On the way to becoming an international technology corporation
Interview: with the restructuring phase completed, the innovation and growth phase now begins.
An article from the magazine möbelfertigung, edition 3-2017.
From now on, all machines of the Homag Group will be labeled "Homag", while the other brand names will be dropped. In Schopfloch, "möbelfertigung" spoke to CEO Pekka Paasivaara, who is turning the world market leader into an international technology corporation and is further implementing a global thinking within the Group. The benchmarks used for this by the Homag Group origin from other industries. In future, China and the United States will also be seen as domestic markets. At the "Ligna" trade fair, Homag will present its new setup and products in surface technology as well as an open, digital solution platform to help customers improve their processes and procedures. It allows for machines from any manufacturer to be connected to the platform.
möbelfertigung: Mr. Paasivaara, at the beginning of March it was announced that the individual brands will be subsumed by the business units and that Homag is now the label for all machines. How did your customers respond to this?
Pekka Paasivaara: The feedback was entirely positive. Two years ago, we carried out a survey to ask our customers about a number of different topics relating to their cooperation with the Homag Group. We received 1,500 responses. One frequent request was for a uniform presence: given our comprehensive product portfolio and the different companies, customers were not always sure who offered what. On top of that, customers are increasingly looking for solutions instead of individual machines. They want everything from a single source and need a central point of contact.
This prompted us to make some changes. Since the restructuring, we have been one company – one unit – rather than a group of individual companies. So our customers are very pleased that we offer what they have requested.
möbelfertigung: What are the internal benefits?
Pekka Paasivaara: In the past, every brand used to operate independently in the market. This has now changed. Once we have uniform structures across the Group, our cooperation will improve significantly. Furthermore, we are increasingly thinking in terms of technology platforms and uniform technology standards. For example in machine development, where we now have globally harmonized, systematic processes.
You could say that "One Homag" initially addressed our internal structures and created a new, strong company foundation. Now we are taking the next step by looking outside.
möbelfertigung: How have your employees reacted, having lost a part of their individual identity?
Pekka Paasivaara: Our employees have, by and large, reacted very positively. Many employees throughout the Group had been expecting this step after the changes of the last few years. Following the restructuring, moving forward with one brand was the only logical thing to do.
My colleagues and I have always communicated openly and ensured that the information about our strategy has reached every employee. In addition, I have made a point of building dialog, especially with the long-term employees of our subsidiaries. Many of them shared the opinion that this step was necessary for us to remain successful in the future. Our employees are behind the new direction the Homag Group is taking.
möbelfertigung: Will the structure have an effect on your offices and plants?
Pekka Paasivaara: We are currently creating an international production network, which will make our production more flexible. Every location is important here.
möbelfertigung: So this means production facilities will be less determined by technology, and more by their ability to balance capacities?
Pekka Paasivaara: Both. In some places we will continue to invest in order to build more special expertise, while in other places we want to create capacity to compensate for other plants that are stretched to the limit. It makes sense to pool our expertise at the component and module level.
Almost all our plants are now running at full capacity – and this has an effect on delivery times. We want to address this through better control, so we have the option to move the assembly of certain machines elsewhere.
möbelfertigung: Are you planning to move capacities from Germany to other countries?
Pekka Paasivaara: No. Our primary goal is to build complex, networked machines, mainly in Germany. In fact, we are planning to increase capacities in some places.
But we will also invest heavily in our plants outside Germany to take advantage of our proximity to the relevant markets, for example in Grand Rapids, Shanghai and Bangalore for the US, Chinese and Indian markets. This applies in particular to the mid-price segment.
möbelfertigung: How difficult is it to find qualified staff in those places?
Pekka Paasivaara: We are doing quite well. Having said that, our thinking in this regard is still a bit "too German". We want to be an integrated, international company, and this includes rotating our employees globally. It's the only way to ensure optimum know-how transfer.
möbelfertigung: Is increasing your stake in Benz with the aim of a 100% acquisition in 2018 part of your strategy of unification and division into business units?
Pekka Paasivaara: Benz is a special case, as it will continue to operate independently in the market, despite the increased stake and the acquisition in 2018. That's because its aggregates are used not only in the woodworking industry but also in metalworking.
Benz is very important for us – in the CNC processing field, for example, the 5-axis technologies come from Benz. It is therefore essential for us to keep on improving our expertise and increasing our influence in order to market the technologies even more effectively around the world.
möbelfertigung: Do you think that competitors will continue to buy from Benz, even when the company is fully owned by the Homag Group?
Pekka Paasivaara: Providers of aggregates are few and far between, and Benz is highly regarded as a supplier with innovative technologies. I strongly believe that this situation will develop positively, as it has done so far. Our competitors appear to be very open.
möbelfertigung: There are concrete approaches in the field of painting technology. How far has the Homag Group come in terms of painting machines?
Pekka Paasivaara: We have products in our portfolio for almost all segments – the 'surface' sector is the only one where we still have some gaps to fill. That's why we are working on the relevant technology, and Dürr is involved in the form of components such as spray guns.
Our first products will be presented at the "Ligna" trade fair. We will further expand the surface segment for our customers.
möbelfertigung: There was a major change in the sales network in Germany last year - has it proved successful?
Pekka Paasivaara: We are very happy with the outcome. This is another aspect where integration has played an important part. We provide direct support particularly to industrial customers, and to some small and medium-sized companies. The market has developed very well in those areas, and we can already see the positive effect of our direct sales activities.
möbelfertigung: So sales is a key part of the puzzle in the integration process?
Pekka Paasivaara: Yes. We have the "Total Customer Care" project – a program that will enable us to support our customers even more. This applies not only in Germany but across the whole Group.
Essentially, we want to become faster, for example when it comes to providing customers with quotations. In this context, we have also spoken to employees to find out what processes can be accelerated during the consultation meeting. This is where cutbacks are needed to speed up our processes. We will give our salespeople more power, and we have provided specific training to our service engineers.
For us "Total Customer Care" plays a very important role: despite all the reorganization, the customer must remain our priority.
möbelfertigung: For the first time in many years, Homag is not hosting an open-house event this fall. Why?
Pekka Paasivaara: In 2017 we are deliberately focusing on "Ligna" and are making a point of also inviting smaller customers to Hanover. We are also expecting the large foreign delegations that used to attend our "Homag Treff" meeting to come to "Ligna".
Technologies such as digitization, connectivity and Industry 4.0 can be better demonstrated at "Ligna" because they are at the heart of our trade fair presentation.
möbelfertigung: Will this always be the case in the "Ligna" year from now on?
Pekka Paasivaara: It's not set in stone. Perhaps our "Homag Treff" will take a different format in future. We are keeping an open mind at the moment.
möbelfertigung: One and a half years ago, we talked about the Homag Group's journey "from a mid-sized company to a global corporation" How far have you come?
Pekka Paasivaara: "International technology corporation" would definitely be a better term. We can't really say how far we have come, since this is not a finite journey, but an ongoing change process. We will continue to adapt and improve in order to be a global leader.
So it's important for us to benchmark ourselves against other companies. To this end, we are also looking at other industries to see, for example, what systems, processes, structures or methods are used by the relevant market leaders.
möbelfertigung: What does the Homag Group still need to do to become an international technology corporation?
Pekka Paasivaara: We still have to develop our way of thinking. For example, we refer to Germany as our domestic market. But in future, all countries will be "domestic markets" for us: be it China, the United States or Germany. For instance, we must think like a Chinese company that is at home in the Chinese market – with local resources as well as development and production expertise. Once we have achieved all of this we will be truly international, albeit with strong German roots – and I think it's safe to say we will be highly successful.
This year all German production sites will run on a uniform SAP system. This will then be rolled out to all international locations.
möbelfertigung: How are you laying the groundwork for further process improvements?
Pekka Paasivaara: We have recently opted for the "Six Sigma" method. Top quality is our goal. As part of this approach, we will train hundreds of employees so they can implement improvement projects within the Group.
möbelfertigung: Wolfgang Pöschl, head of the German mechanical and plant engineering association (VDMA), has confirmed that digitization is a driver for the good performance of VDMA members. Does this also apply to the Homag Group?
Pekka Paasivaara: Definitely, because we have been involved in this field for many years. It's part and parcel of our everyday business. At "Ligna" we will move up to the next level in this regard by presenting what will be the driving force in the field of digitization in the years to come. Networked production was only the initial phase for us.
möbelfertigung: What will the second phase look like?
Pekka Paasivaara: The next stage will be a platform with technological machine standards to which all our customers' – as well as our competitors' – machines can be connected.
We will offer a solution that benefits primarily our customers, but also tool manufacturers or edge-banding suppliers etc.
At this point, it makes no sense to talk about a Homag system, since almost every customer also uses machines from other companies, which need to be connected. When the customer uses the app for his production, he will see not only his Homag machines but all the rest of them, too. In May we will demonstrate how this works.
At the end of the day we want to offer our customers sustainable concepts that have been tested and that will help them get started immediately. Demands in the furniture industry will continue to rise due to a huge increase in variety, shorter delivery times and networked production sites. We want to offer technologies that take the entire industry forward.
möbelfertigung: Is connectivity only a concept for the biggest customers?
Pekka Paasivaara: Not at all. Some companies only use a few machines in their production, which they want to connect. But we believe that medium-sized companies, above all, will gain the greatest benefit from digitization and using the Internet of Things. There is also a huge overall demand for automation. And these customers are very important to us, too.
One of our goals at the forthcoming "Ligna" is to present comprehensive and, above all, practical solutions. Ideas that have been put into practice.
möbelfertigung: The separation between industry and trade does not exist in many countries – what does connectivity look like there?
Pekka Paasivaara: In Southeast Asia, for example in Malaysia and Vietnam, we have surprisingly discerning customers. The Chinese are also very forward-thinking – customers have four or five machines and now want to talk about connectivity, using software and so on.
möbelfertigung: In 2015 the Homag Group reached the one billion euro mark in sales for the first time – what did your figures look like at the end of 2016?
Pekka Paasivaara: We were really happy. At around ten percent, we had another double-digit growth in incoming orders, which rose to 1,165 million euros. Our sales increased by a good four percent to 1,082 million euros, and operating EBIT rose by 13 percent to 71 million euros and thus at a faster rate than sales.
möbelfertigung: Which markets were good, and which ones more disappointing?
Pekka Paasivaara: We were very happy with the DACH region, where we recorded a double-digit growth. China and North America proved equally successful. In short: the large and important markets met our expectations, with very good sales results particularly in China. The development in Eastern Europe was more muted.
möbelfertigung: Do you think Brexit will have an effect?
Pekka Paasivaara: Not directly, our business in the UK is still going very well.
We saw a minor dip just before the Brexit referendum, but nothing else yet – despite the devaluation of the pound. But nobody can predict the future, and we have to wait and see what the possible effects are on the EU economy, or Europe.
möbelfertigung: What are your expectations for the current year – with a possible peak as a result of "Ligna"?
Pekka Paasivaara: We had a good start to the first quarter, with a high level of incoming orders – and "Ligna" will no doubt lead to a successful second quarter. If everything goes according to plan, we believe that we can exceed our 2016 results in the financial year of 2017. We are currently receiving a lot of positive feedback from the market regarding our holistic, future-oriented solutions. That's a great motivation for us.
möbelfertigung: You have now been with the Homag Group for almost two years. What has your personal experience been so far?
Pekka Paasivaara: I am very impressed by the Homag Group, it's a great company with huge potential. I was quite surprised about how willing the entire team was to make changes. We are juggling many things and are promoting several different projects at the same time, which often pushes people to their limits – this doesn't work unless employees are committed. My impression is that even long-term employees can see where the future of the Homag Group lies. We have a great relationship with the employee representatives, for example, who take an active role. Our workforce is highly motivated and down to earth – something I particularly appreciate.
möbelfertigung: And the industry?
Pekka Paasivaara: I have great respect for our competitors. Ideally, we will further promote the topics of our industry together with the other market players. Here I am thinking of standards for the furniture industry, for example.
The furniture industry in itself is a sector that is in the midst of a strong industrialization phase. This is very exciting! There is a demand for top-class technology as well as networked systems, for which large sums of money will be invested.
möbelfertigung: In June 2016 Harald Becker-Ehmck and Jürgen Köppel stepped down from the Board of Management. Are you and Franz Peter Matheis as CFO still the only two members?
Pekka Paasivaara: Yes, there are two of us, which works really well. We have reorganized the management structure a bit over the last few months: Mr. Matheis and I are supported by an Executive Committee, to which all business unit managers belong. This committee is in charge of operational management. This means we have an excellent top-management team of about 12 people. The individual business units are generally expected to share the business responsibility.
The interview was conducted by Doris Bauer and Tino Eggert.
Source for images: HOMAG Group AG