The reinvention of an entire industry

Today, wherever you look, digitisation seems to have affected almost every market and industry. How would you say it has impacted our industry?

The German electrical engineering industry is of course no exception. We’re currently already using digital tools to optimise our processes and increase productivity …

Torsten Schulz is Sales and Marketing Director for Hager Vertriebsgesellschaft, Germany. For 14 years now, he has been contributing to the success of the company with his specialist expertise and excellent connections to wholesalers.

... It’s also helping us to align our processes with our market partners. Digitisation has become an integral part of these processes and it’s impossible to imagine life without it. For the future, I think it will be important to turn our focus outwards, and use digital tools to make our end users more aware of our products and services.

Which ones are you thinking of?

Builders and self-employed professionals, also the people who ultimately buy, install and use our solutions. If we want to remain successful, our products can’t simply remain tucked away in basements or technical rooms. We have to make their benefits more visible. This is something that our industry has been very slow at unfortunately.

How seriously do you take the risk of an industry outsider, like Amazon in the United States for example, attempting to take over parts of the electrical installations business?

I’m not too worried. From where I’m standing, it would be impossible for a company such as Amazon to offer an equivalent selection of manufacturer-independent products or such a broad range of consulting services. I’m sure plug-and-play solutions can work for some, however for more complex jobs such as electrical building renovations, experts will always be needed. The networks must be in order, and in the end, the electrical installations have to work. Even in the future, everything that goes on behind the scenes will still have to be installed and maintained by expert technicians.

Arnold Rauf heads FEGIME Germany, an association of around 60 medium-sized electrical wholesalers. Its member companies are spread across 170 locations throughout Germany.

That’s true, although in some product categories, we’re already coming across new competitors. Take the ‘smart home kits’ for 199 euros that you find in some budget supermarkets or DIY stores: products such as these can sometimes make our three-tier distribution model look too slow.

... Let’s not forget, however, that products such as these have nothing to do with genuine smart home solutions!

True, but the customers see them as useful and affordable solutions! They are also unlikely to understand what three-tier distribution is in the first place. The customer wants good service, end of story. We have to ask ourselves, why are we offering them smart home applications that cost 10 times more than the products in the DIY stores? Either we’re too expensive or we’re offering significant added value but are failing to communicate this effectively.

I think we have to decide whether we really want to try and cover the entire market or whether we want to focus on our core areas of expertise. I vote for the latter. I don’t think underselling is a sensible option for us as partners. Even if we try to match them, we would still risk losing large amounts of money on secondary battlefields.

That’s right; after all, there’s plenty to be getting on with in our core areas, with our complex systems such as product and data security. So I believe that a close alliance between manufacturers, wholesalers and technicians will continue to be a genuine model for success. The technician is the professional contact person for the customer. We wholesalers ensure a wide variety of products and solutions from different manufacturers while also offering advice and training on subjects that are becoming increasingly complex. And manufacturers such as Hager Group drive the market forward with their innovations. If each of the three partners focus on what they do best, I have no concerns about our model going forward.

Still, it cannot be emphasised enough that we have to give the customer tangible added value. It could be convenience, energy efficiency, security or other factors that make the customer choose our solutions.

Should we not make the decision easier for them and be more aggressive in communicating our added value? For example, with a joint campaign that presents industry, wholesale and expert technicians as trusted partners?

Absolutely, that’s the ideal scenario!

In an increasingly complex world, trust is an extremely valuable asset. And enjoying the customer’s trust is a major advantage for the on-site technician. To gain and uphold this trust, what we need within our three-tier model is a common denominator; a shared language in which we make our mutual promise.

Formulating shared goals is not going to be easy.

No, not at all, because within each of the distribution tiers there are different players with different interests. Take your company, Mr. Schulz, Hager Group is a forward-thinking company that shapes the future and develops new markets. Yet within the industry, there are other, very different companies who would rather not formulate shared goals.

We have already achieved so much by working together, I’m thinking of solutions such as KNX or ELBRIDGE. KNX is a perfect example of choosing together a standard rather than complicating things with niche solutions.

I’m not seeing much evidence of this alliance yet. What we’re currently seeing, above all, is each tier focusing on its own interests. The important thing would be to present three-tier distribution as a combined effort.

Mr. Schulz, some time ago your company caused something of a furore when it ventured into the service market. You hit the nail on the head when you responded by saying that, if we want to sell more and more high-tech products in the future, we also have to offer the consumer related services. Of course, we need to do this in a way that doesn’t harm the interests of our customers, the electricians. The speed of digitisation, however, requires us to rethink our position, moving away from the product mix and towards product functionality.

Holger Heckle is Chairman of the Board of the German Federal Association for the electrical wholesale industry (Bundesverband des Elektro-Großhandels e.V). and was a member of the holding management of Sonepar Deutschland GmbH until the end of 2018. The company has premises at 300 locations in Germany, Austria, the Czech Republic, Hungary and Switzerland.

For the end consumer, the functionality of the electrical installations is key. If anything goes wrong, they will still turn to their local electrician in five years. Our business is local and will remain so.

True, but for our intelligent solutions, which will only become even more complex in the future, a fully qualified electrician is absolutely essential. A Hager technology hub should also only be entrusted to a professional. However, we also have to live with ‘me-too’ competitors in Germany. You don’t need an electrician to change an LED bulb for example.

That’s all very true. But let’s just consider an example from the early days of the Internet. People used to consider it useful for searching for flights or hotels, for complex travel arrangements they still turned to a physical travel agency. And today? Everyone simply puts together their holidays themselves. What we have to ask ourselves is, are we the travel agencies of tomorrow, who believe themselves to be irreplaceable until the day they are ousted?

Let’s transfer this example to our business. Would you say that digitisation is a risk for our traditional sales model?

Yes, but therein lies the problem. Because everyone in the industry has their own interests at heart and, right now, a nagging fear of losing their business. We have to involve commerce, manufacturers and technicians, and work on topics such as smart home together. The same applies to training. We need to work closely with the training centres, and know what the training requirements are and what skills need to be developed.

Expertise in renewable energy, energy efficiency and electromobility, in other words anything related to the energy transition is particularly important. Is this already noticeable in your business?

Not really. We’ve been training our employees and customers on Wallbox (for electrical vehicle charging) for five years; but there’s still been no significant demand from the market. Today, blocks of flats are still being planned and built without a single charging station. It’s unbelievable. The main reason of course is that the market is still too small. Electric vehicles are currently still too expensive which is why not many are being sold.

You keep hearing, “It’s really going to take off now”, and then nothing happens, again. It’s the same with energy efficiency. The contribution that each individual can make is so small that the vast majority of people will only get involved if there is a direct financial reward or if they are forced to do so by law.

Markus Bruder is Managing Director of the Bruder Gruppe based in Offenburg, Germany. The group of electrical wholesalers employs 900 people, supplies customers in Germany and Luxembourg, and is still family owned.

The energy transition has to catch on in people’s minds. And we as an industry must continue to grow because growth and increased productivity are how we can become more competitive.

We must not forget the strong development pressure currently emanating from China, which will also bring electromobility to us. E-mobility will also become an integral element of our smart homes of the future. In the future, increasing numbers of homeowners will want to charge their electric cars using self-generated electricity from rooftop photovoltaic systems, and they will need powerful electrical installations and reliable energy management to do so. The e-tron made by our partner Audi, for example, comes with 22-kilowatt charging, which will require domestic electrical installations to be specially configured and routed. In other words: there’s plenty of work in store for us.

No doubt we all have lots of ideas about how we could develop our business model; however, we must not forget that there’s money and an element of risk involved in developing each one. Miss the mark three or four times with a development that fails to cater to the needs of the market, and you will soon flounder. We therefore have to explore new avenues without overstretching our resources. And this is somewhat of a dilemma. What’s more, we’re at a disadvantage compared to the Googles, Apples and Amazons of this world with the vast array of consumer behaviour data they have on tap. We really have to give more thought to how we can better cater to the needs of our customers with the data we have at our disposal.

I genuinely believe that data security is going to become a major issue. As private individuals, we tend to be quite naive when it comes to our personal data. What the hacker attacks of recent months have shown us, however, is that we are all vulnerable. Within the electrical engineering industry, we have a duty to protect the data security of our customers within the smart home world. This could even be one of our added values: providing assurance to our customers that we, as the custodian of their data, guarantee top-level data security.

Well, if you look at younger employees or your children, you’ll find that they are even less cautious with their data than we are. I would in fact, with all due caution, advocate that we deal more openly with our data. We have to transcend dogma and be more transparent, open and cooperative. Right now, everyone wants to keep the data they have within their specific tier to themselves because data also means power. However, in our efforts to protect vested interests, we need to be careful that we’re not outstripped by others who are much more free-thinking and courageous.

I recommend handing over the reins to the young people in our companies, who can think outside the box, even though it’s sometimes uncomfortable for us older people to be constantly questioned. Our role as wholesalers is indispensable, but only as long as our added value is regarded as worth the money. We have to make sure it stays that way.

I think we’re in the best industry in the world because the future is electric. Without electrical engineering, there would be no trains, no airports, no hospitals and no armed forces. We’re doing fine, which is actually a bit dangerous as when you’re in a comfortable position, it can be difficult to think about change. The courage to innovate and break new ground is precisely what we need, and we need it now.