Donald E. Washkewicz puts Parker Hannifin in position to realize its full potential

Donald E. Washkeicz, Chairman, President and CEO, Parker Hannifin Corp.

Donald E. Washkewicz paused for a moment as he looked at the coffee cup sitting on the table in front of him. To others in the room, it was just a coffee cup. But to Washkewicz, it was a perfect reference point for a lesson on innovation.

The cup had a brown lid and Washkewicz shook his head as he lamented how some of his peers in today’s business world would consider the development of a white lid for use with the same cup to be innovation.

“Some customer is asking for that and that’s fine,” Washkewicz says. “But that’s not going to propel us into the future and change the performance of the company in a big way. We’re really trying to drive operating performance and innovation is key.”

When Washkewicz became CEO at Parker Hannifin Corp. in 2001, he saw a company that wasn’t striving for ideas that would change the world.

“If you looked at our performance, it was typically in the middle,” Washkewicz says. “Not great, not bad. But doing OK. So I said, ‘OK, do we continue down that path or do we try to accomplish something else? I think this company is too good to be a middle-of-the-pack performing company. It really is too good.’”

Washkewicz wanted Parker to strive for greatness. There was no way that greatness was going to be achieved by settling for the development of a white lid for coffee cups when only brown lids had existed before.

“The way we define innovation is it has to be either new to the industry or new to the world or it doesn’t count,” says Washkewicz, chairman, president and CEO at the $12.4 billion company. “So what we want in the pipeline are projects that are defined as either new to the industry or new to the world. That’s what I would describe as meaningful innovation.”

Washkewicz wanted to do more than the change the color on Parker products. He wanted every one of his 58,400 employees to feel the same way that he did about the company and their jobs and the products and services they provided to customers.

It wouldn’t be easy and it wouldn’t be something that he could do alone. It wasn’t even something he could do with half his people or 75 percent of them.

“If you don’t get everybody on the same page, you’re not going to raise the water level,” Washkewicz says. “So I knew whatever we came up with, it’s going to have to be driven down from the top and we’re going to have to make sure it’s mandatory or we’re just not going to change. We can’t do things the way we’ve done them in the past and make significant change.”

Know what you want

Washkewicz wanted to build a lean organization that was efficient in every way. In his mind, Parker would buy equipment at a reasonable price and have that equipment pay for itself in no time at all. Products would be priced based not on what it cost the company to make it but on what the customer felt it was worth.

And employees would not spend time working on fresh ideas that had no use for the market, but instead would get deeply engaged in products and services that would give the customer more than they ever could have asked for.

You might ask, isn’t that every CEO’s dream? Of course, but how many of them follow through on the execution to make it happen? It was the crucial step on which Washkewicz was going to make sure Parker did not drop the ball.

“For every business, it gets down to identifying those critical fundamentals that are key to the business,” Washkewicz says. “Then it’s determining how to resource that and how to drive those through the organization and how to really stick with it. The higher up in the organization you can resource that, the better. If you say, ‘Hey, we’re going to do lean. We’re going to push it down and let you figure out how to do it yourself,’ that’s probably not going to work as well as you would like.”

Washkewicz says “lean” has become overused in a lot of companies, perhaps even a cliché.

“It’s in vogue to be doing lean,” Washkewicz says. “Everybody puts lean in. But have they resourced it through the entire organization. Can you really go and see those charts in the plants posted? Do you have a win strategy tied to that? Do you have the metrics? It’s probably 10 percent of the ones who say they are doing lean who are actually doing lean. My point is, if we can really do it and perfect it, we’re going to be in that top quartile of performance because the other people aren’t doing it. That’s fine, if they think they are doing it and they aren’t. That’s their business. I just want this company to be up on top.”

Whether you call it lean or something else, the key to rebuilding your corporate culture into one dynamic force is to not have a different program and different philosophy for each unit in your organization.

“You need common programs,” Washkewicz says. “You don’t want everybody figuring out they have 325 different lean programs, then you can’t communicate side to side and across the organization. You have to have a common approach to doing lean and a common set of metrics so that when you have a big meeting, their division and this division, you can compare the two. Otherwise, it’s not comparable.

“Then it’s tying it all together and getting it down to the individual employee. Somehow you have to link the strategy and the execution of the strategy back to the person. It’s really all about people if you want to cut right through it. If you can link all that together and have a feedback mechanism, then you’re going to get something accomplished.”

Follow your plan

Washkewicz found what he was looking for at one of Parker’s aerospace facilities in Utah. He had just taken over as CEO in 2001 and felt like he needed to get out and visit as many locations as he could around the world to begin to put together his vision for the company.

“As I was traveling around, I would see pockets of brilliance,” Washkewicz says.

What he found in Utah was a division that was using metrics and getting employees to all march in the same direction. The result was inventory was down and productivity was up.

“I said, ‘Geez, this should be part of our go-forward strategy,’” Washkewicz says. “If we could ever get the whole organization doing this. But now I’m talking about 300 plants around the world, various cultures, you name it. Not an easy task. And we didn’t have any internal people who were skilled in this, other than a few people in some of these facilities. So it was a major challenge there.”

It was 2001 and the company had slumped into a recession after the 9/11 attacks. Washkewicz needed to hire some people who could help show his employees the value of lean when it came to buying equipment and pricing products and being innovative.

“The whole world is collapsing and we’re adding people,” Washkewicz says.

Some may have thought it was crazy, but for Washkewicz, it was an opportunity to show he was serious about his plan.

“It’s important that everybody else is on board, but if the key guy at the top isn’t on board here and he’s not out front communicating, it’s going to fizzle,” Washkewicz says. “It’s not going to work. He has to approve the resourcing of all these high-level jobs in the organization, which wasn’t easy. In the middle of a recession, we’re hiring 200 people paying decent salaries trying to get the best people we could to execute on some of these things. You might say it was one of the dumber things we’ve done, but it was one of the better things actually.”

If you have a group of employees who are skeptical of your motives, you’ve got to find ways to show them you’re serious.

“There were a lot of doubting Thomases out there,” Washkewicz says. “There were a lot of slow starters. You could see they were not accepting. But we were measuring. We could see who the slow starters were. We made sure we addressed that early on.”

As Washkewicz and his team talked about the steps they wanted to take and helped people understand the value of making smart and well thought out decisions for the business, they responded when some people decided not to play along.

“There was one casualty when we were doing our strategic procurement initiative, and it happened to be in a foreign country,” Washkewicz says. “My VP of supply chain came to me and said, ‘You know, every place else seems to be getting on board, I just can’t seem to get this one place on board.’ I said, ‘What’s the problem?’ He said, ‘Well, this particular individual is sitting on $5 million worth of cost savings for the company.’”

Washkewicz learned that the person in question was unwilling to place any orders outside of Sweden.

“He wants all the business to go to Swedish companies even though he could buy it less in Italy or France or wherever,” Washkewicz says. “He won’t place a purchase order. I said, ‘Well, then he’s in the wrong job.’ So we had to figure out how to move him out of that job. That message started permeating throughout the company in a positive way. It sent the message, ‘Oh my God, this is serious. Look at Joe Blow over here. He’s no longer in that job because he didn’t execute.’ It happened because it needed to happen.”

Provide the tools

Washkewicz didn’t want to give employees the option of saying they didn’t understand an aspect of the Win Strategy, which was the name given to the remaking of Parker Hannifin. He didn’t want there to be any excuses as why they hadn’t complied with a part of the strategy. He had been down that road before and didn’t want to put his people through the same thing.

“I won’t mention the name,” Washkewicz says. “He came down one time and we had a certain target of meeting a certain operating margin in the company. He came down with the CFO and they were making a tour of all the divisions around the company. He said, ‘I want you to get to 15 percent operating margin. When are you going to get to 15?’ I was at about 13 at the time. I said, ‘I’m going to give you a plan and show you exactly what I’m going to do.’ He kept beating on the table and so when I got to this point of looking at trying to put together a strategy, I said the one thing we need to do is we need to give the employees the how to.

“I said, ‘I’ll never ask the employees to do something that I can’t do myself.’ That was the one thing I wanted to make sure happened. When that CEO came down and went through his tirade, and maybe that’s too strong word, maybe it wasn’t, I said the one thing I’ll never do is I’ll never do that. If he was so smart and he knew how to get there, why didn’t he tell me how to do it? He didn’t give me any ideas. He was just jumping up and down and raising hell.”

At Parker, employees have personal performance plans to keep them honest and take the guess work out of what needs to be done.

“Say you have the highest level strategy, this is at the corporate level,” Washkewicz says. “It would be meeting certain shareholder objectives and return on asset and certain things. So what this does is it cascades down. Those initiatives cascade down in what we call annual improvement plans for each of the business units.

“Starting at the group level of the corporation, they would take those corporate objectives and they would convert them into their own group objectives and they would convert them into division objectives because the division is the next biggest business unit and then at the end of the day, those are converted into what we call PPPs, or personal performance plans. So you start at the corporate level and you determine what the annual improvement plan is. Those then translate until every individual employee understands how and what things he or she needs to do. If they execute on those, that will allow us to achieve the corporate goals.”

It all sounds pretty simple, of course. But it comes down to execution to make it work.

“It’s three things: Execution, accountability and results,” Washkewicz says. “Are you executing on the strategy and if you are, we’re going to be holding you accountable for getting the results we’re asking you to get here. So those three things we really value. If you’re just going to sit there and ride along while everybody else is doing the work, that’s not going to be acceptable and it hasn’t been.”

Parker puts together a booklet each year to update employees about how the company is progressing in meeting its goals and to reinforce accountability. Washkewicz has also put together a list of common excuses he has heard over the years about why something didn’t get done.

“I say, ‘There’s 50 I hear all the time, but here’s the top 10,’” Washkewicz says. “Of course, that gets everybody’s attention. So unless you’ve got something new to add here, don’t tell me. I don’t want to hear it. Because I’ve heard them all.”

Washkewicz is a stickler for getting things done and he’s more than willing to provide assistance on the how. But that doesn’t mean he’s a micromanager or that he insists on being in on every decision that his people make.

He’s been trying to move his people toward self-directed work so they don’t require a supervisor standing over their shoulders telling them what to do.

“There is nobody that knows their job better than they do when you get right down to it,” Washkewicz says. “I don’t. You think the foreman does? He doesn’t. It’s the people doing the work that know that job better than anyone else. So allowing them to get together and manage their own work, within a certain framework, I think has been wonderful. It adds job enrichment for people.”

The key to making it work is that you’ve got to stay on it with the people who report to you and on down the line.

“It has to have leadership from the top,” Washkewicz says. “I don’t see how this could ever work without that. You would have scrambled eggs. People would be doing their own thing just like they were doing in the past. We had great programs, but we didn’t have the consistency that we have now. The feedback with the strategy deployment, the win scorecard.

“Like I was saying, when I go to a plant, I can look at those boards and I can tell how well that plant is doing. We don’t have to go to the plant because we can see the same data on our own computers. But when you go there, you get a pretty good sense. Those employees present to you how well they are doing on lean and pricing and customer service and all these other metrics. It’s pretty impressive.”

If you take a look at the single page that contains Parker’s Win Strategy, you’ll notice a red No. 1 by the goal of providing premier customer service. Washkewicz put that together because without it, nothing else his employees do would matter.

“If you do a good job serving that customer, you’re going to achieve your financial goals and you’ll have an opportunity to grow,” Washkewicz says. “But if you don’t serve the customer and what he’s given you already as far as orders, he’s not going to give you new business. It’s just common sense. But a lot of times you forget who the customer is. You get all embroiled in the work you’re doing and you forget who the real customer is.”

And so it comes back to finding great ways to satisfy the customer, more than just changing the color of a product and calling it innovation. Parker’s ability to maintain this attitude going forward will determine how far the company can ultimately go.

“In essence, what we’re doing is we’re executing lean on our innovation program just like we were executing lean on our manufacturing program,” Washkewicz says. “We want the leanest innovation program we can have. We don’t want to spend a lot of money on projects that aren’t going to yield any results.”

Washkewicz says the results show that Parker has made strides toward being in the upper echelon of its industry. Productivity has risen from $130,000 per employee in 2001 to $218,000 in 2011. The company’s share price has risen from $28.29 in 2001 to $89.74 in 2011 and operating margin is up from 11.3 percent to 14.8 percent during that period.

“It’s a little bit overwhelming when you think about how do I get this thing going?” Washkewicz says. “It takes a lot of hard work and effort. But once you do, it’s like a locomotive. You got this big locomotive and it’s pulling a 100-car train. Until that thing gets moving, it’s a bear. But once it’s going, guess what, you’ve got the momentum. Then it’s tough to stop. Just make sure you’ve got it going in the right direction.”

How to reach: Parker Hannifin Corp., (800) 272-7537 or  

Takeaways: Don’t be afraid of greatness. Help your people understand expectations. Always think about how you can help your customer.