With roots dating back to the World War I, Brady Corporation manufactures and markets a comprehensive line of identity and protection products, including labels, signs, safety devices, and printing systems. The company operates in more than 26 countries and has 500,000 customers in construction, education, electronics, healthcare, manufacturing, telecommunications, and other industries.
When Frank M. Jaehnert became president and CEO of Brady in 2003, the company's half billion in annual sales had stalled, profits had declined, and employee turnover had increased. Jaehnert gladly stepped up to the plate and accepted the challenges before him. He immediately began a major restructuring effort focused on controlling costs and asking his leadership team to set higher goals for the company to achieve. Jaehnert's vision was for the company to become an international market leader in the maintenance, repair, and operations space. Within three years, the company achieved its growth targets by expanding global operations, acquiring companies that could broaden Brady's product line, and making on-going capital investments in technology. In 2007, Brady got named to Forbes' Platinum 400 List of American's Best Big Companies.
Brady closed out its 2008 fiscal year with more than $1.5 billion in revenues. Jaehnart says, "Our first quarterly results for the 2009 fiscal year had the highest sales and the highest profit in our corporate history."
Enterpriseleadership.org recently sat down with Jaehnart to talk about his strategy for creating shareholder value by investing in technology, empowering his staff to fuel organic growth, and taking belt-tightening steps whenever necessary.
EL. Can you describe some of your key capital technology investments?
FMJ. In 2004, when we were at $500 million in revenues, we invested about $30 million to move our enterprise resource planning system to the SAP platform. That was a huge investment. Today, about 70 percent of the company uses this platform. We have one system for the entire company. We recently made sizable investments in three cloud-based computing systems. These systems include the following: Salesforce.com, a customer relationship management system; GetPaid, a framework for processing online payments; and Workday, a human resources management system.
EL. How did you go about making these investment decisions? Did you follow a formal process?
FMJ. Improvements in our productivity and in our competitive environment drive the company's overall goal to keep getting better at what it does. As a result, we challenge all of our teams in all of the functional areas, such as finance, human resources, and technology, to look for ways to improve how they run their businesses or their functions. They seek out solutions from vendors that offer the best-in-class products. Before we make any type of an investment decision, we do financial calculations based on the Economic Value Added (EVA) metric or economic profit developed by Stern Stewart. We look for good returns on our investments.
EL. Can you be more specific about how you measure shareholder value creation?
FMJ. That's an interesting question. It doesn't matter if it's a technology investment, an acquisition, a new product development investment, or the purchase of manufacturing equipment. We run every investment through an EVA calculation. For example, you determine your cost of capital and then it becomes a component of the cost of equity and the cost of debt. You might want to create 10 percent more profit than your cost of capital. If your cost of capital is $100 million, you want to make sure that your return is more than $100 million to cover your cost of capital.
The ultimate shareholder value creation is if the stock price goes up or the dividend amount goes up. In this economy, the share price could go down because of external influences. The company might still see an increase in EVA, but real shareholder value comes from the share price plus dividends.
EL. What was the executive governance process for the SAP investment?
FMJ. Before we moved to SAP, we had a third-party company managing our many legacy systems for ERP. Unfortunately, this company had its own share of problems and was up for sale. We knew we wouldn't get the support we needed. We had to move right away to another system. On the other hand, an ERP system implementation is a big deal. We spent much time trying to justify this capital investment. For example, we looked at how much money this system could save us, what additional information it could give us, and what reductions in administrative costs and sales costs we could expect. We presented our proposal to the board of directors. We went back and forth answering questions the different board members had. Eventually, the board approved the proposal.
EL. Do you have an executive committee that looks at technology investments across the company as part of the governance process?
FMJ. We don't have one committee. We have different committees. The executive committee includes all of my direct reports. They have a say on every major decision. We have an engineering committee, a new product development committee, and a technology committee. We don't have a manufacturing committee. Each manufacturing site makes decisions about its routine machinery and equipment. If a manufacturing site needs to move to a more advanced technology, then the engineering committee works with the machine manufacturer to make the business case for developing the new manufacturing technology. The business case then goes before the executive committee. I look to my CFO's expertise to determine if this investment will benefit the company financially.
EL. What do you expect from your chief information officer (CIO)?
FMJ. I consider my CIO, who is one of my direct reports, to be a business leader. He'll also tell you he's one, too. In fact, I expect all of my direct reports to be entrepreneurs who have ideas that can benefit the business. Our priorities include helping the company to grow sales and profits and to create shareholder value. I'm not looking for a CIO to be just a technologist. My CIO knows how to apply his technological expertise to make the company grow and to become more successful. The same goes for my human resources person, and my CFO. For example, if my CIO might see an opportunity for us to save millions by having a call center in the Philippines, then he'd do his homework to make sure we could support it and we could integrate it seamlessly into the company. As a result, it all comes down to what each business leader can do to improve the company.
EL. How has the economic climate affected your business?
FMJ. At the same time we announced out best first quarterly results ever, we also announced a 10 percent cut in the workforce going forward. We have a freeze on salaries. We perceive a long and a deep recession. It felt good to have the best quarter ever. On the other hand, it felt like we contradicted ourselves when, we at the same time, announced some cutbacks. Up until a few months ago, some of our businesses were working three shifts just to keep up with customer demand. We've started to see a decline in our work volume.
EL. Can you give examples of how you've leveraged technology to get closer to your customers?
FMJ. By providing more information about the customer, Salesforce.com, for example, will enable our sales people to be more responsive to customers’ needs. This system isn't a response to the recession. Rolling this system out in the middle of a recession will help us to save money by making our people more productive.
In many ways, we connect to our customers through our SAP system online. Sometimes we even provide software for our customers to run. For example, Grainger, one of our largest distributors, uses our software so customers can create signs. If you go to www.grainger.com and click on signs, you can design your own sign online. You can see how it looks. You can change color and letter size. You can pay for the sign by credit card. All of the information gets transmitted to us and we produce the sign. That's one way how we work with a large customer. It isn't all about SAP.
EL. What is your business strategy and where role does technology play in it?
FMJ. Our business strategy is very simple. We want to be number one or number two in all of our businesses. We have to define which businesses we're in. The role of technology is to help us to get to wherever we need to head. For example, to keep our sales people better informed about customers, we decided to go with Salesforce.com and BlackBerries.
EL. Do you have a formal process to set your business strategy?
FMJ. We talk about strategy every month. I don't believe in having one big annual meeting to establish what we're doing for the next two years, and then going off an executing against this one plan. Because things move so quickly, we constantly have to keep on top of our strategy. When I became CEO in 2003, we did a three-day strategy session. I announced that we'd have a strategy session the following month. The next month, I announced the same thing. That's how our monthly strategy session came about.
You can't go off to a three-day, off-site meeting somewhere in Florida and expect to come back with your business strategy. Albert Einstein didn't go off to an off-site meeting with the hope of inventing the theory of relativity. He refined what he developed over time. The same thought process should go into developing a company's a business strategy. At first, everyone had some angst about the monthly strategy meeting, but today we can't live without it.
EL. How does the monthly strategy meeting process help your team to make better decisions and to deal more effectively with the board of directors?
FMJ. The meetings consist mostly of my direct reports. On occasion, we'll invite people who can help us to make better decisions. For example, when we talked about the adjacent markets we'd like to pursue, we had two middle managers present their findings about these markets. These experts went out and investigated these markets for several months. They know more about this subject area than we'll ever know.
During a session, we might look at how we can improve a particular business. Can we take it in a different direction or in another geographical area? Has the marketplace or the customers changed? We might try to answer questions like those.
During a two-day strategy session we had with board in May 2008, we gave a presentation on what we plan to do for the next five years. Our monthly strategy sessions helped us to put everything together and to make sure we understood what questions the board might have. For example, if we were going to talk about a possible acquisition, we might prepare our respond to questions about debt level and leveraging.
EL. How has the belt tightening affected your direct reports? Are they working harder on how to create business impact?
FMJ. During the past five years, we've acquired more than 30 small companies. We've focused on how and what we could improve and took the appropriate action. We consolidated factories and sales forces to become more productive. We cut back on discretionary spending for things such as seminars and travel. In some cases, we took out a management layer. We now have a heightened sense of urgency, but it's not like we weren't doing anything before the downturn in the economy. Our management team has much experience dealing with ups and down in the economy. We've just taken it to another level.
EL. What quality practices do you use the most?
FMJ. Some companies transform themselves into a Six Sigma or a Lean shop. They even wrap their culture around Six Sigma or Lean. In contrast, our culture has always and will always be dedicated to creating shareholder value. To this end, we use techniques such as Lean, Six Sigma, Kaizen, and Value Stream Mapping for how we can create this shareholder values.
Elizabeth M. Ferrarini - She is a free-lance writer and IT consultant from Boston, Massachusetts. Reach her at elizabethferrarini@yahoo.com.
