The Power of Focus

Concentration of effort and resources can have positive consequences on the performance of a business.

Concentration of effort and resources can have positive consequences on the performance of a business. That's a conclusion that can be drawn from the experience of supplier Kolbenschmidt Pierburg AG (Düsseldorf, Germany; www.usa.kolbenschmidt-pierburg.com) which, according to Dr. Gerd Kleinert, chairman of its executive board, has undergone a restructuring during the past three years. Kleinert says that not only did parent company Rheinmetall AG focus on two operations—automotive and defense—but Kolbenschmidt Pierburg's strategy has been to focus on five core competencies (Pierburg (air-handling, pumps, and emissions systems); KS Pistons; KS Plain Bearings; KS-Aluminum-Technology; Motor Service (aftermarket operations)). The objective, according to Kleinert, is to have a significant presence in each of the areas that the company competes. This means being among the top-three companies in the category. He notes, for example, that last year the electric fuel pump business was sold to TI Automotive (www.tiautomotive.com) because Kolbenschmidt Pierburg had less than five percent market share in that product line—and it was up against companies including Siemens VDO Automotive (www.siemensvdo.com) and Bosch (www.boschusa.com). It was concluded that it would be too expensive to compete in that area and that the resources would be better applied elsewhere.

Kleinert says that an objective is to offer the market best-in-class products so that it can compete, primarily, on technology rather than on price. "I don't want to be price-driven," he states. (In areas where there is long-standing business, they do compete on price, which, of course, is a function of improving efficiencies.) In order to achieve this technology leadership, the corporation, which posted global sales of $2.4-billion in fiscal year 2004, increased its R&D spending by 19.4%, to a 5% of sales (or about $124.6 million). "If the technology is there," he notes, "we'll ask for a good price for it." He says that investments in R&D put them "in a strong position for the future."

In North America, which accounts for about 14% of the company's overall sales ($314-million in 2004) Kleinert says they're on track to reach approximately $500-million by 2008.—GSV