The automation and engineering market has not remained unscathed in the current difficulties occasioned by imprudent not to say foolish investments by speculators, bankers and lest face it adventurers throughout the world. It is, I think, inevitable that we will be suffering the effects for the foreseeable future and those charged with navigating us out of these stormy waters have their work cut out for them.
It is always to interesting to see how the large companies plan ahead and what lessons they have (or have not) learned from the last turbulent four or five years.
Schneider Electric hosted a Capital Market Day in Paris(F) last week (23 Feb 2012). Jean-Pascal Tricoire, President and CEO, and Emmanuel Babeau, CFO and member of the management board with others unveiled the Group’s strategic ambition, operational priorities and financial targets under the Connect program for the period 2012 – 2014.
A big step forward in the Group’s transformation with One company program (2009-2011)
With One, Schneider Electric was re-organized into 5 customer-focused businesses and strengthened its integrated portfolio to establish itself as the global reference in energy management. The Group became a leading provider of high value-added solutions and developed great positions in new economies which respectively represented 37% and 39% of Group sales in 2011, a significant jump from 2008. The Group emerged from One leaner, simpler and more agile. Under One, it simplified its supply chain, reduced the number of its brands, generated about €1 billion of productivity and drove operational efficiency by reducing support functions costs to sales ratio by 1.5 points.
“Our company program “One” was a success and a big step forward in the transformation of the Group’s profile. It also laid a very solid foundation for our future: One brand, One company for our customers and employees, One organization everywhere, and a far higher efficiency than in 2008.”, said Jean-Pascal Tricoire, President and CEO
“Connect, our new company program, is another major step in the consistent deployment of our strategy. With Connect, we will extend the strong foundation of One to all our strategic levers: products and solutions, mature and new economies, our people, while continuing to drive efficiency at all levels”.
Connect: four major initiatives to reach a new high in performance
- Connect to Customers: Further improve the performance of its business models and be a leader in products and in solutions.
• Partner excellence: Continue to grow in products in a win-win relationship with partners by creating new opportunities for Distributors and Partners, leveraging the strength of “One” Schneider Electric and leading product innovation. This initiative will further reinforce the Group’s leadership position in the Product Business.
• Solution excellence: Leverage the Group’s unique value proposition with its solution capabilities, improve equipment cost competitiveness, reinforce execution while being more selective on projects, and boost service sales. This initiative will temporarily impact the Solution Business’s growth but will raise significantly its profitability and return profile.
• Tailored supply chain: Bring the supply chain to a new level of excellence by aligning organization to customer needs and providing differentiated manufacturing and delivery models for each customer segment. This initiative should lead to higher customer satisfaction and inventory efficiency.
- Connect Everywhere: Identify key investment areas in new economies and create new opportunities in mature countries to be a leader in both mature and new economies
• Grow in new economies: Expand geographical coverage by increasing the Group’s presence in the fast-growing second-tier cities and further penetrate these markets with mid-market segment offerings supported by strong brands with wide local coverage. The initiative will continue to support the long term growth potential of new economies in Schneider Electric’s portfolio.
• Grow in mature countries: Grow activities that develop independently from traditional capex trends with a focus on opex-driven opportunities and new businesses. This includes developing installed base and energy management services, capturing the smart grid opportunity while investing in new businesses in areas such as electric vehicle charging infrastructure, home automation and carbon management. With this initiative, the Group aims to create its own growth momentum in the mature countries.
- Connect People: Create a culture and an environment for the Group’s employees’ development and performance:
• Engaged leaders: Train leaders with Schneider Electric University and promote Diversity
• Engaged individuals: Support employee development via training, empowerment and cross-business mobility
• Engaged workplace: Step-up collaboration & communities, regroup
- Connect for Efficiency: A new chapter in the Group’s history of profitable and responsible growth:
• Industrial Productivity: Raise the bar with tailored supply chain and drive significant industrial productivity through purchasing, footprint optimization, supply chain flow re-design and transportation rationalization. This will be supported by a best-in-class planning process by customer segment and an IT system aligned with supply chain segmentation.
• Support Functions Efficiency: Leverage scale to drive savings on support functions, through non-production purchases rationalization, more globalization of corporate functions, simplification of business and country level set-up, and implementation of acquisition synergies. At the same time, the company will continue to invest in commercial presence and R&D to support future growth. Total R&D expenses to sales ratio is expected to move towards 5 % of sales going forward.
• Planet & Society Barometer: Maintain best-in-class standard in environmental sustainability and social responsibility. Management compensation is partly tied to barometer performance.
Ambitious long term financial targets for attractive shareholder returns
Over the long term, the key company priorities remain focused on profitable growth, cash conversion and capital efficiency. The management views the Connect program as another opportunity to improve the Group’s through cycle performance on those metrics. With Connect, the Group is setting the course for solution excellence, with an aim to raise profitability and to lower capital employed. Consistent deployment of Group strategy with disciplined and synergistic acquisitions to complement organic growth should bring forward long term value creation.
• More about the financial performance and projections of Schneider Electric on their corporate page.