What a Trust-based Company Looks Like

The tone of this blog is frequently critical. That’s probably because I believe we all learn much better from negative examples than from positive.
But if you don’t have any positive examples with which to contrast, we can easily forget why negative is negative. So the occasional positive blogpost is especially important. And this one is a real upper.

PSA: Pediatric Services of America

Last week I had the privilege of working with a very fine small company, PSA Healthcare. They deliver home health care for medically fragile people, mostly children. They have about 3,500 private duty nurses, operating from 50 locations in 17 states. What they do can make an enormous difference to families, allowing them to lead normalized lives under difficult conditions.

But having a great mission alone doesn’t make for a fine company. A lot of what makes PSA fine is that they are intentionally and consciously using trust principles to run the business. They are not only making a lot of people very happy and proud, they are doing very well by classic business measures. A fine case of doing well by doing good.

Let’s start with the metrics, go on to the principles, and end up with the real punch lines.

The Numbers. Jim McCurry started as CEO a little over a year ago, when PSA had been declining in revenue, market share, and profitability. Previous management was a classic top-down, measure-by-the-numbers team that had, simply put, failed.

The old style was that each month the bottom-performing offices were required to ‘justify’ themselves on a conference call to the top management. At the annual meeting, office heads were required to double-up on hotel rooms. Orders were given, decisions had to be approved up the line, and the style was management by FIN—fear, intimidation and numbers.

By the end of McCurry’s first year—at the tail end of a recession—revenue steadily increased, reaching a 20% annual rate of growth by year-end, all of it volume-based. The company increased profitability, more than doubled total profits, and turned the market share decline into market share gain. Staff morale is up enormously. Expenses are down.

Bottom line: really solid business results.

The Principles. How did McCurry do it? It was not the classic MBA turnaround medicine of tightening up, taking control, and cutting expenses. Instead, Jim told the staff the following:

“From now on, this company is run for the customer. The office heads work for the customer, and the rest of leadership works for them. Make your own decisions, and we’ll help you make them. Don’t wait for us to tell you what to do, you figure out what to do and do it—we trust you. No more intimidation, no more review boards.

“Our new mission has three parts: Action-oriented, Care-giving, and Trust-based.” (It spells ACT: coincidence? Of course not).

The annual meeting I was privileged to be part of was full of hokey-yet-fun skits, honesty, mutual helping, and positive energy.

The Punch Lines.  McCurry is an MBA. A Harvard MBA, actually, from a year after Dubya’s vintage.

The company’s owners are two private equity firms; the head of one of these is dedicated to the business in large part because his mother had been born so prematurely that she likely would have died were it not for the in-home nursing care she received in the first weeks of life.

This is a profitable business, not a charity. It is being run like a real business; like a real business ought to be, I should say, because too many businesses are being run the way PSA used to be run.

It’s refreshing to see an example of the much maligned du jour—MBAs and private equity—using modern, “squishy” leadership and management principles to improve life and the bottom line in parallel.

Collaboration, ethics, trust, openness, honesty, integrity—these are not fuzzy phrases, uttered by bureaucrats, wealthy Hollywood stars, or mega-rich Googlish do-gooders. These are utterly workable principles that deliver the best results around. They give capitalism a good name. Collaborative capitalism, I like to call it.

McCurry and PSA Healthcare deserve their success.


The Evolution of Capitalism

Dinosaurs fightingIn 1986, I attended my 10th MBA reunion. I sat in a class taught by Joseph Bower, along with the classes of various years ending in a “6” or a “1.”

Bower talked about global over-capacity in the chemical industry and what could be done about it: “co-opetition” was his solution. The 5-year people looked somewhat bored by it. I found it quite fascinating, as did others in my year.

But the old guys were apoplectic. They spluttered and muttered things like ‘what has this school come to, don’t they know it’s a business school,’ and the like. To them, it was but a short hop to socialism.

It was never that simple. At that time there were already newspaper company joint operating agreements, which amounted to co-opetition in the very newsprint these old gents held in their hands at the Club in the evening. But no matter, ideology dies hard.

Their form of ideology—competition to the death, but in a gentlemanly kind of way—went through a resurgence in the 1980s with the advent of competitive strategy. We heard some about strategic alliances, but as far as I was concerned, co-opetition didn’t get back to the front page.

New Assaults on Old Business Ideologies

But as Michael Jackson once said, that was then: this is now. Now there is some serious re-examination going on about the nature of capitalism.

Umair Haque, who’s based in London, is burning up the Harvard Business Review blog scene by writing about constructive capitalism and about the economics of good and evil

At Harvard itself, Bruce R. Scott  writes with great perspective and wisdom about the complex relationship between democracy and capitalism. Sorry, die-hard fans of Adam Smith’s invisible hand; it just ain’t that simple.

And speaking of the Invisible Hand, Adam Smith first used that metaphor in his earlier book, the Theory of Moral Sentiments. He used it to describe the natural working of human sympathies for each other. Over a decade later he resurrected the metaphor to do double duty in Wealth of Nations, where he used it to describe the workings of a competitive market.

At the Boston Consulting Group, Philip Evans and team have done great research into just how it is that Toyota is so much more cost-effective than Detroit at building cars. It’s not pension and health care costs—it’s more effective process innovation, which in turn comes from—omigosh, collaboration. I imagine the old-timers from my reunion popping a blood vessel over that one.

I’m currently reading Winner Take All: How Competitiveness Shapes the Fate of Nations,  by Richard Elkus. Elkus was present at the creation—and destruction—of the US consumer electronics industry, working for Ampex.

Ampex coulda been Sony, or Toshiba. The reason it wasn’t is excruciatingly obvious as Elkus tells the tale of US management doing its best: valuing the transaction over the relationship, focusing on competition not collaboration, channel-loading and fudging costs, and converting all business issues into present value financial calculations.

Up against an Akio Morita, who actually believed in alliances and collaboration, who understood interconnection in technologies, and who worked for the long term, Ampex didn’t stand a chance. Nor Zenith. Nor, I would add, Detroit. The colossal disadvantage of our national economy at this point, he argues, is that we have sold all our technology for licensing fees, outsourced all our manufacturing for low input costs for quarterly earnings, and made ourselves little else but master marketers and consumers.  We exited what BCG called ‘dog’ businesses, and ended up dog food.

The Coming of Collaborative Capitalism

I’ve played around with various terms for it, but I’m liking “collaborative capitalism.” It’s light-years beyond 1986’s co-opetition, because it’s not just capacity-sharing.  It’s true collaboration and trust, working beyond corporate walls and across companies.  Many of us are seeing this trend at the same time.

Way back in 2002—a couple recessions or so ago—I wrote a little article called The Death of Corporations.  It basically said companies who competed against each other were, to use Robert Frost’s metaphor, disappearing not with a bang, but a whimper, as commerce gradually begins to operate across and through companies, rather than in the form of mega-goliath companies clumsily "competing" against each other, spouting their platitudes.

I still think that article’s going to be an overnight sensation, it just needs a little more time…