Bob Bauer shifts the focus from products to solutions at L.B. Foster

 

Bob Bauer instructs every new manager who joins L.B. Foster Co. to have a bias for action, especially when it comes to problems.

“There’s always things that happen that are unanticipated, and what you want to do is not sit on problems. You want to allow these problems to surface, and don’t be embarrassed by them,” he says. “Act on them, ask for help and get the organization rallied around fixing them — and fixing them as quickly as possible.”

That bias for action also can be applied to seizing opportunities, which is how the president and CEO has helped the $600 million company begin transitioning to become a solutions-based provider from its product-centric past.

Seven years ago, Bauer joined L.B. Foster — which operates individual business units that specialize in rail, construction and energy — returning to the city of his birth, 32 years after he left. It was his first CEO role, but the board wanted to pursue a more aggressive growth strategy, and the directors felt Bauer was the right person for the job.

Responsibility wasn’t new to Bauer, who led a business group at Emerson Network Power (now Vertiv) with more than $3 billion in annual sales. He says when you step into the CEO role, a lot of things need to go right. The pressure is high, especially at a company more than 100 years old.

You live by the philosophy that people depend on the company, Bauer says. And you, as the CEO, are responsible for not messing that up.

“When I wake up every day, I’m thinking about the 1,800 people that work for this company,” he says.

Bauer was charged with creating a strategic plan to take the business into a new era — one where a more diversified organization isn’t as dependent on commoditized products and cyclical markets. That could be achieved through three components: moving into adjacent markets by acquiring companies, organic growth through new product innovation and improved profitability with continuous improvement programs.

Because the management team was largely intact, Bauer says they were able to help create the plans to accelerate growth and take advantage of opportunities — something L.B. Foster hadn’t always done in the past.

Look within and without

Most of the ideas L.B. Foster has implemented have come from the people within the organization.
Bauer knew it would take him about two years to learn about new markets like tubular, the tubes used in oil and gas production. So from the start, he’s leaned on the employees.

“You create a process with a strategic planning process to really mine the organization for the ideas that maybe we haven’t capitalized on the past, or maybe it’s just surfaced because of changing conditions in the marketplace,” he says.

Employees also helped come up with ideas for acquisitions that could make the existing businesses stronger.

“We created a regular review process of looking at our markets that we served and adjacent markets to look for the opportunities that we had. And through a regular process of strategic planning sessions, we prioritized those that we would look to invest in,” Bauer says.

Today, L.B. Foster has more requests for funding new ideas and additional services than it can keep up with, given resource and funding constraints. But Bauer says that’s exactly the problem the company wants to have.

“It is, in my view, one of the things that our people look forward to, because it’s the time when we can talk about the growth prospects and what we can do to make ourselves better. Bringing forward new ideas — I think people always get excited about that,” he says.

L.B. Foster wants innovation to be a part of what everyone thinks about every day. That’s why when the company hires, one of the six core values it looks for is innovation.

To encourage continuous improvement, the company also shifted to a comprehensive approach with better performance measures and a disciplined review process.

“The prior method of the project-by-project basis sometimes used particular individuals to go start up and run a project, but to get to the goal that we had set for continuous improvement, we wanted it to be in the DNA of everybody in the company,” Bauer says.

Adding service to the mix

Its business is spread around the globe, and L.B. Foster identifies markets it can compete in and in which it can carve out a strong position. To grow and improve its competitive position within those marketplaces, the company decided to offer more services, Bauer says.

For example, L.B. Foster sells friction modifiers — most people think of them as lubricants — to manage the interface between a railcar’s wheel and the rails. Managing the friction between those two can lengthen the life of those components and save railroad operators money.

Through its innovation process, L.B. Foster identified that railroads weren’t as effective as they could be and would occasionally discover empty tanks and systems that weren’t working, Bauer says.

“We created a new business model whereby we furnished the equipment and provided all of the service people to install, maintain and manage the performance of all of it,” he says.

L.B. Foster promised uptime performance guarantees of 90 to 95 percent, but it wasn’t easy for the railroads to take those maintenance services away from their employees.

“It’s really substantial to go from selling equipment to a service business model, where you take complete ownership for everything,” Bauer says.

Not only did L.B. Foster have to make sure the service was attractive to customers, it also had to create the model and determine how to transition to it, price it and staff it.

“All of the resources were put in from scratch. It really became a new business for us,” he says.

Because the changes were so significant, L.B. Foster established multiyear agreements for the first time, in some cases, for as long as seven years. Today, L.B. Foster has more than 40 field service technicians embedded within the railroads, which helps create a closer relationship with those customers.

The company also added greater service components to established businesses, acquiring a European company with automation solutions expertise and a small service business.

“By bringing that together with what we already had in the U.K., we expanded service operations to provide more services for projects like the London Underground expansion, where we’re involved in the integration of things like driverless control systems, passenger information networks and operator controls that have to interface to the signaling systems,” Bauer says.

Checking the boxes

L.B. Foster has made six acquisitions since Bauer joined the company in 2012. They were in all three segments — rail, construction and tubular — but tubular has shown the most growth. Previously, it accounted for about 10 percent of sales; today it is about 25 percent.

And while rail remains approximately half the total business, the product offerings now include more services.

When considering potential acquisitions, the company lays a filter over any opportunities, Bauer says. To pursue a company, all boxes need to be checked, helping L.B. Foster stay focused on businesses that truly add value.

The returns on invested capital, cash flow and profitability are the most important factors to consider, especially when private equity buyers become aggressive and are ready to settle for lower returns. First and foremost, L.B. Foster is trying to improve the profit margins of its core company.

“I can’t identify a market that we have that doesn’t have private equity companies that are looking around whenever opportunities to acquire businesses surface. They’re involved in almost every sale out there,” Bauer says. “There’s a lot of money that private equity companies are trying to put to work today, and there aren’t enough opportunities for the funds that exist.”

But L.B. Foster also considers size, aiming for businesses with markets in the $500 million to $1 billion range. The other component of the filter weighs the opportunities that could be created with the new company. For example, could it help insulate L.B. Foster from commodity cycles?

This strategic priority became even more imperative when commodity prices dropped in 2016. Customers connected to oil, steel and coal changed the way they behaved, so L.B. Foster had to pause its growth plans. The company lost $200 million in sales over the course of six quarters, and while cash flow remained positive, it had to cut costs and reduce the workforce.

“I like to tell people that we’re pretty good operators in this company,” Bauer says. “We’ve got good operations people and we’re disciplined. When the going gets tough, we hunker down and know how to get our costs in line and take the kinds of actions that are necessary to make sure that we can preserve the business for the future.”

L.B. Foster has worked hard to recover from the downturn. It didn’t quite make up the losses by the end of 2017, but by the end of accounting for 2018, the company will have it all back and more, he says.

“We are on a very nice growth trajectory right now,” Bauer says. “Our orders are up 28 percent year over year, and our backlog is up 31 percent year over year, nine months through 2018 — so the results that we have been publishing in 2018 look pretty significant, and we’re quite pleased.”

Takeaways:

  • Regularly mine your organization for ideas.
  • Service offerings are worthwhile, if you do them right.
  • Stay disciplined within your acquisition process.

The file:

Name: Bob Bauer
Title: President and CEO
Company: L.B. Foster Co.

Born: Pittsburgh
Education: Bachelor’s in materials science and engineering, Pennsylvania State University

Did you learn your business management skills on the job? I came up through product management, marketing and new product development. I was an engineer who gravitated to the commercial side of the business, in companies that hired engineers to do that because they make technical products. Rather than go down the design and engineering route, I wound up going down the business route — and liked it.

I was with Westinghouse until it started shrinking. Then I went to work for Allen-Bradley, which is now Rockwell Automation, for almost 10 years, and then another 18 with Emerson Network Power. So I was with two companies where you could learn how to run a business very well.

What was your first job? I mowed lawns and had a paper route, but the first job where I had to punch a time clock was stocking shelves in a grocery store.

Where would someone find you on the weekend? Depending on the weather, I could be playing golf or cycling. I’m both a runner and a cycler. I might also be on my other bike, which is a Harley.

Is there anything people might find surprising about you? I’ve got a couple of muscle cars — an old Corvette and an old Mustang that I work on. People who only see me as a CEO are sometimes surprised by that.

I’m driving a ’65 Mustang with 400 horsepower right now.