I Unchained My Chain Of Command

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Under the old system, Pat had been responsible for the daily business -- following up on problems such as arguments between employees and scheduling. He'd also been responsible for profit and loss, for examining the financial statements each month to see which jobs were most profitable, for discipline, and for firing people when necessary. These were all activities that took him away from what he loves to do and does best. Under the new system, those jobs have gone to the people who do them best.

The vice-presidents of the two divisions, ImpleFacts and ClaimFacts (our health claims processing division), meet once a week. I read the minutes of those meetings and decide which problems I want to get involved in. As it turns out, I'm less and less involved in problems because the areas of responsibility are clearly -- and appropriately -- defined. Because people are doing what they do best, problems get solved quickly.

For example, there used to be a lot of animosity and jealousy between the technical staff and the marketing staff. The technical staff is made up of creative people who need a lot of freedom. The marketing people too often tried to get the programmers to do things their way, and on their schedule. Our vice-president of systems for ClaimFacts, Tony Bellomo, has suggested and implemented changes in working conditions for the programmers that have all but eliminated that hostility. Bellomo started at the company as a programmer, and he helped me realize that programmers are like artists; they can't be endlessly driven to produce.

We put all the programmers under Bellomo in a new office where they can wear jeans and don't have to stick to a nine-to-five routine. They're given time off after they've put in a certain amount of overtime. We've also upgraded the salaries of the technical staff so they're averaging about $10,000 a year more than they did several years ago. When it's appropriate, we'll even send a programmer and his or her spouse off on a short vacation at company expense. Now that they know they'll be rewarded, programmers are more motivated to get out the work that our clients need.

The problems that led me to restructure the company have also been taken care of. Before we changed, about 10% of our orders were delayed. Since mid-1979, less than 1% are delayed -- and never for long. They're rarely delayed because everything's too visible. If a customer complains about a late order, the salesman is instructed to report the delay directly to me. Under the vertical management structure, people could sweep such a report under the rug. The people in charge of scheduling are also responsible for delays. If someone is consistently late in getting orders out, that person will be fired -- and everyone else will know why.

Our accounts receivable have been reduced from an average of 56 days outstanding to an average of 43 days. Under the old system, if an account was 120 days outstanding, the president had the responsibility for collecting, and he in turn had to put pressure on the people below him. Now, the controller, Jeffrey Sauerhoff, comes directly to me when accounts are more than 43 days outstanding and I hand them over to our vice-president of marketing, who is responsible for collecting.

We've also reduced turnover because management is more responsive to individual needs. Beetween 1968 and 1977 we kept about one of every three people we hired. We now keep at least three of every four.

I'm aware that not every company can change its management structure as radically as I did. I had to wait for an opportune time, when I put our ClaimFacts and ImpleFacts products under the Erisco subsidiary. This made it possible for me to present the management changes to both executives and employees in a neutral way -- as part of a companywide realignment designed for greater efficiency. Executives could see why the changes were being made, and there was less reason for them to be upset by changes in their job descriptions or to feel that authority was being taken away from some of them.

Even a company that has a vertical structure, I now see, can do certain things to make it work more efficiently. If I hadn't been able to change the structure of our company, I would still have reviewed the policies and procedures that had been established. I firmly believe the head of every company should review policies with top management at least once every five years. For example, I found that each manager had a different interpretation of our sick leave policy. My original intention had been that sick leave would be granted only for illness. But some managers felt that employees were entitled to compensation if they didn't take sick leave. Others felt that sick leave and personal time were the same thing. A periodic review clarifies policy and eliminates inequities that can affect morale.

I had to give up a lot of illusions to make our management structure work. One of them was that delegating authority meant withdrawing behind the scenes and just pushing buttons whenever I wanted to tap into our daily operations. I also learned not to confuse our products with the people who create and sell them. Managing people takes at least as much attention as making and marketing a product. Today, our people are getting that attention.

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