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The Case 2017
CBS CASE COMPETITION 2017 | 1
Table of Contents
Setting the Stage............................................................................................................................. 4
The Global Pump Industry........................................................................................................... 8
A Quick Introduction to the Grundfos Group.....................................................................10
Strategy 2020 and Recent Turnaround..................................................................................16
The current Setup of Grundfos.................................................................................................18
The Core Product and Grundfos’ Current Capabilities...................................................21
The Global Water Utility Market............................................................................................. 22
Water Utility in Grundfos..........................................................................................................26
Digitalization, Services and New Business Models......................................................... 33
Customers and Stakeholders...................................................................................................36
Developing the Customer Experience..................................................................................38
Closing Remarks.............................................................................................................................41
Appendices....................................................................................................................................... 42
- Key figures and financial ratios............................................................................................. 42
- The Five Must-Win Battles of Strategy 2020...................................................................43
- Water Utility market Areas – Size and Projections.......................................................44
- Total Water Utility Pump Market Growth Rates 2017-2020...................................... 45
- Water Utility Pump Price Index of Grundfos and Competitors............................... 45
Thanks to.......................................................................................................................................... 47
2 | GRUNDFOS THE CASE 2017 CBS CASE COMPETITION 2017 | 3
“How should Grundfos leverage
digitalization, services, and new
business models to sustainably
grow revenue in its Water Utility
Setting the Stage business by the end of 2020?”
W
ater scarcity is one of the Current water management solu- between water utilities and consumers. ing hard to find the right formula to lever- industry is at risk of being commoditized, is eager to pick up creative ideas on how
most pressing global issues tions are unsustainable Globally, the value of water lost amounts age the huge potential within the water as pumps usually only are components in to realize the high potential of the Water
Natural resources are under While extreme weather events receive to an estimated 97 billion DKK. utility sector that follows from the globally large, complex systems. Chinese manu- Utility business:
more pressure than ever before. Energy much attention in the media, most peo- growing challenges with water. facturers are catching up with the incum-
and water consumption is skyrocketing ple are unaware of the challenges and In all these processes, pumps are at the bents by producing increasingly sophisti- “How should Grundfos leverage
as a consequence of population growth, costs of water management, such as pro- center of moving water. Currently, pumps cated and cheap replica products. At the digitalization, services, and new
urbanization, and increasing living stand- curing and distributing clean water and account for a massive 10% of world elec- “Water Utility is the business same time, Grundfos is facing an industry business models to sustain-
ards. Natural water supplies can no sustainably handling wastewater. As con- tricity consumption, but 9 out of 10 pumps area with the greatest growth of software giants and disruptive, fast- ably grow revenue in its Water
longer cope with increasing demand, and sumers, we demand clean, high quality in operation waste energy because they potential. The importance of moving companies as the Internet of Utility business by the end of
climate change is making distribution of water directly from the tap and we expect are either old or cheap, or not optimized the water agenda will only Things is enabling a new market for intel- 2020?”
water more unequal than ever. Globally, that wastewater is cleansed before being for their application. increase and the need for new ligent and data-driven solutions.
663 million people currently live with- released back into nature. However, the radical solutions is paramount.” You are asked to formulate a business
out access to clean water, and by 2050, at high quality demands are costly, as they Grundfos is the world’s largest pump Mads Nipper, Group President & CEO This changing environment puts tradi- plan, by either focusing on a few key
least one in four will likely live in a country require energy-intensive processes. When manufacturer tional manufacturers like Grundfos in the elements within the case, or by encom-
affected by chronic or recurring shortages natural water supplies cannot keep up With an annual production of more than squeeze between cheap hardware manu- passing several elements and connect-
of fresh water. While lack of water, espe- with demand, especially in densely popu- 16 million pump units, Grundfos is the Grundfos faces new threats that will facturers and new digital competitors. ing them in a holistic business plan. The
cially from extreme droughts, challenges lated areas, clean water needs to be trans- world’s leading pump manufacturer. This change the industry Consequently, Grundfos is racing against business plan has to build on new creative
people’s way of living, causing displace- ported over long distances. Alternatively, position has been developed from the After initiating a turnaround in 2014 that the other global incumbents to differ- ideas, but at the same time fit with the
ment and conflicts at unprecedented local water has to be recycled or purified. company’s history of being at the forefront successfully re-established profitability, entiate itself by leveraging data and its core values of Grundfos and enable them
rates, flash floods are also becoming The higher living standards and regulation of innovation with the development of sev- Grundfos is now taking a more balanced unique pump expertise to deliver holistic to remain a leader in the pump industry
increasingly common and cause sub- also mean that more wastewater needs to eral breakthrough technologies. Grundfos focus between profit improvement and pump solutions. given the new digital agenda.
stantial damage. Not surprisingly, the be transported and treated. Further, inad- serves three core segments: Buildings, revenue growth. The current 2020 strat-
United Nations has named water a 2030 equate water infrastructure makes water Industry, and Water Utility, and is the mar- egy is in place for top-line growth to hap- Now, Grundfos needs to move faster than
Sustainable Development Goal, underlin- leakage a huge problem, even in modern ket leader in the maturing buildings seg- pen, but changing dynamics in the global its competitors to overcome the threats
ing the fact that water is one of the most cities like London, where 25% of water is ment and a leading player in the industry pump industry complicate the effort. and to keep its position as a market
important issues of the world. lost or unaccounted for during transport segment. However, the company is work- Growth rates are low and the overall leader. To secure future growth, Grundfos
4 | GRUNDFOS THE CASE 2017 CBS CASE COMPETITION 2017 | 5
Copyright: Google earth / Digital Globe / Mind The Earth
WESTON IN FLORIDA,
USA
The low-lying areas in Florida are very sentitive to sea level rise,
as large parts of the American state are located less than three
metres above sea level. This makes the need for flood protection
solutions increasingly important here - and in other American
coastal areas, too.
6 | GRUNDFOS THE CASE 2017 CBS CASE COMPETITION 2017 | 7
The Global Pump Industry
T
he global pump market is valued pumps are used by water utilities to sup- to ensure that plants, buildings, and water
at around 306 billion DKK. It is a ply citizens with clean water and to han- utilities run reliably and cost-efficiently.
mature industry that is essentially dle wastewater, ensuring that the most
stagnating, with low European growth basic infrastructure of modern societies
and the slowdown in China. The last functions. “Our traditional competitors
couple of years have been characterized can maybe take 5% market
by an unstable and unpredictable global The pump markets face the threat of share from us. But the threat
economy and it is expected that com- becoming commoditized from digitalization can poten-
pound annual growth rate (CAGR) until Today, replica products have moved tially mean that Grundfos
2020 in the industry will only be around beyond the threshold of being mere noise does not exist in 10 years.”
0%-2%. and are exhibiting a substantial threat Mads Nipper, Group President & CEO
to the largest incumbents in the pump
The pump industry is fragmented, with industry. Replica products are spreading
more than 9,000 manufacturers existing to most segments and, with improved However, digital solutions such as those
worldwide and only few players having performance, they have become widely enabled by the Internet of Things and bet-
global presence. Besides Grundfos, the accepted in not only emerging markets ter data processing technologies also rep-
largest manufacturers are Xylem, Pentair, but also the mature markets. The best resent new opportunities for the pump
KSB, and Wilo. Additionally, approximately Chinese manufacturers are becoming industry. As digitalization has become a
50 companies serve as major competitors quicker at adopting advanced pump key enabler for new revenue streams, it
within either buildings, industry, or water technologies and are rapidly closing the is also gaining traction by the established
utility. Despite the vast opportunities gap to the incumbent’s state-of-the-art global pump manufacturers.
within software and digital solutions, the technology. Energy efficiency of single
industry is conservative and has limited components is a dying differentiator, as Besides increasing energy efficiency by
innovation. So far, only a few manufac- the potential for making the individual making pumps interact across holistic
turers are moving away from only provid- pump more energy efficient is close to systems, digital solutions can reduce the
ing hardware and are investing in digital exhausted. cost of activities such as monitoring and
capabilities. maintenance. Automated monitoring
ESTIMATED TOTAL SIZE OF SERVED PUMP MARKET
Therefore, the leading pump manu- can reduce the need for labor by using
It is a complex industry with a vast num- facturers are working to make their online sensors in the pump systems to
Billion DKK
ber of different types and sizes of pumps, pumps smarter and better at operating generate data and automate manage-
reflecting the countless purposes that as part of intelligent systems, as intel- ment, while predictive maintenance can 350
pumps fulfill. Most of us rarely think ligent solutions are becoming the new increase operational reliability and reduce
300 303 306
about it, but pumps are essential for us in differentiators. maintenance cost and time. Because dis- 300 288
277
our daily life and it is almost impossible to turbances and breaks in operations are
find an industry that does not use pumps. Digitalization and new competitors costly, both commercial and private end-
250
Industries using pumps include transpor- are disrupting the industry users demand high uptime.
tation, food and beverages, oil and biofu- Since intelligence does not necessarily
200
els, pharmaceuticals, mining, and manu- have to be embedded in the pump, but To avoid the risk of becoming redundant
facturing. Industrial pumps are used to rather can be a part of the overall system or simply hardware commodity manufac-
150
handle water and other liquids such as supported by intelligent digital manage- turers, the incumbents need to leverage
oils, chemicals, beverages, and cooling ment, software giants and fast-moving IT their pump expertise and relationships
agents. In buildings, pumps are used in companies are keen to enter the market. with end-users to differentiate them- 100
multiple areas, from residential buildings, These companies excel at delivering digi- selves from the new entrants when devel-
hotels, and offices to hospitals and air- tal solutions and at leveraging their data oping digital solutions. 50
ports. The typical applications in buildings and analytical capabilities to provide new
are distributing water and providing a services. The services include automation, 0
comfortable indoor climate. Furthermore, monitoring, and control of entire systems 2012 2013 2014 2015 2016
8 | GRUNDFOS THE CASE 2017 CBS CASE COMPETITION 2017 | 9
A Quick Introduction
to the Grundfos Group
G
rundfos Group is a global leader The markets it does not serve for instance Sustainability has and will always be at are financially sustainable and do not put
in advanced pump solutions and demand pumps for petrochemicals and “I believe that we all want the heart of the business. This core value “The main reason that the ownership at risk. Long-term ambi-
a trendsetter in water technology. power plants, where other technical spec- to deliver the world to the next has evolved from technological leader- Grundfos exists is to help tions have ensured Grundfos’ position
The company makes products and solu- ifications are required. generation in a better state ship within energy efficient and environ- solve the world’s water and as a technological leader by keeping a
tions that help customers conserve water than we inherited it.” mentally friendly solutions. If all pumps climate challenges.” strict focus on innovation and responsible
and energy, reducing climate impact and Today, the Poul Due Jensen Foundation Niels Due Jensen, Chairman of currently installed worldwide were con- Mads Nipper, Group President & CEO leadership. This has built the platform of
saving money. owns 88.1% of the shares in Grundfos. the Poul Due Jensen Foundation verted to Grundfos pumps, global elec- the global growth of the company. Since
Grundfos employees own 1.3% and the tricity consumption could be reduced by a Grundfos has been comfortably ahead
Grundfos strategically serves around 60% remaining 10.6% belong to the founder’s staggering 4%-5%. By following its found- Foundation ownership is a widespread technologically, a culture has followed of
of the total pump market with a market descendants. The chairman of the foun- Grundfos Group, while preserving the ing values, Grundfos is committed to ownership form among large Danish expecting growth to come almost effort-
share of around 12%-14% of the market dation is Niels Due Jensen, the son of the founding values that have shaped the cul actively improving the environment, both industrial companies. Compared with lessly. However, as the industry and tech-
served. Grundfos has strategically decided founder. The main purpose of the foun- ture of the company. Six core values in terms of impacting the world around key competitors, this has uniquely posi- nology are changing at an unprecedented
to focus only on the part of the pump dation is to ensure and support healthy have embodied Grundfos’ business for them, and by reducing its own climate tioned Grundfos to focus on long-term speed, the company needs to adapt.
market that caters to its core capabilities. economic growth and development of the decades. footprint. goals. Consequently, business decisions
History and Development
1945 1949 1975 1991 1995 2003 2007 2009 2014
Grundfos is founded by Grundfos starts Poul Due Jensen Grundfos introduces Grundfos introduces Grundfos truly enters and Grundfos introduces a Grundfos establishes A largely new group
Poul Due Jensen. Poul exporting. establishes the Poul the world’s first the R100, a unique tech- invests in growing the decentralized wastewater Grundfos Lifelink, a new management is
Due Jensen produces his Due Jensen Foundation intelligent pump. nology that allowed wastewater business through treatment system enabling business unit with the established to initiate
first pump for a local as the new owner of electronic pumps to be a combination of acquisition industrial manufacturers to purpose of developing a strategy journey to
farmer’s water work. Grundfos. configured, diagnosed, and own product development, treat wastewater on-site. sustainable water systems, return Grundfos to
and serviced remotely. after having produced waste- primarily for rural areas in profitability.
water pumps since 1984. developing countries.
10 | GRUNDFOS THE CASE 2017 CBS CASE COMPETITION 2017 | 11
Grundfos Values
Grundfos runs its business in a responsible and ever more In Grundfos we do what we say, and we say what we do.
sustainable way. We make products and solutions that Our communication is open and honest among ourselves
help our customers save natural resources and reduce cli- and with the world around us. We put the facts on the
mate impact. We take an active role in the society around table – also when it is not pleasant.
us. Grundfos is a socially responsible company. We take
care of our people - also those with special needs.
Grundfos is our people. We develop the individual. The main shareholder of Grundfos – now and in the future
Everyone in Grundfos has passion and potential. Everyone – is the Poul Due Jensen Foundation. Profit is a means to
has the power to influence. Everyone must feel respected growth – not a goal in itself. We ensure a healthy financial
and valued. foundation at all times.
Grundfos creates value through close relations with cus- In Grundfos we never stop challenging ourselves to
tomers, suppliers and other stakeholders. We are a global create better solutions faster. We take pride in delivering
company building on local entrepreneurship. We believe premium quality in everything we do. We show leadership
that diversity drives innovation and growth. and innovate the future.
12 | GRUNDFOS THE CASE 2017 CBS CASE COMPETITION 2017 | 13
Copyright: Google earth / Digital Globe / Mind The Earth
FISHING ISLAND,
INDONESIA
Islands like this one are threatened by rising water levels and
intensified weather systems. Seawater levels have already risen
by around 20 centimetres. Should this trend continue, with
continuously rising sea levels, 2,000 islands and 42 million
indonesians living in coastal areas are at risk.
14 | GRUNDFOS THE CASE 2017 CBS CASE COMPETITION 2017 | 15
MEKONG DELTA,
VIETNAM
Copyright: Google earth / CNES Astrium / Mind The Earth
Rising sea levels increases salinity in the Mekong Delta rivers
and agricultural areas. This challenges the prople earning their
livelihood from fish farms and agriculture based on fresh water.
The issue’s seriousness increases by the fact that roughly half
of all food produced in Vietnam come from there.
Strategy 2020 and
GROUP NET TURNOVER (mDKK)
30,000
Recent Turnaround
6.7%
25,000
5.0%
20,000
15,000 2.9%
10,000 1.6%
5,000
22,590 23,254 23,618 24,800
0
2012 2013 2014 2015
Net turnover Annual growth rate, %
I
n 2014, a new group management Grundfos’ core capabilities and the mar- The initial ambition of Strategy 2020 was
was set in place, led by Mads Nipper ket development in water management, to secure stronger financial results with
who came from the LEGO Group and digitalization, services, and holistic pro- average revenue growth of 6% and profit GROUP PROFIT BEFORE TAX (mDKK)
joined Grundfos as Chief Executive Officer. ject sales. before taxes equal to at least 10% of net
At the time, Grundfos was in a tough posi- turnover. Though Grundfos has started 2,500 8.3%
8.1%
tion: operating profits had been declining Strategy 2020 introduced five must-win to fund the journey for Strategy 2020 by
from 2,011 million DKK in 2011 to 881 mil- battles to set a clear direction for the com- making operational improvements, the 6.3%
2,000
lion DKK in 2014. Since then, Grundfos ing years: Grundfos must build a simpler revenue growth target has recently been
has delivered a significant improvement and leaner business system with faster reduced to a CAGR of 3% for 2017-2020 due
1,500
in profitability, doubling earnings before decisions, expand the product leadership, to the flat market development. Though
3.7%
interest and taxes (EBIT) from 2014 to and build competitiveness and differenti- Grundfos has seen a small organic sales
1,000
2015, and enhancing it further by opera- ation beyond products, with supply chain growth in 2016, the group still needs to
tional improvements in 2016. and service as the highest priority. Also, an intensify efforts within digitalization, ser-
internal collaborative culture that spans vices, and holistic project sales to fulfill its 500
A new strategy was launched in 2015 to geographies and departments, as well ambitions of revenue growth. 1,881 1,475 881 2,018
strengthen Grundfos’ future position in as a focus on customer centricity, were 0
the industry. “Strategy 2020” was built deemed the secret ingredients that would 2012 2013 2014 2015
to leverage the clear match between make the strategy a success. Profit before tax % of annual net turnover
16 | GRUNDFOS THE CASE 2017 CBS CASE COMPETITION 2017 | 17
The current Setup of Grundfos
G
rundfos is structured as a matrix sales, and growth mainly comes from the from the increased recognition of water Grundfos owns subsidiary sales com- subsidiary sales companies. The subsidi- As Grundfos traditionally has been a
organization around the three Americas and China, where holistic solu- scarcity and climate change as global panies globally aries operate independently to be able pump manufacturer, the sales organi-
main business segments: Building tions are in demand. issues by consumers, businesses, and pol- The Grundfos Group is represented by 83 to adjust to the local market conditions. zation has been geared toward selling
Services, Industry, and Water Utility, and icy-makers who are demanding sustain- subsidiaries in 56 countries. In addition, Generally, the subsidiaries have developed standardized products to distributors. As
across the four main regions: Europe, Industry sells pump solutions for indus- able solutions. Grundfos products are sold in many coun- competencies depending on how sales have a major part of sales still go through dis-
the Middle East, and Africa (EMEA); the trial processes, industrial utilities, system tries by local distributors. grown historically in different segments. tributors, prioritizing investments in ser-
Americas; Asia Pacific; and China. There builders, and original equipment manu- Beyond the three main business seg- However, each sales company has several vice competencies of local sales organiza-
is an overlap in the types of pumps used facturers (OEMs). This segment accounts ments of the organization, Grundfos has As the markets are widely different in terms functional departments, such as Industry, tion have been limited. Training the sales
across the segments. for around 20% of total sales and, with a unit that works with emerging water of stakeholder needs, regulatory frame- Buildings, Water Utility, IT, Marketing, and force to sell services and solutions takes
Building Services, it comprises the back- technologies. This part of the organiza- works, water infrastructure, and the seg- Service to be able to cover the necessary time, as such sales are significantly more
Building Services is Grundfos’ legacy bone of the company. However, markets tion serves as a playground for solving ments served by Grundfos, the sales organ- competencies demanded, both internally complex, and require the right internal
business but Water Utility presents are relatively mature and growth does not some of the world’s largest issues around ization setup is relatively decentralized and and externally. In some countries with suf- infrastructure to deliver cost effectively.
exciting prospects seem to be re-emerging after the global water. This has for instance led to a solar independent. Each region is divided into ficient critical mass and demand for more
Building Services sells pump solutions to financial crisis. powered and decentralized water pump several areas, such as the Nordics in EMEA, tailor-made products, the sales companies
family homes, commercial buildings, dis- solution that can deliver clean, safe water which is further divided into country-based also own assembly operations.
trict energy, and components to heating, Water Utility sells pump solutions for to rural villages and informal settlements
ventilation, and air-conditioning manu- procurement, treatment, transport, and in low-income areas of the developing
facturers. At the core of all solutions are distribution of water and wastewater, world. Grundfos Lifelink solutions have
pump technologies that reduce energy and for agriculture and flood control. The proven that radical new solutions can
and water consumption and improve segment accounts for around 12% of sales both deliver water to those most in need
indoor climate and comfortability. This and has the potential of double-digit and be viable business models.
segment accounts for around 42% of growth rates. The growth potential arises EMEA
TOTAL SALES PER SEGMENT
mDKK
14,000
12,178
11,755 11,675
12,000 Buildings
Industry
10,000
Water Utility CHINA
8,000 Other
6,140 5,719
5,632
6,000 4,894
4,406
3,780 AMERICAS
4,000 2,966 3,326 2,961
2,000 APREG
0
2014 2015 2016E
*In 2015, Grundfos WU had an exceptional large order in Americas of 75 mDKK.
18 | GRUNDFOS THE CASE 2017 CBS CASE COMPETITION 2017 | 19The Core Product
and Grundfos’
Current Capabilities
C
ompared to its competitors, Therefore, while Grundfos continuously mium segment and has core capabilities
Grundfos’ value proposition has works on the core offering of quality within efficient and high quality mass
always been the energy efficiency and energy efficiency, it is also working manufacturing.
and quality of pumps. The Grundfos on intelligence. Essentially, intelligence
brand is viewed as strong and sustainable enables the optimization and monitor- Effectively supporting the different dis-
to stakeholders; therefore, pumps are also ing of systems. This can ensure energy tribution channels and customers glob-
offered at a premium price. Generally, the efficiency and reliability, which is valu- ally with deep know-how is at the core
investment in a pump only covers 5% of able to customers because downtime is of Grundfos’ business. Traditionally, the
its lifecycle costs, with running costs (i.e., costly. Today, part of Grundfos’ portfolio company has excelled at choosing and
energy costs) accounting for 85% and includes intelligent, so-called SMART installing the right products; however,
maintenance for 10%. This is also closely pumps. They have sensors and micro- when it comes to operations and replace-
linked to the fact that a pump has a rather chips and generate large amounts of ment, the company is lagging behind.
long lifetime of around 10-15 years. If it is data on different activities, for example, Commercial and stakeholder capabilities
highly exposed, the pump may need spare water pressure, the amount of water are gaining importance, yet Grundfos
parts and service once a year. passing through pipes, and places where is not distinctive at delivering project
possible leakages may occur. Significant sales, providing systems and solutions,
Grundfos has a long-standing track possibilities with data exist, especially if and developing new business models for
record of innovation for optimizing water numerous sources of data can be com- services. There is an increasing need to
and energy use for pump systems and bined. For example, supply and con- understand what the customers value,
solutions, and innovative product tech- sumption data can be combined with not only in the pump, but also in the solu-
nologies and design are core capabilities. weather data to predict the need to make tions, which the pumps are part of. A huge
However, though technology and cat- room for massive rainfall in city drainage challenge lies in converting Grundfos, a
egory leadership are still important dif- systems to avoid flooding. The primary traditional production company, into a
ferentiating factors to distance Grundfos problem with the large amount of data company that sells solutions in terms of
from the commodity trap, the impor- is that it needs to be analyzed and com- products, knowledge, and services.
tance of the most distinctive technical mercialized to create value to customers.
capabilities are expected to decrease in Furthermore, the questions arise of who
the future. will own the data in the future, and what
“Technology is not a problem
the implications will be if competitors
in Grundfos. The problem is
can access Grundfos’ unique data pool.
commercialization and under-
“We are near the limit of how standing what customers really
energy efficient a pump can Other technical capabilities within bio-
need and want to pay for.”
get. Now, we need smarter logical and chemical processes for water
treatment are relatively new within Marianne Kjeldgaard Knudsen,
systems to become more Senior Director, Commercial Digital
energy efficient. Pump energy Grundfos and are less important for
Offerings and Digital Taskforce
efficiency is really a dying Grundfos’ current business. Capabilities
differentiator.” within low cost design are also consid-
ered to be neither important nor dis-
Lars Enevoldsen, Group VP, Global
tinctive for the company, as Grundfos’
Technology and Innovation
traditionally is positioned in the pre-
20 | GRUNDFOS THE CASE 2017 CBS CASE COMPETITION 2017 | 21The Global Water
Utility Market
T
he global water utility market energy and water as it is becoming out- of the type of contracting model, opera- WATER UTILITY MARKET BREAKDOWN ´16 UTILITY CAPEX BY PROJECT ´16
is valued at 3,900 billion DKK, dated due to new technology, wear tions are either included in the contract
accounting for a massive 81% of and tear, and growing cities. Intelligent or undertaken by the clients themselves.
the total water market. The water util- solutions can reduce the costly need for Wastewater treatment 22.20%
ity industry manages the lifecycle of installing new pipes and other infrastruc- Population growth, urbanization, and
water, from extraction and distribution ture. Water utilities can employ solu- increasing living standards are driv- Wastewater networks 33%
of clean water, to the handling of waste- tions that manage water pressure to fit ing growth in developing countries
water. Globally, there are approximately demand while reducing pipe bursts and The water utility market in the developing
Desalination 1.20%
300,000 water and wastewater utilities, thus water leakage. Monitoring solutions world is dramatically different than in the
OPEX
but globally little uniformity exists in the enable better performance and preven- developed world. Here, growth is largely [60%]
services that they offer; some municipali- tive maintenance to abate breakdowns driven by new investments to support 2.340 BN DKK Water treatment 11.60%
ties have separate bodies responsible for to increase reliability, which is essential the growing demand from population
water, wastewater, and drainage, whereas for customers. Consequently, intelligent growth, urbanization, and higher living
Water networks 24.60%
others manage all three under the same control and monitoring solutions are standards.
CAPEX
organization. expected to grow in the coming years.
[40%] Water resources 7.40%
The demands are even more basic in
1.560 BN DKK
Though pumps are an integral part of However, new technologies represent undeveloped areas that completely lack
water systems, the majority of expen- change and uncertainty for operations the infrastructure to support treatment
ditures in water utility systems is managers who prioritize reliability and are and distribution of clean water and han-
operational and includes costs such as comfortable with their existing installed dling of wastewater. Here, most peo-
energy, water, labor, and maintenance. systems. This makes the industry slow at ple lack safe water and basic sanitation
Historically, water utilities have used adopting new technologies despite the such as toilets. Children are particularly
a range of services from total or par- incentives for cost savings. affected by the lack of safe water. It is
tial outsourcing to own management causing sicknesses that prevent children UTILITY OPEX BY SEGMENT ´16 TOTAL EQUIPMENT SALES ´16 (880bn DKK)
of operations in an attempt to maxi- Therefore, regulation is also an impor- from going to school, and around 160 mil-
mize efficiency. Some companies may tant driver of growth. Increasingly higher lion children globally suffer from chronic
Other 22.90% Pipes, pumps & valves 46%
be world champions at operating small standards for drinking water quality, malnutrition linked to water and sanita-
parts of the systems while other com- wastewater discharge, and climate resil- tion issues. For governments, this means Other / specialist 19,90%
panies can manage entire systems. The ience can push water utilities to adopt that investments in water infrastructure Oil & gas water services 6.30%
ABC / test / meters 15.20%
different operating models are largely new technologies to achieve compliance can be more than just a sound business
anchored in the contracting model cho- with regulation while enabling long- model when water is sold to end-users. Sludge 4.20%
Third party services 14%
sen when developing new projects. term cost savings. Regulation also drives It can also have significant long-term
Regardless of contracting model, numer- the market for sensors to measure water effects on labor productivity, education, Disinfection & chem. Feeds 4%
ous opportunities exist for water utilities and wastewater quality. Further, smart and welfare. Chemicals 5.10%
Standard process 3.20%
in any part of the world to save money by solutions can also improve customer
using smart technologies. It is estimated service by providing utilities and the As the developing regions are often cash Aeration 2.50%
Parts & Consumables 5.30%
that water utilities can achieve energy end-users of water with more detailed constrained, the main contracting models Screens 2.40%
savings between 30%-60% by applying information about water quality and in water utility are the so-called Build-
Energy 11.50% Non-membrane filtration 2.20%
smart pumps. consumption. Operate-Transfer or Build-Own-Operate.
In these models, a private developer
MF / UF & RO / NF 0.90%
Regulation and efficiency improve- The contract model used for new invest- builds, owns, and operates a facility for a Labour 35%
ments drive growth in the developed ments is often Design-Build or Design- contract period and then either transfers
part of the world Build-Operate, where a consultant engi- the plant back to the client or continues
Most developed countries have had well- neer is appointed by the client to draw to operate it.
developed water infrastructure for many up a broad specification for a project on
years. However, the infrastructure wastes which contractors can bid. Depending
22 | GRUNDFOS THE CASE 2017 CBS CASE COMPETITION 2017 | 23MARKET PUMP CO’S RESIDENT PLAYERS
The competitive landscape is changing top industrial pump manufacturers share provide utilities with a total view of sys-
Competition in the water utility industry the same agendas and have broad port- tems and inputs to improve performance. DIGITAL
is fragmented, with many players offer- folios, process and project sales capabili- Services are sold with the use of digital SOLUTIONS
ing individual components necessary ties. They are all moving away from only tools and include predictive maintenance MARKET
for water utilities to function — that providing hardware to water utilities, and uptime management. The business
being equipment, systems, engineering, and working toward providing solutions model applied is often outcome based
General market movement
chemicals, or operations management. centered around software and digital and today, many of Grundfos’ custom- DIGITAL
However, the industry has experienced a offerings. ers, such as Veolia, an international ser- SERVICES
MARKET
growing trend of consolidation and col- vice company, are actually operating in
laboration, especially with the increase in the digital services market. For Grundfos,
large infrastructural projects in develop- “Unlike the buildings and moving into the digital services market
CONTROL,
ing countries. Despite an internal effort in industry segments, pumps are may be seen as a threat from many of its AUTOMATION &
several of the larger companies to develop the core of a water utility, like large existing clients such as Veolia and MONITORING
smart water capabilities, recent acquisi- the CPU in a computer.” Suez. MARKET
tions have generally been aimed at acquir- Mads Nipper, Group President & CEO
ing knowledge, rather than getting mar- Lastly, in the fourth layer of the digital
ket access, since the incumbents already PUMP
solutions market, companies such as GE,
MARKET
have global reach. Partnerships are also The second layer is the automation, con- IBM, TakaDU, and a number of smaller (TOOLS)
arising across the water value chain and trol, and monitoring market, where the start-ups have entered the market. The
intelligence layers, because incumbents most significant shift lies in the opening layer is premature and characterized by * Vinsenti was aquired by Xylem in nov2016
cannot keep up with the rapid develop- of communication protocols to promote a high degree of intelligence, where the
ment in digitalization on their own. The interoperability between devices. The offering has no physical component.
companies who operate across the value hardware components are now being Partnerships are essential in this layer,
chain with both the construction and supported by software applications to because the intelligent players often are Grundfos Xylem KSB Sulzer Wilo
operation of plants and systems also have increase efficiency and reliability. The non-component companies, which have
Description Grundfos is a private Xylem is a listed KSB is a listed Sulzer is a listed Wilo is a German
the advantage when large projects are automation, control, and monitoring mar- limited access to data. For example, IBM
Danish company American company German pump and Swiss company pump manufacturer,
put out for bid and the contracting Build- ket within water utility has a size of 127 is using partnerships with co-suppliers
with legacy business and the largest and valve manufacturer with legacy business
Own-Transfer and Build-Own-Operate billion DKK and is expected to grow with a and end-users to bring about compre- in buildings most aggressive in buildings
variants are applicable. CAGR of 7.2% by 2021. The large traditional hensive water utility solutions, which are player in water utility
pump manufacturers have all ventured completely software based. The market
The dominating players within the mod- into monitoring and automation and with is very competitive and fast moving, and TO ’15 bnDKK 25.8 23.1 17.4 20.1 9.7
ern water utility industry operate in dif- the recent acquisition of Sensus, Xylem is the business models are largely based on
ferent intelligence layers, from covering moving aggressively, adding metering and WU TO ‘15 3.2 (12%) 14.1 (62%) 3.3 (19%) 2.7 (13%) < 2 (< 20%)
subscriptions.
the tools market with pumps to the digi- further data analytics capabilities into its bnDKK
tal solutions market, which is also where portfolio. WU focus Water intake, Complete offerings Comparable to Dominant part of Pump offering
new non-competitors are entering. distribution & for plants and net- Grundfos but WU business relates largely comparable
wastewater works, and growing more engineered to wastewater solu- to Grundfos and also
Grundfos primarily operates in the first “Grundfos invests heavily in transportation business in analytics solutions tions and service strong ambitions to
layer, the tools market, which delivers the digital and analytical capabili- and rentals grow in water utility
components that water utilities use, e.g., ties. Our R&D department has Intelligence Demand Driven Several monitoring Pump surveillance Wastewater remote Limited intelligence
pumps and valves. Grundfos’ closest com- more software people than portfolio & Distribution (DDD), offerings, predictive service, monitoring monitoring services, offerings but increas-
petitors in the water utility pump market hardware people.” service set-up Grundfos Remote maintenance, Web devices, Sonolyzer (GRM for WW) ing service focus
are the global players Xylem, KSB, Sulzer, Lars R. Enevoldsen, Group VP, Management (GRM). SCADA (similar to app, strong end- preventive mainte-
and Wilo. Grundfos not only sells its Global Technology and Innovation Service only GRM), strong end- user relations and nance, and relative
pumps to water utilities but also to other a minor part user relations service set-up strong service setup
pump suppliers who provide services on & service setup
Grundfos pumps; as an example, Xylem The third layer consists of the digital
Partnership/ Primarily built own Acquisition of Rapidly building Partnership with Stake in German
is both one of its largest competitors and services market where companies sell
acquisitions competencies Sensus (meters), and own capabilities Sentridge (Controls) iExergy but only links
an important customer. Generally, the advanced software as a service that can linked to Vinsenti (analytics) and partnering to Smart Home solu-
digitalization with SAP tions for now
24 | GRUNDFOS THE CASE 2017 CBS CASE COMPETITION 2017 | 25Water Utility in Grundfos
THE WATER CYCLE
Raw water Drinking water Drinking water Wastewater Wastewater
intake treatment distribution transport treatment
Invest to win
GRUNDFOS SALES PER WU AREA
mDKK
3,500 567
557 96 486
T
3,000 Wastewater Treatment
hough the Water Utility area is Drinking water distribution is the distri- increasingly strict regulation and by water 65
98 666 Flood control
closest to the values of sustainabil- bution of clean water from waterworks or recycling, which locally can be required to
2,500 604
ity in Grundfos, it has only recently water treatment plants to the point of use, close the gap in water supply. The waste- 577 Wastewater Transport
been solidified as the third key segment in it being residential, commercial, indus- water market is very conservative and cus- 476
2,000
the company. Water Utility takes care of trial, or public buildings. The main drivers tomers very loyal, and with the strength 425 Irrigation
392
the entire lifecycle of water, which enables of growth are drought and overextrac- of Grundfos’ closest competitors in
1,500 441 Water Distribution
Grundfos to fully integrate water supply tion of groundwater, reduction in water wastewater treatment, Grundfos has tra- 384 383
systems. To realize the high potential for leakages and energy usage, and the need ditionally had difficulty getting a strong Drinking Water Treatment
1,000 441
growth, Grundfos is investing in five main to replace or increase the length of net- foothold into the market. 391 431
application areas within Water Utility. work pipes due to urbanisation, age and Raw Water Intake
500
quality. For drinking water distribution, In addition to the five core applica- 568 640 566
Raw water intake is about collection and Grundfos has launched Demand Driven tion areas, Grundfos also offers solu-
0
transportation of water from springs, Distribution, a system that controls net- tions within irrigation and flood con-
2014 2015 2016E
surface intakes, or groundwater wells to work water pressure to reduce water leak- trol. Grundfos seeks to maintain market
water utilities, waterworks, or water treat- age, energy consumption, and expensive share within irrigation, where Grundfos
ment plants. The main drivers of growth pipe replacement by intelligently learning provides solutions to mega farmers.
in the segment are increasing demand about local water consumption patterns. Agriculture accounts for 70% of global
for water, construction of new water utili- water consumption, and while food
ties, especially in emerging markets, and Wastewater transport is the movement production is growing rapidly, water
extraction is already being over exploited.
GRUNDFOS WU SALES PER REGION
replacements in mature markets, which of wastewater, drainage, and surface
are driven by the need to reduce mainte- water from households and industries Flood control delivers solutions to reduce mDKK
nance and energy costs. and rainfall to treatment plants. The main or eliminate the impact of flooding events, 1,800 1,702
drivers of growth stem from the fact that which are the most common and fastest 1,614
1,600
Drinking water treatment concerns water- 80% of worldwide water is neither being growing cause of disaster in the world due 1,428
works and water treatment plants han- collected nor treated before being dis- to climate change. Recent extreme floods 1,400
charged into nature, and that there is a in Western Europe and the USA have been Americas
dling the purification of water to make
1,200
it suitable for consumption or drinking. need for operational stability to reduce multibillion dollar disasters. Asia Pacific
The main driver of growth is the growing energy or maintenance cost. 1,000
808
global need for clean drinking water. 800 China
654
Wastewater treatment plants treat and 549 576 572
600 EMEA
purify wastewater for discharge into 445
“We are world champions in 400 328
nature or reuse for various purposes. 270 307
transporting water, but we
Just as collecting and transporting waste- 200
can get better at treating it.“
water, wastewater treatment is all about
Kenth Hvid Nielsen, Group VP, 0
keeping reliability high. The growth
Global Water Utility 2014 2015 2016E
in wastewater treatment is driven by
26 | GRUNDFOS THE CASE 2017 CBS CASE COMPETITION 2017 | 27Copyright: Google earth / CNES Astrium / Landsat / Digital Globe / Cnes Spot Image / Mind The Earth
IRRIGATION CIRCLES,
SAUDI ARABIA
In the Saudi-desert areas, farming takes substantial amounts
of water. Much of the irrigation relies on groundwater resources
created in the course of 100 million years. If the use continues,
the sources risk exhaustion within a near future. The fields are
circular, because they are pivot irrigated.
28 | GRUNDFOS THE CASE 2017 CBS CASE COMPETITION 2017 | 29“If we cannot deliver the Grundfos’ market position in the water
utility industry differs depending on
manufacturers with strong relations to
Chinese stakeholders are proving to be “If we cannot deliver the
solutions quickly enough,
solutions quickly enough, the region
EMEA, including Russia, has histori-
able to present fair alternatives in the
tools market. To tap into the Chinese mar- someone else will do it!”
someone else will do it!”
cally been the most important region for ket, Grundfos has made large investments Kenth Hvid Nielsen, Group Vice President,
Grundfos. However, growth is stagnant in to specifically support an enhanced Water Water Utility
Western Europe, while sales have dropped Utility effort.
Kenth Hvid Nielsen, Group Vice President, Water Utility
in Russia following the economic down-
turn. The Middle East has a huge potential Asia Pacific was the only region to show The 2020 Water Utility strategy set up
within water treatment with the growing stable Water Utility sales in 2016. The prioritizations of key initiatives to ensure
challenge of scarcity and clean water, but region is comprised of highly diverse coun- that the most critical initiatives were
sales are stagnant due to low oil prices. tries, ranging from India and Bangladesh implemented across the regions. The
Africa also has a high potential on the to Singapore, Japan, and Australia. Sales Must-Win Battles (MWB) for Water Utility
longer term, but currently the sales are have seen solid growth in India, Taiwan, were closely linked to the Group Must-
flat. The primary growth in the region and Vietnam while declining in the largest Win Battles to ensure that Water Utility
comes from the less developed markets. regional market Australia. Opportunities supported the implementation of the
Here, opportunities for services are also exist in Asia Pacific with high demand for Grundfos Strategy 2020.
larger than in the established markets clean water, sanitations and protection
where third parties perform services on from flooding. Compared with the wealth- The Water Utility sales organization is
Grundfos pumps. ier western markets, the pump market in challenged by limited relationships with
the region is highly contested with many key decision makers, especially at director
local and regional players and is to a large level. To deliver on the growth opportuni-
“The Buildings segment is extent commoditized. With local authori- ties in Water Utility, the first MWB entailed
taking a lot of focus, because ties beginning to prioritize water infra- building stronger project capabilities and
this is where we earn our structure, large water supply projects are relationships with end-users like water
money and are market leaders. on the way. utilities. This is a prerequisite to build an
Water Utility remains difficult installed base and by that gain access to
in the countries where we the important aftermarket.
have not had a long history “Typically the tenders from
in water management.” government or municipalities Currently, Grundfos is a technological
Kim Jensen, Group Senior VP, are for full-scale solutions. leader in raw water intake, distribution
Regional Managing Director EMEA Here Grundfos is disadvantaged of drinking water, and wastewater trans-
as it predominantly is a product portation, and the Water Utility MWBs
supplier and not a full-scale solidified that this position should be
The Americas is an important growth mar-
system integrator/contractor.” maintained. An expansion of the waste-
ket for Grundfos. The US is the largest mar-
Okay Barutcu, Group Senior VP & water transport position was to be
ket in the world within wastewater pumps,
Regional Managing Director Asia Pacific achieved by upgrading sewage pumps,
which is the most traditional area of the
intelligent solutions, and advanced, high
Water Utility segment. A general develop-
performing prefabricated pumping sta-
ment toward sustainability in the US may The 2020 Water Utility Strategy
tions. Furthermore, the MWBs identified
open doors to Grundfos’ core competen- Though the water utility market provides
service offerings to be key in supporting
cies, and improvements are expected in rich opportunities for Grundfos, the Water
replacement sales. With the development
both federal and state budgets following Utility business has had 5 years of disap-
of services, the sales capabilities must also
years of under investments in infrastruc- pointing financial results. In 2015, a Water
be improved to ensure the transition of
ture. However, with an unpredictable politi- Utility strategy was developed alongside
moving sales beyond the pump. Investing
cal environment likely to continue in 2017, the overall Strategy 2020 to set clear and
in the front-end of iSolutions, Grundfos’
the market outlook for the Americas, along- joint ambitions and to strengthen short
intelligent solutions, was also deemed
side all foreign markets, is uncertain. and mid-term performance. The initial
important to ensure that Grundfos can
ambition was to achieve sales growth of
gain momentum and leverage the current
In China, sales have decreased in the pre- 8% and a 4+ billion DKK turnover; how-
market perception.
vious year following the economic slow- ever, these expectations have since been
down. China is the second largest market in readjusted to 4% after disappointing sales
Water Utility and has a substantial growth in 2015 and 2016. Grundfos simply has not
potential with the initiation of large water found the winning formula to tap into
infrastructure projects. However, competi- the attractive growth in the water utility
tion is also fierce for stakes in the Chinese industry.
market, and Chinese
30 | GRUNDFOS THE CASE 2017 CBS CASE COMPETITION 2017 | 31Digitalization, Services
and New Business Models
T
he pump will always be a cen- of services and new business models and essential and a pre-requisite for being a
tral part of Grundfos’ offerings; Grundfos has created four Lighthouses to solution provider in the water and waste-
however, with the vast amount of lead the digital direction of the company: water business, to capture the high mar-
data that Grundfos pumps are capable 1) direct, real-time, and relevant rela- gin service and replacement sales, and to
of producing, there is potential to deliver tions, 2) connectivity and optimization, be customer centric in terms of solving
value for customers through analytics 3) new business models, and 4) a digital customer problems.
and services. Digitalization is an enabler value chain. Services and digitalization are
LIGHTHOUSE 1 LIGHTHOUSE 2 LIGHTHOUSE 3 LIGHTHOUSE 4
Direct, real-time, and Connectivity and New business Digital
relevant relations optimization models value chain
The current service setup in Grundfos It can track and document changes in where Grundfos has the most services
is outdated pump performance and energy con- are actually the most unprofitable areas.
Currently, the service business in sumption using automatically generated Generally, Grundfos delivers most service
Grundfos is built up around the pump reports and trend graphs. This can give where no third-party service organiza-
and 80% of sales come from spareparts. indications of wear or damage, and ser- tions are present, as in many Eastern
The sale of spare parts is essential for vice and maintenance can be planned European countries. In markets where
Grundfos, but it does not support a more accordingly to avoid costly break-downs competition on services is fierce, it is dif-
service-oriented business, and at the and energy waste. Though GRM is a step ficult for Grundfos to build up its service
moment, services are mostly reactive. into the future regarding services and organizations, as many of the service
digitalization, the revenue stream it has companies are Grundfos’ customers. As
produced is limited. However, customers the sales organizations work indepen-
“Grundfos is a leader on the seem to value GRM, which has often been dently, different decentralized initiatives
product side. With only 4%-5% given as an add-on to enable project sales. to develop and sell services have been car-
of revenue currently coming Here, sales have been registered as pump ried out with varying success, since devel-
from services, there is a huge and project sales, rather than GRM sales, oping the infrastructure to support ser-
potential.” in part because this supports the incen- vices and new solutions are costly. Xylem
Thomas Rosenkilde Anderson, tives schemes of the sales personnel. appears to be the only competitor in the
Group VP of Services water utility market that has managed
Service accounts for 8.5% of Grundfos’ to transition into a service provider and
Grundfos Remote Management (GRM) sales in the Water Utility segment. The Xylem expects a quarter of its revenue to
has been developed to capitalize on sales of services and service processes come from analytics and services in 2017.
the potential of services. It is a secure, are different from country to country.
Internet-based system for monitoring In some countries, Grundfos is deliver-
and managing pump installations in com- ing service through certified partners;
mercial buildings, water supply networks, in others, it uses partners mixed with its
wastewater plants, etc. own employees. Sometimes, the places
32 | GRUNDFOS THE CASE 2017 CBS CASE COMPETITION 2017 | 33Grundfos Service & Solutions “It is critical to understand that
our WU customers in many instances
are not advanced professionals
– so our customer proposition
must be clear, simple, and
compelling to even get attention.”
Mads Nipper, Group President & CEO
The closer Grundfos is to the end-user, the In other industries, the move toward ser- customer centric and to ensure customer
easier it is to deliver value to customers vices has transformed sales from typi- acceptance, appreciation, and buy-in.
through insights and services. As project cal one-time transactions for hardware,
sales and holistic solutions are in high spare parts, or services to payments over
demand within water utility, the distance time, such as the license or subscription “It is critical to understand that
to the end-user is smaller compared with models that many software companies our WU customers in many
the buildings segment, where distribu- use. As such, examples of successful uses instances are not advanced
tors are the dominating sales channel of alternative revenue models across dif- professionals – so our customer
and Grundfos rarely knows the end-user. ferent industries include renting, licenses, proposition must be clear,
Currently, around 50% of WU revenue subscriptions models for services and simple, and compelling to even
comes from project sales. However, 80% analytics, leasing, and pay-per-water, a get attention.”
of these are small projects worth less performance scheme where the customer Mads Nipper, Group President & CEO
than 1 million DKK, while 15% are worth 1-5 pays for the volume of water processed by
million DKK and just 5% are worth more the pump system rather than paying up-
than 5 million DKK. front for the system and for maintenance To develop and test its service and digi-
and service when needed. Another model tal offerings, Grundfos often uses pilot
New business models are needed to is the “pay-as-you-save” scheme, where projects. For example, Poland has been
ensure sales growth in Water Utility cash-constrained water utilities can buy used as an iSolutions sandbox with an
While digitalization has enabled entirely pump solutions by paying over time as ambition to develop 100 different cases
new service offerings, it is also enabling they realize the cost-savings from lower to find profitable combinations of digital
new business models. This is critical, as energy usage, instead of paying up front. service offerings that customers are will-
new business models need to be devel- Industry proof shows some success with ing to pay for and that Grundfos is good
oped to sell services since the current pay-per-water schemes and performance at delivering.
business models used for selling pumps contracts for larger systems, as they can
will not be adequate. quantify what they are selling. Another An example of a pilot is the public-pri-
example is audits, where consultants can vate partnership between the National
audit water utilities’ systems to advice University of Singapore and Grundfos,
“Some of our competitors are
and identify costs savings potentials. partly financed by the Singaporean gov-
capitalizing on their sizeable
Besides the potential to charge a fee for ernment. This project to develop filtering
and very profitable service
their services, this could also provide an solutions to handle heavy, dirty wastewa-
business to be very aggressive
opportunity to sell more pump solutions. ter is now in large-scale testing.
in project sales. Here, Grundfos
may benefit from new busi-
With the vast amount of opportunities
ness models to establish a more
within services, digitalization, and new
level playing field and new
business models, complexity and uncer-
streams of revenue.”
tainty are guaranteed to increase. Though
Keld Fensten Madsen, Senior Director opportunities within digitalization may
Planning & Intelligence
be endless, it remains imperative to be
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