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Manugistics Tests Its Values

October 1, 1992
Related Topics: Corporate Culture, Values, Featured Article
In 1986, a time when corporate America was booming, the management team at Manugistics Inc., a computer software and services company located in Rockville, Maryland, outlined the company's corporate values. In 1990, after the acquisition of a competitor, the economic downturn, an expense-reduction program and eventual downsizing, those values were tested.

During tough economic times, many organizations have found it easier and more cost-efficient to abandon the values to which they had committed themselves in better days, in exchange for actions that are merely expedient. The cost, however, has been great: Employees and customers often are left feeling demotivated, distrustful and cynical, at a time in which maximum productivity and goodwill are essential for survival.

Not at Manugistics. The organization's management team discovered that staying true to its espoused values enabled Manugistics to retain employees, increase employee productivity and to strengthen client relationships at a time in which the future of the company might have been threatened.

Beginning with its founding as a computer time-sharing company in 1969, Manugistics, which now has approximately 275 employees, has experienced several transformations. These transformations include stints as a publicly held company and later as a subsidiary of Contel Corp. (a Fortune 500 company that merged with GTE in 1991).

In 1986, the Manugistics' management team negotiated the purchase of the company from Contel. At that critical juncture, CEO William M. Gibson and his management team felt it was essential to the firm's future success to consult with employees and customers to identify the culture, philosophies and values needed to create and implement the company's mission most effectively.

The reason? Gibson and his team were convinced that business strategy and corporate values should be integrated and mutually supportive to create a stronger organization.

What the executive team envisioned were values that could be translated into simple, clear and consistent statements and would:

  1. Position Manugistics as a progressive employer and thereby distinguish the firm from its competitors.

  2. Increase productivity by focusing employees on the company's expectations of their interactions with peers, clients, vendors and competitors.

  3. Increase current and potential employees' commitment to the organization by aligning their personal value systems with the company's.

  4. Send a strong message to anyone who interacts with the firm identifying Manugistics principles.

"We wanted to distinguish ourselves from our competitors and to communicate to clients, employees, prospects and recruits that we're different—and that we believe and live by positive values," says Tom Skelton, the company's COO.

Developing the values.
Working with employees and clients, the human resources department spearheaded the effort to develop the value statements. From the beginning, everyone agreed that to ensure its effectiveness, the final product should be simple and easy to communicate. After several months of surveys and discussion with employees and clients, coordinated by the human resources department, the company formulated the Elements of Excellence, which includes these three statements:

  1. We treat others as we would like to be treated.

  2. Partnership with our clients results in superior products.

  3. Team success is more important than personal glory.

Each of the three Elements of Excellence was purposely worded to provide breadth of application. The standards that the firm was setting for employee behavior were clear. "The Elements give everyone a cornerstone to communicate what Manugistics stands for," says Skelton. "It crystalizes our values into a few points that can be remembered easily and used to carry the message."

The Elements of Excellence were introduced to the work force at a kickoff event in which each of the employees received a plaque on which the Elements were etched. To ensure that they weren't just plaques and platitudes, the company created the Individual and Team Excellence awards to reinforce the philosophies. The awards, which included plaques and cash, and are presented quarterly at companywide employee meetings, publicly recognize those employees whose performance in meeting their business objectives clearly embodies the Elements of Excellence. "We wanted to recognize people who are leading their business lives according to our ideals," William Kaluza, CFO of Manugistics, explains.

To help foster the skills and behaviors necessary to implement the company's values, an Excellence Training program was initiated. The training focuses on such topics as active listening, client sensitivity, nonverbal communication, effective meetings and conflict management. New-employee orientation was enhanced to include a peer support program, which reinforces the team culture and helps new employees gain a thorough understanding of the organization's values.

An Excellence in Leadership program also was introduced to provide managers with the training they needed to support the company's philosophies. The program's emphasis is on developing high-performance teams and includes training in empowerment, coaching, personality and its effect on teams (using the Myers Briggs Type Indicator), and self-management (e.g., managers' own stress management and personal goal setting).

To help translate the manager training into learning and action, the week concludes with a day-long, team-adventure learning experience. In an outdoor setting, the managers, working as a team, face physical and mental challenges and solve problems that serve as metaphors for solutions they face each day in their role as managers. The adventure learning has proved to be so powerful that it's also used for team building with the firm's senior management team.

Testing the values.
A major test of the Manugistics' commitment to its Elements of Excellence came with the acquisition of a former competitor at the beginning of 1990. Mergers are difficult, but the integration of a competitor adds another dimension of complexity.

It would have been easier for Manugistics to have absorbed this competitor and its technology without due respect for the people involved. Instead, the philosophy, "We treat others as we would like to be treated," guided the actions of the firm.

Even before the merger took place, the human resources department was on-site, not only communicating the Elements of Excellence, but also identifying employees' concerns and questions. To underline the team values of Manugistics, a committee of employees from both organizations worked to develop a logo that depicted the strengths of both companies.

This logo, EnRoute to the Future, was placed on T-shirts that were distributed at a celebration of the merger—the first occasion on which the two parts of the new company came together. As a prelude to this key corporate event, each employee of the acquired firm was matched with an employee from Manugistics, so that he or she could ask questions about the new company and would know at least one person in the new organization.

Understanding the anxiety that can exist in this type of situation, the human resources department gave presentations to employees on the new benefits plans and on the value of the merger the day after it was complete. Questions that couldn't be answered by the human resources department were passed on immediately to management, and answers were provided as quickly as possible.

Because the business plans hadn't yet been finalized, members of the management team at Manugistics were careful to be honest when they didn't know all of the answers. Every effort was made to avoid nonanswers, which could add to anxiety and cause distrust.

To help communicate Manugistics' cultural values to employees in the acquired firm, training on active listening and client sensitivity was given to these new employees, and an abbreviated management development class was held within 60 days of the merger.

In keeping with the organization's commitment to its partnership with clients, Manugistics closely communicated with its clients throughout the entire merger process. This was particularly important for the companies that had been clients of the acquired firm.

All of these actions required Herculean efforts on both sides. Through the entire merger process, the Elements of Excellence became the common language to link the two organizations. Employees and managers from both firms took it as a challenge to maintain these values even in the most difficult of situations.

In looking back, this merger-integration strategy may have cost Manugistics additional time and effort, but it proved to be prudent because it enabled the company to retain the key talent in the acquired firm, helped minimize the disruption of both firms' operations, and built the goodwill and trust that were essential in facing an even greater challenge—the impact of the economic downturn, which began during the summer of 1990.

A bigger test—downsizing.
Within six months of the merger, Manugistics began to experience a softening revenue stream as clients, in response to the apparent economic downturn and the impending Gulf War, began to delay their buying decisions.

Faced with this challenge, the management team at Manugistics was determined to take prudent actions, but actions that would be in keeping with the Elements of Excellence. Management team members felt that trust was never so important as it was in a time like this. Indeed, the team felt that if it didn't act in line with the company's values, employees would feel betrayed, and retention and productivity would be affected negatively.

In keeping with the Manugistics' model of teamwork, the firm's management team moved quickly to inform employees of the situation. "It's much better to communicate honestly, clearly and directly about a situation and what's motivating the company's actions," Kaluza explains. "Some people may not agree with the direction you take, but no one will disagree with the decision to share the information and the underlying justifications."

We felt that it was important to communicate that no one had all the answers and that we wanted input from all levels of the company.

Employees were polled to find out what suggestions they had to reduce expenses immediately. "We felt it was important to communicate that no one had all the answers and that we wanted input from all levels of the company," says Kaluza. "It's no surprise that some of our best suggestions for reducing expenses without jeopardizing client service came from employees on the front line."

Manugistics published employee suggestions and recognized those employee recommendations that brought the greatest savings. Realizing the importance of ongoing and honest communication during a time of uncertainty, employees received regular updates on the firm's latest financial status. This team effort made more understandable and somewhat less painful to employees—the sacrifices they were being asked to make (especially since employees were involved in identifying them.)

After several months of expense control, it became clear that the economic downturn was continuing and that larger expense reductions were necessary. In the people-intensive software business, this meant only one thing: a 13% reduction in Manugistics' work force.

Because the company hadn't had layoffs in recent history, this was a particularly painful decision. The management team asked itself how it could implement this painful action while avoiding the phenomena that usually occur in these situations, such as loss of employee trust, counterproductive finger-pointing (e.g., "It's the acquired firm's fault that this is happening" or "Make the cuts in other departments, not here") and a negative impact on clients.

Manugistics determined that in a time of upheaval, maintaining as much continuity as possible is essential to helping employees ride out the storm. Therefore, management decided that a continued reliance on the Elements of Excellence would provide this continuity in a time of crisis.

In identifying who would be affected by the downsizing, management considered several key factors. For example, care was taken not to cut inordinately from the recently acquired organization, and to acknowledge that the firm's partnerships with its clients were sacred.

Management asked itself how it could cut the work force while avoiding loss of employee trust, finger-pointing and a negative impact on clients.

In addition, given the nature of Manugistics' software, the organization decided against following the approach to downsizing used most often by other firms: deep cuts in development and maintenance programs. Manugistics decided that these programs were essential in meeting clients' needs today and in the future and carefully protected them. In fact, after the layoffs, special recognition was given to employees, who, through extraordinary effort, honored client commitments despite the diminished availability of resources.

The entire management team realized that the treatment of employees who had been laid off would be the ultimate testament to Manugistics' values. The company's human resources department rose to the challenge by creating an outplacement plan that included severance; continued use of the company's phone mail system (to aid in job seeking); secretarial service, such as faxing, copying, typing and forwarding of resumes to prospective employers; and assistance with job-seeking strategies.

In addition, an informal support hot line was created so that laid-off employees could talk to the human resources development (HRD) staff without having to return to the building. Managers worked with the HRD staff to help create a referral network of professional contacts and job leads.

The staff also created a follow-up program to continue providing support to laid-off employees for as long as six months after Manugistics reduced its work force. Finally, the organization made every effort to expedite references, disbursements from retirement plans, unemployment claims, and so on.

Before the downsizing, all managers, not just those whose employees would be affected by the layoffs, received somespecial training. The training focused not only on such traditional topics as legal issues, but also included a discussion of the personal impact on laid-off individuals as well as on those people who weren't affected directly. The Kubler Ross model for coping with grief was used to help depict possible reactions and to provide managers with strategies for helping their employees deal with the situation.

All of these actions required a greater corporate investment in indirect costs (administrative support, manager training, HRD staff time, etc.) and some direct expenses. However, when Gibson brought all the work force together after the layoffs to answer employees' questions and to share their grief, he could say honestly that the company had made every effort to stay true to its values. "We were open with employees all along the way—there wasn't the level of shock and surprise you usually see when a reduction in work force occurs," says Skelton.

The effort on the part of the management team was a powerful tool with which to help employees move forward and recover from the layoffs. The sense that the company was able to take prudent business actions and yet maintain its values went a long way toward helping the company to restore morale. In addition, the company was able to build on the trust and goodwill generated by its actions when it had to ask for the employees' continued dedication and commitment during reductions in the work force.

Results of downsizing.
After a layoff, companies often lose those top- 10% employees who are marketable in any economy, but that didn't happen at Manugistics. In fact, the total annualized voluntary turnover since the reduction in work force has been only 12.6%, which is well below the historical industry average of 20%.

Although the organization did experience some immediate negative impact on employee morale, the Manugistics' ongoing communication and support laid the groundwork for a rapid return to high productivity and morale. It found it was able to release new products on schedule and expand its marketing and sales efforts.

The company set records for both revenues and profits during its most recent fiscal year. Many competitors meanwhile have experienced declining performance consistent with the recent economic recession.

It isn't the words that are magic. Through time, those words only take on meaning based on corporate decisions made to support them.

How did this dramatic recovery occur? If you ask the employees and managers of Manugistics, they'll say that the company took the actions necessary to protect its financial future without losing sight of the commitments it had made to workers and clients.

"If you truly believe in certain principles, at no time is it more important or indeed more valuable for an organization to follow them than in times of stress, and it will have a direct impact on the bottom line," says Kaluza. "It isn't the words [of your stated principles] that are magic. Through time, those words only take on meaning based on corporate actions and decisions that are made to support them [the principles]."

Because the business strategy and corporate culture of the company were integrated, Manugistics was able to act in a prudent business fashion without sacrificing its core values. The compliance with its core values enables an organization to strengthen the bond of trust with employees and clients and provides reassuring continuity in a time of bewildering change. A company's ongoing support of its core values helps employees and clients believe that things will get better, as long as they work together in a supportive fashion. Paying attention to consistency in values during difficult times may seem like a costly short-term commitment of time and resources, but the results can be more dramatic and produce a quicker return than any other investment a firm can make.

As Skelton says, "My advice to other firms is: Don't look at establishing and maintaining a strong positive culture as a cost, but rather as a good business practice and a long-term investment that will enable you, even in the face of major challenges, to maintain strong client relationships, retain key performers, obtain effort from your people above anything you would ever ask of them and recruit the next generation of superstars."

Personnel Journal, October 1992, Vol. 71, No. 10, pp. 40-47.

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