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I WOULDN'T WANT TO CLAIM THAT salespeople at Ballard Medical Products Inc. have it easy. They'd bristle at that. George Wojtowicz, for instance, might point out that he has to rise in the cold black of the Indianapolis night and drive two and a half monotonous hours through the featureless landscape of north-central Indiana when he has morning calls in Fort Wayne. OK, that's not easy. But when he gets there, lays the product on the prospect's desk, and the man offers to pay him three times what Wojtowicz (wo-TOW-wich) is asking, that's hard?

Having the right products -- at the right price, naturally -- does make Wojtowicz's job a great deal easier and, even he will admit, a whole lot more satisfying than some other salesmen's. But to his credit, Wojtowicz himself is one of the reasons why the medical products in his kit often turn out in his customers' eyes to be the right ones. That's because he and his sales mates frequently help create them, and they are always part of the process of improving them -- they along with practically everyone else working for this extraordinary little company.

Extraordinary?

Yes, but not for any of the ordinary reasons -- not because its technology is high, its financing sophisticated, its marketing creative, or its luck unbelievable. Instead, at Ballard Medical Products, whose offices and factory lie outside Salt Lake City in Midvale, Utah, management has found an extraordinary way of establishing customer contact and responding to customer needs. The beauty of the technique lies not in the specific practices Ballard Medical employs, however. Other companies in other markets and industries wouldn't necessarily want to do everything that the Ballard organization does. But other companies could surely profit by understanding the way founder and chief executive officer Dale Ballard has created an organization that executes its business strategy so well. Ballard has a way of thinking about structuring a company that in today's economy almost ensures superior results.

Ask most people to describe their company's organization, and they'll probably sketch boxes connected by lines. The boxes enclose discrete functions. Here's a box for R&D, and one for marketing, and over here is sales. The lines connecting the boxes indicate information flow. R&D tells marketing, and marketing tells sales, and so on throughout the company.

The boxes and lines, while intended to be merely representational, nonetheless say something about how the people within the company view their roles and relationships. Put a box around R&D and, if only subliminally, you're saying that R&D happens only there. People in other departments don't do it. Connect the R&D box to marketing with a line and you're suggesting that communications to or from R&D should follow that line.

While it's true that people don't always stay strictly within the boxes and lines, the graphic representation does create an attitude, a mind-set, within the organization: this is my job, and that is not, and if you want to talk to me, you must use the proper channels.

Ballard Medical's organizational philosophy, in contrast, has a different influence on how people there think and act. "Anybody in this company can talk to anybody else about anything," brags John Paine, a salesman in the Southwest who, like many of his colleagues, also worked at Dale Ballard's first company. "It's the same company, the same idea. It worked before," Paine says, "and it's working again."

DALE BALLARD, 65, HAS BEEN choreographing the design, manufacture, and sales of medical products since 1956, when he founded Deseret Pharmaceutical Co., which he sold to Warner-Lambert Co. in 1976 for $138 million. The sale made Ballard and many employee stockholders reasonably wealthy people. At the time of the purchase, Warner-Lambert promised to keep hands off the Deseret management but, predictably, didn't. Ballard consequently left the company, though on friendly terms, in 1978. Soon he launched a new business, Ballard Medical Products. The idea was to make the new company the R&D arm of the old one. However, says Ballard, the concept didn't work because his old company ignored the new ideas. Maybe they were good potential products, but from Deseret's perspective, they hadn't been invented there.

If Deseret won't make them, Ballard decided, Ballard Medical will. He had built one company; he would build another and make some more people rich. Besides, when Ballard's poor but industrious daddy taught him the value of hard work, he neglected to mention the utility of play. So fishing is Ballard's single known self-indulgence. What else was the man going to do with his time, if not build another business?

The company he's now running is still small ($9.7 million in sales last year), publicly traded, and trying (successfully) to grow in the hospital-supply industry, dominated by a handful of giants such as American Hospital Supply and Johnson & Johnson. Dale Ballard's goal is to make the company large enough and sufficiently profitable to fetch a healthy offer from an acquiror. His growth strategy is to develop and dominate niches that the giants have neglected.

One problem with niches, however, is that small ones usually don't provide enough expansion room to accommodate a growth-bent company. Such a company must keep finding new niches to fill. Another problem with niches is that when one of them turns out to be large and profitable, it soon attracts competitors that begin to squeeze margins.

A good response to both of these problems is continuous innovation. A steady flow of new products enables a company to expand from niche to niche when the niches are small. And when a niche is large, a series of advanced new products can keep a company so far ahead of its rivals that it never has to resort to direct price competition.

New-product innovation, it turns out, is Ballard Medical's response to both of these problems. And that means that the company has to stay close enough to its market to anticipate demand. It has to know what its customers will need -- and know it just a trifle earlier than the customers themselves.

True, Dale Ballard has a leg up on the competition. That's because he has the enviable ability to recognize terrific new-product ideas when he sees them. He has a sensitive and educated gut, what Ballard Medical product manager Richard Lambert calls an "uncanny sense of knowing what is a product." But this ability probably involves less God-given talent than long-cultivated skill, and in either case the knack, whether innate or acquired, shouldn't be mistaken as the crucial factor in his company's success.

Ballard, of course, can't recognize a good new-product idea -- or a promising idea for improving an existing product -- if it doesn't first somehow appear before him. Thus his most impressive management strength is not his uncanny product sense. Rather, it is the process he organizes and catalyzes that keeps the ideas bubbling up.

"It works because of how informal it is," claims Lambert. "You'll be walking down the hall, hear something coming out of Mr. Ballard's office, go in, maybe sit on the floor, and get involved. That's what makes the process work."

No, that's part of what makes the process work. The process that Lambert is talking about is the way new products get developed and existing products get modified, and at Ballard Medicl that process involves not only the whole company, but the company's customers as well. Product innovation is what Ballard Medical is all about.

As a first step toward appreciating the process, it helps to think of it not as a series of steps taking place in boxes connected by lines, but as a continuous loop -- a large pipeline, if you will, that doubles back on itself. The loop encompasses product design, marketing, sales, service, and refinement -- virtually everything that the company does.

Take, for instance, Ballard Medical's first and still largest dollar-volume product. It's called Trach (pronounced "trake") Care, and it's a disposable device that comprises some plastic tubing and a valve. It allows nurses to suction excess secretions from the lungs of patients attached to respirators. It was a significant advancement when Ballard Medical introduced it in 1984, because before Trach Care, nurses had to disconnect patients from the respirator to perform the suctioning procedure. For long seconds every hour or so, and sometimes more often, a critically ill patient would be cut off from his oxygen supply, unable to breathe. Trach Care "revolutionized the way we suction our patients," says Curtiss Plaskon, director of respiratory-care services at Ohio State University Hospital, in Columbus. Which doesn't mean the product didn't have its shortcomings and faults.

Soon after its introduction, Bob Myers, a distributor's rep, was showing nurses and doctors in a Zanesville, Ohio, hospital how to use Trach Care. A surgeon in the group liked the product but worried that the suction catheter could accidentally slip down the patient's trachea. "How do I know that it's pulled back where it belongs?" he asked. At a glance, you don't, Myers had to reply. Then Myers called the home office, relayed the question, and within weeks the company had printed a black line on the catheter indicating the proper retracted position. "Just last week," Myers reported recently, "I called the company on another problem." The vice-president of sales and the national sales manager were both out when he called, so he went right to Larry Eldredge, another company official. "They're always way open there," Myers assures.

Dramatic? No. A big deal? Getting direct reports from the front sales lines shouldn't be an unusual event in any company -- but it often is. Why? Usually it has something to do with the boxes and lines. If Myers were selling for your company and a customer reported a design flaw to him, who would he call? And who would that person have to talk to?

Ballard Medical currently has 35 sales reps on a base salary plus commission. Each sales rep works with one or two distributors in his territory, and each distributor employs, on average, 5 reps. That any one of these more than 300 people can, and does, phone whomever he wants in Midvale with problems or suggestions accounts for many of the dozens of refinements already made in Trach Care. It's why one of the principal plastic components of Trach Care is now available as a transparent option in place of the standard opaque white. That suggestion came from nurses. Easy communication between field and plant is also why Ballard Medical will soon add an indicator mark to Trach Care to show when the vacuum valve is locked shut.

That kind of market-inspired product improvement shows that Ballard Medical listens to the people who use its products. But how does it get them to talk? How does it actually bring them into the loop?

Not with surveys. And not with product evaluation forms and focus groups. The shortcoming of these and other research artifacts is just that: they aren't the real thing, which is live customer experience with the product. On the contrary, they are devices that attempt to get the customer to re-create and relate his experience. How much better to be there when the customer uses the product than to ask him to recall it -- and recall it for your direct benefit, not for his -- later. Ballard Medical product manager George Ford points to the "artificiality" of the information that customer surveys, especially written ones, evoke. "Maybe I'll check a box," he says, "but if your form doesn't have the right box and I have to write it out, you'll never get that information from me."

What you get from the usual market research devices is data. And data don't become information -- which is to say that they don't become useful -- until they are sorted and analyzed and then interpreted by someone with knowledge. Collecting and analyzing data, interpreting the results, and acting on the conclusions is a multistep process -- inherently inefficient and vulnerable to error at each step. By putting knowledgeable people in a position to watch its products being used, Ballard Medical has removed steps from the process and improved its chances of getting good results.

Instead of conducting the usual surveys, the company strives to know its customers. It doesn't just know who they are; it knows them. Not by accident or founder's whim does so small a company have so large a direct sales force leveraged by the reps of carefully selected and exclusive distributors. They may be called salespeople, but they are also the company's principal intelligence gatherers, whose job is to ease customers, even potential customers, into the company's product loop without their really knowing it. The seduction begins before the sale.

By design, Ballard Medical refuses to give prospective customers samples of Trach Care. An institution must buy at least a 30-day supply for evaluation. If it balks at the purchase requirement or the minimum quantity, there will be no sale. Further, the hospital must agree to let Ballard Medical salespeople and reps train every nurse on all three shifts in the product's use. The time that its nurses spend on in-service training is expensive for the hospital, but, again, no commitment, no deal.

There are at least two reasons for the company to be hard-nosed about the 30-day evaluation and all-hands training. The first is that Trach Care does, after all, require nurses to change practices they've used for years and hospital purchasing agents to learn a new set of consumption economics. (Trach Care costs more to buy, but, according to Ballard Medical's argument, is cheaper to use than the old suction technology.) It's not possible to alter either set of habits, the company figures, in less than 30 days. That's the obvious reason: to be sure that the people who have to work with the product actually understand it and feel comfortable using it. If they do, they're more likely to continue to use it beyond the 30-day trial. That's the sales reason for insisting that potential users give the product a whole-hearted trial.

The second reason to push for the upfront commitment from potential customers is less obvious but, in the long run, more important for the company's future growth. It is not what most companies would think of as a "sales" function at all, which is to say that it wouldn't fall into that box on the organizational diagram. The 30-day trial is just the camel's nose. What Ballard Medical really wants is to establish an intelligence-gathering outpost inside the institution. That's where most of the useful information resides. The people that Ballard Medical calls salespeople are really information specialists. They pass one kind of information from the company to the customer and another kind of information back again.

Let's say that one of Wojtowicz's prospects has agreed to the trial and bought 30 days' supply of product. Now Wojtowicz and one or more of the dealer reps working with him will begin to lay the groundwork for a long-term relationship with that hospital. First, they'll hold several meetings involving a half-dozen or so important people in the institution -- probably the director of respiratory therapy, and maybe the head of infection control, the critical care director, head nurses, and shift supervisors. Wojtowicz gets to know them all. They get to know him and his reps. He gets the name of almost every nurse working the units in which Trach Care will be tested.

Next, they actually conduct the in-service training. Wojtowicz and his sales crew will spend several 18-hour days in the hospital's intensive care units (ICUs). Using training aids, they'll show nurses and their supervisors how Trach Care works. Then they'll instruct the nurses in actually applying the device to patients.

At the end of the training the nurses know the product, but Wojtowicz and his colleagues know the faces and names of the nurses. This means -- assuming that the product works as touted -- that Wojtowicz and the dealer reps gain not only credibility with customers, but access and familiarity as well.

"You go back at least once a quarter," explains Sam Maravich Jr., who covers Ohio for Ballard Medical, "and do a walk-through of the units. You can't just ask the director of respiratory therapy or the head nurse if there are problems. You've got to walk through yourself, see how people are using the device, and ask the nurses whether they've got problems. . . . It's one thing to sell the head nurse, but if her nurses hate it, she'll throw it out."

Now, the customer is in Ballard Medical's information loop. Salespeople can walk through the ICUs to see Trach Care in use and speak to most of the unit's nurses by name. The nurses chat easily with the Ballard rep, not thinking of him solely as a salesman. Problems and ideas come up naturally in casual conversation.

Wojtowicz, for instance, was talking to Jane Stevens at Community Hospital Indianapolis one day not long ago. The hospital staff, she told him, was having a problem. They were trying to build a device that, when used with Trach Care, would allow nurses to suction respirator patients' mouths without requiring a second connection to the hospital's vacuum compressors. The trouble they were having was designing the valve they'd need.

Ordinarily, Wojtowicz would have jumped on the line to someone in Midvale. What a great idea, he might have said, for an ancillary product that Ballard Medical could sell along with Trach Care. He didn't, though, because Domenick Treschitta, Ballard Medical's vice-president of sales and marketing, already had. Treschitta had gotten the idea a few months earlier while helping to train nurses at a new Trach Care installation. "I was listening to them bitch about oral care," he says.

The obvious value of having a listening post on the customer's premises -- of including the customer in the loop -- is that you skip all the stages of data collection, evaluation, and so forth, and acquire useful information firsthand. Treschitta, who knows both his own business and his customers', didn't need wide statistical data to reach an informed conclusion about what he saw and heard in the hospital.

The other half of the process is knowing how to use the information. In the conventional business organization, using the information means moving it stepwise along established lines from box to box.

In another company, Treschitta might have been required to pass on his observation, to R&D, perhaps in written form. R&D researches the existing technology and eventually creates a design that it hands over to the product-development group. Product development tests the design, creates a prototype, and sends it to marketing. Marketing works on the packaging and fights with finance over what price it can charge for the product. Eventually, the company hands Treschitta something to sell. Everybody has his job and sticks closely to it. But employees don't work that way at Ballard Medical.

Treschitta saw the customer's problem. He assumed the burden himself of finding a salable solution. Everybody helped. Doc Palmer in R&D designed a new valve. Project manager Richard Lambert persuaded Treschitta to drop one obvious but, he thought, inappropriate design. Treschitta himself stumbled onto a better one at his dentist's office. The testing lab found a stronger glue to use on the product. Working together, not serially as in most companies, in the space of a few months these individuals created a new product that the company calls Ready Care. In one day, potential Ready Care customers at three different hospitals offered to pay Wojtowicz $7, $8, and $9, respectively, for the product. Ballard Medical's price is $3, which still includes a huge (but proprietary) margin.

Another recent Ballard Medical product, called Safety Shield, required even less time than Ready Care from proposal to launch. It's a kit consisting of gloves, mask, and eye shield designed to protect hospital workers from contact with patients' bodily fluids, an AIDS-related worry. Safety Shield was the brainchild of Larry Eldredge, who currently handles the company's purchasing, shipping, and inventory control responsibilities. The point to note is that Eldredge wasn't restricted to his little box. He could formulate a product idea, take it to Dale Ballard, and shepherd it through the development process. "It's all one team effort around here," is how Eldredge puts it.

Neither is product manager Lambert restricted to his little box. He periodically takes a couple dozen Mrs. Fields cookies up to the ICU nurses working the grave-yard shift at a Salt Lake hospital. "They'll tell me, 'I wish I had this. I wish I had that." he says. Good information.

But why would Lambert stay up nights, on his own time, talking to ICU nurses? Why would Eldredge step out of inventory control into the new-product loop? Why do product managers at Ballard Medical get several phone calls a day from salespeople with ideas for product refinements? Why do these people care about working on new products and product refinements when they have their own, primary jobs to attend to?

There are two reasons that go to the heart of what makes Ballard Medical work as an organization. The first reason is simply that they can.

Individuals at other companies would be expected to act as specialists within their boxes and and to communicate with other specialists along prescribed lines. At Ballard Medical, though, everyone has access to the same customer-based information. No one is a priest in a private chapel. No one holds exclusive access to the Word. There are no secrets. Also, communication at the company is free-form, lacking formal protocol. You can find out what you need from the person who knows without going through channels.

Furthermore, the company's goals, objectives, and strategy are simply stated and widely known. Everyone understands what is an appropriate product for the company and what is not. The qualifying criteria are simple:

* The medical product has to be unique -- what salesman Maravich calls a "concept sale." Ballard Medical won't produce a clone or a commodity product to sell on price alone.

* It has to appeal to one of the two niche markets the company currently sells in: the hospital intensive care unit and the operating room.

* The product should eventually be good for at least $1 million in annual sales.

This degree of access to information empowers people to undertake tasks and to make judgments that would be impossible if they were acting as narrowly defined, and narrowly informed, specialists. For the organization this ability of the individual to act intelligently means that there is less need for the coordinating activities -- task forces, review committees, project reports -- that consume so much of management's time and energy. It doesn't take as long to get things done -- to get a new product into the field -- at Ballard Medical. Although the company makes and sells low-tech products and uses little sophisticated computer technology in the process, it is very much an information-based company that in its structure has moved beyond the old industrial paradigm.

Empowering people is not quite enough. You've got to give them incentive, too.

Employees are not especially well paid at Ballard Medical. Most salespeople, for instance, took a cut in pay when they signed on. But Dale Ballard gives everyone in the company -- supervisor and above -- a common stake in Ballard Medicalhs growth by generously awarding stock options. "They work harder," he says bluntly when asked why. Every salesperson, says Ballard, has seen his stock option increase, by virtue of appreciation and new options awarded, as much as $10,000 a year for the past two years. "I'd heard that everything that Dale touched turned to gold," confides Tom Sobba, who recently took charge of the Washington State sales territory, "and I wanted a piece of that."

Money -- the promise of wealth that comes from higher stock prices and, consequently, larger capital gains -- gives people at Ballard Medical very good reason to go out of their way to help the company reach its goals.

WILL WHAT WORKS FOR BALLARD Medical work elsewhere? Of course, provided the entrepreneur or CEO understands why the model works.

Giving people authority to act without giving them the information they need would, for instance, just lead to bad decisions and corporate anarchy.

One reason Ballard Medical can function as it now does is because it is small and deals with a small number of closely related products. If the number of products were to grow much larger or if the company decided to sell to an entirely different market niche, its current information loop couldn't handle that expansion. The information load would be too great. So to expand the company in scope, Ballard will have to create a second loop -- in effect cloning the company he has now. He did that at Deseret, in part, when he split the company's sales force, each part handling a separate product line. He's already begun at Ballard Medical by dividing distribution responsibility in some territories between two distributors, one specializing in products for the ICU and the other for the operating room.

The Ballard Medical model works also because the company is selling proprietary products in a market that is not especially price sensitive. It can afford the large sales (and intelligence-gathering) organization it has because its margins are high. It cannot afford to continue a product for long if competitors catch up and begin to drive prices down.

Unusual for a manufacturer -- at least as we're accustomed to thinking of them -- Ballard Medical can truthfully claim that its most valuable assets are its people and the information it has invested in them.

STORY PROPOSAL

Dale Ballard is no genius. And no single thing that he does in the course of making and selling hospital products would seem to account for the results that Ballard Medical Products Inc. achieves. R&D is informal and ad hoc. Manufacturing is deliberately labor intensive. But few companies are better attuned to customer needs.

How so? The answer lies partly in how Ballard uses his salespeople. They sell, to be sure, but he's also set up them up as extraordinary intelligence gatherers. And Ballard has organized his company to use the intelligence collected. Ballard Medical is ahead of the pack: it understands business in the Information Age.

Last updated: Apr 1, 1988




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