While the Onan Company’s past success has been traced to capable people following a sound strategy of sticking to products they know about, what about the future direction of the company?
On September 1, 1981, a new president and chief executive officer was appointed at Onan, and although S. A. “Tony” Johnson is a man with wide experience in the industry, he is, after all, an “outsider.” That could mean an entirely new direction for the Onan Company. But does it
Johnson, who was 41 when he came to Onan from a top executive position, Vice President for North American Businesses, with Cummins Engine Co., Inc., Columbus, Indiana, had devoted considerable time to developing and implementing new strategies at Cummins. [Cummins Engine Company of Columbus, IN had acquired Onan]
His first several months at Onan were devoted to getting acquainted with Onan people and the company’s operations, and then to map out a detailed long-range plan that would address his goals for Onan in the context of current and anticipated economic conditions over the next five years.
Onan now has a very complete, formal five-year strategic plan of direction that is reviewed and updated annually. A brief statement that best captures what Onan will be doing in the future can be found on a page upfront in the thick notebook that holds the long-range plan. It says simply; “Onan’s direction is managed growth related to the company’s know-how base and consistent with its long-term financial objectives.”
Johnson says, “That summarizes the fact we want to grow, but we want that growth to be managed, not just willy-nilly in any direction; we want it to be growth that we have planned. And we want that growth to come from areas where we know how to do things.-.either our manufacturing know-how base, our marketing know-how base, or our technological know-how base. We don’t want to go into the washing machine business, or the clothing business, or the sports business or into other things we don’t know how to do.” Johnson added: “We also want anything we do to meet our financial objectives. We’ve set ourselves some reasonably tough financial goals, and we will test everything we do against those. ”
Johnson explains that Onan’s financial objectives are a 10 percent real growth (after inflation) in sales every year and a return on investment that is in the upper quartile of industrial companies in the Fortune magazine 1000.
In the five-year plan, Onan has several specific non-financial objectives:
- To increase the share of the company’s base business, which is electrical power generation.
- To increase Onan’s penetration in AC power conditioning, which is at Elgar, the company’s electronics firm in San Diego.
- To enhance the quality of the company as perceived by its stakeholders Onan’s employees, customers, suppliers, neighbors, and shareholders.
- To establish a position as a supplier of diesel engines of up to 125 horsepower.
- To optimize Onan’s position in the small gasoline engine market.
- To expand the company’s business in controls, switchgear, and generators.
- To seek new business and new opportunities related to Onan’s know-how base.
Johnson says the long-range plan specifies that when the five-years are completed, Onan will see 25 percent of its sales coming from products or services the company does not currently offer.
In the course of developing the five-year plan, an analysis of Onan’s operations showed that there were 36 separate businesses within the company. Producing and selling generator sets to the motorhome industry, or producing and selling small gasoline engines to manufacturers of garden tractors, are two examples of separate businesses. In Johnson’s view, 36 was too many businesses for Onan to be in, and they have been grouped into 10 “business clusters”, each of which constitutes a profit center. There are five business clusters in Onan’s Electrical Products Division, two in the Engine Division, one in the International Division and one each in Elgar and in Parts.
Another aspect of developing the five-year plan was an effort to identify Onan’s vulnerabilities, and one was that Onan must increase its manufacturing efficiencies so as to produce redesigned electrical products at less cost. The five-year plan calls on Onan to maintain and improve the quality of its products and at the same time reduce costs an average of 20 percent.
Onan’s line management was assisted in preparing the five-year plan by two consulting firms Pugh-Roberts and The Strategic Planning Institute, both of Boston, Massachusetts.
Onan’s five-year plan is probably a misnomer. Johnson says a good long-range plan is never fully completed. “It should be a living document one that is constantly in use and not something to put on a shelf and take down once a year to review. ”
Johnson says a strategic plan not only tells a company what it should do but, just as important, what it should not do. “For instance, Onan is not a consumer company with household name recognition, and our plan tells us to stay out of that area.”
How does Onan’s new long-range planning fit into the company’s past
Although the technique is different and there is more stress now on using the plan in a day-to-day basis, the primary goals are similar to those that guided management in years past.
Before Tom Valenty retired as president, he wrote a paper entitled, “Historical Perspectives on Onan.” In it he listed the factors that guided the company during his administration:
(1) Strong product development capability.
(2) Intimate knowledge of the user’s application requirements.
(3) Cost consciousness.
(4) Production capacity in step with or ahead of market demand.
(5) Ability to serve the customers in marketing, parts, service, and promotion.
(6) Strong margins and cash flow to provide the ability to finance the business and its expansion. No debt.
(7) Persistence to see a project through to a successful conclusion
(8) People who can make the necessary happen.
Even though Tom Valenty’s goals have different words than those contained in Tony Johnson’s five-year plan, it’s evident that the original Onan philosophy, first laid down by the company’s founder, Dave Onan, and carried on by his son. Bud Onan, is still very much alive. At Onan, the emphasis will continue to be on a quality company staffed by quality people and producing quality products.
[ Ed. note. Tony Johnson’s vision was much like what we had in the 1960s. I know because Planning was in my job title. The business always had too many businesses. But that provided the kind of diversification which I think helped the sales curve. It was a vertical integration of products and a horizontal aggregation of the market. Maybe what he was talking about is more a matter of style than substance. ]