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Strategy “Mobility for tomorrow”

The Schaeffler Group is a global automotive and industrial supplier. Top quality, outstanding technology, and exceptionally innovative spirit form the basis for the continued success of the company. By delivering high-precision components and systems in engine, transmission, and chassis applications, as well as rolling and plain bearing solutions for a large number of industrial applications, the Schaeffler Group is already shaping “Mobility for tomorrow” to a significant degree.

In late 2016, the Schaeffler Group developed its strategy “Mobility for tomorrow” to guide its way into the future and presented it to the public. The year 2018 was all about implementing this strategy. As an example, the Automotive OEM division established its new “E Mobility” business division effective January 1, 2018. It combines all components and system solutions for hybrid and all-electric vehicles. The Industrial division established the Industry 4.0 strategic business field aggregating the entire industry-specific business with mechatronic systems and digital services. The comprehensive program for the future, the “Agenda 4 plus One”, was expanded from 16 to 20 initiatives in early 2018 in order to also address issues the company has more recently put a sharper focus on. All 20 initiatives under the “Agenda 4 plus One” are in the implementation phase. Implementation of the program is currently 55% complete. All strategic activities, ranging from design right through to implementation and communication, focus on the same fundamental elements: one common vision and mission, 4 focus areas, 8 strategic pillars, and the 20 strategic initiatives of the “Agenda 4 plus One”.

Vision and mission

In its mission, the Schaeffler Group describes the task it is committed to. Underlying this mission are three key concepts: working in partnership with all customers and business partners, top-level expertise in manufacturing technology, and advanced systems know-how. The Schaeffler Group’s vision and mission mutually complement and amplify each other, with the vision describing the aspirations that will guide the group’s activities in the future.

4 Focus areas

As its fundamental assumption about the future of its markets, the Schaeffler Group has identified four megatrends that will significantly influence its future business: climate change, urbanization, globalization, and digitalization. From these megatrends, the Schaeffler Group derived 4 focus areas that form the basis for the company's strategic direction.

(1) Eco-friendly drives

One of the primary goals of the Schaeffler Group is to develop energy-efficient drive systems with low or zero emissions. In the automotive field, this means on the one hand further optimizing conventional combustion engines, and on the other hand developing drive solutions in the area of E-Mobility, whether for vehicles with hybrid drive trains or for all-electric vehicles. Key components such as variable valve train systems, the thermal management module, wet and dry double-clutches, and electronic control modules help reduce CO2 emissions of conventional drives based on internal combustion engines. In addition, for the Schaeffler Group’s automotive customers, innovative products for the field of electric mobility, such as hybrid modules and transmissions, the electric axle drive, or the wheel hub motor “E-WheelDrive”, play an increasingly important role in achieving lower CO2 emission targets. The same logic can be applied to modern industrial drive systems, where the Schaeffler Group benefits from its wealth of knowledge in the automotive field, enabling it to utilize synergies.

(2) Urban mobility

The shift in mobility is nowhere as noticeable as it is in megacities across the globe. At the same time, it is nowhere as necessary. Cities like Moscow, Tokyo, or Shanghai experience a daily traffic volume in which fast and flexible movement is almost impossible. At the same time, more and more cities are banning conventionally-driven cars from their downtown areas. This trend calls for new mobility solutions, whether in micro-mobility or by designing more efficient public transit. In order to identify both the needs and the opportunities that come with 21st century urban mobility, Schaeffler has established a research and development center for urbanization in Singapore. The densely populated island state is regarded as a living lab for urban mobility. The acquisition of the Space Drive-Technology by the joint venture Schaeffler Paravan Technologie GmbH & Co. KG provided a significant technological stimulus designed to help press ahead with the development of innovative mechatronic chassis systems through to the “rolling chassis”. The “Bio-Hybrid” micro mobile and the “E Board” nano mobile are further evidence of the Schaeffler Group’s strong innovative ability in this area.

(3) Interurban mobility

The term interurban mobility means interconnecting global centers. As globalization progresses, traffic will increase significantly worldwide over the years to come, rail traffic in particular, but air traffic as well, and require a large degree of flexibility. Providing modern and efficient mobility solutions presents a key challenge to both industries. The Schaeffler Group is developing new product and service concepts such as online condition monitoring solutions for the railway sector and innovative business models for the use of rolling bearing solutions.

(4) Energy chain

Common to all of the focus areas mentioned above is the continuing need for the cleanest energy possible. In light of dwindling resources and significant climate challenges, worldwide demand for clean energy is growing. Schaeffler partners with the energy sector, assisting in the development of renewable energy production and focusing on wind power, hydropower, and solar power. In conventional energy generation as well, the Schaeffler Group sees opportunities for expanding its range of products and services. After all, ultimately there is both potential and a need for improvements in all segments of the energy chain – from its production to its transport and conversion through to energy consumption. Hence, the Schaeffler Group also offers a comprehensive portfolio of products in the field of renewable energy – from bearing solutions for wind turbines through to solutions for solar and water power – as well as technological and systems expertise for a variety of drive types, including even fuel cells and synthetic fuels.

8 Strategic pillars

The strategy “Mobility for tomorrow” defines the company’s scope for future action and constitutes the basis for the continuous further development of the Schaeffler Group. In order to describe this scope for action in a manner that is specific and easily understood, the company has devised 8 strategic pillars that describe what Schaeffler wishes to achieve or further improve in the future.

(1) We want to be the preferred technology partner for our customers.

For many years now, Schaeffler’s comprehensive systems know-how, cutting-edge technological expertise, and unwavering commitment to customer service have made the company a highly sought-after development partner for its customers in the automotive and industrial sectors. On this basis, the Schaeffler Group will continue to shape the mobility of the future together with its customers.

(2) We are an Automotive and Industrial supplier.

The Schaeffler Group is an automotive and an industrial supplier. The two divisions are united by the Schaeffler Group’s worldwide manufacturing excellence and global platform of production facilities combined with economies of scale in purchasing materials and commodities. In addition, the Schaeffler Group’s global research network facilitates cross-divisional technological innovations. Diversification across divisions will continue to generate synergies and promote the transfer of know-how in the future.

(3) We are a global company with a local presence throughout the world.

With its approximately 170 locations worldwide, 73 production facilities, 20 research and development centers and a tight-knit sales and service network, the Schaeffler Group ensures that the customer always finds it close at hand. For only those who recognize and understand the challenges confronting their customers can develop tailored solutions. And only those who maintain a local presence are able to respond quickly.

(4) We produce components and systems.

Schaeffler supplies components for products that facilitate and promote mobility. At the same time, the company understands and is able to deliver complex modules and complete system solutions. Schaeffler values both business segments equally. And for good reason: Those without expertise in components will not be able to handle the system.

(5) We view E-Mobility, Industry 4.0, and Digitalization as key opportunities for the future.

As a leading technology partner, the Schaeffler Group began engaging in the topics of E-Mobility, Industry 4.0, and Digitalization years ago and has made these areas a clear priority. As a supplier, Schaeffler wants to take an active role in shaping this development for its customers and considers this a key future opportunity.

(6) We strive for the highest possible quality, efficiency, and delivery performance.

Quality is of paramount importance for Schaeffler. It has always had the goal to consistently ensure high quality and product safety in all applications. Another Schaeffler goal is to serve its customers with the highest-possible efficiency and delivery performance.

(7) We want to be an attractive employer.

The Schaeffler Group’s employees are vital for guaranteeing its success. Identifying, promoting, and retaining the best team for the Schaeffler Group in the long term is crucial for the successful realization of the company’s strategy. The Schaeffler Group is not only concerned about new employees here. Rather, it wants to be an attractive employer for all of its employees.

(8) We live by the values of a global family business.

The Schaeffler Group is a listed family business. A company with a strong foundation of values, established by its founders. Schaeffler particularly identifies with the corporate values “Sustainable”, “Innovative”, “Excellent”, and “Passionate”. These values form the basis for the continued success of the Schaeffler Group for the benefit and in the interest of its customers and business partners, employees and managers as well as its shareholders and family shareholders.

20 Strategic initiatives

To execute the strategy “Mobility for tomorrow”, the company launched its program for the future, the “Agenda 4 plus One”, with the Schaeffler Group’s 16 most significant strategic initiatives in 2016. The program was expanded to include four additional initiatives, increasing the number of initiatives to 20 effective January 1, 2018. The strategic initiatives are grouped in 4+1 categories: Customer focus, Operational excellence, Financial flexibility, Leadership and talent management, and – as “plus One” – Securing long-term competitiveness and value creation. All initiatives have the same objective: positioning the Schaeffler Group for the future and making it even better.

The stated aim is to successfully implement all initiatives by the end of 2020 and to ensure that their impact is sustainable by transferring them to business units or line functions. Each initiative is the responsibility of a member of the Executive Board as a sponsor, managed by a project manager, and supported by a project organization. A program office was established to coordinate the management of the strategic initiatives and thus ensure the success of the “Agenda 4 plus One”.

The program is proceeding on schedule, with all 20 initiatives currently in the implementation phase. Selected initiatives have already progressed to the point of being transferred to line functions as at the beginning of 2019. This applies to the “Program CORE” initiative and, based on current plans, to the “Working Capital” initiative as well. As a result, the “Agenda 4 plus One” program will shortly be reduced to 18 initiatives. Over the course of 2019, other initiatives are expected to follow, having matured sufficiently to be transferred to line functions.

In addition, particular progress has been made in several initiatives:

First and foremost, there are the E-Mobility and Industry 4.0 initiatives. Due to the growing number of customer projects and the increasing significance of the activities in these two areas, dedicated business units were set up effective January 1, 2018. The E Mobility business division brings together all products and system solutions for hybrid and all-electric vehicles. In addition, a second competence center for electric mobility has been set up in China due to the significance of the Chinese market.

The Industry 4.0 business field focuses on developing rotary and linear mechatronic products, digital services, as well as new data-based business models. The Industrial division aims to generate 10% of its revenue from Industry 4.0 products by 2022. In the future, all of these products and solutions will be offered under the Schaeffler brand. Numerous product and solution packages in various project stages are already in use by customers today: These include, for instance, cloud-based monitoring of accessory units such as electric motors jointly with a service provider, a complete solution for monitoring and lubricating machines that are critical to the operations of a drinking water supply association, as well as an all-digital service for predicting the service life of rolling bearings in wind power transmissions.

The Schaeffler Group’s Aftermarket Kitting Operation (AKO) breaks new ground in logistics in Europe. Occupying an area of more than 40,000 square meters, the new facility will assemble and package automotive aftermarket spare parts and repair solutions. The new assembly and packaging center will further improve the Schaeffler Group’s Automotive Aftermarket processes and generate sustained increases in quality of delivery. The new center is the main supply hub for all of the division’s other regional warehouses. More than 40,000 different items for cars, light and heavy commercial vehicles, and tractors will be picked, packaged, and shipped at the new assembly and packaging center. In 2018, the cornerstone of this project was laid in the city of Halle (Saale), and the center is scheduled to be commissioned in 2020.

The “Agenda 4 plus One” also includes the “Global Footprint” initiative that is examining the strategic and economic competitiveness and long-term sustainability of all of the company’s locations worldwide. Being a global business, the Schaeffler Group needs to regularly review market conditions and strive to optimize its footprint across different regions. In late 2018, the Schaeffler Group decided as part of this initiative to reorganize its UK business activities. Following the proposed reorganization, the company will retain a meaningful presence in the UK but will reduce its overall footprint and relocate some of its UK production to other existing sites outside the country. It is anticipated that the reorganization plans will take up to two years to implement.

Schaeffler has been at its customers’ side as an expert solution partner for many years, a connection that has always been key to innovation. The “Customer Excellence” initiative creates a global infrastructure of sales expertise and closeness to the customer in order to continually advance customer communications and customer relationship management. As part of the initiative, Schaeffler relies on modern customer relationship management (CRM) software. The company also evaluates its customer relationships using periodic customer surveys. A new survey introduced under the “Customer Excellence” initiative in 2018 covers all divisions and regions of the Schaeffler Group.

An appropriate, customer-oriented structure is essential for the indirect functions as well. The objective of the “Shared Services” initiative is to set up a powerful, cross-functional shared services organization. Preparations were completed in the third quarter of 2018. Schaeffler has completed an important step toward setting up the location by founding the company “Schaeffler Global Services Europe Sp. z.o.o.” in the Polish city of Wroclaw and moving the first employees into the offices there. Furthermore, the implementation of initial pilot processes was kicked-off in the fourth quarter of 2018. Among these are processing of invoices received for the Finance function, checking freight invoices for supply chain management, and providing internal services for IT.

Prerequisites for the success of the shared service organization include the new group process model with clear responsibilities that was developed in the “Process Excellence” initiative and can now be used in a next step to optimize processes.

The “Global Reporting” initiative is aimed at improving the Schaeffler Group’s consolidation and reporting systems as well as management information.

The “Leadership & Corporate Values” initiative focuses on bringing the corporate values, leadership principles, and Leadership Essentials to life in order to strengthen the Schaeffler Group’s leadership culture. The Leadership Essentials having been communicated worldwide, in 2018, the focus was on implementation. Various measures were taken worldwide in order to embed a common understanding of leadership – including “leadership road shows” across all regions, moderated by human resources staff and held at all levels of the company, starting with the Executive Board. A further phase of implementation was aligning all human resources tools with the Leadership Essentials – this has largely been completed in 2018 as well.

The company’s brand identity and corporate image are harmonized under the “Global Branding” initiative. In future, the Schaeffler Group, as a company with operations worldwide, will focus on the “Schaeffler” corporate brand. The individual product brands, such as INA, LuK, and FAG, will remain, but will be used only in connection with the related product and in conjunction with the Schaeffler corporate brand. In 2018, the corporate image was changed at all major locations, including the head offices in Herzogenaurach, Schweinfurt, and Buehl. 70% of all Schaeffler employees are now working at locations that have been converted to the new branding concept and thus exhibit the uniform global appearance. The Schaeffler Group plans to have all of its locations worldwide converted by the end of 2019.

The “New Work” initiative, which has also made considerable progress, will contribute to a uniform appearance as well. “New Work” will create the office of the future. It will be more innovative, attractive, and also more flexible than conventional offices. The objective of this initiative is to improve communication as well as to increase employee satisfaction and make the Schaeffler Group more attractive as an employer. Productivity per area increases in the new working environment as well. Employees have started moving into the new premises in Erlangen as well as at the other pilot locations Nuremberg and Schweinfurt. In addition, a comprehensive global strategy has been approved by the Executive Board – a further step toward standardizing New Work at the global level, as well, which will help with managing a systematic roll-out in the regions.

M&A strategy

The Schaeffler Group pursues a strategy of mainly organic growth based on its existing technological expertise and innovative edge. Under this strategy, acquisitions will primarily be made if they add technological value or strengthen the Schaeffler Group’s current market position. The company will generally focus on acquisitions related to the future-oriented fields of E-Mobility, Industry 4.0, and Digitalization.

For this purpose, the company has defined the details of key elements of its M&A strategy and further developed its M&A process in 2017. At the core of this approach is an M&A radar that is applicable groupwide and defines seven focus areas where the company is aiming to acquire expertise and generate inorganic growth both within the various divisions and across divisions. The company’s search for opportunities to expand the profile of its expertise and its portfolio specifically targets these clearly defined areas. It focuses on smaller, additive targets in the nine figure range intended to complement and strengthen the technology spectrum, thus adding long-term value.

As part of this strategy, the Schaeffler Group founded the joint venture Paravan Technologie GmbH & Co. KG in the summer of 2018 that has acquired Paravan GmbH’s Space Drive-Technology, one of the leading “Drive-by-Wire”-Technologies. This technology makes the “Steer-by-Wire”-Functionality possible which enables safe and reliable vehicle steering by purely electronic means. This acquisition not only provides Schaeffler with access to a key technology for autonomous driving, but also enables the company to develop its Chassis Systems business division into a chassis systems integrator in order to further diversify its drive train and chassis activities.

Additionally, the acquisition of Elmotec Statomat has expanded the company’s manufacturing expertise in the field of electric motors and thus opened up further potential for growth by producing electric motors and stator production facilities. Elmotec Statomat is one of the world’s leading manufacturers of production machinery for the high-volume construction of electric motors and possesses unique expertise in the field of winding technology. Schaeffler had previously acquired Compact Dynamics GmbH – a development specialist in the field of innovative electric drive concepts – at the end of 2016. The acquisition of Elmotec Statomat on January 31, 2019, has expanded this expertise by adding further know-how regarding high-volume production of stators for electric motors.

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