Rickard Gustafson, vd SKF, i podden Business Göteborg. Avsnitt #66.

No one believed it would work, that the company would survive. I thought, maybe they're right, but if we actually manage to survive, then maybe we can really make something exciting out of it.

Of course you think about it, but at the same time you can't dwell on it. You have to live, you have to keep working. I am one of many, and I have a strong management team, fantastic colleagues, and skilled employees who are passionate about what they do. You have to create a sense of security in your gut that this is what actually drives the company. You've been described by a former colleague as goal-oriented and always thinking in processes—order and discipline in all parts of life. To some extent that's true; I think there are certain personality traits you don't just switch off when you go to work or go home. Maybe you're a different person in your private life and professional life, but values-based you can't just disconnect. I don't like putting off until tomorrow what we can do today—the dishes get done every night, yes, I can't go to bed without them being done.

Maybe no one has asked, and I'm not the type to offer it up. No one asks, so no. But we should start, because I know you often say never to underestimate the importance of storytelling, usually about leadership and business. So the question is relevant: what is your story? Yes, my story is that I grew up in a home with two brothers, so I'm the middle brother. I grew up just outside Stockholm, in the suburbs of Täby and Vallentuna. Like most boys, I was into sports, competed with my brothers in everything—it was about being best at home at everything, whether hockey, football, or who shot the hardest, everything was a competition.

My father has an academic background. My mother was at home with us children, which I'm incredibly grateful for—she took care of us during our upbringing. Dad worked as a personnel director at an American company in Sweden. It was a very loving home where we got support from our parents to do what we dreamed of and shape our lives. I think they did a fantastic job.

Actually no. When I started on a consulting basis, it was fun, and I felt I could do this for the rest of my life. But as I became more senior, I would sit down with clients who were often line managers or something, wrestling not so much with the analysis we provided, but with how to implement it, how to get people on board, how to drive change—that is, leadership. I felt that was starting to gnaw at me. Here I am talking to someone with many years of experience leading people, and I'm sitting on the sidelines never having done it, trying to advise them. That doesn't work. Leadership felt exciting, could I do it? That triggered me when the opportunity came to go to General Electric and take a line management job. I thought, what the hell, it's time to try. So that was my way in to try leadership, to see how it's done and if it fits me. I found my style there and found it very exciting, and apparently others thought I did something right, so I got opportunities to grow further in those roles.

Yes, partly it's what has driven me over the years—a personal desire for development and to test what I can handle. But that pitch you refer to—I realize it was a long way from someone with a high-ranking job at GE in Sweden, many levels from headquarters in the US, and my responsibility as country manager was more to implement the strategies and cultures and values set by headquarters. We were to deliver that, but I had very little opportunity to help shape and influence the culture, the strategic thinking. When I went to Trygg-Hansa, it was a subsidiary of a British insurance company called Royal Sun Alliance, and Trygg-Hansa was perhaps the second largest operation in the whole group. Then I would also be part of their global leadership team and get to help set a culture and unite the Scandinavian operations around that culture. I thought, I've never tried that. That was the next level in my leadership development—to see if it could work. And it went well, I think. Others should judge that, not me. But we had a great operation, a fantastic team, a lot of fun together, and I think we came together as a Scandinavian insurance group and also took our place in the global group. We had a great time.

Well, there are different aspects. Going back to me as a person, when the question came, I thought, wow, can I do this? But it was a tantalizing and exciting thought to try. And when you're in such a process—especially with a listed company—you can't talk to anyone because of stock exchange rules. So you're quite alone in your decision. But the few people I could talk to, I concluded quietly: okay, this is a fantastic company. As a Scandinavian, I have to say SAS is a brand everyone knows and has a relationship with, and it's an exciting operation that is also critical to society—we need infrastructure and transport. So that was appealing. But also the fact that no one believed it would work, that the company would survive. I thought, maybe they're right. But if I take this job and it doesn't work, then my legacy will be 'we told you so.' But if we actually manage to survive, then maybe we can really make something exciting out of it. So I felt the personal risk was relatively low in that perspective.

It was a drama, and I want to start by saying it wasn't made up, it wasn't a staged drama; it was genuine and real from beginning to end. To not go on too long: after the Spanair bankruptcy, we were essentially insolvent. We needed access to additional bank credit or some form of capital to ensure we could pay our ongoing bills for the next 12 months—going concern. If we couldn't, we'd have to restructure the company. We couldn't, so we went to the banks. The banks just looked and said, no, this isn't a credit issue, you have to go to your owners and ask for capital. Our owners at the time were mainly the three states Sweden, Norway, and Denmark as majority shareholders. They said, we've put in our last krona, no more. After a long debate, we managed to persuade a bank syndicate and also the main owners to back not a loan but a loan promise, provided we could present a credible plan within three months for how we would quickly turn from heavy losses to profitability, how we would overhaul our entire pension system from defined-benefit to defined-contribution for the whole organization, thereby lightening the balance sheet, and also how we would do it with our own money. 'Go ahead, come up with a plan.' We came up with a plan that involved that bitter medicine we had to take. But we also knew, remember, SAS is one of the most public companies; it's written about every day, and when there's a crisis, it's written about constantly. And as consumers, we pay for our flight tickets before we travel—that's how the model works. Would you dare buy a ticket if you didn't know if the company would exist when you fly? You wouldn't. All companies depend on what's called negative cash flow—borrowing from customers who pay in advance. That's fine in itself, but it's based on consumer trust that the company will survive. That's why we had to act so fast: if we got a run on the company, customers suddenly saying no, I don't dare book, then we'd be on our noses even if we succeeded with the plan. We had no more time; we had to act extremely quickly.

Surrealistic. We had a media circus broadcasting outside the negotiation room. I stood in the middle of the night, leaning against a window. None of us had slept for four days, I think. That night—I don't recall if it was 11 or 12, maybe the most important—there were many union federations negotiating with us. Let's say there were 11 of them, and 10 had agreed, but the 11th, the Danish cabin crew, they thought we were bluffing, that we were trying to force them into something. It didn't work if one wasn't on board. It was like a ring. We had said that at 9 a.m. that Monday, if we didn't have a solution, we would have to file for bankruptcy. The clock struck nine; they still hadn't signed. I thought, damn, we're so close. Then I said, okay, then we have to live with it. I went out and said, no flights may leave, we must ground the aircraft in Scandinavia. Because if we go bankrupt in a few hours, the assets have to be here so we don't have to send out to retrieve them around the world. I think then they understood that damn, they mean business. Then the signature came, and the rest is history.

You're right in principle, but then, as with everything, not everyone was negative. Many were incredibly grateful and happy that we actually found a solution. So a large part of the organization was quite euphoric in that perspective; they could look forward. But of course, with such big changes that hurt individual employees' personal finances, there was bitterness and wounds that took time to heal. But again, constantly trying to describe as honestly as we could why we did it, what the cause was, and that it wasn't made up—over time I think that landed with most people, and we moved on. I think we built a very good atmosphere and a fine feeling in the company. But I learned something very important from this: I was forced to act in a way that is not how I want to be as a leader. I came into SAS with an ambition to build a change process from the bottom up, get the organization to take ownership, get commitment to what we were going to do—that's how I want to drive change because that's my book and the tools I have, my greatest chance of success. Not coming in and pointing with the whole hand saying 'do this.' But because it was so acute and became so radical, there was no other way; I had to take the role and point with the whole hand and say 'do it.' And I realized afterwards that the organization and the management system had expected Rickard to be like that—he was new, pretty clear, maybe not dictatorial, but at least pointing with the whole hand. So they expected me to be that way, and I tried to say no, I don't want that leadership. So a learning for me is to never underestimate when you come into a new organization that first impressions tend to stick. So when I later came to SKF, I was very open about this and really tried to describe what leader and leadership style I stand for.

Many things. 10 years is quite a long time, and I felt after 10 years it might also be good for the organization to get someone else, because even if you think you're innovative and try to think broadly, of course you have your limitations like everyone else, your own way of seeing things, your own way of driving things. Sometimes you need a shake-up with a different perspective. So I thought it might be time for that. Then some discussions about SKF; for me, SKF is an industrial icon. It felt thrilling to get the opportunity to come here. I was curious: how do you start as CEO of a company with 42,000 employees? It's hard to call around and have performance reviews with 42,000. So what I did was I invited everyone to a digital coffee meeting. All 42,000 could join. In that coffee meeting, I asked two simple questions: what they thought was best about SKF and what they would like to see changed. I took that with me when I started to try to get my arms around the business, set a strategic direction, and shape the organizational model we are now working with. So that was a way to use modern technology to reach everyone.

Of course it's tough; it's not what you wish for. But you also have to humbly understand that a change that was quite radical, especially regarding how we organized ourselves, doesn't set in overnight. Not all employees think it's great the same afternoon. Often when you make changes, those who are satisfied are quieter than those who are dissatisfied—they make the most noise. So sometimes the resistance appears bigger than it really is. But resistance existed, absolutely. However, I felt, and my board felt, and the management around me felt, that this is the right path to go. It creates a better, more competitive company that can be closer to the customer, closer to changes in the market, and react faster to fluctuations in the outside world. And now we are starting to prove that, actually.

Yes, it's true that geopolitical development has affected us, and it has probably also made our change work take a little longer than we initially thought. You mentioned Ukraine, the terrible situation that continues. When the invasion happened in winter 2022, we had to divert all focus to how to secure our supply chains. At that time, we bought a lot of high-quality steel from Russia, and we had to change that. We also had to think about how to keep our 1,100 employees safe in a country at war, and we had a factory in Russia that we had to wind down with very short notice. Those employees were not the ones who invaded Ukraine; they were fine, skilled employees for whom we had much empathy, just as much SKF as anyone else, but we had to cut ties. It was a very difficult process we had to go through. But also, the geopolitical situation made us decide in our strategic planning to build as independent supply and value chains in every region where we operate. That is, what we sell in America should also be produced in America, what we sell in China produced in China, what we sell in Europe produced in Europe. That's the basic theme; we call it regionalization. To do that, we have to move some capacity from certain countries where we have produced for a global market. So we may produce less in Europe and build up capacity in China or America. That way, regional supply chains become independent of what happens in other parts of the world. So that's a clear example of what we are doing to handle this uncertainty.

Back to regional: we know it's not easy today to produce something in China and then export it to the US and put it into an American application. Since we mainly manufacture components that go into our customers' solutions, we believe in this regionalization: what we make in China stays in China, and what is to be done in America is done in America. And we must not forget that China also has enormous expertise today in many industries. They are world-leading in electric vehicle development, world-leading in high-grade steel, and so on—very important industry segments for us where we work very closely with customers. And China is actually the world's largest market for bearings, so it's an important market for us and will continue to be so.

There are quite a few, but not many that operate on the global arena. There are many local competitors, but there is a handful that are like us, working locally. There's a German-based company called Schaeffler, an American-based company called Timken, and three smaller Japanese operators as well. Those five or six companies are the ones we meet in most markets. In China, for example, we meet many local competitors.

It's a huge journey we're going through. We want to digitize the entire value chain, from procurement of components and raw materials to how each individual component is manufactured and goes through the production process. You can have a clear audit trail so that when the finished product arrives, we can offer a customer full traceability: this batch of raw material came in, it went through this process, and you know exactly what it contains and also what CO2 footprint the product has. Then we want to set up factories so that all machines are connected and digital, creating what's called a digital twin—you have the factory in your computer digitally, and you can simulate what happens to the flow if you move a machine there, or if you change the flow in the factory in this way, you get a higher throughput or create a bottleneck elsewhere. How do we continuously optimize? You mentioned that SKF is an industrial icon. My experience, especially from talking to many in this podcast, is that when you've been an analog, mechanical industry, it's very difficult to switch to digital; it's a cultural change that is quite profound and can make it unusually slow for industrial icons. How do you experience that?

I'll start by saying we have many goals, and they may seem long-term and like something you just say. But unlike many other companies, all the goals we have announced have been validated by the recognized Science Based Targets initiative, which ensures that what we do is grounded and that the activities lead to the Paris Agreement's climate goals. They have approved our targets. We are committed to reaching them. And it's very business-critical because I want to start from the other end. You are absolutely right that sustainability, digitalization, and electrification are global trends that create enormously positive conditions and opportunities for SKF. You said earlier that we have said we will grow and at the same time reduce our climate footprint—can that work? Yes, it works; it's not a conflict because what we do is that we can help our many customers accelerate the transition to more sustainability in their operations. The explosion of the electric car market is not only our credit, but we have made a strong contribution with very advanced technical solutions that have enabled fast charging and other things without damaging the drivelines in electric cars. We see enormous development in high-speed trains—the rotating elements in those trains are very advanced, and our engineers are at the forefront, creating the conditions for that. So we can grow in what we call cleantech. But to do that, back to the question: how important are these goals? I don't believe we are a credible partner if we say we think this is important and then don't do anything. We mean it: we must transition to a more sustainable world, and we have to clean our own doorstep. We have to show that we are transitioning to net zero within a reasonable time. It's not free. We have earmarked about 3 billion Swedish kronor to invest in the coming years to replace heat treatment systems that run on gas and need to be electrified, and to secure contracts for green electricity, for example. So we believe in this; we want to help our customers transition, and we will transition. We need to; we have to for the next generation.

Yes, I think so. It's part of our soul, part of our heritage. I don't see any reason or advantage to change that. There is also strength in trying to describe the culture and values of the company: there is a connection to a clear starting point and heritage. The company is a Swedish company with deep roots in Gothenburg, and I think that should remain.

I hope we can tell a fantastically exciting story about how SKF showed leadership in the green transition and in doing so opened up for many other industrial companies to succeed in their solutions. We will see that electrification has broken through with great force, we are extremely digitalized and thus very flexible, able to quickly adapt to customer requirements and deliver with high precision. I see a fantastic future for the company, I must say.