Orders are processed immediately; 90% go out the same day, virtually all within 24 hours. Seeking to reduce order-fulfillment errors -- wrong items, wrong quantities, and so on -- a team of employees identified 16 sources of error and created systems to prevent them. Today the company registers a 0.2% fulfillment-error rate, which is about one-fifth the industry average.
Central to all those efforts is Coldwater Creek's high-powered computer system: a new Hewlett-Packard 3000/967 minicomputer; the personal computers and other hardware that are plugged into it; and the fourth-generation catalog-company software, both more powerful and more flexible than earlier programs. The "heavy-duty iron," as Dennis describes it, lets the company focus on minute details of interaction with the customer. A simple bit of programming, for instance, prevents company shippers from sending packages via United Parcel Service to a post-office box; earlier, that logistical impossibility had been a common source of delays. Custom-designed curves allow Coldwater Creek's buyers to plot potential sales of dozens of items after only a week or two of incoming orders. They can then schedule monthly shipments from suppliers, reducing back orders while still holding down inventory costs.
As for pouring in resources, the Hewlett-Packard and other recent improvements to the computer system cost Coldwater Creek more than $1 million over the past 24 months. "That's a lot of computer for a company our size," says Dennis. "But we need the ability to use this kind of information, to have it at our fingertips, even more than a large retailer does. It provides us with a competitive advantage."
Competitive Edge: Fast Product Development
FourGen Software (#465 this year, #146 last year), based in Edmonds, Wash., began selling accounting software to small and midsize businesses several years ago. Its product had an initial advantage over the competition's: it was more easily adaptable to a business's individual needs. ("Modifiability by Design" was the company's slogan.) In software, however, a technical lead can vanish quickly. What gives FourGen its edge today -- it is still the fastest-growing company in its industry -- is its relentless focus on product development. New versions of its software have allowed it not only to stay ahead of the market but also to move into lucrative new niches, such as providing systems to large corporations.
Accounting-software companies typically release enhanced versions of their products every 18 months or so. FourGen has collapsed that cycle to 3 months. Four times a year it releases new products. At different points, but at roughly the same interval, it releases "bug fixed" editions of existing products. "We're six to eight times more productive than other software companies in terms of being able to improve the product," claims cofounder and CEO Gary Gagliardi. "That's what has allowed us in one year to go from products aimed at small to medium businesses to a corporate product."
To reach that level of rapid innovation, Gagliardi essentially has had to reinvent -- and keep reinventing -- the company's operations, pouring resources into training and restructuring and internal communication. Step one was to scrap the old method of software production, in which programs moved sequentially from research to development to production. Step two was to create self-directed work teams capable of developing products from start to finish in a small fraction of the usual time. To Gagliardi that meant training every employee to think like an owner -- to plan work around long-term objectives, to root out problems and bottlenecks at their source, to coordinate by staying in constant touch with others doing relevant tasks. Over a period of three months Gagliardi met with everyone in the company for an intensive series of small-group training sessions. He imparted both that philosophy and the skills, such as statistical analysis of output, that he saw as critical to its implementation.
Implementing the new approach has been neither cheap nor easy. Employees must spend from 5% to 30% of their time -- up to two or three hours a day -- reading and responding to the inevitable flood of electronic-mail messages. Group leaders must lead by consensus, often a time-consuming process. Training continues, in areas such as consensual decision making and internal communication. Even so, the payoffs have been remarkable. Automatic testing programs have been developed, shortening the time required for finding and fixing bugs. Glitches in the process of writing, printing, and shipping documentation have been eliminated. As new and updated products have begun pouring out, sales have shot up -- roughly 60% in the year ending June 30.
To keep up with the fast pace, FourGen employees often work 60-hour weeks. They are expected not just to put their time in but to decide for themselves what to do; and in some cases, they are paid below-market wages. What makes the system possible is the fact that most are owners of the company and are treated as such. Basic financial information is distributed monthly. Fringe benefits are generous, and cash compensation is supplemented with bonuses based on FourGen's profitability. Seventy percent of the company's 90 employees hold potentially lucrative stock or stock options. "In the end, we intend to create a lot of millionaires," says Gagliardi.
Competitive Edge: Low Cost
Integrity Industries (#394), in Kingsville, Tex., didn't have what you would call an auspicious beginning. Not only had founder Max Duncan lost his job, not only were the South Texas oil fields in a state of near-collapse, but Duncan had virtually no money. Nor was any outside financing available: back then, energy-related ventures were as popular with Texas banks as a skunk at a wedding.
