- 25 Oct 2018
- Managing the Future of Work
How advanced technology is lifting the business of cranes
Bill Kerr: Finland-based Konecranes is one of the largest manufacturers of cranes and heavy-lifting equipment. They make everything from port cranes, that can lift up to 2,000 tons of shipping freight, to fork lifts. Their operations are powered by a significant amount of technology. This means that keeping up with technological advancement is critical for their business, especially as tech moves at a faster pace than ever before. With more than 18,000 workers employed across 50 countries, keeping them on the cutting edge is no easy task.
Welcome to “Managing the Future of Work” podcast. I’m Harvard Business School professor Bill Kerr. Today I’m speaking with the CEO of Konecranes, Panu Routila, to discuss how he has managed his company and its global workforce through this rapidly changing environment. Welcome, Panu.Panu Routila: Thank you, Bill. It’s a pleasure to be here in Boston.
Kerr: Panu, Konecranes is not a consumer brand, so many of our listeners will be hearing the company’s name for the first time. Tell us a little bit about what you do.
Routila: We do all kinds of industrial cranes and port cranes. Probably all of the products that you are importing or exporting get handled by our different types of port cranes. Many of the products that are used, wherever the consumers are using them, are actually manufactured, also somewhere lifted, with our cranes in their different factories.
Kerr: Okay.
Routila: Of course, we do a lot of service business. We not only do the maintenance, but higher-valued service also—for our cranes, but also for the competitors cranes.
Kerr: How has your product portfolio been evolving overtime?
Routila: We are continuously generating new ways of using the technology. The latest is, of course, the digitalization. We have already, during the last couple of years, been digitizing many of our equipment; now we have about 18,000 cranes, which are connected to our real-time, true-connect service, where we can monitor the situation, but where we can also relay to the customer what’s happening with their equipment.
Kerr: So tell us about some ways that that changes the customer’s behavior or what they’re experiencing.
Routila: They see in a completely different way how they utilize the cranes; they can get connected in their total factory automatization systems; they know what happens with their equipment. They don’t need to be blind anymore with the equipment.
Kerr: Okay. Walk us through—or maybe we’ll go step by step through a number of these technology pieces here. What is the technology that’s in the equipment? Or what’s the customer kind of feeling or sensing about the technology?
Routila: The core of the product is what we call “core of lifting.”
Kerr: That’s kind of like, in exercise, we talked about the core strength for lifting something up.
Routila: Yeah, so that’s gears, motors, and controls. The gears and motors they are very easy, they are very technical, they are very heavy-lifting equipment types of things. The control systems is much more software, it’s basically only software. We have already more than 600 software engineers in the company who are continuously developing this, our own control systems.
Kerr: These systems are now employed over thousands of cranes. What can you do with that information? How does that affect Konecranes’s delivery to the customer?
Routila: Currently, our installed base is more than 1 million units. Out of this, about 250,000 cranes has all of these, let’s say, what we call core of lifting, the control systems. Out of that 250,000, 18,000 are now connected to our true-connect service, which is basically the remote-monitoring system, where we can continuously monitor the situation or the crane and their operations.
Kerr: By that monitoring, you can then go out and tell the customer, the crane’s about to break or that you can do some predictive maintenance for it?
Routila: That’s the whole idea in our service business. Basically, when our competitors can promise that their service tech comes within the six hours, we can promise that our service tech is there before the problem arises.
Kerr: It sounds like the technology allows you to know more about how that crane is doing at some remote location than what the person who’s beside the crane understands.
Routila: Yes. That goes much beyond the typical maintenance, what is needed for the crane, because we do the predictions, and we can use the statistical data to analyze what’s going to happen, what sort of wear and tear over consumables, and so forth.
Kerr: So you now have collected this information that makes you more informed than the customer about the equipment. How does that change the relationship that you build with the customer?
Routila: The customer can now see his own data; we can give feedback to him and how he’s using the crane; we can give him feedback if there are issues of how he should change the behavior. But also, we can use it actually—as a way to guarantee the usability of the equipment—to make sure that the uptime for the customer, when it’s a critical operation, is high.
Kerr: So you’re telling the customer, not that you’ll give them a crane and service the crane, but that this is the number of lifts and the frequency that you’ll be able to lift everything up.
Routila: Well, we are not exactly yet in the outcome-based business model; we are still further continuing in the output-based business model, but we are getting there. We basically have already now the data that would enable us to give actually a pricing model that would be based on the number of liftings done in the factory.
Kerr: It’s an ongoing sort of relationship, and you’re constantly trying out new business models, or ways to interface with the customer in this place.
Routila: Absolutely. Absolutely. That’s the way the world goes on now.
Kerr: Have you found that these innovations in the way things are being approached with customers are easy to be well received? Easily accepted? Or is it one that somebody looks at you with a little bit of a blank stare?
Routila: They start to be understood. I think, when I said beforehand that we are a technological company, I think nowadays, we are also a business company, a business-model creative company. We can do not only basically the manufacturing technology, but also other types of business models.
Kerr: I imagine if you’re selling a crane vs. if you’re selling a “lifting solution,” the person that has to sign off on that is a different person in the organization.
Routila: Yeah, that’s what is needed.
Kerr: Is that an easy sale to make?
Routila: It sounds easier than it is actually still.
Kerr: Is it just people are slow to do it? Or is the billing systems or that the people that need to make the decisions are slower?
Routila: This is typically what you would need to explain to not only the procurement director, or procurement purchaser, a factory manager would understand this, a chief financial officer would understand it, and then we need to back it up with data. This data, now we start to have. We are able to actually give the customer the data that backs up also what we are promising.
Kerr: Does this mean you’re moving up in the organizational hierarchy in your customer, and you need to make those contacts?
Routila: It sure does, but we still need to make the original contact to the procurement guy or to the investment guy, the technology guy at our customers, those who actually do the specifications of the cranes. But once the specifications are done, we need to also justify the existence of the advanced features to the higher-up in the organization of the customer, like the factory manager or the CFO.
Kerr: So, you’ve more just added a broader range of people into the conversation rather than skipped up several levels?
Routila: Yeah, that is what is needed. We needed to keep the original face on the sales, but been adding it to the higher-up levels.
Kerr: Okay. How has that changed your sales force or your go-to-market strategies?
Routila: We typically have very technical salespeople. They use the technology argumentation, and now we have added the financial understanding. The data that we have collected about our cranes and our crane operations actually assists us in this process. Now we are able to back up all the sales talk with the data that actually comes from the industry.
Kerr: And does it come from their cranes? Their peers? How refined can this data be in what is shown to the customer or the potential customer?
Routila: Well, we can show them the usability, we can show them the availability data that is available, and that might even come from their own factories.
Kerr: How does the digitization also affect your service providers—so that the people who actually are going out to interact with the crane or to get trained up for that job. How does it impact your workforce deployment?
Routila: Basically, a service technician could have a variety of 60,000 different types of operations to be performed on a certain type of crane. We use artificial intelligence by predicting, based on our collective data and based on our product management data, to understand what basically the service technicians should be doing. Without this IT system, without this intelligence, we would not be able to do that. Nobody else in the world has that.
Kerr: Okay, so you guide the technicians—this is where it should start and then go to this next task and so forth—until you’ve resolved it.
Routila: Yeah, and the service technician, basically, he gets all this work orders, basically, these directives, he gets into his cellphone, smartphone, tablet, and so on.
Kerr: Is this something that, when your technician is there, that he or she knows in ways that the customer doesn’t know? Or that the person that actually owns and operates this crane on a daily basis, does not have the insight for?
Routila: This is typically what a customer himself couldn’t do, because even the service technician, he wouldn’t be able to know which of these 60,000 different operations to be doing unless the system would actually give that to him. A customer, himself, would not be able to do that. That’s why we and our service business is completely different. We sell the up time and not only the service operation; we don’t only sell greasing of the machinery or changing some easy spare parts.
Kerr: Talk about the training side. How has the sort of pace of training you want to do with your employees quickened in the ways that you’re reaching out to them?
Routila: We are continuously doing vast amounts of training. Our target is to get to five days of training per each employee. We are currently at about 4–4.2 days of training per person. I think that is many times over the industry average. Some of the training we do in a typical classroom trainings—people come in the classroom and they get lectures, they typically also do some trials there, they open up the motors or gear boxes, and then they put them, assemble them, back again. The latest innovation is actually the virtual reality. We have created a system where, basically, a service technician can practice the operation he needs to do physically the next day. He can practice it with virtual reality already the day before. He’s going to be much more efficient when he goes to the customer, and he has pre-performed the operation. Even though it is virtual, he still has pre-performed the operation that he’s going to do in a physical sense the next day.
Kerr: It can be specialized, it’s not just a general purpose. It can be even the particular type of operation and crane that he or she is going to encounter?
Routila: Absolutely. Because of the product management data—what we have available—we can actually pull the exact crane that the customer has. We can pull out the product management data and that can be linked to the virtual reality and the service technician can practice with exactly the same crane.
Kerr: What other training are you doing through the organization, or how do you think about really creating that workforce for the future?
Routila: Well, of course, on the office side, we do a lot of management training and so forth. Right now, we are here with our large management team, 50 people actually in Harvard understanding what’s going around in the world.
Kerr: Then are you getting into the online education? Or the e-university type work?
Routila: Oh sure. Yeah, we have also quite a lot of internal e-learnings that have been created. The good point with e-learning is that that helps you to keep track of who has done what kind of training because you get it automatically.
Kerr: Well, speaking on behalf of the Boston community, we hope that you keep coming back to our area and don’t switch entirely to e-learning in the future.
Routila: As long as you keep this nice weather here, we keep coming.
Kerr: That’s great. Panu, with all of this technological change—and you’ve got to be able to move fast in this space—tell us how do you monitor or understand what you need to do? In “Managing the Future of Work,” we’re trying to think about how companies approach the rapid speed of technology and its adjustments. What are the signals that you look for? How do you know where to point the organization?
Routila: That’s a very good question. It isn’t that easy actually to see the early signals, but there are certain things where you can’t go wrong. When you keep your eyes open to what’s happening around you, you see the signs that this is anyways the right way to go. Then you have to do it.
Kerr: Can you give us an example?
Routila: Well, for instance, the digitization. That’s a very easy sign. You can see what’s happened in many of the industries, or many of the businesses, like media or like the travel industry, and so on. You have seen what’s happened there. Or banking. We need to do that in the industry now also. I think we are in the forefront, because many of the industries haven’t really done that much yet on that side.
Kerr: This is just saying if you know where the future’s going be, go ahead and make it.
Routila: Well, I would love to know where the future is going, but I don’t have a crystal ball, so you have to have a kind of an attitude that you start the journey, but you don’t exactly know where it will take you. You kind of launch and then you learn on the way.
Kerr: I still want to go back to the start of the journey. I think one of the things people sort of question about it or grapple with is, you know that the future is going to be very different, it’s going to have lots of technology. But it’s very easy to get caught up in hype cycles and to over-invest or to do things before the time is right. How do you know that pace and also how do you differentiate what was, in your earlier example, the obvious things to do? You know what’s going to happen vs. those that could be really important if it worked, but you’re kind of, you’re not certain it’s actually going to, if it’s ever going to materialize.
Routila: That’s when the experience kicks in. You have to have the experience to also somehow judge that what you think is going to happen, what do you really believe in. The early-on technology advancements—when the hype is starting, and everybody wants to do the things, everybody wants to start investing in, and so on—you have to be a little bit cautious, but you still have to do maybe some spearhead investments and trial projects. Then you start to see what really works for you in the industry.
Kerr: Are you doing those in Konecranes internally? Or do you also employ outside vendors? How do you build a team around that?
Routila: We have an internal project. We actually set up internal, cross-functional teams. It couldn’t be easier, we are doing that already. Then we work with start-up companies to see what they could offer us. And some of the projects that they break through; some of the projects, you never see them again.
Kerr: Okay. If you looked five years ago, is the mix of things you’re doing, these channels, are they different than they were five years ago?
Routila: I think five years ago, we were much more focused on the technology and not so much focused on the business models that could be opening up. I think now we are really more looking into the business models, because the technology we already have. Basically, the technology creates new types of business models that we can adopt in the business.
Kerr: So if you think about your perspective as the CEO looking across the organization, what are the toughest decisions in this technology space and in the places you want to take Konecranes that you have to make? What kind of buckets do those decisions fall into?
Routila: First, I’m a very fact-based decision maker. I want to collect the facts, I want to have the facts in front of me. I have also a background of being a financial guy myself, so I want to judge everything by the numbers. I truly believe that everything can be calculated with numbers, also. Because then you have a certain assumptions, you take these assumptions and then you start to understand that then, okay, these and these assumptions need to be fulfilled in order for us to get there. That helps us make the decisions. When the facts are out there, it’s kind of easy to make the final decision. It’s not that hard.
Kerr: You want to quantify the assumptions, rather than labeling them as potential scenarios or others. You’d prefer to actually put, we think this probability, this event will happen, this is the set of things that must occur for this future scenario or business model to take root?
Routila: Yeah, that’s actually quite interesting topic. I used to only believe in quantifying the outcome and quantifying what will happen. But now, lately, I have seen, I would say in the last couple of years that there has been so many things happening in the world that you can’t just try to predict one outcome. We have started doing the scenarios, and actually this year, in the strategic-planning round, we do the scenarios. We will create three different scenarios, and we want to make sure that our base strategy actually is really a winning strategy in all of the different scenarios. Then you can have, let’s say, a different outcome based on the final outcome of the world.
Kerr: How far are those scenarios looking to the future?
Routila: When we started the scenario planning, we said that we want to do the scenario, what the world could look like in 2035. Once we have now done the scenarios, we start to see that actually that, oh, this could happen already in three to four years.
Kerr: Okay, so the time frame could be everywhere from early 2020 and beyond, to 2035?
Routila: Yeah, absolutely.
Kerr: It helps to bear in mind in your business—there’s a lot of equipment that gets bought for very long durations, and there’s port solutions, and so forth. You’re often thinking on decade scales as well as also very local scales.
Routila: Yeah, typically the users’ period of a crane can be everything from two years to 15 years.
Kerr: You interact a lot with financial markets. How do message what you’re doing in this space? If you think about the new scenarios, how are you talking about the new scenarios?
Routila: First of all, I think the best way to talk with them is show what you have done. Never start painting too bright a future, never start to only talk about the future. It’s better to show what you’ve done, what successes you have had. That way, that creates a thrill to the financial community as well.
Kerr: Okay, so try to get the snowball rolling a little bit, and then make sure you’re adding on to it as it goes.
Routila: Yeah, that helps. Then you perform every quarter.
Kerr: Okay. I’m going to ask you kind of to maybe, try to parse your time a little bit. You’re the CEO, and we’ve talked about this space around technology and future strategy and similar. How much of your time do you spend on that? There’s other things a CEO, of course, needs to do, but how much of your time goes into this area right now?
Routila: Roughly about a third and, of course, the time consumption, that is a difficult question: How do I divide my time, where do I use it, and so on? It tends to go so that I keep on traveling all the time, and then all the time between the travels, I need to keep thinking. That’s how it goes.
Kerr: What’s it like being a global CEO? You have businesses that stretch from America to China, obviously you’re based in Europe. How does this affect your life? The big global changes that are underway?
Routila: I have always liked traveling. I have always loved to see around. I have always loved to interact with people from different nationalities and ethnical backgrounds and so on. It gives me a lot of ideas. If I would just be sitting behind my desk, I don’t think I would get all these ideas. The best ideas I get actually traveling or skiing down the slope or just swimming.
Kerr: Okay, well you could I guess give up the airplane and swim from place to place, and that would give you time to think even longer.
Routila: Oh, that would be too much thinking!
Kerr: You are in the Arctic North, in Finland and similar. Let’s talk about the skill sets and the people. The people are critical for executing against this plan. How have you thought about Konecranes’s skill set changing, what are the ways that you’re trying to deliver on those changes? Talk about the people side of this.
Routila: Everybody always keeps saying that we need the top talent, but how do you define the top talent? We need, of course, the top talent in the technology, we need the top talent in sales, and so on. This is not rocket science what we basically do. I think it’s very important to have very dedicated people who have a passion in what they do. They need to do well what they do. Typically, I used to remember that one of my engineers told me that, actually, all one engineer needs to do is to have a very good innovation in his whole lifetime. That’s already a big thing.
Kerr: Hmm.
Routila: What we need, we need a lot of dedicated people who work hard on what they do, that’s what we need.
Kerr: Okay, so it doesn’t sound like you need to go far outside your existing employee base to bring about the transformations that you’re talking about. You can retrain people to the extent that they need new skills, but it’s more about selecting on that dedication and applying it?
Routila: Well, I wouldn’t just put it that bluntly, because also we need to have the innovation to go beyond that. I would say that, out of 18,000 people, what we currently employ, there needs to be a lot of people who are happy doing what they do. They have to actually perform in the day-to-day operations, and they have to do well at what they do. Then we need to have those people who innovate, who bring us forward, those we need as well. You need a variety of people.
Kerr: Panu, I’m going to ask you to move into some other areas with me in a second here, but before we leave, anything you want to leave us about Konecranes? Other thoughts about where it’s going to go? Or its recent history?
Routila: Yeah, so in 2017, we did a pretty sizable acquisition. The size was roughly about half of the company that we were then. We have been doing a lot of integration work now, lately, and it’s been a great success. We have done a lot of integration activities and, of course, the profitability has increased. Now we are moving to the next era, which is the growth. We’ll start looking for internal kinds of organic growth, and we’ll start also looking outside what could we do more.
Kerr: Great. Let me go back. I want to pick your brain about a couple different topics. One is, you have a company that spans the world. You’re in all the different continents, and so forth. We look at globalization, we look at the global economy, and so forth. What are your reflections? Is there something that you see that’s scary about it? Is there something that you see very optimistic about it? How does a company—because your sales depend upon, how these markets perform.
Routila: Yeah, so I want to refrain of taking any political comments here naturally, but I am actually somewhat skeptical on some of the issues that are happening at the moment in the world. Though we need to do our business decisions, and we need to see what way we will go, we need to perform some activities due to the current situation of the world. It might not be going into the details at the moment here, but the scenario planning, for instance, was one of the things that we took up now this year. While we noticed that you can’t do a typical strategy planning around because there’s too many things going around the world now.
Kerr: It could have a quite integrated world in the future, it could have a quite fragmented world in the future, and your plans are based upon those scenarios?
Routila: Yeah, basically those are the couple of different options that the world can go forward, kind of an archipelago of different islands that get separated, or the world gets more integrated.
Kerr: Great. We have a number of young listeners to this program. What would be the advice you’d give to somebody just starting a career or kind of getting up and underway, as you’ve been building up your own career and then being CEO of several companies and ultimately with Konecranes.
Routila: Yeah, first of all, my first thing to remember would be to be very pragmatic and fact oriented. You don’t need to try to make the decisions without the facts; the facts will give you what way you should make the decisions. But once you have the facts, you have to have the courage to take the decisions that are very obvious. And then you have to be able to defend them.
Kerr: Okay. That courage is what your isolating or pulling out as being hard to build or hard to acquire, or hard to show?
Routila: You need to have the personality to do that, and you have to be ready to stand behind your decisions. In the current transparent world, you have to make sure that people understand what the decisions are based on.
Kerr: If they wind the clock back one or a few decades to when you were starting out, would that have been different at that point?
Routila: No, I think the world was quite different 20 years ago or 30 years ago when I started my career. But I think I have always understood that fact-based is very important.
Kerr: Okay. If you think about also our older listeners, what would be some ideas you would want to share with them?
Routila: The passion. I think the passion is needed, the younger people have kind of built in that passion. And I have seen this happen too often that the people, when they have worked 25 years in the company, they kind of lose the passion. The best way to keep actually active is to see what’s happening around you and keep the passion going on.
Kerr: Okay, that’s both ... you’re putting responsibility not on just the employer, but also on the employee on that side?
Routila: Oh definitely. Definitely. I think that the company is taking care of some of the aspects or the training, but everybody has to make sure that his capabilities or competencies are up to date.
Kerr: Panu, as a last and parting question, what are one or two pieces of advice you would give to all of us or lessons that you’ve learned?
Routila: I would say to be open to the world, keep interested in everything that goes on, and then you might end up like me, just an experienced teenager.
Kerr: Thank you, Panu, that’s a nice way for us to end this podcast.
We appreciate the CEO of Konecranes, Panu Routila, joining us today to talk about how technology is changing his company and how it is preparing for the future. Thank you, Panu.Routila: Thank you, Bill.
Kerr: And thank you to all of our listeners.