October 2, 2013, by Ulrich Spiesshofer
(translation of NZZ article 01.10.2013)
In mid-September, Ulrich Spiesshofer took over as CEO of the industrial group ABB. He succeeds the American Joe Hogan, who led the company for five years and who is now returning the United States for private reasons. What changes can be expected with the transition at the top? Could Spiesshofer bring with him a strategy change? Or will the firm be kept on autopilot, so to speak, in order to stay the course?
Spiesshofer explains in a conversation at the head office in Oerlikon that ABB has already set up many operations correctly, and they run smoothly. Spiesshofer said that if the company stays on autopilot, this could be fine for a while. But soon it would run the risk of missing out on opportunities and heading into dangers. The CEO of a company must be actively engaged and carry out navigation checks at both the tactical and strategic level. He needs a strategic and an operational radar because in every market there are opportunities that have to be recognized early and addressed swiftly. The art consists of correctly assessing today what tomorrow and the day after will bring.
Spiesshofer often uses the term of “market penetration” in his interview. With a view on the operational side of business, Spiesshofer says a lot has been achieved in terms of cost efficiency, client orientation and market orientation. The company now wants to move strongly in the direction of market penetration. He expects growth to accelerate, without this putting pressure on earnings or on the margin targets. He noted that in the spring of this year the company adopted the approach of “in country for country,” which means that product management is oriented as much as possible to local demand. You need to operate locally and stay ahead of the curve, he says. You have to see how you can adjust products locally and sell them better.
Doesn’t this fine-tuning restrict the standardization possibilities too much? No, Spiesshofer believes the correct approach is to standardize components and basic processes on the value chains and the nearer one gets to the product and the client in these chains, the more important it is to be close to the user – to differentiate by markets, traditions, tastes or needs – to better tap the market opportunities.
Room for maneuver in white-collar areas
Even in the areas of cost cutting and cost efficiency in which he was something of a top trainer at ABB for years, he sees some room for maneuver. The optimizing of purchasing and processes in factories was driven forward strongly, but among the 145,000 employees in the group, almost 100,000 are in white-collar jobs, not in production. If you give a sales agent better tools, he can spend more time with the client, bring in more orders and stimulate the growth in this way. In the recent past, it has not been easy for ABB to convince the public of the company’s growth story. The drop in orders in the first half-year (–3% in local currencies) and in the second quarter (–8%) made investors more nervous. Is the company simply going through a tough time that it will pull out of? Spiesshofer says that in the first half-year two things came together. First, the markets became weaker in the process industry, and the big energy suppliers held off on capital spending. In addition, ABB initiated a “reset” in the power systems division, which focuses on grid systems; this requires a transition period, and along with it a reduction in business, before the division returns to growth again. It’s like driving. You have to slow down into a curve and accelerate out of it. Won’t the acceleration suffer over the long term due to the ample supply of energy? ABB is ultimately a provider of energy efficiency and, yes, with falling energy prices its value could decrease. But Spiesshofer believes the risks are low. Even if prices were to fall in absolute terms, the demand for products and services that reduce energy costs remains intact. At every price level people are always looking to reduce their energy costs. In any case, on a long-term basis, energy prices are expected to rise, he said.
Waiting for the new grid
No doubt there will be a certain lull in capital spending on new smart grids. “But the pressure is rising in some countries to do something. I believe the investments have merely been postponed, not canceled.” He sees great uncertainty about energy policy and energy markets in many places; but the long-term outlook has not changed. More renewable energy sources will be opened up and connected to the grid. And nothing will change with the fact that the wind will still blow in the North Sea and that the energy will be needed in southern Germany. Furthermore, it is a question not only of the flow of energy between north and south, but also of the complexity of the grid. And in this area ABB is ready.
For now, however, utilities and state-run companies are not the biggest-spending clients. Would it not provide new momentum to move some of the business into the “fast” new consumption markets that are always demanding something new? Spiesshofer’s answer is calm: “Here I am going to break with conventional wisdom. B-to-B clients are not undiscerning customers, who reject short-term developments. BMW, for example, wants the carbon parts of its new electric car to be painted exactly as sheet metal. And the head of the energy giant, State Grid Corporation of China, the largest client of ABB, who Spiesshofer met two days ago, is an innovation engine. Such clients stimulate suppliers to boost their technological performance; the company that is not the best or the fastest loses orders. When you do business with pros, you need to keep up, because things move very fast.
Spiesshofer, born in 1964 and a German national, has been with ABB since 2005. When he moved at that time from advisory services to the industrial group, he became head of Corporate Development and member of the Group Executive Board. In 2009-10, he became head of the Discrete Automation and Motion division, which has grown strongly, also through major acquisitions, and whose integration he now is in charge of as CEO – along with the integration of other major businesses.
An important success indicator of these integration projects is that the employees stay in the company. One does not want to lose anybody, and that has been achieved, he said. Especially motivating for managers of acquired companies was having the possibility to move up during the integration phase and to take over leadership positions in new joint structures, he said, as in the case of Baldor. During the integration process, the principle of “do no harm” applies: new units should not be forced into doing things, but neither should they be suffocated with affection.
As for cross-selling, Spiesshofer sees very different approaches. Selling drive systems to South African mining companies from the Baldor range of products is quite different to convincing a European provider that he needs efficiency-enhancing software from Ventyx. Has ABB become more American through the acquisitions of Ventyx, Baldor and Thomas & Betts? Spiesshofer calls it “globally balanced,” not American.
But he adds that you have to understand Americans well, if the integration is to succeed. Fort Smith in Arkansas works differently to Zurich, Shanghai or São Paulo. Based on his own experience, Spiesshofer says there are clear differences between American and European management culture, although he doesn’t rate one better than the other. The European engineer-driven, deep-reaching, very analytical culture has its strengths and weaknesses, as does the American culture, which is very fast in implementation and market orientation. The art consists of bringing together the strengths of both cultures to create something fantastic.
Does the US group General Electric (GE) sell itself better than ABB does, and could ABB draw some inspiration from the United States? Spiesshofer answers by saying that ABB is not in the consumer goods sector, where one has to act in a very elastic manner. ABB has very long-term B-to-B relationships; these are long-time clients with technology requirements. It would not be prudent to have an aggressive communications approach. “We are set up in such a way that if we take on an challenge, we deliver.” ABB wants to stand out from the competition, not merely keep up with it.