“We are striving for dual technology leadership”
Michael Traub has been the Chairman of the STIHL Executive Board for almost 2 years now. In his interview with “Blick ins Werk”, during a tour of Plant 2 in Waiblingen, he talks about the company’s current business development and the right strategy to master the challenges of the future. The focus is on cordless transformation and technology leadership in gasoline-powered and cordless products.
How do you feel after 2 years back in Germany?
MICHAEL TRAUB: I feel very comfortable here in the country, especially in our internationally-minded family business. I would like to take this opportunity to thank all colleagues for their warm welcome and for their broad, constructive support for my work.
You lived abroad for 20 years before joining STIHL. How has Germany changed in your view?
MICHAEL TRAUB: I still see the mentality in Germany as down-to-earth, thorough and values-based. It is a very livable and lovable country with smart and motivated people. As well as that, the society is characterized by multicultural diversity. In order to maintain the level of prosperity, I would like to see more willingness to change and agility in some areas. And the bureaucracy in this country is sometimes considerable. Unfortunately, calls to reduce the bureaucratic burden fall largely on deaf ears.
You have since been to many STIHL locations in Germany and abroad, and have spoken to employees, specialist retailers and business partners. What have you noticed? What does this company stand for?
MICHAEL TRAUB: The company is geared toward the long term – thanks to our committed shareholders who reinvest the majority of their profits. It’s all about people here. Employees have a STIHL spirit, identify strongly with the company, and are highly motivated and committed. I would like to thank our employees around the world for their strong commitment to our family business. They are the most important success factor. Our customers trust our brand and appreciate the high quality of our products.
...gasoline and cordless products?
MICHAEL TRAUB: When it comes to gasoline products, our quality is known worldwide and almost legendary. We are also a leader in professional cordless products. In the consumer segment, however, we still need to develop our technology leadership and recognition. The transformation from gasoline to cordless is in full swing. Here, we need more willingness to change and speed of change in the company. We still have a lot of “gasoline in our blood” and need to focus more strongly on cordless.
How is business development currently going for STIHL?
MICHAEL TRAUB: The years of very strong growth are over for now. In 2023 we are significantly below the previous year’s figures and below our planned levels in terms of sales and production. This is true of the Group as a whole, but also the parent company. And our turnover has also fallen. We have therefore reduced costs during the year to stabilize the result. In addition, we have had to reduce production programs and implement personnel adjustments at all locations – though we have done so in a measured way and with a sound perspective. Our goal is to strengthen the company’s competitiveness so that we can protect jobs in the long term.
Please can you tell us more about that? Where do we stand compared to competitors in our industry?
MICHAEL TRAUB: The current development is typical of our outdoor power equipment industry, by which I mean the garden, forestry and construction equipment product segment. Those competitors which grew even more than we did in recent years are now experiencing particularly significant losses. It should also be noted that we have had almost double-digit growth rates for the last three years. We grew from 3.9 billion euros in 2019 to 5.5 billion euros in 2022. But the era of the coronavirus pandemic boom, when people had to stay at home and therefore invested in the house and garden, is over. Now they are spending their money on travel and eating out again. In addition, our lives are affected by global crises and new wars. High energy prices, general economic weakness and high inflation are negatively impacting our sales. As such I am convinced that we are in a phase of temporary consolidation of the markets.
So it’s just a temporary problem?
MICHAEL TRAUB: We are taking it very seriously. We could definitely be facing a lasting problem if we didn’t implement countermeasures and let everything run as it is. But as the Executive Board we agreed early on, and in close contact with the Stihl family, that we would implement appropriate measures in the operational business to steer the company safely through this challenging time. This is the operational task we have as management. My assumption is that the weak economy will not recover at the turn of the year, which means we may have to further adjust our production program both at the parent company and in the STIHL Group.
We had delivery difficulties during the pandemic. Our customers sometimes had to wait a long time for products. Are we doing better now in this respect?
MICHAEL TRAUB: The Production, Materials and Logistics departments have collaborated fantastically well and cleared backlogs so that we are back to supplying our authorized dealers with almost all products on time. At the moment, retailers have high stock levels that need to be sold off first. This is another reason why our dealers are taking a cautious approach to placing orders. Only when dealer stocks are significantly depleted will our sales pick up again.
And when will sales increase again? What is your expectation?
MICHAEL TRAUB: I expect a continuous improvement in the second half of this year at the earliest. In addition, we are also working to optimize the level and structure of our own inventories in the parent company and group, because having high inventory levels ties up considerable capital. This costs a lot of money, and we want to improve significantly here.
In addition to these operational tasks, what are the fundamental challenges for STIHL? What is our priority?
MICHAEL TRAUB: The world around us is becoming more unstable and changing increasingly quickly. This affects our markets, products, customers, competitors, suppliers, etc. For us it means, above all, finding an answer to the decline in sales of gasoline products and taking into account the increasing importance of cordless technology. Competition in the cordless segment is significantly more intense than in the gasoline segment. Our top priority is therefore the cordless transformation and the associated goal of becoming the leading cordless company for our customers – that is to say in the professional and domestic segment in the outdoor power equipment area.
And what does the STIHL strategy for achieving these goals look like?
MICHAEL TRAUB: We are striving for dual technology leadership – in gasoline and cordless products. However, we will have to make significantly more investments in cordless technology in the future – in people, machines, markets and technology. To this end, we have set up our “Battery First” strategy. This means focusing our activities and resources on cordless technology as a priority. We want to triple our 2022 level of revenue from cordless business by 2028. To this end, we have initiated a number of measures that we are bundling in the “Battery Transformation Program” strategic action area.
And how will we utilize our other business areas?
MICHAEL TRAUB: Our strategy can only be successful if we fully leverage the potential of all business areas. In the gasoline business, we will continue to be the technology leader in high-performance applications. At the same time, we will mitigate the ongoing substitution of combustion engine business with cordless in developed countries by means of growth in emerging markets. In aftermarket business, the focus is on penetrating existing markets and expanding the Parts & Service business. The profitability of these two segments will form the basis of our battery transformation.
These are very extensive projects. Are they achievable with today’s business organization or do we need new structures and processes for this? And what role does the parent company play?
MICHAEL TRAUB: The German location is central to this. This is the headquarters of the corporate group. The most important strategic and operational measures are prepared and decided in Waiblingen. But we also know that we cannot overcome the challenges of the future from Germany alone – on the contrary. We will only be successful in a global network and as an international STIHL team. With this in mind, we are aiming for a new and stronger partnership with our affiliated companies. We want to achieve this in the context of MOVE, by means of a new organizational structure and corporate governance that is consistent worldwide. Clearly defined structures and collaboration forms are defined for the various corporate functions, such as sales, marketing, purchasing or HR. This means resources can also be pooled worldwide in our affiliated companies’ regional centers (regional hubs), to enable us to coordinate better with each other and support one another. Together, we can then use the reclaimed energy from this to offer our customers even better products and solutions.
You mentioned that the parent company plays a central role. Does that apply to Production as well?
MICHAEL TRAUB: It applies to Production for as long as the Germany site is competitive. However, our competitiveness in this country is declining steadily. High energy prices, a serious shortage of skilled workers, excessive bureaucracy, high wages and ancillary labor costs plus a tax burden that is above the international average make the German location increasingly unattractive for companies. Nevertheless, we will be making investments here at the Waiblingen site, for example in the in-house production of EC engines for our professional cordless power tools. This is primarily due to the Stihl family’s deep ties to this region. In addition, proximity to our Development department is a benefit for this innovative technology. But for family businesses to invest more here in the long term, entrepreneurial activity in Germany has to be more worthwhile again. Unfortunately, I don’t see much prospect of that at the moment.
What makes you think that?
MICHAEL TRAUB: Germany has massive problems as a location, and is in a recession. Direct investment by foreign companies is at a low here in Germany. And in the middle of this situation, there’s discussion going on about a four-day week with full pay. That is completely unrealistic. It would result in even greater migration of value creation and jobs from Germany to other countries. Surely nobody wants that. Instead of talking about doing less work, we should look for ways to introduce more flexibility into the world of work.
Let’s leave politics and go back to STIHL. What are your plans for the company in 2024?
MICHAEL TRAUB: As the Executive Board, we will work together to implement our strategic projects and measures more intensively next year. In the Group, we are starting to develop our global organizational structures and processes in key corporate functions. And as an example of one of the most important strategic fields of action for the STIHL Group, I would like to mention ONE STIHL. So far 25 STIHL sales companies and one production company have now been converted to the new S/4HANA process and system landscape. A further 3 sales companies and 2 production companies are currently being rolled out. Preparations for ONE STIHL are already in full swing at the parent company and in Brazil. I ask all affected employees for their dedicated support in the implementation.
And can you tell us about your personal plans for next year?
MICHAEL TRAUB: I’m a big fan of STIHL e-bike leasing and have just got an e-bike – with the performance engine from Bosch. Next year I will sometimes be riding my bike to work. My wife and I will also be exploring the region by bike at weekends. There’s still plenty to discover there...
Thank you very much for talking to us, Mr. Traub.
