Build a Proactive Organization in Volatile Times featuring Tim Herold with Herold Precisions Metals written June 2011 by John P. Palen for the Minnesota Business Magazine

Posted by John P. Palen, CEO & Founder of Allied Executives

You don't know if you don't ask. Lately, I find myself telling leaders this very thing — the first risk required to find hidden opportunities in their businesses to cut expenses or add income.

The most successful businesses right now have restructured in order to flow with the still volatile expansion and contraction of their industries. They have also reinvented how they serve customers to improve their value.

One such company is Herold Precision Metals in White Bear Lake which had peaked at $22 million in revenue pre-recession. Through this tough period of going from gangbuster growth to a dismal bid-to-award ratio, three brothers have worked very hard to build a position of strength with their client base.

First, the owners went through their financial history to identify benchmarks and key performance indicators (KPIs). Reviewing their existing sales, they took steps to "right-size" their organization in light of fewer sales. Yes, this did mean a change in their labor force, with more reliance on temporary and contract-for-hire employees. In the long run, however, they have created more job security for key employees.

"By utilizing temp services, our main employees know that when we need to expand or contract that it's coming from our temp workforce and not the full-time ranks," says Tim Herold, partner.

In addition, this manufacturer conducted some aggressive price negotiation with their valued vendors and communicated higher expectations for service delivery.

"In some cases, it was a collaborative effort as we agreed to offset the discounts as business or the economy improves," Herold says. "We would return to previous pricing as we could. Every discount or price reduction added up collectively and we felt that our vendors were partners in that."

They also met with their best customers and investigated ways that their processes and service would make products more convenient and ultimately less costly. For example, with one customer they were able to add an additional step — a simple weld of one more component on the ordered part — that the customer had previously done in-house. Delivering that one step cheaper and easier resulted in improved margins for Herold Precision Metals and the customer. The company's depth of experience in design and engineering has become a competitive difference.

Another area that the company is exploring is a diversification of product lines through strategic alliance. By exploring up-and-coming businesses in the R&D stage that will need timely production of metal components, this company anticipates getting in on the ground floor of new business opportunities.

"You need to really understand the partners involved, the level of risk and investment potential, but we have been very aggressive about finding new business opportunities," Herold says.

Rather than accepting the ebb and flow of an inconsistent sales pipeline and worrying about paying the bills, these leaders are taking the action steps necessary to create a business that flows smoothly with its customer demand. While it might even mean turning down business that doesn't provide the necessary margin, the long-term goal is a recession-proof company that won't be fooled twice.

"We used to bid 10 jobs and get five of them. Now we bid 50 jobs and get five. The environment is much more competitive and commoditized, so we have to maintain our value proposition of producing parts faster and of higher quality than our competition," Herold says.

If you haven't asked for what you need or want from vendors, customers and your talent, it's time to take that leap. People don't know what you are capable of delivering or improving if you don't know yourself. Do some research and improve your thinking from dismal to dedicated. The new core competency for leaders is proactivity.