CBS 25 February 2013 Jørgen Huno Rasmussen · 2013-04-23 · Huno Rasmussen said. From Havarti...
Transcript of CBS 25 February 2013 Jørgen Huno Rasmussen · 2013-04-23 · Huno Rasmussen said. From Havarti...
Managing globalisation
CBS
25 February 2013
Jørgen Huno Rasmussen
Jørgen Huno Rasmussen
Education M.Sc. (Civil Eng.), DTU, 1976;
HD (Organisation), CBS, 1977; Ph.D. (Construction Management), Stanford University, California, 1978 + DTU, 1979
Career
1.12.2003- Group CEO, FLSmidth & Co. A/S
2000-03 Group Director, Veidekke ASA, N
1987-03 President & CEO, Hoffmann A/S
1986-87 International Director, Hoffmann A/S, UK
1983-86 Dept. Manager, H. Hoffmann & Sønner A/S
1981-83 Dept. Manager, Chr. Islef & Co. A/S
1979-81 Project Manager, A. Jespersen & Søn A/S
Non-executive posts Chairman of the Board of Lundbeckfonden and LFI A/S, Vice Chairman of the Board of Tryghedsgruppen, member
of the Board of Tryg Forsikring A/S, Vestas Wind Systems A/S, Bladt Industries A/S, Industriens Arbejdsgivere i København and DI’s Board of Representatives.
Publications
70’s: articles on organisation; 90’s: articles on the Construction Industry and ATV white paper on future engineering education; 2001: ATV white paper on deterioration of Danish Infrastructure.
Conclusion
Globalisation is here to stay
Try to hide from it and sooner or later be helplessly destroyed by it
Or embrace it unconditionally and make it work wonders in your interest
Agenda
The inevitable globalisation
Management response
Global split of work:
– Centralisation of R&D in Western technology centres
– ”Off-shoring” of standard engineering to India
– ”3C-sourcing” of manufactured components in China
– Global decentralisation of Sales & Customer Services
Culture and other complexities
Why do some companies win and some loose under the same circumstances?
∑ CGJ/Sk, H&S, M&T, MT Højgaard < 0
Professor Henry Mintzberg, McGill University, Montreal, 1973:
First ever empirical study of managers!
An MBA can help but is not the solution for all managers
You need talent + lots of practical experience
Arguing for managers to:
– Strive for balance
– Employee involvement
– Long-term perspectives
”No science in managerial work”
Research now popular and easily accessible
Jim Collins, Stanford Bus. School, 2001
No theoretical basis
But combining empirical facts:
– ”Great companies” do consistently better than all peers ≥ 15 years
– Killing myths: they are not more innovative!
– They ”face the brutal facts” and
– Focus on the core business, where they can excel:
– ”If it’s not core, we don’t do it. Period!”
Facilitates shared concepts and language
Why do some companies excel and former market leaders disappear? – Bethlehem Steel, the world’s
largest steel co. building 1 Liberty ship a week, went bankrupt on the day of my first visit to FLSmidth’s US head office in Bethlehem, PA
”Good to Great” became mandatory reading for Global Management in FLSmidth and inspired us to fanatic focusing!
Globalisation is here to stay
Professor Jagdish Bhagwati, Columbia University, N.Y., 2004:
– Globalisation influences all aspects
of life
– Not an ”evil process” you can make go away
– Potentially an extraordinary powerful force for social goods
– Promoting open societies through free exchange of ideas and goods
Jagdish Bhagwati speaker at FLSmidth’s global 125th anniversary seminars, May 2007
Reminding us that no one can hide from globalisation!
The Chinese Government concentrates the country’s cement competence under the umbrella company Sinoma, which
internationally offers turnkey cement factories 30-40% below world market price!
Political globalisation from China - Spring 2004
29%
24% 19%
12%
16%
The Chinese offensive: The international cement kiln market excl. China
33%
32%
17%
11% 7%
60%
0%
22%
9% 9%
FLSmidth Sinoma (CHINA)Polysius KHDOthers
34%
18% 21%
13%
14%
2004
2007
2003
2005
Dania, Mariager, DK
Product development doubled
145 143 169
210
268
315 281
339
0
50
100
150
200
250
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350
400
20042005200620072008200920102011
M DKK R&D investments in FLSmidth
Special R&D focus on: 1. Reduced power
consumption 2. Reduced emissions 3. Increased capacity 4. Reliability
Global split of work is a solution – but not for everything
”Off-shoring” of engineering to India
Transfer to our Indian subsidiary of order-related standard engineering
From 600 in 2004 to 4,000 employees or 28%
of workforce in India
Attrition 8% < DK
More than 90% of standard
engineering executed in India
for any global cement project
Next phases:
– Minerals eng. 40% 90%
– Administrative functions
(Financial Shared Service centres)
FLSmidth House, Chennai Designed by C. F. Møller, Aarhus
”3C-sourcing” of ”hardware”
80% of sales prices are ”hardware” = manufactured components and equipment (+10% ”software” = engineering + 10% profit)
80% of manufactured goods are outsourced
External sourcing single most important cost factor
In 2004 95% of all external sourcing was from the most expensive regions in the world – near head offices in Copenhagen and Pennsylvania!
New sourcing from Cost Competitive Countries (= China): – Invest in extra QA/QC to ensure same quality
– Global benchmark: Landed cost from China sourcing + transport + duty
– Dual suppliers of everything
– 800 potential suppliers evaluated
– Typical net saving 20-50%
– 3C-sourcing from 5% 40% of all external group spend in 2011
}
The Chinese threat not a coincidence
Prof. Peter Williamson, INSEAD and Singapore, June 2007:
Provided the theoretical explanation of what we had just experienced - and why it will continue!
The new facts
Chinese advantages
– All types of low-cost talents
– State assets and IP at low cost
– Management autonomy from shareholders:
• Fast decisions
• Long term goals
– Strong personal incentives to innovate and take risks
+
New gateways into world markets through globalisation
– Outsourcing opens the gates ~ FLSmidth “CITIC” mills
– Modularisation of products and services:
• enter core industry without figuring out everything at once
– Codified knowledge through IT
– Liberalised M&A
The brutal consequences: Chinese ”Cost Innovation”
High technology at low cost – Latest technology to mass market at discount prices – Using high technology to make things cheaper, not more
complex
Variety and customisation at low cost – Process flexibility and recombination of existing technology
in new ways (CEO Zhang Min of Haier, world leader of consumer electronics: ”recombinative innovation”)
Specialty products at low cost (former niches) – Lower R&D and design costs lower breakeven – Further reduced by sharing costs across multiple specialties – Turning niches to mass markets through lower prices – Hopping from one niche to the next
The loose bricks in our defences
Segments where cost innovation (not just low costs) is especially competitive
and / or we are reluctant to release full counterattack
– Low-end segments
– Geographically peripheral markets
– Troublesome customers
The first loose brick gives a foothold and a platform for self-reinforcing cost innovation
– Dragons chase volume aggressively
– High technology, variety and customisation at low cost
Fortunately Dragons also have weak spots
Experience in running complex systemic business
Lack of strong brands
Limitations of cost innovation for early stages of product life cycle
– novel functionality more important than value for money
Markets that are immature in China:
Several key minerals : Unlike cement, China is a consumer not a producer of minerals
BCC version 2.0 = Be Competitive in China
Early 2008 task force:
Reduce our prices in China by 50% through re-design of products to enable 100% local content
– Chinese business set-up
– Chinese vendor components
– Chinese manufacturing
– Chinese materials
– Chinese sourcing
– Chinese standards
– Chinese language
– Strong Customer Service set-up
But price reductions only increase sales moderately – political barriers?
Early 2012: Acquired majority in local company
√
China sourcing is also in-house manufacturing of critical components to protect IP rights
Doubling capacity in Qingdao 2004 - Planning again 2005
Ready 48 weeks later
Next expansions
38,000 m2 inaugurated January 2012
Service is another way to beat Chinese competition
A global Chinese supplier of infrastructure will typically
– Sell on a hit and run basis
– Design and manufacture in China
– Erect and assemble locally with imported Chinese labour
– Pull out after hand over
But for the typical customer – Operational costs are far higher than depreciation and interests
of capital investment
– Lead times for wear and spare parts critical
– Support and continuous production key for profitability
– Energy costs are increasing
– Authorities' demands to environmental emissions increasing
– Constant upgrade and optimisation necessary
Globalised response – Establish and maintain global footprint for sales and services
– Stay close to the customer for the long term
– Continuously develop new concepts and services
– Align standards and qualities globally
}
Global reach in FLSmidth with presence in 50 countries
So FLSmidth focused on Customer Services
All types of services before, during and after the
supply of new plants
8 “SuperCenters” with regional warehouse of
critical spares , repair and training facilities
FLSmidth Institute is the industry’s leading
provider of seminars and training in cement and
minerals plant operation, production and
maintenance topics
Complete “Operation & Maintenance”
contracts of entire plants for 4-7 years
Latest updated strategy 2012:
– Vision to be our customers’ preferred full-
service provider
– Products are no longer “the end” but rather
“the means” to obtain service for customers
and it worked: ”Customer Services” now 5 x 2003
0
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2001 2002 2003 2004 2005 2006 2007 2008 2009 F2010P2011P2012
DK
K b
n
CS Cement CS Cement O&M CS Cement Product Companies
CS Minerals CS Minerals O&M CS Minerals Product Companies
Customer Services (CS) order intake
2012 Q3 39% of all group activities
Religious globalisation from the Middle East - Spring 2006
The Muhammed Crisis
The press wrote off FLSmidth’s markets
Serious background Geographical distribution of new cement plants in 2005
2/3 in Muslim countries
Middle East50%
Pakistan20%
Rest Asia9%
Africa8%
Latin America7%
North America
4%
EU2%
Danish firm wins $72m Egypt deal COPENHAGEN: Danish engineering company FLSmidth yesterday received an Egyptian order worth $72 million despite a widespread boycott of Danish products throughout the Arab world over Prophet Muhammed cartoons. Spanish-Egyptian joint venture Arabian Cement Company placed the order for engineering services and equipment for the construction of a cement plant near the city of Suez. "The reason we have received this order, despite all the chaos surrounding the newspaper drawings, is our very good contacts created in the Middle East over many years," FLSmidth chief executive Joergen Huno Rasmussen said. From Havarti cheese to Lego toys, products made in Denmark have been yanked off store shelves throughout the Middle East and in other Muslim countries where governments and consumers have demanded an apology for the printing of 12 cartoons in a Danish newspaper. One of Europe's largest dairy companies, the Danish-Swedish Arla Foods, is thought to be the worst hit, losing an estimated $1.6m each day.
Source: Gulf-Daily-News.com
New Strategy Formulation: Top-Down, Bottom-Up
Corporate
Business unit
...
Department
Individual
1.Explain the choice that has been made and the rationale for it.
2.Explicitly identify the next downstream choice.
3.Assist in making the downstream choice as needed.
4.Commit to revisiting and modifying the choice based on downstream feedback.
Top-Down
Bottom-Up
Strategy and Execution The Choice Cascade-Model (Martin, 2010)
Competitors’ offerings
Customers’ needs
FLSmidth’s capabilities
How to become the market leader?
…by:
Creating partnerships with key customers
Eventually One Source for our customers’ needs
First bundling and combining offerings (full service)
Supplied by integrating our products and capabilities
Avoiding head-to-head competition
Context (technology, industry, demographics,
regulations, etc.)
After Collis & Rukstad (2008)
Sweet spot
How can we grow?
Products
Mar
kets
Ansoff’s Growth Vector (1987)
Current New
Curr
ent
New
…by:
Focusing on our customers long-term interest and customer intimacy
Being full service provider
Develop new markets in focus industries
Develop sustainable solutions
Product Leadership
Operational Excellence
Within processing equipment & material handling
Product Development -new products in several
industries -turnkey in cement -full service provid.
...and by that we started the strategy implementation...
Engaged the organisation in strategy formulation and implementation
– We received positive feedback externally and internally
– Ongoing process with many initiatives
– Engaging the organisation in strategic thinking
Changed reporting structure
– Poses new opportunities and challenges as we become more transparent
– We compiled new structure in record time
– “Hit the ground running”
– “Fine tuning” ongoing
Change in Group Executive Management
– From 4 to 6 directors, 4 being new
– Many new exiting initiatives and good momentum in the implementation
5
Group Executive Management
* Reports to CEO ** Reports to CFO
*** Reports to EVP, Cement **** Reports to EVP, Customer Service
Group functions Group HR * Group IT ** Helios & Business Processes Alignment * Group Finance1 ** Group Marketing & Business Development * Shared Services2 ** Communications * & Investor Relations ** Legal3 ** Group EPC Support ****
Group Engineering (Chennai) ****
Group Research and Product Review *
Group Supply Chain & Quality ***
CS Min. Processing
CS Cement
CS Materials Handling
Excel
O&M
Airtech
Automation
MAAG
Americas
Pfister
Ventomatic
EMEA & APAC
GTC Cement
India
China
Hydromet GTC
Concentrators GTC
Hydro & Conc. Global Execution
MP Sales & Execution Territories
Hydro & Conc. Global Process
Pyromet GTC & Global Exec.
MP Global Engineering
CEO Jørgen Huno Rasmussen
CFO Ben Guren
Cembrit
Material Handling Carsten R. Lund
Customer Service Bjarne Moltke Hansen
Cement Per Mejnert Kristensen
Material Handling
GTC Material Handling
Sales & Execution BUs & Territories
Mineral Processing Peter Flanagan
1. No separate unit – represents Tax & Structure, Trade Finance & Treasury, Group Control & Consolidation 2. Includes Accounting 3. Includes Risk Management Note: GTC = Global Technology Center; O&M = Operation & Maintenance; CS = Customer Services; BUs = Business Units; Conc.= Concentrators; Exec. = Execution MP – Mineral Processing; MH – Material Handling
Abon Krebs
Ludowici
4 December 2012
Inspiration to final implementation: Translation from new Vision to daily guidance
Follow-up by Jim Collins in 2011
In cooperation with Prof. Morten Hansen, UC Berkeley and INSEAD, who joined our global Management meeting 12.9.12 and assisted us with:
Defining our own SMaC recipe
– Specific
– Methodical and
– Consistent
– Recipe for operating practices
37
SMaC recipe for FLSmidth
Always prioritize long-term Group interest above individual units
First response to customer inquiries always within 24 hours
No deviations from 10 Commandments (contract conditions)
Never split sales and execution (execution = project management and procurement), i.e. must always be within same Operating Business Unit
FLSmidth shall stay asset light, i.e. max. 25 % in-house production
No in-house civil construction
In-house suppliers always preferred
75 % 3C sourcing
No purchase of category items outside the category management system
90 % of all standard engineering to be made in India
Only actions that we would be prepared to see on the front page
Cultural challenges changing over time
Vestergade, Cph., 1906?
Chennai, India, 2006
But Scandinavian values and leadership styles have proven to be very sustainable in global integration...
Thank you for your attention
Back up slides
Increasing output from R&D - and focus on minerals growth industries
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27 24 15 13
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minerals
cement
Historic FLSmidth priority patent application filing
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The Chinese threat cont.
Warnings in the data: “Machinery show significant exposure to disruption from the new Chinese competition in the global market”
– Protection from brand and historical references only temporary
Counter measures
– Increase own capability to penetrate China’s growing market and match their advantages from operating there
– Introduce new technology in mature products, where a dominant technology is about to shift competition to variety and cost
– Ramp up investments in intangible assets as brand building and proprietary technologies higher barriers
”No longer sufficient to approach China just as a huge prospective market or a source of low cost manufacturing capacity - High-end niches are blown apart when customers get the same technology, features, choices or customisation elsewhere at better value for money”
The Chinese threat cont.
What is our main challenge?
We choose to ”Be Competitive in China” - Why?
Just as: ”we choose to go to the moon in this decade and do the other things (climb the highest mountain, fly the Atlantic),
not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win!”
JFK, Rice Stadium, 1962
Consequences of globalisation are repetitive Spring 2008: Repetition of the Muhammed crisis
Due to reprint in several papers because of attack on the artist Kurt Westergaard
Jordan now leading the boycott against Denmark
Then FLSmidth signed it’s first contract in Jordan for many years:
”FLSmidth to supply new cement plant in Jordan
Company Announcement to the Danish Financial Supervisory Authority No. 34-2008, 23 July 2008
FLSmidth has signed a contract worth EUR 119m (DKK 888m) with Modern Cement and
Mining Company to supply equipment and civil design for a cement plant with a capacity of 3,500 tonnes clinker per day. The plant will be located northeast of the town of Qatraneh,
80 km south of Amman, the capital of Jordan. Modern Cement and Mining Company is owned by the Jordanian company Manaseer Group.”
Strategy overview end 2012
DONE: Aligned execution in Cement projects,
Product Companies and Min. Proc. products
Grown Cust. Serv. offerings across industries and geographical markets
Established ownership to profitable Divisions
Achieved market acceptance as ”One Source”
TO DO: Transfer best PM practices to MH
Ensure Customer Intimacy through global service culture
Maximise Group results across
divisional silos
– Customer needs above internal aspects
– First right of refusal to all potential internal suppliers above divisional sub-optimisation
From max EBIT to max ROCE
Get on board shared Helios IT platform
– Globally aligned procedures
– Only implementation in 1 legal unit/country
Vi skabte nyt begreb på børsen
Everyone has tried to focus on doing the right things
1. Clear governance structure
2. Clear strategy and action plan
3. Execution
4. Execution
We have been lucky
– Markets have developed favourably
– We have built a strong track record of results
– Our business model has proven to be sustainable
And even better, the long term outlook is bright
– High emerging markets exposure
– Untapped market opportunities in Minerals and customer services
...and it worked
Source: Citigroup
Expansion in Minerals is sustainable
Mining investments 1978-2007
Evolution from OEM into full-service provider in key industries…
Discrete equip.
supplier OEM Island
supplier
Full-flow sheet
For full plants
Full-flow sheet
Design and
supply
Plant inte-
gration
Design, supply & construct.
EPC of plants
Full service provider (or
DBO)
EPC + O&M
Horisontal (partial vertical) integration of the value system
Sub optimisation
of single machineries
Holistic complete flow sheet approach – overall plant optimisation
OEM = Original Equipment Manufacturer EPC = Engineering, Procurement & Construction O&M = Operation & Maintenance DBO = Design, Build & Operate
To prepare ourselves for the uncertain, fast-changing unforgiving environment
Fanatic
DISCIPLINE
Productive PARANOIA
Level 5
AMBITION
Empirical CREATIVITY
We need to develop a SMaC recipe
– Specific
– Methodical and
– Consistent
And exercise (10X) leadership behaviour through:
– Empirical creativity for developing it
– Fanatic discipline for sticking to it
– Productive paranoia for sensing necessary changes
New 5 year plan 2012-2016
New factory, Qingdao January 2012