Gisbert Rühl: Leading digital transformation at a century old German steel distributor
As CEO of Klöckner & Co, one of the largest independent steel and metal distributors worldwide, Gisbert Rühl is no stranger to industry disruption. Rühl has spent much of his career at Klöckner focused on taking the company into the future in the face of global changes in the metals industry. In 2014, he spearheaded the company’s digital transformation to prepare for a future of increased automation and online platform sales.
Changes in the steel market inspire Klöckner’s transformation
Rühl first joined Klöckner as CFO in 2005 to help bring the company public. Up until 2008, the steel market remained strong, with increasing demand in China driving up steel prices. After the financial crisis in 2008, however, prices and demand for steel started to decrease rapidly.
“In this market, we weren’t able to create an effective competitive advantage, and we remained a low-margin business. This is when we knew we had to do something different,” said Rühl.
Rühl went to the Silicon Valley for inspiration and learned how platforms work. Shortly after, Klöckner began its transformation to become a platform company. “Platform companies typically have low variable costs, because many of their processes are completely automated,” explained Rühl. “With low variable costs, you can have much stronger growth than a traditional company with high fixed and variable costs.” He used Facebook as an example of a business with practically no incremental costs at all—when 1,000 new users join, the company doesn’t have to invest anything.
A new way of working
For Klöckner to become a platform company with physical assets, this meant automating their core processes (mainly sales and purchasing). This was more difficult than Rühl first expected, because it required a significant cultural change within the company to become more agile and embrace a new way of working where failure is not only allowed, but it is part of the process.
Klöckner implemented an internal social network using Microsoft Yammer that is now used extensively. “Without Yammer this transformation wouldn’t have been possible,” said Rühl. “It’s a hierarchy-free communication tool, so I have the opportunity to communicate with everyone in the company, and the other way around. We have a completely different kind of communication culture within Klöckner now.”
The company also initiated a digital academy, offering courses to employees during working hours to help incrementally increase the digital IQ of the company. “It’s not really one big thing,” Rühl explained. “It’s a lot of minor steps and to be honest there’s no blueprint, because not many companies have really transformed themselves in this way.”
Another step in the company’s digitization was founding kloeckner.i in 2014. Since then, 90 experts in software development, data analytics, online marketing, and UX design have been working on cross-functional teams to digitize the supply chain from procurement to delivery. The vision here:
A digitized steel and metal industry in which all market partners interact efficiently.
Introducing XOM—a new digital venture
In addition to the digitalization of Klöckner, Rühl also made the controversial decision to create a new digital venture, XOM Materials, as a purely virtual platform for buyers and sellers of materials. “We launched XOM separately because it turns out it is rather difficult to really disrupt yourself,” said Rühl. “As an incumbent, you always spend the money where you earn the money, and when you earn the money with certain products, it’s really difficult to invest in something that could disrupt your core business.”
XOM was launched as an independent business, and competes with Klöckner on the digital side. “XOM is allowed to cannibalize our core business,” explained Rühl. “There are no rules, we are competing.”
Interestingly, XOM and KREATIZE are both part of the same value chain to a certain extent. Both companies offer very similar platform solutions, XOM for buying and selling metal and steel products, and KREATIZE for ordering and producing custom parts.
Developing a customer-centric approach
Throughout the process of digitizing and automating, Rühl and Klöckner found that one of the reasons startups are so much faster at developing something is that they are more customer-centric than traditional companies. Rühl explained: “A customer-centric approach means that you work with the customer to find out what they really need. You’re not immediately developing the product itself, you’re starting with an MVP with limited functionality. Then you go back to the customer to find out what works and refine it. The advantage is that you are faster in the end, and the product/market fit is much higher.”
Rühl compares a Tesla to a traditional car, for example. “A Tesla is an intuitive, customer-designed product that doesn’t really require a manual,” said Rühl. “If you know how an ipad works, you know how a tesla works.” On the other hand, traditional cars may have 40 or 50 unique switches and the design is engineering and performance-driven, not customer-driven.
2020 accelerates Klöckner’s change
Despite all their efforts to digitize Klöckner’s business, the materials market has resisted digital transformation, making the process longer, harder, and more expensive than Rühl expected. At the start of 2020, Rühl and his teams were focused on how they could dramatically increase uptake. And then in the midst of the COVID-19 crisis, all their efforts to rethink their sales, operations, people practices and organizational structure started to pay off.
“This was not my first crisis,” said Rühl. “What I’ve learned through the years is that crises are a good opportunity to accelerate change, because you can spend more money on restructuring during a crisis.” Within two weeks of the beginning of the pandemic, Klöckner began reducing their workforce by 15% and made all of their layoffs within a few months. The impact on its business was minimized by the improvements and digital transformation they’d accomplished over the last several years.
“Next year we’ll be saving nearly €100M due to the automation,” Rühl said. “It took 6 years, and the journey was not easy. But in the end, the benefits are kicking in faster and faster.”
From the beginning Rühl believed digital transformation was the right way to go. “When you see all the developments in virtual reality, robotics, artificial intelligence, it’s clear that no one is going to order steel with a fax machine anymore,” said Rühl. “We had to pivot here and there, but my belief in digital transformation never changed—it needed to happen.”
What’s next for Rühl
As of the close of the Annual General Meeting in May 2021, Rühl will leave Klöckner & Co to concentrate on entrepreneurial activities in the field of B2B platforms and VC funds. In connection with the planned separation of the digital platform XOM Materials from Klöckner, he will take over the position as Chairman of XOM.
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