A strategy in three steps

ASSA ABLOY is today the world-leading company in the area of locking solutions. To maintain and further develop this position, the Group is following a three-step strategy implemented by firm management principles.

The three steps of the strategy are:

• Build a worldwide presence and successively add new areas of expertise
• Leverage synergies and thus develop Group strengths
• Expand the market through increased focus on creating value for customers

Building a presence
Acquisitions have been the basic instrument for growing the Group since its formation in 1994. Over this period, ASSA ABLOY has grown from a regional company with 4,700 employees and sales of sek 3 billion to a global group of companies with 30,000 employees and sales of sek 25 billion. With the acquisition of Yale in 2000, the Group reached its position as the world’s leading lock group.

Initially, the acquisitions were mainly aimed at building geographical presence. Today ASSA ABLOY is well established in most major regions of the world, which include both mature and developing markets. This has given the Group access to an unparalleled installed base with massive recurrent business. It is estimated that there are more then one billion locks with the different ASSA ABLOY brand names on them. The continuous need to renew these locks creates the recurring stream of cash flow.

Going forward, acquisitions will focus on further strengthening the Group’s presence in certain geographical areas and on adding expertise in new areas of technology. Regarding the areas of expertise, the expansion will be centered round the operational door environment. In other words, the main area will be the locking, opening and closing of doors and the identification and authorization of users.

Besam, the world-leading manufacturer of door automatics, is a good example of such a complementary acquisition. So is HID, which has brought leading-edge know-how about remote identification into the Group and is now showing excellent performance.

After acquisition, every new company is integrated into the Group through a well-defined process, and the ASSA ABLOY management principles are introduced. These are based on belief in a multi-domestic presence, where the skill and know-how of the local companies are matched with the resources of the global Group. Here, best practice is shared between companies, and benchmarking is employed at all levels.

Every month the most important key ratios are collected, sorted from best to worst and sent back to all units. This transparency has been a great tool to encourage a dynamic improvement process amongst all units. Operational excellence is created through frequent management meetings, close cooperation and a learn-by-doing attitude.

Leveraging Group synergies
At the next level, continuous development of the interaction between the Group companies creates leverage for the entire organization.

The first requirement is to build a common corporate culture that encompasses all companies in all countries, that is shared by all employees and managers, and that is recognized and understood by customers and partners. This internal culture building is well underway with the help of ambitious educational and communications programs.

Participating in the Volvo Ocean Race proved to be a successful tool in this process. It produced an enormous response, both internally and among partners. The Group-wide intranet launched during 2002, the internal magazine issued six times a year in twelve languages and the Internet website redesigned in 2002 played central roles in maximizing the results achieved.

The yearly management training program is another important facilitator in the creation of common values. The unique portfolio of the Group’s 80+ brands also holds great potential. In order to further develop this asset, a common brand strategy has been developed to ensure optimal coordination and is being implemented in all Group companies. Here the ASSA ABLOY brand is used as an endorsement to all the other brands.

 
The way to successful leadership in the marketplace starts with understanding what the customer really needs. By developing the market and attracting valuable partners, the market grows – and the satisfaction of the customers increases.

In order to leverage on size, coordination of Research & Development has become even more important. This is especially evident in the areas of electronics and electromechanics.

Development of joint product platforms employing common components enables shared production and Groupcoordinated sourcing of these components.

Increasing customer value
At the third level, the ambition is to focus on the customers and create higher customer value. This will make room for sustainable organic growth and improved operational margins, which will then allow the creation of increased shareholder value over time.

A basic insight is that today, on developed markets, a lock is changed only every twentieth year or even less often. There are also substantial differences in security levels between countries. With its installed base of locks and the brand names it has acquired, ASSA ABLOY has the foundation on which continuing growth can be built.

By offering added security, safety and convenience to the customers that constitute the installed base today, the ability to achieve growth should be substantial when the pace at which locks are changed increases and the discrepancies between countries can be evened out. But that will call for a change, not only of the customers’ actions but also of their fundamental attitudes. To work towards such a change, the ASSA ABLOY Group companies will build a much closer dialog with customers of all sorts over the coming years.

Since in many countries the product portfolio is not complete, there is also still a large potential to be achieved through cross-selling of products between companies operating on different markets.

Identifying customer needs through an innovative and simplified market segmentation model will be another approach. This allows value offerings to be customized and packaged for different customer groups. The formation of ASSA ABLOY Hospitality is an example, where four different brands have been brought together to make a common offer to the international hospitality industry.

Financial objectives
The strategy described is designed to continue the achievement of a satisfactory earnings trend, with the aims of increasing return on capital and cash flow generation.

ASSA ABLOY’S financial goal is to achieve a return on capital employed of more then 20 percent. The goal has been the same since the inception of the Group in 1994. With increased amounts of goodwill, this goal has become harder to reach and the figure has been diluted by the acquisitions made. The return in 2002 was 9.9 percent.

The goal will be realized through increased organic growth and margin improvements while maintaining the same absolute levels of working capital and fixed assets. Excluding the effects of any future acquisitions, the current structure of the business should be able to meet the goal in a five-year perspective.