Turn Around Phoenix Industrial Technologies

Phoenix Industrial Technologies, a B2B company, had various operations but needed more coordination. At first, a hands-off management style seemed to work, but soon Phoenix faced declining sales, profits, and employee morale. The company needed more direction and the right tools for success. Urgent action was required, so Bill Canady was the new CEO. 

Canady had developed a Profitable Growth Operating System (PGOS) from his experience leading other companies. Previous cost-cutting measures without a clear strategy had brought Phoenix to the edge. This crisis presented a chance to apply the 80/20 rule and other methods to stabilize and grow the company. Before analyzing a business, it’s important to ask basic questions about its past, present, and future. 

Phoenix was being run with systems meant for a smaller company, leading to disorder. Admiral Jim Stockdale’s experience as a prisoner of war during the Vietnam War teaches the value of facing harsh realities while staying confident in eventual success, a concept known as the Stockdale Paradox.

Turn Around a Struggling Business

Having a solid plan and discipline is essential for success in tough business situations. Before 2016, Phoenix had no growth, and each new acquisition did worse than the previous one. The pandemic made things even worse, causing facility shutdowns and layoffs. While smart cuts can save a business, random cuts are a bad sign.

When Canady became CEO in 2021, his first goal was to learn about the business, find the problems, and change the strategy. He toured the company, talked to everyone, and asked questions to understand the employees. In meetings with managers, he focused on business performance, team engagement, customer feedback, partnerships, processes, and career development.

Balance Creativity with Logic in Business

To effectively analyze a business, it's crucial to understand it fully. A CEO should start by comparing the company’s past and present performance, while also focusing on future goals. Every business needs clear targets; without them, it’s impossible to measure success or failure. 

Achieving success requires a deep understanding of the company’s purpose, a clear strategy, and effective execution. If the execution fails, so does the strategy. Success isn’t just about meeting financial goals or having good accounting. Visionary companies are respected and impactful because they not only envision success but also show others how they can contribute to it. 

Inspiring leaders provide a clear vision of success and define the roles each team member plays in achieving it. This clarity is vital for executing any strategy effectively. Without it, employees may lack direction. To define success, a business must clearly articulate its purpose, strategy, and the steps needed to execute it.

Balance Creative and Logical Thinking

For a company to succeed, everyone needs to understand and support its mission, vision, and values. But there's something even more basic that’s essential: thinking itself. Psychologists talk about two types of thinking: divergent (creative) and convergent (logical). 

Divergent thinking generates many ideas, while convergent thinking focuses on narrowing those ideas down. Successful businesses use both types of thinking. For example, Steve Jobs and Steve Wozniak of Apple were a great team, with Jobs being the creative thinker and Wozniak the logical one. Divergent thinking explores many possibilities by asking “What if?” On the other hand, convergent thinking uses data and logic to narrow down options.

Using both types of thinking at the same time can be counterproductive. Instead, it's best to use them one after the other: first, come up with many ideas, then refine them into practical plans. This way, business decisions benefit from both creativity and logic.

Different Types of Thinking for Meetings

Meetings often lead to convergent thinking, where participants evaluate and critique ideas. To handle this effectively, use the appropriate type of meeting for each task. For planning, start with data collection and business analysis, which use convergent thinking. When brainstorming, organize sessions that encourage divergent thinking. 

These sessions should focus on generating a lot of creative ideas, promoting inclusion, and avoiding criticism. Aim for quick, surprising, and playful ideas, and gather as many as possible. Divergent thinking helps find ways to improve existing services, create new products, and adapt to shifting customer needs. It involves imagining future possibilities, expanding markets, and gaining a competitive advantage. 

This thinking is about generating various options and opportunities. Once ideas are collected, switch to convergent thinking to evaluate and focus on what can be put into action. These meetings are more detailed and slower, focusing on analysis and problem-solving. Divergent thinking generates ideas, while convergent thinking develops and implements them.

Effective Goal Setting in Business

In business, it’s crucial to focus on important tasks and avoid less significant ones. According to the 80/20 rule, 80 percent of results come from just 20 percent of actions. To use this rule, identify the top 20 percent of customers, markets, products, and processes that drive the most results. Divide customers and products into four categories. 

Concentrate on the top category, which brings in the most revenue and profit. Remove unproductive products and customers, as they take resources away from the more successful ones. When Franklin D. Roosevelt took office on March 4, 1933, during the Great Depression, he revived the idea of “the hundred days.” 

This term originally came from Napoleon’s return from exile in 1815, when he led a successful military campaign in the first hundred days. Roosevelt used this concept by calling a special session of Congress and passing seventy-seven laws in one hundred days to tackle the economic crisis. This set a standard for future presidents.

Canady's Strategy for Turning Around Rolling Thunder

When Canady became CEO of Phoenix and later Rolling Thunder Engineered Parts, he adopted a strategy similar to Roosevelt’s. Rolling Thunder, a large distributor of aftermarket vehicle parts, had grown quickly without a clear plan and needed immediate changes. Canady’s first hundred days were critical for creating a turnaround plan. The goal was to achieve $2.3 billion in revenue, with 19 percent profit margins and $300 million in EBITDA (earnings before interest, taxes, depreciation, and amortization) within five years. 

The first step was to simplify the business by concentrating on the 20 percent of activities that brought in 80 percent of the revenue. A strategy meeting was held within thirty days to identify key growth areas. The team gathered data to figure out where to cut back and where to invest, focusing on the most profitable customers and products. Communication played a big role, with regular town hall meetings to keep everyone updated and to collect feedback. 

By the end of the first hundred days, the company had a clear goal, a new strategy, and assigned leaders for different tasks. The company was reorganized to match the new strategy, focusing on structure rather than individual roles, and creating segments that directed resources to the most profitable areas.

Five-Year Plan to Turn Around Rolling Thunder

The first hundred days are crucial for laying the groundwork for long-term success. The focus for the first year is to simplify the business, the second year aims at profitable growth, the third year is about doubling down on what works, the fourth year involves refining processes, and the fifth year targets sustained growth. Communication is key, with regular updates and feedback sessions to replace panic with hope.

Rolling Thunder faced declining financial results and many projects without considering their return on investment. There was a lack of strategy, causing confusion and despair. A meeting with upper management set a goal to stop the company's decline, giving specific targets for the next five years.

A company-wide town hall was held to share the current status and new goals. Immediate actions included cutting costs and finding ways to boost revenue. A questionnaire was sent to gather employee feedback, which was discussed at the town hall. The questions covered past performance, goals, benchmarks, and how effective the changes had been. Understanding the company’s culture and its impact on performance was also important.

Create a Strategy for Growth

To guide a company towards profitable growth, Canady’s system involves four steps: setting a goal, developing a strategy, organizing the structure, and carrying out the plan. After setting a goal, you need to create a strategic plan based on data and insights. This plan will guide the company's objectives and actions.

The 80/20 rule helps in resource allocation by focusing on the most profitable customers and products. By segmenting customers and products into four quadrants, you can optimize profits and resource use:

• Quadrant 1: A customer buying A product. These should get the most resources.
• Quadrant 2: A customer buying B products. Serve these customers enough to keep them.
• Quadrant 3: B customers buying A products. Handle these sales with minimal resources.
• Quadrant 4: B customers buying B products. For this group, raise prices, reduce resources, and limit sales. Eliminate unprofitable products.

Managing Quadrant 4 can make managers feel uneasy as it might seem unfair to treat different customers differently. However, since A customers are more valuable, treating them better is justified. Analyzing the company’s portfolio by splitting customers and products into quadrants might show:

• Quadrant 1: 64% of total revenue; 200% of total profit.
• Quadrant 2: 16% of total revenue; break-even profit.
• Quadrant 3: 16% of total revenue; 20% of total profit.
• Quadrant 4: 4% of total revenue; a 120% loss.

Quadrants 1 and 3 together generate 220% of the company's profit, while Quadrant 4 results in a -120% profit. A detailed analysis should sort product categories into these quadrants to evaluate the company’s product mix. Although the executive team may not complete the analysis in the first hundred days, they should gather enough data to make informed decisions. 

Focusing on Quadrant 1 with 80% of resources and reallocating resources from Quadrant 4 will lead to better results. The 80/20 principle helps pinpoint the most valuable product and customer segments. Achieving early wins builds momentum. The goal is to make progress within the first hundred days, not achieve perfection.

Build and Launching the Action Plan

To turn strategy into an action plan, use the 80/20 analysis and start the action plan after the first hundred days. Create a high-level action plan by breaking down main steps into specific tasks. Review the company's goals and objectives, understanding that goals are intended outcomes while objectives are benchmarks. 

Define the action steps needed to achieve each goal and prioritize them. Assign roles and responsibilities to ensure everyone knows their duties. Allocate resources like management, funding, and equipment. Make sure objectives follow the SMART standard: 

• S- Specific.
• M- Measurable. 
• A- Assignable.
• R- Realistic.
• T- Time-related. 

Set deadlines for each task and break them into smaller action items. Execute the plan, assess the results, and adjust for continuous improvement. During the first hundred days, set a goal and develop a strategy. After that, expand the strategy annually to focus on profitable growth and maintaining a competitive edge. Profitable expansion should add value for the community, vendors, staff, customers, shareholders, and even competitors. 

A strong strategy involves four key decisions: where to compete, how to compete, what actions to take, and how to allocate resources. This strategy is a five-year plan that is updated annually and shared by the leadership team. It represents a collective vision of how the company will succeed in the market.

Develop a Long-Term Strategy

Creating a long-term strategy involves assessing the current situation, setting up a strategic framework, and developing a business plan. For a three- to five-year strategy, it's important to include a feedback loop and manage enterprise risks. These elements help track performance using key performance indicators (KPIs) to ensure the strategy is effective. Measuring should aim to improve and manage rather than just report.

Risk management begins in the first hundred days and continues throughout the strategy's duration. Advanced risk management identifies potential risks and opportunities to guide further planning. Strategic thinking involves identifying all issues, problems, and opportunities (divergent thinking) and then drawing clear conclusions (convergent thinking) to make strategic decisions.

• The strategic process lasts a full year, with annual revisions. 
• The situation assessment covers business analysis, customers, portfolios, markets, and competitors. 
• The first six months focus on this assessment, with a summary for the executive team at the end of the year. 
• The strategic framework uses this assessment to set key goals and initiatives, usually over two months, including divergent and convergent thinking to prioritize opportunities.

The business plan, guided by the strategic framework, details financials and answers four main questions: 

1. Budget.
2. Action plan. 
3. Risks, and 
4. Organizational Measures. 

It puts the strategy into action, starting with divergent thinking and then prioritizing actions. Simplifying the business is useful. This can mean reducing products or customer types. The 80/20 rule shows that a few products and customers generate most of the revenue and profits. Focus 80 percent of resources on these top products and customers. 

To simplify, cut non-essential products and focus on the most popular ones. You can also set minimum order values, avoid discounts for less profitable customers, and stop paying commissions on their sales. Segmenting different parts of the business can also help. For instance, a company selling large machinery and parts might manage them separately to improve marketing, sales, distribution, and service.

Zeroing-Up Explained

Zeroing-up involves focusing on your top 20% of customers and products to improve your business. This process starts by identifying and serving your best customers, matching top-performing employees to these customers, and cutting back on less profitable products and services. The goal is to concentrate resources on high-value customers and products, improving service and attracting more of these key clients.

Instead of starting from scratch, zeroing-up means restructuring existing resources. This is similar to zero-based budgeting, where you start from zero and build up a budget based on current needs. For a business, this means identifying which parts of the company are most profitable (Quadrant 1) and focusing resources there.

The process involves two methods: zeroing-up by quadrant or by the product/customer inflection point. The quadrant method focuses on Quadrant 1, treating it as the entire business to find the minimum needed to support it. This shows that Quadrant 1 can operate efficiently with fewer resources compared to others. The inflection point method identifies when adding more customers reduces overall profitability, helping to focus on the most profitable customers and products.

Lean Culture and Toyota’s Success

Lean thinking aims to enhance business performance by cutting out waste. It involves standardizing tasks, using visual tools, and following the plan-do-check-act method. Lean focuses on delivering value, streamlining processes, and continuously improving. It creates a culture where both customer and employee satisfaction leads to innovative, cost-effective products and services.

MIT’s International Motor Vehicle Program studied Toyota’s rise from bankruptcy to an industry leader by the 1970s. They found Toyota’s success was due to its use of master teachers and trainers who helped managers adopt lean thinking and focus on their roles. Managers were encouraged to closely observe the shop floor, which helped them understand processes, respect workers, ask questions, and allow employees to share ideas. This approach promoted employee independence and initiative. Toyota applied five key principles to improve its plants: 

• First, define value from the customer’s perspective to ensure quality at each stage. 
• Second, ensure value streams flow smoothly and match production with demand. 
• Third, optimize flow to meet current demand, reducing the need for warehouses and transport costs.
• Fourth, use customer demand (pull) to drive production, not push products, and use Kanban cards to manage production. 
• Fifth, aim for perfection through kaizen (continuous improvement) by making small, steady changes for everyone. Lean thinking helped Toyota use half the effort, space, investment, and time compared to others while doubling quality.

The training follows the 70-20-10 model: 

• 70% Learning: Gained through job experience.
• 20% Learning: From social interactions.
• 10% Learning: From formal education.

Standardized Work captures the best methods for tasks, supporting ongoing improvement. Visual Management Tools like Kanban boards help teams see and fix issues quickly. Project-based improvements use the PDCA (plan, do, check, act) cycle for gradual progress. 

First, plan by setting goals and necessary processes. Next, implement and collect data. Then, evaluate the results and decide on the best changes. Finally, improve the process based on the findings, setting the stage for the next PDCA cycle.

Build and Managing a Strong Team

Hiring the right people is crucial for maintaining high performance, as great employees often bring in other talented individuals. Settling for less can lead to a decline in quality. Strategic hiring means finding people who fit both the current needs and future goals of the business. For example, hiring someone overqualified or too expensive might not always be the best choice. It's important to hire strategically, not just to find the most qualified person. HR professionals often use the DiSC tool to categorize people into four behavioral styles:

1. Dominance is linked to leadership. 
2. Influence involves interacting with others, expressing ideas, generating excitement, and working in groups. 
3. Supportiveness is about being consistent and helping others.
4. Conscientiousness means paying close attention to details and striving for accuracy. 

Recruiting and developing talent involves matching skills, experience, and behavioral styles to key roles. The hiring process has five steps: defining the need, finding candidates, selecting the right ones, making job offers, and onboarding new hires. This process should be organized and consistent throughout the company. After onboarding, talent assessment and development begin with annual reviews. These reviews check how employees are doing, identify areas for improvement, and set up development plans. 

This includes setting goals, giving feedback, and evaluating results. Keeping records ensures fairness and clarity. Regular check-ins and feedback throughout the year are important. At the end of the year, performance is reviewed and future goals are discussed. Compensation plays a big role in motivating employees. Base pay should be competitive, and benefits should be valuable. Bonuses and incentives should be linked to performance. Compensation plans should be fair, transparent, and aligned with the interests of both management and shareholders. An effective reward system must be consistent and based on performance, results, and contributions.

Mergers and Acquisitions

Mergers and acquisitions (M&A) often carry the belief that companies growing organically are more genuine than those expanding through M&A. While many M&As are poorly executed, they can succeed if they align with the company’s strategy and are properly managed. 

M&A involves eight main areas: creating an acquisition strategy, finding deals, evaluating them, performing due diligence, negotiating terms, documenting and closing the deal, integrating the acquisition, and measuring its success. The acquisition strategy should fit the overall 80/20 business strategy, identifying targets that add value and specifying desirable qualities in acquisition prospects. A clear process is crucial for successful acquisitions:

• Set Long-Term Goals: Define revenue and profit objectives.
• Determine Acquisition Size: Find the gap between goals and forecasts to decide the acquisition size.
• Identify Targets: Evaluate based on market, strategic and cultural fit, operations, and financial health.
• Maintain a list of potential deals.
• Build relationships with investment banks and private equity funds.
• Use business knowledge to find opportunities.
• Assess promising prospects.
• Conduct preliminary due diligence with the corporate development team.

Due diligence verifies the target’s claims and checks for financial, legal, or regulatory issues, ensuring accuracy and revising initial assumptions. After due diligence, negotiations focus on obtaining favorable terms and pricing. Integration starts post-closing, involving workforce integration, comparing benefits and compensation, assigning leadership, and resolving duplicated functions. Transaction measurement occurs over the first five years to assess whether the acquisition meets, exceeds, or falls short of expectations. 

Major identity changes, like those seen with Western Union shifting from telegraphs to financial services, are rare but may be necessary if the original business becomes unviable. Most successful businesses stay focused on their core activities, and M&As should enhance the key 20 percent that drives profitability, with customer feedback guiding decisions.

Effective Risk Management

Traditionally, different leaders in a company handle different types of risks: for example, the chief technology officer manages IT risks, and the chief financial officer deals with cash flow risks. This approach can create separate departments that might miss risks affecting multiple areas. These combined risks might only become obvious when they cause serious problems. 

Additionally, this method usually focuses on internal issues and can overlook outside threats like new competitors or changes in technology. Enterprise Risk Management (ERM) offers a broader approach by looking at all risks that could impact the company's goals. By actively managing risks, ERM helps companies stay ahead of potential problems and maintain a competitive advantage. 

It involves regularly finding, assessing, and addressing new risks. A key tool for this is a risk register, which tracks each risk's details, possible effects, and ways to address them. Reviewing this register often is important to adjust strategies and procedures as needed. ERM focuses on the most significant risks and prioritizes how to manage them.

Success Measurement

Measurements are key to evaluating how well something is doing. They should come from the overall strategy and focus on areas that need improvement. Key Performance Indicators (KPIs) are essential for tracking progress towards goals. They help identify actions, processes, and resources that can enhance performance. By concentrating on the most important KPIs, businesses can focus on the activities that bring in the most revenue. 

KPIs provide clear targets for teams or companies to hit within a set timeframe, like a quarter. KPIs can change the direction of a business. They predict future success by giving measurable evidence of progress. Good KPIs help in making decisions, comparing performance over time, and tracking efficiency, quality, and resource use. For example, a specialty coffee shop would look at different KPIs:

• Inputs (like coffee, water, and staff time), 
• Outputs (such as brewed coffee), 
• Processes (like equipment and procedures), 
• Outcomes (sales and customer loyalty), and 
• Project measures (like marketing improvements). 

Inputs, outputs, and processes focus on daily operations, while outcomes look at overall strategy. A company needs both operational and strategic measurements to succeed. Additionally, project measures assess the success of various steps, risk measures evaluate potential threats, and employee measures track performance and skills. 

KPIs are used in gap analysis to compare where a company is now versus where it wants to be. This involves identifying the current and desired states and then figuring out the gaps between them. The process includes: 

• Finding solutions, 
• Implementing changes, 
• Measuring the results. 

Gap analysis can also involve:

1. Market Gaps are unmet customer needs 
2. Strategic Gaps in performance over time 
3. Financial Gaps are comparing financial metrics with competitors
4. Skill Gaps are  knowledge deficiencies
5. Compliance Gaps are regulatory efficiency
6. Product development gaps new product fit 

It also includes a break-even calculation to compare projected revenues against expenses.

Effective Leadership and Quality Control Processes

President Harry S. Truman made decisions by gathering information, consulting his values, listening to different opinions, taking action, and being ready to adjust based on outcomes. This method is key for strong leadership and business success.

The PDCA cycle helps with quality control. Start by understanding the problem. Use broad thinking to identify possible causes, then focus on the most likely ones. Create solutions and make a detailed action plan. Implement the plan, gather data, and assess the results. Decide on the next steps for continuous improvement and act on them.

Toyota’s A3 process uses an 11-by-17-inch paper to track ideas and plans. It starts with identifying problems, documenting processes, measuring issues, and finding the root cause. Develop solutions, set goals, and make an action plan. After implementing changes, check if the results match expectations. If not, find out why and make further adjustments. Continuous improvement is achieved through strategic focus and the PDCA cycle, leading to growth and success.

Essential Leadership Roles in a Business

In a successful PGOS business, three key leaders are needed: a visionary, a prophet, and an operator. 

1. The visionary, usually the CEO, makes the major decisions and plans for the future. While they make final decisions, they are also open to changes for ongoing improvement.
2. The prophet, often the COO, takes the visionary's ideas and puts them into action throughout the company. They train and guide others to follow the strategy. Without a prophet, employees might stray from the planned goals.
3. Operators, who are often presidents or heads of specific areas, manage the daily operations. They carry out the strategy developed by the visionary and applied by the prophet, making sure everything aligns with the company’s objectives.

At Phoenix, this approach was successful. Canady grew sales from $700 million to over $1 billion and profits from $70 million to $175 million in just 863 days, achieving a 150% increase in EBITDA. This shows how important it is for the visionary, prophet, and operators to work together effectively. PGOS is a proven method that adds value by addressing challenges and creating clear plans for better productivity and profits. With the right balance of visionary, prophet, and operator, PGOS helps businesses make smarter decisions at every level.