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Diemen Car Interiors: Growth

Challenges in a Family Firm

By

Ram Subramanian

Margr Heetebrij-van Dalfsen

Ilse A. Matser

Isabel C. Botero"

On June 4, 2007, Jan Ommens, the owner and CEO of Diemen Car Interiors, an eastern Netherlands-based manufacturer of specialized seat covers, had just concluded a meeting with Keesjan De Cruif, his son-in-law. In that meeting, Keesjan, who had studied civil engineering and had worked for an engineering agency, had expressed a strong desire to join the company in a managerial capacity. This announcement from Jan's first son-in-law came on the heels of an earlier expression of interest by Maarten, the husband of Jan's second daughter. Maarten had completed his MBA a year ago. As Jan reflected on the welcome news of Keesjan's interest, he marveled at the timing. In 1995, he had stepped away from active management of the company, ceding responsibility to a team of two nonfamily employees. While the team had grown the business, expanding both geographic presence and revenues, the company's culture had palpably changed. The nonfamily managers had gradually introduced an increasing level of bureaucracy into the company's structure and control systems aimed at managing the company's rapid growth. Jan felt that in the new culture, avoiding failure was one of the leading principles. According to him, as the managerial day-to-day problems piled up, the developments had overwhelmed the management team. The company's growth had stalled. The problems with respect to the firm's management practices and business culture became so apparent that they started to affect Jan and the family on a personal level. Jan described the stressful situation to his family as

"If I have to go on like this . . . within a couple of years, you would probably need to take a couple of days off . . . for my funeral. However, I would not let that happen."

In particular, Jan was concerned about Diemen Car Interiors' future in a rapidly changing automotive market. The company's customers, the large automotive manufacturers who purchased their products, were globalizing and reducing the product development cycle time. As an original equipment manufacturer (OEM) supplier to these companies, Diemen Car Interiors had to be both highly flexible as well as entrepreneurial. In Jan's opinion, bureaucracy would affect the organization's ability to be a responsive OEM supplier. Jan thought that Maarten and Keesjan's involvement in the company would be the right time for an organized intervention to get Diemen Car Interiors back on course. He wondered, though, what the process was going to be.

Diemen Car Interiors History (Founding-1995)

Jan Ommens grew up in a small town in the eastern part of the Netherlands. Early in his childhood, he became fascinated with the business world, and he was determined to become a successful entrepreneur. After finishing his secondary education, he was offered a rare opportunity to join a wholesaler of technical textile-related products. The company focused on the home market. After 1 year in wholesale, at the age of 23, Jan decided to start his own company together with his older brother Henk. The company focused on car interior accessories, especially safety, seatbelts, and accessories. Because this was a niche market, the company grew rapidly and built a substantial equity base. Seven years later, in 1988, Jan met Thomas van Diemen, the founder of Diemen Seat Covers. Jan was searching for a new opportunityhis business was going strong, but it was no longer challenging. As an acquaintance of Jan's father, Thomas van Diemen had confidence in Jan's skills and intentions. He agreed to sell his company to Jan. As Jan and Henk's company grew and expanded over the years into a larger assortment of car interior accessories, the brothers were able to build a substantial equity base. The purchase of Diemen Seat Covers was financed by their own funds. Founded in 1948, Diemen Seat Covers had 11 employees and approximately EUR 460,000 in annual revenue at the time of the takeover. Reflecting on the situation at Diemen Seat Covers when he took it over, Jan said, "I quickly noticed that, with all due respect to the van Diemen Car Interior family, things had to change to maintain continuity."

With this in mind, Jan began to develop plans and initiatives aimed at helping Diemen Car Interiors grow and prosper. In 1991, following an acquisition in the United Kingdom, the company's name was changed to Diemen Car Interiors Contour. Six years after the purchase, Jan and Henk decided that it was time to both go their own way. The company was divided into two, with Jan becoming the sole owner of Diemen Car Interiors Contour, which focused on seat covers, and Henk owning a second company specializing in the car interior accessories.

To fuel Jan's strategic goal of becoming market leader, the company actively entered new markets. Although Diemen Car Interiors had started as a production company servicing the local aftersales in the seat cover market, it slowly moved into new markets, such as the original equipment suppliers (OES) market, which focused on selling seat covers to car dealers, and the OEM market, which directly supplied to automotive manufacturers (Figure 9.1 presents Diemen Car Interior's financials [in summary form]). By the time Jan handed over the day-to-day responsibilities to the nonfamily management team, Diemen Car Interiors had become a global company servicing Europe, the United States, South America, Asia, and New Zealand. Its main production plants were located in Poland and Asia.

From the beginning, Jan had a strong vision based on the values he inherited from his father. With respect to the values he learned from his father, Jan highlighted "integrity, correctness, work ethic . . . and one thing he said to me regularlyenthusiasm."

While Jan's values were influenced by the previous generation, the Ommens' family values were also related to the family's religious background and the working culture of their community in the eastern part of the Netherlands. The Ommens family were Protestants. In eastern Netherlands, it was a common habit to follow and act upon Christian principles. The theory of stewardship was the foundation of every choice that they had to make, both on a personal and on a professional level. Jan felt that Diemen Car Interiors should be guided and managed according to the family values of integrity, respect, and trust. These values informed and guided Jan with respect to his leadership style and the development of the organizational culture. Jan was highly people oriented, and he concentrated on serving and convincing people through personal communication. Moreover, he was emotionally connected to his employees and clients, and he built relationships based on trust and mutual respect. Accessibility and ensuring that people felt comfortable in his presence were important elements of his leadership style.

Diemen Car Interiors (1995-2007)

As the company expanded under Jan's leadership, the organizational structure changed from being highly informal and centralized toward becoming more formal and decentralized. Consequently, Jan began to delegate some of his tasks and responsibilities with regard to strategy, structure, and business control. Based on his assumption that people are trustworthy, Jan began granting a significant level of freedom to a number of people in key management positions. Since he was the only member of his family involved in the business, Jan did not think of Diemen Car Interiors as a family firm.

Figure 9.1

Diemen Car Interiors-Contour: Summary of Financials (selected items, selected years*)

Sales Breakdown by Channel

(% Selected Years)

	1995	2004	2005	2006	2007
OEM	0	20	22	24	27
OES	47	56	56	56	55
Retail	53	24	22	20	18

Revenues and Profits

(in millions of euros)

	1995	2005	2006	2007
Revenues	19.21	36.57	40.01	46.86
Profits After Taxes	0.69	1.71	1.67	0.83

Balance Sheet, Selected Items

(in millions of euros)

	2005	2006	2007
Total Assests	18.55	28.34	35.58
Long-Term Debt	7.08	6.39	6.68

*1995 was the year of management change; 2004 was when Diemen Car Interiors-Contour entered the OEM market; 2005-2007 are the three most recent years.

In 1995, the management team consisted of Jan Ommens and two nonfamily members. Up until this point, Jan was totally occupied with all the day-to-day managerial issues concerning Diemen Car Interiors. He decided to delegate this responsibility to the nonfamily team. Since he had loved pioneering, risk taking, and building something new (things that he had done at Diemen Car Interiors when he and his brother first bought the business), he decided to focus his efforts on starting new ventures within the group. Jan focused on his new role as entrepreneur and delegated the daily managerial tasks of Diemen Car Interiors to the nonfamily members of the management team, who were empowered to manage the company according to their own principles. They had all worked together with Jan since the start in 1988 and had proved to be good leaders in the initial pioneering years. In light of their skills, knowledge, and hands-on mentality, Jan trusted these managers with the responsibilities of controlling the company.

However, their leadership styles differed greatly from Jan's. In particular, they were more formal and directive. As the company's human resource management manager noted,

Actually, the road to Jan was not open for everybody anymore. . . . I think the average worker did not notice any family involvement at that time. Rather, they saw daily management by nonfamily members. . . . You could not be here at a time when they were also not here, even if you worked at night.

This bureaucratization trend was strengthened when the company decided to focus on the OEM market and sought to obtain an ISO/TS certificate, which would ensure that the company met the higher product-quality standards typical of this market segment. In order to meet the ISO/TS requirements, a professional quality management system, including detailed descriptions of practices and protocols, was developed. As a result of these initiatives, the company became what an employee referred to as a "town hall," referring to a more bureaucratic, administrative culture. Employees had significantly less autonomy in the changed environment. One employee summed it up as "What happened? The company became too rigid," referring to a significant decrease in intrapreneurship and strategic flexibility.

During the nonfamily members' regime, the norm became for employees to not take responsibility for fear of making a mistake. As one employee put it,

One of the nonfamily members was always working, even at night, people did not know how to live up to the expectations anymore, the bar was set too high. For example, if you had an approach to solve an organizational problem and you presented this to him, he always had several reasons why your idea would not be a success. In other words, he would analyze your idea to death and in the end, not select it for implementation. In addition, at the end of the conversation, he would always think of something else you could perform for him. What he meant was that essentially you were wasting company time thinking of poor alternatives to solving a problem.

Another employee spoke about the rise of a culture that had low tolerance for mistakes:

If you made a mistake, the whole company would know about it within just a few hours' time. It was not that the management was trying to be disrespectful but unconsciously that was what happened.

External Context

Diemen Car Interiors was a manufacturer of seat covers and therefore strongly dependent on the automotive industry. In the last decades, the automotive industry had broadened its perspective, from a national scope toward a more international, and by 2007, a total global focus. Competition was high in the automotive industry due to excess capacity and a continuous search for efficiency improvements. On a global level, the reach of a company became a very important measure. The five largest manufacturers produced nearly 50% of the automobiles sold worldwide.1 The long-term forecasts predicted that growth would come mainly from emerging markets, especially China, and that the United States, Europe, Japan, and South Korea markets would stagnate.2 To survive in this globalizing, highly competitive, and demanding market, it was imperative to reduce costs. The automotive industry had implemented a high degree of homogenization and standardization to improve efficiency of the process as a whole. In the 1990s, the "big three"Ford, General Motors, and Chryslerdeveloped international quality standards to reduce administrative weight and improve reliability and quality. This quality standard had become the measure for all OEMs. Moreover, a company had to be innovative to satisfy customer demands and to adjust to increased regulations with respect to environmental and safety standards. Priority areas were "lightweight" and "minimization of volatile organic compounds." There was an increase of interest in bio-based, sustainable, or recycled components. Consequently, suppliers to car manufacturers had to anticipate and adjust to the demands of the leading manufacturers in the market.

Technical textiles: A technical textile was a textile product manufactured for nonaesthetic purposes, where function was the primary criterion. It was a large and growing sector and supported a vast array of other industries. Global demand for technical textiles was expected to reach $162.3 billion by 2016.3 Technical textiles were divided into many categories, depending on their end use. Diemen Car Interiors was part of the category Mobiltech, which manufactured textiles for automotive applications, since the company's main activity was finishing textile. Technical textile was processed in many different parts of a carfor example, door plates, seat belts, seats, and floor covering. Technological development was crucial for the Mobiltech sector, resulting in strong improvement of construction, production, color, finishing, and laminating processes in the last 25 years. Competition in Mobiltech was increasing rapidly, primarily because of increasing competition from other technical textiles sectors. A number of companies were trying to diversify and enter into the market of Mobiltech. The continuously higher quality standards in the industry resulted in strong relationships between manufacturer and supplier.

The automotive industry had two different types of distribution channels, namely, the OEM/OES channel and the retail channel. In the OEM channel, individual parts for new cars were manufactured, while the OES channel produced individual parts for existing cars. The retail channel focused on manufacturing nonoriginal parts and accessories to dealers, independent body shops, wholesalers, and other independent distributors. For Diemen Car Interiors, the OEM/OES channel was more important than the retail channel.

The largest car manufacturers were global players in a highly competitive market, and they demanded the same effort from their suppliers. Every product group had a few leading companies supplying the car manufacturers with technical textile. Global presence and strategic relationships were essential to survive in the industry. Diemen Car Interiors was a specialist in the area of seat covers. Diemen Car Interiors had made strategic choices regarding efficiency and partnerships, focusing on operational excellence.

The high-quality standards had an impact on the innovation process. A request for approval of a new product could take several months or even years because these new products needed new product specifications, and the standard procedures and quality documents had to be adjusted first.

In 2007, the automotive industry's focus was on improving fuel efficiency while reducing the overall weight of vehicles. Environmental sustainability of textiles was not (yet) the main focus of the car companies' sustainability efforts. However, this was a big opportunity, especially since it was linked to another development, namely, that of the interior of the car becoming more important. Car manufacturers attached more and more importance to the car interior, since they considered this a key element to distinguish themselves from competitors.

Diemen Car Interiors Organizational Culture

During the years of the former company, Diemen Seat Covers, owned and managed by the van Diemen family and especially by the owner, Thomas van Diemen himself, one of the central elements of the company culture was freedom. As an employee put it, " . . . a sort of freedom. One should imagine, an old building, walls full of papers . . . that really were . . . kind of romantic times also."

Along with the takeover of the company, Jan Ommens also started to challenge the existing company culture with regard to its underlying values. Jan's entrepreneurial spirit was driven by a set of guiding values and principles that he believed should (always) be part of the future company culture.

From a transgenerational perspective, Jan explained about the values he had inherited from his father: " . . . integrity, correctness, work ethic . . . and one thing in specific he would say to me regularly, was enthusiasm. My father also was an enthusiastic person."

Throughout the years, Jan developed and personalized his own set of guiding values and principles, and he strongly felt that the company culture should thoroughly be enforced by shared values. One of the most important ones with regard to this for Jan was respect. Along with this, trying to be the best was not a goal in itself but merely served as a catalyst to serve higher purposes, that is, at the service of the community and its people.

The company culture had changed through the years. Behind this change, different business dynamics had played their role. In 1995 the management of Diemen Car Interiors was predominantly delegated to two nonfamily managers, although Jan officially still was part of the management team. Through their management styles and own guiding values and principles, the management team gradually reshaped the company culture. Trying to control the continuously growing company, the management team introduced more bureaucratic elements in the company's structure and culture. This trend was further amplified when the company decided to focus on the OEM market and the intended ISO-TS certificate was achieved. For a company to meet the ISO-TS requirements, it had to have a very professional quality management system. However, in the case of Diemen Car Interiors, the systems that were required for the company to meet and sustain the ISO-TS criteria had changed the company's culture into a "town hall" atmosphere. While a town hall culture was still a more informal forum as compared to a formal organizational meeting, most employees felt a town hall was a more staged mechanism than an impromptu watercooler type gathering that was the hallmark of the company in its early years. The town hall atmosphere was accentuated by the introduction of a constant team of external consultants who were brought in by the nonfamily management team to fix various company problems. Along with this, the initially intended entrepreneurial culture gradually changed into a bureaucratic one that centered around a focus on (preventing) failure instead of innovating.

The Family

First Generation

Jan Ommens established Diemen Car Interiors in 1988 when he took over the company Diemen Seat Covers from Thomas van Diemen. Jan was the first CEO of Diemen Car Interiors. His brother was part of the company at this stage but left after 6 years when the company was divided into two.

Second Generation

Jan and his wife Bianca had three daughtersHermijn, Helen, and Annelies. When his first two daughters got married, Jan instituted a policy that only one, either his daughters or their spouses, and not both, could work in the family firm. Hermijn's husband was Keesjan De Cruif, while Helen's husband was Maarten Van Dalen.

Annelies Bosch-Ommens was the youngest daughter of Jan Ommens and studied marketing at the University of Enschede. She also had a bachelor's degree in textiles. Annelies worked in marketing at Diemen Car Interiors.

Rene Ommens was the eldest son of one of Jan's brothers, making him a cousin. He started working at the financial department as an assistant controller and in 2007 became the CFO of the company.

Third Generation

Jan Ommens's three grandchildren were too young to be active in the family business. Hugo de Cruif was the son of Keesjan and Hermijn. Annemiek and Ruben van Dalen were the daughter and son of Maarten and Helen. "