New SII chief's plans include buying a piece of the company

SACRAMENTO -- On the Monday morning of his sixth week as president and chief executive officer of System Integrators Inc., Frank Washington has been busy: a staff meeting with middle managers and line workers is topped off by a session with a visiting dignitary.

But right now he's defending his motives for becoming the seventh top executive the company has had in six years.

"Test driving? This is no test drive," Washington said. "I'm definitely in here to make this thing go where it should go."

Where SII should go has been a question that vexed at least one or two of Washington's predecessors. The longtime supplier of editorial and classified front-end systems has been in turmoil for much of the last seven years, starting with a shareholder lawsuit that forced out founder James Lennane in 1989. That led to a leveraged buyout that turned sour in 1993, resulting in a year-long Chapter 11 bankruptcy protection.

During this tumult, the publishing industry demanded that its suppliers radically change their business models away from proprietary systems, developed in-house, to solutions based on general purpose hardware and software.

Later in the conversation, Washington said that a majority of the board of directors and investors (which include the Bank of America, Chase Manhattan Bank and the New York investment banking firm Cerebus Partners) hadn't brought him in to allow SII to "continue down the path" it had been headed on.

In Washington's estimation, that was liquidation, and "I'm not a liquidator kind of guy." In fact, Washington "absolutely" plans to purchase a portion of the company from the investors.

"The way I'm going to make the biggest return is getting this company turned around and into other areas," he said. "That's not something that happens overnight. I'm going to have to be around for a while to see the fruits from that kind of effort."

Washington, a lawyer by trade, came to SII on July 1 after a long career in media that extends from a telecommunications position in the Carter White House to an aborted bid in 1994 to buy the $2.3 billion cable television franchises of Viacom Inc. (see The Cole Papers, July 1996).

In between, Washington spent time with both Times Mirror Co. and McClatchy Newspapers, gaining some exposure to the newspaper business (at Times Mirror he worked in both cable and videotext; at McClatchy he was on the board of directors and in charge of cable ventures).

So on this Monday morning, Washington takes a chair next to his guest in front of his desk (on which sit two of the hottest management books out -- Inside the Tornado by Geoffrey Moore and The Dilbert Principle by Scott Adams) to talk for an hour about SII, the publishing business and his personal philosophies.

Markets
The transition from proprietary systems to "open" systems has been difficult for all suppliers in the industry.

When SII was a publicly traded company, it boasted revenues of almost $50 million a year; industry analysts estimate it is currently doing about half that much business (the company refuses to confirm or deny any revenue or cost numbers).

Customers, industry observers and employees are concerned that the newspaper business can no longer support a company the size of SII.

Enter Frank Washington.

Though Washington said "newspapers are always going to be a very important part of what we do," he also said that when he arrived he initiated a process to look at the company's core competence, "and we decided that publishing systems is our core competency, not necessarily newspaper publishing systems."

Washington believes strongly in newspapers -- "There's no other single source of local information that has the kind of presence and promotional power that a newspaper has" -- but envisions a world in the future where newspapers provide others with local information to distribute.

Who are those others? Not unsurprisingly, the former cable industry executive believes that cable companies will move into information distribution in a big way.

Calling cable companies "pretenders" to the newspaper's throne as the primary source of local information, Washington said he believed there was a role for SII to "facilitate" between the "would-be" publishers and newspapers.

"I see some real opportunities in terms of making connections between the newspapers and some of these other media in local markets," Washington said.

He also believes that SII has learned some things from its customers over the years.

"Newspapers have published stuff for 200 years -- they've got all this built-in knowledge -- and presumably some of that we've been able to garner," Washington said.

"There is literally an opportunity for us -- using the credibility we've established as perceived by people outside the newspaper industry -- to establish relationships and in turn use those relationships in a way that I think would be strategically advantageous to the newspapers themselves," he said.

In addition to a line of business that would emphasize relationships between SII, its newspaper customers and new media customers such as cable companies, Washington nods vigorously when a description of an SII publishing system for a local cable operation is offered.

Saying he knows cable operations are not designed to handle publishing activities, Washington said, "They may be very well intentioned at the upper level of some of these cable companies, that they can just come in and transplant this thinking on top of an existing cable operation.

"I venture to say this is going to be a lot more difficult than these people may be willing to acknowledge or understand," he said.

Washington believes that the technological shortcomings of new media content being delivered over cable systems using cable modems will "definitely" be overcome.

But he returned again and again to the notion that newspapers -- and SII -- have knowledge about how to build information-gathering infrastructures, and that there's a business opportunity for newspapers -- and SII -- to share that knowledge with cable companies.

"There's no reason other people should have to reinvent wheels that newspapers already have," Washington said.

Customer service
As with virtually every technology company, SII's weakest spot has always been customer service.

Traditionally, the company has made large commitments to customer service at user group meetings. Six months rolls around, and at the next meeting the company is shocked to find that outstanding customer problems (in the company's parlance, CARs, or customer assistance requests) have not abated. (As recently as last year the company acknowledged one outstanding CAR was three years old).

Since late 1992, Bob Strack had been the vice president in charge of customer service. The 18-year SII veteran resigned from the company in Washington's third week there.

Customer service, Washington said, "has to be under one person, and no matter what plan we come up with, somebody has to be held responsible for implementing it."

Washington appeared to be amazed at how convoluted SII customer support has become.

"Frankly, from what I can tell, we're set up internally to have the gears run against themselves," Washington said. He compared SII's customer service to a train ride in the pre-World War II Balkans: "At each border you have to stop and get out and go through customs."

The new SII chief said poor customer service not only hurts the customer, it hurts the company, in ways he called "insidious."

"For instance, one of the things I learned from talking to the customers and salespeople is that when somebody has a problem, they call in to the customer service area," Washington said. "But they've almost been trained to assume that isn't going to do it.

"Invariably, they're going to call the salesperson as well to make sure that the salesperson is aware, so the salesperson can follow up on it," Washington said. "Instead of the salesperson out doing what they're supposed to be doing -- selling -- they're doing the customer service area's responsibility as well."

Pledging "to get this cleaned up," Washington said that the cost of customer service shouldn't be an issue because "it already costs us."

"I envision getting this straightened out as fast as we possibly can," Washington said. "I can't promise exactly how long it's going to take, but I know that it is the kind of negative undercurrent that will never allow us to do what we need to do -- working with our customer base to get them and us to the great opportunities that are out there."

Personnel
Another area of concern for Washington is staff -- the people who make up SII.

His first target was research and development; he has begun a search for a new R&D vice president.

"That was initiated by me the day I got here," Washington said. "As people have pointed out already, I don't have a technical background and I know that. The R&D area in this company has lacked for direction virtually since [founder] Lennane was here."

Before he left, Strack was also in charge of research and development. Previously, former Chief Executive Officer Mike Reisenweber had the responsibility.

In addition, Washington has decided that sales is an area that needs an assist as well. Before Washington's arrival, sales responsibilities were shared between Chief Operating Officer Jack Pritchard and Sales Director Glenn Reinemund. In early August, Washington started a search for a vice president of sales.

"Jack has a sales background," Washington said, "but Jack cannot focus on the sales force the way it needs to be focused upon, given all his other responsibilities."

Washington said that though he was considering existing employees for the two vice president jobs, he would look outside as well.

"If it's not a person from within the company, it's probably going to be a person outside the industry," Washington said.

Another personnel problem has been the loss of key employees since the company exited Chapter 11 in September 1994. For some technologies, Washington said, "we've literally got one person left in the company" who understand them.

Washington said that he's become "personally involved" in trying to get some of these key employees to come back. "I'm doing it because I believe we need these specific skills," he said.

When told that the return of some of these employees would bring better esprit de corps, Washington discounted that as a motivation. "The additional morale booster effect would be just all the better," he said.

The new chief executive said many of these people left during downsizing, which was done "in somewhat a ham-handed fashion" that had a negative effect in terms of morale.

Vowing to "change the dynamics of the way this company has been run," Washington acknowledged that many line workers know more than top management.

"It's clear to me that there were people down in the engine room telling the folks up in the fo'c's'le that this thing was going toward an iceberg and was running out of coal -- and nobody was listening to them," Washington said.

Because a technology company is so focused on research and development -- and R&D people are essentially artists -- Washington believes he has a slightly different mission than other turnaround executives.

"You don't get the best performance out of those kinds of people by trying to shove things down their throats," he said. "You better understand where they're going and then figure out some sort of trajectory that gets the success of the company in the way of their predisposed inclinations."

To illustrate his point, Washington told a story about the company's "ideas committee." Consisting of line workers, the committee met with Washington in late July and voiced recommendations for improving the company.

"I'm sitting there reading this on a Saturday night and there's some really good ideas there," he said. "But I'm saying, 'I don't have a clue how to implement this stuff. The people on the committee have a much better idea than I do on how to get this done.'

"And that's when the light bulb went on," Washington said. "Why don't I let them implement this stuff?

"I went back to them and said, 'You need to recognize two things: I'm giving you a lot of authority to accomplish this, but there's also a responsibility associated with that. And your ability to get these things done in the company is going to be a reflection of how much people respect the way in which you proceed with this.'"

Washington said he doesn't like the word "empowerment" because "the employees have the power in the first place."

Allies and enemies
Shortly before Washington joined SII, the company had signed one large contract, sued one competitor and created an alliance with another. His thoughts: