When Michael Hilton looks at a soda bottle, he isn’t thinking about whether it tastes good or if it will quench his thirst. He is thinking about all the ways his company can incorporate better applications to make the bottle.
Historically, bottle labels were applied by rolling the bottle in a pot of glue, which would result in the adhesive dripping and covering areas of the bottle that didn’t need to be. The application Nordson Corp. developed was a pattern spray on the bottle. The leading edge of the label is placed on the bottle, it is wrapped around and receives a coating on the trailing edge, which saves 20 to 30 percent in adhesives.
“It’s a big seller for our customers,” Hilton says. “That’s one way to drive growth — create applications with technology.”
Driving growth is what his objective has been since being named president and CEO at the beginning of 2010. Nordson Corp., a more than 4,000-employee manufacturer of products and systems used for dispensing adhesives, coatings, sealants and biomaterials for several end markets, has been a strong company, even during the recession years. When Hilton arrived, he saw the company as an $800 million organization that could become a $2 billion or $3 billion business.
“If you step back, [Nordson] was surrounding the customer [with a] globally well-positioned [team], a talented team, and a team that executed,” he says. “That’s a very good foundation to build on.”
Globally, Nordson has a presence in more than 30 countries and has been well-established in locations such as China, India, Brazil, Europe and Japan for a long time.
“For a company our size, that’s a great global footprint to have to take advantage of opportunities for growth,” Hilton says.
To benefit from those opportunities he had to evaluate the business and understand the key areas that needed attention and resources.
Here is how Hilton is improving the operations and processes of a good company to make it a great one.
Cover all the bases
Coming into a company as its new president and CEO usually carries a lot of weight. Hilton didn’t want to just come in and make random changes. He had developed a relationship with his predecessor Ed Campbell, and he used that relationship to listen to any advice Campbell provided to understand the business.
“Initially, I spent the first couple of weeks largely with Ed getting a download on everything you would expect from the business to the customers to the investors to the organization, and he was pretty helpful in terms of his long history at Nordson,” Hilton says.
Hilton’s time with Campbell was short-lived, but impactful. The keys to the company soon belonged to Hilton and he had to now get out of the headquarters facility and visit the business around the world.
“As soon as I could I really looked to take the opportunity to travel and meet some customers, see our facilities globally and get a better handle on what we do day-to-day,” he says. “There is only so much research you can do from afar and only so many reports you can read, and until you have an opportunity to touch it and feel it, you don’t really have the same perspective.”
It was obvious to Hilton that Nordson was a very good company and performed very well in a difficult time. The company was fairly solid and there were strengths in its business model.
“If I step back and look at what were the key strengths that I found, one was how we surround and support the customer,” he says. “If you think about the underlying technology, the direct sales approach and really a service organization that is incredibly responsive to its customers, that’s as good as I have seen.”
Hilton has previously operated in a number of different businesses all with one major company, but six different business models.
“I think I have a pretty good operating field of different approaches in everything from commodity businesses to specialty businesses and high-performance businesses, and this is very high-performance, so it was a great foundation to inherit,” he says.
The biggest key for a new incoming CEO to understand what a business is about and how it operates is to listen.
“I didn’t rush to form any particular opinions,” Hilton says. “It’s a complicated business so you need some time to get to a level of understanding before you can sort through and think about what has to happen next and take the company forward.
“As somebody who’s been in the industry 30-plus years before I came here, you can have a tendency to feel like you know what needs to be done. You have to wait a little bit and make sure you have enough input. It’s a bit of drinking from the fire hose, but it does give you a good perspective of the day-to-day.”
While listening is crucial to a CEO’s understanding of the business, visiting different locations in person is also important.
“You have to get out to facilities so that you better understand what you do and how you win in the marketplace and there’s no substitute for that,” he says. “Also, you have to take time in the nonbusiness environment with folks, whether that’s on the weekends or at dinners just getting to know people in the organization.”
Those same things go for getting to know your leadership team. Demonstrating that you’re a regular guy is a crucial step to cementing relationships.
“It is really trying to put the leadership team at ease when you come in,” he says. “Particularly in the time when I was coming in we were just starting to come out of the recession and the best thing for the business was to figure out how we could win in the recovery phase and to win more than our fair share of the business.
“You need the team motivated to do that. I’m here to learn and I think I have some experience and value to offer, but I don’t want to come in with a preset agenda that said we have to do A, B and C, because I didn’t know enough.”
Take the next steps
Once Hilton had become comfortable and did his due diligence within the organization, it was time to take the things the company was good at and find ways to make them even better.
“If you look at what we’re really good at — the surround the customer piece, the global position and the execution — what else do we really need?” Hilton says. “I came down to focusing on three areas. No. 1 was, ‘What can we do from a strategic standpoint to take us to the next level?’ No. 2 was, ‘How can we create more leverage across the enterprise?’ No. 3 was talent development.”
The first thing that Hilton and Nordson performed was a rigorous review of the business.
“We have these businesses, what can they deliver over the next five years from a growth and performance standpoint?” he says. “Historically, the company grew organically at about 6 percent and historically added about 1 percentage point from M&A. We concluded that we ought to be able to take that 6 percent and make it 8 percent.
“If we continued to improve our bottom line performance, we’d have more cash to reinvest, so we should at least set a goal to add from an M&A perspective, not 1 percent, but at least 2 percent and maybe more. So how do we go from something that looks like 7 percent growth to 10 percent growth on a sustained basis?”
First, Nordson looked at ways to exploit emerging markets by improving technology and applications.
“If you think back from a strategy standpoint of how do we get more organic growth, emerging markets is a big play, using technology to create new applications, and using new technology to help our customers recapitalize are all very important,” he says. “So when I looked at what we’re spending on technology, I said, ‘Even though we’re the leader and absolutely have the best technology out there, we’re not spending enough on technology. We’re spending too much on supporting our existing products.’
“So we’re increasing the absolute amount we spend on technology and we are shifting more of our technology spend from supporting existing products to developing new.”
Another step Hilton took to drive growth was changing the strategy of how the company went about mergers and acquisitions.
“We had to add a couple of points organically,” he says. “How do we move from an opportunistic and episodic acquirer … to being a more consistent acquirer? We identified four areas of interest to us — medical devices, flexible packaging, cold materials and extending our test and inspection business. You have to use strategy to drive organic growth with technology. Use strategy to drive M&A activity in areas that make sense. We’ve made three acquisitions this year which added 4.5 to 5 percent to revenue.”
The next thing the organization focused on was what it could do across the company that would benefit each business.
“One of the assessments that I made when I traveled all around is we had done a really nice job of adopting lean technology, but it plateaued in terms of our performance results,” he says.
“Much of the company’s margin improvements from 2002 to 2007 came from the Lean initiative. We went from 12 to 13 percent operating margin to 17 percent. Last year we did 26 percent, so we’ve moved the bar quite a bit and we have more to go. We have kind of stalled out on the Lean activity.”
To drive the next wave of continuous improvement Hilton appointed a senior experienced operations employee to build a small team and give him direct reports on improvement.
“As part of that we’ve identified two things; one we’re in the middle of executing now is optimizing our global supply chain,” Hilton says. “That’s really to allow us to distribute things where the demand is and do that in the most efficient way. The second big area is around segmentation, which is understanding from a product and customer standpoint what we provide, what are our offerings, where are we making money and do we have too many products?”
The third piece of the puzzle for Hilton regarded the company’s talent. He was pleased when he traveled around the globe to see the quality of the talent Nordson had in the organization, particularly at the leader roles.
“The challenge for us, like many companies, is if you really want to grow substantially, you need to add resources and you need to do that across the globe,” he says. “To do that, we need to build up our management capability in all areas. We have good people, but just not enough to support our growth ambition.
“One of the key areas of focus is how do we enhance our overall talent development and management approach.”
When Hilton did the first review of succession planning in the organization, his direct reports went a couple of levels down and he noticed there were a lot of gaps. The company focused initially on how address that.
“We made a number of rotational moves to broaden people’s skill sets and capabilities,” he says. “Then we took a step back and said, ‘OK, for the folks that run the businesses and the functions that report to me, what kind of skill sets do we want those folks to have, both from a content or expertise standpoint and a leadership standpoint?
“Given those skill sets, what kind of positions below them would be good feeder positions that would help them develop those skill sets and capabilities and where is the key talent in the organization who could move into higher levels of leadership and management?’ We got more thoughtful in development moves and giving folks different experiences.”
Add to your strategy
Now that Hilton had spent the time understanding the business and identifying the areas where the company had the best opportunities to improve, he had to make those changes part of the company strategy.
“If you step back, these are the things that I think we need to do to help us move from that $800 million to a $2 or $3 billion company to give us 10-plus percent revenue growth and some additional leverage that gets us into teens earning growth and be a top-quartile performer,” he says.
“We had a Lean organization and one that hadn’t gone through a rigorous strategic planning approach in the past so some of the concepts were new. I brought some help in from the outside to help put some structure and discipline in and to add some resources that we didn’t really have.”
Those changes resulted in 2011 revenue of $1.2 billion. One of the keys to more organic growth was Hilton’s strong belief in leading the merger and acquisition activity in the market.
“If you can be the one out there driving the activity, you’re going to end up with a better set of deals to add to the portfolio,” he says. “If you’re driving it, you’re probably out there establishing relationships early on. It might be two, three, or four years until somebody decides they want to sell, but if you have a relationship it enhances your own knowledge of their business and therefore reduces the risk.
“It also gives you a first shot at business. The more knowledge you have, the more you understand what you’re going to do with it once you acquire it.”
For Nordson, the company looked at logical extensions of what it does today and what would fit its business model.
“We put a set of criteria together,” Hilton says. “For example, 40 to 45 percent of our business is recurring revenue through parts, services or consumables. We like that because it gives us a steady nature to our business. So when we look at things to buy, whether it has a recurring revenue component is an important area to check the box on.
“We look at whether the company is a technology leader. Is it a performance sale so that I can take advantage of my technical sales force? Is it regional, but I could take it global and use my infrastructure? We look at all those things and use a set of criteria that says this is a good deal for us.”
In June Nordson acquired two more companies, Entrusion Dies Industries and Xaloy, bringing the the total to five acquisitions in 2012. Hilton made certain these two companies fit the Nordson strategy.
Another thing Nordson is changing strategically about its M&A activity is how it manages the companies it acquires.
“Historically, we tried to buy good companies and leave them alone so we didn’t screw them up,” he says. “We like to still buy good companies but now we’re looking at what we can do to make them better, how we integrate them into the business that we have, and if it’s a new area, what else can we add to it down the road. You need to do that to deliver the performance, but also sustain the business.”
A key ingredient to sustaining the business is having top-level talent capable of keeping pace with the growth you want to see. That talent has to be intertwined with the strategy for everything to operate smoothly.
“There is no substitute for going out and spending time with your organization and making your own observations,” he says. “Talk, listen and see your folks in action. See them with a customer and then you’ll get an initial reaction, but then you have to test that with folks.”
By doing this analysis you are able to get a sense of the gaps in the organization and moving forward, it is easier to see where talent development and your strategy line up.
“If you’re doing the initial round of visits, you get a sense of what you have in the organization,” he says. “You get a sense of the skill sets and capability at a high level of one or two levels down from the folks that work directly for you so you get a sense of depth in the organization and breadth in capability. Then you weigh that up against what you’d like to do.”
The other thing Hilton did was seek out a few trusted advisors to help him while going through the talent process.
“Find one or two people that you feel pretty confident with who could be trusted advisors without any particular point of view and be objective to bounce ideas off of,” he says. “If you have that kind of open relationship, it ties into some of the other things in terms of how you gauge your own leadership.”
Most importantly, as you go through an evaluation process of your business, you have to be willing to put resources behind the things that need improvement if you truly want to create measurable results.
“Get help from outside your organization and put resources on it,” Hilton says. “It doesn’t happen without some resources on it to develop, and it doesn’t happen overnight.
“This is a really, really good company that I inherited. We’re making some positive changes. I think we can make it considerably larger and just as good in terms of the performance, if not better. I’m pretty pleased about where we’re at and about our prospects. The folks have risen to the occasion, but I don’t want to exhaust them because we have a long way to go.”
How to reach: Nordson Corp., (440) 892-1580 or www.nordson.com