A Client Close-up: Alarm automatika

This client close-up highlights the application of the Adizes Methodology and implementation of the individual accountability system integrated into Rijeka company, Alarm automatika.

Case study written by Boris Popović, Chairman, Alarm automatika, Rijeka, Croatia Alarm automatika, which my business partner and I started, marks its 30th anniversary this year. I am nearly 53, and from the day of its incorporation I have been at its head. It is on the threshold of middle age, I am reaching the age at which national service is out of the question, and I am hoping that I will be replaced by some younger model or artificial intelligence. This is now a real possibility because we became professionalized.

The firm grew rapidly until the 2009 crash, following the EU crisis with little delay, like everything in the Republic of Croatia and its neighbours. Having had a hunch two years prior that the crisis would hit us, I had already begun looking for solutions. Amongst other things, I received an invitation to a lecture in Zagreb, in title of which were the words employee’s individual responsibility. I had already heard of Dr. Adizes and his methodology at the IEDC Bled School of Management (Slovenia), so this was not my first encounter. I realised during that lecture that this was what we needed.Strategy preparation and employee educationWe did not start implementing the individual accountability system before we had begun the education and preparation of managers and key employees. The whole process of collectively implementing the individual responsibility system lasted until 2010, and involved twenty employees, managers and their assistants. It was not all plain sailing, but through added workshops and with the help of the Adizes Southeast Europe (SEE), we succeeded in navigating strategy and structure, and then the system of measuring and rewarding.

"This system enabled us to sort the sheep from the goats. Remaining aboard are those who actually rowed; those who made a song and dance have disembarked."

Strategy and structure, though relatively painless, occupied the best part of a year; however, the measuring and rewarding system took us a further year, plus a year of road testing, before we could say ‘all systems go.’

Over all these years, through conversations and negotiations, many problems and complications came to light: consequences of baggage from the past burdening the company and making faster progress impossible. We saw that we had to narrow our offer and in the end, as a strategy, chose to specialise and internationalise in niche segments in which we are experts. We realised that the organisational structure must be customer-oriented, and we organised ourselves into three profit centres – one abroad, and two in Croatia - that concentrated on customer types, and solutions adapted to their needs. Within the country, we focused our attention particularly on Zagreb, where our workforce has since increased ten-fold. The measuring (management accounting) system, which is otherwise called individual responsibility accounting, was a particularly delicate and demanding task, requiring a lot of red tape and horse trading within the firm. It was even a little dull, especially for an entrepreneur (me), who felt distinctly liverish faced with all that detail. Of course, the liver, according to Chinese medicine, is the organ responsible for anger management, so the whole process was constantly on the verge of a gruesome end. Luckily, however, organ failure was averted and in the end, we made it all the way to professionalization.

A system of variable individual remuneration

The creation of a variable remuneration system met with huge resistance from employees who did not want changes that could bring them uncertainty and possible losses if they didn’t achieve what had been planned. For this reason, certain of its good outcome, we commenced a year-long trial period, during which people could compare the existing system with the new one. From that moment until the present day, there has not been a year in which either the growth of the company or the growth in employee income has slowed down. It is also true that even today there is much complaining about the negative side of variable remuneration: pay can go into minus and not only plus. It is important to understand that the rewarding system does not motivate; instead, it directs attention towards where the company wants its focus. It motivates you to respect and value a person; in return, that person will believe in the firm and its leader.

After the implementation of the system, while it was still in its adolescence, things did not go smoothly: some people could not cope with the new system and left the firm. But others flourished and showed their full potential. This system enabled us to sort out the sheep from the goats: those who beat their breasts, complaining about being overworked and undervalued, and those who got on with the work and achieved results. And this was the first and most important result of this change. The ship was left with people who actually rowed, those who only made a song and dance have disembarked. Now it's possible to measure individual contribution, and those who self-promote only hinder, unless there are corresponding results. No longer do we see the firm as simply a production facility with inputs and outputs, but more like a process in which it is possible to accurately detect in which part problems lie, where there is a leak, or where there is no added value. At the beginning, two managers left the firm, and since then not one of those who stayed - nor subsequent arrivals - has left. We are constantly improving the system. First, we included managers in shares of profits, and later, the best of them (who have fulfilled criteria we have developed over time) in ownership. Today, besides ourselves, the founding partners, there are four managers who are also owners, and our aim is to include all managers who satisfy our defined criteria. Furthermore, from this year we want to include managers of profitable units in the share of profits, so that as many as possible of us will be included in the growth and development of the business.

During the transformation, the company changed its structure from functional to divisional: after the first stage of professionalization we started with three profit centres and 10 profit units, and now there are six profit centres with 28 profit units. This is a prime example of how structure determines strategy, and we have visibly stepped up our game, with profits and other growth indicators up almost three-fold. In the past, we used up a lot of time creating fantastic strategies that we never carried out because we did not ensure structure, resources, and a monitoring and remuneration system. Now we spend much less time on the brilliance of our strategies and they are much simpler: we concentrate more on activities which will prepare the ground for implementation, the implementation itself and also control of the implementation.

The collaboration of parallel structures and plans for a new era

At the beginning, as I mentioned, we had two profit centres in Croatia and one abroad; now we have three abroad and three in the mother country, but with a smaller number of profit units and people abroad. Our plan for 2021 is to make export and domestic revenue equal. Both revenue generated abroad and the number of people we employ outside Croatia are growing two times faster than at home. Preconditions for 16 profit centres have been created, and new profit centres will appear as a consequence of continued organic growth, and such growth and development we plan until 2021.

The firm has (besides the formal divisional structure which deals primarily with short-term growth and development) another informal structure, which currently has twenty-one teams, made of people from different sections of the organisation. This is what Adizes calls a parallel structure, with the goal that employees, working as a team, resolve various existing problems, making and implementing decisions important for the long-term growth and development of the firm. In this way we include the young, who have enthusiasm and openness to change and new technology, and connect them with older employees with knowledge and experience, making a space where they can work together and create new solutions for the new era.

It is imperative we emphasise that we have always invested extensively in employee education and at the same time used consultancy services. During the first phase, we employed marketing consultants and technical knowledge that we drew from our university studies; in the second, financial consultants, practitioners in the field, and management education from business schools, mostly the IEDC Bled School of Management; in the third phase, there was consulting from Adizes SEE and in-house education on professionalization by Gallup. In 2018, we moved onto the Elite programme of the London Stock Exchange, which is nicknamed ‘MBA for companies’ and in which are included almost a thousand outstanding companies from the whole EU. Probably we will also need consulting from M&A, because after 2021 we plan to exploit opportunities in the market - if they manifest themselves - for non-organic growth through takeovers and mergers of and with potential companies in which we see a synergic effect and added value. At the end of this year we will complete the programme in London, but until now we have not felt inferiority being in the circle of elite EU companies. Indeed, it has enabled us to increase our self-respect and self-confidence and become even more ambitious.

People are the greatest value

And definitely: our people are our greatest value, and without the right people we would not have been able to achieve what we have. To get where we are today, we had to invest in people and their competencies, then trust them more, and put more control and responsibility in their hands, so that they could create greater value and obtain greater rewards for greater production value. You have to give to receive, and I believe that owners create trust within their companies by returning it. You have to relinquish control and move forward. Until you let go, you cannot open the space to growth and development, and you cannot let go if there is no one and you have not created a system of individual responsibility. As the proverb says: Believe, but check it out.

During the process of development, leaders have to change their role and style, and have to adapt to the new situation. If this does not happen, the founders of the company will switch from being its greatest value to its heaviest burden. The responsible manager is oriented towards both people and a result. For a manager, it is more important to be esteemed and respected than to be popular, and this is only possible as long as he develops and his people can learn from him. He will earn trust if he offers them opportunities for growth and development, trusts them (but checks on them), as well as giving them feedback on their work so that they can progress faster and better. When he is not capable of this, it is time he moved on and surrendered his leadership position to those who are ready to learn and change and create new value for the company and its employees, as well as society as a whole.

Quit while you are still on top, but leave behind an orderly system which is capable of growth and development and is not dependent on any one individual.

Adizes Institute

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