Starting From Scrap

15 March 2010 Stephen Hartwell Greer

As any fast-growing company soon discovers, management structures are critical if success is to be sustained. Stephen Hartwell Greer, founder of scrap metal firm Hartwell Pacific Limited, reveals how, with no prior professional management experience, he introduced systems that enabled him to manage his high-growth business effectively.

Hartwell Pacific, the metal recycling company I founded in 1993, was a classic start up in that it was launched based on customer demand and not on an ability to manage it professionally. Building those management systems evolved from a survival instinct, as a reaction to expanding beyond our management ability. From that chaos, organised systems and structures evolved that enabled us to manage our high-growth business effectively across a number of Asian countries and with multiple locations within those countries.

It wasn’t easy, but we did it, evolving from a system based on trust into a system based on organisation and professionalism.

Trust but verify

The headquarters were lean and mean - heavy on junior analysts and light on senior executives. Its purpose was to collect and analyse information to give the leaders in the field a helicopter view of the battle as well as to measure their performance and guide them within loose but reasonable parameters. It was not to make business decisions for managers.

The theory was that managers needed to have the freedom to take risks and make mistakes as they chart the course of their companies. After all, they should know the needs of their market better than the CEO as they are closer to it.

My role was to make sure they were generally aligned with the corporate mission and values and, most importantly, they were achieving agreed upon short- and medium-term goals and missions.

"Big decisions behind closed doors at HQ are a very bad idea."

You could say I had trust or faith in my management - I ought to, I hired them - but as US president Ronald Reagan said in the 1980s during the period of Soviet Union 'glasnost', "trust but verify". To do this, we needed to look through all our numbers on a constant free-flowing basis - no waiting for reports to be generated or embellished locally. We needed an IT system that created total transparency, and even though it caused short-term pain to install and required a decent investment, it paid off by providing real-time information.

Every day, I knew about everything that was purchased and the average price, and had a list of any ageing or unsold inventory and any ageing receivables. I could calculate forward-looking profitability daily and be prepared for any hits that were brewing.

To further verify and be confident of the accuracy of the information, we also needed a finance department that was independent and un-intimidated. They had to have a direct line report to the financial controller or CFO. That was critical. This meant, however, that the group CEO and CFO had to be very diplomatic to make sure the egos of their general managers were assuaged, because an unhappy salesman is a bad salesman and sales is a big part of any GM's world. An unmotivated GM can begin a downward spiral for a business creating only two possible outcomes: a change at the top or the failure of the business. If I were unable to find accommodation with a GM we moved swiftly to remove them. Unfortunately, for both parties, we had to do that on a couple of occasions, but most of the time people bought into transparency.

Constant communication

What made us successful was constant communication and bottom up planning, and I don’t just mean bottom up budgeting. If we wanted to change authorities or organisation structures, we debated and discussed it as a team, got all the elephants in the room, all the skeletons out of the closet and hashed it out right then and there. Logic is king and nobody likes to be illogical, at least publicly, so the more people present the better. In such an environment GMs were willing to surrender authorities for the good of the team; as long as everyone could see it was a group decision for the common good, the perceived loss of face was greatly reduced.

Big decisions behind closed doors at HQ are a very bad idea. We created ritual communication that had structure, for example, holding group exec meetings where the GMs and financial controllers of each operational company flew to a different city each month for a business review. Depending on the agenda, functional executives were invited, but a minimum of three people from headquarters would attend.

"We literally applauded people who shared their screw-ups."

The meeting lasted a day and a half and the agenda was more or less the same every month, covering areas such as finance, commercial, operations, safety, and best and worst practices.

Problems were celebrated as a team opportunity to create a best practice for the group. We literally applauded people who shared their screw-ups and worked with them in a collegial manner to help make sure it would not happen again in their business unit and perhaps not happen to a different one.

The meeting was always followed by a group dinner that included the rest of the local management team as well as workers selected to highlight good performance or tenure - a forklift driver who found a way to reduce hydraulic oil waste, for example. The next day we toured the local operation as a group, pressing palms and giving the hosts a chance to show off their people and best practices. "Time consuming and expensive" you say. You're damned right - and the best use of time and money you or your investors could think of.

We ended up with a team that trusted each other enough to share their experiences and authority publicly without a loss of pride, and which loved their company. In the end we were highly successful.