Increase Sales 30% In A Recessionary Flat Market
I wrote the following for another site. It will be pretty heavily edited and changed prior, but I’m pretty pleased with it as is. So I’m posting it here for y’all’s enjoyment.
I will upload the image files later. They aren’t necessary but you get a good idea of the structural changes that this company underwent.
When Mike Thieneman and Maurice Dutrisac first heard Elliott Jaques’s ideas about Requisite Organisation at Whirlpool’s global management conference in early 1991, they looked at each other and said, “What do we have to lose?” Thieneman and Dutrisac faced a difficult present. They were President and HR Director, respectively, for Inglis, the number two large appliance company in Canada, and the company’s future no longer looked so bright.
Some of Inglis’s turmoil came from the normal changes of acquisition. Whirlpool had become sole owner of Inglis in early 1990 when they purchased the remaining shares of the company, resulting in the dismissal of the CEO and most of the executive office. The American appliance giant insisted on several changes, including a CA$60M reduction in selling, general and administrative costs and a marked rise in the efficiency of corporate staff and the costs of servicing dealers. They also wanted Inglis to become the number one appliance company in Canada, a position that Camco⁄GE had held for nearly one hundred years. At no time in the history of the appliance industry in Canada had any other company held the top spot, which Camco now held with 150% of the sales revenues of Inglis. To become number one in a flat, recessionary market, Inglis would have to take marketshare from its competitors.
Bad Market, Hard Times
Inglis was a company with a rich, one hundred year heritage. It owned or manufactured most major Canadian brands of large appliances and had sales of CA$500M in 1989. However, serious problems loomed before the buyout. Sales went down CA$50M in 1990 and the company’s profit left with them. The country was mired in a recession that drove the major appliances market to a low of 3.3 million units in 1991, 20% lower than the 4.0 million units sold in 1988 and 1989. What was left of the market was moving from independent dealers, such as Inglis, to power retailers like The Brick, Future Shop, Leon’s and Brault Martineau, storefloors that Inglis had a hard time penetrating.
Even worse, Inglis’s outdated production system and corresponding poor quality threatened to destroy the business. Sears threatened to pull the contract for Inglis’s private label manufacturing of the Kenmore brand, which made up almost a third of sales, if Inglis didn’t reduce the current six-week lead time to be closer to Camco/GE’s five days.
To top it all off, a major new refrigerator, the P2000, flopped for reasons that had nothing to do with markets or sales: it was 1⁄8 inch too wide for standard home doorways and had a chip that got so hot, it melted the ice maker.
These problems did not create the best environment for increasing sales by 50%.
Inglis was aware of these problems and had been making some progress to improve its situation. The company was able to stop the slide in sales figures, and it instituted new quality and empowerment programs. The new management knew that the entitlement culture had to be replaced with stronger work values and trust. So far, however, their efforts had stopped the decline without leading to new growth. They were searching for a missing piece of the management puzzle that they could not seem to find.
This piece came to light in 1991, when Whirlpool called the international conference of their top executives to revisit the company’s global vision and strategy. Two of the external experts facilitating the conference were Elliott Jaques and Steven Clement, who had been working on Whirlpool’s talent pool evaluation system. Jaques stirred more interest than any of the other speakers, provoking heated debate and strong disagreements among Whirlpool executives. Most of the American team simply didn’t like what they were hearing. But the more that Thieneman and Dutrisac thought about the ideas, the more they were interested.
“If you put in place what I am telling you,” said Jaques, “your organisation will flower by 20% to 40% productivity and growth.”
Requisite Comes to Inglis
Figuring that they had nothing to lose, Thieneman and Dutrisac asked Jaques to come to Inglis’s corporate office in Mississauga, Ontario later that spring to do a two-day workshop on Requisite Organization for the company’s top executives. Jaques brought along Stephen Clement, a retired US Army officer who had been working with him on Whirlpool’s talent pool system.
As Dutrisac remembers it, the meeting was far from boring. “Elliott proceeded to insult or browbeat most of the twenty Inglis managers in the boardroom,” he wrote. “He especially relished taking on [Thieneman,] the Inglis CEO.” Jaques and Clement talked about Requisite Organization theory. This theory states that it is possible to ascertain how many layers to have in a company and to make employee roles, responsibilities and accountabilities clear. Employees would thrive in a requisite environment, which fit a natural way of working together in hierarchies.
Jaques’s ideas flew in the face of everything the Inglis executives had learned in management school. They would have to do business very differently. The cost of the change would be great.
Would it be worth it?
Dutrisac himself wasn’t entirely on-board with Jaques’s ideas. He remembers arguing over ideas of structure with Jaques. Dutrisac had an MBA from one of the nation’s finest business schools and had studied Jaques’s ideas about Felt-Fair Pay, but Jaques’s science of organizing a business worried him. “It’s hard to change your belief system,” he said. “When you’re faced with this new stuff, it’s hard to learn, and then when you do learn it, you say, Ã¢â‚¬ËœWhy didn’t I know this when I was VP before?’”
The Change Process
Despite their reservations, Inglis’s management team decided to go forward with a restructuring of their organization and roles based on Jaques’s Requisite Organization systems. Dutrisac, VP of HR, IT, Logistics and Corporate Affairs, would head the project with the Inglis Management Committee acting as the Steering Committee. Jaques recommended that Inglis use Dr. Clement as an external consultant on the project. Dr. Clement would later coauthor Executive Leadership with Jaques and was one of the few consultants in North America who understood his ideas in 1990.
“I don’t think we could have pulled it off with anyone other than Steve Clement at that time,” Dutrisac said. “Now there’s more people who know requisite theory, but I think we had the best guy possible in the world to help us.”
Dutrisac assembled a team of six highly regarded managers. Each of these managers would continue their regular duties while working on the restructuring process. The hours would be long but finite. In a move that surely sent a shudder through the entitlement culture, the team took over the executive dining room as the “Requisite War Room”. Employees got the message: management were serious about this project and were willing to start the restructuring process with their own entitlements.
In June 1991, the team began its work. For the next six months, they studied all functions at the corporate office, working out a recommendation for a new company structure and new requirements for roles and the people filling them.
At Inglis, corporate functions had grown into silos that were insulated from each other. Hand-offs tended to be blind and incomplete, a factor that had led to the P2000 refrigerator problems. To get at proper accountabilities and responsibilities within and between the functions, Dutrisac and his teams had each function go offsite to work it out.
“We would go into a hotel and each function would work out its accountabilities within each role,” Dutrisac said. The teams would use Jaques’s terminology. “Within the team,” he said, “they would say, Ã¢â‚¬ËœIs this prescribing? Or is this monitoring?’”
Each team would determine how they work together within their own function. They would then tackle how they saw the accountabilities and responsibilities of their interfaces with the other functions.
The process included a review and assessment of all managers at Inglis. “We had a true Manager-Once-Removed process,” said Dutrisac. In other words, the team reviewed not only the person’s direct supervisor, but also the supervisor’s boss. The company’s existing culture meant that many people were under- and over-employed. The restructuring that the team would ultimately recommend meant that many people would have to move out of their current roles.
When a function had completed their off-site review, they presented to the other functions in a large room, facilitated by Stephen Clement, the external consultant. This gave the other functions an opportunity to make the hand-offs clear. The process was hard. Years of “fuzzy” accountability meant that everyone finally had to confront his or her own culture and assumptions. The functions had heated discussion over who was really responsible or accountable at various points. The teams also looked at business processes to see if they worked as efficiently as possible.
A New Structure For Sales
The sales function provides a good example of the extent of the restructuring process. At the start of the process, the Vice-President of Sales was in danger of losing his position because of the marketshare losses. The team determined that the existing organisational structure, when seen through the lens of Requisite Organisation, had several problems. (See “Figure 1 – Sales Organisation Before the Change”.) People were not reporting to a role or person one real level above them. The VP had direct reports that were working two levels below him, causing him to work at Level 3 rather than Level 4. There were also several jam-ups at Level 2, where managers worked at the same level as their subordinates and therefore did not add value.
Figure 1 – Sales Organisation Before the Change [FIGURE OMITTED]
The new structure (Figure 2 – Sales Organisation, After the Change) would ensure that each role worked Requisitely. In many ways, the Sales function was brand new, very different from what it had been before the Requisite change process. Old positions were eliminated but new ones were created. Eight new Director level positions (Level 3) were created to support the Vice-President. Support services were consolidated in the corporate office, with a new sales training role. The ten order desks were centralized into one.
Management determined that Sales was the team that was closest to the customer. Consequently, all company functions that were customer-oriented would move into Sales. Merchandising moved to Sales from Marketing because they needed to be embedded in customer details, such as next week’s spiff or point-of-purchase material with dealers and power retailers. The Credit Manager role was moved to Sales from Finance, also to be closer to customers.
Several other new positions were created to fit the strategy and direction of the company. A Director of Financial Analysis was created to analyse client accounts to ensure that sales people met the margins targets, rather than just volume targets. The Director of Key Accounts was created to focus on the power retailers. The Manager of Builder Sales was elevated to a Director level position in order to better compete in this channel. The team also reengineered how Sales serviced the 2500 small dealers who distributed Inglis and Admiral appliances, creating a small telesales function to replace outside sales teams.
Figure 2 – Sales Organisation, After the Change [FIGURE OMITTED]
The Requisite Project team presented its recommendations to the Inglis Management Committee in Oct 1991. Management began implementation the next month. After restructuring the corporate offices, the team began work on the manufacturing facilities. In early 1992, the remaining three manufacturing plants were restructured using Requisite Organisation principles.
The process wasn’t without pain. Employees were used to the old entitlement environment and found it hard to adjust to the team’s implementations. “Some employees retired early, some found positions elsewhere during our review,” said Dutrisac, “`and some we had to let go.”
Inglis also continued to have shuffles at the top. Fran Scricoo, a Whirlpool executive with experience with Boston Consulting, replaced Thieneman in early 1992 when Whirlpool appointed him President of their compressor business in Torino, Italy. Thieneman himself had replaced Bud Wampach, who retired soon after Whirlpool had appointed him President after the buyout.
Throughout the process, there were difficult lessons to be learned. In retrospect, Dutrisac admits that it would have been better to have the team assigned full-time to the Requisite change project. This would have reduced the strain and stress on their personal lives. As it was, the team worked six to seven days a week, ten to fourteen hours a day, so that they could complete their regular duties along with the project work.
Although the hours continued to be long, the team kept working. “There was a lot of adrenaline,” Dutrisac said, “because I started to see that this was going work.”
The process also took too long. “When I do this for my clients now, as a consultant, I do it faster,” said Dutrisac. “But the process was quick once we gave them the recommendations.”
The pain paid off. By the end of 1992, Inglis had become the largest appliance company in Canada, supplanting Camco/GE’s almost one hundred years at the top. Sales in 1992 exceeded previous records by 20% to CA$600M. The company achieved these milestones during a recession and a flat market, where manufacturing was increasingly going abroad.
Quality and process improvements also shone through. Made-to-order manufacturing that used to take six weeks now took less than a week. Quality issues like the P2000 refrigerator were now caught in design, and issues on the plant floor often could be resolved there. Employee morale went up with the winning team.
Mike Thieneman and Mo Dutrisac may have thought that Elliott Jaques was doing a bit of showboating when he said that his ideas would lead to a 20% increase in productivity. After the implementation, they couldn’t believe that it had actually happened. They are now firm believers in Requisite Organization. When asked how much of Inglis’s success could be attributed to this one set of ideas, Dutrisac is clear. “Without Requisite it wouldn’t have happened.”
Image Credit: Final mission of Space Shuttle Atlantis launches. NASA photo by Bill Ingalls.