PSS World Medical

PSS World Medical

How AN ORGANIZATION with ordinary people achieve

extraordinary result in the medical supply (distribution)
business?
and

WHY?
Environment – Consistency – Action
 Agenda
• Introduction: Why the Article on PSS?
• Overview of PSS and its key Achievements
• WHAT, HOW and WHY of PSS actions –
Singling out CSFs
• Conclusion: KM++ Lessons Learned
 Introduction
• When it comes to any business in the world, it is
very usual that we will mention about 3 topics:

• Business: what business are people in?

• Industry: what is the industry environment?

• People: leadership, entrepreneurship

 Little background of PSS
• Business: Normal Medical supplier

• Industry: The distribution of medical supplies

----- Highly competitive, low-margin industry

• People: Ordinary / regular

----- Not with ‘elite’ education background (e.g. MBA)
------ The founder Pat Kelly is a ‘reluctant entrepreneur’ not a pioneer
 Motivation of this article (1)
• Apparently, PSS has Nothing special or does not looks
like a highly competitive company at all.

1. Business: is normal, low entry barrier

2. Industry: highly competitive and low profit margin
3. People: ordinary / regular people

• However……

• This group of ordinary people have achieved

Extraordinary result in the medical supply business
 Motivation of this article (2)
• Started from 1983

As of late 1999, its five-

year growth rate in
revenue is 52% and
earning per share is 31%
PSS World Medical’s
growth has been
achieved largely by
acquisition

PSS World Medical’s

growth in sales is almost
60% per year from $170
million to $1.5 billion
 Question

• Q: How do ordinary people can achieve extraordinary result in the

medical supply business ? What are the mysteries????

• A: PSS knows how to leverage their employees’ talent, instead of

seeking and depending on talents (Just like Southwest airline, and
men’s warehouse do).

• If we recall all these companies, the common factors why they can
succeed but other companies can’t are:

Environment – Consistency – Action

 Environment

• Culture
• Climate
• Esprit de corps
• Rules, regulations, policies
• Availability of time (for reflection, …)

… to do with the environment with

which the knowledge source operates
OR the circumstance within which the
Looks familiar ???? source functions

Yes, it is one of slides from Prof.

Lee regarding Knowledge source
 Environment
• Yes, in K6211. Environment is one of the
knowledge source/asset for any companies.

• And PSS has extraordinary achievement for

creating its own environment in order to
leverage their employees’ talent

Environment – Consistency – Action

 Our Presentation Focus

Environment – Consistency – Action

To understand how PSS creates an environment that can be used to

greatly leverage their employees’ talent and contributes effectively to the
success of initiating/executing/integrating acquisition.

These two are the reason why PSS does not need MBA talents and can
achieve miraculous growth!
 Environment (1)
• A business and organization run (led) by leaders, not managers
(producing/nurturing/deploying leaders, but not managers)

• Notion and practice of Servant Leadership

• Runs an open company - Any questions that is legitimate must be

answered (e.g. employees’ salary or bonus)

• Give people authority and accountability

• Share wealth
 Environment (2)
Organization structure

• Flat

• No written organizational chart

• Each branch is equivalent to a small business, with its

own P&L,
responsibility for gross margin,
complete discretion to set prices
determine its operation
 Environment (3)
Organizational Policy

• No policy manuals (but emphasize on personal communication)

• No memos (Kelly’s rule is that everybody is required to read the first memo they get each month,
and none therefore)

• Only have a guideline in a large, colorful foldout brochure called ‘Rules of the Game’

7 areas:
Equal opportunity
Sexual harassment
Rules of conduct
Alcohol, Drugs, Firearms
Absence of unions
Leave and holiday
Complaint resolution procedures
 Environment (4)
Recruiting and selection

• Credentials are not very important in PSS (no need from elite institutions, no need graduate
degree)

• Recruiting is based in large measure on personal referrals (PSS gets new employees from the
informal network among their existing employees)

• The hiring process takes 6 – 8 weeks.

• No to call people back for interviews after the first recruiting contact. (The candidate must
call for a follow-up interview)

• Often interviews will be done on Saturday, to see if the people will come in, if they are hung
over from Friday night

• A behavioral interview guide with 30 questions for the interviewer to screening applicants
 Environment (5)
Training

• PSS university

Role playing

During training, people stay at corporate apartments instead of hotels, or they will stay at the
homes of people who staff PSS university and even at the homes of officers

Need to have dinner with each other and with corporate officers

• There is 12 weeks of field training ----- do all the manual work from

cleaning bathrooms
driving trucks
stocking warehouse shelves, etc.

To learn from the bottom up.

 Environment (6)
Leadership

• In PSS, no manager titles, but many leaders

• No many want to be leader, and moving into leadership is very much a

voluntary decision

• Because the meaning of leader in PSS is clear in below

• Giving up freedom
• Less financial gains (depending on team’s performance)
• Become servant to the team members (responsibility for mentoring,
guiding other team members)
• Losing some job security because leaders are expected to do much more
 Environment (7)
Rewards

• Bonus is paid semiannually

• The bonus pool is shared among employees, not the leaders

• The branch can receive up to 20% of bonus pool, can get 5% for
hitting the target, can get another 5% for exceeding its dollar
objectives, another 5% if it keeps its asset days below a target level,
final 5% if it can exceed the target by 2% of net income.

(In short, the reward is great and very encouraging teamwork, not
individual)
AREN’T YOU CURIOUS ABOUT …?
 How is PSS doing today?
PSSI PSS World Medical - Penny Stock Exposed
http://www.realpennies.com/otc/PSSI
Rank #68
PSS World Medical Inc. revised earnings guidance for the fiscal year 2011. Expense management was
prudent in principal based. Cash flow was strong and executed on acquisition strategy. Although still a
challenging environment, the combination of these factors led the company to raise its guidance
to earnings per share goal of $1.30 to $1.32 for fiscal year 2011.

PSS World Medical Reports Results for Fiscal Year 2011 Third Quarter; Raises FY2011 GAAP EPS Goal to
$1.30 - $1.32 Per Diluted Share
http://www.istockanalyst.com/article/viewiStockNews/articleid/4840106
Rank #89
PSS World Medical, Inc. is a national distributor of medical products to physicians and extended care
providers through its two business units. Since its inception in 1983, PSS has become a leader in
the two market segments that it serves with a focused market approach to customer services

PSS World Medical Inc. Reports Operating Results (10-Q) -- GuruFocus.com - Oct 2010
http://www.gurufocus.com/news.php?id=113417
Rank #243
Pss World Medical Inc. has a market cap of $1.32 billion; its shares were traded at around $23.4 with a
P/E ratio of 20 and P/S ratio of 0.6. Pss World Medical Inc. had an annual average earning
growth of 16.3% over the past 5 years. PSSI is in the portfolios of Columbia Wanger of Columbia
Wanger Asset Management, Larry Robbins of Glenview Capital, Steven Cohen of SAC Capital
Advisors, Kenneth Fisher of Fisher Asset Management, LLC, Jim Simons of Renaissance Technologies
LLC, Mario Gabelli of GAMCO Investors.
 Conclusion
• The KEY is about how to leverage employees’ talent.

Three elements for this KEY

• Environment (culture, system, structure, policy, regulation, etc)

• Consistency (all the above must be consistent)

• Put in action (Do it ! Consistent managing practice)

Thanks