Erik Cassano

Friday, 28 July 2006 20:00

Making connections

 In the early 1980s, Chet Pipkin was the head of a fledgling computer accessory manufacturer called Belkin Corp. It was one of hundreds around the country producing largely the same inventory of cables and other components, and Pipkin was content to keep his company on the same track.

“We got our start with copper cable assemblies,” Pipkin says. “We were pretty intent on just sticking with that product line. We were concerned about getting too spread out from a product mix standpoint. We wanted to stick with what we were really good at.”

But as companies started getting squeezed out of the market by high levels of competition, Pipkin, who serves as both president and CEO, quickly realized that in order to survive, Belkin would have to seek out new ideas and growth opportunities.

More than 20 years later, Belkin’s vigilant approach has made it one of the world leaders in its field. From the humble beginnings of Pipkin assembling computer cables on his mother’s dining room table, Belkin is now a Compton-based company with 1,300 employees and projected revenue of $1 billion for fiscal year 2007.

Here’s how Pipkin has kept Belkin one step ahead of the competition along the way.

Provide solutions, not just products
If Belkin were going to grow and survive, its ability to provide customer solutions would be key.

Belkin’s customer base is largely made up of what Pipkin calls VARs, or value-added resellers. The companies Belkin serves, in turn, serve the IT departments of other corporations. In the 1980s, Belkin’s customers were outfitting corporate offices with computers, some for the very first time.

By observing their customers, Pipkin says Belkin’s leaders noticed a trend: They would sell an individual component, such as a printer, but wouldn’t sell the cable that could hook the printer to the computer. Instead, they’d refer the customer to a competitor for the additional items.

Pipkin realized it was an opportunity to coach Belkin’s customers on how to sell computer components together as a unit — a given in today’s world, but a novel idea back then.

That revelation led Belkin’s leaders to form a systematic approach to serving customers. The company’s representatives make it a point to visit their customers, spend time with them, and educate them on selling not only the individual computer components but an entire range of products as a system.

The goal is to maintain a straightforward, streamlined approach that focuses on the end result, he says.

“We just use a very fact-based approach with this,” Pipkin says. “It’s a very common theme for us.”

To begin, Belkin outlines where a company is in terms of variables such as profit margin and customer satisfaction. They then form a plan to help the company reach its goals. The customer’s reaction once the job is done is the verdict, he says.

“They might be skeptical, but when you get it done, they are very appreciative, thankful, a little bit amazed,” Pipkin says. “Your credibility with them scales a lot, and they want to do more stuff with you.”

In a constantly-evolving business, the products that perform the best are those that have the best support, Pipkin says, and the companies that provide the best support are those most likely to retain customers.

Look everywhere for innovation
Belkin’s leaders are always on the lookout for innovations that can improve the company. Ideas are gathered through conventional means such as focus groups and surveys, but the tried-and-true methods are peppered with a large dose of people-watching to identify emerging trends.

Even Pipkin’s seven children are in on the act.

“My wife and I have six boys at home, as well as a daughter we adopted, and we are not bashful about watching them, about what it is they do,” he says. “We have a lot of their friends over all the time. It’s one of the ways we pick up on trends and the way things are being done.”

The same thing is done at Belkin’s locations around the world. The company does research in workplaces and homes, surveys members of the public, collects data about how people are using technology and uses that data to project future movements in technology usage.

Using research and observations to gaze out over the industry horizon has alerted Belkin’s leaders to a number of changes.

“For example, it became very clear to us a few years ago that the way we use computers was going to rapidly evolve from what we call a 6-inch experience to a 6-foot experience,” he says. “We were going from using computers mostly as a productivity tool to one that we would also be getting a lot of content and entertainment out of.”

Apple’s iPod, for which Belkin manufactures accessories, is among the most popular entertainment-centered computer devices produced in recent years.

“I don’t think we would have necessarily predicted Apple was going to be the organization that would bring a killer MP3 player to market,” he says. “We certainly could not have predicted what the iPod was going to be and what it would look like.”

What market research told Pipkin and his associates, however, was that something big was about to happen on the recorded music scene. Digital technology was on its way in, and the company needed to get on board while products such as iPod were still in the formative stages, he says.

The result is a series of highly successful products —the company picked up five of its seven innovation awards from the Consumer Electronics Association this year for iPod accessories — and a big revenue boost. iPod accessories now account for about 20 percent of Belkin’s total revenue, according to a MarketWatch report.

Provide the right environment
Belkin doesn’t only spot trends with binoculars aimed at the horizon. The company’s employees are also a valuable resource.

Pipkin says his employees provide a wellspring of ideas on how to improve the company, and he actively encourages open discourse with a flat organization, free of layers upon layers of management.

“Our organization is flat in terms of the organizational chart but also in the way we communicate between layers of the company,” he says.

Belkin’s facilities in Compton and around the world are constructed with a minimum of interior walls. Most floors are comprised of what Pipkin calls a large bullpen area in the center, with management offices around the perimeter.

“We like to have senior management located throughout our buildings,” he says. “We don’t want them stuck up on a separate floor or at the other end of a long hallway.”

The open style of Belkin’s buildings allows management and employees to share common space, which helps provide those on the lower rungs a level of comfort in speaking to their superiors.

“Sometimes, I’m the one making the coffee in our break room,” Pipkin says. “It’s a good opportunity for someone to come up and speak to me at that point.”

If employees are comfortable with their managers, they are more apt to take risks by speaking up and expressing ideas if they feel the ideas won’t be immediately dismissed.

“The best way to reach out to employees is to teach people that they are safe,” he says. “By that, I mean that if an idea is proposed or suggested, that it is not belittled or ridiculed.”

Once an idea is suggested, Pipkin says management is obligated to deliver some kind of response to the person who suggested it.

“People gain confidence in being able to communicate only if they sense credibility in the organization,” he says. “If they don’t see things happen, the organization gains no credibility. But if they see things happen, it adds credibility to the approach. People quickly learn that and want to be recognized for their ideas.”

If an idea can’t be used by the company, Pipkin says the person who suggested it still deserves a response.

“If we can’t use an idea, we let them know why it isn’t going to be considered,” he says. “That gives them an opportunity if they want to adjust and resubmit it, or simply to have satisfaction of knowing it was at least looked at and not ignored. Ideas shouldn’t disappear down a black hole.”

Pipkin says an employee who takes the risk of suggesting an idea will always be someone who is admired at Belkin.

“We may not always get the idea, or get it the first time, but we want you to take the risk to speak up,” he says. “If a suggestion is not embraced, we want the person to come back to us with more. If we do that well, people recognize that we want it in a sincere way, that we respect it and admire it.

“When people feel that way, they are inclined to keep coming up with more.”

HOW TO REACH: Belkin Corp., www.belkin.com

Thursday, 29 June 2006 20:00

High energy

Alex Lidow is a preacher. But he’s not trying to save your soul. He’d much rather save the world’s energy supply from your washing machine and refrigerator.

Lidow is a preacher in the church of energy conservation.

While other preachers deliver sermons from a pulpit, Lidow uses his perch as CEO of El Segundo-based International Rectifier Corp. to spread the word about energy efficiency and his belief that every person is responsible for doing his or her part to conserve the world’s energy. It is a guiding principle that he says has driven him in his 29 years at IR, the last 11 as CEO.

As head of a $1.17 billion manufacturer of electric and electronic components, Lidow is in a position to practice what he preaches. Since becoming IR’s leader in 1995, he has spurred a movement in innovation that has focused the company on developing products that cost less to run.

And cost isn’t just a matter of money, he says.

Cost versus price
Never confuse cost and price, Lidow says. Price is a product of supply and demand, while cost is the sum of everything it took to get a product to its current state.

It goes back to an epiphany he had as a physics graduate student at Stanford University in 1976.

“A friend of mine came in and took off his glasses,” he says. “He asked me if I knew what made the glasses cost what they cost. I gave him some nonsense answer, and he says, ‘No, no, what makes the glasses cost what they cost is the energy it took to bring them to this state.’

“The energy it took to melt the glass, the energy it took to plate the frames, the energy it took to run the store where they were kept until they were purchased.”

Lidow said his friend pointed his finger at him and said, “If you want to improve the global standard of living, figure out how to use energy more efficiently.”

That interaction made energy conservation Lidow’s life mission, he says. It’s something he implements at IR in a program called the “Energy Savings Challenge.”

“We’ve identified ways to save 30 percent of the world’s energy consumption,” Lidow says. “We’ve also identified how to apply this efficient use of energy to enable more and more dense computational and communications products.

“How much we cram into a little laptop or server is running up exponentially the amount of electricity and energy they require and it is therefore very critical that we use it very effectively.”

Diversification
Today, IR has its hands in wide range of technology fields. But that wasn’t always the case. In the mid-1990s, the company relied almost exclusively on one product, a HEXFET, also called a power MOSFET, which is a type of transistor designed to allow for more efficient use of energy in electrical products.

Lidow is one of the inventors of the HEXFET, which he helped design in the late 1970s.

Over the years, it had become IR’s bread and butter. The company had a series of patents on it and ramped up production. By 1995, the power MOSFET had become a commodity, the focus of a multibillion-dollar industry with a field of competitors.

Lidow says he didn’t want IR to get stuck in the groove of producing one item and simply trying to figure out how to do it cheaper than everyone else.

“The challenge I faced was how to take a company that really had a need, a desire, to influence the world’s use of energy, and yet we’re producing commodities,” he said.

The solution, he says, was a strategy called “technology pull.” IR would implement a plan that focused on innovation and bringing new technologies in-house, either through research and development or through outside acquisitions.

It was a complete transformation, Lidow says. Over the past 10 years, IR has tripled the amount it spends on research and development. The company also tripled its revenue over that time, but not everyone was happy.

“There were times when our profits were severely hit by that (decision),” he said. “Our stock was severely hit, and that makes for a lot of unhappy people.”

Lidow says the best way to deal with shareholders is to be upfront with them. He estimates he spends an average of one day per week on the road talking to shareholders to keep those lines of communication open.

“We communicate with our shareholders a lot,” Lidow says. “We get on the road, we have several people, including myself, that talk to analysts and key investors.”

IR seeks out investors who are interested in the company over the long haul, shareholders who are willing to stick it out through the ups and downs of the stock ticker. One of the keys for IR has been finding potential investors who share Lidow’s belief that a business should serve a greater purpose above and beyond its bottom line.

“We like to find investors who are interested in companies that have some kind of social significance,” he says. “That way, we get stable, long-term shareholders who maybe are more understanding — though not much more understanding - than the short-term people.”

Many times, investors seek out companies like IR instead of the other way around, Lidow says. A number of investment firms offer mutual funds that include companies focused on an environmental purpose, such as conserving the world’s energy, and there has been significant growth in many such funds in recent years.

R&D recruiting
Under Lidow, IR’s beating heart has been its research and development wing. It has pumped money into R&D at the expense of its profit margin and has opened 14 design centers around the world.

IR’s ability to stay at the front of its field is heavily dependent on its ability to recruit top talent to its research and development wing, where Lidow got his start as an engineer almost 30 years ago. To do that, the company aggressively recruits the top graduates out of the top engineering programs.

“One thing we try to do with R&D is we tend to go where the talent is rather than try to move all the talent to where we are,” he says.

In California, IR has research and development centers at its corporate headquarters in El Segundo, along with centers in Irvine and Santa Clara. It also has centers in Rhode Island and North Carolina domestically, and countries including Canada, France, Germany, Italy, Denmark, Singapore and China.

The worldwide presence of IR’s research program gives the company a major selling point when recruiting engineering graduates.

“When we recruit somebody, we put them through a two-year training program where we send them on six-month assignments to various parts of our country and the world,” Lidow says. “It’s a pretty exciting gig.”

IR calls it the “Rotation Program,” and it allows recent graduates of master’s and doctorate engineering programs to do half-year stints at IR’s research and development centers, learning about IR’s business and getting a taste of different cultures.

“Usually, when you recruit someone right out of a master’s or Ph.D. program, they are still pretty flexible with regard to moving around,” Lidow says.

By maintaining a worldwide presence and drawing in new innovations for its research and development wing, IR is able to maintain a high profile for its research and development program, which helps in future recruiting efforts.

“With the ‘technology pull’ approach, we have the most tools in the toolbox,” Lidow says. “With us, an R&D person isn’t sitting there, year after year, working on the same project. There is an exciting spectrum of challenges with different tools.”

Supporting and empowering its research and development wing is critical to IR’s success as it competes against industry giants such as Intel.

“I came from an R&D environment, so I know all the R&D people,” Lidow says. “We have about 1,000 of them around the world. It’s visibility, it’s attention, it’s valuing the R&D activity. Another element is people have to think they are achieving something. So when an R&D person works in a company that is at the leading edge of their field as we are, that’s the most exciting place to be.”

Not just an idea
Lidow was beaming after he and his IR colleagues invented the HEXFET. It was 1979, and IR held a big celebration for the product launch.

“We were light years ahead of everybody else, and I was one of the inventors of it,” he says. “I was proud as can be.”

But amid all the hoopla, IR’s then-CEO had some news for him.

“He comes up to me and says, ‘You’ve done too good of a job. You’ve developed a product that is so far ahead of everybody else, all you are going to do now is attract competition.’ And he was right.”

That CEO was Lidow’s father, Eric, the company founder who still serves as chairman.

His father’s comment taught Lidow that having a great idea is only half the battle. Once a business has come up with an industry-changing concept, its leaders must be prepared to become a magnet for competition.

“It’s not just about having an exceptional idea and a whiz-bang product,” Lidow says. “You have to be able to navigate very treacherous competitive waters.

“Too many people think it’s all about that home run idea. Home run ideas are great, but it’s all about navigating through the very complex business world to bring home run ideas to the point where they yield a return for the shareholder.”

Lidow says IR plots its competitive strategy on a case-by-case basis. For the HEXFET, company leaders formulated a plan in 1979 that would help fend off competitive volleys from Japanese companies.

“At that point, the Japanese were coming on really strong in similar fields,” he says. “It involved how to have enough capital to build factories to produce this economically. It involved getting intellectual property rights, and how do you protect them so that others would be faced with paying a high royalty or be kept out of the market?”

The strategy relied heavily on intellectual property rights. Securing intellectual property rights for the HEXFET allowed IR to strike licensing agreements with 18 companies, which today account for about $500 million in annual revenue.

“But there are many facets,” Lidow says. “It’s really situational. Every situation we look at and plot our strategy, and it’s always different.”

HOW TO REACH: International Rectifier Corp., www.irf.com

Thursday, 29 June 2006 20:00

Bureaucracy buster

Sovereign Bancorp Chairman, President and CEO Jay Sidhu is proving the old adage wrong — in his company, you can, in fact, have your cake and eat it, too.

Sovereign, one of the largest U.S. thrifts, is showing how a business can have the clout of an industry giant and still appeal to employees and customers on a personal level.

By just about any measure, Sovereign is a business titan. The company finished 2005 with more than $3.5 billion in sales and 10,000 employees. Its more than 650 bank branches are concentrated largely between Boston and Philadelphia, one of the most populous regions of the country.

Since 1990, Sovereign has made nearly 30 acquisitions, and since 2004, its net income has jumped 49 percent and its earnings per share has jumped 30 percent.

On the exterior, Sovereign is a glass-and-steel corporate behemoth. On the interior, Sidhu says Sovereign is still composed of the people who run it, and it’s the human touch that keeps employees loyal and keeps customers coming back.

Active engagement
At its heart, Sidhu says staying small is all about appealing to employees and customers on an emotional level. If customers and employees feel the company’s top executives are taking a personal interest in them and their money, the chance of those people remaining loyal increases.

“First of all, you have to understand and anticipate the needs of the team members and the needs of the customers,” Sidhu says. “Then, listen very, very carefully, and make sure that we are always putting them and their needs ahead of the company’s so there is true connection.”

In Sovereign’s company values, team members outrank even the customers. It’s not that Sovereign is devaluing the importance of customers, because as with any business, customers are Sovereign’s lifeblood. But without involved, engaged employees, Sovereign will never reach customers, making the company’s team its vehicle to customer satisfaction and, consequently, customer retention.

Every team employee at Sovereign is encouraged to develop a professional development plan, outlining goals for the next 12 to 24 months to keep team members and management on the same page from year to year.

The burden of reaching the goals isn’t just on the team member , Sidhu says. Managers must also work with employees to help them achieve their goals.

“We make a commitment that we will help them succeed at their plan,” he says. “It’s our philosophy that if we truly help people improve themselves, they will give back. There will be an emotional connection, an engagement, and it’s win-win — a win for the team members and a win for the company.”

Valuing and engaging employees begins a trickle-down effect that finds its way to the customers, and then on to the company’s shareholders.

“If you treat the team members right, they will treat the customers right, and if the customers and team members are taken care of, the shareholders will always win,” Sidhu says.

Bureaucracy busters
One of the largest hurdles any business has to overcome when trying to stay connected with customers is bureaucracy.

Sidhu calls bureaucracy a “disease that afflicts large businesses.” When a corporation becomes so large that branches and departments have trouble communicating with each other and with customers, it can become a major problem.

Sidhu says communication is the weed killer of bureaucracy. If a company keeps its employees and customers in the know, the odds of a bureaucratic snarl slowing business and upsetting customers goes down.

But keeping lines of communication open is a full-time job when a company grows to the size of Sovereign.

“You need to have a weed killer, I call it bureaucracy killer, in your hand all the time, because as soon as you as you spray on one, the next weed is coming up,” he says. “The bureaucracy keeps coming up and getting in the way. As basic as it is, it’s effort.

“That’s why there is no substitute for face-to-face communication, listening to the people and letting the leaders set the examples of living our values.”

Sovereign tries to solve the bureaucracy problem by involving all levels of management.

“In our company, we call it ‘DRASTIC,’ which stands for ‘Dumb Rules And Stupid Things Irritating Customers,’” he says. “I, myself, encourage every leader in the company that when dumb rules get in the way, bring it to my attention, and I’m going to help you to get to the customer. The customers should never suffer because of bureaucracy.”

To make sure that doesn’t happen, Sidhu gives out his e-mail address, office number, cell number, even his home number, to employees so that problems can be quickly addressed.

“But we have thousands of leaders in the company trying to make sure nobody has to call me,” he says.

Dealing with growth
Each time Sovereign acquires a new branch is an opportunity to gain the trust and respect of a new set of customers. It is also an opportunity to scare them away, into the open arms of the competition.

Growth has both positive and negative aspects, Sidhu says, and Sovereign attempts to overcome the negative by creating a comfort zone for customers.

“Change creates stress, and change creates anxiety,” he says. “When you are acquiring a bank, the bank needs changes, and some of the products change. That creates anxiety and stress for the customers.”

Sovereign has two approaches to creating comfort among the customers in a newly acquired bank. First, it makes every change gradual. Second, it tries to retain as many employees as possible in the acquisition.

“We really do it very slowly, inform the customers about all the details, what’s going on, that it’s going to be transparent for them, and at the same time, do everything possible not to change the faces the customers are familiar with,” Sidhu says. “We had one or two instances where we did not do the acquisition integration well, and we lost business. Other times, we’ve done it well enough where we’ve actually gained business.”

A successful integration is vital, Sidhu says, because if team members are comfortable with change, customers probably will be, too.

“It’s all about communication and training, all about product knowledge, giving team members mentors and coaches,” he says “We listen to them, talk about our values and principles. It’s not rocket science. It’s doing the fundamentals again and again.”

Having a vision
To lead a company through the complex world of mergers and acquisitions, employee relations and bureaucratic red tape, Sidhu says a CEO needs a strong vision, one that won’t waver in the face of failure or discouragement.

“You’ve got to have a dream,” he says. “Then you’ve got to have clear goals and clear guiding principles.”

In 20 years as a CEO, Sidhu’s leadership principles have been tested time and time again.

He became the CEO of Sovereign in 1986, when it was called Penn Savings. Over the years, he has piloted the company — renamed Sovereign shortly after Sidhu became CEO — through ups that included a 2001 move from the Nasdaq to the NYSE, and downs that included a 1993 attempt by Fred Jaindl, then-chairman of the board, to sell the company.

Sidhu vehemently opposed the sale, eventually filing a lawsuit in federal court to stop it, according to the 2004 book, “The Legend of Sovereign Bancorp.” The suit was later settled out of court, and the company was not sold.

Sidhu says business is “common sense made difficult.” CEOs have to see through all the challenges presented to them and never lose their grip on the pragmatic principles that helped them get where they are.

“It’s the common sense people forget,” he says. “It’s basic human values. The same principles that apply to a successful family also apply to a successful soccer team, or a successful bank.”

To succeed, Sidhu says a CEO needs three traits: technological skills, emotional intelligence and passion.

Technological skills are highly valued in the modern, computer-centered world of business. But a CEO’s jobs isn’t based on staring at a computer screen all day, he says. Emotional intelligence involves an ability to listen and relate to people, gaining their trust and respect. Passion is the intense interest in your job, what fuels a CEO’s fire even when adversity strikes.

“It is very difficult to find people that have all three legs to that stool,” he says. “But if you have computer skills, emotional intelligence and you add passion to that, it’s unbelievable.”

But all the traits and skills in the world won’t matter if a CEO doesn’t deal with people in a straightforward manner.

“I just can’t stand when people are not straightforward and not trustworthy,” Sidhu says. “In a business environment, it’s all about authenticity. In banking, we are a people business, and it’s the people that make the biggest difference.”

HOW TO REACH: Sovereign Bancorp, www.sovereignbank.com

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