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DPI Client Interview
Greg Tunney, President and COO, Phoenix Footwear Group, Inc.

	Phoenix President and COO Greg Tunney (left), and Chairman and CEO Jim Riedman at the American Stock Exchange the day the company’s stock became listed on AMEX.

            Daniel Green Footwear was in deep trouble. It was 1998 and the company had been losing money for several years, with sales limping along at about $14 million and its stock hovering around $2. Saddled with antiquated factories, a highly seasonal women's slipper line and a mountain of debt, the company was sinking fast.

            Today, a little over three years later, it's a very different story. Sales are near $40 million and growing, and earnings are strong. The company's stock, one of the few bright lights on NASDAQ in 2001 and recently listed on AMEX (symbol PXG), is up to about $11--tripling in the last year. The company has been resurrected from its near-death experience through a series of smart, gutsy strategic decisions and has recently taken a new name--Phoenix Footwear Group, which aptly symbolizes the transformation.

            Getting to this point hasn't been easy. As a first step toward recovery, Chairman and CEO Jim Riedman decided to bring in Greg Tunney, who he knew had a successful track record of turnarounds in the footwear business, as President and COO. When  Tunney arrived in 1998,  he immediately recognized some fundamental problems, based on prior experience in the shoe business. Knowing that Daniel Green's business model, reliant on domestic manufacturing in the U.S., was obsolete, he began the difficult task of steering the company toward a model based on outsourcing. That would ultimately mean closing three plants and completely revamping the company top to bottom. After about a year of "cleaning house," he brought in DPI's Strategic Thinking Process to enable his managers to understand the future they faced and forge a strategy they would understand and, most importantly, support.

            As Greg Tunney recalls, "When I got here the business was in a major crisis situation. It hadn't made a profit in several years and I was brought in to help turn it around."

            His last assignment in the footwear industry had led him to deal successfully with many of the same problems that had brought Daniel Green to near bankruptcy. He knew, coming in, basically what needed to be done. The economics of the industry had made the manufacture of footwear in the U.S. all but impossible. The cost of operating its three plants was literally killing them.

            "The first year at Daniel Green was damage control, figuring out how many cracks there were in the Titanic and putting together a new senior management team. Then after we determined everything that had to be done, the second year we started to make some changes and brought in DPI."

“I saw DPI as a way of getting buy-in from the team, of having them understand the vision.”

            Now, with a strong handle on the situation, DPI's Strategic Thinking Process would help to solidify the management group's thinking behind what was for them a completely new approach to doing business--getting out of manufacturing altogether, transitioning to an "outsourced" operation.

            Says Tunney, "I saw DPI as a way of really getting buy-in from the team standpoint, of having them understand the vision, not to have it be my vision. To have them all be part of that vision, to me, was worth its weight in gold."

            DPI Partner Craig Bowers facilitated the process. Says Tunney of the facilitator's role, "I think the facilitator is critical, especially in the initial phase. If I were to try and lead it there'd be no credibility to the process. They'd all say, 'Okay Greg, what is it you want us to do here?' The facilitator really opens up the minds of the participants and says 'Okay, this is your process. What do you want the company to be?' And as a facilitator Craig has the process knowledge and enough experience at this to open up the whole can of worms and bring it to a conclusion."

            As the process progressed, it enabled the participants to develop a complete picture of the company--and how it had gotten into this dire situation. In effect, Green had been operating under a Production Capacity Driving Force, doing whatever it could to try to keep its factories operating at capacity. But the cost of keeping the aging factories open far exceeded the revenue they produced. After bringing all the facts out into the light, it didn't take long for the group to come to the realization that this model was no longer viable, and that a shift to a Product/Concept Driving Force was the only path that made sense.

            "As we started to clarify the discussion, it became obvious to everyone, whether you were on the manufacturing side or whatever area you worked in, that if we were going to survive, we were going to have to become a Product-Driven company," says Tunney. "We had been very manufacturing-driven. That was what drove Daniel Green for 120 years. You had this silo called a factory. You had to keep it chugging 24/7 to cover overhead. That's what everyone lived and died for. But the economics of that hadn't worked in many years. So we decided we had to make this major change. Today it's no longer 'Keep the factory going.' Now it's 'Let's make the right product at the right time at the right price so we can make money.' And it had been a long time since the company made money. So it really changed the whole concept of what was going to drive our company. What's driving us now is delivering the best products. Before, we didn't care what kind of widget we made as long as we kept the factory full. That's a huge change."

            Out of the process came a new unity of purpose behind a clear Business Concept that would provide a strategic filter for the coming years: Daniel Green's strategy is to develop and market slipper-designed footwear. We will strive to offer value-added, distinctive products that are tailored to the needs of the end users of high potential and growing mid- to top-tier channels where we can leverage our slipper technologies.

            Noticeably absent from this statement is any mention of manufacturing which would now be completely outsourced. Inherent in this new Product/Concept-Driven strategy would be new Areas of Excellence--Product Development, Market Awareness and Sales Relationship Building.

            In what would at first be an uphill battle, the company set out to resolve the list of Critical Issues set out during the process to accomplish the next phase of its strategic renaissance--complete transformation from domestic manufacturer to "completely sourced operation," with new products to generate profitable sales and growth.

            Making these essential changes depended on the support of the Board and its Chairman. Says Tunney, "Our Chairman and our Board of Directors were instrumental in our company's change of direction because they were willing to support the management team in making a long-term change in our direction. Most boards are not willing to give up short term profits for long-term growth."

            To make a long story much shorter, the company's plants were divested by the end of 1999, and manufacturing of its products outsourced to new partners in other locations such as Brazil where high quality products could be produced competitively. Similarly, design was transferred to a variety of partners who could provide new products for the pipeline, to keep consumer interest fresh. Its retail relationships changed significantly in line with its new strategy, concentrating on higher-end distribution channels like department stores as opposed to low-end discount chains, and getting out of its money-losing private label business altogether.

            Things began to improve despite some difficult times in the retail industry, and Green was eventually able to acquire two companies. The first was L.B. Evans, which brought in a line of men's slippers, rounding out the slipper line. Next was Penobscot Shoe Company, of Old Town, Maine, which contributed two well-established brands of women's "comfort" shoes, Trotters and SoftWalk. Penobscot was also a comfortable fit with Daniel Green since they were already a completely outsourced firm.

            Ultimately, Daniel Green moved its main offices to Old Town, and decided to sell the slipper business in an effort to concentrate on less seasonal and more profitable segments. The sale provided enough cash to retire nearly all of the company's debt and gave it flexibility to grow. The sale of the Daniel Green brand also necessitated a change in name. Phoenix Footwear Group, under which it is now known, was appropriately selected.

“When we finished the process, everybody was on the same page.”

            But all that change in the business had also meant major changes in personnel--people who had been recruited in the past two years and those who came in through the Penobscot acquisition. So it was time, once again, to bring in DPI to review the strategy and unify the largely new group. The process allowed the participants, most of them for the first time, to see the company as a whole, and so, to understand how the pieces fit together to support the Product/Concept Driving Force.

            "During the process, we found out that 80% of our managers really didn't understand what we did as a company," Tunney recounts. "They each knew their own world--say, the Credit Department or Customer Service Department, and what they each did day-to-day. They didn't realize that the concept of the company is really to develop, design and deliver footwear products. That's not surprising because so much of that doesn't happen here in Old Town. Production is in Brazil. Our designers are all over the country. Our technical team is offshore. We're more of a processing area here. These products show up in a container every day and are shipped out to other places. So their concept was generally more oriented to that paperwork and not toward being Product-Driven. They never realized that the reason we have all these departments is really to support the Product and Sales teams. Products and Sales were probably viewed as more of an annoyance. The process enabled everyone to see, 'Hey, that's what really butters our bread.' The experience of looking at the whole company through the DPI Process was an eye-opening experience for them."

            The result is a slightly revamped strategy--featuring “footwear,” not slippers, with an optimum combination of comfort and fit--and an organization that now fully understands that strategic direction.

            A new Business Concept broadens the product possibilities, yet clearly defines the types of products and markets, as well as Areas of Excellence, it will pursue: Phoenix Footwear Group's strategy will be to develop, market and service quality footwear. We will focus on growth-oriented customers and consumers, in the moderate to better price footwear category. We will grow by concentrating on geographic markets where we can leverage our superior design sourcing techniques as it applies to styling, comfort, and fit technologies. We will accomplish these objectives by focusing our sales and marketing efforts within established channels of distribution.

            The key benefit to going through the process again, though, was the unification of an organization that had undergone massive change in a short period of time.

            As Tunney explains, "I think, as a result of going through the process that second time, that we're much more cross-functional now. Before, I think there were boundaries around departments. There's more of a spirit of 'Now I understand what you guys have to get done. So how can I support you in doing that?' As a result, I think our flexibility as a company has greatly improved. There are challenges every day. Having this improved understanding and communication has made us more fluid as an organization. When a problem comes up, our managers can get together and say, 'Okay, now what can each department do to attack this situation and solve it?' "

            Today, Phoenix Footwear is a far different and much better company than it was only a few years ago. A look at the financial situation confirms that emphatically.

            "For the first quarter this year, earnings are up," says Tunney. "They tripled in the first quarter. We're the number-one performing footwear stock in the stock market this year, the number-one performing stock with regard to sales and revenues and increased earnings. So the DPI Process is great, but the bottom line is the results it helped us achieve.

            "The DPI Process doesn't do all this for you. Maybe that's what is so good about it. We have to do it; we're the engine. DPI may be the gasoline in the engine, but we had to get the engine right. We had to get a lot of things in place. We had ten or twelve managers in here and a lot of different ideas of what the vision was. When we finished the process, everybody was on the same page. And I've been pleased to see some managers coming out of their shells and achieving their potential. That comes from a feeling that, 'I can make a difference,' not just going along with this vision, but being a part of it. It makes my job a lot easier. They know the vision. It's on paper. It's in their minds.

            "We were looking for a way to bring this team together, how to get a focus on the strategy, to get everybody marching to the same tune. And the DPI Process was definitely the glue that brought it together and solidified it. Without it, I think we could have had some decent results, but this really expedited the process. I think this increased the velocity in which the team came together. It's created a culture here and we truly do have a culture in the company now. We have managers here now who understand that culture and believe in it and it works."

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