As Ed Dorian Jr. hurries through the halls of his companyÕs fourth-floor office on a campus-like setting in White Plains, New York, he doesnÕt see desks and work cubicles and busy sales peopleÑhe sees the world.
ÒThis is Europe here, and thatÕs Latin America, and down at the end there is Asia and the Middle East,Ó Dorian, 39, tells a visitor, explaining how his sales force divides its global responsibilities. As president of Dorian International Inc., a fast-growing export management company with revenues that have soared from less than $4 million to about $36 million over the past decade, Dorian appears to have the world at his feet.
But the robust growth of the company that DorianÕs father founded had brought challenges as well. Over the past few years, employee turnover at Dorian International had been dangerously high while morale had been disturbingly low. ÒPeople were not just leaving, they were leaving kind of angry,Ó notes Dorian Jr., harried yet affable. And those that remained had to work even harder to maintain the high level of customer service the company was known for, creating even more potential for dissatisfaction.
It all caused Dorian Jr., and his father Ed Dorian Sr., the companyÕs chairman and CEO, to take a good, hard look at how they were running their family business. ÒThe thing that we recognizedÓ after talking about the problem and bringing in an outside consultant, says Dorian Sr., Òis that you canÕt run the operation the same way you did when it was a third its size.Ó
ItÕs a lesson many growing companies must learn, often the hard way, says Eric G. Flamholtz, professor of management at UCLA and author of Growing Pains: How to Make the Transition from an Entrepreneurship to a Professionally Managed Firm (Jossey-Bass 1990). ÒItÕs not uncommon for growing companies to experience difficulties, but that doesnÕt mean itÕs healthy,Ó Flamholtz says.
The Dorians, with a workforce nearing 60 people, were finding that they needed to make several changes to their company in order to make it as healthy as its balance sheet. They needed to give their employees a clearer sense of what was expected of them; create specific performance benchmarks to enable sales people to know when they were doing well and compensate them accordingly, professionalize the overall management of the company; improve communications within the company; and generally give employees a better sense of their value to the corporation.
It was a tall order for a company already preoccupied with trying to realize its incredible potential for growth in the 90 countries where it did business. ÒWe knew how to get new clients,Ó says Dorian Sr., a rugged Armenian who, at 70, still comes to work every day. ÒBut we needed to have good people in place to continue to take care of those clients.Ó The companyÕs growth had been fueled by its ability to bring in new product lines or manufacturers whose products had a ready market overseas. But revenue growth had begun to slow since 1991, leaving father and son convinced that taking care of their personnel problems was a top priority.
Dorian Sr. started the business on a shoestring in 1980, after working for 30 years in exporting and finance. Like other export management companies, Dorian International buys products from American manufacturers and sells them overseas through distributors. It works for companies that have overseas sales potential but would prefer not to create their own international sales division. Many clients see Dorian as a partner, or an extension of their own operation.
Dorian Sr. began by representing food-service equipment manufacturers. By 1985, Dorian International had grown to almost $4 million in annual sales with only a handful of employees. Everyone who worked there was treated like part of the family. That same year, Dorian purchased Drake America, an export management company with nearly $9 million in annual sales, from its British owners. Drake, where Dorian Sr. had once worked, was losing money. But Dorian Sr. felt he could turn it around and liked its mix of clients, which included manufacturers of auto parts, lawn and garden equipment, and some industrial products. Together with food service, these continue to be the four core business domains of Dorian International.
After purchasing Drake, Dorian Sr. named his son president of the company, a big step since Dorian Jr., who wanted to pursue a career as a newspaper journalist, had to be persuaded by his father to join the effort years earlier. The company proceeded to grow steadily through the late 1980s and early 1990s. All the while, the two men maintained close day-to-day control over the entire operation, while Dorian Sr.Õs wife, Ethel, served as office manager.
Then, in August 1991, the Dorians reorganized the business, splitting the Drake division into two separate groups: Auto and Industrial, and Hardware/Lawn and Garden. Together with Food Service, the company now had three distinct units. ÒOne of the first steps to becoming a mid-size company was creating a new level of management,Ó says Dorian Jr., who added group-manager positions to oversee each unit.
ÒThe group managers began to make decisions regarding distributor choices and employee travel that only family members had made previously,Ó says Dorian Jr. He and his father, meanwhile, focused on product acquisitions, which they hoped would fuel future growth. But something went wrong.
ÒWe didnÕt anticipate the impact this would have on the company,Ó says Dorian Jr. ÒThe culture of the company changed. It was the beginning of a transformation from a small, closely run family company to a corporation. My father and I were suddenly removed one step from the business and people started looking at us more as owners than as managers. We were becoming people who were just making money off other peopleÕs efforts and our contribution wasnÕt obvious anymore.Ó
Three key employees left in late 1991, including two team managers and a vice-president who reported directly to the Dorians. More junior employees were leaving, too, and several began competing companies. The trend continued. Of the 35 members of the sales and marketing staff who were with the company on Jan. 1, 1993, only 23 were still employed on Jan. 1, 1994.
ÒThere were a lot of employee problems,Ó says Dorian Sr., Òbut turnover was the biggest.Ó It was an expensive one, too, since every employee who left cost the company an estimated $25,000 to $50,000 in training time, lost productivity, unmet schedules, lost sales opportunities, and customer dissatisfaction.
So in the summer of 1993, Dorian brought in Marc Patterson, a compensation and management consultant from Brooklyn, New York, to help them tackle the problem. ÒThey brought me in because of the turnover and because they thought compensation was a big part of that,Ó recalls Patterson. ÒBut after talking to 25 or 30 people I found out there were other things going on as well.Ó
Flamholtz says this is not surprising. ÒWhen thereÕs turnover and you think people are unhappy about compensation, what theyÕre really saying is they feel undervalued.Ó
Among other things, Patterson found that employees felt the Dorians placed great emphasis on working long hours, rather than measuring on performance. Being seen at your desk well past 5 p.m., or coming in on the weekend, was seen as an important way to get ahead at the company. ÒIn fact,Ó says Patterson, Òsome people mentioned that they would hang around even if the workload did not require it in order to maintain a positive image. And a positive image with the family was seen as critical to success.Ó
In addition, Patterson found that employees felt decisions about performance, promotion, or bonuses were made by the Dorians based on incomplete information or personal opinions about work habits. Some even said the Dorians rewarded employees based on whom they liked the most. Employees had no sense that they would receive rewards or advancement based on tenure or performance. ÒAll of our promotion efforts and bonus decisions were based on subjective evaluation,Ó admits Dorian Sr. ÒAt the end of the day Ed and I would sit down and say, ÔWell, JoeÕs done a good job this year, letÕs give him $10,000.Õ Ó
Employees also were concerned about the overall management. ÒA lot of the things that bug people here are small rather than large issues,Ó says Charles T. Irwin, group manager for the companyÕs hardware and lawn-and-garden unit. These include travel policies that were seen as unnecessarily restrictive, such as requiring that all business travel begin and end on weekends, and the loss of U.S. holidays while traveling overseas.
In addition, employees were concerned about the availability of Ed Dorian Jr., who took over management of the auto and industrial unit in late 1992, when the former manager left. ÒHe was just overwhelmed,Ó says his father. ÒHe was doing five jobs at once.Ó Some employees felt he was too busy to do any job well.
There was a general sense, too, that the family could run the business more professionally. ÒThe recurring theme was that communications were just terrible,Ó says Patterson. Many employees felt the company needed to bring experienced outside managers into some key positions. ÒI think you do need to let go, as owners of the company,Ó says Irwin. ÒYouÕve got to hire good people and let them exercise authority. The Dorians do that pretty well, but in some cases itÕs hard for them.Ó
On top of this was the issue of who was really in charge. Although Dorian Jr. was president, his father retained the title of CEO and came to work every day, as did his mother. WhatÕs more, the elder Dorian had done most of the companyÕs recruiting and hiring for years, an area which had become weaker recently.
This continues today. ÒEd and his father have to come to a decision about who is running the company,Ó Patterson says.
On the positive side, most employees believed the companyÕs revenues could double in several years if it took a more professional approach. ÒThey felt the opportunity was there,Ó Patterson says.
By the autumn of 1993, Patterson had critiqued the companyÕs problems and presented them to the Dorians, who were surprised to learn about the issues of concern. The Dorians had been convinced that compensation was the cause of turnover and unhappiness; they simply hadnÕt seen the other issues, and hadnÕt asked employees for their perspective.
The Dorians decided to take several actions. The first was simple: They created job descriptions for all employees. ÒIt was important from the sales-assistant all the way up,Ó says Irwin. In addition to giving a clear sense of job responsibilities and a way to measure performance, the job descriptions helped clear up what the career path for each person at the company could be, and how long it might take to attain promotions.
Next, the Dorians, with help from Patterson, developed a comprehensive compensation plan designed to put concrete achievements in place of subjective judgments about employee performance. The plan gives outstanding regional and area managers the opportunity to earn in excess of $100,000 a year by surpassing performance goals. Bonuses are paid quarterly, not annually, and payout begins once people have reached 85 percent of their goals. In addition, payout is not capped, so someone who attains 150 percent of their revenue target, for example, gets additional bonuses.
ÒThe plan requires supervisors to sit down with each employee and agree on goals,Ó says Dorian Jr. ÒThe idea is that every employee will know what is expected of him and what he needs to do to get to the next level.Ó Dorian Sr. agrees that this is important, so that rewards are not seen as based on Òsomeone kissing your fanny.Ó
One interesting twist to the plan: Three-quarters of the bonus is earned by meeting revenue targets for each business group. The remaining quarter is tied to the sales targets of individual manufacturers, helping to ensure that each client gets attention.
The Dorians also brought in Ernst & Young to develop a compensation plan that would help lure and keep senior executives.
Finally, the family has just hired a human resources manager to smooth over personnel matters. But itÕs unclear how much latitude she will have. ÒMy parents were not in favor of hiring a human resources manager,Ó says Dorian Jr. And his father says he is not ready to relinquish his role in the recruitment or hiring process.
As for professionalizing management, the Dorians are actively looking for outside executives to run both the auto parts and industrial units, which will be split into two this year. But it has proven difficult to fill those positions. An ad in The Wall Street Journal produced applicants who were between jobs or recently laid off, not the young and ambitious managers the company sought. ÒWe were struggling to define what we wanted,Ó Dorian Jr. says. ÒWe had never hired senior managers from the outside before.Ó
The Dorians have recently turned to search firms, hoping to ferret out good candidates with export experience who might not be job hunting.
Whether Dorian Jr. will clearly step past his father into the leading role is still unresolved. Late in 1993, Ed Dorian Sr. gave his son enough additional stock to bring his total to 51 percent. But many employees wonÕt believe the younger Dorian has full charge until the elder Dorian starts spending more time on the golf course and less in the office. In addition, the change in overall corporate culture is taking place slowly. These are issues that cannot be left to languish.
While some questions remain regarding Dorian InternationalÕs attempts to address its growing pains, one fundamental change has been firmly made. The company has decided that the satisfaction of its employees is a goal worth striving for. ÒThe people that work here are every bit as important as our clients,Ó says Dorian Jr. ÒJust as we have to jump through hoops to please our clients, we have to sometimes jump through hoops to please our employees.Ó
Stephen J. Simurda wrote about family franchises in our Autumn 1993 issue.
Business: Export management.Location: White Plains, N.Y.
Founded: 1980.
Revenues: $36 million (est. 1994).
Employees: 50-60.
Principals: Ed Dorian Sr., CEO and Chairman Ed Dorian Jr., President.
Examples of Clients: Frymaster (fast-food fryers), Amco (restaurant shelving), Traulsen (commercial refrigeration), ITT Aimco (auto brake parts), Hunter Fan (ceiling fans), Yardman (tractors and mowers), Spencer Turbine (industrial vacuums and blowers).