Joint sustainability projects

SKF’s Industrial Division

Kathrin Wieske, Saeed Bilal, Johanna Karlsson & Charlotte Lindberg
Preparing for Leadership

2009-12-15
Table of content
Background ................................................................................................................................... 1
Purpose ...................................................................................................................................... 1
Method .......................................................................................................................................... 1
Findings and analysis .................................................................................................................... 1
Trends and patterns in KA mapping ......................................................................................... 2
Character of the customer ......................................................................................................... 2
Timing ....................................................................................................................................... 2
Attitude and knowledge of interviewees ................................................................................... 3
Priority ...................................................................................................................................... 3
Cooperation Service Division - Industrial Division and the Group Sustainability function .... 3
A new way to approach key accounts ....................................................................................... 3
Life-cycle & Value Contribution .............................................................................................. 4
SKFs reputation......................................................................................................................... 4
Leadership Role ........................................................................................................................ 5
Conclusion .................................................................................................................................... 5
Recommendations ..................................................................................................................... 5
References ..................................................................................................................................... 6
Appendix A ................................................................................................................................... 7
Appendix B ................................................................................................................................... 8
Appendix C ................................................................................................................................. 10

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Background
This is a practical report developed in collaboration with SKF. SKF is a global company established
in 1907. Today the company’s core competencies are illustrated as five platforms: bearings, seals,
mechatronics, services and lubrication systems. Within these competences SKF provides products,
solutions and services. The company is divided into three divisions: Industrial Division (ID), Service
Division (SD) and Automotive Division. This report will focus on the Industrial Division1 that serves
industrial original equipment manufacturers (OEM) with products and product development. The
Industrial Division is active in 30 segments and is structured to use key account management teams
to serve its major customers within these segments.

SKF is in accordance to increasing environmental regulations highly committed to corporate social

responsibility. This report deals with the environmental aspects of CSR, with focus on energy
efficiency, emissions, hazardous substances, waste and safety. SKF has committed to working with
these issues through the SKF Care program and Beyond Zero-vision that aims at having a positive
impact on the environment through going beyond traditional practices. As SKF’s customers are
becoming more concerned with sustainability SKF sees a business opportunity in engaging in
cooperation with their customers in order to achieve SKF sustainability goals and secure business for
the future SKF stands in front of a change in strategy. The new strategy incorporates cooperating
with customers to reach SKF sustainability goals through helping customers to achieve their goals.
This report is therefore looking at the current situation in and between SKF and its customers to give
practical examples of how a new strategy could be realized and started. 1

Purpose
The purpose of this project is to understand the current and future scenario of how SKF could engage
with their strategic key accounts (KA) to support their sustainability targets through joint projects
between SKF and them.

Method
We started off by mapping the sustainability targets of 26 key accounts of SKF’s Industrial Division
as stated in their sustainability / annual report. The key accounts were chosen for their strategic
relevance in terms of sales volume and sustainability. The mapping of the three accounts we looked
closer into can be found in the appendix A.

The mapping was followed by interviews conducted with three key account managers, two segment
managers and one responsible for group sustainability. The interview questions focused on current
and potential future sustainability partnerships with KAs and related issues such as needed support,
hinders and timing. The interview guide can be found in the appendix B. This data was then analyzed
in order to find common patterns and to illuminate future opportunities for SKF to engage in
sustainability partnerships with their key accounts.

Findings and analysis

In the following section we will present our key findings structured in nine themes from both the
mapping and the interviews regarding the current situation and analyze from there how the future
scenario could look like. We will also reflect on Henrik Lange's leadership role as the CEO of SKF's
Industrial Division in this endeavor.

1
SKF Industrial Division will further on be referred to as SKF.

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Trends and patterns in KA mapping
Through mapping the sustainability targets of the 26 key accounts we have found some common
patterns among the accounts. The main sustainability focus of the accounts is:
 Reduction of energy consumption to become more energy efficient.
 Recycling and using materials more efficiently to reduce waste.
 Reductions of emissions, focusing on CO2.
 Increase safety to reduce injuries at own production sites.

The key accounts are working with these issues in their own production and also to provide their
customers with products that help them reduce energy and emissions.

We have also identified differences in maturity levels in sustainability issues among the KAs. Some
KAs are perceived as more likely to engage in cooperation with SKF. Due to confidentiality this
analysis is not included in this report but only provided to SKF.

A future engagement for SKF would start with approaching the most mature companies. We suggest
that SKF start with Key account C, ABB Motors and Caterpillar. These companies are working more
with sustainability and are therefore more likely to engage in cooperation with SKF. The
communication would focus on issues concerning energy, recycling, emissions and safety, as the
KAs are already working with these issues. SKF should also approach less mature companies, so that
once they have matured and are ready to work with sustainability issues SKF will be their obvious
choice of cooperation partner. For SKF, this approach is a way of securing future business and does
not need to be as active as the first approach. This advice is consistent with information given from
one segment manager who stated that a balance between push and pull is necessary. SKF has to act
depending on the demand of the specific KAs. For KAs showing high demand and maturity level,
SKF should put a great effort in initiating sustainability partnerships, whereas less effort is needed for
KAs that currently show low levels of demand and maturity concerning sustainability.

Character of the customer

We perceive that discussing with KAs about joint sustainability projects is a novel endeavor for SKF,
especially when approached in the new unconventional manner explained below. This cannot result
in only one best practice approach, since we perceive the KAs as being of differing nature, industry,
structures, dynamics, affected by legal pressure and level of sustainability commitment. They would
therefore have to be approached differently when initiating joint sustainability project discussions.
However, the cross-functional and cross-hierarchical sustainability engagement groups should still be
the ones initiating these discussions with the KAs. Rather the group need to analyze beforehand the
most effective entry point in such discussions. A possibility would be to cluster KAs of similar
characteristics to create one strategically suitable approach for how to initiate the joint sustainability
project discussions with that cluster. The width of knowledge and ability to make decisions in the
cross-functional and cross-hierarchical sustainability engagement groups makes such a clustering
possible to perform. We believe that the two most important factors determining a KA's sustainability
engagement are their internal drive for sustainability and the external regulations and legislations
they have to comply with. Thus, a possible framework to use is a matrix with one of these two factors
on each axis. See appendix C. Another possibility to cluster KAs is to apply the three profiles (caring,
competitive and concerned profile) for ecological responsiveness by Bansai & Roth (2000).

Timing
Timing for when to start discussions about sustainability partnerships is seen as crucial. A good time
to implement partnerships is seen to be when the customer is recovering from the economical crisis
and experiences an economic upswing of their business, since resources and optimism for the future

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are in place. Once the customer reaches the peak of their business cycle it is hard to make the needed
resources available to implement projects. Even though probably no KA can afford to make new
investments at the moment, it is crucial to already start discussing and preparing future partnerships.
Further, it is essential to get involved as early as possible in the production cycle at the KAs, since
the greatest leverage can be achieved when SKF gets involved already in the planning phase of new
investments.

Attitude and knowledge of interviewees

We perceived the interviewees to have a very open and positive attitude towards working with
sustainability and most of them showed great engagement in initiating sustainability partnerships
with customers. Thus, there is a good basis concerning attitudes within SKF for initiating
sustainability partnerships, which is necessary to convince customers of the benefits of those
engagements. However, the interviewees stated that they do not have sufficient knowledge about
sustainability issues in order to offer their KAs products that significantly help them achieving their
sustainability targets. One of the KA managers also mentioned that he is not fully aware of what the
SKF Group Sustainability does and if and how they could help him in approaching customers. Thus,
training within sustainability in general and especially in respect to how to market sustainable
solutions to customers should be implemented for KA managers. Also, the awareness of how Group
Sustainability can support the KA managers should be increased.

Priority
We perceive that sustainability issues in SKF are discussed on a management level and are an
important part of the current and future agenda. However, so are many other important aspects within
the SKF Group. We perceived that the interviewees wanted to prioritize sustainability issues in their
work but were not able to do so to their desired level. They argued that it is a matter of priority to
what extent they and top management and the rest of the people working at SKF engage in
sustainability concerns and work. In order to initiate joint sustainability projects between SKF and
the KAs these types of projects have to be prioritized within the entire SKF organization. Top
management engagement is important in negotiating these issues with the KAs since the nature of
sustainability discussion is perceived to be initiated on a top management level in most
organizations.

Cooperation Service Division - Industrial Division and the Group Sustainability

function
The SKF Service division works with many of the Industrial Division's KA’s end-customers, which
means that they have good knowledge about needs and demands of the end-customers, making the
SD a valuable source of information about the sustainability needs and wants of the KAs for the ID.
However, interaction between ID KA teams and the SD is today very limited and could be better
utilized. This closer collaboration is a source of knowledge to be used in confronting KAs with their
weaknesses stated by their end-customers and suggest sustainable solutions. Additionally this source
of knowledge can be used to underline SKF's sustainable competences when negotiating or making
new offers to KAs.

A new way to approach key accounts

Currently SKF adopts a conventional way of approaching KAs including SKF's KA team and
business engineers talking to the purchasing department of the KA. Usually these people in SKF are
not very knowledgeable in sustainability issues and have to struggle to find sustainable solutions that
fit the needs of both parties. Additionally, we perceived that the purchasing departments of the KAs
do not seek sustainability benefits in SKF products but rather discuss price and efficiency making it
even more difficult for SKF to use their normal communication approach. Most organizations regard
sustainability initiatives to be on a strategic management level, therefore the one face to customer

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approach, meaning that every customer has one assigned contact person in SKF's sales departments,
makes it difficult to discuss sustainability issues on the lower organizational level.

A solution of this dilemma was put forward and then reaffirmed in our interviews. An
unconventional and novel approach to discuss sustainability issues with KAs involves cross-
functional and cross-hierarchical groups including top management, product team, key account team,
sales and marketing, group sustainability, local attachment with environment, and health and safety
people of SKF, i.e. the strategists and decision makers of all levels and affected knowledge areas, to
be involved in the process when engaging these types of discussions with KAs. This approach would
entail SKF to look at KAs from a cohesive sustainability viewpoint (sustainability reports, annual
reports, and other types of benchmarking tools) to identify indicators of specific targets (mapping).
This would enable SKF to see the sustainability targets of the KAs without direct contact and to
determine the KA’s level of commitment in sustainability issues, as previously discussed. After that
SKF should start to engage with the chosen KAs that seem to have reached a mature level in their
sustainability thinking.

Working with these cross-functional and cross-hierarchical sustainability engagement groups in SKF
to discuss sustainability issues of concern with similar group constellations of the KAs will enable
the sharing of views and visions to achieve sustainability strategies and solutions. Additionally it will
enable the identification of mutual interest and if no solutions are found the endeavor still has the
benefit of strengthening the relationship. This new approach can also be understood as up framing in
the sense of SKF looking into the larger system they themselves are part of and what difference their
activity makes for their customers’ value stars, i.e. how they contribute to their customers’ and their
customers’ customers value creation (Normann 2001).Applying this new approach implies that the
one face to customer idea is no longer fully applicable and would need to be modified.

Life-cycle & Value Contribution

Many purchasers ignore lifecycle assessment for new investments, meaning that they do not consider
the whole life-cycle cost involved with a certain machine but only base their decision on which
machine to buy on the acquisition costs. More sustainable techniques and machines only pay off
financially when also considering the reduced production costs during the machines lifetime. Thus, it
is important to clearly communicate the cost savings of the whole life cycle. This is especially hard if
customers are working with different cost centers, one for purchasing and one for production costs. In
these cases it would be beneficial to get in contact with top management, who takes a more holistic
view than the purchasing departments. Further, KA managers would need more concrete value
propositions to address the customers with, since we perceive that a clear value contribution is
lacking today but requested by the KA managers. The purchase decision of customers is still mainly
based on price, therefore it is important to be able to show the customer in a clear and concrete way
what SKF can do for them and what value they will get from cooperating with SKF.

SKFs reputation
According to the KA managers, SKF Group's reputation and market image is still that of a bearing
manufacturer and customers are barely aware of SKF Group working with improving customers'
production processes or engaging in sustainability initiatives. This might be due to their lack of focus
on marketing and promotional activities of their offering. Thus, SKF Group should put more effort in
shifting their reputation to a service provider engaging in sustainability matters. One way of
increasing SKF Group's reputation is to prioritize sustainability issues in its quarterly reports
demanded from the stock exchange since these are seen by many stakeholders and could
spread awareness of their sustainability work. Moreover, investment in a sixth sustainable platform,
e.g. renewable energies, by SKF is an option to make a visible statement of their sustainability
engagement.
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Leadership Role
Henrik Lange has an important role in SKF’s joint sustainability project endeavor considering several
aspects. First of all he has to communicate the importance of engaging in sustainability to all
employees, which we think he did successfully since all our interviewees showed a very open and
positive attitude towards engaging in sustainability. We are arguing that the cooperation between the
Industrial Division and the Service Division should be facilitated and increased. As CEO of the ID,
Henrik Lange is one of the key persons to initiate closer contact and knowledge sharing between the
two departments and with that of strategic importance to actualize this relationship. Furthermore, the
new recommended way of approaching customers entails cross-functional and cross-hierarchical
groups which include representatives of the top management. Thus, obviously Henrik Lange is
needed to work with this group and the counterparts of the KA.

Conclusion
We see SKF being at the forefront of sustainability engagement both internally and externally, as
they conceptualize sustainability as a business opportunity and not as an obligation (Hart & Milstein
2003). This makes them an early-mover, which can result in a competitive advantage in the future if
SKF manages to establish this awareness externally. However, it is questionable if SKF can
significantly improve their KA's sustainability performance considering that their products are in
many cases only a minor component in machines. Also, we wonder if SKF might be too early with
these initiatives as not all of their KAs show high maturity levels concerning
sustainability. Sustainability focus is still only in its infancy, meaning that not all companies can be
expected to be as committed as SKF. We see a future development in this area in the sense of
increased environmental regulation and legislation as well as a higher sustainability demand from
customers. It is beneficial for SKF to implement this strategy already now, so that they have all the
required knowledge and infrastructure in place once this movement really takes off. In line with this
we suggest SKF to follow the recommendations below.

Recommendations

 Evaluate maturity level of KAs

 Determine best time to initiate partnership
 Implement sustainability training for KA managers and increase awareness of Group
Sustainability
 Prioritize sustainability engagement in whole organization.
 Increase cooperation between ID and SD
 Implement cross-functional, cross-hierarchical sustainability engagement groups
 Develop clear value contribution over entire product lifecycle
 Increase SKF Group's sustainability reputation

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References

 Bansai, P. & Roth, K. (2000) Why companies go green: A model of ecological

responsiveness. Academy of Management Journal, Vol. 43, No. 4, pp. 717-736.
 Hart, S., L. & Milstein, M., B. (2003) Creating sustainable value. Academy of Management
Executive, Vol. 17, No. 2, pp. 56-67.
 Normann, R. 2001, Reframing Business. John Wiley & Sons, Ltd

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 Appendix A
Group Segment SR Energy Material Waste Hazardous Emission Life Other comment
Substances
Key Paper & Yes Energy efficiency aim Goal 2009 - continue Reduce the use of Environmental business 1/3 of future
Account A Mining/Minerals investing in hazardous materials. business strategy 2008 - 2012.
Reduction of energy environmental
consumption in customers’ technology Focus= developing environmental
production processes. development. technologies and offering eco-efficient
solutions to customers.
Invest increasingly in Recyclable metals
energy efficiency and used in production Advancing eco-efficiency of
energy conservation. suppliers.

Precautionary approach,

Piloting in supplier network in

environmental work in 2009

Sustainability manager appointed in

August 2008.
Key Mining/Minerals Yes Products, Environmental risk: Products, services Group Executive Management set
Account B services and hazardous chemicals and technical new
technical solutions provide sustainability objectives and targets
solutions are long service lifetime in
fully recyclable. and better resource November.
utilization.

Goal = Increased
number of products
that support
sustainability
principles.

Key Paper & Ind No, but Fiber loading technique Plan to People on high innovation to bring a
Account C Gearboxes mention cuts costs, e.g. up to 25 adopt the change and to meet sustainability
sustainability percent less steam is new targets.
issues in needed during the drying technologies
annual process. for emission
report. free energy
Energy consumption can be in future.
reduced by using fiber
loading technique and solar
flow.

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Appendix B
Interview Guide SKF
Background and task

 Senior students of the Master program in Management at the Graduate School in

Handels, Gothenburg, Sweden
 Taking a course in preparing for leadership and are supposed to work with a real life
business cases.
 Our task is to understand the current and future scenario of how we could engage with
our strategic accounts to support their sustainability targets.
 Henrik Lange is our mentor and sponsor for the task and we are working with David
Norris and Patrick Delombre whom supports us in this.
 We are not contacting any customers. Our research is strictly internal in SKF and on
browsing on the web to better understand the customer.
 Finally when we speak about sustainability we speak mainly about environmental
areas such as; emission reduction, waste reduction, energy efficiency, hazardous
substances, water reduction, increased machinery life to minimize consumption and
people safety.
 The total interview will be 1 hour.

Current engagement around sustainability

 Are you aware of the specific challenges the [name: strategic account] is facing today
regarding sustainability or any specific challenges in their business that can be
important for them in the future?

 Are you discussing any specific business opportunities or other initiatives within
sustainability with the [name: strategic account] today?

If no: move to section possible ways to engage

If yes:
 Can you describe the opportunities or initiatives? How did you identify it?

 Which persons (function, position) are you having contact with (anyone
responsible for their sustainability targets) to discuss this initiative?

 Have you started any specific project? Or do SKF sell any specific service or
product to support this?

 What is the benefit for the customer and SKF?

 What people within SKF (functions, positions) are supporting you?

Any people with competence in sustainability?

 Do you know if [name: strategic account] is buying services / products from

SKF competitors today to support then in this area?

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Possible ways to engage

 Do you see there could be a business opportunity (or more if already ongoing) or other
possible cooperation’s that can be started within sustainability between [name:
strategic account] and SKF?

 Do you have any ideas about how to start / improve such cooperation?

 Who are the key people at the customers (e.g. sales, product development, their
“corporate sustainability teams”, their marketing team, their top management) to
address these possibilities with?

 What support would the KAs need within SKF to pursue opportunities in this field?

 What kind of problems / hinders do you see for such an engagement? How could they
be overcome?

 If you see a possibility when do you think is the best time to start an engagement?

 Service division relation/cooperation for segment?

 How do you think SKF is perceived by the KAs? Concerning sustainability?

 How do you see Key account C’s approach to sustainability?

Thank you for your time and effort!

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Appendix C

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