Calculating the Autonomy Balance

As companies grow to midsized, conventional wisdom is that you must increase standardization to achieve efficiency and scalability. But in many cases, staying close to the customer is their competitive advantage, and retaining a sense of customer intimacy can mean satisfying them in non-standardized ways. Over-centralization can kill the local autonomy and specialized service capacity that is the company’s selling point. So, what’s the right balance?

With growth, scale matters to fund the expanding center and invest in the expertise and systems to be competitive with bigger fish. Efficiency and return-on-investment become primary metrics for success. The creative talents and committed personalities that helped the company expand may not be able to convert to a more regimented, professionalized approach as the business moves to the next level. Changes may be needed.

Yet in some businesses, departments such as service and sales depend more specifically on customer responsiveness than size or sector-leading innovation. In a decentralized structure, their local general managers may know more about what their customers need than HQ ever could – and in dynamic environments, it may be critical to retain this local autonomy and creative entrepreneurialism.

Balance is key, emphasizing localized customer attentiveness, while centralizing essential services and supporting learning and sharing from the center. It’s not a franchise model, but a conscious, calculated autonomy.

“The pandemic served as a proof of concept for our approach,” says Eric Ellingson, Executive Vice President of Bargreen Ellingson, the 620-person Tacoma, WA-based foodservice supply and design company with locations across several western states. “We focused on staying close to our customers, letting them know we are big enough to trust as a supplier but local enough so we remain responsive and so they know we care. This won us a huge amount of customer loyalty and allowed us to discover other needs and new product areas we could expand to fill. To achieve this, the freedom we give our local general managers is key.”

Finding the Balance

Creative solutions require a culture of openness and regular communication, as well as some clear guidelines for measuring success. Components of this approach include:

1. A strong culture to keep everyone aligned across the offices. This may mean adopting an intense focus on putting the customer first, so that this becomes a differentiator from the competition.
2. An internal development path encouraging section leaders (whether a location, business unit or practice area) to embrace the culture and understand and have the incentives and competencies required to win, while not abusing the autonomy they are allowed.
3. A clear definition of success. Profit is part of it. It’s also ROI (the balance sheet side of things) and well-articulated objectives: metrics include goals related to finance, sales, customers, efficiency and capabilities. Autonomy is powerful, but local leaders also need to deliver.
4. Centralize many areas that aren’t your differentiator, such as accounting, HR and purchasing –the efficiency will be important to competitiveness and helps bind locations together.
5. Capture the learning or new product offerings from local operations. When these emerge in one area, the center can roll them out to others, building corporate allegiance and profit for local offices as well as the group.
6. Monitor and communicate, often. This includes regular executive check in, but will be best driven by peer-to-peer learning, as well as all-team (and when possible, in-person) gatherings, to share experiences while strengthening common culture and identity.

The approach takes work and commitment, both at the executive and general manager level. If leadership doesn’t support and encourage local offices, they won’t be able to fulfill their mission of specialized service or evolve new products and ideas for customers’ needs. Yet if local heads are not committed to the overall corporate vision – including accepting basic guidelines, financial discipline and occasional decision overrides – then the structure won’t be stable and ultimately their positions could be at risk.

Returning the Hospitality

Founded in 1960, Bargreen Ellingson is in its third generation of family ownership, supplying restaurants with diverse requirements from design and build to supplies and service. The company has 22 offices across the upper West, Alaska, Hawaii, Canada and Texas, and an annual revenue in excess of $230 million.

The company’s founder ran a tight ship. “My grandfather didn’t let anyone else have a key to the building,” says David Ellingson, president and Eric’s cousin. “If your last name wasn’t Ellingson, you weren’t allowed to even lock and unlock the doors.”

The shift towards more autonomous management began organically in the 1980s and 1990s, as the next generation took over, and set a path of growth through acquisitions. With rapid expansion, local general managers wanted to retain an amount of operational freedom, and the senior management didn’t see the need to control them so closely. So, the autonomous style began by default.

As growth continued, the younger family leadership saw this autonomous approach as key to their strength. They earned the reputation of being a well-run, midsized player – more stable and better resourced than smaller, competing companies, but more responsive to customer needs than major, corporate distributors. This enabled them to attract both loyal customers and talented staff.

Ensuring that operational competency, the company maintains centralized accounting, HR and purchasing functions. This capacity enables cost-efficiency and competitiveness for the local offices as well as corporate effectiveness.

The company also brings significant resources to the table. Two important factors are that it owns its own property and has developed an efficient central distribution system. Bargreen estimates that they have twice the square footage and can hold twice the inventory of their competitors. The company is able to negotiate significant purchases, commanding good pricing while being able to supply its network on a timely basis. They boast that they can get products to Alaska and Hawaii faster than anyone.

This combination of resources, experienced central management and client-focused delivery is the key: overstock locally and then outperform the competition. The return-on-investment is not necessarily high in strict financial terms. But it makes the company more sustainable because clients love them. In essence, they trade ROI for customer loyalty, smoothing the sales curve and decreasing risk.

COVID Times

The real driver of success remains a commitment to customer needs, as shown during the pandemic. COVID-19 ripped the heart out of the hospitality trade, but Bargreen decided to stand with their clients. It was a huge bet, that paid off not only in sustaining the business but in growing it.

“We said, ‘Look, we’re just going to support our customers. They are decimated and under complete stress. Even if we invoice them, we’re not sure they are going to be able to pay us. But let's at least get some revenues and get our inventory and create some AR,’” remembers David. “We immediately told every customer, ‘We would like to be paid, but just tell us if you can’t – we understand you’re shut down. If you’re not here in a year, we won’t be either.’”

Around 150 staff were culled because of the pandemic, a decision taken early and openly, so at least people knew where they stood. But Bargreen kept their designers on staff, to help customers change their layouts to deal with COVID-19 requirements and to keep them abreast of evolving regulations.

“We watched other companies cut back on their customer service. We actually beefed ours up because we thought there will be more calls coming in,” explains David. When other suppliers, themselves under stress, were unable to fulfill orders, Bargreen was able to respond quickly and allow their customers to fulfill their own commitments.

Helping clients continue to function in difficult times helped the company differentiate itself from the competition, building loyalty and continuing to grow revenue.

Pandemic Products

The focus on local client needs also enabled Bargreen to move into new product areas. The GM in Portland, Oregon, detected that his clients wanted a chemical agent to combat the coronavirus. The main competitor in this space is a larger company not responsive to client issues. So Bargreen became chemical experts, big enough to have the capital to invest in a new product area but remaining sensitive to customer requirements.

“We found a niche in a space that was served by giants or by scrappy small businesses, but no one in the middle,” notes Eric. “Our Portland GM asked, ‘Will you give me the leeway to go out and do it?’ He's one of our best, so I said, ‘Yeah, go do whatever you think you need to do.’”

They built up their chemicals expertise and experience in Oregon (where they now have about 200 leases), before spreading it to other states with growth potential. The company now believes the new line could grow to as much as 25% of overall revenues – all arising from their commitment to local autonomy.

In another example, a single mother working for Bargreen in Washington state was worried when it came time to send her child to daycare. She told the center they needed personal protective equipment and cleaning chemicals, researched and sourced the products and sold them what they needed. Bargreen encouraged her, telling her she could do that again elsewhere. She not only ended up being nominated for salesperson of the year but helped Bargreen expand its offering in the area.

“That autonomous nature, how we let our people operate, it comes first,” says David. “And then we figure out how to teach everyone else how to do it.”

Autonomy also extends to local purchasing decisions, with offices organizing their own ordering and inventory levels, showing trust in management based on client needs.

“Our customers prioritize different things, and this can lead to inefficient logistics,” says Eric, the Executive VP. “We have different customers asking us to stock different things and find the right price, and we want our answer to be ‘yes’. That's how we built the model.”

At the height of the pandemic in 2020, gloves were in high demand. Bargreen’s autonomous model allowed staff to remain nimble and serve their local customers as they saw best.

For some locations, it made sense to take care of a good long-term customer, even if there was not enough to go around for all. For other locations, it was an opportunity to get new business.

“If someone’s bought gloves from you forever, and they call you and say I really need them, you should probably sell them to them,” says David. “If they're brand new, think about your existing customers and just do the right thing.”

Bargreen expected these supply decisions to be managed by the local GMs. They did not create a written policy around this, it was more of a philosophy. “Use good judgement” is one of their company values, and that’s what they relied on in lieu of process and policy.

Sometimes, they did not agree with their managers’ decisions, but they let the managers choose. “We had some managers that felt really passionate about certain customers over others, and we had to step aside and say, ‘Yeah, I'm not sure I agree with that, but you're in charge so go with it,’” says David.

Rules of the Road

Local autonomy has to be balanced by central oversight and rules, and Bargreen monitors results closely. This is done mostly with the profit-and-loss statement. Sales is also a key indicator; a less-profitable location will be supported if it is showing growth. If locations do not hit their targets, an informal review is held, and the GM may be put on probation. Bargreen is formalizing the planning and forecasting process, and it highlights certain operating guidelines for success.

?“If you're spending more than 45% of your dollars on salary, you're going to have a hard time making money, unless you have so much volume that it makes up for it,” notes Eric. The leadership assess that one-third of the branches are performing well, one-third are mediocre, and one-third are underperforming, so there is work to be done.

Lower standardization not only adds a level of operational inefficiency. The autonomy makes it harder culturally to implement broad-based goals. “We kind of live and die on this autonomy,” says David. They have been weak at times at connecting the field to broad company goals, and have put effort into strengthening the corporate culture, even during the pandemic.

“Sometimes we say ‘You're autonomous. Because it's Hawaii, it’s different. You make all the decisions.’ Problem is when we go to implement a corporate strategy, ‘Well, it’s Hawaii, it’s different. That won’t work here.’ And we can't really argue as hard on that,” says David.

But the autonomy makes the GMs feel their jobs are important, and they relish the challenge and the freedom. Of 15 GMs, most have been with the company for more than a decade. While there is an understanding of seniority among the group, and Bargreen is moving towards a regional and subregional structure, there has been no clear hierarchy among them on the org chart, and they have a culture of learning from each other. “That just reaffirms the autonomy model,” says Eric, “that they shouldn’t be calling David and me for every decision but talking to each other.”

It takes a special person to be such a local leader – hard-driving and professional but also attentive and able to cheer people on. This matches the culture of Bargreen itself, which strives to be both strong and personable. They are able to deliver and be competitive, but also responsive to particular needs. Customers know they can always reach the head honcho if they need.

Efficiency does not trump customer desires, they co-exist, albeit at a lower margin than a pure efficiency-play company. But the advantages of autonomy can be seen at each location, even to each salesperson. That’s the balance in Bargreen’s calculated strategy. Says David, “As we tell the younger managers, ‘Hey, you can create your own world, you can do anything you want, you can sell to anyone you want. And we’ll support you.’”