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.”
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.
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