The Dallas Morning News
February 25, 1996
Getting results with less time, more profits
Thomas Group puts companies on a cycle
Philip Thomas has injected radical change into 250 different businesses and has discovered a
universal symptomatic truth: Time is money, and companies waste both.
Whether it’s a $140 million American Tourister or a $2 billion Rubbermaid or a $24
billion Motorola seeking his guidance, Mr. Thomas finds a lot of hurry-up-and-wait.
Motorola used to take two weeks to build a cellular phone once an order was placed.
Now the job is done in hours.
It’s called total cycle time, and Philip Thomas is synonymous with reducing it.
While the publicity-reticent 61-year-old multimillionaire may be unknown to many in Dallas’
fete set, the Thomas of The Thomas Group, Inc. is well-established with CEOs seeking to
reshape their companies into svelte competitive beasts.
Last year, they paid him $70 million for his advice, with projects stretching from
Australia to Liechtenstein and involving airline food to power tools.
Cypress Semiconductor’s outspoken T.J. Rodgers, who saw his company’s profits
take off from ground zero under Mr. Thomas’ tutelage a few years back, is now a disciple.
Don’t dare call Mr. Thomas a consultant.
He and his 180 time-vested veterans at the Irving-based management group prefer the
moniker "resultants."
Mr. Thomas puts his money were his corporate mouth is.
If his methods don’t reduce development and production time and inventory costs,
as well as boost sales, profits and customer satisfaction, the Thomas Group bottom line
and Mr. Thomas’ 100 percent bonus-based salary share in the failure.
He doesn’t worry much, even though 1994 was a rough year and his personal income
took a direct hit. His 20-year success rate is about 96 percent and 1995 was a comeback year.
"The key to being able to tie fees to results is knowing where the company is and
the degree of improvement that’s possible," he says. "We have the most experience with
making contracts that are fair to both sides. It’s very difficult for neither side to get
taken."
Mr. Thomas won’t take on all comers.
He wants to attack the whole organization at once, not bits and pieces.
"Taking on a single process is as ineffective as taking a tangled finishing line
and working on only one piece to untangle the whole mess," Mr. Thomas says.
"The only way to improve a total business is to take on all the interconnected
processes."
And he has to be convinced that the company is able -- mentally and fiscally -- to
handle dramatic change.
"A critical ingredient for starting a program is, ‘Does the management want to
do it?’" Mr. Thomas says. "You can’t ram this down their throats."
He winnows out wimps and resisters at a CEO boot camp held in the Louisiana outback,
north of Baton Rouge, where he owns 1,200 acres of large trees, Spanish moss and executive
accommodations.
The isolated environment provides plenty of get-to-know-you time. "There’s no place
to hide for four days and nights," Mr. Thomas says.
"It’s in the middle of God knows where off a dirt road," recalls Tuesday Morning’s
Jerry Smith, a 1993 cycle-time enlistee. "It’s very intense. It clears the mind and gets you
to focus."
About 80 percent of the CEOs "are sufficiently inspired" to sign up, Mr. Thomas says.
Of those who don’t, half part company of their own volition, while the other half don’t pass
the Thomas muster.
"Change of the magnitude we’re talking about -- radical change -- can only be driven
down by the top management," says Mr. Thomas. "If the CEO is incapable or unprepared to lead
the change, we cannot be effective. So, we’ll walk away."
Setting sail
Philip Thomas got his first taste of what quick work could mean as a 25-year-old
putting expensive electronic gizmos on luxury vessels in England’s boating haven of South
Hampton.
"We specialized in rich people," he says. "They’d call on a Wednesday and want to go
sailing on Saturday with different electronics on board. I could get their business with fast
response."
After plying cycle-time theory to move progressively higher at Texas Instruments,
Mr. Thomas took on a series of six companies, the last RCA in New York, where he was division
vice president.
After each corporate rebirth, he suffered postpartum blues and became bored.
"In 1978, I decided the fun part was changing the performance," he says. So he formed
a company with his wife, Wayne. They put the headquarters in Ethel, Louisiana, where they had
a family estate, could operate cheaply, and get started without a dime of outside money.
When the couple called on clients, she used her maiden name, and they booked two
separate rooms so no one would realize they were a mom-and-pop operation.
They quickly weren’t. The company grew exponentially by applying cycle-time
manufacturing disciplines to such non-manufacturing functions as engineering and purchasing.
"This was way, way before its time," says Mr. Thomas, who won’t be accused of false
modesty. Today, a framed check for $13,742,769 hangs on his wall, the net proceeds of the
Thomas Group’s public offering in 1993. He still owns just under 40 percent -- a company
stake worth nearly $33 million.
The Thomas Group transformation costs between $3 million and $30 million, plus travel,
depending on company or division size. It takes 18 months to several years to complete.
In return, Mr. Thomas says a company usually can expect a 5 to 10 percent increase in
pretax income, a 10 percent jump in sales and inventory reduction of 5 to 8 percent of sales.
Time and quality drive success, he says. "We show clients how to drive the drivers."
Ardent converts
"T.J. is a special friend. He wasn’t when we started," Mr. Thomas says about one of
his most ardent converts.
Mr. Rodgers, despite his "no-excuse" management style, was having serious production
problems at Cypress Semiconductor in 1992. Unisys, a major Cypress customer and former
Thomas Group client, strongly suggested that Mr. Rodgers give Mr. Thomas a call.
He did.
Cypress’ factory floor had all the symptoms of cycle-time chaos, Mr. Thomas remembers.
“Whenever you see piles of stuff sitting, you know the cycle times are too long.”
And stuff was piled way high.
The time it took to get a new product manufactured was cut in half. The design and
development process went from more than three years to just over a year. Return on assets
from a negative 7 percent to a positive 14 percent.
The Cypress deal was done strictly for warrants. "We concluded that our improvements
would significantly raise the value of the stock," says Mr. Thomas.
Its stock was selling for $8.75 at the program’s start. By its end, each Cypress
share was worth $35, and eventually hit $50 -- a happy ending for both client and resultant.
On the flip side to Cypress was a program that redesigned the warehouse operation of
Dallas-based Tuesday Morning, the deep-discount retailer with $210 million in sales. It was
done entirely for a fixed fee.
Tuesday Morning clipped its warehouse costs by $2 million a year, and worker
productivity tripled. Company president Smith says he’s gotten back every penny of the
$1.6 million fee and then some.
While Mr. Thomas considers the project an undeniable success, he’s not without
regrets. He wouldn’t do it again for a fixed-fee deal.
"We significantly beat every parameter," he says. "We’d have earned multiples of what
we earned if we’d done it on incentive."
A few hits
By Mr. Thomas’ measure, there have been 10 programs that don’t rate as successes.
One was Revlon, which disputed the incentive portion of its contract, despite what
Mr. Thomas contends were impressive results.
"We didn’t make as much money as we really earned," he chafes. "But if you went to
the CEO of Revlon, he’d give us a good reference."
Because of Revlon and another soured deal, the Thomas Group had negligible earnings
on sales of $52.5 million in 1994. Wall Street didn’t take kindly to the downturn,
sending the stock to a 52-week low of $8 exactly one year ago.
That which doesn’t kill you makes you smarter.
"We have tightened our contracting and assessment processes dramatically so that the
chances of us having another 1994 are extremely remote," Mr. Thomas says. The company’s
preferred arrangement now is an even split between fee and incentive.
When the company reports 1995 figures next month, it expects to show a net of about
$7 million, which has the stock back trading in $14 range on the Nasdaq.
Part of that turnaround involves a recent home run. Fort Worth-based LSG/Sky Chefs
went from last place in industry profits to first after putting its kitchens under the
cycle-time gun.
Incremental change wasn’t going to save Sky Chefs, which in 1991 realized it had to
get costs down in a hurry. No one, including its new president, Michael Kay, had a clue
how to get "25 percent better all at once."
Then Mr. Kay read about consumer products giant Coleman -- another Thomas
graduate -- that had cycle times that were too entirely long, wasn’t getting out innovative
products as fast as its competition and had huge inventory.
Mr. Kay could relate. "It’s like having twins," he says. "Suddenly you discover
all these people who you never knew had twins before. We began to find businesses ascribe
dramatic performance improvement to something called cycle time."
Sky Chef’s cycle time was completely out of whack. Back-and-forth activity,
in-and-out storage, people waiting on other people, had created a bogged-down system that
took two days to prepare something as simple as a fruit plate. Today, the streamlined
kitchens take three hours.
Pretax profits nearly quadrupled to $44 million during the project’s two years on
flat sales of $500 million -- all done in a hostile airline environment.
"In 1995, we made the same number of meals that we made in 1992, with 25 percent
fewer man-hours invested and with higher quality," says Mr. Kay. "When you comb through all
of the stuff that the Thomas Group gives you, and all the money you pay them, that’s
essentially the concept."
Cheryl Hall is the Financial Editor and columnist of The Dallas Morning News.
Ideas at Work is intended as a forum for ideas and opinions of interest.
Reprinted with permission of The Dallas Morning News.
|