ZF CEO explains why megasupplier needs to tweak its strategic plan

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AUTOMOTIVE NEWS EUROPE MONTHLY MAGAZINE

Scheider says ZF wants to be the leading enabler for individual mobility but transmissions will remain an important pillar.


Automotive News Europe
July 24, 2018 06:01 CET

Wolf-Henning Scheider was named CEO of ZF Friedrichshafen in January, following the departure of Stefan Sommer amid a boardroom dispute over the supplier’s expansion strategy. Scheider came to ZF from top positions at Robert Bosch and Mahle, where he had been chief executive since 2015. He spoke with Automotive News Europe Correspondent Peter Sigal about leading the world’s fifth-largest automotive supplier during a time of industry transformation.

You have been in your position for just a few months. What is your experience so far?

I was thrilled by the unique technology position ZF has. This is a very good starting point for the transformational phase that the automotive industry is in. We want to be a key player for the next generation of mobility in four areas: integrated vehicle safety, where we have already today an excellent position; vehicle motion control, where we have all the elements in hand: steering, braking, damping, axles and the propulsion system; electrified powertrains with pure-electric drives, plug-in hybrid transmissions and other powertrain opportunities; and fourth is our automated driving abilities.

What are your immediate goals?

This year, we are reviewing our strategic plan since it was developed a few years ago. There are many elements suitable for years to come, but our industry is moving quite fast. And we have acquired TRW, which is now part of our strategy. Don’t expect huge changes in strategy, but refinement. We want to be an even stronger enabler for the auto industry globally.

You previously worked for Robert Bosch and Mahle. What kind of management style are you bringing to ZF?

What helps is that the challenges in the automotive industry are similar for most companies. The business transformation needs are similar to those that I had in my last companies. Looking at management style, there’s not one style anymore. We see a situation of transformation that leads to innovation, and to flexible and rapid problem-solving of issues that come up faster than they did in the past. You need a certain flexibility in management style. What does that mean? For example, when we talk about business transformation, it means very clearly top-down directions. On the other hand, if we talk about problem solving, creativity, innovation – we want to promote a culture of team spirit. People have to feel that they have a high degree of decision-making responsibility, that they can grab the opportunities. This is the path we want to take at ZF. Depending on the situation, we need to apply the appropriate management style.

Why is it important for you to accelerate the use of cross-divisional teams?

Cross-divisional teams, carefully chosen for the right mix of competencies, give us a much higher speed in problem solving, creativity and innovation. A decisive factor is that you also give them the authority to make decisions that will drive their actions. Our customers need this speed because time is more and more critical.

What are some examples?

A prominent one is our first fully automated tractor. A cross-divisional team from our industrial division and our r&d department developed it together. They combined our vast experience with farming machines with skills in artificial intelligence and automated functions. Sensor experts joined in from the electronics division, and manufacturing people are now looking at how we can make this concept a commercial success. Within weeks, not years, they created a prototype of an automated tractor. Next year the new product will go into serial production.

With technological changes coming, will heavy spending on r&d be the new reality for automotive suppliers? Will this mean profit margins will dip until some of these pressing technical questions get resolved?

We will continue to increase our r&d spend. This increase will be split across the business sectors with a focus on automated driving functions, electric powertrains and integrated safety systems. We expect an increase of 10 percent to 15 percent this year, which is roughly 200 million to 300 million euros on top of our spending from last year. This is higher than our expected sales growth. However, we have to be prepared for everything that the transformation of our industry brings.

What is the status of your partnership with Nvidia on artificial intelligence?

They are our partners in ZF ProAI, which is our self-driving supercomputer. It runs the algorithms derived from artificial intelligence to automate functions in various types of vehicles and machines. Going further, we have announced a collaboration with Baidu in order to supply to Chery Automobile in China.

Meet the boss

NAME: Wolf-Henning Scheider
TITLE: ZF Friedrichshafen CEO
AGE: 56
MAIN CHALLENGE: Speeding up problem solving and encouraging innovative solutions to cope with rapidly changing industry.

What is your outlook for Europe, North America and China and how do you see these markets developing?

We are still cautiously optimistic about all these large markets. The big question is: Will there be any trade restriction issues? It is too early to judge. Without any of those, we are still positive about the markets. We foresee overall organic growth of about 5 percent and this is above the global auto market [outlook for growth].

Looking at Europe, do you see anything that could influence sales, profits or revenues?

In Europe we are facing extremely tough CO2 and emissions regulations. They create opportunities and risks at a magnitude that we have not seen before.

What has been the effect on ZF of the TRW acquisition?

In general, the TRW acquisition has put us in a good position as a systems supplier in various fields. One plus one certainly equals more than two in this case. For me, being new to the company I am quite positive about what the team has managed in just two and a half years since the acquisition. ZF is now a global automotive supplier with a broad portfolio. Our next step as one company is leveraging the systems capabilities that we have brought together. For example, I mentioned that we are one of the few companies that can bring together all of the elements of vehicle motion control. This offers great opportunities for future innovation.

The TRW acquisition was not without some controversy. Will ZF target more M&A activity?

First of all, in my opinion it was a fabulous move. And, continuing this theme, our fast-moving market environment will require future partnerships, collaborations and further acquisitions. This transformation will keep us busy in all these fields. We are always monitoring a variety of areas where we could strengthen our position.

How necessary is scale for a large supplier, especially when hard parts are becoming commodities and software is assuming more and more value in the automobile?

Economies of scales are a must for our industry. As you said, electronics and software are continuing to grow, but in some areas they also follow the rules of economies of scale. However, innovations are also derived from overall systems expertise and that includes mainly hard parts. In our industry, in my view, there are no commodities.

ZF is probably best known as a transmission innovator. How have you adapted that expertise to electrification?

We have had hybrid transmissions in serial production for passenger cars and commercial vehicles for quite some time. We now offer a full axle system with not only an electric driveline but also fitted with brakes, steering and damping, so two of these modules and your chassis is complete and rolling.

Are there any areas of your business that are vulnerable if the internal combustion engine is phased out, as many expect?

The passenger car transmission will stay an important pillar of our portfolio, and obviously, it is closely related to the combustion engine. A pure manual transmission is clearly not a growth opportunity, but we decided recently to develop a new generation of hybrid transmissions to support the future demand for plug-in hybrids. It’s a great solution: electric for daily driving, internal combustion for long distance.

Have technology-heavy trends such as automation changed the way you recruit employees?

Software, mathematics and algorithms as well as electronics are the fields in highest demands. Our image among the most qualified students is quite good. However, it requires ongoing work and adaptation to remain an employer of choice.

A few years ago, ZF set up a venture fund, Zukunft Ventures. What has been the result of that activity?

It has been a model to create partnerships and technology ventures. It allowed us to gain the necessary speed and agility to launch new segments such as automatic driving and new safety concepts. One example is lidar — we are working closely with Ibeo [ZF took a 40 percent stake in the company in 2016] to develop capabilities in this technology.

What will ZF look like in 10 years?

Our customers want to have safe, comfortable and affordable individual mobility. And that is exactly the path of ZF. We want to be the leading enabler for the mobility of the next generation.

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