Facit, Expansion, Complexity And Growth

”3000 at Facit have to be fired”

The Swedish company Facit collapsed when

electroniccalculators

disrupted theirmechanicalproducts.

The example is often used in

order to illustratehow successful

firms can go under rapidly dueto a technological

shift.

This description should be regarded as accurate.

… However, it should be pointed out that the company started to encounter problems long before

the electronic revolution destroyed Facit.

It is true that all curves had beenpointing upwards

during the 1960s…

”Company turnoverabove 1 billion.”

The acquisition of Addo was one reason for this (the leap in 1965-66 below).

One should also bear in mind that the inflation rates were very high in the 1960s.

However, all different measures of profitabilitydeclined during the 1960s, before electronics

became a significant threat.

One important reasonfor this is the

increasedcompetition.

Sweden had stayedoutside the secondworld war and couldbenefit largely from

this during 1945-1960.

A huge demand and a low supply in those

years had given Facit a fantastic position.

But over time, competition became

much tougher.

However, an important reason for the declining profitability also seemed to be

the aggressive expansion that Facit undertook in the 1960s.

A larger organisation implies an increasedcomplexity, more structures, more

bureaucracy and less control of the business.

ys

”Facit enters Mexico.”

The Mexicanexpansion becamea failure since Facit

could not handlethe labour market

regulationsproperly. Facit lostmillions here every

year.

”Facit enters India.”

… India…

… did not become a success either.

”Facit and Odhner get a common sales organisation.”

Odhner had been a part of the Facit group since the mid 1940s. The integration of the two companies did

not take place until 20 years later! This was not strange at all back in those days.

”Addo becomes a part of Facit but keeps its sales organisation.”

The acquisition of Addobecame a failure for several

reasons…

Facit also built new sites around Sweden…

… In Stockholm…

In Åtvidaberg a new site was built.

The Strömstad site expanded.

When it was stated later on that the turnover hadreached above 1 Bn, this had happened at the

expense of Facit’s profitability.

The international expansion turned out to be muchmore difficult than had been anticipated.

It is not the same thing to manufacturecalculators in Sweden as in Mexico.

Companies which ignore this fact and enter’emerging markets’ usually get into trouble.

The integration of acquired companies does usuallynot end up in the way that was intended either.

Detta bör absolut inte betraktas som orsaken till Facits slutgiltiga fall…

… The reason why Facit collapsed should be spelled electronics.

This slideshow canbe thought of

as an illustration of how difficult it is to grow and maintain good

profits.

A quickgeographical

expansion resultsin an increasedcomplexity and

less control.

… which in the longrun creates a lower

profitability.

To all shareholders:

When top management speaks about acquisitions, synergies, global expansion and emerging markets

– start to glance at the sell button.

Thanks to ’Brukskultur Åtvidaberg’ och the municipal government of Åtvidaberg. The Facit

archive is a fantastic source.

Christian Sandström is a PhD student at Chalmers

University of Technology in Gothenburg, Sweden. He writes and speaks about disruptive innovation and

technological change.

www.christiansandstrom.orgchristian.sandstrom at chalmers.se