Out Of Left Field

My old friend Boomer (a Navy story for another time) and I got fanny fatigue in the seventh inning last week. We were at Jet Blue Park in Fort Myers watching the Red Sox dispatch the Puerto Rican national team in a prep game for the World Baseball Classic when we decided to see what things looked like from “the Green Monster,” the left field wall.

Red Sox fans know well that during the past decade, Sox ownership added premium seats to Boston’s venerable Fenway Park on top of their iconic, 37-foot high left field wall. Then they convinced the Powers That Be in Lee County, FL to build a replica of the field (plus 10,000 or so seats) for twenty annual spring training home games. The field dimensions are the same as at Fenway, but there’s one exception in the configuration: two-thirds of the way up the Wall – in the Wall – are two tiers of seats, protected by flexible fabric mesh. Balls hitting the mesh are in play, just as if they had hit the metal wall above or below.

So – cool as it is for an inveterate Sox fan to contemplate the view from the top of the Wall, it’s even more intriguing to think about being in the Wall. This year it’s possible, even if you lack a wall-seat ticket: responding to a heightened level of fan sensitivity after last year’s last-place debacle, Red Sox officials have opened up the Wall to all of their spring training patrons after the sixth inning.

What’s it like out there? For sure, it provided a different perspective versus our reserved seats behind home plate. As my sister Liz famously said after watching her first game at Fenway from atop the Wall, “I had a great view of [former Sox shortstop] Nomar Garciaparra’s butt!” In contrast to focusing on the batter from our assigned seats, our perspective from left covered the whole field. The gaps in the defense were obvious, the adjustments by the fielders to each new batter readily apparent. A line drive over the infield reached the outfield in no time, giving me new appreciation for a speedy center fielder named Bradley. (Note: “speedy” eliminates any possible name confusion with yours truly.)

A couple of days later, I thought about the issue of perspective from a different, ah, perspective. I was in a management meeting with a new client, reviewing a year that had failed to fulfill its early operational and financial promise. Despite the CEO’s willingness to adapt her policies, procedures, and personnel in pursuit of budget goals, problem definition had proven elusive.

Sales in 2012 were up modestly over 2011, but profits were down. Other symptoms were obvious: an expanded employee base hadn’t yet generated the traction for increased revenue; material costs had grown disproportionate to sales; overruns on the capital budget had drained cash, putting a squeeze on the working capital needed to fund growth. These were correctable problems that could be seen from every seat at the management table. But there was a more insidious issue, one that came straight out of left field – no one had been able to recognize that one of the five business units was operating on a failed business model.

For the operating managers at the table, each of them a long-termer firmly attached to a point of view, there was simply no easy way to identify this as a problem. The problem unit had been fairly stable over the years, operating largely autonomously, but all of its financial data were integrated with those of the other four units. In 2011, when the company shifted to a top-line, revenue-growth strategy, the division manager expanded the reach of his unit’s services, creating costly – but overlooked – inefficiencies.

Our detailed analysis of revenues and expenses segregated by product line – which the company had never previously done – identified the following as key contributors to a five percentage-point drop in gross margin:

  • Fact: Direct labor expense had grown faster than sales.
    • Finding: Sales incentives were based on the top line, no matter that installers and service techs ate up greatly increased, mostly unbilled, “windshield time” going farther afield.
  • Fact: Materials costs were at an all-time high as a percentage of sales.
    • Finding: Announced vendor price increases were simply being absorbed without negotiation, push-back, or second sourcing.
  • Fact: Labor rates for installers and service techs were outdated
    • Finding: Established rates were below market – providing inadequate margin to absorb payroll overhead (taxes and benefits), plus operational costs and S, G, & A overhead. Achieving profitability would require a 20% rate increase.
  • Fact: One of the field supervisors was frequently leaving early.
    • Finding: He was serving company accounts and accepting payment on the side, while supposedly on company time.
  • Fact: Typically the company structured each installation contract by retaining long-term ownership and thus capitalized much of its installation costs.
    • Finding: Postponing the day of expense recognition obscured the fact that in many cases the company was losing money with each sale.

Each reported finding produced an “Ah-ha” moment in the meeting. Everyone had suspected that there was something wrong, but each was locked into his or her position on the playing field. Getting them back in the game with a winning attitude took a series of off-the-wall comments. Straight out of left field, you might say.