Techem Energy Services GmbH CEO Matthias Hartmann - regulated market, pandemic & digitalizing energy industry

[MUSIC] Leading Corporate Transformation, the podcast by VHAU Autobysimes School of Management, powered by PWC, on the transformation of companies and their culture, from decision makers, for decision makers, or from entrepreneurs for entrepreneurs. Hello, everybody. My name is Serden Euzjan. I'm a professor of corporate transformation at VHAU Autobysimes School of Management, and I would like to welcome you to our first episode of Leading Corporate Transformation, the VHAU Podcast, powered by PWC. Today, my co-host is Gory von Hischhausen from PWC. Yeah, be hello to all of our listeners from me. My name is Gory von Hischhausen. I'm a consulting partner at PWC. I'm leading our management consulting practice in Germany and our finance transformation practice in PWC Europe. This actually translates into about 20 years of transformation experience. Together with Serden, I will try to ask the right questions for our listeners to lead, how to lead corporate transformation. So, looking forward to the discussion today. Thank you, Gory. And I would like to welcome to our podcast, Mr. Matthias Hartman. He's the CEO of Tetschheim. Am I pronouncing correct? Tetschheim, yeah. Tetschheim. Very good. Very good. And he's leading a very exciting transformation there, prior to that, Mr. Hartman was the general manager of IBM, Germany, Austria, and Switzerland. Welcome to our podcast, Mr. Hartman. Thank you very much and happy to be here. Thank you. Why don't we start with Tetschheim? Could you give us some background to your company? Yes, indeed. We are a service provider to the real estate industry, actually with about 70 years of history. We were once owned a family on business. We then went public and IPO'd. But then we're taking to the private markets and now being in the hands of three, what I think are extremely good investors, partners group, and two Canadian pension funds. So, we serve the real estate industry both on the commercial side, but our original heritage comes really from the side of private housing. And thus, this is the focus where we are a service provider to them. So, when it comes to corporate transformation, what is the nature of corporate transformation at Tetschheim? We see three major trends that are currently impacting our business and are actually giving us opportunity on the way forward. The first one is urbanization, which is of a prime concern to our clients. My clients are those people that rent the room. They are not the tenants. And this market is actually growing. Urbanization, the move to cities, has been impacting all of the 20 markets that we serve mainly in Europe. And thus, actually, our clients are having a pretty good time, despite the pandemic, they have a growing business. And thus, this is important for us to capture that trend to multi-tenant housing. Secondly, of course, like any other industry, also finally, the real estate industry is transforming towards a more digital nature. They have been laid to the party, to be honest, but now this is in full swing. And one of the main drivers now, the third reason for us to really transform our business lies in the nature of decarbonization. We have a huge challenge with climate change in front of us. And specifically, the housing sector is one of the biggest challenging areas where climate neutral housing is a big problem. About 40% of the carbon dioxide is coming from the housing sector, which is typically under looked. Everybody talks about immobility. Everybody talks about other forms of climate readiness in terms of electricity as such. But it is really 40% of the carbon that comes from that sector. So they have a huge challenge to make up for the targets in the green deal. So when did you start transforming the company? Well, first of all, I do believe strongly that some somehow transformation never ends. It never has a starting point and a final launch pad to go from. But this former transformation surely changed with tech and being taken over by these three investors. We are now in a value creation environment. So we have a task to transform a pretty, pretty narrow business model that is used to be called submetering, where we are taking the heat information from those houses. And we take that to help those that rent out the housing to bring out the real cost for their tenants. And this is a pretty, you could argue, boring business model. Submetering is like 70 years in the making. And it is highly regulated in our client's eyes. But now it becomes the basis for additional transformation of all of real estate, as well as helping them to transform towards climate neutrality. I mean, looking at what you were describing, so the market itself, you have a great purpose to support your customers and your customers are focusing the right issues. So there's a great purpose behind what you do. But the question is looking at, so you help actually to digitize your customers? How good are you in digitizing yourself? Yeah, I think it's always coming in parallel. First of all, there is indeed a pretty hefty transformation need within TESHM. This industry, as I described, was highly analog, was highly manual. And it started with the product itself. In the past, there was no digital form of measuring the heat consumption. It was analog. And so we had been sending out people once a year to go into the apartment, to meet the tenants and to read manually what the consumption was. Now this is fully transforming towards a digital model. The driver for that is both coming from the regulator side. The energy efficiency directive that the European Union has laid out has to be implemented in all member countries. For Germany, as an example, that means that by 2027, all of the reading has to be done digitally. So there is an external factor to drive that, and there is an internal factor. And our customer service in all fairness needs to further digitize as well. We are sending out too much manual written, not manual written, but printed letters to our clients. And of course, that has to change. We are currently transforming the client interaction piece. Our customer service, we have a customer champion program to do that. But I would say the bulk of the action clearly lies in the fact that now the energy industry is finally transforming towards digital. And what we do as submetering is becoming a smart metering enterprise, where we not only measure heat, but also gas now, electricity and water. So whatever gets consumed in a dwelling, we measure it on a digital way. And thus we can transform the way we serve our clients, when we serve our clients, and we can be a great help to reduce energy consumption. And this is what this is about, making living and working spaces climate neutral to meet the demands of the green deal. That sounds, as I said, very purpose-driven. So I'm pretty sure that the people working for tech are proud of what you do. But at the same time, of course, as you described it, you changed from the way how you did that in the past to the way how you want to do it, or how you are actually doing it now. So I think that is quite a stretch for people. So my question is, how do you support your people on this journey and maybe to put it on spot? Can you make your people advanced analysts of consumption from where they come from? It indeed is a big change. And then prior to me commenting on the analytic side and the way how we analyze the data and help our clients to use that efficiently, I want to come back to your opening statement. This has to be, and it is, a purpose-driven exercise. But in the past, it wasn't in all fairness. So the first thing we did in our transformation was to think through what's our role in that industry and to be loud and outspoken about that. And prior to being loud and outspoken on the outside, we wanted to be loud and outspoken on the inside. So last summer, only last summer, pretty much six months after I joined in, we did a jam session with about 300 people, where we defined our new purpose in a new way. Because if you are coming from a very small targeted submetering background, where reading data manually from the client is maybe not the most exciting job profile that you can think about. Our task now is to find the right attitude and our people to understand what are they coming into the office or sitting in the home office at these days in the morning. And so the way we redefined our purposes to say we enable the digital energy change in wellings in the real estate industry. We cannot change us, take him everything. Whether we can buy for our clients, green energy or not, we don't produce that energy like the big utilities are. We are buying a lot of energy or we are utilizing new technologies like solar and decentralized ways to produce ourselves. So to give people a purpose that they can be albeit a small yet imaginable part of making an energy transition in Europe a reality is a pretty good purpose. And we felt it right away. because hiring digital people, hiring younger people in all fairness requires us to be attractive as an employer. But writing that sentence in the morning on top of your window to say, why am I waking up in the morning? Why should I do this? I think the purpose is resonating pretty well. So yes, it's purpose-driven. The other side of your question was about, how do we deal with data? And we are now in the meantime quite down that path that we can actually digitally read and digitally kind of work on the data. And we have about 80% of the data now coming in in a digital manner. And that means that we have explosions of data. In the enterprise, we had to enable ourselves in the technology infrastructure to be cloud-ready, which we now are. I have about 50 million IoT devices and sensors out there that collect the data. So this becomes a different animal, so to speak. And to bring that into a more holistic set of data values that we can then start analyzing, but only start optimizing is now the name of the game. And I want to give you one example. While we're getting the data from all the dwellings or the apartments, the real challenge is in the basement where the central heating of the building sits. And only by bringing the digital data from the central side together with the apartment side gives you a full set of energy data for that kind of individual house. And that's what we use then to calculate not only energy consumption, but also to show and help our clients for the optimization. And it shows that by utilizing levels of algorithms and first versions of KII usage in the data, that enables us to reflect back to the clients where optimization, energy efficiency, dimensions can be coming into play. Which in turn changes the kind of people that we need. So we have pretty much a high degree of addition on the one side in the company, but also enablement. Because I think it becomes a different animal. If you just read the data, or if you start working on the data, transforming that data, using that data to drive a purpose. So you've already talked about the tailwinds, whether it's regulation or urban demographics. You've talked about two major challenges-- one, recruiting young people and bringing them into the company through a purpose driven mission. The other one is data. What other challenges have you experienced so far? I want to speak about that regular Torbys side. It's a two-sided coin for us at TESHA. On the one side, regulation truly is our friend. Because my clients are to some extent regulated that they have to measure heat consumption, because this is a regulated thing, at least in this market, and some other European markets as well. So I'm not talking against regulation, but what now becomes a major hurdle, I think, not for us only as a company, but for the full task in front of us where we have to transform towards green energy and towards climate neutrality in the real estate industry, is the fact that there is so much regulation, which is not interconnected. And that is the main problem. You have a piece of regulation for every part of the process, but you have no holistic picture. And I think, to be honest, that currently, the European Union is actually a forerunner, in a positive way, trying to capture it more holistically than most of the member states, including our home market Germany, which is currently pretty much in detail to detail, which is not fitting together. So regulation is a challenge. And I do expect that in the next legislature, we will be seeing quite a bit of movement in that direction, because it will be necessary if we truly want to fulfill the carbon reduction targets. So regulation is one challenge. And I think the other challenge truly is to some extent culture, which is an internal point. I always say, if you want to transform a company, you probably need about 2/3 of the people being embarked. And transforming to your end of a pandemic is a special challenge, I would say, because on the one side, it can help you to digitize, which I think it did for many companies. But on the other side, looking into the people's eyes, when you drive change, is always helping. And doing this via video conference is maybe not as powerful. But maybe taking the pandemic, and we talk to many different companies from different industry background, what would you say? Is it also an opportunity to build new muscles, like being in a position to take quicker decisions or to cooperate more with others or to have a more virtual customer interaction? So does it pay the pandemic to turn your company more, let's say, digital, also itself? Well, there is a saying which I like a lot, which says, never miss good grises to drive change. And you have to see, Tecia is a mid-sized enterprise. We are about 3,500 people serving those 20 mostly European markets. So we are not a super big company. So we have to be very pragmatic in the way that we do things. But indeed, it was a driver for change for us. When I joined the company about 15 months ago, we didn't have a home office policy. It was not in the DNA of the company. Four weeks later, the pandemic hits. And within 48 hours, we have 80% of our workforce working from home. Gladly, that worked out fine with many helping hands. Yet in the meantime, of course, we have jointly with the Workers' Council, very comprehensive way on how to work from home. Everybody has a laptop. Everybody is connected. Yes, that's helping to drive change. But I think the biggest question one has to ask, as a leader, during a pandemic, is to be very fast in decision making. Do I really have a problem? And of course, we did our homework within the first two weeks, really being also helped from our investor side. We analyzed the financial risk that we have in the company. And to be honest, we turned every number upside down and our worst case scenario, given the longevity of our contract base, given the fact that our service continues to be a regulated, mandated service, we felt pretty fast that we don't really have a liquidity problem. We saw the maximum risk, the maximum risk on our revenue top side to be at around 5%. Gladly, I can report back that not only did we not decline, we did grow the business during that pandemic, which is good. But that gave us the confidence to drive even more change, rather than to step back. Indeed, we did launch a couple of enterprise-wide projects, some are very basic, but still workful, like introducing a new HRIT system, grew white that didn't exist. So we drove that one through. We're going live now in four weeks from now, so no con wood. Yet, the point I want to make is we didn't stop investments. We actually over-invested compared to the original plan. This is a strain to the organization. But if you feel that you are on the good side, I think crisis can indeed propel change if you take the risk, but it has to be an informed risk. That sounds great. And looking at your competitors, how are they performing, actually? I mean, this environment is very much the same for them. Can you make a comparison how you look at them? I think we have to take this in different sizes and segments. The submetering market is the core business that we serve. Let me take Germany as an example. It has about 250 service providers doing the service. There is a small number of larger ones, including us as the market leader, and probably around 220 smaller, more regional ones. I think this is challenging for a number of them, simply because the means to digitally transform the business takes stamina, financial means, and capability. And I think what we are beginning to see in the sub-segment of submetering is that we will see some kind of need to work together for shared services or the like to get the smaller competitors still going on this digitalization journey. Now, the other thing, however, that happens, which is spurring competition, absolutely, is the fact that, as I talked about, smart metering is gaining hold. What I mean with that? Electricity metering, so far from my regulatory side, was very much bound to be provided by the utility side. The liberalization-- the liberalization, excuse me-- the liberalization of all the measurement industries, of the metering industries here in the German market mean that there is new competition arising. It's the so-called smart metagate way, which is the kind of digital box that helps you to meter every consumption in a dwelling in a building, whether it is gas, electricity, heat, water. All of this will be into-- created through a central device. The rollout is slow, like many rollouts in the German market these days, but this is gaining hold. So every market participant can offer services let's say from the other side. So we are starting a Stegem to offer electricity metering. And there is utilities, local Stadthverk and others that are now starting to offer my service. So overall, the competitiveness is increasing, which is good because it drives innovation in a sector that needs a lot of digital innovation. So I want to go back to the point about Tegem being a public listed company in the past and now it's in the private hands. Do you think your change program would have been easier or tougher had the company been listed in the market? Or are you enjoying certain benefits or are you facing certain challenges vis-à-vis the ownership and governance? My first message would be there is never a free lunch. Whether you transform in the public eye or whether you transform in the private off-market eye has certain advantages and disadvantages. I've been happy enough to be sitting in both seats. I was once running for five years as a CEO of a listed company to transform in the light of the public markets is tough. Simply because there is a bunch of financial analysts that want to explain to you every quarter why your excel spreadsheet on your EBITDA development should be a little bit different than what you are telling them. So I think this is a very tedious process if you want to drive with a long-term benefit in your mind. On the other side, transforming off the public eye in a private equity environment I think gives you tremendous opportunity to be fast, to take long-term decisions better informed and more straight. However, of course there is an unstoppable and never stopping appetite of private investors to really understand deeply down into your books what's going on. So I think it takes a different leadership attitude and so far I would say for us given the large challenge we have in terms of a full transformation of the business model I currently do prefer to transform off the public eye and I'm glad to have a long-term oriented investor base that looks for according to ESG criteria holistic and a very kind of common neutral business model for the future. So that gives us more opportunity than it gives us pain on a weekly basis in terms of reporting. Maybe looking at your story at Tachem so if I remember this correctly you started off at Tachem in the beginning of 2020. So you took over the responsibility in the beginning of last year and my question is now looking at your personal leadership style. First of all how did you kick it off right after the pandemic hit you and what you were doing and what is your personal leadership style to drive this transformation. First of all also in this regard I think the pandemic actually did help to overcome some given behaviors to challenge some of the cultural values and to bring in a different style in terms of more inclusive leadership which I believe is necessary. So I think two angles come together a personal leadership style that I of course want and do bring to the party as well as the needs of a pandemic and the crisis like we have seen. I give you one example what I immediately introduced was pulse checks immediate digital ways to measure on a short term what do they think what do our people think. So it was I think three or four weeks into the pandemic that we had implemented the platform and could measure directly what people were thinking and how we were doing how they felt whether we take care of them whether they are being looked after in a positive way whether their first line management is interacting with them. I think that's tremendously powerful specifically if you cannot see people in the eyes or only via a Zoom or Teams call. Secondly I think the pandemic while bringing a lot of challenge for the intermediate medium management levels it gives a great deal of positive leadership capability for top management. And what we did was we introduced skip level communication right from day one. Every 10 days we have all of TSM leadership in one call giving the team very clear crisp communication guidelines they get three to four charts and we give them the clear task to take that to the teams. So we do skip level I don't rely on my second management level to inform the third management level to give the information to the fourth and that's the max we have by the way management level no we went directly and but how do I know that people that management really gives the information to the team well guess what call surveys. So I asked the team to say do you get that information from your first line management and I was happy to see an on a continuous basis that 90% 95% plus actually get and see that information that so that I think skip level communication brutal honesty openness and no room for interpretation helps in order to help getting people involved and informed and thus we we we changed as I talked about before we change the purpose statement we have online ways to interact with all of the communities for example we have regular digital town hall meetings the maximum people we could reach as a board before was like 280 people in the cafeteria in our main building well that's not enough and now I currently get about 80% of the workforce online and we have gone into a regularity which I think people like we do 30 minutes update few from the top we do online with direct questions popping in through through a chat platform we do 30 minutes of direct Q&A and then we do 30 minutes of online concerts where people kind of yeah hopefully have a chance to relax and take a bit of time so I'm not saying these are the only ways to manage but what I'm saying is I think indeed it helps you to put a leadership style in in this situation that maybe was not the one it used to be. That sounds awesome I mean it's interesting to see how this virtual setup as you say gives you the opportunity to reach more people but just being frankly is there anything you you miss at the moment when when it's so difficult to reach out personally to to the people absolutely yes of course I think we all do I mean let's be fair everybody's looking forward to a time where we can maybe move into a hybrid model but we have been very strict actually in terms of having people working from home we we send them home on even a day before the official first lockdown was announced and we we never took them back we never took them back we have still 80% of our people in the home office why only 80% because about 20% of our people work with clients on the spot they have to do the installing of the devices they are anyway living off their their little buses where they have all of the equipment and they try from client to client and of course we did equip them a lot but yes we are looking very much forward to have a much more balanced model and what we did nevertheless through the help of tests and so on testing some of the most important meetings we are still doing face to face and we took teams specifically out being tested of course trying to make sure that everything is in a hygiene environment but I think it has to be still a mix but the overwhelming amount of the people is still working from home it was interesting because talking to another CEO he was mentioning he's actually missing the most the lucky coincidence what was he meaning by that he he said it's interesting that sometimes you just bump into people when you walk the floor right you just meet somebody that is not scheduled the meeting with and he was really saying that that's what he misses the most but as you said it's in the end it will be a mixture yeah I think and we do all read that there is pretty diverse opinions out there whether or not you know you have to force management back into the office that's one school of thought we didn't go down that path by definition with the exceptional meetings that I that I called out and in all fairness it worked much better than we anticipated the productivity and most of my operation is higher measurably higher of course we all face the same challenge how we deal with innovative co-creation processes we have built a business incubator called TMX well not a very innovative name because everybody calls these things X something but okay at least it might the point for us we're using that facility to take people together. So we do agile sessions in that environment. We do it in a limited way. We try to find the best of both worlds. But I have to say we want it always to be good citizens in terms of apprehending and accepting what the public opinion, not only the public opinion, but mostly the official opinion was. So we always said we follow the advice of Robert Cochensitut that has been our true north. And honestly with all the back and forth that we have seen when we followed that true north for us, it worked out for us. So not a big of change, not going out, coming back in again, shift A, shift B. I feel this is bringing so much disruption as well in itself that once you choose one model, you have to have the stamina to get it done with. And hopefully we will soon be done with it. Well, thank you. I have one question about office design because you talked about migrating to the hybrid setup. Would it somehow influence the way the work is structured, performed in your process? Yes, yes. We have a pretty established old fashioned model of how our office design currently looks like. With the exception of my little TMX, which is a completely agile space. But if you, for example, come and visit us in our central headquarters, just outside Frankfurt, you would find the typical year 2000 office building with office sizes between two and four people, but certainly not bigger. So it sometimes feel like you walk down these long hallways and the doors are too much closed. And we will change that. We will open that to two more agile spaces. We have a 5C model, so collaboration spaces, confidential work spaces and so on that we are introducing. But what makes me even more exciting is we use the time to get together with our landlord. We have rented this office and it houses today about 6500, 700 people. And we said, look, this is a concrete office building. You know, it looks like 1980s. It is year 2000. The structure is good. And we just agreed that we would transform this into a climate neutral environment. Utilizing every opportunity we can, utilizing our own technology, our own medicine to get this, to get this certified. And there is the DIGI and B, Deutsche Gesellschaft für nachhaltiges Bauen. They have a gold and a platinum standard. We agreed with our landlord. We will transform it first into gold and then afterwards into platinum. I think that again pays into your whole setup. How agile do you want to be? How do you transform? And I think you have to make this visibly. And what we give as a medicine, hopefully, and as a helper to our clients to get to climate neutrality, that shall be our own kind of medicine that we take ourselves. If we sum this up, what would be your advice to us as how should they run their transformation of their business? So what are the key aspects that you like to highlight if we summarize what we talked about? First of all, for us, what helped us most was to think from the outside in. Think what the challenges of your client are. Because honestly speaking, our industry was very much inward-focused, pretty boring service provisioning. Our industry is not the best practice example on how you listen to your clients. We have to improve our service. It has to be client first, not optimization of your own P&L first. I think that's the starting point. The second one is you have to understand the big trends. And for us, it's certainly the mix of digitization and decarbonization. There will not be a climate-utrile real estate industry if digitization doesn't kick there. And that's an opportunity statement, but that's a transformation challenge statement. So that's the other angle that comes from the outside. And the third one is you can transform digitally as you want into zeros and ones and IoT devices at the end of the day. It's always the same. It's about the people. I think we all have to win the hearts, minds and the trust of our people. Have to bring in our leadership style, but also leadership, let's say categories in terms of how you define your leadership values. For us, that was honesty, openness, clarity, but also accountability. Getting stuff done. These are the four very simple words that I think in the meantime mean not only to our management but our employee base. So be straight on the people agenda side and win their hearts and minds. For us, the purpose is helping us to get that change done, but we are far from being done. We are right in the middle of it. So it's far too early to call any success. Well, how about a personal recommendation? Any book that you read recently and you would like all of us to read? I just re-looked and read read actually over this weekend, Harari, again, because not only are the books easy to read, I have to say, but I think the point is what he did in the meantime is to bring the same version out for kind of teens, more in a kind of comic way. And I found that very, very powerful because I think the power of visualization beyond just the messaging, that was my inspiration over the weekend when that was good. Mr. Hartman, thank you. It's a pleasure having you. Thank you very much. It was a great pleasure. Thank you so much. And thanks to all our listeners. That was leading corporate transformation, the podcast by Vika Ul-Arabai Sign School of Management, powered by PWC. Editorial team, Marvin Shunah and Zimon Girlach.