Reviving an old industry facing new low-price
With 40,000 employees and sales of about €5.6 billion, Voith is
one of the largest family-owned companies in Europe. As of 2003,
its subsidiary, Voith Siemens Hydro was one of the four
historically dominant players in the hydro-power plant industry.
Like its three main competitors, Alstom, VA Tech, and GE, it has
gone from producing components of the hydro-plant, to producing
everything it takes to generate the power, leaving only the initial
planning and the civil construction of the dam to others. But by
2003, the dominant players in the hydro-plant industry had been
pushed into a strategic corner of low margins, a tiny technological
advantage, and no clear competitive advantage.
Sources of power generation are one problem. In terms of return
on investment, hydro-power cannot compete with gas- or
coal-generated power. But, because water management is critical in
most places in the world the market remains.
The strategic problems of their customers are also strategic
problems for plant producers. Unlike the regulated electrical
markets of old, utilities today face competition and are receiving
shorter, lower-margin contracts for supplying energy. Customers
have changed from technophiles, interested in the highest
efficiency, longest lifespan plants to pricesensitive customers,
who worry about a very fast return on their investment.
By combining lower prices with faster
cycle times, Voith Siemens Hydro can have a value advantage over
both its old and its newer rivals.
Last, a whole new set of rivals has arisen based in Russia,
China, and India. While none has double-digit market share yet,
they are growing market share at high doubledigit rates, and most
can match the efficiency of the big four's turbines and generators.
While these new competitors are reputed to produce less reliable
plants as a whole, they are offering power plants at lower prices,
approximately 30% lower than the big four.
CEO's Strategic Declaration
Dr. Hubert Lienhard, Voith Siemens Hydro's CEO, declared that he
would achieve an industry leading and sustainable profit margin by
cutting costs, refocusing his company around projects, rather than
engineering, thereby changing its culture.
VISION's Engagement Strategy
VISION developed a two-prong strategy for this engagement. Its
primary point of attack was to change the management and cultural
processes to produce at least a 10% cut in costs of delivery for
hydro plants of all sizes. (Large hydro is Voith Siemens Hydro's
staple.) VISION mapped and diagnosed the management practices from
Marketing's identification and qualification of potential customers
through to the final commissioning of the completed power plant.
This mapping and diagnosis identified the waste from both poor
management coordination and from a culture poorly aligned with the
company's new strategy. VISION designed new processes, refined
them, and rolled them out through increasingly larger pilots. The
roll-out was to be completed by a VISION trained Voith Siemens
Hydro team working along side the VISION team.
VISION used its value-conflict based listening to analyze
customers in high-growth hydro markets to understand how the
competitive advantage in cost could be used to grow market share
and profitability without triggering a price war.
Using its Commitment-based Design techniques of mapping and
diagnosing management coordination waste and its cultural
misalignment, VISION uncovered a number of wasteful and misaligned
processes from sales through engineering and then on to
commissioning. For instance, instead of simply identifying and
qualifying new customers, sales representatives under the new
strategy needed to help potential customers see, very early, how to
achieve the best economic and environmental value from their
hydro-plants. Engineering had to have its roles and focus
redesigned to cut out rework. Likewise, purchasing had to secure
early price commitments. Plant building project teams had to
coordinate better with civil contractors to bring the plant live
much sooner than was standard.
The joint Voith Siemens Hydro-VISION team designed new processes
in marketing, sales, engineering, and project management and rolled
out these new processes on a project-by project basis, with Voith
Siemens Hydro people gradually taking over more of the lead in each
successive rollout. Throughout the design and rollout process, the
VISION team trained Voith Siemens Hydro managers in the techniques
of managing by commitments rather than only by supervising
Meanwhile, the VISION team interviewed customers and found them
conflicted: they wanted to grow, but felt hamstrung by the unstable
energy environment and the cost of power plants. If plant owners
could enjoy a faster pay back through faster construction times,
earlier revenue, lower interest rates, AND lower costs, the
conflict could be resolved. Achieving a sustainably faster
construction time would give Voith Siemens Hydro a competitive
advantage beyond price competition.
The VISION management process and culture change work will
reduce cycle time by cutting the overall construction time saving,
approximately, 7% of the total cost of the project, for
medium-sized hydro. Larger savings could be accrued in large hydro.
By combining lower prices with faster cycle times, Voith Siemens
Hydro can have a value advantage over both its old and its newer
VISION changed the sales processes to achieve a higher sales hit
rate by ensuring that sales representatives consulted with
potential clients early and develop comprehensive sales
VISION restructured the engineering and project management
processes including the development of design freezes to eliminate
the costly scrambling done by engineers to meet ever-changing
design specifications. Careful handovers from sales and proposal
teams to the production project managers eliminate expensive waste
from rework and missed deadlines.
These changes would amount to a 10% reduction in cost. Voith
Siemens Hydro now leads the industry in its margins, an industry
that includes GE.
"We sought to transform the Voith Siemens Joint Venture from
a successful, leading equipment supplier to a first-rate plant
provider and to do so quickly. To achieve this transformation, we
saw that we would have to build on the strong Voith culture to
adopt it to the emerging needs of a plant and solution provider.
The VISION team focused on our people-to-people management
processes in sales and marketing, engineering, and the multi-year
cycle of hydro-plant building.
The efficiency and customer-centric orientation VISION has
brought cuts across our entire product line and will leave us with
a new competitive advantage. I rate VISION as a top consultancy in
culture change and strategy implementation."
Dr. Hubert Lienhard, CEO, Voith Siemens Hydro