Bill Purser is president and chief operating officer of Applied Industrial Technologies, which ranked ninth in last year's Big 50 report of the largest industrial distributors in North America. This is the sixth in an occasional series of Q&A interviews with leaders of the 2006 Big 50 companies; our 2007 Big 50 report will be published in June.

Industrial Distribution spoke with Purser, who will retire at the end of the year, by phone in November, asking about Applied's performance in 2006, its strategy for global growth, as well as Purser's thoughts on why recruiting new talent is one of the industry's top challenges. Here are excerpts from that conversation:

Industrial Distribution: Applied had a record sales year in fiscal 2006. What were some of the key drivers behind that success?

Bill Purser: The acquisition of Minnesota Bearing and Spencer Fluid Power contributed to the top line. We also had some marketing programs where we focused on 11 SIC [codes] where we saw some good growth…metal mining and coal mining were two that we concentrated on this past business year, and also our new government sales program. Those three things really contributed to the top-line growth.

ID: Applied continues to expand its product offering, most recently adding the Rust-Oleum line of paints and coatings. What's your strategy behind broadening your product offering?

Purser: We like to think we're a customer-centric company, so most of the requests to expand our product line come from our customers. That said, we want to remain within the industrial product domain. …We look at each product addition as to whether we can add value to our customer…and if we don't think we can, it makes no sense to add it to the portfolio.

ID: Some power transmission distributors have made acquisitions to get them into the traditional mill supplies arena. Will this be part of Applied's strategy going forward?

Purser: Again, if it makes sense. Our acquisitions really have supported our strategy. The two major platforms [for growth] are the bearings and power transmission platform and the fluid power platform within North America. That's our current strategy. Again, if it makes sense, if it's a good fit and we can add value, then we'll look at expanding [in other ways]. We have to look at each opportunity. As I sit here right now, I can tell you we're not looking at that type of acquisition, but I don't want to paint myself into a corner.

ID: You mentioned Applied's acquisition of Spencer Fluid Power and Minnesota Bearing Co. How has the integration process gone and what did those acquisitions bring to the table?

Purser: The integration process is going very well with both companies. In fact, they're ahead of our projections. I think we have a very good integration process and it's because we've had lots of practice with the number of acquisitions we've made. Minnesota Bearing had a very strong presence in the markets they served, and in many cases stronger than ours, so this brought good market share for us. The Spencer fluid power acquisition increased the fluid power platform [and brought] some additional customers from the Northwest markets they serve. We've been very pleased with both acquisitions.

ID: As industry consolidation ramps up, how do you view the role of the smaller, independent power transmission/motion control distributor? Is there room for them in this changing marketplace?

Purser: I believe that there is a role, a very strong opportunity, for small industrial distributors. First of all, this market is extremely fragmented. There will continue to be consolidation, there's no question about that. For companies like ours, acquisition is a large part of our strategy.

But I think the small independent that's more specialized will have a better opportunity. A generalist will have more challenges. This is a relationship business, and I just don't foresee the demise of the small, independent distributor. On the contrary, I think they have lots of opportunity.

ID: Is Applied considering expanding operations outside of North America? What do you consider the most attractive international markets?

Purser: We still believe there are opportunities in North America, particularly in Eastern Canada for us at this point in time.

I think everyone's looking at Asian markets, particularly China, and we're no different. We see opportunities in both Eastern and Western Europe, and certain parts of South America. Since we have a presence in Mexico it might be deemed a natural step to look at Central America and South America. But until we feel that we are in a proper position in North America, I don't see us making any moves [elsewhere]—unless an opportunity presents itself that we feel we need to take advantage of.

ID: Finding good people is a top concern among distributors today. What is Applied doing to recruit and retain talented workers?

Purser: This is still my number one priority. I have a major concern about attracting and retaining good people—not only for our company, but for our industry. I think it's going to be a real challenge with the fact that baby boomers are reaching [retirement age, but aren't ready to fully retire]. I think the challenge for companies like ours is going to be, what can we offer other than the straight 40-hour work week? Are there any other ways we can entice baby boomers to stay with us—with flexible hours, part-time work and other approaches. Our industry has done this to some degree, but not [significantly].

The other thing is attracting people to the industry. We need to communicate to young people what our business is about, what the opportunities are here. I really feel we need to do a better job along those lines.

One of the things we've focused on is assistance in education and training. We've found that the new generation is really interested in continuing education and training. One of the things that we did not do during the downturn was cut our training. Our decision was that we were going to continue, and I found budget dollars to do so. We thought, long-term, it made more sense. …We have a lot of investment and will continue to invest in our training program.

ID: What are the other key challenges facing distributors today—especially distributors of Applied's size and scope?

Purser: Since we're a public company, regulations are always a challenge. … Also, interest rates, which was high on the radar many months ago, has moved down into a lesser slot, but still has to stay in the back of our mind. And any geopolitical concerns that we have no control over affect everyone.

Two or three things go beyond that. One of the challenges we have is making sure we hear our customers. That's very important regarding [our] product portfolio, [customers'] needs and how we structure our business. Too often, when you get large, you lose sight of that.

The second thing is listening to your associates. We get excellent feedback from our associates, and we try to push the decision making as close to the customer as we can. …I think it's important to listen to your associates to understand their needs and see what they need [in order] to serve the customer. That's a challenge as you grow larger.

Last, but not least, is maintaining consistency. This is something that we look at. Once you have [inconsistency] you have opportunities for waste.