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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 Lüneburg 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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