We Will Be the Best-Run Business in America
Larry Potterfield's twin obsessions find expression in a couple of jackets. The gold one, presented to him by the National Rifle Association, honors decades of support for sports shooting. Potterfield's lifelong enthusiasm for guns carried MidwayUSA, a purveyor of shooting supplies and hunting gear, to $40 million in sales from its founding in 1977 to 2003.
Potterfield's blue jacket commemorates a different distinction. In 2009, Midway became the 18th small business to win the Malcolm Baldrige National Quality Award, a kind of decathlon gold medal for organizational excellence. Potterfield's newly kindled enthusiasm for business processes helped Midway triple its customer base over the five years after 2004, when it started training to compete in Baldrige. In 2011, the company racked up revenue of $225 million.
Now this big-game hunter has in his cross hairs the most formidable quarry he has yet pursued. "We will be the best-run business in America!" Potterfield proclaims confidently in his amiable Midwestern twang. "And we will share the Baldrige principles that made us that way with communities all across the nation, so that America will be the best-run country in the world."
Potterfield, a silver-haired, sun-baked 62, is talking to me in his corporate jet on the way from Kansas City, Missouri, to Midway's home base of Columbia, Missouri. He is wearing his blue jacket today, having just delivered the concluding speech at the 2011 Baldrige Regional Conference, an educational event for organizations contemplating or embarked on what acolytes refer to as "the journey." With his face freshly furred ("I don't shave during hunting season"), he bears little resemblance to the beaming, grandfatherly persona beloved by the many fans of his instructional videos on the Outdoor Channel and YouTube. ("He's the wizard of gunsmithing. He's Harry Potterfield," reads a typical comment on a YouTube vignette about finding the balance point on a safari rifle.)
Flipping through a sheaf of color printouts, Potterfield shows me photos from recent hunting trips, identifying business associates in the background and deceased "critters" in the foreground. ("These are all MidwayUSA or Midway Foundation people that we took to Africa. Here's a zebra. That's the guy who manages the department that does all our videos. This is a kudu.") In addition to his frequent safaris, Potterfield travels once a month to preach the Baldrige gospel. He has spoken at conferences and to business groups in Florida, Wisconsin, Iowa, Minnesota, and Tennessee. Closer to home, he and his employees counsel quality-hungry organizations in Columbia and host monthly meetings at which local leaders delve deeply into Baldrige principles.
There are myriad business competitions, which companies enter for myriad reasons. Opportunistic CEOs slap together applications for every conceivable prize, hoping to show off their accomplishments or secure a PR payday. But no one undertakes Baldrige on a lark. The application for the award runs to 50 pages, with roughly 250 questions covering every aspect of performance, from strategic planning and knowledge management to work-force and customer focus to financial and market results. Each year, about 80 organizations apply. Of those, 13 to 15 are deemed worthy of site visits, and a handful receive the award. Honorees range from Ritz-Carlton and Federal Express to Pal's Sudden Service, a dogs-'n'-burger chain in Tennessee. Motorola's vaunted Six Sigma quality standard was revealed to the world in a 1988 Baldrige application.
But though few businesses apply for Baldrige, many thousands use the questions and the criteria on which they are based to evaluate their own processes. The experience of completing the application, even as an academic exercise, is akin to writing a textbook about your company or undergoing a business version of psychoanalysis. This course of self-evaluation and improvement requires that companies fling up their window shades, yank open every cupboard and closet, and see—really see—where their thinking is murky and their efforts inadequate or wholly lacking.
Potterfield loves Baldrige not because it is exhaustive but because he believes it is foundational. Recently, he and members of his executive team distilled from the criteria 30 principles—involving things such as communication, work-force development, and contingency planning—that he considers the immutable core of management discipline. To be the best-run company in America, Potterfield says, Midway must execute on all 30 principles, superbly, all the time. "Problem is, the world record for keeping balls in the air is five balls for 10 seconds. So how in the world do we keep 30 balls in the air day in and day out?" he muses. His answer: Three years after winning the award, Midway is "not letting up a nickel" on its pursuit of the Baldrige ideal. "It is our system for doing everything," says Potterfield. "We are the purest Baldrige colony on the planet."
Potterfield wasn't always such a grand thinker. He grew up like a Mark Twain character, born and raised poor in the countryside outside of Ely, Missouri. ("Population 26 before I left," he says.) One of six children, he hunted rabbits, squirrels, and quail with his father and inherited an older brother's single-barrel shotgun when he turned 13.
After majoring in accounting at the University of Missouri, Potterfield spent six years in the Air Force, where he started trading firearms. Straight out of the military, he opened a gun shop in Columbia with his younger brother Jerry. The company made a name for itself commissioning products unavailable elsewhere, notably 8 mm ammunition for Japanese Nambu pistols.
The store's mail-order component expanded, and by 1985 it had become the whole business. By that time, Jerry Potterfield had gone back to farming, and the company had ceased selling firearms and broadened its offerings for reloading, repairing, and customizing guns. Over the next decade, the Potterfield family started several complementary businesses, including Battenfeld Technologies, which manufactures shooting and gunsmithing products, and Midway Farms, an executive conference center.
Potterfield got his first taste of Baldrige in the mid-1990s, at a meeting of the Excellence in Missouri Foundation, a state Baldrige program. Over the course of a day, presenters laid out a methodology that Potterfield found at once intimidating and galvanizing. Baldrige breaks corporate management into seven categories, including leadership, strategic planning, customer focus, and, needless to say, results. Within those categories, applicants are required to explain their approaches to virtually every conceivable activity, from modeling ethical standards to managing customer complaints. The presumption is that even if companies are not doing everything perfectly, they are at least doing everything.
Unlike most other competitions, Baldrige asks not only what companies do but also how they do it. So instead of checking a box or citing a practice, business leaders must provide detailed process explanations, backed up by charts or diagrams. Every organization is different, so there are no right answers. Volunteer examiners weigh whether each process makes sense within the context of the organization's structure and goals, whether it is well integrated with other processes, and whether it produces the desired results. When examiners deem processes inadequate, they provide feedback, suggesting improvements without being prescriptive.
Potterfield was intrigued by the program's emphasis on systems thinking—the idea that all the departments and processes within an organization work together—and liked its approach to eliminating inconsistency and unpredictability, which mirrored his own. But though he flirted, he did not swoon. Not bothering to slog through the voluminous criteria himself, he directed his freshly hired quality manager to fill out an application for the Missouri Quality Award. (State organizations run their own awards programs, which use the same criteria but are generally less demanding. Many aspirants to the national award start there.) "I wanted a Baldrige, and I thought we deserved one," Potterfield recalls. "We certainly didn't. The Missouri folks gave us a site visit and a bunch of feedback, none of which I read. The next year, we applied again and got more feedback, but no award. I thought, Well, this isn't any fun. So I punted."
In the ensuing years, Midway continued to grow slowly and steadily. Baldrige hung out in the back of Potterfield's brain, but he didn't think about it seriously again until 2003, while on a three-week safari in Tanzania. There, he read Malcolm Gladwell's The Tipping Point and experienced two epiphanies. First, a small number of people—if they're the right people—can initiate massive change. Second, he would have to lead them. "Gladwell says that if you have 100 people and you can get 10 of them who want the same thing—passionately want it—then you can get it," says Potterfield. "You only need 10. But you probably need the boss."
Back in Columbia, Potterfield immersed himself in the award criteria, then personally taught them to 27 managers and executives. He assigned two vice presidents to become examiners for the Missouri Quality Award. (More on that shortly.) He also announced to the entire work force that Midway would win a Missouri Quality Award in 2008. He promised that in 2009, the company would take home a Baldrige.
Change was swift. "I went away to business school right when we were instituting Baldrige," recalls Adam Ray, Midway's vice president of e-commerce. "I was there for 21 months, and when I came back, the whole company was different. Everyone was using these Baldrige terms, and for the first time they were all speaking the same language. Everyone was moving in the same direction."
"This tour is full of guns and dead animals,"says Potterfield. "If either one of those offends you, you won't like it."
The morning after the conference, Potterfield has swapped his blue Baldrige jacket for a black leather number, NRA pin prominent on the lapel. Strolling through Midway's entry hall, we pass a shaggy mountain goat, a fringe-eared oryx, and a wart hog whose tusks curl with the panache of Salvador Dali's mustache. Outside the finance department, my host commands me to stand with my back against a wall next to a doorway and then quickly round the corner, upon which I find myself staring into a yawning mouth full of bared teeth. "Big, big lion," Potterfield observes nonchalantly.
Rifles, most hand-built by employees, bedeck the walls of many offices. Gun racks nestle beside desks like lethal coat stands.
But it is neither things that shoot nor get shot that draw people to this unassuming cluster of buildings hard on the highway. Rather, leaders of businesses, schools, and government agencies visit Midway to learn how it has adopted the Baldrige principles and translated them into meticulously designed processes—more than 1,500 at last count—that govern everything down to locking up at close of business. This is a company in thrall to best practices, which are defined by Midway as "the highest sustainable level of performance which we judge ourselves against." The place is like Jack Welch–era GE, with antlers.
That definition of best practices, as well as 59 other terms, is displayed on signs throughout the facility and rotated weekly so everyone is exposed to every one. Communication is a core Baldrige value, so copies of the company's mission statement, goals, and code of conduct are ubiquitous. On a central wall in the clean and cavernous warehouse, performance metrics, project updates, and customer comments flit across a large flat screen. As we peruse the wall, Potterfield talks about Midway's dedication to continuous improvement. Two hours later, we pass the wall again, and someone has added a poster describing the company's 21 types of meetings: their frequency, duration, attendance, and purpose. Potterfield looks gratified. "Well, there you go," he says.
On the day I visit Midway, Carter Ward, executive director of the Missouri School Boards' Association, comes by to discuss the practicality of involving the state's 522 school districts in Baldrige. Potterfield urges him to start with Strategic Planning, which he calls the application's "master category." Organizations failing to master that discipline, Potterfield suggests, take risks every time they put one foot in front of the other. "That's Midway's process," he says, gesturing toward a large poster board propped on an easel. "It's beautiful. Twenty-three steps. Best in class. Outstanding. You want a copy for your office?"
At Midway, the strategic plan is assembled from company action plans, which are different from department action plans, department process initiatives, and strategic process initiatives. Krishnasundeep Boinpally, an industrial engineer, has been assigned the unenviable task of explaining it all to me. By way of illustration, he describes the development of the most ambitious project in Midway's history: a $5 million fulfillment system called Nitro Express. Nitro achieved company-action-plan status in 2010 and swiftly became part of the strategic plan. For the next 18 months, the strategic-planning team tracked and adjusted its milestones, resource requirements, user impact, and expected results with the assiduity of Mission Control monitoring the space shuttle. The sprawling, package-bearing roller coaster was completed last April, on time and on budget. It makes possible Midway's popular same-day shipping policy (no cakewalk for a business that offers 120,000 products) and will allow it to increase order capacity 10 percent each year for the next decade.
Later, I am taken to view the mighty Nitro. As a logistical and engineering feat, it seems absurdly ambitious for a 368-person company. But then, if you live by Baldrige, I guess you are used to that sort of thing.
Arguably, Midway's most intriguing process is leadership development. Baldrige doesn't merely inspire this program; it is the heart of the program. Every year, senior leaders select 10 to 15 high-potential employees to serve as examiners for Baldrige or the Missouri Quality Award. This is no trivial commitment; it requires up to 250 hours per employee. That's 3,750 hours of annual staff time focused on companies that are not Midway.
Midway's examiner program is an ingenious solution to a problem faced by many small to midsize companies eager to promote from within. Employees targeted for development typically learn by assuming new on-the-job responsibilities, which is dandy as far as it goes but restricts exposure to internal practices and ideas. Baldrige examiners, by contrast, burrow deeply into the strategies, cultures, and operations of other well-run companies. "I absolutely love this process," says Jake Dablemont, Midway's HR manager. "If I look at the value of what I've learned in grad school versus what I've learned as an examiner, I would choose to be an examiner every day of the week."
Baldrige examiners are selected in March and in April are given sample applications. Each examiner then has three to four weeks to pore over one of the samples, annotating half the responses with observations and suggested next steps. After a three-day training session, during which those comments are discussed, the examiner receives a real application. He or she has three weeks to weigh in on the entire document.
Examiners then begin working, via conference call and collaborative software, with their teams: six to eight veterans and newbies assembled from a variety of industries. Each team spends five weeks comparing opinions and assembles a report. A panel of judges determines which applicants merit site visits.
For three days in October, team members embed at their applicants' companies, where they have virtually free rein. They can request documents; meet repeatedly with executives, managers, and frontline employees; demand to see processes in action; wander the halls and factory floors; and ask anybody anything. The process concludes with two more days of team discussion and a final report.
For applicants, the report is the point of Baldrige. But the benefits to the examiners and the companies they come from are considerable. Most important, examiners are compelled to study companies as systems of interlocking parts, rather than through the lenses of their departments or specialties. That teaches them to take a CEO-eye view of their own organizations. "You come back seeing things globally," says Stan Frink, vice president of Midway's contact center and one of the company's first two examiners. "And you start thinking, If I make this little change, who am I affecting upstream and downstream, and what is the impact on the supplier and the customer?"
From a tactical perspective, examiners observe up close how would-be world-class companies operate, and naturally bring home that intelligence. At Midway, examiners not only import new ideas, but they also use their newfound process-analysis expertise to evaluate what's already there. Every quarter, veteran examiners review and score the key processes recorded on Midway's Baldrige application, which the quality department maintains as a living document. "We don't expect to be perfect," says Boinpally. "But we want to be very, very close."
There is one drawback to Midway's leadership development process. It works only so long as Baldrige exists. The Baldrige Performance Excellence Program is a public-private partnership established by an act of Congress in 1987. (It is named after Malcolm Baldrige, a former Secretary of Commerce.) Last year, Congress voted down the program's $9.6 million funding as part of deficit reduction. The Foundation for the Malcolm Baldrige National Quality Award—the private piece of the public-private partnership—has said it will keep the award going. Many state programs are privately funded. And, of course, the examiners, who make up much of the work force, are free labor.
Potterfield, for his part, hopes he will get the chance to advocate for Baldrige before a congressional committee. For now, he's busy evangelizing at the grass roots, seeking to expand the army of self-proclaimed "Baldrige geeks" who benefit from the program and can demonstrate its economic value. At the Kansas City conference, he runs a breakout session on Baldrige Performance Excellence Groups, or BPEGs—monthly gatherings of community leaders focused on you-know-what.
Potterfield hands out a booklet titled "America Needs Baldrige!," which is also the title of his conference-closing speech and of a Midway-supported website stuffed with PowerPoints and white papers. The booklet contains 16 pages of BPEG boilerplate, including processes for recruiting speakers, communicating with members, and—with typical Midway attention to detail—collecting cash for lunch. "Put your name on this and take it out into your communities," he urges his audience, holding up the booklet. "Can you imagine getting your hometown involved in Baldrige? Can you imagine getting your schools, your hospitals, your businesses, your not-for-profits, so that they have really got their stuff together and are delivering? If we can do that across America, we can keep America the greatest country on earth."
As for Midway, which will one day pass to Potterfield's grown children, Russell and Sara, it has yet to wring the last drop of value from Baldrige. Potterfield is required by his board to bring home a second award in 2015, the first year Midway is eligible to reapply. "Well, if the CEO is required by the board to do something, he has to do it," says Potterfield, not mentioning that the board is composed entirely of family members (one area in which Midway bucks best practice).
Potterfield harbors zero doubt that Midway will succeed again, even though only five organizations have won the award twice. Still, the hunter in him relishes the challenge of bagging an even larger trophy. "As the best-run business in America," he says, "we will have the highest-scoring Baldrige application that anyone has ever seen."
Be Ready for Anything
From the Baldrige application, Section 2.1, "Strategy Development":
How do your strategic objectives enhance your ability to adapt to sudden shifts in your market conditions?
Baldrige requires that applicants' strategic plans promote "organizational agility"—the ability to dodge threats and seize opportunities. Because Midway's full-on, seven-hour planning meetings—each involving nine senior managers plus a rotating cast of other employees—take place monthly, no more than a month elapses between a market development and a planning meeting. So swift action is guaranteed. And because schedules, costs, and resources for most projects are reassessed at each meeting, senior leaders can efficiently identify what to postpone in favor of a more urgent goal.
Consider Midway's response when the election of Barack Obama—widely perceived by gun lovers as an advocate for gun control—prompted a run on products such as high-capacity magazines and military-caliber rifle ammunition. "The industry was cleaned out almost overnight," says Midway's president, Matt Fleming. "We had to make a pretty significant change to put quantity limits on products, or people would hoard things." In the first meeting after it became clear shortages would persist, the executive team ran down its list of initiatives, decided it could afford—in the interests of customer satisfaction—to push back a system for managing the due dates of incoming products, and swiftly reallocated resources. In less than 30 days, a quantity-limitation system representing hundreds of SKUs was in place.
Know the Competition
From the Baldrige application, Section 4.1, "Measurement, Analysis, and Improvement of Organizational Performance":
How do you select and ensure the effective use of key comparative data and information to support operational and strategic decision making and innovation?
Baldrige assesses applicants on their benchmarking of operations and results both inside and outside their industries, something Midway used to do only sporadically. Today, Midway's knowledge of its competition has gone from summary to encyclopedic. On a wall outside the e-commerce department, a sprawling chart rates 43 companies on their execution of 97 website features, including whether they provide discussion boards for every product and which credit cards they accept. The chart, which is updated twice a year, notes not just whether particular sites have particular features but also how strong those features are and includes data on the percentage of sites that offer each one.
A similar chart in HR compares Midway's compensation, benefits, and work environment against those of competitors, local companies, and organizations dubbed best places to work. The marketing version considers subjects such as pricing and customer policies. Department heads constantly measure Midway's performance against all those numbers.
Put Yourself Out There
From the Baldrige application, Section 3.2, "Customer Engagement":
How do you make, market, build, and manage relationships with customers to increase their engagement with you?
Baldrige expects applicants to have methods for increasing "customers' willingness to actively advocate for and recommend your brand." In 2006, Potterfield, a once-retiring man whose public appearances were limited to the Optimist and Rotary clubs, concluded that the best way to engage customers with the brand was to get them to engage with him. So he created GunTec, a marketing-department division that produces Midway commercials, firearm safety videos, and instructional vignettes on gunsmithing. These run on the Outdoor Channel and YouTube. (The YouTube videos have been viewed more than 11 million times.) Three mornings a week, Potterfield dons his trademark red shirt and takes his place in an in-house film studio, where two staff videographers record him as he crowns the muzzle of a rifle barrel or advises viewers on selecting a gun vise. Every video ends with the same words: "I'm Larry Potterfield with MidwayUSA. And that's the way it is." "I took that from Walter Cronkite," says Potterfield. "He was from Missouri, too."
From the Baldrige application, Section 6.2, "Work Processes":
How do you design and innovate your work processes to meet all the key requirements?
Baldrige focuses on process management rather than project management, the thinking being projects achieve their ends and expire, but key work processes produce ongoing internal value. Midway has separate processes for designing processes and for improving processes. Just to give you an idea: Each new process proposal is laid out in a "charter" document, which includes an executive summary, sign-offs from all stakeholders—internal and external—who will be in any way affected by the process, an analysis of how the new process will interact with other processes, input from subject-matter experts who are knowledgeable about elements of the process, an estimate of net present value for initiatives likely to affect a cost or revenue key measure, sample scenarios of how the process will be used, an exhaustive rundown of resource requirements, an explanation of how features may be used differently by people in different departments.…
You might wonder whether all this upfront work isn't overkill. And it would be, except that, as Krishnasundeep Boinpally, an engineer at Midway, explains, it applies only to major initiatives that require more than 40 hours of staff time. "As part of the Baldrige work-force focus, we empower people to make smaller improvements without red tape or bureaucracy," Boinpally says. "Under 40 hours and you're good to go."
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