‘Profitable growth is the name of the game’

Former Ensto Group Chairman of the Board, Risto Anttonen, reflects on the past two years as Chairman.

Anttonen has served as CEO of both Ahlstrom and Norpe, two Finnish corporations he helped transition from local to global. Ensto Today asked Anttonen about the process of widening Ensto’s relevant market, making the company “less local,” yet maintaining its competitive advantage of being locally present.

As Chairman, you led the work of the board to set the corporate strategy – determining which businesses Ensto should be in. Given that role, what’s your vision for Ensto?

The main objective is to find the right growth strategy. Ensto has a rich portfolio of different technologies and we have a good knowledge base. We can still learn how to become better in designing our growth strategy and executing it. While the board defines the businesses we’re in, the Strategic Business Units themselves must create their own sustainable competitive advantages.

Ensto’s greatest potential growth will come from Ensto Utility Network products and lighting. But in Ensto Electrification business units there are also opportunities, each having product lines with real growth potential.

When it comes to execution we should look at our structure, overheads, and capacity utilization. I recently visited our units in France and found opportunities to better act as one unified company.

Does growth for Ensto mean tough choices about the product portfolio?

You should never divide your products between category A and category B. Be proud of every product because they all have a role to play. Just because a product does not have potential for global leadership does not mean that it lacks value. Products may generate valuable cash flow, or they may be part of a farm of potential future successes.

I don’t believe there is such a thing as “profitable shrinking.” Profitable growth is the name of the business. Do not misunderstand: I am not saying that we should accept underperforming products – that is a separate issue.

You’ve remarked before that Ensto products should be number one or two in their respective categories.

Products need to be positioned, and this means two things. First, that you are hopefully a “leading product.” Second, it means that you are in the largest market. It doesn’t help if we are number one in Finland but number 11 in Germany and France. What’s your position when you first define your market? You have to be as global as your main competition.

But keep in mind that “global” may not be the right word here. It’s better to say that business is constantly becoming “less local,” and recognize that there are places in between local and global. For each product we have to understand the relevant market. It will never be only domestic, but that doesn’t mean it will be the whole world, either.

What’s the relevant market for our products? Look where our strongest competitors are operating. That is our market. If our definition of our playground is not as wide as the strongest competitors, there is always the risk that a more global competitor, without any pain at all, can use his cumulative cash flow and take away our market. Our product lines must be as global as their strongest competitors. We must raise our ambition for these products; we must analyze their competitive advantages and positions.

What are Ensto’s competitive advantages at the group level?

If you visit South Korea you’ll find that companies there have the goal to be number one in the world. In the US, if your company reaches 10 million in sales, you don’t sell it if you see it could make 100 million after five years. Finnish companies generally lack this ambition and remain very small.

In this sense, Ensto is not a typical Finnish company. In business-to-business worldwide there are 3,000 leading companies, and half of these are German. They are often middle-sized companies, leaders in small niches, which have been family-owned for generations. Ensto is similar to these in the respect that it is a family-owned company with the critical mass to become a global or regional leader. But also we do not have the resources to be leaders in too many businesses.

This strength of Ensto means continuity, which is extremely important for product development. How can you develop something really new if you stay as CEO only three years and maximize profit every quarter like is common in listed companies? In a family company you can stay and fight for something that brings results after five or fifteen years.

Buying companies is the fast track to growth, but you have cautioned against too much acquisition.

Ensto’s growth should be, roughly speaking, half organic and half acquisitions.

Offhand I cannot assign numbers, but my sense is that Ensto has been growing more by acquisitions in recent years. We’ve had Enervent and Alppilux in Finland. We’ve grown in France by acquisition. It is easy for me to name these transactions, but it’s more difficult for me to name how we’ve grown organically through product development. So organic growth is an area for focus.

So where are our best possibilities for true global growth? In this analysis we must include questions about our resources and knowledge. Organic growth is safer growth, but, in a way, more demanding.

Whatever you do you need people to do it. You need a resource pool, a “bench” as the Americans call it – “How deep is your bench?” We must be less dependent on resources in Finland and have capable people in all markets where we are present.

You once made the remark that in the previous century the leaders of companies were inventors, and you named Ensio Miettinen as a good example. You noted that today’s business leaders often are financial people: “balance sheet acrobats” was your term. But there are some inventors, some software engineers running major companies these days, aren’t there?

I meant that remark to be critical of Finland. What we’re lacking in Finland – and in Europe – is innovation. The fastest growing companies are software companies and they are all American. There is no software giant in Europe.

Finnish companies are production- and technology focused. We are strong in demanding, difficult, B2B knowledge-based goods where production is the critical factor. But our weakness is in marketing. Downturns impact investment goods more than they affect those who make consumer goods.

It’s what brought Nokia down in the end: they could not understand consumer needs. They were the world’s best logistic machine, and they had the lowest unit cost per produced mobile phone. But they produced the wrong product.

But Ensto is on the right track toward change. During the little more than 10 years I’ve been on the Board we have become less and less dependent on Finland and the Nordic countries. Yet the positions of our product lines are too local. We will continue to search to find that sweet spot between local and global.

Author: Scott Diel