At year-end we review our work with an eye toward improving ForteCEO. We rank engagements based on improvements that our clients achieve in their businesses. Then we compare what we did with how our clients benefited. Every year we learn valuable lessons. 2005 was no exception.

The big winners last year were clients who understood the importance of investing the time to build passion and teamwork in their business. Dramatic change occurred with every client in 2005 who had the courage to create an internal culture aligned with their
values and goals. These changes required hard work, but produced substantially increased earnings. This process of involving employees in the change also produced a team that could run the business on a daily basis.

Most owners we work with have personal goals outside their business, and look forward to having more time to pursue those goals. Achieving this freedom requires hard work, but when you build a culture based on consistent and positive values, you have fought and won the toughest part of the battle. A strong culture is the foundation for business growth and self-sufficiency.

ForteCEO is currently working with a family-owned, Midwestern manufacturing company that serves the retail trade. Two generations of the family have successfully operated this business since the 1950s. For two years, however, this $15+ million company had been losing money, and was having difficulty with a number of business improvement projects.

At the request of their bank, ForteCEO was hired. Our initial assessment identified a need for improving the effectiveness of the management team through leadership training and team building techniques. This is where the ForteCEO Executive, Pat McDonnell, began. As work progressed, it became clear that there were substantial opportunities in the manufacturing operation for quality improvement and cost reductions. Pat then brought in a ForteCEO colleague skilled in the principles of manufacturing operations improvement.

The company’s manufacturing operation was clearly struggling. Quality was marginally acceptable, work-in-process inventory was excessive, delivery dates were being missed, systems were weak, and scheduling, processing and simply knowing what to make were rooted in “tribal knowledge” rather than documented procedures. Staffing appeared excessive for the volume of  business produced. There were stacks of “work in process” material ahead of each operation, and no logical flow of materials through the plant. The plant appeared to be running at capacity so the sales department was reluctant to contract for new business. Fortunately, our efforts with the company’s team building and leadership training had progressed to the point where the organization was ripe for change, including changes within the manufacturing operation.

We immediately worked to implement a simple but effective system within the manufacturing operation, known as DBR scheduling. This system is the application of the Theory of Constraints, developed by Dr. Eli Goldratt, author of The Goal. DBR works within a manufacturing operation to remove bottlenecks or constraints that limit the throughput of the factory system.

In a word, the results at this company were “phenomenal.”  We believe these results were achieved so quickly because we had taken the time to prepare the company for change.

Prior to the changes, the company produced less than 600 units per day. After some initial bumps the first week, but without making any changes to the scheduled labor hours, the production average jumped to 965 units per day - an immediate 50+% increase!

What did this mean to the bottom line? Total pretax profits for the entire month prior to the change were $125K — or about $30K per week. Based on an average throughput of approximately $45 per unit, the company tripled their profits and made about $90K more the very first week.

Could this improvement continue? It absolutely did. In fact, they found they could consistently finish over 1,100 units each day and 1,500 if needed.

All this has resulted in far less inventory on the floor, smaller batch sizes, better quality, nearly 100% on-time deliveries and 80% more product built in the same space with the same number of employees.

These improvements have moved the company’s focus to developing more sales to fill the newly found capacity. Now our work with this company has shifted to the sales issue.

The owner and the bank are thrilled, the management team is having fun, and they are working together better than ever before. The transformation started by getting management ready and accepting change!

Mike Johnston comes to ForteCEO with extensive manufacturing process and leadership experience. He began his career with GE as a manufacturing engineer and for the next 34 years, pursued a career that included managing GE businesses that generated $250 million in sales, and running operations for Black and Decker where he was responsible for their $500 million household appliance products business. He went on to lead a $110 million unit of Philips Consumer Electronics Services Company. Prior to joining ForteCEO, he diversified his manufacturing experience into children’s active play and leisure products. As President and CEO of the Hedstrom Corporation he revamped three vertically integrated operating divisions with $260 million in revenue.

His work included selling unprofitable divisions and China outsourcing that resulted in double-digit margin improvements. The cost of creating a “greenfield” factory in China was not attractive and teaching a third party supplier how to achieve Hedstrom’s quality would create a competitor. Working with experts in China, Mike created a joint venture with a Chinese partner that maintained Hedstrom’s control of quality and proprietary process technology. Hedstrom was able to maintain financial control with minimal cash infusions, protect its intellectual property rights, and achieve global cost leadership.

Mike is also an expert in management team building and corporate culture development. He focuses on building a culture that is “team oriented, fact based, results driven and collaborative." His experience proves that a culture of open communication, frequent feedback and review, ensures all will be engaged in the process of ongoing improvement.

Mike’s “hands-on” experience also includes business workout and recovery, sales and marketing leadership, finance, and technology change management.

Mike is married, lives in Illinois, has four children and two grandchildren, and enjoys reading, golfing and travel.

Why should you be concerned about your firm’s culture? Isn’t culture just one of the current buzzwords used by authors who have never run a real business? Your firm has done fine for years — with the same culture that got you where you are today. There may be a few bumps in the road but if it isn’t broken, why fix it? The reality is that in many private companies the culture is broken and the business owner has lost his or her ability to see this clearly and objectively.

How does this happen? How can you be successful one year and not the next? As your business and the environment grows and changes, if the way you operate the business does not also change, then you, the entrepreneur have a problem. You move from being the change agent for your business to becoming a sea anchor. That entrepreneurial, ”I know what it takes to run my business” culture that worked so well in the early years is not capable of sustaining that growth. For this reason, organizational change is an important part of ForteCEO’s work with business owners.

Does your firm have a culture that will foster exceptional performance at every level in the organization and ensure above average performance over the long haul or will it weed out producers and enable the under-performers? Ignore the culture of the organization and an unintentional one will develop in that leadership vacuum. Often the unintentional culture is counter-productive, preventing you from meeting your business and financial objectives.

Growth and renewal is about leadership, and leadership is about change. Significant change is not possible until the organization and its key players are ready. The challenge is that change involves personal risk and risk is often not comfortable. Embracing a culture of change begins at the top. Unless the leader is committed to change, and is prepared to carry it throughout the organization, attempts at change will be viewed as another passing fad.

Most plans for cultural change are ill-conceived. The good news is that the process of effecting change is easily understood and those with the willingness to understand it, and courage to follow it, will see significant results quickly. Before starting this journey — you must recognize where you are and then decide where you want to be. Consider the following:

• Overcoming the risk change requires trust on the part of those involved.
• Trust is a function of an organizational culture based on the core values of integrity, teamwork, respect and responsibility. This truly must start at the top and these core values will provide a beacon to guide decisions and actions in unusual situations.

What is the bottom line? It is up to the company leadership to stay the course and not give way to the critics of change. In most cases, when business owners are “stuck” with a culture that is an impediment to their business, they need an impartial resource, like a ForteCEO executive, to help them through the change process. Look your business square in the eye and decide what changes you need to build a healthy, change-oriented culture. Then actively participate in planning and building a culture that supports the business and financial goals of the company. The goal is to build a company that thrives on competitive challenges. What is the alternative? Neglect your firm’s culture and see if you can live with the one that emerges!