Cultural Innovation in a Family-Run Business: How Hero Arts Inspired Its Supply Chain to Unleash the Power of an Integrated Bottomline.
This story features Hero Arts, a 38-year old design company that manufactures decorative stamp products for the global craft market. A family business, Hero Arts is recognized by customers for craftsmanship and premium products that fit a creative niche in an otherwise wired world. Since I’ve taken over from the founder (my visionary mother), Hero Arts has taken significant strides to achieve an “integrated bottomline”: financial profitability, environmental stewardship and community betterment.
Despite great internal successes in all three areas, the Hero Arts management team soon discovered an issue: we had not included the 200 suppliers and 5,000 retailer locations around the world that made up the larger “family” of our business. A course-correction was required, and to succeed, we would need to combine our business success, environmental strides and community leadership with a powerful dose of “inclusiveness,” which a family business like ours uniquely possesses.
Real innovation occurred in Hero Arts’ odyssey to become a leader and an advocate. Along the way, we found one company’s voice can be amplified and extended by breaking down fears, creating passion and eliminating trade-offs. Together, as a network, this new supply chain “family” is now working to translate the successes of Hero Arts more broadly. While there is still a long way to go, our shared path to success has altered the journey in ways that could never have been predicted.
This is the story of how we utilized family business practices to innovate supply-chain relations in order to pave a path towards the goal of an integrated bottomline.
Hero Arts is a product design and manufacturing company with business operations in Oakland and Richmond, California. The company was founded in 1974 by my mother Jackie Leventhal. The company was born with a focus on premium, handmade craftsmanship tightly linked to a shared creative experience. This translated into making stamping products for the arts, cardmaking, scrapbooking, crafting and education markets.
Today, I run the company much as my mother did. Our team has evolved Jackie’s original vision: to blend a craftsman’s approach with the concept of an “integrated bottomline.” The new iteration of our strategy stands at the heart of Hero Arts and promises to enhance our operations through financial profitability, environmental leadership, and community empowerment. Our vision is to leverage the power of an inclusive family business to produce profits and social benefits equally.
We have made great strides towards these goals. We have realized dramatic results in the following areas:
Community Development. The average Hero Arts employee has been with Hero Arts for two decades, an accomplishment in and of itself. Our “family teammates” are advocates for change in our operations, and are especially good at what they do given their long tenure. We develop relationships with family as our model.
At Hero Arts, we established a “Sustainability Team” with an open-meeting format (anyone can attend), and the team has regular representatives from all departments of our business, including production, shipping, IT, accounting, customer service, and management. The team works on opportunities to better the company’s financial and social performance, one meeting designing cost-savings programs and the next focusing on education programs for local schools. Team members also work to become advocates for change in their own communities.
As a result of the work of the Hero Arts Sustainability Team, Hero Arts has implemented a series of community-based initiatives. One such program is around community-focused policies to promote economic progress through local hiring, utilizing state incentives including the California Redevelopment Zone hiring practices (a state program designed to encourage companies to hire the poorest and least experienced members of society). In addition, we offer regular support to the arts programs at local schools and hospitals, with the goal of keeping the community vibrant in a time of diminishing funding for the arts. Hero Arts also works with suppliers and individuals on new business formation and supplier development.
Environmental Leadership. The Sustainability Team also advances our environmental responsibilities. With employee involvement, Hero Arts has systematically eliminated all toxins, chemicals, and solvents in the manufacturing processes. If you think of your customers like family, why would you give them anything but the best? We have phased-out air pollutants, discontinued the use of water in our processes, and reduced carbon emissions through the use of solar energy and efficient energy use.
In 2004, Hero Arts installed a 68-kW photovoltaic solar array, the largest privately-owned array in the West, which produced 90% of our power needs at the time. Hero Arts has been recognized for these successes with a Green Business certification in Contra Costa County in 2010, a CoolCalifornia.org award for Environmental Leadership in 2011, and a 2012 Governor’s Award – the GEELA, the highest California Business and Environmental Award – for results in this area.
Financial Profitability. Hero Arts has continued to weather the Great Recession, despite major changes in our industry. The last four years have witnessed near Armageddon in small retailing, the primary distribution method for our products. Despite these difficulties, we have weathered the storm by remaining profitable through efficiency in our operations – many gains coming from energy efficiency, solar power, and employee-generated productivity.
Today, Hero Arts is a thriving company that sells to 5,000 retail locations around the world, utilizing 200 suppliers, and employing 85 people in the Bay Area.
In summary, the power and innovation of business has produced results that are good for profits, good for the community, and good for the environment. In our journey to date, we have effectively steered the entire company towards a higher purpose – embedding true purpose into every strategy we pursue. Given that 90% percent of U.S. businesses are small, family run operations according to the Bureau of Labor Statistics, we are an important pioneer and example of how such innovations can be seeded and nurtured throughout an important segment of our economy.
And yet, problem arose. Despite our internal successes, there was a turning point that could have taken the company down a very dangerous path. As the recession continued into 2010, it became clear that the concept of the integrated bottomline was not being applied at Hero Arts as broadly as necessary for the company to succeed. Problems started to bubble to the surface, particularly as Hero Arts looked beyond the work it was doing internally and instead discovered issues it was having with many of its long-term and trusted family members, particularly our suppliers and customers. While Hero Arts was hard at work on improving, the industry and many of its suppliers were under significant strain.
As we worked to improve Hero Arts from within, we began to detect a troubling undercurrent: recurrent quality control issues were cropping up across many of our product lines. Although the issues were small, the frequency signaled trouble. Collectively, these issues represented a much greater problem.
Hero Arts realized that the recession was creating significant change not just at Hero Arts. Many long-time and trusted suppliers were facing potentially fatal changes in their respective businesses. In a troubling number of cases, changes were being made in the name of cost-cutting, often with an unseen price: minor formula alternations that created cascading problems down the supply chain. Equally troubling was the fact that the decision to make these changes was often made in isolated labs and in closed business meetings. These insular tendencies we soon discovered were borne out of fear of failure or a lack of trust that “outsiders” would understand the dire need to lower costs. More troubling still, these problems were discovered after the products had been shipped to customers. Retailers and end users started to notice a series of issues that Hero Arts had never seen in its products before, thereby threatening to undermine sales, customer loyalty, and the brand loyalty built up over years.
Examples of these problems included a down-grade of a resin material in the photopolymer used in making clear stamps, which soon created discoloration, pliability issues and failures of stamps already shipped to the market. A change in an ink and coating material altered the durability of index labels placed on woodblock rubber stamps, causing the images to scratch off when everyday stamp cleaners were applied. A decrease in density and other alternations to the long-standing and trusted rubber formula produced bubbling, shrinkage and increased failure rates in the manufacturing process for stamps at the busiest time in the Hero Arts production cycle. These and many more examples originated without a discussion or a thought for shared goals, but instead with a myopic focus on internal troubles. The suppliers of the disparate parts were not looking at the whole.
Clearly, disaster was brewing.
These quality issues conflicted with the Hero Arts principles and commitment to the integrated bottomline. Plus, the way decisions were being made was not consistent with the “family” approach that was at the heart of the Hero Arts way. If allowed to continue, the entire business was in jeopardy.
Thus, despite the successful work Hero Arts had done internally, it became clear that our long-term supplier relationships needed to be thought of in new ways. We had to transfer our vision broadly and find new ways to do. A uniting of the goals of the larger community was clearly required. It would involve breaking down barriers, building up trust, and eliminating fear and the “proprietary” nature of business. It was time to redesign the supplier relationship around the “family” model.
In order to meet Hero Arts’ goals of an integrated bottomline, it was clear an additional dimension was required: open our goal setting process to the larger coalition of 200 suppliers and 5,000 retailer locations. Thus, our first step was to share our vision with our broader family.
With our partner network, Hero Arts worked on a stakeholder program around three guiding principles: a) instill a passion for shared success, b) reduce the traditional fears that accompany sharing details about proprietary production processes while at the same time build trust, and c) transcend the perceived trade-off which says “altering my process is costly” without recognizing the broader benefits.
In 2010, Hero Arts launched the “Family Partner Program.” The goal is to transfer knowledge about the value of integrated bottomline practices. At the same time, the purpose is build a culture of open sharing among our supply-chain members. Hero Arts asked each and every supplier partner to participate in the following way:
1) A commitment to the Green Pledge (see details below).
2) The internal development of specific metrics that the partner can use to measure their own success.
3) Shared goal-setting and working together to develop measures of success and results on these shared goals.
4) A new idea of “Family” evolved from the Family Partner Program itself.
This year, Hero Arts is extending this effort to our network of 5,000 retail locations. The network includes independent retailers, large craft chain stores, and distributors all over the world.
More specifically, in addressing the challenges of building a family-oriented supplier network, the solutions became clear thorugh the the details of the Hero Arts partnership program.
The Green Pledge. The Green Pledge is the centerpiece of our partnership program, with the goal of getting suppliers and retailers to look at their own operations from an environmental and operational perspective, and look to notice areas where incremental change is possible. Taking the lessons from the Hero Arts experience, it suggests seven areas of internal improvement: strategic vision, product or service design, energy, waste, recycling and reuse, internal motivation, external communication. Hero Arts only works with new suppliers that are willing to sign the Green Pledge.
Shared Success. With the Green Pledge as a starting point, the Hero Arts partnership program also includes setting goals for success. More importantly, it is a launch platform for efforts for our suppliers’ own customers, communities and local economy and environment. Essentially, Hero Arts can “push out” our own experiences, knowledge, successes and vision to help stakeholders learn, generate their own knowledge, and work together to find shared success.
Shared Goals. Through this process, a broader passion for shared goals is emerging. Our goal is to build a model that can capture the total savings -- in terms of efficiency, costs and reduced GHG emissions -- of the collective efforts, and translate the benefits to all of the local communities and environments that are touched by the combined operations. Starting in 2012, Hero Arts set the goal of getting all vendors to sign the Green Pledge, set strategic outcomes, and develop plans for measuring and reporting on those goals. Ultimately, a complete “cradle to grave” solution that best suits the entire family network is the target we are all working towards.
New Idea of Family. Through the process begun by Hero Arts, the supply chain is looking into ways to enhance communication. A few ways that have surfaced include a Supply Chain Board of Directors, a Sustainability Team that has representatives from many different companies, family business training as a way to share more openly (even for non-family businesses), and a clearinghouse of success stories for shared learning.
In conclusion, as a network, this new supply chain “family” is now working to translate the successes of Hero Arts more widely, and while there is a long way to go, the shared future plans, strategies and path to success have been altered in ways that could have never been predicted.
Environmentally, Hero Arts produced real and measureable environmental benefits through its focus on the Integrated Bottomline, including:
1) ENERGY. Our manufacturing operations rely on a 68-kW solar array, instead of grid power, for 70% of our yearly energy usage. The results include a reduction of CO2 emissions by 253 tons since system inception (almost 40 tons in 2010), the equivalent of planting 52 acres of trees or avoiding 530,000 car miles. We plan to add solar capacity in 2012.
2) EFFICIENCY. With a comprehensive efficiency plan, including new lighting, more efficient air-systems, and heating changes, our electricity usage went down 15% in 2010, saving the company $16,000. We are well on our way to reaching our goal set in 2008 of reducing our energy usage by 80% and our carbon footprint by 90% by 2014.
3) WASTE REDUCTION. We set the goal of reducing waste and product material usage, and made big leaps in 2010. In our wood products, we sell our sawdust for use in local dumps. We recycle 40% more paper and wood materials in 2010 than we did in 2009, with savings of $8,000 for this effort. We have focused on reducing packaging material weights, since we ship approximately 20,000 boxes a year with an average weight of 18 pounds, and by lowering the weight by 5% in 2010 we have reduced costs, energy usage, and CO2 emissions, which we plan to systematically measure in the future.
Our commitment to community and people has also yielded results.
- COMMUNITY ACTIVISM. We encourage our employees to play a big roll in our internal family, our supplier family, and in their own communities. Many of our production-line employees are the primary contact for the materials they use everyday. Many are active in their own communities, schools, and hospital.
- LOCALIZATION. We source materials from local suppliers whenever possible. We cultivate other local businesses for our wood requirements, the labels we use on our stamps, inkpads we sell, and the packaging and printing we utilize. This allows us to build community, create jobs locally, and minimize shipping costs.
- DEVELOPMENT. Hero Arts and its Sustainability Team work hard to help develop the local infrastructure in the places where we operate, including road repair, school funding, and hospitals. We also work with our suppliers to do the same thing in their communities.
And yet, maybe the more important impacts are those of transferability and supply-chain development, which include:
- The Hero Arts supply-chain of 200 suppliers and approximately 5,000 retail customers is working to build a model that can capture the total savings -- in terms of efficiency, costs and reduced GHG emissions -- of our combined efforts, and translate the benefits to all of the local communities and environments that are affected by our combined operations.
- To do this, Hero Arts launched a partner program in 2010 that set the goal of transferring our knowledge and approaches for an “integrated bottomline” to our supply-chain and partnership network.
- The centerpiece of this effort is a Green Pledge that we designed and require all of our partners to review and sign.
- Additionally, we asked all of our partners to work on the internal development of specific metrics that the partner can use to measure their own success, and shared goal-setting and reporting on those results.
- Starting in 2012, we only work with suppliers that have signed the Green Pledge, have set goals, and plans for measuring and reporting on those goals.
- Further, Hero Arts is extending this effort to the 5,000 customers we currently service, who include independent retailers, large craft chain stores, and distributors all over the world.
The idea is to have our suppliers and customers use the Green Pledge as a way to commit to not just working with Hero Arts, but as a commitment to their own customers, communities and local economy and environment. In this way, Hero Arts can “push out” our experiences, our knowledge and our successes to help people learn, generate their own knowledge, and work together to find measurable processes to manage our collective waste, emissions, and ultimately a complete “cradle to grave” solution that best suits the entire network.
The lessons from this are clear: when you pursue lofty goals, such as the pursuit of an integrated bottomline by Hero Arts, you must think equally as lofty about how to include a broad array of partners in the process. Our company is part of a larger ecosystem. We must take a holistic approach to really effect change. As a family business, Hero Arts was uniquely qualified to use the family approach to build a solution around a vexing set of insular tendencies in our supply chain. Hero Arts looked to its own operations too tightly, when the larger world of suppliers, retailer locations and customers clearly played a huge role in our success or failure. When we discovered this short-sight approach, and took a moment to imagine, innovation was born.
My wisdoms from this experience:
- Treat employees, suppliers and customers like family
- Think bigger than big
- Trust that you have your own blinders
- Work hard to build trust, passion and partnership
- Don’t underestimate the power of success
- Don’t underestimate the power of inspiration
- Don’t underestimate the power of family