Tuesday, February 06, 2007

Manager Shortage Spurs Small Firms To Grow Their Own

The article below is an excellent example from yesterday's Wall Street Journal on how the current and pending demographic shift is forcing middle-sized firms to take dramatic steps to deepen their management ranks for succession purposes. This is the niche advisory/consulting business Jackson Leadership has been in for 18 years. If you would like to discuss what is needed to set up your own executive development program at your firm, let's chat.

By ERIN WHITEFebruary 5, 2007; Page B1

MARSHALL, Minn. -- Kristy Griffin was a manager in a Kansas frozen-pizza factory when her bosses decided she was destined for greatness.

In 2002, executives at Schwan Food Co., maker of Mrs. Smith's pies and Red Baron frozen pizzas, invited Ms. Griffin to join an intensive development program for "high-potential" managers. Since then, she's earned her M.B.A., moved her family twice, helped engineer an acquisition, and taken posts in marketing and research, in which she'd had no prior experience.

Schwan is one of many U.S. companies paying more attention to grooming their next generation of leaders. Selected employees typically enter multi-year programs involving management classes, coaching sessions and so-called stretch assignments that throw them into big, unfamiliar challenges.

Such programs are old hat at corporate giants such as General Electric Co., PepsiCo Inc., and Bank of America Corp. Now, smaller companies, like closely held Schwan, with annual sales of about $3.5 billion, are also adopting or expanding such programs in the face of a shortage of seasoned managers.

Management consultants cite several reasons. The tight labor market puts a premium on retaining top talent and raises the cost of outside hires. And leaner corporate structures make it harder for managers to naturally hone their skills through incremental steps up the ladder; companies must instead formally teach them. Demographics play a role, too: The looming retirement of baby boomers is forcing companies to think about replacements.

"There's a huge shortage of leaders," says Ravin Jesuthasan, a managing principal at Towers Perrin, the consulting firm. For smaller companies in a fierce competitive landscape, "growth rates and expectations for growth have ratcheted up, requiring you to be much more diligent and proactive and structured in how you manage the flow of talent." Mr. Jesuthasan says that he has seen smaller companies in the energy, software, pharmaceutical and consumer-products industries begin or expand programs to identify and develop strong managers.

Schwan's program is the brainchild of M. Lenny Pippin, who in 1999 became the first outsider hired as CEO. Founded as an ice-cream delivery business in 1952 by Marvin Schwan, the company sells frozen foods to grocers and retailers such as Wal-Mart Stores Inc. and Target Corp.; to schools, hospitals and restaurants; and by delivery truck to homes. The retail business is the fastest-growing, though the home-delivery unit is larger. The company says that many customers trust the driver-salesmen so well they leave their doors unlocked.

Before Mr. Pippin arrived in 1999, the company had been run by Marvin Schwan's brother Alfred, who took over after Marvin died in 1993. Mr. Pippin, a food-industry veteran who started his career at Kraft Foods Inc., had previously been a senior executive at several family-owned businesses. At Schwan, he found employees were hard-working and loyal, but accustomed to following orders rather than innovating on their own.

Mr. Pippin set out to sharpen the management skills of Schwan employees. He also sought outside talent, though that would be a challenge. Marshall, three hours west of Minneapolis in rural Minnesota, wasn't a recruiting magnet. When Mr. Pippin first visited, he stepped off the company jet and wondered, "What on earth have I done?"

His solution was what he calls the Senior Executive Development Program. Launched in 2002, it now has about 35 participants, including Ms. Griffin. This year, Schwan plans to create a similar program for lower-level managers that would add roughly 50 others.

Participants in the senior program are thrown into new jobs, take business classes, and are given mentors and coaches for support. They're also assigned to team projects with other program members. Participants must be willing to change jobs and relocate whenever the company asks.

Mr. Pippin says the program has created a more worldly and self-confident work force. It also has developed a roster of potential future leaders -- unlike when Schwan reached outside to hire him, Mr. Pippin says. "I can go to the board, and I can talk to them about succession and the future leadership of this company for many years to come," he says. "Eight years ago, we didn't have that."

There have been bumps. Some people have dropped out or declined invitations because they didn't want to have to move. Mr. Pippin says the company initially didn't give participants enough support. A sales vice president shifted to run European operations struggled, and Schwan lost market share. When Mr. Pippin tried to move the executive into another job, he quit. "We can't put them out there without a safety net," Mr. Pippin realized. He assigned participants more mentors and coaches. He also scheduled more frequent evaluations to catch problems sooner.

Now, top executives give participants frequent feedback. For instance, two participants assigned to help launch a joint venture in Mexico met recently with chief operating officer John Beadle. Mr. Beadle, who previously ran Schwan's global retail business, asked whether the Mexican warehouse was large enough. Brian Rademacher, who has worked for Schwan for 16 years in the U.S., said the warehouse "should cover us beyond our needs" and could be expanded. Mr. Beadle also suggested smaller package sizes, because freezers in Mexican homes tend to be smaller.

The program has helped attract outsiders. Raquel Lacey Nelson spurned other offers to join Schwan after completing her M.B.A. in 2003. Even without a guarantee she would join the program, she was enticed by the prospect of rotating through different jobs. She joined the development program in December. The same week, she left a human-resources post in Marshall to manage Schwan's account with Target in Minneapolis.

When Ms. Griffin was selected for the program in 2002, she had spent 10 years climbing through operations jobs at Schwan's frozen-pizza factory in Salina, Kan., where she grew up and lived with her husband and two children. In 2003, she moved her family to Minneapolis for a job in marketing, in which she'd had no prior experience, and started studying for her M.B.A.

It was a whirlwind. At first she didn't understand the alien marketing culture, which she found more hierarchical and formal. Approving a new package design required four meetings. "I couldn't understand why," says Ms. Griffin, who is now 37 years old.

Next, she shifted to the home-delivery unit, where she was asked to improve retention of customers and salespeople. She again had to navigate a new culture, dominated by veterans skeptical of a newcomer. To gain trust and learn the business, she accompanied drivers on routes, visited their depots and attended their training sessions.

In April 2006, she moved to another unfamiliar role, as senior vice president overseeing research and development, food safety and quality, and new-product strategy. She tried to apply lessons from what worked in the home-delivery unit. Instead of imposing her own strategy, she met with managers and staffers one-on-one and in small groups. "I did not want to give everybody the impression that there's a new leader in town who's going to change everything," she says.

In addition to her regular jobs, she has also served on a special project team with about six other program members. Mr. Pippin asked the team to devise a strategy for Schwan to enter the fancy-appetizer business. The team recommended that Schwan buy a business rather create its own. In early 2006, Schwan bought Florida-based Holiday Foods, which makes the Greek spinach pie spanakopita and bacon-wrapped scallops, among other items.

Program members still serve as directors of the Holiday unit. Ms. Griffin chairs the group, giving her a look at running an entire business. "That has been the real-life model of running your own company," she says.

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Anup Mody said...

A systematic approach to developing talent in smaller companies is absolutely essential for business growth. The challenge is that developing great management and leadership skills takes time particularly if job rotations are the only means used. Because of flatter organizations, appropriate job rotation opportunities are few. One way to counter that is to use simulations that allow the budding manager to practice management decision-making in a risk free virtual world. The more complex simulations that expose the participant to cross-functional decisions are particularly helpful. It's a very cost-effective way to accelrate the development of high-potential managers at all levels.

Anup Mody