Riding the rails Featured

8:00pm EDT June 25, 2007

When Al Neupaver came to Wabtec Corp. as its new president and CEO at the beginning of 2006, his charge was to get the rail products company back on a strong, long-term growth track.

It wasn’t that Wabtec needed an overhaul, because the previous CEO had done a solid job of slashing debt and improving financial performance.

The company, a provider of technology-based products and services for the railroad industry, just needed to start focusing on moving to the next level.

“It was a very lean company, very focused on cash generation, very focused on technology, but there wasn’t a lot of focus on growth,” says Neupaver. “So from the get-go, we spent a lot of time talking about growth. How do we change that vision of ours from just generating cash to a growth company?”

Neupaver started by proposing to double the company’s $1 billion in net sales in five years.

“I think we were used to following the market, and when the market’s growing at the rate it was from 2002 to 2006, that was OK, but we want to establish Wabtec as a consistent growth company through the cycles in the market,” Neupaver says.

When meeting with some managers, it became evident to Neupaver that a strong rail products market over the previous several years had helped the company grow organically but really hadn’t encouraged a proactive approach to sustaining growth and positioning Wabtec for the inevitable cycles that the industry experiences.

“Some of the things we would ask them were questions like, ‘How are you going to double the size of your business?’ and they’d look at you like you were from outer space,” says Neupaver. “I’d ask them what their sales were going to be next year, and they’d say that it depends on how many railcars were built or how many locomotives were built instead of on their own initiative. That’s the kind of culture we’re trying to change, and each division is being asked to contribute to that growth. And before that, not that growth wasn’t important, but I don’t think everyone was as focused on it as they could have been.”

Starting an evolution

Neupaver and his team met a few weeks after he came on board to put together a strategy for growth. They reinforced Wabtec’s three existing strategies: global and market expansion; aftermarket products and services; new products and technologies; and added acquisitions as a fourth. They decided all four strategies were to be supported by applying the Wabtec Performance System, a process already in practice at Wabtec that combines continuous improvement and lean manufacturing.

“Lean manufacturing is critically important to us,” says Neupaver. “We strive to continue to improve our manufacturing. You’re never going to reach a point where you can’t improve anymore, and continuous improvement is what it’s about. The importance of that is you’re going to grow a business, and if you can’t add value through your operating systems, you’re not going to be a good company long term.

“A good example is if you acquire a company and you can’t provide some kind of synergy through your performance systems, you’re going to have a Company A and a Company B. You could put them in your portfolio and have the same value as A and B, but if you bring them in and add value through your operating systems, then it makes more sense.”

Outlining the plan was pretty straightforward, but getting buy-in was the key to execution.

“The real key way to establish that vision and support it was to visit the operations, talk about it, and then ask them to come in to work on our strategic planning process,” says Neupaver. “That was conducted during the summer months of last year, and then followed up with the budget cycle later in the year. It was to put in a structure, it was to have a vision, have strategies, the tactics all the way down to the budget cycle.

“Let’s talk about acquisitions (for example). The objective is we want to grow the business through strategic alliances and acquisitions. That’s a well-stated strategy. That strategy would be part of the annual performance plan for all of my direct reports. They would have a goal for the year of identifying and exploring and analyzing so many companies that are potential acquisitions, and then they get different incentives on whether they close on an acquisition.”

This same thing would drive down to the next level. The general managers out in the divisions have a similar type of goal.

“Now, if it’s a division where we didn’t have an interest in acquisitions, we wouldn’t have much emphasis there, and we probably wouldn’t take it too far down into the specific division because they would really not be working on that strategy,” says Neupaver. “But if it’s a cost-saving strategy related to productivity, efficiency, sourcing or whatever, that would go all the way down. In the case of sourcing, (it would go) to the purchasing manager at the division.”

Neupaver tracks the results on a document Wabtec designed that it calls a “bowling chart,” dubbed as such because it resembles a bowling score sheet, with targets and actuals noted in successive blocks associated with each month.

“On a monthly basis, we track how much savings we got from that objective,” says Neupaver. “It’s a fantastic tool.”

Providing the incentives

Neupaver employs a combination of short- and long-term incentives to encourage his team to meet the corporate goals, based on performance at the individual, business unit and corporate level.

“We have both short-term and long-term incentives, with everything tied into our corporate strategic objectives, which are to grow through global and market expansion, new products, aftermarket products and services, and acquisitions,” says Neupaver. “Our short-term incentives are based on hitting annual targets for earnings and working capital improvements. They are driven by a combination of personal performance, business unit performance and corporate performance, depending on your management level and responsibilities. Our long-term incentives are based on hitting certain targets for economic profit over a three-year period.”

While financial performance is the endgame, Neupaver says pure strategy sessions at a division level are just as critical as a direct focus on purely financial issues.

“Each division has its own opportunities, it has its own issues, it has its own gaps and it’s critical that you have a session of strategic planning where you don’t talk about the budget, you don’t talk about finances,” Neupaver says. “We really talk about the marketplace, our competitive position in that marketplace, the attractiveness of that particular industry or approach we’re trying to take. It’s paramount that you have the involvement of as many people as possible. It’s impossible to have everyone involved, but we’re really big here on trying to get as many people as we can in on those sessions.”

To reinforce the message of growth and the strategies, Neupaver uses a combination of internal communications tools that go to every employee in the company.

“We have a number of publications,” says Neupaver. “WabTrax is a quarterly internal newsletter that we send to every employee in the company, and it repeats the same four growth strategies plus our commitment to the Wabtec Performance System again and again,” says Neupaver. “And, we reinforce it when they come in for their strategic planning process.”

Neupaver is decidedly hands-on, and he enjoys and values face-to-face contact, making it a point to visit all of Wabtec’s sites on a regular basis — the company has manufacturing operations in nine countries — and get reports from them directly on how they are progressing on the strategic goals.

“We try to visit every division, every plant each year,” says Neupaver. “They’ll have their whole staff in the meeting. We talk about the Wabtec Performance System, how they are doing. They have to report on their performance related to our corporate strategic objectives. That’s the kind of leadership I think is needed, making people accountable to those objectives.”

And, Neupaver says, that kind of engagement helps him to continue to expand his knowledge of Wabtec and the industry.

“I think you have to do a tremendous amount of reading and talking and meeting and traveling,” Neupaver says. “You can’t do it from behind the desk, it just doesn’t happen like that. I think you learn a lot by working with the people, going out to the operations, spending time with the people operating out in the field, that’s where you learn the business.

“There’s a tremendous amount of knowledge and talent that people have, and they’re usually pretty anxious to talk about it. But you’ve got to listen more than you talk.”

HOW TO REACH: Wabtec Corp., www.wabtec.com