Oral-History:Arno Treptow

About Arno Treptow

Arno Treptow was born in 1930 in a city called Kohlberg, which now belongs to Poland. He was educated in Germany and studied engineering at the Technical University of Darmstadt. He worked at AEG in connection with the university and got a job offer from AEG in 1958 when he finished his university study. Arno Treptow was engaged in circuit breakers development at AEG's research and development department and also got in contact with the International Electrotechnical Commission (IEC) in Genf. After several years' work, he changed over to manufacturing. Moving through rapidly, Treptow joined in 1985 the board of management of the whole company.

In the interview, Arno Treptow emphasizes supplier-customer relationship as one of the important aspects in the business. He also describes various issues at AEG—in particular, what happened after Daimler-Benz bought the company—and explains the relations between the two companies. Treptow shares his experiences in work and introduces programs offered to train engineers at AEG and Daimler-Benz. The interview concludes with Treptow's discussion of the Japanese business management models, its influences, and its differences from the German management.

About the Interview

Arno Treptow: An Interview Conducted by William Aspray, IEEE History Center, 1 July 1993

Interview # 171 for the IEEE History Center, The Institute of Electrical and Electronics Engineers, Inc.

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It is recommended that this oral history be cited as follows:

Arno Treptow, an oral history conducted in 1993 by William Aspray, IEEE History Center, New Brunswick, NJ, USA.

Interview

Interview: Arno Treptow

Interviewer: William Aspray

Date: 1 July 1993

Location: Frankfurt, Germany

Education and Career at AEG

Aspray:

Could we begin by having you tell me about your education and career?

Treptow:

I was born in 1930 in a city called Kohlberg, which is just beside the Baltic Sea in Pomerania and which now belongs to Poland. At the end of the war, I was a boy of fourteen. I went to a small village in the northwest of Germany, where I finished at the Gymnasium with what we call "Abitur." At that time we had to gain half a year experience working in a company. So after half a year of work I started studying electrical engineering at the Technical University of Darmstadt. I had some health problems there. I spent two years in the hospital, but it was not a major threat. Before that I was lucky to receive a scholarship, Studienstiftung des deutschen Volkes, because I was a fairly good student. I finished my university study in 1958. For my diploma, I worked for four months at AEG in connection with the university. They had a problem and went to the university for help, and I was assigned to this problem. So I worked at AEG and solved that problem. At the end of my four months they gave me a very good offer of employment and asked me to stay. And I did so.

Aspray:

Was this work on the power side or in telecommunications?

Treptow:

It was on the power side. It was a special problem concerning DC high-speed circuit breakers.

Aspray:

So then you came to work as a regular employee?

Treptow:

Yes. I worked at AEG in the research and development department for several years. At that time I got in contact with the International Electrotechnical Commission (IEC) in Genf. This was part of my job. After some years in research and development, I changed over to manufacturing.

Aspray:

Before we move on to that, what were the kinds of problems you worked on in research and development?

Treptow:

It was more development than research. It was development of circuit breakers, or more specifically, addressing problems with the arc inside the breaker. It was mechanical and physical.

Aspray:

Was there much that you would consider research rather than development going on within AEG at the time?

Treptow:

No. At that time in that division, we were a crew of several young engineers. We did a real push in technology at that time. We got a lot of patents and we were creative. It was a nice time. After that I changed to the manufacturing side.

Aspray:

Why did you do that?

Treptow:

I did it because in that development division my boss was only two years older than me. The general manager asked me if wanted to change to another sector. He offered me the job in manufacturing. It was just at that time that we finished the development, more or less, for those products. In order to bring them to manufacturing I thought it was a good situation to go with the product and try to manufacture it.

Aspray:

To see it through.

Treptow:

I did this for three or four years. One year later I was already the boss for manufacturing for this plant. Three years later I became the general manager of the whole plant.

Aspray:

You moved through very rapidly.

Treptow:

Yes, I did. I was 42 years old. I was the general manager of that division. It was a good job there. I liked it. Three years later I was promoted and sent here to Frankfurt as part of the management board. At that time, it was 1976 and I was 45 years old. In 1976 AEG was just restructuring. The whole company was divided into four companies. In one of those companies I was a member of the board, with responsibility for manufacturing. Then I became a general manager for one sector of AEG.

Aspray:

Is that where you are today?

Treptow:

No. In 1985, I joined the board of management of the whole company.

Aspray:

What are your main responsibilities today?

Treptow:

Today in my group there are two divisions. One is called power distribution and is concerned with high-voltage circuit breakers, high-voltage network and systems, and transformers. The other is our component business. That is what we call the low-voltage business. Circuit breakers, conductors, motors, drives, and lighting system meters. On this side I was leading a group of specialists concerned with manufacturing systems.

Issues in Manufacturing

Aspray:

Manufacturing is a topic that is on everybody's minds these days. Can you tell me something about the kinds of issues that are important to AEG in this area? What kinds of issues were you looking at in this group? What was your strategy?

Treptow:

There is a general view, but at the end it is based on the type of product one is dealing with. For instance, in power distribution, that is an international business. We have here in Germany, the main center of research and development in this field. We manufacture here what we call the noble parts. But we have small activities in several countries around the world. We send the noble parts to them, and they make the adjustment to the customer's requirements. This is a special business because there are, more or less, only eight companies in the world in this business. That's not quite correct because that is without Russia, the old Eastern bloc. But these eight suppliers (five are European and three are Japanese manufacturers) reach a very high technical standard. There are currently no Americans here in the business. It is more or less a Japanese or European technique.

Aspray:

The products are made available through cross-licensing?

Treptow:

That is correct.

Differentiating AEG from Competition

Aspray:

How do you differentiate yourself from your competitors, if it is not mainly on technological factors?

Treptow:

It depends on the relationships between suppliers and customers and also on technological points. It is not a field that changes every year like the personal computer business. This is a business involving products with much longer lifetimes. And there is a reason for it. Maybe you remember, some years ago there was a black-out in New York. The utilities are very careful when they introduce or change the technology every year, and they are very keen to have the same supplies and ability to minimize any big change, as one finds in some other parts of the industry.

Aspray:

I would think that in a situation where there is not rapid product obsolescence that there is even more consideration of things like manufacturing and keeping costs down and keeping reliable products.

Treptow:

Yes, it is one of the most important aspects in the business. The other main aspect is the supplier-customer relationship. This is more important than economy of scale. For instance, if the Japanese people come here and offer a circuit breaker that costs twenty per cent less, the utilities wouldn't buy it.

Aspray:

Because they have such a strong working relationship?

Treptow:

Yes. And they already have a certain kind of equipment installed in the field. So why should they change it? Then they would need two stocks for repair material. The service would be much more complicated.

Aspray:

Do you actually have some of your own employees on sight at your bigger customers?

Treptow:

Sure. Everywhere.

Landmark Changes in Field

Aspray:

Could you describe some of the landmark changes you have observed in your field?

Treptow:

This is one field where we have done a lot of research. In the past we have seen many changes in technology. Twenty years ago there came a new generation of circuit breakers. It was the SF6 technology, which was the change from air to gas inside the circuit breaker to distinguish the arc. This was a big step in technology. Then maybe ten or fifteen years ago they started to use this gas for insulation in power stations and distribution centers, which makes it possible to build the equipment much smaller. So there was another big step. Development continues to make it incrementally better and better. It also promotes better services and handling. It's not the basic technology; it's more or less the incremental improvements.

Aspray:

How far in advance can you see a major change?

Treptow:

Presently in this field of circuit breaker technology we have two technologies, SF6 technology and vacuum circuit breakers. At the moment they are competitors. Some customers prefer one and some prefer the other. I do not foresee a big change in technology in the next five or ten years.

Aspray:

Do you have people in your laboratories looking for that next step, though? Working ten or fifteen years ahead?

Treptow:

Sure. As you know we are part of the Daimler-Benz group, where all research labs are combined. But inside this group, we have research people who work more or less for the AEG side.

Aspray:

Is their research done in different locations?

Treptow:

Yes.

Aspray:

Are there relations between the people in the advanced research area and the field people?

Treptow:

If people in the field have problems, they talk to the research people. Within the divisions we decide which problems they shall work on. This is very clearly defined. The division has to pay for part of it. The rest is paid from the head office. The company has to push the divisions to think for tomorrow, because the divisions think primarily of their result for the year. They have different problems. Therefore, a part of this money is paid by the company. They are also pursuing some independent research where there is no division behind it. This research is mainly concerned with general future trends.

Daimler-Benz Purchase of AEG

Aspray:

Was it in the mid-1980s that Daimler-Benz came in?

Treptow:

Yes.

Aspray:

Did you notice any major differences in the advanced research? Was it operated or managed differently after they bought AEG?

Treptow:

Not really. Before they acquired AEG, Daimler-Benz was more or less a motor car and truck company. AEG was an electrical engineering company. So at the beginning it was a new world for both sides. But then the decision was made to bring all these research laboratories together under one roof. A lot of synergies were found in computer programs, which they had and which we could never develop because of the expense. I can tell you about one problem we had with our new circuit breakers. It is a problem in the arc with this hot gas. This hot gas goes through channels inside the breaker. We asked the people from the motor development organization if they have ideas how to calculate those things. They said, "oh, we can do that." They had a big computer program. It took them a fortnight and then we had the results. Otherwise it would have taken us two or three years.

Product Development Process

Aspray:

Suppose those people on advanced research come up with what looks like a promising idea. What is the next step towards product development? How is that achieved in the company?

Treptow:

If it is a brand new thing that nobody has thought about it, I don't know. For example, there are many ideas about batteries for electric automobiles. In the beginning the company got an external partner and we did the research work together. When the research showed that this was a very effective battery, much better than a normal car battery, there was the question, where to manufacture it? Inside AEG there was a division that was not so far away from the technology involved with developing batteries. Then this division got the order, together with the research people, to start a pilot factory.

Aspray:

Do you have a specific division that is set aside for developing manufacturing processes for new products?

Treptow:

Yes, we have.

Aspray:

Let's say your field people come to the research and development division and say, "we have a problem with this, would you work on it?" Your research and development people come up with a solution involving a slightly modified circuit breaker. Before that goes into production, some additional work needs to be done. How does that get done?

Treptow:

The research people never come with the finished product. They stop much earlier.

Transition to Daimler-Benz Ownership

Aspray:

You mentioned earlier the synergies that took place in the research division under the current situation. When Daimler-Benz purchased AEG, what were the reasons? What were the anticipated synergies in bringing them together?

Treptow:

I don't know. But at the time the newspapers suggested that businesses limited to trucks and cars may run into problems in the next twenty or thirty years. A revival of the train business was under serious consideration. We have a big boom in trains at the moment in Europe — trams, metro systems, and people movers. These technologies are technologies of AEG. Therefore if you look at the Daimler-Benz group now, the Daimler-Benz group has all systems dealing with transport. They do cars, trucks. They do trams, metros. They do high-speed trains. They do airplanes and space. They even do traffic systems. We think there will be some revolutions in this field to combine all these cars and trucks and planes and bring them into a better, more efficient system.

Aspray:

How did organization or management philosophy change with the coming of Daimler-Benz? How did the corporate culture change?

Treptow:

Now there is an interesting discussion. Some very old companies came together. AEG is 110 years old. Daimler-Benz is 105 years old. Then Dornier came to the group — a very special company with a real family touch. Then came the BM group along with the other airplane companies. There are quite different cultures in those groups. It was a big discussion, what is the best? Should we change it all to one new culture or keep the cultures in parts and try to weave them together into a multicultural company? The result is, that car people are still car people. We are still electrical people. And there are others. But there is a feeling that we are all in one boat. I think that it is a big success. The last eight years, we have really grown to know each other. We are now on the level where we can phone each other if we know where the people are. In my opinion, it works much better than I thought it would.

Aspray:

Do people move between the companies?

Treptow:

Yes. Our boss, Mr. Stoeckl, comes from Mercedes Benz. And a colleague of mine went to Debis as a marketing man. So, yes there are some changes and some job exportation.

Aspray:

It seems a little harder for technically oriented people to move across than it does for financial people.

Treptow:

Absolutely. It's nearly impossible for research people or for development people. It is particularly unlikely inside AEG because of the degree of specialization. If you have a specialist for PLCs and bring him to transformers, he has no chance. That is a real problem but you can change some of them after a few years. That is what we are doing. If somebody is twenty years in one business, you can't change him. But with a manufacturing man, it's much easier. At the end, its not so important if you manufacture cars or refrigerators or motors. There are many things that are very similar. But research is different. For finance people, general managers, or controllers it is easier.

Aspray:

Besides research, what else has been centralized?

Treptow:

The way of financing. Our bank is Daimler-Benz.

Aspray:

Is the supply system?

Treptow:

Yes and no. Sometimes we find some steel or sheet materials that more than one division can use. But otherwise it is not centralized.

Aspray:

Do you centralize accounting or marketing?

Treptow:

Not in the whole group. The marketing people may attend some meetings to talk about what is going on in other divisions. That happens, but it's not centralized.

Aspray:

Does each of the companies within the organization act as a cost center itself?

Treptow:

They act within business units. They can be fairly small if they are highly specialized. We have a very successful company specializing in lighting systems. This is a company with 200-250 million DM turnover. Its a real company with all that you need including development, manufacturing, sales, everything.

Aspray:

Are the companies given very strong independence in their action?

Treptow:

Yes. I think so.

Aspray:

What kinds of decisions are made centrally?

Treptow:

We have to remain separate. As you know, the Daimler-Benz group has four groups. There is AEG. There is Mercedes Benz, which is cars and trucks. There is Deutsche Aerospace, which is aerospace and defense. And there is Debis, which is financial services and insurance. Each of these four sectors has its own board. That is one level. The chairmen of these four are also members of the Daimler-Benz board, where Mr. Reuter is the chairman. There are situations where we have to go to the main Daimler-Benz board. Otherwise, we make a lot of decisions inside our own board.

Competition and Acquisitions

Aspray:

In your particular area of business, do you and your seven competitors enjoy a fairly stable market? Have they been in this business for a long time? How does the market and the players change over time?

Treptow:

This is a very unique aspect of my business. There are big barriers to entry for newcomers. There have been no new players the last ten years. There have been a few joint ventures but no real newcomers from outside.

Aspray:

Twenty years ago, were there many more players in this game?

Treptow:

Yes.

Aspray:

Did most of the shrinking of the business come from corporate mergers or from people leaving the business?

Treptow:

Both.

Aspray:

Did AEG buy up a number of competitors?

Treptow:

Yes.

Aspray:

Over time AEG has bought a few companies and merged them into it. How do you make that business decision? What factors do you look at?

Treptow:

For many years AEG was a German company with some exports to other countries. But we had some parts on the map where we had no chance to get in. So we acquired companies in those parts of the world. We acquired a company in Italy. We acquired a company in Belgium. We have joint ventures in India and Mexico. These companies are tight, fairly strong, and tied to the general business. A lot of technological thinking is done here. But we do the work locally. We do the business locally.

Aspray:

So you are not purchasing companies because they have a product you would like to have in your product line.

Treptow:

That also can happen. In Italy there were both. They had very interesting, very fine products. Their products, however, are on a lower level than ours. AEG has a fairly high quality level and are in the upper region of price scale. But in many parts of the world, that is not always the way. Our high quality products may be too expensive.

Aspray:

Is there much cross-licensing of patents in this business?

Treptow:

Yes.

Challenges in Daily Work

Aspray:

Let me turn to your everyday work. What are the most challenging things that you face in your work? What kinds of issues are the most difficult?

Treptow:

This interview. [laughter] This is my first day after finishing my normal work in the company. From today I am retired. In AEG it was normal to leave the company with sixty years. I prolonged it a little.

Aspray:

Before your retirement, what were the most sensitive decisions? Which ones took your greatest talent to handle?

Treptow:

Looking at the markets and the technology. For instance, we had to determine production costs in Manila. You can't compare the cost there with the labor cost in Germany. But that is fairly far away. So you have enormous transport costs. But we did electronics products there.

Aspray:

Because they are inexpensive to ship.

Treptow:

Right. Since the changes in Europe, and the collapse of the Russian empire, we have highly skilled workers just beside us with one tenth of our costs. One tenth and less than that. So we have cheap labor and good skilled people just beside us. This raises tremendous problems in Western Germany. We are always asking the question, what should we do with our cost level, with our factories? In Germany it is much more expensive and much more difficult to close down a factory than in the United States.

Aspray:

Because of government regulations?

Treptow:

Not only government. It also costs such a tremendous amount of money to get rid of a worker. You have to pay him to get rid of him. This is one of the main problems.

Aspray:

What has AEG's initial response to this been? Have they started to close factories?

Treptow:

At the moment we have a depression. So it is twice as hard as normal. We just closed three small factories in Austria. We also had to reduce employment here is Germany. It's a big problem. In recent years, those problems are much more important than the real technical problems associated with products. We spent a lot of money in research and development. So the problems we have to fight at the moment are cost problems.

Technological Issues

Aspray:

I think I understand this point. Let me concentrate nevertheless, on some of those technological issues. What kinds of technological issues do you face at this management level? And what kind of technical knowledge do you need to have to do your job?

Treptow:

On the other hand, in my career I often saw it would be advantageous to have a better education in finance, in commerce, or law. I see in our universities there is a gap. We are educated more or less as research people at universities. But I would say it is very important for an engineer also to have a financial and commercial background. You can say I got a lot of those things during my career. I know what a balance sheet looks like. But I have no chance to discuss every point with the specialists. I think there is a gap in the education of engineers in universities in Germany. Maybe in the last year it changed a little. We have a faculty where you can study engineering plus a commercial course. I have always been glad to have this electrical, technological base. It helped me a lot. I did some research and side development. It was a good experience in order to work together with real workers. I never had problems talking to them.

Backgrounds of Top Managers

Aspray:

Do most of the people that reach the top levels of management come from one particular kind of background?

Treptow:

No. If you look at the big industrial companies in Germany, for instance, the chairman of Siemens is a lawyer. At AEG, he is an economist. You find in recent years a change from engineers to financial people or lawyers. Maybe it’s the same in the states. I'm not so sure. Jack Welch [CEO at General Electric] is not an engineer.

Aspray:

But maybe it's at the divisional level and not at the senior level that there are more engineers in management positions.

Treptow:

This is correct. On our board, we have seven members presently. Out of seven, two are engineers. But if you go a step down, you get more and more engineers. There we need the technical knowledge. So there you have engineers.

Training Engineers to be Managers

Aspray:

These engineers in the middle level management positions also need to have some management skills. Does the company have a program for doing this?

Treptow:

Yes. A real tough program.

Aspray:

Can you describe how it works?

Treptow:

Starting from the level of foreman they have to go to different seminars. We have a lot of such seminars. We always try to train those people, not in special techniques, but rather as a team. We train the engineers on the commercial side and also on the legal side with the workers. That is the lower level. We train the higher people in making presentations. But we are not as good as Americans in this field. If you are ever in a presentation from our American managers, they are great.

We have what we call the "module system." The beginning of the module system is how to talk to people and how to manage a group. Then there are other modules for technicians or for commercial people. We do a lot in this field. The higher middle management also has the training together with Daimler-Benz. But we always try to train them in teamwork. And we have an exchange between people in the headquarters where we do things for the whole company and people in the factories so that they can have an idea about both sides.

Aspray:

What about going outside the company? Do you take advantage of things that the universities offer?

Treptow:

Yes.

Aspray:

Are these on the management side, the technical side, or both?

Treptow:

Both. Here in Germany we have a system that is called "university seminar." That is a system that is sponsored by industry and universities. It is a six-week training program at the university.

Japanese Business Model

Aspray:

It seems that all Americans these days are interested in the Japanese. You mentioned before that in one part of your business you have strong Japanese competitors. Is there something special about them as competitors in your industry?

Treptow:

Yes. We have a big competition from the Japanese in many fields. But here in Europe, they are not in all fields. They are not strong in power distribution in Europe. But they are very strong in automotive, as you know. Also in TV. But we are in big competition in certain markets. For instance, we are in intense competition in Korea. We compete over the high-speed train. We know a lot about Japanese thinking and how they manage factories. Our people have been there. We work together with them.

Aspray:

From your point of view, how does their management differ from German management?

Treptow:

Completely. The Japanese are quite different people. Their thinking is quite different. The whole culture is so different. In the past Europeans tried to copy them and it was not always successful. We copy some things. But not all of what the Japanese are doing is good for us. On the other hand an engineer in Japan works thirty per cent longer than a German engineer.

Aspray:

Were there people above you in the company that were looking out for your career?

Treptow:

Yes.

Aspray:

Is that the way in this company?

Treptow:

Yes. Also, if there is an opportunity and you are there, you have a chance to get the next job. If you are not there, you missed that chance. So it's a lot of luck in your career. In the end, I don't know if it is always getting to the top that really counts. That's a big question.