How Hilti drives profitability through employee engagement

There is a very clear link between employee engagement, customer loyalty and profitability, according to Hilti Australia’s managing director, Jan Pacas

There is a very clear link between employee engagement, customer loyalty and profitability, according to Hilti Australia’s managing director, Jan Pacas, who said this link has been key to the company’s success both locally and globally.

Hilti, a global business which supplies leading-edge electric power tools, takes a rigorous approach to measuring its success through the triple bottom line, in which an increase in employee engagement leads to an increase in customer loyalty, which leads to an improvement in financial results.

In 2008, for example, employee engagement (as measured by Aon Hewitt – which awarded the company a Best Employer accreditation for the fifth consecutive year last year) stood at 66 per cent in Hilti Australia, while customer loyalty was 82 per cent and its earnings before interest and taxes (indexed) was 100 per cent.

In 2010, this increased to 79 per cent, 89 per cent and 170 per cent (respectively), and 81 per cent, 91 per cent and 210 per cent (respectively) in 2013.

In 2016, employee engagement currently is at 84 per cent, customer loyalty is 92 per cent and its profitability has quadrupled since 2009.

“If your entire workforce is 2 to 3 per cent more productive every year, this has a massive impact in terms of market share and the overall branding of the company”

Pacas is also bullish about the company’s growth prospects and is aiming to double the size of the business over the next five years.

“The size of the market won’t double over the next five years, and it didn’t double over the past five years, so we are going to get there with a little bit of help from market growth,” he said.

“So the key to this growth is getting market share, winning over customers’ product lines and engaging customers from competition.

“To achieve this requires a combination of additional investments as well as increased productivity.

“If your entire workforce is 2 to 3 per cent more productive every year, this has a massive impact in terms of market share and the overall branding of the company,” he said.

Pacas presented Hilti Australia’s five-year plan to the company’s global board (located in Liechtenstein, a 25-kilometre long principality located between Austria and Switzerland) last year, and Pacas said there is high trust from the board that the local business will hit its goals.

“They suggested that we may want to invest more. I think it’s good to have that long-term view,” he said.

“That’s not possible if you’re running a business from quarter to quarter, because if you’re investing first, what you’re going to see is cost out. Revenue and profit only comes later, so it’s good to have the long-term view.”

“We’re very transparent in communicating frequently to all our employees about how the company’s tracking financially”

Hilti Australia experiences approximately 20,000 to 30,000 customer touch points a month through its three distribution channels – retail, whole service and direct sales – and Pacas said there is a clear link between customer engagement and employee engagement in this process.

“As a consequence you have much better buying behaviour, you overcome certain pricing objections and customers believe the brand is more engaging,” he said.

“We track how many loyal customers we have, the frequency of purchases of those loyal customers, how many new customers we add.

“So this contributes to the top line and ultimately the bottom line. In any business which relies heavily on people, such as hospitality, airlines or retail, this kind of approach is very, very important because it translates directly into profit results.”

While Hilti Australia has ambitious growth plans, these are not without their challenges – one of the more recent ones being the Australian dollar.

While it may be an advantage for manufacturing companies in Australia, a low Australian dollar disadvantages importers (and Hilti in particular, given it imports from Switzerland and $1 is currently worth 0.72 Swiss Francs, compared to three years ago when $1 bought 1.05 Swiss Francs).

“So there has been a 35 per cent increase over the past three years. This has had a big impact on our margins,” said Pacas.

“So how are we going about this? I think everybody understands that the times of artificially high margins driven by artificially high exchange rates are over,” he said.

“Of course we have a minimum that we need to deliver on, so for us it’s a fine combination of a little bit more productivity at a slightly lower relative profit.

“We’re very transparent in communicating frequently to all our employees about how the company’s tracking financially.

“Generally, if you provide very transparent facts and if your decision is the right one, then people come to the same conclusions. They understand business decisions and the reasons behind them.”

For the full interview with Pacas and story on how Hilti Australia drives profitability through employee and customer engagement, see the next edition of Inside HR magazine. Image: Scott Ehler