Exclusive interview with Dr. Ulrich Hermann, Chief Digital Officer, Member of the Management Board of Heidelberger Druckmaschinen AG
— Part 1 —
Interview: Andreas Weber, Head of Value
Part 1 of the ValueDialog addresses the topic of transformation within the industry. Part 2 takes a closer look at the new ground that Heidelberg needs to break.
It is a sensation in the history of German industry: a mechanical engineering company established in the 19th century “allowing” itself a Chief Digital Officer at board level. Yet this is exactly what happened in November 2016 at Heidelberger Druckmaschinen AG with the appointment of Dr. Ulrich Hermann, who heads up the ‘Digital Services’ division. His challenging mission? To lend tangibility to the central idea ‘Heidelberg goes digital’ not only in the market and among customers, both operationally and in terms of content, but also to create acceptance among employees for the changes that need to be made in order to survive and enjoy profitable growth in the long term.
For starters: As well documented by the ValueTrend analyses since drupa 2016, the balance sheet at Heidelberger Druckmaschinen AG (Heideldruck for short) has taken a turn for the better, signaling a return to the company’s leading position in the print industry. It is once more recording profits and growing, its range of products and services has been significantly expanded, and it has undergone a corporate restructuring. Investors and financial experts are acknowledging the turnaround and the expected growth prospects. Heideldruck shares are experiencing an upswing, with a strong buy sentiment.
In medias res: Dr. Ulrich Hermann makes no bones about the fact that the future and in particular the future success of Heideldruck will have to be based on radically new standards. The number of printing companies is declining along with sales of printed works – the latter traditionally having been seen as the measure of all things. But Dr. Hermann sees great potential for Heideldruck and its customers in these changes, above all in the switch to ‘digital’ business and production processes. Particularly in cases where the business climate, the competitive pressure, or the investment opportunities seem limited.
Note: The interview was recorded on 14 August 2017 in English. The text version enlarges upon the short video interview.
Transcription of the interview.
Very briefly: What significance does ‘Heidelberg goes digital’ have for the industry?
Dr. Ulrich Hermann: When we say “Heidelberg goes digital”, we’re talking about a digital business model, not digital printing: it’s less a question of what the product should be able to do, and more a question of what the customer actually uses it for. — Speaking ‘digitally’, our solutions – software, data, and digital technologies – are designed to help our customers master their own transformation.
Drilling down, why does it make sense for the global print community to join the ‘digital transformation journey’?
Dr. Ulrich Hermann: There is a lot of potential in the ‘digital’ world for the printing industry, potential that has not been extensively developed to date. First of all there is the adaptation of digital printing technology in industrial printing in order to respond to modern consumer behavior, for example the trend towards greater individualization and smaller print runs.
Print shops need to differentiate their portfolio and range of products in order to maintain prices and not run into the ‘commodity trap’. At an industrial level, however, productivity must also remain high. This can only be achieved by digitally linking all the components: the machines, the processes for consumables, the service, the software and ultimately data that enable systematic use in the face of increasing complexity. This provides a way of guaranteeing the highest level of productivity and quality in high-performing and innovative printing companies, while still offering total flexibility to respond to fast-changing customer requirements and demands in an intense competitive environment.
Transformation is equated with high investment. Many people are afraid of the risk. Is this how you see it too? Or is there a smart way of participating?
Dr. Ulrich Hermann: Definitely. We recommend doing it step by step. Our customers can start with a productive island that permits a combination of solution modules. Our business models allow innovative and growing customers to allocate their investment where it is most needed: at their customer interface and not mainly on the production side, as was the case in the past. By doing so we work with the customer to boost competitiveness. Heidelberg maximizes efficiency and compensates job cycles in the print shop with an autonomous digital production system. This frees up the customer to expand its customer base and invest in expanding its digital sales channel. Ultimately we share the opportunities and risks with our customers.
So what you’re saying is that Heideldruck’s role has changed, from being a seller of printing presses to a solution partner for its customers?
Dr. Ulrich Hermann: Yes, definitely. What we do first is look at our customers’ business model, their customer order structure, and then share our ideas and wealth of experience. We also analyze the status of their productivity level, and the development gains that can be made, in order to establish digitized and highly productive solutions tailored to the customer – without over-investment on the part of our customers. This step-by-step process, which Heidelberg developed, is really unique.
Provisional appraisal – there can only be one goal: to establish something radically new in the medium and long term!
At first glance, transforming a long-standing mechanical engineering company like Heideldruck into a ‘digital company’ seems similar to squaring the circle. Particularly since we’re talking about the production of printed matter, in other words an unalterably analog form of media. And yet it seems feasible. The secret is to temper expectations, and to be realistic about how quickly these expectations can be met. In this respect, what Dr. Ulrich Hermann said above and his integrated approach are important: step-by-step evolution with customers, but always in the knowledge that ultimately no stone will be left unturned. It therefore appears logical to start with linear transformation opportunities (in order to optimize existing potential) in order to build up a certain momentum before undertaking an exponential transformation with a view to establishing something radically new. [Note: See the separate series of ValueWebinars for more.]
What is worrying is that despite all the efforts towards innovation and the multi-billion investments, new print technologies are not even mentioned in scenarios about relevant transformation technologies. — Source: Presentation by Andreas Weber to the ABTG Congress.
The digital print technology protagonist Xerox Corp. shows just how difficult transformation in the print industry can be: despite many decades of innovation leadership in the print and document technology sector, the Group had to be split up. Since January 2017, the new CEO Jeff Jacobson has launched a slew of new products, as he just announced in an interview with the US magazine Fortune (see Report by Susie Gharib dated 17 August 2017). Jacobson is attempting to take Xerox ‘back to its roots’. Yet despite huge investment and acquisitions, success in industrial printing has not followed. Xerox has been almost invisible in Germany, home to the art of printing, for years. Its market share of digital printed pages in terms of overall print volume is marginal. I doubt whether this is something that will be changed with new products alone.
It is therefore about much more than just developing new digital printing presses and enticing customers to purchase them. What we need instead is a fundamentally different, extended understanding of how individual printing companies align their business models and their business strategies. Heideldruck’s biggest asset has what I think is a very important role to play here: to make the extensive expertise within the company available to third parties as a way of making print a business that is profitable, in line with the market, and sustainable, both today and tomorrow.
This is where the wheat is separated from the chaff: most market players put barriers in their own way, because they think that singular, technical product innovations are the silver bullet to help their customers be successful. That is not the case! Print shops need to completely reconsider and redevelop their business principle. The solid successes being achieved in the online print sector by being the most digitally active in the overall print shop scene are an important interim step here. But this is still not the solution we need. The crucial thing will be how to seamlessly integrate print as a medium into the workflow of modern digital and mobile purchase and transaction scenarios. Without wasting time on making print templates and the still costly makeready process. So we have reason to be excited. I’m staying focused on this, part 2 will follow shortly.
Note: The topic of transformation will also be addressed as part of the International Congress in Sao Paulo being held by the Brazilian umbrella organization on 24 August 2017, where Andreas Weber will present and comment on the interview with Dr. Hermann during his opening speech. Click here to see a preview of the slides accompanying the speech in English.