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Survival Tactics for Public Companies

PSS World Medical (No. 31)
Headquarters: Jacksonville
Distribution centers: 41 throughout the country
Accolades: This year, named to both Forbes’ “Top 100 Most Trustworthy Companies” and Fortune’s “World’s Most Admired Companies.”


Sitting Pretty: Smith personally hired about 1,000 of the company’s more than 3,600 employees since joining PSS in 1987. The company’s Physicians Sales & Service division is the country’s largest distributor of medical supplies to doctors’ offices. Its elder-care unit provides supplies, equipment and billing services to nursing homes in every state.

When David A. Smith, CEO and chairman of PSS World Medical in Jacksonville, called employees to a town hall meeting in April, many expected the worst. Workers at the company’s headquarters and its huge distribution center on Jacksonville’s west side, where medical supplies are packed onto trucks and vans bound for doctors’ offices around the country, had seen layoffs throughout their industry. They figured it was their turn.

Total Losses

» 45% (67) of the Top 150 Public Companies posted a loss.

» Total losses among the 67 companies were $7.75 billion.
“But he said just the opposite of what we feared he was going to say,” says Gary

Savage, a sales team leader who has worked at PSS for 18 years. In the same month that other medical-supply companies announced hundreds of layoffs, including 1,300 at Ohio-based Cardinal Health, “David was announcing how we were going to save people.”

It was more than a feel-good gesture. In May, when Smith made the rounds with Wall Street analysts in New York and during the company’s year-end conference call, he unveiled his strategy to meet earlier growth goals despite economic upheaval in the industry. “We’re going to save 500 people and grow the business,” he declares.

Smith’s focus on his workers is in part personal. By his own count, he’s hired as many as 1,000 of the company’s more than 3,600 employees since joining PSS in 1987 from Coopers & Lybrand. A Jacksonville native who earned his accounting degree from the University of North Florida, Smith was named CFO in 1992 and initiated the company’s IPO in 1994.

In 2000, Smith disagreed with then-CEO Patrick Kelly’s efforts to sell off the company amid a financial crisis caused in part by PSS’ acquisitions binge. Kelly resigned after a merger with Fisher Scientific International fell through with PSS near bankruptcy. Smith says he had already packed up his office when the board asked him to stay and lead the company out of the crisis.

The board promoted Smith to president. He scaled PSS back from an unprofitable $2 billion in revenue to $1 billion, then focused intensively on his sales team to grow revenue back, profitably, to $2 billion. He halted an exodus of key staff and dramatically reduced turnover by creating a corporate metrics program that highlighted employee satisfaction and more strongly linked pay to company performance.

The board named him CEO in 2002. Under Smith, the company’s physician-sales division, Physicians Sales & Service, has become the country’s largest distributor of medical supplies to doctors’ offices. Its elder-care division, Gulf South Medical Supply, provides supplies, equipment and billing services to nursing homes in every state. As he worked to reduce debt and improve cash flow, the company’s share price grew by almost 400% in his first five years as CEO. PSS has outperformed both the market and its closest competitors, Cardinal and California-based McKesson Corp.

As he hired those 1,000 employees, Smith cultivated a culture that views all PSS workers as strategic assets and problem solvers. The company’s 1,000-member “consultancy” sales force moves products but also is a conduit for feedback from doctors and nurses, helping PSS develop new products. The strategy has been key to the success of its private-label medical products brand, Select. Feedback from customers, for example, led Select to develop wound-care bandages with a peel-off, sterile measurement grid on the package that makes it easier for nurses to note rates of healing with each bandage change. The product also eliminates the need for a competing supply company’s stainless steel wound-measuring tool.

International Assets Holding Corp. (No. 3)

International Assets Holding Corp. led the Fortune 500’s list for one-year growth in revenue, revenue per dollar of assets, revenue per dollar of equity and revenue per employee.
Select has become PSS’ fastest-growing product line. The label helped PSS hold its own in 2008, posting a 6.6% revenue increase over 2007. An 8% drop in physician-business revenue between January and March appeared to threaten Smith’s growth goals for 2009. But in May, he announced PSS had exceeded its goal — with 17% earnings-per-share growth, excluding a 4-cent gain on the sale of a securities interest — thanks in part to increasing sales in the elder-care division.

Keeping revenue healthy through the downturn may be a tougher task. While PSS expects parts of the healthcare industry, such as elder care and pediatrics, to remain strong despite the recession, physicians are looking to cut their office expenses, and many Americans are skimping on all but the most essential medical care.

Smith’s strategy for carrying PSS through the recession boils down to helping his customers through the recession. For example, PSS develops technologies to make doctors’ offices more efficient, including software to speed up insurance reimbursement. PSS recently rolled out SmartScan wands to help its customers — rather than PSS salespeople — manage their inventory of supplies. Smith estimates the wands have freed up more than 40% of his salespeople’s workdays, allowing them to spend more time with doctors. “You have to stay very close to your customer to solve their biggest problems,” Smith says.

In trying to avoid layoffs, Smith is asking employees to embrace tried-and-true tactics, like controlling expenses and maximizing efficiency; the company is going through a production overhaul known as “leaning.” In an effort to link medium and message as he communicates strategy, Smith downscaled the April town hall meeting, gathering his employees in the Florida sun and standing on the bed of a pickup truck to tell them about his plan to save jobs.

Longer term, Smith is counting on those un-laid-off employees to figure out ways to keep the company growing — another message communicated at the April meeting when he announced a 5% pay cut for all company officers and a 2% raise for all other staffers.

“How empowering do you think that is to your people?” he asks. “In a world where no one trusts their CEOs and their leaders, we have a great deal of trust from our people. That in turn makes them focused on solutions — solutions for our company, and more important, solutions for our customers.”

 Lennar (No. 16)

Ahead of the Curve
Small comfort to anyone who bought Miami-based Lennar shares in 2005 at $67 — it traded last month for $10 — but Lennar saw bad times coming and more than others moved to bolster its financials by cutting inventory and conserving cash. In April, Moody’s raised its ratings outlook; Lennar sold $400 million in senior notes, eliminating the liquidity cloud over it. The nation’s second-largest builder started a vulture fund to snatch bargains.

Lennar CEO Stuart Miller (left):
The company started a vulture fund, hoping to capitalize on depressed properties.