Helping Manufacturing Enterprises Grow Profitably
After getting brutalized by a double whammy downturn, Schwing America is back on its feet
Brian Hazelton CEO of Schwing America
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Brian Hazelton CEO, Schwing America
The housing crisis forced Schwing America to decimate its workforce and to declare chapter eleven. They’re back. Here’s how .
WHY SOFT SKILLS MATTER
There are significant differences between doing and leading
CAUGHT IN THE ACT
Blandin CEO Dr. Kathy Annette promotes digital connectivity as the source of vibrant rural economies
Dairy equipment manufacturer Relco wins $22.78 million in a theft of trade secrets lawsuit
IN EVERY ISSUE:
2 Bob Kill: The Diversity in Making Stuff No industry could possibly duplicate manufacturing’s mixture of product, style, and success
All In Alliant Castings proves its resolve in implementing a creative strategic plan
8 The Secret Sauce GMI uses its ISO certification to create market niche of superior products
Well Schooled Bytespeed became a $35 million computer manufacturer by narrowing its market focus to K-12 education
Visit the Enterprise Minnesota website for more details on what’s covered in the magazine at www.enterpriseminnesota.org.
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The Diversity in Making Stuff No industry could possibly duplicate manufacturing’s mixture of product, style, and success
ne of the enjoyments of this magazine for me is how it regularly emphasizes the wide diversity in style and substance among those who “make stuff” here in Minnesota— while simultaneously demonstrating how, despite that diversity, they always confront the same types of the same challenges. In this issue we examine one of the
coolest business comebacks we’ve witnessed in a long time. Just months into the Great American Housing Crisis, White Bear Lake-based Schwing America shrank from a 680-person operation to just 35 full time employees. We see how the singleminded tenacity of CEO Brian Hazelton and his staff eventually swung the company from Chapter 11 back to being America’s premier manufacturer of concrete pumps. We see how their methodical, confident comeback included using their downtime 2
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to lean up their work processes and reduce their energy use. We showcase how Tom Renk, president of Alliant Castings, is deploying a strategic re-visioning to transform his century-old Winona-based foundry into a vibrant, modern, and profitable company. Then there’s GMI, a Ramsey-based manufacturer of refurbished medical/ clinical instrumentation that shrewdly predicted how industry-wide budget-cutting in health care would create demand for used clinical lab equipment –- and how they leveraged their ISO 9001:2008 certification as a fundamental market differentiator. And we meet Chip Homme, a visionary high tech entrepreneur in Moorhead who 15 years ago launched a computer manufacturing startup that audaciously – and successfully – took on Dell, HP, and IBM by developing just one well-defined market: K-12 education. These narratives are also bound by common threads. First, the companies needed creative agility to confront the challenges in sophisticated markets that seem to be in continual evolution. Second, they involve really, really interesting people. Who, more than manufacturers, better personifies the entrepreneurial creativity, tenacity, and will that made America great? And finally, I’m proud to note that our professional services staff here at Enterprise Minnesota has contributed to their successes. Bob Kill is president and CEO of Enterprise Minnesota.
Helping Manufacturing Enterprises Grow Profitably Publisher Lynn K. Shelton
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Contributing Writers John Connelly Suzy Frisch Photographer Patrick Kelly Deb Hoff Andrew Link Laura Jill Negen
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January 15, 2014
How to Embrace, Sustain & Execute Your Company’s Vision (Strategy Management)
February 12, 2014
ISO: The Business Management System Driving Successful Companies
March 19, 2014
Lean Office — Twelve Steps to Creating Money Saving Company-Wide Efficiencies
April 9, 2014
How to use GreenLean® to Realize Hundreds of Thousands of Dollars
May 8, 2014
The 2014 State of Manufacturing® — Survey Results Release
June 11, 2014
Developing Effective Leadership Teams
September 10, 2014
What You Can Do to Increase the Value of Your Business (What Expert Buyers Are Looking For)
October 22, 2014
Ten Best Practices for Developing New Products
November 19, 2014
Developing Leaders Who Are Committed to a Lean Enterprise (TWI)
December 10, 2014
How to Embrace, Sustain & Execute Your Company’s Vision (Strategic Management)
Enterprise Minnesota’s Business Events offer outstanding professional expertise and practical business solutions to improve competitiveness and growth opportunities for Minnesota’s manufacturers and related industries
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All In Alliant Castings proves its resolve in implementing a creative strategic plan
Tom Renk, president of Alliant Castings, has transformed his century-old foundry with a new strategic re-visioning process. 4
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PHOTOGRAPH BY ANDREW LINK
n 2010, Martin Renk, president and majority shareholder at United Machine and Foundry, summoned his son Tom to his office. Over the previous decade, the once vigorous Winona-based foundry had badly lost its footing in the combined aftermath of the 9/11 terrorist attacks and the lingering effects of the 2001 recession – all exacerbated by the wholesale disruption in the once-sleepy foundry marketplace, created by forceful competition from cheap-labor competitors in places like China and India. Unhappy with what he thought was the company’s moribund culture and inability to adapt to the demands of an evolving marketplace, Tom Renk had six months earlier left the company, even though he was a minority shareholder. “I was at a crossroads,” he says. “Either I stay on and watch the company die, or we really take a step back and say, ‘we have to do something different here.’ We need radical change.” By offering Tom the company presidency, he opted for radical change. United Machine and Foundry had deep roots in Winona. Originally called Diamond Huller, the company was founded in 1885 to make agricultural-related equipment, which it did quite successfully into the 1950s, even establishing overseas markets that included South America and Africa. But Diamond Heller sputtered badly in the late ‘50s. The Renk brothers bought the company in the early ‘60s, and renamed it United Machine and Foundry. They continued to service Diamond Huller products, but also pursued other highly successful
dried up. “The party was over. We had a big mess,” Renk says. Struggling against the demands of new, aggressive competition, the company suddenly realized its facility and its equipment were old and outdated. Their systems were antiquated, and the processes were out of date. On top of that the workforce was aging. As retirement claimed key, skilled employees, Renk was hard-pressed to recruit young people into working for a foundry. “We created a big pile of money,” he says. “We didn’t have to change. We didn’t have to grow.”
foundry-related business. In a market with few pricing pressures and less than rigorous customer demands, United Machine and Foundry experienced great profitability with double digit net margins over the better part of two decades. “The good old days for us were the late ‘80s and through the ‘90s,” Tom Renk remembers. “We had a good workforce, talented people. We could sit back and watch the money come in. It was really simple, like shooting fish in a barrel.” That changed after the terrorist bombings of 9/11. Almost overnight, the business
Renk attempted to spearhead an effort to modernize the company. In 2003 and 2007, the company recruited consultants to help draft new growth strategies. “They were great plans, but we never used them. They ended up on the shelf.” The company elders, he says, had grown up in the Great Depression. They thought the company could ride it out. At this point, Renk, a minority shareholder with the company, started to think about his own future with the company. He chose to leave – until recruited by his father to take over.
Business Events How to Embrace, Sustain, and Execute Your Company’s Vision Tom Renk told the story of his company’s strategic comeback at an Enterprise Minnesota business event entitled How to Embrace, Sustain, and Execute Your Company’s Vision. An overflow crowd of more than 80 attendees packed into a meeting room in the Brooklyn Park headquarters of Marsh & McLennan Agency. Renk provided one of three presentations. Others included: Joel Wittenbraker, president of Red Wing-based Mactech, talked about his visioning for 2014, just as he was about to convene a three-day session with his entire company. And the always-popular Sarah Richards, president and CEO of Mankato-based Jones Metal Products, the third generation owner of the company that designs and manufactures metal fabrication services, discussed her particular strategic challenges. Upcoming events include: ISO: The Business Management System Driving Successful Companies, February 12, at Padilla/CRT, 1101 West River Parkway, Suite 400, Minneapolis. Lean Office - Twelve Steps to Creating Money Saving Company-Wide Efficiencies, March 19, Green River Energy, 12300 Elm Creek Blvd., Maple Grove. How to use GreenLean® to Realize Hundreds of Thousands of Dollars, April 9, at Green River Energy, 12300 Elm Creek Blvd., Maple Grove. More information is available at http://www.enterpriseminnesota.org/events-and-seminars.
Governing and Growing Companies in Greater Minnesota.
“I had a frank conversation with my dad,” Tom says. “I said we have to change. We have to get back in black. He had the foresight to say, OK, I have to get out of the way.” With the guidance of Enterprise Minnesota’s strategy management team Renk conducted a methodical analysis of 21 different aspects of the business. One of his first decisions was to radically refocus the product offerings. “We were all over the place. Our core competency was the production of abrasion resistant castings,” he says. The new company would focus on road construction, power generation, recycling, mining, and agriculture. And to better reflect this change, Renk changed the name of the company to Alliant Castings. The name change was tied into their vision statement.
o power his new strategic concept, Renk drew inspiration from a business visionary named Simon Sinek, author of the book Start with Why: How Great Leaders Inspire Everyone to Take Action, whose TED talk of the same name is the seventh
most viewed on the company’s site. Sinek hypothesizes that most companies wrongly focus on what they produce, how they produce it, and why they produce it, in that order, frequently neglecting the “why” question altogether. Renk was impressed by Sinek’s suggestion that companies should reverse that order. Companies need to answer the why question first. His contention is that customers don’t buy what you do, rather, why you do it. And to hire people who are not just good at their jobs, but who believe what you believe. Renk’s team wrestled with the why? Why does the company exist? Why does anybody care that we exist? What’s our purpose? Their industry, they concluded, was struggling against a long held reputation as unsafe, environmentally bad, technologically backward. Their vision, they determined, would be to represent the opposite end of those images: to aggressively address safety issues, to be environmentally conscious, and to embrace technology and to attract young people.
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In other words, the Alliant’s why? answer became its vision statement: Becoming the foundry that redefines the industry. Against this backdrop, Renk turned to embedding five strategic values throughout the organization. He called them the MARCS: • Maximizing Resources. Use any resource to its fullest capacity: human, financial, equipment, software. • Accountability. Hold people accountable in healthy, constructive ways. • Respect. Reject the industry’s inclination to “rule with an iron fist.” • Continuous improvement. • Standardization. Their faithfulness to MARCS values became key to employee performance reviews. Renk celebrates the value-related accomplishments of employees through company-wide recognition notices. During 2013 he recognized 550 different accomplishments. “It reinforces the behavior we want,” he says. Job descriptions incorporate the MARCS values, he says, and bonuses are based on performance related to them. Renk says the third, and most difficult, component to Alliant’s strategic vision is related to Good to Great author Jim Collins’ statement that “Great vision without great people is irrelevant.” “I worked with a guy who went through a cultural change in his organization. He told me you are going to lose 75 percent of your top management,” Renk remembers. “I told him, ‘I can’t imagine that.’ We ended up losing 80 percent.” In fact, of the five members of his strategy management team in 2010, Renk is the only survivor. Gone are his accounting manager, plant manager, quality manager, and office manager. Two, he says, “self-selected” to leave. Two others were terminated. “Getting the wrong people off the bus is as important as getting the right people on the bus,” he says. “They were measured against the values. I don’t like doing that, but I’m committed to this plan and doing the best thing for this company.” Renk now uses a vendor to create psychological profiles of potential employees to see how well they will match up with Alliant’s value structure. It’s not an exact science, but you get a better sense of how somebody is going to show up on the job. You want someone who will be passionate and thinks like you do, aligned with
the company’s culture. You don’t want somebody who’s going to come in and punch a clock.” Proof of his hiring success, he says, was given when an ISO auditor remarked to him, “you really have an engaged workforce.” That’s cool to hear, because when you are in it day to day you don’t necessarily see it. It has taken three years to get that point. Today, Alliant’s 31 full-time employees drive about $8 million in sales, in its 50,000 square foot facility in Winona. Since launching the strategic plan with Enterprise Minnesota in 2010, Alliant has seen what Renk views as tangible value of its success. • Sales have grown by 50 percent. Renk anticipates that 2014 will bring another 20 percent. • Gross margins are up 80 percent. Renk expects that to grow to 105 percent during 2014. • Alliant’s largest customer now constitutes only 21 percent of the company’s overall sales, down from 44 percent. “Twenty-one percent is still too high,” Renk says, “but we’re making progress.” • The company’s reliance on road construction, its highest market segment, is down to 25 percent from 67 percent. • Productivity is up 25 percent. • Scrap has been reduced by 44 percent. Renk’s positive experience has given him an almost evangelical fervor for the tangible value of strategic vision. “I know it works,” he says. “The numbers prove us out.” Still, he says, keeping the culture focused is an ongoing challenge. “You always have to keep it in front of people. I feel strongly that the vision is supported by the company values – especially when it comes to respect and accountability.” To keep it fresh, Alliant has adapted the mantra of Iowa State’s football team, Renk’s alma matter: “All In.” “It is our commitment to the company’s vision and the company’s values,” he says. “You just have to be persistent. And keep driving it home.” “For me, the return on investment is really a byproduct of living the vision and the values. It is more than just making money. For me personally, I want to have an impact on peoples’ lives.”
The Secret Sauce GMI uses its ISO certification to create a market niche of superior products
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MI has quietly – and profitably now. They spend their R&D dollars – become an industry-leading differently.” manufacturer of refurbished medical/ Today’s consumers of refurbished clinical instrumentation by using its ISO lab equipment are segregated into two 9001:2008 certification as a fundamental markets: people who are primarily market differentiator. motivated by price and are willing to risk Since first opening its doors 18 years ago as a two-man operation in the basement of founder and CEO Richard Powell, the company has methodically increased its sales as constrained budgets in health care produced a mounting demand for used clinical lab equipment. Today, the company’s 25 employees operate out of a 23,000 square foot office/warehouse/ production facility in Ramsey. Its 10,000 square foot warehouse is full of GMI President Tom Fagrelius, Director of Innovation equipment and the market Rajesh Raghunath, and CEO/Founder Richard Powell. demand for it continues to surge. “The technology may not have changed,” says Tom Fagrelius, quality, and others, the larger market, who GMI’s president. “The sample doesn’t want zero risk of ownership. While other know it is in something new versus in Internet venues have rushed to fill the something five years old.” price-only sector, including eBay, GMI GMI provides scientific addresses the latter. instrumentation and service to “We remove 100 percent of the risk of research universities, biotechnology buying pre-owned,” Fagrelius says. and pharmaceutical companies, Everything GMI sells goes out with a hospitals, clinics, laboratories and warranty and the offer of a maintenance chemical analysis firms in more than 50 agreement. countries. Academia, too, he says, is a “The documentation that we provide growing sector in GMI’s business. with the equipment is as good or better “Federal grants aren’t what they used than the manufacturer would provide,” to be,” Fagrelius says. “People have to Powell says. “That’s part of the value stretch their pocket books.” added that people are paying for.” Even Fortune 500 companies are But merely providing good products seeing the value in refurbished equipment, with superior documentation is one thing: Fagrelius says. “Big companies recognize demonstrating it is another. the legitimacy of buying pre-owned “Many dealers claim to do similar instruments when it just doesn’t make things in the U.S. It’s pretty easy to economic sense to buy new,” he notes. put up a nice (Internet) storefront these “(Big companies) kind of get that days,” Fagrelius says. The secret sauce
behind GMI’s market advantage was their decision to emphasize the quality of its refurbishing processes by obtaining ISO 2001: 2008 certification, which Fagrelius says “is the proof statement that we have a QMS (Quality Management System).” “We are the only one in our space that has it,” Fagrelius says. He credits GMI’s ISO success to Rajesh Raghunath, the company’s Director of Innovation. Raghunath developed the company’s “provable” quality standards in re-manufacturing. “The ISO is just a certification,” Raghunath says. “What goes behind it is a certain process, in the shop, of documentation, proof of performance, making sure that the documentation is stored the right way – and having access to documentation from wherever we are.” While Fagrelius says most refurbishers of clinical instrumentation combine a “looks like it’s working” once-over with a “fingers crossed warranty,” Raghunath’s rigorous process is documented and readily available.
In Raghunath’s system, GMI engineers provide proof of performance documentation that they have certified each instrument before it ships. Customers, he says, receive and acknowledge that documentation before
“We remove 100 percent of the risk of buying pre-owned.” -- Tom Fagrelius, president, GMI GMI employees arrive for an on-site installation. GMI avoids using certified third party technicians for installation, Raghunath says. “It is the only way a customer knows what he is getting, especially if it is a customer who is buying for the first time.” The quality of GMI’s process,
Fagrelius says, is “‘second only to the manufacturers who produces the instrument in the first place.” “We could not have done such without his implementation of how we refurbish, remanufacture, and recertify,” according to Fagrelius. “While we have scores of competitors in our space for the types of instruments we sell, we have no competitors that approach remanufacturing the way we do… because it costs a lot of money to do it this way.” “Without tipping our hand,” Fagrelius predicts that GMI’s future identity “will be much more visible in the marketplace,” situated around the growing specialization in life cycle management for lab instrumentation or a laboratory’s ecosystem of instrumentation. “We’re a service company. We can do legacy support. We can keep those instruments running longer and longer,” he says. Increasingly tight budgets in research, he says, will secure the market.
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Well Schooled ByteSpeed became a $35 million computer manufacturer by narrowing its market focus to K-12 education
ifteen years ago, after hitting what he refers to as a “dead end” working for another computer company, a FargoMoorhead based techie entrepreneur named Chip Homme approached a few “gentlemen with deep pockets” with his plans for a computer hardware manufacturing startup that, unlikely as it sounds, intended to compete directly with the likes of Dell, Gateway, HP, and IBM. The effectiveness of his proposal evolved as much for what he wouldn’t do, as for what he would do. ByteSpeed, his company, wouldn’t produce machines for the home market, he said, correctly predicting that the unreasonable demands and low margins of that segment would ultimately swamp the PC market. “Home users are a nightmare,” he says, “because they want a Cadillac for the price of a Yugo and all the service and support to go with it.” He would sell his computers solely into the education market – not into the political morass of higher ed bureaucracies, but in the single niche of K-12 schools. That marketplace, he says, is straightforward and typically governed with a strict purchasing guidelines. His vision was to build a high-quality, stable product whose robust platform would meet the demands of the education market. His price, though higher than machines on the consumer market, would include personalized, responsive customer service – all provided by technical professionals in what would become his Moorhead factory. Ambitious as his plan may have sounded to casual outsiders, his investors agreed and his vision triumphed (or we wouldn’t be writing this). “I can’t say it is all my sales pitch,”
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he says. “But they weren’t going to sink money into a company they thought would fail.” With two employees in his startup operation, Homme sold his first computer contract to the Aberdeen school district in 1999 and that year posted revenues that year of about $400,000. Today, operating out of a custom-built facility in Moorhead with 50 full time employees, ByteSpeed achieved some $35 million in revenue with customers throughout the United States. The company custom-builds its own line of laptops, netbooks, net tablets, and servers.
“In just a few years it has ramped up pretty well,” he says. His success, Homme says, starts with a “superior product,” an Intel-based machine, but the value-add is attention to customer. For one thing, the price per computer includes “imaging,” a highly-sought advantage by IT professionals. Imaging means that all the computers purchased by a computer will be configured with common attributes, a standard operating system, application, accounts, and settings. “Schools buy in quantity. They want all the computers to fire up with everything on them, exactly the same,” Homme says. They don’t want to have to go to each
computer. It doesn’t sound like a big deal but it takes a lot of time. It is a painstaking thing for most schools. Companies like HP and Dell charge for it. Another ByteSpeed asset is personalized technical assistance, Homme says. The company offers free lifetime tech support for each product, along with a 5-year parts and labor warranty on all servers and desktop “We’re a lot more flexible than the behemoths.” Companies like Dell, he says, typically offshore customer service to a technical support operation in India, which will begin with a generic checklist of elementary inquiries. “That will drive a tech nuts,” Homme says. “A tech knows what’s wrong with a computer. We’re not dealing with home users. We’re dealing with technicians that know (what they are talking about). I’m not going to question a technician. If a technician says we’re dealing with a bad hard drive, we say, ok, send it back. We’ll send you a new one.” For the future, ByteSpeed is starting to penetrate health care and financial services, other computer-user markets that share some of the same stable large-volume customers whose IT staff will also appreciate the availability and flexibility of ByteSpeed’s knowledgeable support team. The new markets might insulate the company’s possibility vulnerability to disruption in the school market. Schools, he says, are in a “confused period” with the advent of the tablet. “The PC market is declining slightly because the home user market is backing away from PCs,” Homme says. “Considering the whole PC market is fading a little in this tablet generation, the fact that we’re growing says that we’re hitting the right places.”
2014 Statewide Survey - Release Event Thursday, May 8, 2014 4:00 pm - 7:00 pm Minneapolis Convention Center 1301 2nd Ave. South Minneapolis, MN 55403 Enterprise Minnesota will roll out findings from its sixth annual State of Manufacturing速 survey of over 400 Minnesota manufacturing executives. Attend the statewide release event and receive a book containing survey results, pollster analysis, focus group transcriptions and selected cross tabulations. Register now at www.enterpriseminnesota.org
Data Mining 2014’s State of Manufacturing will dig for deeper insights
Make it happen.
(Name, Scaled %, Eff. DPI)
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he 2014 edition of Enterprise Minnesota’s State of Manufacturing® BMO Harris Commercial Bank survey-research project will examine more sophisticated issue sets that may be of has the resources and keener interest to manufacturing executives. expertise to help make your “We know that manufacturers all – appropriately– lament the growing vision a reality. shortage of well-qualified workers to operate the increasingly sophisticated machinery and processes required by bmoharris.com/commercialbank modern plants,” said Lynn Shelton, director of marketing and communications, who manages the project. “But … how are they responding to this challenge? Do they provide formal inside training programs? Do they have relationships with their local technical college?” BMO Harris Bank N.A. Member FDIC There are similar questions, she says, that might yield meaningful insights. For example, past surveys have shown that manufacturers _MakeItHappen_EnterpriseMinn_BW_v1.indd Trusight is now MRA overwhelmingly considerRevision: 1 the skyrocketing costs of 3335 | Publication: Minnersota Your Enterprise Employers Association providing employee health Fonts: Page 1 Links: Dax OT (Regular, Medium) Arm_frame_BW.psd (852 ppi; 35.18%) insurance to be a top impediment to growth. But are they finding ways to innovate around those costs? And no one disputes the growing 4 12:21 PM | Page 1 of 1 | Path: Studio:Volumes:Studio:Y&R:Acti...ItHappen_EnterpriseMinn_BW_v1.indd popularity of ISO certification. But what has sparked that growth? Do customers require or encourage it? Do manufacturers Art Director Creative Director Exec. Creative Dir. Prod. Managerrequire orAccount encourage their Other vendors to HARNESS THE POWER OF YOUR MEMBERSHIP achieve ISO certification? • InfoNow! 866-HR-Hotline (866-474-6854) available “Who knows what kind of analysis we’ll 24/7, Online Resource Center, and InfoNow@mranet.org be able to draw from these topics?” Shelton • Expanded wage, salary, and benefits survey reports said. “But we’ll never know if we don’t try!” She said that this “next step” • Preferred pricing on talent, tools, and training questionnaire emerged in part during a • Roundtables, forums, and networking events recent brainstorming session we hosted for executives from companies that sponsored this project. They include: MRA, Granite www.mranet.org Equity Partners, BMO Harris Bank, Baker Tilly, Marsh & McLennan Agency, Minnesota Wisconsin Doherty, and Gray Plant Mooty. 888.242.1359 800.488.4845 “Some of these sponsors have helped Illinois Iowa/Western Illinois us sustain this project in each of the 800.679.7001 888.516.6357 six years since we started it,” Shelton said. “We share a commitment that the
State of Manufacturing needs to claim its significance in more than merely an annually updated data set of opinions from manufacturing executives. This is an important objective, to be sure, and we are gratified every year that the major media in this market devote so much time and space to covering the information. But over time, Enterprise Minnesota and its partners have used this information to illuminate the value of manufacturers as the dependable job-creating engines they have become, both in Greater Minnesota, where their impact is a little more obvious, but also in the suburbs and the urban core, where they sometimes work in relative anonymity among the many competing economic voices. With ever greater receptivity, Enterprise Minnesota deploys the data to reach out to an array of thought leaders who need to know it, including elected officials (from city councils to the houses of Congress), regulators, community leaders, economic developers, and even other main-street businesses. Shelton says an often underappreciated “audience” for the State of Manufacturing data is manufacturers themselves. In fact, she says, “one of the reasons we conduct as many as 20 focus groups each year is the extent to which manufacturers use the event to talk to each other about the big picture issues that affect them. More than a few of our liveliest focus groups are populated by some of the same folks year after year.” The State of Manufacturing, which will begin interviews in mid-February, will be conducted by Rob Autry, a partner at Public Opinion Strategies, widely considered to be among the elite of American survey research companies. POS is part of the bi-partisan research team that conducts the prestigious NBC/Wall Street Journal poll. This year’s results will be unveiled at 4 p.m. Thursday, May 8 in the Minneapolis Convention Center.
with Pat Shriver
oes it surprise a lot of manufacturers that they don’t automatically own the rights to inventions that their employees develop on the job? It depends on the level of sophistication and their size. 3M is not surprised by the fact that they need to get their employees to assign their inventions prospectively, but for smaller manufacturers, it absolutely comes as a surprise that their employees can actually own the patents that they come up with – even if they come up with them in the scope of their employment. It is not intuitive. The law says that the employee owns the patent. The employer has something called “shop rights,” the right of the employer to make the device on which the patent is based. It is like a license, but it is not assignable and it is still subject to the employee’s ownership. The scope of the shop rights is uncertain. The company may not be able to stop the former employer from practicing the invention, but the employee still may be able to take the invention across the street to the competition – and let them manufacture a product based on the same invention.
How can this be rectified? Minnesota law has a very specific statute that says employers can execute a written agreement with employees that says if the employee invents something while in the scope of their employment, and while using the employer’s time and materials the employer wins the patent. So, if you go to 3M or IBM or General Mills, anybody who has any type of inventing type job has this written agreement. It says that the employer owns the patents that they come up with. The same thing happens at most
universities, although the university usually shares those rights with the faculty member. You need to have that written agreement. How relevant is this to smaller manufacturers? I can only speak from my own experience, but I would say that most employers don’t know about this issue unless they are directly involved in design or manufacture of unique products. It may not occur to them to have their employees sign this kind of agreement. Most companies don’t have that kind of agreement in place until it becomes an issue. The fact is, a lot of inventions are mundane and they aren’t worth a lot, even though they are unique. Once in a while something hits and becomes really valuable. Then you may be negotiating with your employee as to their ownership of the patent and what you can do with it. Another issue is that shop rights are limited. They can’t necessarily be sold off to a third party. What is the solution? A lot of employers will automatically include in the employment agreement that all employees will sign an “assign all inventions” clause. We recommend that people include it along with confidentiality, non-competition, non-solicitation – all of the things that you would normally have an employee sign off on. Because it is very difficult for an employee to argue that they should be able to work for you but retain all the intellectual property that they develop while they’re working for you. So if you do it on the front end it is usually not an issue. It is not hard to do. It is not controversial normally. But a lot of times it gets overlooked.
Pat Shriver is a corporate, transactional and intellectual property attorney at Fafinski Mark & Johnson (www.fmjlaw. com), where he focuses on small to medium sized privately-held businesses. His practice includes advising clients on choice of entity, general corporate and partnership matters, commercial matters (contract drafting, review and advice), shareholder and partner relations (shareholder, partnership, and “buy/sell” agreements), securities and other corporate financing, business combination matters (including mergers, asset and stock purchases, and other similar business combinations), and intellectual property issues. In the area of intellectual property, Pat assists clients with trademark and copyright registration and compliance, trademark and copyright licensing, dispute resolution and pre-dispute counseling, Internet law and domain name issues, and trade secret issues.
FEBRUARY 2014 ENTERPRISE MINNESOTA /
Swing America’s CEO Brian Hazelton and the plant’s Director of Operations Mark Moschkau 14
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NOVEMBER 2012 ENTERPRISE MINNESOTA /
After getting brutalized by a double whammy downturn, Schwing America is back on its feet
PHOTOGRAPH BY PATRICK KELLY
n September 2009, just two weeks after taking over as CEO at Schwing America, Brian Hazelton brought the company into Chapter 11 bankruptcy protection. The move represented just one more episode in an almost surreal litany of recession-related poor timing and bad luck that forced the nation’s leading manufacturer of concrete pumps to spend more than four years in a corporate bob and weave, waiting for the construction economy to bounce back, housing in particular. Hazelton knew that Schwing’s iconic brand – some call it the Harley Davidson of concrete pumps – and strong customer loyalty would enable the company to exploit the inevitable economic upswing. Schwing had set the gold standard for concrete pumps since Friedrich William Schwing’s invention first revolutionized the construction industry in the early 1930s. His all-hydraulic, twin-cylinder pump enabled construction crews to easily move concrete through tubes or via cranes, instead of using wheelbarrows or buckets.
During America’s go-go housing boom in 2004-2006, Schwing America used every inch of its 400,000-squarefoot headquarters to make product. The company grew to 680 employees. Workers in the north metro plant, located about 10 miles north of St. Paul, split their time into four work shifts that kept the plant humming every minute of every day, seven days a week. At one point, even parking space came at a premium, despite the company’s rustic setting at the ex-urban northern edge of White Bear Township. Schwing’s planners had anticipated a slowdown in housing in 2009, but the severe and instantaneous burst of America’s housing bubble felt like a sucker punch. In just a matter of months, the demand for Schwing’s products withered away as the construction industry ground almost to a halt. Its cavernous facilities were cold and dark and eerily quiet as the company shuttered its in-house paint operation, welding shop and fabrication facility. Close to 600 employees were laid off. Plant
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manager Mark Moschkau and his small staff would regularly run security checks through the buildings and fire up equipment, to make sure it still worked. “To walk through a dark building that (once) held 200 people, that wasn’t fun,” Moschkau says. “Deep down I always knew we would get it going again, but it was hard to walk through a building that’s not producing anything and had once been producing 24 hours a day, seven days a week. Hazelton also said he never doubted the comeback. His bankers, however, were apparently less optimistic. By September 2009, the banking relationship was at loggerheads. Schwing’s debt with Wells Fargo, its long-time banker, was at $28 million, collateralized against $65 million in inventory, according to Hazelton. “When you look at it, Wells was over-collateralized by almost three.” The bank rejected Hazelton’s offer to restructure their loans at the end of the year. “They just swept the operating account,” Hazelton recalls. “Our inventory was pledged as our collateral. So every time we sold something, they basically took the cash.” After a month of convincing the owners in Germany, Hazelton felt Chapter 11 was the best solution. “It was hard,” Hazelton says. “If you look at what was going on at the time, banks were getting bailed out. We’re not a fast-food restaurant. Here we had a company with close to 680 people … good-paying jobs, 401(k)s, medical, and dental. We build a quality product. It was frustrating to watch.” He wrote to local politicians, but got nowhere. “(Former Governor Tim) Pawlenty wrote back to say good luck, but he was going out of office,” Hazelton recalls. THE DOUBLE WHAMMY To understand why the shutdown of the American housing market wrought particular devastation to Schwing America, you have to first know about the otherwise unrelated 2007 Federal Clean Truck Emissions Standards, which would take effect on new diesel vehicles, beginning in 2008. The new standards added diesel particulate filters and technology whose effect was unproven but whose added expense wasn’t. 16
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Ron Rundhaug and Ray Schwartz convene with Moschkau at 7:30 every morning to visually measure the performance of the previous day.
Learning and Leaning Schwing plots its comeback with newly acquired efficiencies Moschkau says that Hazelton wanted to make sure the company would be ready to efficiently take on the comeback. Schwing executives all admit that the company was so single-minded about keeping up production numbers in the boom times that it didn’t have time to even contemplate diverting time into leaning up its processes or its energy consumption. “We didn’t have a lot of contacts with other companies to know what was the norm,” Moschkau says. Adds Hazelton: “Do you get sloppy? In hindsight, probably, yes,” Hazelton says. “We hadn’t done a good job of taking field trips,” to compare notes with other manufacturing operations. “We were insulated. Absolutely.” “We knew there would be opportunities. And we wanted to make sure that what we did was smart, that we could respond to the marketplace in a timely fashion, but not do it by just throwing headcount at the challenge. We wanted to make sure our processes were right.” Hazelton was especially interested in reducing energy consumption. Moschkau reached out to Connexus Energy, whose rep had just attended a seminar about Enterprise Minnesota’s GreenLean program. He recommended an energy audit. “It was eye-opening about what we could do, maybe a little bit embarrassing that this asset is out there. Ultimately we had people come through and audit the entire campus. We just went through and replaced all 21 air conditioning units. There are other things on our agenda, now that we have some money to spend.” Moschkau also attended an eye-opening week-long lean symposium at St. Thomas University. “I hadn’t been exposed to it my entire career here,” he says. After taking the class, Moschkau approached Enterprise Minnesota to lean up its processes as well.
This prompted the Great Emission Pre-Buy in 2007. So concrete production companies decided to buy their new pumps ahead of the change, ultimately purchasing almost twice as much concrete pump equipment in one year as it ever had. It stood to reason that the pre-emission buy would suppress demand in the coming year. On January 1, 2008, there was more equipment than there needed to be for 450 million cubic yards of ready mix, which represented the height of the housing boom in 2005. “There was excess capacity of concrete pumps and ready-mix trucks in every state, in every city, in every fleet. Every company had too much equipment,” says Tom O’Malley, vice president of sales and marketing at Schwing America. The company had planned for the market dip, but was not prepared for the depths of the housing recession. “We planned for this little 35 percent drop off and it ended up being 75,” says O’Malley, who prepares the company forecasts. “And then the next year it was another 75.” And, like the rest of the industry, Schwing America underestimated the depth of the recession. “In the 35 years of this company’s history we never had a recession that lasted longer than three years,” O’Malley says. “We never had four consecutive years of falling sales. Ever.” “We thought we’d come out of it in ‘11, but we didn’t. Certainly we’ll come out of it in ‘12, but we didn’t. In ‘13 we finally rounded the corner.” He says Schwing America actually fared better than some of its competitors. “A lot of third tier OEMs really fell. Some left the country completely.” The key executives never doubted they would survive, but to do so would take some effort. “We never stopped trying,” Hazelton says. “People here didn’t give up. People were doing two or three different jobs. And it really became, let’s get through this week’s cash cycle, and get on to next week.” The process of waiting out the economy – much longer than any of them envisioned – involved leveraging the Schwing brand, economizing in ways that wouldn’t impair their long-term business strategies, and most of all, maintaining contact with customers. “We had to reinvent ourselves a little bit,” Hazelton says. He closed five regional parts-and-services offices and absorbed
Reversal of Fortune Economic developers are eager to lure a new plant proposed by Schwing America’s China-based owner One indicator of the turn-around at Schwing America is that Hazelton’s number is evidently on the speed-dial of a growing number of deal-makers at state economic development authorities, who are formalizing multi-million dollar incentives to lure a 200,000-square-foot manufacturing plant proposed by Xuzhou Construction Machinery Group (XCMG), the company that last year purchased 52 percent of Schwing America’s German parent company. XCMG is looking to build a manufacturing and assembly facility that would also include an R&D Center, according to Hazelton. He says he’s been discussing the project with XCMG for about 18 months and has already made seven trips to China. Minnesota is in the thick of competition with other states that so far includes Georgia, Louisiana, South Carolina, and Texas. “We’re talking about good high-quality jobs in a plant of this size, the kind of jobs I assume any economy would want to have.” “They are definitely going to enter the North American market. It is the largest economy in the world. To be a global player you have to have a strong presence here.” Physical proximity would be good for Schwing, especially the R&D center, which, Hazelton explains, could expand beyond cranes and excavators to include concrete pumps as well. Hazelton thinks proximity to Schwing America might be in XCMG’s interest. “We’ve got a very good reputation. It makes it easier than entering unknown.” Hazelton’s team hosted 20 XCMG engineers for three weeks last December when they explained what’s necessary to do business in the U.S., particularly in regulatory bureaucracies such as the EPA, OSHA, and SAE standards. “They have been very aware of what they don’t know. The American customer is much different than the Chinese customer in terms of having parts support, sales training. They do want to come in and leverage Schwing. “They are really good at building factories and building products and we’re really good at building companies. And if we can figure out how to bring those two things together, it could be amazing,” Hazelton says. “It gets me out of bed in the morning.”
that responsibility into the main plant. He closed an Atlanta-based manufacturing plant that had been making trailer pumps. He took responsibility for sales for Latin America. And his team focused on spare parts and used equipment. Plus, despite watching his workforce shrink by more than 80 percent, Hazelton pointedly retained key people. “A lot of it was to maintain core competencies, so that when it turned — and we knew it would — we would be ready,” Hazelton says. “Did we have a really expensive welder doing things we didn’t need an expensive welder to do? Yes,” he
says. “Did we have a structural engineer pulling parts two days each week? Yes. But we needed to keep them.” In the marketplace, Schwing America’s team focused on its customers, even if they weren’t buying. “We had customer loyalty,” O’Malley says. “We had customers that weren’t able to buy pumps. We knew that if we made it, they would be there for us.” So, the core value on the sales side, he says now, was to keep their customers. To maintain their customer relationships (and make a little money) Schwing employees actually helped customers sell their Schwing equipment. The same FEBRUARY 2014 ENTERPRISE MINNESOTA /
Schwing reputation for making a heavy duty, reliable and longlasting product that compels customers to pay a premium for new Schwing equipment, also made it a hot product in the used market, particularly in the export market. Schwing’s equipment operates more economically than the competition, its machines last longer, are simply maintained, and relatively easy to repair. What’s more, high demand for refurbished Schwing equipment in the secondary market helps it fetch top dollar. “We literally went to customers and said, you’re not buying, you’re selling. Let us help you sell your used equipment to stay alive,” O’Malley says. “A guy in Iowa with nine pumps can’t remarket into Venezuela. But we can. We have a dealer in Venezuela. They called it strategic fleet alignment. Schwing employees would help show customers how to transform unused assets
Part of leaning up Schwing America’s production floor includes the addition of “keep-fill” supply stations.
and turn them into equipment that could be used. They might, O’Malley says, help a customer who did residential work sell off his smaller residential sized booms and buy one nice commercial piece, which would enable him to take on a hospital or
a bridge job. Parts and service, too, became an asset. As nobody was adding to their fleets, their existing equipment got older and needed maintenance. As the company worked to maintain good customer relations, communications became important, particularly defensive communications after the company filed for Chapter 11 bankruptcy protection. Hazelton says a significant lesson of Chapter 11 is “that you have to tell your story. Everybody else is telling their version of your story. You’ve got notices being sent to employees’ homes by the Federal Court. You’ve got what you read in the press.” Hazelton’s team made a priority of engaging employees. “We got some pushback from our competitors, but quite honestly, all the customers were in the same position. For a competitor to say, hey,
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Schwing is in bankruptcy, the customer would say, I am on the edge, too.” Hazelton says some competitors fared better because they don’t have to maintain Schwing’s infrastructure. “They’re just assembling,” he says, “They don’t have a weld shop or a paint facility. Their components are coming from China or Turkey, some possibly from Germany.” Hazelton also sees residual good will with vendors and customers coming from the company’s tenacity in the downturn. “We paid everybody 100 percent of what we owed them. We did over two years, without interest. Gerhard was adamant,” he says. That even included purchase orders. “We ordered the steel, we’ll buy the steel,” they told customers. That has paid a lot of dividends with our vendors now, as we’re getting busier and coming back. THE FUTURE Hazelton recently told the World of Concrete show in Las Vegas that 2014 will be “the first full year of recovery” for his company, adding that the industry will see quantities doubling from last year. Sales are improving. In the past two years, customers were acquiring pumps on a project basis, he says, but there are indications that customers are seriously considering full fleet replacement. “We’re getting to the point where the customers are saying, I’ve got to grow,” he says. “I have to replace my fleet. What do you have coming that’s new?” Hazelton predicted Schwing America might return to full capacity within the next few years, “but hopefully with more legs to the stool,” mostly acquired during the downturn. He hopes to grow the truck mixer business, which got sidelined by the recession. The company will continue to service the Latin America market from St. Paul, and it will work to grow a recently acquired a pump repair business that he brought in-house. And Schwing will continue to pursue the used market. “Being a premium-priced product, we can’t always attract the buyer of new equipment, but we can attract them with a refurbished Schwing, where they’ll get the support they’ll need.” He compares it to buying a factorycertified used car. “Do you want to buy from Brian’s House of Imports or do you want to go to Audi and buy something that’s certified,” he says. “It’s how a lot of customers get into the business.”
The ability to deal with used equipment may also enable customers to upgrade their fleets. People are operating a lot of old equipment, he says. Companies that used to keep equipment five years, now have nine- or 10-year-old pumps. “With our global network, we can move that equipment.” He predicts that the XCMG relationship is going to enable Schwing America to
creatively pursue new ideas. “It has been a good relationship,” Hazelton says. “It is very early, but I see the XCMG opportunity as a way for us to get more horsepower, with more production. As our portfolio expands our resource base will become better. “After going through what we went through in the last four years, I want to work on the fun stuff now.”
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By Bob Unke
There are significant differences between doing and leading SCENE: SIX MONTHS AGO,
Bob Unke is a senior instructor/development specialist at MRA, the largest employers’ association in the Midwest.
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THE HUMAN RESOURCES OFFICE We have an opening, a leadership opportunity within our organization. A vacuum exists, and the sooner we can fill it the better off everyone will be. What should we do? Who should we look to? Who’s “ready” and has earned the right to lead the team or group? We decide to focus on Mike. He’s been with us a long time, proven he’s reliable, and when it comes to getting things done, Mike has a track record
that no one can argue or take issue with. He’ll be a natural. He’s probably forgotten more things than some of the people in his department ever knew. That was easy.
PRESENT DAY, IN THE OFFICE OF MIKE’S MANAGER For some reason things these past six months haven’t gone as well as anyone had hoped. Mike seemed eager to accept the promotion. And there was very little, almost no resistance or concern
on the part of the team to having Mike take on the leadership role. For the first few weeks everything went pretty well. Oh, things slowed down a bit to be sure, but that was just because Mike had to get the hang of what his responsibilities were, learn a few extra “ropes,” climb the leadership learning curve, so to speak. The optimism that surrounded his promotion has all but disappeared. Mike’s manager is consulting with the HR manager to try to generate some ideas to salvage the situation. Not only does he have a poor leader on his hands, he’s lost one of the best performers in the department. WHAT WENT WRONG? The issues at play are, all too often, very predictable. More importantly, with a bit of thought and planning, they are also highly preventable. First, we have to accept that there are many significant differences between doing “it” and leading “it.” Doing it has a number of common characteristics: It’s episodic. There’s a beginning, a middle, and an end. Results can be assessed on a fairly regular basis. There’s a problem to be solved. People who are good at doing “it” are able to take gray and make black and white out of it. They can come up with an answer, or in
“Leading is not episodic in the sense that doing a job might be. There is no beginning, middle, or end to leadership. It’s an ongoing activity that never ends. If we were to borrow a movie title to summarize leadership it would have to be “The Neverending Story” some cases, “the” answer. Doing it is often a matter of individual focus and effort. This offers the person doing it an opportunity for control, in this case control of themselves. How long they work, how hard they work, etc. People who do things well are often competitive in the best sense of the word. They like to compete with their own prior performance levels. If it took them an hour to do something the last time, they look for ways to do it in less than an hour the next time, with no loss of quality. People who do things well often have a very high degree of engagement with
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their work. They do what they do well and are given regular, sometimes daily opportunities, to focus on their particular strengths. When they need something, they ask. When they have an idea, they offer it freely. They come to work with a sense of excitement and leave with a sense
of accomplishment and fulfillment, eager to repeat the experience the next day, and the day after that. With no diminishment of the team concept, they tend to treat their work, their job, as their own small business within the context of the larger organization they are part of.
They are often seen as indispensable by their organizations because of their knowledge, skills, abilities, and performance. And now we’ve asked them to assume leadership of the group. What could be more natural? Nothing, if leading it was like doing it
Growing Leaders Enterprise Minnesota expert Pat Voyles explains how leadership skills can be developed How do you define “leadership skills?” Leadership skills relate to behavior, the way people work – and who the leader is – versus technical skills that relate more to what people do. In addition to helping leadership teams develop technical skills, we help them develop leadership skills like emotional intelligence, versatility, building positive relationships and then how to resolve conflict when it does arise. Are manufacturers sometimes slow to embrace the value of leadership skills – either in the office or on the production floor? It’s true that manufacturing is different from, say, professional services. But when you talk about leadership skills versus technical skills you allow the assumption that one is better than the other, or that you should focus on one, and not the other. They are both important. Manufacturing has always demanded technical competence that comes from specific knowledge and proficiency in process. That hasn’t changed. Manufacturers still have to be on top of those competencies. What we’ve come to learn at Enterprise Minnesota over the past couple of years is that the single largest lever -- or the single largest obstacle -- needed to take advantage of those strong technical skills has been the effectiveness of the leadership team, and its skills. Some of those skills include strategic perspective, productive working relationships, the ability of the leadership team to develop employees, inspiring commitment, taking initiative, conscious effort to manage change, to be decisive, and to address conflict. How to you teach these skills in a manufacturing environment? There are three high steps. The first one is being able to evaluate the appropriate competencies. We do a leadership team gap assessment that analyzes 20 competencies in the current state of 22
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Pat Voyles works with manufacturers to help strengthen their leadership teams and align their leadership strategy to support their business strategy. She joined Enterprise Minnesota in 2013 as a Business Growth Consultant, specializing in Training within Industry (TWI)-Job Relations, Change Management, Social Styles, and serves as a facilitator on several CEO peer councils.
the leadership team. We look at leadership team skills including building collaborative relationships, strategic thinking, change management, being a quick learner, versatility, composure, compassion, and sensitivity – the skills that leaders need. The second piece is to plan for competencies that need to be improved in order for the business to be successful in the future. The initial review is done in a face-to-face meeting with the whole leadership team. We’ll go over the assessment results along with our recommendations to address those competency gaps. The third piece is that there is knowledge to be delivered, and, more important, there are practical applications to be coached and applied. We do this by providing interactive workshops that enable leaders to learn and apply their knowledge in a safe environment and provide follow-up to see how they are progressing with the changes. How do you assess the success of leadership team development? The key to success of leadership skill development is through coaching and mentoring and continual follow-up and accountability. It takes time and effort for people to change behaviors and mindsets—their attitudes.
… but it isn’t. Not even close. What are some of those differences we need to be aware of and plan for? Let’s review the characteristics we just examined and compare the leader’s role. Leading is not episodic in the sense that doing a job might be. There is no beginning, middle, or end to leadership. It’s an ongoing activity that never ends. If we were to borrow a movie title to summarize leadership it would have to be “The Neverending Story.” Leadership requires an ability to be calm in the face of ambiguity. Leaders often don’t know immediately, perhaps for months, and in some cases never, if a decision they’ve made is the “best” decision that could have been made in the current instance. That’s not to suggest that decisions are made impulsively, far from it. But the amount of time spent deliberating a decision does not necessarily correlate with the ultimate quality of the decision. In some respects effective leaders would benefit from possessing what’s seen as an asset for relief pitchers in major league baseball, the proverbial “short memory.” Some decisions don’t lead to desired results. And while it’s useful to study less than optimal decisions to see which assumptions were incorrect, evaluate alternatives for future use, and as a source of individual learning, too much time spent in regret impedes progress, both personally and professionally. The most effective leaders have to take satisfaction in accomplishing results through the efforts of others. We can liken leadership to an orchestra. One can be a skilled clarinet player, a fabulous bass player, or an accomplished percussionist. As a leader, however, the task is to take the baton, assume the podium, and direct each member of the orchestra to produce a beautiful rendering of the symphony on the music stand. Prior ability to play any or all instruments, at that moment, has no bearing on what sounds are going to be produced. Certainly, the prior success as a member of the orchestra has value—it aids in understanding, it offers insights for training, coaching, and developing the talent present in the orchestra members— but it’s irrelevant when it comes to accomplishing the evening’s mission: a standing ovation from the audience… The individuals who comprise the group being led are possessed of individual motivations that might be vastly differ-
ent from those of the leader. Far too often new leaders express concerns about the work ethic of team members. The leader’s vehicle can often be seen in the parking lot before others have arrived and the normal work day has started. It’s not unusual to see their vehicles there after most other people have left for the day. Weekends? Not unusual to see the leader’s car in the parking lot then either. “What on earth is wrong with their priorities?” the leader laments. Meanwhile their employees, driving past the parking lot on the way to take their family out for a pizza, look at the leader’s car and say to themselves, “What on earth is wrong with his priorities?” Understanding, appreciating, and being able to mold a diverse group of individual motivational patterns into a successful team is not a skill most people are born knowing how to accomplish. We often promote those individuals who are highly engaged. We forget the fact that their engagement is strongly linked to the fact that they do, every day, what they do well. In their new role they
themselves indispensable to their teams, is by striving to make themselves completely dispensable. The sooner the team does not need the leader to experience day to day success, the sooner that leader has accomplished their larger mission. Of course we’re not talking about decisions and activities that are confidential to the position; one does not delegate discipline or the executing of the performance review process, but beyond those things reserved to the leader, the team should not need what the leader provides on an immediate basis. A useful yardstick is the analogy of the team as a children’s top— pump it up, it spins, makes a soothing sound, and offers an interesting play of colors. A successful leader at the lower levels of an organization should be able to actually take a vacation for one or two weeks and, upon his return, see the top spinning, albeit not as fast or with the same degree of stability that was present at their departure, but spinning nonetheless. Middle level managers should be able to leave for two to three weeks and
“People who do things well are often competitive in the best sense of the word. They like to compete with their own prior performance levels. If it took them an hour to do something the last time, they look for ways to do it in less than an hour the next time, with no loss of quality.” may not, at least initially, be doing things they do well—like communicating larger organizational goals in a way that’s meaningful to the group, or mediating conflicts between group members, or making difficult, sometimes unpopular decisions, or forging partnerships across diverse functional lines to achieve objectives. The list goes on and on. But if we’re now asking someone to do things that, while necessary, don’t play to their strengths, it’s important to keep in mind that we may be impacting the degree to which they feel engaged. And let us make no mistake, leaders are, and should be “emotionally contagious” to the group they lead. They are being listened to, and watched, by their employees, who are seeking the cues and clues that will be used to determine their next move. Leadership is chock full of paradoxes. The way our most effective leaders make
not be missed with the exception of outlier events taking place in their absence. Senior level leaders should be able to be on vacation for a month with the same litmus test. Let’s revisit Mike’s performance.
PRESENT DAY, IN THE OFFICE OF MIKE’S MANAGER “Mike, thanks for coming in. I’ve been thinking that we may have, inadvertently, thrown you in the proverbial deep end of the pool without teaching you how to swim. What I’d like to do now, with your agreement, is take some time to talk about what we call the soft skills associated with successful leadership. In thinking about my own experience, and having had a chance to observe you for the past several months, I’ve come to the conclusion that some of these skills can be anything but soft. FEBRUARY 2014 ENTERPRISE MINNESOTA /
Blandin CEO Dr. Kathy Annette promotes digital connectivity as the source of vibrant rural economies
athy Annette, a long“It surprised none of her time Bemidji-based new employees at Blandin physician who now runs that she showed keen Minnesota’s Blandin Foundation, has no immediate interest about how trouble establishing her bona fides community leaders in rural as a technology-savvy professional with a deep and abiding Minnesota were deploying appreciation for the values of living technology.” in rural Minnesota. The position she left just prior to joining Blandin was as director of field operations for the Indian Health Service, a massive Washington, D.C.based health care network that employs more than 15,000 health professionals and delivers services to about 1.9 million Native Americans nationwide. She carried the title “acting director” for almost four years, a stipulation required by the fact that she refused to leave Bemidji to do the job. Instead, she “attended” meetings in D.C. via two-way digital communication through a big screen television in her office in northern Minnesota. She managed her team of regional directors throughout the nation in similar fashion. “You don’t know how much money we saved via travel costs,” she says now. “And still got the same work done. It was great.” The moral of her experience, she likes to say, is this: “Rural Minnesota is a great place to work.” Another message, more subtle, is that access to technology is essential to keeping the appeal of working in rural Minnesota. So it surprised none of her new employees at Blandin that she showed keen immediate interest about how community leaders in rural Minnesota were
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deploying technology. In September 2011, scarcely a month into her job, Dr. Annette visited a “telepresence” classroom in Deer River, Minnesota, a town of about 1,000 people 15 miles northwest of Blandin’s Grand Rapids headquarters. She had wanted to experience firsthand how rural educators were leveraging technology to give their students high-quality, state of the art educations. “Everyone said I had to visit Matt Grose, the superintendent at Deer River,” she said. Gross led her to a room in which 10 high school students were being taught the Ojibwe language by a native Ojibwe teacher, the only such teacher in the region. At one end of the classroom, three huge HDTVs beamed in students from another classroom, this one in Remer, Minnesota about 30 miles away. So enamored of the technology and that particular subject matter, Dr. Annette remained in the classroom for the entire hour. The quality of the technology left a lasting impression on Dr. Annette. “It was almost like they are in the same classroom with you. One of the students in Remer dropped a pencil and you could hear it as if he was in the room with us.” “For me that was a big wow,” she says. “As a Native American, I looked at a language that was dying that was now living, growing and thriving. Technology is helping to keep it alive.” Interactive classroom technology is by now fairly commonplace throughout modern American schools. But anyone who understands the scarcity of high speed Internet connections in thinly populated parts of rural Minnesota would instantly appreciate this modernistic “telepresence” as one of the many philanthropic achievements that Blandin has quietly enabled since its founding in 1941. At that time, the estate of Grand Rapids-based paper industrialist Charles K. Blandin bequeathed $1 million to create one of the few private American foundations dedicated solely to strengthening rural communities. And with investment of the proceeds from the sale of the mill in 1977, Blandin’s endowment for the foundation has grown to nearly $450 million, making it a national powerhouse of rural advocacy. What captivated Dr. Annette most was not merely the accomplishment of helping find and use affordable high speed Internet connections in the Deer River school, but how Blandin helped make it happen by deploying its long history of public/ private convening power and by combining Blandin’s three operational objectives: community leadership, grant-making, and engagement. What she saw in that classroom perfectly captured the mission she had accepted at Blandin. The Blandin Foundation, she says, defines a healthy community as a vibrant community grounded in strong local economies. “We believe in economy, education, inclusion, but addressing each of these on its own is not enough,” Dr. Annette says. “The real opportunity comes from the blend of these three.” Dr. Annette views her background as a public health physician as being directly relevant to her service at Blandin. “My role as a physician was to see patients and get them healthy. As I evolved in my work, that became a focus on
Dr. Kathy Annette A lifelong resident of rural Minnesota, Dr. Kathy Annette, president and CEO of the Blandin Foundation, grew up on the Red Lake Indian Reservation and is enrolled with the White Earth Band of Ojibwe. As a graduate of the University of Minnesota medical school, she became the first female member of the Minnesota Ojibwe Nation to become a physician. She devoted 25 years as a physician and public health professional, based in Bemidji. As acting deputy director of field operations of the Indian Health Service based in Bemidji, Dr. Annette supervised Area Directors across the United States, including 48 hospitals, and 238 health clinics. Its 15,000 federal public health professionals served 1.9 million Native American patients, and employees. For her service, Dr. Annette received two Presidential Meritorious Awards and a Presidential Distinguished Service Award. She retired from federal service after 26 years and joined Blandin Foundation as its CEO on Sept. 1, 2011. Other honors and awards include the national American Indian Physician of the Year award, Quality of Place Award issued by Northwest Minnesota Foundation, and the Jake White Crow National Award, presented by the National Indian Health Board—the only federal employee to be so recognized. She was inducted into the Northwest Minnesota Women’s Hall of Fame at Bemidji State University in 2006 and into the Academy of Science and Engineering at the University of Minnesota, Duluth in 2005 (the first woman so honored).
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Blandin’s Leadership Legacy ‘Leadership’ alumni work in more than 400 rural communities statewide A key component of Blandin’s strategic efforts over the past 27 years has been to develop community leaders. Since 1985, the Blandin Community Leadership Program has trained more than 6,000 community leaders representing more than 400 rural communities in Minnesota. Blandin uses its Community Leadership Program to help rural communities’ leaders develop skills and foster the relationships that help them find common ground and help
them address their communities’ challenges. “We look for ‘action’ people in their communities,” Dr. Annette says. They may not always see themselves as leaders. That’s one of the things that this program really allows. You realize that you don’t have to have a title to take a leadership position.” Blandin’s community leadership programs are developed by a team of people with backgrounds in sociology, psychology, communication, adult and leadership education, government, and community and business development. The curriculum is always evolving to reflect current rural developments. With deep experience and a solid alumni network throughout Minnesota, Blandin never has to recruit communities to participate in the program. “Communities come to us,” says Dr. Valerie Shangreaux, director of leadership at Blandin. “We go where we are invited.” The programs, she says, are structured to develop people’s knowledge and skills, to work together, and to find common ground so they can address their communities’ issues and opportunities.
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Dr. Annette describes it as a program in which participants “learn how to work together. It is that simple.” They learn to analyze the strengths and opportunities in their communities. And the results, she says, are “incredible.” Community leadership is different from organizational leadership,” she says. It is more complex, requiring different skill sets. Within this context of leadership, how things get done in community is as important as what gets done. Energy builds as people see new possibilities in themselves, in one another and in their community. The BCLP strives to develop three core competencies: Framing: Engaging others to identify, choose, and define issues affecting community health. Social Capital: Building a network of relationships for getting things done and for a healthy community. Mobilizing: Engaging enough people and resources to get the job done. Each training cohort consists of about 25 participants, sometimes all from the same community. The training consists of three components. The first is a five-day Residential Retreat at Sugar Lake Lodge in Grand Rapids. “We call it a retreat because that’s what it is,” Shangreaux says. “That’s why we have it at a beautiful lodge, in a place where people can connect to the beauty of nature.” The retreat focuses on providing participants with skills that may not be new, but are nevertheless timeless. The second convening is held within an hour and a half or two hours of their community. The last meeting is held in home communities or in a nearby area if the cohort consists of more than one community Blandin convenes a cross-year cohort of up to 12 alumni from four different communities annually in a program called the Academy for Community Engagement to solicit further communication about complex community issues. “I don’t know how many rural communities I’ve visited when someone will come up to me and say, ‘This course was life-changing for me, Dr. Annette. I never thought I would – fill in the blank – run for council, be on the school board.’ It is humbling.”
community health. And the Blandin Foundation is about healthy communities, so it wasn’t a big leap. There is definitely a link.”
ore than 10 years ago, Blandin’s leadership identified access to high speed broadband Internet as an essential link for the ongoing vitality of Minnesota’s rural communities. The first step among Blandin’s broadband strategy was to help enable access to technologies. The second, just as important, Dr. Annette says, is to inspire communities to adapt their own strategies for implementation. Along the way, it founded and administered the federally funded Minnesota Intelligent Rural Communities (MIRC), building a coalition that partnered with leaders in more than 60 communities and 80 organizations across the state. The new Blandin Broadband Communities program provides planning and organizing support to regions that demonstrate readiness and resources to “Vibrant, resilient either bring robust broadband adoption to communities without communities it, or assist already connected communities to make the best depend on use of information and services abundant and broadband can deliver. robust access to “Broadband is a community imperative,” Dr. Annette has said. the Internet” “Vibrant, resilient communities depend on abundant and robust access to the Internet, and the digital literacy skills necessary for everyone to take full advantage of this access.” Twenty years ago it would have been hard to imagine a vibrant community without good roads, sewer and water, schools and hospitals, electricity or telephones, she says. “Today, broadband infrastructure is as important as roads and electricity in connecting rural communities to the outside world. Without broadband it is increasingly harder to conduct business, receive health care and educational services, retain our youth, attract entrepreneurs, or stay in touch with friends and families.” “We know from nearly a quarter-century of work with Minnesota’s rural communities that leaders have to do it themselves, but they can’t do it alone,” she says. “This is especially true on complex issues like broadband. Our goal is to stand with local leaders, to support them through access to technical support, grants, and networks of other communities and partners to tap the power of high-speed Internet. Private/public partnerships have proven to bring forth very powerful and innovative possibilities, and are at the core of rural Minnesota’s successes.” “Broadband is essential infrastructure for any community that wants to design and claim its own future,” she adds. “Every community we have had the opportunity to engage with tells us, though, that it is not enough to have access; the community— everybody—must be prepared to put high-speed broadband to work. So, even something as international as broadband still comes down to local leadership.
In 2012 the Blandin Foundation was awarded the 2012 Tekne Award for Innovative Collaboration from the Minnesota High Tech Association for their efforts on the MIRC project. Some of its successes include the following: Thief River Falls launched a program called Computers for Our Community, which delivered 126 refurbished computers, 91 reduced-rate broadband subscriptions, and 9 multi-week digital literacy courses to low-income families. Eighty percent of families reported that they continued their subscriptions when the program ended. Lac qui Parle County created a mobile computer lab that brings broadband access to one of Minnesota’s most sparsely populated regions. The Computer Commuter service provides no-cost computer training and assistance to residents and local businesses. An immigrant resource center in Winona launched digital literacy training in Hmong and Spanish for more than 60 immigrants. A consortium of 9 school districts in Stevens County developed a broadband-based system to provide specialized distance learning services for students with disabilities. Benton County added new computers in libraries, schools, and senior housing and created 13 new wi-fi access points in a variety of businesses and community sites. In addition to surpassing their goal to refurbish and redistribute 1,000 computers to low-income households, PCs for People opened affiliate store fronts in four rural Minnesota communities. The Leech Lake Band of Ojibwe incorporated digital literacy training into a temporary employment program, providing 437 band members with online resources to strengthen skills and find jobs. The band also expanded a computer lab at the Leech Lake Boys and Girls Club, which doubled the number of student visits to 250 per month. Cook County opened a computer lab as part of a higher education distance learning partnership. So far, the site has provided 21 training sessions that were attended by 185 people. Going forward, the lab will be available to all community residents as a free Internet access point. A local-access television station in Itasca County upgraded its software, hardware, and website interface to live stream and archive public meetings online. Several communities enhanced the online presence of government and business, including Windom in far southwest Minnesota, which planned and launched a community portal called Finding Windom.
FEBRUARY 2014 ENTERPRISE MINNESOTA /
Caught Act in the
Dairy equipment manufacturer Relco wins $22.78 million in a theft of trade secrets lawsuit.
By Suzy Frisch
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oren Corle didn’t think much of it when two salesmen left Relco, his Willmar-based manufacturer of dairy equipment, for positions in Wisconsin. That is until he started hearing from competitors and clients that other dairies were installing highly specialized systems just like Relco’s. Strangely enough, the company manufacturing the look-alikes was exactly the same business where Corle’s employees went to work in early 2010. Custom Fabricating and Repair (CFR) of Marshfield, Wisconsin, had launched a subsidiary called Cheese Systems, and Roger Ochsner and Troy Gascoigne purportedly left to help get its cheese-making line off the ground. Even though the pair had signed confidentiality and noncompete agreements, Corle wasn’t too concerned about their new jobs. Cheese Systems’ equipment just wasn’t as specialized and complex as Relco’s. During
the past 32 years, Relco built an international reputation as a sophisticated manufacturer of complicated, highly engineered—and very expensive—whey processing systems. It would be highly unlikely for this new start-up to accurately reproduce Relco’s equipment quickly without having access to its designs and blueprints. Yet, “they were able to quote, execute, and win very large projects in a very short amount of time after they started, and that’s very difficult to do,” says Corle, Relco founder and
Company President Loren Corle grew Relco into a $68 million business with operations in Willmar, the Netherlands, and New Zealand through constant improvement to engineering and design, deep specialization in dairy and food processing, and a willingness to make acquisitions.
PHOTOGRAPH BY LAURA JILL PHOTOGRAPHY
president. “It’s a momentous undertaking to produce shop drawings, select the materials, the vendors, the suppliers, get everything dimensioned properly and in the workshop to build it if you have no history to work from.” After losing about five contracts to CFR/Cheese Systems in 2010 and 2011—in addition to fruitlessly spending $20,000 to $40,000 each time Relco bid on a project—Corle decided to retain a lawyer. Was Cheese Systems somehow competing in this niche industry on the back of Relco’s proprietary and confidential business secrets? Relco sued, and after a nine-day trial this fall, a Kandiyohi County jury found that CFR, Cheese Systems, Ochsner, and Gascoigne stole trade secrets, then used the information to compete against Relco while interfering with its ability to do business. The jury awarded Relco $22.78 million, holding CFR responsible for 90 percent of the damages. “Justice was served,” says lead attorney Dean LeDoux, a principal at the Gray Plant Mooty firm in Minneapolis. “If someone stole a $1,000 laptop, that would constitute a felony and they would serve several years in prison. If you steal millions of dollars worth of computer files, more often than not the outcome is a civil lawsuit. Think of the harm to the economy if people aren’t held accountable.” A DAIRY (EQUIPMENT MANUFACTURER) ON THE PRAIRIE Corle didn’t grow Relco into a $68 million business with operations in Willmar, the Netherlands, and New Zealand by resting on its laurels. Constant improvement to engineering and design, deep specialization in dairy and food processing, and a willingness to make acquisitions helped Relco expand to 150 employees. The origins of Relco begin in 1982 after Corle was laid off from a welding company. He started working as a contractor doing sanitary pipe installation and welding at a dairy. Corle took on greater responsibility and more complicated jobs over time, even designing equipment at clients’ request. By the mid-’80s Corle joined forces with Rolland Engineering to add deeper expertise at Relco. As the industry’s needs changed, FEBRUARY 2014 ENTERPRISE MINNESOTA /
FUNNY BUSINESS Relco’s troubles began in late 2009, when Ochsner and Gascoigne gave notice. They told Corle they were going to CFR’s new Cheese Systems subsidiary as it developed a waterless mozzarella cooker and other cheese-making equipment. Relco passed on enforcing the pair’s noncompete agreements, LeDoux says, because roughly 10 percent of Relco’s business focuses on cheese, and the equipment isn’t as specialized and high-end as its other lines. Corle certainly was aware of CFR, because it got started in the sanitary fabrication business about 30 years ago, too, and it’s not a very large industry. CFR, though, wasn’t involved in many of Relco’s main product lines, including 30
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Stay out of hot water Dean LeDoux, an employment and labor attorney at Gray Plant Mooty who successfully represented Relco, offers advice on avoiding legal troubles surrounding noncompete and confidentiality agreements.
• When you hire employees, find
out if they have noncompete and confidentiality agreements from their previous employer. If so, review them. Emphasize that you want new employees to honor their contracts and not use any confidential information from their former job, whether that’s customer contact information, preferences, product details, or future plans. If you discover that new employees are using this information, take disciplinary action, including firing them if it’s particularly egregious. Otherwise, your company could be held liable. Dean LeDoux Protect your confidential business information by treating it as confidential. Have employees, vendors, contractors, and others sign nondisclosure agreements. Limit access to your company’s most sensitive information to only those who need to see it. Implement policies and procedures on classifying and handling confidential business information. Then monitor employees and discipline those who break the rules. “It’s almost worse to not monitor compliance with practices and procedures and employee agreements than to not have them at all,” says LeDoux. “You might hear from a lawyer, ‘If this was so confidential and valuable, why did you not protect it and enforce the rules you had in place?’”—S.F.
its specialized lactose and dairy permeate processing equipment. But Ochsner and Gascoigne knew the business, especially Ochsner, who worked at Relco for 10 years. Gascoigne spent about 14 months at Relco. Both were sales engineers who often served as the liaison between customers and Relco engineers. “With the size of the contracts and how
PHOTOGRAPH BY HOFFOGRAPHY
Relco rose to meet them. The company continually added to its capabilities to design and build increasingly complex equipment for making cheese, packaging powders for food or pharmaceuticals, and processing a wide range of foods like milk, juice, yeast, and soy. Its multiuse systems could do concentrating and drying, fermentation, homogenization, and more. Then, processors figured out how to turn whey—long considered waste from cheese manufacturing—into a usable product. Subsequently, they needed even more sophisticated equipment for evaporating and drying the liquid into either lactose or dairy permeate, which can be used to fortify foods or animal feed. Relco and its engineers developed lines of lactose and dairy permeate processing equipment. In 1999, Relco acquired Whey Systems, Inc., which helped the company grow into a big player in this small market. Before long Relco was competing on the world stage, selling its equipment in New Zealand, South America, and throughout Europe. The projects Relco tackled were significant, often taking months to develop 30- to 100-page bids, then another to 12-18 months to design and construct the systems. Lactose and dairy permeate equipment is huge and highly complicated, often standing two to three stories tall, with price tags that can hit $50 million. It’s just not expertise that a start-up can develop overnight, argues LeDoux.
much work goes into trying to sell one of these projects, the sales engineers end up being the primary point of contact with potential and ultimate customers,” says LeDoux. “Because of that they had full access to all of the confidential, valuable engineering information and the files on Relco’s computer system.” In early 2010 Ochsner started as
Relco’s production facility in Willmar
president of Cheese Systems, and Gascoigne went to work for him. Everything was quiet until 2011, when Corle began hearing from competitors and others that equipment very similar to Relco’s was appearing at several clients’ sites. In addition, Relco failed to win potential projects at the worst time—the height of the Great Recession—when work already was tough to find. There also were several other projects where Relco didn’t bid and CFR got the job, based on proposals modified from Relco’s designs, according to LeDoux. “We lost contracts during very difficult times for the industry, and we had to lay people off—good people,” says Corle. “And then we were not able to get our people back, and it affected our ability to ramp back up when business picked up again.” After Relco retained LeDoux, his team investigated this new competitor with similar designs to theirs. When they discovered that the manufacturer was Cheese Systems, where Relco’s former employees went to work, the lawyers sent cease and desist orders. Ultimately in May 2011 Relco filed suit in Minnesota’s 8th District Court claiming misappropriation of trade secrets and confidential business information, tortuous interference, breach of contract, and more. Michael Feichtinger, an attorney at the Quinlivan & Hughes firm in St. Cloud, represented the defendants. He did not return calls and emails seeking comment about the case. TIME FOR TRIAL After two court-ordered mediations failed, the two sides headed to trial this October. LeDoux and his co-counsel,
Meghann Kantke, built their case with the help of a computer forensics expert, who mined the defendants’ native computer files for their meta data and electronic fingerprints that showed where the files originated. Then, in 2012, LeDoux and his team discovered the smoking gun—two external hard drives belonging to Ochsner that were loaded with Relco computer files. With a court order from the judge, LeDoux’s team investigated the hard drives, CFR and Cheese Systems’ servers, laptops, and more. “The evidence exploded and went from 100 suspect files in the summer of 2012 to 70,000 files to dig through and analyze,” he says. “We went from going to trial with not enough evidence to having way too much.” To relay the story at trial of the trade secret theft, LeDoux’s forensics expert created side-by-side comparisons of several Relco and Cheese Systems drawings. They visually show the progression from unique Relco designs to Cheese Systems work that the company developed based on Relco’s designs, Le Doux says. Other evidence included spreadsheets listing hundreds of engineering documents that included Relco’s trade secrets. “The opinion across the board was that it came from Relco, and CFR could not have generated what they did without using Relco’s information,” he adds. The defense strategy involved first arguing that CFR didn’t have any of Relco’s information. Then when the computer files were discovered, the defense claimed that the defendants didn’t take them improperly, and then that the company didn’t use the information. When computer forensics disproved that argument, the defense maintained that Relco’s designs weren’t confidential and were readily available in the public domain. A plaintiff’s expert witness from the dairy industry handily shot down the notion that the lactose and dairy permeate equipment designs were public knowledge, LeDoux says. In closing arguments, LeDoux asked
for $26 million in damages. The jury deliberated for four hours and came back with the $22.78 million verdict, including $7.1 million for improperly interfering with Relco’s contractual relationships with customers or potential customers, $9.25 million for misappropriating Relco’s confidential business information, and $2 million for Ochsner’s breach of contract in taking the computer files. Since the trial, the defendants have said they will not appeal and have worked out a settlement with Relco. It includes a payment plan for the damages as well as a broad, open-ended injunction that will keep CFR and Cheese Systems out of the lactose and dairy permeate processing industry. Meanwhile, Corle and Relco are working to recover from the entire situation—the lawsuit, the trial, and the collective tolls they’ve taken. But the injuries linger. Hundreds of computer files containing Relco’s trade secrets have been transmitted to various customers, suppliers, and contractors by the defendants, and they can’t be retrieved despite the verdict. One of the more difficult aspects for Corle, personally, is new self-doubt about his ability to judge people and whether they can be trusted. Despite that experience and a desire to collect on the verdict, Corle and Relco have refrained from trying to force CFR into bankruptcy. “Some part of us wanted to do that,” says Corle. “But what we realized is that their customers are our customers, and if we shut them down that will leave a whole lot of unfinished contracts and a lot of our customers in very difficult positions. We also wanted to leave CFR with enough opportunity to stay in business and get us as much money as they can to make us whole.” What might be the best justice for Corle is Relco’s continued success as it deepens its offerings in the dairy industry, grows market share, and continues to expand globally. Overall, he believes the lawsuit could benefit the macro dairy equipment industry. “We’re pleased that we were successful in defending our technology in this case,” Corle adds. “It’s good to recognize that we have lots of competitors who are honest and upright and compete evenly with us. This is good for them, too—it helps secure everyone’s technology.” FEBRUARY 2014 ENTERPRISE MINNESOTA /
‘Auditory’ Lessons Modern audits give manufacturers a systematic approach to evaluate and improve their operations
f the theoretical notion of an “audit” still propels you into eye-twitching dread of sitting across the table from an IRS agent, and wondering what your accountant could have possibly miscalculated(!), you might want to expand your perception (and maybe look for a new accountant). Although this is changing, too many folks still operate under the old paradigm that the primary role of an auditor is to root out some kind of malfeasance. They are wrong. The fact is that auditing, broadly applied, has quickly become an essential tool for executives and managers to take a systematic approach to evaluate and improve their manufacturing operations. To see why, we don’t have to look further than the evolution of audited company financials. Manufacturers routinely use them to confirm the financial integrity of their businesses to important stakeholders, like owners, investors, and creditors. But today accountants use financial audits to evaluate financial procedures as well.
“Another ever-increasing auditing opportunity is within lean implementation. “ They know that if you improve your financial policies and controls, you will also be more credible and transparent with your financial performance. Quality system audits provide a valuable example of how to sustain the advances in continuous improvement. Quality system audits are generally conducted internally, but sometimes also by customers. When a quality system is registered to a standard, like ISO 9001, or AS 9100, the auditors are generally from an external organization. 32
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system will confirm that we not only identified the necessary steps to take, but that we put them in place, and most importantly that their effectiveness is sustained. So, as you consider deploying strategic audits as a way to evaluate and improve your operations, consider these points. 1. Are your audit efforts systemic? Does your audit include an ongoing schedule that addresses the procedures and systems that make your organization valuable? 2. Does your audit sustain improvement and emphasize best practices? Is it built in a way that guides your leadership team’s decisions about continuous improvement strategies?
John Connelly is director of consulting at Enterprise Minnesota.
Quality system auditors are driven to go beyond conformance, because merely conforming should represent a base-level standard of achievement. You have to conform to the standard, but high-value auditors (internal, customer, or external) will use the exercise to find improvements that make the system, the organization, or the business more effective. And this is important. Since the quality system is composed of all the organizations’ key processes, this kind of auditing has the power to influence the way the business broadly brings out, promotes, and advances its “best practices.” Another ever-increasing auditing opportunity is within lean implementation. For me, regular audits should also be built in to 5S, problem solving, value stream mapping, and most kaizens. An audit
3. Have you adequately developed your auditors? This is both significant and easily overlooked. Do you have enough auditors? Are your auditors sufficiently trained to ensure an independent cross-functional look into your system? Are they asking insightful, “big picture” questions? It is not enough for auditors to be too narrow, too picky about the way a process step is done. Auditors who succumb to the temptation to focus narrowly on specific processes are really missing the point. They also need to think about how that process plays into the bigger picture of the organization’s success. They need to think in terms of linking various systems and tie them to your larger vision. For what it’s worth, we at Enterprise Minnesota have trained auditors with deep experience in both quality systems and productivity auditing. We help manufacturers develop internal auditing systems, and train individual auditors.
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