It’s no fluke that accountability is on the list of Gen-Probe Inc.’s
core values. It’s on the list because Hank Nordhoff, chairman, president and CEO of the company, put it there.
If you ask Nordhoff why he’s succeeding in the business of developing, manufacturing and marketing molecular diagnostic tests,
which is known as an investment-laden and failure-prone industry,
he’ll tell you that it’s because of the performance of his employees.
“It can be a tough culture to bring, but you have to let people
know if they’re messing up,” Nordhoff says. “You have to have
those frank talks because you can’t accept mediocrity.”
Average is neither part of Nordhoff’s vocabulary nor a description of the financial results on the firm’s balance sheet. What
makes Nordhoff’s financial performance so unique is that he’s
investing 25 percent of the firm’s revenue in research and development, which is roughly double the average investment by peer
firms in the industry, while simultaneously delivering top- and bottom-line growth.
Gen-Probe has increased annual revenue from $155 million in
2002 to $354 million in 2006 and full-year results for 2006 also show
that the firm returned 17 percent of its revenue in profit, which
beats many of its much larger competitors.
Since assuming the CEO position in July 1994, Nordhoff has
taken on the giants in the industry, such as Abbott and Becton
Dickinson, and delivered value to customers and a strong return to
shareholders through execution and a low failure rate on new
product approvals. Nordhoff credits all of those achievements to a
company culture that fosters exceptional employee performance.
Performance incentives
Nordhoff ties employee performance directly to financial
rewards. It starts with stock options being given to everyone in the
company but goes even further than that.
“We also offer both individual and team bonuses that are performance-based,” Nordhoff says. “There are three bonus tiers. The
employee can receive a great bonus, an average bonus or zero
bonus based upon how they perform. I like to set the total compensation for employees who are exceeding expectations at just
above the market average for similar industry positions because I
expect greater things from them.”
He establishes team performance benchmarks for each business
unit because when each group achieves its goals, it contributes to
the success of the entire organization. For example, in the R&D
unit, Nordhoff sets expectations around delivering new products
by a specified date and within the allocated budget. Performance
expectations within the department trickle down to each individual team member who can earn bonuses based upon his or her
solitary contribution to the departmental goal.
Nordhoff says that using variable compensation to drive performance is just one of the incentives that he relies on to keep
employees motivated. Besides a pleasant work atmosphere, the
company provides a subsidized cafeteria and a workout room.
“It keeps the employees on the property at lunch, and they stay
focused on work because they aren’t running out for fast food,”
Nordhoff says.
Employees who frequent the company cafeteria might find great
bargain prices on lunch, and they might also find themselves in a
one-on-one coaching session with Nordhoff.
It’s one of the many ways he keeps tabs on what’s going on in the
company and allows him to help people succeed.
Nordhoff says that merely wandering around and shaking hands
won’t give a CEO enough of a true feel for the work environment
and the pulse of the employees. He says that he prefers to hang
around the cafeteria and the hallways hoping to catch up with
some employees he hasn’t seen in awhile, just so he can have an
extended conversation with them. Demanding greater employee
performance goes hand in hand with offering a superior work
environment and coaching for improved performance, so he
checks in with employees frequently and offers them advice.
Finding people who fit in to his high-performance, high-accountability culture isn’t easy. Nordhoff uses a bounty program,
paying a referral bonus when current employees refer friends and
acquaintances who fit the firm’s environment. In addition, he
focuses on a selection process designed to weed out those
prospective employees who can’t hack the performance requirements.
“We do lots of interviews with prospective candidates because
we want to see if they have tough enough skin for our culture,”
Nordhoff says. “We really put candidates through the ringer
because we want to see if they know their stuff. We don’t have
a single culture in the company. Each business unit has their
own uniqueness so we want to expose candidates to that so they
can understand each team’s personality and assess the fit for
themselves.”
Learning from failure
As one of the smaller firms in the industry, Nordhoff says that
failing to get Food and Drug Administration approval for the
vast majority of its new products is a luxury that Gen-Probe
simply cannot afford. However, no company gets 100 percent
approval ratings in the medical research field.
In order to avoid costly errors, Nordhoff has installed a system that creates learning opportunities from failures. The management teams from the various departments that were
involved in the project and the members of the executive committee meet when a new product fails to get approval. They
dissect the results, understanding what caused the failure and
exposing what they can learn from their mistakes.
“I started the practice of holding post-mortems with the
appropriate managers of the business units if a new product
fails at some point in the development or approval process,”
Nordhoff says. “The idea is that we need to learn from our mistakes so we can focus on what we should have done and what
we will do differently next time.
“I tell everybody this isn’t about finger-pointing, and it’s not
personal, we messed up, we need to learn from it so we can do
better next time. As a matter of fact, if anybody tries to throw
blame on someone else during the session, I kick them out. We
don’t want to dwell on our failures, but you’ve got to do it —
you’ve got to learn from your mistakes.”
Nordhoff credits the post-mortem process with improving
the firm’s success rates and achieving a higher-than-average
return on its substantial R&D budget. He also keeps a close eye
on projects by following their progress via a detailed timeline
and by requiring his managers to submit monthly progress
reports, so he can look for early warning signals that a project
may be in trouble. However, the cultural tone that Nordhoff
sets in the organization requires managers to communicate all
information to him — good or bad — and that openness in
communication is what he relies on to avoid surprises.
“People really have to feel free to tell the CEO what’s happening; they can’t sugarcoat it,” Nordhoff says. “As a matter of
fact, if they do sugarcoat it, you have to let them go. I don’t
want to hear that everything is going great, only to hear later,
that there’s a big problem. As the CEO, you really have to learn
not to shoot the messenger or you will end up shooting yourself.”
Increasing margins
Much of Gen-Probe’s financial success results from garnering
a 70 percent gross profit for the diagnostic medical tests that
the firm markets, which is nearly double the gross profit of
other firms in the space.
Delivering near-term profit increases has not only been good
for investors and employee stockholders, Nordhoff reinvests
some of the firm’s profits in R&D, which reduces the need to
borrow and the cost of debt. He attributes the above-average
margins to product superiority, which creates customer value
and the improved performance of Gen-Probe’s sales team.
Nordhoff says that initially, it was tough to persuade the sales
team to be less-focused on market share and to convince them
that they could sell the testing products at nearly double the
going industry rate.
He provided the sales team with the necessary data confirming that the firm’s medical diagnostic tests produced fewer failures than those offered by competitors. Fewer failures would
mean savings in total costs and time for customers, but the
team remained reluctant to approach customers with such a large price increase. It was finally Nordhoff’s performance
challenges that convinced the sales team to try selling the
product at a premium price.
“We were selling the tests at half of the price that we’re getting now,” Nordhoff says. “So I challenged the sales team to go
out and get the higher prices,” Nordhoff says. “They were
reluctant at first, but I told them that they were better than
that. When I told the sales team that they were capable of
achieving more and when they started actually generating
more sales at the higher prices, they were elated. As the CEO,
you have to challenge your people because people need to be
challenged. I couldn’t accept that we weren’t going to get the
higher rates, so I challenged the sales team to achieve at a higher level. Now, I approve all pricing to make sure that we’re getting the best margins possible.”
Getting feedback
When he’s not coaching the sales team or hanging out in the
cafeteria in search of an impromptu coaching session with
some of the firm’s 1,000 employees, Nordhoff is soliciting
anonymous employee feedback and third-party opinions as to
Gen-Probe’s status as an employer of choice. The information
provides him with honest opinions and opportunities to
improve the culture and the work environment.
Formal employee climate surveys are taken among the staff
every other year. Nordhoff received feedback via one of the
surveys that the employees wanted additional tools to help
them achieve at the performance levels he was expecting. In
particular, they wanted more training and development programs. As a result of the information he received, Nordhoff
developed formal employee education and mentoring programs that augment the culture.
“As a result of the survey, we really stepped up our training
programs,” Nordhoff says. “We teach soft skills so our management team can be adept at having performance conversations with their staff, and we teach them how to set performance measures and objectives. Providing helpful feedback to
employees about their strengths and weaknesses is part of what we believe in, so we want to train our managers how to conduct an effective feedback session.”
The firm has also received external recognition for its work
environment. In 2003, the company was awarded the
Workplace Excellence Award by the San Diego Union-Tribune, and in 2005, the company was named as a finalist for an award
given by the San Diego Business Journal recognizing Gen-Probe as one of “The Best Companies to Work For.” Those report cards tell Nordhoff that he’s on the right cultural path
and the balance sheet confirms it.
“In order to be successful as a CEO, you really need to get the
best people that you can, not necessarily the smartest people,
but the best people and then give them a shot,” Nordhoff says. “You need to treat people as though they are your most valuable asset — because they are.”
HOW TO REACH: Gen-Probe Inc., www.gen-probe.com