• Current Issue • Ad. Rates • Writer's Guidelines • Archives • Circulation

Minnesota Technology Magazine - Winter 2006

Up All Night

A look at six factors that contribute to CEO insomnia—and insight on how to deal with them.

Imagine for a moment that you’re the CEO of a midsized regional manufacturing company. After another nerve-wracking day of meetings and personnel issues, it’s now after midnight. You lie in bed, eyes wide shut. Inside your head a tape is replaying the day’s events on an endless loop. As you toss and turn, each train of thought races to another connection that requires additional reflection. After a few hours of sleep, you wake up groggy, craving more coffee than usual, and get yourself ready to do it all over again.

It’s a good bet that the above scenario happened somewhere last night. It’ll happen again tonight too. And tomorrow, and the day after that. Every business leader has concerns, lots of them. But some problems claim more mental bandwidth than others. With that in mind, we asked the CEOs from some manufacturing and technology companies around the state to share their most pressing concerns—the ones that keep them awake at night. As you might expect, much of what they worry about is particular to their business. But on a generalized level, there’s a lot of commonality on the list. Anybody who runs a business, or part of a business, must deal with universal, axiomatic concerns.

So, here’s more bedtime reading: the six most commonly mentioned nocturnal demons that torment company leaders, along with some advice that might result in slightly less red eyes in the morning.

INSOMNIA FACTOR #6: RAW DEALS
2005 turned out to be harder than expected on many companies, but it was an annus horribilis for auto component manufacturers and their suppliers. Squeezed between higher raw material costs and the downward price expectations of their biggest and most influential customers, things were tough for companies with significant exposure to the fortunes of domestic automakers.

One of the biggest bankruptcies in U.S. history occurred in October when automotive parts giant Delphi filed for bankruptcy. Minnesota may not have as much exposure to the Delphi disaster as such states as Michigan or Ohio, but the pain has been present nonetheless. Unarguably, the same increases in the cost of raw materials that hurt Delphi hurt Minnesota manufacturers as well.

“A few years ago, customers were telling us they wanted 8 percent price improvements, year after year after year. I told them that if that kept up, at some point we’d be paying them,” says David Geslin, CEO of Die Products Co., a Fridley manufacturer of progressive dies. Downward expectations on supplier pricing may be moderating a bit, since everyone is aware that the cost of raw materials is rapidly rising. “Material costs have gone crazy. A lot of materials, like copper and steel, are pricey and they’re still going up.”

Potential solution
Many CEOs and consultants advocate rethinking manufacturing processes to make better use of raw materials. Perhaps the most popular reengineering method these days is lean manufacturing—a broad term that describes a number of strategies that aim to minimize waste and maximize value. From its origins at auto manufacturer Toyota, lean has evolved in a multi-part philosophy that includes well-known Japanese terms synonymous with quality manufacturing, such as kaizen (continuous incremental improvement of an activity to eliminate waste), andon (a color-coded visual display that signals, for example, when a defect occurs on an assembly line or when an operator needs to replenish a material), and kanban (a management system that regulates the movement or production of products).

In a lean environment, deliveries are made just in time, inventories are kept small, and waste is ruthlessly hunted down and eliminated, thereby reducing raw material costs. Sound sleepers have honed their manufacturing processes until they are lean and mean. Doing so results in better products than the competition, less waste, and a better bottom line.

INSOMNIA FACTOR#5: TORT TORMENTS
Excessive litigation and lawsuits remain a late-night concern for a lot of CEOs. Maynard Akkerman is the CEO of Akkerman Inc., a Brownsdale-based fabricator of soft ground tunneling equipment that is used to install underground pipes and waterways without trenching. Akkerman’s boring and jacking equipment is big, expensive, and powerful. A contractor who uses it incorrectly could do a lot of damage. “There’s an axiom among manufacturers that goes, ‘We’re always one lawsuit away from being out of business,’” Akkerman notes. “We haven’t had any serious lawsuits, but it’s always a concern.”

With such powerful equipment, an incorrect engineering survey, a minor operator error, or any wrong move on the part of the contractor who uses the equipment could result in a litigation headache. “You’re always concerned about every job,” says Akkerman.

Potential solution
Unfortunately, there aren’t many easy answers. For years, observers have been looking to the government for help. While there has been some movement on the front—tort reform remains a major policy objective of the Bush Administration and the Republican party—there has been relatively little progress on the issue. Although Congress did pass a reform measure in 2005 that authorizes federal courts to hear class action suits involving more than $5 million and involving persons or companies from different states, and which also limits awards in which plaintiffs get little but lawyers get big fees. Until large-scale reform happens, one approach is to make
everyone on your team a “risk manager.” Identifying risks and liabilities early will result in mitigation ideas and activities that could reduce your company’s exposure.

INSOMNIA FACTOR #4: THE CHINA PRICE
According to Business Week, the three scariest words in America are: “The China Price.” They mean that a Chinese competitor can sell a product for 30 percent to 50 percent less than what it could be made for in the United States.

The old image of low-quality, low-cost Chinese goods produced in sweatshop conditions is giving way to a new one: high-quality products made in modern factories by a well trained and highly motivated work force. This new conceptualization makes a lot of CEOs nervous about how their own companies are going to contend with Asian competitors. If that wasn’t enough, government analysts report that China’s manufacturing base is newer, cheaper, and more heavily invested in IT and capital equipment than American manufacturers. In addition, the Chinese also invest heavily in many high potential science and technology such areas as supercomputers, nanotechnology, satellites, energy production, and other fields that could further strengthen their manufacturing abilities.

Many Minnesota manufacturers are reacting decisively to Chinese competition, through improved quality engineering and upgraded customer service. “We have seen a lot of unskilled manufacturing going to China. But that’s not what our customers want. We turn out perfect parts all the time, on time,” says Die Products’ Geslin, who adds that he believes emphasizing quality over simple labor economics serves domestic manufacturers well.

Going even further, some CEOs feel they might be seeing the beginnings of the manufacturing tide turning. Denny Siemer, CEO of V-Tek Inc., a Mankato-based electronic component packaging and processing firm, believes he’s seeing some types of manufacturing coming back, if not to the United States, then at least closer. “We’re finding that many manufacturers are moving operations back into this hemisphere, most notably to Mexico. So, I think the pendulum is swinging back,” he notes. “There are a number of reasons for this. Many of our customers are concerned about the stability of the Chinese economy. And some of our customers have not
had good experiences dealing with the Chinese. There’s been concern with quality, intellectual property protection, and most recently, the high cost of shipping. It makes sense to make the parts closer to the point of final assembly.”

Potential solution
To protect against low-wage competitors (Chinese and otherwise), create a product line or manufacturing process that is copy resistant. Developing a unique competence is the key to thwarting low-wage, low-overhead competitors. Also, keep in mind that from the perspective of a foreign competitor, even if everything goes perfectly, it takes at least five to six weeks to ship goods from overseas and clear U.S. customs. Smaller, highly responsive companies, with helpful engineers, offer value that’s difficult for foreign competitors to match.

INSOMNIA FACTOR #3: THE TALENT POOL DROUGHT
The first thing that comes to the mind of Die Products’ Geslin is finding and keeping good people. “Finding talented, smart people to work in this business is hard,” he says. “We can take unskilled labor and train people, but even so, it’s very difficult; it’s hard to find people willing and able to work well in a manufacturing environment.”

Tom Murphy, CEO of Eagan-based CardSource Inc., echoes those sentiments. “Finding people is our biggest issue right now, bar none,” he says.

CardSource manufactures and distributes data-bearing plastic cards such as gift and credit cards. Murphy notes that the business is highly variable, necessitating large swings in production. To handle the variability, CardSource uses considerable numbers of temporary laborers. “It’s difficult to get workers with the skill sets we need; it’s worse now than a few years ago,” Murphy says, adding that his company pays and trains temporary employees well, but it’s still hard to find the number and quality of workers required.

Potential solution
Finding good workers is another tough nut to crack. One strategy is to diversify your efforts. Employers may need to use a variety of methods to find dependable temporary workers, including specialized employment agencies, employment fairs, and direct on-campus recruitment programs.

INSOMNIA FACTOR #2: GREAT(ER) EXPECTATIONS
To many business leaders, figuring out how to meet their customers’ demands for always improved pricing and service are the top management challenge. Customers have always been tough, and their expectations are constantly rising.

Noted manufacturing expert Fred Zimmerman, a recently retired professor of engineering at the University of St. Thomas, says one of the best methods for meeting rising expectations is maintaining intimate working relationships with your customers.

That means working engineer-to-engineer, manager to-manager, to innovate and drive down costs. In situations where manufacturers work with their customers on reducing the overall cost of using products, margins go up and their costs fall.

That may seem like a no-brainer, but sometimes the concept is a tough sell—and not only to customers. Not only do you have to obtain buy-in and cooperation from a customer and its engineers, but you have to protect your margins, maintain security over any proprietary technology, and avoid becoming overly dependent on too few customers.

Over the last few years, Tony Peet, vice president of sales and marketing at Minneapolis-based Minco Inc., has spent a lot of thinking about how to maintain intimate client relationships. Minco is a large manufacturer of precision heaters, sensors, and flexible circuits with applications in the medical, military, and industrial instrumentation markets. Peet says that the company can compete successfully in domestic and global markets by emphasizing tight, engineer-to-engineer relationships with its large clients. “We’re able to get into the early phases of our customers’ design processes,” he explains. “Even when our clients are just beginning to envision their next generation of products, they engage our engineers early in the design process.”

Potential solution
Zimmerman and other executives recommend becoming involved with your customers as early and as closely as possible in their design and manufacturing projects. Doing so builds personal as well as economic relationships. In the same vein, strategically involving your suppliers as soon as possible in your company’s projects often provide more value than short-term, price-oriented relationships.

INSOMNIA FACTOR #1: SAILING THE WINDS OF CHANGE
It’s the pace of change—in markets, government regulation, in cost of materials, in people—that keeps top management up the latest. Reacting to change is the largest concern of all.

Every year, the Conference Board, a New York City-based business association with more than 2,000 member companies, surveys its members regarding their greatest concerns. “We give the CEOs of member companies from around the world a list of challenges which they rank on a scale of one to five,” explains Linda Barrington, the organization’s research director. She adds that the results from the 2005 survey show that challenges such as “speed, flexibility, and adaptability to change” ranked at or near the top of the list of concerns of CEOs of large and small companies. Whether in Brownsdale or Beijing, they’re a universal business concern. “The words that show up constantly in CEO surveys are ‘speed’ and ‘innovation.’ These are clearly connected to the pace of change.”

What can you do to effectively deal with the pace of change? There are no easy answers, of course. But, if you are going to lie awake at night, the best thing to ponder might simply be to dream up ways to keep your people and equipment flexible and your company nimble.

William Gurstelle is a Minneapolis-based freelance writer.

<<Previous Article | Issue Home | Next Article>>