Jason Klann, a young executive who had been at Schneider Electric North America only a few years, stood before the CEO, the CFO and other company leaders earlier this year knowing that his message would not be applauded.
Just a few months before, the 33-year-old had been promoted to a new position--business director for the standard equipment group at the company’s headquarters near Chicago. In this capacity, he was in charge of the low-voltage equipment that the company sells, ranging from circuit breakers to power-distribution devices.
But after reviewing the products he was responsible for managing, he discovered that some key equipment was losing market share because it lacked features that should have been added two or three years ago.
Not surprisingly, his bosses were chagrined at the news, especially since it came from a young man who had been at the century-old company a relatively short time.
Klann came to the attention of executives as a member of a new program launched at the firm last year that unearths company oversights, develops new markets and trains future leaders. Schneider has 15,500 U.S. employees.
The business-incubator project selects about 50 high-potential employees to act as members of "SWAT teams" that have the authority and ability to move quickly within the organization to find new opportunities and solve problems.
For team leaders like Klann, the incubator program is a full-time job. Group members, however, devote only a quarter of their time to the teams while also holding down their regular jobs. Experts say it’s an unusual approach. The structure allows employees to go back to their departments and act as proponents for the ideas the teams generate.
"This is a fabulous idea," says Allan Cohen, professor of global leadership at Babson College and author of Power Up: Transforming Organizations Through Shared Leadership.
"People who reach the senior-management level at companies say the one thing they lacked was general business experience," Cohen notes. "This is a great way to give high-potential individuals that experience and get them outside their area of expertise so they get a more fully rounded view of the organization."
The program is less than a year old, so there isn’t much of a financial track record yet. But the company hopes it will become its primary sales-growth engine while giving high-potential employees training that helps them to develop into future leaders.
Schneider, whose North American sales tallied $2.5 billion last year from such products as electrical controls, wiring devices and circuit breakers, has long been what MBA types call a "functional matrix organization."
That means the company’s 10 major functions, including sales, marketing, legal, IT and operations, tend to be narrowly focused and to concentrate more on improving their own performance than addressing issues that benefit the company as a whole.
The trouble is, many products are handled by several different departments, and no one group is held accountable for the success or failure of any particular manufactured good. That was the case with the low-voltage equipment that Klann brought to the attention of the top brass.
But because of the new training initiative, the item is now being redesigned and relaunched with a new pricing structure. (He won’t give even a slight hint of what it is, for fear of tipping off competitors.)
"No one ever said the equipment was a major issue that needed to be fixed because no one’s livelihood was dependent on it," Klann says.
He heads one of eight business teams that work to identify problems, slash costs and pursue new growth opportunities. The business teams are organized around selected groups of products and aligned with established market segments and customer strategies.
"People who reach the senior-management level at companies generally say the one thing they lacked was general business experience.
Unlike previous training programs at Schneider, this one has cross-functional teams that include members from departments as diverse as marketing, operations and human resources, thus providing an all-encompassing view of the products.
The team program started at the behest of CEO and president David Petratis, who assumed the top position at the company about a year ago. His first goal was to create a new management system that would break the organization down into more manageable units that could react to changing business needs more swiftly.
Team leaders function as de facto general managers of a line of business for a specific group of products and are responsible for new opportunities, sales growth and cost reduction. The eight team leaders are chosen from the company’s human resources annual review, which looks at performance and managers’ reports to identify employees with high potential.
To fill the positions, Schneider wanted people with good leadership skills who were respected throughout the organization and were not afraid to speak their mind.
"You are bringing up issues that are painful to listen to," like important products that should have been redesigned long ago, Klann says. "Sometimes these are things that have been swept under the rug."
After being identified for the incubator program by the human resources department’s annual review, Klann set about building his nine-person team. But as a relatively new employee, he wasn’t sure whom to tap.
He relied on a short list of candidates that was given to him by human resources from the annual review. Human resources played a key role in creating the business-team structure and in training and developing the teams to take on their expanded responsibilities.
Last November, Klann’s team and the seven other program groups met for the first time at a Chicago conference center. The teams, which range from 5 to 20 members, got to know each other and played business-simulation games involving team competitions in areas such as positioning and pricing of make-believe products.
"This was good, especially for member of the team who didn’t have much general business experience," says Allen Breeze, who leads a team focused on the company’s engineered-to-order group, which sells medium- and low-voltage electrical equipment such as switchgear and motor-control centers.
"It showed the differences in personalities and decision-making styles," Breeze adds. "Some members are external thinkers. They like to throw an idea out and debate it. Others are internal thinkers who don’t want to share their point of view until they’ve thought it through from multiple angles."
After the games, the teams got down to business, debating how they could improve profits from their set of products. They began with a strategic assessment of their portfolios. What strategies had worked well in the past and what hadn’t? What competitive advantages does Schneider have that could be better leveraged? Are there new channels of growth? Have competitors taken steps that should be addressed?
Some of this might sound like Business 101. But Schneider’s old functional organizational structure kept many people from thinking about things outside the narrow focus of their own jobs.
Members of each team, who are spread around the country at various company locations, now conduct periodic conference calls and get together once a quarter for three days to talk about ideas and plan strategy.
Breeze says the teams are "dynamic." Some members, such as representatives from sales and finance, are part of the nucleus that participates in almost every decision. Others make up the "outer ring." Their involvement fluctuates according to the project at hand.
People from sales and finance would be expected in this kind of business-incubator project, but Schneider also included a human resources person on every team. The specific role of these individuals varies from team to team and project to project.
Sometimes they provide basic people management, determining whether the teams are working well together and listening to one another. On one team, the human resources person is a skilled statistician who assists with surveys.
Breeze says the human resources person on his team has provided "personal-sensitivity training." By that he means his team members sometimes wouldn’t consider how their ideas might affect workers.
In one case, team members suggested an organizational restructuring that made business sense but would cross three department lines and affect how some employees were compensated. The human resources team member pointed that out and noted that as a result, the team would have to carefully cultivate the support of those departments’ managers.
That kind of sensitivity is important, as part of the teams’ job is to overturn the rocks in the organization. In analyzing his portfolio, Breeze found one product that seemed to offer little future sales potential.
His team contacted the marketing segment responsible for that product. The marketing group agreed that its sales would diminish over the next five years and had no problem with its being eliminated in a cost-reduction move.
Next, the team made sure that the product had no associated sales. That is, the product might be unprofitable by itself but be a crucial part of another service offering. Again, no one had any complaints about its termination.
Finally, Breeze found that the operations division was opposed. Because of the way the product was accounted for, terminating it would make the group seem much less productive. Nevertheless, Schneider is "exiting the business" for the product, Breeze says, either by divestiture or moving it to another operating division.
Uncovering new strategies
At the quarterly reviews, the teams develop the business case for their ideas and present them before top executives.
"You get to tell your story to the top people in person, and they judge your passion, your understanding of the financials and the opportunity for the ROI," Klann says. "This speeds up the decision-making process immensely."
As they approach the one-year mark, the teams can point to some successes. For instance, a team responsible for machine control and sensing products identified a new market for something called nano programmable logic controllers in airport security stations, at self-service checkout counters and in residential markets near major cities where homeowners are installing electric gates.
Rita Danker, Schneider’s vice president of organizational development and human resources, notes that the business teams have played a key role in determining the strategy for an important initiative called the Metro Major Project, which is designed to increase the company’s presence in large cities such as New York and Boston.
Danker won’t reveal the specifics of the strategy, but will say that the teams have developed "templates and analytics" that will enable the company to better penetrate these markets.
With the business-incubator initiative still in its embryonic, strategic-thinking stages, there has not yet been a significant dollars-and-cents impact.
But Danker will say that the program has "brought clarity around these businesses which we didn’t have before." She says the teams have infused some cross-functional thinking into the organization, encouraging employees to be more open to and look for opportunities that benefit the company as a whole.
Changing that ingrained perspective is a challenge because about 15 percent of the workforce, or 2,300 employees, have been with the company for more than a quarter century.
Of course, touchy-feely metrics like "culture change" only go so far in a program that is supposed to have a strong ROI. At the moment, Schneider is doing a qualitative assessment of the project, surveying individual team leaders and senior executives to see if they are pleased with the process so far.
Now that the teams have developed clear strategies for their initiatives, the next and more important level is execution and judging profitability. But the business-incubator program has some inherent conflicts.
The business teams are meant to act as profit-and-loss centers, making their portfolio of products as profitable as possible. There are times, however, when they must look beyond their own self-interest.
"There may be a product in my portfolio that isn’t profitable for me, but I may need to keep it because it serves another customer segment or completes a product offering," Breeze says.
Divesting himself of that product would be beneficial for his profit and loss but not for Schneider overall. Because of this, teams must collaborate with and sometimes cajole other teams. The whole process, in the words of CEO Petratis, "compels them to go to bat for what they really believe in."
Cohen of Babson College notes that the part-time nature of the teams brings numerous challenges. An obvious one is the difficulty of getting hard-charging executives to carve out one-quarter of their schedule.
"This requires some discipline, and some things might have to come off their plate," Breeze says. "If they try to put this on top of a completely full workload, something will suffer."
He notes that one member had to leave his team after she was given 10 new hires to train in her regular job and could no longer devote sufficient time to the team. Still, she says that even the abbreviated experience gave her tremendous insight into the company beyond her department.
Now, the question for Schneider is whether that insight will produce more profits today and a new generation of leaders in the future.
Workforce Management, November 2004, p. 63-66 -- Subscribe Now!