Does America Still Work?

Interview with Master Lock CEO James Beardsley.

His company stayed in Milwaukee and prospered.
photo of James Beardsley

Q: Mr. Beardsley, let's begin with what we were just discussing. How's the company doing these days? How many more employees are here since you've started working at Master Lock?

Beardsley: The company's doing very well. Our sales over the last five years in this location are up in excess of thirty percent. We don't have that many more employees. We've increased our employee count at this location from approximately 1450 to 1475, but that's largely attributable to productivity increases.

Q: People talk about productivity all the time. What does it mean?

Beardsley: Well, in our case it means locks per labor hour, but we also measure dollar sales per employees. On the latter count we've seen our situation here improve considerably.

Q: How do you get employees to make more locks per hour of work?

Beardsley: Well, by making it in their best interest to do so. I think the employees know that they'll prosper if the company prospers. So we want them thinking about how to do a better job for the company every day they're here. And I think most of them do feel that way.

Q: Is productivity up because they feel better about the company -- their participating makes the company more profitable -- or is it a lot of capital investment? New technology?

Beardsley: Well, it's both. I think that we have to figure out how to work smarter not harder and part of working smarter is investing in modern equipment, investing in computer-driven machines, adopting modern processes. But part of productivity improvement is listening to your employees and responding to their suggestions, working with them and incorporating them in the solutions that you're putting in place.

Q: To some people this venture sounds like apple pie and motherhood. Does it really work?

Beardsley: Well, it does work. I mean, it's worked here. The key is figuring out how to get everybody to work together toward a common objective, as opposed to butting heads over what are perceived to be irreconcilable differences.

Q: Did that happen in the past?

Beardsley: Well, we've had good labor relations in this plant for fifteen years. Fifteen years ago was the last time we had a strike. But at that time, after that strike, the Vice President of Manufacturing Earl Stincey sat down with the President of the Union and they decided that if the company was going to prosper in the long term and we were going to maintain jobs in this location, they were going to have to figure out how to work together. And they reduced labor relations at that point to two questions: What's the problem and how do we solve it? And they decided that there wasn't any issue that they couldn't discuss; that there wasn't any sort of discussions that couldn't reach resolution; and that, in the process, the objective of that resolution ought to be a win-win decision for everybody involved.

Q: Now you weren't here at that time, but could you give a specific example of what kinds of decisions were resolved in a new way. Who took the initiative? Was it the labor side or the management side?

Beardsley: I think they ought to both be credited with the initiative on that. It was a realization on both their parts that the strike hadn't gained anybody any advantage.

Q: A climate has been created, I think, in corporate America in the last ten or fifteen years that it is okay to leave. It is okay to go to find the cheapest labor you can find. Master Lock decided not to do that. Why?

Beardsley: When plants relocate they're generally in search of a more cost-effective environment. We have a very cost-effective plant here. Our manufacturing efficiencies are based on vertical integration and a skilled labor force. We're vertically integrated because very few other manufacturers in the U.S. make the parts necessary to assemble a padlock. So we do our own dye casting and stamping and heat treating and plating. We even make the plastic bumpers that are on the Master Lock padlocks. And in order to maintain a plant like that you need a skilled labor force, and our labor force has grown up with the company. The average age of the individual we have working here is approximately forty-four years. They have approximately fourteen years of seniority with the company. That level of skill is necessary in order to keep this process going and keep it efficient. So it's maintaining good relations with a skilled work force that's basically our competitive advantage at this point.

Q: Did what you are talking about begin to happen in the early '80's?

Beardsley: Well, no, I think that a lot of Master Lock's advantage grew up with the company. We're celebrating our 75th anniversary this year. The laminated padlock was invented in 1921.

Q: It may make sense for a lot of companies to contract out some of the operations within the process. In other words, they're not vertically integrated. Was there some decision way back to stay vertically integrated, that we can do better that way?

Beardsley: The laminated padlock is a unique product. No other manufacturers in the United States make parts that are conducive to this. So we were more or less forced into vertical integration by the design of the product line.

Q: If you went down the road thirty miles, if you went to Indonesia to manufacture, couldn't you reduce labor costs significantly?

Beardsley: I think you could, but at the same time you'd run the risk of lowering the product quality. You'd run the risk of diluting the brand name. And product quality and brand name and excellent customer service are three of the things that really make us tick.

Q: So maybe a lot of people mistakenly call what Master Lock has done the high road. A lot of management consultants and business school professors talk about this kind of thing. Invest in your work force, invest in the best technology, keep people happy. It's working for you?

Beardsley: It is working for us.

Q: Is that because you're good at it?

Beardsley: Yes, I think it's because we're good at it. And I think it's because we've been able to retain the initiative in our market place. By having a strong brand name, by being a leader in your market place, you can have a major influence on how the rules of competition play out. In our case it works because we have created a very high-volume, very cost-effective manufacturing plant here, and we support it with good community relations, with good relations with the work force, and with continuous innovation and new products.

Q: Is it expensive? I mean does it take a lot of capital investment to keep up the quality of your production process?

Beardsley: Well, you balance a lot of capital investment with a very good maintenance organization. We have people here with the skills to tear down and rebuild virtually every piece of equipment we have in here. And so while some equipment is arriving and being unpacked today, there's other equipment that's on the floor that's been working -- and working effectively -- for thirty-five, forty years.

Q: The way you manage, is it generalizable? Can other corporations do this? Does it depend on the kind of product?

Beardsley: I think that you could make an analogy here. It's a little bit like raising quality and lowering costs simultaneously. Those aren't necessarily divergent strategies. But the conditions have to be right in order to do those two things at one time. I think the same thing applies to maintaining the location in one manufacturing city like this, versus manufacturing overseas. The conditions have to be right for it. And when they are right, you can create a powerful strategy, one that will benefit all the players in this case.

Q: A lot of people might say that conditions are wrong here in Metcalfe Park, high crime, bad housing, maybe a poor education system. Why not move and get cheaper labor to boot?

Beardsley: Well, the conditions you're citing are just the immediate neighborhood. In fact, the conditions here are really quite positive. We've got a skilled work force. We've got a lot of people with a lot of seniority with the company. The city government has been very supportive. So by and large, we feel that this is a good, positive long-term environment. And conditions in the inner city are either at the bottom of the cycle right now or, in fact, seeing some early stages of reversal.

Q: There's a controversy around these days, as you well know. Some people call it the "stake holder" philosophy. The Labor Party in Britain talks about employees as stake holders --that it's not only corporate profits that the CEO should worry about, but also employee loyalty, because they have a stake in the company too. Is there something to that argument?

Beardsley: Well, for us there is, because the employees and the skills they bring are part of our competitive advantage, and so loyalty is certainly one of the things that we want to encourage. The thought process -- how can we make Master Lock better each day? -- is something we want to encourage. And running a successful business is a lot like maintaining an eight-cylinder engine. It takes all sorts of different things. All eight cylinders have to work simultaneously. And good work relations, good productivity, innovation, customer service, product quality -- those are all the cylinders that are necessary to balance out successfully here.

Q: Why are you so active in putting something back into the community?

Beardsley: Well, again, having a successful relationship with the community, with the city, is part of maintaining a successful company. The environment in which our people come to work, the environment in which they work, in which they live, has a great effect on their attitudes, the constructive approach that they bring to the job.

Q: It makes your employees feel better?

Beardsley: It makes them more productive.

Q: Is that a hard, tangible fact?

Beardsley: I think so. Sure. I mean, when they arrive at work in the morning, they have to be thinking about that day's challenges at work, not that day's challenges in getting to work or those challenges that they face at home. We need supportive school systems. We need supportive transit systems. By and large we find that here.

Q: I think a lot of Americans believe that not enough American CEOs, corporate managers, believe this kind of thing; that they're too willing to say let's go find the person who'll work for the lowest wage. That's how we'll beat the foreign competition. Are they right and could more corporations adopt this kind of attitude and succeed?

Beardsley: Well, Master Lock has been very fortunate in that its unique products, the strength of its brand name, the overall product quality, the relationship with its workers has led to a market share leadership position. That's given us more latitude in controlling where we do business and how we do business. Other CEOs are going to have to respond based on the competitive conditions that face their particular business.

Q: China is one of your big competitors. Are they getting better, are they getting tougher to beat in the market place?

Beardsley: China is getting better. I think the quality levels of what we see coming out of China are better. They seem to be faster to imitate our new products. We're in for a tough, long struggle. But we think good competition makes for a good strong company and we look forward to it.

Q: But is there a time when the competition is going to be too tough, when you might have to abandon what some people call the high road? A time when you may have to reduce capital investment to a point where it can start to jeopardize your productivity?

Beardsley: No, we don't think so. Our strategy is to make our product as difficult to imitate as it possibly can be, and we do that by having consistently high quality, by the breadth of our product line, by the excellence of our customer service and, very importantly, through innovation. We're constantly developing new processes for manufacturing and new products to move the battle off the mature product into some of the new higher growth areas. So for that reason we think we can work smarter and stay ahead of competition.

Q: So you're not worried? You don't anticipate losing any market share?

Beardsley: Oh sure. We're worried. I mean -- being worried is what keeps you sharp. We worry about it every day.

Q: How is market share holding up?

Beardsley: Over the past fifteen years we've had consecutive sales gains. Over that period of time our market share has increased, import market share has increased, and other U.S. manufacturers have lost share. So now we're at a point where it's principally Master Lock and the imports and that's where we've attuned our strategy at this point.

Q: But these guys -- it's pretty tough competition.

Beardsley: It is tough competition. They make a low cost, albeit lower quality, lock, but it's attractive to a segment of the customers.

Q: We've spoken to one of your assembly line workers, Sheila Caldwell. She is delighted to have a job again. She's delighted to have her medical benefits. But can the Sheila Caldwells of your company at last breathe easy?

Beardsley: I don't think any of us can breathe easy. The imports produce a low price product with low cost labor. We can't compete on those bases. We have to figure out how to work smarter not harder. We have to improve our productivity, improve our process designs, broaden our product line, maintain higher product quality, develop high customer service capabilities. To the extent that we can differentiate our product and our business strategies on that basis, I think Sheila can maintain some confidence in the security of her position here.

Q: So you have to beat the competition not through lower labor costs, not through making people work longer hours or whatever happens overseas. You've got to beat them by making a better product and by having better equipment and better methods?

Beardsley: That's right. And better productivity.

Q: Can this advantage that you can get through better investment, through smarter business practices, through better equipment -- will it last?

Beardsley: I can't predict the future. It may not last. But I can say that as we have focused more and more on the import threat over the past three years, we have amazed ourselves at how many improvement opportunities there are in process design, how many new product ideas can come out of the research and development area. So there isn't any evidence, at this point, that that gap is going to narrow.

Q: Competition in general is much tougher than it was twenty years ago. Will we ever be able to breathe easy the way we once did?

Beardsley: I think U.S. manufacturing, U.S. business has made terrific strides over the last ten years. I think we probably hit our nadir as a country in the late seventies or early eighties. I think on a world-wide basis we're much more cost effective today than we were ten, fifteen years ago.

Q: But is the American worker going to be able to say hey, I've got a job, I'm set, I'm going to have a pension, I'm going to have health benefits, I'm going to be able to put my kids through college?

Beardsley: The American worker has to say I've got a skill, I've been trained, I can do things that workers in other countries can't do. And the worker needs to rely on that skill. I think to the extent that we put more effort into training, more effort into differentiating our manufacturing processes, I think the American worker can be confident of his future.

Q: So you think the Sheila Caldwells of the world can breathe a little easier now?

Beardsley: I think that Sheila needs to work with us to figure out how we make this a better place to work each day. And to the extent that she and we are successful in doing that, she ought to be able to breathe easier, yes.

Q: Is there a role for government in this? Federal government, state, community, to make it easier for corporations like you to do the things you're talking about, to become more productive?

Beardsley: Well, speaking of local government, I think there is a role that they have to provide the right environment for manufacturing to succeed Police protection, in the case of the inner city, is very important. Improved transit. We have to have safe, easy, convenient ways of getting our workers to the plant. Many of our workers are the second employee in a family and they can't all afford two automobiles, so transit is an issue. I think the biggest issue we face today is education. The public school system is not turning out skilled workers at the rate that we need them in order to sustain the work force here.

Q: Why are some people surprised Master Lock stayed in Milwaukee?

Beardsley: Well, they shouldn't be surprised that Master Lock stays. Actually we are among a group of companies -- A.O. Smith, Harley Davidson, Johnson Controls, Miller Brewing -- that I think you'll find share the attitudes, the approach to working in Milwaukee.

Q: But there were companies that left. There was something about the urban center in old industrial cities that suggested, hey, there's a better place for us to be.

Beardsley: Well, no owner, no manager makes a decision to move a plant easily. It's a very difficult decision to make. All the pain of the human factors is involved. There's a terrific amount of capital investment. There's risk associated with starting up a new plant. There's interruption of customer service. So those decisions are not taken easily. But the reason for doing that, more often than not, is because a competitor has changed the rules of engagement, because a business is losing market share, and because there's a long-term survivability issue involved. A company that is facing a move is facing a situation where they've got to get on a new experience curve that's been established by a lower-cost competitor. And if they don't do that they face a long-term survival issue.

Q: Do you think there's a role for the federal government in making it easier for companies like yours to stay in urban centers?

Beardsley: Well, there may be, but it really is much more a question of business conditions -- management and competitive environment type situations -- than it is a federal government issue in my opinion.

Q: So do some of these recent proposals made by Senators Bingaman and Kennedy and Secretary of Labor Reich is talking about -- tax incentives for companies who retain workers, or who invested higher rates in their companies and so forth and so on, does any of that make sense to you?

Beardsley: I think these problems have to be addressed on a company by company, locality by locality basis. I think they're driven by the competitive posture of the company, by the market share, by the success of the product line. I have a little difficulty seeing how things like that are going to help us directly.


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