A Fireside Chat with the Management Board

Strategy Talks with the Management Board of PALFINGER AG
 Herbert Ortner (CEO up to 31 December 2017),
Felix Strohbichler and Martin Zehnder

AFTER SEVEN YEARS OF POSTING RECORD FIGURES, WHERE DOES PALFINGER SEE THE LIMITS OF ITS GROWTH?

Ortner: As an entrepreneur, you should not set yourself any limits. What is fascinating is that no one knows what the future will bring, that is to say, which markets will grow and which markets will shrink or even disappear. PALFINGER’s limits cannot be put into numbers. The question is whether we will manage to keep our position as the world market leader or even expand it. There are enough regions and product areas in which PALFINGER is not yet number one. That is where there is potential for growth.

WHAT WERE THE BASIC IDEAS BEHIND THE NEW STRATEGY AND CORPORATE PLANNING?

Zehnder: There are two mistakes you can make as a successful enterprise: Either you deny the need to change and rest on your laurels, or, in an excessive spirit of exuberance, you glorify disruption, jettison what you already have, and try to reinvent the wheel. On the Management Board we all agreed that we had to find the right balance for PALFINGER. This right balance, which prepares the old for the new, is a recurring theme in our vision, our strategy and our strategic corporate planning up to 2022.

HOW DO YOU ACHIEVE THIS BALANCE?

Strohbichler: The factors that have influenced our success to date will continue to be most relevant to PALFINGER, which is why innovation, internationalization and flexibility will remain integral elements of our vision and our strategy. And we have incorporated a fourth element, which we call PALFINGER 21st: under this motto we will meet the new challenges relating to the digital transformation with new skills and solutions and new business models in connection with our products.

Proximity to our customers is indispensable for generating additional user benefits. It is not just a matter of having great ideas. We need to focus on the best idea for each specific purpose and implement it swiftly and surely.

HOW IMPORTANT IS PALFINGER 21st?

Strohbichler: The three strategic pillars – innovation, internationalization and flexibility – have been supplemented by a fourth: PALFINGER 21st. PALFINGER’s solutions will have to meet our customers’ needs in the digital future as well.

For this reason, we have created a separate PALFINGER 21st unit with the corresponding resources to facilitate these innovations outside our standard organizational structure. New developments require different structures that allow things to be pushed forward quickly. The existing organization, however, is designed for process reliability, quality, and security in planning.

We can utilize digitalization to improve products; however, it is possible that we will also develop disruptive business models in conjunction with our products, models which we do not even envision today. Perhaps we will also translate risks into opportunities and business models. In reporting, PALFINGER 21st is shown as a part of the HOLDING unit.

HOW WILL PALFINGER HAVE TO CHANGE TO MEET THE NEEDS OF DIGITAL TRANSFORMATION?

Zehnder: We have to become more agile in our organization, structures and management. It is not only new things that count. It is important to quickly and seamlessly connect and supplement existing structures, processes and products with new solutions, new perspectives and new processes. We mustn’t let ourselves become so caught up in a state of digital euphoria that we jettison everything that has made us strong and successful to date. Rather, we must develop, test and implement new things in a targeted manner on that solid basis. In this process, friction will arise, and it is the responsibility of the management team to transmute this energy into efficient processes and solutions. That is what we call agile management.

At the product level, we use our long-standing expertise in mechanics, hydraulics and mechatronics to turn our solutions into smart products with digital features. In designing our internal processes, we will, in the same way, maintain our time-tested order and efficiency and enrich them by means of the lessons learned from PALFINGER 21st.

HOW CAN PALFINGER 21st CONTRIBUTE TO PALFINGER’S RESULTS? WHAT DOES THAT MEAN FOR YOUR EMPLOYEES, INCLUDING FUTURE ONES?

Strohbichler: We all have to be clear about one thing: In the years to come, we will continue to generate our revenue and earnings with our existing business. In a first step, PALFINGER 21st is our investment in the future. This is where new solutions and business models will be developed and brought to market maturity. Subsequently, these solutions will be incorporated into the LAND and SEA segments.

Our employees will continue to be the decisive factor. It goes without saying that we need more digital natives and employees with the necessary know-how. However, it is not just technical expertise that will determine our success, but also soft skills. It is the combination of know-how, experience, communication skills and the ability to work in teams. We need people with strong personalities: employees who can accept and get past their own failures and those of others and advance the Company through lessons learned from mistakes.

WHAT DO YOU EXPECT OF THE DEVELOPMENT SITE IN VIENNA?

Zehnder: Our development site at a Vienna-based innovation hub is one small piece of a larger parcel. It is a strong, widely visible commitment to new developments. Together with other large industrial enterprises we have opened a location in a start-up centre, where we will profit from direct contact with talents.

ARE YOU CONCERNED THAT ANY DISRUPTIVE DEVELOPMENTS WILL BE DISADVANTAGEOUS TO PALFINGER?

Zehnder: I view disruption first and foremost as an opportunity and not a risk. It is not something we need to be afraid of. Disruption unleashes a potential that we can utilize. Of course, new competitors will appear on the playing field, especially in some niches or regarding some technologies. We need to be prepared and see how we can use these opportunities to our benefit. That is the strategy that facilitates our success.

WHAT DIGITALIZATION ISSUES DO YOU SEE IN YOUR CUSTOMERS’ INDUSTRIES?

Zehnder: Data is a big issue for our customers and our industry environment. The English term “digitization” means the electronic collection of data. “Digitalization” describes the process of using this collection of data to generate added value for the customer. For this purpose we need a big-data strategy: First of all, we need to know exactly what data are to be generated by our products. Second, we need to collect these data, which requires connectivity for all products and solutions. Third, we can ultimately use our data to generate new products and new services creating added value for our customers and ourselves. That is one of the core functions of PALFINGER 21st.

However, we will also see our data strategy being subject to external influences: comprehensive industry solutions, for example, will want our data. I assume that our strong market position will make us a most-wanted partner for such solutions, which will give us the opportunity to participate in designing such platforms.

HOW DO YOU INCREASE CUSTOMER BENEFITS IN NEW SOLUTIONS? AREN’T PALFINGER’S CUSTOMERS CHANGING AS WELL?

Zehnder: We have already recognized that new customer benefits which we can actually sell can only be achieved by proximity to our customers. This means that we have to move close to our customers in general – not just in PALFINGER 21st – in order to develop a better understanding for them. This is a major issue for the future. Our dealers must also become a part of this new customer proximity.

Strohbichler: That’s right; our customers are rapidly changing as well, and in some ways quite substantially. We are not talking only about technological change, but primarily of the consequences of the consolidation of the industry. The buying and utilization behaviour is changing. To come up with an adequate response, we need new structures, interfaces, products and services. Throughout the PALFINGER Group – as is already the case in the marine business – we are going to put a much stronger focus on customer industries.

WHAT INVESTMENTS HAVE TO BE TAKEN IN WHAT TIME FRAME IN ORDER TO REMAIN COMPETITIVE?

Strohbichler: We will make an especially large investment in acquiring new skills, in other words in PALFINGER 21st. We will fund this through reallocating resources and achieving savings in our processes. In the past few years, PALFINGER has recorded strong growth, and we are seeing a substantial potential in terms of synergies and higher earnings which can be generated through restructuring and process optimization.

We are now creating the structures we need in order to shape our future. For this purpose, we need our employees’ commitment, a strong corporate culture and values that are embraced by everyone at PALFINGER. At the same time we require investments, and of course we will also go through some learning loops until we find the right ideas and concepts.

MR. ORTNER, YOU HAVE PLAYED A DECISIVE ROLE IN SHAPING THE ROAD INTO PALFINGER’S FUTURE. WHERE IS THE JOURNEY HEADED?

Ortner: I spent 15 years on the Management Board of PALFINGER AG and served as CEO from 2008, when the financial crisis began, until the end of 2017. In 2010, PALFINGER’s revenue started to increase again and has done so every year since then. And soon profitability was also back at a good level, all of which underlines the success of our strategy to date. We have made ongoing adjustments, and now the time has come for a major overhaul. With its strategic pillars, now four in total, with its focus on the customer, its ongoing initiatives and not least with its highly motivated employees, PALFINGER is in an excellent position for the future. I would like to wish my fellow Board members Martin Zehnder and Felix Strohbichler and the future CEO all the best, and of course I will follow all developments.