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December 20, 2020

BTOES From Home - SPEAKER SPOTLIGHT : Digital Transformation of a 120 year old Global Steel Trading Company

Courtesy of Klöckner Shared Service's Marcus Gropp., below is a transcript of his speaking session on 'Digital Transformation of a 120 year old Global Steel Trading Company' to Build a Thriving Enterprise that took place at BTOES From Home.

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Session Information:

Digital Transformation of a 120 year old Global Steel Trading Company

Klöckner is a traditional Steel trading company (more than 120 years old- now public and shares are traded at SDAX) and runs business in 13 countries in Europe and AMERCIAS with 160 branches, about 6,8 Billion € Revenue and more than 8000 employees.

The steel market is under pressure with low margins in a fractured market, depending to the health of the economy. In 2014 Kloeckner decided to transform the business and operations. The CEO posted the target of 60% digital sales until 2022. Starting with zero we have now reached 30% digital sales and transformed major parts of our value chain into digital and more efficient processes. Major points and take always:  

  • Describe the digital journey with the different phases, including mistakes, traps and challenges
  • Present use cases
  • talk about the culture and organizational change
  • the success factors of our journey
  • Outlook: New business models via digitalization (Kloeckners XOM platform)

Session Transcript:

So welcome to my presentation, today thank you for joining. My name is Marcus Gropp and I would like to talk about the digital transformation journey of Klöckner and co Klöckner co. is a traditional steel trading and distribution company with over 100 years legacy founded by Peter Klöckner.

Over 100 years ago in Duisburg Germany. Today we have about 160 branches across the united states and Europe, we are in a critical and challenging market environment facing low margins and really really hard competition our competitors size is about three to five thousand in a high competitive steel market with a lot of pressure about prices so i would like to talk about the digital journey we did since 2014 today first of all some words about myself.

As I said my name is Marcus I'm 42 years old from Germany sitting today in my home office here in Munster I'm have two kids and I would like to give you some insights about my meter I started inKlöckner, last year in February 2019 as head of digital transformation before that I was working for over 13 years in the service provider business offering selling and implementing full business process outsourcing business like e-commerce or crm solutions.

I'm happy here today to talk about the digital transformation story about Klöckner and I will talk about five things first of all I will talk about a little bit about the different phases we went through our digital journey.

Screenshot (77)-1The second point is I would talk briefly about one use case specific use case that you can understand what kinds of tools and transformation we face third thing is about traps and mistakes the four things I will touch are the success factors which we think and we explored and discovered by our journey and the fifth things.

I would like to talk about is the business outlook for example our new business we accelerated out of the digital transformation so let me just start um talk a little bit about cluckner and the steel distribution industry the steel distribution industry still today is a very traditional one it's really as i said faced on low margins and inefficiencies.

It's a very traditional business and traditional means we are traditional in business behavior business habits we are traditional in sales we are traditional procurement and we are really traditional in logistics and operations we offer the full range of products in our assortment so you can buy tubes you can buy flat steel heavy sections whatever and we buy this.

We keep this in our warehouse sometimes we do sawing or other higher valued services and then we deliver this with our own fleet or with third-party trucks to our customers our customers are big ones like big dwarfs building ships or airplanes or the automobile industry and small ones like this shop next to you or the small machine manufacturer with one maybe one or ten million in revenue so it's a it's a wide range and it's really high competitive because our competitions are not the big distributors um linked to the mills like this and or oscillometer no our biggest competition are really the small independent steel distributors and just in Europe.

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We have more than 5 000 these are family owned independent and they are still surviving and this is a pain especially for big corporations because our company is about 6.5 billion euros in revenue and we have more than 7000 employees so we are cooperation we are stock listed and this is of course a challenge for us in this high competitive market so back in 2014 and I will start now with the different phases we approached our CEO uh gisbet rule um was traveling like many CEOs to the silicon valley and he was at first glance interested of course how google Facebook amazon are doing their business uh in the valley but he was also having a question in mind.

What if someone from the valley or somewhere from a different business model will enter our traditional steel distribution industry so what if amazon enters our business because I mean they have the platform they maybe cannot distribute steel because it's really really complicated but they can open a marketplace for it and others do the distribution so having this question in mind he was really concerned that someone from outside will maybe um yeah invade.

Our business field and maybe push us away push us out of the market so he went to the valley he was thrilled about how companies work the habit the mindset how they invent how they test and try out and especially when you come from very traditional industry business even here from germany which is very much influenced by engineers by precise technology by heavy planning precise planning and not doing.

So much exp experiments then it's really a cultural mind set shift and he was very much thrilled and he said when he came back to Duisburg to the rural area with his characterized by traditional industry companies and maybe traditional thinking he said okay we have to do something different first of all we need a different mindset and the second thing is we need to do something against maybe the disruptive invader from outside who maybe push us out of the business so at this stage he had two options either he will start this project within the old traditional company Klöckner meaning induced book in the headquarter with the traditional people and their mindset or he set up a speed boat in a different working environment. So he decided for option two and he went to Berlin.

Berlin is in Germany um really the the the small silicon valley of Germany and he decided okay I need to open there and digital hub with different people different mindset and give them the freedom the budget and the management attention to develop ideas so he did this and he hired two or three young management trainees and also two or three people from from the startup scene in Berlin and they rented a space a core working space and then they started working so of course and I come back later to to successful so a lot of companies are uh doing.

So I did this same approach and a lot of companies failed I think what what we did at this stage in a very very positive way was that after setting up the infrastructure he really and our CEO really defined clear goals for the whole company and he came back and said okay we have now smart people we have a good digital environment there but what we need now is goals and what he did back in 2015.

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He said okay I really declare a clear goal for everyone and this is that Klöckner and co. the traditional steel distribution company will do 60 sales 60 digital sales within 2022 and you have to imagine that this company had zero percentage state zero percent digital sales at this stage and so this was really really a big big goal and most of the people in Klöckner, they were not able to understand what this goal means and how to achieve this goal so and this was a very important phase because this was more or less than really the kickoff of the of the digital journey.

What we then um to summarize is very much uh is that we really took over the agile working procedures from the silicon valley and started to develop mvps pilots and doing experiments we did ideations with customers and employees we tried to find out what is what are the best tools to develop in order to be the first in the market in the steel market to be the disruptive player our goal besides the 60 was keeping the competition especially as a disruptive competition away so our goal was that we are prepared if amazon enters the market.

So we started as a lot of companies did in the past and do today we started with a classical webshop bringing online 60 000 different products with multiple variances in the steel market is really complex this is not like shoes or shirts this is a complex thing what we started we started with mvps we started with one country we started with one product family and then we extended step by step by step the main driver where in berlin in the digital hub we call this Klöckner. I um they had the freedom to do the project very much independent and they put a speech the people in the German organizations but not in the driver's seat.

So why did we do this we we did this because there was so much politics and traditional thinking in the company that we found out it's not possible to bring the people on the table at this stage so the company did something very unusual especially for traditional and especially for German companies they really started the mvp they developed the webshop they connected this to the back-end sap and they went live and as I said the traditional organization was not so much involved of course they were involved because they need to influence the processes but i would say from concept and design the driver's seat was really important of course.

This caused a lot of clashes and discussions fights and a lot of politics but the top management already always and already supports this approach so the discussion the end of the discussion uh were there when the board stepped in and said okay we do this and and stop the discussion so this phase um when we rolled out mvps with a web shop um in Europe but also then in the us um with part manager or consignment tools we call this this was really the phase.

Where we tried to involve more and more people from the traditional organization to convince them and tell them here really this is a key instrument for you it makes life easier it brings value to the customer this phase i think took about three to four years and i think it was in 2017-18 when the company realized um that they need an alignment and more alignment between the speed boat disruptive speed boat in berlin the Klöck.

I and the traditional organization and they found out that they need to bring the people there's a need to bring the people together and culture wise but also process wise because we also found out that you can be disruptive but you need to control your processes and this is of course something which brings me to traps and mistakes for example when we rolled out our shop and we rolled it out by a design in berlin and and we we didn't care about the processes operational processes what happened was funny things that for example you were able for example in Germany to buy a big steel beam in Munich um and the problem was um it was maybe delivered from Hamburg which is about 800 kilometers away.

Screenshot (4)

So of course this destroys your margin and the second thing for example also funny thing which we haven't had in our minds um was for example that people where order were able to order products and pick up every delivery address so it might be that a big a huge truck was ordered to go to a residential area yeah so and and this of course caused a lot of trouble and I think one mistake we did at this stage is that we we haven't thought about all the processes we haven't um involved our operational guys um at a level which we maybe could avoid this kind of mistakes in 2018-2019.

We realized that we are at a certain level of our digital revenue and we saw okay to bring it after 30 to the 60 in 2022 we really need to accelerate this um we we have really good tools at the market we we we had a shop we had a department so we had the consignment we had introduced a lot of self-service we introduced also a pricing pricing affinity we call this um but we also found out okay we it's now really a time that we bring people more together and this is meant by cultural way but also on a process and business understanding way so at this time they the company thought okay we need maybe um a bridge builder and another team which brings the old traditional cluckner world and the new modern Klöckner.

I world together and by that time they decided to build up a digital transformation team global digital transformation team within Klöckner which I'm heading today and now we have three parties in the boat we have the Klöckner.

I as our digital hub they develop the products and we have the country organization which consume and adapt to products and my team is now in the middle and the major task is really to build a cultural bridge bringing people together that they are able to understand each other the second thing is that we streamline processes bringing the modern processes and the traditional processes together and the third thing is of course to take care of project implementation and monitoring and making sure that with our digital projects we achieve effects and I think this is um at this stage an important phase.

Which we are currently this started in 2019 when also our shareholders and investors asking okay what is now the result of digitalization okay there's a strategic component and a customer component but what is with uh avid or mbda effects and during this time in 2000 at the beginning of this year our ceo really set new targets besides 60 he said okay we really need to achieve 100 million euros in ebitda within the next three years to get out of the digitalization.

So we really need to achieve process cost savings or margin increases out of the digitization and this was really um I would say another acceleration of the strategy and really shows the people with within Klöckner but also the stakeholders that we really make it serious and say okay we would like to make the most of our investments which we did in the last years um this is the stage in which we are beside all the corona and we are currently really focusing on tools which really contribute an impact and I think um this is also and now I'm coming to the success factors very important point.

You really need I think this is the first one um to define clear goals of your digital transformation the second one is you really need to have backup and long-term backup from top management CEO or the company owner the third one is digital transformation is a long-term thing minimum three to five years this is not just a short story the fourth thing is you really need budget which is relevant and can move the needle and the fifth one is really it's about digital and transformation digital means very often that companies focus on tools on technical tools only but this is not the full story or it's just 50 of the story the other 50 is really business transformation business transformation means transformation of culture but not culture only business processes.

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Business rules this is really much important and I think most of the companies and also Klöckner are very very much focused especially at the beginning of the journey on the digital tools only and they forget to align the organization and this is even I would say personally the hardest part technology you can pay you can build you can buy but transformation in an organization and culture shift this is really a process.

Which takes time management attention and also sometimes changing people or exchanging people and the last i think most important at the last not most important but the last success factors i would success factor i would like to mention is reflect and adjust you really need need to sit down from time to time and reflect about your strategy about your goals all the success factor i mentioned and then to adjust if you see that a tool is not working the effect is not there then adjust if you see for example the customers are not accepting the webshop develop new tools and this is very much important and I think this was also coming back maybe one second to some traps and mistakes sometimes you are very much convinced that a tool which others also implement is valid for your business we discovered this with a webshop the webshop of course was a lighthouse project at the beginning and we had the idea that our customers may adapt but we found out is that the customers are very very traditional and they haven't changed their behavior.

The customers really refuse to buy online they use they have high usage about the shopping the shop itself so they use it as a shopping window or they use it for their self-service checking invoices payment etc but they really really having trouble to buy online so what we did then is said okay if we cannot change the customer we have to change and we found out for example that um we receive in an average year about 10 million order lines we found out that most of the order lines were entered manually we have some edi okay and some web shop but i would say 70 80 are entered manually by our people so we found out okay.

This is really something we should focus on because the customers they send their requests or their orders via pdf via email some faxed some also via via phone and we said okay if we cannot change the customers we have to change and what we're currently implementing very much successful is what we call clerk assistant we have built up a tool where we really digitalize the pdf or email and bring this into our erp systems and we get rid of the work so this is also linked to reflect and adjust but also it's sometimes a trap that you stick too long to different tools so be open-minded reflect yourself don't stick too much to to tools and in the last two or three minutes.

Screenshot (4)

I would like to give you a short overview of business which we also accelerate out of the digital transformation because after having experience with a lot of mvps tools process adjustments we of course um sometimes have new ideas and one idea was um the xom platform some materials we call it where we said okay we build up a platform where we bring together the mills and big customers and we're doing a marketplace for them on one side and on the other side we also found out that this platform has also a potential to be a good procurement tool for companies.;

Which are in this kind of industry so we are um very much successful with this company as well and it's an independent it's independent from our core company and it was the idea was built up in the clock organization and Klöck. I and we set up a startup so and this is also a good example that you can build up new business out of traditional business and during this digital transformation so i am finished now with my presentation thank you very much for joining me and i'm open for questions now thank you very much and stay healthy.

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About the Author

more (11)-2Marcus Gropp,
Managing Director & Head of Digital Transformation,
Klöckner Shared Services GmbH.

Marcus has been working at Klöckner since February 2019. The Digital Transformation Department is a Shared Service Center and offers Solutions and Services for Logistics, Operations, eCommerce, CRM, Procurement and Process Management. Main business fields are optimization of Logistics and Operations, strengthen Digitalization and drive process automatization within the value chain. Marcus holds a Diploma in Business Administration from the Catholic University of Eichstaett-Ingolstadt. Before he joined Klöckner he was Managing Director for eCommerce Solutions at FIEGE Logistics and the Westphalia Datalab in Müster. Marcus started his career after University at Arvato AG in the CRM Solutions Unit. Main interests of Marcus are Photography, Sketching, Cross-Fit, Arts and Architecture.

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BTOES From Home - On-Demand

The premier Business Transformation & Operational Excellence Conference. Watch sessions on-demand for free. Use code: BFH1120