Differentiation.
Everybody wants it in their company, but it’s easier for some to achieve than others. With differentiation, you have a competitive advantage. It’s something about your organization that sets you apart from the guy across the street.
But how do you get it — especially when what you sell is basically a commodity?
That’s the question that was facing Richard Gochnauer, president and CEO of Des Plaines-based United Stationers Inc., a $4 billion distributor of business and office products. He has 40,000 products from 500 manufacturers, but some of the same products or similar ones were available from competitors.
His solution was to build a high-performance organization, one with a culture that strives to improve performance every day. Competitors could copy his product offerings, marketing programs and systems, but they can’t easily duplicate a culture.
By creating a high-performance organization that increases efficiency, drives down costs and makes United Stationers easier to do business with, Gochnauer created the competitive advantage he needed to set his company apart.
“The first thing you have to have is a strong culture,” Gochnauer says. “It has to be really built around clearly articulated values, not just slogans. One of the key litmus tests is whether those values are used as screens in the decision-making process.
“If you bring in most of your decisions and say, ‘What do our values say about this?’ and you get to the point where decisions are not being made for what’s optimal in the short run but optimal from a value point of view, then you know you are starting to be on the right track.”
Everyone in the company needed to know what the organization’s goals were, how they as employees fit in and what they needed to do individually to make change happen.
“We were seeking functional excellence and at the same time, achieve cross-functional decision-making and accountability,” says Gochnauer. “We were trying to push the decision-making down as far as possible within the organization. We wanted decisions to be made as close to the customer as possible.”
Teamwork
You can’t just wake up one day and tell people expectations have changed and their behavior has to change with it. You have to teach them what’s expected, give them the tools to do it and put incentives in place to change the culture of an organization.
A large part of the changes that needed to be made at United Stationers involved moving toward a team-based culture. Gochnauer accomplished this by training everyone in the company about what a team is and how to utilize them effectively to achieve results.
“The transformation was built on teams, and teams are really at the center of everything we do now, which meant we had to do a lot of training,” says Gochnauer.
Before he took over as CEO in late 2002, United Stationers didn’t have a deep commitment to teams.
“Teams can be either effective or ineffective,” says Gochnauer. “Most people have experience with meetings that are not productive. If you are in teams, you have to make sure you are achieving objectives rather than consuming time and energy.”
Employees were put through two types of training courses. One taught them things such as how to work together to get results, what an effective team looks like and how you can measure progress. The other course focused on specific processes for using fact-based decision-making and identifying the root causes of problems.
“These were added on top of our fundamental vision and values training, where we make sure they know where we are going and how our values and culture support that,” says Gochnauer. “This was a top-down process that started with my team. We were the first ones to go through training and then started cascading it down the organization team by team.”
With the employees trained on what it takes to be a contributing team member and how teams should work within United Stationers, the focus moved toward specific goals.
“You have to quickly move toward focusing on results,” says Gochnauer. “You have to have clear goals for the teams set up. You have to track and measure performance and then take corrective action if they are going astray or having trouble meeting objectives.”
Teams are set up at different levels, ranging from regional business teams that set broad objectives for each of the company’s four regions to category management teams that set strategies for each product category and are charged with tapping expertise throughout the company to achieve its goals. In many cases, multiple teams at different levels have to work together to reach common goals.
“The key to getting this alignment to work is to get an incentive system in place to reinforce the structure,” says Gochnauer. “Part of everyone’s incentive is tied to the functional, individual and cross-functional goals, and most of the bonuses are tied into team results.”
Funding growth
The team-based culture that Gochnauer created also ties directly into funding growth.
“We needed funds to invest in tomorrow,” he says. “I came into this company amid declining sales and profits, and no one wants something that isn’t self-funded. The teams were designed around a W.O.W. initiative: War On Waste.
“This was different than just cost-cutting. We focused on activities that were not adding value and where we could improve efficiency.”
Gochnauer set a goal of achieving $100 million in savings over a five-year period. The goal was broken down and a portion of it was assigned to each team and each project so that everyone owned a piece of it. He also implemented training to specifically address the issue of saving money throughout the organization.
“People had been going after waste that had been there for years and thought they had done as good a job as they could,” says Gochnauer. “When we approached the problem with new training and a new approach, we unlocked the value and made huge progress.”
When the company achieved its goal of saving $20 million in the first year, Gochnauer’s new team-based culture gained credibility among employees.
“We got results,” he says. “When you see results, they start to believe, and when they believe, then you start to take control. Until you get that belief structure, you are not going to be moving the needle.”
Confidence in the teams increased, and the people making up the teams began to take responsibility and solve problems.
“They started focusing more on the fact that they could accomplish stuff and started moving away from focusing on excuses,” says Gochnauer. “Before, their hands were tied.”
Each year, the goals are harder to reach because the easier problems have already been solved, but Gochnauer says the company is still progressing toward the $100 million goal and more important, believing in his system.
“We are well on our way to reaching critical mass in creating a high-performance organization,” he says. “We have a large group of people believing in our way of managing and operating. It’s a change in management style and decision making. We used that right off the bat to provide funding for our growth.”
Team strategy
With the team-oriented growth platform built and funds freed up to invest in growth initiatives, Gochnauer set his various teams on goals relating to growing the company. This was going to be the payoff from creating a high-performance organization.
United Stationers had declining growth up until 2003 and flat growth until the middle of 2004, when some of the team initiatives started to take effect.
Gochnauer had set his teams on the task of determining whether the company’s marketing strategy was effective and whether United Stationers was selling the right products to the right people.
The teams identified the school supply business, medical offices and legal offices as three potential areas for growth. They also looked at what channels could be used to sell these supplies.
The company started partnering with drug stores, grocery stores and other places where basic school and office supplies were sold to give those retailers access to products they never had before. It started working with medical distributors and forms distributors to offer specialized products to niche markets. It moved into e-commerce with a solution it could sell to retailers that they, in turn, could use to sell from United Stationers’ large catalog of office supplies.
Much of the strategy focuses on creating convenience for customers and making the company easier to do business with.
“Someone buying office supplies for an office is not going to go to Walgreens, but more people are buying for their home office,” says Gochnauer. “They will get those supplies when they think about it, and that may occur while they are walking down an aisle at Walgreens or Jewel or even the mass merchants like Costco, Sam’s (Club) or even the Target’s of the world.”
The teams identified and are working to solve the problems of these retailers which will result in more business for United Stationers.
“What (the retailers) and everyone else discovers, if you offer office supplies as a category, you can’t really offer just the products you sell at retail if you are going to have a viable e-retail business,” says Gochnauer. “You have to have far in excess of 10,000 or 20,000 products on site. The only way to do this is to partner with someone like ourselves.
“As the technology evolves, this will be a source of growth for us as long as we have the front-end technology and back-end technology to support that activity.”
The idea is to provide seamless solutions to customers, but this means eliminating problem areas among manufacturers, United Stationers, retailers and the consumer. It’s at these seams where problems tend to occur.
“We put a great deal of focus on how we improve the effectiveness at the seams and identify where the waste is so we can improve speed of delivery, cost and service,” says Gochnauer.
And the way he does that is through his teams.
“We have teams of the customer’s people and our people working at the seam between us and them,” he says. “We are identifying opportunities to improve and reduce nonvalue added activity and lower costs at that seam.”
If problems can be eliminated at the seam, the efficiency of the entire organization improves because products are delivered to the consumer faster and cheaper than before, giving United Stationers a competitive advantage.
The team-based growth platform has shown results. Net income in 2004 was almost $90 million, up from $73 million the year before. Through the first three quarters of 2005, the company posted $74 million in net income compared to $71 million from the same time period in 2004.
Without the team-based structure, the turnaround would be a lot harder to accomplish, but Gochnauer says cultural change take time.
“With building teams, it’s less of a matter of getting management to let go of all the decision-making than it is of getting lower managers to take a hold of it and get beyond saying, ‘It’s not my job,’” he says. “They have to learn it’s not OK to use excuses. They have to learn that if they run into barriers they hadn’t anticipated, they have to find ways around them and still deliver results. It’s kind of a new way of managing for them.
“If, for example, inventory management is doing something they shouldn’t that is hurting sales, then they have to take ownership and work on getting it fixed. The responsibility doesn’t reside someplace else. If they are affecting your ability to deliver, then they are hurting your incentives, and that means they will be emboldened to challenge them and take the initiative. We had a somewhat compliant organization where people were somewhat content to let others handle those kinds of things. Incentives are a critical ingredient to changing that.”
Ultimately, the teams are there to drive earning growth, and the more efficiency they squeeze out of the process, the more differentiated United Stationers makes itself.
“By lowering costs and improving service, you actually offer a better value to your customers and they’ll buy more,” says Gochnauer. “It creates a cycle of being able to increasingly add value to the customer, and in the process, you grow with it and it becomes an effective model to compete with. Wal-Mart proved that model quite effectively.”
HOW TO REACH: United Stationers Inc., (847) 699-5000, or www.unitedstationers.com
