Beyond Academia : Scantron Tapping Business Markets
Hey, graduates!
Up to your tassels in those Scantron brown-and-white automated testing forms? Think you’ll see the last of those little multiple-choice ovals once you finish this semester’s final exams and pick up your diplomas?
NOT!
If Tom Hoag has his way, the business world will soon be organized, catalogued, inventoried and surveyed with a forest of No. 2 pencils and his company’s ubiquitous forms.
“We have instant name recognition with students,” said Hoag, president of Scantron Corp. “My focus is to develop a plan that will use that name recognition to move into the commercial sector.”
Using the same technology employed to make its educational test forms, Scantron is positioning itself to make a run at the highly competitive data-entry market.
Since Hoag became president of the 20-year-old Tustin firm in 1989, he has been pursuing an ambitious strategy to expand the company’s market base and secure its future financial well-being.
To date, Scantron has signed contracts with such diverse companies as BankAmerica Corp., San Diego Gas & Electric, Coca-Cola Co., McDonald’s Corp., Princess Line Cruises, Jafra Cosmetics Inc., Disneyland and Builders Emporium.
Non-education government contracts include pacts with the states of California, Oregon, Washington, Texas and Kentucky; the Air Force, and the California counties of Orange, Ventura and San Diego.
What the company does for clients is create forms for a variety of applications, including customer surveys, employee and cadet applications, and orders and inventories. Even hospitals, including St. Jude Medical Center in Fullerton, have bought into Scantron’s new plan, ordering automated menu cards to help in planning patient meals.
By all indications, the diversification plan is working.
In 1987, sales of standard testing forms and related hardware accounted for 85% of the company’s business, Hoag said. Today, the education market makes up only 60% of total sales.
At the same time, revenue has grown 70.3% in the past five years, thanks in large part to newly won commercial and government contracts.
Sales of forms to private concerns and non-education public entities, such as county and federal agencies, have increased 133.7% from $6.34 million in 1987 to $14.82 million so far this year.
Such success was not achieved overnight.
“When I came here, I found a lot of talent, but they had a mind-set on education,” Hoag said. “We had to open up and change a lot of things that were done here for years.”
The strategy to raise Scantron’s bottom line actually began a year before Hoag was hired.
In 1988, five years after Scantron went public, the company was bought by John H. Harland Co. in a stock swap valued at about $75 million.
The Atlanta-based company, one of the nation’s largest printers of checks for the banking industry, posted a profit of $47.4 million for 1991 on revenue of $378 million. First-quarter earnings this year were $14.9 million, up 12% from the same period the year before, thanks in large part to Scantron’s growth.
After Hoag took Scantron’s reins, he maneuvered the firm through the 1990 takeover of DataScan, a Geneva data-entry firm, which Harland officials said has made the company more profitable and has given the growing family of companies an international profile.
Harland spokesman Bruce Danielson said the parent company’s healthy first-quarter earnings were largely because of the Data-Scan acquisition, which brought Harland more than $6 million in sales last year.
Harland bought Scantron in a friendly takeover as part of its own effort to diversify.
“Scantron had a strong balance sheet and a great capacity to grow” in the commercial data-entry business, Danielson said. “We wanted to go ahead and get them into the family.”
Under Hoag’s direction, Scantron in 1990 hired a management consulting firm, Prism Ltd. of Los Angeles, to redirect employees’ goals during the company’s transition.
Using focus groups, Prism’s Chris Coffey developed a team organization structure that gave employees more of a corporate say as the company changed. He also launched an employee newsletter.
That helped employees and mid-level managers sense that they were a vital part of Scantron’s mission, Coffey said, and minimized dissatisfaction, which often accompanies corporate changes.
Hoag’s philosophy about employees, Coffey said, “was that they have to be more of a team.”
Hoag also hired Chip Long of World Class Consulting Group in Seal Beach to reorganize Scantron’s assembly lines and to increase cash flow by reducing inventories of parts, machines and paper by as much as 45%.
Meantime, Hoag said, he has redirected 5% of the company’s expenditures into research and development. When he arrived, the tan-and-brown test-scanning machine familiar to most educators cost about $4,500 each. The devices, which could read and correct 700 tests an hour, were largely unchanged, however, from the original model.
With the hiring of several electronics technicians and computer programmers, Scantron has just completed a new scanner. It costs $60,000 but can read 10,000 sheets an hour and has a powerful computer built inside.
The computer can be hooked up to the mainframe computer of a company, government or school system, giving operators the capacity to analyze statistics and create charts almost instantaneously.
A new ScanSurvey program, for instance, can compute standard deviation, margin of error, mean and median for customer, employee or research surveys.
George Zagoudis, a stock analyst with Barrington Research Associates in Barrington, Ill., said Harland’s decision to purchase Scantron was a ground-breaking one for the historically conservative company.
While acknowledging the risk of breaking into the data-entry business, Zagoudis said the acquisition of Scantron seems to have made good business sense.
Both companies were No. 2 in their fields--Harland is second to Delux Corp. in check printing, and Scantron trails National Computer Systems in the educational forms business.
And both companies were at the peak of their sales. For Harland, check renewals are not expected to grow by more than 3% a year. With an increasing number of banking customers using automated payment systems, the business may actually decline, Zagoudis said.
The situation is similar for Scantron, which says that university, college and secondary school systems are reporting flat enrollments and lean budgets.
Scantron, Harland’s first acquisition, was a learning experience, Zagoudis said.
“When you buy a company, you really don’t know where it’s going to lead. It was wise to start off with a company like Scantron with a solid base.”
Teaching an Old Dog New Tricks
Move over, educational test forms: Corporations are putting a new twist on an old idea. Automated forms are now available for:
Surveys
Employee testing and evaluation
Training programs
Inventory control
Timekeeping, payroll documentation, job costs
Hospital diet menus
Association or certification applications
Small elections at schools, unions, associations
Standardized testing
Source: Scantron Corp.
At a Glance: Scantron Corp.
Corporate headquarters: Tustin
Founded: June, 1972
Chief executive: Tom Hoag, president
Branch offices: 24 in United States, three in Canada, one in Switzerland
Facilities: Printing sites in Puerto Rico and Feasterville, Pa.; warehouse distribution center in Chicago
Nature of business: Provides data-collection solutions, products and services, including forms, software and scanning equipment to automate data entry
Client list: Disneyland, Allergan Inc., St. Jude Medical Center, BankAmerica Corp., San Diego Gas & Electric, Coca-Cola Co., McDonald’s Corp., Princess Line Cruises, Jafra Cosmetics Inc., Builders Emporium, most major airlines and cruise lines
Target industries: Health care, automotive, travel and leisure, manufacturing; businesses surveying customer service and satisfaction, product reliability; state, federal and local governments; human resources departments, training programs
Employees: 558, including 318 in Orange County
1991 sales: $44 million
Testing 1-2-3
Filling in little ovals is not just for educational testing anymore. Just when you thought it was safe to put away your No. 2 pencil, Scantron Corp. of Tustin developed a whole new series of applications for its products.
U.S. Sales
Expanding its market beyond education into business has helped to increase Scantron’s sales.
1987: $27.9
1988: $32.7
1989: $36.4
1990: $39.7
1991: $44.0
1992*: $47.5
* To date
Sales Breakdown:
Last year, customized forms accounted for nearly as much revenue as educational forms.
In percent (in millions of dollars):
Equipment: 27.7% ($12.2)
Educational forms: 32.9% ($14.5)
Custom form: 29.8% ($13.1)
Maintenance contracts: 8.6% ($3.8)
