World Class Results on a Mom-and-Pop Budget

Optimas 2001 - Fiancial Impact: At Bal Seal Engineering, HR tracks trends, cuts costs, and turns HR into a profit center.

February 28, 2001
On its 40th anniversary three years ago, Bal Seal Engineering and its employees could look back at its history with pride. Founder Pete Balsells had propelled the company from a one-man operation in his garage to a larger facility in a Quonset hut to a $17 million manufacturing company that employed just under 200 people.

    But Bal Seal's past didn't provide a blueprint for the future envisioned by Balsells's son, Peter, who became the company's president in 1998. His goal: to make Bal Seal a $500 million industry leader by 2020. The company researches and develops unique seals for customers whose products range from pacemakers and jet engines to cappuccino makers and hazardous-waste pipelines.

    It was clear to the younger Balsells that the company wasn't going to get there by following its old business plan. Its Santa Ana, California, plant was old. Its employees, mostly minimum-wage workers who lived within walking distance of their jobs, didn't have the technical sophistication that would be necessary for the Bal Seal of the future. The company needed a new culture to match the mission and the values that Peter Balsells had set for it.

    Bal Seal's HR department was ill-equipped to build that culture. Well into the 1990s, it continued to be a department that carried out just the basic personnel-administration functions. "It was basically time and attendance, corrective actions, hiring and firing," says Jacques Barralon, now director of HR, who began with Bal Seal in 1982. Barralon couldn't even give HR his full attention-his other job was conducting inspections and quality assurance.

    Putting Bal Seal on the right course took the work of everyone, from the CEO and founder to the machinist on the shop floor. To accomplish that, HR was re-created as a full-fledged organizational development department in 1998.

    Its mission was particularly challenging, recalls Jeff Jernigan, hired that year as VP of human resources. HR was responsible for seeing to it that the company did not lose employees during the move to a new facility in Foothill Ranch, about 20 miles south of Santa Ana. It would be expensive to replace employees who had a wealth of knowledge and expertise.

    HR was charged with hiring and training new and old employees to be more versatile and more technically skilled. It set about creating a new compensation system. And with the rest of the management team, it had a mission to keep the best of the old Bal Seal Engineering while creating a new company culture.

    Now, nearly two years later, Jernigan says they're meeting the challenge. Bal Seal is in its new plant. It is a $22 million company, realizing 25 percent annual growth, and is on track to meet its 2020 goal. Still, as Jernigan points out, "It's a long way off, and we're just getting started."

    No one quit during the move, although the company dismissed 41 "never changers," who couldn't make the switch to the new way of doing things. As the workers made the transition to new jobs, the firm provided severance, retraining if needed, résumé assistance, and other support.

    HR overhauled compensation and benefits: beginning employees are no longer minimum wage workers. They start work at 50 to 75 cents above the California $6.25 per hour minimum, and it's possible for lower-paid workers who hit their training and other goals, including team and individual bonuses, incentive program goals, and suggestion program awards, to earn double the hiring wage within a year. Training has become a cornerstone of the company.

    But even with all of those advances, HR is anything but a source of vast new spending. Jernigan says it actually has become a profit center (and not by outsourcing its services, either).

    At Bal Seal, human resources:

  • Created a 401(k) and a Section 125 plan (a "cafeteria" benefits program) simultaneously. The tax savings generated for Bal Seal by the 401(k) covered the cost of the Section 125 plan. The Section 125 plan's tax savings meant that for most employees, the minimum contribution for the 401(k) was covered. Participation was at 61 percent after enrollment.

  • Developed "leading indicators" to monitor and forecast labor requirements, overtime, turnover, and the impact of training on the bottom line.

  • Instituted a cross-training program that makes the Bal Seal workforce adaptable for various tasks at very short notice.

  • Achieved a one-time $250,000 savings by reconfiguring working schedules, reviewing and revising exempt/non-exempt categories, and taking other steps as outlined in Eliyahu M. Goldratt's "Theory of Constraints," a philosophy and methodology used to improve the running of an organization. Bal Seal continues to achieve annual operational savings.

  • Implemented new HRIS, payroll, and timekeeping systems. The workforce has grown 40 percent since 1998. With the new technology systems, no new HR personnel have had to be added.

  • Annually renegotiates preferred provider agreements with major employment agencies. In the first year, the company saved $56,000 in recruiting costs. It has achieved smaller such savings every year.

  • Designed new vacation and paid sick-leave policies that increased employee benefits while reducing vacation payouts by up to $185,000 a year.

    In 1999, Bal Seal won the Best Practices award from the Employers Group for HR programs that contribute to business. It won the 1998 Arthur Andersen Vision award for financial reporting. The company also was featured on the MSNBC Champions of Industry program for its innovations. Jernigan is at work on two books about how Bal Seal has remade itself.

    Now at home in a sleek industrial building, Bal Seal might best be described as streamlined. There is no executive wing. No one has secretaries or assistants; everyone, including the management team, handles his or her own paperwork, Jernigan says.

    The management team also is cross-trained so that each one knows the others' areas. If one member of the team is gone, the others have the authority to OK decisions. For efficiency and as an "ego check," the management team also is cross-trained for various jobs. Jernigan can run the switchboard. Peter Balsells has worked as the janitor, and was doing that job one day when an employment recruiter came by to visit. She thought she was being unpleasantly tricked when the guy in jeans with a push broom was introduced as Bal Seal's president.

    About 60 percent of the workers are primarily Spanish-speakers, so Bal Seal has instituted a company-wide language-training program. English speakers learn Spanish. Spanish speakers learn English - all paid for by the company, on company time. Because Bal Seal serves customers worldwide, managers like Jernigan are expected to be working on proficiency in three languages.

    "We want every supervisor to recognize that every employee has equal value, but [serve] different roles," he says. "We're in this thing together, and to do that, to have that kind of culture, you have to speak the same language."

    In many ways, the other language of Bal Seal is numbers, as expressed in charts that show the rise and fall of the leading indicators that HR tracks with almost religious fervor. Jernigan speaks with ease of linear regression and correlation analysis. One wall of the HR office at Bal Seal is lined with the leading indicator charts that Barralon creates.

    "We monitor a combination of factors - sales, overtime, labor, bookings, and net profit - and we look for certain statistical relationships that indicate when it's appropriate to add more labor in advance of the need," Jernigan says.

    "It also tells us when labor is increasing unnecessarily, and we either need to slow down hiring or not work overtime. That has allowed us to avoid layoffs in the last three years. It has allowed us to anticipate unnecessary overtime to the point where we don't find ourselves looking over the last quarter and saying, 'We spent $93,000 in overtime we didn't need to.' We can identify that trend before it happens and avoid making that expenditure."

    The same statistical rigor is applied to training programs, where, for instance, the effect of sales training is correlated to its impact in bookings. The company saw that instruction on initiating a client relationship was working well. The lessons on closing the deal weren't as successful. "If the training is not adding money to the bottom line as revenue, we change it or drop it," he says.

    While Bal Seal is proud of what it has done - Jernigan calls it "world-class results on a mom-and-pop budget" - he's quick to dispel the idea that Bal Seal's achievements can't be accomplished by other HR departments, and hopes the books he's working on can help. "It's not rocket science," he says.

Workforce, March 2001, pp. 42-43 Subscribe Now!