Corporate CPR

Corporate CPR:

Reports of Near-Death Experiences in Business

by Stephen Schiavo
Associate Professor
Computer Information Science
College of Technology
Missouri Southern State University

Foreword
by Frank Federer

Stephen Schiavo has long been a valuable resource to me. He has an outstanding record of producing dramatic results -- in information systems, marketing, customer service and education -- through effective leadership and use of information and technology. I'm delighted that Stephen has decided to share his insights with the rest of us.

What makes Stephen different from others in the field is his ability to deal with reality. He has a talent for sorting through a multitude of issues and influences, to zero-in on what counts. He derives uncluttered, unbiased, realistic solutions -- solutions that build endurance. And he doesn't stop there. Stephen has a roll-up-your-sleeves approach to business. His ability to lead and inspire gets maximum results for minimum cost.

I guess that says it; Stephen gets results. And I don't know of a company that couldn't benefit from that.

Frank Federer
PWS Group, Austin, TX

Corporate CPR
Near-Death Experiences in Business
by Stephen Schiavo

The accompanying stories of corporate decline and recovery are intended to be hopeful and instructive. However, they would have been disquieting to me some ago. The company I worked for had suffered a series of reversals. The traditional line of business was under increasing price pressure, and offered fewer and fewer opportunities for differentiation. The recovery strategy called for redirecting our energies from the old line of service into a highly specialized, value-added service. My task was to retain as much of the old clients and revenues as possible, while reducing service levels and cutting costs. The cash we threw off could then go into new business development.

Over the following fiscal year, the units under my control reduced costs by 40%. We closed offices, helped employees find new jobs outside or with customers, renegotiated unprofitable contracts, and streamlined the way we provided services. We were still able to exceed the expectations of our most valuable customers by intelligent concentration and commitment. Through it all, we retained over 95% of the old revenue, which translated to significant improvement in profitability. The division had turned a dismal situation into a real success.

From that point, I could more clearly see business crises as opportunities to create success. Over the following years I worked with several troubled firms. I learned to identify areas of greatest promise and points of greatest leverage. I saw again and again how people will respond with their best efforts and most creative ideas when they are liberated, supported, empowered, and treasured. Information and their effective response to that information made recovery possible; but it was their liberated spirit and sense of what was possible that fueled the recovery.

The case studies that follow could have taken place in nearly any company. They demonstrate a repeatable process for assessing the causes and severity of the problems, and for achieving dramatic results quickly with the help of the existing people and the right information.

The process is what's important. In every example you will see a common thread: gather information, assess the problem, identify critical success factors, direct highly-leveraged corrective action, and keep your eye on what the people need to provide top performance, for dramatic results in a short time. The essential first step is to identify the problems correctly.

STSC / CONTEL

Shortly after CONTEL acquired the software subsidiary, STSC in Rockville, MD, I was given charge of sales and service in a newly formed unit. The unit had three regional offices providing high-tech application development software to corporations with huge computer installations. I arrived three months into the year, when the division had sold almost nothing towards a seven-figure sales objective.

I met with the sales staff to find out why they thought sales were so low. I had them arrange meetings with prospects who were deferring purchase indefinitely, or who had turned them down cold. Armed with the information we gathered from those meetings, we identified four specific problems:

The product was very complicated to install and maintain, and subject to failure if installed imperfectly. The world’s largest software firm had just announced a competitive product offering much of the function of our product, at a half the price.
Decision-makers had trouble quantifying the benefits that would justify our higher cost.
The people who were evaluating the product were support technicians--people responsible for providing services to end users--rather than users themselves; and therefor less responsive to the advantages of our product for those end users.

We immediately went to work to remedy those problems. We signed two large “show-place” accounts by sending our own technicians to install the software, thereby side-stepping the first problem. In a couple of months we succeeded in making the installation and maintenance easy and fool-proof. We also developed training programs for the clients' own installation and support staffs so they could install and maintain the product in confidence.

We developed and published a well-designed benchmark, performed at an influential Wall Street client. Our product showed respectable operating savings over the competition. It also showed a very high return, since valuable projects could be completed earlier. That resulted in a clear, quantifiable justification for purchase, and that write-up became part of our marketing material.

Most important over the long run, we targeted presentations to end users themselves. Power-users and professionals such as statisticians, financial analysts, and portfolio managers were the direct users of the system, and could quickly realize the value of the product's increased power and versatility. They knew the high cost of every day's delay or re-work in the absence of our product. They in turn brought pressure upon the decision-makers and implementors to acquire the product with little or no price sensitivity.

By year's end our unit made up the shortfall of the first quarter and exceeded the original target by 20%!

The success at STSC/CONTEL called for a variety of corrective measures: improvement and clarification of product features, redirection of marketing, and refinement of the sales process. To their credit, STSC recognized the problem early, and had three quarters to recover.

How would it work at your organization? Though your situation may be different, the effort would begin with a thorough assessment, much as a doctor runs tests to diagnose an illness. Corrective actions normally involve changes in product, service, process, and people.

Critical problems with a very short fuse require a form of first-aid. (First-aid training stresses three steps--stop the bleeding; restore breathing; treat for shock--in the expectation that if one can do those things, the patient will survive long enough for longer term care to be prescribed and begun.)

In critical cases of commercial decline, we must first stop the bleeding: put an immediate halt to those practices that are draining the firm of cash and other life-giving resources. Next, we restore breathing: shore up and re-enforce activities that form the core survivable business of the firm. Streamline and strengthen where necessary, but insure that there is positive cash flow to work with. Third, we treat for shock: anticipate and head off the anticipated after-effects of the crisis and its related short-term initiatives. This includes reassuring and retaining key customers and employees who might otherwise have gone elsewhere. It even means going after some who had already left, and trying to recover them.

It is sometimes necessary not only to set a new course – to determine to do things differently -- but also to go back and undo the ill effects of the firm's prior actions.

On-line Software International

OSI, of Ft. Lee, NJ, with annual revenues then near $90 million, acquired a small, successful division of another company, and saw it crumble into disarray almost immediately. When they engaged my services, the “DB2 Division” had gone five months at 20% of its monthly quota. My inspection and inquiry revealed the following information:

The acquired division, though geographically near corporate headquarters, was at the far end of the support lines as far as the head office was concerned. They had out-dated corporate literature; brochures for products no longer offered; give-away trinkets with a corporate logo long since discontinued!
For products that were current, the reps had photocopies of the brochures! (The originals, we learned, were reserved for the reps in the acquiring company’s head office.)
They were in shared office space, sharing a common phone system with the other tenants in the same space, and sharing a receptionist. The reps’ messages often were passed along incorrectly or not at all.
Territories were not assigned. Reps “claimed” an account from a computerized list of available prospects, or “discarded” it, returning it to the pool for others to claim. However, the system was unreliable. With no way to be sure what others had claimed, a rep could work an account up to signing, only to have credit awarded to someone else who had the file in his drawer. While hot opportunities had reps competing for them, longer term prospects had no one calling them at all!
The acquiring management had tried to abrogate existing contracts of the acquired company, telling clients a new policy required them to pay an annual usage fee for the product, in spite of any perpetual license to the contrary. (The new charge was far more than the usual and customary maintenance fee clients were then paying.) The result was that a sales rep's time was spent dealing with outraged clients who had been good customers, and should have been prospects for repeat business. A surprising number of clients knuckled under and paid the bill; many others threatened to sue, or just walked away to a competitor.
The most able sales reps who had stayed around for a retention bonus were by now on their way out the door. The rest were marginal, or had some checkered history that made it hard for them to move easily, and so had stayed on. Only one rep had ever been counseled that his job was in peril, and that because he had simply quit coming to work shortly after the buy-out, when his concerns over many of these same problems had gone unheeded.

The first week we threw out all the materials that didn't apply to what we intended to sell, that weren't current, or that didn't represent us in a way we could be proud of. We took the few original brochures we did have (file copies “not for distribution”) to a local printer to produce our own color glossies. We rearranged our phone system, hiring our own receptionist to take calls for the division. I put several reps on a “performance plan”, specifying the minimum level of production they needed in order to stay on. By the end of the week I had also taken aside those reps who had shown an unusually high level of skill and professionalism, and asked them to hang in there with us a while longer--assuring them that the pending changes would give them a chance to succeed.

We met with sales management throughout the division, and hammered out a system of assigned geographic territories, to be implemented immediately. Everyone soon knew where he or she was expected to prospect, and which accounts belonged to whom.

We met with the top management and negotiated sufficient compromise in their detrimental contracting stance (vis-a-vis existing clients) to permit the reps to waive the most heinous provisions in exchange for the client signing a new contract. (The new contract also made it much easier for the client to order new and additional products from us thereafter.)

Revenues more than doubled the first month. They doubled again the second month. Over the engagement of three months, monthly revenues increased 620%.

To arrive at long term solutions that leave the firm rejuvenated and self-sufficient, we approach the problem as a physician would approach a patient's symptoms. We run tests to provide specific, reliable information on the patient and the problem.

Once you recognize what needs to be done, you need to personally manage the process through to a successful conclusion.

UCCEL

UCCEL was a $400-million high-tech company based in Dallas. They had just paid millions for Software Corporation of America, a small telemarketing firm in Virginia. Before the sale, SCA had been grossing over a third of a million dollars a month and growing quickly. Within a few months of the buy-out, the division was doing only $69,000 a month. That's when I was brought in.

My first two days there, I gathered the following information from observation and from interviews with sales reps, service technicians, customers, and former customers:

The new product they were expected to sell so much of simply did not work: the feature most important in justifying purchase didn't do what we said it would do.
The acquiring head office in Dallas had imposed several stringent contracting requirements on the acquired reps that were not imposed on the rest of UCCEL's reps. The legal and financial departments effectively hamstrung the reps' attempts to create any winning compromise with large clients.
The sales reps were bitter, cynical, and untrusting, feeling they'd been betrayed by both the old management and the new. Furthermore, they were not trained to achieve under any but the most favorable market conditions. Their morale was awful: they were making fewer calls than they had ever made before; and their call reports were discouraging chronicles of one disappointment after another.

Every morning for a week we provided the newly assigned Division VP a record of sales and service calls from the previous day. It showed the number and severity of problems with the new product, and the value of sales we stood to have made had those problems been solved. He could not have missed the implication, and the critical product flaw was fixed within two weeks.

Through negotiations with the Dallas head office, we had a contracts-and-pricing representative assigned specifically to our division. Her job was to work directly with our local sales managers to resolve contract and pricing disputes quickly, and to actively help the division negotiate good business. At the same time, we instructed individual sales reps not to call their headquarters directly, and to stay out of personal conflicts. As a result, contracting proceeded more quickly and sales reps no longer wasted time and irritation on dealing with the head office.

We established a training program to teach the reps how to sell in the hotly competitive market they now found themselves in. They learned how to wrench success from a grudging market.

We installed a computerized territory management system. In weekly meetings with each sales rep, I could review the calls planned in the previous week's meeting, check on the accounts they had said were “sure to close” that week, and keep tabs on every single item in their pipeline.

We got the phone system modified to track calls automatically: who made how many, at what times of the day, for how long, and where they were calling. We posted the weekly results in a prominent place, showing the number of calls and other activities for each rep, next to the volume of business and commission for each rep. The correlation one would expect showed up very clearly: week after week the people with the highest calling statistics had the highest sales and commissions; and those with fewer calls, shorter calls, and less overall activity did poorly, and everyone saw it.

Finally, I saw to it that the management made no promises or representations to the reps that weren't faithfully fulfilled. We put an end to the manipulation and exploitation that all of the acquired employees had witnessed, if not been directly subjected to. The sales and service staff quickly re-knit itself into a healthy productive team.

From $69,000 in December, the division's revenue climbed to nearly $500,000 in July -- well above the level of the glory days preceding the takeover.

The right process will help insure that whatever changes you make are effective:

Clearly define the problems doing the most harm.
Clearly define the actions that will do the most good earliest, with the least cost and risk
Involve, empower, inform, and liberate those closest to the problem and the solution.
Monitor progress of activities and their effects; measure and communicate what's really happening; and be ready to change what you're doing if it's not producing results.
Continue to look for new ways to do it better, and to monitor how well people are responding to and dealing with the changes.
Reward and encourage people at every level for undertaking great changes in the face of great risk.

Many businesses espouse these principles. It has become stylish to launch high-sounding Quality-with-a-Capital-Q programs; post “Employee of the Month” portraits in the lobby; and proclaim an open-door policy in every issue of the company newsletter. In many cases, at the first sign of corporate distress, such pretense goes out the window, and companies revert to more traditional, intransigent, authoritarian models.

I have worked with a number of firms in distress. It is usually safe to expect that things will get worse before they get better. The true winner helps the enterprise succeed through bad times, to arrive at being the best they can possibly be at whatever they do. The winners are those who anticipate, recognize, and exploit opportunities for excellence.

I've learned to rely on these cardinal rules:

Every problem has a solution, and solutions are always cheaper than problems
People -- whether employees, customers, suppliers, investors, bankers, or regulators -- are better empowered to be part of the solution, than avoided as part of the problem.