A new president with new strategies

Hans Werthén: a new president with a new strategy. In autumn 1966, Electrolux’s board chairman Ragnar Söderberg contacted Hans Werthén and asked for a meeting.

Werthén, who was vice-president of L. M. Ericsson, the telecom company, thought he wanted to discuss a merger of ASEA with Ericsson’s cable factory, but instead he was offered the presidency of Electrolux. The offer had been suggested by Marcus Wallenberg, who had a large block of shares in both companies through Investor.

Hans Werthén assumed the presidency of Electrolux in 1967. During this period, the company had somewhat shaky finances and lacked capacity for technological innovation. It was felt, in short, that the company was stagnating. Now it needed to cut costs and free up capital. The main office and all the other offices in Stockholm were moved to the vacuum cleaner plant on Lilla Essingen, while production of vacuum cleaners moved to the Västervik plant, since the engineering premises in Stockholm were outmoded and inefficient. Instead, the Essingen plant was turned into an open-plan office. The only things that were retained were its central laboratory and experimental shop.

In Hans Werthén’s opinion, Electrolux was too small compared with its international competitors but too big to stick to a limited niche. The company needed to grow much larger in order to compete. During this period, all the white-goods companies in the Nordic countries were doing badly. Somebody had to take on the task of restructuring the industry, and the job fell to Electrolux. Its first acquisition was the ASEA-owned Elekta stove factory in Norway in 1967.

The strategy was to grow through acquisitions and diversification. But that would take money, and in 1968, Electrolux sold its 38 percent share of the American Electrolux Corporation to Consolidated Foods. The purchase price was almost SEK 300 million kronor. It gave Electrolux enough capital to implement the new strategy. There were to be more than 200 acquisitions in the course of just over 20 years, and Hans Werthén was often personally involved as a strategist and negotiator when companies were brought into the Group. An example is the purchase of Zanussi in 1984, a lengthy public drama with a large cast of competing characters. As a result of its acquisition strategy, Electrolux increased its sales eighty-fold and its profits even more.

Hans Werthén also developed what became known as ”Lux culture.” Its defining characteristics were a businesslike, market-driven approach, cost-efficiency and quick decisions, coupled with very little bureaucracy. The result was an Electrolux that was extremely operationally decentralized, yet strategically centralized. As a manager, Hans Werthén felt it was important always to be available for calls. He was one of the few Swedish corporate presidents to answer his own telephone.

Seventies: big changes in the Group

The efforts to improve the efficiency of internal administrative systems that had begun in the latter half of the 1960s were expanded to include more and more of the operation. Major investments were made in the Swedish plants, where the manufacturing process was made more efficient through improved methods and increased mechanization. On the design side, goal-oriented efforts were made to improve and at the same time simplify the products. Structural changes were implemented by specializing a number of plants – producing all products of a particular type at a single plant – which facilitated economical production of long series. New distribution channels were needed for the constantly increasing sales volumes, and were acquired by purchasing new companies in Sweden, the rest of Europe and the USA. Between 1970 and 1979, Electrolux bought 59 companies.

Acquiring these companies was a big step towards becoming the differentiated multinational company with a world-leading position in several areas that the Electrolux Corporate Reporting was to become in the 1980s. The goal-conscious internationalization of the Group’s operations is reflected in its foreign sales figures, which rose from two-thirds to three-fourths of total sales over the course of the decade. The primary foci of international expansion were Europe and North America.

Despite aggressive diversification of the product range and business areas, vacuum cleaners and white goods were still the core of Electrolux’s operations. Together, these product groups regularly accounted for two-thirds of the Group’s total sales. The remainder was spread approximately equally across office equipment, industrial products and the rapidly expanding commercial cleaning and service operations.

In 1977, Electrolux introduced the new READY vacuum cleaner, which could only be purchased in Electrolux shops. Now customers had a choice between buying their vacuum cleaner at home or in a shop. The launch of the new cleaner broke with a sales strategy that had been in place since 1919: Electrolux vacuum cleaners were only sold in the home. The decision was made because society had changed. More and more people were employed and thus not at home during the day. For this reason, an alternative to home sales was needed.

By the close of the 1970s, the Electrolux Corporate Reporting included over 250 operating companies in some 40 countries, and over 100 production plants in 20 countries. Group sales were approaching SEK 15 billion kronor, and there were some 80,000 employees.

The 1980s: more acquisitions

The primary event of the early 1980s was the 1980 acquisition of the Gränges Group, with mines, steel mills and manufactures of car safety belts and more. Sales increased 51 percent to almost SEK 23 billion kronor, a fourth of which was accounted for by Gränges. A gradual slow-down of demand in several of the Group’s primary markets was largely compensated for by Electrolux’s broad range and geographical reach. The trend was particularly good for chainsaws, commercial services and industrial products. The year after the Gränges deal, Electrolux bought two vacuum cleaner companies, Progress in Germany and Paris-Rhone in France.

The company made yet another major acquisition in 1984: Italy’s Zanussi. This purchase gave Electrolux a leading position in the European market for white goods and food-service equipment.

With the acquisition of White Consolidated Industries (WCI) in 1986, Electrolux made a serious advance into the American market. This was the home of strong white-goods brands such as Frigidaire, Westinghouse and Kelvinator. The company also grew in the outdoor products segment with the acquisition of Poulan/Weed Eater in the US.

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