Gerstenberger makes mark at ContiTech

SAN ANTONIO—Andreas Gerstenberger has been at the helm of Continental A.G.'s ContiTech hose business for 18 months now, and during that time much has changed.

For example, the business has a new name, a new business structure, and many of the initiatives he helped start are beginning to take shape. And even better, the business outlook is looking up, said Gerstenberger, a ContiTech executive vice president and head of the Industrial Fluid Solutions business unit (formerly Industrial Fluid Systems).

"The last two to three months, we're seeing a significant upswing in orders across the board," he said, noting that oil and gas related businesses still have issues, but even parts of that sector are improving. "We are running on all cylinders trying to fulfill the demand that is out there."

For 2016, the global Industrial Fluid Solutions unit posted about $535 million in revenues, according to company data.

Several drivers are behind the new demand, said Gerstenberger, who discussed the progress of his ContiTech business unit during the recent NAHAD annual convention in San Antonio. Those include a combination of positive expectations brought on by the U.S. presidential election, especially with talk of potential significant investments into infrastructure.

The stabilization of oil prices in the $50-a-barrel range also has helped, along with some reinvigoration of the fracking industry.

He said business also likely trended up because customers bought additional inventory ahead of price increases ContiTech enacted for its industrial and hydraulic hose products effective between March 1 and June 1. The executive blamed higher raw material costs for the increases.

"We had no alternative," Gerstenberger said. "We try to calculate carefully what the price increase needs to be in order to cover the cost increases."

Initiatives take shape

During 2016, the Industrial Fluid Solutions business spent much time stabilizing its business situation, improving processes and instituting cost reduction programs.

It also launched a new strategy called "Smart Solutions Beyond Rubber." Not instead of rubber, but beyond rubber, Gerstenberger emphasized.

"That is a clear strategic sign to the inside and outside world that we need and want to develop businesses beside our proven business model, which is mainly rubber-based," he said. "We want to move from systems to solutions (hence the name change), and we want to move into the direction of digitalization of the entire value chain. That is including products, but not only products. It also is the buying process, the ordering process and the supply chain process."

The strategy also means that Gerstenberger wants his business "to be the global partner of choice for industrial fluid solutions."

After discussions about whether the hose business was set up to achieve that goal, he said the decision was made to reorganize from a strong product segmentation to a market-based structure. So earlier this year, the IFS business split into three major business regions: the Americas; Europe, Middle East and Africa; and Asia-Pacific, though there will continue to be a specific focus on China because of its size and projected growth rates.

Guy Enta was named vice president and head of the Americas region, with Max Schwaiger tapped to lead the EMEA business. The unit still is looking for a leader for Asia-Pacific.

"We figured out that we needed to be faster and closer to our customers in the different countries and regions," Gerstenberger said. "That doesn't mean that products are not important anymore. We just believe that if we have a market-driven organization that we can be more agile, considering all the volatility you have in those markets globally."

The regional structure will be supported by global business unit functions, based out of the unit's headquarters in Fairlawn, Ohio. That staff will be responsible for manufacturing, research and development, finance and IT—all the traditional business functions.

Gerstenberger prefers the term "transformation," rather than "restructuring."

"We are not restructuring and denying everything that was running good in the past," he said. "We are trying to become this global partner of choice via transforming into this new organization. It's not a negative restructuring. It's a strategy in which we are trying to prepare the entire team for over-proportional growth on a global basis."

Among the regions, he acknowledged IFS still has some work to do in Asia-Pacific—including in China—to meet the potential in that area.

He also sees potential for growth in South America despite the economic and political volatility in the region. "South America is different from the U.S.," Gerstenberger said. "I think you have to honor the cultural and economic differences, which we are trying to do."

Portfolio remake

The ContiTech executive vice president said the business unit is working diligently on its products and solutions portfolio. He stressed that the firm isn't looking just at hoses, but also at couplings, fittings and the digitalization of the entire fluid process.

While ContiTech has a strong history in developing and selling rubber-based hoses, the couplings and fittings are made by others, and fit together into what customers look on as a system. "You buy a fluid solution to run a machine, or transport liquid from point A to point B," he said. "So you look not on the product, but on the solution your product or system provides the customers.

Digititalization of the entire solution is a major area of focus for IFS, he said. It starts from the ordering and advertising on the customer side, and goes through the entire value chain via product development, production, supply chain, marketing, sales and invoicing.

Gerstenberger said the unit is studying sensor technologies to do such tasks as predictive maintenance and quality monitoring—all driven by data that will help drive completely new business models for the industry.

"Today the hose—or the system with the coupling and fitting—is dumb," he said. "It doesn't know anything, although a lot of information is going through it. If you think about that, maybe in the future you are sitting at home or in the office, you look at your device and you see how the hose and the coupling and system are working."

With this in mind, the ContiTech business has opened two competence centers, one in Europe and one in the U.S., to focus on digitalization. "The two digital solution managers are looking with a completely different view on the products and processes we are using," Gerstenberger said.

The European center, he added, will concentrate on the product itself, while the U.S. team will focus on the business process, including selling, buying and logistics.

A third center in Asia will be established once the IFS business in that region is on stronger footing, he said.

Future focus

To become the "global partner of choice" in industrial fluids, Gerstenberger said ContiTech will look at partners and potential acquisitions to help fill holes in its portfolio.

Gerstenberger said one area where above-market growth is needed is hydraulics. "During the strategy process, we really discussed are we all in the business or are we out?" he said. "If we are going to play in hydraulics, we want to play to win and add value. It is the same in every business, or we have to step out."

The decision was made that ContiTech will focus heavily on hydraulics, he said, but realizes partnerships and/or mergers or acquisitions will be a part of the strategy to grow the business on a global basis.

The IFS leadership also has been preparing its team to roll out what Gerstenberger said is a very aggressive growth strategy. To help engage the staff—which totals more than 2,100 worldwide—the unit conducted more than 20 town halls across the globe to explain the plans and make them part of the strategy.

"The good thing is it's a growth strategy, it's an innovation strategy," he said, "and everybody who is willing and capable is invited to be part of this journey."