When It Positively Has To Save You Money

 

Let Federal Express flood the airwaves with fast-talking executives. Let Purolater Courier, Emery Air Freight, and their ilk compete for the overnight-delivery sweepstakes. Skyway Freight Systems Inc., of Santa Cruz, Calif., has posted a compound annual growth rate of 78% in revenues from 1977 to 1982 with the innovative concept of wooing the freight purchaser, not the supplier -- with computers, cash, and cookies.

When James F. Watson and Robert Baker flipped a coin to see who would become president of the company they founded in 1977, their plan was to run their freight business in the conventional manner, concentrating on outbound freight. Both were familiar with the industry. Watson, the president, now 35, had worked as an IBM executive, marketing computer systems to airline and air-freight companies. Chairman and executive vice-president Baker, now 37, had worked in the shipping industry for 15 years -- in traffic management, purchasing, and forwarding posts.

Their initial strategy was based only on the assumption that they could cut shipping costs some 40% for prospective customers. Rather than attack the overnight-delivery trade, they would offer delivery within 48 hours, since, Watson argued, "most of the overnight shipments sit on a receiving dock for two or three days anyway." And rather than invest in a fleet of jets or trucks, they would ship in containers by common carriers.

Some 18 months later, discussing Motorola Semiconductor Product Inc.'s shipping problems before going after the account, Watson and Baker had their brainstorm. Motorola, not its hundreds of suppliers, was the account most dependant on reliable freight service. Rather than pitching outbound service to the suppliers, why not try to sell Motorola on an inbound service, handling all the freight from multiple sources of supply to a single purchaser -- a freight control system rather than a mere carrier. Motorola liked the idea and became Skyway's Inbound Materiel System's first account.

One advantage, Watson says, is that having a smaller number of customers -- Motorola, for example, instead of Motorola's many vendors -- let the company save cash by firing its salespeople and relying instead on a small marketing staff and a massive mailing list. Today, Skyway customers include companies like Apple Computer and Xerox, 50 Fortune 500 manufacturers, as well as perhaps 1,000 smaller companies from California's Silicon Valley to the golden arc of Boston's Route 128.

The addition of the Skyway Central computer installation as an operational and marketing tool made the system work. "We're selling a financial decision, not freight forwarding," Watson argues. Sales are made by showing prospective clients how they could have saved an average of 31% on annual shipping costs -- using a computer comparison of Skyway's costs with the clients' own records. The computer provides customers and suppliers alike with access to a central data bank with information on freight in transit, arrival time, and costs.

In addition, Skyway uses its computer to offer customers a vendor compliance program. Customers with vendor compliance send all their shipping bills to Skyway for audit each month. Skyway then compares the actual shipping cost with what it would have been had the customer's vendors shipped, as per instructions, with Skyway, leaving the customer free to bill the vendor for the overcharge.

Skyway's management style, which Watson says combines the best of Peter Drucker and Theory Z, is equally innovative, taking bonuses, incentives, and individual responsibility from the American model and marrying it to the job rotation, employee participation, and long-term employment of the Japanese style. Management-by-objectives (MBO) is the company rule, from the boardroom to the loading dock, with raises and six-month bonuses tied to MBO success.

Cash fuels employee participation and productivity. Watson and Baker recognized that both customer service and company profits depend on strong employee motivation. Their solution was profit-sharing -- with one big difference. At the end of each quarter, 20% of the company's pretax profits are set aside to be divided equally among all employees, from the president to the receptionist. Not only does the system keep individual motivation high, it discourages empire building, as employees participating in hiring decisions in their departments have to balance the potential increase in productivity with the additional cut from the 20% profit pool. As effective a motivation as the profit pool would prove, Watson says, a more immediate effect was needed. Thus began the bonus and penalty fund, instantaneous monetary rewards for a job well done and slaps on the wrist for failure.

But Skyway employees aren't the only ones Watson and Baker reward. Truckers or airline personnel who help Skyway deliver get bonuses, too. "If some guy goes out of his way for us, we send him a box of Famous Amos chocolate-chip cookies," Watson explains. "It creates a better impression than booze or money." The program has become so well known, Watson says, that "we'll call a guy and ask him to give a shipment some special treatment, and he'll say, 'Hey, are there some cookies in it for me?"