Cabling Q&A: Belden’s CEO
In an exclusive interview with CNS, John Stroup talks about a range of issues - from the state of the structured cabling industry to what prompted a major realignment of the company he heads.
January 1, 2007
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CNS: John, you attended the International Cablemakers Federation Congress in Chicago in mid-October. What impressions did you come away from the conference with?
Stroup: There were two, one being that business is really good everywhere. You could tell by the expressions and body language — everyone is fairly optimistic right now.
The other impression I came away with was just how global this market is, something that historically may have not always been the case. When it comes to cable, its sheer size and weight makes it a product that is relatively challenged from a logistics point of view. That is not true with connectivity, but it is true with cable.
As a result, I think this market has been a little bit regionalized. However, it is becoming increasingly clear that the companies that are going to succeed are those that are truly global and know how to leverage themselves properly.
That may mean having regional manufacturing strategies in many cases, but I think companies that leverage their R&D and sales and marketing investment globally are going to be more successful.
CNS: Clearly, the rising price of copper is a concern to everyone. How serious an issue is this in your mind?
Stroup: Not to trivialize it, but it is a major inconvenience. I’m not sure how else to express it. It’s life. Our copper suppliers deal with it very effectively – they send us a new price list every day. Sometimes they don’t even pass on a ‘sorry.’ They simply say, ‘here’s the new price, it’s a commodity and thus, it’s all about supply and demand.’ Our market is obviously quite a bit different in that we have certain product lines where we have more flexibility than we do others.
I would say that our customers have been far more understanding than they might have been in the past. I think the reason being is that it (copper price fluctuation) is so well known and has been so well covered in the media that most realize it is a real issue.
If you are going to be successful in an environment of fluctuating commodities, you have to have really good processes for how you price your products and how you execute price changes. We have put an enormous amount of effort and energy into making certain that we really understand what is happening to our product lines. It’s more complicated than you might think. It’s also created some strange behaviour.
We have had customers who bought early because they know prices are going up and we have customers who are delaying spending because they think the price may go down. As I look at our peer group, I think there are some that are handling as well if not better than we are, and without naming names, there are some companies who don’t really understand the impact.
For example, they will talk about organic growth at 35%, when it fact, most if not all of that is the rising prices of commodity, which means they are not gaining any share at all.
It’s interesting. If you look at all of our key performance indicators, practically all have had to be adjusted for commodities. Otherwise, you conclude the wrong things.
CNS: How have your first 15 months on the job been and how easy or difficult has the transition been from Danaher Corp. to Belden?
Stroup: It has been what I expected. The thing that has helped me the most is the fact Danaher is very good when it comes to having sound business processes. Those processes are very applicable to just about any manufacturing type company. Danaher itself is a very diversified industrial company. GE tends to be earmarked as the talent management company, but Danaher is one of the better business process companies.
As a result, a lot of the things that I did and learned there were applicable to what we are trying to do here at Belden.
I would say the one thing that I did not think through before taking the job and what has ended up being far more of a challenge than I ever expected, revolves around the conversation we just had about commodities.
I have never managed a business that had such an enormous fluctuation with a commodity that is such an important part of our billing materials.
CNS: Did you accept the position knowing that major structural changes would be necessary for the organization?
Stroup: The thing that attracted me to Belden was the incredible assets – a well known brand, great customer relationships and good channel partners. That said, it was also apparent to me that there was a lot of value that was yet untapped in the company. I don’t think it was running anywhere near its peak level of performance.
That included things like having a manufacturing footprint that was really not optimized for where we want to go, a company that was terribly under-represented in emerging markets, a company that had an opportunity in my view to move to a more solution basis.
Personally, it was a nice opportunity because Belden was not a company that was distressed financially or otherwise, but there were a number of things we could do that would make a positive difference, many of which could happen quickly.
CNS: Last February, you formed the Belden Americas and Specialty Products divisions. What prompted the realignment?
Stroup: When I first came to Belden, I spent the first 90 days traveling. I went to as many facilities as I could in order to meet with and speak with our people. One of the things that jumped out at me fairly quickly was that the organizational structure we put in place immediately following the merger of Belden and Cable Design Technologies Inc. in 2004, in my view, was unintentionally keeping back one of our stronger assets, which was the Belden brand.
Quite frankly, it didn’t make any sense to me. I also found out that it didn’t make sense to a number of us.
I have been pleased with the results we have gotten so far. It is a good example of where we are leveraging one of our strengths.
CNS: In announcing your appointment as the new CEO in Sept. 2005, Belden CDT chairman of the board Bryan Cressey stated that your “experience and understanding of the international marketplace will be a significant asset to our strategic growth.” In terms of company growth, how critical is the Canadian market?
Stroup: (In Canada,) we have many good customer relationships and we have a strong position in networking. There are a couple of other opportunities. For one, we have had considerable success with our industrial cable products in the Canadian petroleum industry this year. But there is an awful lot more that we could be doing to improve our penetration outside of networking, and that is an area of focus for us.
I think that perhaps in the past, we did not pay enough attention to the electronics side of our business in Canada. It’s not a market that’s growing as fast as a China or India, but given the combination of our market share in networking and the fact we are under-penetrated in product lines that are very, very strong for us in other parts of the world, we think Canada will and continue to be a very important part of our growth strategy.
CNS: You announced in late October that you have purchased a minority interest in wireless infrastructure vendor Extricom for $5 million. What piqued your interest in this company?
Stroup: Wireless was an obvious topic of conversation for us early on during strategic planning discussions. As we looked at what we did, which is primarily the transmission of high quality signals, it was obvious to us that copper is only one potential medium as is fiber. We sometimes refer to this as copper, light and air. We did a fairly exhaustive analysis to determine when is a particular medium the best medium for a given application.
There were examples where copper was being applied when wireless might be better and
where fiber was being applied when copper might be better. It was also obvious to us that there were many applications that could benefit from all three or a combination of two.
When we looked at wireless, the concern was that it’s a technology that is not as robust as copper or fiber and it is a technology that is more complicated to apply.
The reason we invested in Extricom, is they do it in a way that allows for the integration of wireless at the point of application to be far simpler. What it all means is that instead of having a complicated installation that would normally have to be done by IT specialists, we think this technology can be installed by our existing cable integrators.
CNS: You have also indicated you want to expand the core of Belden’s business in the areas of optical fiber and connectivity. How will those strategies unfold?
Stroup: They are going to be a blend of organic and inorganic activities. In the area of networking connectivity, especially in fiber connectivity, we think we have some of the best technology in the marketplace. We just don’t think we are doing as good a job commercializing that as we could and we should.
There are things we have done already such as the way we go to market, the way we incent our sales force and the kind of people we have in our sales force. We have high expectations when it comes to improving the amount of connectivity that we sell.
CNS: At your Investor and Analyst meeting in New York in August, Peter Sheehan, head of Belden Americas, stated a key goal is to increase the connectivity business in that geographic region by 25% within the next 12 months. Are you confident that can be reached?
Stroup: I think that is an aggressive goal for us to achieve, but I think it’s the right goal. I’m a big believer in stretch objectives. I will tell you that we have made good progress in 2006. We track this number very carefully internally.
On the numerator side, we have put a lot of focus on shifting our sales organization to do a better job of selling systems including connectivity. On the denominator side, there are some things we have done that have reduced the amount of unit volume that we get in our bulk cable business.
It’s good product portfolio management, where we have made some decisions with pricing actions that have put some pressure on unit volume on bulk cable.
At the start of the year, I was maybe a little skeptical that we would get to that 25% number that Peter talked about. Now, I would say we have a pretty good chance of getting there.
CNS: In terms of Belden employees, have the people who have been there a long time been able to adjust to this new way of doing business or are you hiring new folks?
Stroup: I think it’s a mixed bag. First and foremost, my experience has always been that there are a number of people within an organization who react extraordinarily favourably to an increased sense of pace, direction and purpose.
And there are people who, if they are entirely honest, may have said there were times that they were a little frustrated in the past.
Those are the sort who generally perform at a high level no matter what, but may even perform at a higher level in an environment where we are really stretching to achieve things that we may not think are possible.
There are examples, of course, on the other side where there are people who are just not comfortable with the pace and with the stretch. Obviously, they have to decide whether this is the right organization for them.
My view is that the best management team will be a blend of people from our past with people who have not been in the industry as long as some of those folks. We are moving in that direction. For example, we have brought in three key people from the outside in the last 12 months, all of whom come from different industries.
We have others such as Peter Sheehan, who understands the industry better than I ever will. They truly complement each other. My goal from the time I started was to try and get that right mix and blend so that we have a management team that as a group is far more effective than the sum of the parts.
CNS: Finally, by the time this interview appears in print it will be 2007. Do you plan on making any resolutions for the coming year and if so, what might they be?
Stroup: I want to travel less, eat less and exercise more.