Enterprise Minnesota Magazine - Spring 2016

DATA SECURITY IS NOT JUST FOR RETAILERS

Helping Manufacturing Enterprises Grow Profitably SPRING 2016

From

Compliance to Performance HOW ISO 2015 WILL BECOME A POWERFUL NEW MANAGEMENT TOOL.

Enterprise Minnesota 310 4th Avenue S. Suite #7050 Minneapolis, MN 55415

NONPROFIT ORG U S POSTAGE PAID Slayton, MN PERMIT NO. 22

Enterprise Minnesota and Partners present

2016 ® State of Manufacturing Survey The

Statewide Release Event Tuesday, May 3, 2016

ISO 9001:2008 CERTIFIED

4:00 p.m. – 7:00 p.m.

Minneapolis Convention Center 1301 2nd Ave S, Room 101 Minneapolis, MN 55403

REGISTER TO ATTEND AT

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SPRING 2016

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INNOVATION WITH ISO

How three manufacturers improved their businesses by becoming ISO certified

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FROM COMPLIANCE TO PERFORMANCE

Q&A: SPEAKER KURT DAUDT

DATA SECURITY: NOT JUST A RETAIL ISSUE

How ISO 9001:2015 will become a powerful new management tool.

Bob Kill interviews Minnesota’s Speaker about what manufacturers can expect from the next session of the legislature.

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2 Job One The foundation of any community’s economic development plan should be to nurture the capabilities of its workforce.

Executives need to embrace strategies to maximize the security surrounding information in their possession.

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The Need for Speed

Hooked on Improvement

Anne Hed steers her iconic bicycle wheel company to record growth, despite the tragedy of losing her partner/husband.

Tolerance Masters’ obsessive attention to continuous improvement.

“The Phone Books Are Here!”

The new ISO standard deserves everyone’s attention.

Visit the Enterprise Minnesota website for more details on what’s covered in the magazine at www.enterpriseminnesota.org.

Subscribe to The Weekly Report and Enterprise Minnesota® magazine today! Get updates on the people, companies, and trends that drive Minnesota’s manufacturing community. To subscribe, please visit www.enterpriseminnesota.org/subscribe.

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bob kill Helping Manufacturing Enterprises Grow Profitably

Job One The foundation of any community’s economic development plan should be to nurture the capabilities of its workforce.

H

ere’s another perspective when thinking about the importance of minding the growing skills gap in Minnesota’s workforce.

Phil Schneider, a nationally prominent economic development consultant, recently told the annual meeting of APEX in Duluth that local leaders can preserve the economic vitality of their communities only by aggressively sustaining the real-world capabilities of their workforce.

Economic developers, he says, typically approach their jobs from one of two perspectives. The first and most pervasive tactic is to identify and lure compatible businesses to relocate or expand in their community. They do this through a barrage of marketing and PR activities based in the expectation that this company would respond favorably if only they knew more about their local attributes.

The second approach, he says, is to spend time developing a business friendly local environment that uses the tax code and regulatory policies to help unleash 2

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(mostly by not impeding) the growth of companies that are already located there.

Communities that take this perspective won’t need costly PR firms or direct mail campaigns to attract prospective companies. They’ll know … business executives will know. The difference between these two perspectives represents the classic contrast between showing and telling. There can be no better economic sales tool than to showcase a vibrant local economy in which local leaders respect the job-creating engine of their domestic businesses and in which those companies thrive and re-invest.

Essential to the success of this second approach is how local communities anticipate the workforce needs of their local businesses, particularly their manufacturers.

Schneider traces how this need has evolved from the original early 20th century need of abundant “strong-back” workers to today’s demand for highly trained employees who can operate in the increasingly sophisticated and highly competitive world of modern manufacturing. The next rung in that evolution, according to Schneider, will be a “knowledge worker” who will carry a commitment to lifelong learning and be adaptable to changing work demands, processes and structures.

A good deal of this burden rests with a community’s local manufacturers. Only they can know and anticipate what those needs are and what they will be. And only they, working actively with a local coalition of educators, citizens, and policy-makers, can help prescribe how those needs can be met.

Much of this theme is reflected in my interview with Kurt Daudt, Speaker of Minnesota’s House of Representatives (page 24), who realizes the responsibility of government to help unleash the power of its businesses.

Bob Kill is president and CEO of Enterprise Minnesota.

Publisher Lynn K. Shelton

Custom Publishing By

Contributing Writers Suzy Frisch Kate Peterson Lynn Shelton Photographers Lisa Hine Chris Morse Jeremy Petrick Mark Trockman Contacts To subscribe subscribe@enterpriseminnesota.org To change an address or renew ldapra@enterpriseminnesota.org For back issues ldapra@enterpriseminnesota.org For permission to copy lynn.shelton@enterpriseminnesota.org 612-455-4215 To make event reservations events@enterpriseminnesota.org 612-455-4239 For additional magazines and reprints contact Lynet DaPra at lynet.dapra@enterpriseminnesota.org 612-455-4202 To advertise or sponsor an event chip.tangen@enterpriseminnesota.org, 612-455-4225

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“Steven has left me a legacy,” Anne says. “There are products still in their infancy and patents pending right now.”

PHOTOGRAPH BY MARK TROCKMAN

PEOPLE TO WATCH

The Need for Speed Anne Hed steers her iconic bicycle wheel company to record growth, despite the tragedy of losing her partner/husband.

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n late November 2014, just as her internationally acclaimed HED-brand of elite aerodynamic bicycle wheels was experiencing record-breaking growth, Anne Hed learned that her 59year old husband and business partner Steve had been found lying unconscious in the parking lot outside their plant in Shoreview. He passed away just a few days later.

Steve Hed, creator of the eponymous brand of fiberglass wheels, was recognized world-wide as an innovator in the world

of bike aerodynamics. As Anne, a former professional triathlete, ran the business side of their operation, the two partners had created an iconic brand in the world of serious bicyclists.

Anne persevered. In January 2015 HED relocated its 48 employees to a much bigger space in a blonde-brick industrial park about a mile west of Rosedale Mall in Roseville. 2015, she says, was HED’s most profitable year ever.

“Steven has left me a legacy,” Anne says. “There are products still in their

infancy and patents pending right now. I hope to be making even more wheels in the cycling industry. I’m still young, and it’s a huge passion of mine to see the business continue.”

The company’s most recent surge in revenue has been due to a patent pending carbon fat rim designed to accommodate the exploding “fatbikes” market. Fatbikes are off-road bicycles with over-sized tires, designed for low ground pressure to allow riding on soft, unstable terrain, such as snow, sand, bogs and mud.

HED’s carbon-made, tubeless fat rim appeals to fatbike riders—especially fatbike racers—because it takes six pounds off of the weight of a bike. The fat rim has propelled the company to 30 percent growth in the past two years.

With that and other innovations on the drawing table, Anne envisions that the 14 to 18 percent annual growth HED has enjoyed over the past three years will continue.

“Even though Steven was the visionary leading the company, he trained some of continued on page 4

SPRING 2016 ENTERPRISE MINNESOTA /

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continued from page 3 the other people that are still here,” Anne says. “He really gave them guidance on continuing his dream. I have an incredible team here.”

The partnership between Steve and Anne Hed is well known in the world of high-end bicycling. Anne first walked into Steve’s Grand Performance Bike Shop, a small store on Grand and Prior in St. Paul in 1983, looking for someone to sponsor her first entry into the Ironman, the Super Bowl of triathlons, held in Kona, Hawaii.

Just two years after entering her first race, Anne had become a formidable professional triathlete. As a young lifeguard in Duluth, she biked up to 15 miles each way through Duluth’s formidable city hills to reach her job.

With that as her training, she entered a triathlon in Hurley, Wisconsin—and won.

“I thought, this is kind of fun. I should do more of these,” she remembers. Anne relocated to the Twin Cities, enrolled at Augsburg and financed her life as a student/triathlete as a waitress. In ’83, a first-place finish in Texas qualified her for the Ironman.

Steve covered the entry fee and Anne finished 11th, wearing Grand Performance

“Everyone thinks Steve was an engineer, but he wasn’t,” Anne says. “He was just a creative guy.” on her jersey.

At that same time, Steve was tinkering in the back of his shop to produce a solid disc wheel for bicycles that would eventually disrupt the entire state of competitive racing. He was fascinated by how Italian cyclist Francesco Moser had used a rear disc wheel to set the world “hour” record—traveling the most distance in one hour—at a race in Mexico. The improved aerodynamics and lighter weight of the fiberglass wheel enabled Moser to ride faster than on a traditional spoked wheel. It was a great

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Steve’s bicycle shop, Grand Performance, was her first corporate sponsor. Anne retired as a professional triathlete in 1990, after she and Steve got married, having completed eight consecutive Hawaiian Ironman triathlons. “I didn’t want to travel all over the world any more,” she says. “I wanted to make wheels instead.”

concept, but its commercial viability in the booming bike market was blocked by its price tag: $6,000 per wheel. Steve’s mission was to make it affordable.

“Steven grew up making skateboards and water skis out of fiberglass, so he had this vision of how to make a solid wheel, because of his passion for cycling. But he knew nobody would pay $6,000 for a wheel. When we first introduced our disc wheel in the market, it was under $500. It was really affordable, and we were basically one of the first people who introduced this wheel to the market.

“Everyone thinks Steve was an engineer, but he wasn’t,” Anne says.

“He was just a creative guy.” A History/ English Lit graduate of Bethel College, Steve started fixing bikes in his Brooklyn Center garage as a teenager. “He always had a passion to have his hands in bikes,”

Anne says.

Steve successfully produced a prototype that could sell for $500. Anne unveiled it on her own bike as she continued to travel on a world circuit of triathlons.

“I was able to start racing all over the world, and a few of my other athlete friends noticed my disc wheel,” she says. “We started giving some of these disc wheels to some of the other professional triathletes.

That’s basically how the business started— word of mouth. But then we didn’t have any money. We’re like, how are we going to turn this into a business?”

She collateralized a $14,000 operating loan to begin manufacturing by using a 1984 Olympic Subaru Hatchback she had won in a triathlon. And they began producing their product in a little white house on 9th Street in White Bear Lake, whose back garage had been zoned commercial. The HED disc wheel was an

Manufacturing Makes Minnesota Thrive immediate hit with the growing target market of “middle-aged male triathletes who wanted to buy speed.”

Triathlons were really growing back then. They’re still a very strong part of our business, but we were in the infancy.

There was nobody else that had really put a disc wheel on the market before.

In 1987, Anne got a call from a precocious 16-year old triathlete in Texas named Lance Armstrong, who asked for a wheel. “I didn’t know who he was, but he was very convincing on the phone that he was going to be somebody,” Anne says. She shipped Armstrong a wheel, eventually sending other products for him to test. Anne also sent him $200 a month throughout that year. “I was one of his first sponsors,” she says. Anne remembers.

Anne retired as a professional triathlete in 1990 after she and Steve got married, having completed eight consecutive Hawaiian Ironman Triathlons. “I didn’t want to travel all over the world anymore,” she says. “I wanted to make wheels instead.”

That same year, HED patented a new rim design that combined the aerodynamics of fiberglass with traditional spokes that enabled the company to transcend the triathlon market into mainstream cycling. “It’s almost as fast as a disc wheel, but it handles better in windy conditions. This was an alternative to put on the front, and we make them for rears too, but a lot of people would put that on the front and the disc wheel on the rear.”

Growing international demand enabled HED to expand again.

The company moved to a Shoreview manufacturing facility in 2008, as Trek bicycles, among others, began putting HED wheels on the production bikes.

Anne says that the company is currently experimenting with other innovations.

“We’re in a volatile market,” she says, particularly competing with half-price Chinese knockoffs. But she’s confident, she says because “if people really want cool toys they’re still going to buy cool toys.”

Manufacturing is key to Minnesota’s healthy economy. It employs over 800,000 Minnesotans and generates $19 billion in payroll.

To support this key sector, we: ● Encourage companies and communities to promote Minnesota Manufacturing Week each October. ● Provide regional analysts who offer information about economic conditions, workforce trends, and labor market intelligence. ● Promote “Made in Minnesota,” our manufacturers’ supply chain database. It enables companies to find – and be found by – in-state suppliers.

Manufacturing Week. Regional analysts. Made in Minnesota database.

Call it a Minnesota manufacturing “thrive-fecta.”

Minnesota Department of Employment and Economic Development 1st National Bank Building, 332 Minnesota Street, Suite E-200, St. Paul Web: www.mn.gov/deed • Phone: 651-259-7114 • 800-657-3858

> Two Premier Industrial Parks > 5 to 80 Acre Lots > Shovel Ready Sites > Access to I-94, U.S. Hwy. 10, MN Hwys.

15 and 23 and St. Cloud Regional Airport > Fastest Growing Labor Force in MN and Nation (MN DEED)

Your First Stop for Business Locations, Financing Resources and Development Opportunities St. Cloud Economic Development Authority Cathy Mehelich, Executive Director • cathy.mehelich@ci.stcloud.mn.us • 320.650.3111

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2/12/16 1:06 PM

Hooked on Improvement

PHOTOGRAPH BY MARK TROCKMAN

Tolerance Masters uses obsessive attention to continuous improvement to regularly achieve 15 percent annual growth in revenue.

Verne McPherson, CEO, Tolerance Masters.

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erne McPherson remembers attending seven lean manufacturing seminars in six years before he and his colleagues experienced a moment of revelation that set them on a journey of nearly obsessive devotion to continuous improvement.

McPherson is CEO and majority owner of Tolerance Masters, a precision machining shop based in Circle Pines that specializes in aerospace.

He and his staff initially dismissed lean, he says, because it felt like just another “flavor of the month.” They kept returning to lean seminars because customers requested it—until that final session at Parker Aerospace when he experienced

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what he calls a lightbulb moment. “I finally figured out what they were talking about,” he says.

When they returned to their plant, he told his leadership team, “I don’t care what you guys say about lean manufacturing, we’re going to do it. Now.” It was a seminal moment in the life of the company. Today, McPherson and every one of his 55 employees are dedicated to the process of improving. “All of my people are on board,” he says. His conference room testifies to that fact. Two of its walls are covered with frequently updated three-ring binders that chart every aspect of his manufacturing processes.

“We’re really into tracking,” he says.

And they’re equally into finding and solving problems. “Like many smaller companies, for years we looked at (ISO) audits as evil things. Now we look at them as opportunities. If they come in here and have no findings, they didn’t look hard enough—because I can find things. He says Tolerance Masters self audits different processes every month.

McPherson says the company participated in several training sessions with Enterprise Minnesota to tune up its marketing, lean 5S, and value stream mapping. “Every time we went through something, we learned something new.”

“Most people look at our shop and say, ‘wow, it looks like a hospital. You could eat off the floor.’ I say, ‘that’s nice of you to say, but we see the dirt.’ That’s where continuous improvement really comes to play. We really want to find the mistakes.” The company created a “quality clinic,” a separate room in the plant in which groups of employees, even sales people, convene to dissect, analyze and solve problems.

Tolerance Masters has not had a repeat defect in five years, according to McPherson.

Other results have been dramatic. In the seven years before their conversion to continuous improvement, McPherson says the company had “chugged along” at basically the rate of inflation. Since then, Tolerance Masters has notched steady annual growth of about 15 percent. What’s more, the $12 million company is currently in the second year of a 15-year plan that envisions 15 percent annual growth each year.

In 2005, the company’s cost of labor was 27 percent; in 2015, ongoing efficiencies had slashed that cost to just over 14 percent, without eliminating a single employee.

“We plan to be the best machine shop in the world,” McPherson says. “Everybody on my staff understands that, gets it, and wants to be the best. What that means is we’re going to have the best place to work. We’re going to be the best vendor for our customers, we’re going to have the best profits, were going to have the best payroll, we’re going to have

the best benefits, we’re going to be best to the environment. We’re going to be in front of everyone else, and I think we’re probably in the top 5 percent, maybe in the top one percent now, which means we don’t have that far to go to be the best.”

McPherson doesn’t expect to be in ownership when the company reaches the end of its 15-year plan. He’s already transferred the title of president to Randy Koppes, who manages the company’s day to day activities. “He’s down there in the trenches, and I’ve moved to the 30,000 foot level to devote time to thinking and planning.

“I don’t rock the boat, but I do steer it.”

McPherson once expected ownership of Tolerance Masters to devolve to one of his customers. No more. Today, he envisions keeping it within his family of employees. His philosophy is: “Bring in young people who are motivated, train them in our methodology, and eventually

Two walls of his conference room are covered with frequently updated three-ring binders that chart every aspect of his manufacturing processes. “We’re really into tracking,” he says. hand them the reins—and then hand them the keys, with the hope that they’ll do the same thing.”

But finding that next generation of employees might be a challenge.

“They’re not easy to find, but I’m not sure they ever were.” Still, he’s already facing some retirements. His workforce includes several people in their 70s. One just retired at 75.

He disdains hiring inexperienced employees. By having the objective of being the best machine shop in the world, we feel we’ll be able to take whoever we want from the other machine shops in the area. I know that sounds like theft and that’s what it is, but we want to be the place everybody wants to work. That will help solve that problem.”

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PROFILE

Learning to Lead A new series of workshops shows managers how to use communications to lead rather than just do what they’re told

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Conrood. “I was hoping that I would get a better a better understanding of different personalities that people have and how to interpret and understand better what people say and do,” she says.

Conrood praised the curriculum as “excellent,” but admits the byproduct

PHOTOGRAPH BY CHRIS MORSE

f a sign of improved company leadership is enhanced communications between top managers, you couldn’t ask for a better result than how three managers at Blue Star Power Systems responded to the lessons of a new workshop series.

For one day each month between August

Participants Jim Kirtz, director of engineering; Brian Lynch, production manager; and Angie Conrood, director of procurement.

and November 2015 the three managers— Angie Conrood, director of procurement; Jim Kirtz, director of engineering; and Brian Lynch, production manager—would share the short commute from their plant in Lake Crystal to Mankato’s Hilton Garden Inn to attend Learning to Lead, a management development workshop developed by Enterprise Minnesota.

The three colleagues volunteered for the pilot version of Learning to Lead because they thought the program would help them “learn a little more about each other and how we worked, so that as a management team we were all on the same page with good working relationships,” according to 8

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of the commute-time might have been even better. The content of the program stimulated conversations during the commute that sometimes couldn’t be contained within the 10-minute commute.

The three co-workers actually sat in their parking lot rehashing what they had learned long after arriving home.

“If you had asked me two weeks before we started Learning to Lead, if I would ever sit in a parking lot with those two gentleman and have a conversation, I would have said ‘never,’” Conrood says.

“It was an eye opener.”

Kirtz agrees. “We talked about what we did for the company,” he recalls.

“We talked about what we did in a day, compared to what people thought we did. There are a lot of hidden tasks that people do that aren’t out right in front of everybody. It gave us a realization about what everybody was doing behind the scenes.

“It opened up my eyes to a lot of different things,” he adds. “Personally, I think it was a very good experience.”

Voyles developed the Learning to Lead program as a response to manufacturers who are realizing that developing leaders is just as important to their companies as product development or operational efficiencies. “It’s really the people who are doing the work,” she says. “People are improving the processes and people are developing the products and services.”

Toward that end, she says, savvy CEOs are evolving from traditional top-down command-and-control management styles that instruct employees what to do. Instead, they’re telling employees what needs to be done and then enabling them to do it. “‘Do it my way’ is not working,” Voyles says.

“Manufacturers need to empower people to do the jobs we hired them to do. They have to be able to develop leaders to make the best decisions and to do the right thing.”

Learning to Lead helps facilitate that process. The program brings awareness and insight into how an individual’s behaviors affect their ability to develop relationships with the people they work with.

The program combines a series of self assessments with lectures and interactive discussion on several issues. Each successive session builds upon the others.

Voyles begins the workshop with a study on social styles and workplace versatility in which attendees focus on understanding personal behaviors, communication styles and how others see you. Participants begin by taking an online self evaluation that assesses first how managers view themselves and then how that compares with the perception of others. If they don’t like how others perceive them, Voyles

discusses ways to change that mindset.

“It’s really understanding how to develop interpersonal skills and how to communicate better with others,” she says.

Another session focuses on how managers address the needs of others, helping them reach their goals. “The more versatile you are, the better you’re going to be able to adapt to different people’s styles once you can identify them,” she says, stressing how managers can use information to motivate employees to accept and embrace change more enthusiastically.

Voyles devotes time to develop accountability and self empowerment.

People sometimes take responsibility, but drop the ball, she says, and use excuses or blame to justify their letdown. We use selfempowerment to say, “Well, if you don’t have authority to do something, what can you do? Can you go to someone who does have authority? If you don’t have access to that information, how can you get it?” We try to get people to start thinking about how to empower themselves, rather than just use

Voyles developed the Learning to Lead program as a response to manufacturers who are realizing that developing leaders is just as important to their companies as product development or operational efficiencies. excuses, to get things done.

Another workshop shows leaders how to become adaptable, flexible and resilient, “so that they not only bounce back from changes, but bounce forward and learn from the changes to keep that momentum going,” according to Voyles.

“Going to the session obviously opened up our communications lines a lot more,” Kirtz says. “From that aspect, the classes really helped us. I know for me

personally, it let me know where I needed to be. It opened up my eyes to the type of personality that I was and it made me think a lot more in the analytical style that I already have, but it opened my eyes that I had to be more empathetic toward people.”

Conrood said the sessions changed some perceptions. “Because I’m a female and those two were male, I felt that sometimes we had a male/female disconnect,” she says. “And truly it was not. It was more that the three of us had different personalities and we had to understand each other. That’s what I was hoping to get out of it—and for sure, that was my biggest takeaway.”

Conrood is quick to point out that the lessons of Learning to Lead transcend the business environment. “It affected some things in my personal life as well. There are things that you learn that you can apply anywhere. For me, I realized that I’m an expressive person, and sometimes I talk too much. And that’s me. I learned that even at home, I get talking, and sometimes I should just stop.”

Risk Prevention Employee Benefits Business Insurance

ADDING ACTUAL VALUE TO THE INSURANCE RELATIONSHIP

You should be getting more from your insurance agent than just great pricing on proper coverage. Marsh & McLennan Agency can also help you reduce injuries, stay on top of compliance (OSHA, DOT, EPA, FLSA, ACA, etc.), and find and keep the right people.

Speak with a local manufacturing risk and insurance specialist: Twin Cities 763 746 8000

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SPRING 2016 ENTERPRISE MINNESOTA /

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STATE OF MANUFACTURING®

Attracting the Next Generation 2016’s State of Manufacturing® project will include three focus groups devoted exclusively to students.

T

he increasing number of manufacturers who worry that the younger generation seems less and less interested in careers in manufacturing will get first-hand insights into the skills gap when Enterprise Minnesota this year conducts some decidedly low-tech research.

“We’re going to ask them,” says Bob Kill, Enterprise Minnesota’s president and CEO. Three of 21 focus groups scheduled to supplement this year’s State of Manufacturing® survey will be composed entirely of students.

“Instead of speculating on why more young people aren’t attracted to manufacturing, we thought we’d take the question right to them,” Kill said.

The State of Manufacturing® is an in-depth annual survey that gauges the opinions of 400-plus Minnesota manufacturing executives on the issues and challenges that enhance or restrain their ability to do business. The survey will again be conducted by Meeting Street Research, a nationally prominent polling company. Rob Autry, its founder and president, has conducted all seven previous surveys. The results of the survey have become the go-to resource for state and federal policymakers, economic development officials, business leaders, and educators looking to better understand how manufacturers feel about our current business landscape.

Each year the survey is accompanied by a series of focus groups, composed of executives, managers, and thought leaders revealing their thoughts on the economy and other major issues impacting their ability to do business.

The skills gap has received increasingly extensive attention in all focus groups statewide. Participants discuss the dearth of manufacturing labs in high schools, how parents and school advisors seem to disdain career opportunities in 10

/ ENTERPRISE MINNESOTA SPRING 2016

Fergus Falls technology teachers Jim Donahue and Dennis Wutzke

manufacturing, and an overall lack of public awareness about the lucrative career opportunities in sophisticated, high tech manufacturing operations.

Student focus groups are scheduled for: • February 23 at Dunwoody College of Technology, • Tuesday, March 1 at Alexandria Technical and Community College, and • Wednesday, March 9 at Anoka Technical College.

Student events are closed to the public.

The 2016 survey results will be released on Tuesday, May 3 at the Minneapolis Convention Center. The event, which has attracted as many as 600 people, is open to manufacturers and anyone interested in the manufacturing industry, including

educators, elected officials, economic development professionals, granting agencies and members of the media.

For the second year in a row, this year’s survey data will be analyzed by regional cross-tabulations for each of the six Initiative Foundation regions to provide greater local insights.

In addition, two focus groups will be conducted using members of Enterprise Minnesota’s extensive network of CEO Peer Councils.

Sponsors of the State of Manufacturing® this year include Bremer Bank, Granite Equity Partners, Gray Plant Mooty, Marsh & McLennan Agency, the Minnesota Department of Employment and Economic Development, Risdall Marketing Group, and RSM US.

2016 State of Manufacturing®Focus Groups DATE

TIME

CITY

LOCATION

SPONSORS

Monday, 2/15/2016 CLOSED TO THE PUBLIC Tuesday, 2/23/2016

10:15 a.m.

Owatonna

Enterprise Minnesota Peer Council

8:30 a.m.

Brooklyn Park

Tuesday, 2/23/2016 CLOSED TO THE PUBLIC Wednesday, 2/24/2016

11 a.m. (students)

Minneapolis

9 a.m. (plus tour afterward) 3 p.m.

White Bear Lake

Thursday, 2/25/2016

3 p.m.

Willmar

Friday, 2/26/2016

1 p.m.

Thief River Falls

Monday, 2/29/2016

9 a.m. (plus tour afterward) 8 a.m.

(CEOs)

Merrifield

Tuesday, 3/1/2016 CLOSED TO THE PUBLIC Wednesday, 3/2/2016 CLOSED TO THE PUBLIC Wednesday, 3/2/2016

9:15 a.m.

(Students)

Alexandria

10:15 a.m.

Monticello

3 p.m.

St. Anthony

Thursday, 3/3/2016

11:30 a.m.

St. Cloud

Monday, 3/7/2016

8 a.m. (breakfast at 7:30 a.m.)

1 p.m.

Mankato

Tuesday, 3/8/2016

8 a.m.

Pine City

Wednesday, 3/9/2016

8 a.m.

(CEOs)

Anoka

Wednesday, 3/9/2016 CLOSED TO THE PUBLIC Thursday, 3/10/2016

2 p.m.

(Students)

Anoka

10 a.m.

Winona

Thursday, 3/10/2016 CLOSED TO THE PUBLIC Friday, 3/11/2016

2 p.m.

Owatonna

9 a.m. (plus tour afterward)

Minneapolis

Owatonna Business Incubator 1065 SW 24th St., Main Conf. Room Owatonna, MN 55060 Marsh & McLennan Agency 7225 Northland Dr N, Ste 300 Brooklyn Park, MN 55428 Dunwoody College of Technology 818 Dunwoody Blvd. - Anderson Room Mpls., MN 55403 The Specialty Manufacturing Co. 5858 Centerville Road White Bear Lake, MN 55127 MPMA 5353 Wayzata Blvd., Ste. 350 Minneapolis, MN 55416 Ridgewater College 2101 15th Av. NW, Room H139 Administration Bldg.

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Minneapolis

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Rochester

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Help Wanted A booming aviation service company in Duluth is constrained only by shortage of qualified applicants

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orking from a 188,000 square foot hanger at the Duluth airport, AAR services A320 airbus aircraft, ranging from routine maintenance to complete reconstruction.

Already working three shifts, seven days a week, vice president of operations Mark Ketterer says the company could double the size of its operation if he could find an appropriate number of skilled employees.

The Duluth facility is one in a network of 60 plants in 110 countries operated by Illinois-based AAR. It currently employs 370 employees, mostly FAA licensed technicians, but Ketterer would prefer the number to be larger.

“We’d like to be around 400,” Ketterer says. Most of AAR’s Duluth employees are required to hold an A&P (Airframe & Powerplant) technicians license from the FAA.

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A&P technicians inspect aircraft as well as perform, supervise and conduct preventive maintenance. AAR supplements its permanent workforce with contract mechanics who mostly work for stints of between four and six months. “And then they move on to another job. They are kind of nomads,” Ketterer says. “But we’ve been fortunate. A lot of them will stay for three years because they like the facility.”

Ketterer joined AAR a few years after retiring from a 31-year career as a maintenance executive with Northwest Airlines. In 2013, a couple friends from Northwest who were now executives with AAR in Duluth tried to recruit him as director of maintenance. He demurred for several weeks before accepting.

“I always wanted to run my own operation on a big scale,” he says now.

“I saw a beautiful facility, a good business plan, and a great company to work with— and the opportunity to run my own show.”

Today, as vice president of operations, he runs the facility. The skills gap has presented his company with a significant challenge. Duluth’s rate of unemployment is about two percent.

Mark Ketterer, vice president of operations for AAR Aircraft Services

PHOTOGRAPH BY MARK TROCKMAN

The Duluth facility currently employs 370 employees, mostly FAA licensed technicians.

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Ketterer collaborates closely with Lake Superior College, a Duluth-based member of the MnSCU network, to train prospective inspectors. The College is one of only several institutions that offer the two-year curriculum necessary to prepare students to qualify for the FAA certification. AAR then trains the recruits on the requirements of each kind of aircraft.

AAR not only operates a joint advertising campaign with the college, it hires the bulk of its aviation graduates.

Ketterer estimates AAR has already already offered jobs to half of Lake Superior’s current graduating class.

“They already work for us,” he says.

The students work full time, with benefits, as support technicians. The company offers tuition reimbursement and adjusts their workday to accommodate their school schedules.

New graduates typically are paid about $18, according to Ketterer. New employees with experience can start upwards from $22.

AAR performs periodic inspections of aircraft based on time and/or usage, required by the Federal Aviation Administration (FAA). These inspections range from 14-day “block checks” which address certain functions of the aircraft to a 36-day “heavy maintenance check,” in which it requires AAR to strip down and rebuild the entire aircraft, including seats, floor and sidewalls.

The plant operates 24 hours a day, seven days a week, working on three airplanes simultaneously at all times.

Since opening in November 2012, AARDuluth has worked on 225 airplanes.

“If we had unlimited manpower resources, we could be running four airplanes at a time,” Ketterer says. “If manpower were not an issue, we’d probably consider adding another hangar next door, which would make it even more efficient.”

Relatively high unemployment on the Iron Range offers possibilities, but they are only slowly coming around. “The Range is different,” Ketterer says. “They just had a bunch of layoffs, but those guys are Rangers; they like to stay on the Range.”

AAR has recently hired three former Northwest technicians who left to work in the mines and are now coming back.

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Certifiable

PHOTOGRAPH BY MARK TROCKMAN

Three-person Custom Turning earns its ISO certification.

Governing and Growing Companies in Greater Minnesota.

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ny small manufacturers who think they they are too small to a) realize the benefits of becoming ISO certified or b) muster the resources to wend through ISO’s processes should talk to Ken Schaff, co-owner of Custom Turning.

Custom Turning is a full service CNC lathe production facility in Big Lake that specializes in component design, fabrication and assembly for demanding commercial applications. Custom Turning has a) three employees (including Schaff) and b) ISO certification.

ISO 9001:2008 is an internationally recognized standard that confirms a company is meeting the highest standards available for managing its business.

“We did it for two reasons,” Schaff says.“First, more and more companies that we deal with were requiring that we be ISO certified. Second, we are always looking for ways we can be more organized.”

The process took six months, Schaff says. “We weren’t in a big rush. We wanted to take baby steps. Its worked out well for us. It opened my eyes to a lot of different things. It’s worked out well as far as dealing with other customers, too.”

Kent Myhrman is one of Enterprise Minnesota’s resident experts on ISO. He admits Custom Turning is on the small end of ISO applicants, but he adds, “I’ve

The Custom Turning team is joined by Minnesota Senator Mary Kiffmeyer and Bob Kill, president and CEO of Enterprise Minnesota.

done it with fewer.”

“The idea is that you have the pieces in place at a light level, ready for when you need to use them more robustly,” he says says. For example, Custom Turning didn’t need to create training in areas where they don’t have a dedicated department.

“I don’t need to have training materials in customer service, because there is no one there, but I should be thinking about it so that when I do need that person I have an outline of what I want to train them in so that they come up to speed quickly,” Myhrman says. “And we take that same approach all through the ISO process.”

Schaff says ISO will also help him grow the company. “We wanted to get this in place first and then start training everybody in at the same time.”

“Getting certified has helped us a lot as far as how we run the business,” Schaff says. We now know what to look for and how to keep everything running smoothly.”

Bob Kill, president and CEO of Enterprise Minnesota, led a delegation of elected officials and staff to commemorate the company’s achievement.

Four Questions

Mike Jensen, Gauthier Industries

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ike Jensen, president of Rochester-based Gauthier Industries, is the most recent member of the board of directors at Enterprise Minnesota. This was adapted from remarks he made at a business event entitled How to Increase the Value of Your Company.

Rochester’s ambitious Destination Medical Center is going to bring intensive economic development opportunities to Rochester, but is also likely to increase the competition for employees. How are you responding to that?

As small manufacturers, we have to find ways to attract employees, and to figure out what separates us. We’ve been voted a Best Place To Work by Workforce Development in southeast Minnesota for four years straight. It’s something we’re very proud of. They consider a number of contributing factors. We have an average retention of 13 years per employee. Our safety program and record are a top priority—if you can’t have a safe work environment, it’s going to be hard to attract employees. Our benefits package has been very good over the years. During good years, we’ll give a percentage of our profits back to our employees. There’s a plaque at the front desk that shows that Best Place To Work award, and then we buy t-shirts for all employees, so every year we have a different color t-shirt and design for our employees. The neat thing about that is that when we bring in customers or when we bring in potential new employees, there’s always a shirt of a different color being worn out there. This year we would like to make it to five, a shirt for each day of the week.

You were the very first customer to go through Enterprise Minnesota’s strategic management program…

We were the pilot company to go through it, and it really gave us employee engagement across the

organization. We needed everybody’s input to make it all work. From that, we developed our mission and vision, and our roadmap. We developed 21 different tasks through the strategy management program. Each task was delegated to one person. So I wrote a letter to the company saying that we’re going to go through this program, we’re having employee involvement, we’re going to take your suggestions, we’re going to take your ideas and we’re going to implement what makes sense. But we all agreed on it as a team; we were going to go ahead and have our people involved. And then we put ideas in place and we saw how they worked—that’s how you get the employee buy-in. From this whole process we developed a roadmap, creating our mission and vision for the company. We asked ourselves: what does it take to provide total customer satisfaction? What does it take to really show what that value is? What gets us to that point?

How important is your ISO certification?

Very important. ISO certification came in 2000. The big benefit of ISO is the fact that you are forced to monitor yourself quarterly, or as often as you’d like from a management review standpoint. Internal audits are scheduled throughout the year and several of our employees are trained, and they’re auditing different departments all the time.

The advantage here is the fact that when you add a new customer and they have high quality standards, and you give them a quality manual that shows your ISO certification, it allows for a more expedited process through the audit without having to go through every piece. Procedures and work instructions can build a recipe for success, especially in contract review where building in continuous improvement comes into play. The closed loop system is the catalyst for our ISO program.

INNOVATIONS

Mike Jensen has worked for Gauthier for twenty years. He became an owner in 2007 and was named president and CEO. Gauthier Industries is a full-service metal parts manufacturer specializing in metal fabrication, stampings, powder coating, and assembly for a wide variety of industries, including agriculture 9and medicine.

How have you utilized lean?

Going into lean manufacturing project goals included reducing our setup times, reducing work and process inventory, our cycle times, and then finished goods inventory. We couldn’t afford to store a product for two, three, or four months at a time. We had to figure out how to manufacture it, produce it, and ship it within two weeks. We used the value stream mapping process to deal with several important things: overproduction, transportation, defects, under-utilized people, waiting, excess inventory, excess motion. You’re going through many different things in value stream mapping, you’re looking at cycle times, you’re looking at the time it takes for you to produce products. How many times do you have to handle it? How far do you have to walk? You’re analyzing every single process. “If you’re at a four week lead time before, what is it going to take to get to two?” And on paper you figure that out.

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SPECIAL REPORT

Innovation with ISO

How three manufacturers improved their businesses by becoming ISO certified

By Suzy Frisch

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“I found this was a really good way to empower people. It gave them pride in the job they didn’t have before and it helps with retention of employees.”

—Gregg Elliott ISO is never more important, a fact that came to light during surveys for the annual Enterprise Minnesota State of Manufacturing® survey project. While 89 percent of 400 manufacturing leaders said they were optimistic about the future of their companies, 33 percent had concerns about hiring and retaining enough qualified employees noted David Ahlquist, an Enterprise Minnesota business growth consultant.

While moderating the event, Ahlquist encouraged manufacturers to combat hiring challenges by focusing on productivity and implementing effective systems.

PHOTOGRAPHS BY MARK TROCKMAN

any Minnesota manufacturers have experienced the transformative power of ISO 9001 certification. A quality management system that helps companies get the most out of their employees and equipment, ISO also provides businesses with tools to get on and stay on a path of growth.

At a December business event hosted

by Enterprise Minnesota called “Why ISO Transforms Your Business,” three Minnesota manufacturing executives shared their companies’ experiences with becoming ISO certified. What is ISO? It stands for the International Organization for Standards, and it develops globally recognized criteria used by 1 million companies for running a well-managed business.

Gregg Elliott is president and CEO at Plymouth-based Seacole.

Employees will stay on the job when they can work more effectively and strategically.

“Do you have a good management system to get the most out of your resources and manage your resources the best? Don’t just focus on the people,” he said. “That’s why ISO gives us a nice focus.”

Overall, companies that complete their ISO certification develop written processes that make operations run consistently and with fewer mistakes. Without instituting such processes, company leaders end up over-controlling employees, much to their annoyance.

“Why do we like processes and procedures? Because they are easier to manage and you don’t have to micromanage what employees are doing,” Ahlquist noted. “When we don’t have the skills, the procedures, and the tools, it takes a lot more energy to manage a core

process.”

The three speakers debunked many common assumptions about ISO and explained how the quality-management system fosters a culture of continuous improvement at their manufacturing companies. In addition, going through ISO certification engaged and energized their employees, enhanced their business growth strategy, and contributed to strong growth.

Read on for recaps of these businesses’ experience with becoming ISO 9001 certified.

SEACOLE

For chemical manufacturer and distributor Seacole, the reasons to become ISO certified numbered in the millions. Several potential customers had lucrative business for the Plymouth company, but Seacole needed the ISO credential to win it.

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PHOTO BY LISA HINE

Alex Altstatt (far right) is director of business development at Hugo-based Western Spring Manufacturing.

CEO and owner Gregg Elliott found that requests for ISO vendors kept coming from higher up the supply chain in industries ranging from medical device to automotive and aerospace. If Seacole wanted to keep growing, it would need to take the ISO plunge.

“As we grew 20 percent last year, we realized we need some sort of management system in place to continue growing. We had a lot of best practices in-house but we hadn’t really documented a lot of them,” Elliott said. If a long-term employee retired, “we need a way to document best practices so they could be passed on to other people.”

Seacole, which has nearly 50 employees, buys chemical components and blends them into new products for customers.

It manufactures 2,000 products in its 85,000-square-foot facility. Its capabilities include creating chemical products for surface finishing, printed circuit boards, industrial cleaning, railroad and other transportation, agriculture, and laboratories.

Because Seacole deals with significant quantities of chemicals, it is highly regulated by numerous agencies, from the DEA 18

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and EPA to the Department of Homeland Security. As the level of regulation continues to increase, many companies have started outsourcing their chemistry manufacturing to specialists like Seacole.

The manufacturer already has benefitted from this trend, and it will be compounded

by Seacole’s ISO certification. Thanks to these factors and more, Seacole is on track to hit $35 million in revenue in three years, Elliott said.

Through the process, Seacole uncovered that it was making the same errors repeatedly. Obtaining ISO certification helped the manufacturer secure significant business from large customers like 3M and Dow, but it also prompted better workflow, reduced mistakes, and improved customer service, Elliott said.

“Incidents of both internal and customer complaints have gone way down since ISO was put in place,” he added. “And in this day of finding employees, I found this was a really good way to empower people.

It gave them pride in the job they didn’t have before and it helps with retention of employees.”

Becoming ISO certified took about a year and cost roughly $30,000. During the most intense part of the process, it meant holding three-hour meetings every two weeks. One challenge involved getting all employees involved and invested in the ISO project.

To overcome that, Seacole conducted a series of tutorials for all employees that explained why the company was doing ISO, what would occur during the certification process, and how it would all work in action. This helped all staff support the process and follow the new policies and procedures—which is especially important because ISO really never ends, Elliott said. Companies are audited annually and recertified every three years.

Keys to making ISO successful are communicating regularly with all employees, investing the necessary time and energy in the process, and getting buy-in from all levels of a company. “If you don’t have commitment from the top management of the company, don’t bother going ISO,” Elliott advised. “It has to be driven from the top down.”

WESTERN SPRING MANUFACTURING

In deciding whether to pursue ISO certification, Alex Altstatt of Western Spring Manufacturing keeps this Steve Jobs quote top of mind: “Quality is more important than quantity. One home run is much better than two doubles.”

The Hugo company has been manufacturing springs since 1909 and is in its third and fourth generation of leadership.

Its leaders wanted to maintain the company’s reputation for agility and quality in creating a wide array of mechanical springs and wire forms for customers.

Becoming ISO certified helped the company and its 17 employees coalesce behind a newly stated mission. Western Spring aims to bring customers value by using state-of-the-art equipment that taps into its employees’ creativity and innovation. “Our goal is to be vendor of choice,” Altstatt said. “People have options, and we understand that.”

The company makes a broad variety of products including compression, extension, torsion, flat, and wire-form springs. The largest product category at Western Spring is compression springs, comprising 34 percent of its business. Western Spring serves diverse industries, from aerospace and medical to agriculture, defense, and commercial garage door businesses.

Management decided to pursue ISO to improve the company’s processes, enhance customer service, reduce its scrap and costs for rework, and keep Western Spring on its growth path, Altstatt noted. It became ISO certified in July 2014.

With ISO, the company now holds quarterly management review meetings to cover such topics as customer service, on-time delivery, customer returns, vendor performance, and profit margins. “All of these things we did in the past before ISO, but we didn’t do them formally,” Altstatt said. “Now we have this procedure in place and we do it on a quarterly basis.”

In addition, Western Spring has benefitted from a new internal audit committee that focuses on production, contract review, quality, management, and more. The company also implemented systems of both corrective and preventive action to track trends and focus on continuous improvement in production, product development, and outside services.

These systems built even more confidence with customers. “It’s important to show our customers that we’ve changed

our system and we’re going to do it right,” Altstatt said.

Going through ISO certification definitely has been valuable for Western Spring, he added. Employees no longer need to spend time filling out quality expectations packets for new customers; instead they just send over a copy of the company’s ISO certification. Plus, ISO requirements helped the manufacturer improve its overall culture of safety.

“It also streamlines production costs and reduces customer returns,” Altstatt added. “Measurable customer satisfaction is important, and there is improved quality assurance. ISO ensures overall credibility for our organization.”

It took Western Springs about 10 months to complete its ISO certification, costing close to $35,000. There also was the cost of shutting down the office for regular ISO meetings because the company is so small.

All in all, though, Western Spring benefitted from the process. “I think it was well worth it. It’s a commitment you have to make,” Altstatt said. “It really does add credibility.”

FRAISA USA

Fraisa USA is part of an 82-year-old Swiss manufacturer, but it has been functioning more like a start-up since the recession.

Its parent company charged the New Brighton location with developing its own line of products for American customers, leading CEO Mathieu Tapp to operate the business like an entrepreneur.

Fraisa thrived with its new mission, growing to nearly 25 employees who manufacture thousands of cutting products for metal machining. It serves companies focused on tool and die, precision engineering, aerospace, medical device, and other industries. Its employees work closely with clients to make custom tools that suit their needs, testing a variety of materials and geometries to create the optimal implements.

As Tapp and his employees grew Fraisa from start-up to established business, it soon became time to institute more structure. Tapp decided to pursue ISO certification mainly to formalize processes and procedures, develop training for new

What’s next for ISO 9001?

Just like any good manufacturer, ISO continues to evolve its standards to help companies operate efficiently and effectively. Its new ISO 9001:2015 puts increased emphasis on leadership and process management, including risks and opportunities, according to David Ahlquist, business growth consultant at Enterprise Minnesota.

Released in September, the updated ISO 9001 will encourage participants to keep context in mind. Instead of just thinking about their own manufacturing operations, participants also must focus on regulators, customers, and other stakeholders. “The neat thing is that it’s less restrictive than before. It lets you be more flexible to meet your needs,” Ahlquist said. “With 2015 it makes it easier for companies to be certified.”

In addition, the leadership focus means that ISO prescribes what company leaders need to do to improve quality instead of giving that responsibility only to a quality manager. “They want to make sure that quality management objectives align with the business objectives. They want a system that supports the entire business, not just one part of it,” Ahlquist explained. “They want continuous improvement built into all key processes. It shows up 15 times in the new standard.”

Businesses also will need to assess their resource management, from their buildings and equipment to human resources. They also must have a deep grasp of their organizational knowledge and focus more on risk-based thinking and processes. That means understanding who has authority over various resources and processes, and knowing the risks and opportunities for different outcomes, such as a late delivery or poor quality.

“There will be inputs and outputs. What controls do we put on processes to make sure we don’t have unintended consequences?” Ahlquist noted. “ISO wants you to think more formally about that.”

ISO is giving companies three years to get certified in the new standard.

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Mathieu Tapp is CEO at New Brighton-based Fraisa USA.

and existing employees, and incorporate new technology for product development.

“Even though we had some support from Switzerland with protocols on how to make products, we were flying by the seat of our pants,” Tapp said. “We were like a quintessential start-up company. We had to bang through getting products out the door and didn’t write a single procedure down.”

Fraisa’s five other international locations previously went through the ISO process, and Tapp knew that the US site would be next. Regardless, he believed ISO would greatly improve the company’s operations.

“The benefits of ISO certification were clear,” Tapp said. “It’s going to reign in the cowboy actions we’ve been doing and it’s going to make us write down the policies and procedures that we already do on a day-to-day basis and tighten them up a bit.”

When Fraisa began ISO, it enlisted people from across the company to join the initiative. That meant employees from customer service, production, inventory 20

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“We used to have cheat sheets, and people had different ways of doing things throughout the business,” Tapp said.

“It took going through the certification process to gather information out of everybody’s head and put together a training plan. Now we have procedures in place.”

—Mathieu Tapp management, and others worked together to develop formal policies and procedures.

Now when new employees join Fraisa, it has a training program to bring them quickly up to speed.

“We used to have cheat sheets, and people had different ways of doing things throughout the business,” Tapp said.

“It took going through the certification process to gather information out of everybody’s head and put together a training plan. Now we have procedures in place.”

Meeting every two weeks during the 11-month process helped Fraisa prepare for certification. It earned the ISO

designation in May 2015.

By streamlining production through ISO, Tapp said, Fraisa better serves customers. It also more easily pushes the boundaries of technology and innovation, and continues to develop new products that helps its customers work better, faster, and cheaper. In addition, ISO prompted Fraisa to integrate new software that helps employees efficiently track production.

“If we didn’t go through ISO certification, I don’t think we would have completed all the steps along the way to bring up a software program like this,” Tapp said. “For us, that was a key aspect.”

R O U N D TA B L E

SPECIAL REPORT

From

Compliance to Performance

ISO 9001:2015 can be a powerful new management tool.

A panel of Enterprise Minnesota’s ISO experts tell you why.

The International Organization for Standardization (ISO) last fall published ISO 9001:2015, an updated quality management system standard used by an increasing number of manufacturers world-wide. The new standard is considered a major upgrade to ISO 9001:2008, its immediate predecessor, in that it focuses less on documentation and more on enterprise-wide management.

Enterprise Minnesota has taken an aggressive approach to helping its manufacturing customers harness the significant power of the new ISO approach.

Its four ISO experts—Tim Bjorgum, David Ahlquist, Kent Myhrman, and Greg Langfield—recently sat down for a roundtable discussion about the potential and challenges of the new standard. What follows is an abridged version of their conversation.

Are there misconceptions about the new ISO 9001:2015 standard?

Greg Langfield: I think ISO has suffered over the years with too narrow an image because the word quality was associated with it and because a lot of people assumed it was just about

ISO 9001:2015 is looking for a more mature approach to how you’re going to manage your business and how you’re going to evaluate the processes and risks associated with them. documenting their processes. That’s always been just one minor aspect of ISO and it is even less so in the new standard. So part of the challenge is to overcome that image.

David Ahlquist: The new ISO takes things to the next level in a very big way, and I don’t think the typical manufacturer understands that even the old ISO could become a business management system for their company.

Tim Bjorgum: Some companies are pushed by their customers to be ISO, so maybe they see it as a sales tool. It’s best to step back and realize that customers want them to improve their performance. They want on-time deliveries, high quality, and

a reasonable price, and they also want their vendors to make money.

Kent Myhrman: One test that shows how deeply the ISO discipline is embedded within an organization is to ask if they want to do more ISO or less, in other words: is it adding value or cost? We have clients who truly see how ISO is fundamental to their business and how they approach managing and improving their business. But, if you’re not in that mode right now, the new ISO standard is going to look scary to you.

Someone described the difference between the ISO 2008 and 2015 as “an evolution from compliance to performance.” Is that apt?

Ahlquist: Enterprise Minnesota is absolutely focused on helping companies move from compliance to performance. I want that on our business cards; I want to have it accompanied with flags and music when we come into a company. It’s not about compliance, it’s about performance— and that is our calling card.

Bjorgum: We emphasize that it’s a business management system. It’s not an ISO thing, or a quality thing; it’s a business management system. The better the SPRING 2016 ENTERPRISE MINNESOTA /

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company performs, the better it’s going to meet its customers’ expectations of quality, of delivery, and price. And that will make the company stronger and more profitable.

Langfield: I don’t view the 2008 standard as being a negative. 2008 was a very powerful standard. Our customers experienced great rewards from 2008 when they viewed it as being integrative to their business. ISO 2015 is looking for a more mature approach to how you’re going to manage your business and how you’re going to evaluate the processes and risks associated with them.

Myhrman: It gets back to this: If your current attitude is to use ISO to maintain compliance, you’ll probably do as little as it takes to pass a compliance audit—and you can still do it that way. But you’re going to have trouble getting through the audit if you think that your goal is compliance.

Ahlquist: Another question to ask is, “If your designated management rep leaves the company, do you still have a quality

David Ahlquist is a business growth consultant at Enterprise Minnesota who specializes in helping manufacturing companies build cultures of continuous improvement that contribute to operational excellence. Manufacturers across Minnesota have yielded significant increases in productivity from Ahlquist’s expertise in lean enterprise, lean product development, and quality management systems.

Prior to joining Enterprise Minnesota in 1996, Ahlquist served as a manufacturing engineer for Westin Automotive, a manufacturing systems consultant for AMCI Computers, and as an operations manager for Gunnard Company.

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system?” If they answer, “No. When they leave, our system leaves,” they are not using ISO for company performance.

Myhrman: We commonly get asked, “What do I have to do for ISO?” The more suitable question should be, “What do we have to do for our company?” The new standard enables us—almost insists—that we take that approach. What do we need to do for our company? How do I decide what that means? How do I communicate it?

How do I structure my company so that I can both ask and answer that question?

Ahlquist: I want to twist that a little bit to say that our approach is a discussion with the client. It’s not, “you need to do this and you need to do that.” It’s really discussing what the standard is about. “Tell me how you do that in your business today? How well is it working? Can we improve upon that? And how do we document how to continue or improve procedures?”

Will some companies be intimidated that the new standard requires enterprise-wide participation? It no longer will be acceptable to throw the project at their quality guy and say, “That’s a wrap.”

Ahlquist: It depends on who you talk to.

The quality guy is probably saying, “This is fantastic. It’s not all on my back now.

Everybody’s going to be involved in this.”

Bjorgum: We’ve always said that we need management support to have a successful ISO implementation. ISO realized that and made a formal statement about what leadership is responsible for, not just the designated management representative, the old DMR. Langfield: One way to think about it is, what owner or CEO would let their quality manager design and run their entire business? None. That’s why they added this leadership requirement to ISO 2015: the right people should be saying how this thing needs to work.

Ahlquist: Another thing is that this is best practices of world-class companies.

When we’re working with small to midsize manufacturers, it’s kind of, for them to think about this and go, “Oh, okay. You know, this is not just the big companies that do this.”

This week, I’ve followed up with a couple companies that have achieved ISO. One has an ERP system with real-time information on their products and their inventory. Anybody in the company can access it. Sales people can look up an order

Tim Bjorgum is a business growth consultant at Enterprise Minnesota with a strong track record of helping manufacturing companies improve productivity, organizational effectiveness, and develop staff supervisory skills.

Before joining Enterprise Minnesota in 2008, Bjorgum served as a manufacturing manager for Webb Company in Rosemount, and as a director of manufacturing at GML, Inc. in St. Paul.

on their iPad and tell their customer when it is going to ship and where it is in the system. That system equals anything the big companies have. It gives them realtime data to make good decisions and their “management review” reflects that—they can use real-time data to determine what’s

You need to look forward, and then ISO will help you get there. going well and what they need to work on.

To me, that’s world-class performance in a 15-person company.

Myhrman: Another thing for companies to think about is that it will be harder to upgrade to the 2015 standard by using the same compliance style techniques you used with the 2000 or 2008 systems. You need to step away from saying it’s required by ISO—you should never use that language again. ISO has set people free. We’ve all heard about offspring that you’d like to set free, but they won’t leave. Well, ISO has set companies free and we’ve got to make sure that they’re ready to take on a new approach to addressing the requirements.

How does the successful implementation of ISO 2015 reflect on the other enterprise-wide management practices that modern manufacturers must engage?

Ahlquist: We are focused on the fact that ISO is a business management system, and we are trying to identify the best way to support your business, not the best way to earn a certification. The 2015 standard emphasizes a range of things that we think are important for our customers. It talks about understanding processes and their relationships: Lean value stream mapping is a nice way to think about how you’re performing through the organization. It talks about what skills are needed, and how to transfer and document those skills: TWI does a wonderful job of leveraging that. It asks you to think more formally about the informal systems that companies operate on—organizational or “tribal” knowledge. It asks you to think about those softer skills, to be able to manage them, encourage them, capture them, and pass them on.

ISO 2015 talks a lot about leadership.

The old standard had planning in place.

It asked where do we need to go? What might change? And what changes in the marketplace might effect what we’re doing? 2015 emphasizes thinking about risks and opportunities, about the environment, about other stakeholders.

Bjorgum: Everything seems to tie in.

ISO is about continuous improvement when it asks you to identify your strengths and weaknesses internally, and your opportunities and threats externally, or when it asks you to plan to mitigate risk, or capture opportunity. The answer might be that we need to lean out our system, we don’t have enough resources in the labor pool, or that we’ve got to do better training.

We’ve got to improve the flow so that there’s less waste, so that we don’t have to rely so much on more labor to grow our business. Strategy management, training, problem solving— they all fit together.

Langfield: ISO wants to know that you have a system that takes your business where you envision it to go. You need to look forward, and then ISO will help you get there. ISO expects that you have talented people who need to be developed, and so talent development speaks directly to that expectation. And ISO expects your business to be both effective and efficient, and that is the essence of productivity and operational excellence.

Enterprise Minnesota recently attained its own ISO certification.

How has that process affected how you look at the process?

Ahlquist: One of the things I’ve seen doing internal audits is that employees get a chance to surface some issues. And the ISO process helps us address that. The staff has been happy to say, “CRM has been an issue for us. We need to do something about it.”

And that has led to some corrective actions and Kaizen events. It has been fun to hear enthusiasm for the internal audits. When I do internal audits it is never adversarial.

People are happy to find opportunities to do their part to make the process better.

Bjorgum: That’s a key point in the auditing process. You aren’t auditing the person, you are auditing the process. You really want to know how that process helps them do their job. When that audit works like that, the last question is usually, is there anything else we should know? How can we improve this? What can we do?

Enterprise Minnesota’s business growth consultant Greg Langfield’s depth of experience working in manufacturing and engineering positions has given him expertise ranging from enterprisewide lean transformations to targeted improvements, including various lean workshops and lean certifications.

Before joining Enterprise Minnesota in 2012, Langfield worked as an engineering manager for Covidien, as a project engineer for Automation Services Inc. and Doboy Packaging Machinery, and also as a design engineering manager for Laser Machining Inc. He has a degree in mechanical engineering from North Dakota State University.

Kent Myhrman is a business growth consultant for Enterprise Minnesota.

Drawing on his wealth of experience in manufacturing, engineering, and sales, Myhrman is an expert at helping clients improve efficiency and reduce their costs. From value stream mapping to quality management standards (Including ISO 9001, AS9100, ISO 13485), Myhrman is a recognized quality management system expert throughout the country.

Prior to joining Enterprise Minnesota, Myhrman served as a vice president of manufacturing for FMH Corp., as an engineering manager for Productivity Inc., as an area manager for Onan Corp., and as a production supervisor for AGCO. He has a degree in industrial technology and product development from the University of Wisconsin-Stout.

The answer usually extends the interview for another half hour. That ties itself to improved performance for the company.

They’re telling you about things that keep them from doing their job. Now we have some things we can work on. We can take that to management and show how we’re going to be a better performing company.

Myhrman: Enterprise Minnesota is a stronger company because of ISO. The best example is during the management review meetings. We’ve got two really difficult, challenging problems with our CRM system—one on the sales side and one on the consulting side. And to watch that team work together, to get frustrated, and to understand how important the answer is and not let it go, is really powerful. And it makes us a better company.

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The Interview

S P E A K E R

KURTDAUDT Representative Kurt Daudt, Speaker of the Minnesota House of Representatives, recently spent 90 minutes touring Zimmerman-based UMA Precision Machining, a sophisticated medical equipment manufacturer in his district. Following that visit, Enterprise Minnesota’s President and CEO Bob Kill visited Speaker Daudt in his office at the Minnesota capitol for a wide-ranging discussion about what manufacturers can expect from the legislature during the 2016 session.

B

OB KILL: Enterprise Minnesota is about to go into the field for the eighth successive year of the State of Manufacturing®, our annual survey of manufacturing executives. Last year we discovered that 89 percent of the executives we interviewed were very positive about where they were going in their businesses. At the same time, their top concern was how Minnesota’s business climate remains an impediment to their growth. What’s your reaction to that? Do you see and hear some reality behind that as you visit businesses across Minnesota?

KURT DAUDT: We do see that. It’s probably the biggest question we hear as we’re

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setting our policies here. I’m kind of a data guy so I spend a lot of time looking at statistics—how we compare to other states in a lot of these areas.

We hear a lot about the time and cost involved in complying with regulation and red tape. It just seems we haven’t done enough to get government out of the way so that these businesses can be successful.

And it’s not so that the businesses can be successful and the owner can make more money, but so that we can increase job growth and raise wages.

The underemployment rate right now, is at an all time high—54 percent of Minnesotans making less money. We need better paying jobs. It all ties together. If

we make it easier for these businesses to succeed, they will hire people at better wages, and all Minnesotans will do better.

KILL: You’re the Speaker, but you also represent a district in Greater Minnesota. Do you see significant differences in economic needs and challenges between the metropolitan environment versus Greater Minnesota?

DAUDT: I think the metro area has recovered more quickly than Greater Minnesota. I also think Greater Minnesota is not matching people with the skill sets they need for jobs. We have a low unemployment rate, but we still have a lot of unfilled jobs.

DAUDT: I see most of it being at the state level. The federal government puts every state on a level playing field. The regulations can be cumbersome, but they are the same for everybody. Locally, our zoning laws are such that it makes sense to put manufacturing facilities in smaller communities. Land is less expensive out in these rural communities and the zoning laws may be slightly easier out in Greater Minnesota. But at the state level it’s difficult. One of the things we don’t do well enough is long-term planning. We set our budget on a two-year cycle and the house runs elections on a two-year cycle. We get stuck with these two-year blinders on. We always want to put in place an immediate

Any investment we can make to improve the environment for these employers will help the employees. fix, but it doesn’t work. An immediate fix is very short-term. We don’t look enough at how decisions we make today will affect things in five or 10 years. I think it would be good to look at decisions we made five and 10 years ago, and see how they affect where we are today.

I think that makes us have to ensure that our tax policies and regulatory

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PHOTOGRAPHS BY MARK TROCKMAN

KILL: I always say that for every hour you drive from the Twin Cities and get off the freeway systems, the challenges get that much greater. Yet at the same time, in many of those towns manufacturing provides the best jobs. Thirteen percent of our jobs create 16 percent of the wealth through manufacturing. I don’t know if other industries can say that. Yet 5,200 of our 7,400 manufacturers are under 20 employees, so they are pretty small.

Is there legislation that addresses that disconnect between how people feel about their business, but yet they feel like the government is kind of in their way?

Is it local or is it state, or is it federal?

policies are favorable. In today’s day and age, a company can operate from almost anywhere. They can up and move to another state. A lot of states are offering incentives and programs that are maybe much more competitive, but then you also have to look at things like fixed tax rates.

Minnesota is losing its competitiveness to other states. There is a lot more that we can do as a state to help.

KILL: In some ways it makes the strength and challenges of our workforce that much more important.

DAUDT: We’re known in Minnesota for our great work ethic. But it’s getting tougher to find people, especially if you’re looking for very specialized skills.

We have a very low unemployment rate.

We’ve recovered from the recession, but many of those people have taken jobs at a lower income or at a lower skill level than what they are accustomed to—because of that work ethic. They said, well, I got laid off from that job, I’m going to go find something. I’m going to support my family. Fifty-four percent of Minnesotans are underemployed right now. That to me is concerning, because other states have recovered much better from the recession than Minnesota has.

KILL: You mentioned the technical colleges, and state colleges. Late in my life I have come to appreciate they are pretty valuable, if you take advantage of them. Do you think that there are enough programs—even short term training—to help workers move up? The colleges seem to do a great job with what they have, but at the same time the workforce is shrinking for them to draw from.

DAUDT: I have found that manufacturers almost need to engage in the training process themselves and work with their local tech schools or community colleges to help create programs to train the workforce they need. I think that’s the future of filling these jobs and closing that gap.

I think we do a better job at retraining than we do preparing them for work the first time they go through school. Our universities are turning out people who graduate with four-year degrees, but who struggle to find a $30,000 a year job,

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even in their field—while trying to pay off $100,000 worth of college debt. Or, they could go through a tech school, get a welding certificate or some other certificate for engineering, and make $50,000 or $70,000 a year right out of the chute. The problem is I don’t think we’re piquing the interest of our kids at an early enough age—even in middle school.

I once worked at a car dealership where there were guys in the back turning wrenches who made six figures. They were 28 or 30 years old making $100,000 a year. Kids don’t know that. We’ve got to expose the kids to these opportunities.

There are good jobs, good paying jobs. But they require skills. You have to know how to operate those machines, but I don’t think folks know that.

KILL: What do you think the legislature might do to help manufacturing? Do you think the legislature could take a role in helping people understand these opportunities?

DAUDT: We obviously are responsible for the MnSCU facilities. Many of them are offering two-year degrees and a lot of different programs that set people up to go on to manufacturing jobs. We can do a better job with vo-tech programs in our K-12 schools.

For us, at the state level, we should expose these kids to programs in schools with newer

equipment that looks like what they will see in the real world. There are opportunities.

Schools can partner with the private sector to put some of this equipment into these programs, whether it would be welding, or a lathe or some sort of computer.

KILL: I think a lot of industries refer to jobs as careers. In manufacturing you’ve always had a job, but most young people want a career. They do want to have an opportunity to move up.

DAUDT: It’s funny though. Everybody I know who works in manufacturing all worked their way up—and they are in management now, every one of them.

KILL: Another way of strengthening our smaller manufacturers is through investments like the Growth Acceleration Program (GAP), which you may be familiar with. It’s a state matching program that’s helped about 285 companies in Minnesota get resources to help them improve their operations and grow their businesses. It’s a rebate program that allows manufacturers to access business improvement services that can lead to job creation, job retention and future business growth that they otherwise might not be able to afford.When they complete services using GAP, they pay for the service and then get a rebate from the state of up to 25 or

50 percent. It’s really been a powerful program. Do you think programs like that are good investments, especially for the smaller companies?

DAUDT: I think so absolutely. We’ve all heard the statistics that the biggest employers 20 or 25 years ago were all private companies. Now it’s the State of Minnesota and the federal government. We need to recognize that these companies are the lifeblood of the economy.

There is such an opportunity. Any investment we can make to improve the environment for these employers will help the employees. And they really help the economy in a way that you can’t do any other way. I think those types of programs are good. And, if we were better in regulation and better in our tax environment, we would draw more companies based on these factors.

KILL: We’ve all heard how most US economic development programs are geared toward attracting companies, but in reality, they should be designed to retain companies.

DAUDT: Right, there are a lot of pressures for manufacturers to move out of the state.

At every manufacturing facility that I visit someone mentions that they get calls from this state or that state. They say, “our home is here so we want to stay here,” but I also feel like they are only willing to take so much.

KILL: What should manufacturers look for in the coming session of the legislature?

DAUDT: Our agenda is to try to make our tax code more competitive for small to medium sized employers, and also to try to continually work on eliminating the redtape, the regulations.

Over time bureaucrats believe if you have to apply for one more thing, that’s job security for me, when really we and the state government need to look at everything we do as public service. Instead, state government should look at what we can do to help businesses become more successful.

Too often government is trying to be helpful, yet it’s getting in the way.

KILL: What’s the best way for manufacturers to make their voices heard

at the legislature? Is it to come up here in a crowd, or is it to invite the legislator to tour their facility as you did at UMA? DAUDT: Every district is a little bit different, but it’s probably a little of both.

Every member takes representing their district very seriously. It’s incredibly important for members to have a connection with you on the ground in their district. Before I visited UMA, I didn’t know that facility was there, and it’s in my district. Of those 7,200 manufacturers— and this isn’t going out on a limb—I bet there are manufacturers in every one of the districts in Minnesota. It’s important that members see firsthand the challenges that those manufacturers must navigate through at the local level.

It’s also important that we see our constituents when we’re here at the Capitol. I’m the Speaker of the House, which is a statewide job. I travel all over the state, and I’m really busy during the legislative session; I get parade after parade of lobbyists that come through here and

expand and relocate here.

I know that Senator Bakk feels strongly that doing too much tax relief could put us into a deficit, but our deficits don’t come from tax decreases, they come from spending increases. The curve on spending increases has been consistently up, and up, and up over the last 30 or 40 years.

Minnesota is seeing a surplus in our state budget, but we don’t think Minnesota families are seeing a huge surplus in their budgets.

We think it’s time to invest in Minnesotans. Let’s let Minnesota manufacturers and other employers have an opportunity to be more successful. Let’s put money back in their pockets so they can make decisions for themselves, and improve their own situation. We think tax relief is pretty important. We also want to invest in our road and bridge infrastructure.

Getting goods to and from the market is really important, and, you know, making sure that we have a transportation infrastructure that will support that,

Our agenda is to try to make our tax code more competitive for small to medium sized employers, and also to try to continually work on eliminating the red-tape, the regulations. people who don’t live in my district, but if there’s a constituent from my district here, I always make the time. I drop whatever I’m doing to meet with a constituent who comes here. To me it means a lot more.

KILL: What are your thoughts on the overall Minnesota economy? As you travel the state, what sense do you get from business executives now versus maybe a year or two ago?

DAUDT: I do sense a little more caution in the air now, like we might be headed back for another dip. I’ve heard a lot people say this is the slowest recovery since the Great Depression. If our revenues in the February forecast are low, it will be a sign that we’ll have to show some caution in what we do this next session. I’m really advocating for some tax relief to help employers, to help make our tax code a little more competitive so employers can

especially out in Greater Minnesota. We think that’s vitally important. If we can accomplish those two things this year, I will call it a successful session.

I had a meeting with the Administration right after the story in the Star Tribune about Polaris selecting Huntsville, Alabama as their next expansion site for something like 2,000 jobs. The article said 14 sites were considered. I asked if Minnesota was even considered. The response I got was, well, no, we’re just not competitive for those types of jobs. I thought, what community in Minnesota wouldn’t want 2,000 jobs that paid an average of $18 or $20 an hour, whatever it was—and probably 30 percent of those jobs would be engineering or management.

I was mystified by the answer. The response I got was that we have a really great work ethic, but we’re a high tech state. I thought, why can’t we be both?

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DATA SECURITY:

Not Just a Retail Issue

Criminals—cyber and otherwise— have discovered that ALL companies hold valuable data. Executives need to understand and embrace strategies to maximize the security surrounding the information in their possession.

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W

hen Dan Hanson, director of the Management Liability Group in Marsh & McLennan Agency’s Minnesota Office gave a speech about cyber security to an industry group several years ago, he noticed an audience member growing increasingly uncomfortable. The man grew more and more restless as Hanson’s speech detailed the vulnerabilities companies face because of the growing threat of hackers and other data thieves. “This guy was visibly nervous—he was fidgety. I could tell we hit a nerve with him,” Hanson says.

After the talk, the man approached Hanson, who assumed the executive was in either health care or financial services, which at that time, were the most obvious targets for data theft. “But he wasn’t,” says Hanson. “He was in manufacturing. His company made a seemingly innocuous part of complex equipment.”

Hanson’s speech made the executive anxious because it revealed where his company might be at risk. He explained to Hanson, “I’ve got sales reps going all over Leadership the country and we’re working with big companies—Fortune requirements 100 companies.” The problem: on in modern their laptops, those sales reps had the schematics for huge projects manufacturing — the next generation of heavy have evolved machinery, for example. If one of those laptops were stolen or beyond the hacked, or a sales rep hit the wrong traditional address on an email, those details could be compromised, and the control model. company could be faced with a multimillion dollar mistake.

Hanson and his team worked with the company and outlined a plan for risk management: better encryption on all laptops and better control of the network, with more segregation to limit file sharing so every sales person couldn’t see every other sales person’s files. “We also wrote an insurance policy,” Hanson says. “His wasn’t a huge company, and he was worried. If he had to go up against a Fortune 100 company, he would need some help from a defense standpoint.”

It seems Hanson’s audience member was a bit ahead of his time. Since that day, Hanson has worked with a growing number of manufacturers who are recognizing that criminals aren’t just looking for personal credit card information and social security numbers. Manufacturers of all sizes have valuable information— sometimes their own, and sometimes that of their business partners—that demands careful protection. Absent a carefully

crafted strategy to identify that valuable information, protect it from possible breaches, and minimize the damage if it is lost or stolen, companies expose themselves to potential financial loss, reputation injury, and legal consequences.

The good news is that with the help of industry experts, manufacturers are learning how to guard that information, and how to minimize the impact of a data breach if it does happen. The key, say Hanson and other experts, is having the whole organization, starting from the top, embrace the idea that all information in a company’s possession must be guarded vigilantly.

Lots to protect

Creating a culture of data protection begins with understanding the risks a company faces, and the value its data might have to others.

While non-retailers often don’t perceive their data as valuable to criminals, they’ve still been the targets of theft and fraud and need to recognize that the information they hold is useful.

Mike Johnson is senior vice president and chief information security officer at Bremer Bank, based in St. Paul. He agrees that many firms don’t realize how valuable their data might be.

“Manufacturers might not think about this the way a retailer or a bank would because they think the only thing worth protecting is consumer data,” he says. “If they are a unique provider of a product, if they’ve got intellectual property, if they’ve got suppliers, if they’ve got bank accounts, then they’ve got lots of things they need to protect.”

John Berger, vice president of Quality and Process Improvement for Fiserv, which serves banks and credit unions with its software and financial transaction capabilities, says many companies underestimate how important their data is, and how bad it would be if their data did get out. He also points out that smaller companies can provide an avenue to larger companies’ networks, citing the massive Target data breach as an example.

“It turns out that data breach didn’t originate at Target itself.

Target had a contract firm doing HVAC work, and that firm was compromised. The criminals took the credentials and got into Target’s network and were able to install their software at Target’s terminals,” Berger says. “This breach impacted around 70 million customers and hurt Target’s reputation. Anyone who takes time to read the details of this story will gain a new appreciation for the importance of data security.”

Hanson insists that every company has an obligation to protect the confidential information of others, from employees and former employees to suppliers and customers. That information can take

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many forms, and while information technology is an obvious area of vulnerability, he says it’s important to understand that data security is not just an IT issue. “This is an organizational risk issue,” he says, and when companies are aware of the organizational risks, they raise the bar and implement standards across the company that protect data in all areas.

Most data breaches don’t result from super-sophisticated network attacks. Instead, Hanson describes most as crimes of opportunity — in other words, data is stolen because it’s easy to steal. If all the employee records are kept in an unlocked file cabinet, they are easy to steal or copy, making the personal information of every current and former employee a possible target. Likewise, if a company doesn’t require effective passwords, or employees write their passwords on sticky notes they leave on their laptops, data becomes an easy target.

Leaving corporate data vulnerable to potential thieves has grave consequences. “They don’t have data around individual clients, but they’ve got business data,” Johnson says of business-to-business operations. And corporate data—email accounts and employee names for example—holds significant value. “It’s heavily used for spear fishing attacks and other attacks on those next cascading down businesses,” he explains.

A relatively new scheme involves tracking key employees at a company—say the CFO or the accounts payable manager, and the president. Criminals can either attack and take over a person’s email account, or spoof it by slightly altering it, and then request large sums to be wired for a transaction they know is actually in the works at the company.

“They write an email that looks like it’s from the president to the CFO saying, ‘Process this payment.’ The bank calls, the CFO says, ‘Yes, the president said to process it.’ Later the CFO is thinking about it, calls the president, and the president says, ‘I didn’t tell you to process it.’ And the money is already in Hong Kong,” Johnson says, adding, “This is a very big issue right now.”

Wide-ranging repercussions

The potential consequences surrounding data theft and fraud are tremendous, ranging from outright theft to reputation damage to costly legal action. In the fake wire transfer scheme, companies stand to lose thousands of their own dollars with the click of a mouse or a phone call. Johnson asks, “If someone steals half a million dollars from your company today, will you be in business tomorrow?”

In addition to the existential threat of massive theft, companies face reputation risk and legal consequences if they fail to protect information that has been entrusted to them. Hanson says most retailers and health care companies have to protect the data of individual customers, and a breach would require notification and credit monitoring for those individuals affected. For manufacturers, he says, the damage is likely to involve exposing the intellectual property and corporate information of suppliers and customers, who could take legal action against a manufacturer who fails to protect that data.

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“Think about the reputation risk if all their client lists start getting attacked because of all the information this manufacturer has,” says Johnson, who also teaches cybersecurity technology and cybersecurity risk management courses at the University of Minnesota Technology Leadership Institute. “They can trace it back to that one manufacturer, and say, ‘The only thing in common with those fifteen breaches is Manufacturer ABC, and they got breached.’”

With most consumer data breaches—those involving credit cards or a specific retailer, for example—it’s relatively easy to identify the source because there are so many transactions and the data analytics will point to the source, Johnson says. “When it comes to smaller scales, like manufacturers and their suppliers, it would probably be more of an anecdotal connecting of the dots,” he says.

In that case, the manufacturer faces something of a Catch-22. If the manufacturer does the right thing and tells all its suppliers about the breach so they can protect themselves, then they’ve notified the suppliers where that breach began. So, Johnson points out, “If the supplier or multiple suppliers are impacted by fraud, they might decide to come back and sue the manufacturer.”

Preventive measures: fraud awareness and data security

While new criminal schemes involving stolen data pop up all the time, Johnson says companies can best protect themselves by focusing on two areas: fraud and data security. To prevent fraud, Johnson recommends all employees need to understand the schemes criminals are using, such as the fake emails requesting wire transfers, and look at every email with a critical eye.

Johnson recommends specific process controls for banking transactions. “It’s a combination of what they can do in the business and what they should do with the financial institution,” he says.

“The process should be when you get a wire request, unless the person is standing in front of you, you should call them back.”

“The second process is to implement whatever controls your bank offers. Review those, and put them in place,” Johnson says, noting that the most effective is called dual approval, or segregation of approval, so every transfer has to have two people approving it.

Certain banking functions should simply be disabled. “If you never do international wires, do not have that facility turned on.

Only enable the functionality you need for your business,” Johnson says. His other suggestion for protection against financial fraud: dedicate a computer for banking transactions that no one uses for email, or any other Internet connections, which are direct avenues for criminals to access the information they need to perpetrate fraud.

Data security is the other element of protection against a breach.

Every company has a network or networks that require ongoing maintenance, and security must be part of that maintenance. For larger companies, in-house IT staff can often handle the security component of the network: making sure all systems get patched and do all the security program activities, Johnson says.

“If you’re medium or small, you might have an IT person who does a good job of making sure your systems are up, but might not know a lot about security,” Johnson says. “So that’s when you decide if you want to hire and pay a full-time expert who knows

this stuff, or if you want to partner with a firm than can come in periodically and do assessments and suggest improvements.”

Berger adds, “There are a lots of IT folks out there who can help people set up security on their systems. There’s a whole range of security, but I think that initiating the conversation to begin with is really important. If people aren’t thinking about data security right now, they should be. Even if your company is not in the business of financial transactions, consider what your data would be worth to competitors.”

Johnson also recommends working with obvious partners to evaluate and improve IT security. Banks and insurance companies in particular have a strong interest in helping their customers avoid or limit data breaches, and they often offer seminars and consultations to help clients identify and address potential weaknesses.

Combining strong IT security with knowledgeable and vigilant employees is also important, says Berger. “Security is a combination of the surveillance your security software can do and the knowledge you use to configure your networks to prevent things, but it’s also the front line surveillance of every employee.

Even the best defenses cannot predict the next method of attack. We train every associate with access to a computer that if they receive something that looks funny they should send a communication to our security folks who then analyze it to see if it’s a risk—if so, then we’re ahead of the game basically.”

Hanson also urges companies to embrace a company-wide ethic of data protection, which includes but isn’t limited to the IT component of the business. For example, in his business, he might have the financial information of several companies on his desk, which could be vulnerable to theft or copying. His company has a clean desk policy, though, so he is required to have everything on his desk in a locked file or drawer whenever he is away from his office.

“The point is, it’s not an IT issue, it’s an organizational risk issue.

So people who are aware of that, they raise the bar,” Hanson says.

Johnson points out that improperly maintained and secured networks can expose a company, but so can what he calls over sharing. “They think, ‘I want to make my company visible to my potential client and I want to share that information to make it easier to do business with us, so I’m going to list all of my employees and what they do on my website, along with their phone numbers and email addresses,” he says. “Criminals can get that information from the website, figure out who does what and craft these emails very easily and they can start stealing money. It’s a formula.”

In case of a breach

Even firms that diligently implement company-wide data protection and IT security practices are likely to face a data breach at some time. Marsh and McLennan Agency recently conducted a nationwide survey of small and medium-sized employers and found that 77 percent of respondents face five or more cyber risks.

According to a 2015 survey conducted by Verizon on actual security breaches, manufacturing ranks third to the top-most breached industries, after the public sector and financial services.

Because of their growing understanding of the vulnerability of

their data and potentially devastating consequences of a data breach, an increasing number of manufacturers are adding cyber coverage to their insurance policies. The Marsh & McLennan Agency survey shows that between 2013 and 2014, the percentage of small and medium-sized employers with cyber liability coverage grew from 16 to 33 percent. From 2014 to 2015, the percentage with cyber liability coverage grew again, to 40.7 percent.

In the case of a breach, Hanson says, the insurance policy would first help the company understand the extent of the situation. “I use the example that you’re driving up to your cabin on a Friday night and you get the call that there’s been a breach.

What’s your first call?” Hanson says. “Most people have no idea. If you’ve got an insurance policy, you place the call to us and they get this in place for you and you’ve got your disaster recovery The key, say Hanson plan moving forward on and other experts, Saturday morning, when in is having the whole the rest of the world, you’d be waiting until Monday organization, or Tuesday before you starting from make any progress at all.”

Hanson says for his the top, embrace clients, this forensic the idea that component is the main element of the policy. all information Determining the source in a company’s and extent of the breach is crucial to minimizing its possession must be impact, Hanson says. guarded vigilantly.

Coverage can also include a piece for regulatory defense, and if the event were big enough, the policy could cover the cost of engaging a public relations firm to get out in advance of the story.

Finally, Hanson says, “If you were sued, there would be defense and ultimately payment if it was found that company was wronged and you owe them some money.”

Hanson says companies with cyber insurance coverage have two advantages over those that do not. The data Marsh and McLennan Agency has collected through surveys demonstrates that companies that have a policy are more likely to have stronger data security controls in place. Plus, those that have adopted preventive measures are easier to defend — in court, and to customers and suppliers.

“We still see claims, but when we see these claims come in, it’s a much more defensible matter if you have a clean desk policy and you’ve got 20 character encryption on your laptop and a secured connection to your mainframe,” Hanson says. “If you’ve taken these risk management steps, it’s much easier to contain and it’s a much easier story to tell.”

The lesson from experts is clear. A complete strategy, one that includes awareness of data value and potential fraud schemes, plus vigilant data security practices, combined with insurance coverage that limits costs in case of a breach, provides the most complete protection against a crime that is likely to affect nearly every type of company at some time or another.

SPRING 2016 ENTERPRISE MINNESOTA /

31

Final Word

“The Phone Books Are Here!”

The new ISO standard deserves everyone’s attention

I

f somebody would have told me 10 years ago that I would be jazzed about the new revamped 2015 ISO standard I would have been, let’s say, skeptical.

(At the time it would have felt like Steve Martin gleefully proclaiming in the movie The Jerk that the phone books are here! The phone books are here!) But, it is what it is. I am jazzed about the new standard and the opportunities it provides for forward-looking manufacturers.

This edition of Enterprise Minnesota® magazine includes three varied pieces that relate to the new standard.

Innovations includes a small profile of Custom Turning, an awesome little three-person CNC shop in Big Lake that intends to use its recently attained certification as a platform for future growth. Our feature section includes one story that tracks the experiences

The new ISO requirements should link other practices, such as talent development, continuous improvement, and business strategy, to name three. of three prominent local manufacturers who manage the ISO commitments of their companies. And another feature encapsulates a “roundtable” discussion of the new ISO standard from the perspectives of the four Enterprise Minnesota consultants who are helping manufacturers achieve or upgrade to the 2015 ISO standard. (As a bonus we also include a profile of Tolerance Masters, a precision machining shop in Circle Pines that operates from almost obsessive attention to continuous improvement.

Verne McPherson says that if auditors don’t identify findings, they aren’t trying hard enough.)

32

/ ENTERPRISE MINNESOTA SPRING 2016

Lynn Shelton is director of marketing and communications at Enterprise Minnesota.

For those who have always wanted to ask, ISO stands for International Organization for Standardization (IOS was apparently taken). It establishes almost 20,000 common standards for quality that ensure products are safe and reliable. ISO has been around for something like 90 years, but our experts say that the dramatic advances in the 2015 standards make ISO a must-have management tool.

There’s been a historic temptation for at least a few companies to use their ISO certification as merely a sales tool. In the very worst cases, their customers asked (or required) them to get it, so they did—they checked the box—and thereafter considered their ISO obligation a costly allocation of time and money. What a squandered

opportunity! Our own Greg Langfield points out in this issue that his customers who viewed 2008 as being integrative to their entire business experienced great rewards.

The 2015 standard advances those possibilities to a new level.

It builds upon the strengths of the 2008 standard and expands them to a whole new level of possibilities.

Those of us in manufacturing’s peanut gallery can see how 2015’s integrative managerial approach will enable shrewd leadership teams to integrate each of the organizational puzzle pieces that comprise a well managed company.

The new ISO requirements should link other practices, such as talent development, continuous improvement, and business strategy, to name three.

Manufacturers can use ISO to help establish a strong foundation of principles and align the roles of leadership, management, and employees with achieving strategic organizational goals. It will enhance your ability to use key performance benchmarks to help you develop a long-term approach inside your business.

ISO can even help align strategies to address the workforce skills gap by enabling manufacturers to engage and retain employees in ways that strengthen and improve their levels of productivity.

I see how ISO’s rubrics can support Training Within Industry’s methods to improve productivity and Practical Problem Solving’s programs to embed a formal culture of addressing and fixing problems.

And finally, ISO is made to help manufacturers develop an efficient, agile business operation that reduces time, motion, energy, and material waste.

ISO attitudes should help manufacturers “lean up” their facilities layout, their manufacturing processes, and even their front offices.

You looked into energy-saving programs and rebates from Minnesota Energy Resources. That simple move led to high-efficiency equipment upgrades, which saved the company energy and money. High-five for you.

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