Five years ago, Michael Gerster realized the old business model
at WIKA Instrument Corp. had clearly expired. It was losing market share to Chinese manufacturers, was failing to efficiently meet
customer demands and was wasting money with large amounts of
obsolete inventory.
“The Chinese and other low cost manufacturers … are eating our
lunch and the bag it comes in,” says Gerster, president of the company.
He clearly needed to make some changes if his company wanted
to compete. His prior company had been in the process of exploring lean manufacturing, so when he left in 1998 to come to WIKA,
a pressure and temperature instrumentation manufacturer, he
brought a basic curiosity about it with him. Upon starting at the
company’s U.S. headquarters in Atlanta, he started sending his
people to lean manufacturing seminars, but they always came
back with the same response.
“I don’t know what’s in it for us, Michael.”
But in 2001, that finally changed. WIKA worked with one particular company that was able to really explain the benefits it would
experience from going lean.
“The results were so earth-rocking that everybody was instantly
convinced that this is going to be the future for us, and the way we
wanted to do business,” Gerster says.
So he and management began working with the outside company to
make changes, but even with people on board, implementation is
much more difficult. The entire plant was rearranged so everybody
had to do things differently and embrace a different thought process.
“Two or three years followed where we moved the furniture,”
Gerster says. “We broke all of these departments a-part and created
manufacturing cells.”
But after all of that, he realized the new layout wasn’t very efficient,
so af-ter 18 months, they finished moving everything again to optimize
efficiency.
His patience and persistence have paid off. As a result of all the
changes that have taken place during last five years, productivity
increased by double digits, market share doubled, and they’ve saved
20 to 30 percent of space. WIKA’s lead time has also dropped from
about six weeks to just five to 10 days. That all yields real results —
the U.S. headquarters’ profits and revenue doubled in the last five
years, bringing the entire global revenue to $480 million and the
Atlanta plant’s revenue to $100 million last year.
“We are well-conditioned for the future,” Gerster says. “There are
things that are under our control and there are things that are not
under our control, and even the things that are not under our control,
we have a level of agility that we can react to those real quick.”
Making major changes in a company requires a lot of planning, communication and work to succeed. Here’s how Gerster conquered
some of the challenges of driving change through an organization.
Customer relations
The first stage of any change is having a reason to do so, which starts
with knowing how your company competes.
“Clearly understand the value proposition to the customer,” Gerster
says. “When you compete in a batch world with other customers,
same lead times, same quality service, etc., the only thing you have to
differentiate yourself is price. Then if you have a competitor coming
through globalization that brutally undercuts you in price, you lose
your value proposition to your customer.”
He spends about one-third of his time with customers and says to
ask questions, “then shut up and let him talk” to learn their needs.
Gerster asks about what challenges they face, their biggest expenses, how WIKA can help their profitability beyond lowering price, and
what they expect from suppliers.
While these questions help surface spoken demands, sometimes
you have to dive deeper to find needs they don’t even think about.
“If you ask the right questions, you’re going to find, hopefully, unarticulated demands that the customer would have never told or asked
you to do,” Gerster says. “If you offer that to the customer, all of a sudden the light bulb goes on and they say, ‘Yeah, that would be important for us.’”
After listening, WIKA made some changes. To start, it changed its
methodology in pricing to be customer-friendly.
“If you tell a customer, ‘Here’s a price for five pieces, and here’s a
price for 50 pieces, and here’s a price for 500 pieces,’ you are enticing
the customer to do the wrong thing because he’s going to have one
eye on the low price,” Gerster says. “Then he’s buying more than he
actually needs and puts the rest in his inventory.”
Inventory costs a company a lot of money to maintain, often negating the lower price it paid, so whether a customer needs five pieces or
500, WIKA charges the same price. WIKA also realized it could save
customers time, money and manpower by monitoring their inventories for them by linking their IT systems and automatically shipping
when a product was low.
None of this would have happened if Gerster hadn’t tried to create
a true partnership, which he says many companies don’t understand.
“Nobody ever really understood what partnership means,” Gerster
says. “In the past, it was who had the lowest price. If there’s no
dependency between the customer and the supplier, and the supplier
and the customer, then you don’t have a relationship.”
Real relationships are key to a successful business.
“The customer must, at some level, depend on WIKA — in a good
sense, not in a blackmailing sense — to meet their goals while leveraging the capabilities of an agile supplier,” Gerster says. “That creates
a dependency, and that dependency cannot be thrown out or competed with just because somebody walks in there with a lower price
because we offer more than a lower price.”
Communication
When making changes within an org-anization, leaders must get
buy-in from everyone in the company, otherwise the changes won’t
yield success.
“The top management support is the oxygen that is blown into the
candle all the time to keep it alive,” Gerster says. “At the same time,
the whole organization has to become more self-sustained. In other
words, the employees have to pick up the DNA and the way we want
to do business.”
Doing that is pretty straightforward.
“You must be honest, and you must give people a reason why
change is imminent,” Gerster says. “In order to do that, you should
have some urgency.”
But that’s not enough. Top management has to follow up with the
low-level employees. He attributes Toyota’s success to this.
“Those guys know what they are talking about because they know
what’s going on, on the shop floor, and they make sure things are right
on the shop floor,” Gerster says. “If you make sure things are right on
the shop floor, everything else will fall together. Don’t start at the top
— start at the bottom.”
It’s also important to keep the senior team excited and focused. That
will filter down the organization and help employees buy in to
changes.
“People on the shop floor have seen many different programs over
the years, and they know, management says yeah, yeah, yeah, and
then six months later, nobody talks about it anymore,” Gerster says.
“It needs constant nurturing through top management, and top management needs to be excited about it, and they should be because it
brings you the results you’re looking for, but they don’t trust it, and
they let it go too quick.”
Leaders need to get and keep everyone on board through continuous training and mentoring, and if they don’t like those activities, let
them go. He also keeps them in the loop by standing in front of everyone each quarter and giving a state of the company address. He both
looks back at what the company has accomplished and also spells out
the top five issues needing work as they move forward.
“That’s a certain set of information that I repeat over and over again,”
he says. “Then you just need to engage with people. You need to tell
people that while they are changing, mistakes are going to happen,
and it is OK to fail.”
Continuous improvement
Most people have had a moment where they look at a policy or procedure and say, “That’s complete nonsense. Why do we do it that
way?”
Around WIKA, Gerster rewards people for asking that question
because it shows they’re paying attention and looking for improvement. He calls it the “Utter nonsense” award, and it comes with a $100
reward. It’s a way of getting people to continuously improve the company.
“Sometimes you set up business processes and never look at them
again until they kick you in your rear end,” Gerster says. “What we’re
trying to do is set up a process that looks at everything and anything
continuously and try to capture opportunities for im-provement.”
Offering incentives to those who choose to get involved and offer
ideas motivates and ignites enthusiasm. For example, Gerster’s lean
transition completely re-energized his people and propelled WIKA forward.
“It’s an employee-driven process, and it puts people on steroids,” he
says. “The morale is totally different than what it was years ago. Give
the people responsibility. … Just trust them, and they will deliver for
you.”
It’s also crucial to watch what you reward.
“Often, people get a bonus for increasing sales or increasing profitability, but they only measure the sales or only measure the profitability, so at the end, you either have it or you don’t, or you’re somewhere in between,” Gerster says. “You need to focus on the internal
activities that drive sales and drive profit, so you know much earlier if
you are on track or not.
“If you focus on these activities, you don’t worry about sales or profitability because you know it’s going to come together anyway,
because you’re doing the right thing. You’re looking through the wind-shield and not through the rear mirror.”
WIKA also sets benchmarks for employees by averaging the previous two years’ performances and then raising that number slightly. If
they hit the new goal, the company splits its profits 50-50 with employees, so they reap the benefits of their hard work.
“You need to define an expected outcome for a certain business
process, and you need to make sure you raise the expectation every
now and then in order to push the limit and start people thinking,
‘How do I do better?’” he says.
When they get a cut, they’ll look at how to be more efficient to
increase their share of the prize.
“If people want to make more money here, it’s not about working
harder, it’s about working smarter,” Gerster says. “You can’t get it done
if you work harder. You need to do it differently.”
While change can often seem slow and people can be skeptical,
Gerster says to plunge forward and let success get people on board.
“If the changes work, and they see that it works, and they get a share
of it, why would they get frustrated with it?” Gerster says. “They must
be part of the success, and we make them part of that success.”
HOW TO REACH: WIKA Instrument Corp., (888) WIKA-USA or www.wika.com