Pipeline to success Featured

8:00pm EDT October 24, 2006
 James S. Marlen has a growth lesson to teach other CEOs, a lesson he demonstrated with his own company recently: Sometimes, smart growth isn’t growth at all, at least in the short term.

In August, Marlen’s company, Ameron International Corp., sold off its coatings division, the largest section of the company. The sale trimmed the size of the company by nearly a third.

Although the move drastically decreased the size of Ameron, Marlen, who serves as chairman, president and CEO, says he looks at it as a case of getting smaller now to get bigger later.

Marlen says growing in line with your strengths is smart growth, and Ameron’s coatings business was no longer playing to a company strength.

“The reason we sold the coatings business was that it did not fit strategically going forward,” he says. “As a result, growth has become even more important at Ameron.”

While leaders of other companies might focus growth on one area, Marlen says he grows Ameron in many ways: internally and externally, domestically and internationally.

“Ameron is not a monolithic company,” he says. “We’re trying to enter new businesses with good growth potential and we’re also targeting external growth.”

At the strategy’s heart are two basic principles: A growth opportunity cannot stray from the area of expertise, and the growth opportunity must add value and profitability to the company.

Marlen’s strategy for the diversified pipe system manufacturer has helped spur it to the top of its industry. The 3,000-employee company netted consolidated sales of just more than $704 million in 2005, an increase of nearly $99 million over 2004.

Here are some insights into how he keeps Ameron focused on success.

Find growth opportunities
To Marlen, productive growth does one thing before it does anything else: It contributes to a company’s bottom line.

With that in mind, Marlen says smart business leaders carefully pick and choose their growth opportunities, especially with regard to acquisitions.

“You don’t want to have hollow growth,” he says. “You can grow a lot, but unless the margins in that business and industry are good, you need to take a second look.”

But finding a financial match is only the first step. The company must be able to pass rounds of research and analysis before it is accepted as a viable acquisition candidate.

Marlen says Ameron’s researchers analyze an acquisition candidate’s profitability, core competencies, the expertise of its employees and its culture, among other variables, before making a decision.

“We have a culture at Ameron that focuses on results,” he says. “The process is very important, but the results are really what drives the company. When you apply that test to growth, I think you can do very well.”

It’s that bottom-line-driven approach that helps Marlen maintain an emotional distance from any growth opportunity. One of the first things a CEO needs to learn is how not to fall in love with the idea of an acquisition.

Marlen says it’s difficult, but he fights his knee-jerk eagerness by reminding himself of how many businesses throughout history have poured money into a growth opportunity that ultimately failed.

“People tend to become overoptimistic, overenthusiastic and sometimes even take a romantic view of acquisitions,” he says. “In my case, I discipline myself to become emotionally detached from the process.”

Marlen constantly reminds himself of what a complex, pitfall-laden process acquisitions can be, of how difficult it is to maintain the right management structure and integrate two businesses properly. That, he says, helps remind him that he had better be really sure of an acquisition before he leads Ameron down that road.

Marlen says businesses that have succeeded in the past can gain a false sense of invincibility and are ripe for a fall if they don’t remember the principles that led to success in the first place. If you start thinking your business can go out, buy any company and be successful, that’s when something bad can happen.

“Falling in love with an acquisition idea is something that is very easy to do, especially if your financial structure is pretty sound,” he says. “You tend to spend capital without the rigorous analysis that ought to be made.”

In nearly 30 years at General Tire prior to joining Ameron, Marlen says he’s seen both the good and the bad of growth. In his business career, he’s performed about 15 acquisitions.

Marlen says failure, when it happens, is something to be learned from.

“Pain stays with you,” he says. “Business managers have to learn those lessons so they find out how not to arrive there again.”

Apply your expertise
Marlen says a company should be able to jettison a portion of its business that no longer falls in line with its vision, just as Ameron did with its coatings business.

Ameron’s marketers have brainstorming sessions in which the company’s identity and vision are regularly refined based on measuring market trends against Ameron’s core competencies.

In Ameron’s case, the company had developed expertise in the area of fiberglass pipe systems, so finding new ways to implement fiberglass pipe was a next logical step.

In a nutshell, coatings were out, wastewater pipe systems were in.

“You have to find those niches where you have a parallel position,” he says. “You want to stay close to your core competencies. If you start running too far afield with regard to growth, the risk of failure increases exponentially.”

It’s a message Marlen says must start in the CEO’s office.

“Again, you have to look at the fundamentals of your growth strategy,” he says. “It comes back to having emotional discipline and remembering that your businesses have to contribute to the bottom line.”

Communicate with management
If you want to grow effectively, you need a nimble organization. And one of the easiest ways to get that is to cut bureaucracy.

Ameron accomplishes that with a minimal number of executives.

“I’d say our organizational structure is very lean, which allows communication to be that much easier throughout the company,” he says.

Marlen calls his leadership style “interactive,” and he values having a company with a streamlined management hierarchy. Ameron’s top management includes no more than six people, which Marlen says allows him to communicate several levels below him with ease.

He says a flat or lean organizational structure gives a CEO fewer people to gather information from, which consequently helps allow that leader to keep his or her finger on the pulse of every area of the company.

While he tries to maintain phone and e-mail contact on a regular basis, he says he like to use face-to-face communication whenever possible and call meetings.

They are mostly informal check-ins, but once a year, Marlen gathers all of his top executives together for a status report on company growth. The leaders of each wing of Ameron must present to Marlen how that area of the company has progressed in identifying and capitalizing on growth opportunities.

“I ask them to present an executive summary of growth opportunities for the company,” he says. “We go through an analysis of what makes sense, what might work and what might not work. You prioritize them.”

While Marlen likes to meet with his senior managers often, he says he doesn’t like to talk too much.

He says that even though the messages a business leader must communicate are often complex and multifaceted, a CEO must simplify the message as much as possible. Too many words coming from the CEO’s office will cause the message to lose its significance to those hearing it, Marlen says. At Ameron, he tries to hone his messages down to the same simple, basic company concepts such as smart growth and producing value for shareholders.

“The leadership has to give the tone of those few messages you want the organization to focus on,” he says. “But you cannot give too many messages because they’ll lose their weight.”

Creative compensation
Marlen says a business’s ability to grow properly almost always starts in the human resources wing. To grow according to a vision, a company needs employees who fit that vision.

Ameron’s leaders are always on the lookout for employees who consistently bring initiative and energy to the business, and those employees are rewarded in Ameron’s performance-weighted compensation system.

“Track record is the best indicator of who is good and who is great,” he says. “After years of experience, you can begin judging people. But the results speak for themselves. You see the people that have the initiative, judgment and energy to grow businesses.”

Marlen says the best employees are the ones who are interested not only in company growth but also personal growth. They want to expand their careers as the company grows. People like that are motivated twice as much.

“Those people want more responsibility,” he says. “They want to succeed in business and reach the top.”

To keep and motivate those employees, Ameron instituted a performance-based pay system that takes into account how an employee performs on a year-to-year basis.

Employees have target incentives in place above their base salaries, as does about 50 percent of Ameron’s senior management.

Marlen says employees tend to respond more actively when they see the results of their work in their paychecks.

“I would say we have instituted a culture of meritocracy,” Marlen says. “That is a great motivator. If you do well, if your results are good, you will do well personally, and there will be growth opportunities personally.”

Marlen says compensation can never be undervalued. It can mean the difference between keeping and losing the best talent.

“Through my experience, I have found that in order to retain and motivate top talent, you must incentivize them,” he says. “Compensation is very important.”

HOW TO REACH: Ameron International Corp., www.ameron.com