CEO Drills Down Deep in Wholesale Overhaul of HR
“When companies are dysfunctional, a key sign is the attrition rate,” Leto says. “At GTSI, there was no human capital plan.”
Leto launched an overhaul of the entire human resources program that reached from the most strategic succession issues down into the minutiae of operational HR, where few CEOs venture.
From headquarters in Herndon, Virginia, Leto renegotiated credit, culled vendors, shifted to a service focus, outsourced small-order processing, installed e-commerce tools and cut headcount by 30 percent. New performance metrics, training programs, 360-degree assessments and succession planning put an end to high attrition and boosted output. At the end of 2008, with annual revenue approaching $1 billion, GTSI reported double-digit growth in sales and net income and no bank debt.
The attrition rate stands at 7 percent. “If you take attrition from 55 percent to 7 percent, you have significant productivity improvements and your HR costs drop like a rock,” Leto says.
Deep changes in the company’s HR programs fueled the turnaround and resolved critical cash flow problems. When Leto arrived, the company’s “days sales outstanding,” or DSO—the average number of days to collect revenue after a sale—stood at a very costly 70 days. Leto took action to free up cash by cutting it.
“To initiate the DSO reduction, I called in the director of collections, who had worked for the company for many years, and made her a vice president,” Leto says. “I expanded her job and she took it on with a vengeance.”
Resetting performance metrics refocused priorities. “Earnings before taxes was the primary input for bonuses, which was ridiculous because most employees don’t understand what it is or have any control over how to move it,” Leto says. The company converted to “management by objectives” performance metrics for its 20 vice presidents. In the collections department, the vice president’s goal for management by objectives is reducing the DSO, and this performance measure cascades down, with collectors working under very rich incentives.
Days sales outstanding is now down to 40 days. “That’s what happens when people are properly trained and committed,” Leto says. “For a billion-dollar company, reducing DSO by one day is equal to $10 million in cash.”
Bridget Atkinson, GTSI’s vice president for human resources, reports directly to Leto. “She is at every executive staff meeting and is at the core of the human capital plan,” Leto says. “She has access to the same reports I get, including daily treasury reports. She knows what I know, and I know as much about operational HR as she does.”
“Leto is unique,” Atkinson says. “He gets it. Few CEOs invest time in people capital.”
A full succession plan is now in place at GTSI. “When people leave for bigger companies, we take pride in that,” Leto says. “When our CFO left in November for a $5 billion company, we announced his successor the next day.”
Atkinson’s career path may be out of the company, Leto notes. “If she leaves tomorrow for Northrop Grumman, I will be happy for her,” he says. “And I know exactly who will replace her.”
Workforce Management, July 20, 2009, p. 20 -- Subscribe Now!