In the late ’90s, Jim Griffith found himself among a group of young executives being groomed to lead a $2.6 billion company. With five senior-level employees at The Timken Co. — including the CEO at the time ? preparing for retirement, the succession process was in full swing. But what seemed like a great opportunity was soon lost on Griffith and his peers as the process progressed. They became increasingly aware of one alarming red flag.
“The bottom line was that the company technologically was the best in the world,” says Griffith, who is the president and CEO of Timken today. “Our products from a quality and reputation were the best in the world, and we couldn’t make any money. Our people from external validation were the best in the world, and we couldn’t make any money.”
As a result, the next generation of leaders found themselves harboring some serious doubts about Timken’s future as a profitable company.
“That’s a really troubling thing when you’re saying, ‘OK, I might have the chance to lead a Fortune 500 company and I’m not sure I want to, because it’s not making any money,’” Griffith says.
When he became president of Timken in 1999 — he was promoted to CEO in 2002 — Griffith and his top leaders embarked on what became and intense transformation to reorganize the company around its customers. Here’s how they took a 100-year-old company and reinvented it to make it profitable.
Define your value
One of the first things Griffith and his team recognized was that the company was organized around its products, a strategy that went back to its roots.
“What we concluded was that the company that was founded by Henry Timken in 1899 to manufacture his invention called the tapered roller bearing — effectively it’s a wheel bearing in a car — over the 20th century had become so product focused that we’d forgotten that the reason for being in business is to create value for customers,” Griffith says. “And when we then stepped back and said, ‘Where are the places that we create value for customers?’ they were very different than where the product-focused strategy drove us.”
One of the first moves the company’s leadership made was to restructure Timken around its markets instead of its products. Instead of having a bearing business and steel business, there was an auto business, an aerospace business, an industrial business and a precision steel components business, and the presidents were asked to focus on creating value for customers rather than maximizing sales.
“That led us down a learning journey of where does Timken really create value,” Griffith says.
The company went through a process of looking at each of its markets and asking, “How do we make money in this market?” and “What’s the value proposition?”
“Again, it was a real learning journey, because in some cases, what we found was we had to change the way we operated to be profitable,” Griffith says.
He and his team also utilized a rigorous marketing analysis to evaluate Timken’s relative profitability and relative differentiation in its current markets. One thing that they discovered was that while the company made great products, its products were valued much more in some markets than others.
“We make steel or we make bearings or we make gears,” Griffith says. “We make your car not break down. We make airliners land safely. We make jet engines more efficient. We make it possible to drill for oil 40,000 feet under the ground. That’s what we do. And there are some of those places where we were selling our products that you didn’t care. You don’t really care if you have a Timken bearing in your car, because the difference between Timken and our competitors is that if you have a Timken bearing, your car will last for a million miles. Now how many cars have you had that last a million miles? So we had competitors that were designing lower performance products, cheaper products, and putting them in those applications. And you’re happy with that.”
Early on, Griffith says the company had made far too many decisions about markets based on gut feel instead of analytics. But strategic marketing tools can be extremely valuable in helping you make decisions to guide the direction of your business.
“We learned a tremendous amount by going out and finding the best analytic tools for driving our marketing process,” he says. “When we finally did that, it made some tough decisions, like what to do with the auto industry, amazingly easy. I wish we had done that five years earlier.”
For Griffith, there were a couple of significant takeaways from the marketing analysis. First, Timken was at its heart a technology company. So to create value for its customers, the company needed to find the right technical problems to solve for them.
“When you are on an airplane, and you’re coming in for a landing and that tire hits the tarmac and it goes from zero to 160 mph in a split second, you don’t want anything but the best,” Griffith says. “So the difference is that we have maybe 15 percent penetration in the auto industry and we have effectively 100 percent penetration in landing wheels. And that learning about where are the places that Timken can create value was fundamental in most of the first half of the last decade.”
The challenge was finding ways to take the company’s core technical capability to market in a way that nobody else could and that customers would buy into — in other words, leveraging that differentiator to enhance existing products and services and expand into channels and markets where it can be competitive.
“In worlds of technology, we are the best in the world,” Griffith says. “Learning to translate that into business models and products that create customer value that’s differentiated was a critical learning for us.”
Part of that involved moving into markets or investing in areas where it could differentiate itself from competitors, such as aftermarket (replacement part) opportunities.
“The bearings in a car — one in 10 gets replaced over the life of a car,” Griffith says. “The bearings in a steel rolling mill get replaced every year. We spend a lot more time designing new products for rolling mills because there’s an opportunity for our technology to make them last longer in a way that is more valuable to the customer. They’ll pay for it and there is an opportunity to help that customer with replacement products.”
By investing in its industrial aftermarket segment, the company has grown that segment to $1 billion in sales.
“So our most profitable segment, we’ve grown five times and half of them are products that weren’t in our portfolio in 2000,” Griffith says.
The other piece is to exit markets in which you just can’t compete and be profitable.
Even though Timken was historically an automotive company, it could not get its auto market to make money on an ongoing basis. So in 2007, the company made a radical shift under Griffith’s leadership to transition out of the market. When demand for the auto market dropped in 2009, it also sold a large piece of its auto business to a Japanese company and made large cuts in auto support services.
“That put some cash in the bank for us and changed our profile,” Griffith says.
From a markets standpoint, the overall change in portfolio has been dramatic. Today, it includes markets such as mining, heavy transportation rail, heavy truck, the agricultural market and the international market.
“We went through that in every business that we have,” Griffith says. “The net result was we closed probably 30 locations around the world that couldn’t be competitive or needed to be more efficient or needed to be more effective. We built a half a dozen new locations in new markets where we were growing. So net we didn’t change the number of people but changed the structure of the way we operate. We radically changed our portfolio and radically changed our market portfolio.”
Again, the key to growth is not just investing in markets where you have the best product, but where you can deliver value in unique ways.
“Most of the products you’re going to see are things we made 10 year ago,” Griffith says. “But the way we take it to market, the mix in the portfolio and the way that we engage with customers to create value is so radically different, you might as well say it’s a new company.”
A critical driver of this transformation has been the company’s dedication to being a high-performance organization. This focus has helped it navigate numerous challenges as it implemented some major changes to reinvent the company, such as when the company’s leadership realized that Timken’s big manufacturing plants in the United Kingdom and Columbus, Ohio, couldn’t compete and needed to be shut down.
“The key to it was strategically, we were very clear where the company was going and so we knew what were the areas that had to be sustained were and what were the areas where we were going to reduce our presence,” Griffith says. “When you think about it in those terms, you take deeper cuts in the areas that you are exiting and lesser cuts in the areas that are crucial.”
Another critical time was in 2009 when demand for the company’s products dropped and its sales fell 38 percent. To improve efficiencies, the company had launched a business redesign process called Project ONE a few years earlier, which put in place an SAP enterprise management system and helped it take $400 million out of inventory in 2009. But at the same time, it still had to cut costs in any way it could, including 6,000 jobs globally.
“The concept of walking into plants that have been part of your family for a long time and saying goodbye to people is a very personal thing,” Griffith says. “The way it works at Timken — you hate to say that you become good at that — but we’ve become very good at that. We’re very open, and people understand the performance that’s going on.”
When cutting costs, Griffith says you start with strategic cuts — areas where you know you are going to lose business — and then use your performance management systems to put boxes around your stars and take deeper cuts in areas where you have low-performing people. You approach these decisions as a family, communicate openly about what’s going on, and then people will understand that as a high-performance company you need to set aggressive targets.
“It’s all about people, and having really good leaders in place is crucial, even more crucial when you’re going through a period of crisis,” Griffith says. “There’s a natural tendency, particularly in a family kind of culture, to try to support and sustain people who aren’t the absolute top people. There’s always a tendency to hang on to people too long. That’s good and bad. But from a performance point of view, that’s critical from this point.”
By transitioning into markets where it adds the most customer value and building business models that allow it to be profitable in those markets, the company has emerged a decade later outperforming its highest expectations, growing revenue 29 percent to $4.1 billion in 2010. In 2000, Timken generated roughly 50 percent of its revenues from bearings and steel in the automotive industry. Today that number is about 15 percent.
“It’s 112 years old, but it’s a new company,” Griffith says.
“We’ve retained our best people. We have shifted the portfolio of the company to much more attractive markets, markets with better aftermarket, better growth practices, more focused on the parts of the world that are growing. We have better management tools — this Project ONE capability. So better people, better markets, better management processes and then you are surprised that we’re getting record results.”
How to reach: The Timken Co., www.timken.com or (330) 438-3000
The Griffith File
President and CEO
The Timken Co.
Born: Palmerton, Pa.
Education: B.S. in industrial engineering and MBA, Stanford University
What is one part of your daily routine that you wouldn’t change?
I am an early bird — up at 5:00 a.m. or before every morning. I savor the quiet time before the family gets up — I usually walk the dog or exercise. It gives me an opportunity to think through the day ahead and be prepared to tackle whatever challenges it brings. I have done this since I was around 10 years old and continue to get up early, seven days a week.
What is your favorite part of your job?
Interacting with the people of Timken. I get to travel a great deal and interact with people all over the world. The people of Timken never cease to amaze me. Give them a challenge, hand them a tough assignment, and it never ceases to amaze me the creativity, resilience and character of the people who make up our company. My wife loves it when I come back from our plants because I always have a smile on my face, impressed with what I see. The most outstanding examples come in the most trying times — for example, in the recession of 2009, one plant in South Carolina needed to cut half of its workforce. Instead, the people decided that they should share the pain and chose to work alternate weeks, an impressive sacrifice by the most senior people. I could tell a hundred stories like this.
What’s the best piece of business advice you’ve received?
I’m a believer in people. I believe in people. I’m a natural delegator. And if you’re a natural delegator then you’ve better surround yourself with the best people that you can find, people whose judgment you trust, and set the parameters, set the objectives back to being aligned on the strategy. This is where I get real sensitive about, ‘Look what Jim Griffith’s done at Timken, because it isn’t what Jim Griffith’s done at Timken. …The sum of the decisions and capabilities of that leadership team is massively larger than the influence I could have. My influence is to get them aligned in terms of what that vision and objective is. Then frankly it’s stay out the way so that I don’t mess up the decisions that they make.
What is the culture like at Timken?
The answer is it is a family culture. For those of us that have been around a long time it’s kind of an emanation of the fact that the Timken family started it. But that’s not what makes us a family culture. What makes us a family culture is we tend to be people who come here, stay a long time, get to know each other, know each other and their families, work together on things outside. So we really are a very close-knit culture. Even people who come from outside become family.
1) Figure out where you create value.
2) Structure portfolio for value creation.
3) Optimize your performance.