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Yesterday I published part one of the "Heidelberg Strategy V2" and as usual many great comments, and of course a lot of private messages, emails, and even calls. Thank you, everybody. In part two - this article - I want to dive into the Heidelberg strategy itself. Before doing so, we again need to declare a few things.

First of all, I got inspired to write this since I was thinking whether the strategy was poorly communicated or whether the strategy itself was bad. 

The two critical things Peter Sommer mention in the interview that started this story - is the termination of the primefire- and the VLF-platform. However, there are a few more things that come to mind. A few weeks before the strategy was announced, most of the executive board was laid off, and reduced to a slimmer board of directors. Only two are now members of the executive board, namely CEO Rainer Hundsdörfer and CFO Marcus Wassenberg. More about them later. For many, I believe, it came as a surprise that Stephan Plenz and Ulrich Hermann was among the people no longer on the team. CTO Stephan Plenz has worked for Heidelberg for many years, and to the end, CTO responsible for the development, production, and product management. Maybe an even larger surprise was the goodbye to CDO Ulrich Hermann, who is the founder of Heidelberg's subscription model. That we will come back to later as well.

But Heidelberg's pension fund (375 million Euro) was also used to reduce the company's debt. Also, Hitech Coatings, worth 25 million Euro, was sold to generate cash. Both are, of course, less of a strategy, rather than an operational exercise positioning Heidelberg better. Also part of the recent announcement is about slimming the company with approx. 2.000 employees - sources, however, tell INKISH that maybe even more people need to be laid off in the future. In an interview with Mark Michelson from Printing Impression, US CEO Felix Mueller says it won't influence how they serve the market, which of course raises the question, why this hasn't been done earlier? Many things are shaping Heidelberg into a new market situation which, of course, is good. 

As already mentioned the purpose of a strategy is to set the course for the future. How boards are doing this, I believe is based on knowledge, experience, advises from internal and external advisors, analysis of current revenue streams, and hopefully also a bit of forward-thinking. I am, of course, not in a situation where I can judge the future, but I believe everybody can agree to some of the more obvious predictions. The future will be more and more digital. Everything that can be digital will be digital. I also think that most can agree that everything will be more individualized, and I also believe that mass customization and the production down to copy of one is an evident trend. It's also a fact that the growth within current offset-based markets, is packaging - and almost only packaging. I even remember drupa 2012, where the leading statement from Heidelberg was "verpackung" - meaning "packaging." And remember in the 2018/2019 Heidelberg strategy, the headline was "Heidelberg goes digital!

That's not a long time ago, and regardless of why they now believe that Primefire and VLF isn't part of their future, you can ask whether the bigger issue is somewhere else?

And yes. In an interview published in English today on Bernd Zippers Beyond-Print.net website, CEO Rainer Hundsdörfer is quoted saying "We burdened our profitable core business with things that are technically mature but not economically viable because they accumulate losses." - and with that in mind, this explains why Heidelberg is focusing on the short-term gains. 

VLF or Very Large Format machines, typically meaning 145, 162, or 205 cm formats, are used extensively for packing. Of course, B1 machines are good for packaging, but the printers who have invested in the VLF machines use these formats to deliver efficiently. Regardless of whether the VLF machines are used to serve the commercial print market or packaging market, these don't come cheap. With Heidelberg's decision to stop developing these machines, my concern isn't about servicing the existing machines in the market - which, however, was also questioned by Peter Sommer. My concern is whether the strategy that Heidelberg has announced will lead the company to a better future?

If everything goes digital - digital is the place you want to be.If the dominant market in the future for litho-offset is within the packaging, you would like to be where customer demand is.

To me, it seems that Heidelberg is dismissing these opportunities with their new strategy. So could focus on their core business within the B1 segment be valuable in the future?

Well - for a long time this will, of course, serve the market, and the thousands of printers may want to invest in new Heidelberg machines. But then again. Would you want to invest in a company that focuses on legacy technology rather than the most modern and latest? Even though Hundsdörfer stresses in the interview with Bernd Zipper that Heidelberg is committed to digital print (referring to their partner agreement with Ricoh), you can ask whether you as a printing company would dare to trust Heidelberg one more time? 

Please remember both the Kodak Nextpress venture, DI-machines, and now the Primefire. 

For customers who have already invested in the Primefire, Heidelberg offers to take the machines back - and well, maybe this is the best deal you ever get, so perhaps you should consider?

Even the subscription strategy also announced in 2018/2019 seems to be in less focus. It's not because 'subscription' is necessarily bad in itself, but more, that the value proposition has been poorly communicated. If you look at the landing page of the subscription product from Heidelberg, you wouldn't think of this as part of the companies future strategy. Or to be honest - the Heidelberg subscription model doesn't look very favourable for the printer. INKISH haven't seen an actual contract yet. However, we have seen some of the calculations behind the subscription model, and the price-per-sheet doesn't look very attractive in our view.
The first time I heard about the subscription model, I thought of it mostly as another way to finance the equipment packed with service, consumables, etc. And it is - I have spoken with several people, and though the promise could be a new way to sell presses it looks like old wine on new bottles.

When selling equity like a printing machine, the biggest challenge is who's balance sheet it will influence. With operational leasing obviously, it's the leasing company or bank that is affected. One of the questions I have tried to get answered was whether a subscription model would affect Heidelberg or a financial partner. Rumours - and I underscore, that I haven't looked into Heidelberg's books to see for myself, claim that a number of the first subscriptions were financed by Heidelberg and therefore affect their balance sheet. 

In several interviews with both Hundsdörfer and other Heidelberg people, everybody continues to talk about "externalizing the financing of equipment", but how that will then differ from conventional operational leasing is still a mystery. IF Heidelberg had financed both prices-per-sheet+equipment like the quite controversial all-in contracts known from especially Xerox, it would have been a cash-cow for Heidelberg, but it isn't. The calculations we have seen is, unfortunately, cost over five years divided with the number of agreed sheets expected during the lifetime. Even worse, from a printers perspective; the price per sheet exceeding the agreed volume, is priced way to high in Heidelberg's favour - leaving NO incentive to produce more. The variable perspective that, i.e. David Schmedding talks about in this YouTube film, is entirely invisible - at least in the spreadsheet, we have seen.

In the discussions on LinkedIn, it also seems clear to me, that many people in the industry are sceptical about the subscription model - to be honest.
A couple of years ago, I attended a conference where the keynote was held by the former Danish national handball coach Ulrik Wilbek (who took the Danish women to victory several times). I have never been a big fan of applying military and sports measures into business, but Ulrik Wilbek said something that made me listen. It was about people.

In his speech, he claimed that there are only four types of people in a company. 

- The ones who can and will
- The ones who can but won't
- The ones who can't but will
- The ones that can't and Won't

All four types of people are found in every company, and I believe you could quickly identify who you want to have on your team in the future.

I mention this since regardless of what strategy a company chooses, the execution requires the right people. Rainer Hundsdörfer is, of course, convinced about the direction that is now set. I, however, find it extremely questionable, when he in the interview with Bernd Zipper explains that he expects to retire in three years, leaving Heidelberg as a beacon for the printing industry AND with a strong economy.

Here is what he said: "I am firmly convinced that Heidelberg will be a financially sound company again in three years' time. We will not only have maintained our position as the market leader in sheetfed offset printing, but perhaps even consolidated it further."

Three years is not far away. So in three years from now, we can expect economic wonders that I believe the industry has never seen before.
Ladies and gentlemen. It's not normal that a CEO from a huge company that has suffered on all major KPI's the past many years suddenly will change, and to believe Hundsdörfers words, is almost impossible.

Heidelberg needs a new strategy, I believe. One of the people that wrote to be me said that Heidelberg has made faster and more efficient machines over the past many years, and have not been able to increase their prices accordingly. That is, of course, true, but that doesn't have anything to do with the market and strategy. This is competition, and technological advances, that drives this development. If you look at computers, this is a great example. Moores law predicts that every 18-24 month's speed doubles or prices half's. You can't, of course, compare products that have an industrial scale with printing machines, but yet you can. If the competition didn't drive innovation with all vendors, we would still have letterpresses. 

Today Heidelbergs executive board consist of CEO Rainer Hundsdörfer and CFO Marcus Wassenberg. However, good or bad these two gentlemen are, I believe that based on their communications to the public, and apparent lack of understanding the market, it must be difficult, if not impossible for employees to suggest the right thing to the management. Heidelberg essentially seems like old-school top-down management that has lost track with where the market is heading.
In an article from Harward Business Review, Freek Vermeulen cites Stanford professor Robert Burgelman for saying "Successful firms are characterized by maintaining bottom-up internal experimentation and selection processes while simultaneously maintaining top-driven strategic intent." If you have a strong top-down business with vast levels of mid-management Heidelberg may never be able to execute the strategy, how good or how bad it is.
In another article, published by Strataegos, they list seven reasons why strategies fail:

  • - Incompetent Management
  • - Vague strategic vision
  • - Inadequate strategy
  • - No implementation plan
  • - Lacking planning and control
  • - Neglect of political interests
  • - Culture of fear

Pair these seven reasons with the words of Professor Robert Burgelman, and the lack of communication from Heidelberg seems to be the perfect formula for failure. 

- I am SO sorry about this. I have loved Heidelberg for my entire life, and I have friends there, I believe their technology, in many ways, is superior but steering such a huge company in the opposite direction of where the market is moving, can't be good.

If you want to read the first article in this series, please click here.

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