An Illustrative “Case Study” Vignette*

Backstory

Providence Distributors was a $500 million second generation family business that had grown over 30 years to be a strong regional player in its specialty market. Jim, the current CEO and majority equity holder, like his father before him, had grown up in the business and was a respected technical expert in his field. In his mid-fifties, he was still making a fine living for himself, but the long-term future for the firm seemed less and less certain. As a devoted Christian, he was concerned about his stewardship of the firm and its impact on others. In recent years, in spite of a healthy market, Providence’s growth had slowed and margins had been compressed such that any fair valuation of the company and its large, slow-moving inventories (its major asset) would be surprisingly modest. Worse yet, the CEO had no siblings, and felt quite alone and exposed to the increasing pressures and uncertainties of the business.

Jim knew that he was the only Providence employee truly concerned about overall company performance. Although he worked hard, he sensed that he was blind to many issues and opportunities, and was keenly aware that they had struggled to attract the kind of management talent that could provide next generation leadership if the business were to remain independent. Jim felt stalled and wasn’t enjoying his work as he once had. He and his senior staff had agreed on a modest three-year plan, but the CEO knew that their shared commitment to executing this plan was lukewarm at best. They saw Providence as successful and had settled into a complacent equilibrium. Concerned, Jim turned to ICA for objective assessment and strategic input that might somehow result in breathing new life into Providence’s long-term trajectory.

ICA Findings

ICA conducted a three-day company assessment and benchmarking process, quickly looking at the company, its business model, served markets and key competitors, executive team, key general management and operating processes, growth sources and plans, performance management and compensation approaches, company communications, and culture. ICA summarized its findings in a whitepaper to engage Jim (and, ultimately, his senior staff) in discussions to produce shared awareness of their current status and apparent “gaps,” and a basis for fresh, compelling strategic and business improvement planning. ICA found:

Providence lacked a functioning set of guiding principles (i.e., long-term vision, purpose, core values) in place to guide their hiring, plans, actions, and team accountability. What passed for their mission statement was just politically-correct “wallpaper” intended to placate potential customers and adorn their marketing literature. Compromise and individualism seemed to rule across the many functional fiefdoms in the company. Instead of collaborating and stretching for progress, they followed an “if it isn’t broke, don’t fix it” credo that produced mediocrity and a sluggish workplace culture where top talent drifted off after a year or two of frustration in a “go slow/don’t rock the boat” environment. Nothing beyond earning a paycheck was actually keeping employees on board.
Relevant data was rarely shared below the management team, who reserved the right to make all decisions and solve all problems. Employees operated with feigned helplessness and became experts at avoiding blame. Delegation and self-driven improvement and problem-solving was essentially non-existent. Unequipped and uninspired, employees didn’t learn to think as business people and many solvable problems simply festered.
Compensation was untethered from actual contribution. Lacking an accountable, invigorating, performance culture, Providence was an entitled, low turnover place (other than for high potential employees who inevitably left to find a more challenging learning environment in their field). Bonuses were limited to sales commissions and a common Christmas bonus calculated based on a fixed percentage of wages/salaries.
Lack of systematic organization planning and development with no active investment in sharpening the knowledge and performance of staff, including senior executives or “high potential” future general manager prospects. This resulted in poor objectivity and constant upward delegation to Jim, who attempted to serve as Owner, CEO, and COO.
Toleration of serious, team-disabling dysfunction on the part of one long-time VP and various avowed technical experts that were seen as “indispensable.” Not surprisingly, they had cultivated little on-board talent with the proven character and potential to be developed into COO or long-term CEO candidates. This complacency caused widespread concern about their ability to remain independent into the next generation.
Uncompetitive topline growth rate, lagging the 5-year trailing average growth rate of their served markets by 2 points (i.e., 30%). Their market had become a composite of traditional distribution – company distribution centers serving the two-step channel with their manufactured and branded volume-procured products (30%), co-located company contractor trade counters (40%), and on-line order fulfillment (30%). Providence experienced flattened performance in the first two categories as business had steadily shifted toward the third, where their presence was very weak. Below the senior staff, no one focused on driving systematic growth across Providence’s offerings and markets.
Below average return on assets. Although operating slightly above breakeven, Providence’s below average margins and lower quartile asset utilization (due to poor product line accountability and supply chain disciplines) produced a substandard ROA (i.e., 4% compared to an industry average of 9% and top quartile industry performers at 14%), reflecting poor stewardship and sharply diminished strategic/growth capacity.
Lack of active Board governance. Providence’s board seemed more “decorative” and perfunctory than functional. Comprised of family owners, legal counsel, their key banker, and a couple of local leaders who viewed the role as a prestigious honorarium, the Board rarely challenged operating management or strived to add strategic value.

ICA-Facilitated Actions Taken:

After presenting their initial assessment findings to the CEO, ICA was asked to facilitate a discussion with the senior staff as a precursor to re-energized strategic and operational planning for the coming fiscal year. Jim committed himself and his senior team to steadily work with ICA to systematically address Providence’s most serious “gaps” while developing a “winning” organization able to effectively steward resources and collaborate as a high-performance team. They re-set their sights on growing slightly above their markets and pursuing an upper quartile ROA in their industry going forward. As a result, over the next few years, Providence implemented the followed breakthrough enhancements to their business with ICA’s expert facilitation assistance:

Established clear and compelling guiding principles that were continuously communicated and reinforced to guide behavior, hiring, and performance management. This effectively “raised the bar” and worked to strengthen the company’s culture, animating top management while enhancing loyalty among stakeholders who came to see Providence as a company committed to excellence and service for reasons beyond money.
Annual strategic planning with a three-to-five year horizon took on heightened importance and urgency, as ICA helped Providence to objectively consider sources of growth along with the enhanced operational free cash flow necessary to fund such growth initiatives without incurring heavy debt. The executive team began to “stretch” for worthy strategic objectives and performance accountability that tied to their upper quartile ROA goal. They stepped up to their lack of a compelling web commerce presence with a new, industry-leading site that was instrumental to their plans to streamline fixed costs while growing sales and operating margins.
Annual operational planning took on new significance given shared team commitment to their strategic goals. Attaining the improvement baked into the annual operating plan now made attaining each quarterly and monthly plan more vital. This breathed new life and focus into the monthly sales and operation planning process. The teamwork, camaraderie, and peer pressure associated with this new way of thinking helped to create high-performance expectations across Providence with everyone expected to drive improvement in their area. Product Managers now thought like general managers, developing closer relationships with supply chain partners (i.e., manufacturing, logistics, supplier) to drive improved asset turnover through reduced lead-times and inventory levels without impacting customer responsiveness. Newly-adopted 80/20 discipline related to margins and inventory velocity (i.e., GMROI) become a way of life and welded marketing and operations together as true teammates. The ROA impact was immediate, putting Providence on a three-year path from below average to upper quartile in their industry. By freeing up millions to fuel further growth initiatives, this produced sustaining competitive advantage.
Began systematically investing in their people by sharing an essential set of monthly “status vs. ‘Plan’” information within each department, providing quarterly CEO “town hall” updates and Q&A for everyone, equipping all employees with problem-solving and decision-making tools, setting continuous improvement expectations (from the perspective of internal and external customers), and providing annual feedback for each company area.
Revised employee compensation to include a variable pay component tied to actual company performance against the annual plan (with cascaded strategic objectives), individual/team contribution, and active steps taken to enhance relevant capabilities. This replaced formerly flat, company-wide annual increases and predictable Christmas bonuses.
Put into place an objective, forward-looking annual Organization Planning Process. In a process involving the CEO, functional VP, and VP of HR, each department head was required to evaluate their departments’ performance against industry “best-in-class” and to accurately assessing key employee performance, character, and teamwork. This included (1) looking for opportunities to streamline and simplify the organization and (2) identifying potential successors and future leaders and crafting development plans for them. Along the way, dysfunctional individuals were confronted (“speaking the truth in love” and “walking in the light together”) and remedial actions taken. As a result, collaborating with ICA specialists, one long-time “untouchable” dysfunctional executive was restored to effectiveness through targeted feedback and coaching, and another was replaced with someone possessing the potential to be a future COO using ICA’s highly effective retained search process. In each case, these changes considerably strengthened the company’s leadership team and built confidence for the organization, its suppliers, and key customers.
Rejuvenated Board governance, featuring active Board oversight in a few areas key to corporate hygiene, sustained strategic momentum, funding, executive compensation and development, and public/fiduciary/legal compliance and positioning. With ICA’s rifle-shot facilitation, Providence remixed its Board, recruiting two new Directors possessing strong comparable industry operating leadership and web commerce experience. The Board became more strategically engaged, focused, and truly supportive. Although slightly more demanding, the role of Board Director became much more beneficial and fulfilling.

*A fictionalized composite of numerous prior consulting/coaching engagements