By Nathan Peck | MiBiz
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BATTLE CREEK — The move to market diversification for Nexthermal began simply enough. President S. “Kumar” Bandyopadhyay started to see margins eroding on the company’s products as overseas competition drove prices down for the company’s heating systems.

The Battle Creek-based company had built its reputation as a manufacturer of coil heaters, cartridge heaters and sensors under the name Hotset Corporation. The heaters are used in injection molding and heat-activated adhesive applications, but were being displaced by foreign competition, which could produce heaters at a lower price.

“Our end users and customers started to view us as a commodity,” said sales and marketing manager Ken Sunden. “We realized that it was not profitable to make $7 heaters unless we made 2,000 of them a day.”

The solution? Innovation.

Easier said than done? Absolutely.

In a partnership with the west regional office of the Michigan Manufacturing Technology Center, Nexthermal started looking at what the company’s core competencies were. As heating elements were fast becoming a commodity, the real value Nexthermal brought to customers is the ability to design, model and deliver heat in a highly controlled manner. As part of the work with the MMTC, Nexthermal took a 360-degree feedback approach to their business, inviting customers and employees to evaluate the company’s position in the marketplace.

“We started surveying customers and found we were in a dead heat with our competitors in terms of their perceptions of us. If customers view you as a commodity, the decision is made on price, delivery and quality — that is it,” Sunden said.

While the company had built a strong reputation for manufacturing reliable heating elements, their real talent was in engineering. The engineering team has developed complex models that can accurately predict the heating efficiency and flow of their designs. The problem was that Nexthermal, like many suppliers to OEMs in a variety of industries, gave away that engineering essentially for nothing. It was rolled into the unit costs for each order.

“We began to look at adding engineering as a sales component. Traditionally, we were doing that for customers for free,” said R&D Manager Jeff Wheller. “We had to realize there are customers who are willing to pay. If engineering is no cost to the customer, there is no reason to be constrained about using it. The question then becomes how much you can support to give away.”

The shift in thinking also forced a parallel look at their customer base. The company began to take a hard look at the customers and industries that could provide sustainable growth for the company.

“We started looking at customer profiles. It’s now a gating process (of) eliminating market segments that don’t fit our strategic goals. We now make a decision up front. You can realize early on whether or not it may not be a sustainable relationship,” Sunden said. “It’s good if you can innovate for a customer; it’s better if you can do it for an entire market.”

The innovation process required the company to empower its employees, pulling employees from around the company to help devise the company’s strategic goals. Management draws on the leadership committee’s ideas. In a similar vein, the company realized that by teaching more employees to read blueprints, it could be more efficient.

“In the end, you will be a good innovator if everyone buys into it. We’re not necessarily a democracy, but we realize that the best ideas may not come from the management team,” Sunden said. “We did hear initially that it isn’t how we ran things 15 or 20 years ago. It has to tie back to your core values.”

The process has led to new markets opening up, such as the advanced battery industry. Lithium-ion batteries aren’t particularly efficient when charged or discharged at low temperatures, and Nexthermal has helped develop a heating system to keep battery packs at optimal temperatures.

The innovation process has paid off, with the company growing its sales 20 percent in 2010 and adding employees in the last two years, bringing the total to 65.

“For many employees, this has been the most fun, exciting year we can remember,” Sunden said. “We’ve had a breakthrough year. We’ve had a lot of breakthrough years. We recognize who we are and that has opened up markets for us.”