Greg’s first day at Amalgamated was uneventful. The administrative and legal details were taken care of efficiently, allowing him to spend most of the day reconnecting with Susan and each member of her staff. They all gave him satisfactory answers to the questions he had developed from the material sent to his home. He was eager and well prepared for the first day with his new leadership team.

Stu Tillman, Cosmetics Products President, welcomed Greg on April 2 as warmly as he had in early March. They tentatively agreed on a target date of June 1 for completion of the transition and Stu’s retirement. “I have a lot of confidence in this company and will be holding onto a good deal of stock and options. Your job is to make some money for this company and to support my comfortable retirement! Just know that I’ll continue to do anything I can to help you be successful, Greg.

“My weekly meeting begins in 10 minutes. We refer to ourselves as the ‘Leadership Team,’ although I suspect others might have a different name for us. Let me pull a few things together and we’ll get started. By the way, the team has been pretty excited about your arrival since Susan made the announcement. They suspected something was up during your last visit, but didn’t say anything to me until the announcement made it official. They’re a little feisty at times, but I think you’ll like working with this group. Here’s a tentative schedule of one-to-one meetings that will carry you through the first week. Feel free to rearrange it. We just wanted to get you off to a running start and enable the VPs to block an appropriate amount of time for you in their schedules.” Stu settled back in his chair.

“I know you’ve met Cynthia Roberts, your Executive Assistant; she’s commandeered a conference room for your temporary office. You’ll have plenty of room to spread out until you’re ready to move in here and tell me either to move into the temporary office or, better yet, go play some golf. Cynthia knows practically as much as I do about the business and is far more efficient! She’ll take care of anything you need in the way of supplies, equipment, travel arrangements, meeting schedules and routine corporate reports and requirements. Just let her know what you need.”

The Leadership Team meeting began promptly. Stu led off with the introductions. He also announced his tentative retirement date of June 1. The people assembled assured Stu that he would not get away without an appropriate dinner and “roast.” They agreed on a date for that event, and moved on to welcome Greg to the team.

Sara Miles, VP Finance, made the first remarks. “Even as important as customer service is to Blackstone and to you personally, Greg, I have to tell you that every one of us thought your visit a month ago was a bit unusual. We sensed something was up just by the way you acted. It felt to us that you were chomping at the bit to ask us some tough questions, but you’d always pull back, shift position in your chair, and look uncomfortable. Now that you can ask as many questions as you wish, and as much as we’re going to miss Stu, we want to welcome you to the Cosmetics Products team.”

The rest of the team echoed Sara’s comments and made Greg feel at home. The meeting reinforced Greg’s confidence that he had made the right decision. “And I thought I was being very cool when I was here last month. Guess I should never try being a spy, should I?” They appreciated his humor.

“Very perceptive!” responded Tony Caruso, VP Manufacturing, prompting a collective chuckle from the group.

Greg continued, “But you were all right on target about how difficult it was for me to control my questions. The longer I spent with you that day, the more excited I became about the business and about working with you. I have a lot to learn about the company, and I count on you to get me up to speed. I know we have some serious problems, and that you’re all completely dedicated to making this a successful business. As we meet over the next few weeks, it’s important that you are absolutely honest with me about the state of the business. Don’t sugarcoat anything. Don’t pull any punches. Over the next month, and even after I take the reins from Stu, be straight with me. If you think I am not doing my job or am making a poor decision, tell me. I’ll either be able to persuade you that I am doing the right thing, or you’ll be able to give me the information I need to change my position. Either way, Cosmetics Products wins. On an ongoing basis, I want the facts and your recommendations about what we need to do to get the business on the right track. Thanks to you and Stu, Amalgamated is now in the Cosmetics Products business. That was an enormously successful accomplishment for which all of you should be proud. There aren’t many times in a career when you have the opportunity to start a new business. Now, our collective task is to take the division to the next level of success. I have every confidence we can make that happen.” Greg looked around the room to make sure he had their attention, and then continued.

“I see that the tentative schedule of one-to-one meetings begins with Matt, right after this meeting. I’m looking forward to talking with you, Matt, about the new products we’re working on. I’d also like to learn a little more about your Information Services (IS) group, things like the Information Technology (IT) infrastructure, capacity, the Enterprise Resource Planning (ERP) system, and future developments.

“In the meantime, I want all of you to be clear that my door is always open. The better we are at sharing information openly and in a timely manner, the better we will do as a company.”

There was a good deal of positive energy and chatter in the room as the meeting broke up two hours later. Greg felt good about the first encounter with his staff and was thankful that the waiting was over. After a short break, Matt knocked on Greg’s open door and entered the temporary office.

“That’s impressive, Matt. You have every reason to be proud of your development team. But I understand there have been problems with product launches, especially with the last launch. I hear we missed the launch date, our salespeople went through some pain and suffering at the hands our customers, and we have yet to meet our sales objectives. As critical as customer service is under normal conditions, it’s even more critical to have new products available on their launch dates after we’ve positioned and promoted them. What happened, and what have we learned?” Matt was eager to respond to Greg.

“You went right to a ‘hot button’ for me, Greg. We did take a good deal of heat over that last launch, but Development certainly wasn’t alone when it comes to blame.”

Greg interjected, “Not to interrupt your thoughts, Matt, but I want to be clear about something. I am not interested in blame. Companies seem to excel at developing a culture of blame. I really want to know how well we learn from our mistakes. That’s critical to improving our performance. A Chinese philosopher once said something like, ‘Failure is essential to growth,’ and I go along with that, if, in fact, we learn from our experiences.” Matt smiled.

“I’m glad you said that, Greg. It will make answering your question easier for me. We develop lots of products and do it well when we have stable performance targets to design against. Any number of times, my team accomplishes borderline miracles in getting the products ready for Manufacturing, but on the last one we simply ran out of time. Marketing has a well-known track record; just ask any of my product engineers and you’ll hear how Marketing changes the design requirements right up to the last minute. There is no specific point in the development when the design is frozen and protected from further change. Let me tell you that even building contractors have that time fence when changes can’t be made without big premium charges. My wife and I learned that when we built our house.” With a resigned look, Matt continued.

“So Marketing feels free to change the design at the last minute and expects us to jump through hoops to get all the testing done to ensure our products are marketable and safe. That was the case with the last launch, but that particular product had more changes than normal, and some that came later than we had ever experienced. After we do get our products into the marketplace, we often go through a series of design improvements, but these requested changes, according to Marketing, had to happen prior to launch. My team is excellent, but this time we just couldn’t pull off another miracle. When we finally had to say we couldn’t meet the launch date, Marketing complained that the last few changes they asked for were minor, really not important enough to the consumer to delay the launch! It took me several days to get that product team off the ceiling, and they’re still angry.”

Greg looked puzzled, “Isn’t there some kind of protocol for developing and commercializing new products, Matt? Don’t we have an operating procedure that says what should be done and when? Don’t we have a filter for determining what projects to pursue? And for when the design template should be frozen, as well as development milestones, and Stages and Gates?” Greg asked these questions in a way that caused Matt to become a little defensive.

“There is a development protocol, Greg, and it’s a good one. But you have to understand something about this place. You did ask us to be open, didn’t you?”

“Sure did, Matt. I want to know facts and opinions from everyone about how we can make this business successful,” Greg replied.

“Good. In that case, you need to understand that, except for the regulatory procedures we have in place, documented procedures—whether on a piece of paper or in a computer file—don’t necessarily mean much in this division. It is very difficult to get Marketing, Sales, and Manufacturing to follow the product launch protocol. We are so focused on meeting the needs of every single customer and in getting every last consumer unit sale, that we completely ignore the protocol, make last-minute changes on the fly, confuse everyone, and end up hurting the customer expecting our new products. This is, when you think about it, somewhat like a fashion business at heart. Product launches are textbook cases of chaos. We’ve never seen a milestone or deadline that we couldn’t ignore, except for the start of shipments date. As a result, we end up working overtime and weekends even to make some pretty simple packaging graphics changes. We’ve even been known to make changes after Tony has started production. Let me tell you that he can be a pretty unpleasant fellow when he has to repackage product he produced earlier with weekend overtime crews!” Matt paused before continuing.

“Don’t get me wrong, Greg. When our products get into the consumers’ hands, they meet all our founder’s values of ‘high quality products that meet or exceed consumer expectations at affordable prices, representing great value.’ It’s just that we don’t accomplish those values with anything resembling effectiveness or efficiency. You can see that in our declining margins.” Greg looked a little surprised.

“The current operating mode sounds very expensive to me. Why haven’t you been able to get people to follow the protocol?” he asked.

“I don’t intend to point fingers, Greg, but I have done everything possible to get people to follow the protocol, including begging. Part of the problem is the priorities Stu sets. He has the reputation here of being a marketing genius and everyone knows how he built the Personal Products division. He’s been in the company his entire career; his family and the Richards family have been good friends since he was very young. You have to remember that he built Personal Products into the biggest division in the company. He was one of the first in the entire industry to recognize the importance of marketing anti-aging products to baby boomers. As a company we owe him a lot. Frankly, however, Stu doesn’t know much about how product engineering and development fit with supply. He always takes Marketing’s recommendations when making decisions, probably because that’s where he grew up, and that’s what he knows. If Marketing says a product change will sell more of the product, and we say making that change at this point in time will jeopardize the launch, Stu tells us we are a creative bunch and should be able to figure it out. Satisfying Marketing’s interpretation of the market research data is always the top priority. But last time, it backfired on us.” Matt took a sip of his coffee and continued.

“The Manufacturing side of the business also contributes to the problem. We hand off the design to them; then we learn they want some additional changes to make the product easier to manufacture, or they want some additional process equipment bells and whistles added. Same effect. We usually get them done, but it isn’t a pretty thing to watch.”

Greg thought he knew what was coming next, but he asked his question anyway. “Thanks for being straight with me on your observations. What you’ve described must take a heavy toll on morale in your group and on your budget, Matt.” Matt smiled knowingly.

“A toll on morale? Definitely. On budget? It used to be that way, but over time, I’ve learned to plan for additional people, time, and money to deal with the last-minute changes. You asked me what we’ve learned from the last launch. Collectively, I would say not much. We aren’t doing anything different today as a company. It is pretty much status quo, which is, as President Reagan once defined it, ‘the Latin term for the mess we’re in now.’ We tend to move from one launch crisis to the next, and each launch seems to have a shorter lead time than the last because the previous product took longer than expected. A nasty spiral. As a product development group, we’ve learned to anticipate last-minute changes by—and I am really going to regret saying this down the road—inflating the development budget and lead time. We’ve also learned (again and again I might add) that following the protocol would be helpful, but we have just about given up on that one. One exception, of course, is that we follow our internal product development portions of the protocol rigorously until the last-minute changes hit us and it all turns to . . . well, let’s say it turns into chaos.” Matt leaned back in his chair, but Greg wasn’t finished yet.

“If I posed the same question to the others, how would they respond?”

Matt waited a moment, as if thinking about it, then replied, “I expect you would hear much the same from everyone about our chaotic product development and launch process. People actually seem to enjoy the adrenaline high, and then the celebration of victory when we finally ship the first case of product, regardless of the date. I also expect you’ll hear that the product engineering team is the crux of the problem; that we are uncooperative, too rigid, always preaching about the importance of following the protocol, always pushing back on last-minute design changes, not understanding Marketing needs or Manufacturing limitations. If you learn anything different from that, I’d be surprised and would like to know about it, Greg.”

Over the next hour, Greg dug into the new products and initiatives portfolio and schedules. He also had Matt go over the key players on his team with a focus on individual and collective strengths and plans for improvement. Since they intended to work through the lunch hour, Greg asked Cynthia to have lunch delivered to his office.

As the lunch tray arrived, Greg asked Matt for a synopsis of the Information Services staff and their plans. Specifically, since Matt was also responsible for the Information Services group, Greg wanted to know more about the current effectiveness of the ERP business system. Matt became more relaxed with the change of topic.

“I have to tell you, Greg, the ERP implementation and start-up in 1999 was an exciting time at Amalgamated. We spent a lot of resources and money to protect ourselves from the possible Y2K threat. We actually eliminated dozens of high-maintenance, independent legacy systems. In IS, the ERP system runs successfully. But that’s the end of the good news. The users still don’t like it and ignore it whenever possible. They have never spent time learning how to configure the new system to work best for Amalgamated. As a result, they don’t understand it, and think of it as a pain. Except for Finance, which can now see detailed and aggregate views within and across Divisions like never before. That would be great, but the data in the system needs a lot of massaging to make any sense out of it. One day, it’s all going to catch up with us, and then we’ll have to reimplement, but we’ll do it properly next time.

“So today, our people spend less time using the system than they do complaining about how the system is set up and how they don’t trust what it recommends. Whenever there is a problem, all I hear about is how the system makes them work harder and causes them to make bad decisions. In reality, I think they believe they have to work harder because the system forces some discipline in how they do their work, and they don’t like that. But in IT terms, we are operating on the new system, and we are providing an up-time availability of well above 99 percent. I expect you know that’s an enviable benchmark in the industry, Greg.”

When they finished their meeting, Greg wrote up a summary of their discussion:

“Look, Greg, Marketing is often between a rock and a hard place in this business. Our success, and our compensation, depends on our getting new products and promotions to our customers’ shelves. It is all about volume and share for us; those are both driven, in large part, by the number of new product launches and promotions, and the related advertising. By the way—I’ll show you all the details later—our pipeline of products and promotions is full over the next year. We’ve met every marketing target over the past two years regarding number of products launched. Some time, I would welcome your perspective about our direction and how well our initiative plan lines up with the business strategy.” But Kari didn’t wait for a response.

“Now, I’ll agree totally that Matt is right on one point. We often give him design changes at the last minute, but we also know that his development time line is padded with extra time and money. He may not have told you that. He has some great development engineers, although they tend to whine from time to time. Look, sometimes the marketplace forces us to challenge their creative capacity at the last minute. Before we put a product into the trade, we want to make sure it’s the best design in terms of consumer needs. We take full advantage of all the information we gather from test market trials; sometimes that information comes in very late. Launches tax the entire organization, so we want to get the product and packaging right before we pay the slotting allowance and put it on the shelves. We don’t want to launch and then second-guess ourselves about not making those changes that would have made the difference between a success and failure, especially when we had the data in hand before launch. If Product Engineering has a problem with some of our last-minute requests, it’s up to them to raise a flag. It can’t be up to us to anticipate what they might or might not be able to accomplish. I mean, they’ve managed most of it somehow and have pulled off some big changes at the last minute. So I often wonder how much is just griping for the sake of griping.”

Greg jumped in. “Later I would like to see how all those new products fit into our strategy, Kari, and how we determine if a product or SKU is carrying its weight in terms of profitability. Before we go there, however, you said you were often ‘between a rock and a hard place’ in driving volume and share. I think you just described product development as the rock. What’s the hard place?” Greg guessed what would be coming next, but Kari needed to get a point across first.

“Before I answer that question, I want to pick up on your comment about profitability. I’m not the right person to answer that question. Stu wants me to focus on growing volume and share. I am responsible to meet my budget, but I don’t get involved in discussions about profitability of any particular SKU. Those decisions are between Stu and Sara.

“Going back to the question about the hard place—that would be manufacturing. If we are going to be successful, we actually have to get the new products into the trade and be responsive to our customers. If we get an unexpected order from, say, Value Market, we need to be able to fill it. We can’t tell them, ‘Thanks, but you have to give us three weeks notice.’ That’s especially true when we have positioned new products for customer promotional support in newspapers or flyers. If we delay one of those, there is a high risk that they may fill their shelves with our competitors’ products and say ‘sayonara’ to any of our products that they carry. But if we do take the order, all we hear from Manufacturing is how we don’t know how to do our job, and how we don’t understand the complexities of supplying products. Give me a break! They tend to forget that the only reason they are here is to meet the needs of our customers.” Suddenly, Kari was on a roll.

“We give them forecasts that are as good as they can be in this industry. In our business, as in any fashion-related business, I’m not yet convinced anyone can forecast customer preferences well, but we do our best. And our customers aren’t interested in our supply problems when they place an order. They just want product for their shelves. All we hear is how we don’t know what we are doing and that Manufacturing could do a better job of forecasting the business. Oh, would I ever like to take them up on that challenge! I do know one thing. Tony Caruso doesn’t pay much attention to our forecasts. He runs his business based on what he thinks he’ll have to ship. I can’t get the details from him, but I’m fairly certain that he is sitting on more capacity than he wants us to know about. It’s the only way I can figure out how he complains as much as he does about emergency orders, and then plays the hero with last-minute manufacturing miracles. ‘You want the product, put it in the forecast!’ What a pain. Wish I had a buck for every time I’ve heard him say that. His inflexibility and dramatics have cost us some business in the past and will cost us more in the future. He just has to understand that the only reason his organization exists is to make what we sell.” Greg wondered if Kari would ever surface to breathe as she continued.

“Interestingly, my Sales and Marketing team gets rewarded, in part, for customer service, while Tony’s gets rewarded for production efficiency and asset utilization. We are constantly getting penalized for missing our customer service targets because Tony hasn’t made the products for us to ship, while Manufacturing always gets its bonus. That makes no sense to me at all while I can’t ship products. Yet Manufacturing meets its efficiency and utilization targets; their warehouses are full; and we have major customer service problems. Nothing personal about this; I just need Tony to be a team player. Hopefully, you can help him understand the importance of filling customer orders. I’ve about given up; might as well talk to one of his machines. I will give him credit for one thing. He certainly knows his plant operations, but he is about the most inflexible person I have ever met!” Now Kari caught her breath, and slowed a little.

“Wow, I apologize for that outburst, Greg.”

Greg smiled, “That’s okay. There’s no longer any question in my mind about how passionate you are about marketing and customer service, Kari. I like to know that people are passionate about their work, but one of my jobs is to keep that passion and emotion constructively focused. I’ll need your help with that, especially in your organization’s relationships with Product Engineering and Manufacturing. Now tell me about the two sides of your own organization, Kari. How effectively do your Marketing and Sales Directors work with each other?” Greg asked. Kari became the consummate professional again.

“Charlie Beck is my Director of Sales, and Sharon Rogers is Director of Marketing. Let’s start with Sales. Charlie is a sharp guy, very outgoing and opinionated as well. Says what’s on his mind. I worked with him for several years prior to our being acquired by Amalgamated. He coaches the Sales team well and is about as good as anyone I’ve seen in maintaining positive relationships with our customers. He is probably the main reason we didn’t lose some of our key accounts during the last product launch. You can imagine how difficult that was with our history of customer service and launch problems. Through no fault of his own, he has to spend too much time apologizing to existing customers, and too little time developing new customers and markets.” Greg looked puzzled.

“When I look at the sales figures I notice that we’re selling more than the forecasted volumes of existing products, especially some of our low margin products, and are falling short with almost every high-margin product introduced in the past 18 months. What’s causing this pattern, Kari? Aren’t we focusing on the new products to build the business?”

“Of course we are, but part of that pattern is due to the launch problems we’ve been discussing, Greg. In addition, I have to admit we also have our own internal marketing and sales issues. I don’t know if you’ve had a chance to look at the compensation system yet, but you might want to take a close look at the incentive program factors. The Sales team is rewarded for meeting their sales dollar volume objectives by quarter. Charlie takes a great deal of pride in meeting his quotas. It is one of the primary ways he keeps his Field Sales force motivated and happy. Given the problems getting new products out and on the shelves, and the time it takes Field Sales to convince customers that we’ll be better with the next product launch than we’ve been in previous launches, he goes along with his folks in pushing the older products. We know those products come out of Manufacturing more reliably, with fewer quality problems, and cause fewer customer service failures. Frankly, they take less sales time to get an order and are easier to sell in high volumes. Another problem is that Charlie just doesn’t get excited about many of our new products. On top of that, he isn’t often in agreement with the array of promotional items and events that our Marketing team comes up with. He and Sharon Rogers, my Marketing Director, in fact don’t see eye-to-eye on many issues.” Greg thought about that for a moment, and then commented.

“From what you’ve told me so far, Kari, I’m surprised our customer service and overall volume results, not to mention profitability, aren’t worse than they are. You are playing referee too much. How does Sharon view Charlie and his Sales team?” Kari opened up to Greg.

“We’ve been hammering away at teamwork since we created the Division. Their relationship is better than it used to be, but they still have some trust issues. Each of them filled Sales and Marketing VP roles in acquired companies and didn’t feel too good about losing their titles when they came into Cosmetics Products. And they each believe they know how to do each other’s jobs better then they are being done. Charlie is quick to complain that the products aren’t exciting, the advertising lacks creativity, the packaging graphics don’t command attention on the shelf, and the promotions don’t offer the customer or consumer enough of an incentive to increase trial usage.

“Sharon will counter that her advertising meets all recall objectives, that the product and package designs are based on solid market research, and that the products could be sold if the Sales team just would do its job and stop second-guessing Marketing. Between the two of them, they waste too much time arguing about the forecast. Charlie thinks Sharon is too optimistic so that she can justify new products and get more marketing money from the company. Sharon thinks Charlie keeps the expectations low so that his folks can exceed their quotas and maximize bonus. I guess this contributes to Tony’s operating with his own forecast in Manufacturing. Sharon believes that Sales is the fundamental reason we have such a poor performance in selling in new products and promotions.” Greg tried to look sympathetic.

“Sounds like you, too, are between a rock and a hard place, Kari. I can help with the manufacturing issues, but you’re going to have to get your own shop in order. Sharon and Charlie need to work together, or we might have to find replacements for them. They are no longer working for their old competing companies, but it sounds as if they think they are. They are now on the same team and had better start acting that way. I’ll make sure they get that message loud and clear from me whenever I have a chance to meet them. In the meantime, let me know if there is anything specific you would like me to say or do. I’ll help any way I can, but I’m counting on you to get this one under control and to get it done quickly.” Kari looked Greg in the eye.

“I’ll do my best, Greg.” Greg smiled at this brief retort.

“I know you will. Overall, Kari, how do you feel about the level of spending being authorized for launching new products and for promotions, especially sampling and other trial increase initiatives? Could that be part of the volume shortfall in the business?” Kari started off again.

“It certainly could be, Greg. You asked me about profitability earlier, and I told you that Sara and Stu keep those cards face down on the table. It’s also true with our advertising budget requests. I forward pretty detailed funding requests with a ton of justification from our brand managers when we launch and when we plan other initiatives. I have yet to be fully funded. I am sure Sara does a good job and has a lot of responsibility, especially since we are under the Board’s microscope. My gut says, however, we are saving pennies and losing dollars. I can’t get at the balance sheet, so I can’t prove that, but I know advertising builds a business. Just look at the size of advertising budgets for some of our key competitors. As a percentage of sales, their spending makes ours look puny. So does their return on their advertising investment.”

Greg finished out the day by reviewing the schedule of new product launches and promotions. He satisfied himself that, for the most part, they tied in nicely with the current Cosmetics Products strategy. He could see Stu’s fingerprints on the marketing plan and recognized that he was effectively developing Kari’s skills and insights into the world of marketing. Leadership skills were a different story. He would have to coach her heavily on those.

Before Kari left, Greg had one more request. “Over the next couple weeks if you can make the arrangements, Kari, I would like to go with you to our top five to ten customers to learn more about how they view Cosmetics Products and our key competitors. I certainly don’t question your assessment about how we are performing in the marketplace. I just want to meet them and get their assessment firsthand. I also want to give them a chance to meet me and vent some of their frustration at the new guy on the block. I think it will reassure them that we care about them. At the same time, it will give me a chance to really understand what they need from us. Just work directly with Cynthia to get the visits on my calendar.” Kari relaxed and happily replied.

“Sure will, Greg. I think that’s a great idea.”

Greg jotted down a few thoughts and follow-up items:

That evening Greg shared the day’s highlights with Penny. “I think I underestimated the problems. The bad news is that there are more of them and they are deeper than I anticipated, especially within the leadership team. There’s good news, though. I think some clear direction, expectations, and priorities will get the group to start acting like a team. I’m hearing the problems loud and clear, and am already developing the plan I need to present to Susan at the end of the month. So far so good!”

Greg thought, “Someone from Finance with a sense of humor,” as Sara continued.

She was getting right to the heart of Cosmetics Products’ problems at 7:00 A.M. on Wednesday. “Things were rocky at the beginning when we were trying to get the business off the ground, but we all expected that. As we got our feet on the ground and sales kicked in, we began launching some new products and revenues grew steadily to $200M. In retrospect, the business should have been growing faster, given the energy being expended, the number of launches, and the deals being offered to our key customers to help offset the impact of our start-up problems. I suppose all of us were in a bit of denial about that. Over the past year, however, we would have been happy if we continued to see that kind of growth. This is really the first time we have seen a dip in the results, and I’m not certain we have a really good handle on the cause beyond our customers’ screaming about poor service.” Greg interjected a question.

“What part of the downturn do you attribute to the service problem, Sara?” Sara was ready for that question.

“I’ll show you the details a bit later when we go through the financials, but if our service level matched the average of our competitors, we would be getting profit on the orders we can’t fill, we would have some increase in share and volume from those customers who now buy from more reliable suppliers, and our Sales staff could spend more of their time selling new business. Obviously, we are spending lots of money on entertainment at trade shows to help the Sales group mollify our customers until things get better. All of that would help create volume and profit. It would be a bit of a guess to predict how much that revenue and profit would be, but I can guarantee you that we would not be under the Board’s microscope. I estimate that our growth in volume and profit would be the envy of the company. Instead, we are the goats.” Greg smiled wryly.

“Tell me about the cost side of the equation. I noticed in the material Susan sent me that our price and cost variances are very high. What’s going on?” Sara got serious.

“We pay suppliers for a lot of special handling. We send them a purchase order inside their lead time, or we change the order after they have already received it. Our suppliers gladly meet our requests, but for a significant premium. I keep hearing that it’s just the nature of the cosmetics products industry, but I don’t buy it. It’s a similar story for the cost of production. We spend lots of time setting standards for the year, but no one seems to pay much attention to them. Tony knows a lot about supply operations, but his budgets are always fat. We wrestle with the numbers for months and agree on the final standards, but then Manufacturing goes off and marches to its own drummer. They haven’t been held accountable for the variances, so they just keep expediting, incurring premium rates for airfreight, working high levels of overtime, and overspending in general.” Greg changed subjects.

“You know the other divisions pretty well, Sara. What do you see different in Cosmetics Products? Are we using different policies, incentives, pricing structures, or anything else that we could change to make a difference?” Sara thought for a few moments before replying.

“On the surface, we have the same basic policies, procedures, and even software that everyone else uses. What seems different here is a total lack of alignment. Everyone is working hard and delivering good results in their own areas. But when you roll it all up, the business results just don’t cut it. Maybe Stu has been too close to retirement, but I don’t see him keeping the leadership team very well focused, pushing us, or holding the team accountable, I mean really accountable, for improving our business results. Lots of people are running at the maximum level of bonus and stock options even though our overall results continue to decline. That tells me we are rewarding effort rather than results. I can tell you from personal experience that it is not fun or motivating when we have to go to Susan and explain that we have to reduce our profit commitment. I think because of Stu’s great record with the Personal Products division, his long service, and his personal relationship with Jim Richards, the Board cut him some significant slack. I also think it is good for Stu that he is retiring because that slack is quickly disappearing. Just my personal opinion, but that’s not very good news for you Greg.” He looked thoughtful for a moment.

“Thanks for your opinions, Sara. You’ve given me a lot to think about. Let me change subjects for a minute. We have a large portfolio of products for such a new business. How do we know that all of them are profitable? Do we have some products that should be harvested? Are we adding costs to the business unnecessarily by keeping some of our smaller brands on life support? Are we kidding ourselves about expected volumes for new and existing products? After all, we are under the forecast volume on nearly every new product.” Sara got into gear again.

“Forecasting is a problem for us. It’s a real headache for Finance, especially when we have to reduce our commitment to the company. I know the game. Marketing tends to aim high to get more advertising support money, and Sales shoots low to maximize incentives. As a result, our Finance group spends countless hours doing our own financial forecasting.

“To make profit matters worse, we spend heavily on marketing promotions and advertising, but I’m not convinced we are getting value for the money spent. For our kinds of products, I think we spend far too much on celebrities to make TV ads.” Her eyes sparkled with intensity.

“We have a large array of products, but that’s part of our strategy for growing the business. Sales couldn’t get enough products and promotions when we started the business. Their objective was to be a full-service supplier for their customers; eliminating a single SKU is not even in their thinking. As service problems got worse, and they were repeatedly burned on launch product availability, they began to back off the new products and sell the products they knew they could get. Short-term financial impact is that we don’t recover development costs, and scrap out-of-date product; long-term result, we keep pushing products that are in their decline. Promoting old, low-margin products reduces our revenue and profit even further. We are not sophisticated enough to use Activity Based Costing, but if we were, I’m confident that we would find many of our older and smaller SKUs are being subsidized by the others. Granted, a small number of the products may be needed by Sales to get into certain accounts, but they certainly aren’t carrying their weight. We do a pretty good job reporting overall financial results, but we really can’t get the data we need to do a good job supporting decisions on which SKUs and products to discontinue.” Greg was becoming impatient and a bit angry.

“You mean, Sara, that we’ve spent well over $10M on IT infrastructure and that ERP system and can’t get the data we need? Why not?” Sara read his anger and replied.

“Oh, I think we’ve spent far beyond $10M. The trouble is the users resist using the system. They have a whole bundle of excuses. Fundamentally, the data and transaction integrity is poor. Some of my counterparts in other companies tell me that budgeting in their companies is easier and closing the books is like a non-event. That’s not been the case for us. I hear lots of complaints about what the system won’t do for people, but not many good words about it. I know that it takes us quite a bit of time each month to reconcile the system reports with our financial spreadsheets. I hear the same thing goes on in Purchasing and Manufacturing.” Sara watched as Greg’s frustration got the better of him.

“Why don’t we just tell people to use the darn system? I don’t handle it well when people make excuses for not doing their jobs. We spent a lot of money on the ERP software and counted on a good rate of return. Let’s just tell them to use the system!” With a degree of calm that surprised her, Sara provided some coaching to Greg.

“I’m not so sure that’s a good idea, Greg. If people relied totally on the system for decision making, our results would probably get a lot worse real fast. Let me give you some examples. We audit warehouse inventory counts every month. The data in the system has the wrong inventory numbers about half the time. Variances are huge. The system never gives us good data about the amount of materials used or the cost of those materials. And that’s only the beginning.”

Greg and Sara spent the rest of the morning going through financial details and projections. The gap between commitment to the company and actual results was large and growing. Sara told Greg that the line organization was hoping to close the gap in the third and fourth quarters. Given the recent track record, Greg was convinced that closing the gap would require more than hope; it would require a significant course change.

He added to his notes from the previous day:

When they settled back into Greg’s office after lunch, he started off by asking, “With the level of understanding you have about our supply chain and how it works, why are we struggling so much to meet our objectives?” David was wary in his reply.

“What I explained is the ideal structure and how it should work, not how it does work. In our company, there are some major barriers to closing that substantial gap. For one thing, our customers aren’t very happy with us. You were on that side of the table just last week, so that shouldn’t be a surprise to you. Based on conversations I’ve had with suppliers, customers, and our order fulfillment people, I could describe our customer service like this. If you place an order with us, chances are very good that you will receive the wrong products or the wrong quantities or it will show up late. If you happen to get the right product in the right quantity at the requested time, it is purely by chance. If you are one of our suppliers and we place an order with you, chances are very good that we placed the order with less than the lead time we agreed to, we will change the quantity before you ship it to us, or we will cancel the order and ask for something else. Our external sourcing team members are specialists in reordering and expediting, and that’s not what we need them to do. We need them to develop better ways to work with suppliers and figure out how to drive waste out of the supply chain. Instead, we seem to foster adversarial relationships, much like we do with our customers. As a result, our supply chain is in a constant state of change and is pretty badly broken.” Greg looked more than a little annoyed.

“Look, David, you have responsibility for distribution, planning, and purchasing. Shouldn’t you be able to get some of this under control? Seems to me that if you make enough of the products and put them in the warehouses, then Field Sales can sell what it needs to and the customer service problems go away. That’s true also, isn’t it, for raw and packaging materials? Just keep enough so that Tony can make what he needs to make. I haven’t talked with him yet, but I understand he is always complaining about running out of materials and having to change over to another product. Just make sure you have enough of everything and he won’t have that excuse!” David responded in kind.

“Greg, you just described perfectly how our supply chain is working today. That is essentially what we are doing, and you can see the results. We try to guess what everyone will need and end up with high costs, bulging warehouses, and shrinking volumes, share, and profit. Are you saying you want me to do more of that?” The tension in the room began to build, and Greg did nothing to alleviate it.

“Perhaps you aren’t yet at the critical mass of finished products and materials required to get the business under control. We have no choice on this one, David. It has to be your top priority! Do you have another approach?” But David was in no mood to compromise on his principles.

“Do you realize that one of the things you just asked me to do is to begin forecasting sales? In other words, decide what Field Sales is going to sell and make sure I have plenty of it on hand in the warehouses. You already have Kari’s group doing forecasting; my group should be planning a schedule to deliver against those forecasts, not second-guessing Kari’s forecast. Fact is, we are already doing some forecasting. The only thing that drives Sales is its quarterly forecast, and that is in total dollars. Kari’s forecasters take whatever information they can get from Sales and try to predict what will be sold by SKU, but they aren’t very good at it. In my opinion, those forecasts are guesses at best. We start with Kari’s forecasts and add some of our own intelligence based on shipment history to decide what to schedule. Let me give you an example, Greg. We know that Sales traditionally underforecasts some products so they can oversell and meet their quotas. On new products, we schedule what the product team wants for the launch and pipeline fill. We don’t want to run out of a new product, but we also know Sales will not meet those targets. Bottom line, we have to second-guess the forecasts, but shouldn’t be in the forecasting business at all. We are simply not close enough to the customer.” David was getting agitated and tried to calm down as he continued.

“On the manufacturing side, we give Tony manufacturing schedules and arrange for materials to be on hand to support those schedules. We even keep some extra materials on hand to allow for last-minute changes. My master schedulers in the plants spend a good deal of time making sure we have enough materials and capacity to support the schedules, but then Tony’s group gets in the act. They take phone calls from the field, respond to requests from product development and marketing and forget to tell the schedulers about maintenance needs and line trials requested by Product Development. By the time we send a schedule to the floor, it’s obsolete and the calls begin to come in about the need to expedite materials from suppliers to run something that’s not even on the schedule. At month end, we never know what Tony might be running. He overrides the schedule to run products that run with high efficiency so that he meets his overhead absorption, efficiency, and utilization targets for bonus calculation. Before you ask me, the answer is yes; we have talked about these issues in the Leadership Team, but functional objectives always seem to override business objectives.”

David eased back in his chair while Greg at last sensed the tension and tried to be less aggressive. “Thanks for your candor, David. Like everyone else so far, you have given me a lot to think about. I like your explanation about how a supply chain ought to work. It seems to me it’s a good theory, but I don’t see how it could work like that in our kind of business. Things are always changing between us, our customers, suppliers, and even competitors. What’s clear to me is that we have to get enough of the right product out in the distribution centers so that the customers can have whatever they want whenever they want it. I’m counting on you to help make that happen. Furthermore, it has to happen soon.” David grasped the olive branch, but knew that the branch came with some significant thorns. He sensed that Greg needed more coaching about supply chain operation.

“You can count on me to do everything I can to make the business successful. And I must tell you that my supply chain description is not just theory. It works. I’m sure some of our competitors hurting us today have their supply chains fine-tuned. We’ll probably have to take some well-orchestrated emergency steps to get out of the hole, but we’re going to have to figure out how to overhaul our supply chain mechanics if we are to have any sustainable improvements.”

Greg decided to explore his concerns from previous interviews about the use of the business system. “You didn’t mention the ERP system, David. Shouldn’t that have taken care of most of the problems you’ve described? Don’t your people know how to use the system?” David was quickly back on the defensive.

“That’s another misconception, Greg. The ERP system does not solve problems; it’s just a tool. My folks spent countless hours in training on how to create schedules, launch purchase orders, update bills of material, release products for shipment, check inventories, and create item masters and routings for capacity planning. They are all fully qualified and know how to use the system.”

Greg posed an “innocent” question. “So they are using the system effectively to run the business, but still getting poor results?” But his annoyance broke through again. David snapped back at Greg’s sarcasm.

“I sure hope you are not getting too angry with me for being candid, Greg, but you are wrong on two accounts. First, my staff is not getting poor results, although the business is. They are working harder than any group I’ve led. My staff is getting good results; they are producing schedules based in large part on the forecasts we get from Sales; they are giving schedules to Manufacturing to support those forecasts; and they are arranging for materials and capacity needed to produce those schedules.

“Second, they are using the system, but not to run the business. The system was configured in a way that makes scheduling and materials requirements planning extremely cumbersome. Coupled with the poor data and transaction accuracy, the recommendations that come out of the system are so erroneous that if the planners made decisions based on those recommendations, our business results would be far worse than they are now. So they use the system to store data, but they really run the business with the spreadsheets they have always been using.”

Greg could see he was not being constructive, so he sought out safer territory. “Thanks for providing straight answers. It may seem like it, but I’m not getting angry with you. I am simply beginning to realize that the problems we face are far deeper than I ever imagined. I guess that comes out as frustration and anger as I learn more. Don’t take it personally, David. You are doing exactly what I asked for when we met as a team on Tuesday. Susan told me you had a great grasp of how a supply chain should work, and she was right. Where did the knowledge come from?”

David relaxed, knowing this was neutral ground.

“My degree program began to introduce me to the concepts and theory, but I didn’t have an opportunity to work in industry as part of a co-op program or during the summers. As I began my career, it quickly became clear that I needed additional education. I managed to get into some Effective Management courses where I learned about planning, top to bottom, from some very experienced people.”

“What is this Effective Management group? I’ve not heard of them,” Greg interrupted.

“Effective Management, Inc. is a global education and consulting company. They have an excellent reputation for helping companies improve their business processes resulting in bottom line improvements.

“As an aside, I managed to get myself invited to their Proven Path Club Business Excellence seminar, with topics presented by their own experts, and with case studies presented by people from industry. I’m sure I could get you an invitation to come with me to the next meeting in five weeks. You would learn more about how other companies are approaching their business issues, and especially the importance of good customer service.” Greg now took control, and in a calmer mood continued. But he’d need to keep himself in better control in the future.

“Thanks for the invitation. I just might take you up on it once I get settled here. For now, I think I need every available moment to help formulate a plan to turn around our results. I’m glad you’re on our team. I think you can provide some fresh ideas about how to get the results we need from our supply chain. Let’s spend the rest of the afternoon looking at the details of planning, the production capability of our supply chain, and what’s out in the distribution centers.”

As David left the office, Greg compiled his notes from the meeting:

“You may be overreacting a bit, Greg.” Stu finished up a brief conversation with Greg as they headed for the parking lot at 6:30 PM. “You have good people in place and they are working hard. I’ve pressed them a good deal on the recent decline in results and they each have made a compelling case about the business turning around soon. I know you are eager to show improvement to Susan and the Board, but be careful you don’t push your people too hard. We are probably just one invention away in Development. A product breakthrough and a brilliant marketing campaign is what did it for us in Personal Products. It will happen here, too. Just be patient. I’ll tell Susan the same thing so she doesn’t crowd you too much or too early. Have a good evening, Greg, and give my best to Penny.”

Greg reviewed the day with Penny over dinner. He was still convinced that clear priorities and direction from the top were required. A breakthrough invention would be nice, but he couldn’t wait for a miracle like the one that propelled Personal Products.

Greg’s meeting agenda on Thursday would include discussions with Zachary Zellers, VP Human Resources; and Gabriella Jemison, VP Regulatory, Health, Safety, and Environment, (HSE), and Quality. He expected no surprises in these interviews. Susan had prepared Greg well for what he would hear.

That led to Greg’s follow-up note from the session:

It was already late in the afternoon when Greg completed the review with Gabriella. He finished the day reviewing marketing plans, then completed his notes from the meeting with Gabriella.

“Brion Smith and Savannah Richmond are excellent General Managers, Greg. We did a good job of assessing the resources we had available after acquisition and put the very best of the lot in charge of our two plant sites. Their results in the face of some pretty tough challenges are as good as anyone could expect.”

“Here we go again,” thought Greg, “Another group doing superb work while the business is going down in flames.”

“I have to be straight with you, Tony. Over the past few days, I’ve heard more than a couple of concerns raised about Manufacturing. I’d like to hear your perspective about some of the conflicts.” Tony leaned forward in his chair.

“Doesn’t surprise me even a little bit that people were taking shots at us. We are a big, visible target and take some stands for the good of the business that ruffle feathers from time to time. Give me some examples of what you heard and I’ll give you my perspective.” So Greg dove in.

“Let’s start with Sales and Marketing. Why don’t you describe the working relationship between your organization and Kari’s?” Tony knew this was coming, so he’d mentally prepared what he wanted to say, and wanted to be diplomatic with his response.

“I’ll be the first to admit they have a really tough job. They have to figure out what people want, and then design the products that people will buy. We can debate all day about how well they do that job. Sales doesn’t move the new products we build for launches. By the way, those products keep changing up to the last minute, and even later than that sometimes. Can you believe that we have actually had to stop production of new products, scrap or salvage the materials and start all over with a new package, or a new fragrance, or a new color? I don’t know whether that’s just poor market insight, or indecision. When you sit in an ivory tower, with no concept of what it takes to actually make products, it’s real easy to say ‘Stop production, make that change, but don’t delay start of shipments!’ All marketing people should have to spend at least a couple years in Manufacturing to get a grasp of reality. But even with all those changes, if Sales can’t move what we make, I question how well we are designing new products and promotions for that matter.” Tony looked up, as if for empathy before continuing.

“We build those products, often on overtime because Development gets the specifications to us late, then the products sit in the warehouse. Know what happens next? I get a call from Stu or from Finance asking why I have so much of that product in inventory. Now while I’m building those new products that aren’t going to sell, and struggling through the start-up learning curve, Sales decides to promote some other product. Guess who they don’t tell about it? Manufacturing, of course. Know what happens next? I get a call from Stu or from Sales asking why I ran them out of that product.” Tony was running out of diplomacy fast as he continued.

“Sales is supposed to be accountable for forecasting, according to everything I read. I think they must be using a random number generator for that task because the forecast never resembles what we are asked to ship. If we ran to their forecast or to what’s on the planners’ schedule, I would probably be the first person to be fired. We wouldn’t have half as good a customer service record as we have now. I am certain Kari and David told you that we ignore their forecasts and the master schedules, and run what we want. If they said that, they are only partly right. We always start our batch scheduling process with those forecasts and master schedules, but then we apply some of our historical perspective and Manufacturing intuition. It’s a good thing that we do. We’ve saved the company a ton of money. Even at that, there’s not a day that goes by that we don’t get at least one phone call from the Field asking for product to cover an emergency order. I could understand if that happened only occasionally but, for example, how can Sales get an order from a brand-new customer and be surprised by it? Someone out there had to have an idea that order was coming before it showed up as an emergency. They need to start talking with us earlier. I can even show you examples of orders placed by customers two weeks earlier but that didn’t print out in the shipping office until the day we were supposed to ship them. Where have those orders been for two weeks? The shop floor schedulers have been doing their best to fill all those orders, but I’m about to put an end to that.” Greg reacted immediately with a sharp edge to his voice.

“Why would you do that, Tony? Turn away those orders and we lose volume, customer service gets even worse, and costs go up. Sounds like you are being a bit inflexible to me.” Tony knew this wasn’t going well.

“You’ve got it exactly backward, boss. It’s way too expensive to do business that way. Those emergency orders cause unscheduled product changes. Changing from one product to another is no small task. We’ve been working to reduce the time required, but it can still take more than a shift for some of those changeovers. During the time we are changing from one product to the next, we make nothing. When that happens, customer service gets worse, not better; volume goes down, not up; and costs go up, not down.” But Greg wasn’t giving up yet.

“If you follow the schedule and put enough of the right product in inventory, couldn’t you avoid those extra changeovers altogether?” Tony was now exasperated, and it showed.

“Sure, but tell that to the forecasters and to the planners. I would love to simply produce to the master schedule. It would make my job easier. But between constantly changing forecasts, production schedules, and emergency orders, that’s impossible! My job is to optimize the use of your supply capacity and resources. That forces us to do our own forecasting, decide what’s best to run, and to say ‘no’ on occasion to Sales, Marketing, and Planning.” But Greg hadn’t finished either.

“Tell me about how our current incentives might influence what you produce at the end of the month. I understand that Manufacturing might produce product that isn’t on the schedule or even needed while we are cutting orders for other products. Any truth to that?” Tony decided not to back down, knowing far more about manufacturing than Greg.

“Sounds like some other groups are whining about our ability to maximize the bonus part of our compensation! It’s not quite like they say it is. We never produce product that we don’t need. We might produce it earlier than absolutely needed, however. The forecasts and schedules change so much that we don’t put much faith in them, as I’ve already said. One of my responsibilities is to help my folks maximize their compensation within the policy and rules set up by HR. If, at the end of the month, we have been battered by unplanned changeovers or other problems, and other conditions are right, we will look forward in the schedule, and pull in some product that we know will be needed to run in the future anyway. If that helps the bonus picture, it is a win-win change. If the forecasts get better and the schedules stabilize, we’ll run to schedule, and let the bonus chips fall where they may. Until then, I have to call the shots in terms of what we run.” Before Greg could get a word in edgewise, Tony forged ahead!

“And there’s another side to this story, Greg. We do have too much inventory. We are soon going to have to look for more warehouse space unless Sales begins selling the product that we already have. Have you asked Kari about that? We make an attempt to run what they want, especially with new product launches and promotions. We can show you a history of low-balling the forecasts on our big, open stock products, but invariably the new products sit in warehouses until we have to repackage it, sell it as distressed goods, or scrap it. When we were making that stuff, we could have been making product that Sales actually intended to sell. Now, that’s a problem far worse than running product a little early so that I can reward my Manufacturing folks. Has Stu or anyone else told Sales to stop selling what’s easy to sell and to sell the products we already have? I don’t think so. That’s one way you could solve some of the problems in this division and make a name for yourself, Greg.” Greg realized Tony was on a roll, and was digging a very deep hole for himself, so he let him continue.

“And then there is also the requirement to meet the overhead absorption goal. If we miss that one, we get hammered financially right in our wallets. From my standpoint, that’s an old and useless financial measure that doesn’t help the business. If sales are off, we shouldn’t be running more products to put in the warehouses. But if we stop running, we are penalized by Finance, and then Sales uses us as the excuse for not having enough of the right products. While I’m talking about Finance, they give us standards that are totally unrealistic. You can see that in the variances each month. As a result, any finance report will show Manufacturing to be doing poorly while my measures show good performance results. I don’t know what they do with the budget numbers we send up, but it’s pretty clear they don’t need to know much about manufacturing to count beans.” Greg knew it was time exercise his authority in this conversation.

“Just to be clear, Tony, I’m not interested in making a name for myself, but I am interested in delivering the business results Susan and the Board are expecting. That will take all of us working together. It also means that you will have to figure out how to resolve the differences you have with most of your peers.” Tony now knew he’d gone too far.

“I thought you wanted facts and opinions, Greg. That’s what I just gave you. Perhaps I shouldn’t have been so open.” Greg felt like throwing him out, but tried to complete the conversation on his own terms.

“Not at all, Tony. Being open and direct with each other is the only way we will turn the results around. But we can’t just be direct; we need to resolve some of the issues that face us, and that means working better as a team. I expect you and the rest of us to do a better job of that. If we have disagreements, I expect them to be worked out quickly and creatively. If we can’t work them out together, I’ll make the decisions. Any decision is better than the internal disagreements I see here in Cosmetics Products.” Greg changed tack.

“One last topic, Tony. Give me your impression of how the ERP system is working. I understand we started up without some of the major problems other companies have seen, but we aren’t getting the results predicted. What do you think?” Tony had calmed himself down by now and was eager to reply.

“All my people are trained to use the system, but other than keeping track of inventory, my folks say it makes their jobs harder. Today they have to load data into the system, and still have to put data into their spreadsheets. They use those spreadsheets to run the business.” Now on safer ground, or so he thought, Greg continued.

“That’s what I expected to hear, Tony. A number of people have told me a similar story. I have one other request. I would like to meet Brion Smith and Savannah Richmond and tour their plants with you in the next couple weeks. Can you arrange that for me?” With relief that the interview was coming to and end, Tony replied.

“Sure can. The plant people will be happy to see you and show you what they are doing. I’ll check their schedules and work out the details with Cynthia. Let you know tomorrow.”

After Tony left the office, Greg spent a few minutes sitting in his desk chair and looking out over the lawn and into the woods beyond the building as he decompressed and organized his thoughts. He then turned to his notes to record highlights from the last of the interviews with members of his leadership team.

Greg reviewed all his notes before closing the office and heading for home late Friday afternoon. Over the weekend he tried to clear his mind while attending his youngest son’s soccer game, and then going out for dinner and a late movie with Penny. It didn’t work. He kept refining the action plan in his mind. He awoke on Saturday and Sunday mornings at 5:00 A.M. with his mind racing. Each morning he decided to get up and try to put an action plan on paper in his home office. During the following two weeks, Greg continued his learning process in meetings with other key people in the organization, including his peers who led the other Amalgamated divisions. He also completed the plant and customer visits arranged by Kari and Tony.

On April 14, he asked his leadership team to clear their morning calendars for an April 22nd meeting with him. The agenda was to include a summary and analysis of what he had learned about the business and the organization, and to present a clear set of priorities for moving the business forward.