In 2006, GN Netcom initiated a restructuring process with the goal of reengineering the business in order to substantially improve its performance. The restructuring focused on establishing a more market-oriented organization, to improve its operational excellence – especially its supply chain – and to enhance productivity in all business areas. This restructuring accelerated with the FAST program launched in June of last year. This was well before the competition started to think about how to address the global financial turmoil and weakening economies. Still, GN Netcom CEO Toon Bouten now views the sequence of events as beneficial for the company.
Toon Bouten, in hindsight what were the most important changes in GN Netcom during 2008?
Today, looking back, I must say that we are lucky that we started to restructure GN Netcom already two years ago. This has given us a head start on the competition, who are all now suffering under weakening top lines and squeezed margins. Forced by the business results in 2006, we had to slash costs very early on, right-size the organization, change the business models and basically refocus the company to cope with a completely different marketplace. This was accelerated in the fist half of last year. Driven by the overall swiftly weakening markets of the second half of last year, our competitors now have to begin their journey.
What are the most important elements in how you accelerated the change in the company?
Significantly reducing our cost base was the first element. The second was to divide the business into two distinct divisions to create accountability all through the value chain and establish a solid foundation for continued optimization. Thirdly, our focus was very much on simplifying our business with fewer products, on our key customers and on concentrating our production with three EMS suppliers.
Have you stopped investing in your business?
No, we continue to invest in our business and are even accelerating the development of new products for our Contact Centre & Office (CC&O) headset division. Honestly, we had some catching up to do, and we shifted a great deal of the Mobile R&D resources towards the more profitable CC&O area. Last year, we went to market with some new Unified Communication products that stemmed from these reinforced R&D investments, and later this year you will see more important new products being launched.
Can you record any effect on your sales from this new product portfolio in the CC&O headset division?
Certainly, we have a strong position in Europe and we gained global market share in 2008. As just one example, we had a very successful launch of the world’s first office headset that allows you to switch seamlessly between different communication devices, such as a desk phone, a PC soft phone or a mobile phone. In 2009, we are going to launch more products. But clearly the market in general is depressed, so overall revenue will fall.
Is the Mobile headset market even more depressed?
Yes, 2008 was the first year ever in which this market experienced negative value growth. With a market share of some 20%, GN Netcom is the world’s largest provider of mobile headsets, so we are obviously feeling the pressure from the falling market. Again, we were extremely lucky that we initiated our quite profound restructuring well before our competitors realized that something had to be done. In 2008, we gained market share in the US and Asia Pacific with the Jabra mobile products. Even towards the end of the year, we experienced stronger sales in the US despite the general downfall.
How did you manage to increase sales in the US in the midst of the country’s worst downfall since the 1930s?
This is the result of the deep changes we have made in the organization over the past couple of years. We have focused our attention on fewer products and fewer and larger customers. Talking to customers and creating stronger relationships is easier when you have around 100 customers than when you have more than 700. We are in daily contact, get weekly sales-out figures and can quickly switch products with the customer – none of our competitors have such achieved close integration with their customers. Likewise, our large accounts have reduced their number of providers, so our products are given more and better shelf space in the operators’ stores and in the large retail chains. Also, on the industry is consolidating, as a number of competitors have simply left the market.
Recently, several mobile phone producers have experienced trouble. How is your OEM business of providing mobile headsets to the mobile phone producers doing in this environment?
It’s true that sales of mobile phones have gone down dramatically for a number of suppliers. As part of our restructuring we had severely strengthened our account management with these large mobile phone producers. We are leveraging our deep Jabra knowledge and have established ourselves as the real headset specialists with a very strong development organization focusing on acoustics, design and software integration. Our account managers are true specialists that work closely with the customers’ product managers to advise them and provide them with cutting-edge solutions. The strategy of our specialists working closely with these customers is truly paying off and today, GN Netcom has a broader portfolio of OEM customers than we had in previous years. But as always, revenue generated from OEM programs depends on the sales volume of the handsets a headset is bundled with and on sales through the OEM channels
It hasn’t all been sales and development - a significant part of your job has been cost reduction?
Yes, we’ve moved from a very burdensome cost structure that we have managed to lighten significantly. Leaving 2005, we had 1,900 employees, now we are less than 1,000. Last year, we accelerated the FAST restructuring program with a target of saving DKK 150 million a year. We have seen substantial efficiency improvements across the business and now expect to perform well above our previous targets. And more importantly, we have completely changed the accountability in the organization, so people are geared to continue pursuing further optimization.
What is your vision for GN Netcom – what kind of company are you looking at in a couple of years’ time?
GN Netcom will be a very lean and agile organization that responds quickly and proactively to changes in the market – changes in technology development, distribution, in the economy or in general. It will be a very flexible organization with most of its non-core business activities outsourced. Our core competencies lie within product definition, certain innovative and specialized R&D activities and in marketing and sales. It will be an organization, where “good” is not enough – we need to be “outstanding”.
As previously announced, CEO of GN Netcom Toon Bouten's contract of employment expires at the end of September 2009. GN Store Nord and Toon Bouten have been in dialogue as to the possible extension of his contract of employment and have now concluded that it will not be extended beyond September 2009.