How To Pump Out Profits For Over 100 Years Engineering giant Voith stays on top by thinking like a tech firm.
(Business 2.0) – To Vattenfall, water is money. So when the Swedish utility company was set to construct one of Europe's largest and most modern hydropower plants, it called on German industrial giant Voith to provide its four state-of-the-art turbines. While most hydropower stations need naturally flowing water to generate energy, Voith's high-speed turbines work in an artificial lake. During the day, when energy is most expensive, water from the lake flows through the turbines to generate electricity. At night, when energy prices plummet, water is pumped back into the lake, only to flow through again the next day--essentially simulating a river current.
Innovations like this are the lifeblood of Voith, an engineering behemoth that's churned out a profit in 134 of the 136 years since its founding in 1867. (The two exceptions came in the 1950s, when the company lost a mere $571,000 total.) Such a record is especially astounding when you consider that the privately held corporation's main business is turbines that can easily rack up 50 years of service and paper-mill machinery that lasts 100 years or more. Further, a single machine can sell for as much as $200 million, or about 5 percent of Voith's $3.8 billion in revenue in 2003.
So how do you keep cranking out profits when your products last forever and you only have a few hundred potential customers worldwide? With a nimbleness more suited to high-tech than heavy machinery. "Our customers need a good reason to replace a machine that works," says Voith CEO Hermut Kormann. "We have to come up with new innovations that make sense."
To get core clients like Vattenfall to upgrade or add to their existing plants, Voith's engineers work closely with customers to develop new technology. As a result, despite the longevity of the machinery, more than half of Voith's sales come from products less than five years old. Recent innovations include a fish-safe hydropower turbine (non-fish-friendly designs tend to turn salmon into sushi) and a new way to dry cardboard that increases output by 25 percent. Last year Voith helped Germany's Rhein Paper upgrade its mill to set a world record for newsprint production: 1,912 meters per minute.
Voith's intellectual property arsenal befits a tech firm too, with 400 new patents a year and a portfolio of 7,000. In fact, Voith is second only to German chipmaker Infineon in the national battle for the most patents as a percentage of revenue. Voith sustains that pace through its annual R&D investment of about $164 million--just over 4 percent of sales, which is a good 50 percent higher than the R&D spending of most machinery manufacturers. "Maybe we are a bit old-fashioned, but we're used to cycles," Kormann says. "We would never stop making investments that are important for the future." -- JOHAN JORGENSEN