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issue: March 2007 APPLIANCE Magazine

Executive Corner
Going Global and Green

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APPLIANCE Staff Feature

Danfoss A/S is a leading global supplier of commercial and industrial components and controls for the HVAC/R industry. It has facilities in more than 50 countries, with its most recent growth in China and the U.S. Its business in North America is growing 40 percent a year, while its China-based operations are growing 35 percent a year.

Danfoss CEO Jørgen Clausen spoke to APPLIANCE magazine from Danfoss Group headquarters in Nordborg, Denmark.

In late November 2006, Forbes magazine listed Danfoss as one of the most respected companies in the world. It just missed the top 10, finishing at number 11.
APPLIANCE spoke with Danfoss CEO Jørgen Clausen about the company’s current position in the market, its future global goals, and its drive to develop and manufacture energy efficient products.

Q: Who is Danfoss as a company today? As CEO, what are your goals for the company?
A: Worldwide, we have more than 20,000 employees with sales of U.S. $3 billion per year. We are a global company with activities in North America, Asia and Europe. We have three divisions: our air-conditioning and refrigeration division, which is about half of the company; our heating division, which is a leader in heating in Europe and Asia; and our motion controls division, primarily manufacturing inverters for the speed control of electric AC motors, which as a stand-alone business would be among the largest three companies in the world in this segment.
We think of ourselves as a clean technology company, or a company that manufactures products with regards to energy efficiency and a clean environment. Everything that we manufacture has something to do with energy efficiency. For example, with our air-conditioning and refrigeration division we are constantly looking to develop new technologies that can work with natural refrigerants.
But overall, our future goal is to become No. 1 in all of our divisions in all regions of the world, but especially in North America. This is a goal I took from Jack Welch; we have a shared vision!
To achieve our goals we constantly think on a global basis. This is not easy to do because with that you get a mixture of cultures and languages. So to help that effort, we require that our managers have lived 2 years away from their homeland, so that we can train them to become sensitive to other cultures and to understand how to work in a global environment.

Q: Danfoss has a strong presence in India and China, and recently you opened a new factory in the U.S. Is it challenging to constantly communicate your message to your teams all over the world?
A: Yes, but this is our mission. This is how we live. You cannot be a part of our team unless you think global.

Q: From your point of view, is this true of other companies that attempt to operate globally?
A: In my opinion, there are very few Chinese global companies because China is so large that the people there do not need to speak English to interact with foreign cultures. Even in the U.S. sometimes I’m surprised at how little people interact with others outside of the U.S. But there are many other companies, like Nestle and Coca-Cola, which both have a fantastic global culture. It is a special culture—your home is the whole world.

Q: Danfoss has long been recognized as an environmentally conscious company. Do you find that there are parts of the world where people are not as interested in that philosophy, and if so, how do you respond to that type of perspective?
A: Europe, North America and Asia are quite different in their views on clean technology and environmental concerns. We have the advantage of being in Europe, especially Northern Europe, where technology often happens first. So we try to implement our technologies in all areas of the world, but we also recognize that we have to serve local needs first.

Q: Has Danfoss put more of its resources into energy savings and research than other companies? And if so, what position does that put you in now?
A: In Northern Europe especially, energy efficiency is often driven by legislation. If it’s possible to reduce emissions or save energy, then there will be legislation that fosters it. Often, you can turn this legislation into a business opportunity, which is the reason why we believe we’re a leader in this movement and are focused on being the first to find new solutions in natural refrigerants and saving energy.

Q: Is Danfoss ahead of the game in terms of this technology?
A: Yes, I believe so. If there is an obstacle to overcome, we will find a way to overcome it, like our efforts towards reducing emissions.

Q: How do you stay organized as you become more global and create R&D centers around the world?
A: Actually, it’s not a big task. Normally in a large company, R&D is located in a company headquarters and you can have R&D subsidiaries that report to the main R&D center. A factory needs to adapt to customer needs all of the time, so they also have R&D departments for small improvements, or short-term R&D. But long-term R&D is in our main headquarters.
At Danfoss we innovate through intrapreneurship.  I am an intrapreneur myself. An intrapreneur has the advantage of being well educated, with good business understanding, so we try to find people with these skills and ask them to come up with new ideas. We develop talent. In a global company, you can’t have all of the ideas coming from the headquarters, so you need intelligent and entrepreneurial people in your competency centers around the world.
We have a training program called the “Man on the Moon Project” where we train people that we think are entrepreneurial to think like a head of a business and lead ventures for us. They may not be the person that came up with the idea, but they are good at managing such innovative ideas. And the idea should never be too far away from our core business area, but should make use of our core competencies.

Q: What are some Danfoss products that have resulted from this type of thinking?
A: One product is a refrigeration unit for bottle coolers that cools the air, which then cools the water bottles. The product is simple a complete refrigeration system in a box and is simple to remove and service as well. Yet it’s a new kind of thinking and a new business in itself and therefore, we do not mix it in with our core business, but let it run parallel to it.

Q: Are there any new and revolutionary product developments that Danfoss will announce soon?
A: Most definitely. This Man on the Moon Project is not only educational, it is a competition where we invite groups of employees inside the company to develop a product and business plan for us. So we will see what comes out of this competition. There are endless opportunities for us as long as they are in our core business area.

Q: Are new energy efficiency standards correctly focused? What direction do you see regulations going in the next few years?
A: The problem is that in some areas of the world regulations are being developed ... faster than in other areas, which forces you to develop some products that can be expensive. Having global standards would be best so that we are all playing on a level field. But we will support global standards with an agreed-upon consensus. If the standards make sense, then we don’t mind complying. On the other hand, if we discover that we can do it first and better, then we will try to take the lead.
Through the years we have seen standards and regulations become more of a business, and human ingenuity will overcome many of the barriers that are set up by tough standards. The problem might be that standards are sometimes issued that do not take the reality into account.

Q: What will be the biggest changes in HVAC and Refrigeration in the next few years?
A: There will be many small initiatives that will challenge us, but it will become more system thinking, I believe. For example, instead of one small air-conditioner for a home,
perhaps it will be more energy efficient to have several large systems for an entire neighborhood?
There will be more emphasis on the total cost of ownership, from buying a product, to installation, to maintaining it, to getting rid of it and replacing it with something new. Large buildings already have this type of thinking. For instance, as of January 2006 new homes in Europe have to be 25 percent more energy efficient than last year. And in 5 years, another 25 percent will need to be saved. This trend is going to make a tremendous difference in the amount of energy we all use.
In the future, we also think that clean water will be an expensive problem. Here in Denmark there’s plenty of clean water, and it costs $1 per cubic meter. But in the Caribbean, clean water prices are between $10-$15 per cubic meter. So a new business area for us is to develop water purification systems that can provide clean water in expensively.


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