x Abu Dhabi, UAEFriday 19 January 2018

Pushing the envelope is 'something I'm good at'

Dinesh Paliwal loves to talk of the energy of Dubai, the energy of China, the energy he wants his board members to absorb from emerging economies.

Safe pair of hands: Dinesh Paliwal, the chairman and chief executive of Harman International, has utilised the wealth of experience he gained at the Swiss engineering firm ABB to overhaul Harman International.
Safe pair of hands: Dinesh Paliwal, the chairman and chief executive of Harman International, has utilised the wealth of experience he gained at the Swiss engineering firm ABB to overhaul Harman International.

Energy is a word you frequently hear in a conversation with Dinesh Paliwal. He loves to talk of the energy of Dubai, the energy of China, the energy he wants his board members to absorb from emerging economies. Energy, and the power plants that produce it, is a central part of the business of ABB, the Swiss multinational engineering business where he spent the first 20 years of his career. When Mr Paliwal parted ways with the company in 2007, Fred Kindle, the ABB chief executive, said: "We will miss Dinesh's energy."

When he became the chairman of Harman International last December, Eugene Harman, the company's founder, praised the "remarkable energy" he had brought with him. Last month, it was the energy of Dubai that had Mr Paliwal talking. The audio and electronics maker unveiled Harman House, a 16,000 square foot showroom - its largest in the world - in an event important enough to bring Mr Paliwal to the UAE from his base in the US.

"You walk in here and immediately, you feel the energy," he said. "This is why I love coming here, it is why I want to bring my board here." The vigour and dynamism - should we say, energy? - of emerging markets is central to Mr Paliwal's corporate character. When he brought ABB's automation division into China in the mid-1990s, he found himself at the heart of the manufacturing boom that thrust the Chinese economy into the core of world trade. ABB builds the factory systems and robotics that drive many large industrial operations, so the Chinese market at the time presented Mr Paliwal with a rare opportunity. Chinese business culture was hard to crack, with long nights of karaoke and banqueting just as important to doing business as long days in the board room. But his work paid off, and China is now ABB's second-largest market.

Indian by birth, Mr Paliwal was the first person from outside Europe or the US to get a seat on ABB's board. "I was an outsider," he said, "but pushing the envelope has become something I am very good at." Short and stout with well-defined features and a tendency for pinstripes, he speaks in the globalised Indian accent that business people are likely to increasingly hear in the coming century. For an engineer, his style is decidedly managerial, and his language blends an eager sales pitch with well-reasoned business sense.

ABB had made scores of acquisitions in the previous 20 years, but had yet to reap the benefits of integration and scale. Even worse, one US company it acquired ended up costing it almost US$2 billion (Dh7.34bn) in compensation payments related to legal actions surrounding the use of asbestos in its products. Between 2001 and 2007, Mr Paliwal worked with other ABB executives to turn the company around. His game plan centred on simple principles: integrating multiple businesses and consolidating the company into a smaller number of units, building a globally minded management team and fostering a transparent management culture.

The strategy worked, and ABB soon began posting healthy profits that have continued to grow through the financial crisis. Mr Paliwal is now reprising that role to revive Harman International, which has acquired some of the world's leading makers of audio equipment for homes, cars, cinemas and recording studios. By 2007, when it recruited Mr Paliwal as its chief executive, the company owned more than 15 brands, which, though acquired over decades, had not been fully integrated into the company.

"It was a $4bn company that acted like 20 or 30 different $100 million companies," Mr Paliwal said. "The company was in silos. It had grown rapidly and made a lot of acquisitions, and left them as they were. They had never taken advantage of the scale." It was this unrealised potential - to scale, consolidate and rationalise - that attracted a group of private equity buyers to Harman in early 2007. Led by the experienced buyout company Kohlberg Kravis Roberts (KKR), they proposed an $8bn deal that would take the company private, offering $120 per share - a roughly 20 per cent premium - for Harman stock.

The deal, approved by Eugene Harman and the company board, also gave shareholders the opportunity to swap their stake in the public company for shares in the new private company, something rarely offered by private equity buyers. The two parties agreed to bring in a new chief executive to begin a sweeping transformation of the company in advance of the buyout. Enter Mr Paliwal. Fresh from the turnaround at ABB, Harman's new private owners hoped he would cut through red tape and make bold changes, free of the short-term focus of public ownership.

Mr Paliwal began the change almost immediately, replacing upper management, consolidating the corporate structure and working to unify research and development efforts. But one thing did not go according to plan - the private equity buyout that brought him into the company collapsed in late 2007, one of the earliest high-profile victims of the credit crunch. "I'm still doing exactly what private equity would have been doing," he said. "Actually, one of my board members is from private equity, and that guy tells me 'Dinesh, if we took you guys over, I don't think we could have asked you to do it faster'."

The virtues of private equity - its aversion to bureaucracy, the focus on long-term growth - support taking a company off of the stock market, Mr Paliwal said. "I've been on both sides, and trust me, it definitely has its advantages." But public companies with courageous management can make equally bold, unpopular decisions. Opportunities for such are particularly good when the equities markets, suffering through economic turmoil, are undervaluing companies across the board.

"We are doing a lot of investment now, making big pushes into emerging markets, huge investments in research and development," he said. "The market may not like it, but I am doing it, because the market doesn't like any company right now." Like most technology executives with an engineering background, an emphasis on research and development is a cornerstone of Mr Paliwal's management. Consolidating R&D efforts, while sometimes unpopular with scientists, allowed common challenges to be solved faster, he said. This lets the business units focus on specialised research. "You can do the best R&D if you do what applies to all businesses in fewer locations," he said.

"If you do it in 20 different locations you don't have the scale. R&D has to be a lot more agile, a lot more responsive. This is why we put research centres in places like Bangalore and Shanghai, to understand what the market needs." Research will be Harman's focus in the coming years since Mr Paliwal plans to spend at least $250m developing new technologies for the automotive industry, which accounts for about 70 per cent of company revenues. A big thrust of the spending, he said, would be using mobile internet, satellite navigation and telecommunications technologies to improve the experience of drivers and passengers.

"Time to market is always a challenge, because we are an engineering company and engineers will always want to hold back. For them, it is a search for perfection." Creating a precision-engineered product for quality-conscious customers is perhaps a difficult business model since most car makers are struggling to stay afloat. "Luckily," Mr Paliwal added, "we are working with top-end cars like BMW and Lexus, not the lousy cars that nobody wants to buy. So, we are in the place that will bounce back the fastest."