John Barth: Steering Solutions

When you’ve got a CEO as willing to jump on an airplane as Johnson Controls’ John Barth, no corner of [...]

August 16 2006 by Dale Buss


When you’ve got a CEO as willing to jump on an airplane as Johnson Controls’ John Barth, no corner of the world is safe from his inspection. So in 2003, when the Barth clan was connecting through a Midwestern airport on their way back to Milwaukee from a vacation, Barth, his wife and children carefully checked out the lavatories. His company maintained the facilities, and customers had been complaining that the bathrooms weren’t clean enough.

Whether it’s to visit the latrines at an airport, his subordinates around the world or key global customers such  as Carlos Ghosn, CEO of Nissan and potential new partner of General Motors, Barth is all about personal attention. Through the ’90s, he demonstrated this capability aplenty in bringing Johnson Controls’ auto interiors operations to its current leadership position. Since being named CEO in 2002, he’s racked up thousands of miles in global crisscrossing to meet with business partners, customers and subordinates alike.

But to continue the diversified industrial company’s six-decade record of annual sales increases and 15-year string of yearly profit improvements, Barth will have to demonstrate an intensity-and reach-that even he hasn’t shown before. With the fresh acquisition of York International, Barth is hugely expanding Johnson’s bet on manufacturing as well as its traditional commitment to facilities management. He only began investing in hybrid power trains for vehicles after the market took off. Barth also would like to create unprecedented manufacturing and management synergies among Johnson’s now-separate automotive-component, auto-power and climate-controls businesses.

At the same time, Barth and his directors concede that his biggest challenge remains automotive interiors- in which a supplier fabricates many of the automotive cockpit components and then integrates them into a massive module that the original equipment manufacturer slides into the vehicle frame on its own assembly line. Johnson has been making hay there for 20 years, but the industry downdraft has already dragged most of its competitors down, and the Big Three U.S. automakers collectively are in their worst shape ever.

                                           

“The auto industry is sort of fragile right now,” admits Barth, 60. It’ll be a major challenge for the company to “continue to have growth that’s significantly beyond how the market is growing. There will be some winners and some losers. So we have to be very careful how we work our way through the significant investments that we make.”

Though it’s now a $32-billion behemoth and industrial Wisconsin‘s largest corporation, Johnson always ran somewhat under the radar. Headquarters is an undistinguished, low slung complex in a nondescript part of suburban Milwaukee. Barth’s predecessor, James Keyes, was a no-nonsense bean-counter who focused on boosting nuts-and-bolts performance- not on ringing up style points. Similarly, Barth, an unprepossessing 37-year company veteran, “isn’t the star of a board of directors’ movie,” as Paul Brunner, chairman of Spring Capital in Stamford, Conn., and a Johnson director since 1983, puts it.

Yet, he has raised Johnson’s profile and infused its top job with a personality and a spirit never seen before. The acquisition of York, a maker of heating and ventilation systems, transformed Johnson into a multibillion-dollar player in a new market for the company virtually overnight. In February, President Bush bolstered Johnson’s power technology operations with a personal visit to the company’s new hybrid research center in downtown Milwaukee. And Johnson has been garnering recognition lately as one of America‘s most-admired corporations.

“It would have been easy to just sit on the ball,” says William Lacy, a Johnson director and former CEO of MGIC Investment. “But [Barth] made the company move.”

“For the first time in our history, we have three really world-class businesses,” says Barth, who is considering a corporate re branding to reflect and enhance the company’s broader new status and higher profile. “Not that they weren’t always good-but life is long, and sometimes you’re on top and sometimes you wish you were. Right now, they’re sort of all in sync. Now, my job is to try to leverage what we do well, somewhere in the company, across all our businesses.”

Bringing Up Barth

While its higher visibility and broader aims constitute heady new territory for Johnson, Barth is a decidedly old school leader with a continued focus on the auto-interiors business. He began his career as an engineer in Pittsburgh with plastics supplier Hoover Universal, designing automotive components in the late ’60s. He joined Johnson after the latter acquired Barth’s employer in 1985. And for a while he ran the Hoover business that manufactured 99 percent of the world’s plastic milk bottles and a huge share of its two-liter soft-drink containers (before Johnson disposed of that $1 billion operation in 1997).

In acquiring Hoover Universal, Keyes flipped the growth switch that led Johnson to leadership of the interiors business. By 1989, Barth was heading the interiors group and helping spread Johnson’s tentacles into door trim and headliners. He spearheaded acquisitions that brought expertise in instrument panels and in the electronics behind the creature comforts that were becoming increasingly important to automakers and their consumers.

Overall, under Barth’s leadership, the interiors business grew from about $1 billion in annual sales in 1990 to more than $15 billion in October 2002, when Barth succeeded Keyes as CEO. And today, auto interiors still generates about two thirds of overall corporate sales.

By building Johnson’s interiors enterprise from scratch, Barth avoided the legacy of restrictive work rules and high overall labor costs that plagued rivals Lear (which recently restructured), Delphi (the extremely troubled former GM unit) and Visteon (née Ford’s parts business, and similarly bogged down). Johnson also got a head start in interiors integration on the company that has since emerged as its main rival, Canada-based Magna International.

What’s more, Barth managed to continue to invest in the R&D crucial to this sector. “Unlike most other suppliers, Johnson has done a good job of not following the Big Three into the same death spiral of cutting innovation and quality and technology,” says Ronald Tadross, automotive analyst for Bank of America Securities.

Industry observers also point to Johnson’s emphasis on manufacturing efficiency as a major advantage. Barth and others have pushed Six Sigma and lean-manufacturing techniques for 20 years, and applied software expertise from the controls business to optimize information technology. “They’re very pragmatic, looking for continuous, incremental improvements, much like the Japanese,” says Pam Lopker, president of Carpentaria, Calif.-based QAD Inc., Johnson’s global manufacturing-software supplier since 1990. “They keep driving down costs continually and don’t try to boil the ocean all at once.”

                                 

Driving Global Growth

Beginning 20 years ago with the seating business, Johnson developed technology-sharing relationships with automakers in Japan, facilitating the company’s mastery of efficient manufacturing. Today, analysts estimate that 35 percent of Johnson’s automotive interiors revenue in North America comes from Japanese-owned “transplants,” the highest portion among U.S. interiors suppliers. “When Toyota and Honda and the others came here, we didn’t have to introduce ourselves,” Barth observes. “We already had relationships in place.”

At the same time, Johnson stole a march on other U.S.-based suppliers in global sourcing. During the early ’90s, Keyes, Barth and company already were establishing plants to manufacture components in Mexico, Asia and even Eastern Europe. And in China, Johnson’s early activity garnered it a base of 12 plants and a monstrous share of the seating market, supplying six of China‘s seven largest automakers.

“Not only did we make a global footprint a little earlier than others, but we’ve done a good job of developing leadership abroad,” Barth asserts. “We have Europeans running our European businesses and Asians running our Asian business, as opposed to Americanizing the world.”

Johnson is “aggressive about minimizing their risk on any one OEM or any one geography, which is extremely good, strategically,” adds QAD’s Lopker. So when GM Chairman Richard Wagoner jawboned U.S. suppliers last year about lacking low-cost sourcing abroad, his lecture didn’t cause Barth anxiety.

Still, Johnson continues to rely on American domestic automakers for the bulk of its sales, a sector where tremendous headwinds have dampened margins. In July 2006, shortly after announcing a $130 million restructuring, Barth warned that Q4 earnings would fall short of analysts’ estimates by 5 to 10 cents a share. And in North America, the continued shifts in market share away from the Big Three, and toward the Japanese, portend more instability. But Barth’s perpetual globetrotting to meet with customers-legendary within and outside the company-plays well in such an environment. “It amounts to a great opportunity when you’ve got an industry that is wounded the way the auto industry is wounded,” Lacy says. “John is right on top of that.”

“He’s interfaced personally with all the automotive people over the last 10 years. He’s constantly on an air- plane going here or there and talking with GM and Ford and Toyota,” adds Paul Brunner. “At Toyota, he has the status almost of a god.”

Barth’s globetrotting might be viewed with skepticism, were it not so undeniably fruitful, adds Southwood “Woody” Morcott, a Johnson board member and retired CEO of Dana, another auto supplier. “If the company wasn’t growing 15 to 20 percent a year, you might say that he’s doing too much of it,” says Morcott, who dubs Barth “the master of the industry at giving the customer more than they expect, but not putting yourself out of business.”

In fact, Toyota selected Barth to keynote its 2005 global supplier conference. “Toyota has 10,000 suppliers, and the one person they choose to speak doesn’t have great charisma or command, necessarily,” notes Robert Barnett, another longtime Johnson director and a retired executive vice president of Motorola. “But he does have a great focus and a sincere intensity.”

The “extremely strong customer focus” spearheaded by Barth acts as Johnson’s “biggest differentiator,” adds Neil De Koker, president of the Original Equipment Suppliers Association, a Detroit-based trade group. Tom Sidlik, head of global procurement for DaimlerChrysler, says that it’s so easy for him to get in touch with Barth no matter where he is in the world “that I really have to be concerned about how important it is for me to disturb him about an issue at 3 a.m., China time.”

But in the years to come, Barth’s close ties with Carlos Ghosn may be more notable than any of his other relationships. Ghosn led a dramatic turnaround of a combined Nissan and

Renault since joining Nissan in 1999 and is now trying to corner GM into a global mega-alliance. Johnson already has 50 percent of Renault’s global seating business and billions of dollars in contracts with GM. Barth is seeking to ratchet up those percentages. “I’ve known Carlos since his days as a supplier executive,” he notes.

Barth also counts devotion to minority vendors as a path to improve customer relationships. Johnson is the only auto supplier that has qualified for what’s known as the Billion Dollar Roundtable-companies that source at least $1 billion a year from minority- owned suppliers. Other members include GM and Ford. “If it’s important to our customers, it’s important to me,” Barth says.

                                               

Johnson directors report that Barth will visit them in person to mull over an issue. And he continues to travel worldwide to deliver his monthly chairman’s award to an honored employee. In fact, Susan Davis, Johnson’s vice president of human resources, says Barth dedicates about half his traveling time to meeting with managers and other employees. The practice fosters employee enthusiasm; staffers at Johnson’s high-potential management group in Beijing sang “Happy Birthday!” to Barth earlier this year in 16 different languages.

As a self-described workaholic, Barth enjoys his life as a whirling corporate dervish, who, even when pressed, can’t think of a true avocation other than following Pittsburgh Steelers football. “That’s the commitment that it takes to run a global business,” he shrugs. “It allows you to get that last five or 10 percent.”

Barth relishes handling the strategic and tactical demands of the world’s biggest industry as it goes through wrenching change, in addition to heading the transformations he has initiated in Johnson’s other businesses and staying on track with his push for greater company-wide synergies. While Brunner and others have advised him against serving on other corporate boards for now, Barth rejects suggestions that he may be stretching himself too thin. “I have an ability to touch a lot of things at the same time,” he says, “and I am engaged.” The company’s increasing external recognition supports his assertion. Institutional Investor recently named Barth America‘s most admired auto executive, and Johnson now ranks as Fortune’s most admired auto supplier. “Only recently have we been able to differentiate ourselves with our performance as we’ve continued to grow,” says Barth. “And all of a sudden people are trying to understand how we’ve been able to do that.”

But he doesn’t have time to elaborate. He’s packing for a trip to Japan.