Employees taking ownership is part of Parker Hannifin's plan

MAYFIELD HEIGHTS, Ohio—Tom Williams, Parker Hannifin Corp. chairman and CEO, wants to build on the 100-year-old company's culture to create a sense of ownership among employees, as well as grow profits. The different goals are encompassed in the company's Win Strategy, a wide-ranging strategy designed to drive Parker into the future.

Mayfield Heights-based Parker Hannifin is a motion and control technologies company that serves a variety of industries, from aerospace to flow and process control. The Win Strategy, which first started in 2001, was designed to help this large, decentralized company bring its best practices together. But when Williams became the company's CEO in early 2015, he knew it was time for an update.

The first goal of the new Win Strategy, which was rolled out September 2015, focuses on engaging employees and focuses on safety, entrepreneurial spirit and high-performance teams and leaders. Williams said it's about "creating owners" at the company.

"Owners think differently than employees," Williams said. "And so what we're trying to do is create an ownership culture where people think and act like an owner, as owners know a couple of basic properties. They know how the customers are doing, they know whether they're making money or not, and they know how their team members—their employees—are doing."

The next component of the Win Strategy focuses on customers. This was part of the original strategy, but Williams said the company chose to put a focus on the holistic approach of customer experience for the new version.

The last two goals of the Win Strategy are dependent on the success of the first two, as they have to do with profitable growth and financial performance. For example, one of the strategies Parker lists under its goal of profitable growth is market-driven innovation, which depends on those customer relationships. It's not innovation that starts on the factory floor or in a meeting room, but is sparked by customer need.

One of the new strategies Parker has been deploying in terms of its financial performance has been "simplification," which Williams compares to decluttering a house.

For the company, this means examining product lines, organization structure and bureaucratic processes for opportunities to make the company "faster and nimbler," Williams said. It also means consolidating divisions with common end markets or similar technologies. The company has gone from about 115 divisions when the new strategy started to about 100 now.

But a plan is nothing without goals.

Of note to shareholders would be the company's goal of growing 1.5 percent more than the industrial production market—and that's just through organic growth, not through acquisitions. Williams said that instead of setting a goal of growing 5 percent or 10 percent as a company, shareholders were interested in a "dynamic" goal that measured the company against the market as a whole.

Another important growth goal is the one focused on organic year-over-year growth in division net earnings. Right now, that goal is set at 8 percent, Williams said. That forces divisions to focus on margins, as well as top-line growth.

Shortly after Williams started, the country went into an industrial recession, which made growth difficult, but also gave the Win Strategy a stronger backdrop.

Last quarter, Parker saw sales and net income grow significantly year-over-year, with fiscal year 2017 third-quarter sales growing to $3.12 billion from $2.83 billion in the like period last year. Net income grew 28 percent to $238.8 million.

While Parker's share price dropped slightly after the results, analysts didn't seem too concerned.

Credit Suisse and Wells Fargo both listed the stock as "overperform," and Stifel encouraged people to buy Parker shares. Wells Fargo's report said the company "sold off" after beating expectations, noting that there could be short-term profit taking. But Wells Fargo seemed confident in the company's long-term growth potential, pointing to an improvement in end market demand, the company's internal growth initiatives and the Clarcor acquisition.

Stifel's report stated that "investor expectations likely were a little ahead of themselves" to explain the post-earnings drop in stock price and said it viewed the results as strong.

Parker wants to be a company that generates and deploys cash well, Williams said. That gives the company the chance to reinvest through dividends, capital expenditures and acquisitions. And he thinks the company has done that well in recent quarters, as evidenced by measures like dividend increases and the late-2016 acquisition of Clarcor Inc., an air filtration systems maker, for $4.3 billion.

While the company has always done a lot of acquiring—Williams estimated that Parker had completed about 80 acquisitions in the past 10 to 12 years—the Clarcor acquisition was notably large. Williams doesn't expect acquisitions of that size to become the norm for Parker, because large acquisitions have to be strong cultural and strategic fits. But he does think the company will be "more assertive in putting the cash to work" for shareholders.

Beyond just the coming quarters, Williams has the responsibility of setting the stage for Parker's future. The company turned 100 this year, a milestone that didn't go unnoticed by Williams.

"What's interesting, when you turn 100, is you step back and you reflect a lot on what got you here," Williams said. "But then you realize, well, this is Day One of the next 100."

Parker's foundational values and entrepreneurial spirit have remained intact over its first 100 years, Williams said. But it's clearly a more global company with a broader technology platform.

It's still grounded in that industrial base, but it has expanded into new, high-tech areas. Its Indego exoskeleton, which can be used to help people with spinal cord injuries walk, has gotten a lot of press in recent years. Just last month, the company unveiled its push into the Internet of Things with a platform it's calling the "Voice of the Machine." And it's continuing to innovate in its more traditional markets, like creating dissolvable sealing solutions for the oil and gas industries.

Parker will stay focused on the motion control space, Williams said, while continuing to look into adjacent technologies and services where it can expand. The new Win Strategy builds on the company's historical success while letting it look to the future.

"You're not going to see us jump high to the right and buy a sneaker company," Williams said. "You know, it's going to stay in the motion control space. But we'll look for the pieces that make the most sense to invest and where the most encouraging, what have better growth rates, where do we have a competitive advantage. We'll continue to flush that out as we go forward."