Back In High Gear

Dec. 21, 2004
In just over a decade Porsche's Wendelin Wiedeking has engineered a turnaround at the automaker nearly as breathtaking as the acceleration of its legendary sports cars.

The yellow Boxster S convertible is already doing 160 km/hr on the autobahn outside Stuttgart, but the young press aide isn't satisfied. "It has six gears," he says heartily. "Use them!" Seconds later, the sleek little car is roaring past everyone, its analog and digital speedometers registering 180, 190, 200, 210, and finally 220 before the driver loses his nerve and takes the car back down to a more manageable cruising speed of 180 km/hr, or about 110 mph. The Boxster may have six gears, but the company that produces it could use one or two more as it speeds toward record profit figures and record volumes. That's some change from just six years ago, when analysts everywhere were predicting the demise of Dr. Ing. h.c.F. Porsche AG, the legendary maker of high-performance sports cars that had once been a symbol of German excellence in engineering. Mind you, there was nothing wrong with the engineering work at Porsche in those days. It was still producing high-quality cars, but a tailspin in the U.S. economy in the late '80s had sent orders plummeting. The company, which had always seemed as nimble and quick as its cars, now looked clumsy and sluggish. Few doubted that Porsche's days as an independent automaker were numbered. Enter Wendelin Wiedeking, an engineer from Westphalia in central-western Germany who had done an earlier stint at Porsche before moving to a small parts company. Taking over first as production director, then as spokesman for the supervisory board, and finally as chairman, president, and CEO, the young Westphalian -- he was a mere 38 at the time -- engineered a complete and rapid turnaround of the company. These days, nary a quarter passes without an announcement of higher-than-expected earnings. The end of the 1998-99 fiscal year saw the company ring up $368 million in pretax profits, more than double the previous year's figure, on sales that rose by a robust 25.5%. "It's a classic turnaround story," says Stephen Reitman, an auto analyst with Merrill Lynch & Co. Inc. in London. Final production numbers have not yet returned to the high-water mark of 1986, but Porsche still manufactured 44,000 cars last year. The assembly plant in Zuffenhausen, a leafy suburb of Stuttgart, is operating at full capacity, but the company has cut a deal with Valmet Corp., a Finnish automaker, to produce Boxsters, leaving the Zuffenhausen factory free to deal with surging demand for the revamped 911 Turbo. Wiedeking won't say it, but the look on his face when he's asked makes it clear that the 47-year-old chairman expects Porsche to leave the record 1986 production figure in the dust. Wiedeking doesn't blink or pause when he's asked what he considers the most important qualities for a person heading a manufacturing operation. "Clear direction," he says earnestly. He takes a sip of his coffee before setting the cup back down on the glass-topped conference table in his office, which boasts a view -- across the tree-lined street -- of the suburban Porschewerk that has been producing sports cars for the last half-century. The office is large but not immense, with sedate gray walls dotted with children's drawings and the occasional model of a 911. The furniture is chrome and black leather, giving the space a feeling of elegant simplicity, as perhaps befits the office of an engineer charged with producing cars that most of the world's drivers could never hope to own. "If you say something," Wiedeking explains, "you better mean it. You have to try to make everybody know about the strategy. In bad times, you must talk very openly about the problems you're facing. "You must build some kind of trust," he adds. "We told people something and we delivered. Everything was based on a clear vision of the com-pany. Our key goal was to remain an absolutely independent company." Wiedeking also values openness: "Say what you really mean. Put everything on the table. Good things as well as bad things. And then do it. Just do it." The bottom line, though, is communicating to everyone involved "a clear vision of the future of the company," says Wiedeking. "You must tell everybody what . . . your company will be in the next five, six, seven years." A stocky man with a fresh haircut, neatly trimmed mustache, and metal-rimmed spectacles, Wiedeking appears vaguely uncomfortable in a new-looking three-piece suit of gray flannel. But when he speaks, it's with certainty and authority, and with rarely the slightest hesitation. Only when he is unsure of the proper English word does he betray even a glimmer of doubt. Those are traits he needed when, at 38, he assumed command of production at what had become a deeply troubled company, albeit one with a storied past. Porsche had cruised along through the 1980s and into the 1990s, when disaster hit. Sales, which had reached a peak of 50,000 cars in 1986, plunged dramatically, reaching a low of 14,000 in 1993. The culprits were global recession -- particularly in the United States, Porsche's most important market -- and a stagnant product line. Or that's what everyone said at the time. Wendelin Wiedeking thought otherwise. In 1983, after completing a doctorate in engineering at Aachen University of Technology, Wiedeking had gone to work as assistant to the director of production at Porsche, leaving the company in 1988 to direct the engineering division at GLYCO Metallwerke KG in Wiesbaden, a maker of bearings for the automotive industry. His experience at GLYCO had brought him into contact with Japanese and American production methods and management strategies, and he believed they could be translated to a specialist manufacturer like Porsche. In 1991 Wiedeking agreed to take over production and materials management at Porsche, which was just beginning its free fall. What he found was a company saddled with hidebound management, a bloated production process, and an ill-conceived and expensive plan to add a sedan to its line of high-performance sports cars. The company was on the way to a loss of $150 million, the worst year in its history. Wiedeking smiles at the recollection of the brash promise he made at a meeting presided over by then-chairman Arno Bohn. The new production boss offered to cut Porsche's costs by 30%. Bohn looked at Wiedeking and said such a goal was impossible. "I said, 'No, I offered it, I'll bring it,'" Wiedeking recalls. "And I brought it." He was able to cut the costs, he says, because he was familiar with the company. "I knew where Porsche was," says Wiedeking, "and the change in the years I was gone was nothing. That was good news and bad news, but they had changed nothing, so it was a gold mine for me to dig." His first order of business was to benchmark every aspect of production to find out how much time, effort, and money was being spent on making a Porsche. Next, Wiedeking took a number of key managers on several tours of Japanese automakers to find out how Toyota, Honda, and Nissan were doing the same things. "We went into the companies knowing exactly what we wanted to see because we wanted to make a benchmark," he says. "When we returned to the hotel, you would not find us at the bar. We were sitting in the conference room sharing the information because everybody had some responsibility during the plant tour and had to inform us of what he noticed, what the differences were, to make sure everybody understood everything." What they learned was that Porsche's production process was fat and wasteful. So Wiedeking -- who had helped institute an overhaul at GLYCO -- hired consultants from Japan to help him reorganize Porsche. Next, he cut the number of managers by 35% and gave new jobs to all the survivors so that they would be too busy learning their new responsibilities to be able to interfere with the changes that were in store. And he instituted the Porsche Improvement Program, a program designed to measure quality and efficiency and eliminate waste. But Wiedeking knew he had a powerful foe in his efforts to save Porsche: time. The company was bleeding badly in 1992, and something had to be done fast. He didn't have time to negotiate with the powerful, stubborn union because the company was losing too much money too fast. What he needed, Wiedeking believed, was a catalyst. For that role he chose his Japanese consultants, led by Chihiro Nakao. On a fall day in 1992 Nakao entered the Zuffenhausen plant and announced loudly that it looked more like a warehouse than a factory. And then he handed Wiedeking a circular saw and told him to cut the storage shelves along the line in half. There followed intensive training of the workforce in the philosophy of lean production. When the production process had been realigned so that it followed lean principles, Wiedeking sent his people out to his major suppliers to help them reduce waste in their operations so that they could cut their prices for Porsche. In the years since, Porsche's production process has become a model of continuous improvement. Manufacturing defects have fallen dramatically. The company is down from seven days' worth of inventory to one. The number of hours spent on production of each 911 has dropped from 120 in 1992-93 to 60 today. Employee suggestions -- which had averaged 0.09 per person before Wiedeking returned to Porsche -- now average 4.3 a head. In 1993, as the company began to recover, Wiedeking (who by then had become chairman) declared that he wanted to bring a two-seater roadster to the market by 1996. Following a streamlined development process, an elite team developed the Boxster, which debuted in 1996 to wild applause from the automotive press. The company, whose sales had been hovering at around 20,000 cars since 1993, manufactured and sold more than 32,000 vehicles in the fiscal year that ended in July 1997, earning profits of $50 million on sales of $2.2 billion. A year later the company rolled out a revamped 911 -- this time with a water-cooled engine; the last 911 with an air-cooled engine was sold to comedian Jerry Seinfeld -- and again reaped the rewards of innovations. In truth, the redesigned 911 and the Boxster had been developed simultaneously in a record 37 months and at a greatly reduced cost. Development team members were drawn from every department so that sales and marketing strategies could be formulated as engineers were designing the new models. In the design itself the engineers made extensive use of computer simulation to cut the time for development of prototypes in half. To keep costs down Porsche's engineers gave the Boxster and the new 911 the same basic engine, the same parts in the basic body structure, and a similar design for the chassis and the suspension. The result was a simpler development process, higher production volume for individual parts, and a common assembly line to produce the two cars. Each year since 1997 has seen the sports-car manufacturer leap ahead in sales and profits. The results for the last fiscal year showed pretax profits doubling to $368 million and sales jumping better than 25% to $3.2 billion. The current year offers little prospect of a rapid downturn. Porsche has introduced a speedier twin to the Boxster, called the Boxster S, and just unveiled a new 911 Turbo; demand for both is expected to be strong. In fact, the only trouble the company has had in recent years has been meeting demand, a problem Wiedeking addressed by farming out the assembly of some Boxsters to Valmet. In the works now is a new sport-utility vehicle to be designed in a joint venture with Volkswagen and assembled in a facility Porsche is building in Leipzig in eastern Germany. Wiedeking, who sees the SUV as a better fit with the Porsche product line than a sedan, says the emphasis will be on "sport" rather than "utility" when the new high-performance off-roader arrives in dealerships in 2002. It will, in other words, be a real Porsche. The cost of developing the new product will be a hefty $500 million, and Wiedeking notes with no small measure of pride that the funds have come not from bankers, but from Porsche's own reserves. And there's more where that came from, he says. "Within the next five years," he predicts calmly, "the company will grow in a way that no other company will be able to grow." Wiedeking views the experience of remaking Porsche as a triumph of trust within an organization. It's a theme he comes back to again and again in the course of an interview. "With your workforce, with your employees, as well as with your shareholders, . . . you must build some kind of trust," he says. Wiedeking also trusted his vision and didn't worry about his position in the company, something he calls essential to success as a leader. "A lot of top management [spends too much] time on whether a decision will have a negative impact on their careers. As a top manager, I think, you have to build a balance between the interests of your employees -- because their families, their children are part of your responsibility -- and shareholders. To focus only on shareholder value and dividends is not enough." Another key to his success, Wiedeking says, was to recognize the wisdom of an old German proverb: You sweep the steps from the top down. He criticizes managers who think they can effect a transition from traditional manufacturing methods to a team approach merely by imposing teams on shop-floor employees. "You need to make a revolution from the top and the bottom," he explains. And, finally, there's still another crucial tenet to the Wiedeking management philosophy: Keep everyone busy. Since he took over, Porsche's workforce has overhauled its production methods, engaged in simultaneous creation of the Boxster and retooling of the 911, and produced a new 911 Turbo. Now, the company's efforts are focused on development of the SUV. Once that is done, Wiedeking says, there will be another project. "Absolutely. After introducing the Boxster and the 911, I think the organization thought, 'Now we are where we want to be.' I said, 'Unh-unh. That was yesterday. Now the next steps.' And again, I think this is my job. . . . I just started to talk about visions for 2005 and 2010. Where will the company be in 2005 and 2010? In 2002, we introduce the SUV. What will we do then? This is, again, my job, because a company must grow. If a company is not able to grow, it is not able to survive. If you stagnate, I think, that's the beginning of the end." Porsche' s only real vulnerability, observes Merrill Lynch's Reitman, is a downturn in the global market for luxury cars. "The perception is that you're dealing with a highly discretionary purchase," he says. "You might need a car, but you don't necessarily need a sports car." All the same, notes Reitman, Porsche under Wiedeking has broadened its market by introducing the lower-end Boxster to its stable, and will broaden it further with the introduction of the SUV. But isn't that segment of the market already crowded? Not necessarily, says Reitman, who points to the success of a new Mercedes off-roader as proof that there is a market for upscale, luxury SUVs. But what if the challenges stop coming? And what if someone comes along and offers Weideking a bigger challenge, for higher pay? Reitman notes that Weideking is an appealing candidate for other posts. "I'm sure he's on a large number of headhunters' lists." (Wiedeking was widely rumored to be in line to become BMW's chairman after Bernd Pischetsrieder was ousted from the post last year.) Wiedeking smiles coyly. This man -- who first drove a car when he was 11 and who has assembled a collection of more than 1,500 model cars since he got his first one at age six -- seems wedded to the automotive industry, so the list of potential jobs for him would be short. Besides, "I can't see any reason to think of new jobs, because I am happy," he says, and smiles again. "Plus, I get to drive the best car in the world for free."

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