Profits of inside knowledge
By Daniel Schäfer in Frankfurt
Published: April 4 2011 22:43 | Last updated: April 4 2011 22:43
|On the shop floor: the Leipzig academy of Porsche Consulting
A truism of capitalism – and a reason for its survival – is that crisis spawns invention. It is a maxim that Porsche, the producer of Germany’s coveted sports cars, realised two decades ago when it created its consulting arm.
In the years before the consultancy’s beginnings in 1994, Porsche’s allure was waning – its sports cars were proving too expensive amid increasing competition and the brand had lost some of its appeal.
But after the management brought in Japanese lean production techniques, overhauling the German company’s inefficient production system and network of suppliers, they discovered that there was demand from suppliers for their expertise.
From its beginnings, the consultancy was paid in office chairs and tables by one of its first customers, Fröscher. Now, Porsche Consulting has grown into one of the largest consultancies owned by a parent company in Germany. Its success demonstrates how industrial companies can monetise specialist knowledge and sell it to external clients.
Heidelberger Druckmaschinen, the global market leader in printing machines, took a similar path last year. When the group faced the most severe crisis in its 161-year history amid a rapid slowdown in orders and structural changes in the printing market, management looked for new ways to bring in revenues.
They decided to market the group’s production capacity and engineering skills to start contract manufacturing for small-scale series components, castings and speciality machinery.
Bernhard Schreier, chief executive, calls the business model “system manufacturing”, as he says it is far more sophisticated and less cyclical than classical contract manufacturing. “We are small series specialists and offer extensive technological advice, so it is a lot different from a simple contract production,” he says.
Within a year, more than 20 customers from sectors such as energy, electronics, mechanical engineering and car parts ordered components from the group.
Exporting a German Kaizen
Porsche’s consultancy arm teaches its own version of the classical Japanese Kaizen philosophy – the process of continuous improvement, lean production and eliminating waste wherever possible.
This includes seemingly banal things such as keeping plants clean and tidy. But it also aims to add transparency with a “traffic light” system which shows employees, for example which plants have achieved their targets and which have not.
The consultancy says that it encourages a culture in its clients’ companies where mistakes are seen as a learning process and employees are encouraged to report them.
“One has to brutally focus on the added value, on those things that the customer wants to pay. Everything else is waste,” says Eberhard Weiblen, Porsche Consulting’s chief executive. “The crazy thing is that at many companies, the added value part makes up less than 10 per cent of their effort. The [important] thing is that employees learn how to spot waste”.
Such an approach is not restricted to carmakers or aerospace engineers. Today, Porsche Consulting’s customers include engineering and car parts companies, financial service groups, breweries, wastewater treatment plants, hospitals and even an administrative appeals court.
The Heidelberg-based company, whose main business of producing printing machines has started to recover, predicts the new business unit will generate €100m of sales within five years.
The creation of new business divisions is not necessarily triggered by a crisis. Unternehmensgruppe Fischer is a family owned Mittelstand conglomerate based in the Black Forest, known for its eponymous wall fixings.
After increasing the efficiency in its plants by developing its own version of the Japanese Kaizen lean production method, the group decided to start its own consultancy seven years ago.
Today, the consultancy arm has grown into Fischer’s fourth business division alongside wall fixing, automotive supply and toy construction units. Its consultants have advised more than 250 companies ranging from food producer Nestlé to household appliances maker Miele.
The secret to the consultancies’ success lies in a rather unusual approach. Unlike most consultancies, Fischer Prozessberatung and the German sports car maker do not proffer legions of immaculate suits fresh from business school but rather experts from their shop floors.
“Some of our consultants go to the assembly plants of engineering companies and, after three days, start moving around machinery with a crane to improve production efficiency. Which consultancy would do something similar?” asks Eberhard Weiblen, Porsche Consulting’s chief executive.
His business employs a mix of classical consultants, engineers, former Porsche production specialists, physicians and master craftsmen from the carmaker’s plants.
“These are all different characters and not only the typical uniform consultant with an MBA,” says Mr Weiblen.
At business jet manufacturer Piaggio Aero Industries, they know why this approach makes a difference.
In 2006, when Porsche’s consultants convened for their first workshop at the Italian company that today is part-owned by Abu Dhabi’s Mubadala Aerospace, angry workers of the crisis-stricken group gathered in front of the assembly hall calling on the outsiders to leave.
“The workers feared we would simply fire people. So we brought in Eddie – our master car craftsman with a belly and a beard – who went to the head of the works council and explained to him that we were there to help,” says Federico Magno, chief executive of Porsche Consulting’s Italian arm.
Eddie proved persuasive and the consultants started their work. Six months later the company was transformed from being under bankruptcy protection into one that assembled more business aircraft than ever at lower costs and with higher productivity.
Processing time in the wing assembly, for example, decreased by 45 per cent, while productivity rose by a third.
The aerospace company reaped the lessons learnt at a company now seen as the world’s most efficient carmaker. Despite being distracted by preparations for a forced merger with Volkswagen, in the wake of a failed takeover attempt, Porsche reported an operating margin of 17.8 per cent in the last five months of 2010.
But what works for Porsche might not work equally well for others. Michael Paul, chief executive of FVA, a German research-partnership of industrial companies and universities, warns that companies are treading a thin line if they sell their expertise. “You always have to ask the question how much of that you can give to outsiders. For many companies, this is a dilemma,” he says.
Georg Tacke, chief executive at Simon Kucher, an independent Mittelstand consultant, says companies should concentrate on their core areas instead of wasting resources on such service businesses. “The question is: shouldn’t you concentrate your energy on your core business?” he says.
But Porsche believes its consultancy has proved to be a savvy strategy. Mr Weiblen says its reputation means that they barely need to advertise.
Moreover, the business that was born from a crisis appears to be something of a money-spinner. The consultancy, which has 250 employees, made revenues of €55m in the fiscal year 2009-2010, ending in August, and it has grown by an average of per 26 per cent a year since its foundation.
And Mr Weiblen says that the consultancy’s profit margin, just like the sports car maker’s, is “reasonably in the double-digits”.
Copyright The Financial Times Limited 2011.