SKF by Michelle Percell by shuifanglj


									 Company Analysis


   Michelle Percell

    Submitted to:

Dr. Kim and Prof. Khan
    Trade Missions
Minot State University
 Minot, North Dakota
Spring Semester, 2003
Swedish Organizational Culture

       Culture is defined as a society’s accepted basis for responding to external and

internal events, these may include geography, history, religion, and language. Culture is

not inherent it is a social legacy. Culture is learned through observing behaviors of others

in society their language, knowledge, emotions, and ideas. This cultural pattern is then

built on, used, and passed to subsequent generations. Organizations also adopt a

corporate culture that affects operations, production, sales, and management style.

Societal and business cultures change and new methods are added as the society and the

firm adapt to external changes.

       Swedes are always very punctual and expect their counterparts to do likewise.

When Swedes conduct business they use last names and appropriate titles, English is the

business language spoken in Sweden especially during presentations, all presentations

must be backed by facts and references. Swedes are harsh negotiators and are extremely

detailed. Appointments should be made two weeks in advance. Schedules and minutes

are clearly set for meetings, however, decisions maybe lengthy. Swedes do not exchange

gifts during business. It would be wrong to expect people to work over weekends,

holidays, or vacations, since these times are usually highly prized. Swedish

businesspeople, however, will take work home with them in the evening. Refrain from

scheduling meetings with Swedish businesspeople for the months of June, July, or

August, as well as late February through early March. These are very popular times when

Swedes go on holiday. The minimum vacation per year is five weeks.

       Remember that there is a need to keep a low profile, and avoid anything showy or

status linked, means that even well paid senior executives do not necessarily dress any

more elaborately than average employees do. All Swedes typically dress well, but none

much better than others. This reflects the importance of maintaining a sense of equality in

this society. Scandinavians appreciate knowledge of the differences among the people of

Finland, Norway, Sweden, and Denmark. (

       Swedes respect someone who comes to them with established knowledge and

experience. The Swedes value consensus and avoid confrontation. The ability to be a

stable, functioning member of the team is key. Moreover, sincerity and seriousness,

rather than friendliness, are preferred attributes. Complimenting and rewarding

employees in public are usually not practiced. Generally, Swedes get right down to

business with little or no small talk. There is a critical emphasis on privacy and

individual accomplishment of one's tasks. There can, however, be much interaction

between senior management and staff, and within and among team members. Thoughtful,

quiet, and careful adherence to procedures is believed to be the most effective way of

accomplishing a task. Anything that is unusual or out of the ordinary are not appreciated

and should be explained. People and things need to be credible and substantial. The role

of the boss is to dispense information, provide guidance, and be the key decision-maker.

Subordinates are expected to provide detailed information and follow the decisions made

by their superiors. All parties are expected to work alongside each other as equals. The

hierarchy is usually quite accessible and there is a preferred air of informal respect

between superiors, staff, and workers. Decision-making falls to the lower levels of the

hierarchy in Sweden, where there is an emphasis on teamwork and compromise. In

many cases, they will turn over the power to make a decision to their middle managers,

who may even pass it over to lower levels. There is a definite hierarchy in Swedish

organizations. In many cases, however, the more senior managers will delegate to the

mid-level management structure.

       Women make up approximately 48% of the Swedish work force (the highest

percentage in the world). Women and men are generally treated as equals in this country,

so expect decision-makers to be of either gender, and that all members of a team can be

involved in the decision making process. Businesswomen in Sweden whether foreign or

native born may pay the check at a business lunch or dinner without reservation.

Company Overview: Swedish Ball Bearing Manufacturer

       The AB (Aktiebolegat) SKF Group is located in Goteborg; Sweden is the SKF

parent company. Engineer Sven Wingquist who invented the self-aligned ball bearing

founded SKF in 1907. On January 28, 2003 the Board of Directors of Aktiebolaget SKF

appointed Tom Johnstone as new President and Chief Executive Officer of SKF.

Johnstone assumed the position of president on April 15, 2003 as Sune Carlsson retired.

       The parent company is organized into five divisions: Industrial, Automotive,

Electrical, Service, and Aero and Steel. Each of these divisions competes in and services

a global market, focusing on its specific customer segments. There are also five staff

units: Group Legal, Group Communication, Group Finance, Business Development and

Purchasing, Group Quality and Human Resources, and Group Technology Development.

The company owns 83 production sites in 24 countries, operates approximately 150

companies, and employees approximately 39,000 people.

       The biggest challenge facing the company is ensuring that it focuses on

developing the businesses profitably and revenue generation. For this reason the SKF

Group’s president and its managers are also developing strategies that fit the corporate

culture, mission, and vision of the company. The creation of new products and product

line extension is a product strategy that is aimed at protecting the company’s viability in a

changing environment. SKF’s growth strategy is currently focused geographically on

India and also through strategic acquisitions and joint ventures.   The SKF Group is

developing a cost reduction strategy due to the constant pressure for cost reduction from

all its customers.

Internal Analysis


        The Explorer spherical ball bearing is the newest SKF Group development within

the ultra-low friction and high capacity products. The benefits of the Explorer include

the following: a high load rating that allows for the utilization of smaller machines that

consume less energy; enhanced service life for increased environmental benefits brought

on by reduced downtime and lower maintenance costs. Marketing this product along

with all of the SKF Group’s ball bearing products is extremely difficult except in industry

journals and periodicals because it is hard to market what one does not see. However, the

quality of the SKF roller bearing products sells themselves.

Customer Service

        The SKF Group provides the following customer service package options to its


       Data collectors to collect bearing vibration information from machines;

       Maintenance software to analysis information from sensor units on the bearing

        housing which relays the information to a central storage station;

       Online monitoring system that measures performance at vast numbers of separate

        points on machines. (Managing the Microworld, 1995)

    The “@ptitude” industrial decision support system is a modular system that aids in

the improvement of machine efficiency by replacing labor-intensive data collection and

analysis with automatic analysis, fault resolution, and work order notification. This

system allows SKF’s customers to apply decision-making standards quickly and

consistently, based on meaningful data.

    SKF logistics support provides global, customized and fully integrated supply chain

solutions. SKF Logistics Services can significantly reduce costs associated with

inventory, operations, distribution, and administration. The system also provides shorter

and more reliable delivery time and product availability.

Core Business

        SKF’s goal is to make things run better which explains its core business; the

production of self aligned ball bearings. The following are produced at a rate of 27,000

units per hour: ball bearings, roller bearings, magnetic bearings, slewing bearings, and

gas bearings. The smallest are less than a centimeter in diameter and the largest is 39 feet

in diameter. A ball bearing is exposed to extreme pressures and is protected by a layer of

oil 50 atoms thick. ( These pressures convert the lubricant into a soft firm

substance and back into liquid form.    This lubricant is also produced by the SKF Group

and is an essential element of its core product.

       One third of the SKF Group’s sales come from each of the following divisions

respectively automotive, aero steel, and electric. Although the Group maintains the

number one position in the manufacturing industry it has never possessed more than 20%

total market share since 1960, management does not expect this to change. Ninety-five

percent of all products produced by SKF in its home country of Sweden are exported.

Environmental Responsibility
       SKF has demonstrated its commitment to sound environmental practice when it

was awarded ISO 14001 certification, the international standard for environmental

management systems, at the beginning of 1999. The most comprehensive of its kind,

SKF's environmental certification now covers more than 80 different manufacturing,

logistics and technical facilities in 22 countries on five continents. (

Environmental issues are of extreme importance to SKF customers and partners, for this

reason a carefully formulated environmental program at SKF is giving it an important

competitive advantage. The term "environment" in this policy includes the external

environment and the internal working conditions as well as health and safety. Current

laws and regulations, and commitments to which SKF subscribes, are to be considered as

minimum requirements and conserves energy and natural resources. SKF’s

environmental performance will be continually improved according to this policy.

Environmental effects shall be taken into account when business decisions are made.

SKF companies shall strive towards a constructive communication with their local

communities as well as all environmental authorities concerned. Suppliers and sub-

contractors are required to adopt the principles of this policy. SKF companies will

continue to provide safe and attractive workplaces for all its employees and ensure that

the employees are sufficiently educated and trained to apply this policy in their daily

work. All SKF companies shall maintain long-term environmental plans, which shall be

continually adapted to developments, new discoveries, and experiences relating to the

environment. All SKF companies conduct regular assessments of compliance with this

policy. Environmental performance is measured and reported regularly to shareholders,

employees, and the public.

       The SKF Group continues to maintain its long history of Quality Management

System. With few exceptions the Group’s 170 operating units have received ISO 9000

certification. SKF takes a preventative stance in regards to environmental hazards. In

1996 the Group set a goal to have environmental certification for the entire Group prior

to 1999. In 1998 the SKF Group became the first bearing manufacturer to acquire

approval according to ISO 14001 (international standard for environmental management

systems). ( This guarantees customers, shareholders, and other

stakeholders of SKF that the Group takes environmental responsibility seriously, which

allows customers to meet their obligations. Minimization of the impact that SKF’s

manufacturing operations on the land, air, and water is of utmost importance to the

Group. To this end SKF subscribed to the Business Charter for Sustainable Development

when it was issued by the International Chamber of Commerce in 1991. This charter

enforces strict rules that require all subscribers to conduct or support research and

development on the environmental effect of their operations and products.

       The process of manufacturing bearings potentially produces by products that are

environmentally detrimental. The SKF Group product development department

developed a lubricant that was nicknamed “green” grease, which contains no lead. All

the other lubricants are being phased out of use in production in favor of this

environmentally safe substitute.    The SKF Group is also making progress in decreasing

the amount of solid waste such as grinding swarf, which is traditionally disposed of in

landfills. SKF is currently conducting research to efforts to recycle swarf for use in steel,

ferrochrome melting, or cement manufacturing.

Management Analysis
       "The SKF Management Model" is based on the Malcolm Baldrige "National

Quality Award" criteria that have been altered to fit SKF environment and language. The

model is focused on how SKF has defined behavior leading to "Business Excellence".

The management of the SKF Group is based on a Total Quality Management (TQM)

strategy. This strategy affects employees, customers, and processes. Management has

identified all of the most essential business processes and has intensified work to improve

the quality. The involvement of employees has caused customer values to be increased.

The customer aspect of SKF is focused on relationship building and exceeding customer

expectations specifically in the development of new products and services. TQM

employee teams utilize the following problem solving system:

       Employee management is a horizontal process and to ensure this an analysis of

the work climate within the Group being conducted in all units every 18 months. This

effort gives all employees opportunities to express their views on how the Company can

be improved. So as to maintain a continual learning environment SKF established the

Learning Centre in March 1998 so as to examine training and development activities at a

Group level. SKF managers believe that people are the only sustainable competitive

advantage SKF has and so it studies how best to develop its employees. The Learning

Centre also focuses on leadership development. The SKF College was started in 1987

and is located at SKF ERC, in Nieuwegein the Netherlands. The SKF College has always

concentrated on technical training programs. Both the SKF College and The Learning

Centre aim to offer training and development programs of a standard equal to or higher

than those offered outside of the company. Education is of utmost important to SKF,

especially research information gathered from MBA students. The company in turn takes

this information and uses it for market analysis purposes.

       The management of processes at the SKF Group’s overall objective is to increase

focus on Customer Satisfaction and Business Results by managing operations in a cross

functional and process oriented manner. The purpose of the process is to ensure that SKF

is a more profitable company by cutting costs, increasing the speed and quality of work

processes, and to this end enable growth. Process work managers seek to facilitate and

create benchmarking and standardization.

       The SKF Group management is based on a code of conduct that requires and

monitors responsibility in the following areas: customers, employees, shareholders, and

society. The code is based on the SKF Group’s core values: High Ethics, Empowerment,

Openness, and Teamwork. SKF also takes a strong position about conservation in

regards to the environment and uses its beliefs in environmental protectionism to dictate

how it performs its business. SKF’s manufacturing units, distribution units, technical and

engineering centers are approved to ISO 14001, the international standard for

environmental management. These units are included in a single Group-wide certificate,

which at the end of 2002 encompassed 82 SKF sites in 23 countries.

First Quarter Earnings and Performance 2003

Table 1. SKF Group Earnings

EBIT                                       SEK 802 million
EPS                                        SEK 4.94
Operating profit                           SEK 944 million
Operating margin                           9%
Cash flow after investments and prior to   SEK 47 million
Net profit                                 SEK 562 million
Net sales                                  Decreased by 1.2%
Attributed to:
Structure                                  .7%
Volume                                     6.2%
Price/mix                                  1.2%
Currency effect                            –9.3%
Financial net                              SEK –142 million
Tangible assets                            SEK 304 million
Inventory                                  22.2% of annual sales
Equity/Asset ratio                         41.2%
Return on capital                          17.4%
Return on equity                           16%
Profits before taxes                       SEK 160 million

Table 2. Earnings by Divisions

Divisions        Operating        Operating        External Sales   Total Sales
                 income           Margin
Industrial       SEK 370          9.5%             SEK 2,536        SEK 3, 890
                 million                           million          million
Automotive       SEK 174          4.6%             SEK 3,441        SEK 3,812
                 million                           million          million
Electrical       SEK 80 million   4.7%             SEK 502          SEK 1, 690
                                                   million          million
Service          SEK 294          8.4%             SEK 3,083        SEK 3,493
                 million                           million          million
Aero and Steel   SEK 47 million   2.8%             SEK 971          SEK 1,681
                                                   million          million

       In the Industrial division sales increased in Europe and Asia while sales in North

America remained unchanged, due to the expansion of the Explorer high performance

bearing with the incorporation of the spherical roller thrust bearing. The Automotive

division saw an increase in the sale of bearing and seal products to the car and light truck

industry in Europe and North America. Sales to the heavy truck and vehicle service

industries increased in Europe, but decreased in North America. In the Electrical division

were high in Asia and Europe, the Shanghai factory began production of ball bearings

and two development centers were established in Bangalore and India. The Service

division saw unchanged sales in Western Europe and significant decreases in North

America. Sales grew rapidly in Asia, Latin America, and Central and Eastern Europe.

The Reliability Services department continued to sign major product and service

contracts around the world, including customers in the mining industry in Australia, the

paper industry in Mexico, and the cement industry in Thailand. The Aero and Steel

industry acquired Ovako Steel and the former Steel division, however, sales were

decreased over all geographical areas. The first deliveries of composite rods from the

French subsidiary SARMA were made to the new airbus A380. Overall SKF Group sales

in Europe increased, remained the same in North America, and grew strongly in Asia as

compared to the same period last year. Manufacturing levels were higher than sales in

the first quarter but, will be adjusted accordingly.

       The new CEO Tom Johnstone has set forth the following goals and objectives: a

target to maintain an operating margin at 10% and achieve SEK 10 billion additional

annual net sales by 2005/2006. To achieve this target the focus will be on increased

development of operational excellence, organizational growth and acquisitions. The

organizational growth should come from geographical expansion, fast growing customer

segments, aftermarket sales, service business, and new products. According to the CEO

acquisitions should contribute approximately 33% of the additional net sales.

2002-2003 Mergers, Acquisition, and Joint Venture Analysis
        With the following acquisitions, SKF expands the number of ball-screw

manufacturing facilities to four: Turin, Italy; Chambery, France; Beaufort, France; and

Detroit in the United States. The acquisitions reflect the SKF Group's strategy to grow

through acquisitions and expand businesses with higher value added. An important part

of SKF’s growth strategy is to acquire specialist companies, primarily within the service

sector. The purpose is to add new technology, skilled personnel and a larger customer

base to the Group. SKF has acquired eight companies so far since last year with

combined annual sales of SEK 0.5 billion. Efforts to sell the Steel Division were

discontinued at the beginning of the year. SKF was unable to reach an acceptable solution

and are concentrating this year on raising the profit in our Swedish steel business.

       February 15, 2002 the SKF Group acquired all shares of the US maintenance
        engineering company Erin Engineering and Research Inc. Erin Engineering and
        Research provides maintenance engineering services to the US power generation
        and hydrocarbon processing industries.

       April 8, 2002 a joint development venture was undertaken with Michelin and
        Wabco a braking supplier for a tire-air management system, which will allow
        drivers to change tire pressure even as the vehicle is moving. Production is
        expected to be at capacity by 2006.

       April 23, 2002 the SKF Group completed its acquisition of 75% of the shares in
        British bearings maker NSK Aerospace Europe Ltd. The acquired company was

    renamed Aeroengine Bearings UK it designs, manufactures and sells bearings for
    jet engines.

   May 2002 SKF acquired the bearing business of VMZ in Bulgaria its operations
    consist of four bearing manufacturing factories. The new company was renamed
    SBB (SKF Bearings Bulgaria) and is part of the SKF Electrical Division.

   May 8, 2002 SKF and Goodyear formed a partnership the Power Transmission
    Alliance, aimed at serving industrial clients in the potency transmission segment.
    Goodyear produces belts and industrial hoses while SKF produces bearings and
    monitoring systems.

   May 2002 SKF and PBR Australia, part of the Pacifica Group Ltd., formed a
    partnership to develop an electric version of PBR's parking brake, "Banksia."
    This agreement brings together SKF's expertise in automotive mechatronics and
    Smart Electro-Mechanical Actuating Unit functions and PBR's state-of-the-art
    park-brake technology. PBR is the world's leading supplier of lightweight
    aluminum and park-brake solutions for the automotive industry.

   May 21, 2002 SKF acquired the Dutch company Delta Consult BV for an
    undisclosed sum. Delta Consult, provides high-level life-cycle asset management,
    maintenance engineering and operational services, as well as maintenance related
    business process and information technology support. According to SKF the
    acquisition would strengthen its Reliability Systems business.

   July 1, 2002 SKF and Chrysler announce that all Pacifica 2004 models will
    outfitted with SKF hub bearing units on both axles. Chrysler Pacifica will be
    launched in 2003, as a 2004 model, and will have all-wheel drive capabilities
    featuring the latest design of SKF's third generation hub bearing units. Chrysler's
    all-new 2004 Pacifica, positioned as a sports tourer.

   October 21, 2002 SKF and General Motors began a partnership to provide by-
    wire technology so that GM will have a production-ready version of Hy-Wire
    fuel cell car by 2010.

        December 9, 2002 SKF announced the divestment of its Veenendaal plant, the
         Netherlands to the US-based group NN Inc. as part of its strategy to divest non-
         core component manufacturing operations.

        January 10, 2003 the SKF Group acquired the US ground ball screws maker
         Twentieth Century Machine Co (TCM) for an undisclosed sum. TCM became
         part of and strengthened the SKF Linear Motion & Precision Technologies
         business unit.

Product and Brand Analysis
         The following is a list of the products that are produced by the SKF Group:
Aeroengine bearings
                                                    Needle roller bearings
Angular contact ball bearings
                                                    Needle roller thrust bearings
Angular contact spherical plain bearings
                                                    Precision bearings
Angular contact thrust ball bearings
                                                    Precision rail guides
Automotive bearings
                                                    Profile rail guides
Backing bearings for cluster mills
                                                    Radial spherical plain bearings
Ball and roller screws
                                                    Railway bearings
Case-hardening steels
                                                    Rod ends
Ceramic bearings
                                                    Self-aligning ball bearings
Coated bearings
                                                    Sensorised bearings
Combined cylindrical roller/taper roller bearings
                                                    Shaft couplings
Combined needle roller bearings
                                                    Slewing bearings
                                                    Slides and positioning tables
Crossed taper roller bearings
                                                    Spherical plain thrust bearings
Cylindrical roller bearings
                                                    Spherical roller bearings
Cylindrical roller thrust bearings
                                                    Steels for corrosion-resistant bearings
Deep groove ball bearings
                                                    Steels for SKF rolling bearings
DynaSpin™ - Auto-Balancers
                                                    Steels for temperature resistant bearings
Electromechanical actuators
                                                    Supergrip bolts
Fixed section bearings
                                                    Taper roller bearings
High temperature bearings
                                                    Taper roller thrust bearings
Hydrostatic shoe bearings
                                                    Through-hardening steels
Indexing roller units
                                                    Thrust ball bearings
INSOCOAT™ bearings
                                                    Toroidal roller bearings - CARB®
Linear ball bearings
                                                    Track runner bearings
Magnetic bearings
                                                    Triple ring bearings
Multi-row radial ball bearings
                                                    Y-bearings units


         The SKF standard product range encompasses more than 39,000 variants covering

all the principal bearing and seal types. The development of existing products and

innovations better meet customer requirements and are factors of vital importance to a

SKF’s ability to survive and grow. Accordingly, research and development activities

play an essential part at the SKF Group. SKF has concentrated its research and

development at its The SKF Engineering & Research Centre (ERC) in Nieuwegein, the

Netherlands. This center is equipped with product development and testing facilities as

well as manufacturing technology development centers. The SKF Group holds several

brands and trademarks that are recognized globally they are as follows:

                                                      Gamfior &

SKF Vehicle Service

MRC Aeroengine

MRC Balls and
Specialty Bearings

SARMA & AMPEP                                         DynaSpin

CR & RFT                                              Pilgrim

Sealpool                                              Delta

Ovako Steel                                           DEI

@pitude                                               D.I.

Naiden Teknik AB                                      ERIN



Research & Development

        Circumstances under which the bearings operate become tougher, as customer

preferences and competitive pressures push engineers to maximize performance while

reducing size, weight and energy usage. As the world’s foremost manufacturer of roller

bearings and seals, research, development, and innovation are of utmost importance at the

SKF Group. Innovation occurs at every level of the company, among frontline workers

and top management. The desire to be to have a complete knowledge about bearings,

seals, and their usage more than any other company continues to make SKF the leader in

this industry.

        SKF Group aims to maintain a broad geographical presence and to always remain

in close contact with its customers. This is done through a highly developed network of

wholly owned manufacturing and sales companies and authorized distributors covering

approximately 150 countries in the world. SKF therefore, utilizes its R&D resources

with the markets it serves, which allow it to flexible and responsive to customer

requirements. A considerable amount of resources are allocated to technological

development each year. The more SKF Engineering and Research Center knows about

the ball bearings and seals the better SKF customers are equipped to maintain control

over their product and processes.

        Research Programs are also held in conjunction with universities and institutions

such as the Imperial College of London, the Lulea Institution of Technology in Sweden,

and Chalmers University. The knowledge that is acquired within these programs is

channeled to SKF Nova, where new products are developed for the rest of the group.

International Product Divisions (IPD) then handles all the types of bearings new and

otherwise. Each division within the IPD takes responsibility for its products, process

specifications, development programs, and R&D goals.

       More than 160 scientists, engineers, and support staff work at the Engineering &

Research Center (ERC), studying and determining the ways in which roller bearings and

seals are made and used. Professor Stathis Ioannides at the ERC has succeeded in giving

a more practical meaning to bearings called the SKF Life Theory. This theory assists in

developing and designing a bearing that lasts forever through utilizing high quality steel

and reduced dimensions to make a lighter bearing that can do the same job as heavy ones.

Due to the Life Theory SKF is producing bearings that are increasingly compact and long

lasting. Professor Ioannides says of the Life Theory, “As a result, previously

unpredictable behaviors and interactions can be approximated more accurately than ever”

(SKF Group, 1999). For SKF customers this means two things, a more reliable bearing

due to testing to improve and increase the duration of bearing life.

Production Process

       The right quality, quantities, and increased efficiency are three values that drive

production at SKF. The SKF Group continually strives to improve its production

processes through activities such as, total preventive maintenance (TPM), zero defects,

resetting, efficiency, and training. Specialized Technology Development Centers were

developed on the production floor to improve the efficiency of techniques utilized in soft

machining, heat treatment, hard machining, measuring, equipment, and computer

integrated manufacturing (CIM). Each center finds and develops techniques that will

help production, reduce manufacturing costs, improve quality, and shorten lead times.

The centers also monitor progress in technology, existing techniques, and introduces new

techniques. Process control and monitoring are also utilized within this system, to add

quality and generate information for statistical data required by customers. Inspection

systems within the centers are automatic, based on image and pattern recognition, and

continually developed to allow increased production speeds with superior quality. These

centers represent a move towards a more market-oriented and customer driven

production. The SKF Group plans to have the entire manufacturing organization based

on this CIM information and control system. When implementation in complete

production channels will be automated from entry of orders, setting of machine

specifications, continuous monitoring, to control during production runs.

       On the SKF production floor instead of long production lines with large runs,

there are small self-contained autonomous groups, called production channels. These

channels have significantly reduced lead times for both development and production,

while reducing work in progress and inventory. Communication channels are shorter,

bottlenecks are eliminated and unnecessary steps in production are by passed.

Employees within these production channels have developed a broader knowledge base

and a stronger commitment to the SKF Group. The production channel allows team

members to share responsibility for quality, delivery time, and production flow. The

production floor has, therefore, seen a 50% reduction in lead-time and an 85% reduction

in customer complaints over the last three years. Once the channel members became

responsible for a bearing not a duty the change was obvious. Team members began

walking the line, examining the flow of work and suggestion boxes filled quickly which

led to a proficient restructuring of the plant arrangement. Subsequently, output increased

by 40% and job related accidents were reduced by 75%. All channel members know

their customer, product specifications, and the team objectives for quality, delivery time,

and production flow. The Channel Concept proves that the development of employees is

essential for exceptional manufacturing.

External Analysis

Industry Analysis
       The primary industry that the SKF Group exists in is the manufacturing sector

that manufactures automatic and machine tools including metal cutting tools, milling

machines, lathes, and other production-line machinery and accessories, such as ball and

roller bearings, metal stamping foil and leaf, and other related tooling accessories. SKF’s

secondary industry is the manufacturing sector that fabricates, stamp or form iron, steel,

or other metals into products such as structured components, auto and aircraft assemblies,

tanks and vessels, and other industrial products. The sustained improvement in

automobile production since the second half of the 2001 fiscal has had a positive impact

on the performance of the SKF Group approximately 60% of the company's revenues is

garnered from the original equipment and the replacement segment. Due to a close

association with the automobile industry (major supplier to almost all top passenger car

producers), the company's financial performance tends to fluctuate in sync with

automobile production.

       The SKF Group operates in many industries that are varied and often extremely

different from the bearing industry. The following are all of the industries in which SKF

operates: aerospace, auto-electrical appliances, automotive aftermarket, cars, electrical

motors, electrical power tools, fluid machinery, household appliances, industrial

electrical, industrial transmission, machine tools, materials handling, office machinery,

printing machinery, pulp and paper, railways, racing, and two wheelers.

Market Analysis
          The size of the world bearing market has been defined by the global sales of

bearings. Measured as such, SKF estimates the market to be worth approximately SEK

200 billion per year. The West European market potential is approximately 25% and the

North American market potential is about 30%. The third largest market is Japan with

15% market potential. Other markets that have a sizable local production of bearings are

Brazil, China, India and Russia. However, the bearing business is to a large degree

regional. This means that SKF’s main competitors differ depending on the region.

Competitor Analysis
          Strategy for success regardless of competitors SKF's Group strategy has three

main components whose purpose is to promote better profit and a steadier growth of


         The elimination of businesses with unsatisfactory profit potential.
         The development of the existing core business in the bearing and seals sectors.
         The investment in new areas that, in the long run, will lead to an increase in the
          growth of profit and volumes.
          Roughly half of all SKF's production channels have now manufactured products

for at least a year without a single defect in any of them. This ranks as world-class quality

when you consider that we produce millions of units every day. SKF’s principal

competitors have the greater part of their production capacity in Germany, the USA or

Japan. SKF’s manufacturing is wider spread geographically, but with a concentration to

continental Europe, the USA and Sweden. SKF is today the world-leading bearing

company and the largest supplier to the markets in Europe, Latin America, Africa and the

Middle East. SKF also leads in Asia (excluding Japan). The other major international

bearing companies are INA (including the recently acquired FAG) in Europe, Timken

and Torrington (which is part of Ingersoll Rand) in the USA, and NSK, NTN and Koyo

in Japan.

       The SKF Group is relying heavily on its brand equity to consistently charge

higher prices for its ball bearing products. However, Japanese and Eastern European

competitors are producing ball bearings that are of equal or higher quality and charging

less. SKF will not be able to continue this practice indefinitely as most company’s

specifically automobile manufacturers are attempting to employ cost reduction strategies.

SWOT Analysis

     Product quality

      Automated processes

      Production Channels

      Research and Development

      Environmental standards

   Inability to increase market penetration

      Inability to completely divest the steel division

      Inability to reduce the cost of production

      Inability to expand its business line although bearing life is increasing

    Increased automobile production

      Increased product development requiring bearings

    Viable competitors that are producing bearings at a lower cost and price

The Future of SKF

       The bearings of the future will be made of ceramic, a special grade composed of

silicon nitride. The rolling elements in the bearings are composed of ceramic powder

compressed under high pressure. This hybrid bearing is lighter and more durable than

steel bearings; therefore, they last longer, generate less friction, operate at increased

rotation speeds, tolerate extremely high temperatures, and require less lubrication. They

are used in the following: machine tools, pumps, electric motors, and inline skates.

       The SKF Group has developed an integrated speed sensor for automobiles. The

newly developed sensors are protected against corrosion and road debris, which makes

them more reliable and durable than conventional sensors. Currently SKF engineers are

attempting to produce an intelligent bearing that can feed data to electronic control

systems, or even to car navigation systems.

       Timkine and Torinton (USA) and FAG (Germany) are the competitors that SKF is

concerned about and utilizes for benchmarking. This is because these companies produce

basically the same quality product as the SKF Group, however, the SKF bearings and

priced much higher. SKF management is not concerned about the quality of the

competitor’s product and does not foresee a price reduction. This is due to its

competitive advantage: providing quality customer service through follow up, lifetime

guarantees, and superior logistics. SKF’s demand monitoring and demand predicting

software systems, inter-company cooperation closely monitors sales trends and projects

demand. SKF offers the most advanced maintenance and monitoring equipment to

ensure that its bearings keep performing at their peek.

       The SKF Group has reduced the number of employees that work in management

and production yearly.     The factory continues to become increasingly automated. The

Group intends to continue on this trend of small autonomous work groups and large

amounts of robotics. This increases the amount of marginal profits made from revenues

generated by production.

Automotive News Europe, April 8, 2002 v7 i7 p15. SKF focuses on partnerships,
Europe Intelligence Wire, Jan 29, 2003 pNA. SKF names new chief as quarterly profits
Executive Planet website,, June 9, 2003.

Industrial Distribution, March 2003 v92 i3 p18 (1). SKF acquired Twentieth Century
Machine Co.

Lear, Elizabeth. Motion Systems Distributor, May-June 2002 v16 i3 p7 (1). SKF Group.
(On the Move)

Managing the Microworld: Research & Development at SKF. SKF Group Publications.
August 1995

Nordic Business Report, Jan 28, 2003 pNA . SKF improves operating result to over

Nordic Business Report, Jan 10, 2003 pNA. SKF Group acquires US ground ball screws
maker Twentieth Century Machine Co.

PrimeZone Media Network, Jan 28, 2003 p1008028u0190. New President and CEO of

PrimeZone Media Network, Jan 28, 2003 p1008028u0330. SKF Year-End Report for
SKF website, , June7, 2003
The World of SKF. SKF Group Publications. April 2002.


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