BY JERRY REICHERT
Special to The Cincinnati Enquirer
The 1998 Greater Cincinnati 100 program marks the 15th year of recognizing the 100 largest privately owned companies in the Greater Cincinnati area.
During this 15-year period, we have had a president who boldly reduced taxes and engineered desperately needed economic reform; a president who asked us to read his lips, then blinked, which provided our current president the opportunity to enter the Oval Office and oversee an unprecedented economic expansion.
We have experienced leveraged buyouts, roll-ups, deregulation, globalization and the stunning integration of technology into every facet of our lives.
Throughout this dynamic environment, privately held enterprises in our area have continued to thrive and prosper.
The companies comprising the Greater Cincinnati 100 have similarly experienced significant changes.
Through the years, some of the companies have launched successful initial public offerings. Others have sold certain segments or their entire business, and many have grown their businesses through expansion of products, services, territories or through mergers and acquisitions.
Regardless of the strategies deployed, a common focus of the vast majority of the local 100 largest privately owned companies is a passion for sustained growth. Currently, these enterprises generate more than $12 billion in sales and provide jobs for more than 66,000. Each of these measures has increased significantly since the inception of the program.
The sustained growth experienced by these and other enterprises does not occur by accident. Rather, it is a product of unquestioned core values and ethics, customer-focused products and services, and organizational and governance structures that enable the employees to focus on the customer.
It is also the relentless pursuit of timely and efficient delivery systems for their products and services, continuous improvement to the organizations' processes, knowledge-sharing measurement systems and, last but not least, succession plans that facilitate the orderly transition of the businesses.
Several initiatives deployed by successful businesses with respect to these core platforms include:
Values and ethics.
Many companies are coordinating their value and mission statements to facilitate communication to employees, customers, suppliers and other stakeholders. However, the value statement is only the first step. The core values of the organization start at the top. Accordingly, the leadership of the organization needs to be uncompromising as to how the proclaimed values are integrated into the daily business affairs of the organization. Similarly, the organization's values need to be readily apparent in the applicable policies, procedures and processes and subject to periodic review, evaluation and modification. If the personnel of the organization do not "walk the walk," sustained growth will not be realized.
As successful growth companies build, modify and re-engineer their core business platforms, they consistently stay focused on the ever-changing needs of their customers.
Generally, formal processes are in place to incorporate customer feedback as alternative growth strategies are validated and prioritized. In addition, successful companies pay particular attention to building the profit element into their respective business models. They clearly understand the notion that sustained growth can only be achieved through sustained, profitable growth.
The capital requirements for a vibrant and growing business are enormous. Customers, suppliers and employees understand this basic premise. As long as we operate in a capitalistic environment, the levels of profitability will be dictated by the market and the imagination and creativity of the entrepreneurs. However, no successful businessperson has been embarrassed about making money.
Organization and governance.
The organizational structure for a growth company needs to align with the various businesses comprising the enterprise. Likewise, it needs to facilitate communication and knowledge sharing throughout the organization.
Generally, if people have ready access to credible data, their decisions will be consistent with the company's mission and core strategies. However, ready access to credible data and knowledge can be interrupted by egos, individual agendas, turf battles, etc.
Accordingly, the leadership of the business needs to continually evaluate opportunities to enhance communication and knowledge sharing processes and weed out barriers that inevitably leak into the system. From a governance standpoint, privately owned enterprises can improve performance by emulating their publicly traded brethren through establishing an independent board of directors or board of advisers.
The privately owned business owners should search for independent directors or advisers who will provide valuable input on critical strategic issues the company is or will be facing. The board should add an additional element of structure, planning and accountability to the organization.
Efficient delivery systems.
The mantra of the '90s continues to be, "Give me more for less." Successful growth companies have heard and accepted this challenge. Accordingly, they have aggressively pursued strategies to become the lowest-cost producer of their respective goods or services. Note that this strategy is different from being the lowest-cost provider of goods or services. Being the lowest-cost provider might or might not be the applicable organization's key strategy. However, in order to achieve sustained profitable growth, an organization needs to develop a passion for the lowest-cost production to maintain a competitive advantage.
This mind-set is pervasive to all core processes in the organization. Likewise, lowest-cost producer status cannot be achieved without integrating customers, suppliers and other service providers involved directly or indirectly in creating, marketing, selling and delivering products and services to the marketplace.
The unprecedented economic expansion during the 1990s can create an environment where the organization becomes satisfied with the results.
Successful growth companies strive to continually improve performance, broaden their family of performance measures to address trends relative to quality, cost and time and benchmark performance levels against companies throughout their industry. As these performance measures are developed, they need to be integrated into the organization's individual and collective understanding of the business, as well as its compensation systems. People can spend a lot of time, energy and resources attempting to develop the "perfect" family of performance measures.
In an effort to optimize the process, try to follow the KISS theory. Focus on five to 10 key measures that can be clearly defined, communicated, measured and incorporated to some degree into every associate's performance goals.
There is no top 10 of performance measures; however, one that I would encourage almost any company to consider is annual operating cash flow as a percentage of assets stated at cost.
Several common barriers to successful succession planning are egos, the psychology of control, a lack of personal wealth independent of the business and the notion that all children must participate equally in all of the family's assets.
The shareholders of the business need to pay particular attention to planning for and orchestrating an orderly transition of the business' leadership. This transition will ensure that the family and business plans are carefully integrated and communicated to all interested parties.
Do not procrastinate on documenting your succession plans and executing against your wealth and succession plans. Despite best efforts, no one has been able to avoid the inevitable.
Plan ahead in order to mitigate the risks of an untimely death, disability or poorly crafted succession plans for the business.
Jerry Reichert is partner in charge of Arthur Andersen's Enterprise Group, which serves small to midsized companies in Greater Cincinnati and is responsible for the annual Greater Cincinnati 100.