Schaumburg, IL--It's a fact of life that companies tied to cyclical industries go up and down with those industries. In 1987, Heidenhain Corp. represented a classic example of a company whose fortunes depended upon a single cyclical industry, the machine-tool business. Rick Korte joined the maker of encoders and digital readouts that year as president and managing director, and found the status quo unacceptable.
"I saw that our machine-tool business was quite substantial. We were tied completely to that industry. The industry goes sour, we go sour," says Korte. "So my thrust when I took over was that we needed to be less dependent on one industry and one climate. Because we do have a product that can be applied to other industries."
Market research conducted by Heidenhain indicated that many industries which traditionally did not use encoders were beginning to need higher positioning accuracy. Those new industries became targets for Heidenhain.
With the support of the parent company, Dr. Johannes Heidenhain GbmH, Traunreut, Germany, Korte and his associates began the task of building contacts with new industries. They started by contacting potential customers unfamiliar with encoders. "We knew they were not going to give us any purchase orders that day. We knew their technology was probably two years away from needing us," Korte explains.
Breaking into these new fields required extra effort by Korte's sales staff, most of whom hold engineering degrees. "We changed their philosophy. We had to give them time to learn new applications." To do so, Heidenhain Corp. insisted that salesmen devote 20% of their time to developing new customers for the company's encoders and readouts. Says Korte: "We said, when you go out on a five-day trip, we want at least one day of the five spent on new customer recruitment." This requirement remains in place today.
Hitting paydirt. While retaining the company's traditionally strong position in the machine-tool industry, Heidenhain Corp. managed to find new markets for encoders. One of Korte's salesman-engineers, driving past a large irrigation rig, wondered if farmers needed to monitor the rotation of the system, and how it was done. "We began to make sales calls," says Korte, "and found the system needed an absolute encoder." The irrigation system typically requires 36 hours to complete a rotation. If power fails at any time during the operation, the farmer needs to know what areas received water and which remain dry. With an encoder system, the controller has that information available. "Our first customer has by now bought a couple of thousand devices from us," says Korte.
Another non-traditional area for encoder use uncovered by Heidenhain is the textile industry. Many products now carry machine-embroidered decoration--for example, shirts with cartoon characters or trademark symbols. Embroidery makes the decoration pop off the surface in a manner impossible for a printed figure or shape. But making the decoration look good can prove difficult.
"Nowadays a sewing machine is an X-Y table with a needle that moves up and down. And if you want to position that needle exactly, why not use encoder technology to keep track of it? It's motion, and that's what we're looking for," says Korte. Summarizing his view of Heidenhain's technology, Korte states: "If it moves, and the customer needs to keep track of the movement, we have a solution."
That approach has produced double-digit growth for the privately held company for each of the last seven years, and double-digit growth continues this year. Sales in 1995 exceeded those of the previous year by 36%, and 1994 in turn exceeded 1993 by 27%. In 1993 sales were 40% above 1992 levels. Much of this rapid growth came from new customers and industries that did not use encoders before 1987. Today, says Korte, while absolute sales by Heidenhain to the machine-tool industry have increased each year since 1987, the industry accounts for less than 50% of Heidenhain's overall business.
"The challenge for us today is to keep finding all these pots of gold at the end of the rainbow," says Korte. He sees the medical industry as an example of a field where encoder technology can make significant inroads as medical equipment design engineers close the control loop. "Food processing and food packaging are also target markets for us," Korte remarks. But while searching for such new applications, Heidenhain intends to continue building the firm's business in recently opened fields such as printing, electronics, and general automation.
Heidenhain's products come from the Schaumburg facility and from the parent company in Germany. "The specials are from our facility here. It's cable length, connector length, variations in size--things that can be done quickly here," says Korte. "We pride ourselves in looking at small customers who are potentially going to be large customers one day, and not saying that the only way you're going to get a special is to buy 10,000 of something."
Prototype development teams at Schaumburg can build small lots of specials. Despite the company's 100,000 standard catalog products, requests come to Heidenhain each day for a unique variant. "Much of our new product development comes from a customer who wants to do something that's never been done before and is willing to partner with us," says Korte. "We've got five or six major product developments coming out this year that we designed for a lead customer, and now we'll roll them out for future customers."
What's ahead. How does this American subsidiary of century-old Dr. Johannes Heidenhain plan to continue moving into new areas? "Obviously our product technology has to stay state of the art," says Korte. "That's easy for us, we do that for a living. Good German firms want to have state of the art. The thing that was more critical for us and that will continue to increase our success is the quality of our people."
Korte believes that everyone from warehouse system personnel to secretaries to technically trained salesmen must continue to improve their educations if the company is to advance. To achieve this objective, Heidenhain mandates continuing education for every employee. This program involves both conventional schools and Heidenhain University, the firm's internal training organization. "We provide credits to our employees. We pay for the education, and we buy those credits back at the end of the year," says Korte. "So we dangle a little bit of money that's associated with improving their skills."
Heidenhain requires employees to gain knowledge and skills to advance their careers. "You can't come to me at the end of the year and say you did exactly what you did for me last year, you have learned nothing new, but you want an 8% pay increase," says Korte. "Cost of living, yes. But you must sit down in front of me and explain why I should pay you more money." That constant striving for advancement permeates Heidenhain, according to Korte. "I'm not going to stick my head in the sand and worry that I might be overtraining employees. Because our rapid growth has a lot to do with the fact that our people have simply gotten better and better and better. We can't sit back here and let the competition beat us in that area."