Joseph Keithley does some of his best thinking in the water. Four days each week, the CEO of Keithley Instruments religiously treks downtown to swim laps in the Cleveland Skating Club’s massive pool.
It is a ritual of sorts for Keithley, who admits it is not just a way to stay in shape, but also a chance to ponder his business highs and lows. Lately, he’s had a lot to think about.
First, there is the company’s stellar financial performance during the past year. Between March 1999 and the last day of February 2000, Keithley’s stock jumped from less than $10 to a record $58 a share.
Then there is the bigger question of how, in an age of multimillion dollar Internet start-ups, a 53-year-old company that manufactures high-tech measuring instruments for the telecommunications and semiconductor industries emerged as Cleveland’s biggest business success story of the new millennium.
It is no mystery to Keithley, who has been the diligent architect behind the company’s move from military contracts and general measuring devices to the burgeoning private telecommunications industry, which has him routinely dealing with the likes of Motorola, Lucent and Nokia. It is a distinct change from the way his late father, Joseph F. Keithley, built the $100 million company from a meager wooden-floored workshop.
It was soon after the younger Keithley stepped into the role of CEO in 1993 that he realized the industry was evolving and his company would have to change with it. He also realized there were fundamental differences in the way he and his father approached the company, once telling a reporter he was more suited to the role of businessman than that of scientist.
“I’m sure what I meant was my father was interested in making a contribution to measurement science, while I’m interested in trying to make a lot of money,” Keithley says with a chuckle. “I’ve found that the companies that are really successful in making a contribution to customers are also very profitable. Customers reward them with sales because they have the best approach.”
Finding that approach, however, has resulted in intense struggles for Keithley over the past 10 years, especially with the softening of the Asian economy in the late 1990s. That, in turn, upset his company’s crucial new business with the semiconductor industry.
But a mix of perseverance, business guts and a little luck has put Keithley in position that has other CEO’s salivating.
Where one might expect a hard-nosed business attitude, Keithley is just the opposite. He is personable and serene when talking about the company.
The comfortable conference room adjacent to his office is decorated with watercolor paintings and a brilliantly illustrated Japanese screen that stretches the length of the room’s far wall. When asked about his interests outside of business, he is quick to share tales of hiking in Munich and his love for traveling.
Then, when it comes time to talk business, Keithley’s words take on a steady, almost deliberate, cadence.
“I think people don’t know of our good performance,” he says. “And the reason they don’t know about it is because it seems to have been so instant. We’ve got to prove to people we’re not just a flash in the pan, but that this is something really different from what we’ve done in the past.”
After spending time talking to Keithley about the company’s recent success, two points become clear. The first is, although the company’s skyrocketing stock price seems a type of overnight phenomenon, it would never have happened had it not been for some shrewd business decisions on Keithley’s part during the company’s rocky times.
The second is the fact that Keithley does not look at the company’s current level of success as any sort of summit. On the contrary, he truly believes it is just the beginning of the climb.
Face adversity head on
During the fall of 1993, a mini-panic slowly filtered through halls of Keithley Instruments. After marching steadily upward for more than 40 years, the company’s annual revenues had dipped for the third straight year.
In 1991, annual revenue stood at $100 million. By 1993, however, it was $95 million. The customer base the company had served for many years appeared to be slowly drying up. Keithley also suspected the company’s divisive organizational structure was not helping matters.
His father had built the company by employing a holding company approach, where the managers of individual product lines treated their corner of the company’s operation like a separate business, with little regard for how other lines were performing.
The theory was if individual units were charged with worrying only about their own success, the entire company would reap the rewards. The only problem was one had to look no farther than the decline in sales to see it simply wasn’t working anymore.
“What I wanted to do was get it growing again and everybody else in the company wanted it, too,” recalls Keithley, who started tinkering with the formula soon after he became CEO. “It wasn’t as though I hadn’t been part of the company here, because I started here in 1976, but it was my first chance to really do some things I could put my stamp on.”
Keithley hand picked a team of eight people, including the company’s CFO and several younger managers, to spend a large portion of their time finding an answer to a straight-forward yet complex question: “Why aren’t we growing and what do we need to do to grow?”
What Keithley Instruments had in its favor was the fact that its measuring device technology was needed by high-growth electronics markets as much as by the ones that had grown stagnant. The decision for Keithley was where to place his bets. Ultimately, he decided the telecommunications and semiconductor industries held the most promise.
It was during those early days at the company’s helm that Keithley decided to finally break down the company’s organizational barriers. He quickly discovered there were inefficiencies he could correct with a functional organization strategy. But more important, he says, were the psychological benefits for his work force. With a new strategy in place, everyone could work toward one common goal.
“If you want to have an organization where everybody’s working for the same objective, don’t have it organized so people can’t work together,” he explains. “Don’t have it set up so that each person’s compensation is for him as an individual contributor as opposed to having some group goals.”
Learn from the masters
At age 33, Elton White was the youngest officer of NCR and a notoriously aggressive salesman. He had been responsible for the company’s sales in the Middle East and Africa when one government banned White from bringing any of his company’s products into its country.
Despite what seemed a crushing obstacle, White somehow found a way to meet his sales goal.
“He came up with four different ways they were able to generate revenue even though the authorities wouldn’t allow him to put any new computers in the country,” Keithley says, telling the story with a wide smile on his face. “He’s a fascinating, inspirational guy.”
Today, White sits on Keithley Instrument’s board of directors. Keithley cites his father as his major business influence, but quickly points to White’s veracity and never-say-die attitude as another of his greatest inspirations.
“He does not know barriers, so when you and I might say enough is enough, he’d just blast through,” explains Keithley. “He demands of himself. He demands of others. He has an intensity about him. When he talks, it is always very fact-based and powerful.
“He has really helped me hone my skills in management and in what I should strive to achieve.”
White, who has been on the company’s board of directors since 1993, credits Keithley with being a willing student. The CEO always considers board members’ opinions, explains White, and never assumes he has all the right answers, even though he owns a majority stake in the company.
“The first quality that comes to mind when I look at the success of Joe and the success of Keithley has been Joe’s willingness to be open and learn,” says White. “Here is someone who has control of over 50 percent of the shares of the company. He could pretty much do what he wanted to, but he’s been very open to suggestions and thoughts from the board.
“He strives to search for the right thing to do ... But, you can’t just be open, you have to organize the troops inside and execute the plan. He’s done a good job at that.”
Interestingly, Keithley also cites the founders of a competitor as another influence on his business style. Hewlett Packard’s new Agilent spin-off is one of his company’s biggest competitors in the high-tech measuring device market, but Keithley looks at the lives of HP founders Bill Hewlett and Dave Packard and sees businessmen who were, at one time, not much different than his father.
“They did it with a sense of integrity, a sense that they were going to grow because they were going to come out with something that does better this time than it did the last,” says Keithley. “I just admire their ability to attract very good people and to have them stay for a whole career and have them rise and cause such change and growth and change.”
Don’t be afraid to change the status quo
In October 1997, Keithley announced the sudden retirement of several of his senior managers. It was a move that surprised many inside the company, but reinforced a message he had been trying to impress upon his managers and workers for the better part of a year: the company needed a fresh outlook.
Changes made during his first 24 months as CEO were good in the beginning, but the quest for new markets had by 1997 once again resulted in a splintered company stumbling over itself in a race to grow.
Work leading up to the surprise October announcement had started the previous January. With the consent of his executive team, which also believed change was necessary, Keithley hired an outside firm to gauge employee attitudes and beliefs about where the company should be headed.
His reasoning was logical. When the big changes finally surfaced several months down the road, he wanted everyone to know they had a stake in the company’s direction.
“The remaining people knew that I wasn’t just kidding around because the people who retired were fairly senior in the organization or had been there for a long time,” explains Keithley. “These were clearly moves away from the status quo, moves to reinforce what I was telling them.”
The company was also stinging from a string of bad luck. First, its $3.3 million investment in IBM’s Quantox software for testing semiconductors was not proving as successful as Keithley had hoped. It was well received by a number of customers, but the volume of orders needed never came through. Then, the Asian economy began its downhill slide, which took a heavy toll on the semiconductor industry. Despite the uncertainty, Keithley’s staff held strong, a fact he credits to involving them in the process of change.
“There are lots of people in a company who have definite opinions but are busy chattering by themselves and with one another about what ought to happen, whether or not you include them,” says Keithley. “And lots of them are important to the success of whatever decision you make ... I got that buy-in and I think most managers are uncomfortable doing it that way. I think it accelerates the acceptance.”
One of the most radical changes following his October announcement was Keithley’s decision to rotate the leadership role in several key departments to a different person as a way to spur innovation.
“I rotated some managerial responsibilities to get some new eyes,” he explains, “some new thoughts.”
Other changes were a little more difficult. Keithley whittled down the company’s product offerings, discontinuing two product lines and selling off two others. The liquidation took a toll on both the company and the employees’ emotions.
Although the jettisoned product lines were small, the revenue they generated helped pay the salaries of workers in other departments. Without them, Keithley was compelled to reduce his work force by one-third.
Keithley is the first to admit it was a difficult decision, but a move he believes everyone eventually realized was necessary. “We had a very painful experience somewhere between January 1998 and January 1999 of going from 750 people down to 500,” recalls Keithley. “In some cases, they were employed by the new company. In other cases, they just had to leave us because we had to achieve a different cost structure.”
After such monumental changes, Keithley still believed his work was only about 80 percent complete. He expected he would have to modify his new plan six to eight months down the road. He says today, however, that most of the changes made during this crucial period have stuck.
Part of the reason may be the fact that soon after this difficult period, the Asian markets and semiconductor started to recover.
“We had the good fortune that virtually all the choices I made worked,” says Keithley. “It was like a good strategy, good implementation and then the wind shifted. But instead of blowing in front of us, it started blowing from behind us.”
Keep an eye on the horizon
Keithley Instruments made the Jan. 25 edition of TheStreet.com The Wall Street Journal’s online investment publication. In the article, the company was painted as a dark horse, “ho-hum” firm that successfully latched on to the wireless telecommunications market and benefited greatly from investors initially interested in Agilent, who found a much more reasonable stock price in Keithley Instruments.
“Well, it’s interesting,” Keithley says of the article. “I don’t like the way (writer Marcie Burstiner) treated Cleveland. I thought that was unfair. She seems not to have a lot of respect for manufacturing companies, people who make things.
“But if you look at our sales over the past 10 years, I think we deserved everything she said.”
Keithley truly does not consider his company simply a manufacturing operation that churns out a commodity. Instead, he considers Keithley Instruments as primarily a development firm that supports the needs of the flourishing and ever-changing telecommunications and computer industry.
He explains that every time a cell phone or computer gets smaller, the tiny electronic parts inside of them get increasingly difficult to test for quality.
The challenge is investing in expensive research and development that will allow Keithley Instruments to not only to keep up with the rapid pace of miniaturization, but also be a primary supporter of high-tech, high-growth industries.
So far, Keithley Instruments has handled this task particularly well. The only reason the company has been able to swim in the same tank with powerhouses such as Agilent is the quick response that a smaller company can offer customers.
“Turns out in our business, even though Agilent is $9 billion and we’re $100 million, that they have to look and feel like a $100 million company to be successful,” explains Keithley. “That’s how we’ve been able to do it. We can be more responsive, because it’s really specific applications that need to be addressed and we’re better equipped to pursue the smaller ones.”
As he heads toward the future, Keithley knows great challenges and great opportunities will increase at an incredible pace as computers and communication devices become more prevalent, as well as smaller and more convenient. Being able to react to that change, will be Keithley Instruments’ ultimate test.
“If you look at the relative importance of our manufacturing versus our ability to work with the customers or have this specialty technology, that’s where the magic is for us,” he says.
“The development engineering people, the marketing people, they are the soul and the future of the company.”
How to reach: Keithley Instruments, (440) 248-0400
Jim Vickers (firstname.lastname@example.org) is an associate editor at SBN.