Hillenbrand Industries"”one of the top five manufacturing companies in the Tristate"”has surpassed many challenges since John A. Hillenbrand rescued a casket company from bankruptcy 100 years ago.

After rising to dominate markets for hospital beds and caskets, Hillenbrand today is struggling to regain momentum after years of sluggish sales and profits, searching for winning strategies against an array of new forces.

That leads to the big question on the minds of 9,400 Hillenbrand employees (about 3,100 working locally), the shareholders, investment analysts and residents of the company hometown of Batesville, Ind. (pop. 5,000): what will this new CEO do?

Peter H. Soderberg accepted the challenge in March, marking the first time Hillenbrand reached beyond its own ranks for a chief executive. He says he doesn't mind being in the hot seat. "I hope I thrive in it," he remarks with a relaxed grin.

He began working in the healthcare field with Johnson & Johnson in 1968, rising to serve as president of the Health Management division. Soderberg's marriage to Elsa Allyn linked him to Welch Allyn Inc., a market leader in diagnostic medical devices. He joined the company in 1996, and was named CEO in 2000. Two years later, he was invited to join Hillenbrand's board of directors. He formed a good relationship with Rolf Classon, the company's interim CEO who shares a Swedish heritage with Soderberg.

Hillenbrand and Welch Allyn are both family dominated. Both are based in small towns (Welch Allyn is in Skaneateles Falls, N.Y., 20 miles from Syracuse). Both diversified and acquired smaller companies in recent years, with mixed results. Welch Allyn and Hillenbrand's Hill-Rom company both focus on health care. Hill-Rom expanded into total hospital room furnishings and equipment, including communications systems. Welch Allyn took on patient monitoring products.

The crucial difference for Soderberg? Combined, Hillenbrand's two major companies (Hill-Rom and Batesville Casket) are nearly four-times the size of Welch Allyn, a $500 million company. (The casket company reported revenue of nearly $670 million in 2005, while Hill-Rom brought in than $1.27 billion.) Perhaps most important: Welch Allyn is privately held, while Hillenbrand is publicly traded. And while Welch Allyn has been averaging annual growth of about 14 percent, Hillenbrand has had trouble keeping sales and profits on the uptick.

FROM HIGH-TECH TO CUSTOMER SERVICE
The attractive Batesville campus will startle anyone who envisions Hillenbrand as an old farm-town factory. Visit the theater in-the-round at the modern, 29,000 square-foot "Customer Experience Center" at Hill-Rom. As the lights dim, an audio-visual presentation illuminates how the company began making beds for hospital wards in 1929. You progress through the decades to a demonstration of a sleek private hospital room of the near future, featuring wireless monitoring devices and in-bed therapies. It's like a new attraction at Epcot in Orlando.

Throughout the center, visitors see demonstrations of the latest in specialized hospital beds, such as a bariatric line that makes it easier for nurses to manage obese patients, or airflow models to prevent or help heal pressure sores. "We want educated customers," says Susan Grant, center director.

In recent years, though, Hillenbrand's market dominance fed a reputation for arrogance. So, the company reorganized its sales force and renewed an emphasis on building personal relationships with customers. The executive conference center called "The Farm" hosts overnight guests in executive style. At Hill-Rom's customer center, the CE'™s office is just down the hall. Soderberg is making a habit of checking in frequently to meet prospective or returning customers, whether it be a group of nurses or executives from hospitals and major equipment-distribution companies.

"We have to get even better connected to customers," Soderberg observes. "I have to lead by example."

Strolling through Hill-Rom's factory, Soderberg could be mistaken for a floor supervisor. No suit or tie, just a button-down shirt, slacks and safety goggles. He smiles and banters easily with the workers during a shift change. One wonders how many of those workers know that Soderberg's last major action at Welch Allyn was to consolidate U.S. operations with the closing of two plants, and to announce the construction of a manufacturing facility in Mexico  "to mitigate increased competition from low-cost global manufacturers."

HOW HE GOT THERE
Sitting down for an interview, Soderberg first laments the Cincinnati Reds sweep of his beloved Cardinals in St. Louis, where he once lived.
He and his wife are residing at the home of Ray Hillenbrand, chairman of the board, awaiting preparation of their Batesville home. The Soderbergs will keep their lakefront residence in New York, with its proximity to family members. The couple was active in both Syracuse social and civic life, especially with support of the Syracuse Symphony Orchestra.

For now, however, they will lead "a simplified life" in Batesville as Soderberg puts in 12-hour workdays. "Right now I'm so focused on getting this business on a growth curve," he remarks. Cincinnati and Indianapolis have "wonderful, stimulating business communities," he adds. "In a year's time, if we do the job well, I'd love to interact with them more."

He sums up his business philosophy: "Number one, try to treat everyone the same, maybe the customers even better." Communicate well. "Spread the vision of who we are, where we're going, why and how." Benefit from serving on other corporate boards and in industry organizations. "I get a lot from peers. I'm shameless about soaking up their ideas," he chuckles.

Now he's absorbing the views of shareholders. "I have met wide cross-section of investor groups as diverse as our customers. I learn something in every encounter."

Why did Soderberg take this on? He intended to retire, then considered starting a venture, "something I'd be passionate about." He was surprised when Classon asked him to consider leading the company. "I didn't think the board would ever want me. I was such a squeaky wheel."

He didn't wait long to initiate change. In June, Soderberg reorganized Hillenbrand's upper management with three new vice presidents. Abel Ang has international medical and biotechnology experience. Michael Grippo, an investment banker, once worked in business development for Welch Allyn. Blair "Andy" Rieth Jr. has more than 20 years of management experience with two of Indiana's leading health companies, Guidant and Eli Lilly. This new team "will help us not just with acquisition but alliances," the CEO notes.

Batesville Casket has tried to diversify into more of a funeral services company. But Soderberg concedes the outlook is mixed. Cremation rates have risen to more than 30 percent. Costco began selling caskets for $800. The Chinese entered the U.S. market for caskets and cremation urns. Batesville can turn out a customized casket in 24 hours, but now people can order personalized models on the internet from small entrepreneurs.

As for Hill-Rom, Soderberg says the challenge is "morphing the company to be a global competitor in an age of higher technology."
Everyone knows that international competition is driving down prices. What concerns Soderberg is the global gain in quality and technical innovation. "All of us have been shaken by the increase in quality of foreign competition," he concedes. He points to recent news about the J.D. Power customer satisfaction rating for autos. Korea's Hyundai vaulted to the tenth-best brand overall, leaping Audi and Mercedes Benz. "If that didn't shock you, nothing will," he observes soberly.

Hill-Rom, he says, has to protect its core business of hospital beds by refreshing, extending and innovating. Soderberg notes that a "total care" bed has seven or eight microchip processors. "These are very sophisticated medical devices."

He sees opportunity for Hill-Rom growth in long-term and special-care markets, even home care. The company has to "unlock the creativity" of its team, meeting the changing needs of both patients and caregivers, seeking to provide "everything that surrounds the patient," and go further in improving service. "We have to be innovative and serve the daylights out of our customers," he summarizes.

Both Hillenbrand businesses are saddled with other challenges. Rising costs for raw materials and energy consumption are eating into the bottom line. Then there's litigation. A class-action antitrust lawsuit recently cost Hill-Rom $337 million in a settlement, and Batesville Casket faces similar litigation from a funeral consumers group and other parties.

THE FORTHCOMING STRATEGY
With all this before him, Soderberg intends to announce in a month or two the results of a new strategy for Hillenbrand. "We'll go public with the answers to where we go and how we get there," he says, adding, "We shouldn't need a long time agonizing over where we need to go."
What if that leads to more layoffs, foreign outsourcing or even divesting a major business? If it comes to that, Soderberg says he will be guided by what's ethical"”how he would want to be treated. "My core belief is to do it in a way I'm proud of, in a way that I can sleep at night."

As reserved as he can be at times, Soderberg has a tone of sincere empathy when he stresses how he understands the impact of a big business on a small town. That's why he's been attending "town hall" style meetings with employees, and in the community. "Having said that, if we have to do something to protect a 100-year-old business and its customers, we will. We control our destiny."