Tom Hitchman is president of Oakville, Ont.-based Naylor Group, a mechanical/electrical/communication contracting business focused on the Ontario market. Naylor is a very different company from the one he bought in 1984. Three or four years ago, Hitchman began shifting management responsibilities to his children, Lauren and Greg Hitchman. At the same time, he made over the senior management team, choosing a sophisticated group of people with an average age of 38, most of whom have MBAs and are tech-savvy. The team helped the company deploy and integrate technology across operations. Today, Naylor Group has its foot on the gas pedal, with plans to double sales to $120 million by 2020. In an interview with Mary Teresa Bitti, the Hitchmans credit much of this recent growth to this generation of well-educated leaders.
Q How has Naylor Group evolved since you bought it?
Tom Hitchman At that time, the core business was mechanical contracting, with about $1.5 million in annual sales. We started adding capabilities such as electrical contracting in 1986 and plumbing in 1987 to go with our air-conditioning and refrigeration capabilities. We added other trade lines, including communication and cabling in the late 1990s, and controls in 2008.
Today, we have a complete mechanical, electrical offering. In 2012, our sales are $60 million and we have 250 people, up from 15 when I bought the company.
Q How has the leadership team evolved?
TH I am an engineer with an MBA. When I first started, it was the smallest business unit I had ever managed. The other senior leaders we had were field people, electricians and refrigeration mechanics. In the past 10 years, we have hired university-educated people, and eight or nine years ago we started on a program to encourage younger people who will become senior leaders down the road to get executive MBAs. Lauren has her MBA and Greg is doing his.
Q What does your management team look like today? Why was education and hiring MBAs so important?
TH I was hired by a large transnational electrical/mechanical contractor to become their president. I was 30 years of age and it was a timeline of two to three years to become president. All of their senior vice-presidents were in their 50s. They had grown the business to that point, but they didn't have the education and leadership skills to manage a larger business. I told the company they had to go. I knew they were not going to accept my authority, so I left before becoming president to buy Naylor.
I wasn't going to let what worked against me happen inside Naylor. As it turns out, our two senior operators are retiring. We made sure we were fair with our senior people, but we were not going to have them involved with the management group needed to help the next generation. Managing a 250-person, $60-million business involves a lot more sophistication than managing a $1.5-million business.
When my children came into the business, they were well-educated and so were given more responsibility than other people would have been given at their age, and they performed exceedingly well. They were able to perform so well because of their education. They are part of the mobile, digital generation and (companies) are not giving other young people enough responsibility to take advantage of their skills. It was a no-brainer. To run things better, we need people who are well-trained.
Q What does the new team bring to the table? What impact has that change had on the business?
TH As our company got bigger, all we were was a bigger little company. Our sales and our overhead were like railroad tracks: Sales would go up and our overhead would go up. It was parallel. We weren't gaining efficiencies and we realized we had to operate differently. The only way you can do that is if you put people in place with skill sets that are different than those a small company requires. We are now at a point where, as we increase sales, our overhead goes down on an absolute basis and also as a per cent of sales.
We now get economies of scale as we get larger, which is really important, or why would you become a bigger company?
Q How does the fact your management team is tech-savvy help you achieve your strategic objectives?
Lauren Hitchman We moved our field force from a paper-based program, where they would complete work orders, purchase orders and time sheets on paper, to an electronic program. Those back-office efficiencies mean the time between us completing a job and sending the information to a customer has improved significantly. Our management team is collecting and recording customer information at a very granular level, which allows us to report back to customers in a meaningful way. For example, they can use the information we provide to report back to their regulatory bodies about how they are maintaining their equipment. It's one thing to install new technology; it's another to be able to use it to give you a competitive advantage.
Q How has the new leadership affected revenues and growth?
Greg Hitchman We are a much more dynamic company. In the past 24 months, Naylor Renewable Energy Inc., a 100 per cent related company, has secured its largest project in construction, a $21-million job. We were able to take that on because we have the sophistication in our management team and strategy group that allows us to do market analysis and go after market opportunities we would otherwise not have been able to do. How we plan for future growth is also much more sophisticated. In the past, we reacted to opportunities; now we predict where those opportunities will come from and we plan where we will try to take the business.
Q What is the vision going forward?
GH When you get to our size, the challenge is not where the opportunities are, it's which ones to go after. We have a strong presence in Southern Ontario, but our market share is less than five per cent, so there is lots of room to grow. We are also looking at expanding in Canada and the U.S. There are a lot of baby boomers with small companies in our industry or related trade lines that will be retiring and don't have the luxury of the succession plan we have. We are looking at potential acquisitions here and in Florida and Texas. We also have a large construction group that is defining itself by working in resource-based industries and providing technical people, project managers, quality control and health and safety programs. That is the future of Canadian construction. I recently read in the Economist there will be US$650 billion worth of resource-based projects in the next 10 years. That's a big opportunity.
-- Financial Post