Should Luxottica be dissolved

The free swimmer

1. Clouded

The walls of the Munich optics company, which was founded 125 years ago, were simply too thick for the glass office that Randolf Rodenstock wanted to have symbolically furnished after his father took over responsibility for the company in 1990. There were then only two breakthroughs, the clear glass of which the graduate physicist and great-grandson of the company founder can electronically cloud if necessary.

The company's earnings position has also been clouded since the generation change: the Rodenstock Group has slipped into the red three times since 1990, and even in the better years the total return seldom exceeded two percent. In 2001 Rodenstock struggled with technical and logistical problems during an expensive engagement in the USA, had to cope with contaminated sites and had a deficit of 19 million euros with a turnover of 422 million euros. Accordingly, the family business fluctuates between restructuring and consolidation, shedding around 1,000 of the previously almost 7,000 jobs, and now selling almost all technology sectors such as precision optics, machines and instruments as well as computer services. Now it is only the business fields of eyeglass frames (market share in Germany ten percent) and eyeglass lenses (30 percent) with which Rodenstock wants to earn his money. But the market is stagnating, many people buy cheap goods - if at all - and there is tough competition from major foreign competitors when it comes to high-quality glasses.

brand eins: With this market situation, is it still fun to give people glasses?

Randolf Rodenstock: It's fun because there are two good reasons that will keep our market growing in the industrialized countries: the aging population and the growing demands that people have on glasses. Not all reserves have yet been explored.

However, many people forego the necessary glasses - out of vanity or fear of the costs.

The cost factor is only decisive for a small part of the population. But in fact, many people are afraid that they will appear less personable with glasses on. This is a potential of around 20 percent, which is not even properly addressed because in the past the functional aspects of glasses were emphasized too much: Without glasses you are a danger to yourself and others! It's not a motivator. But the argument that you have to wear fashionable glasses does not go down well with many people who wear glasses because they do not want to give their face to fashionable circuses. That is why we want to be the first optics company to address the functional and emotional needs of the customer equally. We want to convince people that you can save face with glasses and do something positive for your personality.

In Germany, Rodenstock competes with more than 1000 eyewear manufacturers, including many designer brands. But even there, the price often decides the purchase. In the end, will only the mass manufacturers win the race with cheap prices?

I do not believe that. According to our studies, there are three major consumer groups. Only one of them, with a share of around 35 percent, is very price-conscious and skeptical. 50 percent of consumers can be addressed easily. And another 15 percent are downright fashion freaks, but we also target them beyond our core target group. There is no question, however, that consumer reluctance in the past year was much greater than expected, but I do not want to construct a trend for ophthalmic optics from this - especially not among discerning customers.

Like many other companies at the moment, they rely on a single core competence and are now concentrating exclusively on glasses. Are you not endangering the future of your company in the medium term?

We started these considerations five years ago, based on the additional potential mentioned, which we can tap into with a focused approach. Purely technically oriented companies such as Carl Zeiss could not even provide the holistic approach described, not even pure lens manufacturers such as our big competitor Essilor in France or the Italian frame manufacturers who do not have their own branding expertise. We, on the other hand, can penetrate this untapped customer segment like an icebreaker. To do this, we have to deal much more with the complexity of the needs of the glasses wearer. And that requires a completely different mental attitude than when I deal with space optics or automotive lighting technology. A company can either think in terms of people or in terms of capital goods. You can't be good in either area in the long run.

2. The long shadow

Rolf Rodenstock, Randolf's father and predecessor, was an old-school patriarch, president of the Federation of German Industries, figure of the Munich Society. Son Randolf, a physicist with a penchant for philosophy, needed a lot of time to swim free. At the time when German students demonstrated against the Vietnam War and Adenauer-Muff, Randolf Rodenstock was 20 years old and not ready to take on the role of successor.

They belong to the generation of the 68s. How did that time shape you?

At that time I paid little attention to the company. 1968 influenced me so much that I was critical of the role of an entrepreneur - especially with regard to the treatment of employees. Over the years, on closer inspection, I have partially corrected this view. Politically, I took with me from these years the respect for individuality and personal responsibility. I know other things were important to others, but I especially saw the act of emancipation.

How conflicted was your emancipation from your father?

One conflict was that my father had decided very early and unilaterally that I should be his successor - I was barely two months old then. Of course, I resisted this overlay for a long time, until my father gave up this idea after a hard row and I was free to come up with it myself. So I was able to get a taste of science during my thesis in physics. So it appealed to me to exert a positive influence in a company. Differences became apparent when we ran the company side by side. My father had a pronounced social attitude towards the employees, but was influenced by the first half of the last century: caring, subsidizing. I found it more timely to demand and encourage employees to take responsibility. But we solved it well: as long as he was in charge, I worked in his style. After handing the company over to me, he watched things happen that he definitely wouldn't have done. For this I have to posthumously express my respect.

You once wrote about corporate succession: "Perhaps it would be better to have a good philosopher than a bad manager as a son." In the meantime, would you like to be freed from the constraints of family tradition?

I know that there is no existence in this world without constraints. I now have a good mix of entrepreneurial, sociopolitical and scientific components in my life. You immediately come to the philosophy, that cannot be avoided at all. This mix can change again, but I'm very happy with it. I originally meant the quote as a warning to the ancestors not to manipulate their children into their company so that they no longer have any real freedom of choice. You can manipulate a lot: "Come along to the reception, help out here - I deliberately didn't do that with my own children."

3. Not without my vision

Randolf Rodenstock is also a political writer. In the book "Chances for All", as a member of the board of trustees of the business initiative "New Social Market Economy", he describes an economy with more freedom and personal responsibility for the individual. Elsewhere, in a "Vision 2020", Rodenstock designed a "home for competent and emancipated employees" for his family business, who are promoted with a focus on performance and are therefore highly motivated. And how does it look in practice?

You have been able to practice the "New Social Market Economy" in your own company for twelve years. What can the national economy learn from the Rodenstock microeconomics?

That people are much more willing to take responsibility for a cause or for themselves than many in politics would have us believe. My co-workers here and I did not do this well without difficulties and a learning curve. Of course, people also want a certain minimum level of security, but the mixture of security, responsibility and freedom in our company is much more about freedom and responsibility than certain politicians assume for the average population.

But then a lot must have happened. In 1994, 68 percent of your employees said they had negative comments about management in an internal company survey. 78 percent even felt demotivated. What did you do about it?

At the time of the survey, it wasn't long ago that I had taken on responsibility and had to start moving to cheaper regions and mass layoffs. That was not my wish, but it was not to be avoided. The industrial workers at our plant in Regen were afraid that their plant could be closed completely - which has not happened to this day. And the foremen or foremen in this plant hadn't even learned to deal with these fears of their colleagues. Based on the survey results, we have oiled the communication channels in our company. They weren't consistently enough. And today we also train middle managers much more intensively so that they can approach their employees in a timely manner. In particular, we have introduced a system of feedback discussions, target agreements and target controls - now also for employees covered by collective bargaining agreements. Employees can assess their superiors personally or anonymously if necessary. But let's not kid ourselves: It is not easy, it requires a high degree of openness and trust.

It was not until 1999 that an internal report by top management came to the devastating result: "Defects in product quality, delivery difficulties and general complexity in operational work permanently prevent us from achieving a satisfactory performance on the market and with customers."

Since then we have put together and reorganized our senior management team - such as finances, production, logistics. With the focus on the core business of glasses, we also combined a structural reorientation at that time in order to create the switch from being technology-oriented to the needs of the end user. Before, for example, the opticians received visits from a Rodenstock lens team, a frame team, one for instruments, one for machines and one for IT software: five teams were simply too much of a good thing. So we had to reorganize ourselves, such as creating uniform sales and marketing.

They personalize the brand in TV spots and newspaper advertisements. Doesn't this escalation contradict the team-oriented corporate identity that you had laboriously practiced?

I had these concerns for many years and resisted this idea from the advertising department for a long time. Because, of course, there is a risk that everything will concentrate on the bearer of the name, and the entire responsibility seems to fall back on him. But when we started this advertising in 1997, the organization had reached a high level of maturity and independence. Our employees responded very positively: He stands up and shows his flag!

4. Customers, bait, competition

The glasses business is a discount business. The increasingly important retail chains and purchasing groups of opticians can, like other retailers, be lured with ever higher discounts so that they include a manufacturer on their shelves. At Rodenstock they bite granite with it. For him, his glasses and their features must be reason enough to sell. Last but not least, the entrepreneur ascribes to the company's technical innovations, despite the miserable market situation, having achieved around three percent growth in turnover in 2002 and profit again.

Why do you stick to low dealer discounts despite aggressive competitors?

Our branding policy enables opticians to sell our products more easily. Through advertising, through innovation, through qualitative features. That is why we can get by with discounts that are around five percentage points lower than the competition. Of course, we are also feeling the pressure and are preparing accordingly not to be able to push through any major net price increases in the next few years.

What if the global player among eyewear manufacturers, Luxottica, took over the retail chain Fielmann and banished Rodenstock from its range?

I don't want to speculate about whether Luxottica Fielmann can and will take over. But where should that hurt us? The Rodenstock brand is highly regarded wherever Fielmann operates - and even a Luxottica / Fielmann cannot do without Rodenstock. Fielmann is our largest customer for eyeglass frames, but we don't have a dangerously high market share there either - why should anything change? I don't feel threatened by such a scenario.

And what if, as has been speculated, Fielmann swallowed Rodenstock?

G√ľnther Fielmann and I had a telephone contact in December as part of the search for investors, but neither of us pursued such a scenario for fundamental reasons. Both houses are well served if they continue to pursue their trusting relationship between customer and supplier.

5. Strangers' money

The family company, founded in 1877 and run by the fourth generation of Rodenstock, is at a turning point - there are eight shareholders: a lack of capital and low profitability force the company to look for donors. The first step was the transfer of the operative business from the KG to a GmbH in mid-2002. An investment house was hired to look for partners.

Rodenstock already became a listed family company in your "Vision 2020". You recently announced that you were only looking for financial investors with no interest in the operational business. Where are we going now?

Ideally still towards the stock exchange. But everyone knows that going public at the moment would be a joke. So you need an intermediate step. Our goal is a solid equity base that can create growth and make us risk-bearing. We also have to position ourselves strategically between the big players and have the strength to act independently.

But even in a more favorable stock market environment, the fact that under the pressure of quarterly figures and ad hoc announcements it is difficult to pursue a long-term restructuring course would speak against this type of capital procurement.

Our task is not restructuring, but consolidation: The reasons for the collapse in our 2001 result have largely been eliminated, or we are on the right track. As far as the improvement in earnings is concerned, 2002 was a pretty good year. Of course, there are the negative effects on the stock market due to investor pressure. But sometimes this pressure is also beneficial. The danger in a family business is always that people say: the entrepreneur cannot eat more than two schnitzel a day from his profits. The profitability expectations of the team and the family then sometimes remain a bit too modest.

They already had to coordinate the plan for a pure financial investor to enter into lengthy negotiations with the seven other family members. What should that look like with an IPO?

The vote wasn't that tough. I had feared that the commonality might dissolve in this process, but that has not turned out to be. The good thing about our long family tradition is that transition processes are well rehearsed. It was the third between my father and me. Now is the fourth. We learned how bad it is when families fall apart. And how everyone benefits when they stick together.