Sowing seeds of change Featured

8:00pm EDT August 26, 2008

As a child, Martin Richenhagen first made a living by working on a farm, harvesting potatoes and earning $3 an hour. These early experiences taught him both the value of farming and the hard work involved with it, but it also sowed an appreciation for the important role that agriculture plays in the world.

Now, he’s reaping that knowledge as the chairman, president and CEO of AGCO Corp., which manufactures and distributes agriculture equipment to help farmers perform better.

“Every year, we add about 70 million people to the world population, and those people, of course, need proper food,” Richenhagen says. “This can only be achieved by increased productivity in farming due to the fact that the availability of farmland is limited. Every day, we lose about 200 acres of farmland globally, so that means, for our business, we need to provide advanced technologies that help farmers improve their productivity.”

For years, achieving that goal meant buying up other companies and adding them to the AGCO brand. The company was founded in a management buyout of Deutz-Allis from KHD in 1990. The fledgling company started with revenue of about $200 million, but during the next 14 years, it grew to more than $5 billion in revenue after going through more than 20 acquisitions, with Richenhagen arriving in 2004. While the company had been successful, he knew AGCO needed to change focus if it wanted to continue growing and benefiting its customers.

“The focus was very much on identifying the next target and taking over the next company,” he says. “The consolidation of the industry, in the meantime, was almost completed, and therefore, we had to change the strategy and define a new strategy, which was the most important thing I had to do at the beginning, four years ago.”

Define your company

The first thing Richenhagen did was better define what the company should do.

He started by creating a team of less than 10 people to help him map out the new strategy. The team came from different departments and represented a variety of ages and position levels in the company. He also avoided a team of yes-men by choosing outspoken and opinionated people.

“It’s important to get all aspects of the problem reflected,” Richenhagen says. “Maybe it’s black and white, but if you only talked to the old guys, they would maybe tell you, ‘We need to go on and have no change.’ The young guys may say, ‘We need to start a revolution.’ You need to get into a balanced analysis of the problem.”

With a team in place, he next looked at what differentiates his company.

“A lot of industries or a lot of companies suffer because everybody tries to do exactly the same,” he says. “You have to be different from your competition. You have certain choices. You could be low cost. You can have other ideas.”

Richenhagen realized that while his company’s products were about 20 percent more expensive than many of his competitors, they were more durable and higher quality, so they lasted longer and had better fuel consumption, so after just a year of ownership, the extra upfront cost paid for itself.

“You have to benchmark yourself and think about what are your customers expecting,” he says.

After defining how it would compete, the team then created a mission and vision to articulate what AGCO wanted to be. But even after that, Richenhagen chose to sleep on it for a few days.

“After you have discussed everything and everybody has agreed to a solution, then you still should think over it,” he says. “I think the vision is something that should be given by the leader of a company. You have to think about it and think if this is something you really 100 percent stand for.

“When you read mission statements, often they don’t fit to the company or they don’t fit to the market. They’re me-too statements everybody had, and if you want something that really fits to your business, then it needs some reflection.”

After reflecting for a few days, Richenhagen realized that what the team had come up with was good but too long and complicated.

“What you would like to do is you would like to achieve a situation where you go out in a factory or you go out in a market and ask your people, ‘By the way, what is our mission?’ and they would know it immediately,” he says. “If this is not the case, either your communication failed or it was just too complex or too difficult or too long.”

With that goal in mind, he shortened the team’s original vision into, “High-tech solutions for professional farmers feeding the world,” and the mission into, “Profitable growth through superior customer service, innovation, quality and commitment.”

Three months from start to finish, he now had principles guiding AGCO into a new era of organic growth.

Communicate the change

The next step in AGCO’s strategy change was rolling it out to the rest of the organization.

“The people on the front end — those are the guys that implement the change,” he says. “I can do nothing, so that means my job is to manage the people that generate results. I have to reach those guys; therefore, it’s very important to have a bottom-up approach.”

A lot of leaders may think the lower employees aren’t as capable or may make more mistakes, but Richenhagen takes a different approach.

“People create problems, but also, people fix problems,” he says. “So if the majority of your people have the capability to fix problems instead of creating new problems, then you have to take the time to talk to your people and the time to walk your factories and talk to your employees and to meet with your employees.

“Communicate in a straightforward and simple way,” Richenhagen says. “Very often, people talk too much, and their messages get, by far, too complicated, complex and sophisticated. I came back from a management conference at Harvard, and I was on the panel, and there were some other CEOs. When you’re asked a simple question and it takes you 20 minutes to answer, you can be sure that after maybe five minutes, you lost 80 percent of your audience.”

He says people often speak to demonstrate how important they are or how much experience they have, so they get lost in details. Instead, focus on what’s most important to achieve, and then double-check to see if they understand.

“Don’t do that by asking the question, ‘Any questions?’ or, ‘Did everybody understand?’” Richenhagen says. “When you ask that question, nobody would say, ‘No, I didn’t,’ because it would disclose themselves of not having paid attention or being too stupid or being a bad listener or whatever.

“Your feedback has to be done in a more intelligent way, so that means you have to involve people in a little discussion, or you have to allow for questions or comments and open the discussion.”

One way he successfully did this was pre-arranging with people he knew to have them ask questions if nobody spoke up.

“You just invite them, ‘Mr. So-and-So, I see that you have a question. Why don’t you ask it?’” he says.

This would open up the floor and make employees comfortable speaking up so he could address their questions and concerns and they would truly understood what he said.

It took Richenhagen another three months of traveling, meetings and speaking to make sure that all of his people truly understood what he wanted to do, but when it was over, he knew they were ready to move forward.

Create targets

To start implementing AGCO’s new strategy, Richenhagen hired a consultant to lead the process. To get buy-in, he organized global workshops for employees to generate initiatives they could take on as part of the new strategy. In a six-month period, they came up with 200 initiatives, and his team chose 75 to focus on, but then he needed tangible goals associated with them.

“It has to be realistic,” he says. “I’m a horse guy. If you’re in show jumping, and you raise the bar, and the horse then figures out that it’s impossible to jump over it, it will try then to go beneath. If you make it too low, it’s not exciting for the horse anymore, and it might not pay attention, and it might generate faults.

“What you have to do is have an ambitious target — that means you have to identify first what is possible, what is ambitious, and that then needs to be discussed.”

For example, AGCO has 24 percent of the market share in Spain. If he wanted to reach 50 percent, that may not be realistic next year, so he needs a time frame. Instead, a more realistic goal would be to reach 50 percent in 10 years and to have gained 30 percent in three years.

Then he would talk to local employees and get their feedback as to the goal’s feasibility because they have better insight into customer perception of the brand, product and prices. Together, they made sure the targets were both attainable and ambitious.

Then you have to ensure that you can measure your goal — otherwise, they’re not worth having.

“A target has to be measurable,” he says. “That means if you say, ‘I want to have more satisfied customers,’ that sounds good, but what does it mean? You have to boil it down to measurable targets like right first time, meantime between failure, the time you need in order to answer a call from your customer and things like that. If you don’t do that, you stay on a very high, theoretical level and will never make it.”

With goals and metrics in place, he then put them in a database to track and made it available for everyone to see. Some are updated twice a day, and some only once a quarter, depending on the initiative. From there, he needed a plan of attack.

“At the beginning, you might want to go for the low-hanging fruits — whatever the impact is so everything you can do within several months of implementation and completion,” he says. “Do that quickly, and then you would go by impact, which is bottom line, so those initiatives that would improve your results most, you prioritize first.”

For example, branding was AGCO’s low-hanging fruit. It used 26 brands, which made sales and marketing difficult to support. So within a matter of days, they rolled 26 smaller brands into just four larger brands so they could position the product better, gain market share and move on to bigger goals.

To date, Richenhagen’s team has accomplished about 30 percent of the initiatives they originally set out to do, but many of those weren’t just checked off. Instead, he raised the bar.

“Make it more ambitious again so it’s a never-ending story,” he says.

Richenhagen is still writing AGCO’s story. One of the original goals was to make $7 billion in revenue by 2010, but the company reached $6.8 billion last year, so he raised the bar to $8 billion and may need to raise it to $10 billion soon.

This 29 percent revenue increase since 2004 is just one of the noticeable differences today. 2007 also brought record earnings, net cash flow, return on invested capital and stock prices. The numbers talk, and by changing things up, Richenhagen has proven AGCO can grow organically.

“We changed certain things substantially, so instead of buying companies, we invest more in the area of engineering research and development,” he says. “We invest more [in the] training and education of our people. We implement global software for all factories and all companies — all kinds of things that actually move the needle.”

HOW TO REACH: AGCO Corp., (770) 813-9200 or www.agcocorp.com