In 2004, Art Barter was the vice president of finance for Datron World Communications, a division of Titan Corp. in San Diego that produces military communications equipment. When Titan began looking to sell the division, Barter himself stepped in. He believed in the company and its people — and in an approach to management that de-emphasizes the numbers. By focusing the organization’s attention on optimizing its service to those whose lives it touches, rather than on its financial position, Barter has achieved remarkable growth in spite of himself.
Datron World Communications
Industry: Communications equipment
Company size: $100 million
General Ledger: SightLine
Management reporting: ActiveStrategy
BPM Magazine: Once you purchased Datron, how did you go about changing the company’s performance management processes?
Art Barter: It started with developing a new vision for the company. At that point in my career, I had close to 20 years’ experience in public companies, in various positions, where the focus was always on quarterly results, growing profits, shareholder value, etc. In that experience, I learned that corporations tend to make very short-term decisions, which tends to make leaders self-serving. I’ve met a lot of leaders who didn’t care about the people who worked in their company; all they cared about were their bonuses and what they wanted to get out of the company during a specific time frame.
My management team and I decided that we didn’t want to operate our company in a short-term environment. We wanted to operate it in an environment where we were able to make decisions on what was best for the company, not only in the short term, but also on a long-term basis. We wanted to have a very high trust level with employees; we wanted our employees to know we cared about them and their families. During the first year, we put together a mission and purpose that was very short and to the point. Our purpose is to positively impact people’s lives today and in the future, to leave the folks that we deal with better off than they were when they first met Datron. That’s what we focused on.
BPM: How does the idea of positively impacting lives play out in the manufacture of military communications equipment?
Barter: Well, for example, we have a customer who’s the signals officer for the police force in Zimbabwe, who was asked to control demonstrations there. His desire is to control those demonstrations through the use of communications equipment and not through the use of bullets. Those are the customers we like to help; we can make a positive difference in that country by allowing them to have peaceful demonstrations and elections.
BPM: How do you translate Datron’s purpose, which is a little amorphous, into strategies and planning for your company’s operations?
Barter: It’s interesting. When we sat down in our first year to do a strategic plan, my staff asked me, "How do you want to see the company grow?" I said, "I’d like to take care of customers." They said, "But how much do you want to grow every year?" And I said, "I’m not going to tell you that. I don’t have any amount that I want to grow every year. You’re never going to hear me say, ‘This year we’re going to grow 20 percent.’ What I’d like you to do is go find customers that we can help and impact their operations in a positive way with our equipment. If we’re out there taking care of customers, then we’ll be blessed with the revenue that goes with it." If you had interviewed me in our first year of operation and asked me, "Where will you be in four years?" I probably would have said, "We’re going to be lucky to be $20 million." And today we’re pushing close to $100 million annually.
We don’t set revenue growth goals for the organization. We say, "Let’s go serve our customers. Let’s go live our purpose and our mission and take care of people." And the rest takes care of itself.
BPM: How do you plan, then? Do you have a budget for managing expenses?
Barter: Yes, we do. We have an operational plan that we put together every year, based around a revenue forecast that comes out of our sales group. We use that operating plan to manage the business every day.
BPM: What’s the process for creating your budget?
Barter: Our sales team’s in Florida, and we usually spend a couple of weeks together discussing our products and what we have and what they need. We’ll talk about what engineering efforts need to be completed during the year to support where the sales team wants to go — what the market needs. And we’ll talk about what we can afford to do in those engineering plans and when we can have them available.
So I look at the support that goes into the sales effort, and I say, "This is what the engineering teams can do to support you." Then they go off and say, "With that support, now I can lay in plans on when I think I can win business in certain countries with certain customers." They lay out a revenue plan by country, by customer, by year, for the next five years; that’s a rolling five-year plan. Once we have that, I turn it over to the CFO, and he works with our executives and their teams to turn it into an operating plan for the next 12-month period. We look at what kind of capacity we’re going to need in the next 12 months to support the sales plan. If we see a big bump in revenue, like we did this year, that means we’re going to have to launch a new capital campaign to bring in more equipment or more facilities. We use this process to plan our head count as well.
BPM: How do you keep an eye on the financials as the year progresses, on results compared with budget?
Barter: Every month we sit down with managers, and once a quarter we share the financials with all employees. Everybody knows where we are, in terms of orders and shipments, profits and cash flow. Sharing information is an area we improved dramatically during 2007 by implementing new software. Before that, we had our standard financial reports: income statement, balance sheet, cash flow, a list of the bookings we received, the backlog we had, engineering projects we were working on. It was all numbers-related, and it didn’t give us an easy way to find explanations for variances or to get at root causes.
But in 2007 we bought ActiveStrategy. With ActiveStrategy, we have stoplights in our dashboards that make it so much easier to spot areas of concern. If I see that a metric is red, I’m going to focus on that metric and read status reports for it. If I see blues — which means we’re doing better than plan — then I can send out pats on the back through e-mail or give people a phone call.
BPM: How much difference has this made for Datron?
Barter: If I look back over the last four years, the weakness we’ve had is in execution. We have great plans, we understand things, but we have a tough time executing. Now, the numbers would say differently because we’ve grown unbelievably, but there’s a lot of turmoil that goes with that growth. Having dashboard software has allowed us to focus on the important things in our planning. Instead of trying to do a lot of different things, we say, "Let’s be good at these three or four things. Let’s understand what impacts results in measurable ways, and let’s stay focused on those things, instead of trying to do 10, 15, or 20 things that we think might impact the results."
Everyone understands what the goal is. When I talk about on-time delivery, everybody knows what that measure looks like. Everyone understands the initiatives that we’re working on. They know the people who are working on those teams. Everybody gets behind us, and the results are just amazing.
BPM: How do you determine which key measures to keep a close eye on?
Barter: The big measure we use for tracking revenue is monthly bookings — how we are doing on new orders against plan. In the international marketplace, that can be a little bumpy, so we also look at how we’re doing in forecasting our bookings, how close we’re coming to the forecast from six months earlier. We look at bookings on a year-to-date basis, not a month-to-month basis. That metric really drives decisions in other areas. If bookings are below plan by 30 percent, we know revenue is going to be below plan by 30 percent down the road, which allows the team to make adjustments to expenses ahead of the game.
On-time delivery to our customers is an extremely important metric. We also focus on cash. We have a cash report that the executive team reviews every week. For a private company, cash is king. Believe it or not, as we’ve grown this business up to this level, the most we’ve ever borrowed was about $2 million, and we paid that off within a month of borrowing it. We’ve been able to grow this business with cash that we generated internally, which gives us all kinds of flexibility in the marketplace because we have no debt hanging over our heads.
BPM: Are you making better decisions thanks to your dashboards?
Barter: Yes. We’re able to focus on areas of concern and spot problems early. If we start an initiative and after three months don’t see any improvements, then we can ask ourselves whether we’re going in the right direction. If the answer is no, we can stop that team and start up a new team in a short period of time to work on something different until we see improved results come through our metrics.
One example I have relates to our engineering projects. Early this year, all our engineering projects were running late. So in our all-hands meeting, I did a one-page briefing book that showed the projects, which were all red, and the booking status, which was yellow at the time, possibly going on red. I said, "Guys, these two are interrelated. If we don’t get these projects done, we’re going to continue to be behind plan in bookings." That helped the engineering staff see their impact on bringing in new business. Now the engineers are focused, and they’ve finished some programs that have helped us gain about $40 million worth of business. That’s a very real result.
BPM: Has your company’s emphasis on positively impacting people’s lives affected your approach to performance management?
Barter: Yes, definitely. I make it a point to let employees know that Art Barter cares about them and their families. I’m here to serve — not here to demand results, but to help people be successful in life. I like what Ken Blanchard said as a college instructor: "My job here is to help everyone get A’s." There’s no curve in life. My job is to help everyone get A’s at Datron. Succeed in what they want to do. Part of helping employees succeed is building their trust in their managers and in the company. To do that, you have to be transparent. If people catch wind that what you’re telling them isn’t true, your credibility goes in the tank, and it’s going to take you a long time to get that back. So I tell Datron’s leaders, "You have to tell employees the truth. You have to be courageous enough to have those tough discussions about truth."
If we have a tough quarter and cash is thin, and we have to put off some expenditures, folks aren’t surprised. They have seen it coming in the quarterly meetings, and usually they say, "Art, you should have done this a couple months ago. Let’s make this change." They’re often starting to take action before I think of it, and when I have to sit down and make tough decisions, everybody respects it. There’s not a lot of questioning that goes along with it because they know what’s going on. I’ve shared all the information with them, and that makes a big difference.
At one of my old companies, management used to talk about, "How are we going to spin the numbers this quarter to give us more time to get our act together?" We don’t spin here; we tell people the truth and help people accept that truth, whether it’s good or bad. When I talk about the numbers in an all-hands meeting, I use ActiveStrategy because that’s our database. I don’t create PowerPoints; I don’t adjust data. I say, "This is the data. And this is what’s going on." When I look back, I don’t have to try to remember what I told everybody last quarter. I know I talked about ActiveStrategy and the numbers are still there.
BPM: Do you feel that presenting information directly out of the database of performance information helps improve the trust of employees? Do you achieve a different dynamic in doing that?
Barter: Very different. For some of our measures, I actually attach the detail in a spreadsheet or other document that comes off another system. So in the meeting, I can go click on that attachment and show them the detail. When I do that, they really feel that I’m being honest. Our employees see the same information that my executive management team sees. We all use the same database. And I think it’s really helped with trust. People know that we’re willing to share information with them.
BPM: Other than better communication, have you seen benefits to building trust with employees?
Barter: Well, I look at what I call a trust index. Every six months, I ask three very easy questions. I ask employees, "Do you trust your boss?" That’s a simple yes or no answer. And I also ask, "Do you trust management?" They have to look at the entire management team and say, "You know, I don’t trust the entire management team," or "I do trust them." Then I ask managers, "Do you trust each other?" From the results of this survey, we put together the trust index. When the trust index rises, we’re earning the trust of our employees. They know that we care.
This is a goal in itself, but we’ve found an interesting correlation too. In the fiscal year that ended last October, we noticed amazing decreases in the labor content that goes into our product. We’ve doubled in growth, and our labor content actually has gone down about 25 percent. Seeing this made me sit back and realize, there’s productivity that goes along with this. When people are happy and know that we care, they’re going to care about Datron and our purpose here. And they’re going to take care of business. When they know you don’t care and that managers are only in it for themselves, they’re going to look at their role in the company as a job. They’re going to come 8 to 5, punch in, do the minimum amount of work they can do, and go home. We’re experiencing the financial impact of the trust we’ve been working on.
BPM: So the correlation between the trust index and employee productivity is clear?
Barter: Oh yes, across the board. When folks are happy, they love to come to work; they love to solve problems and to get them solved quickly. It’s fun to watch.
BPM: Are there any aspects of traditional management that you feel undermine trust?
Barter: Sure. In traditional management, we see a lot of self-serving senior management. When senior managers join our company, we ask them to start a transformation plan into becoming a servant first. I’m a proponent of what is called "servant leadership." The basic premise is that our leaders have to serve first and lead second. I said earlier that my job is to help employees succeed. That’s true of all Datron’s managers. We ask our servant leaders to equip and inspire employees to meet our purpose. Datron’s in existence to help people, and in order for employees to take that seriously, they have to see the leadership of the company act like servants first. We expect managers to help employees with tasks, give them the right tools, and provide them with mentoring and coaching in an environment that’s safe. We expect them to think about serving first, and serving everyone they have influence over, not just the employees who report to them.
With that, we also expect to get results, so we track our leaders’ transformation in ActiveStrategy, where we ask them to work on certain aspects that they need to change in their behaviors. They rate their transformation in self-evaluations. And one thing I do with our dashboards — this is where I really have fun with folks — is I take results of, let’s say, profit for the quarter and bookings for the quarter and cash flow for the quarter. Suppose they’re all yellow or red. And then I track how our servant leaders are doing in their transformation process. We had a quarter early in the year where the financials were either yellow or red, but when we looked at the servant leader evaluations we did on ourselves, we were all green or blue. We were all doing a great job. Comparing those results forced us to sit down and say, "Are we really being servant leaders, or are we kidding ourselves if the results don’t match up?" Now we are seeing folks doing better in their transformation, and we’re seeing results in profits, cash flow, and bookings that are ahead of plan.
BPM: What is usually the initial reaction to servant leadership — tracked in the company’s performance management software, no less — for people who take executive jobs at Datron?
Barter: Some managers struggle with the idea: "You don’t trust me. You’re asking me too many questions." But most of the time the managers who fall into that category are those who have a tough time getting results. You know, they have a tough time being held accountable. They have a little bit of pride that we need to work on. The transformation can be hard; sometimes it’s still hard, even for me. Like I said, I spent 20 years in a corporate environment where getting results was all that mattered. And when times get tough and it’s stressful around Datron, some of my old behaviors pop up. They come out quickly. But as servant leaders, we have to recognize those old behaviors and say, "OK, let’s take time out and set them aside, because that isn’t the environment we want."
BPM: Do you have any policies targeted to keeping employees focused on positively impacting lives?
Barter: Yes. In addition to the emphasis on servant leadership, we do several things to help employees understand our purpose. One thing is that we are true to the principle that our families come first. All of our employees know that we will never ask them to make a decision between their family and Datron. If they’ve got issues with parents or their spouse is in the hospital or they need to be home to take care of a sick child, we’ll set up a computer and let them work from home. We’ll tell them, "You need to be home taking care of your family. That’s what’s most important to us." We don’t want any employee’s kids to look at Datron as something that took their parent’s time away from them. We want them to be happy and excited that their mom or dad worked for Datron.
We’ve also established a charitable fund. We tithe 10 percent of our operating profit into that fund every quarter, and the only people who can submit grant requests to that charitable fund are employees. They helped generate it, and they help decide where it goes. So folks who may have a certain charity on their heart because of a personal situation are able to make requests for grants up to $50,000. Once folks see that they can really make a difference in a charity that they’ve been impacted by, they feel that they have a purpose here. Suddenly, they understand what the company is all about. They understand that the company is serious about making a difference in people’s lives.
Another thing we do is we bring in customers whose lives we’ve impacted. We may have a general come in and talk to employees about how Datron has helped people. When employees talk to customers, they understand that the radio they’re working on is going to go on the back of somebody’s son or daughter in a combat situation. When they see that firsthand, it’s made real. And then they’re going to put the same effort into making that radio as if it was going on their own son or daughter’s back in combat.
BPM: Have you seen this also affect the way employees deal with customers?
Barter: Yes, I believe it has. I believe that employees who deal with customers feel empowered to take care of those customers. Whatever the issue may be, they’re empowered to go address it. Now, the customer may not get the answer he wants, in the end — especially in contract negotiations — but if a customer is having problems with a radio on the ground and is calling our customer service department here, that group knows we’re going to stand behind them 100 percent. They can go take care of that problem and use every resource in this company to fix it — and not only to fix it, but to stay in contact with the customer, keeping them apprised of what we’re doing, what we’re not doing, and the time frames that we’re doing it in. When a customer gets that type of response from a company that’s halfway around the world, it really makes a difference.
BPM: This brings us full-circle, back to the idea that Datron focuses primarily on helping customers, rather than on short-term financials. Do your customers recognize, and appreciate, the company’s management approach?
Barter: They do, and I can give you an example. We provide tactical communications equipment for a military in eastern Asia. When we first started selling to them, we provided a handheld radio that was advanced beyond what they’d been using. We provided training, but the soldiers had a difficult time learning to use them. After about a year, the general we were working with said, "I have a problem. Eighty percent of my military can’t read or write their own language. With the radios you provided, I need to teach them to read before they can use the radios. I need a very simple radio that isn’t as complicated for my troops to operate." So I said, "Why don’t you tell me the five most important things you want in a handheld radio?" He came back in a couple months with a list of five things, and I said, "General, give us a year, and we’ll come back with a radio that meets those requirements." We invested the R&D for a year to develop a radio that met his needs, and when that radio was ready, we got on a plane, went in country, and met personally with the general to deliver him the first radio off that line.
I said, "General, this is your radio. This was designed specifically for your military." He’s never had any other company do that for him. He was thrilled that somebody cared about what he needed. We didn’t say, "I have a radio that I designed for another military, and I want to sell it to you. And oh, by the way, it costs a lot of money." Our product is going over gangbusters right now in that country because we took the time to listen, we cared about what that general’s problems were, and we invested in R&D to help him solve those problems.
BPM: How could this translate to another business? How could a manager in a public company work to build trust in the organization?
Barter: The key is that they have to care about their employees and let that care show. That means investing time; it means stopping and talking with people when they have problems and celebrating when there are successes. Once people understand that you really care, that it’s from your heart, not from the mind — that you’re not just using them to get results — they’ll bend over backwards for you.