Anticipating Failure -- Then Adapting to Succeed

When you drive a car very, very fast, all your attention is on the road ahead. You don't think about the engine or the structural integrity of the vehicle -- you just focus on not crashing. The same is true of a business. When you lead a company that's outpacing the industry by double digits or more, you don't wonder how people are keeping up. You just worry about maintaining velocity without hitting a wall. But eventually, you have to start thinking about the structural integrity of your vehicle, because it's the only thing keeping you going. If you don't, either your car will crash, or your engine will burn up.

As the president of Transitions Optical, I faced that choice: Keep moving at 90 miles an hour or slow down before we had a chance to crash. Fortunately, we started paying attention to our structural integrity before our vehicle went up in flames, and in doing so, we avoided disaster. Executives across a range of industries can learn from our experience.

Full speed ahead

Transitions Optical is a joint venture of PPG Industries (Pittsburgh) and Essilor International (Paris). We make a photochromic technology for eyeglass lenses that adjusts automatically to changing light conditions -- going from clear indoors to as dark as sunglasses in bright sunlight. We began operations in 1990 in Pinellas Park, Florida, with one lens manufacturer and fewer than 50 people. In the past 15 years, our workforce has expanded to 1,200, which is extremely lean, with offices or production facilities (sometimes both) in 16 countries. We've been very successful -- every year between 1990 and 1999 was a record year. We grew at triple-digit rates the first five years and grew between 20% and 30% for the next four years.

During this massive growth period, our strategy worked very well. We were very much into Tom Peters' philosophy of thriving on chaos, and we deliberately kept ourselves lean. That decision was driven by cost to a certain extent, but mostly because staying lean and flat lets you make decisions faster and react more quickly to changes in the marketplace. We made decisions on limited information, and if they were wrong, we could correct quickly. This strategy helped us grow fast, but it wasn't sustainable. We realized this in 2000, our first year without double-digit growth. Financially, we were doing well and making money, but our rapid growth stopped.

When you're very successful, you believe you'll always be successful, so it was a little startling to discover that Transitions Optical wouldn't necessarily grow at double digits or more every year. In fact, we might not grow at all. It got very chilly in the organization. We worked even harder and got back on a growth footing by 2002, but some of us were a little worried, to say the least.

Do you see what I see?

Around this time, I went to a Gallup seminar in New York City. Gallup's management book First, Break All the Rules had just come out, and they were publicizing the findings. The book's strengths-based approach hit a chord with me, and I wanted to know more. I was really knocked out by what they said: Focus on people, development, and engagement. Don't spend all your time working on what's wrong with people; instead, focus on what they naturally do best.

A leader's job is to recognize things early that others don't see -- or don't recognize as important -- then to simplify complexity to help people understand where they're supposed to focus. Not many leaders can do that. I realized at that seminar that the Clifton StrengthsFinder and Gallup's Q¹² do the same thing; they simplify a very complex concept. (See "Strengths: The Next Generation" and "Feedback for Real" in the "See Also" area on this page.)

I was so intrigued that I sent several key development people, including Marie Murray, our project manager for organizational effectiveness and development, to another strengths seminar. I didn't tell her why -- I just wanted to know if she saw the same things I did.

She did. So I called some of the senior managers together, and they agreed that this strengths stuff might be worth looking into. We believed that people are important to the company, and we realized maybe it can't be just product, it can't be just technology and marketing -- maybe we need to focus on the people side as well. But we had no idea how to execute our belief.

So that May, I called Gallup and asked them to conduct their 12-item employee engagement survey, the Q¹², at Transitions. I was impressed from the start. Gallup analyzed us from the top to the bottom. The preliminary stuff confirmed what I figured out at that first seminar in New York: Engaged employees don't just happen. There's a science to this stuff -- a methodology -- and it takes investment and focus to create engagement. (See graphic "The 12 Elements of Great Managing.")

Our employees were on board right away, not just because having them take the Q¹² survey showed that we cared about their engagement, but because the survey was based on data, science, and facts. That's very appealing to our people. These folks work in the technical arena -- many of them are chemists -- and they liked the fact that this wasn't some wishy-washy philosophy that couldn't be proven or disproved. I liked that too.

Checked out

We got the results of the Q¹² survey after a few months. Gallup showed us an analysis of companies that truly outperformed in their industries because their engagement results were in the top quartile. We weren't there. And we weren't going to continue to be successful long term if we didn't get there.

By that time, we were growing again, and things were looking very positive -- but Gallup characterized Transitions as an organization that was going "90 miles an hour in third gear." I saw their point. We had a pretty high opinion of ourselves, but we weren't best in class. The Gallup data showed us the storm cloud on the horizon. If we didn't do something to address this, we were going to burn out and fail.

The problem was that we grew so fast that we hadn't spent a lot of time thinking about sustainability issues. We didn't give managers the tools they needed to go deep into the organization and do the right things to get people engaged. The small management team at the top was a very engaged group, but engagement decreased as you went down the organizational chart. We weren't losing our employees out the door, we were losing them in the door. They were staying with the company, but they were "checked out" and just going through the paces. We didn't have them mentally engaged.

Who cares?

This is a serious problem, because one of the things that drive our financials is yield. At Transitions, we don't make the lenses; we apply a process to the lenses. We bring lenses in, and we make them photochromic. Then we sell them. So if we bring in 100 but only ship 50, we lose money. If we sell 90, that's good. But if it's 91 or 92 or 93, we make money. Yield depends on productivity, and productivity depends on every single employee.

It takes a thousand little things to increase that yield. It requires incremental improvement, attention to detail, and a focus on what's important. More importantly, employees must feel like they can tell our manufacturing management what needs to happen to improve -- and believe that something will be done about it if they do.

One of the things the Q¹² data showed us was that quite a few employees didn't feel management cared about them, what they thought, or what they needed. Some managers -- not all, but some -- were more inclined to say, "Just go do your job. I'm busy, so just go do it." That's not a philosophy that drives engagement.

When employees hear that message, it's hard for them to do a good job. And I absolutely believe that people want to do a good job. Everybody wants to be successful. I mean, given a choice, you'd rather do a good job than a bad job. This is a business that has a low capital intensity profile, so if we couldn't give our employees what they needed, they assumed the wrong things.

Sustainable management strategies

But it wasn't true. We care very much about our employees and the work they do. So we made the decision to implement an engagement intervention globally. Gallup established the baseline metrics of engagement. Then we made the management commitment to push it through the company.

We said that these were the measures we cared about: the 12 elements that relate directly to engagement and performance. We told people they would be measured against the baseline. Then we took the stance that workgroups don't have to make giant leaps in engagement, but they do have to show improvement every year. As a manager, you will only see movement in your employee engagement scores if you get your employees involved in the solution.

The process was simple, which was crucial. For this process to increase engagement and productivity to lead to sustainable growth, I knew I had to be able to explain it in an "elevator speech" -- because if I can't inspire you between the first floor and the fifth floor, then the idea is not compelling enough. Anybody who's looking at high performance today is coming to the same conclusion. Unless it's simple, cross-cultural, actionable, measurable, and meant to increase engagement, I don't see that it's sustainable.

I read lots of management books, and people bring me different resources and references. I'll listen to some new guru, or some old guru, and I think, it's all well and good to have a long, theoretical discourse, but unless you can make it simple, and you can apply it, and you can hold people accountable, I don't know how to put it in place. This process was already in place; it was simple, and actionability was built in.

Crossing cultures

To improve their Q¹² scores, managers needed to develop action plans that discussed the gaps in their Q¹² results and that addressed the actions they were going to take to deal with those gaps. They had to sit down with their teams and talk about their results, and they knew they'd be held accountable for improvements. We started doing team training and sent Marie Murray all over the world to assist in implementation. (See "You've Gotten Employee Feedback. Now What?" and "What to Do With Employee Survey Results" in the "See Also" area on this page.)

Marie soon found that the Q¹² is globally applicable, and it gave her a common language to use in our facilities. Our company tends to be too U.S.-centric, and we have a lot of diversity, not just in nationality, but in culture and management style. The same 12 items, the same 12 drivers, and the same company-wide expectations helped us cross borders. All of a sudden, we were all working from the same playbook, which made the engagement process collaborative instead of top-down. It gave everybody, especially management, a sense of the culture we expect.

I immediately wanted to tie this to compensation and make engagement part of a manager's pay. But my senior management team said, "No, no, no, don't do that," so I let it go for a year. Then I went back and did it anyway. The compensation part isn't a huge financial factor, but as a management strategy, we try to make sure that some portion of employee compensation is tied to the success of the company. If you want to drive behavior and make it clear that the organization believes engagement is an important part of our strategy and our ability to execute, then choosing not to tie compensation to improvement in the results creates a disconnect.

Sustainably growing

We saw success pretty quickly. Looking back, our overall engagement percentile ranking in 2003 -- or how engagement at Transitions ranks against every other similar industry Gallup has studied -- was just below the 30^th percentile. Compared to the same database from 2006, it had grown over the three following years to above the 50^th percentile.

More importantly, the ratio of engaged to actively disengaged employees also increased from 1.16:1 to 3.60:1 during this same time frame. (See graphic "Engagement Increases at Transitions Optical.") The U.S. average is 1.87:1, so we're doing well. Meanwhile, our compound annual growth rate (CAGR) for sales increased 14% between 2000 and 2006, earnings before interest and tax (EBIT) increased 23%, and we increased 11% for pieces, such as the lenses we buy to coat.

Of course, we've reaped these improvements because our people are more engaged. And they're more engaged because they're more emotionally invested in the company. It's a very positive thing to ask people what they think, what we should do, how we could do it better -- but it's extremely negative if you ask them and then don't do anything. Now we can ask important questions to gauge the environment and put together a plan that actually addresses what employees are telling us.

Another reason it's working, I think, is that senior management made it clear that this is a process, not a program. One of the most important things this company did was to embrace Six Sigma in the mid-1990s. It's the way we do business now, and it's an integral part of how we solve problems. The same thing is true of Q¹². This has become an integral part of our process; it's the way we do business. And we're going to continue to do it, continue to measure, so we can continue to drive engagement. At the end of the day, we need to improve shareholder value to our two owner companies, and this will improve our results. It's part of us now, and that helps us maintain our promise to deliver on engagement.

Future tense

We're aiming for the 90^th percentile -- we want to be world class. So we're going to keep measuring on a period-over-period basis so we can gauge if we're going in the right direction. We're going to keep doing action planning, communicating, and holding people accountable. And we're going to keep growing, but we're not going to do it in third gear.

The kind of growth we're interested in is sustainable. If you're not growing, you're dying. But if your growth is happening so fast that you ignore basic good management, you're going to crash.

We might have another bad year, another downturn in sales. I hope not. But we're prepared. Under whatever business conditions you face, you'll do better under those conditions with a highly engaged workforce. And we believe that now.