Industry Perspective: Back on track

In an interview with PEi, Philippe Joubert of Alstom Power reveals the key elements in the success of the company’s recent turnaround.

Siàƒ¢n Green

Philippe Joubert, president of Alstom’s Power Turbo-Systems and Power Environment Sector, is a busy man, but then he has his work cut out for him. Having played a key role in guiding Alstom through its most difficult years, he is now firmly focussed on building a future for the company in the international power business.

Having finally made contact with Joubert within his hectic schedule of meetings and flights, he emulates the confidence that Alstom now has over its future. “We are completely out of the firefighting period and back to profitability, and we aim to build on our strengths,” states Joubert. “The company now has a fantastic opportunity; the markets recognise that we are the best power company in the market.

“We stand to gain from the fact that the market is back to a portfolio approach because of concerns about security of supply and natural gas prices. Utilities are approaching the planning needs with a variety of technologies in mind, rather than just being focussed on natural gas. Alstom is strongly positioned for this.”

But it has been several years since Alstom has shown such confidence. A brief look through PEi’s archives, and at Alstom’s own website reveals the turbulent journey that the company has travelled since it created its vision to be a global specialist in energy and transport in 1999.

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That year was perhaps a turning point in Alstom’s history, when it agreed with ABB to merge the companies’ respective power businesses to create ABB Alstom Power, a company employing some 54 000 people and with revenues of €9.9 billion ($12.4 billion). The company’s strategy was clear: to capitalize on its new-found market-leading position, and take advantage of the booming US gas turbine scene.

Alstom bought out ABB’s share in the power joint venture but its aspirations for exploiting market opportunities with its gas turbine technology were thwarted by technical problems reported with the GT24/26 units, an issue which goes to the heart of the last few years’ trials and tribulations.

Customer confidence

Joubert is in no doubt as to the fundamental cause of the company’s problems: “It was mostly the problems with the gas turbine business. We bought ABB’s power division with the GT24/26 technology and in all, that issue cost us a total of €4 billion because the machines were not working according to the commitments that had been made to the customers.

Joubert: Difficult decisions had to be made
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“Instead of walking away, we decided we had to regain the confidence of our customers at any cost,” continues Joubert. “We did this by solving the technical problems and by applying our ability to understand the power business. After two years of struggle, we put the machines back on the market and they are now the best engines in their class.”

And struggle they did; by the end of fiscal 2004, net losses at Alstom had reached €1.8 billion. To shore up its position, Alstom embarked on a major action plan to restructure its business, including a €3 billion asset sale programme and negotiation of a €3.2 billion refinancing package. But 2002-2003 was a tough period for many power sector OEMs, and the technical difficulties with Alstom’s advanced gas turbines were lingering.

Alstom experienced delays in finalising the technical recovery package for the GT24/26. This resulted in further costs and was compounded by the tough commercial attitude of customers, several of which undertook litigation in the commercial settlement process.

“When you have such problems, it affects the whole company,” notes Joubert. “We had to sell assets to survive at any cost, but it was like there was a ripple effect and it was contaminating the whole company.”

But Alstom could not risk losing the confidence of its customers. “We are in a long term business. We sell technology with a long term commitment and build a relationship with the customer, but if they are not confident that you’ll be there in the future, then it affects the whole business,” says Joubert. “And then problems can spiral: if you’re not selling equipment then you don’t have the volumes in the factory, and staff leave – often for the competition.”

Back to basics

The corporate-level action plan, which saw the sale of Alstom’s industrial gas turbines business to Siemens and its transmission and distribution business to Areva, was complemented by a ‘Back to Basics’ campaign at Alstom Power.

In addition to solving the GT24/26 technical issues, ‘Back to Basics’ focussed on increasing the number of profitable orders, drastically reducing costs, and implementing a project management excellence programme. To reduce costs, Alstom cut some 6000 European-based positions from its 20 000-strong workforce, and re-recruited in China, India, Latin America and Eastern Europe. “We also sought to reduce other overheads at the product level and implemented new processes for sourcing from low-cost countries,” says Joubert. The overall result was an increase in orders of 30 per cent in two years and a return to positive cash flow and positive operating income.

Alstom’s recovery was helped along the way by a change in market conditions and an associated repositioning of the business. “The new management team at Alstom undertook a strategic analysis and drew three main conclusions,” says Joubert. “Firstly, that coal is back and utilities will look for a portfolio of solutions; secondly, the importance of Asia, and thirdly the importance of the environment and CO2.

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“We detected these trends two years ago and positioned the company accordingly. This has paid off tremendously. Our competitors have focussed on the gas turbine business and they are now catching up with us.”

But ultimately it was a combination of Alstom’s determination and the support of its customers that carried it through, says Joubert: “The cost of fixing the gas turbine problems was €4 billion. This was invested to restore customer confidence and was our key strength. We never decreased R&D investment or our presence with the customer, and even during the worst period, they never let us down. Our customers helped us out of our difficulties.”

Difficult decisions

Looking back, there were many challenges along the way, says Joubert. In addition to solving the gas turbine technical issues, and transferring some of the workforce and operations overseas, one of the hardest aspects was communicating effectively with Alstom Power’s employees. “Probably the biggest challenge was to make sure that 20 000 people understood the strategy,” says Joubert. “We wanted to make sure that everyone understood the positioning and the back to basics programme. We found that a lot of dialogue and listening helped; employees wanted to share their understanding of the situation and their analysis of what was necessary.”

And with the benefit of hindsight, Joubert admits that some things could have been done differently. “From time to time you are afraid of the conclusion of your own analysis, so you hesitate because the task and consequences seem too big. Difficult decisions have to be made and you never make them fast enough.”

In the power sector, Alstom is now aiming to capitalize on its market-leading positions in coal, hydropower and conventional nuclear islands. New orders for the GT24/26 have been received. It has a new vision – different to that which it had seven years ago – but it is ready to pick up where it left off, and will doubtless keep Joubert’s diary full for many years to come.

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