In the inaugural episode of C-Suite Growth Talks, we share a conversation with Patrick Lammers, chief operating officer for customer solutions, at E.ON, a German multinational energy provider serving more than 50 million customers throughout Europe. Like every other major European utility, E.ON is contending with supply chain disruptions, a continental energy crisis, and the need to decarbonize without sacrificing growth. Lammers sat down with McKinsey’s Sascha Lehmann to explain his growth philosophy, which includes always being ready for growth with the right organizational framework; creating diverse teams full of new talent to encourage fresh thinking; and relentlessly looking for opportunities to automate key parts of the value chain. An edited transcript of the podcast follows.
Cindy Van Horne: You’re listening to C-Suite Growth Talks, a podcast by McKinsey. Here, we’ll be speaking with top corporate leaders about the challenges and opportunities on the road to sustainable and profitable growth. Every day, executives at companies of all kinds face the same defining challenge: how to balance immediate demands with the long-term pursuit of growth in the face of high inflation, economic headwinds, and fast-changing stakeholder demands. The leaders who choose growth and outperform their peers not only think, act, and speak differently; they align around a shared mindset, strategy, and capabilities. We’ll speak with these business leaders and hear how they’re making growth their North Star in everything they do. We’re excited to have Patrick Lammers, chief operating officer of customer solutions at E.ON, with us today alongside Sascha Lehmann, partner at McKinsey, to discuss E.ON’s innovative and sustainable approach to growth.
Sascha Lehmann: Thank you very much, Cindy, and welcome, Patrick. Thanks for joining us today.
Patrick Lammers: Thanks for having me, Sascha.
Sascha Lehmann: Can you tell our listeners a little about your background, the work you do at E.ON, and what growth actually means to your organization?
Patrick Lammers: I won’t go too far back, but it’s always interesting to have a conversation on where you come from and what kind of journey you’ve made, because that is also growth. I started as an engineer doing refinery work at Shell, and during my 15 years there, I did all sorts of work, from product knowledge, product development, trading, business development, M&A—all that good stuff. So I was very well trained, gained lots of experience, and had the opportunity to grow professionally and to grow some businesses from nothing, such as small-scale power plants in Africa, Central America, and Asia.
I also spent time at a few other companies, including an emission fluids start-up. I was also CEO of Dyson Group, an industrial conglomerate, which was actually having very big difficulties. Then I joined Powerhouse, which was a part of Essent, and was subsequently bought by RWE. Then a lot of corporate stuff happened, Essent was bought by E.ON, and I joined their board. So it was quite a journey to end up at E.ON.
I’m responsible for all the operations, but also all the strategic stuff around customer solutions. That means anything which is not regulated falls into my area, ranging from e-mobility and customer solutions all the way up to infrastructure solutions, like decarbonization for city centers. We also provide services for consumers’ homes, like insulation, heat pumps, solar, the whole thing. So we actually cover the entire value chain.
Sascha Lehmann: Can you can elaborate a bit on E.ON’s commitment to sustainable growth? How has it progressed during the last ten years, and where do you see it going, in light of the energy crisis and all the challenges related to the energy transition?
Patrick Lammers: It did start last year around this time, when we first saw the supply chain interruptions of COVID actually hitting the market. And then obviously, the Ukraine war, which the Russians started, exacerbated everything. So I don’t have to sit in a circle with my people and put stickers on the wall stating our purpose, asking how we get there, and what we should do. I mean, people are calling us nowadays in panic, sheer panic, about how to pay their bills, which they don’t know how to do anymore.
So you have people who used to pay, let’s say, €200 a month for energy and may now easily owe a thousand, and that’s well beyond the purchasing power of these families. So on that part of our purpose, we need to make sure we decarbonize as quickly as possible but within the boundaries of what people can afford. So there’s affordability, there’s sustainability, and now security of supply, which we also have to do our bit on as well. Those are the three big things we are wrestling with. We’re talking mainly about decarbonization, although the other two things are just as important. But we can’t let go of decarbonization, because if we do, it will drive us further into dependence on Russia and other states that are also not very friendly to democracy, because Europe is our catchment area.
Sascha Lehmann: I think it’s important to note that for an energy player the size of E.ON, it’s necessary to have other elements of the growth equation in place, maybe something related to the energy transition. Can you give some examples about growth in areas outside the core commodity business?
Patrick Lammers: Let’s take e-mobility solutions. If you do a back-of-the-envelope calculation on how many petajoules Europeans are now burning in cars, in petrol or diesel, and you convert that into kilowatt hours, it’s going to be huge. But it’s not going to happen overnight, because people first have to buy electrical vehicles. And if the B2B segment goes over to e-mobility, and you really want your fair share of the customers, you really need to do something other than just saying you’re going into infrastructure as a “me too” player.
So what we’re looking at very clearly is the market’s earning potential. What’s out there in the market? When is it coming? How fast is it coming? What are the other factors here? And then we need to look very critically at our maximum earning capacity. What do we have in-house in terms of content, capability, capacity, skill, and competencies—which are growth as well—to really bite off more than a fair share of that market earning potential and make sure we deliver that to our customers in a way that is better than our competitors?
That’s not very easy. So how do we do it? First of all, by being very clear on that maximum market earning potential, and letting everyone know our current position isn’t good enough, because that’s our starting point.
Then we need to work with people to get different points of view, and get cross-pollination from new talent, because we have been delivering gas and electricity to people for 100 years. E.ON was, of course, a state monopoly in many countries where we now operate. So a lot of the company’s DNA still has that sense of entitlement., and that’s what you need to change to make sure [you have] that sense of urgency, purpose, and the modesty to understand where you are and how to really build with your organization.
I’ve always said, “I want my people to be knowledgeable and to know what their content is about.” That also means the leadership needs to know. If you don’t know, you don’t do. I think this is the big difference I’ve brought to my previous roles and that I’m now bringing into E.ON.
Sascha Lehmann: I can think of two related questions. So, as E.ON plans and strategizes to invest in the energy transition and related business areas, can you say a few words about investors and capital market demands on E.ON in that space? And secondly, with all these demands, how do you balance immediate business needs with the long-term pursuit of growth in these new business areas?
Patrick Lammers: I won’t give any secrets away, but if you look at what I call the capex horizon and compare that to what’s out there in “energy-transition land” and the different segments of the value chain of energy coming towards us. I think it’s untenable for us to do this by ourselves. Even if I had the money, I couldn’t spend it, because I don’t have the people, I don’t have the equipment, and I don’t have the time. So you really have to balance where you get the biggest bang for the buck , the biggest impact.
One of the things we do is look for partners upstream. We take our midstream and downstream strengths, and leverage them to see where we can make the first impact and actually decarbonize to provide security of supply against affordable prices for large customers. Because we don’t want Europe to deindustrialize, you know? We want to keep industry where it is and be part of it. If you ask how to get this done, it’s actually very pragmatic. You can’t just leave all your customers to pursue only new opportunities, because they’re either not there yet or you need a steady cash flow or funding to keep growing. So, I mean, it’s a fine line, and you have to balance but I don’t think it’s that difficult. Because if you actually have your house in order, you can make money with this business and actually spend the money. Maybe you take on more debt, or you take a bit more equity out, or you have partners. But you really [need to] know where you want to spend the money, so that it’s money well spent and starts earning pretty quickly. So it becomes really, really important to see what kind of value you extract from those investments and how fast the money’s coming back.
Now in this new world, where money’s not free anymore and everything’s exacerbated by the Ukraine crisis, it makes you think, “Where do I spend my money? How do I spend the money? Am I the one who’s operating the budget in terms of equipment, procurement, and construction? Am I the best one to commission [the spending]? Am I the best in getting the first money out?” If you are, you will survive. If you are not, you’re going to struggle. So for me, it’s unacceptable to start a half-hearted project, or rely on people you’re not sure can deliver.
Sascha Lehmann: I know E.ON and Harvard Business School developed a program in the past few years that looks beyond the top- and bottom-line valuation aspects of growth to examine it holistically: developing capabilities, developing talent, and also developing a business system in a very structured way. So maybe you can say a few words about what “house in order” actually means, and why it’s important for energy transition.
Patrick Lammers: Yes, and I’d like to ask the listeners to go to the Harvard Business School website and look for the two business cases on transforming Essent from a state-owned utility into a commercial company. It all started by managing a crisis when the energy market was deregulated and attracting new entrants, and the company I led had absolutely no idea what to do.
They didn’t know how to sell and, on a certain level, didn’t know how to service. Customers were called connections, and they had no idea what customer experience even meant. But more importantly, I dispassionately discussed the situation with them, and we had five magic questions, which were: “What are the root causes? What are the mitigating actions? When are you back on target? Where do you need help?” and “How is it going to arrive?”
That was successful because I depersonalized the process and defused any defensive tendencies by embracing a way of working that becomes a business system, a way of getting to the root cause of the problem. We had a certain way of solving a problem by “kaizen” (Japanese for “improvement”), or as we call them, “turbokaizens.” Contentwise, you really teach people how to conduct their business in such a way that it becomes very efficient and effective.
We call it the E.ON business system, and we’re now rolling it out throughout the company, because you want standardized work procedures to eliminate waste and reduce time spent on nonvalue processes, because that hinders your growth.[Doing this] also raises your market profile, because you want to be recognized for value creation, which is growth as well.
Sascha Lehmann: You need to balance growth with the core of the business: selling electricity and gas. How has that changed over time, and where do you see it going?
Patrick Lammers: Well, there are obviously different management theories as well as different goals. As I see it, you need to get ready for growth, because if you’re not ready for growth, you will not grow. In the organization you put in place, you have to make sure you understand very clearly 80 percent of the activities necessary for growth. Then, you organize those activities to give people a [growth] mindset, a mentality. You also give them a framework, and that framework should not only be for risk mitigation, it should be a framework designed for growth.
You give people space to maneuver, you give them a corporate philosophy so they can make very quick decisions, and you give them trust. That means as a leader, even in the C-suite, you need to role model, and you need to be part of that journey as you grow. Then you have to set it in motion so people get enthusiastic, because they have to convince the customers and set up new structures and organizations, all for growth.
Have we had simultaneous linear growth everywhere in Europe? No. But there are places where we’ve outperformed everyone, such as introducing hybrid products bundled with financing in Italy, where we’re market leaders in what we call our “future energy home.” We do full home renovations, financed by banks and government subsidies, to encourage carbon-neutral houses that are completely self-sufficient, which is obviously what we’re working towards. But you move at different speeds because you have different talent everywhere, and you have to accept that.
You need to get ready for growth, because if you’re not, you will not grow. . . . You have to make sure you understand very clearly 80 percent of the activities necessary for growth. Then you organize those activities to give people a [growth] mindset, a mentality.
Sascha Lehmann: So you took over this position one year ago. What do you think you did that was different from other industry leaders in order to really make a difference in fostering growth?
Patrick Lammers: I think what I do differently is to very clearly state my vision for the future. I make it an exciting one, not a daft or dull one, or one made only by consultants. I also make very clear what program we’re going to run to get there, such as the freedom to maneuver, and what’s on the agenda. Then we tick them all off very structurally. But I also think you cannot grow the company if you yourself are not involved.
If you don’t grow your organization in many different ways, you will not get growth, because employees need to do things differently from how they’ve ever done them before, and you therefore need a diverse team, and you need newcomers. That’s another thing I do differently. I always look to bring in at least 50 percent newcomers, because I want those different perspectives. and I get involved myself and listen to everybody.
You also have to make an elevator speech, because if you can’t make it simple, they won’t understand it, and then you won’t get any growth, you’ll only get bureaucracy. That’s what people lean towards, because they look for safety. There are no safe havens, and there are also very direct conversations. So I don’t wait until the end of the year to let someone know if they’re good enough for the job. You get that with me every month.
If you don’t grow your organization in many different ways, you will not get growth, because employees need to do things differently from how they’ve ever done them before, and therefore you need a diverse team, and you need newcomers. I always look to bring in at least 50 percent newcomers, because I want those different perspectives.
Sascha Lehmann: When you talk about the future of energy in the home and e-mobility, I would argue they are too big for a single institution, so the energy transition itself is too big for one, two, or even ten companies. Any views on that, in terms of managing partners and building ecosystems? And how important is that as you look to grow?
Patrick Lammers: I think you’re spot on. I mean, if you think you can drive all your customers toward this energy transition by yourself, you’re completely mad. If all our customers called me this year and said, “I want to decarbonize,” I wouldn’t be able to do it in ten years. It’s just not possible. So you have to industrialize, and you have to scale up more, and these are not always things your teams can do well.
So you need to look for peers who outperform you in the value chain and make them your partners, since you also have something to offer in this value chain in which you outperform. This means you have to be involved, get out there with your partners, and organize everything, so that once they hit the ground, they can start running on their own. But you have to put your own innovation and skin in the game. Otherwise, it will not work. You can’t institutionalize that. It is about personal role modeling.
Sascha Lehmann: What do the energy transition, the Ukraine crisis, and the desire to grow further mean for that value chain focus and E.ON’s corporate strategy?
Patrick Lammers: If you take the full integrated value chain, it’s been heavily impacted by the Ukraine crisis. Some parts are making a ton of money, and others completely lost their shirts. We see both competitors and non-competitors who were once part of E.ON and were completely blown out of the water and taken over by local governments. We see many different examples of that, with price caps, wholesale caps, and all sorts of windfall taxes.
But it’s just a tightening of the borders on your framework, which you have to deal with. You need agility to really understand what it means for your business model, and then to put the company—or parts of the company—on a new course to really cope with it and look for new opportunities, because it’s a mental model. You can either say, “It’s all changed and is getting more difficult,” or you can say, “Hey, it’s changed, so where does it open up new opportunities?”
I always see the opportunity and look at the market earning potential, and some of that market earning potential presented itself very quickly. I think we really have to look for healthy partners who can co-invest with us and actually bring this energy transition in an industrialized way to customers’ doorsteps. Because that’s what they’re expecting from us in the end.
Sascha Lehmann: I think this podcast is also about giving a bit of advice to other leaders on how they can actually embark on similar growth journeys. With that in mind, can you share any advice for leaders in similar situations, and maybe in less stressful industries than the energy sector? What should they do more of, and what should they not do to foster growth?
Patrick Lammers: The first thing I would say is to be fully aware that time is not on your side. I mean, with this whole Ukraine crisis in Europe, we have no more time. But on the other hand, we have a clear vision of how much time we do have to get out of Russian gas and become independent of them.
So my guidance would be, if you enter into new projects or need to really adjust your framework, start by looking at your people. Who are the people who have proven they can really do it? Don’t think you can make do with people who can only do half the job. You have to make yourself sure you find people who can do it all.
Second, keep your perspective focused on the world outside, not only inside your company, which is a very small world. The world outside is much bigger, and there’s much more to learn from other companies that you can crosspollinate into your thinking. I think that’s really important, to look outside.
Really look at your money, because cash is king right now. Not only you but everybody else in the company should be asking, “What is our business costing to run, and how can we do it better?” because in the end, money talks. Especially when money is not free anymore, cash will be king and the turnaround of cash will be very, very important.
This is not just crisis management. I believe this is just very good housekeeping and getting your house in order so you don’t lose out. Don’t accept waste, don’t accept nuisance, don’t accept politics, and don’t accept people giving each other narratives instead of actually working for the customer.
Sascha Lehmann: So Patrick, we’ve been touching on growth in the core of the energy business, and we are also talking a lot about scaling in new areas. Can you say a few words on what’s required in the core of your business when you scale in new areas?
Patrick Lammers: It’s actually not magical. In the core of the business, cut out the waste, don’t spend a lot of time on things that don’t bring any value to the customer, and relentlessly look for opportunities to automate and activate the right parts of your value chain. We did this in a couple of countries and created activation rooms providing an end-to-end overview for everybody. So all the people in the value chain are now connected without hierarchy—and I saw enormous growth, because we were really targeting the customers we wanted and also other customers who were not paying their bills. It’s a much better way, connecting all the way from sourcing down to delivery. I mean, it’s really been a perfect example of growth.
If you look at what we did in Italy for our “future energy home,” we asked our partners, “How can we deliver a full renovation of a house and make it carbon free, secure the supply, and [keep it] affordable?” So we took advantage of government subsidies and told customers, “This is our value proposition, this is the customer journey we offer, and these are the instruments we will install,” instruments for things like solar panels, heat pumps, and e-mobility.
We partnered with a local bank to offer a financial proposition, which was backed up by the government subsidies, and that made us a market leader in Italy. If you look at it from an investor perspective, and therefore the money markets, we’ll earn much bigger multiples, because the business system we enabled turned us into a winner.
Nobody has ever done this end to end before. This whole end-to-end theory really gives you an upside over your competition, because they have to organize and orchestrate all these different moving parts, while in our case, it’s one end-to-end journey. If you always think end to end across the value chain, I think you become a master of your own fate.
Sascha Lehmann: So Patrick, I’m curious. What is the most important lesson you’ve learned as a leader?
Patrick Lammers: I hope I’ve learned many lessons, otherwise, you can’t be a complete person. But I think, as a leader, you’re also a human being, and if you can’t be a human being while doing leadership stuff, that’s really daft. So my biggest lesson is to stay an authentic human being by understanding other people and trying to stand in their shoes.
Sascha Lehmann: Patrick, thanks a lot for sharing your personal and professional insights. Much appreciated. Thanks for taking the time today.
Patrick Lammers: You’re very much welcome.
Cindy Van Horne: That was Patrick Lammers, chief operating officer for customer solutions at E.ON, and Sascha Lehmann, partner at McKinsey. I’m Cindy Van Horne, global director of communications here at McKinsey. Thanks for listening to this episode of C-Suite Growth Talks. Be sure to subscribe wherever you get your podcasts. You can visit mckinsey.com C-Suite Growth Talks. We’ll see you next time.