Damon Baker (00:13)
Let's set the scene for the audience, Fawaz. You walk into ModusLink and as I read through the notes, it's shocking to hear that revenues were half of what they were. And the company hadn't made any profits in over a decade. Customers were leaving, so my question to you is when you stepped into that role as CEO, what is it that you saw first?

Fawaz Khalil (00:34)
Yeah, so it was a company that was again in decline and clearly not doing well but had habits that were still of a one-billion-dollar company, right? In terms of cost, focus on cost or lack thereof. In terms of not having or thinking they can do a lot of things and throwing money at a lot of different things perhaps in despair to see what's stuck, right? That's, they tried a lot of different strategies. They tried to pivot a few times into different areas. None of which panned out for various reasons right so that's what I thought I saw a place with no direction with no strategy with no understanding of what their core competencies were or what they were good at they had the customer list was first class. It was a Fortune 100 customer list, and I was surprised that you cannot make money working and dealing with customers like those. So, I was like, all right, we need to understand.
They hadn't had any strategy or strat plan. There was no organized or long-term or medium-term strategic thinking in terms of what's going on around us, what is the market, what are the needs of our customers and how do we respond to them. So, it was just people, a fairly large organization with operations in over 20 countries across the globe, but people just trying to figure out
Kind of you know, Keystone Cops.

Damon Baker (02:12)
How would you describe the mood of the organization? I read the notes and I'm looking at it as I'm shocked. it's like, was the team blissfully unaware? Were they aware and just working as hard as they could?

So, like what did you encounter with this this team? It's like were they shocked to learn all these things that that you found out or was it not surprising to me they just had their head down and as you said trying all these different strategies to see what would stick because it was such a crisis

Fawaz Khalil (02:41)
Yeah, no, they were aware everybody knew right obviously it was a public company. So, the results were there for everybody to see I Mean the best as you as I'm thinking back to that time is they were aware

many of them, they probably, they had tried a lot of different things. It was kind of a deer in the headlights type approach look, right? That's what I saw. That they really did not know what to do. They seem to be

Damon Baker (03:11)
Did you know all of this when you were interviewing for us? Or did you find this out at the end?

Fawaz Khalil (03:17)
Well, I knew quite a bit. I did not and my whole question was I thought the business that we are in, and we can go into a little detail if you want but you know we are essentially

logistics and supply chain, but at the customer and already fulfillment in so we do the Fine once the product is made we do the final pretty box packaging different types of Additions to that

any bundling of any items, any accessories, and then we send it to the customer or distributor or the retail location as well as we handle returns and manage refunds for most of those customers. So, it's supply chain and logistics but at the fulfillment end. And I was like looking at the growth of explosion of e-commerce and all that stuff going around with electronics, consumables, wearables, etc.

well

as the customer list and I was scratching my head at that time and I'm like why can't they make this work right so that was my thought ? I knew we the it was not doing well I mean one of the obviously scenario in front of us a very plausible scenario was how do we exit and maybe make a sale to you know someone else and recover whatever we

Damon Baker (04:18)
Yeah.

Fawaz Khalil (04:38)
can't right at that time.

Damon Baker (04:40)
How much time did you have? Was that articulated when you first joined? Did the executive team say, look, if you can't turn this thing around in a year or six months?

Fawaz Khalil (04:52)
Yeah, the board, again, being a public company, we had a board, we had major shareholders, and I think they were looking for an answer and results.

and then X implementation of whatever that strategy was whether it's an exit or whatever else I mean they'd given up on any growth or any returns coming from the business I think, and they were looking for okay what's our best possible scenario and tell us within six months

Damon Baker (05:22)
So, from the outside looking in, you looked at the market, you said, there's lots of external drivers here, tailwinds, that make this industry and a business like Motus Link attractive. I would imagine maybe, and maybe not, your next step would be to go uncover whether or not there's a value prop that resonates.

with the customers of ModusLink? Because even though there's an opportunity exists, maybe the way in which you execute that in the market just is misaligned. did you do any work there? I'm sure you did, right?

Fawaz Khalil (05:47)
Yeah.

Yeah.

yeah, absolutely. Right. So, the first thing was, I mean, go out and meet as many of the customers. I probably met 10 customers in the first three months of the top 10 customers trying to and yeah.

Damon Baker (06:06)
Were they surprised to see or was that something that was

normal?

Fawaz Khalil (06:11)
And I think I mentioned that ? one of the stress points at that time was that Out of the top 15 customers which were responsible for about 80 % of our revenue at that time Two of the top five had announced the decision to quit and move to some other supplier. Yeah, so

Damon Baker (06:27)
Wow. And this is all within like

the first 90 days of joining?

Fawaz Khalil (06:31)
As soon as I joined it was a month before that day or two months before that they had said that what had happened and again just a little bit of background that about eight months prior the company was subject of a ransomware attack and They were able to get out of it relatively unscathed in terms of making any huge payments or whatever But it did they didn't handle it correctly in terms of customer management and all

Damon Baker (06:37)
Yeah.

Fawaz Khalil (06:59)
to that later as well. That was a big one of the biggest problem. Lack of customer knowledge, customer intimacy and lack of customer relationship management. So, there was a lot of churn. I mean they were getting customers all through these years, but they were losing customers at even a higher rate. Right? So, they couldn't, understand their customers, didn't understand what value problem they were providing, did not understand what the customers were asking and as a result of mismanagement of some of these relationships, two of the largest customers

had announced their decision to leave. So when I went and you know, it was COVID time, not easy to always go in person, but nevertheless, whether I met them in person or remotely and try to understand their reasons and put in a plan of action, they were like, had we had this call two months ago, we would be still in the boat with you, right? So that was another stressful time.

Damon Baker (07:54)
Yeah, so you've got two less customers. So now all the top line and bottom-line margin you're getting from them. So, it's like another weight that's put in the backpack as you're climbing this hill. At that point, did you feel like it was a lost cause?

Fawaz Khalil (08:10)
? no.

You know, you always have to I mean, are you gonna do? Right? You have to figure stuff out there is your backs into the wall. So, the first and foremost is I'm like, all right. Well, what we are we losing money? Let's look at We can't be losing money everywhere and we're what are those line items whether they're above the line below the line? Is it SGNA is it? Overhead is it lease? Is it unprofitable customers? Etc. etc. and we started a methodical approach looking at

cost management, cost reduction opportunities without impacting the business, right? And this is parallel to trying to understand

strategic situation for the business and the opportunity as well but at the same time you had to get the cash flow up and running and up and going in a positive sense so yeah took a lot of cost-cutting measures probably executed a huge riff within four months of coming in and trying to just get

breathing room and breathing space. We did have a little bit of help because of COVID as...

you know, may strange it may seem because people were at home, and they were buying a lot of electronic stuff. Everybody was ordering. So, the customers that we had, luckily, they were riding that wave and we were getting some incremental business which for the time being helped overcome a little bit of that loss of the two other customers.

Damon Baker (09:23)
Everybody was ordering on Amazon. Yeah.

Yeah. So, what did you uncover in terms of like your ideal customer for ModusLink looks like what?

Fawaz Khalil (09:46)
Yeah, so

we are a company as I mentioned in the fulfillment channel management space and ? our ideal customer and where we really excel

customer that has an established product that has

pretty large volumes, decent volumes, has a product that is complex to the point but not unwieldy in terms of size, right? So, think consumer electronics, think luxury goods, think these type of items are high retail value, has volume

five, ten, twenty, thirty, forty thousand units per day if not a week at least and wants to sell it in multiple geographies and wants the same customer experience everywhere. So as well as want to expand in other regions and not take on the cost of people, leases, regulatory issues, all those things, right? So, we enable a company to

sell their products.

to the or deliver their products to the customer with whatever promise they have right on time delivery within a day of ordering two days of ordering three days of ordering returns management white glove service extremely flexible in terms of volumes this month you're selling 100 units next month it can go up to 5000 units so how do we flex to that right so we have we have workforce solutions that are able to

flex

up and down as per customer volumes. If they want to enter a new geography, a new country, we can get them up and running within weeks, if not months, instead of that customer going in, getting a registration, license, business license, getting leases, hiring people. And if they want to exit somewhere as well, there's really no cost to them. In that sense, they pay us a per unit price. So that's essentially our value proposition that makes

it attracts us attractive to customers flexibility volumes go up and down without any impact obviously we have different pricing for different tiers right quick ramp up and or exit from markets where they either want to enter they want to leave with the same level of servers

Damon Baker (12:03)
So, to hear you say it, it all sounds so clear. It sounds rational. It sounds like common sense. I'm convinced. all those things were probably true when you arrived, I would imagine. So, was it execution? Was it a lack of ability to promote those value prop?

Fawaz Khalil (12:07)
Doesn't it? Yeah.

Damon Baker (12:25)
points of differentiation to the market so the market was unaware of what you do. Was it a mix? Like, what was happening? ?

Fawaz Khalil (12:25)
Yeah. I-was all of it was all of us right kind of number one again because they really hadn't figured out who they were what they wanted to be they had severely cut down on market facing roles marketing sales leads generation customer relationship management account management all that right so either you had customers

Damon Baker (12:48)
Sales heads.

Fawaz Khalil (12:56)
They hadn't executed a price increase in God knows how many years, right? Despite the changing conditions and everything, right? So, they had customers that were good, but maybe not profitable, right? So, you had to understand what the market was. You had to understand the value that you're delivering to the customer. You had to do...

get the right value out of them. couldn't, you were because they were scared. If I went with a price increase, maybe I'd lose that customer. I'll get a cancellation notice, et cetera, which is a viable fear, but there's a way to manage it, right? So, whether it was customer intimacy, relationship management, whether it was new sales, whether it was cost management, whether it was operational excellence, whether it was operational flexibility as well. So, we were considered to be little archaic and flexible in our approach. Our way or the highway inflexible in our pricing and not in tune with the times around. WeÕre delivering something and many times we were afraid to speak up in front of the customer and say hey this thing is going to cost you extra or more or you know we need a price if you start working behind it in terms of skill set so when I say operations pricing and customer facing functions but the supporting functions the HR the legal the finance they were not providing the right analysis, the right support, the right guidance to help these teams, the frontline teams deliver whatever is needed to get the business on the right track.

Damon Baker (14:30)
I'm interested to know about the specific kinds of resistance that you encountered when you started introducing a lot of these changes that you're talking about. Because these are not for the faint of heart, the things that you're talking about.

Having the courage to go and sit with customers who are upset with you and having it be like the first CEO who's talked to them in a long time, I can imagine you came back with a little less, you know, butt in your pants when you were returning back home to the team to share your findings.

Fawaz Khalil (15:04)
I love spending time out in the field. Whether it's customers, it's our locations as well. I believe it or not, I won't name those locations, but probably the first three out of five locations I went, they're like, we've never had a visit from the CEO in the last 20 years.

Take it for whatever it is, I go, I learn a lot in a day's visit than I can probably learn in three months of looking at, pouring over reports and emails and all that stuff, right? So, I mean, I absolutely like it, relish that opportunity, learn a lot, and that helps orient my thinking, ground myself as well, in terms of understanding what needs to be done. The first thing I noticed...

We have great customers. We have great people. Everybody, people want to succeed, right? You go to work; you want to do well. You want to come back after that. You want to be feeling good about your day. You want to be professional. You want to know that, hey, what you're doing is making a difference in your life at least. And you're being successful. Everybody likes to succeed. Everybody likes to win, right? So, so every, that was perhaps.

I did not have a bad organizational mentality if you will. People were willing to work hard but you had to convince them that hey this is the way, and this is what we're gonna do.
The lean thinking, conversation, you know, strat planning, et cetera. I mean, I knew I unfortunately don't know how to run a business unless I do a strat plan and create an X matrix. Because even then, you know, they're almost always one of my bosses used to say, we can do anything, but we cannot do everything. Right. So, you have to figure out of all the things that's possible or that's probable, which ones are you going to focus on? Why and how are you going to determine that you're going to succeed? Right. That's your strat

Plan and X-Matrix and Action Plan and Moller's that focus on the critical view, bias for action and PDCA, Plan Do Check Act. So, this is the mantra that I applied and I wrote, and I communicated, and I drummed in every hour and every minute and every meeting. like guys this is the strat plan we came up with. This is the three initiatives that we said we're going to focus on.

This is what we're going to do. Now go out and this is how we're to measure ourselves. This is how we're to hold ourselves accountable. This is your role, your piece of that accountability. We're going to ask about it in every GEMBA.

Weekly, daily, monthly operations review, PD ops meeting, and we're gonna figure this out together. By the way, and then getting over that tyranny of red, so to speak, right? That you know that if you did not hit your target, that's okay. That does not mean that you have failed. Tell me, do you understand, or do we understand why did we fail and what can we do about it? Because everybody fails.

We've been failing now the difference is now we're gonna learn from that failure and we're gonna at least try not to fail that way again we might fail another way

I felt bad myself because maybe I'm overdoing it, but I had to keep on repeating this thing day in day out every meeting every interaction until people started getting it which was months later years later yeah

Damon Baker (18:22)
Fawaz, would you describe yourself as an optimistic or a pessimistic person?

Fawaz Khalil (18:29)
I'll never give up, right? I believe in trying and trying again.

I don't know if you call it optimistic or pessimistic, definitely not pessimistic, but if something is not going to work and the data suggests it, all right, well, we're not going to lose sleep over it. We might have a little bit of shed one tear and then move on and figure out some other way of getting to our target or some other way of getting to success. So, I would call myself a realist in the sense that, hey, there are always opportunities out there. There are multiple ways to get to your objective.

There could be multiple objectives as well. You can figure those out as well. But don't dwell too much. Create resilience. If you fail, figure out can you succeed on it and why you failed. If maybe it's really beyond your capabilities, fine. And one of the greatest examples was it was during COVID times. There was a lot of opportunities, if you remember, for home testing kits. You know, people sitting at home. And ? we had, were in the business, we had some home test home kits for like the ancestry and 23andMe and DNA testing kits that people did. So those were some of our customers, right? So, we like, all right, we can get into this business. Once we started getting into this, we did sign up a couple of customers. We thought they might be a big business, but then we realized you're gonna need FDA certification, you're gonna need, you know, a chain of custody and all these and we were simply not geared up for it even though, so we then dropped it. ?At the time without, you know, although at that time it appeared that that was gonna be a humongous savior that's gonna jumpstart our business 3X and give us 3X revenue and take us out of all our misery. But you know, we had to say, no, we're not gonna pursue it because the cost is too much and we'll fail if we do it.

Damon Baker (20:16)
That took a lot of courage. I can only imagine you looking at the numbers, they're staggering. And I can personally attest to a lot of clients who rode that wave positively only to get on the backside of that wave and then have the expectation of replacing that revenue and that associated EBITDA with that business because the expectations don't change for growth. So, then you're left back searching for where are going to get the growth from?

Fawaz Khalil (20:17)
Yeah.

Damon Baker (20:42)
So, I imagine that took a lot of courage and I imagine the team talked a lot about that at the time. Is that a fair statement?

Fawaz Khalil (20:48)
Absolutely, that's exactly right. I mean it was a lot of potential revenue to let go but you know you gotta everybody you know trusted God but everybody else bring data so if the data is not there and it's not pointing and it's not good and there's X million dollars for FDA certification and so much headcount and so much in CapEx and I see no way of recovering that. I'm just I'm gonna say no.

Damon Baker (21:17)
You talked about confronting reality and in lean especially when a new leader comes into the organization it oftentimes takes this new perspective on things and Larry Culp former CEO of Daner uses terminology embrace reality and move past it and think about what you can do versus what you can't do was the team stuck in a cycle of, what was me? We can't do anything right. It's the market. It's our customers. It's our products. It's everything but us. Or was the team not necessarily blaming external factors, but just stuck in a do loop of trying things and trying to execute their way out of the situation? Or were they stuck in denial? Or was it a mix of both?

Fawaz Khalil (22:02)
Yeah, no, it's a good question as I'm thinking about it. I don't think they as stuck either in denial or hey or voice me and you know I'm gonna be it's the market and everything you're blaming I think they were as I said kind of what do we do deer in the headlights right look right we have been trying all these things nothing is working

Damon Baker (22:21)
Yeah.

Fawaz Khalil (22:25)
The thing that they were not doing, right? So, they were a little bit understanding that, look, we're trying different things, it's not working, and we are in trouble. But what they were, I think, lacked the capacity as a... organization or as a collective group lack that process, that intellectual process of capacity to dive deep, do the root cause analysis and say, all right, what is causing this? Right? They were just being reactive and putting the card before the horse and throwing different things and seeing what stuck rather than saying, it didn't work. Let me understand why and let me not try to do it or let me try to do it differently. So, I think that effort was lacking or missing.

Damon Baker (23:55)
So, it sounds like at this point you're transitioning the team to capability building, building internal muscle to think and work in a different way so that they're not stuck and they're not breaking down problems and these kinds of things. So, I wanna talk about how you brought the resources to bear, because I know you didn't go it alone. You brought in some outside help. You brought in some folks from your network, because right now you're...

You're a voice of one who's asking all these strange questions and proposing all these ideas, and you probably needed some backup to scale this and go deeper across the organization as fast as you like. kind of walk me through how you thought about the resource plan, what you were going to focus on, the capabilities that needed to be built, how were you going to teach people to think and lead and act in this new way.

Fawaz Khalil (24:38)
Yeah.

Yeah, it's a good question. just to add another dynamic or variable in there as well, the organization was lean and continuous improvement and, you know. Toyota Production System was not new to them. Had 10 years ago tried to implement and had a lot of people. So, Kaizen's action plans, X matrix, etc. They were all familiar with that. And when you went and talked to different people, everybody told you, yeah, yeah, they do it. They're doing Kaizen's. They're doing all these things. I went wherever I went. I didn't see it. Our GEMBA walks had their GEMBA walks etc. I didn't see an SQD board right, but everybody told me that they know what a Kaizen is they know they're doing it they know what you know, whatever else things are. So that was another challenge that if you talk to them about it, they're like, no, we already do it. So that's not going to work. Right. You are telling us. So that was number one. But so that was another challenge. So yeah, as I said, came in and I'm like, OK, I'm blind without understanding my market, my customers, my value prop. What are the opportunities out there? What is the market opportunity? So, we need to do a strat plan and there was really no internal organizational capability around market knowledge, customer knowledge, competitive information, growth ? rates, et cetera. So, reached out to this company that I really like maybe you've heard of them Lean Focus right there's a guy called Damon yeah guy called Damon there so he helped me get some people on board we did we selected about you know somewhere between 60 to 80 people in our organization we went and put them through a very fast track training on strat planning

Damon Baker (26:23)
Yeah, I know those guys.

Fawaz Khalil (26:41)
Bowlers X matrix action plans root cause countermeasure problem solving all these things right the initial basics to say and then we came up with a strat plan light within the idea with the effort being that this effort within the first 90 days needs to deliver a strat plan with an X matrix with an understanding of what we want to do What are the things that we're to focus on and then create action plans bowlers targets milestones?

Owners and do it and just do it at level one and then create KPIs and we were regionally we had five different business lines of business units if you will geographic as well as some functional and then create targets and devolve the level one down to those level as well and just stay there because this was already getting too much if you will and on the other hand

I started looking and tapping into my network started looking at okay. What is the Skill set and talent I have within our team Where there's a match where there's mismatch where there are top grading opportunities where they are expansion opportunities as well and brought in you know especially a commercial leader, a market and strat leader from my old Dennerher network.

Who understood what we are looking for, who understood how these things are done, and who were very good evangelists, and still are, in terms of not only helping get that message across to the team that, this is a lean process, it works, but at the same time, also trying to take some of the work off my shoulders in terms of getting that message across to the team. And then, again, as I said, the people here

Exist the people in the team were open Receptive they wanted to succeed so they took There was a lot of positives were there a few you know? Laggards or slackers or people were like for whatever reason is like yeah, I get it I understand what you're trying to do but it's not for me and they either self-selected or you know were top graded within the first six months

Damon Baker (28:52)
How much autonomy did you have at this point in time when you're trying to bring in really like a full management operating system, a business operating with them? It sounds like strategy was a new piece and it sounds like other parts of it they kind of had done over time, maybe not so well or inconsistently across the organization. So, did you have to educate the board? Did you have to educate steel partners?

On what you were intending to do or did they just say look Fawaz, you got this, you head down, you tell us what you need and so there was less sort of, you know, pre-reviewing what your intentions and your strategy was going to be with them or did you just have to go it alone?

Fawaz Khalil (29:34)
I definitely had to communicate with them and let them know what I'm ? doing and saying. Their initial was, okay, we'll let you do it. We'll give you your space, and they did. But it was a lot of skepticism, right? If this is gonna work, rightly so.

And then there were a lot of questions and then there was also this all right if you're gonna do it you implemented very supportive board very supportive management and ownership from steel partners But it was like how much so tell me how much time you need and what are going to be the milestones or what are you going to be the flags that tell you that you're on the right track so there was definitely a lot of work in terms of communicating up as well and answering those questions also, which was good. I think it keeps you on focus, it keeps you focused, it keeps you in line as well. So, I didn't mind that. But there was a bit of education, so to speak. For example, when I did the strat plan, I presented the strat plan. You know, obviously there were a lot of questions and other things. Are you sure this is a focus? you know, for example, one of the things that came up, we never had a customer or an account management function. The company never had an account. So, you know, it's a recurring revenue business. You have customers that are at least on an annual contract, if not multi-year long-term contracts with you, right? So, it's a recurring revenue. Stuff comes in. You package them. You send them. You deliver them. You charge a per unit price, etc. You're dealing with different customer requirements. So, as you can understand, you're doing a little bit of light manufacturing, but it's also a service that you're providing in.

There was no customer interaction besides the day-to-day people that were kind of like the daily tactical people on the floor that were handling those customer service, if you will, queries. But there was no account relationship, account understanding, account planning, account strategies. Hey, this is our customer. These are the people. These are the decision makers. These are the things they're working on. This is what their strategy is.

These are the opportunities for us, these are the things that we're doing for them that might go away a year from now, two years from now, so we've got to figure this out, all those type of things, right? That go into a typical account plan and an account strategy, none of that was there. Neither did we have the people, not had the infrastructure, nor we had the skill set or any templates or documents. So that was one of the things that I decided to invest besides marketing. So, I created a marketing department, and I created an account management team, our account relationship management team. I totally remember what it was called at that time. We call them key account managers now and so to start putting this capability in place so and then the question now going to the board in the management was, well, when do you think, this is going to yield results? mean, marketing lead generation, account management. I mean, it's not I'm reorganizing a cell. Yeah, exactly. Right. It's not I'm reorganizing a cell and taking five heads out. I'm actually adding 12 heads and our sales cycle. Well, didn't say that. I sales cycle is pretty long. It's years.

Damon Baker (32:39)
Yeah, you want to spend a lot of money for us when we're to see some profit. Yeah.

Yeah.

Fawaz Khalil (32:55)
Plus, yes there is.

Damon Baker (32:55)
So, it's a little bit of a leap of faith for sure.

I'm sure you know this, but every transformation effort I've ever been a part of, especially at turnarounds like this one, it's really important to get early wins, to get the team engaged.

But then also to take like the heat and the pressure off of you, like, you know, situations like you just described is a perfect example where if you can't get a win early on in the process, people start to plant seeds of doubt along the way. What was really, if you kind of look back on it, in your mind, the first sign that Motus Link was turning the corner and that you were really building real momentum, was there like a... specific key win or a financial result that came through? Was there something that you can recall that you finally said, ? yes, like a little bit of breathing room and we're making progress and removing things in the right direction?

Fawaz Khalil (33:57)
Yeah.

There were perhaps multiple things that happened, but at the same time, I think those all contributed to this element, right? So first one was, right, well, again, help and void by a little bit of the tailwinds from the e-commerce and COVID, we had one or two great quarters, but now COVID started tailing off and lo and behold, we bought us a little bit of time, but then lo and

Damon Baker (34:21)
So that bought you a little bit of time.

Fawaz Khalil (34:24)
Behold, once that volume uptick starts coming a little bit down, we were still profitable. We were still generating cash. And by the end of year one, we paid a dividend for the first time in 10 years. And we paid bonuses over and above what people had historically gotten in the last five years. So, when the merit increased, we let go a lot of people, but we hired a bunch of people, the equal amount of people as well. So, and then, again, being a public company at that time, now we are proud of another public company, but we were a standalone public company at that time, and our customers, as I mentioned, they were like the Fortune 100 companies, and they are entrusting us with a lot of critical parts of their business, and they kept they had us on a very tight leash so to speak i.e. we had to submit our financials to them every month and every quarter so then year and a half into this thing they stopped that requirement they you know took away that requirement because the numbers were changing and turning so I mean basically numbers and the facts speak for themselves so whether it was shareholders whether it was employees and whether it was our customers they all saw the financial picture improving cash flow improving compensation and you know they're like all right now we're getting a sense of stable stability we're getting a sense of comfort confidence and that's where you know as I said second quarter third quarter fourth quarter first year second year third years consistently profitable so then you started winning over the skeptics

Damon Baker (36:14)
Who inside the organization at this time started really carrying the torch and running on their own? You folks that you didn't bring from the outside, the people who you encountered when you first arrived, where they made that switch.

Fawaz Khalil (36:26)
Yeah.

Lots of people, very strong, blessed to have very...

Good people in the team all throughout the organization whether it was on the sales and account management side finance our finance team have a lot of people who've been here for like CFO has been here for 20 plus years CEO has been here for 20 plus years they got on This message they understood what we're trying to do They wanted to succeed in this see they saw the results coming in and then along with their teams a lot of good people on all these teams They really have then devolved that message throughout the organization and you know our IT leader not as long tenure in the organization but immediately understood and got the lean thinking, lean process and implemented it helped tremendously with initial SG &A control.

An IT guy working on he was given the level one on SGNA think about that think about that for a second right but it was cool right because he was able to put in the process he was able to drive it down and he was able to uh you know take that off my time off my uh give me that time and uh take that on and so we I mean for example I don't know what SGNA was it was pretty high but think high

Damon Baker (37:33)
Yeah.

Fawaz Khalil (37:54)
30s of revenue percentage in terms of percentage and That's a very high as you know, and now we are like mid-teens So that's where we brought right and the type of business that we were doing with our customers. That was the other thing

Damon Baker (38:01)
Yeah.

Fawaz Khalil (38:06)
Along with customer intimacy started coming in a flood of new opportunities from existing customers. And as you know, the time-old adage, it takes way more time to get more new customer business than it needs to get another dollar, right, takes to take another dollar from the existing customer, right? So, expanding share of wallet, that really helped us because we got new business. 60 % of the new revenue came from existing customers and new projects from them.

Damon Baker (38:35)
Yeah, and you deepen those relationships, and you create stickiness around that customer as well. I mean, it's all common sense, but it's kind of like when you're convincing people to move in this new direction, it truly is a leap of faith.

Fawaz Khalil (38:50)
Yeah, to the point that some of our customers, like they are $80 billion organizations and rightfully so, they're like, we are never gonna single source and for different regions and different parts of the world, they had different suppliers. We convinced a couple of them to give us 100 % of their business and now we are their sole supplier. So that's where we are.

Damon Baker (39:10)
You had to present your financials to your suppliers because you were in such bad shape for like two years in a row. And yeah, I was thinking that part of your answer of turning the corner was when you were no longer expected to do that. It felt like a relief. You know, it was like going in and having to explain whether or not you're going to be able to...

Fawaz Khalil (39:17)
Yes.

Damon Baker (39:36)
Deliver and honor commitments every time to your customers.

Fawaz Khalil (39:40)
Yeah, those are certainly not easy conversations initially.

Damon Baker (39:44)
A lot of times when a new leader comes into an organization like this and you describe the circumstances that you went through, you encounter like a culture of fear and you talked earlier about the need to change how people viewed red on metrics and teaching them that red isn't a failure, that it's an opportunity and that's obviously a hard shift mentally because they're holding on to all the baggage associated with all of that, that maybe they had a leader in the past where it wasn't okay to be red and they were lambasted or made to feel like it was not something that was a positive experience. So how did you, what did you encounter there and how did you make that shift?

Fawaz Khalil (40:24)
It was pretty challenging because of, as I said, history of not successes right people were scared they were scared to take action they were scared to take ownership there was a lot of blame shifting or throwing it off over the wall and pointing fingers silo-ization and there was a culture. I know it was the previous CEO, the one previous or whatever or everyone. I have no idea. Neither was I interested but of finding scapegoats. Tell me the name. Who did this? Right? Tell me the name. Right? Or yet. Who was it? Tell me the name. Who did this? And I mean I found that at least if not distasteful that's just not how I work. Right? So honestly

Damon Baker (40:58)
Yeah, not the five whys, the five whos.

Fawaz Khalil (41:13)
It's a process. I can never say that I'm not still there in the sense that we still, that we've overcome that. People still get afraid, right? Everybody loves to see green. It's just human nature. As soon as you see red, because then you have to explain it. In a lean environment, you have to explain it, or at least you have to say it, right? The first thing is, if you're red,

Do know you're red? Right? That's my first question. Okay. You know you're red. Now you're in a GEMBA Walk or you're in a meeting or you're in a PD ops review and okay. You can see you're red. Do you know why you're red?

And that's where people stumble first and foremost and they if they don't then they try to manufacture Answers and then you know you have to tell them and you have to create that environment say it's okay If you don't know we'll figure it out together. That's why we are here That's why you're in this meeting and this is that's why this metric is out there for everybody to see Because you're not always expected to figure out everything if it's red or not Even if it's in video area if you need help tell us we'll put some people on it and we will work it working with you and we'll figure out why we are red. The problem is not you. The problem is we need to know why this is red. If you can tell me great, we'll critique it and we'll say yes, we agree with your analysis or not or maybe think of it this way. If you cannot tell me don't worry about it, we will figure it out. I can get you help because that's how you develop and that's how we understand as well, and we figure it out. So, there's no, there ought to be no fear bringing in the bad news, right? The messenger is not going to get shot even if you're the owner of the metric. So, tell me, the ownership first and foremost and accountability I asked for is you track the metric, you report it truthfully, you are aware it's red, and then do you know why it is red or if you don't then say it, I don't know why it's red and I need help okay fine and that's that takes time I think we are there we are getting there just came up just today I had my we call it a monthly operations review the pd ops

Damon Baker (43:11)
Yeah.

Fawaz Khalil (43:22)
Fantastic conversation, fantastic work, fantastic deliverables, and you can see it in the results as well. Great results. So proud of this team. We are getting there. But obviously everybody loves to see green, right? This is just human nature. And the thing is, if there's green, that's the next thing that we're now pushing, right? If it's green, I'm gonna, guess what? I'm gonna increase your bar. So, you'll again be red. And... ItÕs human nature, people don't like that. 

Damon Baker (43:49)
Yeah, and then you have to prepare them for that aspect of transformation. And it's like, there's a new learning there. They're like, wait a minute, as soon as I turn green and if I'm green for too long, we want to raise the target and start over again. And then you have to tell them why and kind of the meaning behind all of that.

Fawaz Khalil (43:53)
Yeah. So that's what, you know, that great book in.

Workshops associated with it as well the five dysfunctions of a team and all that stuff and that's what we did work on we brought in somebody from outside to help us Create a team because if you remember if you can understand and vision even the management team The management team members know two people are in the same location. It's a very globally distributed business It was co-ed and then even post-co-ed everybody is in different cities, countries, different continents as well and how do you create cohesion? How do you create that trust? How do you create that vulnerability amongst each other for even a management team member for another C-level executive to say to another person, hey I don't know or I'm struggling, or I don't understand how this works or help me understand the income statement right or help me understand how the taxation works or I am not getting converted.

Leads tell me what's going wrong it takes a lot of effort and work to get people and especially this eight nine people team that we have to be so comfortable trust for a feature that that trustful that if I show my vulnerability I would not be stabbed in the back right so and we are there I can say amazing team and we worked very hard and we are there we are very comfortable with each other

Damon Baker (45:29)
Yeah.

To me, this is a transformation story. Obviously, the business results are outstanding, but to me, the real transformation is in the team. And it's a story about transforming people and changing the way people work together, changing the relationship that people have with leadership with each other to create that environment of trust so that they can unlock value in a business and work in a way that's aligned.

And I think that's oftentimes overlooked and like we read all the technical books about lean and continuous improvement, and they focus on the tools and the process and improving the levers of the business. But we skip the obvious step of if my team is dysfunctional, it doesn't matter how great my tools are. It doesn't matter how great my strategy is. It doesn't matter if I have the best value prop in the world in the most attractive market space in the world. If we don't like each other and we can't work together, it's going nowhere.

Fawaz Khalil (46:33)
Absolutely. 100 % agree with that. And I've lived it. Not only here, I've lived in a few other transformations as well. And that's always been my first thing is to get everybody working together in an environment of trust. Get them to be vulnerable to each other. Get them to the level. And it's way easier said than it's done.

Damon Baker (46:33)
What's your reaction to that?

Fawaz Khalil (46:58)
You know that as well you've been part of a lot of these engagement and scenarios but you just cannot succeed one of my board members told me not here earlier one culture eats strategy for lunch every day yeah so if you don't have people who are bought in if you don't have people who believe themselves who believe in you who believe in the person sitting next to them you just don't have a chance of a snowball and whatever, right? To succeed.

Damon Baker (47:31)
Looking back, Fawaz, is there anything you'd do differently if you had to do this again?

Fawaz Khalil (47:39)
Who knows maybe right? I'm one of those there's a There's a there's a There's a really good book. You should read it if you haven't already. I'm sure you have it's by a USC mathematics or stats professor the drunkards walk the drunkards walk Very nice. It's ? and that's I think you know when I read it, I'm likeÉ

Damon Baker (47:42)
Play Monday morning quarterback.

The drunkards walk. Okay, I'll have to look into that one.

Fawaz Khalil (48:02)
That's the motto at least I go by in my life and I was like, all right, there's a book written by it's there look multiple ways to succeed. If I could have taken a different path, I would have figured out I'm pretty confident, figured out another path to succeed. But I'm pretty happy with the path we've taken the results speak for themselves. The team is happy. So, if you say could have done differently, I don't know, maybe but you know, we turned out okay. Yeah.

Damon Baker (48:29)
And if the CEO is listening today and I'm sure they will be and they walk into a similar environment, inherit a struggling company just like you did at ModusLink, what's the first thing you tell them to focus on?

Fawaz Khalil (48:41)
Yeah, you have to take measure of your surroundings, you know, it's just like

?

You'll say too much big on analogies and other stories. So, I'm not gonna even go there. But it's kind of like, you know, you've been asked to take a hill in enemy territory, right? So, you've got to stand up and survey. You've got to survey the ground. You have to survey the geography. You have to survey where the competition is, or the enemy is. How many are the enemies? Is the local population your enemy? Is the army your enemy? Then you have to see, what equipment do I have? What people do I have? And how long I can stay?

And what is a realistic objective? And what is my objective of day one? And what is my objective day 30 and 90 and 60 and 100? Right? And what is my exit strategy?

And so, you've got to do all these things. So, you've got to take stock of your situation. I know. Things are burning around you and all that. Keep a calm head, level head. Spend a little bit of time. Spend the first 60, 90 days figuring this out. And then once you have understanding and this information, then you can come up with a strategy and then you can execute it. Right? Yeah. Yeah. Yeah.

Damon Baker (49:55)
Yeah, it's great advice. You don't get that time back, do you?

Yeah. What's next for Motus Link?

Fawaz Khalil (50:01)
Well, we are on track to have a good year. Are moving from strength to strength so we are in a market and there are many opportunities we are in a very fragmented very large market I think our global market spend is almost 200 billion we're in a 200 billion dollar market and they're like for lack of better words there are at least 100 suppliers if not more it's a very fragmented uh competitor base so there are a lot of opportunities for growth

So, we'll have to figure out but then the challenges, technology, the tech stack, challenges around AI, challenges around automation, those are very real issues that not only us but each and every business has to grapple with and figure out and not many people know the answers to that, right?

Where is tech going to end up? Where is AI going to end up? Or what is going to make us up end up as? Right? Those are some of the things that we'll have to figure out while and as we are on a growth pattern. are our shareholder, majority shareholder increase their shareholding or ownership to 100 % from majority just earlier this year.

So that shows a lot of confidence. We've returned quite a decent amount of money over the last five years in dividends. We've invested quite a bit. We're keeping on investing and both operations, technology, customers, growth, commercial, and that's where people and capabilities, lean capability. We have now have a lean organization.

You know, they work with you now and some of your team as well and we seek still seek some support every now and then. But that's where we are. We are on a growth path.

Damon Baker (51:53)
It's a great story from making no money for 10 years, the operating company parent wanting to divest this business to now being all in and having 100 % equity ownership in it and being excited more importantly about the future that lies ahead for ModusLink. And what should not be overlooked is just the impact that you've made on so many employees and associates that work at ModusLink that now can take part.

And sharing that growth and those opportunities that are being created as a result of this transformation. So, for folks who want to keep up with you for a while and learn more about ModusLink, where can they find you?

Fawaz Khalil (52:32)
I'm on LinkedIn, best place to reach out, right? And happy to share or happy to help out or you know if you want to throw something at me and see bounce it off, happy to do that.

Damon Baker (52:45)
And the website for ModusLink is...

Fawaz Khalil (52:47)
moduslink.com

Damon Baker (52:49)
Perfect. Fawaz, thank you so much for joining me. This is a master class in leadership and operational transformation. And that's a wrap on the first episode of Lean Focus Podcast.

We'll be back with more conversations with the leaders who are making real change happen. Thanks for listening. And until next time, Stay Focused, Stay Lean.