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FMI Quarterly/June 2012/April 1, 2012

Tilting at Windmills: Innovation at Westphal

Tilting at Windmills- Innovation at WestphalCONVERSATIONS WITH CYNTHIA: Each quarter Cynthia speaks with leaders in the A/E/C industry on topics that echo the theme of the issue.

Founded in 1931, Westphal & Company, Inc. is a full-service electrical and teledata contractor serving the Midwest from its home office in Wisconsin. It is committed to the tradition of integrity and quality, while building on the technology of the future.

John Westphal is the president and chief executive officer of the company. He is in charge of the strategic direction and day-to-day operations of the company. A hands-on owner, he is actively involved with customer relations, business development, competitive bidding, pre-construction services and project management.

Cynthia is a managing director and practice leader for business development at FMI. She works with industry leaders to help create a strategic vision in order to position their companies to capture market share and grow profitably.

Cynthia Paul recently spoke with John about how he embraces and brings in new ideas, tools and processes to Westphal to keep it successful and competitive.

Cynthia: When you first meet a customer, how do you describe the capabilities of the company?

John: We differentiate ourselves as the no-hassle contractor. Due to our geographic market focus in Wisconsin, Iowa and Northern Illinois, there is not enough critical mass of any single-type market segment to generate enough revenue to warrant specializing in one particular type of project. Whether it is chemical, heavy industrial or heavy commercial, we have to be good at all market segments. Our first and foremost strategy is to understand the unique challenges customers face in our geographic markets in order to deliver solutions that add value.

We work with many construction managers and general contractors and are able to help them drive the overall project schedule by delivering innovative ideas. We stand up and are accountable for managing the project and helping our customers make money. We make it as easy as possible for them to get their jobs done. It means anticipating and answering their questions when and how they want them answered; it is writing an RFI that already has a potential answer attached to it, etc. We create unique ways to add value on our projects.

We provide customers with information so they do not have to waste time and energy double-checking to make sure we do what we are supposed to do. Westphal & Company takes the pressure off our customers’ internal staff, leaving them more time to think strategically about their projects, spend time with other trades and meet the needs of their customers. It is our goal to make their construction projects hassle-free. That is how we sell ourselves, and that is what we deliver.

Cynthia: Wisconsin was a challenging market even before the recession. What are you doing to be successful today?

John: The last two years in our market has been all about costs. We are focusing on productivity — driving down costs on the job and in the office. Everyone knows how to drive down the office costs. The key is focusing on costs that can be reduced while still delivering on your brand promise. You have to cut nonstrategic costs, leaving intact your ability to meet customers’ needs and wants.

Driving down costs on the job includes prefabrication and rethinking how materials come together. We spend a great deal of time, effort and research to create leading practices in prefabrication. BIM is allowing our field managers to be more productive. It creates an environment with more robust communications, internally and with customers. Total Station is one of the tools we are using to achieve better project results by taking out guesswork.

Detailed job-cost information that highlights productivity by company standard cost codes is another tool in our battle to cut unnecessary costs. We share information down to the foreman level in our company, letting them know what they do has an impact on the success of the project, the company and our customers.

We are also lucky to have the University of Wisconsin right here in Madison. Its Department of Engineering focuses on productivity for electrical contractors. We have been able to build on its concepts to bring creative ideas to our clients and projects.

Cynthia: Where do you get your inspiration to continue to expand the firm’s capabilities and capture competitive advantage? How do you think of new ideas?

John: I am the third generation of my family to own and run this business and have never worked anywhere else. Because of that, I have worked hard to engage in a number of civic organizations and get involved with many other business owners. The relationships help me gain an understanding of different business models and practices.

I am a member of YPO (Young Presidents’ Organization) and the co-founder of our FMI peer group. The peer group is a team of large noncompeting electrical contractors who come together three times a year to discuss operations, business development, accounting or the current hot topics. Together we explore the best ideas in the industry to win work, hire people, improve productivity, etc.

Professional development is also one of my top priorities. I read a variety of books about business leaders and general business concepts. For example, 10 or 15 years ago, I was inspired by reading how Wal-Mart, GE and the big three automakers managed their supply chains. They wanted to cut down the number of vendors they dealt with, developing strategic alliances with a small number of them. The objective was to increase the volume and the capabilities of those vendors. Their goal was to drive down costs, while increasing quality and service to customers.

I thought about how that could translate into helping our company and decided to develop a strategic alliance with an independent electrical distributor. It turned out to be a great idea. We were able to accomplish the same thing that Wal-Mart, GE and the automakers were. We have gleaned the benefits from that alliance, while not breaking relationships with our other vendors. The other vendors have become even more responsive, wanting to secure a similar relationship with us.

Cynthia: How do you keep up with what your competitors are doing?

John: My staff and I do a lot of research. We comb trade publications, articles, attend conferences and talk with industry contacts. We focus our intelligence gathering on other electrical contractors, as well as mechanical, plumbing and fire protection contractors. Our prefabrication efforts came partly from what has been learned in the electrical business, but equally from the guidance and ideas of mechanical contractors. Mechanical contractors have a rich history of prefabrication. We also engaged a person from the auto industry who was into assembly line productivity to help us think through and capture efficiencies.

We actively research construction and parallel industries to keep our eyes open for new and better ideas on tools, means and methods, best practices, company structure, etc.

Cynthia: How do you determine which best ideas or capabilities to add?

John: I figure that we are probably batting 500 when it comes to ideas and innovation. You have to take the time to thoroughly experiment with new ideas. There is really only one way to know how good an idea is — you have to try it.

The question becomes, how do you know which ones to add? Let’s say we have 10 ideas in the hopper. We try to do full due diligence on each one. We do not go by gut feelings. We dig in and find out the facts. Some ideas are obvious. For example, prefabrication is obvious; it was not something we had to experiment with in order to make the decision to pursue it. All we had to do was figure out the best way to approach prefab.

The tough part is deciding to invest in a new idea at all. In the beginning, you really do not know if there is going to be a return on investment. Enough due diligence will answer most questions on whether an idea is worth pursuing. We never know all the information we would like to, of course, so we test the idea and then have the patience necessary to see it through to completion. We have the capital budgeted to be able to let the experiment run its course to give it the best chance for success. From there, we pick the best bananas out of the bunch of the different things that we are working on to implement in the company.

For example, we are exploring the ability to take information out of a BIM model and turn that data into machine language that would go into CNC (computer numerical control) machines for bending, cutting and threading conduit. The software process of translating BIM data into machine language will require the help of a software developer, who will probably generate three of four iterations of the software. In other words, we narrow down the scope of the project enough to say, “We are going to try this first step and will spend X amount of money on it, and if that works, we’ll go to phase two and then phase three and phase four.”

We also strategically add capabilities to the firm. This includes capabilities that are acquired and those that are grown organically. For the companies that we have pursued for acquisition, we have acquired some and we have backed off others, but it has given us a real insight into what these other firms can do, how they do it, why they do it and the way they do it. That gives us a lot of competitive intelligence to decide if it is a good capability to add or not and if it is a good strategic fit.

All of these together have taken much of the mystery out of the process of innovation. Some ideas that I originally thought were bad ideas turned out to be great ones. It has also provided a broader understanding of capabilities that are worth adding and how to best add them to Westphal & Company.

Cynthia: Once you decide that you have a good idea, how do you drive the culture of innovation and change into the firm?

John: That is difficult. Often you have to swallow hard and let your team tilt at some windmills. Sometimes our people will come up with an idea that I might be skeptical about, and I have to remember to not just say no or show any skepticism.

I constantly remind our people they must have the courage to try new things. Courage sometimes means you have to have the capital to be able to experiment. As the leader of the company, it is up to me to be excited about the process of change. Sometimes the leader has to bite his or her tongue and give just a bit of guidance so the employees are not going down the absolute wrong path. Sometimes it is my job to stand by and see what they can accomplish on their own.

I personally feel that I have to be the nuclear reactor for pushing change in our company, or at least the biggest supporter and fan of experimentation, research and development. To drive it you have to constantly talk about it, shine a light on it and ask what is going on with this or that initiative. It has to start with the leader. The leader has to be one that likes change and innovation. It helps to have a little bit of ADD (attention deficit disorder) and be bored with the status quo. If the leader does not like change, or is the type of person who likes to have his or her hands on the controls and fly the airplane straight and level, there is never going to be much transformation in the company.

Cynthia: Where do you see industry firms needing to change in order to be successful in the future?

John: In the electrical construction industry, we need help from the IBEW. The IBEW knows what is needed: tiered wage scales, portability, work rules, etc. The union construction industry needs to change in order to be more nimble and compete with the exploding merit-shop outfits.

To be successful we have to get cost out of the system — in the office and the field. We have to deliver the level of quality the project specifies, even if that means a lower level than we would like to deliver. We need to look for projects and customers where the capabilities of the electrical contractor are more important than price; where capability is No. 1 and price is No. 1A.

The problem is that labor is the biggest single cost we incur. In our area, labor can be anywhere from 45% to 60% of the total cost of sales. What we need is a combination of help from the IBEW and a focus on field productivity. Productivity is what many of our competitors are doing just to keep pace with the market.

Cynthia: What have been your greatest lessons learned in embracing and bringing new ideas, tools and processes to Westphal?

John: Honestly, the greatest lesson I have learned may be humility. If our company was only as good as my ideas, we would be extinct. One of the biggest lessons I have learned is to shut up, listen and not appear skeptical when listening to new ideas. When an employee knows more about a situation than I do, I say, “OK, I am going to follow your lead, and we are going to give this the investment, time and patience that it deserves.” We establish rigorous metrics and schedules. The key to success is not about me. It is about paying more attention and listening to what our people think. That is what will give us the best chance of innovating and finding new and better ideas.

Another lesson I learned may sound trite, but it is fundamental to solid leadership. It is all about failure. What is failure anyway? If you think there is some idea you should try, what happens when it does not work? Did you fail, or did you just figure your approach did not work? Personally, I do not look at it as a failure; I think we just went down the wrong path. If there is something to be gained, then let’s keep trying something different until we figure out how to do it effectively and capture the advantage.

You have to generate a lot of ideas to find the few that will truly make a difference for you and your organization. Learning how to think about failure is one of the valuable leadership lessons that has allowed us to identify and implement changes and innovation in our company.

Cynthia: FMI thanks you for your time and insights on how Westphal is driving a culture of innovation, John. ■

Cynthia Paul is a managing director at FMI Corporation. She may be reached at 303.398.7206 or via email at cpaul@fminet.com.

 

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