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Charge of the Zebra
ANDERS Gustafsson, CEO of Zebra Technologies, which provides IT solutions based on barcodes and RFID (radio frequency identification devices) tags, is Swedish by birth and very international in outlook. He speaks softly, chooses his words very carefully and looks more like a professor than a CEO. In short, he conveys a rather atypical impression that is at odds with the quintessential demeanour associated with CEOs of brash, upcoming and successful IT companies, particularly those out of the US.
Yet make no mistake, Mr Gustafsson may prefer a formal suit and tie to designer jeans and polo t-shirts but he is as go getting as they come. He has pulled off one of the most interesting mergers in the industry for the past few years in David-overcoming-Goliath style. Last September, the Lincolnshire, Illinois-based Zebra completed the acquisition of the enterprise division of Motorola Solutions for US$3.45 billion. At the time of the merger, Zebra was a US$1 billion company while the Motorola Solutions division notched US$2.5 billion in sales.
To understand why Mr Gustafsson's bold buy-out is significant, one needs to look at what's been happening in the IT industry over the past few years.
Apart from the social media sector, where valuations seem to be predicated on future earnings potential, the rest of the IT industry has been under pressure thanks to disruptive technologies coming to the fore. Being nimble and understanding customer needs are now more important than size.
And thus some spectacular mergers which happened in the last decade and which are the stuff of legends have started to unravel. For example, after 10 years of a rather strange marriage, security company Symantec and storage company Veritas are parting ways and becoming two separate entities once again. Elsewhere, Hewlett Packard (HP), which went through a high profile acquisition of competitor Compaq in 2002 - a move that drove its then-CEO and now US presidential candidate hopeful Carly Fiorina to superstar status - is splitting itself into two companies. These are just two of the major de-mergers, if one could use the word, that's hit the industry over the past few years.
Even large companies which grew organically are breaking up in order to stay relevant. Motorola Solutions itself is a good example. Once a pioneer in mobile handsets and a beacon for the US IT industry, Motorola, as it used to be called, spun off its handset business and became Motorola Solutions. After divesting the enterprise business, Motorola Solutions remains just a rump of the iconic company with only its government business left.
Despite this industrial landscape, Mr Gustafsson orchestrated a buy-out of an entity that was more than twice the size of his own company. He rightly points out that the strategic implications of Zebra's acquisition cannot be overstated.
Zebra has now transformed itself from a nifty little company into a behemoth in the specialised tracking industry that can keep tabs on everything from groceries and car parts to health monitors for sports people. Such tracking devices, which can connect to the Internet and send data to computers, are at the core of what is known as the Internet of Things (IoT). Market estimates reckon that by 2020 IoT will result in US$14.4 trillion in sales for companies worldwide.
Mr Gustafsson notes that the expanded company has hit the ground running. In its first full quarter as an expanded company this year, Zebra recorded a more than 200 per cent rise in revenue. However, due to a currency-related hit of US$27.2 million it took on account of the acquisition, it posted a loss of US$25.3 million. Despite this, the company's share price has gone up as full-year earnings projections are rosy.
One of the major subtexts of mega mergers has been deriving synergies from joint operations. That's usually code word for massive cost cutting and retrenchment. In this case, however, Zebra didn't need to do any of that, which is why it has been able to hit the growth path in such a short period of time.
Mr Gustafsson observes that one advantage he had was that he didn't buy a standalone company. "Such a company comes with fully functional departments such as finance and human resources (HR) which become redundant. Since we bought just the enterprise division of Motorola Solutions, a lot of the cost (that's associated with such departments) didn't come over. In fact, we had to add on some extra people in finance, HR and other divisions in order to be able to run the company."
He adds that cost cutting hasn't been substantial; rather it's been relatively modest. The number of people who left the company is small. During the acquisition, Zebra said that it planned a modest US$105 million in savings over two years.
One thing that worked in Mr Gustafsson's favour is that Zebra and Motorola Solutions' enterprise business have been partners over a long period of time. Zebra used to sell barcodes and barcode printers to customers while Motorola Solutions sold the barcode readers and other point of sale (POS) devices to the same customers. With the merger of the two entities, says Mr Gustafsson, Zebra can approach customers with a complete solution.
"If you see why large companies are breaking apart, you will notice that these are different businesses under one roof. We on the other hand have a situation where our businesses are very similar and complementary - a customer who buys our barcodes also needs to buy barcode readers as well," he notes.
"I think the biggest determinant of an acquisition is how much overlap there is among customers. We have the same customers. The (typical) risk in a merger, where there are two different sets of customers, is that you are expected to cross-sell to each set of customers - that is much more harder to do.
"In our case, we are looking to say we are now more relevant suppliers," says Mr Gustafsson.
He adds that some of the company's large customers feel that Zebra before the merger was a good, dependable and tactical supplier while Motorola Solutions (the enterprise division) was much more a strategic partner. However, they were nervous about the enterprise business structure inside Motorola Solutions.
"With us coming together, we get the best of both worlds, we are both strategic and trustworthy. We have now become a strategic partner for our customers. We are identified among their top 10 strategic suppliers and twice a year we have a one-day session to review their plans and our plans so that we can work much better together."
Mr Gustafsson adds that since the two entities never competed with each other there was good understanding among the respective sales teams. In his view, the human factor in mergers is often overlooked.
"For example, in the case of HP and Compaq, they had been selling against each other, beating each other over the heads. And then they were expected to work together! We never had to do that with Motorola Solutions, there was no bad blood between the sales organisations. It was easy for us to say we are going to be partners."
So what makes the new Zebra tick and why is the stock market so bullish about the company?
Mr Gustafsson notes that Zebra helps its customers to connect the physical world to the digital.
"If you print a barcode, stick it on a product and scan it, that particular product has been able to communicate something about itself to an online application.
"When we look at what's going to be a mega trend that we could use to position ourselves for strong secular growth, we realise that connecting the physical world to the digital world really plays into IoT.
"IoT came out of RFID technology and is very relevant to what we do. And so we then started to talk about how we could help our customers connect the physical to the digital; we do that by providing a digital or virtual voice to the physical assets. If we can let our customers know what the asset is, where it is and in what condition it is in, then they can make smarter and more timely business decisions," Mr Gustafsson notes.
Zebra calls this ability Enterprise Asset Intelligence (EAI). He adds that EAI, as Zebra defines it, is built on the confluence of three mega trends - IoT, cloud and mobility.
"IoT starts with a proliferation of connected devices that generate data on what is happening in the physical word like the supply chain or in a retail store. With cloud computing, you now have abundance of computing power that can analyse all this data and draw some insights and then translate that into actionable intelligence. Then you push this information to mobile devices."
Every company is trying to make their employees as productive as they can wherever they are. "With our ruggedised mobile computers, we can now ensure that the right person gets the right information at the right time and in the right location.
"So that really helps to drive greater productivity and it also offers a much better service, because now employees can serve their customers better."
But, Mr Gustafsson adds, this does not need to just stop with employees. The same connectivity can be extended to customers. "You can now engage with your customers in the store and offer them a much higher degree of service."
Zebra has four core industry verticals - retail, manufacturing, transportation and logistics, and healthcare. Transport and healthcare are the company's fastest growing sectors.
"In China, for example, e-commerce is growing very fast and it is essentially a transportation and logistics business.
"Also healthcare has been the fastest growing vertical market for several years. It starts with tracking patients to having machine-readable medication and specimens. This helps to improve the care of the patients because you now have the right patients getting the right medication at the right time administered by authorised caregivers. It's about being more efficient. You can track patients better through their hospital stay and it's easier to manage laboratory test specimens."
To a question on whether Zebra would be looking to participate in Singapore's Smart Nation push, Mr Gustafsson says that the company works mainly with systems integrators (SIs) such as Accenture, IBM, NCS, HP and others.
"We do a lot of our business through partners and sell through resellers. For smart cities, we have relationships with some large SIs who are actively involved in projects. We are working with them to figure out how we can fit in and be part of their offerings. We don't have the resources or relationships to directly engage ourselves."
In keeping with his professorial demeanour, Mr Gustafsson has excellent academic credentials. A Fulbright scholar, he has received numerous scholarships and fellowships for academic excellence. Apart from a Master of Science degree in electrical engineering, he has an MBA from Harvard Business School.
In 2007, he joined Zebra Technologies as its first professional CEO after one of the founders, Edward L Kaplan, retired after 37 years at the helm. "The initial focus of the company was in making punch cards and the printers of these cards. In the mid-1980s, when barcodes become prevalent, the company was one of the first to switch to barcode printers.
"Till I came on board the company saw itself as being very much as a (barcode) printing company. We were focused on different kinds of printing technologies. The entire focus was around printing rather than anything else."
Mr Gustafsson adds that about six years back, the company's management sat down and looked at what it really did for customers. "Printing is one thing but what do we really do for our customers?"
Over a series of discussions, the idea of EAI came to focus and from there, the idea of buying Motorola Solutions' enterprise division germinated.
"After two or three years, I saw the combination between Zebra and Motorola Solutions' enterprise business as the most transformational combination we could have. But you know for that to happen, many things had to line up, not the least of which Motorola Solutions had to be a willing participant. I started thinking about it in 2007 and about two-and-a-half years before the deal, I gave Motorola Solutions' chairman and CEO, Greg Brown, a call and told him that if he ever decided to divest the enterprise business, he should think of Zebra as a possible customer."
Mr Gustafsson adds that there were a lot of internal conversations in order to convince all Zebra stakeholders that an acquisition of an entity more than two times bigger made good business sense. However, things fell into place with all stakeholders, including bankers, on board, and the deal went through last year.
"It's been transformational for the company and we are now taking it to the next level. There are two things. First is kind of here and now, we have to make sure the combination succeeds and so we have to do a lot of work to integrate the company and we need to ensure that we don't stub our toes and screw it up.
"The other aspect is to run the EAI bit successfully so that we can be seen as thought leaders when people think about the problems of connecting the physical world to the digital world. When conversations about this start, we want people to think about Zebra first."
From his personal perspective, Mr Gustafsson agrees that building a strong legacy is important. "I understood when we did the acquisition, that it would be a career defining moment for me. If it works, it would be good for me and if it didn't, well then, it would not be that good at all!"
He feels that, as a leader, his international background has been very helpful. "I grew up in Sweden but I've lived in England and also in Singapore for a while. Besides I've also lived in India and Australia. I moved around quite a bit for work. But US has been the bedrock for me.
"My Swedish ancestry has come in handy. If you are going to be in India or Singapore, you have to listen more than you talk. You have to adjust to the environment that you are in versus trying to impose that this is the way we are going to work from now on. You cannot have the 'My Way or the Highway approach'."
The Zebra CEO adds that he tries to get alignment with his team. "That doesn't necessarily mean consensus. If you look at the Zebra leadership team, we spend a lot of time debating. But once we have discussed it, we have a higher degree of conviction than other companies.
"A good example is the acquisition. Once we decided that this is what we want to do, we never second guessed ourselves on this. We convinced ourselves and we were comfortable that we were on the right path. Maybe the upfront process of getting alignment takes a bit longer. But once you have that you can execute much quicker. The process becomes more streamlined."
As a youngster growing up in Sweden, Mr Gustafsson dreamed of becoming a ice hockey player. "I had the work ethics for the sport but did not have the talent," he says.
However, playing team sports had taught him how to work with a team and how to influence the team while still being a part of it.
"You need lots of perseverance. You can go to a certain level with talent and you can go to a certain level with perseverance. In order to really succeed, you have to have both. In business you never have a career or a business that goes flawlessly and so having the ability to dig down deep and have perseverance is vital."
In his characteristic understated style, Mr Gustafsson adds that there is a need to build reciprocity and trust with all stakeholders. "Intellectually it's hard work but it can be done. In the Motorola Solutions acquisition, we took risk but we also built up reciprocity with our customers, and hence our partners were supportive of the deal."
CEO, Zebra Technologies
1960: Born in Sweden
1983: Moved to the US; became a Fulbright Scholar
1984: Obtained a Master of Science in electrical engineering from Sweden's Chalmers University of Technology
1990: Obtained an MBA from Harvard Business School
1992-2000: Spent eight years at Motorola Inc in senior sales and management positions within the mobile infrastructure business in the UK, Singapore and India
1998: Moved to Singapore as part of his role at Motorola
2000: Joined Tellabs as VP and GM of Tellabs (Europe, Middle East and Africa) sales
2002: Appointed Executive VP of Tellabs and President of Tellabs International
2004: Appointed as CEO of Spirent Communications
2007: Appointed CEO of Zebra Technologies