The No-tech Solution
Spring Grove, Ill. -- weathered barns, corn-stubbled fields, a dozen or so businesses with names like Millie's Mini Golf and Winn Auto Body -- is 50 miles north of Chicago, close to the Wisconsin line. It could be 50 miles from Hagerstown or Toledo or Youngstown or anyplace else that qualifies as smokestack America. So could the company housed in the long, low building just north of Route 12, identified by the name on the water tower out back. Internatic Inc., a manufacturer of timing devices and low-voltage lighting, ought to be just one more aging, tired American business succumbing to the onslaught of foreign competition.
In 1970, in fact, you wouldn't have given two cents for its chances. That year, it lost $629,000 on revenues of $15.3 million. It was behind on its payments on a long-term loan and on payroll deductions owed to the Internal Revenue Service. Vendors, if they were paid at all, got their money in six or seven months.Intermatic's assets barely covered its current liabilities, and long-term debt amounted to better than 50% of equity. The book value of the company's privately held stock had dropped 40% in one year, falling to about $200 a share.
Today, after 16 years that have been anything but auspicious for most U.S. manufacturers, the company is looking forward to sales of $80 million (up from $73 million last year), with aftertax earnings running a respectable 4.6% of sales. Its asset/liability ratio is healthy, its debt/equity ratio has dropped to roughly 25%, and its three principal owners -- Douglas M. Kinney and his two sisters, Joan K. Seppala and Barbara K. Sweet -- have in their possession stock that is now worth, remarkably, over $6,300 a share. It is an increase that even the inflation of the 1970s can't shortchange.
The roots of both the trouble and the turnaround go far back. Arthur H. Woodward, the current owners' grandfather, founded what was first known as International Register Co. in 1891. Woodward started out making fare registers for trolley cars, later expanding his product line to include items as diverse as bombsights and vending machines. But growth was slow and profits sporadic. By the time a man named Jim Miller joined the sleepy company in 1958, sales stood at $8.1 million, with a loss of $87,000. When Miller left nine years later, sales had shot all the way up to $8.2 million -- with a loss of $108,000.
At that point in its history, Intermatic was one of the largest suppliers of timers -- for washers, dryers, ranges, and so on -- to the appliance industry. But it was running into the time-honored problems of a small company supplying a large one in the original equipment manufacturer (OEM) market. "I remember a meeting with Frigidaire in 1970," recalls Edward F. Condon, Intermatic's vice-president of engineering. "They told us that we'd get a 6%, across-the-board increase. Our salesmen were ecstatic; it was the biggest increase we'd ever gotten. But we were already losing money on the old contract, and costs and labor were going up more than 6% that year." By 1970, a calamitous investment in an OEM plant in England had brought Intermatic to the brink. In January, the bank threatened to pull the plug unless the company did something dramatic.
"Dramatic," of course, meant a new man at the helm, and Miller, then president of Litton Industries Inc.'s Jefferson Electric division, was co-owner Doug Kinney's first choice. Miller was reluctant: "I'd never seen anybody make money there, and I didn't think it could be done," he says now. "I thought it was a game they played with paper in the accounting department." But Kinney pressed Miller to take over, and found an ally in Miller's wife, Joan. "She told me, I think you ought to go back, because it's the only opportunity you'll have to build the kind of company you have in your mind."
Miller today, at 56, is invitingly avuncular, a tall man with dark, curly hair, lazy hazel eyes, and a growing jowl. Though he is chairman of an $80-million company and the holder of an M.B.A. from the University of Chicago's executive program, his roots are pure blue-collar: his grandfather was a co-founder of the Chicago Federation of Labor, and his father worked for 34 years at the end of a rope, squeegeeing the grime from the windows of Chicago schools. Miller himself came of age shortly after World War II, and did a tour of duty bouncing Douglas Skyraiders off the deck of the U.S.S. Wasp.
In July 1970, like Douglas MacArthur returning to Corregidor, Miller came back to Intermatic. Right away, things began to change.
Intermatic was out of the OEM business, effective immediately. The OEM product line and the plant in England would be sold. As a result, there would be a dramatic reduction in the work force. "In his first six months, he performed major surgery," recalls Kinney, who had given Miller a free hand. "We went from 980 to 480 employees." It was a bloodletting that Miller regretted, but one that circumstances demanded. Incredibly, the company's revenues held steady despite the cutbacks, moving from $15.3 million to $15.4 million in fiscal 1971. Earnings climbed by $1.4 million. Intermatic was in the black.
"He pulled this company out from under," says Jeanne Wehrstein, a short, sunny woman who works as a clerk on the receiving dock. "People out back knew the company was in bad shape, and they were afraid for their jobs, but all they ever heard were rumors. . . Then Jim came and cleaned house, and told us what was happening."
Miller took customers and vendors into his confidence as well. "He came right to our office and told us the whole situation," remembers Ray Neil, executive vice-president and treasurer of Tri-Pack Corp., a Chicago manufacturer of corrugated cartons."He said, 'We need boxes and we have no money. Period. We need 120 days. Period.' We said, 'We'll give you cartons until we can't borrow any more money. . . We'll go with you for 120 days." Today, 16 years later, Tri-Pack is still an Intermatic vendor.
"It was like the Battle of Britain," Miller recalls of those first frantic days -- or like living through a case study back at the University of Chicago. The job required every skill he'd ever heard about, let alone learned. He restructured the staff, consolidating positions.He called every supplier the company owed more than $10,000 to, and rescheduled payments. "If you need money, call me up and I'll see what I can do," he told them. He paid off Intermatic's small creditors; told suppliers to call him, not the bookkeeper, when they had questions about their accounts; approved all purchase orders; and signed all checks. Occasionally, when the check was destined for an unproductive sales representative, he would add a personal note ("Have you died, and not informed us?"). Inch by inch, quarter by quarter, he pulled Intermatic back from the precipice.
What has made Intermatic so unusual today, though, isn't simply its dramatic turnaround 16 years ago. That only kept the business alive long enough to confront the decade in which company after American company fell before foreign competition. Intermatic, which under Miller was concentrating on two product lines, should have been as vulnerable as anyone. Its timers -- used by people to switch lights on and off during vacations, and by industry in a variety of applications -- depended on synchronous motors, inexpensive devices that over the years had turned into a commodity. Worse, the electromechanical technology the motors used was being challenged by microelectronic devices, much as ordinary wristwatches had been partially replaced by digital watches, and microelectronic timers required little of the manufacturing expertise Intermatic had developed. The company's other main product line -- low-voltage lighting used to accent walkways, pools, or gardens -- was similarly vulnerable to cheap-labor competition.
In 16 years, Miller created the company he had had in his mind -- a company that has not only survived but prospered in a hazardous marketplace. The shape of that company can be seen most clearly in the way it operates now -- and in the way employees talk about the man who led Intermatic through so many potential pitfalls.
Take marketing, for example. "Miller's an archetypal marketing person -- part researcher, part analyst, part salesman, part soapbox promoter," says vice-president of marketing Donald J. Ferguson. "He really created the department. Before he arrived, it was three guys in the back room, scratching their heads, saying, 'Well, I guess that's what we're going to do."
Moving out of the OEM market, where pricing and scheduling were the principal concerns, and concentrating instead on product lines sold through retailers and wholesalers required new skills and more resources. Intermatic now carriers three times as many models as it did in 1970, the result of Miller's determination never to send a customer away empty-handed. It also has a cadre of four marketing managers, who supervise the four divisions. Within the past year, the company has produced ("for a ton of money") a series of plan-o-grams, elaborate marketing packages specifically geared to retailers' needs. Before, says Leon E. Vinyard, the company's new president and chief operating officer, "we took products to market. Now we take programs to market."
Intermatic's manufacturing strategy reads like a page from a textbook on up-to-the-minute shop-floor techniques. It has implemented a materials resource planning (MRP) system, introduced a zero-defects program that pays cash bonuses, and has begun to automate, while finding jobs for displaced workers elsewhere in the shop. A few years ago, for example, Intermatic spent $800,000 on an electrostatic powder-paint unit (which eliminates wasted paint), and has recently committed $3 million to a completely automated synchronous-motor assembly line. That, notes Michael J. Coniglio, director of manufacturing engineering, "will replace 35 people. But not one will be fired."
Such improvements have had significant effects. The price of one plug-in timer, for instance, fell from $6 to $4, which makes it less expensive than an electronic equivalent produced aborad. A few years ago, when a Taiwanese company copied Intermatic's low-voltage Malibu lights -- right down to extraneous holes left by machining changes -- Miller took the company to court, obtaining an injunction. But he also sent his engineers back to the drawing boards. They, in turn, came up with a major redesign that cut the cost of the lights from $76 to $38.
"A few years ago, some people from Sankyo spent a few weeks at the plant," Miller recalls with a self-satisfied smile. "When they saw our people working out back, they were amazed. They said, 'We don't want this business. . . We cannot do it that fast." To bolster his claim, he points to Intermatic's market-share numbers: 80% of the low-voltage lighting market, 65% of the consumer timer market, and 50% of the industrial timer market.
What has distinguished Miller's regime more than anything else, though, is the way he works with people -- not only how he provides for them, which has made him something of a minor celebrity, but how he treats them and how he relies on them to bring out the best in the company. It's a manner that's reflected in a number of examples, gathered over a visit of a few days.
* On one of these days, a 26-year-old engineer named Rodger Larson marked his first anniversary with Intermatic. Before he was hired, Larson had received a better offer from Northrop Corp.But Intermatic didn't let go: it sat him down with an engineering manager, Dennis Beaumont, formerly of Northrop, who contrasted the styles and the opportunities offered by both companies. Larson signed on, and is now working on a newly acquired line of electronic products. At the end of the day, company president Vinyard stops by, congratulates him, and asks how things are going. "That," avers Larson, "would never have happened at Northrop."
* Intermatic employs upward of 1,000 people. Yet Kathryn Mahoney, an assembler who has been with Intermatic for 25 years, remembers a time when she approached Miller with a personal problem. Miller, she says, "was the one I turned to; I went to him, and he helped me out." Receiving clerk Wehrstein says, "I knew Jim when he was head of marketing. Even then, when I was just a foreman on the floor, he'd come in -- 'Jeanne, how are ya, how ya doin'?' You'd get a big hug. You wanted to do a good job for him; you wanted to get his product moving."
* For the past five years, in an acoustical vault hidden in the back of the plant, Leslie G. Heyden has been studying the low-level noise produced by timer motors. A gregarious man who is unabashedly enthusiastic about decibels and micropascals, he is the closest thing Intermatic has to a mad scientist. The company doesn't need to make its motors quieter; only a bat could discern the difference between a 10-decibel and a 5-decibel motor. But what Heyden learns makes for less expensive, more efficient, and more reliable motors. A quotation from a prayers book, contributed by Miller, hangs above his desk: "What is good makes no noise. What is noisy does no good."
* Stanley Rolleder is a slight man of 73 with silvery hair, impeccable manners, and courtly old-world charm. He was an attorney in Poland before World War II, but for the past 36 years he has been employed by Intermatic. When he tried to retire in 1978, Miller sat him down for a friendly chat, saying Rolleder was welcome to stay and work as long as he'd like.
"Honestly speaking, I would like to work on a part-time basis," Rolleder remembers saying. "I would even like to suggest what my job is supposed to be." For years, Rolleder had noticed good things -- pieces of wire, plastic spools, wooden skids -- going to waste. Now he wanted to do something about it. Miller bought the notion. Today, as a retired employee, Rolleder, with his inspired recycling, has come up with measures that save Intermatic more than $200,000 a year.
* Ray Neil, of Tri-Pack, is not, strictly speaking, a member of the Intermatic family. But try telling him that. Each year, he attends Vendor Appreciation Day, at which Miller discusses the company's standing in detail. Last October, he was accorded a rare distinction: membership in the company's Quarter Century Club, an honor ordinarily reserved for 25-year employees. "It was exciting," he remembers, "a complete surprise."
"Our employee-relations policies and programs have been the key to our growth and profitability," Miller wrote in a company handbook. "No other single factor is as important to our continued survival and success." At Intermatic, the list of employee benefits and perks sounds like a high-tech "workstyle" company gone wild. There are programs that pay workers to shed pounds, as well as free eye exams and glasses, aerobics classes, and golf lessons.There is an outdoor exercise course, an indoor track, and tennis courts. Employees can belong to an arts-and-culture club, can take classes in cash management at the plant or be reimbursed for college courses, and can shop at a company-subsidized store that carries such items as jeans, T-shirts, and baseball caps.
News of such programs gets around. "I remember calling on a buyer for W.T. Grant Co. in New York," says Ferguson, of marketing. "He says, 'Intermatic? Is your president's name Miller?' I said, 'Yep.' He said, 'I was just reading about his smoking program in The New York Times." Miller regularly bets smokers up to $100 that they can't quit -- and is happy to pay off if they do.
Production workers, who operate on an incentive system, average 135% of their base pay, with some making as much as 180%. Total hourly compensation averages $7.80, with benefits averaging another $2.73 an hour -- making Intermatic employees among the best paid in McHenry County. Not surprisingly, Intermatic is a popular place to work. Annual turnover, the company says, is only 3% as compared with an average for other manufacturing companies of about 5%.
Miller has made an occasional major mistake, and despite his success, his company still faces some unanswered questions. Among the mistakes was Intermatic's acquisition, in 1978, of W.R. Brown Inc., a Chicago maker of paint-spraying equipment. That stretched the company's resources too far. "For five years, the results were terrible," says Kinney. "We lost about $2.5 million pretax during that period." In August 1984, members of Brown's management -- convinced that they could not survive under Intermatic -- executed a leveraged buyout of the company. "I guess we weren't as smart as we thought," muses Miller.
In a move with more modest ambitions, Intermatic helped finance the leveraged buyout of Paragon Electric Co., of Two Rivers, Wis., one of its domestic adversaries. Intermatic made the $800,000 investment, Miller says, not because it had plans for the company but because it was leery of plans hatched overseas. "We like a marketplace," he explains, "where each of the players has particular strengths, is healthy, and isn't forced to do stupid things." Like sell out to someone named Sankyo or Mitsubishi.
The threat of electronic products -- which, though they aren't yet competitive may nonetheless supplant electromechanical devices one day -- obviously remains a primary concern. Intermatic hired its first electronics engineer just eight years ago; today it has an electronics department and is fielding its own electronic products, a line recently acquired from a U.S. company. Intermatic designs electrical timers and has them made in the Orient. "I'm dedicated to bringing the electronics back to Spring Grove," Miller asserts; "We'll reduce the labor content to the point where we'll be able to do it here."
In the long run, of course, the biggest unanswered question is how well this unusual company will do without its unusual leader. Two year ago, Intermatic hired Vinyard, the former president of Culligan Water Conditioning Inc., as Miller's designated heir. For a year, the two men felt one another out, assessing weaknesses, strengths, and compatibility. Last year, Vinyard, age 51, took over the presidency and responsibility for daily operations. But Miller, only five years older, remains as chairman and chief executive officer.
For now, the company's revenues keep growing 15% or so each year, and potential foreign competitors are kept at bay. And Miller, after 16 years, is nothing if not confident about the future. "We've got a system here that works, and that will perpetuate itself," he avers.
Then, thinking about the foreign competitors who have brought so many American companies like Intermatic to their knees, he adds, "Let's not forget we can compete with these people. "We're going to beat them. We're going to win."