A change in culture

By Fiona Rotherham

Sunday 1st February 2004

Ask Fred Schwacke what brought him from Vermont to the small Taranaki town of Manaia and he jokes "bad luck". In fact, the turnaround specialist was asked to come here in 1997 by Pacific Natural Gut String's German owner, Pacific-Entermark, and given three months to produce a plan to either resurrect or close down the factory. He chose the former because he could see massive potential for the product - once it returned to top quality.

The company manufactures natural gut strings from beef intestine for use in sports racquets, musical instruments and medical products. Six years ago it hit rock bottom, its quality so bad it had a 60% string failure rate. Today that figure is one-tenth of 1%.

The company won Exporter of the Year to the US in 2002, is ranked second in the world for natural gut string production, and took eight out of ten top spots in an independent test of natural gut strings in 2003. And it's signing up leading tennis players to endorse its products. New Zealand teenage whizkid Marina Erakovic has been provided with free strings by Pacific for the past year and says she instantly noticed the difference in her game.

"There is a nicer feel on the ball when you hit it and they are smoother to play with." She has also had no problems with a recurring arm injury since using the more expensive natural gut strings.

Demand is now outstripping supply. Schwacke says the company is profitable with cash-flow funding investment in new machinery. Exports account for 99% of revenue, with tennis racquet strings accounting for 70% of sales, pharmaceutical products for 25% and musical instruments the remainder. Turnover jumped 300% last year and is expected to grow by a phenomenal 1000% this year. Schwacke says he has a Japanese tennis manufacturer wanting to buy three times as much product in 2004 as Pacific's total production last year. The problem is maintaining his tight grip on quality while boosting production. He now has to source some beef intestine from the US because he can't get enough locally.

What's the secret behind the 30-year-old company's transformation? Here are the key moves:

finding out from customers what was wrong with the product and talking to staff about how to lift quality;

doing joint research with Massey University to investigate the properties of the collagen fibre used to make the strings (R&D spending is 15% of revenue);

using new technology to increase the strength and durability of the strings;

installing its own equipment in abattoirs to better harvest the beef intestine (serosa);

introducing worker education to improve literacy, maths and leadership skills.

The most crucial factor though was changing the company culture. Schwacke rates his 20 staff as the best group he's ever worked with. That wasn't always the case. "One of the things I feel is of epidemic proportion in New Zealand is that when a person succeeds, there are any number of people prepared to cut them down."

Getting rid of the tall poppy syndrome and having staff participate in product development has helped move the company forward, Schwacke says. The strength of the workforce is the reason the company remains in New Zealand, he says. As for the 61-year-old American, he'll move on in a few months once he's satisfied the turnaround is truly game, set and match.

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