Results

American Century's management team remained committed to the changes in the systems that they had begun making in 1988. By 1996, the results of their efforts were evident. The management team had improved their capabilities with respect to managing the much larger firm that American Century had become. Over this time, in fact, the company had grown to managing more than $50 billion in assets.

The ultimate test of a company is its ability to enhance shareholder value. In 1996, J. P. Morgan acquired a 45% interest in American Century for $800 million. This implied a market value of $2 billion for the firm. It was a testament to the progress made since the program began. Today, the company manages a family of mutual funds (both equity and fixed income), employs more than 2,000 people, and has more than $150 billion in assets under management.

The Catalyst for Strategic Change

In March 1999, Nayar attended a Forbes Presidents' Conference, where he heard Eric Flamholtz make a presentation about building successful organizations. The approach made sense to Nayar, and in late 1999 he invited Flamholtz and his team (including Yvonne Randle) to work with the company and apply the framework and methodology described in this book.

Organizational Transformation at Infogix

The organizational development process began with a series of interviews with selected group and unit leaders during the summer of 1999 to provide the consulting team with an understanding of the company and its development issues. The next step was a strategic planning retreat, attended by all leaders in early December. The retreat was intended to introduce all of Unitech's leadership team to the Pyramid of Organizational Development framework described in Chapter 2 and take the company to the next level of planning capability.

Planning had always been a part of Unitech's culture. The company has always had a well-established strategic planning function, and the leaders of the operating groups have always prided themselves on their strategic capabilities. However, the growth and diversification experienced during the 1990s demanded a new scale of planning altogether. Management needed to address not only new industry segments and larger operating units but increased organizational complexity as well. The strong entrepreneurial spirit and autonomy that had long been part of Unitech's culture now presented a management challenge. Although at one time that spirit had helped to create a vibrant, nimble operating environment, it had also resulted in counterproductive organizational silos that resisted cooperation.

Strategic Planning to Support the Organization's Transformation

At the retreat, a management planning simulation revealed internal areas that needed to be strengthened. The group discovered that its current planning was too grandiose to be feasible and chose to adopt the approach to strategic planning described in Chapter 6 of this book. Unitech already had a formal strategy and planning process, but the objective of the new process was to improve the existing planning system and ensure that it became a way of life. The strategic planning process was intended as a tool for the alignment of the various units of the company.

Unitech also adopted the pyramid framework as the platform for the development of their strategic plan. This template was used to assess the strengths and areas for further development. Based on this analysis, it was clear that Unitech was relatively strong at the bottom four levels of the pyramid but needed further development at the top two levels, which include management systems and culture management. It also required some redefinition or fine-tuning of the business foundation to fit Nayar's vision.

Developing the New Business Foundation. The first step was to develop the new Unitech “business foundation”—a business definition, a strategic vision, and a core strategy. (At Infogix, the term strategic vision is used rather than the term strategic mission, as used in Chapter 6.) By the end of the initial planning workshop, the leadership team had defined their business as that of “helping Global 2000 organizations improve the quality of their information through information integrity systems.” This meant that the organization was going to evolve from one that was currently focused on selected tools for automated balancing of accounts and statements to a total information integrity solutions business. This meant, in turn, that Unitech would create a new market space: the “information integrity space.” An intermediate step was for Unitech to evolve from its current product portfolio to a business with automated controls, services, and processes for information integrity. This was to happen through three phases.

Once the new business definition and strategic vision for the organization had been established, there was a need to complete the plan to the level of developing goals and assigning priorities and roles.

Developing Priority Objectives. Although there can be many objectives in any strategic plan, a well-thought-out set of priority objectives (key objectives that receive the most management focus) is one of the secret ingredients that were important to make planning work at Infogix. These objectives are derived from the strategic vision and related key result areas.

Role of Performance Optimization in the Transformation Process

Another strategic innovation at Infogix (formerly Unitech Systems) was the creation of a unique “performance optimization system” (see Figure 13.1) that combined with the planning system to create an overall strategic management system. In brief, this system was introduced to strengthen the levels of accountability and enhance the execution of the strategic plan. Performance optimization is a term coined at Infogix to refer to an innovative alternative to the conventional notion of performance management, as discussed next.

The conventional model of performance management typically links the planning system and measurement of results with the evaluation and reward systems within the organization (see Chapter 8). One thing that is very different about the concept of performance optimization at Infogix, as compared with the conventional concept of performance management, is that it does not link performance directly to rewards. This is for philosophical reasons. Consistent with the Deming philosophy, Nayar believed strongly that rewards ought to be based on company rather than individual performance.

Use of Measurement in Planning and Performance Optimization

One of the key contributors to the ultimate success of Infogix's strategic innovation with planning and performance optimization was the development of detailed measurements for objectives. As a CPA once said, “What gets measured gets counted!” This means that the things that get measured are the ones that are most important in influencing people's behavior in organizations.

At Infogix, a great deal of time and care was put into the development of measurements of goals. In part, this is because Infogix is a highly analytical and process-oriented organization. The company takes great care to be precise with its use of terminology and the need for operational definitions. The net result was that Infogix created a detailed set of measurements for every objective and goal. These measurements are critical to making the plan operational and specific. They are a significant strength of its performance optimization system.

Results of the Transformation to Professional Management at Infogix

As a result of this organizational development process, a number of significant benefits (both tangible and intangible) were realized. First, there was an increased clarity and focus on the vision of the company that did not exist to the same extent in the past. One of the company's growing pains was that a relatively large number of people did not understand where the company was headed. However, people now understood that Infogix was in the information integrity business. This broader concept had replaced the more narrow focus on specific information integrity products, such as automated balancing and controls. People now also understood that its long-term vision was to help create and, ideally, to dominate the information integrity space. This provided a big-picture context for short-term decisions and actions.

Another benefit of the strategic planning and performance optimization process is greater focus on priority objectives. In a business, there are countless things to deal with; the Infogix strategic organizational development plan provided focus by clearly identifying the priority objectives.

A third benefit relates to the productivity and accountability of people. The specificity of the measurements increased the extent to which people were accountable for specific results rather than just vague responsibilities. The plan provided a tool to monitor overall performance of the company (as well as that of specific business units) on a systematic basis.

Longer-Term Results

What were the results of this organizational development process at Infogix? In brief, the enterprise value of the firm increased. Specifically, on June 1, 2012, Infogix announced that H.I.G. Capital, a global private equity firm, had “recapitalized” the business² and The Dow Jones Private Equity and Venture Capital reported that “H.I.G. Buys Infogix in $75M–$150M Deal.”³ In addition, on January 10, 2014, both Infogix and H.I.G. publicly announced a completed acquisition of Agilis International, Inc., a provider of predictive customer and operational analytics.

Company Background

What was to become Bell-Carter Foods, Inc. was founded as Bell-Carter Olive Company by brothers Arthur and Henry Bell in 1912. The company began as an olive grower, but in 1930 the firm began packing, distributing, and marketing their own olives under the Bell's brand. The olive market expanded throughout the 1950s and 1960s into grocery stores, delicatessens, and supermarkets.

In the mid-1960s, the third generation of the family joined the business with the entry of brothers Tim (in 1964) and Jud (in 1965) Carter. When Tim and Jud entered the company, sales were only $1 million, but the market was continuing to expand. The company continued with modest growth.

By the time Tim and Jud took over the day-to-day management of the company from their father in 1973 (with Tim becoming CEO and managing the sales and administrative side of the business and Jud becoming president and focusing on production and developing and maintaining grower relationships), the company's sales had grown to $6 million. It was at this time that the olive industry began to experience some problems, along with consolidation. In 1958, there were 27 U.S. olive companies, but by the early 1970s, only a few large players remained. Bell-Carter Olives made a critical decision at this time: to focus on private-label versus branded olives. The Carter brothers determined that the margins in branded olives were so thin that the best they could do was to break even. Private label held greater opportunities.

The company continued to grow on the strength of its dominance in the private-label market. In 1990, the company acquired the operating assets of Olives, Inc., and in 1992 the firm acquired Lindsay Olive Company, one of the most recognized brands of olives in the United States, when it came up for sale. At the time of the Lindsay acquisition, Bell-Carter's revenues were $53 million. One year later, they had grown to $85 million.

Recognizing the Need to Further Develop the Company's Infrastructure

The senior leadership team had been making significant progress in developing the day-to-day operating systems needed to support continued growth and had a strong functional culture. They recognized, however, that their management systems were significantly underdeveloped.

Our work with Bell-Carter began with a seminar that introduced the senior leadership team to the Pyramid of Organizational Development and growing pains. One output of this seminar was a decision to embark on a formal process of leadership development. A second was to further develop and enhance the effectiveness of the company's planning process. The leadership team also identified additional opportunities to enhance the company's effectiveness through management systems and culture, as described below.

Leadership Development

The first area of focus for Bell-Carter was leadership development—that is, on helping the managers and leaders at all levels develop the skills needed to make the transition from a “doer” to a manager/leader and to effectively execute their roles. This involved designing and delivering a four-day group-based leadership development program and providing one-on-one coaching.

Group-Based Leadership Development Program. Using the principles and approach described in Chapter 9, we designed and delivered a four-day leadership development program first to the members of the senior leadership team (including Tim and Jud) and next to several groups of middle managers and first-line supervisors. The program focused on the management role, time management, delegation, operational leadership effectiveness (described in Chapter 12), and decision making. It was conducted over a period of six months—with the first two days of the program being delivered back-to-back, the third day occurring approximately two months later, and the final day of the program occurring two months following day three. This schedule provided participants with the opportunity to apply concepts they were learning in the program and then report back on their progress. As a part of the program, each participant was asked to complete a series of four questionnaires designed to assess their effectiveness related to the three dimensions of management/leadership effectiveness, delegation, time management, and operational leadership effectiveness. By the end of 1994, all managers at all levels of Bell-Carter had completed this program.

In early 1995, Bell-Carter decided to implement a second phase of the program (for all those who had completed Phase I). This program consisted of two days of training, held approximately four months apart. The first day of this training focused on reinforcing the concepts presented during Phase I (through exercises and case studies) along with presenting tools and techniques for improving communication effectiveness. The second day of this program focused on control systems and corporate culture management (higher-level skills that Bell-Carter felt could be beneficial to all levels of management). Again, all three levels of management participated in the same program. They also continued to offer the original program to new managers who had joined the company or who had been promoted. These programs continued through 1997.

In 1997, it was decided that Bell-Carter would develop the capability to conduct what had now become its own management development program using internal trainers. Two internal trainers were selected and participated in a “train-the-trainer” program, conducted by Yvonne Randle. The company would now have the ability to continue providing (and adapting) the leadership development program to meet its needs.

One-on-One Coaching. In early 1994, Tim and Jud began an executive coaching program. The program was not started because of a crisis or because of problems between them or between them and their management team. Instead, the brothers believed that they could benefit personally from working with an adviser on specific development issues—personal and organizational—that they faced. This was very consistent with the family culture that, “We can always be better than we already are.”

This program began with the coaching team (Yvonne Randle and Eric Flamholtz) soliciting feedback from Tim's and Jud's direct reports about what they could do to improve their effectiveness as the leaders of a company that would soon have revenues of $100 million. Those providing feedback were very candid (there was little fear of reprisals), with some people saying, “You can put my name on that if you want.” It was clear that the partnership and trust that Tim and Jud had had between them throughout their lives had been embraced by those with whom they worked.

Using the information provided by the members of their team, Tim and Jud worked with their respective coaches to create their own personal development plans. These plans identified what each needed to focus on in the coaching process. In addition, each coaching session included not only one-on-one work but also a segment in which the two brothers worked together with their coaches on identifying and developing strategies for resolving organizational development issues (which they would then take back to the larger team). Over the next several years, other members of Bell-Carter's management team would participate in a similar coaching process.

Strategic Planning

Also in 1994, Bell-Carter initiated a strategic planning process using the approach described in Chapter 6. The strategic planning process focused on where the company was—one of four major competitors in the ripe black olive business—and where the company needed to be to continue its success into the future. In developing the strategic plan, Tim and Jud were just two of the company's 10-person planning team. Although the Carters might have operated under the principle that “all votes are equal but some are more equal than others,” that is not how they approached most decisions. Instead, they worked as a part of the team to decide where the company would go and how it would get there.

There was, however, a key point in the first (1994) strategic planning retreat where Tim chose to use his extra vote (and for good reason). The team had decided that Bell-Carter should be in the business of “processing and selling ripe, green-olive, and olive-related products to our customers.” After a half-day of debate, Tim arrived the next morning and said, in effect, “We can't do everything and be everything to everyone. We need to focus. I am recommending that we limit our business definition to ripe and green olives.” The entire team was given the opportunity to challenge the concept, but in the end, they all agreed that this was the right way to go.

With the business concept finalized, the team worked together to establish the company's strategic mission, which included becoming (within three years) a $100 million company, becoming a leader in the ripe olive category, and establishing a presence in the green olive business. The team identified key ingredients to successfully achieving this mission and assigned responsibility for managing each to a team member. For example, the plant manager, working with Jud, was in charge of working toward becoming the “best cost producer.” The vice president of sales and marketing was given responsibility for profitability—increasing sales and growing market share. The CFO was responsible for tracking financial performance. Each team member had a role, and the team trusted (much as Jud and Tim trusted each other) that the job would be done. All team members also knew, however, that they could go to anyone for help when needed.

The team established quarterly review meetings to discuss progress against the plan. Each team member was asked to report on the progress made against his or her goals. If problems were identified, the entire team provided help in solving them. The plan was their plan, not just Tim's and Jud's. There was no question among the team about who Bell-Carter was, where it was headed, how it was going to get there, and who was responsible for what. Unlike other companies, Tim, Jud, and their management team were on the same page, and when potential problems arose, the team worked them out together.

By 1999, Bell-Carter's strategic planning process also included departmental plans—which were structured in the same manner as the company's overall plan (that is, each clearly identified the department's business definition, strategic mission, objectives, and goals). The head of each department provided quarterly updates on the progress his or her team was making against goals as a part of the overall company strategic plan review.

Performance Management Systems

Bell-Carter established an annual strategic planning calendar that identified key dates in the plan review process. Approximately two weeks before each plan review meeting, goal owners were asked to submit written updates to Tim's executive assistant on progress being made against goals. She then recorded them in the status column of the company's corporate scorecard (which included objectives and related goals organized by key result area). This document was then used as the basis for discussion by the leadership team during the plan review meeting. Tim's assistant attended these meetings to record additional output and updates, and to prepare meeting minutes. Following the meeting, all team members received an updated written plan that could be used as their guidebook for the next quarter.

At the individual level, Bell-Carter designed and implemented (although the full implementation was not completed until much later) a performance management system based on individual key result areas. During the leadership development program, participants were introduced to the key result area–(KRA)-based role description methodology. One deliverable from this program, in fact, was the development of KRA-based role descriptions for all management and leadership positions. This methodology was then used to develop role descriptions for all positions at Bell-Carter.

Both the time utilization targets and specific, measurable, time-dated goals (which were linked to each position's key result areas) were used as the basis for evaluating individual performance. Each individual worked with his or her manager to create specific, measurable, time-dated goals for the key result areas in his or her position's role description, which in turn supported the achievement of the company's (or departments') annual goals. These goals were used as the basis for evaluating performance. The use of this process, which has been refined over the years, continues today. Bell-Carter, in fact, now uses a computer-based program—designed and managed by their head of IT—to support the implementation of this process.

Culture Management

Bell-Carter has always had a strong, functional culture that emphasizes teamwork (being part of the “family”), customer service, and fun. Although for many years Bell-Carter did not have a formal culture or values statement, everyone—those inside and those outside of the company—understood the culture. As part of their overall organizational development effort, Bell-Carter's senior leadership team decided in 1996 that it would be appropriate to assess the effectiveness of the company's culture and asked us to assist.

The culture assessment involved collecting information through one-on-one interviews with a representative sample of employees and through a workshop with the company's senior leadership team. A culture survey was also developed and administered to all Bell-Carter employees to collect their input on the extent to which people were embracing and behaving in ways consistent with the company's desired culture (as defined in the items included on the survey). Not surprisingly, the information collected suggested that the culture at Bell-Carter was, for the most part, positive and functional.

As positive as the results were, the leadership team identified some areas that could be focused upon for improvement. Specific objectives and goals were developed to address these areas and were included in the company's strategic plan (to support the key result area of culture management). In addition, a task force led by the company's CFO was formed to promote Bell-Carter's culture throughout the company. As one way of tracking process, the culture survey was readministered in 1998. Results suggested that progress had been made in addressing the issues identified.

As Tim and Jud were approaching retirement in 2005 and as they had been very much a part of the company's culture management process, the leadership team decided that it was time to try to document the company's values. During the company's 2006 strategic planning meeting, Tim and Jud were asked to define (on paper) the elements of the culture. Among other things, they identified the following:

• “Work hard, but have fun.” Tim said that when he and Jud first joined the company, things were tough, and they both agreed that if they weren't having fun, they should find something else to do.
• “B's or better.” Bell-Carter doesn't need everyone to be an “A” player. Tim and Jud jokingly said that they would have been gone a long time ago if this were the case. But Bell-Carter does need people who are “above average” and who are willing to work to improve.
• Common sense and good judgment. The implicit message in this statement was, “We trust you to base your decisions and actions on what will be best for you and the team.”

Since Tim and Jud's official retirement, the formal statement of Bell-Carter's values has been somewhat refined, but the basic themes remain virtually unchanged. Culture management continues to be focused on as a key result area in the context of the company's strategic plan. Tim T. Carter (Tim's son), who became CEO of the company in 2012, and his leadership team are working to ensure that the company's culture continues to support Bell-Carter's success.

The Results

When the organizational development process began in 1993, Bell-Carter was, as noted above, one of four major competitors in the ripe black olive business. By 2000, there were only two ripe black olive companies remaining in the United States and Bell-Carter was one of these companies.

Bell-Carter achieved and then surpassed its 1997 target of $100 million in sales and has continued its success and growth. To support this growth, the company has continued using the systems that were first developed in 1994, refining them as needed to support current operations. Strategic plans are still developed and implemented using the approach described in Chapter 6. In 2012, the company revisited and updated senior leadership team role descriptions. A new director of organizational development (OD) was hired in 2013, and she participated in the train-the-trainer program with Yvonne Randle to understand the concepts and tools included in the original 1994 leadership development program. These concepts and tools were incorporated into “Bell-Carter University”—a leadership development program that was designed and delivered by the director of OD. The director of OD also focused on updating the role descriptions for all positions within the company. The senior leadership revisited and refined (slightly) the online individual performance management tool (as it had become somewhat complicated for managers to use). Finally, Tim T. and his team continue to focus on culture as a strategic asset.

SmileSaver as a New Venture

While he was still a student at USC's Dental School, it occurred to Chris Kamen that dental students received “essentially no business training to help us manage our practices. We did not have basic information about insurance companies and how to help people afford the dental work they needed.”⁶

Chris began talking to dentists who were knowledgeable about these issues in 1976, while he was still two years away from graduation. While he had heard a little bit about insurance companies and HMOs, there was no formal education on these matters in school.

He discovered that most patients could not afford the dental care they needed and wanted. At that time, very few people had dental insurance, and those who did usually worked for very large companies. For people who worked in, or owned, small companies, there were no options.

Based upon this, he decided to start his own dental insurance business with a partner rather than practice dentistry per se. The company he created was called SmileSaver.

SmileSaver's Business Definition. SmileSaver's core business was providing patients to dentists who needed more patients and providing dental coverage to the public who were otherwise unable to get insurance coverage anywhere else. The company contracted with dentists to provide benefits to the patients and charged the patients an annual or monthly premium depending on their plan. Eventually SmileSaver added group coverage, which grew as well. It developed quality-assurance programs and protocols designed to protect the quality of care received by its members, including physical audits of the dental offices and patient records and also had a grievance committee of practicing dentists who would perform peer review if a patient had a grievance and would make a determination about a resolution.

The company began to grow. As Dr. Kamen stated: “Like most entrepreneurs, we thought we could learn and do anything. We felt ‘All Knowing’ and were quite pleased with ourselves for discovering this niche market that was doing so well.”⁷

Growing Pains

As the company grew, it began to experience the classic problems entrepreneurs face when they are successful. As Dr. Kamen stated, “I was a dentist, and my partner was a lab tech. We could grow a company to a certain point because we were clever enough, but, at a certain level, being clever was just not enough. We did not know it at the time, but our company was showing the classic growing pains of a small entrepreneurial company that was trying to graduate to a professionally managed organization. Indeed we learned a lot and became quite skilled at what we did, and the company prospered. But at a certain point, the company began to outgrow us.”⁸

Dr. Kamen and his partner were aware of problems developing within the operations of the company. They were aware that something was holding them back from getting to the next level. However, in his words:

We were not experienced enough at the time to realize that what was holding us back was, in fact, us! We had the ability, but not the knowledge and experience. I learned about a seminar at the UCLA Anderson School of Management called “Growing Pains” by Dr. Eric Flamholtz and Dr. Yvonne Randle. I read the brochure; it outlined the tell-tale signs of “growing pains” a young company needs to recognize and resolve in order to progress to the next level. I realized our company had all the symptoms. I attended the course, read the Growing Pains book, and was convinced that Eric and Yvonne understood what it meant to be an entrepreneur. They knew the problems a growing company faces when it reaches critical mass, and what to do to grow the management team into professionals that can take the company to the next level.⁹

I convinced my partner to let me bring Management Systems into the company. After some discussion, he thankfully agreed to retain them, though I don't think he saw the need as clearly as I did at that time. We had many challenges we were facing when we brought Management Systems in. For example, we had the following issues:

1. My partner and I were young and inexperienced at that time and were really entrepreneurs, not professional managers.
2. The business was naively set up as a 50-50 partnership, which inevitably led to ego clashes and disagreements on virtually every issue. The more the company succeeded, the more acute these disagreements became, and “deadlock votes” on important issues became common.
3. Since we weren't professional managers, we only had a rudimentary organizational structure, and it was based more on our own impressions of what we were good at or maybe even just what we liked, and was not based on our actual talents or skills.
4. There were no written procedures for important procedures (no employee manual, no formal organization chart) and little operational coordination between departments within the company, leaving the company extremely “segmented.”
5. Employees began to rally around their “boss,” and so there became a “camp” for each partner. Employee morale was adversely affected by this.

There were other challenges but these were the most significant.

The SmileSaver Organizational Development Program

There were concrete steps taken and progress made in working with Management Systems. As Dr. Kamen explained:

First, Eric and Yvonne explained what “growing pains” were. We learned that growing pains were a normal and predictable result of entrepreneurial growth, and that there were effective solutions that could be implemented.

Second, they met individually with my partner and myself and were able to gain the full trust and commitment from each of us in order to have our full and complete cooperation. At this time, things had become so strained between me and my partner that we were barely speaking and we disagreed on almost every issue.

This presented a significant challenge to Eric and Yvonne, but by gaining our trust completely, they were able to provide us with very blunt, very constructive, and much needed analysis of what the issues were in our relationship dynamic. They provided insight on our problems as partners, and what potential solutions could be explored. To their credit, they did not pull any punches and each of us had to hear about areas of our own performance where we were deficient. It is always tough to hear that you are actually the root of the problem in some instances. To our credit, we listened and accepted their comments with trust and admiration. We knew it was hard to hear, but we also knew they were there to help us in this process.

Third, they interviewed the other managers and employees extensively. This resulted in a very accurate picture of what was happening within the organization. We saw what was working, what was not working, and what the most significant challenges were in the organization. We also had some offsite sessions with employees.¹⁰

An Organizational Development Road Map

Based upon our assessment of the situation at SmileSaver, we prepared a feedback report and a “road map” for the future development of the company. Dr. Kamen states: “In the end, Eric and Yvonne's analysis, looking back on it, was spot-on accurate, timely, and most importantly, provided a ‘road map’ to the future and a way out of what felt like our present day ‘successful quagmire.’”¹¹

Dr. Kamen also stated, “Eric, Yvonne, and their team rolled up their sleeves, and worked with us side-by-side to develop organization skills in all the managers. They interviewed everybody, including the two partners and suggested an organizational structure that raised some eyebrows, which was ‘skill based’ not ‘ego based.’ The new structure provided important insights into how we could organize responsibilities, reporting structures, and departments. It fostered a new team spirit, and helped enhance our personal skills as partners, and helped employees feel like they wanted to be on the ‘company team’ and do a good job. Before, employees felt they had to be on one of the partner's teams to feel ‘safe.’”¹²

As a result of this organizational development initiative, the entire company was restructured based on talents, skills, and experience. Procedures and systems were put in place. Outside management talent was recruited and hired to broaden the experience of the management and marketing teams. A reporting structure was put in place that specifically dealt with the problem of employees trying to play one partner against the other to curry favor, and it was strictly followed. Marketing plans were developed, and budgets were sharpened and adhered to within the organization.

Most importantly, the two partners were allowed to manage the organizational areas best suited to their skill sets. They were required to relinquish other areas to the other partner if that partner was better able to perform in that capacity.

Results

Within a short period of time, employee morale improved, and the partners were able to work together. The company began to grow, and, just as important, SmileSaver had the operational structure and capacity to handle that growth. The company was humming.

Soon, a very large organization took notice of the growth, profits, and professional management style of the company, and they initiated a business partnership with SmileSaver. Over the next year, they observed how the company operated, and how SmileSaver continued to grow and succeed. As Dr. Kamen stated: “Using what we learned from Eric and Yvonne, we prospered and grew with control systems and planning. Operationally we had the structure and talent to professionally manage the growth we were experiencing. Eventually, this company, a subsidiary of one of the largest financial organizations in the world, acquired our company allowing my partner and I to retire at what was at that time, the very young age of 43.”¹³

The Onset of Growing Pains at Ballistic Cell

By 2014, certain problems at Ballistic Cell were becoming evident to Petkov, and he began to feel that they might prevent him from achieving the growth he aspired to. That same year, his partner in e-learning platforms—a worldwide leader in the field—offered to represent Ballistic Cell in neighboring markets such as Romania and Poland. It was clear to Petkov that he had to drastically improve the operations in Bulgaria to be able to focus on developing a market in Romania and Poland, which were at least five times larger than in Bulgaria.

When Petkov approached Ivailo Iliev (Management Systems' affiliate in Bulgaria), the former shared the following concerns about how the business was operating:

• Nothing was getting done on time or within the budget, unless Petkov was personally involved in managing the task or project.
• Deadlines were often missed, not only internally, but also with clients.
• The company would pay a high salary to an employee who was believed to be a “qualified expert” only to find out in several months that he did not deliver what was expected and had to be fired. Then, in order to deliver the product on time, Petkov had to hire an external consultant to do the job, which resulted in increased expenses and decreased margins.
• All departments were operating as separate companies with little coordination between them; and, as a result, a great deal of time was being wasted. The company had to postpone new projects and initiatives, which resulted in missed business opportunities.
• The overall standard operating procedure in the company at that time was a continuous reactive approach of putting out fire after fire.

Designing the Organizational Development Plan

After an extended interview with Petkov, Ivailo Iliev proposed a solution, consisting of three steps:

1. Conducting an organizational diagnosis and preparing a plan for the strategic development of the organization.
2. Implementing a strategic planning process and creating a strategic plan.
3. Developing and implementing a customized performance management system.

The plan was for Ivailo to work with his U.S. colleagues to design and implement these systems.

Organizational Diagnosis. The organizational development intervention process started with administering Management Systems' Growing Pains Survey (see Chapter 5) and Organizational Effectiveness Survey (see Chapter 2).¹⁵

Results from the surveys were not surprising. Ballistic Cell was at the professionalization stage of organizational development (see Chapter 3) in terms of its size as measured in revenues. However, the company lacked nearly all the necessary infrastructure for this stage and was also struggling with some of its operational systems. Ballistic Cell had a high overall Growing Pains score (which of course is negative, as low scores on this survey are positive). In addition, five of the classic growing pains were in the red zone and five in the orange zone. The top five (ranked) growing pains (all in the red zone) were:

1. Many people are not aware of what others are doing.
2. There are too few “good” managers.
3. People are spending too much time “putting out fires.”
4. People feel that there are not enough hours in the day.
5. People have a lack of understanding of where the company is headed.

The results of the Organizational Effectiveness Survey showed a serious need for improvement in operational and management systems. The discussion of the results with the management team identified the following most urgent organizational development areas:

• The company did not have clear organizational structure.
• Managers lacked many of the necessary skills to manage their departments and profit centers.
• No performance management system was in place.
• There was no systemized approach in recruiting, hiring, and induction of new personnel.
• Operational systems were missing or ineffective in most of the departments.
• No planning system was in place, and no follow-up was done on progress on the company goals.
• The values, which the founder and the first few people employed at Ballistic Cell developed and shared as a way of working, were not followed and demonstrated by the new hires, and this led to culture clashes between new and old hires.

Organizational Development Initiatives. The next step in the organizational development process was to conduct a two-day workshop to train the Ballistic Cell managers in the Pyramid of Organizational Development framework (see Chapter 2). During this workshop, results of the two surveys were presented, and initial steps were taken toward positive change.

As a result of this first workshop, the management team initiated several immediate changes. They established communication and coordination principles to follow within the organization and updated and officially announced an organizational structure, which accurately described the actual division of work and responsibilities in the company. An HR manager was appointed, and systems for recruitment and selection and employee induction were developed and put in place.

Strategic Planning Implementation. In the next phase of the intervention, a strategic plan for the company was developed, using the Management Systems' methodology (see Chapter 6). The management team defined the “business foundation” of the company, which was a key step toward working as part of one company, not eight different businesses. Based on the strategic plan, each department manager developed an operational plan for 2015.

Developing and Implementing Performance Management Systems. The third phase of the project (still in progress at the time this book was completed) was the creation of a performance management system with key result area–based role descriptions and a process of goal setting, monitoring, and evaluation (see Chapter 8).

Results

When interviewed about the effects and benefits of applying Management Systems' methodology of organizational development, company founder and CEO Julian Petkov identified the following results:

• Managers now are clear about where the company is going and what they need to achieve in order to contribute to our success. We all have a common understanding of the company strategy and competitive advantages, which focuses the work of the management team and makes decision making easier.
• Operational plans and delegated budgets for each of the departments save me time from department managers involving me in operational issues, which used to happen a lot in previous years.
• The new organizational structure and coordination and communication principles helped us increase our effectiveness in terms of faster decision making, being less reactive, and decreasing the frequency of crises.
• We will be able to quickly spot underperformance and take corrective measures, which will decrease the losses caused by expensive personnel not delivering the expected results on time.

Authors' Note

This case illustrates what we have observed in working with companies around the world. The methods and tools presented throughout this book have general applicability regardless of difference in countries and culture.

About this Case Application

As described below in his own words, Bob Bennett, founder and CEO of GroundSwell, engaged the authors' firm, Management Systems, to work with two of his portfolio companies. The case below was written by Bob Bennett, and edited by the authors. It describes the arc of his activities and thinking, which led to a joint venture to apply the frameworks, methods, and tools presented throughout this book at GroundSwell (his own firm) as a precursor to their application in GroundSwell's portfolio companies as a private equity investor. Here is Bennett's story of the application in his own voice. It should be noted that in describing his experiences, he has disguised the names of people and companies to preserve their anonymity.

The Beginning Celebration

It was my first “acquisition closing dinner” as a freshly minted MBA at a private equity firm with one of the largest and most successful institutional investors in the United States. The dinner was in a private dining room of an exclusive, high-end steakhouse in Midtown New York City. Francis, head of our firm, welcomed the highly educated and esteemed individuals from our deal team to the closing dinner: members of a top-tier law firm, an accountant from a big four firm, as well as our other co-investors. I realized that each attendee had degrees and pedigrees most of us can only dream about, like a Harvard undergraduate, business and law degree all on one resume.

The Name of the Game: Close the Deal!

Once we were all seated, Francis rose from his seat and said, “Thanks, everyone, for coming tonight. After nearly six months of a true team effort, we finally closed ‘Project Stepping Stone’ this afternoon.” After acknowledging a number of key individuals for their particular contributions to the close (including the heads of our strategy, legal, accounting, regulatory and environmental due diligence teams), he looked at our partner CEO, Courtney Smith, who would be running our newly acquired platform waste services company (known internally as “Garbage Company”) starting the next morning, and toasted him on his role in closing this major investment for our firm. Then Francis took a very long pause, with a slightly sheepish grin on his face, and again raised his crystal champagne glass to Courtney and said: “Now let's hope the lights come on in the morning tomorrow and our trucks start!”

Everyone cheered, laughed, and congratulated Courtney and one another; but something just didn't feel quite right, at least for me, and I didn't then know why. Psychologists call the feeling “cognitive dissonance.” It is generally a signal that is not to be ignored.

Initially, I thought Francis was just kidding about “let's hope the lights come on in the morning tomorrow and our trucks start”; but as both the dinner and as my career continued, I realized Francis wasn't kidding at all. Yes, he was joking about the lights and the trucks starting; but he wasn't kidding about actually executing on our strategy for Project Stepping Stone. Our strategy called for significant changes in nearly every part of the company, from sales to finance, and I truly wondered how it was all going to get done.

How were all of our strategic and financial plans that looked so compelling and “tight” on paper (when presented to our investment committee) going to actually get completed at Project Stepping Stone? None of the attendees at our dinner were actually going to spend much time at the company. Everyone was at least a few hours away by air from corporate headquarters of Garbage Company in St. Louis. Our co-investors were from Houston, our law firm had offices on Park Avenue in New York City, and our strategy firm was headquartered on Boylston Street in Boston—and we were in downtown San Diego. Also, I knew (from working on the deal) that Courtney Smith was never in the office. Initially when we started working on the investment, I used to call Courtney at the office and literally each time got his voice mail. This was before cell phones were ubiquitous. Courtney typically would call me back in a few minutes and patiently answer my list of diligence or strategy questions.

Closing But No “Clothes”

In the classic Hans Christian Andersen fairy tale, an Emperor purchases a new suit of clothes created by two weavers who tell him that “these clothes are invisible to those who are unfit for their positions, stupid, or incompetent.” When the Emperor parades before his subjects in his new clothes, no one dares to say that he doesn't see any suit of clothes—until a child cries out: “But the emperor isn't wearing anything at all!” In short, from my perspective, the private dinner the night of my first closing was full of “emperors with no clothes.” “Emperors,” who if challenged on how to actually run a business, had limited or virtually no ability to do so! They had impeccable credentials and might be great at strategy, financial analysis, legal contracts, and/or have billions of dollars in their war chest bank accounts; but not one of the attendees knew how to actually run a business.

The stated intent of making a solid investment and executing on our strategic plan wasn't the primary objective—it was just closing the deal. Closing the deal meant there was a nice payday for everyone involved; regardless of whether anyone in the room had the actual knowledge or skill to successfully execute on our investment thesis. Also, if we had a nice exit five years later, that was great, too; but it wasn't the real focus. “Closing the deal” was the name of the game.

How did I know these emperors did not have the right stuff to run a business? They told me! After each of the Emperors had a few drinks, I asked them (either during dinner or after in the bar) if they had ever run a business or thought they could. None of them ever had; and after a couple of vodka tonics and glasses of wine, each individual confidentially acknowledged they probably could not do it at all, let alone do it well. I really couldn't believe what I was hearing over and over, but it had the ring of truth.

How did Courtney get to run our acquisition? Courtney had mastered “EBITDA speak,” the arcane language, or jargon, of investment banking and private equity. If you knew this virtually secret language (as I discovered), and you had had a decent level of measurable financial success at an operating level that you could lay claim to, the typical private equity professional was your avid fan and potential partner. Francis in particular had been enamored with Courtney's EBITDA speak. If you didn't have facility with this arcane language, no matter how successful you had been as a business operator, it was nearly impossible to even get a second meeting with Francis. Courtney spoke “EBITDA speak” very well; but that was about it.

As I progressed in my career (from associate to vice president to starting my own firm), I found that the entire institutional private equity world was well ensconced with emperors with limited to no clothes. In fairness, some admitted they were “without clothes.” When I pressed many of the successful operators I met, I determined most (if not all) had basically gotten lucky. They did not have a repeatable system to build a business. Typically, they had been fortunate enough to rise to a senior management position in a company in an industry that was growing rapidly at the time, and as the saying goes, a rising tide lifts all ships. When these same “Captains” encountered difficult times (either from a deteriorating economy or a new competitive entrant in their industry), more often than not, they foundered like a ship hitting a rocky shoal.

I was left with a nagging question: If the emperors actually knew how to actually run a business, could they be even more successful? If they could rationalize making investments in a company with a management team that they had fully vetted, and if they could also truly evaluate that team's execution of that plan and provide real assistance when needed, could they significantly increase the probability of a successful investment while dramatically decreasing the risk of failure? I refer to this anticipated differential conceptually as “incremental alpha.” My belief is there isn't an institutional investor in the marketplace that would not be eager to find a repeatable source of alpha returns in their portfolio.

Dissonance: A Catalyst to Change

The next morning after the dinner, while shaving in a luxury Park Avenue hotel room, I was thinking about the execution of the plans of the deal we had closed. I personally had done most, if not all, of the financial analysis to acquire Project Stepping Stone, as well as being part of much of the legal and accounting due diligence and contract negotiations. I also played a role in determining Project Stepping Stone's strategy for the next five years. However, I had no clue if Garbage Company was going to have enough cash in the bank in the next days, weeks, or months to make payroll or, indeed, keep the lights on, or how we were actually going to execute on our strategy. I could model out our working capital needs for all those new hires in a detailed Excel spreadsheet that hummed the 100 iterations for each of my formulas delivering dramatically different financial results with the stroke of a computer F9 button, but I had no idea how to actually execute those differences in the real world.

That morning, I decided to learn to fully understand what makes businesses truly tick, how things really got done—independent of all the fancy strategy, PowerPoint presentations, and Excel spreadsheets that drove the investment of billions of dollars in private equity each year. So the search began for the answer to some fundamental but key questions: How do businesses really work and how are successful businesses built?

In Search of The Rosetta Stone of Business

I began a search for what might be termed “the Rosetta stone of business,” the key to unlocking the secrets or lessons of how to make a business really work. However, as I dove into one article or book after another—all espousing a system or solution for business success—I realized that I wasn't finding anything close to a turnkey set of concepts or ideas that consistently could lead to repeated business success. There was no holistic, integrated language. I found terms and concepts that made sense and worked, but only in a limited context or situation. They were either too tactical or too strategic and visionary. The more I searched, the more I felt lost looking for a framework that connected conceptual strategy to operational execution.

Similarly, as I both read about and met successful investors and CEOs, I concluded that not one had a generic and repeatable system for business growth and success. Some CEOs certainly sounded like they had a repeatable process, but no one had formalized them into a repeatable set of concepts, terms, or systems. They each had their own story, their own cookbook, their own “system” of how to do it; but I just could not believe that the same system that worked for Walmart, McDonald's, Zappos, or Google would work generically for all companies. What I found was more of a “book of the month club” mentality. Each month or quarter or year, a new framework or method or tool that promised much and in most cases delivered something, but never as much as they promised or what the customer testimonials claimed. If you visit my office, you will see all the books and articles I have read cover-to-cover (at least twice) to ensure I was not missing a concept or nuance.

Eureka!: I Found Growing Pains

At last, Eureka! I came across an article written by Eric Flamholtz.¹⁶ This article went on to discuss the nature of Flamholtz's holistic framework, how it had been validated through empirical research, and had been proven to work in actual organizational applications to contribute to financial success. Unlike the balanced scorecard, it was both strategic and operational.¹⁷ It even called out operational targets and goals as an individual aspect of its model. As I read the article, I was impressed by the level of academic rigor and validation that had gone into developing the content. In simple language, Flamholtz effectively outlined his Pyramid of Organizational Development (“pyramid”) in detail and then synthesized and summarized the entire article in one diagram. In that one pyramid he included all the strategic determinants of financial success a company needed to address, based on his extensive academic research. End of discussion.

He had created the big picture framework as well as the details of how to scale a business, in one diagram. I had found what I had been searching for over the last couple of years. I read the article, underlined it, took notes, went on line and found other articles and books Eric had published, and came across Eric's and Yvonne Randle's now classic book, Growing Pains. Needless to say, I bought Growing Pains from Amazon for next day delivery, which significantly added to the cost of the already quite expensive hardcopy book.

Upon receipt of Growing Pains, I read and I read and I read! The content was music to my ears. It was logical, and it had compelling case studies of real-life application of both success and failure. Within a couple weeks, I called Eric's company Management Systems (MS) and hired them to train my team. It was intended as a “pilot” engagement, like road-testing a car. I wanted to be sure it was the real deal before we started implementing their tools and frameworks in all of my portfolio companies. I certainly had drunk the Kool-Aid. As I was to learn over time, I was also giving myself the opportunity to truly look in the mirror and try to create sustainable success both personally and organizationally.

The next sections provide my observations on what I learned from the concepts, frameworks, and methods in this book as we applied them to GroundSwell's own business. I will also discuss the surprises encountered in learning to apply this set of ideas and tools.

Applying the Leadership Development Three-Factor Approach

We began the application of the concepts, frameworks, and methods in Growing Pains at GroundSwell with leadership development for our core team. My team was initially trained on the management and leadership development content.¹⁸ I think of this content as the fundamental individual building blocks of managerial and leadership success. Without these basic skills, I would argue it is almost impossible for a management team to execute a strategic plan. Countless articles have been written about why strategic planning fails most of the time, and I would argue that if the team accountable for executing a given strategic plan doesn't have the critical core management and leadership skills described in Growing Pains (see Chapter 9), it is almost inevitable that the team will fail.

The three-factor approach described in Chapter 9 roughly corresponds to the skills an individual and/or management team collectively needs to successfully transition a company from an entrepreneurially managed business to a professionally managed firm. Just as there are six stages of organizational development above the base of a business foundation in the Pyramid of Organizational Development, there are five skill levels in the Pyramid of Management and Leadership Development above a base of a “role concept.”

The Role Concept. As described in Chapter 9, role concept is about behavior, and a role description is a tool for influencing behavior. It's easy to mistake the foundational notion of a role concept as just another name for a job description; but that assumption is invalid. The efficiency and effectiveness of a job description pales in comparison to the notion of a role concept (operationalized in a key result area-based role description). Job descriptions typically have a list of all the activities the job requires as well as maybe who that hire will report to and sometimes the overarching goals for the position, but that is about it. The role description includes those details as well, but it is more clear and specific—which makes it both a powerful recruiting and hiring tool as well as an essential management tool.

In order to explain how we used this concept, I need to indicate how a role description differs from a typical job description. There are four fundamental differences. First, the role description has a clear individual mission statement that supports the overall mission of the company. An individual looking at a role description will know specifically how and why that role supports the overall mission of the company. Second, it has a clear definition of the level and detail of decision-making authority a specific role has. Not only does a role description define who the role reports to, it clearly defines the level and type of decisions that role is responsible for making.

Third, a role description has clear time allocation for each major goal, or key result area, that ties directly to the overall mission of the company as well as the individual mission of the role. For example, assume you are developing a role description for your sales team and have just installed Salesforce.com as a lead tracking system. A job description can mention using Salesforce.com to track leads, but it will not specify that only 5% of your team's time should be spent populating Salesforce. The role description gets into that level of detail. When we have applied this tool, I have found few if any surprises from new employees on issues like time utilization. On the contrary, I have made hiring errors because I was not clear up front in writing about how much of an individual's time was going to be spent where and on what task.

Finally, a role description is fundamentally different from a job description because it is the basis for the individual performance management system. In brief, in addition to identifying time utilizations for each key result area, SMART goals (see Chapter 6) are set for each key result area (in the context of the individual performance management system). An individual knows specifically up front what results are expected versus having just a list of activities they are supposed to participate in. For example, using only a job description, your new marketing hire won't know to allocate 90% of his or her time to purchasing Google AdWords and analyzing the results of those investments, nor would they know you are expecting 3,000 new leads at an average cost of $75 per lead and a conversion rate of 5.7%. They would with the KRA-based role descriptions and the SMART goals you created for them.

At GroundSwell, I have had great success using role descriptions as part of our annual strategic planning to fully engage each individual on my team in the strategic planning process. They can clearly see how the allocation of their time and expected results directly enables our strategic mission. The role description is the formal tool that enables buy-in by each individual at both a highly tactical and strategic level simultaneously. As mentioned above, it has also functioned as a powerful part of our recruiting process both at GroundSwell and in our portfolio companies. I have had many potential hires literally take themselves out of the running for a position when they saw the specific level of accountability they would be held to both from a time and results perspective. We are looking to hire and work with individuals that are empowered by (versus run from) that level of clarity.

Core Skills. The second part of the three-factor approach to management and leadership development includes a set of core skills (at the first level in the Pyramid of Management and Leadership Development) required to manage at any level, ranging from a first-line manager to a CEO. Obviously the specifics of a line manager's core decisions, delegation, or time management activities will vary drastically from a CEO's, but the same core fundamental skills are required in either case.

According to Eric's research, those core skills include delegation, SMART goals, operational leadership, decision making, and time management. Intellectually, this content was not a problem for my team. Nor has it been troublesome in our various portfolio companies. It is not particularly difficult to remember what a SMART goal stands for or what the four steps of delegation are (as defined in Management Systems' approach to delegation); however, I was genuinely shocked at how something so apparently simple in concept could actually be so difficult to execute. Even in a “safe” role-play scenario in a classroom environment in front of peers, the difficulty encountered was shocking. For example, as we each role-played the delegation process, I was amazed how hard it was to use the four steps effectively—even in a simple simulated task like planning the upcoming holiday party. Also, based on the candid feedback received during our delegation training, I realized those four seemingly simple steps were not as simple as they seemed. As simple as it sounds, just telling someone to do something more often doesn't work on even the most elementary goals. While I was often frustrated with my team, and sometimes thought they were incompetent, I thought maybe it was me and my skills deficiency (and not them) that was the root of the problem. Sure, I could model out the cash flows of a successful investment as well as put together a compelling PowerPoint outlining the strategic logic behind a successful investment; but it wasn't so easy to delegate that same financial analysis or PowerPoint presentation to someone else to do, and now I knew why.

As I learned, the more time I took up front in the delegation process, the more effective were my team members' results. It was actually somewhat magical for me at first. Now I almost always get what I want done when I delegate. Most (if not all) of the time when I don't get the result I expect, it's because I didn't effectively follow the four-step process. Realistically it required six months of consistent and conscious practice on my part to get to that level of proficiency.

Although I didn't know it at the time, based on Eric's experience, he estimates that only about 10% of the population is inherently good at managing others without some real formal training and even more practice. However, most if not all individuals can make significant improvements if they work to develop the core skills identified in Growing Pains. Perhaps that was why delegation was so difficult for me to master. Even though I had an undergraduate degree from Dartmouth and an MBA from UCLA's Anderson School, I wasn't part of the 10% of inherently good managers out there. However, in order to accomplish my personal and business goals, I realized I had to bite those kinds of bullets and learn to do well at what was not natural for me to do. I am sincerely glad I have done so.

After finally “mastering” delegation, we began our time management training! The first drill was to track our time for two weeks. How difficult could that be? We were given a simple spreadsheet that had us input the four to five key result areas we wanted to track (such as sales, strategy development, product development, etc.) and then track where we actually spent our time. First, it was much more difficult than I ever would have imagined to actually track the time I was spending on different activities. I found it necessary to record my time at least three times a day: once late morning, once around lunch or mid-afternoon, and once at the end of the day. If I missed even one of the three time-tracking recording periods, unless I had been on a call or in a meeting for the entire period, often I couldn't remember what I had spent my time on, even during the same day. Then, to try remembering what you did a day later or even two—it's almost impossible.

Once we completed this training, I made it a requirement internally for our people to track their time three times a day, unless they were traveling. This practice has paid huge dividends in a number of ways. Within a few weeks of tracking my time regularly, I realized I was often spending 35% or more of my time on purely administrative tasks: getting more ink for my printer, making travel plans, getting my mail. I didn't think I needed an assistant until I tracked my time. I have had an assistant ever since.

Now I regularly spend somewhere around 7–10% of my time doing purely administrative tasks. I still review payables and incoming state and federal tax filings, but that is about it. So at the end of the day, assuming a 50-hour week, I saved somewhere around 20% of my time. And imagine, my part-time assistant usually works around 10 hours a week, somewhere around two to three hours a day. That, in my opinion, is a lot of valuable time saved for anyone running a business.

More importantly, we started looking individually and collectively at where we were investing (spending) our time. Before I went through MS's time management training, I used to say, “Where do I spend my time?” Now, more often than not I say, “Where did I, or we, invest our time?” Particularly in light of building our pyramid, we started looking at our budgeted versus actual time spent on our key initiatives. As we tracked our time versus our pyramid key result areas such as products, resources, and operating systems, we found there was a direct correlation between how much time we invested in a key result area (as described in Chapter 6) and the SMART goals we accomplished (or didn't accomplish) in that particular area. It has become an incredibly powerful exercise. We do it quarterly, and it has helped us increase our success rate in completing our goals. Now we have fewer goals and accomplish more of them. We all used to have a large number of personal SMART goals for a month, quarter, or year, and we often didn't accomplish many of them. Now we have fewer and actually accomplish more.

Now when I meet with a management team at a company we are looking to invest in and I ask them to walk me through their top strategic goals for the year, I know we'll pass if they list more than 7 to 10 major goals. Once you fully understand time tracking (particularly at a team level), having a list of 30 strategic goals for a year just isn't realistic, at least for a team of three to five senior managers. I don't care how large the company is. You can and certainly will have more than 7 to 10 action items or tactical SMART goals to accomplish during any given period; but I am talking about strategic goals that take time to decide upon and usually require significant discussions with other parties internally and or externally to clearly define the goal.

Next, we were trained on SMART goals. This is also quite simple in concept—just a five-word acronym to recall. However, through role-playing, I realized I wasn't particularly good at actually creating good SMART goals. After about six months of practice, I realized that when I really followed the SMART process—particularly on key strategic goals such as setting up a new remote server to host our survey software—I miraculously started getting the results I wanted.

Applying Organizational and Management Surveys

Once I felt relatively proficient with the core management skills, we engaged Eric and Yvonne to coach and train us on a variety of other topics. We began by taking their three core surveys: the Growing Pains Survey (“GP”), presented in Chapter 5, the Organizational Effectiveness Survey (“OES”) described in Chapter 2, and the Management Effectiveness Survey (“MES”) described in Chapter 9. Even though we are a relatively small company, our survey results were crystal clear.

The surveys pointed out problems with great precision and clarity. For example, the MES score placed my capabilities lower than the position I actually held. I was scored as a “senior manager” when I was a “CEO.” I had run one of our portfolio companies successfully, and I was on the board of others, which were all doing well, but my scores were lower than they were supposed to be. The same occurred with the rest of my team. Everybody was scored/placed a level or two below where they thought they should be and definitely lower relative to what their respective titles corresponded to. I had thought I was a good board member and investor, and I had a solid investment track record to support my opinion. Perhaps I was, but I could always be better both as a board member and in my ability to assess management teams for their potential to be a solid contributor to our investments. The MES survey told me exactly where I stood developmentally according to the three-factor approach to management and leadership development described in Chapter 9. I definitely knew where I stood now.

The same was true for my team and my company. We were basically a start-up with a new vision for private equity, and we definitely had some real holes in our strategy, as well as in the products, resources, and operating systems we would need to get us to where we wanted to go. All those issues showed up with incredible accuracy in Management Systems' OES survey. Yet no one from MS had ever interviewed anyone at GS! It was all done via the surveys. If you really want to know where you or your company stands on an absolute basis, you really owe it to yourself and company to take Management Systems' surveys.¹⁹

Assessing and Managing GroundSwell's Culture

I still remember the coaching session where Eric suggested that even though we were a small company, we should think about assessing our culture through his custom culture surveys. However, wasn't culture on the top of the pyramid and therefore only for really large companies? Yes, that is where you would focus your time when you're over $100 million in revenue, but his frameworks are integrated, interdependent, and holistic, so culture matters even for the small company. Even though, according to the stages of growth (described in Chapters 3 and 4) there is a time and place to focus on each aspect of the pyramid, you must know that all aspects are in play all the time, no matter what the size or stage of the company.

By this time I had learned to very much trust his recommendations. I also read Eric's published peer-reviewed empirical research on culture, noting that culture can contribute nearly 50% of a company's EBIT. Once I heard that, how could I not focus on culture?

As you know from reading Chapter 10, the overall concept of culture is comprised of three basic components: values, beliefs, and norms. Those are the basic building blocks of the Growing Pains culture framework. In addition, Eric has done cultural research and concluded there are five key dimensions of culture, which each have values, beliefs and norms.

As we worked through the culture management process described in Chapter 10, the results were impressive on a number of levels. So what specifically did the cultural surveys bring to my attention? We had scored poorly on our process orientation relative to our financial results management. Given my strategic choice to develop our infrastructure prior to scaling our business the last year, I had not been spending time comparing our company-level budget versus actual with the rest of my team, even though we had a budget for each project. Each individual managing a project knew the individual project budget but not the overall budget, and that lack of communication on my part showed up in our financial results management score on the Organizational Effectiveness Survey. It was reflected both on process orientation (a cultural dimension) and financial results management (an organizational development dimension). Based on that specific survey feedback, I immediately started sharing our entire budget with my team versus just the individual projects, and within a few weeks I saw significant positive change in our cultural survey results. I never would have thought such a slight change in my behavior could affect my team's perception of our culture so dramatically.

Applying the Strategic Planning Method

By now, we had been through management and leadership training. We had also taken all of the surveys and had been coached by Eric based on their results. He had kindly and candidly pointed out our opportunities for improvement both in our business foundation and our culture. So what was left for us in terms of Eric's content? The major remaining tools were strategic planning and performance management. We actually applied the methodology of the strategic planning process a bit out of sequence. Our first step was to reexamine and redefine our business foundation.

Assessing Our Business Foundation. One of the areas that Eric and Yvonne told us needed improvement was our business foundation. At the time I was quite reluctant to invest the time and money on our business definition for a number of reasons. I honestly thought we had our business foundation pretty much nailed. We had our mission and vision according to the balanced scorecard methodology—why we exist, as well as where we were going—but Eric prodded me to invest in his coaching on his business foundation concept, and I am very glad he did.

Fundamentally, we had missed a key concept. Who were we? When Eric asked us this question, I was amazed at the variety of answers in our small team. It led to the question, “Who was our real customer, and what exactly did we do create value for them?” I thought we would all have the same fundamental answer, but much to my surprise we did not. Some of us thought we are targeting rapidly growing gazelles, the top 1% of growth companies. Others thought the real opportunity was in helping the boiling frogs that had an entire host of issues, even though they weren't aware they were in hot water.

In the end, after literally six months of back and forth debate internally, and extensive discussions with Eric and Yvonne, we came to the agreement that we were open to assisting and investing in any profitable company truly looking to transition from an entrepreneurial business to a professionally managed company. We changed the business definition from the type of business quantified by revenue and/or financial success to an orientation toward change that would effectively pre-qualify businesses that would most likely benefit from all that we had learned from Eric.

Having been through Eric's business foundation process, I can tell you if you're not totally clear on all three aspects of your business foundation, it has an incredible ripple effect in literally everything you do—including what is on your business card, what type of content and word choices you use on your home page, and where you as a leader invest your time each day of each week. Your business foundation affects the norms that you implicitly demonstrate in your culture as well as how you respond to a competitive threat. If you're “just” in the railroad business, you don't see the growth of the airlines as a threat. If you're “just” in the private equity business, you might not consider a set of financially predictive surveys to be a potential due diligence tool because you don't survey businesses, you buy and invest in businesses. Or you might be open to the value of them as a relative and absolute measure of future financial success of a potential investment in a management team and company.

The results of the reassessment of our business foundation are shown below with our current business concept, strategic mission, and core strategy.

1. Business Definition: GroundSwell is the destination for entrepreneurial owner-managers transitioning their profitable $3–$30 million businesses to professionally managed, sustainably successful entrepreneurial companies. We support them by providing an integrated platform of necessary resources including capital.
2. Strategic Mission: We will be the partner of choice for owner-managers transitioning their entrepreneurial businesses to professionally managed, sustainably successful entrepreneurial companies. GroundSwell and its four product lines will be profitable independent of investment fund management fees.
3. Core Strategy: Create incremental alpha by providing a proprietary platform of predictive diagnostics, business scale-up training, hands-on support, and capital—all in one place.

Most strategic planning processes are focused primarily on a company's markets and products with little to no focus on infrastructure, or what is required to achieve the strategic plan. The planning process detailed in Chapter 6 deals with both aspects. We applied this process at GroundSwell.

After a detailed environmental scan of our target customers and competition, we spent the majority of our strategic planning time addressing what was necessary to build our infrastructure. This process requires you to have one or two priority objectives for each of those respective infrastructure areas. No other strategic planning process does that. In effect, it ensures that you are always investing in your infrastructure, the same variables that Eric has validated to lead to financial success. For us, the process forced us to look hard and long at where we were in building our infrastructure. I made the tough choice to focus on infrastructure over investing in new portfolio companies for a period of time given our business definition.

As we worked through the strategic planning process, I realized we needed our infrastructure to be in place before we sought to truly scale our business. We defined ourselves as the destination for owner-mangers looking to transition their profitable entrepreneurial businesses to professionally managed companies. As such, our destination had to be in place before our customers started to arrive. Much like a destination resort, I wanted my “guests” to be comfortable with all the amenities they needed for the duration of their stay. Given our emphasis on quarterly time tracking, I knew we couldn't successfully make both new investments while building out our infrastructure.

At the time we were doing this, I had a number of institutional investors who were prepared to invest in our first fund, but I made the choice not to raise that fund until our infrastructure development was complete. I drank the MS Kool-Aid and have (by design) overinvested in my infrastructure relative to my size. However, while I might have sacrificed the near-term management fees of a fund, I am confident I will provide my investors with alpha returns from their investments in GroundSwell. My vision is that each of our product lines embedded with Eric's content (our surveys, school, and consulting practice, as an integrated deal-sourcing platform) are changing the game in private equity by creating solid investments versus finding them.

Applying the Performance Management Methodology

A key part of the strategic planning process described in this book is the recommended quarterly management reviews of your strategic plan. Given the fact that the strategic planning process includes both product-line and division-level key objectives as well as individual key objectives and goals, this strategic planning process effectively embeds an opportunity for quarterly performance management reviews.

By integrating performance management into strategic planning, and by tying an individual's personal tactical SMART goals to long-term infrastructure-related key result areas, and then by integrating those two seemingly juxtaposed concepts into an individual's quarterly and annual performance reviews that are tied to individual compensation and rewards, this holistic performance management process gives a senior management team the ability to simultaneously look out a telescope and into a microscope in both their business and at their employees.

And therein is the real power of Eric's frameworks and methods. They are integrated and allow you to be visionary and tactical as the same time, both at the organizational and employee level. No other framework does that—not even close.

GroundSwell Summary

So now you have a detailed case study of my personal experience with applying the major concepts, frameworks, methods, and tools comprising Growing Pains. Hopefully you will realize, as I have, that Eric and Yvonne's content is like well-aged fine wine or a classic scotch, only getting better with time, as opposed to most (if not all) of the “book of the month” business content in the business marketplace today.

In my view, this content stands alone as the de facto gold standard for assessing and building sustainably successful organizations^®. This content is both holistic and tactical, integrated yet independent. It's a set of frameworks and tools. It's a common language you can use to share both high-level strategy and tactical action items with others on your team. When someone says create a SMART goal, everyone can know exactly what that means. The same goes for a well-written and structured business foundation. You don't need to re-create the wheel each time you do something strategic or tactical. You already have the dictionary and the cookbook in one place. It allows you to simultaneously look out at your current business marketplace with the telescopic business foundation concept with a laser focus on the three fundamental “event horizon” questions you must answer for your business. Who are you? How are you different? And where are you going?

Simultaneously, you can peer through the cultural microscope. You can tactically splice the DNA of your corporate culture through custom surveys differentiating your ability to walk your talk according to your stated and desired deepest held beliefs, values, and what you think you do versus what the surveys can tell you that you actually do. And when you don't like what you hear in your cultural splicing, you can systematically eliminate the differences through a systematic and repeatable process.

At GroundSwell, we see this methodology as a vehicle to change the game of private equity investing. We are applying this methodology to create “incremental alpha”—higher returns and lower risk simultaneously. Incremental alpha refers to the differential value that a company creates vis-à-vis its competition.

Based on my experience, you don't need 20 years of training and practice to be proficient with this language and these methods. It will take you some time to truly master it, but as our experience has shown, both in our own business and in our portfolio companies, the impact of its application will occur relatively quickly for all who make a serious attempt to implement it.