Sweden’s Atlas Copco has lessons in success to teach the world
Industrial group’s winning business approach is studied for inspiration
What is Sweden’s most valuable company? It’s not Ikea or Nordea (both have headquarters outside the Scandinavian country now), nor Hennes & Mauritz or Ericsson (both former holders).
Instead, the business with the highest market capitalisation listed in Stockholm is the seemingly unremarkable Atlas Copco, valued at SKr400bn ($41bn).
The industrial group makes unsexy products such as compressors, vacuums and power tools for industries such as the semiconductor and automotive sectors.
But the secrets behind its success have made Atlas Copco sexy, with its managers in demand at other industrial groups and its business approach studied for inspiration.
Mats Rahmstrom, Atlas Copco’s chief executive, is typically low-key on what his role entails: “What I focus on is a bit on the customer, and a bit on the product. It’s a little bit back to basics . . . it’s a little bit grinding away with small decisions each day.”
At the core of what makes Atlas Copco tick is a commitment to decentralisation. Its headquarters are lean with most decisions taken within the divisions. Every manager has their own profit and loss account and is measured against it.
Mr Rahmstrom described it as the company’s competitive edge — he said products, processes, and so on could be copied but that people could not. “If you took a centralised organisation and say we are going to be decentralised, everybody would be a bit lost,” he said.
The chief executive was aware that there was a flipside to a decentralised approach. He admitted Atlas Copco could extract more synergies by being more centralised. That would perhaps fit in with the classic Swedish way of doing things where a consensus is gradually built up and a solution is found that (almost) everybody is happy with.
“We decide more for speed and trust than financial synergies,” Mr Rahmstrom said, adding that “it’s easy to say, it’s not so easy to deliver on”.
Atlas Copco’s share price shows that investors have faith: its stock has risen by nearly two-thirds this year and is up sixfold since the 2008-09 financial crisis. The group is a favourite of the Wallenberg family, whose investment vehicle is the largest shareholder, controlling almost a quarter of the voting shares; when the three cousins in the fifth generation of the Wallenbergs were interviewed by the Financial Times they chose the mine under Atlas Copco’s headquarters for the photo shoot.
“Atlas Copco is one of the crown jewels of the Nordics. They have a special way of behaving, one that is always looking for value,” said the head of one of the region’s leading investors. As an example, he pointed to the decision to spin off their mining division — Epiroc — last year despite the fact it was the most visible part of the business.
Inside Sweden, the company is known as the leading finishing school for executives, akin to the role General Electric once played in the US. The future chief executive of ABB, the chairman of Electrolux, chief and chair of door-and lockmaker Assa Abloy, and the chief executive of Sandvik all hail from Atlas Copco.
Mr Rahmstrom noted that 85 per cent of the group’s leaders were recruited internally with “most in my team here for 10-20-30 years”. He said there was no succession planning at Atlas Copco, instead there was an internal job market with budding leaders who received coaching on the gaps in their CV.
With an eye on his ice-hockey playing days when he noted how the most skilled teams could be beaten, he said: “People with the best talent tend not to go up the Atlas Copco hierarchy; people with talent and passion tend to go up.”
Asked if he was worried about being near the top of the industrial cycle — after a third quarter Mr Rahmstrom dubbed Atlas Copco’s “best ever” — he replied that the company did not get too concerned about forecasting. Instead, it ran scenarios each year on how it would deal with rises or falls of 10 and 20 per cent in annual sales. “It’s a much better investment than trying to predict when things are going to happen,” he said.
Atlas Copco is known for its light balance sheet — the group buys in about three-quarters of components but ensures that things it deems crucial such as product design and final assembly are kept in-house. “It’s important to select the things we want to do but it’s even more important the things we don’t want to do,” Mr Rahmstrom said.
As with the Nordic model, Norway’s oil fund, Finnish education or a plethora of other Nordic ideas, the secrets to Atlas Copco’s success sound simple in theory but difficult to replicate in practice.