While the Onan Company's past success has been
traced to capable people following a sound strategy of sticking to products
they know about, what about the future direction of the company?
On September 1, 1981, a new president and chief
executive officer was appointed at Onan, and although S. A. "Tony"
Johnson is a man with wide experience in industry, he is, after all, an
"outsider." That could mean an entirely new direction for the Onan
Company. But does it?
Johnson, who was 41 when he came to Onan from a top
executive position, Vice President for North American Businesses, with Cummins
Engine Co., Inc., Columbus, Indiana, had devoted considerable time to
developing and implementing new strategies at Cummins. [Cummins Engine Company
of Columbus, IN had acquired Onan]
His first several months at Onan were devoted to
getting acquainted with Onan people and the company's operations, and then to
mapping out a detailed long-range plan that would address his goals for Onan in
the context of current and anticipated economic conditions over the next five
Onan now has a very complete, formal five-year
strategic plan of direction that is reviewed and updated annually. A brief statement that best captures what Onan will be doing in the future can be
found on a page up front in the thick notebook that holds the long-range
plan. It says simply; "Onan's direction is managed growth
related to the company's know-how base and consistent with its long-term
Johnson says, "That summarizes the fact we
want to grow, but we want that growth to be managed, not just willy-nilly in
any direction; we want it to be growth that we have planned. And we want that growth to come from areas
where we know how to do things.-.either our manufacturing know-how base, our
marketing know-how base, or our technological know-haw base. We don't want to go into the washing machine
business, or the clothing business, or the sports business or into other things
we don't know how to do." Johnson added:
"We also want anything we do to meet our financial objectives. We've set ourselves some reasonably tough
financial goals, and we will test everything we do against those. "
Johnson explains that Onan's financial objectives
are a 10 percent real growth (after inflation) in sales every year and a return
on investment that is in the upper quartile of industrial companies in the
Fortune magazine 1000.
In the five-year plan, Onan has several specific
- To increase
the share of the company's base business, which is electrical power
- To increase Onan's penetration in AC power
conditioning, which is at Elgar, the company's electronics firm in San Diego.
- To enhance the quality of the company as perceived
by its stakeholders—Onan's employees, customers, suppliers, neighbors and
- To establish a position as a supplier of diesel
engines of up to 125 horsepower.
- To optimize Onan's position in the small gasoline
- To expand the company's business in controls,
switchgear and generators.
- To seek new business and new opportunities related
to Onan's know-haw base.
Johnson says the long-range plan specifies that
when the five-years are completed, Onan will see 25 percent of its sales coming
from products or services the company does not currently offer.
In the course of developing the five-year plan, an
analysis of Onan's operations showed that there were 36 separate businesses
within the company. Producing and selling generator sets to the motorhome
industry, or producing and selling small gasoline engines to manufacturers of
garden tractors, are two examples of separate businesses. In Johnson's view, 36 was too many businesses
for Onan to be in, and they have been grouped into 10 "business
clusters", each of which constitutes a profit center. There are five business clusters in Onan's
Electrical Products Division, two in the Engine Division, one in the
International Division and one each in Elgar and in Parts.
Another aspect of developing the five-year plan was
an effort to identify Onan's vulnerabilities, and one was that Onan must
increase its manufacturing efficiencies so as to produce redesigned electrical
products at less cost. The five-year plan calls on Onan to maintain and improve
the quality of its products and at the same time reduce costs an average of 20
Onan's line management was assisted in preparing
the five-year plan by two consulting firms — Pugh-Roberts and The Strategic
Planning Institute, both of Boston, Massachusetts.
Onan's five-year plan is probably a misnomer. Johnson says a good long-range plan is never
fully completed. "It should be a
living document— one that is constantly in use, and not something to put on a
shelf and take down once a year to
Johnson says a strategic plan not only tells a
company what it should do, but, just as important, what it should not do. "For instance, Onan is not a consumer
company with household name recognition, and our plan tells us to stay out of
How does Onan's new long-range planning fit into
the company's past?
Although the technique is different and there is
more stress now on using the plan in a day-to-day basis, the primary goals are
similar to those that guided management in years past.
Before Tom Valenty retired as president, he wrote a
paper entitled, "Historical Perspectives on Onan." In it he listed the factors that guided the
company during his administration:
Strong product development capability.
Intimate knowledge of the user's application
Production capacity in step with or ahead of market
Ability to serve the customers in marketing, parts,
service and promotion.
Strong margins and cash flow to provide the ability
to finance the business and its expansion.
Persistence to see a project through to a
People who can make the necessary happen.
Even though Tom Valenty's goals have different
words than those contained in Tony Johnson's five-year plan, it's evident that
the original Onan philosophy, first laid down by the company's founder, Dave
Onan, and carried on by his son. Bud Onan, is still very much alive. At Onan
the emphasis will continue to be on a quality company — staffed by quality
people and producing quality products.
[ Ed. note. Tony Johnson’s vision was much like
what we had in the 1960s. I know because “Planning” was in my job title. The
business always had too many businesses. But that provided the kind of
diversification which I think helped the sales curve. It was a vertical
integration of product and a horizontal aggregation of market. Maybe what he
was talking about is more a matter of style than substance. ]