every so often a company finds that its revenues and earnings have stagnated and it must undertake initiatives to grow again.
The adage “the only constant in life is change” could not be more true about business. Markets, competition, customer expectations and technology are constantly changing, and a company needs to adapt to these changes.
After being promoted from COO to CEO of my company in January 2000, I needed to address many challenges that the company faced. We had been on a revenue plateau of $365 million and an earnings plateau of $23 million for the previous three years. Nearly $9 million was earned by supplying our largest customer, who threatened to bring in a competitor unless we significantly lowered our product’s price.
We couldn’t afford to walk away from that customer due to other considerations, so we lowered the customer’s price, reducing the company’s earnings to $14 million. Not only did we have an objective set by the board to move off the earnings plateau of $23 million, we were starting at a new base of $14 million.
Five years later, the company achieved $600 million in revenue and $43 million in earnings, improving from a fourth-quartile performer to a first-quartile performer versus our peer companies. We didn’t have a down earnings quarter from 2001 through 2004, a period that included the events of 9/11 and the deep recession of 2002.
How did we drive our performance from 2000 through 2004? In addition to making five accretive acquisitions that boosted both revenues and earnings, we restructured the organization, empowered the line operating groups and reinforced our commitment to continuous improvement.
Restructured the organization
One of the most disruptive tasks a company can undertake is restructuring its organization. Although restructuring adversely impacts employee morale, it’s a process that is critical to the company’s ability to continue to fulfill its mission moving forward.
We changed from being a top-heavy, VP-general manager-led organization to a much leaner business manager-led organization. Many VP-general managers departed, saving significant costs. Both our line and staff support groups were streamlined, adding additional savings.
Throughout this cost reduction process, we were careful to keep intact those capabilities that differentiated us from the competition: providing quality products and a great customer experience to our customers. Once you lose these capabilities, it is hard to rebuild your reputation and competitive advantage.
We found that decision-making was faster and less bureaucratic with a smaller organization. We stopped non-value-added activity, such as preparing detailed written reports for the next level up, including reports to me, the CEO. We increased verbal communication of this information, which also brought people closer together.
We were as transparent as possible with our employees as to the restructuring process we were undertaking. Whenever I was in the office, I would have breakfast in the boardroom with as many as 15 employees selected by HR, and explain why it was necessary to restructure the organization and respond to questions.
I knew that some of the employees at the table were to be laid off, and they needed to hear the reasons for the restructuring directly from the CEO.
Empowered the line operating groups
Our division managers and their people were on the front line serving our customers, providing them with quality products and a great customer experience. We reinforced their authority to make decisions that affected their businesses. You can only hold line managers accountable for results when they have the authority to control their revenues and costs.
The corporate staff groups worked in support of the line operating groups. In too many organizations, the staff groups think that the line operating organization works for them.
Empowerment of the line operating groups was a significant contributor to increasing the earnings of the company nearly three-fold during the five-year period from 2000 – 2004.
Reinforced our commitment to continuous improvement
One of our key cultural initiatives was the philosophy that every employee should be empowered to continuously improve the part of the business they were involved in. This was reinforced as we started our journey to grow annual earnings off a base of $14 million. Continuous improvement added significant earnings to our bottom line.
This effort was not top-down driven, which is rarely sustainable without lots of effort from senior management. Employees felt a sense of ownership in what they did and were given authority to improve their part of the business. If the improvements they wanted to undertake exceeded their authority, our culture permitted them to seek the authority from their boss.
All companies periodically reinvent themselves and it is never an easy task. Those that don’t will eventually find themselves at a competitive disadvantage. How you do it will determine how your employees feel about the leadership of the company, and whether you maintain the capability to serve your customers with quality products and an excellent customer experience.
Stan Silverman is founder and CEO of Silverman Leadership. He is a speaker, advisor and nationally syndicated writer on leadership, entrepreneurship and corporate governance. Silverman earned a Bachelor of Science degree in chemical engineering and an MBA degree from Drexel University. He is also an alumnus of the Advanced Management Program at the Harvard Business School. He can be reached at Stan@SilvermanLeadership.com.