Baldor Electric Company
Address:
5711 R. S. Boreham Jr. Street
Fort Smith, Arkansas 72908
U.S.A.
Telephone: (501) 646-4711
Fax: (501) 648-5792
http://www.industry.net/baldor
Statistics:
Public Company
Incorporated: 1920
Employees: 3,700
Sales: $502.87 million
Stock Exchanges: New York
SICs: 3621 Motors & Generators; 3566 Speed Changers, Industrial High Speed Drives & Gears
Company Perspectives:
Our mission is to be the best (as determined by our customers) marketers, designers and manufacturers of electric motors and drives. To achieve this we must: provide better value to our customers than any of our competitors; attract and retain competent employees committed to our goals and objectives; produce good, long-term results for our shareholders.
Company History:
Baldor Electric Company is one of the leading producers of electric motors for industrial applications in the United States. The Arkansas-based company has essentially had a single mission since its founding in 1920: to make a better motor. This unusually focused approach to business has served Baldor well. In its 77 years of operation, the company has had only two unprofitable years, one of which came at the height of the Great Depression. Baldor distinguishes itself from its larger competitors by offering the broadest assortment of motors in the industry. In 1997, the company could boast of an inventory of 4,400 stock products plus a database of up to 90,000 custom designs and a 13 percent share of the U.S. motor market.
Company Origins in the 1920s
Baldor Electric was founded in 1920 in St. Louis, Missouri, by Edwin C. Ballman and Emil Doerr. Ballman was an electric engineer with a passion for inventing. He had patented a centrifugal switch that improved a motor's performance and was certain that industry could be convinced of the merits of his new device. Ballman recruited Doerr, a plant supervisor at the St. Louis Electric Company where Ballman worked, to join him in his new venture, and the two men pooled their savings to lease space in a small shop across town. The pair hired a handful of workers and convinced a fellow St. Louis Electric employee, Oliver Baumann, to serve as office-manager/bookkeeper. The new company, named Baldor after the two founders, was an immediate success. The fully enclosed, low horsepower, repulsion induction motors made by Baldor were ordered by manufacturers of such industrial equipment as floor sanders and pumps which required high starting torque and an enclosed motor. After only one year of operation Baldor had outgrown the small leased shop, and the company purchased a factory in St. Louis which was to remain the company headquarters for the next 45 years.
Baldor's first big jump in sales came in 1924 when Baldor agreed to manufacture motors for Williams Oil-o-Matic, a maker of oil burners in Bloomington, Illinois. Williams required so many motors that Baldor built a plant in Bloomington exclusively to accommodate orders from that company. By the late 1920s, Baldor was earning about $6 million, principally on the strength of its sales from the Bloomington plant. Baldor's prosperity came to a sudden halt in the early 1930s when the company faced the double blow of the 1929 stock market crash and subsequent Depression as well as the cancellation of the Williams Oil-o-Matic contract when that company decided to manufacture their own motors. On the verge of bankruptcy, company president Ballman cut wages but did not lay off any employees, a strategy that was to set a pattern for Baldor's employee/management relations for many years. Baldor recovered with the American economy but never regained the luxury of a single, large customer supplying the bulk of sales.
Growth through Mid-Century
Baldor's business grew enough during the 1930s to require multiple additions to the company's St. Louis factory, which by the end of the decade stretched over almost an entire city block. The relatively restricted line of multi-purpose enclosed motors produced by the company began to be extended to include more specialized designs (short motors for floor sanders, vertical motors for pumps, etc.) as Baldor sought out new industries to serve.
In 1933 Baldor began to manufacture a small line of non-motor products through what became known as the company's "Apparatus Division." This virtual one-person operation was overseen by George A. Schock, who was later to become company treasurer and unofficial company historian. The division's essential role was to market the sometimes erratic offerings of company founder and president Edwin Ballman's inventive genius. "I tried to sell any product that Edwin Ballman could invent or design," Schock wrote in a company history. "Sometimes I did not do very well." Ballman's inventions included such diverse items as battery chargers, motion picture rectifiers, low-glare desk lamps and, on one memorable occasion, an "addstick," a plastic ruler with manually operated dials for adding and subtracting. "When you saw him [Ballman] coming back from vacation you just wanted to run and hide," Schock recalled in a 1981 interview with Forbes. "God only knew what he'd pull out of his suitcase and ask you to build." Most of the products of the Apparatus Division were either unsalable or were such idiosyncratic pieces of what was usually a whole line of products that Schock could not lure companies away from more traditional suppliers. The division's one enduring success was its line of industrial grinders and buffers which remained a small but consistent part of Baldor's sales into the 1990s.
When the United States entered World War II in 1942, and many U.S. companies abandoned their traditional lines to produce war products, Baldor management decided to stick with the small electric motors that the company knew best. This decision cost Baldor sales during the war years but left the company in full gear for the postwar boom. Through the late 1940s and 1950s, Baldor sales continued to grow, albeit slowly. In 1956 the company, with no more room to further expand its St. Louis factory, opened a new manufacturing plant in Fort Smith, Arkansas. By the early 1960s a much expanded Fort Smith facility became Baldor's headquarters, and the original St. Louis offices were closed.
Throughout this period of slow growth, Baldor continued to produce a relatively small range of motors. The company's stock-in-trade, an enclosed, durable, low horsepower motor, sold well in the agricultural industry where it was used for crop driers and aerators but was not versatile enough to accommodate a wide range of other uses. Content with the steady profitability of his firm, Edwin Ballman refused to implement the kind of design innovations necessary to attract a wider clientele. This conservative approach served the company well during the economically buoyant 1950s, but in 1960 a price war between industry giants Gould, Westinghouse and Emerson found Baldor stuck in the middle with little leeway to offer competitive pricing. The company, which had recorded a profit every year since 1932, lost $30,000 in 1960.
Operating Loss Initiates a New Era
The 1960 loss jolted Baldor into making some profound changes in its operating philosophy. At the age of 78, Edwin Ballman stepped down as CEO of the firm to allow his son Fred to take full control of the company's management. Fred Ballman felt that Baldor's best approach for competing against the larger manufacturers was to convert the company into a service-oriented firm that could provide customers with quality, custom-designed motors where and when they needed them. Ballman quickly recruited Rollie Boreham, a Baldor salesman with a degree in engineering who had been complaining for some time that the company wasn't offering the variety of designs that his customers wanted. The two collaborated on a new business plan for Baldor that emphasized the necessity of catering directly to customer needs. Within a few years Baldor was producing one of the widest ranges of motors in the industry. Companies could go to Baldor for explosion proof motors, lint-proof motors, motors that would work dirty, motors that could be washed and motors that could be mounted in just about any direction. By 1965 almost two-thirds of Baldor's products were custom designed for specific applications.
The younger Ballman's reorganization of Baldor was a resounding success. Sales rose from $4 million in 1961 to $21 million by the end of the decade. New sales offices, run by independent district managers working on a commission basis, were opened across the country, and new manufacturing facilities were built in St. Louis, as well as Columbus, Mississippi, and Westville, Oklahoma. In order to ensure the ready availability of their products to industries that often required quick delivery to keep a factory running, Baldor also opened 23 well-stocked warehouses across the country. This system of warehouses would be maintained and expanded into the 1990s when just-in-time manufacturing made warehousing unfashionable in most industries. Baldor management felt that the advantages of their warehouse system in terms of product availability and customer service outweighed the cost and risks involved.
The energy crisis of the 1970s proved a boon for Baldor as the company's high quality, energy efficient motors suddenly became more cost efficient than the cheaper models put out by some large competitors. In 1976 Baldor became the first motor manufacturer to place efficiency ratings on the nameplates of all their products. During a period of recession for most motor manufacturers, the company doubled its market share in the early 1970s, with sales topping $56 million by 1975 and then more than doubling to $146 million in 1980.
Increased Capital Leads to Acquisitions in the 1970s
A crucial component of Ballman and Boreham's plan for growth was the insistence on research and development to bring Baldor's products and manufacturing operations to the cutting edge of technology. In order to finance new product development and plant modernization, company president Boreham took out Baldor's first long-term loan in 1973 and then brought the company public in 1976. With this new influx of capital, Baldor embarked on a modest program of acquisitions with the aim of vertically integrating the company's manufacturing and reducing reliance on outside suppliers. During the 1970s and early 1980s, Baldor purchased Southwestern Die Casting to supply the company's aluminum casting needs, Carolina Capacitors, a maker of motor starting capacitors, Boehm Manufacturing, a manufacturer of gears, and Nupar Manufacturing, a metal stamping company providing a wide range of Baldor's motor parts.
The early 1980s were a difficult time for the American economy in general and for the motor industry in particular. Foreign imports of industrial machinery began arriving in the United States in quantity in the 1970s as a strong dollar made offshore manufacturing relatively inexpensive. As the motors in these products wore out in the early 1980s, U.S. industry ordered foreign replacements at the expense of U.S. motor manufacturers like Baldor. Foreign competition and a crippling slump in the agricultural industry, an important market for Baldor, took their toll. In 1982, Baldor experienced the first sales decrease since Fred Ballman's 1960 reorganization of the company and earnings were cut by a third. Fortunately for Baldor, other American motor makers were doing even worse, and in spite of the drop in sales Baldor managed to increase market share to nearly eight percent.
Response to Market Downturn in the Early 1980s
Unlike many large U.S. motor manufacturers who moved production overseas, Baldor responded to foreign competition by investing more heavily in research and development and plant improvements. Management believed that Baldor's competitive advantage was the company's ability to customize its motors for specific applications. To decrease the time required to produce these specialized motors, some of which had production runs of less than 50, the company developed its own form of just-in-time manufacturing which it called the flex-flow system. Instead of traditional progressive assembly, each motor was put together by a single worker from a tray of parts and written instructions. A wrinkle developed in this system when the company realized that some of its workers were having trouble reading the assembly instructions. Instead of terminating those who could not cope, Baldor instituted a literacy program for all of its workers and rewrote engineering documentation to a high-school level. This response was typical of Baldor's attitude toward its work force. The company, which had not laid off a single worker since the 1960 reorganization, went out of its way to give employees a sense of company loyalty and community. In addition to improving productivity, this approach helped to keep unions at bay. Baldor workers steadfastly opted to remain independent, in spite of numerous attempts at unionization. When asked by Fortune why the unions keep trying, Tom Netherton of the International Brotherhood of Electrical Workers quipped, "Well, you have to do something for entertainment in Fort Smith."
Baldor's determination to build the company's position as a maker of top-of-the-line specialty motors required the prompt adoption of new technologies. In the mid-1980s the company's program of acquisitions, which had begun in order to integrate manufacturing, began to be used as a means of extending Baldor's technological expertise. Between 1983 and 1994 Baldor acquired seven manufacturers of motors and drives whose technologies would complement those already being developed at Baldor. Drives, which consist of a motor plus the controls that regulate it, were a new and important addition to Baldor's line of products in the early 1990s. Drives provide greater flexibility than fixed-speed motors by allowing the operator to regulate both the speed and torque of the motor's operation. In 1996, Baldor was predicting that drives would be the fastest growing component of their motor business.
Baldor's investment in its plants, work force and new technology paid off in the late 1980s and early 1990s. Sales grew from $181 million in 1986 to $294 million in 1990, and then soared to $503 million in 1996. Even more significant, the company's share of the U.S. motor market nearly doubled to 13 percent in 1996. Given a healthy U.S. industrial economy, Baldor seems well positioned to continue this growth into the next century.
Further Reading:
Bagamery, Anne, "Just a Matter of Waiting," Forbes, September 14, 1981, pp. 212--13.
Farnham, Alan, "Baldor's Success: Made in the U.S.A.," Fortune, July 17, 1989, pp. 101--05.
Glorioso, Joseph A., "Baldor: Sneaking Up on the Giants," Industry Week, February 6, 1984, pp. 43--44.
Jaffe, Thomas, "Motormen," Forbes, April 29, 1991, p. 349.
Mraz, Stephen J., "Teaching Workers the Three Rs Is Good for the Bottom Line," Design News, January 24, 1991, pp. 25--27.
------, "Teaching the Write Stuff," Design News, September 10, 1992, pp. 12, 14.
Sabbagha, C., "Baldor Electric Company," Merrill Lynch Capital Markets, May 22, 1997.
Schock, George, Early History of Baldor Electric, Fort Smith, Ark.: Baldor Electric Company, 1992.
Sullivan, R. Lee, "Powerhouse," Forbes, March 13, 1995, p. 134.
Source: International Directory of Company Histories, Vol. 21. St. James Press, 1998.
