“Honestly, the biggest challenge we’ve had is driving performance in a marginally profitable company,” says Stan Hasselbusch, president and CEO. “We’ve got a great reputation, a great tradition, but we’ve learned in the last five years that you need to build on tradition; you can’t live off tradition.”
Allowing the situation to continue could have put the company in a tight position with its lenders and jeopardized its relationships with its key suppliers.
“I think if we wouldn’t have taken the initiative to put forth the changes, we could have been struggling with banks from a support standpoint, we could have been struggling to put together suppliers to back us on our distribution side,” says Hasselbusch, who became president and CEO in 2002. “It would have been a very difficult situation.”
Hasselbusch says L.B. Foster, a manufacturer, fabricator and distributor of products for the rail, construction, utility and energy industries, wasn’t any different from many other heavy manufacturing companies that stumbled in the 1990s and into the 21st century. Big steel company failures had a ripple effect that hit the company. Some key strategic suppliers failed, and the company encountered trouble with a few others.
“We were struggling for growth, we were struggling for profitability,” says Hasselbusch. “We had a market cap of about $45 million or $50 million. We had no growth in the business. You go through the last half of the ’90s, and we were wallowing in $220 million to $250 million in revenue.”
The company flirted from time to time with violating some of its loan covenants, and some of its businesses were a poor fit strategically and weren’t performing financially, either. And while market conditions were to blame at least in part, some of the damage was self-inflicted.
“We had poor cash management, we had some real operations issues in our plants,” Hasselbusch says. “There’s just a myriad of areas that we needed to focus on.”
Getting a new perspective
Hasselbusch realized that curing L.B. Foster’s woes would take a new strategy and change within the company, so he decided to bring in a consultant to help.
The company had done strategic planning in the past, but the difference this time around was a commitment to not only plan the work but to work the plan.
“Instead of what we had done with strategic planning in the past spend three days together with the senior management group, get done with it, and move on down the road and worry about your operating plan we tried to bring the strategic plan in to make it a living, breathing part of our operation on an ongoing basis,” says Hasselbusch.
He says bringing in an outside consultant can be helpful because it brings a different perspective on the company’s situation, particularly for someone like himself, a lifelong employee of the company.
“It’s a fresh set of eyes,” says Hasselbusch. “I’ve been with this company since I got out of college. I really look for and welcome ideas about what best-in-class companies are doing. We really look to get better ideas of how we might be able to improve what we’re doing.”
He says that it is important to select the right consultant to work with, and he interviewed five different candidates for the task.
“I think they have to totally understand what the company is doing and they have to totally understand the vision that’s being created and where you want to go,” says Hasselbusch.
To integrate the strategic plan into the everyday operations of the company, Hasselbusch brought in a strategic-plan facilitator and assembled a strategic council comprised of six senior managers, including himself, to monitor it.
“We meet on a monthly basis for a half day to review or take a look at our strategic plan to monitor the success of it,” says Hasselbusch.
The first area that Hasselbusch attacked was the company’s finances. What he found was that its receivables were too high, it was taking too long to collect its money and it was carrying too much inventory.
The company took a tougher, more aggressive stand on collections and put in place an early warning system to identify potential problem accounts.
For the products that the company resold, it reduced the lead time between purchase and sale to customers. And on project work, it required larger upfront payments before jobs were initiated. Inventories were reduced by focusing efforts on cutting the lead time between the purchase of products and their delivery to the customer, and by improving the billing process, product invoices were turned into receivables sooner.
But making the operational side work was as much an exercise in communication as it was an improvement in systems and procedures. Over time, the company had developed a silo mentality, where departmental barriers stifled communication.
Hasselbusch sent a clear message to those departments that he expected them to work together and that he expected results. He also took a hard look at some of its business units, asking if there were any that weren’t a good fit.
“We took a look at our business and we tried to review all of our business models and how they fit or didn’t fit,” says Hasselbusch. “We needed to establish a much clearer vision of who we are and where we were going to go.”
The company viewed its business units through two filters: financial performance and strategic fit. If units didn’t meet one or both requirements, says Hasselbusch, the company considered selling them.
As an example, its Geotechnical Division, an earth retention systems business that L.B. Foster acquired in the late 1990s that looked like it would create synergy with some of its other units, never proved to be a strategic fit or a strong performer financially, so the company sold it off last year.
“You look at the profitability and how it has performed,” says Hasselbusch. “You look at how it fits into your product mix from a strategic standpoint going forward. We didn’t have the performance out of Geotech.”
While its finances had been hurt by weak collections practices and heavy product inventories, the company’s top-line performance was hampered by a lack of attention to customer attitudes and a short-term view of the sales process.
The company put together its first customer satisfaction survey in its more that 100-year history and instituted a monthly product review where Hasselbusch convenes with the product teams and reviews performance.
“I run product review meetings where I sit down two days with all of our product teams, one at a time, where I go through performance,” says Hasselbusch.
Those meetings take a longer-term perspective than the company had been used to taking.
“Where we were two years ago was, ‘Where are we going to be next month?’” says Hasselbusch. “Now, we’re looking at what’s out there the next quarter, but more often than not, we’re looking at the next 12 months to three years.”
To improve both its top- and bottom-line performance, the company improved its relationships with suppliers.
“We’ve been able to align ourselves with key suppliers where we have exclusive or quasi-exclusive arrangements,” says Hasselbusch. “We work both sides of the ledger. We feel very strongly about the supply side. We work just as hard with our suppliers as we do with our customers.”
Safety and communications
Ballooning costs related to safety issues were also a drain on the company’s finances, and workers’ compensation costs were spinning out of control.
“We were continually struggling to reduce our costs, our workmen’s comp costs,” says Hasselbusch. “We looked at our lost time we were running 20 accidents per 100 employees per year back in 2002.”
The company put together a safety initiative in 2003 aimed at reducing losses by 40 percent a year, making gains with better training, improved plant housekeeping and incentives for worker safety performance. The effort has reduced lost-time incidents and the number of employees on restricted duty. Workers’ compensation costs went from $505,000 in 2002 to $45,000 last year.
Key to the reduction was communicating the importance of safety to the managers and workers at the company’s facilities.
“We have our safety meetings on a weekly basis, involving all of our plants via conference call,” says Hasselbusch. “When we have an accident, we shut the whole damn thing down. We bring everybody together to decide what happened, what went wrong, what we need to do to avoid this in the future.”
In addition to the companywide weekly meetings, each plant conducts a safety briefing before every shift, at which safety hazards are identified and discussed.
The safety efforts have paid off not only in dollars saved but in outside recognition, as well. Two of the company’s plants, one of which is located in Bedford, had poor safety records in the past but have recently earned industry awards for safety performance.
Safety isn’t the only message being communicated. Hasselbusch also ramped up internal communications with a company newsletter and maximized his face time with the work force so everyone understood goals and strategies.
“We have town hall meetings that we’ve implemented,” says Hasselbusch. “We have two a year, usually at the end of the first quarter and at the end of the third quarter. We broadcast that throughout the company.”
Product, human resources, plant and process issues are discussed as needed.
A proponent of management by walking around, Hasselbusch also places a premium on getting out of his office to visit L.B. Foster’s plants and branches.
“I make it a point to get out to each one of the facilities as often as I can,” says Hasselbusch. “I feel you’ve got to get out to the plants, to the offices ... and let them have a chance to talk with you and ask questions.”
Ultimately, the measure of success for any business is its financial performance, and L.B. Foster has been on the upswing for the past several years. In 2006, the company achieved net sales of $390 million and net income of more than $13 million, compared to 2002, when the company posted net sales of $258 million and sustained a net loss of more than $11 million.
“We just closed out a record year,” says Hasselbusch. “We’re just coming off our best year as a public company from a performance standpoint. I think what we’re doing is starting to pay off.”
But Hasselbusch says that while recent performance has improved markedly, the job is never complete.
“I believe that you’ve got to have continuous improvement; in your personal life, in your company, that’s really what you have to strive for, and you have to be able to drive measurements across the board,” says Hasselbusch. “I feel very strongly about that.”
HOW TO REACH: L.B. Foster Co., www.lbfoster.com