Winning Isn’t Everything: When Growth Stalls, It’s Time to Act

When Sundaram “Naga” Nagarajan became Nordson’s CEO in 2019, he had a formidable success streak to uphold. Nordson--a global manufacturer of precision nozzles and dispensers that are involved in making a mindboggling list of products, from diapers to semiconductors--had an unbroken 56-year-run of annual dividend increases.

Nagarajan, who previously lead divisions of Illinois Tool Works, has notched two more years onto Nordson’s winning streak. But his real challenge has been to grow and position the company for the future through smart acquisitions, while retaining Nordson’s customer-focused, roll-up-your-sleeves culture.

While Nordson is not a household name (nozzles that put the glue dots on beverage pouches are obscure to most people), it has a solid standing in communities where it operates. It’s known for its charitable giving and for both challenging and taking good care of its people. Lately, it has been integrating a number of smaller companies into its fold, seeing opportunity in both the test and inspection of specialized materials and in dispensing nozzles and containers for healthcare (including in COVID-vaccine manufacturing).

A strong start set Nordson on the path to success. The Nord family of Amherst, Ohio, had already made a name for itself in automotive screw machine parts in the early 1900s, pivoting to provide precision parts during WWII defense efforts. The company that is now Nordson was born in 1954, when the Nords bought the patent on a then-emerging technology: airless spray equipment to apply heated lacquers and paints more efficiently and with less solvent. A big customer then was Dupont.

Nagarajan spoke with IndustryWeek about keeping the company and its culture strong while encouraging innovation in a slew of industries—aerospace, food & beverage, furniture, automotive, packaging—some 30 manufacturing areas in all. In the past decade, Nordson has doubled its annual revenues to over $2 billion, and its workforce is now over 7,500.

IndustryWeek: You led the welding business at Illinois Tool Works, and had a 20-plus-year career there. Did anything at ITW translate to leading at Nordson?

Nagarajan: At both Nordson and ITW, the businesses I ran were global businesses, so there was familiarity. My welding business was very diverse in many markets. We supplied oil rigs to aircraft carriers, machinery to pipelines. It was a wide set of industry, which is, again, another common theme at Nordson—we serve a diverse set of end markets.

And through all of that, both in automotive and in my welding businesses, the underlying theme was positioned technologies that solve critical problems for customers in an innovative way. That allowed us to create value for our customers and get paid for it. That’s probably the biggest connection between Nordson and my experiences.  

The other thing I would say is Nordson’s culture is very special. Our commitment in our communities as well to our employees is so, so similar to ITW. You go back all the way to [Nordson’s] founders—5% of our U.S. pre-tax income is dedicated towards the work we do in our communities. That’s a sizable amount that comes out to be around $10 million to $11 million a year.

When you arrived at Nordson, you did a lot of visiting plants and talking to people. What did you learn about the culture? What kind of continuity did you want, and what kind of change?

What came through in my initial visits was respect, integrity and this passion for customers, and an energy to get things done—it just shows up in the actions of our people. That was, for me, probably the most important part of our culture. It was something that we cannot afford to miss.

Second, those diverse set of end markets is what makes us strong. Be it our hot-melt, adhesive, dispensing that makes diapers, or sealing cereal boxes and beverage cans, to our precision technologies that dispense adhesives that go into mobile devices. We span a broad range, but the underlying fact is we make precision technologies, because our customers are making precision things.

Third is just our customer-centric business model. More than 70, 75% of our revenues, or even higher in many cases, serve the customer directly.

When you take the lead of a strong company like this, it's not an easy mandate. With all these visits and reflection, I was trying to answer a single question: “What is next for Nordson?” When you take a look the past 10 years of our history, you'd be very satisfied with our track record of revenue growth. We went from a billion-dollar company to a $2 billion company; we expanded operating margins.

But if you take a critical eye and say, “What have I done in the last eight to 12 quarters?” Well, then the picture changes. You can clearly see, the company reaches $2 billion, and maybe the growth starts to stall. And that was our assessment. Our assessment at that time was boy, the profitability is strong, but our growth is beginning to stall.

So you're moving into some new areas.

Looking forward, we said, “We need to reinvigorate growth; that’s the No. 1 priority.” And the No. 2 priority is that the company needs to update its playbook as we continue to grow.

We felt that there were two areas for growth: Medical components, as well as test and inspection.

The company had already started on the medical path. Medical is in a very interesting space for us, because it allows us to bring some stability to our revenue. In our electronic businesses—our consumer, non-durable customers—we tend to be cyclical. The medical business allows us to enter a market that has high-single-digit revenue growth. It’s a high-growth market, and the parts we choose to play in are highly differentiated, so it allows us to create value.

Test inspection was a natural fit. In our electronic business, we help our customers make mobile phones or iPads, and in test inspection, we help them make sure that they produce them right. As things get more complicated and very small, one of the things you find is that if you don't have 100% inspection, you end up making products that are not to spec or don't provide the kind of functional capabilities that you need. And really the failure rates on critical components are not something anybody can afford right now. Test inspection allows us to get into spaces that have real-time rather than batch inspection. We help the customers make the chip, but now we also help them to test whether the chip was made properly.

Part of your growth strategy is incorporating entrepreneurialism into the different business segments. What are the challenges of that at Nordson?

Entrepreneurial culture starts with who gets to make the decision. It’s important decisions get made as close to the action as possible, in many ways as close to the customer as possible. But along with having autonomy to grow the business, you must also be accountable.

We don’t tell divisions what their operating package is. Instead, we let them come to us and say, “This is my budget.” Of course, I ask questions, but once a sanity test is done, it’s their business and they are accountable for delivering. Our structure allows for our division leaders to decide what markets to play in, what customers to grow with, what products to develop, what to manufacture, where to source. Frankly, that’s a big piece of enabling the growth.

But as we grow, the biggest roadblock for us is talent. If we have it wrong, if we grow in the next five years but lose our culture, I wouldn't say we have succeeded. It so important to stay rooted in our culture and values that make us special.

Let's talk a little bit about talent, then. Because like a lot of B2B manufacturing companies, Nordson doesn’t have a huge amount of name recognition with the general public, except for maybe some of your community efforts. So how do you attract good talent?

First, we have a great bunch of employees. So winning teams doesn't mean that we're starting from a place of deficit …  It's more about how do we continue to build this team, so we can take on greater challenges and grow the company. But also, it is a deep recognition that if we truly want to grow at the rate we desire, we need to pay attention and do more than we have in the past.

In the communities we operate in, we have a strong reputation that helps us in growing the manufacturing side of our business. Be it in Ohio, or Georgia or Southern California. And so we tend to attract very good people. On the skilled side of things, what we have done and e been very thoughtful about, is to have the partnerships with the vocational schools or have internship programs to develop machinists or injection molding technicians—two jobs that are among the toughest to fill.

On the engineering side, we don't go and compete in big schools, because we would have a hard time competing with some of the big names, even in the industrial space. We would have a hard time competing with my former employer, a $40 billion company. To be realistic, we target smaller schools near our locations. We have a very strong relationship with Georgia Southern, for example, not too far from our Swainsboro plant. Many of those students want to stay in the region, and would come to work for a great global company like Nordson and have the opportunities they would have at these bigger companies, but they will be local. We also have a scholarship program called Nordson Builds that is mainly targeted to increasing the diversity of talent we bring into the company.  

An automation-related skill set is also now becoming important. Process engineers are becoming as important as our machinists. These would be people who will make sure the right kind of automation happens, that the automation is working properly and can make changes if the [customer’s] job changes.

Now that these new product segments are established, what’s ahead for Nordson, near- and long-term?

We have a very balanced plan around organic growth as well as acquisition. And in acquisitions, it's focused around medical and test inspection. Our medical business today is about 22% of the company. We fundamentally believe that we can continue to expand that through acquisitions, while the base business is growing. Testing inspection is the same way. We feel we're able to diversify across inspection capabilities, both technology and end markets. And so we have opportunities there.

The rest of the 50%, we have new products. It's a big part of our growth initiative. So is expanding into new regions—emerging markets are an opportunity for us. And the third leg of the stool really is recapitalization. A lot of our products have an extensive install base. And as we update new technologies to our businesses, we’re able to recapitalize our customers with existing machines.

In the places we play in, we are probably the top one or two player for specific components, but it is still a fragmented marketplace. So we have a nice opportunity to acquire in that space.

Where do you see opportunity in emerging markets?

We essentially follow our customers. Nordson doesn't make anything that stands alone. We make components that go into somebody else's manufacturing line. A good example is, somebody is making a baby diaper, it’s a huge line. And it’s got lots of different components. We happen to make the subsystems that are super critical, in that we make machines that dispense the hot glue that essentially seal the different layers of the diaper. The glue has to be in the right place at the right time, the right spot size. So those various layers can get glued to one another properly.

As middle income continues to grow in other parts of the world, we have opportunities. So Africa, Middle East Southeast Asia, even China, are an opportunity for us. The competition is evolving; the type of customers are different. So it's not the same large consumer brand name that you and I would know here in the United States. There are emerging consumer brand names in China, in Southeast Asia, that are starting to become big competitors. So we see the opportunity following our current customers to these new markets in Africa, or the Middle East or Southeast Asia, or helping our new customers from China who are entering these other markets as well.

Since you mentioned disposable diapers, does the push toward sustainability change anything that you're doing or offering?

If you think about our ecommerce customers, one of the things they’re doing is customizing shipping boxes according to the size of the product. Sometimes it's just a pouch that just comes to your house. Sometimes it's a smaller box. It's custom-made. And so a lot of times, we're helping those customers [with Nordson precision technology] make those boxes on the fly.

Because of our precision technologies, we are part of customers’ product roadmaps. They’re working on products a couple of years at a time, and they need suppliers like us to commit time, resources and technologies to be able to make, say, that semiconductor device with the tiny components and many layers and not a lot of room to move in there.

Were there any products or opportunities that came out of COVID?

I'll give you a simple example: There are customers who were making diapers that needed to switch their lines to make face masks. We needed to quickly adjust and modify their lines and modify our systems. And same thing for surgical gowns. And we had customers we needed to help who were making diagnostic strips. So we needed to move fast, in many ways taking standard products, adjusting them for a new application and then keep going. On the vaccine, we needed to make products so that people can ramp up their vaccine production. And we're still doing that. So there were lots of new opportunities for the company. It tested the agility of our people, and I’m so incredibly proud of them.

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