ThyssenKrupp Restructuring

Steeling for Change

thyssen
A new dawn? Divisions at steel giant ThyssenKrupp are being restructured. (
  • Why it matters

    Why it matters

    ThyssenKrupp, which was teetering on the brink of collapse a few years ago, has endured five years of painful restructuring and is now turning the corner.

  • Facts

    Facts

    • In 2015, ThyssenKrupp had operating profits of €1.7 billion ($1.9 billion), up by about a quarter on the previous year.
    • Mr. Wegmann worked at Siemens before being recruited by ThyssenKrupp boss Heinrich Hiesinger.
    • He heads its Industrial Solutions division, which is about to undergo a huge round of cost-cutting.
  • Audio

    Audio

  • Pdf

The mood at the summer meeting of top managers of industrial giant ThyssenKrupp was relaxed. With his shirt unbuttoned at the collar and no tie, manager Jens Michael Wegmann fitted it perfectly.

Much has changed at this traditional steelmaker since chief executive Heinrich Hiesinger took over more than five years ago. He took the helm of a company suffering huge losses and teetering on the edge of collapse. But a five-year restructuring plan involving huge management and operational changes, as well as cost-cutting, has begun to pay dividends. Operating profits in the last financial year were €1.7 billion ($1.9 billion), up by about a quarter on the previous year.

Mr. Wegmann is one of the changes. The 50-year-old manager has been working for the firm for the past year. He took the job because Mr. Hiesinger made a personal appeal to him, and because he enjoys the challenge.

The boss entrusted Mr. Wegmann with a special task: His goal is to thoroughly reorganize the Industrial Solutions division, which he heads. The unit, with about 20,000 employees, is divided into subsidiaries Uhde and Polysius for the project business, specializing in technology and shipbuilding. Although the companies operate under one roof, they tend to work in parallel at best, and sometimes even at cross-purposes.

Restructuring will not come without sacrifices. Executives have been replaced and several hundred jobs eliminated. Rumour has it, there are more cuts to come.

Many things are going wrong, Mr. Wegmann explains to the 120 executives gathered for the meeting at company headquarters in Essen, western Germany. His relaxed appearance is not intended to belie the fact that he is deadly serious. “It is imperative that we take action,” he says.

Then Mr. Wegmann shows his managers how urgent that need is. He has had several major contracts analyzed to assess their profitability, and the results are catastrophic. The analysts have discovered unnecessary costs in the triple-digit millions, costs attributable to the poor handling of projects.

Industrial Solutions, like ThyssenKrupp’s elevator division, has been spared major restructuring until now. In his first years at the company, Mr. Hiesinger was under more pressure to take action in the steel division. In contrast, the business of building industrial plants, such as cement and fertilizer factories, as well as naval ships, was generating decent returns.

But those days are gone. Now Mr. Wegmann wants to tear down the boundaries between individual business units. He wants his employees to focus more heavily on the division’s key customer groups. In the future, the company needs to pay more attention to what customers really want, says Mr. Wegmann. “This is central,” he adds.

 

01 p16 ThyssenKrupp Industrial Solutions-01

 

His analysis was sobering. In some cases, ThyssenKrupp lost contracts because employees had offered systems with functions that had not been requested. In other cases, salespeople had offered customers too much, which the company was then forced to deliver. As a result, projects went over budget and the company ended up losing money.

By changing structures, Mr. Wegmann, an engineer, aims to bring down costs more than anything else. In the future, managers will have access to a pool of engineers and a central purchasing department when implementing projects. Responsibility and jobs are to be shifted more heavily to other countries.

ThyssenKrupp has little choice. Rivals from China are becoming stronger in plant manufacturing – and Chinese providers operate with a significantly lower cost base. Current figures show how tough the competition already is. The order backlog is shrinking and important, profitable contracts, such as one with the Canadian oil industry, are expiring.

The problems faced by Industrial Solutions resemble those that Mr. Hiesinger encountered when he took the top job at ThyssenKrupp. The individual divisions – Steel, Elevators, Components, Industrial Solutions – were operating in parallel, and duplication of tasks was common.

So Mr. Hiesinger is familiar with the scope of the job he has assigned to Mr. Wegmann. He also knows that rebuilding Industrial Solutions will not come without sacrifices. Throughout the entire company, top managers were let go in the course of restructuring, and there were job cuts in some areas.

Mr. Wegmann has also begun to replace executives and has announced the elimination of several hundred jobs at ThyssenKrupp’s operations in Dortmund, near Essen. There are rumors that additional managers will likely leave the division soon.

 

131 ThyssenKrupp-WTB 2015

 

This is nothing new for Mr. Wegmann. In a former role at Siemens, he was deployed to areas where restructuring was necessary. This led him deep into the project business. He was already seen as ambitious and decisive at the time. Mr. Hiesinger, who also came from Siemens, kept his eye on Mr. Wegmann.

According to company insiders, if Mr. Wegmann performs his task effectively in Industrial Solutions, he could join the group of candidates to succeed Mr. Hiesinger.

Before then, however, he will have to complete his next task: the restructuring of shipyard subsidiary TKMS. The unit, which specializes in building warships and submarines, has remained untouched in the last few years.

But insiders report substantial deficits in operations. TKMS incurred a nine-figure loss in connection with a contract for the Turkish navy. So far, the subsidiary has managed to cover up these losses with new orders. But after the company lost a bid for an Australian contract worth billions, it became clear to ThyssenKrupp and to Mr. Wegmann that fundamental change is needed at TKMS.

 

Martin Murphy is an editor with Handelsblatt specializing in the automotive, defense and steel industries. Martin Wocher is an editor focusing on the mechanical engineering and steel industries. To contact the authors: murphy@handelsblatt.com, wocher@handelsblatt.com

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