How Martin Richenhagen spends up to $300 million a year to grow AGCO Featured

8:01pm EDT September 30, 2011
How Martin Richenhagen spends up to $300 million a year to grow AGCO

When Martin Richenhagen joined AGCO Corp. nearly a decade ago, he says the company was like a Volkswagen Beetle with a Ferrari engine.

“We had certain elements,” the chairman, president and CEO says. “We had good designs and strong features, but we didn’t make it a complete product range.”

At the time, the company, a global manufacturer of agriculture equipment, had grown through mergers and acquisitions.

“We had a lot of very traditional brands and products, but the approach of previous management was to do acquisitions instead of investing into your business,” he says. “That was not bad in order to basically buy the right pieces and in order to get up to a certain meaningful size, but that means if you want to do that on a continuous basis, you would have to have new targets all the time.”

That’s a problem when the industry is already very consolidated, so the idea of buying products or missing technologies from the outside wasn’t going to be as effective moving forward. To continue growing, he was going to have to change the strategy.

Richenhagen says, “That means you need to invest in your own organization, and that is much better than what we did before.”

Define yourself

Richenhagen started the process by making sure he knew what the company wanted to accomplish and looked at it from every angle.

“You do a (strengths, weaknesses, opportunities and threats) analysis where you compare your product and market analysis with your competition,” he says. “This shows you where you have gaps in your product offerings.”

Some gaps could include having a product that’s not state-of-the-art, having a leading product that is too expensive, or even not having a product at all for a certain market.

It’s absolutely critical to be honest when evaluating your products.

“You have to look at your product range and you need to ask yourself the question, ‘Is this the best product, or are there competitors that are better than I am?’” he says. “American cars are not sold outside of America because they’re lousy cars — not because people in Europe prefer European cars. The technology isn’t leading technology and leading quality. Today, you need to be able to lead in technology and lead in quality and have a competitive cost position.”

When you honestly look at your products, it will help you see where your strategy should be heading.

“When you map your product and compare it with the competition, then you know exactly where you need to be, and then that hole has to be based on your strategy,” he says.

For example, AGCO’s strategy is to have high-tech solutions for professional farmers feeding the world. He doesn’t mind having small lawn and garden tractors someone might need, but he wants to have all the leading-edge technologies for professional farmers in his suite of product offerings.

“You have to talk to your customers to identify future needs,” he says. “You could have a different vision. The vision could be low-cost tractors for family farmers in the U.S., for example … but there are certain implications coming from your company’s vision.”

He says you also have to look at the market and where it’s going.

“Define supply and demand and then you need to look into your own industry and you need to look into factors that influence the market demand in the markets you’re in,” he says.

For example, in his industry, the ability to get financing is critical and will affect demand for his products.

Get the right people

AGCO was spending about $50 million a year on R&D efforts, but Richenhagen knew it would take more than that to truly be the technology leader. He was going to need the right people to lead those increased R&D efforts. This came down to first creating job descriptions and then hiring the best person.

Beyond just the general characteristics that make up most employees within the company, he says it’s important that you know what specifically the job is you’re hiring for.

“We have a job description and profile for every position, so that means we try to invest some time in order to find out what is really needed and what we’re looking for,” he says. “This, of course, has to be updated every time you’re looking for someone else or hiring from the outside.”

It’s important to update these descriptions every time you’re looking to hire someone new for that position because the world changes so much, often the requirements for the job will change, too.

“You need to sit down and think about it, and you need to think about how sometimes that has a mirror impact on your organizational structure — you do it, and you find out you have overlap between two or three positions, and you may want to change your organization because sometimes there’s waste of energy.”

He says you need to work with a small team and brainstorm what you think are the key important areas of responsibility for each position.

“What we always do is discuss it with the guy who has the job, because I think it would be very bad if you have a job description, and the guy who’s doing the job would say, ‘That’s not me,’” he says. “That happens sometimes. If it’s getting too theoretical and you only have human resources involved or someone from the outside, this could happen.”

As you put together your job descriptions, it’s important to think big picture.

“You need to keep things simple in a way but also very pragmatic,” Richenhagen says. “This means don’t make it too long on details. The most important part of a job description is to describe the area of responsibility in the form of results you are expecting. Instead of describing what you expect somebody to do — he has to come into the office at 7 o’clock in the morning and open his door and start to make phone calls — describe activities and describe results you expect the leader to generate.”

This has been a critical recruiting tool for AGCO, because by defining results instead of job minutia, people are attracted to that kind of culture and want to be a part of it.

“With people who are more and more qualified and who have a very good experience, this is also much more motivating, because you leave the way how to get there more to themselves,” he says.

When you have job descriptions created, then you can actually look at bringing people on board. Make sure you get the right people with the right skills.

“First off, you need to have a pretty good understanding about the skills of your own people,” Richenhagen says. “Sometimes it’s very surprising, because when you look into it, you have people who have a lot more knowledge than you think. That needs to be documented and mapped out in a structured way.”

He says he had a strong HR leader, so he worked with her and a consultant to do a high-potential assessment of the organization. But from that assessment, he learned that he had really good people, but he didn’t have enough. He needed to hire more young, high-potential people from strong agriculture and technical schools as well as some leaders with strong team-worker skills and multiple language capabilities.

“What is also helpful is if you can also describe target industries where you might find those skill sets,” he says.

For example, he knows that looking at automotive, construction equipment, mining equipment, forestry equipment, the truck industry and other related fields will be the likely industries where he’ll find people with the skills needed to be successful at AGCO.

While he uses consultants to help him, he says not to use too many.

“Focus on maybe one or two,” he says. “Maybe you need to have some guys who are specifically good in a certain region. … The firms don’t make a big difference — it’s mainly the people. You need to have somebody you know and somebody who is on the same wavelength as you are, so he needs to understand what you’re looking for.”

The best indicator of that is to describe to them what you need, give them two or three weeks to identify a few candidates and then make an assessment.

“You meet the candidates and you know right away if the consultant got the message or not,” he says. “It means a very good relationship between you and your consultant to make things easy. It’s like in matchmaking a little bit.”

Move forward

Once he has the right people in place, Richenhagen pushes people forward by holding them accountable to detailed objectives.

“The objectives have to be ambitious because it’s motivating, but on the other hand, they also have to be achievable,” he says. “If you give someone a target that can never be achieved, that doesn’t motivate that person. Second, in order to get there, objectives need to be agreed upon. It doesn’t help if you just give people objectives without talking about it in detail. That means it needs to have some kind of negotiation process.”

This allows the person to talk about what they think is achievable or not and gives them buy-in to the goals.

Then the goals need to also be measurable.

“It doesn’t help to have a target that says to develop a nice product,” Richenhagen says. “This is a weak definition. You need to define the measureable objectives you’re shooting for, including a measureable time frame, and in engineering, it’s also helpful to define the budget you allocate — if you’re not in a position to make it on time, very often it’s getting more and more expensive.”

As he moved AGCO forward, R&D spending increased about 20 percent each year. By 2008, he knew he was on the right track as the company reached $8.3 billion in net sales. Even as the recession hit, the company suffered with revenue dropping to $6.5 billion in 2009, but despite that, he continued on his plan of increasing R&D money. The company even invested in some huge factory capacity additions during this time

“For two years, I was hanging out of the window with the tips of my feet inside, and then my guys were holding me,” he says. “Maybe they wouldn’t have held as firm as they could and I would have fallen out of the window. It’s a personal risk. It’s hard, but this is why the chairman and CEO makes more money than other people, because he needs to take more risks once in a while.”

That risk certainly paid off for AGCO.

“Due to the fact that it came back and we had invested, we’re also in a position to benefit and deliver on time while some of our competitors, who were more careful, now have certain capacity restrictions,” he says.

This has allowed AGCO to become a market leader.

“With every market, when you see your market share is increasing, you know you’re on the right track, but it’s also an entrepreneurial decision,” he says. “In the area of product development, you can fail easily by just developing the wrong product, so you’ve spent the money and nobody wants to buy it — you need to show some leadership if you want to make it.”

On top of that, revenue increased last year to nearly $6.9 billion. Now the company spends between $250 million and $300 million a year on R&D. While it’s a lot of money, he says he expects the company to continue growing and anticipates still increasing that R&D spend 10 to 20 percent each year. That VW body with a Ferrari engine has certainly changed these days as a result of his efforts.

“We have certain leading-edge technologies and certain brands that have a strong brand image,” Richenhagen says. “When you make this a company vision, all your brands benefit from that, and the whole company image is getting into the direction of technology leader. If you compare yourself with your competition, we now, from our customers, are more seen as the BMW or the Mercedes of our industry while some of our competitors are seen as the General Motors or the Fords of the industry.”

How to reach: AGCO Corp., (770) 813-9200 or www.agcocorp.com

Martin Richenhagen, chairman, president and CEO, AGCO Corp.

Born: Cologne, Germany

Education: University of Bonn (Germany)

What was your first job ever as a child?

My first job was helping a neighboring farmer to harvest potatoes, and this was paid by 25 cents per hour at that time in the late ’50s. [I learned] that farming is very tough.

As a child, what did you want to be when you grew up?

I always wanted to be a train conductor. We had a train track passing by, and I liked the idea that you could travel for free while working and I was attracted to speed and noise and engines.

What’s the best advice you’ve ever received?

I think good advice I received from my father is one should have a goal in life, and second, you should do every job as good as you can.

If you weren’t doing what you are now, what career would you have?

When I was a student, I always wanted to become a famous Olympian in horse riding. I went with the German Equestrian team to the last Olympics but as the coach, not as a competitor.  We came back with a gold medal, so that means we did a very good job.