GGI: Endress+Hauser has experienced a fabulous development in this decade. Between 2003 and 2006 revenues grew by 35%. Since 2001 the company has grown by roughly 50%. It has consistently grown considerably faster than the market. EBITs have risen from around 8% in 2003 to about 13% in the most recent years. What is the secret to your success?
KR: There is no secret – we had put a strategy in place and consistently worked to meet its milestones. Now our consistency and hard work is bearing fruit.
GGI: What are the key elements of your strategy?
KR: Our strategy rests on three pillars:
1. Geographic expansion. As an example, ten/fifteen years ago Endress+Hauser basically was an unknown quantity on the US market. Over time, hard work, sweat and consistency have made us one of the household names of the industry in North America.
2. We keep investing a lot of money in R&D and product development, not only in our existing portfolio of products, but we also try to introduce new complementary products or products with new functionalities to the market. These often are rounding off our existing product offerings or they are new products and technologies with functionalities that are unrelated to measuring and controling in the narrow sense. However, in today’s market environment they would be crucial features for certain customer segments. A failure to provide those features would lead to a loss of market opportunities: Very hot and exciting is wireless communication right now, where – alas - the industry finds itself torn again by competing standards – each being promoted by powerful industry groups – a discussion that is reminiscent of the “bus” wars.
3. As the industrial world has adopted “lean and mean” stripping itself of its in-house maintenance and installation units, the suppliers needed to migrate from products manufacturing companies to “one-stop products, service and installation companies.” We had – like some of our major competitors – recognized the pending shift early on and made the ‘complete customer approach’ one pillar of our strategy. Its execution requires us to follow our globally active customers to the most remote corners of the world, providing sales, services and often even local production facilities.
GGI: Are there still any regions in the world where Endress+Hauser feels it does not have an adequate market penetration?
KR: Yes, definitely, we feel that Latin America is one of those regions where we ought to do better. In addition, there are some countries in Asia that deserve more attention from us.
GGI: Some of your competitors such as Emerson started to adopt similar strategies (viz a “one-stop-shopping, service and installation” philosophy) early on as you have. And yet, Endress+Hauser is growing faster than market?
KR: Even though Emerson often is mentioned as one of our competitors, their focus is slightly different from our core activities in water, waste-water and environment. So, it is not truly comparable.
We are taking market share away from small and medium-sized companies that have not been able to adapt to the new product functionality and market requirements or who do not have the financial wherewithal to follow the customer to new manufacturing sites overseas.
GGI: What are the mega-trends in the industry?
KR: The new wave of communication technologies (such as wireless) has started to tear down the wall between factory and process automation: we see a gradual convergence of both fields.
GGI: When will this happen?
KR: It is already happening. For instance, we already have a major market position in the packaging and food machinery industry. This convergence of markets will result in a complete reshuffling of the automation landscape. Manufacturers of factory automation instruments will penetrate the process industries just as we gain market share in the discrete products manufacturing markets. At the end of this process you will have a handful of big suppliers straddling both markets, other vendors will continue to be suppliers to specialized niches and yet another group will not be able to keep up with the new requirements of the market and disappear.
GGI: Will Endress+Hauser be one of the winners of this industry-reshuffling?
KR: Yes, Endress+Hauser will be among the winners. As in the migration towards "one-stop products, service and installation" vendors, we have recognized this trend early on and have been adopting strategies and initiatives to address the new challenges and opportunities.
GGI: What are some of those initiatives?
KR: Apart from internal market and products iniatives we closely cooperate with leading vendors to the factory automation market place. As an example I would like to point out our cooperation with Rockwell. Together we expand device connectivity and configuration capabilities for standard technologies such as Foundation field-bus and HART: we implement and test Endress+Hauser devices with Allen-Bradley controllers and FieldBus software.
GGI: The future is bright. Is the Endress+Hauser management wearing shades?
KR: We are indeed very optimistic that we will see a continued annual growth of 7-8% in the medium-term, and – as in the last 10 years – we expect to grow faster than the market. The only clouds on the horizon are the disputes about communication standards. We hope that these disputes will get resolved and will never reach the intensity of the “bus-wars.”
GGI: Endress+Hauser is owned by the Endress family. In recent years, there had been rumors on the market that some members of the family would like to see cash and – as a result – the family would decide to take the company public?
KR: Indeed there have been rumors but they were unfounded. Endress+Hauser now has about 40 shareholders that are all family members. There is a unanimous agreement among the shareholders to keep the company independent and wholly family-owned.
GGI: Of course, a unanimous decision today may have to be put in perspective next year. Some shareholders may change their minds and vote differently the next time around.
KR: In order not to make the company the playball of the various rumor mills, the shareholders have unanimously adopted a “generational contract” or as it is more appropriately called “the Endress Family Charta.” By putting their signature to this contract, the shareholders pledged to keep the company private and family-owned. In addition, the Charta clearly lays down the rules as to how the individual shareholders relate to the company.
GGI: Will the next CEO be a member of the Endress family?
KR: The Charta instituionalizes the decision-making process within the family which in turn exerts its influence over the company through its representatives on the Supervisory Board. As a result, it is not a family requirement that the CEO must come from its ranks. In fact, the age difference between the current CEO and the next Endress generation would suggest that the next CEO would not be a family member.
GGI: Mr. Riemenschneider, thank you very much for this interview.
About Klaus Riemenschneider:
1960-1963 Apprenticeship as banker
1963-1968 German Air Force/NATO assignments
1968-1971 Studies in Business Administration (HWL)
Since 1971 with E+H in various positions:
1971-1973 Director Market Reasearch
1973-1975 Assistant to founder Dr.h.c.G.H.Endress
1975-1998 Group CFO
1999-2001 Director Business Development
2002-today Chairman of the Supervisory Board