Plant your Feet firmly on the (production) ground!

How bad is it anyway with investment companies, investors and the like?

When I look at “my” world of colour and Engineering Plastics, in the last 15 years an increasingly number of mergers and acquisitions are largely financed by these investment companies; recent examples include Envalior (Lanxess/DSM with Advent International) and Heubach Group's acquisition of Clariant with SK Capital Partners.

And it has been normal for decades that large companies raise part of their capital through public offerings and shares; the days of having private capital and being able to pay “out of your own pocket” are (mostly) far behind us.

Now, you can say that multinationals have become so large that it is almost inevitable to be more focused, that parts will be divested, and that even the divested parts are so large that they can easily cost billions and therefore necessary that a part is financed.

But it's more than just financing; it also brings a change in mentality and culture. Where about 20 years ago the focus of every company was on its core tasks, which were mainly product-oriented, today the ROI and growth figures have become the goal. This is further reinforced by the relatively short lead time for Managers, which means that the focus is on short-term performance and less on formulating a long-term, and sustainable, vision. Shareholders and the stock market have a (disproportionate?) influence on policy and even interfere with the strategy. And what, in the short term, costs money must be limited and preferably not spent at all... if there is a reorganisation  where 300 people will be dismissed, you see the share price rise. Enough is no longer enough and a double-digit EBITDA margin must be achieved every year.
And if even that is not enough, sometimes entire production locations are, still (!), moved to countries where salaries are lower. The manufacturing industry in the Netherlands has been under pressure for years, while, also according to VNO-NCW (The Confederation of Netherlands Industry and Employers), “the manufacturing industry is crucial for a strong society”. With the current geopolitical developments, self-reliance within the EU has even become a prerequisite for achieving the various environmental goals, including the energy transition.

The question is therefore whether multinationals still have their feet firmly on the (production) ground? ... Or is that no longer necessary?

Innovation and R&D are found less and less among multinationals and more and more among smaller companies, startups and Freelancers. The multinationals then purchase this innovation or, in the most favorable situation, co-invest in all kinds of consortiums or partnerships with innovative companies and universities.

Will a similar trend happen with the production of materials? That production locations are bought and, after a number of years of (profit) return, sold again to the highest bidder? Will there be production startups? And we have known for decades the system of tolling producers, some very successful, from Engineering Plastics: companies that focus solely on the safe and high-quality production of the end product, but do not interfere with the raw materials, quality requirements (and customers) and in the least not with the development or optimisation of plastics.

What do all developments in management and organisation mean for the production locations within multinationals? What about money for maintenance, for new and innovative equipment and investments in people? With the aging population in the Western world and subsequent scarcity, the latter is perhaps the most crucial.

The significance of a production location is simply different from that of the CEO; although they obviously share a financial component, the core task of a production location is to make products of high and reliable quality in accordance with the requirements and wishes of customers. Within production locations they know where the money is earned and why reliably operating equipment is important and why the right (good) people in the right place is of the utmost importance.

But the budget is still determined by the CEO, whether or not in combination with the investment company, and priorities must be set; usually 1 new “thing” is purchased, a small part is preventively maintained and, however unfortunate, a lot of “Band-Aids” are applied as “corrective maintenance”. And the locations are under pressure to dismiss people, which often results in good employees either becoming demotivated or even leaving the company.

Should production locations therefore act more like  a Toller? Having their own clear objectives and strategy in the areas of safety, costs, quality and process maintenance and optimisation, but also setting limits on what can be produced and at what price. More (co-) negotiation on budgets and more independence in how they are spent. “Paying” less towards the fixed costs of the multinational (downsizing the Board of Directors and Supervisory Board organisations perhaps).

In a changing world, production locations also have to adapt and learn some (leadership) skills... but above all, back to basics, with your feet firmly on the (production) ground!