Phil Derrow invested during the recession to set Ohio Transmission Corp. up for growth Featured

7:01pm EDT November 30, 2011
Phil Derrow invested during the recession to set Ohio Transmission Corp. up for growth

Phil Derrow had been kicking around the idea of investing in the future of his company, Ohio Transmission Corp., for some time. One way or another, he was going to do it, but the question was this: Should he spend the cash when business was so bad during the bottom of the recession or wait?

With several locations outside of the state, it was simple to see that it was time to drop the “Ohio” tag from Ohio Transmission and Pump Co., a division of the corporation, because it was becoming more of an issue as the company grew.

“It wasn’t that much of an issue; we were able to deal with it, but when you’re down in Kentucky, they want to work with Kentucky people, not Ohio people,” says Derrow, president and CEO. The situation was the same in West Virginia. “You know, people have a sense of place; they have a sense of their own community, and being an outsider is never a positive thing.”

Not only that but the types of products offered and the focus of the business had changed since 1963 when it was founded by Derrow’s father, David Derrow. Also, the website needed a major makeover.

The second division, Air Technologies, also needed some investments along the lines of staff and production facilities.

Deciding if the projects, which would include rebranding and capital improvements, were worth the money during a recession hinged on a feeling that the recession had bottomed out ? and a belief in the future. The moves put the company back on the growth track.

Five years ago, the corporation had 290 employees and annual revenue of $100 million. Now, it has 360 employees across seven states, and 2010 revenue was $116.5 million.

The new website brought results almost immediately. More traffic was seen on the first day than what was seen in the previous six months. The switch to the name OTP Industrial Solutions brought all positive reactions.

Here’s how Derrow used belief in a better future to take action and grow the company.

Have confidence and believe

Change is said to be the only constant thing in life. When business is going really well, it’s easy to forget the fundamentals, such as that the economy will change at some point. Derrow believed that rather than pull back, he would opt for change.

Derrow was considering ideas for both divisions. Ohio Transmission and Pump Co. needed to be rebranded; Air Technologies needed to expand to fill the growing demand for industrial air compressors. The only question was, “Why spend money now when things are so challenging?”

The recession was tightening its grip on the company. With nearly 15 years under his belt as CEO, Derrow had been following good business practices. They put the part employee-owned company in a position to hopefully weather the storm. The company was not overleveraged and it didn’t get too far out on a credit limb with customers. In addition, it had employment practices that had some self-adjusting mechanisms, for instance, a compensation structure that was somewhat self-correcting, linking company financial health to wages.

“Business was down quite a bit, and our sales teams and managers were trying to figure out how to maximize business as much as we could,” Derrow says. “We decided not to conduct layoffs, we had plenty of people, and it was a decision to go ahead and do this now because we believe in the future, we know recessions end, we have the fat, let’s go ahead and make this investment.”

He saw some indications that the recession had bottomed out, and while he doesn’t quite call it a hunch, he felt it was time to take action.

“If you believe and know recessions always end, then there is frankly no better time to invest in the end of the recession than during the recession,” Derrow says.

Prices for labor and material are likely to be bargains, and through investment, you may be able to increase your market share even though the market is contracting.

“Continuously invest in yourselves and your company,” he says. “I make a big deal about the fact that investment is a continuous and ongoing process, and it is an essential statement of a belief in the future. If you believe based on knowledge that recessions always end, then you continue to invest. It’s no more complicated than that.”

You have to have the confidence to know that recessions end and act accordingly. If you don’t believe things are going to get better, and you aren’t prepared to act accordingly ? act in ways that they will get better ? then it is difficult to take advantage of the opportunity.

The reality is the United States economy follows a cycle, although expansions and recessions cannot be pinpointed ahead of time. Recessions happen about every five to seven years ? the National Bureau of Economic Research notes recent recessions happened in 2007, 2001, 1990, 1980, 1973, 1970, 1960, 1957, 1953, 1949 and 1945.

“There will be another recession,” Derrow says. “There will be another recovery. And so on and so forth. Even as each one is different, there are enough similarities in actions to take before, during and after that it isn’t impossible to make a plan.”

Energize employees

Darrow’s strategy was to rebrand Ohio Transmission and Pump Co. into OTP Industrial Solutions, with a new logo and website, and to invest in employees and a new factory for Air Technologies. With those as objectives, he set out to energize the troops.

“Actually, I would say if there were any concerns, it was over not doing it,” he says. “In most of our markets outside of Ohio, we were downplaying the Ohio element of it anyway. We were going to market as OTP rather than Ohio Transmission and Pump. So there wasn’t much of any resistance. But to the extent that there was any, it was, ‘Well, gee, this isn’t free. Why should we spend money now when things are so challenging?’

“That is where leadership is so important to demonstrate to people by action that your core values actually mean something,” Derrow says.

He found it more important than ever to reinforce the company’s core values of integrity, achievement, balance and, especially, investment. By showing that a core value (investment) was being shored up with the decision to spend during a recession, it elicits trust and confidence from employees.

Derrow took advantage of the culture of collaboration that had been built at Ohio Transmission Corp. to get the employees engaged in the investment “fever.”

“We talk about everything,” he says. “Involve your management, executive management, local management, sales people and staff people. We talked about the entire process, what the name was going to be, what the logo was going to look like, we talked about all of it.”

Cultural collaboration eliminates a sole deciding figure. Accordingly, decisions are those of a team.

“There isn’t one person who gets to say, ‘We’re doing this,’” Derrow says. “Even in my position as chief executive, one would think that I can, and maybe even should, simply say, ‘We’re doing this and everybody has to follow along.’

“I may have a good idea, and I certainly do have responsibility to set primary strategic goals, but even that is a process of talking to your folks, listening to your folks, listening to what your customers say and in making decisions that are collaborative no matter what your role is.”

If you don’t have a culture of collaboration, bring in outside resources that have the talent or skills you need.

“It is still then a matter of what you want to do as a company, where are you trying to go, and what is your objective,” Derrow says. “Ultimately, you end up collaborating. You have a culture of collaboration of some sort whether you like it or not, even if you are bringing in outsiders. It’s a collaborative process for you to tell the outside entity, the consultant, what it is you are trying to accomplish and you work together to get the outcome.”

You have talented people who built your success and are best positioned to make decisions about where you’re going next, and you can bring in outsiders to help you go where you want to go rather than tell you where that ought to be.

“An interesting part of this is I was not involved much at all in the details of the rebranding process and the website design,” Derrow says. “That was something mostly our team did. My role was to say yes to the investment, and I do care about the design looked like, so I had input what the logo was and color scheme and such for the website, but other than that, our team and our service providers ? they made all the decisions.”

A new logo was designed for OTP Industrial Solutions, along with a new, interactive website.

Meanwhile, Air Technologies received a large investment in not only a new factory, but in a decision to keep all employees on the payroll and even add some sales representatives.

“We were not sure that we would be able to regain profitability during the recession, because it was a deep one,” Derrow says. “Yet we believed that our people are the ones who are responsible for our success and that when times get tough, it’s not our way to just toss people overboard.”

The decision to invest in production facilities was made before business had fully recovered. The company’s Direct Air product, which is compressed air as a utility much like natural gas, has been a fast-growing business for Air Technologies. The new factory went online last year.

“Those (the staff and the factory) were significant investment decisions when business was still pretty bad,” he says.

Don’t forget the human factor

Even though the strategies were accepted and the rebranding and expansion projects were going ahead, Derrow still had to contend with managing during a recession.

“Our sales volume dropped very rapidly and that’s always one of those things that comes as a surprise, and is not a particularly positive surprise,” he says. “So I guess for us, and this really gets back to the notion that each company is unique, each company’s culture is unique, the attitudes and objectives of the owners and leaders of each company are unique, so there isn’t one right answer on how to manage through a recession.”

For Derrow’s company, it was a matter of collaborating with the people and talking openly with the teams.

“We have 360 people now, and you can’t manage through such a challenging period without engaging the people in the organization,” he says. “We believe in being open and honest with our people and telling them what’s going on, telling them the company’s position, telling them our strategy and making them part of the process from start to finish.”

Within a small group of options, communication methods are fairly standard. What Derrow found important was that the more effective you want your message to be received, the more methods you should use.

“Have meetings, send out e-mails to folks, to all of your associates, share what’s going on and what you are doing on an ongoing basis through multiple means,” he says. “Have corporate-level meetings and all-associates type e-mails, local meetings and one-on-one conversations with people. People get nervous. People have families to take care of. They have their own mortgages to pay.

“There are individuals who work for you who have their own lives and so during a tense period, you have to be receptive to the fact that there are real individual human beings involved,” he says. “So you could have global e-mails and meetings, but at the end of the day, you have to be one-on-one with people and listen to their fears and concerns and show them the way forward.”

The good thing is that your managers are people, too ? they have their own fears. They carry it out in the same way that the executive team carries it out with them.

“So if you start there, and make it clear that you expect that the kind of conversations you’re having with the executive team the executive leaders are having with their managers, expect their managers to have those very same kinds of conversations with the people on their teams all the way to the line-level people that work there.”

How to reach:Ohio Transmission Corp., (614) 342-6123 or www.otpnet.com

The Derrow File

Phil Derrow, President and CEO, Ohio Transmission Corp.

Birthplace: New York City. But I was only there for three days, or for however long they kept my mother and me in the hospital. My family lived in New Jersey at the time, and the hospital was in New York. I’m from Columbus. My family moved there when I was 3.

Education: I am a graduate of The Ohio State University. I was a marketing major. I suppose you could say I minored in engineering, but my degree did not say engineering. I took mechanical engineering classes and then moved to the business school and got a marketing degree.

What was your first job?

My very first job out of college was with a local car dealer, selling cars. That particular profession has a lot of negative things associated with it, and the reality is I worked for a good guy, and I learned how to sell. I learned that the best way to sell is to listen to customers and let them sell themselves. It was a straight commission job, and if I wasn’t any good at it, I didn’t make any money. No draw. I would say there were some valuable lessons and there were also some valuable lessons about how to manage differently, shall we say. I didn’t want to manage others the way I was. I was there six months.

What was the best business advice you ever received?

The best business advice came from watching my father who was the founder of the company along with a partner. So this kind of takes the form of a story. Leadership and management are always about others. It isn’t about you. So that’s how I would phrase the best business advice. And the story is, I think I was about 8, and I wanted something as most 8-year-olds do, and my father said no. I said, ‘How come?’ and he said, ‘Because we can’t afford it.’ I said, ‘Why not? You’re the boss; why don’t you just take more money?’ His response was something along the lines of, ‘There are other people who work for the company, and if I just take more for me, then I’m not treating them with the respect that they deserve. They’re the ones who are helping to build the company along with me.’ So it was one of those lessons that said it isn’t all about you. It’s about others.

What’s your definition of success?

Getting back to the best advice ? it isn't about you, it’s about others ? my definition of success would be defined as creating a workplace where others can be successful together and create a thriving and successful business.