Past Issue • Apr-Dec 2017

Culture and Professionalisation at Hilti

Professor Dr. Pius Baschera of the Hilti Corporation talks about the unique approach to inculcating corporate culture and values at Hilti, in a freewheeling discussion with Professor Kavil Ramachandran, Executive Director of the Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business.

Hilti Corporation is a global company that has been consistently rated as one of the best for people practices, by Fortune and the Sunday Times. Recently it was ranked third in the Great Place to Work® organization’s ‘Best Workplaces in Switzerland 2017’ study for its operations in Liechtenstein and Switzerland, in the ‘Large Companies’ category. It is also very well known for its innovative practices, winning five red dot awards for product innovation in July 2017.

Prof Dr. Pius Baschera of the Hilti Corporation talks about the unique approach to inculcating corporate culture and values at Hilti, in a freewheeling discussion with Professor Kavil Ramachandran, Executive Director of the Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business. Baschera is a member of the Board of Directors of the Hilti Corporation since April 2017. He simultaneously serves as Speaker of the Martin Hilti Family Trust, the sole shareholder of the Hilti Corporation. He previously served as Chairman of the Board of Directors for ten years. Before being named Chairman he served as CEO for 13 years. A mechanical engineer and a doctorate from the Swiss Federal Institute of Technology Zurich, he is also a member of the Board of Directors of the Schindler Group, Hergiswil. He is also a member of the Advisory Boards of Vorwerk & Co., Wuppertal, and Ardex GmbH, Witten and Chairman of the Board of Directors of Venture Incubator AG, Zug.

Ram: Hilti is known for its excellent culture, innovative practices, customer orientation and a clear strategy, all of which have led to its growth. One specific area that I would like to focus on today is the professionalization of Hilti and how you have blended it into the organizational culture. How do you ensure that professional practices are developed and followed by the team across Hilti?
Dr. Pius Baschera: Well, we always have clearly identified strategic pillars and what the key issues are to implement the strategy; this is developed and communicated across the whole organization, to all the 26,000 people around the world and we started to live it. It starts from the top, from the board of directors and the executive board – living what we say, walking the talk. This is something that we do in a very disciplined way throughout the organization.

We have our people and the customers are at the center of everything that we do. So we say that we are driven as a company by what the customers need, and if you are serious about it you better go out too. Go out as executive board members and board of directors to be with customers together, to see what really is going on and give a signal to the rest of the organization and customers that we are together with our people in everything. This shows to our people that board members or executive board members are normal people, on the ground and easy to talk with; or that it is not a big hierarchy – these guys are up there and we are down here, but that we are close to the people and understand what their challenges are and what issues are there that we work on.

Well, we always have clearly identified strategic pillars and what the key issues are to implement the strategy; this is developed and communicated across the whole organisation.

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You have four specific values. Will you please elaborate on the ‘culture training programme’ of Hilti, and how does it help blend the values with the professional expectations of the employees?
We started about 30 years ago to define these four values that are important to us. These are Team, Commitment, Integrity, and Courage; the courage to leave the circle of habits, to try new things, to also sometimes make mistakes, but learn out of these mistakes and through that gain experience and grow as a person. We have included these values in our cultural programmes.

Let me explain our unique approach to culture building at Hilti. This is a two-year long cycle that gets repeated. The cycle starts with the executive board and the board of directors spending 2-3 days together, reflecting and discussing the culture, values, and business challenges for the subsequent 3-4 years. There we decide as to what to include and what to exclude in these cultural training. We then roll out these team camps across the organization. Each of them, in turn, is involved with the next level of executives in small groups of 10-12 people, and this continues through the organizational hierarchy, across the world, covering all the 26,000 employees. There are about 75 cultural trainers at any time, who become facilitators for a period of time. They are selected carefully for this important assignment, from various functions. We ensure that these cultural sessions are adapted to the local country culture. We spend about 10 million euros every year on this important activity.

At these sessions, the four Hilti values are discussed in detail and are always linked to concrete business issues. These can be strategy issues, operational issues, cost issues, people issues and so on. We really try not only to have these training programmes to show our people what important values are but always discuss in the context of the real world of the business. Otherwise, you put them on the wall and they look nice there but nothing happens.

We started by training our managers around the world but soon realised this was not enough, we had to involve every employee. So, we changed the programme to really involve all the people, and at the end it is a question of conviction of passion for that and also the discipline to really do it.

Did you find any major challenges in implementing this? As you know, one of the big challenges many companies experience is not that they don’t try, it’s that they don’t try enough or they don’t know how to try and, therefore, it is very interesting that you work with all the 26,000 people and ensure that the four key values and their components are inculcated.
When we started 30 years ago in the mid-80s, we did not really know how to do that. We really did not know where that would lead to because nobody at that time was talking about corporate culture. But we felt that being a big international company active in 120 countries, we need to have something that unites us together, that gives us a direction and we felt that it is important to have some common values throughout Hilti. We made some mistakes at the beginning. But what was important is that we had strong conviction that this was going to create the foundation for the long-term success of this company. We started by training our managers around the world but soon realized this was not enough, we had to involve every employee. So, we changed the programme to really involve all the people, and at the end, it is a question of conviction of passion for that and also the discipline to really do it. I recall an important phase in 2009 when we had the worldwide crisis. It impacted our industry severely. Many of our people asked whether we were continuing the training programmes or we would try to save the 10 million euros that we invest in it every year. We told them that it was just not for good times but for all times! It’s really a passion for us; we have to be convinced that this is leading also to good results and as you know, we are measuring it through our surveys where we have questions on our culture.

How have you integrated culture into the business processes and practices?
We have to make sure that these values are integrated into our business processes, for instance, people development process, assessment approach, how we promote people and so on. It is always directly connected with these cultures and values. So when we assess people on the board or at the lower levels, we always look at not only the business performance of the person but also how he develops people. Is he able to identify and develop talent, is he promoting the right people and how he is living the culture? So we want to have concrete examples from his boss on how he is showing courage, how he is showing integrity, how he is working in a team. So we have an integrated process of business, culture and people development across the organization.

You have mastered this over a period of time. Did you find any key challenges in implementing that kind of a strategy?
I think the key challenge is the time you need. If you have to start with five or ten people, it is easy but if you have a presence in 120 countries, ten plants around the world, 4-5 research departments and a big headquarters, then it would take decades, not 2-3 years to develop it. And the challenge is that you are not deviating from it. This foundation is continuously built, we build it again and again. The challenge is it takes a lot of time.

That’s one of the challenges I have seen with many companies. When people are under pressure to meet performance targets, culture tends to take a back seat. Do you find similar situations some time?
We had such issues in the beginning but not anymore today. We have our employee satisfaction survey and we know that we are playing at a very high level compared to other companies on these dimensions. This is a lot of hard work and dedication and also having top management as a living model, to show that we are not just talking but practicing what we preach.

If you have some employees who are excellent in terms of their technical and managerial capabilities but not on values, do you have a weighted average system which will come in the way of their moving up or stay where they are in terms of their position?
If we have leaders who are very strong on business performance but not on some of these values, we do not promote them. We have a very serious discussion with them to change their attitude and if they are not changing we take them out. We take them out because we cannot promote people who go against the integrity of our company. We need many entrepreneurs in our company who have the courage to try new things, to be ready also to make experiments outside of the circle of habits, try new things and learn from it. Only then they develop the personality that we look for. You know, if the employees are not growing personally the company is not growing and we have to promote people who live our culture! We sustain ourselves by creating value to all our stakeholders based on leadership and differentiation. We used both product leadership and people leadership.

Developing and implementing a new strategy has to do with change management. And in change management, to be successful you need the right culture. You need a strong culture in the organisation, you need team work, and you need the courage to try new things.

In the classical approach, there are two routes to strategy implementation. One is structure, system, and processes and the other is the organization culture and values. Most excellent companies ensure that the blend is very good and synergistic. So have you experienced any challenges while pushing with the culture part, the structure becomes weak or do you give equal importance to structure and systems too?
Developing and implementing a new strategy has to do with change management. And in change management, to be successful you need the right culture. You need a strong culture in the organization, you need teamwork, and you need the courage to try new things. Normally people don’t like change. So you know you have to create a culture in the organization that is positive to change, that is open to trying new things and we back them to have the courage to leave the circle of habits; you know, if you do not have that in your company it is very difficult to change. So culture, cultural elements and the technical things in these structures and processes very much tie together.

This also means that you need to have strong target fi xing, performance appraisal, variance analysis and so on. Don’t you leave these to the country managers because they are culturally synergized?
If you go into change management, it really depends on your strategic performance, when you make the change. If you are still growing in a fairly stable environment, it’s one way to do, but if you have identified a crisis ahead it is another. In the crisis, the sense of urgency to change something is so high you just have to centrally tell them to do what needs to be done. If you are still making the changes when we come up the curve of the strategic performance before it tilts then it needs a lot of convincing people, why do we have to do that and you know then it is also the question of what you just said- do you develop these centrally and drive it centrally or do you use the decentralised approach. If you have some time to do that, I would take a decentralized approach. Let’s take India; here the country team develops their strategy within the corporate strategy, because they know what the market is and not we in headquarters. Development of the local strategy should be owned by the local management. So it’s a combination. You can only do that if you are not in a crisis. In a crisis, you take charge and fix the problem immediately.

I wanted to connect some of these things with the functioning of the executive board.
We have seven members on the executive board and we have clear rules that only a maximum of three could be former executives of the company. So we always have the majority of completely independent outside directors.

So we have sometimes quite intensive discussions on the decisions and that’s very important. You really have to dig deep and take these issues very seriously, because only if you have the right leaders the business will run successfully.

One of the big challenges I have seen, particularly in India, is the independence of the board and independent directors. I believe that independent directors have to be real stewards because they are the custodians of the wealth of all the stakeholders, not just the promoters. So the question is how does a chairman ensure that the independent directors are truly independent because if you give too much of independence they restrain your independence or your freedom. So how do you manage this in Hilti?
You need to know that the founder of Hilti brought all the shares into a family trust in 1980, which means 100% of Hilti shares are in this trust and that means the board of directors is representing the trust. Still, we need independent directors because we are convinced that we have colleagues who are not just thinking our way but bring fresh outside thinking. It is not so much representing all the shareholders because we have only one shareholder. It is more than we have the diversity of experience in other fields or other nationalities and so on. And for that, it is important to have a diverse team.

What gives them the independence is that they are financially independent; they are not there because they want to get the money to live. We need people who should stand up and leave if they feel ethical or culturally Hilti is going in the wrong direction. I think this independence is very important for the company.

Have there been instances when the board has overruled your proposals or your preferences?
Of course, we had many such situations. We have a culture on our board that we discuss the issues very openly. There are situations when I have got into the meeting with a certain opinion and got out of the meeting with a changed one. That’s okay; a chairman or a CEO can also learn. That’s the reason why we have these people. They challenge us, they bring in new ideas and I think it would be foolish if you think a chairman is always right.

That makes a huge difference between good companies and excellent companies where the board is given its respectable position; the board members are given respect and they are there because of this kind of independence.
Yes, as we discussed earlier, the board of directors take every other year 2–3 days and go together through the cultural training programme. They sometimes go into the issues pretty deep, and also if we have people issues it is one of the key issues of the board of directors. So we discuss and get to the bottom of why we think this person is promotable to the executive board, or why he is not, and if he is not can we help this person to develop or is it that it cannot be fixed. So we have sometimes quite intensive discussions on the decisions and that’s very important. You really have to dig deep and take these issues very seriously, because only if you have the right leaders the business will run successfully.

What’s the tenure of the independent directors?
We have an age limit and we have a service time limit. Service time is 12 years and the age limit is 70. Have there been occasions when you have regretted the decision to induct somebody and then said goodbye to that person? Well, if you realize someone is not doing what we thought he should do then you have to talk to him, tell him that either he changes or he goes. We had one such instance. Fortunately, we didn’t have it so often but then you have to be disciplined, strict to take him out because people are watching you, the executive board group is watching you. At the end of the day, the organization is supreme and individuals are dispensable.

Do you have challenges in identifying such people who have the values, competence and the time to meet your expectations, which are very high, especially when most independent directors would not fit the bill?
It is not easy to identify such people who have the expertise, commitment to our values and the time that we expect them to devote to Hilti. We are on the extreme side as we expect more than 20 days of their time for sure every year. But if there is a special project where we would like to involve a board member of the executive board and the employees then it could go up to 40 days. If we have a CEO who is running a big business, he will not be able to spend 40 days. So far we have always gotten excellent people.

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So it is not the role, nor the position or the ego that is important in our company, but it is the company fi rst and then we do whatever is best for the company. I think Michael was really walking the way to show.

Do they look forward to joining the Hilti Corporation because it’s a sort of a recognition?
Primarily for our reputation. In the construction industry, we are very well known. We are a company that never had big management problems or crisis, and it is a company with a great culture.

Do you face issues of organizational politics?
Since 20 years we haven’t had any serious political issues. We had one such issue 20 years ago at the top, that was solved successfully. I do not say that we do not at all have any politics in the company. That is normal. But no big issues. We have no hidden agenda anymore in the top management. We really try to do a good job on that when we promote people to the executive board, we only promote people who are not political. We observe people over a period of time, including in difficult situations, to see how they behave culturally while going through difficult times because we have to trust that they are the right people for the executive board.

So there is a huge level of stewardship as a value built in. Although it is not explicitly stated in courage, integrity and all but stewardship are a fundamental value which is inherent in each individual, the trusteeship feeling. So the organization is supreme and you keep everything else as secondary. Essentially, you keep the organizational interests, organizational goals more important than your own personal goals.
That’s very true. It started from the very top when the founder of Hilti, Martin Hilti stepped down. Michael 46 then, told his father that he did not want to be both the CEO and chairman at the same time; he wanted to split these roles. So he decided to be the chairman and offered me the CEO position of the company. He was young and in good shape then. At 60, he stepped down as the chairman and he said, “Pius, you are going to be my successor, I stay on the board as a normal member but I want to have a strong team around me so that if something happens to me the company is not affected”. So it is not the role, nor the position or the ego that is important in our company, but it is the company first and then we do whatever is best for the company. I think Michael was really walking the way to show. And you know for all these transitions we always prepare very well. It could even be that there is no family member anymore qualified to do a job as Michael Hilti is doing today, and I mean we need to have a set up with the right people in place so that the company will continue as a family-owned business but without the strong family operational involvement.

It is not the role, nor the position or the ego that is important in our company, but it is the company fi rst and then we do whatever is best for the company.

How is your ownership trust structured?
The Trust was founded 30 years ago by Michael’s father, with Michael, his brothers, and sister and their mother as the beneficiaries. They signed a heritage document so that they will never inherit the shares but will only be beneficiaries through the dividend of the group; they will receive money, they can live well, they are protected, but the company is also protected. The family cannot sell the company. The trust has two levels of trusteeship control. There are administrative trustees (Michael and five outsiders) for operational purposes and then we have the board of directors of the trust, where there are three family members and three outsiders, who oversee if the trust deed is followed by the trustees. So we have strong checks and balances in the trust.

It is quite farsighted and double level of insulation for the family and the company, even at the ownership level.
Absolutely. It is very much forward-looking, it is creating continuity, predictability and I think it is also very important for the company because it’s not just the family that has to say it is other people as well. At the end, it is people and it is our responsibility to put the right people for the next 10, 15, 20 years in this position. Trustees to have a maximum age limit of 70 and/ or 12 years on the trust.

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