Mogens Smed, CEO of Smed International Inc., presents his company's chaotic, overcrowded headquarters to customers as a working showroom of the office furniture they sell.
In an age when competitors can knock off products or services in an instant, smart companies are marketing their employees' know-how, Susan Greco reports. Plus: CEO Jack Stack on the amazing things that can happen when you bring your customers and employees together, in his first-person piece " The Ripple Effect"
Mogens Smed is out of luck. On a snowy october morning, the Danish-born chairman, president, and CEO of Smed International Inc. has arrived at the office at 9 to find his parking space taken. Many "Smed heads," as employees are called, have been on the job since 7:30. "I get no respect around here," says the CEO with a good-natured grumble. He quickly creates his own space, maneuvering his Lexus 4x4 up onto a median strip.
Smed's company, which started out making modular desks and storage units but in recent years has branched out into "creative working environments," has grown so quickly--sales jumped 56%, to $108 million (U.S.) in 1997--that such parking jams are common at its headquarters, in Calgary, Alberta. The factory next door has resorted to posting a sign: "No Smed parking. Violators will be towed."
Inside the building, Smed is fortunate to find his desk unoccupied. The place is wall-to-wall people. Some 250 office workers, many hired in the past 18 months, are down to 60 square feet or less apiece. That's at least twice as densely packed as most offices are. It's enough to remind Papa John's, a Smed customer, of its own origins: the pizza chain started in a broom closet. But the crowded quarters aren't the result of some crazed cost-cutting committee at work. Rather, they're a reflection of the reality of trying to accommodate hypergrowth.
In many ways, the offices also reflect the company's freewheeling culture. Mogens Smed, 49, works in an open bay of workstations he shares with his four executive vice-presidents. "What happened to my chair?" one of the four, chief financial officer Andrew Moor, asks this morning. Apparently, it's not an unusual question, though the company markets more than 200 styles of chairs. As Laura Larsen, the vice-president of marketing who now heads the seating sales division, puts it: "You have to figure out how you're going to be an asset here, even where you'll find a chair. When I first got here, I didn't have a desk and had to work out of a box."
Smed himself gave up his private office to make way for new employees. The two-office suite he used to share with one other executive has been remodeled into a maple-wood-finished enclave for 16 employees. And the reconfiguration was done in a weekend, speed being one of the early trademarks of this company, which guarantees customers delivery in four weeks.
As it happens, the executive-suite makeover is one of the highlights of a very revealing office tour the company conducts for current and potential customers. Smed calls it the working showroom. But this is no show. It's real life at a fast-growing company.
Spend a few minutes here, and it soon becomes clear that this is no ordinary company. And that's something Smed has seized on--and is actively marketing. Smed, which designs, manufactures, and sells office partitions and furniture systems that can be quickly installed and rearranged as needed, is living its products. As a result, its offices have become a working laboratory for product and service innovations. And in the past five years the office tour has become the major showcase for Smed products and, perhaps more important to potential customers, a sort of theater-in-the-round to show off the know-how and enthusiasm of Smed employees. Potential clients are guided through the company by workers eager to display both their technical knowledge and their understanding, through their own experience, of the flexible office arrangements so much in demand by their fast-growth-company clients.
Smed doesn't advertise; it doesn't do direct mail or telemarketing. And compared with its largest rivals, the likes of Steelcase Inc. and Herman Miller, it has no retail presence. Instead, the 15-year-old company has distinguished itself from the competition by making what it knows and uses itself--both its own products and those of others--entirely accessible to potential customers. The employee-guided tours, in short, have become the company's primary marketing tool.
"The place is very hectic, and for me the tour was very insightful," says Charles Devlin, president of $4-million R&D Transportation Services Inc., in Moorpark, Calif., who visited Smed with six other members of the Los Angeles chapter of his CEO-peer group, TEC/The Executive Committee. "I came back with a renewed sense of how important the right kind of culture is," says Devlin. "What they're selling is the Smed way. You're not buying a damn desk. Mogens wants you to see they're the real deal, if you will. It's not something they're just pitching; they're leading the same life as their customers."
Indeed, in its 15 years, Smed, now publicly traded, has experienced its share of downturns, cash-flow crunches, and fights with its own building contractors. And the people there know from upgrading their own space the havoc that network computing and fiber optics can wreak on an old building. (Smed uses technology for everything from its flexible manufacturing to analyzing the posture of a client sitting in a Smed chair.) "Most offices today are totally archaic in their form," Mogens Smed notes. The CEO figures he's done almost a complete reconfiguration of the office each year, making the company's "churn rate" close to 100%. More recently, when the CEO began planning the new corporate headquarters, scheduled to be ready in a month or so, the company took on a raft of technical and aesthetic challenges. More than 100 of its 1,400 employees in Calgary, from nearly every department, played a role in space planning--which has helped them better understand the challenges that many of their customers are facing.
It's no wonder visitors bring their cameras and take notes. Each month anywhere from 15 to as many as 150 come--chief financial officers, facilities managers, designers, architects, and company owners. Some 70% of Smed's customers come from the United States. Frito-Lay has come through, and DreamWorks SKG, too. Toyota has put Smed on its itinerary about a half dozen times over the last decade. And on their tour, executives from Coopers & Lybrand met with employees in the CAD department, product development, and customer service. The visitors come to kick the tires, and they come to try to poke holes in a small company--top-seeded Steelcase does $3 billion to Smed's $108 million--that sounds too good to be true. "These companies are tremendously demanding. They don't believe we can ship in 4 weeks; they're used to a furniture company saying 6 to 12 weeks," notes Gary Hinton, a longtime salesperson.
Bank of America, based in San Francisco, has come through Smed's working showroom three times. The bank's chairman and CEO vowed publicly to make its offices among the best places to work. Last summer Bank of America brought 40 members of its construction-and-design team through for three days of training after it selected Smed's LifeSpace movable-wall system for some of its administrative offices. One bank manager's impression of the company: "We didn't meet any passive people. They all get the mission." That includes Pankaj Shingadia of the internal security staff, who takes guests to and from the airport. He so regaled one executive with his knowledge of and enthusiasm for Smed that he helped clinch a sale. Today his business card also reads "client relations."
Employees from all parts of the company take turns doing a leg of the tour, usually after they've been with Smed for at least two years. An exception: Karen Gallagher-Burt, who works in the company's training department, quickly became a guide after impressing some VIP visitors during a tour conducted just two months after she'd joined Smed. Tours are customized for each visitor. Some visitors want to follow the path of an order through the office. Others want the full factory tour. And some want to see it all, including the latest addition--Mogens Smed's new home, notable mainly for its unusual mix of materials. In fact, most tours begin on his private grounds; when the company ran out of room for conducting product demonstrations at the offices, Mogens Smed converted his 10-car garage into showroom and office space.
"Cool," says Kimberly Overton, a designer from Leo A. Daly, as she snaps on the doors to an overhead cabinet. This week in October, the Smed "tourists" who gather at the former garage include Overton and Dennis D. Forslund, another designer from Daly, a large architectural, engineering, and interior-design firm based in Omaha. Smed tour guides Sean Sharkey and Craig Robinson are putting together a workstation from scratch, starting with Smed's cable-concealing "Legs" platform. Sharkey is part of the company's field-installation team, while Robinson works in the market-support group, which provides help to the sales reps. Robinson, doing what Smed heads love to do--dropping the names and details of customer case studies--mentions an overhead cabinet that was shortened for Coopers & Lybrand so that the accounting firm could fit large computer monitors underneath. That particular size cabinet is now known as the "Coopers" overhead. "Wait until you see our offices," Sharkey says. "We've dressed the workstations up to the nines."
Brian Cassie, head of the project-services group and Smed's resident "wiring guru," explains the origins of a design change to Legs by starting with, "Fox News needed six inches between the voice and power cables." Later there's more talk about electrical work when everyone peers down at a box in the floor that handles 16 connections at once. It's a product from Spider Manufacturing Inc., the visitors find out. They'll see the same electrical box in use later that day at the offices.
Indeed, the most startling point of the tour is when you realize you're not really talking about furniture anymore. Designers Forslund and Overton pay keen attention to a demonstration of LifeSpace, Smed's plug-and-play movable wall, which can be installed with voice, data, electric, fiber-optic, and even plumbing hookups included. LifeSpace is generally much cheaper than traditional drywall constructions are, explains Doug Stevens, Smed's executive vice-president of marketing and sales. "You don't have to bring in as many subcontractors over the life of a project," says Stevens, who spent 10 years working in construction before coming to Smed. "It costs just $5 in labor for us to put an electrical box into our wall." Forslund is staring at the cutout in the LifeSpace wall displaying the cabling. A lightbulb goes on in his head. "You guys are acting like a general contractor," he says excitedly. "Bingo," answers Stevens. "Well, there's your edge right there," says Overton.
In peddling the joys of LifeSpace, Smed is only preaching what it already practices. Five years ago LifeSpace solved a major in-house challenge: how to reconfigure its rapidly evolving office space without living with construction workers--a concern expressed over and over by customers. In this case, LifeSpace helped carve out additional conference rooms without erecting permanent walls.
Robert J. Wright, a visiting director of facilities, construction, and security from Ernst & Young in Los Angeles, also at the LifeSpace demonstration, is fascinated with a product on display from Lucent Technologies, a spin-off of AT&T, based in Murray Hill, N.J. The device looks like a power bar. It saves space by combining voice and data connections, and it also is easy to connect and disconnect--adding to LifeSpace's portability. Lucent calls it a structured cabling system. "Are you using it?" Smed's Gary Scitthelm, vice-president of the LifeSpace division, asks. "No," Wright says. "We weren't, either," says Scitthelm. "We used to do home runs," he says, referring to the standard way of running yards and yards of cable from each phone and computer on a network through the floor or ceiling to a central location. "But," says Scitthelm, "now this is how we're doing all our cabling." Wright, who has proved himself extremely difficult to impress during his visit thus far, marvels at the Lucent box and says, "The attention to detail here is great."
Over at the main offices, where Mogens Smed is illegally parked, Tim Teasdale, a marketing vice-president, is poised to take a group through the working showroom. Inside the small lobby he pauses. "I have to apologize going in. This is a lousy place to show the product--we're so crammed in." Yet his apology also has the interesting effect of making the visitors pay closer attention.
As the tour winds its way through the offices, where color and fabric patterns roughly demarcate the different departments, employees squeeze by on the way to their desks. Shoehorning 250 people into those confined quarters has demanded just about every workstation configuration imaginable.
Wright, from Ernst & Young, stops to sit down in a semi-enclosed workstation, roughly six by eight feet. It's the closest thing to an "office" in Smed's open plan. He asks others in the group for feedback. Could they imagine occupying a space that small?
Some visitors want to know the exact details of the workstations they see. "They'll ask us, 'What's that fabric?' or 'What's that finish?' " says tour coordinator Tamara Kucey. "This is our little crib sheet," she adds, pointing to a small cube resting on a shelf above her desk. Each cube frames a list of a dozen product details for its particular workstation. "Natural beech, black base, PVC edge, p-lam: Nevamar..." reads the list on Kucey's cube. "We have a master design book," she notes, "but this is faster for designers who ask questions as they come through the offices." The cubes were the brainstorm of staff designer Debbie Carruthers.
In the CAD department, a bullpen housing 50 people sitting at workstations and on stools around high pedestal-like tables, the designers work in small groups on projects for Maytag and Dr. Pepper, among others. There's a buzz, reminiscent of a clutch of college students gathered in a campus lounge to prepare a group paper.
The east wing of the building, which was formerly a lounge, was reconfigured into office space that quickly filled up with employees. The tour circles back around to the executive suite that was torn down to make room for the 16 people working on LifeSpace orders. A sliding barn-style door with architectural glass leads into the area. A visitor snaps a few pictures of the door and of a curved glass wall in one corner. That wall reflects something deeper to the employees who pass by. If there was any doubt that Smed wasn't simply peddling office furniture anymore, the glass wall shattered it. Two years ago, as sales of the LifeSpace wall began to take off, it became clear customers wanted walls that were portable and good-looking. Seemingly out of nowhere, Mogens Smed came up with the idea for a curved glass wall as one LifeSpace option. At the time, recalls Laura Larsen, "I thought to myself, 'I guess we're not just selling chairs anymore.' "
In the years that Smed has swung customers and prospects through its offices, the tour has achieved a sales-conversion rate of nearly 100%, says Mogens Smed. Excluding visitors such as local school groups and those who've come through to see the culture at work, he can think of only two instances in which visiting prospects did not later become customers.
"They're not going to waste their time coming if they're not serious," he says. "Their time is worth about 10 times our cost."
For years, Smed competed on manufacturing speed and flexibility alone. The company boasted 300 wood finishes; today it has more than 1,000 wood, paint, powder-coat, and laminate finishes, but that's no longer a major selling point. And innovative as LifeSpace is--and outside observers confirm Smed is ahead of the curve--it can be copied, as can any of Smed's other products. And Smed heads know that.
Mogens Smed explains the company's goal this way: "We want to be part of the client's design team. We want to consult on the development of the new space." And he's built the workforce to do it. "The furniture," he concludes, "is incidental to the process."
With the goal of growing the company's annual revenues to $1 billion in seven years, Mogens Smed is betting on attracting many more potential clients to Calgary. He's modestly billing the new headquarters as "the only truly intelligent office building in the world" by dint of the combination of technology and Smed solutions. It won't be a lofty office of the future, he says, "but what works today." The new tour will hammer home Smed's economical innovations, which can be passed on to customers for use in their own projects.
For example, the data- and communication-cabling products from Lucent Technologies "right up front saved us money on cable vendors and the phone company," says Smed. He pegs the yearly savings at $300,000. The building will make use of ergonomically correct lighting and the latest in sound masking, from Dynasound.
In the new space, the visiting companies (streaming in at an estimated rate of four to five tours a day) will see a dozen versions of LifeSpace and 20 different workstation configurations. "I've taken the best examples from my customers," says Smed. Each area of the company will have its own theme conveyed through the use of color, fabric, and finishes. Smed technicians will handle the interior "fit out" themselves, installing everything except the ceilings, all the while adding to Smed's collective know-how.
And Smed will pile on the amenities. Clients will be greeted by a concierge who'll handle all their travel details, and four offices will be set up for visitors to use as their own. Information on every design and construction detail--from the custom conference tables to the colorful Marmoleum floor in the cafeteria--will be just a touch screen away. And where will Mogens Smed sit? Smack in the middle of customer service.
Conspicuously missing from the plans is any kind of traditional showroom space. Says Smed, "If we have a great space to work in, I'll have the best showroom in the world, believe you me."
Susan Greco is the articles editor at Inc.
Four companies that excel at marketing innovation:
Reeling Them In
COMPANY: The Orvis Co.
BUSINESS: Mail-order and retail supplier of "country" clothing, gifts, and sporting gear, which competes against bigger brand names L.L. Bean and Eddie Bauer
LOCATION: Manchester, Vt.
ANNUAL SALES: $350 million
CHARACTERISTIC IT REALIZED IT COULD MARKET: A long history of fly-fishing expertise
MARKETING VEHICLE: Orvis fly-fishing schools, situated in scenic areas from California to Florida, make a difficult sport accessible to a new generation of anglers. Beginners, says Orvis catalog manager and vice-president Tom Rosenbauer, "are very loyal customers" and are crucial to continuing expansion of the more profitable clothing and gift lines. The schools, not incidentally, are usually located near Orvis retail outlets. Orvis had sales of less than $1 million when it opened its first fly-fishing school, in 1968. Fly-fishing products contribute just a small fraction of the company's overall sales, but, says Rosenbauer, "without our fly-fishing heritage, we'd be just another rag vendor."
COMPANY: Quad/Graphics BUSINESS: Printing services
LOCATION: Pewaukee, Wis. FOUNDED: 1971
ANNUAL SALES: $1.2 billion
CHARACTERISTIC IT REALIZED IT COULD MARKET: Ability to make a mundane industry interesting to customers
MARKETING VEHICLE: Camp Quad, eight three-day sessions of educational seminars and festivities, held in April and May and attended by about 30 customers each. Company founder Harry Quadracci started the camp, which is free to participants, in 1980, when Quad's revenues were $21 million. Today the camp is the quintessential connection to customers (which include Inc. magazine) for Quad's 10,000 employees. On the other side, customers learn a lot about Quad's culture and products, as well as about printing processes. "A nice synergy develops as people ask questions," says Gary Cartwright, an administrative plant manager at Quad.
Getting All the Dirt
COMPANY: Ruppert Landscape Co.
BUSINESS: Commercial landscaping contractor
LOCATION: Ashton, Md.
ANNUAL SALES: $40 million
CHARACTERISTIC IT REALIZED IT COULD MARKET: A trained workforce in an industry in which that's an exception
MARKETING VEHICLE: "Field Day," a massive one-day employee-training event for all Ruppert workers, held in a public location earmarked for free landscaping. The first Field Day was held in 1981, when the company's revenues were less than $1 million. By 1992 it had grown into a major charitable event. Today customers are among the judges of team competitions for everything from truck cleanliness to laying sod. While the recipients' needs are of primary consideration, Field Day locales are also picked partly for their significance to Ruppert's workers and partly for market potential. Last summer 700 employees descended on the grounds of 24 Washington, D.C., public schools, and several superintendents served as judges. As a result of the exposure, Ruppert was asked to bid on several school-related projects.
Show and Tell
COMPANY: Skyline Displays Inc.
BUSINESS: Manufacturer of trade-show displays and graphics
LOCATION: Burnsville, Minn.
ANNUAL SALES: $100 million
CHARACTERISTIC IT REALIZED IT COULD MARKET: Ability to bring trade-show booths to life, at a time when many competitors were still selling wood-and-glue boxes
MARKETING VEHICLE: A free advisory service in the form of a traveling road show. "It's a joint party we put on with our distributors for potential and current clients in about 35 cities," says president Bryan Beaulieu. Skyline presents a multimedia, interactive show of the good, the bad, and the ugly in trade-show booths, followed by on-the-spot consultation with Skyline designers and salespeople on everything from how to make a booth more inviting to how to ship a booth overseas. Typically, a number of the 20,000 road-show attendees each year go on to take Skyline's for-profit course on "boothmanship." The class teaches the employees who will be stationed at trade-show booths (the "actors" of a display "set") how to engage their audience.
The Ripple Effect
By Jack Stack, president of Springfield ReManufacturing Corp.
When we brought our customers and employees together in a setting where they could get to know one another as people, amazing things happened
Surveying the scene on the lake that cold October morning, you'd never have guessed that marketing was going on. There were no advertisements, no signs, no promotions of any kind. There were just 20 bass boats, bobbing gently in the water as their occupants peered tensely into the fog, looking for the signal to start the tournament. Sitting there, you could feel the excitement of the impending competition. You could see the intensity in the faces of the competitors. The cold didn't matter. The damp didn't matter. At that moment, nothing mattered except the game.
There was more to this game than met the eye, however. The tournament was part of a plan that my company, Springfield ReManufacturing Corp., had come up with about a year earlier. At the time we'd been looking for ways to develop closer relationships with the dealers who sell the engines and engine components we remanufacture for one of our largest customers, a major truck maker. To win the dealers' loyalty, we realized that we first had to differentiate ourselves from the 9,000 other engine rebuilders in the continental United States.
But how? Like most companies, we were operating in an intensely competitive marketplace and increasingly found that we couldn't rely on factors such as price and quality to set ourselves apart. So what advantages did we have? We were racking our brains for an answer when someone pointed out that we lived in Springfield, Mo., and our competitors didn't. The rest of us just stared blankly at him. "Fishing," he said. "The best bass lakes in America." We got it. From there, the pieces just fell into place. Before long, we'd mapped out a five-year marketing plan--built around fishing.
The idea was to hold a bass tournament every year for the dealers who sold the largest number of products in that particular line. The first year, we'd invite the top 20 dealers, who would then be automatically eligible to return the following year, provided they increased their sales of our products by 15%. They'd be joined in the second tournament by the 20 dealers who had the highest sales among those who hadn't previously qualified. All 40 could then return in the third year as long as they increased their sales by 15% from the year before, and we'd add the next top 20 from the remaining dealers.
So it would go until the fifth year of the tournament, when we'd have 100 dealers competing in our Megabucks tournament, as we called it.
Of course, for the game to work, we had to get the dealers to play. So we made them an offer they couldn't refuse. Not only would we cover their expenses, but we promised them the time of their lives when they got here, in addition to the opportunity to win serious prize money. In each of the first four tournaments, we'd put up $10,000 in prizes, with $5,000 going to the winner and smaller amounts to the runners-up. In the fifth year, the grand prize would be $50,000.
There was one other detail we added, almost as an afterthought. Although many of the dealers loved to fish, none of them, we realized, were familiar with Table Rock Lake, where we'd be holding the tournament. It occurred to us that we'd need to provide them with guides. We decided to use our own people. SRC is loaded with experienced fishermen, and you can't get much closer to the customer than you do when you spend eight hours alone together in an 18-foot bass boat. So we went around the company recruiting guides--water-pump assemblers, engine disassemblers, machinists, an engine tester, a production manager, frontline supervisors, a bookkeeper, the company president, you name it.
On paper, at least, it looked like a good investment. We figured that, all told, the tournaments would cost us $100,000 in prize money, plus about $90,000 to cover the dealers' travel expenses and another $90,000 for food, entertainment, and accommodations. That came to $280,000 over the five years. And what could we expect in return? Better relationships with our dealers, of course, but also a substantial increase in sales of our engines and engine components.
Under the rules, after all, the first-year participants alone would have to increase their sales of our products by 75% to stay in the running for the $50,000 prize. Adding up the numbers, we could see that the profit on the additional sales from the tournaments would give us a nice return on our investment--assuming the plan worked, that is.
In the end, it worked better than we ever could have imagined. Over the next five years, we established close relationships with dozens of dealers and doubled the sales of the entire product line. The tournaments themselves were so successful that we began holding similar events for other groups of customers. Before long we had customers coming to us requesting fishing tournaments. One dealer even asked us to put a tournament together for his customers--and we did.
And yet, pleased as we were with the results, I can't say that we knew going in how successful we'd be. Something happened in the tournaments that I, for one, never anticipated, something that went beyond marketing in the usual sense of the term. Our customers began to connect with us, not through our products but through the people behind our products, and the effect was extraordinary.
You could see it in the friendships that formed on the lake. You could read it in the postcards that went back and forth between tournaments. You could hear it in the stories that the participants told whenever they got together afterward. About the morning when the fog wouldn't lift. About all the fish that got away. About the SRC guide who was so determined to help his partner win that he worked straight through lunch, eating raw hot dogs with one hand and throwing his lure with the other.
As time went by, the annual tournaments became more like family reunions than marketing events. They were opportunities for the people who made the products and the people who sold the products to come together, not to fight about warranty claims or haggle over prices or complain about delivery problems, but to enjoy the fruits of their labor in a beautiful setting where they could laugh, tell stories, reminisce, share some adventures, and get to know one another.
Slowly, it began to dawn on me what was going on here. We'd discovered our real competitive advantage. Other companies could match our products, but no one could match our people. We'd spent 20 years building a workplace where everybody is treated like a grown-up and encouraged to think and act like an owner. We'd created an entire management system to help us do it. The result was a company of good, smart businesspeople with great values. Call it "human capital" or "intellectual capital" or whatever term you choose. Our people are the best reason to do business with us, and the fishing tournaments gave us an opportunity to showcase them and the style of business they embodied.
But that's not all we were doing in the tournaments. We were also introducing our customers to our culture. We were inviting them into our community, building the same bonds with them that we have with one another. We were showing them how we manage to work and have fun and make money at the same time, and we were giving them the chance to do it with us. Most of them seemed to find the offer irresistible.
What was the attraction? No doubt, fishing had something to do with it, but I have to believe that a lot of our customers felt as great a need as we do to belong to a community of people who see business not as an obstacle to a good and balanced life but as a means to achieve it.
Jack Stack is the president of Springfield ReManufacturing Corp., based in Springfield, Mo. He is the author of The Great Game of Business (Doubleday/Currency, 1992). Editor at large Bo Burlingham is the coauthor of both the book and this article.