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STRATEGY

Sharer Beware
 

Here's how Mike Dreese, CEO of music retailer Newbury Comics, came to realize that the sales information he shared with his industry was putting his company at a disadvantage.
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Company Secrets

Are you giving away too much information about your business?

Of all the people Mike Dreese met at 1997's Gavin in the Pines convention--a big recording-industry show held in New Hampshire that year--it was the rep from rackjobber Handleman Co. that made the biggest impression. Dreese recalls watching this guy strut, practically beating his chest as he boasted about the fantastic information his company was getting on regional sales of CDs. Now Handleman, the largest buyer of music in the country, knew exactly what genres of music were selling where and when, the rep gloated. The data helped the company know exactly what to stock in the record bins it serviced in giant mass-market retailers like Wal-Mart and Kmart. By combining these new data with its own figures, Handleman could determine just how many units of, say, Korn's debut album or the latest from 2 Skinnee J's it should place in the racks at the Wal-Mart on Route 1A in Lynn, Mass. And this new bounty of information came from one source: SoundScan Inc., a private company that electronically tracks and tallies every single record sold by some 85% of music retailers in the country. SoundScan then crunches the numbers and sells reports to the record labels, promoters, and managers.

Mike Dreese couldn't believe it. He knew where some of the information was coming from. It was coming from him. Every Sunday night for the past six years, he'd steadfastly reported, direct from his IBM AS/400 minicomputer, the sales of his now-20-store record chain, Newbury Comics--location by location, label by label, artist by artist--to SoundScan's powerful server in Hartsdale, N.Y.

From the start, Dreese had concerns about releasing his numbers electronically through a third party, even though he says that SoundScan founders Mike Shalett and Mike Fine had assured him that his figures would go to the record labels only in aggregate form. But now he'd heard a Handleman rep say that the information Newbury Comics was giving to SoundScan was helping the giant retailers that it competes with every day. "The rep indicated that Handleman had this wonderful way of getting information to help them program Wal-Mart's CD bins," says Dreese, leaning across his battered metal desk, which he bought used in the late 1980s for 30 bucks. "It made me realize to what an extent a company like Wal-Mart was benefiting from the precise regional data that it could never compile on its own."

Dreese had to act--but not too hastily. After 19 years in the business, he knew better than to casually risk the promotional support--the price-and-position dollars, the artist appearances, the cooperative advertising--that the labels bestowed on retailers that reported to SoundScan. And he wasn't about to do himself in on an impulse. So he waited and thought and reconsidered. But, Dreese says, about three months after he'd returned from the Gavin convention in Holderness, N.H., he picked up the phone and called SoundScan. "I asked them if they had in fact ever engaged in consulting arrangements with retailers," he says, "and they said in fact that they had."

Dreese knew what he had to do. "The letter I sent was your basic bombshell letter," he says. "It just said, 'As per our contract, as of June 1998, we will no longer be a SoundScan reporter."

Mike Dreese had pulled the plug.

This was not the way it was supposed to be. Sharing information, the conventional wisdom goes, gives your business a competitive edge--no matter what industry you're in and no matter where you fall in the supply chain. And any technology that can facilitate that sharing (be it point-of-sale systems linked to modems, as in the case of the music industry, or radio-frequency transponders connected to PCs, as in the case of the beef industry) only sharpens your chances for success.

It just makes sense: to run an efficient business--whether you're a manufacturer, a distributor, a wholesaler, or a retailer--you must know what the end consumer wants. If the manufacturer doesn't have that information, it will fall prey to what's known as the bullwhip effect--increasingly larger distortions in the signal from the end-consumer market as it travels up the supply stream. (Just knowing what orders are coming in isn't enough, as orders necessarily include a fudge factor.) Without up-to-date sales figures from the retailer, the manufacturer can't accurately predict demand. So the retailer then runs the risk of either overordering product (to be sure it has enough) or running out of stock.

"A small fluctuation in end-consumer demand can lead to wide fluctuations upstream in the channel," says Ananth Raman, an associate professor at Harvard Business School who specializes in supply-chain management and retail operations. "The distortions add up, and variability always costs money. So channels have become extremely inefficient. They carry lots of inventory to cover against this kind of fluctuation. And what is weird is that we've started playing games to overcome some of this fluctuation--people anticipate shortages, manufacturers lie about how much is in inventory. And all of these exacerbate the fluctuations."

Sharing information prevents the distortions from ever slipping into the supply-chain waters. And when the distortions are gone, businesses can read consumer demand more accurately. Supply and demand begin to align. The manufacturer stops responding to phantom orders and its own (mistaken) linear predictions for more product. The retailer reduces its inventory investment (often by as much as 25%, says Raman) and runs out of stock less often (increasing sales by 4% or 5%, he says), because a manufacturer that can predict demand needs less lead time to get product to the retailer.

The music industry is no exception. And given its hit-driven nature, the benefits of sharing information are even more pronounced. If the record labels are aware of how many of which records are selling where, they can identify breakout artists and breakout markets and know where to concentrate their marketing and promotional efforts (in which regions to lobby for radio play of a particular band, for instance, or to push a new CD). For the retailers--the suppliers of the raw material upon which the labels base those decisions--the benefits are twofold. They get promotional dollars from the record labels as well as boxes of free CDs, and they help propel the artists they believe in up the Billboard music charts, because SoundScan sells its figures to the charts' compiler, Billboard magazine, in addition to the labels. "SoundScan is the best thing that's happened to this industry, labels and retailers alike," says Jordan Katz, vice-president of sales for Arista Records.

It's what people say in a lot of industries these days: Use technology to share information and everybody benefits.

Or do they? What if you're a trendsetting retailer and want to keep a product that you've introduced under wraps--Kangol caps, say, or Guster's latest CD--so customers can buy it, for a time at least, only in your shop? What if you're dominant in your marketplace and the information you release can be identified by your competitors, including major chains that can undersell you, as coming from your store specifically? What if you don't know for sure how your information is being used, or who is using it, after you zap it by modem, week after week, to some giant server on what might as well be the other side of the moon?

To gain a competitive edge by sharing information, it seems, you may risk losing one. Mike Dreese certainly thinks so.

Dreese, the co-owner of perhaps the hippest music and pop-culture outlet in the Boston area, is a study in contrasts. With his straight brown bangs just grazing his black plastic glasses and his gray cotton socks tucked neatly beneath his lean black jeans, he looks like a straight-A grad student in economics or computer science. (He did, in fact, study economics at MIT in the 1970s.) But his bland, almost-collegiate appearance is radically offset by the paraphernalia coloring his surroundings: photos of the alternative-rock group Barenaked Ladies in concert at Boston City Hall Plaza, plaques commemorating record sales of groups like the Gigolo Aunts and the Squirrel Nut Zippers, and posters of the Beastie Boys and Portishead pinned to cubicle walls. And then there is the stuff he sells, spilling out of a zoo of boxes in the company's 44,000-square-foot warehouse/headquarters in Allston, Mass.: items like inflatable South Park pillows, Doc Martens boots, Spice Girls dolls, hot-pink beanbag chairs, Manic Panic hair dye (purple among the shades), and of course miles and miles of CDs--the new artists (Rancid, Godsmack, Blood for Blood, Rob Zombie), the old artists (Derek & the Dominos, the Beatles, the Beach Boys), and the old, old artists (Handel, Pachelbel, Mozart).

Cool quotient notwithstanding, Dreese, 43, and his partner, John Brusger, 42, are such rigorous businessmen that the $55-million Newbury Comics was an Inc. 500 company for two years running (1986 and 1987), and it's also the dominant retail account in the Boston market (in SoundScan lingo, the Boston "designated metropolitan area," or DMA). Newbury Comics --like John Kunz's Waterloo Records, in Austin, and Terry Currier's Music Millennium, in Portland, Oreg.--is one of the places where the industry turns to see what trends are being set, which artists are breaking out, who might be the next big thing. "They are the king," says Don VanCleave, president of the Coalition of Independent Music Stores (CIMS), which represents 27 small retailers across the country, and owner of Magic Platter, a $1-million record store in Birmingham, Ala. "They're the dominant player in that market. They could realistically sell 60% of all the [point-of-sale] scans on a first-week new release for the Boston market, regardless of all the Strawberries and Tower Records and HMVs and Wal-Marts and Best Buys and whoever-God-knows-else is up in that area."

Being dominant in the music business, however, is not just about numbers. It is about knowing. It is about having your ear to the ground (that is, listening to your customers as well as to reams of music) so that you can pick out which new acts will fly--whether they've received radio airplay or made their debut the night before in a local club or are selling a self-produced CD out of the trunk of a car. It is about bringing the artists you've found into your store to play and promoting them, literally, to beat the band. In short, it is about helping to create a marketplace rather than just reacting to one. "There are always retailers who sell what they stock, like a Newbury," says Harvard's Raman, "whereas others stock what they sell."

The competitive edge for a trendsetter like Newbury Comics is, essentially, time. There's a window of opportunity during which that retailer aggressively, and exclusively, sells new acts it has targeted--say, Days of the New in Dreese's case or Lyle Lovett in Kunz's--before they show up on the radar of larger retailers. "An account like Newbury really feels the sales on the front end of the record, in the initial stages of it," says Mark Cope, formerly senior vice-president of retail at the music-trade magazine Album Network. "They're out there at the edge, helping to break these artists. And their real profit comes in those first weeks, or whatever it is, of the process of breaking these artists."

In 1978, when Newbury Comics launched its first store (a converted studio apartment on Boston's trendy Newbury Street), that window was generally open for months. Record labels had to wait for retailers to begin shipping back returns to compile even rough sales figures. And news about actual sales that passed from sales reps to the labels or even to other retailers took time to react to and could be subject to distortions. (George Daniels, of 30-year-old George's Music Room, in Chicago, puts the lag at that time at one to two months.) But then, in 1991, SoundScan--with its POS systems and bar-coded CDs and dial-up phone lines--entered the picture. And that window began to close--so much so, says Dreese, that today the lag can be as little as eight days.

Here's the countdown: On Sunday night or Monday morning, retailers transmit to SoundScan a computer file of the exact number of units they sold of each title at each of their locations for the previous week. From the files of those approximately 15,000 stores (including some 600 independent retailers), SoundScan then compiles its reports. Those reports include everything from how many units of a particular title were sold in a particular city to what type of store the title was sold in (chain, independent, mass merchant, nontraditional) to the top 50 albums for the past week, broken down by label. (The depth of detail a label gets depends on the level of service it pays for.) On Wednesday morning, SoundScan releases those reports (they're now available on-line, with the use of passwords, at aud.soundscan.com) to its subscriber base and sends retailers a list of the top-100 sellers in their DMA. "So if we had, say, on a street date [when new records are released] of the previous Tuesday done very well with an obscure record, the following Wednesday everybody would know about it," says Dreese.

The hipper music stores don't care so much about the numbers; they're busy pushing their own unconventional inventory. But a Kmart or a Circuit City--now, that's another matter. Such mass-market retailers have to look no further than SoundScan's top-100 in the Boston DMA and their own inventory records to know that a certain title they don't have yet is flying fast off the shelves of another local retailer. "The new releases are where [Mike's] concerned--where his people step out and believe and embrace a new release," says CIMS's VanCleave. "And then chain guys don't pay anybody to do that. All they do is sit there and wait for the numbers to come in, and then they decide to order it. The way Mike's got it now, by not reporting, it may take his local chain competitors weeks to get the information."

"If Newbury Comics' information shows the trends and what's breaking out there, not just to the record labels, but to...Musicland or Trans World or whomever, they can make their buying decisions based on information that is funneled into SoundScan for that market," adds Mark Cope. "You have to remember, those larger accounts are dealing with very tight open-to-buy budgets--which means that they have a specific budget that they can spend each month on buying product. So they have to be right more times than they're wrong. And so they're taking every bit of information they can in order to ensure that they're putting the right records in the right stores at the right time."

Mike Dreese has experienced the power of SoundScan to get the "right" records in the "right" stores. In 1997 Newbury Comics' own label, Wicked Disc, released a charity CD called the "WBCN Naked Disc," which featured previously unreleased performances by alternative bands like the Verve Pipe, Beck, Bush, and Tori Amos. Dreese and his colleagues tried their mightiest to get the record into retail outlets other than Newbury Comics, but some national chains, like Strawberries (which is owned by Trans World), wouldn't bite. And then the top-100 list for the Boston DMA came out for the week ending November 24, 1997: "Naked Disc" ranked number 63, with some 800 copies sold. Within one week of the release of the first SoundScan numbers, the ranking had jumped to number 28--a clear sign that additional retailers had picked up on the title. And by the week ending December 21, 1997, it had soared to number 13, with a whopping 5,800-plus copies sold. "When you see a number pop the way that one did in the Boston market," says Dreese, the chains "are forced to respond because all their store managers are saying that people want this. They look then at SoundScan and see that it's sold thousands of units and realize they really do need to bring it in."

Dreese was aware that his window of opportunity had shrunk to a crack when he headed to the New Hampshire convention in September 1997. But when he heard the Handleman rep "making these grandiose statements about the prowess of Handleman based on SoundScan as a tool," he feared that the window could slam shut. "It's very clear that now versus five years ago, retailers of every ilk have become a lot more sophisticated about using market-specific data to program the shelves of their stores," says Dreese. "So as the potential users of this [data] increasingly used it to good effect, we had to ask ourselves, 'Are we a beneficiary or a net loser in this information-transfer scheme?"

SoundScan chief operating officer Mike Shalett is not an easy man to reach. Just ask any independent retailer who's tried to establish a dialogue with him--John Kunz of Waterloo Records, for instance. But once you get Shalett on the telephone, he can't say enough about how Mike Dreese has no edge over other retailers, even very large ones, when it comes to picking up early on a new act and putting it on his shelves. If Dreese knows about it, Shalett says, so does everyone else--because they've heard it on local radio or read about it in local reviews. "I want to be clear about the breaking-the-act part," says Shalett over his car phone en route from Hartsdale to New York City. "The Boston Phoenix hasn't reviewed the record? [Boston radio stations] WBCN or 'AAF or none of these people are playing this record? You know, it's amazing, using this logic, that the record company even signed the act."

The trendsetting retailers, of course, beg to differ. Music Millennium's Terry Currier notes that his two stores helped to break, among others, the singer-songwriter Elliott Smith and guitar ace Richard Thompson as a soloist--and Thompson "has never received any airplay in this town at all," Currier adds. Waterloo's John Kunz cites rock musician Stevie Ray Vaughan and alterna-pop group Fastball as two acts that, he says, "unequivocally" broke out in his 55-employee establishment. And Carl Singmaster, owner of $10-million Manifest Discs & Tapes, which comprises six stores in the Carolinas, points to 2 Skinnee J's ("We sold hundreds of copies, before they were ever signed, before they ever had one spin on radio," he says) and pop stars Hootie & the Blowfish, hometown boys that Singmaster first heard in a club and on the band's own self-produced tapes.

Shalett isn't shy about discrediting the window of opportunity Mike Dreese is so worried about losing. "You know what?" he says. "[Newbury Comics is] a retailer. And we're not giving them an exclusive position to sell records. Last I looked, that would be a violation of fair trade....The issue is not about SoundScan. The issue is that [Mike Dreese] would like a two-week window on selling records."

Retailers, Shalett insists, know what their competitors are selling not because of SoundScan's DMA reports or because the labels fax them immediate downloads from SoundScan's Web page but because record-label salespeople talk. They talk to other retail customers, and they talk to the labels about who's ordering what. Here's how Shalett puts it: "Do you think that the salesman for Sony Music or WEA Distribution if, all of a sudden, argumentatively speaking, Michael Dreese has taken in a box of 25 copies of the Goo Goo Dolls, and he now calls back the distributor and says, 'Hey, I need 25 more copies of the Goo Goo Dolls,' and the guy says, 'Well, what's up?' 'Oh, hey, I'm doing really good with these.' Don't you think he calls Strawberries? Don't you think he calls the Harvard Coop?"

But information that's passed by word of mouth is one thing. Information that's shot electronically from a bar-code-scanning POS system straight to a high-powered database, and printed out in black and white, is something else. "[The labels] know what you're buying, but they don't know what you're selling," says Currier, echoing Ananth Raman's remarks about "fluctuations."

Besides, it takes time for information to be shuttled around the old-fashioned way. "Let's say my Sony sales rep comes into the store," says Currier. "They all get a copy of my top-selling records for the week. So if...they're seeing that it's one of their records in my top 30, they're going to probably go to the other accounts in the area and go, 'Hey, you'd better watch this record.' Now, by the time the other account reacts to it, three weeks have passed." Unless SoundScan is in play. Then it could be a matter of just days.

Yet as disturbed as Mike Dreese is at the prospect of losing his window of opportunity, he's even more bothered by the idea that SoundScan has established relationships with certain retailers--relationships, Dreese says, that the SoundScan execs had assured him were in the past. "We had done some consulting," Dreese says they told him. "We presently are not."

But when pressed, Shalett acknowledges that SoundScan is working with Handleman--right now. "We're doing work with the Handleman Co. about their sales," he says. "And we're not doing consulting work....We're trying to help them manage their inventory better, based on taking their sales and doing market-segmentation work with them. 'This sale took place in this store, the trade area is this wide, we can make a mathematical expectation that this is most likely the customer that's buying it. If I were you, for your store number 68, based on your own sales, I would have a little less of this and a little bit more of that."

One phrase in the last sentence is particularly crucial: "based on your own sales." Shalett insists that in its work with Handleman, SoundScan is getting all its information from the company itself, not from any other retailers in the various regions.

But Peter Cline tells a different story. Cline is president of Handleman's category-management group, Handleman Entertainment Resource, which supplies all the music to the mass-market retailers that the company services. Referring to SoundScan's work for Handleman, Cline says, "Oh, I know they're using other total data. It would be of no value to us if they weren't. Absolutely. We can do that ourselves."

According to Cline, in its work for Handleman, SoundScan is analyzing areas as refined as 700 or 800 families--or households--to see what genres of music sell in each one. "We give SoundScan aggregate data for all of our stores," says Cline. "We get back data on what's sold in that group [of families]. And then we can look at our stores within that neighborhood, if you will, to see how our mix of sales compares to that mix of sales to make sure that we're taking advantage of the opportunity."

For example, Handleman might look at sales for a group of 800 families in Lynn, Mass., to determine which came from the local Wal-Mart (numbers Handleman already has because it's Wal-Mart's rackjobber) and which came from all other music stores in the area. All Handleman has to do is subtract the Wal-Mart figures from the total area sales that are provided by SoundScan to know how to adjust its product mix. "What you're trying to do is to sort how much country, urban, rock, pop, gospel, Hispanic, etc., has sold," says Cline. "And then you reassort your number of SKUs [stock-keeping units] to line up with the opportunity."

So what's the story? Is SoundScan supplying Handleman with information based, in part, on numbers from regional retailers like Mike Dreese--or not?

SoundScan's Shalett hadn't responded by press time to numerous phone calls, faxes, and E-mail messages requesting that he comment on the discrepancy between Cline's statement and his own.

Make no mistake: soundscan has revolutionized the music industry. It took a ranking system that was based largely on bribes and payola and made it, basically, honest. It leveled the playing field for small, independent record labels by ensuring that their sales are counted, too.

But SoundScan--and, by extension, any information-sharing system--also has its dark side. And Mike Dreese decided that, for him, it had finally overshadowed the light. "We had lost control of our data," he says. "I'm talking about taking a region and its specific tastes and dropping your pants and letting Best Buy and Wal-Mart and people like that come in and just scoop your customer."

Dreese is an exception, partly because he can afford to be. He's big enough and has enough clout to sever his ties with SoundScan and still maintain solid, productive relationships with the labels. Other trendsetting retailers fear that if they were to pull the plug, they'd lose so much label support that they'd disappear. Moreover, they say, they put a tremendous amount into promoting new acts. And they want those efforts--for both their and the artists' sakes--to make a difference.

Mark Cope, perhaps, sums up the status of information sharing via SoundScan the best. "I think it's generally a positive thing," he says, "with an asterisk next to it."

Thea Singer is the articles editor for Inc. Technology.


Company Secrets
Finances, sure. But salaries? Never

Linda M. Navarro
President and CEO
Sonnet Supply Co.
Hawthorne, Calif.

Sonnet Supply is one of three companies that form the Sonnet Group, a $10-million business that sells industrial supplies and cutting tools to the aerospace industry. Linda Navarro has been written up in trade publications for her policy of allowing any customer to review her costs to see exactly what profit she makes.

"I decided to let my customers see exactly what our costs are, because I was tired of hearing that our prices were too high. I tell customers they're welcome to see what I pay for our products, and so far not one customer has called me on it. They say that if I'm that open, I must have nothing to hide, so they don't need to see the numbers.

"It's beyond me why anyone wouldn't make the same offer. It used to make me so angry when a manufacturer would tell me we're making too much money. Everybody has this big illusion that Linda has these fat pockets. It's not so. I'm doing what it takes to take care of my employees and keep the company growing.

"I have 15 employees. I run daily reports that are open to everyone to review. That way, they know what's expected of them. They know where we are in relation to our goals. I treat them like adults. There's no need to hide things. I think if the goals are well-defined, you have a better chance of a hit than a miss.

"What I won't do is discuss my overhead. I don't talk about employees' salaries or what kind of bonuses are issued. Financial results? Fine. But not salaries. Those are personal issues. Revealing that would infringe on people's private lives. But I'm perfectly fine telling anyone who wants to know what a widget costs me and what my profit is. That's my story, and I'm sticking to it."


Company Secrets
Never reveal a customer's strategy

Gary Wheeler
Principal and Managing Director
Perkins & Will, Chicago

Four years ago Gary Wheeler, as president and founder of the $3-million interior-design firm the Wheeler Group (acquired in 1997 by Perkins & Will), acceded to a client's request that he team up with arch rival Shea Architects to design a 12,000-square-foot flagship store in the Mall of America. The decisions he made then formed the basis for his current thinking on when to hold or release information.

"Our profession is very closed. All we have to sell is our ideas, and understandably, people are very tight with them. So when we agreed to do a project with Shea, we all had to sit down and lay out what we were going to share. We decided to give them all the information about the materials and finishes we use, and about architectural details we'd created for things like ceilings and lighting and wall structures. Information like that can be a competitive edge, but we decided to put on the table anything that helped move the project forward on the client's behalf.

"What we chose to keep to ourselves was the business side of things, like our billable hourly rate, labor costs, and budgets. That's a competitive advantage too, but it wasn't one that was important to the success of the project. We were also concerned about antitrust. We were both pretty big players, and it was important that we not appear to be setting fees in such a way that together we could control the market.

"Since we worked on that project, I've become good personal friends with David Shea, president of Shea Architects. When I still lived in Minneapolis, we would get together and talk a lot about our companies. But the thing I wouldn't discuss and still won't discuss--with him or anyone--is which prospective clients I'm currently marketing to. And even after we've got a job and the contract is all signed, I would never, ever discuss what the client itself is doing, what its strategies are. Doing that could hurt our customer's competitive advantage, and it's our job to protect them.

"I'm also careful not to talk about what I think about a client, whether they're good or bad to work with, that kind of thing. Quite often during this process, especially during construction when things are running late, you can get angry or hurt or think someone is being unreasonable. And you say things, and they get back to the client, and that can ruin the relationship. Eighty or ninety percent of my clients are people I've done business with for 10 or 20 years. And I think the reason I have those long-term relationships is that I respect our clients. That means not talking out of school."


Company Secrets
Keep intellectual property secure

Manny Ontiveros
Manager of Web services and information-systems training
Sandia National Laboratories
Albuquerque

Sandia is a giant R&D lab on a military base, operated by Lockheed Martin. It does classified work for the departments of Energy and Defense, and frequently works with private-sector companies and occasionally even with foreign governments. It has an elaborate system of Web sites meant to encourage information sharing both internally and externally.

"People use our external Web site to solicit partnerships from industry. They'll put up a home page that describes what their program does--create efficient solar cells, for example--and some of the program's accomplishments and research results. They want to put up enough information so that companies that sell solar-power systems, for example, or even foreign governments that want to deliver power to remote regions of their countries, might want to establish relationships with them. But we always have patent agents review the information before it's published. The agents determine whether we're actually giving away intellectual property by describing in too much detail a process that we have invented, and they then adjust the content accordingly. We don't want a competitor or a foreign government to get enough information that they could file the patent first.

"We certainly have issues relative to classified information, since the bulk of our work is related to nuclear weapons. So we have a strong program internally based on need to know. Our computer-security folks regularly conduct training for all of us so that we know what the different categories of information are, who you can and cannot release information to, what the processes for releasing it are, and so forth. Also, each of the major program groups has the equivalent of an information officer who oversees information release and minimizes the risk of someone releasing information inappropriately.

"The use of electronic-mail systems continues to be an issue as well. E-mails can contain tidbits of sensitive information that are innocuous in themselves but that could be pieced together into something pretty interesting. We want to be sure that someone conducting an electronic conversation over time with a university colleague, say, doesn't over-share without meaning to."


Company Secrets
Share it all with employees, soup to nuts

Ron Ferner
Former vice-president of low-cost business systems
Campbell's Soup Co.,
Camden, N.J.

When Ron Ferner first joined Campbell's Soup, in the 1960s, none of the company's executives believed in sharing any kind of information with anybody. By the time he retired, in 1996, Ferner and his colleagues had started sharing everything--goals, financials, product news--with employees.

"At first I was very skeptical about sharing information with employees, but now I'm a believer. I saw the power of the thing. But we always drew the line at salaries. And if we had a supersecret project that we were not sure we would actually launch, we may not have told. But everything else was fair game. Even with the hourly employees that ran the filling machines, putting soup in the cans, we shared the financials.

"At one point Campbell's had a philosophy of meeting with all employees every quarter. I had 1,800 people in my plant. It took three days to hold the meetings. It was quite a chore, but worth it. The employees got very comfortable. It was a real change from the old days, when we would stand behind a post and peek out to watch them work.

"That approach doesn't work overnight. If you don't talk to employees for 10 years and then show up and say that today we start talking, you'll be really disappointed. You have to pick where to draw the line very carefully. You're building trust and don't want to backtrack. It took us years to talk to employees and make them comfortable. Once they were, we started getting their ideas and finding out what the real problems were. A lot of things amazed us.

"One time a packaging team in Sacramento was having problems with boxes breaking. Some of us managers started talking to them about what the problems were and realized they really had a good handle on what was wrong. So we said, 'Why don't you guys call the supplier?' Then we called the supplier to tell them they would be hearing from our crew, and they said, 'Why not have them talk directly to our hourly employees?'

"If the managers alone had tried to solve this problem, it would have gone on forever. Instead, we rented a van, sent our people over, and solved the whole thing. Afterward, we had a party. It gave the workers great confidence. That never would have happened in the days when Campbell's had a policy of not telling anybody anything that wasn't written down for them."


Last updated: Mar 1, 1999




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