Lessons of the great recession

Nov10Cvrimg

Companies across the New North have learned that in the Great Recession, it’s no longer business as usual. Several developed strategies to move their businesses forward.

Story by Bob Warde

FOR MANY BUSINESSES, the last year or two has been tough. If the slow economy hasn’t dampened sales, the psychology surrounding it sure has. As companies adjusted to the so-called “new normal,” some took steps to not only shore up their businesses and get by, but to thrive. These are some of the stories of companies moving beyond and the lessons they’ve learned.

Providing resources, divesting assets

AFTER CREDIT MARKETS began to seize up in 2008, many small business operators couldn’t get the financing they needed. Truck drivers, often operating independently on behalf of a freight hauler, are on the road most of the time. That can complicate their lives.

Green Bay-based Schneider National, a large, privately-held trucking and logistics company, introduced a no-credit-check lease-purchase program to reduce the barriers for drivers looking to become owner-operators. The program is offered through Schneider Finance, a truck-financing affiliate of Schneider National, and is offered in addition to existing Schneider financing programs.

“When an experienced driver is considering a new career or resuming a former career as an owner-operator, Schneider Finance takes the time to understand the entire story. Many people experience bumps along the road when it comes to credit history. Schneider understands what it really takes for an owner-operator to be successful,” said Steve Crear, general manager of Schneider Finance, in announcing the program in August.

The program can be used to finance Schneider’s fleet of used trucks and help recruit drivers to get them in the game and, ultimately, to the next level. “It is challenging to recruit and hire drivers in today’s environment, and programs like this one do set us apart from our competitors and attract good candidates,” said Schneider National spokesperson Janet Bonkowski. The privately held company declined to say how many no-credit-check leases have been completed, but did say there has been significant interest in the program.

Schneider Logistics, another division of Schneider National, agreed in June to sell its freight forwarding and customs house brokerage business in the United States and China to Norbert Dentressangle, a European transportation company based in France.

The decision is part of what the company said is a routine evaluation of its operations in order to maximize its return on investment. 

“There are only so many priorities a company can focus on at any given time. When the economy is robust, businesses have more opportunities and resources for exploring opportunities and taking calculated risks. When the economy is in a no-growth mode, organizations refocus on core operations and cost management, which often means that new business ventures are put to the side due to limited resources. That reality, in turn, limited the opportunities for this sector and lead to the decision to sell,” Bonkowski said.

Companies need to stay focused in such an environment, she said, adding, “Great time, attention and resources would be needed to grow and expand the freight forwarding business, and the decision was made to instead maintain focus on core services.”

Continue to invest in employees

MENASHA-BASED FAITH TECHNOLOGIES made a big investment in change management in 2009 to cut costs and spur growth down the road. Faith Technologies, an electrical and specialty systems contractor with more than 1,500 employees at 15 divisions in six states, created a newfound role and department by establishing a Chief People Officer position who manages a six-member team overseeing the company’s learning and development initiatives.

Faith hired Terri Luebke, who spent three years with the company as a consultant and several years running her own firm before she signed on fulltime.

“The most striking thing is that Faith Technologies is choosing to invest in learning and development. It seemed counterintuitive. But, this was actually the perfect time for companies to be doing this work, when business is slower,” said Luebke.

The company’s learning and development department – found at many established Fortune 1,000 companies – is an isolated investment in the construction industry. Faith Technologies’ L&D department began working on a variety of near- and long-term programs for corporate management and field employees, focusing on leadership, employee development, trade, business development, high potential employees, wellness, safety and computer training.

Luebke and her team – a director of instructional development, an instructional designer, two learning consultants, a technical training consultant and a learning coordinator – are also instrumental in the development and implementation of the company’s Faith Performance Advantage initiative. Rooted in lean philosophies, the program works to bring those same principles from the office to the jobsite.

Adapting a concept such as lean – which was created for the manufacturing environment where workers are stationary while the product moves from station to station – has been a challenge in the construction trade because every product is unique, noted Mike Schmaling, director of productivity at Faith.

“Additionally, our product is stationary, in which the workers must continuously move labor and material throughout the building to the point of installation. This is a reverse process to the manufacturing industry. The concept of lean can be applied to the construction industry by identifying areas in which we can minimize the amount of material handling and strategically stage the material at the point of installation just before it is needed. This is a fluid and dynamic process because there are many variables which are directly tied to many facets of the installation process like customer-initiated changes, conflict with other trades, material availability, variation in manpower and skill levels. Each variation in these facets can create a ripple effect throughout the entire installation process,” he said.

The company has improved other processes and procedures, including:
• Pre-fabrication department, which mass produces like items or assemblies in a controlled off-site setting and then labels, packages and ships the “prefabbed” material to the site just in time for installation. This reduces the amount of onsite labor because one hour spent in PreFab saves three hours in the field.
• Pre-construction services is a resource employed during the bid process to work directly with the customer in streamlining and refining their expectations and requirements by using design/build services, building information mapping, computer-aided drafting and detailing.

“By identifying many cost-saving techniques, this contributes to a more efficient process from bid award to project deployment. Most cost savings can be identified and acted upon earlier in the process as opposed to later stages, which increase costs dramatically,” Schmaling said.

“Everything we do, every decision we make, we are piloting,” said Luebke. “We haven’t found an existing model that could be successfully implemented to a construction site.”

The strategies Luebke and her team are developing take into account gender and generational diversity, as well as the diversity of temperament, thoughts and behaviors. Those differences can create barriers to learning.

Because the initiative is still being developed, hard financial results are hard to come by, according to Schmaling.

“We have statistical data proving that if certain productive behaviors are in place, it tends to create safe and productive projects. The productivity time study process challenges the status quo and complacent behaviors that may come with experience by identifying areas of improvement and proactively chasing process improvement,” he said.
Luebke and Schmaling agree the current economy forces organizations to reflect internally to see what they can do to improve their processes to gain any economic advantage possible and save costs for themselves and their customers.

Invest in equipment

MUZA METAL PRODUCTS had a good business going into the recession, said Dan Hietpas, president of the Oshkosh-based contract metal fabricator and machining company.

“We are somewhat fortunate in that a good part of our customer base was insulate from the recession,” he said. “What we have been able to do, and have done in the last few recessions, is get more aggressive and take market share from competitors.”

Hietpas said the company’s approach of targeting market leaders in their industries has provided a customer base better equipped to be progressive and sustain their growth, which, in turn, helps Muza maintain its growth.

“We also like to offer services to customers they can’t easily do themselves and are not likely to pull back in house,” Hietpas said.

The company invested about $1.5 million between two machines that increased the company’s productivity and improved quality. Muza relies heavily on laser robotics and other automation.

The approach has paid off. The company, which ended its 2010 fiscal year at the end of September, saw revenue grow by 30 percent over fiscal 2009.

Offer new services

NEENAH-BASED STEP INDUSTRIES, a not-for-profit company offering transitional employment to people who have had alcohol and drug addiction challenges, took notice of the slowing economy and the potential drop in sales for its traditional packaging and assembly services.

A chance meeting by one of its executives led Step Industries to begin offering disassembly of electronics such as computers and monitors and recycling their contents.

“We were looking for something we had control over. Most of what we do is outsourced to us from other companies and has a deadline and a lifecycle to it. We were looking for something we could do in house and have some control over so that when we had dips in work from other clients, we would have something we could keep people busy doing until the next project came in,” said Michelle Devine Giese, Step Industries’ president.

In doing some research, Giese said they knew Wisconsin was about to enact its e-recycling law that would require electronics to be kept from landfills and be recycled. The company’s business development manager happened to attend an expo where she met a member of a non-profit out of Illinois that was already recycling computers in that state.

“We went to tour their facility and they shared their tricks and information with us and we went from there,” Giese said.
To kick off the effort and secure electronics to store so that employees could begin work on them, Step Industries held a drive in August where it collected three semi-trailer loads of computer parts. As workers needed tasks to keep them busy, the computers are taken apart and segregated into different materials for recycling. The materials are then turned over to recyclers that buy them from the agency, creating additional revenue.

“It’s been great to have something that can be shelved and employees can stop and start as the needs of our other clients ebbs and flows. The employees like it because it’s new and different. I also believe we’re filling a need for the community. Just about every day we have a couple of people drop off computers or parts that have been a problem for them,” Giese said. “It’s an easy solution for everybody.”

The next level for Step Industries is to begin drives with businesses during which a company would pay Step to collect either its old computers or allow employees to bring their personal computers into work for recycling. They are also investigating expanding the electronics they recycle to include televisions, VCRs and others.

Morph your business focus

BRAD BECKMAN’S Appleton-based Alpine Concrete was hit hard by the recession. The company was primarily doing flatwork – driveways, garage slabs and patios – when the downturn in the real estate market hit. It became so bad that Beckman decided he either had to change what he was doing or close his doors.

Beckman decided to focus on the specialty concrete work that had been a small part of his business and abandon the flatwork altogether.

“About three years ago, we could see what was on the horizon and the slowdown in the housing market and that the economy was going to slow down. We decided we had to do something to change the scope of the business,” he said.
Alpine Concrete changed its focus to existing homes because Beckman could focus on the specialty concrete services he offered, including concrete countertops in remodeled kitchens and polished concrete floors in basements.

“A lot of people were investing in their homes instead of buying new homes and that gave us a new market to approach,” Beckman said.

His years of experience in the business taught him that garage floors – because people don’t look at them every day – are often neglected, while laminate countertops in a kitchen become scratched, develop cracks and are seen by the homeowner every day. Consequently, that’s where many homeowners choose to spend their money, even in a recession.

“Spending $6,000 on a garage floor isn’t going to get you that money back in the sale price, but spending that on a remodeled kitchen or basement will get you that money back,” Beckman said. “It’s an investment instead of maintenance.”

The change has paid off for Beckman.

“These past three years have been tough, but I haven’t been happier. It’s really rewarding. We get a lot more satisfaction out of the creativity involved with the decorative work than we ever did just pouring a garage floor.”

Soliciting commercial work, including bar tops and polished floors, has also helped, as has increasing the geographic area he serves. He and his crew have gone as far south as northern Illinois, west to Madison and north to the Upper Peninsula and even Minnesota.

“We had to cast a wider and wider net,” he said. “Anyone who is a small business owner and a service provider like we are, especially in this economy, is going to struggle to find enough business in just one isolated area.”

Beckman recently completed work for a large sports bar in Milwaukee. He’s hoping to get referrals from the job, which he said turned out well.

The changes haven’t been completely pain free, though. Beckman said he used to run an eight-man crew when he was offering the flatwork, but scaled back to a three-man crew in order to properly train the core personnel who were educated and experienced in what they were doing. Now he’s back to where he can hire starting at the beginning of the year, provided business continues to be strong.

All the changes Beckman made has led to Alpine Concrete tripling its sales.

Key takeaways

IN TIMES LIKE THESE, smaller companies should act a bit more like larger ones, in that they should build up their cash reserves, draw down inventory, or pare back product lines, said Gregory Pierce, a partner and portfolio manager with Reinhart Partners Inc. in Oshkosh. He’s noticed a number of small businesses taking action as mergers and acquisitions have picked up and spending on research and development and capital expenses are on the rise.

“What you’ll see happening is that, as well-capitalized companies with good balance sheets manage their costs well, they are able to take advantage of this by picking off the weaker competitors and gain market share and, as the economy improves, they’ll gain some pricing power,” Pierce said.

Locally, Pierce still sees many business owners who are concerned about deploying capital and maintaining cash flow.

“My message is that, if you’ve built up a war chest, now is a good time to follow through and invest in your business while some of your competitors may be down. Look at what you can do to deploy some of that capital if you have it,” he said.

With interest rates low, Pierce said it may be a good time to take on some leverage to grow your business when others are not. “It’s a good time to invest in your business and grow and prepare for the recovery. You want to be in a position to take advantage of that. This is a time of transition from survival to ‘Let’s see if we can actually make some money instead of simply keeping the doors open.’”

Pierce does see a need for business owners to be strategic about the moves he or she makes. “You have to look for targeted opportunities. You can’t just look at anything and hope it works. You have to closely consider who you are as a business and what it is that you do great and invest capital to take advantage of that.”

The main point, according to Pierce, is to become bigger and better at what you do well.