Just trying to translate the book for my boss, again :)
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Book Title: Thinking Out of the Box for Profit
Writer: Nur Kuntjoro
“Turnaround is a process of change or company performance improvement from decline trend to progress, including process of changing from losses to profit”
From Actual Work to Book Writing
(Preface)
The ideas of writing a book about turnaround came into my mind when I was speaking in a seminar, one evening in the raining season of February 2005, at Siera Café & Lounge, Bandung, in front of around 150 business practitioners. In the Seminar with title Principles and Strategies of Turnaround – An Effective Business. At that time, I had resigned from Tupperware, but was still asked to be a consultant for my successor, Mrs Nining W. Pernama.
The participants warmly welcomed although I only told the stories about my experiences in Tupperware when my colleagues and I was together struggling for turnaround during monetary crisis taking place in our beloved country in 1998. That evening I realize that experiences in implementing turnaround in Tupperware could be an inspirational trigger for businessmen and business practitioners who are suffering from a financial loss.
Several weeks later, there are two companies requesting me to be their consultants and to help their companies to implement turnaround and quantum leap. The first company was successful in executing turnaround in 2005 after suffering from financial losses during previous years. Whereas the second company succeeded in making ‘leap’ though it was not as much as their expected target.
While our clients needed invoice for consultation fees, along with Mr. Arsul Sani, I established Quantum Consulting. At first, we only dealt with administrative needs. But then, it grew as a business unit handling special consultation on turnaround, profit improvement, and quantum leap. Currently, the company becomes a holding company under the name of PT. Quantum Asia Corpora which has two divisions, i.e. Quantum Consulting and Asia PR which is a public relations company headed by Mr. Silih Agung Wasesa.
Since then, I have been helping companies that want to improve their performance, especially in the fields of turnaround, profit improvement, and quantum leap.
In March 2006, I was given an opportunity to fill a column “Success with Bisnis Indonesia” every Tuesday in Bisnis Indonesia Daily. In this column, I made short writings about success stories of business practitioners in improving profit level, and I inserted some tips I obtained from my experiences while I was in Tupperware, in other companies, or from books. In the 8th column, I had an idea to compile those writings in a book. And here is the book – consisting 20 short essays which contains tips and stories about business performance improvement for profitability improvement. Out of those essays, 8 essays were published in Bisnis Indonesia Daily and the others are fresh from the oven.
This book does not aim at providing as a handbook for business practitioners in turnaround implementation and profit improvement, but is a manifestation of sharing experiences and knowledge. It is expected that it can give inspiration to anyone who wants to make profitability improvement. I will be very happy if the readers can get inspiration, motivation and encouragement from this book. Therefore, in some of my writing, I intentionally do thought provoking through story telling and controversial concepts, such as in articles “Tupperware Challenges the Currant”, “The Power of Touching Human Resources”, “Blue Ocean of Mrs. Kasno”, “Cheap Does Not Mean Sell Well”, “Big Baits for Big Fish”, etc. I also intentionally tell the stories with flowing style so that those can be enjoyed as well as give benefits to the readers.
This book is primarily written for business practitioners, both professionals and entrepreneurs. But this book can be also read by anyone who wants to be business practitioners: students, pupils, employees, and of course, job hunters.
This book is published with the support and help from many people. Therefore, I would like to thank you to my friends in Bisnis Indonesia Daily, especially to Mr. Edy Sasmito. My gratitude also goes to Mr. Silih Agung Wasesa and Mr. Ponijan Liaw MBA for having read and made correction on my essays. Also to Edy Zaqeus, the editor of Pembelajar.com and other best seller books writers, for their guidance of writing techniques and publication. I also thank you to Mr. Kaezar Maulana for his brilliant ideas, and Mr. Arsul Sani for his incessant support, mr. Arifin Saleh for the great caricature, and of course to Rio, my son-in-law who taught me Ms Word application.
Special thanks to Prof. Agus W. Soehadi, Ph.D., and Dr. Bambang Bhakti MBA, who were willing to deliver wonderful introduction to this book. I am also thankful to Mr. James Gwee TH, MBA, Mr. Gede Prama, Mr. FX. Haditjokrosusilo MBA, Mr. Andrie Wongso, and Mr. Kemal E. Gani for incredible endorsements that make this book become more meaningful.
Because most of resources of the content of this book is from experience, struggle, and hard work during leading Tupperware Indonesia, I also would extend my gratitude to the big family of Tupperware Indonesia, which is now headed by Mrs. Nining W. Pernama, Ms. Netty Berliana Sitorus, my secretary and “traffic policewoman”, Mrs. Meliana Widjaja, and Helen Effendi who are my teachers to whom I have been asking about matters of accounting, finance, and profitability analysis.
Still, thanks to my colleagues in Tupperware Indonesia: Yani Surjadi, Angela Sutan, Tanthy S. Nugroho, champions Marketing Department, to Micha Djohan Utama, my in manufacturing and supply chain, Mr, Hari Utomo, Wilma S,. Widyastuti, Sartana, Ricky Dendeng, Djoni, Sianne Pondaag, Tieneke Tombokan, and all friends at the Sales Department, Mr. Irsan Janwar from Business Development, Mrs. Upik Sasongko as Human Resources Head, and other friends whose names I cannot mention here one by one.
I realize that this book has many weaknesses as well as probably mistakes. Therefore, read critically. Hopefully, this book is useful. Thank you.
“Turnaround is not merely a financial matter. Turnaround should begin from the commitment of the management with strong leadership.”
1 Turnaround is not merely a financial matter
The following writing series are not aimed as a handbook, but it is rather a guidebook for executives in implementing turnaround. This book is a kind of sharing, which hopefully, can give inspiration for business practitioners or to-be business practitioners.
Starting the discussion about turnaround, let me try to make simple checklist as initial guide for holistic review as an effort in finding the factors causing loss.
Step 1: Check balance sheet. Check the total gross profit/gross margin and operating expenses. Observe the balance. If the operational cost is higher than gross profit, it means that the company is facing financial loss.
Step 2: Check gross profit. Analyze whether the percentage of gross profit meets requirement. For consumer products, not a commodity, gross profit may reach 50% or above. For direct selling or multi-level marketing, a relatively high gross profit is required, as it cannot enjoy from economics scale in selling/distribution expenses. A definite marketing strategy, i.e. to determine whether to struggle in commodity area, or play in a niche, is very important for obtaining reasonable gross profit.
Step 3: Analyze Sales Volume. Check whether sales volume is too low that the total gross profit becomes small and this leads to insufficient support to operational costs. If the sales volume is too small, formulate strategies to increase sales. It’s not easy. Generally, if a company is losing profit, the management will soon try to increase sales while the lost perhaps is not always caused by the low sales.
In the next essays, I will tell about how a company improves margin mix, i.e. sales composition between products of low margin with products of high margin in such a way that profit can be created even though total sales volume seems to decrease.
Step 4: Analyze Selling Price. Is price too low? Can it be increased for increasing gross profit? A businessman generally will think if price is down, the sales will increase. This assumption only prevails in commodities.
One of the chapters in this book will discuss about a topic regarding how to generate price, an interesting professor who was successful in assuring many professional manager that they were willing to buy USD 12.5 or about Rp 110,000 for 55cc cold water. The important thing is that we have to be able to build certain perception in the buyers’ or consumers’ minds.
There was a cosmetic and skin care company who sold anti-wrinkles cream with price Rp 30,000, but it was not saleable. Then, the company changed the packaging from plastic packaging to a beautiful crystal-like one, and it was sold 4 X higher, and sold well! In certain cases, “setting high price” may increase the trust of consumers to the products.
Step 5: Check Operational Costs. Check carefully expenses, do economizing as maximum as possible, but do not destroy the “selling machine.” Do cost reduction program. If it is executed wisely, this program may be supported by all employees and can be fun.
One of the chapters will tell something controversial, i.e. about a company who increased its profit while its operational costs were sharply increasing. The cost reduction program should be implemented wisely through complete planning and strategy.
The above checklist is not yet complete and far from perfection. Basically, turnaround is not merely a financial matter. Turnaround should start from the commitment of the management. Strong leadership is a must. In executing turnaround, we must have the courage to think out of the box (outside conventional ways of thinking), to challenge. Turnaround requires brilliant ideas, Turnaround also requires human resources with spirit, loyalty and high dedication.
If you belong to the company management, and you are struggling for turnaround, changing the regress trend to progress, or changing from losing to getting profit, keep on reading these essays. Get inspiration from each story. But as Thomas Alfa Edison said, “10 percent inspiration; 90 percent perspiration.” At the end, your struggles give the results.
I believe you can.
I have done it!
“In implementing turnaround, commitment of the company management should be 100 percent, no less.”
2 No Withdraw for Julius Caesar
Turnaround must be and can be implemented. Because, establishing a company, running a business means looking for profit, not creating loss.
Where should we begin? Turnaround must start from the company management. They have to involve themselves in this project directly. Otherwise, it is impossible to stop the loss and create profit for the company. The first step is building the commitment of the company management. The commitment should be 100 percent. No less. The company management should have strong determination and be unshakeable like the famous Julius Caesar with his motto Vini, Vidi, Vici. I come, fight and WIN!
The company management is the axis of the company. If the axis is strong, the wheel will rotate. If the company management has a strong will, unquenchable passion, then, next steps can be taken.
Once upon a time, Julius Caesar is a legendary commander of Roman Empire (which later became the Roman Emperor), received a task to conquer and imperialize the Great Britain, for the expansion of the empire to Europe and Africa. At that time, England was very strong and highly respected. Their motto was British rules the waves. Englishmen rule the seas.
Julius Caesar brought thousands of troops crossing seas by hundreds of war ships. As a very reliable strategist, before departing for England, Julius Caesar sent a team of scouts. The first action taken after landing in Britain was summoning those spies and asking their reports.
Following were the contents of their reports:
1. The number of British soldiers was bigger than the Roman soldiers.
2. Their weapons were more complete and sophisticated.
3. Their physical conditions were much fresher compared to the Roman soldiers who had been sailing for weeks.
4. finally, it was reasonable that the British soldiers knew their areas much better than the Roman soldiers.
Actually, no facts supported Julius Caesar to move forward. But Julius Caesar was Julius Caesar. The motto of vini, vidi, vici was carved on his heart. Die or win! The strong determination brought Julius Caesar to the right decision which later shocked the world. He did not instruct his troops to withdraw, but he instructed them to burn all ships, without leaving a single boat. After that, he flared up the fighting spirit of his soldiers which were already well-known for their courage and brevity.
By creating such condition, fighting spirits built in the minds of every soldiers as well as Julius Caesar himself because it was their only choice to keep surviving. The other choice, i.e. returning to Rome, had to be burned as the burnt ships. Therefore, the soldiers fought with courage, conquered every enemy before them without any fear. At last, the Roman troops won the struggles.
In implementing turnaround, the company management must have strong will, spirit, passion, faith, and determination like a Julius Caesar, because the company management only one single option, i.e. turning the condition of the company from suffering a loss to getting profit. No other options. Therefore, burn your ship. Destroy your fear of failure. Focus your attention. Fight to the death. Never give up until you succeed!
If you belong to the company management, I assure you that you can do turnaround, improve the company performance from regress trend to progress, or turn your position from loss to profit as long as you have commitment and strong determination like Julius Caesar.
“Be prepared to be a tough leader, build strong leadership and be a role model”
3 Leadership of Lee Iacocca
Turnaround needs a strong leadership. Why? Because turnaround is an uncommon process. It is an incredible task. Doing turnaround is implementing crisis management and loss means crisis situation.
Below are the characteristics:
1. Centralized management: Directive!
2. Decisive: fast decision making: High speed action
3. Requiring high commitment from all team members
4. Abnormal situation: everyone should be willing to work beyond the duty call
5. Requiring confidence and high motivation from all team members
The story I am going to tell is an example of how a leader should implement the concept of crisis management for turnaround. It’s Lee Iacocca’s success story in saving Chrysler from bankruptcy.
In his biography Lee Iacocca said, “ At the end all business operations can be reduced to three words: people, product and profit. People come first. Unless you have got a good team, you can’t do much with the other two.”
Incredible! The above statement shows the strength of Lee Iacocca’s leadership principal. For him, the most important is PEOPLE. If we don’t have a strong team, we can’t do much with the other two business factors, i.e. product and profit.
Lee Iacocca – who had been working for Ford for 32 years and had been a President Director for nine years with great achievement – was fired in such a painful way. With deep revenge, he accepted an offer to lead Chrysler that was on the brink of bankruptcy. During several first months, he focused on team building, Being aware of poor condition of Chrysler, he decided to prioritize the commitment development of all team members.
Lee Iacocca started his breakthrough by gathering all his staffs, the white collars in a hall. He delivered a short speech, and stressed upon the importance of a commitment to rebuild Chrysler that was on the brink of bankruptcy. Without courtesy, he asked those staffs with no commitment to not work for Chrysler any longer. The statement definitely needed high courage for a newcomer. Then he said that in order to make turnaround, high dedication is required. All staffs were asked to work beyond the duty call. If required, staffs should be willing to work overtime in the evening and asked to be back to work in the next morning without any extra money. He also asked the staffs with no commitment to leave the company.
Finally, he indeed had to dismiss a number of staffs with no commitment and dedication. He preferred to working with smaller team having high dedication to working with many people having no dedication at all.
Several years after, the financial condition of Chrysler got worsened. Even financially it could be assumed that it was in bankruptcy. To improve the financial condition, it needed the sacrifice from all staffs, including Lee Iacocca himself. “Leadership is about setting example, “ he said. He decided to decrease his own salary to US$ 1 per year until Chrysler could create profit. By this way, he could negotiate with the labour organization to approve temporary employees salary decrease until Chrysler financial condition got better.
A hard decision only could be made during critical condition. All of you know, through hard struggles, along his tough team, Lee Iacocca succeeded in making Chrysler a healthy and big company. Even finally, it could merge with a giant automotive manufacturer: Mercedes Benz, and then became Daimler Chrysler.
If you are a leader of a company, and ready to be a tough leader, want to build strong leadership, able to build high commitment and dedication in your team, then you will be successful in turnaround, changing your company performance from regress to progress, stopping loss and gaining profit.
“Human resource is the most important resources for implementing turnaround.”
4 People! People! People! Product and Profit
In implementing turnaround, human resources should become the main focus. Lee Iacocca in his autobiography underlines that business can be shortened into three words, i.e. people, product and profit. People, said Lee Iacocca, always goes first. Without good human resources, you can’t do much with the other two, i.e. product and profit.
Human resource is the most important resources for implementing turnaround. No matter what your business field: service or product, human resources determine the success of your business. Even if your business field is high technology, you should realize that human resources operate the high technology.
However, if you are currently facing problem with your business, do not replace all your employees in haste. Remember Napoleon Bonaparte’s principal: no bad soldiers, only stupid officers. This principle is often proved in business practice. Many bankrupt companies can ‘revive’ after changing its management levels without changing all its employees.
In Indonesia, there was a company which suffering accumulative financial loss for six years. There was no synergy at all; even cooperation did not exist. The conflicts among employees were widened and became aggravated. Even there were several employees did not want to talk to each other. Services to customers and business partners definitely became very poor. The disputes between the management and business partners were becoming worse and worse from day to day.
This company was a multinational company whose headquarter in a developed country. Realizing the truth of Napoleon Bonaparte’s principal, the regional director, who was based in Hong Kong, appointed a new general manager with specific job descriptions: implementing turnaround: double or quit. To double the company performance or close the company – after serious consideration of its continuous financial losses over years.
At the time of designation, this new G.M. was not informed about the condition of the human resources. But in the third day, everything became very clear. There were at least 2 hard tasks on his shoulders, i.e. implementing turnaround and straighten the condition of the human resources. With strong belief that there will be opportunities behind a challenge, he decided to take action for the first task: turnaround, as a means of unity, teamwork and synergy. For this purpose, he decided to take an approach “LEAD WITH HEART.”
Personal communication was socialized nearly to each employee and business partner. His office door was always open for anyone who wanted to talk from heart to heart. He spared his time to listen attentively to anyone who wanted to complain. Even on Saturdays, when he was officially off, he spared his half day for anyone who wanted to talk to him about their feelings and ideas.
Indeed, not all problems could be resolved. But one thing for sure, that after discussions from heart to heart with their leader, they felt relieved and burdens decreased. Even in many occasions, after they told their problems, they could think more clearly and found the solutions by themselves.
From his experience in listening with empathy, he was inspired and formulated 4 F (fair, frank, firm, and friendly). He resolved to treat all staffs and business partners with same principles, i.e. fair, frank, firm, but remained friendly.
Improving the company performance was not easy. But with persistence, patience, perseverance, and good mind, as well as supports from all people involved, this company was successful in turnaround, creating reasonable profit, and now it has been growing healthily, both financial condition and the welfare of the human resources.
Leading with heart results in cooperation, synergy, joy and …profit!
If you belong to the company management, and you are willing to lead your human resources with heart, try to unite all elements, struggle to eliminate office politics, then you will succeed in turnaround, stop the declining company performance or change the company condition from suffering financial loss to gaining profit.
“If you believe that a group of man with high spirit can move a mountain, then activate them!”
5 We Are All Sales People
In the previous chapters, we have discussed the importance of human resources in turnaround program and how a leader leads with heart. In this chapter, I want to continue this story, i.e. how the company management evoked the enthusiasm among the employees as well as created the working passion, so that all employees had high motivation and were willing to work hard to meet the outlined target.
I am going to tell a unique success story. It began during the monetary crisis which shocked our country in 1997/1998. At that time, the company management was in the mid process of focusing all efforts in implementing turnaround. This is for the sake of ending the financial loss and in turn to gain profit, just after they got a challenge to double the company performance or to quit or close the company.
Two huge challenges – implementing turnaround and monetary crisis – were used to united them. The management built a mindset among the employees and placed both challenges as their “common enemy” which they had to win over. Whatever the group they belong to, if they feel having the common enemy, they will unite to face the enemy.
The second step taken by the management – borrowing Stephen Cover’s term – was significant deposit to the emotional bank account of the employees. How? The management gave a commitment that none of them would be fired due to the monetary crisis. Because monetary crisis was not their fault.
Another commitment was periodical salary increase (every three months) to be in accordance with the crazy inflation. For your information, many other companies decided to mass discharge cut off the salary of the employees. But, in turn, the company also asked the employees to work hard, full of dedication, loyalty, honesty, positive conducts, and initiated strong teamwork.
Was the company in good financial condition that it was able to promise all above? Not at all! Remember, this company was in financial loss and on the brink of bankruptcy. If it could not double its performance, then it would be closed. Was there any other choices? If the management chose to quit, then the company would be closed. But if the management decided to struggle, then there would be 50% hope to survive.
Apparently, the challenges were not yet completed. The external factors were getting worse. Riots happened in many cities. Staple foods disappeared from the market. The concentration of the employees were distracted. Facing such situation, the management gave a new task to the purchasing and general affair supervisors to search for buying sufficient stock of staple foods and distributing to all employees. Since then, every month all employees received rice, frying oil, sugar, toothpaste, detergent, soy sauce, bottled chili sauce, margarine, instant noodle, and other staple foods, which were enough for monthly consumption of a family consisting husband, wife and three children. Management also decided to supply free lunch meal in the workplace. Again, these were effective deposit to the employees’ emotional bank account.
While enthusiasm reached its peak, the management delivered the sales target to all employees and underlined that all were responsible for the sales target achievement. Only by achieving the sales target, the company would keep living.
Since that time, everyone felt that they were part of sales division. “We are all sales people!” they said. Receptionists served guests very well for the sake of sales target. The warehouse worked joyfully until late night to make sure that the same day delivery. Even if their jobs were completed before evening, they felt very sad. How hard the sales and marketing employees worked was not a story to be told. They worked incredibly!
You have the right to believe or not. But high motivation of all employees combined with other actions taken made 3 X sales increase and booked the first biggest profit ever. And, the increase happened during the crisis stroking all aspects of life.
If you belong to the company management, and you believe that a group of man with high spirit can move a mountain, then activate them, and then you will succeed in implementing turnaround, improving the performance or change the company condition from suffering financial loss to gaining profit.
“A car will not run well if it does not have gas and brake. But, the car will also not run well without a driver, even though it has gas and brake.”
6 It has a brake, gas. Does it have a driver?
In many business schools there is a subject called Organizational Behavior (OB) which is often called as Human Behavior in the Organization (HBO). This subject is a part of Human Resources which explicates many human behaviors in the organization, factors that influenced those behaviors, and basic concepts for directing the behaviors of the organization members so that the performance is maximum.
Discussions on the human behavior in the organization have been often presented by a well-known psychologist Anthony Dio Martin in his permanent program, Smart Emotion, in SmartFM Radio. He discussed the roles of emotion in decision making. For example, a member of an organization who refused his boss’ decision; not because of the substance of the decision, but rather that he was not involved in the decision making process, and many more.
In this opportunity, I will highlight one aspect of organizational behavior or human behavior in the organization, that is, the relationship between the organization structure and the behaviors of the members of the organization. I will take PT. Avon Indonesia as the example.
In the beginning of its operation, Avon Indonesia – a very famous direct selling company which was unfortunately already closed – opened branches in many cities. These branches functioned as shopping centers. Their tasks were recruiting independent sales force, training and motivating them to sell its product. In big cities, Avon branch offices were lead by 2 managers called Branch Sales Manager and Branch Operations Manager, whereas in the smaller cities, a branch office was lead by one person only named Branch Sales and Operations Manager.
The main duty of a Branch Sales Manage was creating and increasing sales volume, whereas the main duty of a Branch Operations Manager was handling administration, inventory, credit, and responsible for debt collection. In short, a Branch Sales Manager was responsible for sales, whereas a Branch Operations Manager was responsible for credit and invoices. The basic concept was the segregartion of duty and check and balance. If we personified it as a car, they were the “gas” and “brake” respectively so that the business could be controlled and the performance became good. A car will not run well without gas and brake.
Unfortunately, there was one important thing was forgotten, i.e. “the driver”. A car will not run without a driver although it has gas and brake. Those branch offices did not anyone functioning as a driver who would control when the gas had to go or the brake had to be used. This was not the only problem. Both managers had different bosses, i.e. Regional Sales Manager and Regional Operations Manager, whereas these regional managers also had different bosses.
Therefore, in many branches, a Branch Sales Manager kept on increasing sales and ignoring invoices, whereas a Branch Operations Manager only thought about credit and invoices without paying attention to sales. And the result? Low sales volume, high rate of outstanding invoices. On the contrary, in a branch which was led by one Branch Sales and Operations Manager, sales volume and outstanding invoices were in balance. After realizing this mistake, the organizational structure was changed. Both branch office managers had the same bosses, i.e. Regional Manager.
According to an official coverage, the reason of closing Avon in Indonesia was: the sales volume was below US$ 20 millions per year that the company had suffered financial losses for years. The poor performance was definitely caused by many factors. But did we deserve to ask if the organization structure was one of the factors causing the less maximum of its performance? Two leaders in one office, each had different bosses, and for the long run their bosses had different boss as well. An unusual organization structure.
If you belong to the company management, and you want to overview all factors affecting your company performance – including your organization structure – then you will have a chance to improve your company performance. And if the company you are managing is in financial loss, then you will have an opportunity to make turnaround, change the position of company condition from suffering financial loss to gaining profit.
“Status symbol can be more strongly motivate than salary.”
7 Sales Manager or Sales and Profit Manager?
It is still about Organizational Behavior or Human Behavior in the Organization. In this opportunity, let me discuss easy topic, i.e. regarding the influences of position title and status symbol on the owner’s behaviors. Position title is one of important things to be paid attention in implementing turnaround because it can motivate, or the other way around.
In the beginning of my career, I worked for a sewing machine company, Singer. My title was Advertising and Promotion Supervisor. My boss’ title was Marketing Services Manager. His boss was Marketing Manager and the upper level was General Manager. I got a scooter Vespa, my boss got a Toyota Corolla, his boss had Peugeot 504 and the General Manager drove Peugeot 604.
I did not wear a tie, and of course my bosses did. My working place was together with my friends, one room with tables and chairs in rows. My boss was in a cubical with 2 chairs for guests. His boss had his own room of a relatively big space with good chairs, while the general manager had the biggest room, with bigger table and two luxurious guest chairs plus sofa chair.
I never want to know my bosses’ salaries. But I often imagined that one day I would become a manager, sit in a cubical with two guest chairs, drive a Toyota Corolla, and wear a tie. It was naïve and funny, indeed. But believe me. Many employees have strong motivation for status symbols, such as above. Although it seems to be naïve, above things should be paid attention by the management.
In particular level and situation, status symbols could become a stronger motivation than salary. I experienced it myself. After working for Singer for two years and I was not entitled as a manager, I applied to another company. I worked as a manager for Union Carbide. Without a car and cubical, I got 40% higher salary. After working there for almost 4 years, I was offered to work again in Singer as a manager along with Toyota Corolla, cubical and of course, deserved to wear a tie. Even though the salary was lower, I accepted the offer because of the attributes and status symbols I had been longing for. Frankly, those things motivated me that I worked with full passion.
While I was leading Tupperware, I observed carefully on the status symbols, attributes, as well as the employees’ behaviors with the business partners (Distributor). One of them was giving the name of our three conference rooms with the company name of the 3 biggest distributors of the previous year. They worked hard all the year to keep their company name put on the conference room as it was a part of dream and pride of each Distributor.
If above illustrates the relationship between status symbols and the behaviors of the members of the organization, following is the story about the relationship between position title and its owner. There was a company who had good sales, but the profit was not good as its sales. The Sales Director of the company liked to do temporary price reduction or discount technique for increasing the sales. When the Managing Director was demanded to increase profit, he asked the Sales Director to decrease the frequency of discount. But the Sales Director welcomed his request reluctantly.
Several days later, the Managing Director had a bright idea, i.e. changing the position title from Sales Director to a new title: Sales and Profit Director. He threw this idea in the summit meeting. Both laughed and so did the senior management. But since then, the Sales Director stopped using discounting technique and started many other techniques to increase sales. The effects: sales increased, profit increased.
If you belonged to the management, and you want to overview the factors influencing the company performance, including close observation on your employees’ status symbols, then you will have an opportunity to improve the company performance. And if your company is suffering financial loss, then you will have a big chance to make turnaround, change the position of company condition from suffering financial loss to gaining profit.
“Build people, then people will build the business.”
8 Tupperware Against the Current
Turnaround requires great thoughts, beyond conventional limits, because turnaround is unusual. Beside that, turnaround requires great courage, including challenging against the current.
Tupperware is a direct selling company whose head office is located in Orlando, USA and are in 100 countries. In Indonesia, Tupperware was established in 1991. The first six years were the difficult times for Tupperware Indonesia that managements were changed several times. Tupperware Indonesia had been accumulatively experiencing significant financial losses for six years.
By end of 1996 Tupperware appointed an Indonesian as a General Manager to manage the company. The first thing he did as a new leader was consolidating human resources. As a direct selling company, the human resources were not limited to the employees, but also thousands of Distributors, Independent Sales Managers and Dealers, and business partners in sales field. Overall, they are called as Independent Sales Force.
Partners are the main support for Tupperware business. Realizing their importance, the management of Tupperware decided to prioritize their business development and after that started thinking about the business development of Tupperware itself. Build people, then people will build the business. It was the slogan of the management of Tupperware.
With this slogan, the new General Manager of Tupperware Indonesia decided to focus his attention on the consolidation of human resources in his first year. Getting through hindrances, by end of 1997, human resources of Tupperware Indonesia could be built more solidly, cohesively, and synergistically. But along with the consolidation, monetary crisis came.
Tupperware Indonesia which was still facing the problems in finance and company profit, had to face the multi dimension crisis which shocked the whole aspects of business sectors. Many companies were on the brink of bankruptcy, or even were closed, including big companies which had been very successful for years. The most common actions taken by the management were rationalization, decreasing the numbers of the employees and/or decreasing the salaries of the employees, including salaries for managers while the inflation was very terrible at that time.
Tupperware Indonesia did not have the possibilities to do as other companies did above. If it did, it would go to bankruptcy as the financial and sales condition was very weak. Therefore, the management decided to “think out of the box” and took decisions against the current. If other companies did mass working contract termination, Tupperware Indonesia even guaranteed that no employee would loss his/her jobs. If other companies decreased the salaries, Tupperware Indonesia even increase the salaries once 3 months to keep up with the inflation rate. When staple foods disappeared in the market in 1998, Tupperware decided to supply and distribute it to all its employees every month.
With the slogan: Build people, then people will build the business, Tupperware focused on the increase of its partners’ yield. Business margin increased drastically. Many training programs were given extensively, while motivation programs were conducted systemically and continuously.
Those steps resulted in fantastic performance. Sales increased 222% (more than 3 times). In 1998, in the mid of the multi dimension crisis, Tupperware was successful in obtaining great profit. Financial losses in 6 years were covered by the profit gained during one year and half. Since then, Tupperware Indonesia has been operating with zero debt. In the mid of the great monetary crisis, Tupperware succeeded in turnaround by taking decision against the current.
If you belong to the management and you dare to challenge against the current, want to implement “thinking out of the box”, want to ask your teams to go beyond the limitations of conventional ways of thinking, then you will be successful in implementing the turnaround.
“If you want to build the winner mentality of each of your employee, you will be successful in the turnaround.”
9 The Power of the Touch of Human Resources
We have discussed the success story of Tupperware Indonesia in implementing the turnaround during the monetary crisis. Several questions arise. Has Tupperware Indonesia been maintaining its success from year to year? Has it been enjoying sustainable growth and sustainable profit? Such matters are worthy to be questioned considering the business reality is often not as beautiful as tale and imagination of many people.
After the spectacular performance in 1998, the journey of Tupperware Indonesia was very colourful. Failures and successes changed in turns. Even though the growth average per year was still double digits (30%), the company condition remains healthy, profitable, and it has good cash flow. But this company has ever failed to meet the target several times.
“Our greatest pride was not that we never fail, but rather that we always stand up when we fall, “said Confucius. So does the management team of Tupperware Indonesia. They agree to always keep the winner mentality, never give up, learn from failures, and to always face future with full optimism.
How does Tupperware Indonesia keep the winner mentality of each employee? First of all, the management team tried to be consistent in implementing 2 main philosophies of the company, i.e. Caring and Sharing, and Build people then people will build the business.
Therefore, there are several things which are compulsory for each employee. Leadership training Born to Win must be followed by an employee who has completed the probation period. The next training is Outbound training: team building. The third one is mind control through Mind Power training. Other training programs are given in accordance with the needs, such as Finance for Non Finance Manager, Brand Management, Leadership, Sales Management and many more.
Training is meaningless if it is not accompanied by integrated and continuous human resources development programs. Therefore, coaching becomes the main activity. Another way of developing employees is giving bigger tasks and responsibilities. If the related employee can perform her/his tasks satisfactorily, then s/he will be promoted.
Motivation programs are also given continuously. Famous trainers and motivators, such as James Gwee, Andrie Wongso, Gede Prama, Wiwoho, F.X. Haditjokrosusilo, Bambang Bhakti are the best friends of Tupperware Indonesia. A unique collective motivation program is the annual target as a collective target. If this collective target is achieved, then all employees will get annual bonus plus tour. Places of interest which have been visited were Lembang, Yogya, Bali, Singapore and Malaysia! Employees who had worked before 2001 had been gone abroad; ignoring what position title s/he had.
The management of Tupperware Indonesia realizes that motivation requires sincerity. In the beginning of 199 all employees celebrated its success in Bali, stayed in a 5-stars hotel for 3 nights. In the beginning of 2002, all employees traveled to Singapore and Malaysia, including the drivers and office boys.
Employees did not need to pay any charges because all cost were at the company’s expenses, including taxi fare from their houses to the airport. Before their departure, they were given some money for their family. In Singapore, they got pocket money in SGD which were nearly unused because all needs were available, including souvenirs and gifts for their families at home.
After returning to Indonesia, they felt beautiful moments and fatigue. But the surprise did not end yet. In their first working day, they received an envelope and a bar chocolate on their desk. After the envelope was opened, the content was the CEO’s greeting and encouragement to achieve next year target, and…announcement that their 2-months bonuses had been transferred to their accounts. “A very touching human resources management, “wrote a famous management expert, Bambang Bhakti in a business magazine.
If you belong to the management, and you want to build the winner mentality in each employee, maintain and whip up the spirit well, you will be successful in the turnaround, improve the performance and change the condition of the company from suffering financial loss to gaining profit.
“If you have reliable sales leaders, never let them ‘fly’ to other companies.”
10 High Flyers Fly High
The performance of the sales organization is very important in the turnaround. Generally the loss of the company is resulted from the low sales volume. When the sales increases, the profit also increases. However, we should realize that the sales increase might not help the profit increase, as the product margin is not sufficient.
Sales is influenced by many factors. One of important factors is the performance of sales organization. The better the organization is, the sales performance will be much better. Therefore, the management of the sales organization becomes the important part of sales increase and turnaround. Because of this reason, many companies give high priority to trainings and motivation for their sales force.
Delivery training and motivation programs to the sales force is not a mistake, but the management should realize the following:
1. 10-15% out of sales force is generally the stars with incredible performance and contribution (first group).
2. 70-80% out of sales force is generally has average performance and contribution (second group).
3. 10-15% balance is sales force with low performance and contribution, and negative mentality (third group).
The main job of a sales leader is identifying those who belong to the first, second or third group. Then s/he has to decide what s/he has to do with each group. Basically, a sales leader should not waste her/his time for things which will not give positive influence on the sales performance.
Training and motivating sales force of third group (low performance, negative mentality) will be definitely not as effective as training and motivating the first group (stars). But unfortunately, the first group does not need training and motivation. They are individuals who can fly by themselves. They are high flyers, self-motivated achievers. So, below should be the priority of a sales leader:
1. Give the best attention to the first group (high flyers), give reward, recognition, and other things so that these high flyers will not fly to other companies.
2. Give training programs, motivation and coaching for the second group (average group) so that they can improve their performance and some of them move to the first group (high flyers).
3. Change individuals in the third group with new individuals with high potential. Don’t waste time to give training and motivation to this group.
Because of above factors, it is understandable that turnover in sales division is often inevitable. Turnover of the third group definitely will not cause problems. But turnover in the first group should be anticipated. Even though the number of the first group is low, usually this group becomes the biggest contributor to sales.
In short, a sales leader’s task is making high flyers remain there and keep on reaching achievements; giving training, motivation and coaching to the majority of average, and changing the negative individuals with new individuals with high potential.
We have many legendary sales leaders who are successfully lead the sales force. Many of them move from one working place to another because they receive more interesting challenges, and better compensation and career. Many reliable sales leaders reach the top management and become successful! Therefore, if you have reliable sales leaders, do not let the “fly to another company”. Give them space to “fly” in your own company.
If you belong to the management, and you are willing to promote your reliable sales leaders, then you will be able to increase sales which in turn it will result in the turnaround, improve the trend of declining performance, change the condition of the company from suffering financial loss to gaining profit.
“Turnaround is a great process, and therefore it requires great ways of thinking!”
11 A Visionary Tirto Utomo
Turnaround needs great ways of thinking which go beyond the conventional limits, traditional boundaries; ‘thinking out of the box!’ Why? Because turnaround is an unusual process. It is a great process, and therefore it requires great ways of thinking. Even you and your team may need to challenge against the current.
I am going to tell about a story of an entrepreneur who thinks out of the box and get successes! The story is in the context of marketing. If Sam Hill and Glenn Rifkin had observed this case, perhaps they would write the story in their book Radical Marketing.
In 1970s, a middle-aged man decided to produce and market bottled water. His name is Tirto Utomo. You must have known this person. The bottled water was sold at the same price or higher than soft drink which had been distributed in the market. The fact was that his bottled water was only white water, whereas soft drink contains water plus essence with certain flavour, sugar, colouring agent, soda, and gas that made them tempting and gave ‘spark’ effect.
Many marketing experts at that time thought that bottled water – which later is called as mineral water branded Aqua – could not be sold well. The reason was that even people were somewhat reluctant when they were offered free water, even less they had to buy it with high price.
However, Tirto Utomo was consistent with his “thinking out of the box”. He had both faith and vision. He believed that someday there would be awareness of the importance of healthy white water along with the increasing pollution and the degradation of environment. He got the inspiration when he worked for an oil company. He saw that many expatriates only want to drink water from a well-packed and branded bottled water.
And now all of us know that his mineral water, Aqua, has become the market leader, a incessant profit mining, that many has been following his steps. He might have predicted that there would be many competitors, but perhaps he was also sure that ‘being the first you get so many privileges and advantage.’
In the latest decades, we find so many bestseller products are the results of ‘thinking out of the box.’ From drinking with less sugar to non-sugar and food of low calorie.
Many cosmetic products are non-scented because many consumers are allergic with fragrant agents; while in conventional way of thinking, perfume is identical with beauty.
The products I mentioned above are manufactured with lower cost compared to general products because the former does not need essence, fragrance, soda, sweetening and colouring agents, etc. And the consumers are willing to pay higher for the lower cost products.
The above examples are not directly related with the turnaround, but it proves that “thinking out of the box” may result in incredible power. Furthermore, are the successes in marketing and sales are the important components in the turnaround?
If you belong to the company management, and you want to implement “thinking out of the box”, want to ask your team to think beyond the boundaries of conventional ways of thinking, then you will be able to make turnaround, stop losses and gain profit.
“Teh Botol Sosro is successful because it dares to challenge against the current, is willing to be an initiator, has strong determination, smart, and full of consideration!”
12 Teh Botol Sosro: Innovator and Pioneer
Great ideas which are beyond the conventional boundaries; thinking out of the box, is always an interesting topic for discussion. If in the previous chapters I have discussed about a case in marketing context and another case having close relation with turnaround implementation, then this time I am going to tell about another success story.
The success story I am going to tell is about the beverage industries in 1970s. At that time, international branded soft drinks entered our market. Coca Cola launched its fighting brands: Fanta and Sprite. Green Spot and Seven Up remained the firm mainstay of PLI (Pabrik Limun Indonesia), and there were still many more brands.
A businessman in tea plantation in Central Java had an innovative idea to launch fast served tea product packed in a bottle. At that time, such idea was considered as “weird” by marketing experts. The reason was history never recorded that tea had ever been served in a bottle. Tea is always served hot after being suffused with boiling water, with or without sugar. Even in Central Java, “ginastel” is a slogan used to describe the enjoyment of drinking tea, i.e. “gi” (legi = sweet), “nas” (panas = hot), and “tel” (kenthel/kental = thick). There had been small restaurants serving ice tea, but its popularity is below syrup.
There was once a consumer research which tried to find out the level of acceptance of bottled tea. The research indicated that most consumers had no interest in drinking bottled tea. They only wanted to drink suffused with boiling water, and drink it while it is warm, or even hot. The market also indicated that the enjoyment of drinking tea in a usual way could be gained by anyone at cheap price.
And the tea businessman from Central Java did hear those opinions and did know the result of the research. But he did not withdraw. He was determined with his “thinking out of the box”. He kept on challenging against the current. However, he was aware that it required great efforts to make his bottled tea successful in the market.
He was aware that the consumers needed to be educated to enjoy bottled tea. And this demanded big budget and took long time. It needed hard work as well. It needed product availability, wide spreading, and strong distribution channels which meant educating distributors, i.e. wholesaler, retailer and sidewalk sellers.
To speed up those processes, he decided to choose a generic name for his products: Teh Botol, plus its company identity: Sosro. At that time, no product given a generic brand. No ketchup’s name contained the word ‘ketchup.’ And brand of noodles did not contain the word “mi”. No syrup name contained the word “syrup.” The selection of a generic name showed the courage of the great innovator and pioneer.
If you are now less than 35 years old, perhaps you could not witness how hard he introduced his products to the market. “Below the line” ads were everywhere. Tents of umbrella shape, which is called as “awning”, were produced in very big quantity and distributed spectacularly.
Finally, this product gained its incredible success. And many businessmen followed his step. Producing bottled tea. Competition became very tight. But Teh Botol Sosro is unshakable. “Being the first you get so many privilege, “said the marketing experts. Moreover, for players in this industry, huge capital is required, as the product is low-margin-high volume. Besides, the distribution cost is very high because of its bulky product while the price per unit is low.
Our friend is successful because of his “thinking out of the box”, because he dared to challenge against the current, was ready to be an initiator, had strong determination, was smart, full of consideration, did not easily give up, had courage to face risks and was willing to work hard.
If you belong to the management, and you want to implement “thinking out of the box”; are willing to urge your team to think beyond conventional ways of thinking, then you will be successful in implementing turnaround, and change the condition of the company from suffering financial loss to gaining profit.
“Mrs. Kasno enjoyed the sustainable success becasue she had courage to challenge, perseverance, patience, persistence, and hard work!”
13 Blue Ocean of Mrs. Kasno
Marketing case studies are always interesting. Again, I am going to tell another success story resulting from an individual who thinks out of the box. At this time I am going to present a plain housewife, Mrs. Kasno, who implemented Blue Ocean Strategy before this term was known in marketing field. This story had no direct relation with the turnaround, but I am sure we can take lesson from her success story.
In 1960s, a housewife from Solo, after her husband’s passing, had to bring up her children. The only skill she had was cooking gudeg (vegetable made from jackfruit) which she had learned from her mother. He decided to finance her children’s education by selling gudeg. To be success , he decided to choose a “weird” way of selling, which was different from others.
Gudeg had to be very delicious. It was a basic requirement. It had to be accompanied by tea “ginastel”. Various dishes were also served, eggs, chicken meat, chicken gizzard, tofu, tempe, and “uritan” (half-done egg) along with chicken feet cooked like opor (dishes cooked with coconut cream and various spices): soft, salty and crispy, with high taste. These have not yet shown its “weirdness”, or the Blue Ocean Strategy.
Her radical breakthrough became clear when she made a controversial decision: she sold her gudeg while most people were tightly sleeping. She started selling her gudeg at 01.00 in the morning and ended it by the dawn. You are correct. During those hours, you and I are usually sleeping tight.
As if it wanted to prove the great idea of thinking out of the box and Prof. W. Chan Kim and Renee Mauborgne’s Blue Ocean Strategy, Mrs. Kasno – even after 40 years of its launching – it remains sell well. You have to be patient to find an empty seat there before you started your great culinary adventure.
One day, a famous marketing and management observer, Bambang Bhakti MBA, sent me an SMS in the middle of the night. He asked my guide how to get to the legendary Mrs. Kasno’s gudeg. After having had the food early morning, his comment was: “Incredible!”
As my best friends said, it is okay if you do not believe what I told. Whenever you visit Solo, please wake up very early dawn and ask a pedicab driver the place where Mrs. Kasno sells her gudeg in Margoyudan. From distance, you will see many cars pasking, and some of them are definitely from other towns.
Along with the General Manager of Tupperware Indonesia, Nining W. Permana, we had an opportunity to have a chat with Mrs. Kasno. We asked the secret of her success. “If we open in the afternoon or evening, there are many competitors, “ she explained about the concept of Blue Ocean Strategy. “It is true, indeed, that early dawn is the best time for sleeping. But there must be some who are awake during those hours. And they must need something to eat, “ she added.
He business intuition could catch a niche accurately. In my opinion, she deserved to be awarded in Leadership Award for her marketing experience. After almost 40 years, her Blue Ocean does not change to Red Ocean. There are only 2 or 3 similar sellers who try not to doze off, while Mrs. Kasno keeps busy serving her customers.
She sells her food 7 days a week, more than 360 a year. Holiday only takes place for 3 days before Lebaran. Getting up in the middle of the night, even in the raining season. Success! Her first son passed the doctoral degree majoring in Architecture in Netherland some times ago. The lady is enjoying a sustainable success because of “thinking out of the box; dared to challenge against the current, was ready to be an initiator, had strong determination, perseverance, patience, persistence, never give up, courage to face risks, and hard work.
If you belong to the management, and you want to implement “thinking out of the box”, are willing to urge your team to think beyond conventional ways of thinking, then you will be successful in implementing turnaround, and change the condition of the company from suffering financial loss to gaining profit.
“Chinese call a crisis as ‘we ci’, which means challenge and opportunity. This term describes an incredible mentality.”
14 Chances Behind Difficulties
Running a business has similarity with wind surfing. When wind comes, take the chance, then surf, and take the benefit from the wind. Be always prepared so that when the wind comes, you can use it immediately. In running your business, you also have to be always prepared so that when an opportunity comes, you can catch it.
Actually, chances are everywhere. A wise man says: “God provides enough opportunities for you, but He never delivers the chances to you.” We are the ones who should be active, observe carefully, and use the chances as precisely as possible.
There is one thing for sure in finding where an opportunity is. An opportunity is always behind a challenge, behind a difficulty. The bigger the challenge and the difficulty, the opportunity will be bigger. That is why the Chinese call crisis as “we ci”, which means challenge and opportunity. This term describes an incredible mentality.
The monetary crisis took place 8 years ago. But the effects remain painful. When the crisis happened 1998, we were facing many difficulties. Unfortunately, not many people can see invaluable chances behind the multi dimension crisis. Working contract termination became a striking phenomenon at that time. The inflation rate was very high. Many businessmen were desperate. They assumed that the high numbers of working contract termination meant the smaller consumers. The high inflation rate meant lower purchasing power. And they were correct!
But there were some professionals joining in a management team with its principle: “You are what you think.” If you think that a crisis will cause destruction, then you will be destroyed. But if you are sure that the crisis keeps many chances behind it, then you will get the opportunities.
This management team ran a direct selling business. The products are food containers made of high quality plastic and of high prices. They observed that working contract termination was not a threat, but it was an opportunity. It was an opportunity to increase the number of business partners or independent sales force. Supplied with the conviction, the management team launched a unique program called One for the Nation.
In this program, every employee and every business partners which reached 20,000 persons were urged to help at least 1 family who got the impact from the working contract termination, i.e. by recruiting and training them to be reliable dealers and gained income, which were at least as big as what the received before the working contract termination.
They followed the training programs seriously for the sake of their families, their children education. Supplied with nationalism, the employees and business partners gave the training wholeheartedly. The result was amazing: they could get their income again, the number of dealers was increase, and sales volume was tripled.
Where did they sell these expensive plastic food containers? The crisis which brought riots in many places also gave opportunities. The high-class people usually spent their nights in the restaurants or spent their weekends out of town. But as riots took place, they had to stay at home with their families, even though they had enough money to spend outside. And they also had to think hard to make their families comfortable at home.
And this situation became a golden chance for the dealers of direct selling company selling food containers that could keep snack remained crispy for weeks, and keep the freshness of fruits and vegetables for several days.
The ability to see hidden chances brought the company to the high profit, and did turnaround at the same time during the monetary crisis. By end year closing, the company along with its employees including office boys and drivers celebrated their success in Bali. It was an appreciation for the hard workers as well as a help for reviving the tourism industries in Bali because of the decreasing number of domestic tourists.
If you belong to the management, and you are sure that there are chances behind difficulties, you are able to urge your team to catch and use the opportunity, then you will be successful in the turnaround, improving the performance, and changing the condition of the company from suffering financial loss to gaining profit.
“The majority of gross profit is resulted from minority of products, majority of revenue is from minority of clients.”
15 Pareto Law in Turnaround
In 2003, a managing director of a multinational company joined an annual meeting in Melbourne, Australia. In the meeting, there was a discussion on 80-20 principle which states that 80% of company’s profit is from 20% of its products: 80% revenue is 20% of its clients, etc. This principle is known as Pareto Law.
Being interested in this principle, the Managing Director asked his Marketing Director to give the following data:
1. Out of 86 products they had, which items gave contribution to 80% of sales volume
2. Out of 86 products they had, which items gave 80% of gross margin/gross profit
3. Out of 60 distributors they had, which distributors contributed to 80% revenue
The figure is not exactly 80-20, but it reflects similarities:
4. 20 out of 86 products contributed to 80% of its sales
5. 20 out of 86 products contributed to 80% gross margin/gross profit. The products of both groups are same; the difference lies in the sequence number.
6. 18 out of 60 Distributors contributed to 80% of its revenue
Even though the figure is not exactly 80-20, but majority-minority law prevails here. It means, big portion of sales is from a small number of products; most gross margin/gross profit is resulted from a small number of products, and most revenue is from a small number of clients. Knowing the above data, the Managing Director understood what they had to do to increase sales, gross margin, and revenue.
Back to the annual meeting, he directly gathered his staffs and did brainstorm, formulated various programs to increase sales, gross margin, also formulated product management policy. Various programs were made to increase the gross margin for the products of high volume but low gross margin. Other various programs were also made to boost the volume of products of high gross margin, but low volume. Also, there were products which were eliminated from their product list.
The same case also happened in a company producing and selling industrial needs. Its clients were government sector, private sector and consumer sector. This company had been operating more than 30 years and been successful until 1997. When the monetary crisis happened, it suffered from financial losses. During the difficult times, the son of the company founder was delegated to lead the company and revive its profitability which had been enjoyed by the company for years.
Many efforts were taken. As suggested by a consultant, they did margin mix analysis on their products. They found that products of high volume had low gross profit. On the contrary, products of high gross profit had poor volume. In the short research, they found out that products of high volume, but low gross profit were for government sector, while products of high gross profit and low volume were public sector consumption.
The Managing Director took immediate actions. He established a special sales organization to serve the private sector. Sales to government sector was limited to absorb the manufacturing overhead only. Sales to private sector were boosted to increase profit. So, there are some products of profit generator and some others are volume generator.
Indeed, it was not easy. But finally the company was successful in obtaining profit after suffering financial losses for years. It had to be admitted that the success was not merely due to above actions. Turnaround is never the result of one or two factors because actually there is no magic button for the turnaround.
If you belong to the management, and are willing to make analysis based on majority-minority concept, and then you take required actions according to the data you obtain from the analysis; you will have an opportunity to increase profit, which in turn results in turnaround, and change the condition of the company from suffering financial loss to gaining profit.
“Price has nothing to do with cost.”
16 Being Cheap Does not Mean Selling Well
In my previous essays, I have adapted the elements of leadership, thinking out of the box, marketing, human resources, and so on. Now let me enter into a more technical area, i.e. pricing or fixing the selling price, both for concrete products of service.
There was the most outstanding cosmetic and skin care in the world – when it started its business in Indonesia – sold an anti-wrinkle cream for face. In other countries, the product was sold at price equal with Rp 120,000 and sold well because of its quality. In Indonesia, it was sold at Rp 30,000 and not sold well! Because there was still abundant stock of raw materials, the company changed the packaging from plastic to glass. The latter was like crystal which was very beautiful. It was sold 4x, i.e. Rp 120,000; same unit price as in other countries. The product was sold well and the company ran out of stock. So, being cheap is not a guarantee for selling well.
In 1980s, one of multi national companies gathered all General Managers in New Orleans to attend the annual conference. A guest speaker was invited to the event, i.e. a professor in marketing from a very well known university in the United States. He was asked to give speech about pricing. The professor opened his speech with a strong and shocking statement:
“Price has nothing to do with cost!”
Selling price has nothing to do with production cost.
All General Managers were shocked with a statement which they had not ever heard before. The conference room became noisy with their protests against the controversial statement. A question arose: “is it correct if the pricing had nothing to with cost?”
After the room resumed to normal, the professor took a small bottle containing clear liquid out of his pocket. “This is a new product, a discovery of a health research which has not been announced to the public yet. I will spray it onto your palms, ”said the professor. Then he walked around spraying his product onto their palms, and asked them to rub their right palms over their left ones, while they were closing their eyes. “Feel the freshness flowing to your brains through your nerves. Now feel how it freshen your mind….”
All participants did what he had instructed with obedience. And, almost all of them felt that their minds became cooler and fresher. Then, with a style of a great salesman, the professor explained that the product was made to cool and freshen the minds of those who were tired of working or sleepy during a meeting, etc. By spraying the liquid onto the palm, palms rubbed softly each other while closing the eyes, then coolness and freshness will flow to the brains.
“You have felt the benefit of this product. Now take a piece of paper and write down how much dollar you are willing to pay for this product…!” instructed the professor. “One bottle contains 50 cc, “he added. After collecting the papers, the figures were various, i.e. US$ 5, 10, 15 even 25. Most of them were willing to pay US$ 12.5 (or currently equals to Rp 110,000).
“None of you asked the production cost of this miraculous product, “said the professor. “All of you set the price based on your perception of the value of the product. So do your customers. They do not care about the production cost. They only want to pay according to their perception on the value of your product or service, “he explained.
“The important thing is that you must be able to build the perception as high as possible, the highest value, like when I was successful in building your perception of a bottle containing 50 cc of nothing else, but COLD WATER!” said the professor at the end of his presentation.
If you belong to the management, and you are willing to set the price of your product and service based on the customers’ perception; after you and your team have built positive and high perception, and superior perceived value, then you will have a chance for the turnaround, stop the poor company performance and change the condition of the company from suffering financial loss to gaining profit.
“The success key for direct selling companies: number of employees is as least as possible, number of business partners is as many as possible.”
17 Avon Indonesia: In Memoriam
In the beginning of 2006, business sector in Indonesia was shocked by the news about the closing of PT Avon Indonesia, a multi national direct selling company which operated since 1988. This event followed the closing of another multi national direct selling company, i.e. House of Sara Lee in 2004. According to the official publication from the headquarter of Avon in New York, the closing of Avon Indonesia was taken because the sales volume was less than US$ 20 millions per year that Avon had been suffering financial losses for years.
It was very tragic. The company not only had absorbed many employees, but also created many strong salespersons. Avon had also created many professional in direct selling. I, myself, had worked for the company for three years; had been educated and trained by Avon. I adopted this topic merely to take a lesson from the “tragedy.” With highest respect to my partners who had been working for Avon until the last minutes, I am trying to make post martem analysis. I hope that the lessons could give benefit to the business sector.
We know that Avon is not an average company. Avon is a multi national company which has been developing well and had been more than one century (established in 1886), and has outstanding achievements in stock exchange. The company is consistent in the direct selling with main business line of cosmetics and skin care products. The company is very successful in many countries. Its multi national network has created incomparable competitive advantages. Avon is a pioneer in global direct selling industries. Many executives of Avon are also successful in other companies, such as Rick Goings, the current CEO Tupperware Brands Corp.
Then, what should we pay attention from Avon Indonesia who was not successful in the turnaround after struggling for years? Aren’t there many direct selling companies in Indonesia who have been obtaining profit with net sales below US$ 10 millions per year? Following are my post mortem analyses:
1. Sales centers were not profit-oriented. Avon Indonesia took the model of Avon Philippine, where Avon had many branches as well as employees. Its branches were managed by professionals, not entrepreneurs. At the same time, other direct selling companies almost do not have branch offices, but they have agents, dealers, distributors, stockists who are entrepreneurs. Branch offices of Avon were sales centers, but not profit centers, while company profits should have been gained from the branch offices.
2. The organization structure did not fully support the sales growth. The branch offices were sales centers which were managed by 2 persons with different responsibilities. One ship with 2 captains was likely to impede the sales growth.
3. High fixed overhead. Because of above operational model, plus factory it owns, Avon had to hire many employees. The total numbers exceeded 1000 persons. Therefore, Avon had to bear high overhead while the success key of direct selling company is having less number of employees, but higher number of business partners (independent sales force).
4. Sensitive market segment, insufficient gross margin, and relatively small profit for business partners. The market target of Avon is middle lower class, which forced Avon to sell at low prices. On the other hand, the quality of products should meet the international standards. This resulted in low gross profit. Furthermore, middle low market segment was relatively sensitive to cosmetics and skin care. The increase of oil price, for instance, could cause the decrease of buying power. And low price definitely caused the lack of motivation of the sales persons because the profit per unit was also low.
If you belong to the management, I urge you to take lessons from the closing of this multi national company. A company which has been operating for years in Indonesia, remained unsuccessful in the turnaround. If currently you are trying to change the condition of the company from suffering financial loss to gaining profit, hopefully, you can get helpful inspiration from the Avon Indonesia tragedy.
“Anyone can do turnaround as long as s/he uses her/his entrepreneurial spirit.”
18 Bureaucrats Can Also Implement Turnaround
Jack Welch called the bureaucrats as dinosaurs, an ancient frightening animal. If you are a bureaucrat, please do not immediately get angry. I guarantee that you can implement a turnaround as long as you are bureaucrat-oriented, not focus on regulations, but rather problem solving-oriented.
A company management is basically an entrepreneur, a businessman. An entrepreneur should be oriented in profit and business development. A bureaucrat is regulation-oriented for creating public order. A company could be very orderly, discipline, but cannot gain profit at all. On the contrary, a company could be not very orderly and discipline, and the executives do not wear a tie, but it has enormous profit.
I would never forget an event where I became a speaker in a public seminar with Mr. Mindiarto, Mr. James Gwee, and Kafi Kurnia. I intentionally did not use “Pak” to address Kafi Kurnia even though I respected him much. Three of us wore ties because we wanted to look neatly in front of 200 participants. But Kafi Kurnia only wore a T-shirt. He showed how he was very comfortable wearing it. And he delivered the tips for increasing sales, including marketing tips. His presentation was very impressive, full of jokes, flowed freely without ‘being tied.”
Why did I not address him with “Pak” or “Mr?” Because a true entrepreneur is not bound to a title, appearance, regulation, but s/he focuses on the goals. The characteristics of a true entrepreneur are always willing and courageous to do experiments, innovation, and risk taking. S/he is always full of initiative, creativity, passion, lateral thinking, and break through conventional boundaries. And I think such illustration match with Kafi Kurnia. Of course, I also highly respect Mr. Mindiarto and James Gwee because they are my teachers in sales and distribution. Why can turnaround only be implemented by company management with high entrepreneurial spirit? Because changing the condition of the company from suffering financial loss to gaining profit means improvement. And improvement needs innovation. Improvement also means experiment. And experiment means risk taking.
Only company management who is brave to take a risk will be able to do the turnaround because s/he is dared to try. S/he will try new things. S/he will make innovation. Therefore, experiment, innovation, and risk taking (not speculation) are the main characteristics of an entrepreneur, as well as the main characteristics of a company management who will be successful in the turnaround.
Do you still remember Mrs. Kasno who has been successful in enjoying the blue ocean for 40 years by selling gudeg at midnight, while most of the city dwellers are sleeping tightly? Where is the point of experiment? Yap, selling at midnight.
How about the innovation? Mixing gudeg with chicken feet and cooking them like opor, which is crispy, soft, and of high taste (the recipe might be even a secret).
Where is the point of risk taking? Yap! In the choice of opening hours. While many people are dreaming, her foods might be not sold well. The chilly air may affect health. And security risk? Definitely, there is. But with her courage to experiment, innovation, and risk taking, she has been successful for 40 years. One of her sons was a doctoral candidate majoring in architecture, in one of universities in Netherlands 3 years ago. And thanks God; Mrs. Kasno is still healthy.
If you belong to the company management, and you want to continuously do experiment, innovation and risk taking, ask your staffs to take off the bureaucratic ties, then you will have a chance to implement turnaround, and change the condition of the company from suffering financial loss to gaining profit.
“Turnaround is not merely an effort of cutting expenses.”
19 Big Bait for Big Fish
When we were in senior high school, we learned about simple principle of economy: Maximum yield with minimum expense. A well-known businessman, Bob Sadino, in a public seminar firmly stated that such principle could not be applied in current business life. “If you want to get big fish, don’t use small bait, “said the Boss of Kemchicks Group.
One of direct selling companies in Indonesia, Tupperware Indonesia, arranges annual conference for independence sales force reaching the Manager level. This event is called as Manager Conference which is usually held overseas; combined with training, tour and reward program. Manager Conference Tupperware have been held in Penang, Beijing, Bangkok, Singapore, Hong Kong, Shanghai, Perth, Bali, and so on. Usually Manager Conference is attended by 300-600 participants from all over the country. Because the number of manager is more than 3000 persons, and conference only invites maximum 600 persons, then a qualification program is held. This program is called as Manager Conference Challenge.
The conference, which spends billions Rupiah, is usually held during October or September, several weeks before the Fasting month. The Challenge period generally takes 5 months which ends 1 month before the Conference begins. Because of its big budget, based on general accounting practice, all costs during the conference are incurred proportionally during the 5-months challenge period, and included in promotion financing.
Therefore, during 5-months Manager Conference Challenge Period, promotion budget is very high. However, the sales during 5 months also sharply increase as each Manager tries to reach the highest sales volume so that they can join the conference, the overseas trip, and get the rewards.
Considering the enormous budget, Chief Operating Officer (COO) of Tupperware Indonesia once gave an idea to eliminate the Manager Conference event in order to save billions Rupiah for the company’s profit. The idea was welcomed by most of board of directors, except the Finance Director. The COO definitely wondered because usually a finance director would really support any efforts aiming at economizing.
The Finance Director was indeed smart and had vast insight. He asked for a half day for preparing a presentation so that the decision to be taken would be based on accurate data as well as profit-oriented consideration. In the afternoon, the Finance Director was given a chance to present his arguments. He explicated the balance sheet for the last 5 years. During the Manager Conference Challenge, which is 5 months in a year, the promotion budget is very high that the operational cost of the company also increases. But the sales volume also increases sharply during those periods that the company’s profit also increases.
He concluded that the profit of the company reaches its peak during periods when the operational costs are very high.
Even though the problem is not so simple, and many other factors influence the profit increase, the fact shows what Bob Sadino said might happen. The COO of Tupperware Indonesia also asked the Finance Director to make a simulation on balance sheet if the Manager Conference event is eliminated to save billions Rupiah. The result showed s significant decrease of the profit that the COO called off his plan to eliminate the Manager Conference event.
High expenses will result in high profit if it is made through well-considered plans and accurate strategies as well as profit orientation.
If you belong to the company management, I suggest you to make a well-considered calculation before cutting the expenses. Doing a turnaround, stopping loss and making profit are not solely about cutting expenses. Do a comprehensive financial calculation before taking decisions.
“Focus all efforts to overcome obstacles which may greatly influence on profitability.”
20 Is There a Magic Button for Turnaround?
Turnaround is a longing for every company management who is facing financial losses. They are often tempted to find out one single source of loss, and then try to find out one single factor that can bring their companies out of the losses. The temptation to find out one key or one magic button often happens.
But the question is whether there is a magic key or a magic button for the turnaround. Is there a single factor – if it can be taken – that can overcome losses and create profit in turn? If the single factor does exist, the turnaround process would be easier because the management would only need to focus their efforts to handle the single factor.
In the previous essays, I have told about a company which suffered from financial losses since the monetary crisis until 2004. In 2005 the company was successful in its turnaround after conducting margin mix analysis. Once they understood which products contributed to its biggest profit, the company management immediately took some efforts to increase the sales volume of the products in order to increase profit. Products of gross profit below standard were eliminated, while products of ‘so-so’ gross profit were maintained to absorb the manufacturing fixed overhead.
But it was also explained in the essay that such action was not the only factor causing the success of the turnaround. Management took comprehensive improvement. Organization was straightened out. A new special sales division was formed to serve private sector which absorbed products of high gross profit. Training programs were arranged. Level of efficiency in the production was increased continuously. Scrap and waste were monitored and decreased continuously. Fixed production overhead was cut without sacrificing the quality. Economizing was conducted in several sectors. Balanced ScoreCard System was applied. And many other positive steps were taken.
Has the turnaround process in the company completed? Actually, a turnaround process is a continuous process. If the process is stopped, it will be a possibility that the company will suffer from financial losses again. Therefore, turnaround is always associated as a process, not a program, because a process is continuity while in a program there are starting and ending points.
After the company was successful in getting profit, it still faced many hindrances. ROS (return on sales), i.e. the comparison between profit and sales was still low. Account receivables were longer than account payables that the cash flow was clogged up. The debt was relatively high that it required restructure, and there were still many more challenges.
Actually, there is not a magic key and magic button. We have to take a comprehensive observation and take integrated steps. We should consider the sales volume, marketing strategies, pricing, human resources, production process, inventory management, cash flow management, etc.
However, we’d better refer to Stephen Covey’s concepts as explained in his book titled Seven Habits of Highly Effective People, i.e. first thing first which means generating the priority accurately. The tip is: Concentrate on the big rocks! Focus all efforts to handle challenges which may give big impact on profitability. After the big rocks are managed, then handle the other things.
If you belong to the company management and you want to implement turnaround, do not believe in a magic key or button. Do comprehensive observation. Pay close attention to the important factors. Formulate priority. Focus attention to handle the most dominant challenges. Then, continue with other challenges. Thus, you will have an opportunity to stop declining company performance and increase the profit which will in turn result in turnaround and change the loss with profit.
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2 comments:
Dear Sparklingdew,
My name is Dede Izza, I am Nur Kuntjoro's assistant at Quantum Consulting. He is the author of "Thingking Out of The Box for Ptofit".
I forwarded this link to him yesterday, and after reading the translation through his BlackBerry device, he is quite impressed with your English translation. He thinks that the English is excellent and the content is well translated.
Nur Kuntjoro would like to send his appreciation, and of course his very best regards to you.
He wishes that your translation will give positive contribution to the business community especially to those who wish to turn around their business.
In case you want to contact Nur Kuntjoro, he could be reached through his email address: quantumconsult@saplf.com.
Wishing you every success.
Very best regards,
Dede Syaadah Izza
Dear Ms. Dede,
Thank you for your valuable comments. I translated the book for my ex boss' personal use; not for commercial one. His name is Mr. J.J. Rhee.
FYI, after working with him for 11 years in his factory, I resigned from the company in early 2010. Now I am working as a staff/a civil servant for the Center for Development, Education and Training at the Agency for the Assessment and Application of Technology / Badan Pengkajian dan Penerapan Teknologi.
Please kindly extend my best regards to Mr. Kuntjoro.
May Allah be with you.
Thank you and best regards,
Indra
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