New CEO Jeff Waters Outlines his Roadmap for Isola
Jeff Waters, Isola’s newly appointed CEO and president, comes to the laminate supplier after more than 25 years in the semiconductor industry, working for companies like Texas Instruments and National Semiconductor. Only a few days into his new job, I met with Jeff to discuss the transition and what we can expect from Isola under his leadership.
Barry Matties: Jeff, you are now the president and CEO of Isola. How does that feel?
Jeff Waters: It feels great. It’s very exciting.
Matties: Just for a little context, why don't you start by sharing a little bit of your background for our readers.
Waters: I started my career working for National Semiconductor in a wafer fab as a process engineer and did that for about four or five years. Then I went over to Japan with a research fellowship with Fujitsu Laboratories and did some semiconductor research there before coming back to go to business school in Chicago. I worked in management consulting for a few years, and then went back to National. This was in the early to mid-'90s, and since then I’ve spent the rest of my time working in semiconductors.
Looking back on it, one of the nice things about working for a company like National Semiconductor or Texas Instruments is that I was exposed to a lot of different kinds of businesses that were in various stages of success and failure—some that were more in their infancy to those that were more mature.
I was running the sales organization in Japan for National, so my family and I were over in Japan for about four years. While we were there, it was announced that Texas Instruments was going to be buying National. I ended up coming back to California with TI and was there for about five months before I left to go to Altera, a semiconductor company in the programmable logic space. About a year ago, Intel announced their intention to acquire Altera and that concluded at the end of December of last year. Very soon thereafter, I made the move to come to Isola as president and CEO.
Matties: What was the appeal about Isola?
Waters: I saw a lot of things that were very exciting and very appealing. The first is that there is a lot of carry-over from my experience in semiconductors into what Isola does. If you look at the end-customers, the OEMs, and even the markets that we serve, they are identical. The communications customers, the automotive customers, even as you go into the data center and other areas—it’s a lot of that same end-market and a lot of the same trends and dynamics that are driving what results in demand for Isola materials.
From a technology perspective, certainly laminates are different from semiconductors, but it's interesting when you look at the way a printed circuit board is put together. It's very similar to the way a semiconductor is put together, but obviously on more of a macro scale than what you have in semiconductors. And even on the material science part of it as well. When I was at National Semiconductor, I spent the majority of my time working in the analog part of the business. Analog is less about massive circuits that are very highly miniaturized and much more about material science and properties of materials that you use to create very interesting operational amplifiers or data converters or signal conditioning chips. I think even from a materials science side of it, there's a comfort level that I have as I look at where Isola is.
Certainly coming out of the semiconductor industry for me is a refreshing change, but it's not something completely foreign. We use a lot of copper in semiconductors and we use a lot of copper here in laminates. There was certainly the industry piece of it that I found compelling.
I think Isola as a company was probably what intrigued me the most, though. It's a company that has a very rich history, as I'm sure you know. It's over a hundred years old. It's seen a lot of twists and turns throughout the years. I think the position and the level of respect that it has out in the customer base was very appealing to me. When you look at the footprint that Isola has, I see that as a great asset that can be leveraged. We've got factories in China, Taiwan, Singapore, North America, and Europe. When you think about the way demand for laminates comes together, there's the OEM side of it and certainly having a manufacturing facility where the OEMs are is a huge advantage. For example, we have a facility in Germany where we have both R&D and manufacturing. When you think about the automotive market, a lot of the innovation comes from Germany and we have a plant with an R&D team that is right there in that backyard.
When you think about the data center and all that's going on in the U.S., we have a plant and R&D engineers on the West Coast sitting right where the market leaders are. Even when you head over to China, where you have also a lot of emergence happening in communications, automotive and other markets, we have plants and R&D people there as well. From an OEM perspective, we're well situated, and from a manufacturing perspective, we're well situated in that we have plants where the PCB fabricators are. For those that put a very high value on quick turnaround and the ability to get what they need very quickly, we have very agile plants that are situated where you'd want them to be. That's something that is very different from the competitor base that we have. I think that's something that we've leveraged, and it's something we can leverage even more as we evolve the company. I saw that as a great asset.
This last week I’ve spent going around China and Taiwan and it was a good opportunity for me to meet our customers, but also a good opportunity for me to meet our people. What I found was a very experienced, very professional, and very well-run leadership team and set of factories. As I've gotten to look a little more under the hood at what goes on within the company, I've been very impressed.
What I suspected and what I saw last week as I met with our three biggest worldwide customers is that we have a very strong reputation with a very strong set of relationships there. There’s work to do, but the foundation is there, the assets are there, and for me coming in, I see several things that we can capitalize on to make it even more successful.
Matties: When you start at a new company, obviously coming in and learning is one of the first steps. What sort of strategies do you bring to a situation like this?
Waters: It's interesting. Although I was with National for close to two decades, I got moved around quite a bit from business to business and organization to organization. I have a lot of experience in coming into a new group that has, like all groups, a lot of good things going on and has its challenges going on. What I've learned is that you must try to really understand the guts and the reality of what's happening within a company or organization, and there are really two means of doing that.
The first is getting out and talking to the customers. You hear things that have objective or maybe less than objective biases thrown into them when you talk to people about the work that they do internally. Getting to talk to customers gives you more unfiltered feedback on what's really going well, what the real assets are, and what the real value proposition and differentiation is for what you do as a group. Certainly getting out and talking to customers is a critical piece.
The other piece, though, is talking with the employee base. It's important to talk with the outgoing leadership and management team. But I'll tell you even more important is to get out and talk with the direct employees. I find that you can get a pretty good perspective when you talk to people higher up in the organization, but you'll learn as much, if not more, when you talk to people that are deeper into the organization. That combination tends to give me a healthy sense for where the company really is and what kinds of things we need to do to get the company and the employees positioned in the direction we need in order to be successful.
Matties: What is that direction?
Waters: I'll give a caveat that this is day four of week two here on the job [Laughs]. So check back with me again in six months. That said, I think I can say this pretty confidently, because I've heard very similar feedback from both the employees and from customers, that this is a great company. It's a company whose products are mainstays of the industry and very well-respected for its technology. To some extent, it's fallen off the wagon over the course of the last five years or so. From what I've seen and from the conversations that I've had, if I were to summarize it I think it really comes down to getting disconnected from the customer. I know that that's a bit of a tried phrase that's used quite frequently. "Well, we need to get more customer-oriented."
In the case of Isola, it's really true. It's not just on the more obvious sides, from the commercial perspective, but you even see it filter into some of the issues we've had with product development and the efficiency and effectiveness of us getting new products out into the marketplace. Very quickly, we've been making a transformation to become more customer-connected and maybe get a little more humble around the customers, in terms of the co-development that we're doing with them. That already is resulting in some great progress for us. We're already seeing some significant steps forward on the product development side that is just a strong foretelling of a great future for us on getting new products out.
The other piece of it, going back to that takeaway about us losing our customer orientation, is the company was increasingly narrowing itself down to where it had been successful. A lot of successful companies do that. You tend to focus on what you're good at. The problem is that if you stay focused on what you're good at for too long, from a market perspective, the market changes as market dynamics change. All of a sudden, you find yourself increasingly focused on a niche and you’re not evolving in the ways that you need to service the changing market.
For us, I think that we've lost sight of big pieces of the market that can be very well-leveraged to take advantage of what we do for the areas where we've been successful. You're going to see us start to service more of that market now. That's good not only from an ability to drive more revenue, but it's good also for the markets and the customers that we do serve. If you're a company like a Cisco, or a Juniper, or even a Microsoft or a Google, you want to work with somebody who has that cutting-edge technology to enable the highest performing systems that you have. You also ideally want that partner to be there with you as those designs then transition into even higher volume manufacturing and into more of a mature part of the product cycle.
As a company, we weren't moving with our customers as their products went through that life cycle, and that’s something that we have the ability to do. We have the ability to innovate and collaborate with customers in our most demanding products and the most cutting-edge products. Because of the footprint that we have in China, we have the ability to manufacture at worldwide, best-in-class costs. As their products need to get costed down, we have the ability to make that transition, which is something we're going to take full advantage of as we move forward.
Matties: China obviously has a tough economy right now. How is that, coupled with falling copper prices, impacting your strategies?
Waters: Not at all really, to be honest. It reminds me a little bit of the analog semiconductor market, where Texas Instruments is the leader in analog, but they're less than 20% share of the market. For Isola, although we are a leader in the market, our market share is fairly small, relatively speaking. We don't need the worldwide market to grow in order for us to grow. There's a lot of market share that we can take and many markets that we can go after in order to drive growth. The market in China is going to be down and it's going to be up. We can't have a strategy that's predicated and based solely on that market continuing to grow. We need to find other ways to drive growth.
Matties: In our past interviews, though, Asia was the center focus of the strategy, so I would think that these influences do bear some impact.
Waters: They do bear some impact. Certainly as the growth slows it will have an impact on sales. I think the industry has seen that.
Matties: We see when the growth is lower that you see a lot of aggressive pricing come in from competitors that can certainly delay your capturing new market share, especially in China.
Waters: I think if you look at the markets, we've got the ability and the cost base to compete effectively there.
Matties: Hasn't pricing been one of the issues that you guys have been faced against, with your higher pricing compared to the competitors? Was that part of the reason for falling off course?
Waters: I would say for certain markets, absolutely. There have been cases where we just said, "Ah, we're not going to go after that business," because we didn't think it was a market that we could serve profitably. Looking at that though, it doesn't hold a lot of water. It really doesn't, and that's one of the things where I see great opportunity for us because there are markets and pieces of business that we've chosen not to go after which if you look at now, especially given that we've got upside in our production capacity, we have the ability to go after those bits of business.
One thing I want to say about our strategy in Asia is certainly, as the market has shifted, and as OEMs have put more of their manufacturing into Asia, we have shifted more of our strategy toward Asia. That said, there is still a good presence for us in North America and Europe. Given that a lot of the business that you see happening in Asia emanates from North America and Europe, it's still a very strong part of the strategy. It comes together nicely in Asia, but I would see it being more broad-based than just saying it's solely an Asia-focused strategy. Asia is where we've needed the most help though, I'll say that much.
Matties: A lot of competition there. You're an international businessman, so you know what the challenges are culturally there as well. There are just a lot of variables over there, but you’ve got Matt and a good team and a good footprint over there.
Waters: We do. This is a fairly unique experience for me in that I'm used to working at companies where you have the majority of your employees sitting in North America. We would service markets like Asia predominantly with North American resources. If you look at Isola, the highest percentage of our resources is actually in Asia. If you look at the competition and how we're competing over in Asia, it's with a factory that's in Huizhou, China, which for us has probably one of the lowest manufacturing costs and more effective factories that we have. We've got people that are over in Asia and we look, outside of me, like an Asian company over there. Matt LaRont, as you mentioned, heads our team in Asia and has been there for the vast majority of his career.
Even though we have a North American headquarters, I want to challenge that notion that we cannot go head-to-head with some of the competitors that are even more cost aggressive in that space. There's no reason that we can't. Where there are things that are making it hard for us to do that, we're going to figure those out and fix them so that we can.
Matties: There are 1,800 people working at Isola, and there's a cultural shift going on in your company now as new leadership always brings a new culture. What sort of culture or message are you bringing to your 1,800 people?
Waters: It goes back to the strategy. The culture has to be aligned with the strategy. When you look at where Isola has maybe gone a little astray, it has been in some areas where we've gotten a little bit more insular in our thinking. For people in R&D, sales and marketing, product definition, etc., I really am going to be making a strong push towards a more outward-looking focus. Not just on the PCB fabricator side but also on the OEM side.
From an employee perspective, another takeaway I have from my career is that companies typically go astray when the leadership and management of the company start to believe almost too much in what their own thoughts and opinions and ideas are. They don't get enough transparent and sobering feedback from the broader organization. To run a company well, to run an organization well, you have to have decision-making and ideas coming from the people that are sitting right in the heart of the market and that are sitting right at the heart of the development challenge that you're having.
One of the things that we've already started to talk about pushing continually is that I want an environment of transparency; somebody six layers down in the organization can tell me that I'm way off base on some strategy, opinion or idea that I have. It's a hard thing culturally to drive, but it's so critical. It's something that I picked up as I grew up through organizations. So often people would say, "Gee, if only upper management knew just how screwed up this strategy was and knew the reality of what they're telling us to do and how that's not going to work." I want to create an environment where people will be able to say that and their voice will be heard.
At the end of the day, if their voice is heard and we make a conscious decision to go against what somebody's opinion is, at least their voice was heard and we'll work to make sure everybody gets on the same bus and we move forward to be successful. That's what I want to see happen. With smart leaders and smart CEOs who are more insightful than the rest of the market, you sometimes get short-term success with that, but if you want to get any kind of medium- or long-term success, you must have an organization that is bubbling up good ideas and arguing in a very healthy and respectful way. That's what I want to see.
Matties: In your business career, who was the most inspirational person in your business development?
Waters: It's interesting. If I look at the leaders that I've been exposed to, probably the biggest takeaway that I've had, especially as I've moved up organizations, is that I don't think I've come across anybody that I thought was perfect. They all had very significant strengths and they had very significant flaws. I've tried to absorb both of those. I won't say which specific company, but in one of the companies, we had a leader who was probably one of the more charismatic, inspirational, and great strategic thinking leaders that I've ever seen, a visionary. The challenge, though, was that he was so in love with his vision and strategies that he was not very effective in getting the rest of the organization to really give him feedback on the flaws in implementation and the disconnects from realistic expectations.
On one hand, you had this great visionary, an inspiring leader, but he really missed out on the operational piece and on the ability to change his vision because he was getting feedback from people who were closer to the reality of what was going on. I've seen other leaders who were operationally brilliant. These people really got into the details and could help the organization run better from an operational perspective, but they lacked on the more strategic side of things.
As I would look at that from lower in the organization, I would try to say, "So, why is it you can't have people who have both elements?" The conclusion that I've come to, not that it's some great epiphany, is that what you really need to be as a leader is somebody who recognizes what your strengths and weaknesses are and can augment that with your team. Then you need to be humble enough to listen to the person who maybe has a stronger strategic muscle than you do when they're saying they disagree with you, be able to comprehend that and change your mind on things. Maybe take a little bit of a leap of faith in something that they're telling you, because no one person does it all.
I've had to move toward this model, frankly, because I don't think I've ever been the smartest guy in the room. I've always noted that there are people who do this better than me, and people who do that better than me, and people who understand the technology better than me. I've never had any reason to feel like my opinion was much better than somebody else's that was closer to whatever the topic was. I would say that's probably my biggest takeaway from the leaders that I've been exposed to.
One other thing, if I think through some of the books that I've read, one book that had a pretty meaningful impact on me was Built to Last. One of the interesting takeaways from that book was the notion that when you look at the companies that were successful over a long period of time, they had leaders that were not like the rock star leader where everybody looked up to them and everybody saw them as the one that was driving the company. It was the people who were a little more humble and modest and that built up a team around them, because inevitably what happens is that charismatic leader leaves or dies or whatever might happen.
Matties: Like Iacocca or somebody like that.
Waters: Exactly, or Morita from Sony is another great example. It will be interesting to see how Apple does. That's the kind of model that I strive for. It's hard though, to be honest, because when you're in a position of leadership, it's nice to be the rock star and to get that feedback, but when I think about my staff and leaders within the organization I want to try to develop them to be those rock stars.
Matties: When you talk about strategy to your team, what's the strategy? You mentioned R&D, and customer focus. Is it niche marketing? Is it pricing? Is it content people want to share?
Waters: I look at it as, what are the assets that Isola has that nobody else has? It gets back to the worldwide footprint that we have. If I am Cisco, for example, and I could just have easily used Alcatel-Lucent or Huawei for that matter, what I want is the ability to get a means of differentiation from as many technologies as I can. They want to work with somebody that has the best R&D and the best product development people to help take the needs that they have and translate them into enabling technologies. They absolutely want that.
They also want somebody who can help them scale to production with more mature products at a price point that can still help them be successful in the market as the product lifecycle goes. From an OEM’s perspective, I want the technical engagement, but I also want that ability to ramp up to high volume, cost-effective manufacturing.
The question is, can somebody do that? Can somebody be that real partner to a company like a Cisco and all the PCB fabs that support a Cisco? Can somebody be an effective collaborator and customer for a company like Cisco and span that? Because if you could, that would be ideal.
Matties: That's great for them and it’s great for you; it clarifies the supply chain as to what the real needs are through the experts of the base material.
Waters: Exactly. There are a lot of things that you need to do well in order to get there. Traditionally, there's always been this belief in business that you can't do both of those things. You can't be the innovative product leader on one end and the low-cost manufacturer on the other. I have a hypothesis, and it gets back to listening to, enabling, and empowering the different leaders that you have. We have an entire organization in Huizhou, China that I don't need engaging with Cisco. Their whole focus is on low-cost manufacturing and high throughput, low cycle time manufacturing.
Matties: Best yields.
Waters: Right, that is their focus. Where I think it typically gets screwed up is that you have some guy like me who really likes his own thoughts and ideas and when I go in and talk to China they tell me, "Hey, here's what we need to do to be successful," but I have my opinions and I basically force fit them into what I think is the right answer. If you have good, competent leaders and you let them decide and say, "Tell me what we need to do to compete as a low-cost manufacturer in the heart of China," then you can get there. There are pieces, in between, which are going to be the hard part. Like how do you then translate and transfer that technology from cutting edge and tougher to manufacture to easier to manufacture, and then to really easy to manufacture?
I think if we can get good at that, it is an upside competitively, but also an upside from the revenue perspective.
Matties: The approach is you really empower them by building a team that is so well-aligned that they feel a part of it and they want to do a better job rather than just working for a paycheck, even in China.
Waters: Absolutely. I've always been most inspired when I've been in the kind of an organization where you feel like you're being heard and people care about you, which is also a part of being heard.
I think it's true in China as it is in Kansas City. I will say this, if you look at some of the base products we have like the 370HR, and increasingly now we're going to see the 185HR products, those are the mainstays in the market. If somebody wants product that is not going to fail, they use that product. That speaks to the capabilities that we have. We've fallen off the wagon here over the last couple of years, but we're back on the wagon. You're going to see that type of capability go back into quickly released, on time, reliable products that are going to be enabling to the customer base. Then, you bring in the manufacturing capability that we have in North America, Europe and also in China. If we could just get people inspired and feeling like a part of this journey and buying into the vision that we can be successful, we're going to be able to build what we just described and should be able to succeed.
Matties: Well, it starts right here with you. Is there anything that we should talk about that we haven't discussed?
Waters: There was one other thing that I forgot to mention that attracted me to Isola. If you look at some of the markets where we have developments and where I think we're going to be successful, one is in automotive and in driver assistance and the growing market there, and the other one is in the data center. Those are the two markets that everybody's flocking to these days because it's where a lot of the growth is, but we really do have some assets there that I think are differentiating. For me, these are two markets that I have invested a lot of my time into, data center more recently, but automotive going back to the mid '90s up until now.
I've spent a lot of time in automotive, both with automotive OEMs, but also tier ones within Japan and within Europe. I understand a lot of the challenges of playing in automotive, a lot of requirements that exist there, the good and the bad, living through quality issues and all the hell that comes with that. That's going to be an exciting area for us and a good area for growth and one where we're real close to having a very successful product there, and the same thing goes for the data center side. These are markets that I understand, and I think they're probably the two biggest markets of opportunity for Isola, so that was another draw.
Matties: Speed obviously is the big issue, and optical is becoming probably the next logical step. How do you see that or have you given that much consideration yet?
Waters: From a performance requirement, optical has been comprehended into the product development plans that we have. If I look at some of the noise or loss targets that we have with some of our products that are in development, like our Tachyon® 100G product, for example, what I've seen when I’ve looked at the capabilities, is that we have an ability to stay ahead of where that market is going to be, so we should be able to maintain a leadership position there.
Matties: You want to definitely be in the leadership position because it's changing so fast. The speed barriers that we thought were there are being breached almost by the minute. It's incredible how fast this stuff is moving these days.
Waters: There's a great example where if you are just looking at optical from a Shenzhen perspective or from a San Jose perspective only, you're going to miss some of the nuances. The fact that we've got a presence on both sides of the Pacific, and then even on the other side of the United States with the Alcatel-Lucents of the world, and then, heck, even if you go on over to the Swedish part of the world, we've got a footprint there. Once again, if the employees feel like they've got the power and the voice, we should be able to stay ahead of where that market is if we do our jobs right.
Matties: Sounds like you're on a good path. You have great experience that you're bringing to the table and time will tell. We will see what you can do.
Waters: I've already lasted a week and a half so... [Laughing]
Matties: I don't know if that's record or not, but congratulations [Laughing]. Thank you so much for the interview.
Waters: You as well.