Outotec’s strategy is to provide customers with the best tools for improving their productivity, by using our leading technologies combined with life-cycle services that enhance the performance of our customers’ plants and processes.
With our mission aiming for the ‘sustainable use of Earth’s natural resources’ we strive to meet our customers’ needs and priorities. While safety has long been a top priority for our industry, environmental performance and social license to operate are also increasingly at the forefront of our customers’ minds, not least because of tightening regulation.
As countries start implementing the Paris climate agreement, we expect carbon emission controls to start playing an increasing role in addition to existing stringent restrictions on emissions of harmful substances to air or water. These trends, coupled with a prolonged decline in the industry’s productivity, as well as declining ore grades, all mean that there is a clear market for a premium technology provider like Outotec.
In 2016, we also defined our own strategic approach to climate change, which will henceforth be an important part of Outotec’s wider strategy.
We have led the industry in terms of environmental efficiency in most of the markets we serve for decades – with many of our products being industry benchmarks. We now increasingly need to develop digital offerings to further improve productivity. Together with our customers we are already realizing several interesting related pilot projects. Building up these strengths requires broad expertise, so we must purposefully hire and retain people with the right process knowledge.
Challenges – improving cost competitiveness and expanding services
One current challenge is the subdued level of investment in our industry, coupled with increased competition. After a prolonged mining and metals boom, which lasted until 2012, we have seen investment levels coming down, finally leveling off and turning upwards during 2016, but current levels are still low. At the same time, the recent boom encouraged several new competitors to enter our markets. In tighter markets, customers typically prioritize upfront CAPEX costs and payback times rather than full life-cycle costs, where we have our competitive edge.
As is typical for cyclical industries, lowered investment levels have had a significant impact on our profitability. We have recently had to adjust our operating model and resourcing accordingly. In December 2016, we finalized a new EUR 70 million cost structure program, which led to a reduction of 650 employees globally.
Going into the next cycle, we have five strategic focus areas
Due to increased competition, we need to act in a customer-centric way to differentiate. This requires developing our own competences to even better understand our customers’ needs, by ensuring that we measure and actively manage customer satisfaction. It also means improving our responsiveness and focusing on businesses, specific projects and geographies where we can really make a difference for our customers.
Reigniting the growth of our service business is the key to achieving profitability over the cycle. Our services are based on our technological knowledge. They span from spare parts and technical maintenance services through to plant shutdowns and full scale modernizations. Outotec has a very long history, and with thousands of plants and pieces of equipment delivered to customers worldwide, our own installed base is our primary focus. At the same time, as technologies have evolved, we still have work to do to productize our offerings, so as to improve responsiveness and achieve economies of scale. Our newly established Services business unit, due to start up on April 1, 2017, is being shaped to provide sufficient management focus for developing our service offering and delivering the growth necessary to improve our profitability and customer intimacy.
Competitiveness of our products
With fewer opportunities in the market, competition is fierce. We have two primary methods of improving our competitiveness:
a) further differentiation through digitalization and improvements in energy and environmental performance with a specific focus on carbon emissions, for instance;
b) reductions in product costs, which can be achieved by redesigning products specifically to reduce sourcing costs, by changing components without compromising on quality, and by searching for lower cost supply alternatives.
We have taken stringent action in recent years to improve our fixed cost efficiency, leading to significant improvements. We now aim to continue spreading a cost conscious attitude within our company, so as to limit fixed cost increases as much as possible as volumes start to grow.
Since we are an expertise-based company, people are our most valuable asset. In recent years we have unfortunately seen a dip in our employee satisfaction and engagement. We are working to fix this firstly by creating a clearer organization to enable people to work more effectively. We are also examining our leadership culture. This involves stepping up internal job rotation further and promoting more open and transparent decision-making. The safety of our employees has long been a top priority, and we are able to show ever-improving results on that front.