A Publication of WTVP

Richard W. Blaudow, chairman and president of Advanced Technology Services, Inc., is one of the co-founders of the factory maintenance service company which opened its doors April 11, 1985. He received a BSEET degree from Southern Illinois University in 1969 and began his career that same year with Caterpillar, assigned to the Plant Operations Training Program. Mr. Blaudow is credited with starting and managing the Electronics Repair Department at Caterpillar, which later became the startup group of ATS. ATS, with approximately 365 employees, will move its headquarters to a new location in Peoria’s Pioneer Park during the last week in May.

Tell us about your background at Caterpillar, Inc., and your role in forming Advanced Technology Services.

I started working at Caterpillar in 1969, working in the plant engineering side of the house for 17 years. It was an interesting 17 years because that was when factory automation was becoming more and more progressive in the manufacturing environment. In the early 1970s mini-computers were being used in the factory for the first time. It wasn’t until around 1980 that personal computers, which many of us think have been around forever, really became a useful took in industry. Those 17 years I was at Caterpillar gave me the opportunity to really understand factory automation and work with the latest state-of-the-art equipment.

When Caterpillar Venture Capital was formed in 1984, one of their objectives was to provide a mechanism to spin off from Caterpillar internal operating units with entrepreneurial ownership and environment and form new companies that could generate new profits and revenues. During my years at Caterpillar, we developed a significantly large group of people who could repair and service very sophisticated factory automation equipment. Demand was rapidly growing for that kind of expertise in the marketplace. By the middle ‘80s, reliability of the factory automation equipment was improving tremendously; and it was becoming much more complex, requiring more sophisticated test equipment and much more employee training. This, coupled with an industry slowdown and lower volumes of components for repair, provided an opportunity to spin out and offer the repair services to Caterpillar and other companies. It was a win-win situation. Advanced Technology Services was spun off on April 1 (April Fool’s Day), 1985. It has been a very fast-moving eight years.

What is your current relationship with Caterpillar?

Caterpillar is the majority shareholder of ATS. There are three non-Caterpillar people on the Board of Directors. At this point about 50 percent of our business is with Caterpillar and the rest is with other world-class manufacturers around the eastern part of the United States. We do business with General Electric, not only in their nuclear fuels division, but in their aerospace business which recently merged with Martin-Marietta. We also do business with their locomotive, electrical drives and factory automation units. We do a lot of business with General Motors, Ford, Chrysler and Saturn. McDonnell Douglas is our largest customer in the aircraft environment. Deere & Company is a good customer of ours, along with several local firms like Diamond Star, Excell Foundry and Morton Metalcraft.

How hard was it to establish an identity apart from Caterpillar?

From day one, the founding 32 people believed that we were no longer Caterpillar and that our business life would be different. But living in East Peoria, close to your largest customer, makes it hard to maintain that separate identity. The business relationship we have helps because we are completely separated from Caterpillar. Believe me, it is a customer-supplier relationship, and that is good for both parties. It has been very convenient for us, however. To be related to Caterpillar is a feather in anyone’s hat. It’s always a benefit to be able to tell people we do business with Caterpillar. Caterpillar is a very progressive company using state-of-the-art factory automation and manufacturing technologies in the manufacturing process. The recent changes in the way they operate their business units is also very progressive, but it presents some challenges for suppliers because now we have several smaller companies to work with. A friend of mine who works for G.E. puts it this way, “It’s great to be in bed with the Jolly Green Giant until he decides to roll over.”

There are some times when we don’t emphasize our relationship with Caterpillar. For example, when we call on one of Caterpillar’s competitors, they know our relationship with Caterpillar and that we do work for Caterpillar and that’s one of the reasons they’re interested in talking to us. But they really don’t like us to continually advertise that we are related to the Caterpillar family. So it has its pros and cons, but Caterpillar is a great partner. I look forward to them being a great partner in the future.

You are obviously involved with Caterpillar’s “Plant with a Future” (PWAF) program, a program that has been criticized by some United Auto Workers union leaders. What is your analysis of PWAF?

My comments are generally positive comments because I’m very aware of the benefits of automation and the initiative Caterpillar has taken with their automation. Caterpillar undertook a great challenge to automate their facilities all at one time. It’s very easy, even for me, to sit here and shoot at Caterpillar the mistakes they may have made along the way. You know that is 20/20 hindsight. If they made a mistake it might have been that they were a little aggressive in how they went about the PWAF integration. I think everyone would say today that it would have been nice to have slowed it down and brought it in a little bit at a time. But when you’re on the leading edge of technology and the leading edge of change, facing a global marketplace as Caterpillar is, and you have many people involved, including suppliers, you have to realize that you are going to be vulnerable for mistakes along the way. When you look at the overall project, they did what they had to do. I think if Caterpillar had not made that kind of a step – you could even call it a leap – into the future, they might not be as well-positioned in their marketplace as they are today.

All of us who are involved in factory automation realize that it never quite works exactly right the first time. It’s not like a new car. There have not been a thousand of these machines built. Every one of them is different. They are all very complex and very difficult. Caterpillar swallowed a pretty big pill, and today they are starting to see some of the positive results they expected.

Has the labor market in the Peoria area met your needs for highly skilled workers? Do you see it continuing to meet your labor needs?

We are getting most of the people we need locally, and they are exceptionally well-trained technically by our local institutions. We work very closely with ICC in developing the technical programs we need our employees to have, and we also recruit from time to time at Bradley and ISU.

But we are having difficulty finding people with the customer service mind-set our business requires. The “soft” skills, as we refer to them, are what we find lacking today; and we have to provide training in teamwork, problem-solving, customer skills, etc.

Since many of our customers are located in the eastern part of the U.S., we also need employees who are willing to move and/or do extensive traveling. That sometimes is contradictory to the mid-western lifestyle. In some cases, it makes more sense to hire someone who currently lives near our customer.

Many analysts contend that Caterpillar today is fighting an outdated labor mentality from the 1960s. Do you fight that battle as well?

Yes, we do face that from this perspective: The average age of an individual in this company is thirty-three years. If you look at the background of our employees, especially in the Peoria area, many of them have parents and relatives who work or have worked at Caterpillar. They have been raised in a particular type of culture. The labor dispute at Caterpillar today is difficult for some of these families and therefore affects some o four employees. So there is something there, beneath the surface, to be concerned about.

As far as having to overly fight an attitude – no. Our employees want to learn and be the best they can be. They work hard and are very dedicated. We spend a lot of time with them trying to maintain that attitude and trying to develop a culture that is different from the traditional culture they might have grown up in.

When ATS goes into Caterpillar or other large companies, do you run into conflicts with the United Auto Workers or other unions who might look at your operation as taking potential jobs aware from union workers? How do you handle such situations?

In some cases and in some area, we do run into this problem. It’s not just at Caterpillar; it’s anytime you call on a union shop, and many of our customers are union shops. You handle such situations very carefully. We generally are bringing in “support” types of services as opposed to replacement types of services. As companies are downsizing, however, we do tend to get caught in the middle. Companies are relying more on services like ours. There are a lot of reasons why they are doing that – for example, to stabilize their workforces, to meet global competition, etc. Most of our customers today seem to be thinking in line with the old saying, “Tend to your knitting.” They are focusing on their core products and partnering with others to provide services which are their core products. Every situation is different, however. Every plant we go to has a little different culture.

Tell us about your move to Pioneer Park. Moving out of the area was an option for ATS. How was the decision reached to stay in Peoria?

One of our primary businesses is our Depot Service Division. If a customer has industrial or commercial components they want repaired, they can send it to us. We will repair it and return it with a warranty. Our goal is a one-day turnaround on repairs, something that is unheard of in the industry. Today we are at about seven days (seven days is the industry standard) and four days on some products. When you consider the cost of carrying inventory and spare parts for critical JIT operations, you can see why customers would want a one-day turnaround on repairs.

The ideal situation for a one-day turnaround is to be located at or near an airport that is a major hub for a carrier like UPA, Airborne or Federal Express – so a piece of equipment can be shipped in at night, be on our doorstep in the morning, be repaired, and be shipped back out at night. When we were looking to relocate, we looked only at area that could allow that kind of service.

We also took a look at the job market and the availability of technical skills (being near a university, for example). We looked positively at the services available in Peoria. We are also close to a very big customer here in Peoria, but not our largest depot customer.

There were a number of areas that were opportune for us to move to, and we thought about that. We looked at what it would cost. There were some very good opportunities, with people offering to build for us to move.

We also looked at our Midwestern workforce. I will stand up and applaud our Midwestern workforce and culture – the work attitude and dedication of our people. I can’t say enough good about that.

What it all boiled down to was taking a look at what it would take to move our facility, and uproot and move our people. We have a Friday morning meeting with employees, and I took a show of hands on the issue of moving. I asked how many people would be interested in moving out of town or out of state – perhaps even to a warmer climate. I didn’t have a very good show of hands. Things like that helped us make our decision. Economically, we could have probably moved.

There was some controversy about what was reported to be a $3.3 million incentive package to relocate to Peoria. How do you answer critics of the incentive package who accuse the company of forcing legal government to come up with a major incentive package to stay in the area, or who might contend that the talk of moving our of the area was a charade to gain such incentives?

I usually don’t worry about the critics. There are always people who don’t take the initiative or time to go find out the facts – they just want to talk about something.

I will say this, there are people and other communities out there that are willing to come in and literally move a business and a workforce in order to gain the economic benefits. But our decision to remain in Peoria was based on the business considerations we discussed earlier, as well as the incentives offered. The city, county, and state have worked very well with us in an effort to preserve the jobs in Illinois.

Is the $3.3 million figure that was publicized as the value of incentives offered to ATS an accurate figure?

The $3.3 million was obviously a liberal estimate to incentize us to consider staying in this area. That number really depends on how much money ATS spends and whether all the incentives are available to us. About $1 million of that number was for potential low-interest loans which would have to be repaid, of course. However, as it turned out only $150,000 was actually available to us because the DCCA “Build Illinois” program as we understand it no longer offers loans. The $150,000 we borrowed was then used to enhance the Pioneer Park infrastructure. Thus, it was reinvested in the industrial park, so everyone benefits.

We have received or expect to receive other benefits such as waiver of the building permit fee, five years of property tax abatement on the assessed value of the improvements we make, sales tax credits for the building materials purchased in renovating the facility, and investment tax credits from the state. We will also receive job tax credits for increases in our number of local employees. Again, the amount of incentives we get depends on how much we spend in the Enterprise Zone or how many jobs we create.

The largest dollar incentive offered to ATS was a state sales tax exemption on machinery and equipment that we would purchase for used in the Enterprise Zone. This was estimated at $1 million tax savings if we would purchase about $16 million over the next five years. Whether or not we will be eligible to receive the $1 million in sales tax exemptions is yet to be determined by the state. We must be certified under the state’s guidelines.

So, to answer the question, the $3.3 million figure is probably not accurate. The only check we received was from Pioneer Industrial Park for $200,000 which is included in the total savings we expect to receive of about $733,000 over the next five years.

Peoria leaders have made much of the changing job face of Peoria, citing information/high technology/communications type business. Your company falls into that category. In your opinion, what promise does the future hold for further development of these industries, and what does the Peoria area need to do to be more business-friendly and attract more businesses?

Peoria is a great little city. Technical skills are available from the local educational institutions. It’s a great place to develop a new business. The city and county leaders have been very helpful.

The most difficult thing for a small company in any community is working with the bureaucracy. We need to be able to do things differently – to change quickly. Our customers are changing; our industries are changing; our needs and our requirements change. I think the cities need to look at their local businesses as if they are their customers, and understand their needs. If takes healthy businesses to keep a community healthy. My number one job is to keep my business healthy. Our community leaders need to work very aggressively at helping businesses in this changing environment by breaking down the bureaucracies that are traditionally there and helping keep the costs of doing business in Peoria down. The airport expansion and road expansion are very helpful.

I will say this: Jay Thompson and former Mayor Ranney from East Peoria, whom we worked with when we started this business, were people who really wanted our business in their town. They didn’t know if this business would amount to a hill of beans. We started with 35 people and we said we might hire six the first year. We hired a few more than that the first year and many, many more the second year. Those people broke down all kinds of traditional barriers. They worked Saturdays and Sundays and nights to help us get in here. A week to us is seven days. A week to most community leaders is five days.

What kind of support have you found in working through the bureaucracy in the Peoria move?

We have had excellent support so far. They city was very proactive in fact. We didn’t go out and really seek anything from the community. We were just going about our business of making decisions concerning what was best for the company. It was the community that came to us – especially Mayor Maloof – who said, “We are interested and we’d like to see what we can do to help.” The problem was that we needed a different facility in order to grow, and our current facility wasn’t conducive to expansion. Also there were not a lot of suitable facilities for lease to choose from at that time. So I would say we have had good support from the local government.
How much did the fact that Caterpillar owned the building into which you will be moving figure into your relocation decision?

It was one of the alternatives that we had, and we looked at several. The building was not just sitting there; there were people in it. They wanted to rent the building to us so they moved people out of the building to make it available for us to lease. We were not pressured by Caterpillar to move into the building.

You industry is changing rapidly. How do you keep on top of change?

The only way I find to stay on top of change is to spend a lot of time with the customers and spend a lot of time with employees. Employees are the ones who are out there on the front line with the customers every day and realize the changing needs of our customers.

When you think about the industries we serve – automotive, heavy equipment, aircraft companies – every one of them has been going through gut-wrenching changes. The factory automation side of our business is changing significantly. The personal computer side of our business has changed. A personal computer is becoming about like a refrigerator – everybody has one. It doesn’t fail very often so it is mostly a commodity product. There is really a competitive environment out there in personal computers. We stopped selling personal computers about a year ago. We have had to take a careful look at our niche and determine the things we are best at. We want to be best in class in contract service. We have continued to fine-tune our focus on the factory automation niche. Now, there is a lot of personal computing equipment being used in the factory automation environment, so we will never get away from personal computers. We are focusing, however, on the application of that equipment rather than the selling of the products. That means we have to stay tuned in with the customers and the customers’ needs as well as the technology.

We do service come mainframes. Mainframes today, if they aren’t dying, are losing a lot of favor in the industry. There are still a lot of them out there, however, that require maintenance and service, and we are involved in that.

The Clinton administration economic plan has been well received by many high-tech companies, according to press reports, because of an emphasis on technology development. Do you have any thoughts on that subject you would like to share?

I’m not much of a politician, although I am very interested in what Mr. Clinton is trying to do. I’m trying to not be completely negative about what’s happening. I’m very concerned about what his policies might be concerning the medical industry and how that might affect our company. Many of the labor issues will have an effect on our company. Potential anti-strike replacement legislation would affect many of the companies we work for.

I do like one thing that Mr. Clinton seems to do well; he is making a big effort to communicate with the front-line people in this country. I’m not here to say how effective he is or how valid his proposals are, but I do think he is trying to communicate and get input. He has a big problem to try to get his arms around. We have some idea of what he is trying to do, but we are waiting on the details. At this point, however, I guess I’m still a Rush Limbaugh fan; proliferation of government regulation of industry will kill us. I’m very concerned about government getting too deeply involved in anyone’s business. We are sill a young business. Too many mandates from government could really make things tough. We will have to wait and see.

Is there anything in particular about Advanced Technology Services that you would like to emphasize?

There is one thing. Around ATS, quality is the first thing on our agenda. It is important that companies of all sizes become very involved in quality initiatives. There are lots of buzzwords out there. You can call it Total Quality Management or think of it in terms of the Baldridge Award or ISO 9000 certification; but the important thing is that all of us work toward an attitude or culture within our companies that gets our employees involved in the success of our businesses.

Those companies that aren’t involved in quality initiatives today or aren’t making an effort to understand and achieve some continuous improvements are going to be left being in the long run. In addition, they are missing some of the greatest rewards possible – being involved with employees in quality work processes and the satisfaction of seeing workers’ reactions when they observe the continuous improvements and success that follow from that.

We are actually seeing results on our bottom line from the service quality initiative that we started about a year and a half ago. We are totally immersed in it. Most of our people are beginning t get on the train, and we are seeing results from that. Today we see it as a very positive competitive advantage. I would encourage anyone involved in business today to take a good look at what quality initiatives can mean to their company in the long run. I would caution anyone who gets into it to be careful, because it can completely consume you. It can consume all your time, but the results are outstanding. IBI