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August 10, 2011

 
 

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Case study:

The Nordson Challenge: Make 'Really Good' Better
CEO Mike Hilton ramps up the pursuit of technology, global growth, continuous improvement and acquisitions

Our culture loves the hero who rides into town to save the day. The business equivalent is the turnaround specialist, the outsider brought in to take a badly managed or bloated company and make it shine again. Mike Hilton will be the first to tell you it was quite the opposite when he took over the reins at Nordson Corp. in January 2010.

Nordson, a manufacturer of precision dispensing equipment, has a reputation as a well-managed and progressive company. The company's total shareholder return has been in the top quartile compared to its peers, and it has raised its dividend annually for 47 years. When Hilton, then a senior vice president at Air Products and Chemicals, was first approached about the CEO position at Nordson, he began checking out the company and liked what he saw -- sound performance even in the midst of the recession, a strong business model and a quality workforce.

"I was not unhappy with Air Products at all, but I liked the opportunity to take something to the next level and build on the excellence that is already here in terms of business and people," Hilton told IndustryWeek in an interview at the company's headquarters in Westlake, Ohio.

How is Hilton putting his stamp on Nordson? He has placed a greater emphasis on strategy and talent management to make sure leaders know where they are headed and have capable personnel across the enterprise to carry on after them. He has also stressed an understanding of the competitive environment. "Let's make sure we understand not tomorrow or three months from now, but what things are going to look like five years from now and how we are prepared to thrive in that market," he explains.

When Nordson released its latest results this past May, all signs pointed to a company that was headed in the right direction. Nordson's second-quarter 2011 results were all-time records for sales, operating profit, net income and diluted earnings per share. In fact, net income for the quarter more than doubled from the previous year to $65 million.

Pursuing Growth

Nordson, with 4,000 employees operating in more than 30 countries and sales of over $1 billion, operates in three segments:

  • Adhesive dispensing systems produces equipment that dispenses adhesives, sealants and other materials. Key markets include food and beverage packaging, nonwovens and disposable hygiene products, and furniture and building products.
  • Advanced technology systems includes precision dispensing equipment, test and inspection equipment, and surface treatment technologies. Markets include semiconductors, electronic assembly, life sciences and solar.
  • Industrial coating systems, the smallest division, produces equipment to apply paints, sealants and various coatings to products such as appliances, office furniture and automobiles.

The company is benefiting from its global footprint. More than 70% of its sales are outside the United States. In the Asia-Pacific market, explosive growth in China and India has helped the company build its revenue there from 7% of sales in 2002 to 24% in 2010. Growing middle classes in those countries are fueling the demand for packaged goods and for nonwoven materials, such as diapers and feminine hygiene products.

A key growth strategy for Nordson is to stay close to customers and provide them with leading-edge technology. For example, Hilton noted that the diaper business is very sophisticated. "A typical diaper in the West has 11 to 12 different layers that are all glued together," he says. Moreover, those diapers are produced on lines that run so fast, they are a blur to the naked eye. Nordson focuses on key customers who are industry leaders and makes sure it can help them with goals such as to add more layers or increase the speeds of the lines. "Our products, while a small part of their cost, have a big influence on their performance," he says.

Nordson also looks for ways to help customers with equipment that improves their production efficiency. For example, packagers in the past might have sealed a box by putting a solid line of adhesive along a box flap. Nordson has introduced technology for stitching the adhesive -- apply an inch of adhesive, skip an inch, and so on. That saves on material for the customer. By upgrading their lines in this way, he notes, customers can "recapitalize their equipment" and achieve a very short-term payoff.

Flexibility is another objective Nordson is helping customers attain. Manufacturers of outdoor furniture or grills, for instance, want the ability to change colors readily as consumer preferences change. Increasingly, they use metal coating processes to apply a powdered metal in various colors rather than paints. The powdered metal has better adhesion and less waste because what's not applied in the process can be recycled. Providing flexibility is particularly important for companies processing smaller product batches.

To make sure it maintains its technology position, Nordson spends about 3% of its revenue on research and development. While that is the reported figure, Hilton says it is actually more like 5% to 10% because the company has a large engineering organization that is working on either applications or products, but not recognized in the R&D figures. Moreover, Hilton is working on leveraging the company's field service organization because they are "out in our customers' facilities all the time, understanding what their issues are, what are their opportunities, what they are trying to do." The company also promotes innovation through formal processes to solicit customer feedback and by conducting development programs with key customers recognized as technology leaders.

Nordson also grows by applying its core technologies to new applications. For example, much of the company's technology business is focused on the electronics industry, where its machines are used to apply adhesives and substrates for printed circuit boards, semiconductors and other products. The company is now working with lighting companies as they develop more LED (light emitting diode) products. Similarly, the company is expanding into medical applications, where it is taking its industrial technology and applying it to the dispensing of biomaterials in surgical procedure.

Whether in the United States, Europe or emerging markets such as China or India, Nordson takes the same direct sales approach to market. "We go direct with sales because we need technically qualified sales folks to help our customers understand our value proposition and demonstrate it," says Hilton.

Hilton has used Nordson's strong balance sheet to make a series of targeted acquisitions. Last November, it acquired Micromedics, a manufacturer of equipment for dispensing biomaterials during surgical procedures. At the time, Hilton noted that the Micromedics purchase "fits Nordson's growth strategy of purchasing high-performing market leaders with differentiated technology and a significant recurring revenue stream."

This month, the company announced that it had completed the acquisition of Belgium-based Constructiewerkhuizen G. Verbruggen NV, a manufacturer of flat dies and coextrusion equipment for the flexible packaging industry. The company provides Nordson entry into the growing flexible packaging market and complements its products for rigid packaging.

Continuous Improvement

Nordson has been pursuing lean manufacturing for more than a decade (in 2009, its Dawsonville, Ga., facility won IW's Best Plants award). As he became familiar with the company's operations, Hilton became concerned that its lean efforts had plateaued. Moreover, he saw expertise in other continuous-improvement methodologies, such as Six Sigma, that the company was not employing broadly.

"The competitive landscape is not getting any less competitive," Hilton commented, adding that emerging markets will continue to spawn new competitors to Nordson. "You see the embryonic growth of some of them. We need to outcompete them, and we need to do that by providing better technologies and being more effective and more efficient."

To that end, in November, he appointed James DeVries to serve as vice president of global continuous improvement. He and his team are working on several corporate projects, including integrating the firm's SAP systems and putting a new ledger in place. Along with that, Hilton says the company is "layering in a segmentation program" that will allow a deeper understanding of the firm's products and customers so that it can make better business decisions. Another project involves extending the company's external benchmarking activities beyond just competitors to best-in-class performers. His team is also conducting a broad assessment of the company's technology development practices with the aim of making the use of best practices more consistent. The goal is to add 200 basis points of margin improvement over the next three to five years through these activities.

Companies can't progress without the right talent, and Hilton is aware of the growing concern about the U.S. pipeline for technical skills and education. Nordson has close ties to several engineering schools such as Case Western Reserve University in Cleveland and maintains summer intern programs both for engineering students and for students who might take production roles.

"Overall, it hasn't been a big challenge for us to date. I do worry down the road, particularly from the engineering and innovation standpoint, that there are fewer and fewer kids going into science, technology, engineering and math curriculums," says Hilton.

Hilton has brought a renewed emphasis on talent management in Nordson. Part of that effort includes providing employees with "broader exposure," he notes, such as moving them between businesses or from a functional department to a business. The company is also stepping up its cross-training efforts for plant employees, both to provide flexibility and to enrich their roles.

The apprenticeship programs operated in Germany might be a good thing for the United States to emulate, says Hilton. "When I was in L√ľneburg the last time, there were six or eight high school students who were apprenticing as part of their school curriculum. We have pretty sophisticated operations there. You don't see that kind of formal approach in the U.S."

Hilton says the United States could also learn some lessons from other countries about supporting industry. He says there is too much focus on labor costs and not enough on investment. "Why don't we make any TVs in this country? It is not because labor is cheaper in Asia. It is because their governments went in and supported the investment because it costs $3 billion to build a facility today to make flat-panel TVs."

Hilton knows that arguments against "government subsidies," particularly in these cash-strapped times, but he says that kind of investment results in jobs. "We need to find a way to move away from a 100% service economy," he says. "We need to make stuff to continue to provide the kinds of jobs that are really good-paying jobs and help support our middle class, where we want growth instead of decline."

 

 

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