How deceptive postcard pictures can be. A small, sleepy town nestled in the green pastures of quiet, quaint Switzerland; a large family devoted to the craft business founded by their great grandfather; a pleasant, soft-spoken couple, Carl and his wife Veronika Elsener, at the head of the family affair. Welcome to Ibach, a small town of just over 4,000 inhabitants in the Swiss German-speaking canton of Schwyz.
It is here, at the very heart of the historic cradle of Switzerland that the Elseners run their family business. The region is often regarded as one of the most old-fashioned, primordial, if not plainly conservative regions of an already conservative country. When an interview is arranged to know more about the company, Carl and his wife Veronika come together as the representative members of a family of eleven siblings, many of whom work for the company. It all sounds like your textbook family legacy walk in the field. But we are in for a big surprise. Carl Elsener, the man who heads Victorinox, of Swiss Army knife fame, is soft-spoken indeed, and tends to sound more sweet than aggressively entrepreneurial when he describes, with a smile, Victorinox as “a box full of surprises”. But in truth he is nothing less than a brilliant businessman who managed to make his very Swiss company, as he likes to describe it himself, a very successful one by any national and international standards.
It all began in 1884 when Elsener’s great grandfather, Karl Elsener – after which his great grandson is named – opened his own cutlery business in Ibach having earned his spurs in Paris and Southern Germany as a journeyman. The tough economic conditions of the 1880s had forced many Swiss to emigrate, and Elsener was hoping to provide jobs to his fellow-countrymen, and to do so on the long term, a mindset that remained the cornerstone of the company structure. The company very early on became the official supplier of knives to the Swiss Army, and in 1909 started to use the very Swiss symbol of the cross and the shield to clearly differentiate its products from those of its competitors. A brand was born. To this day, all Victorinox products bear the same identifiable emblem, so reminiscent of the Swiss flag that one would be forgiven for assuming that Swiss Army knives and other Victorinox products are actually produced by the Swiss government itself in an attempt to capitalise of what must be one of the world’s most instantly recognisable flags.
What was at first a simple move aimed at making the product stand out among others has become, under Carl Elsener, in the fourth generation, a very clear and conscious marketing strategy. Interestingly, Victorinox’s competitor Wenger used their symbol of the cross as well on all its products without either of the two companies ever dreaming of changing their respective logo, Finally Victorinox bought out its competitor a few years ago.
Elsener recalls how his company was traditionally “all about the product”, manufacturing and providing the best knives possible to the Swiss and US armies, business partners and the general public. “Victorinox was not so much about the marketing,” says Elsener, who quickly saw the branding potential of a high-quality Swiss product. Ever since the Second World War, the US had become the single most important market, with the US Army, Air Force and Marines all using Victorinox knives. Those clients held Victorinox in high regard, and the Elseners, who were starting to feel the need to branch out from the star product focus, sensed that it was time to capitalise on this good image. Elsener seized the opportunity when his American distributor came to pay a visit to Switzerland and, impressed by the country’s watchmaking, asked about the possibility of producing watches with that quintessentially Victorinox cross and shield on them. Worried about what would become of Victorinox if “Asia was ever to find a way to produce good quality knives while maintaining their low prices,” Carl Elsener knew it was time to diversify and that relying solely on one product was becoming too risky. “I figured customers would always be willing to pay a little bit more for high quality products, especially if it comes from a brand they identify with,” he says softly.
Carl Elsener tellingly notes that it was “time to invest in the brand”. Watches, often identified as a “pure” Swiss product, stamped with the high quality image of Switzerland, seemed like “the right direction to go,” and in 1989, Victorinox launched its watch range. The Elseners did not stop there. As Veronika Elsener explains, “we really wanted to open up our minds”.
And opening up they did, identifying the products that could be brought under the Victorinox name without diluting the brand power, but instead reinforcing it. “It looked to us as if watches, outdoor equipment and clothes would be accepted as natural Victorinox products,” says Elsener. And so 1999 saw the birth of a travel gear line. Not the one to toot his own horn, Elsener gentle tone belies the fact that this was indeed a truly bold decision.
It took vision and guts to sense and implement the branding potential of the family business and then to achieve the right balance between selling – when your company is product-focused – and branding – when you are all about the image. Elsener’s advantage was that the new products for the market were as high quality as the knives that had made the brand’s reputation. Like many other company managers today in Switzerland, he also knew how to leverage the business’s Swissness for marketing purposes. “Brand” is a word that he and his wife use repeatedly, as they have clearly understood its power and use it to the company’s advantage.
But there is more than just good marketing savvy in the Elseners’ story; when Carl Elsener enthuses that “brands are something people identify with” and that Victorinox exudes Swiss values like high quality and professionalism, what one really feels is how the Elseners are their brand. Their passion, devotion and trust in what they produce go well beyond any calculated PR talk. Victorinox is the Elseners, and the Elseners are Victorinox in the most positive sense: they nurture their company and their brand by being truly innovative, exploring new possibilities, and venturing into new products. This might be why Victorinox’ branding turned out to play such a crucial role in the expansion of the company, and why the new products actually reinforced the power of the core brand. As Scott Bedbury, the man who has been credited with building the brands of Nike and Starbucks, says: “A great brand taps into emotions. Emotions drive most, if not all, of our decisions. A brand reaches out with a powerful connecting experience. It’s an emotional connecting point that transcends the product.” The South African publication The Entrepreneur Magazine notes that, “if you go back and look at the history of any great brand, from a large or small company, you will find people who are super passionate about their work underlying the brand. In some way that passion transcends into the product and into the experience that the customer has when using that product… A truly passionate entrepreneur is something very special.” Not only did the Elseners tap into the Swissness of their company to help developing it, but they truly believe in and embody this Swissness themselves and they are clearly passionate about it. What could be perceived as a calculated and clever move to use their country’s image actually comes naturally to them.
It was obviously the right move. Swissness has become a competitive advantage in itself. Over time, it has come to embody a mix of luxury, excellence, quality, and trust that are thought, rightly or not, to emanate from anything originating from Switzerland. The products that leverage that Swissness aspect benefit from a very positive image that enable them to win and keep customers while positioning themselves at the higher end of the market in terms of price. This is actually so effective that the Swiss government has been in the process of revising the criteria for using the designation Swiss made or even emblematic images. The new regulations should make it harder for companies to actually use these terms. An innovative entrepreneur at the head of a family business, Elsener perfectly understood this, echoing the words of Richard Branson, CEO of Virgin and someone who happens to know a little bit about branding: “A brand is more than a name or a logo – it is a promise and a contract with every customer with whom you are dealing.” And for the next decade, the Elseners resolutely honoured their contract and drove up the success of the company.
A few years into the diversification of the product range, distributors started to ask the company about licensing possibilities. Here again, the Elseners were careful to remain true to their business’s core values, selecting only high-end distributors, issuing very strict guidelines about the use of the Victorinox brand and the products’ quality. Risk-taking and innovative entrepreneurship seemed to be paying off, and the Elseners did not flinch when Cutlery World, one of their most important clients in the US, went bankrupt. They put on their innovation cap instead, reflecting on the best way to keep on reach- ing their US customers, and decided to launch their own retail chain. Elsener humorously remarks that “we could not fill up shops only with knives,” again a very matter-offact observation that led to the launch of the Victorinox clothes line in 1999. The Elseners’ pioneering approach was to culminate with the opening of the Victorinox flagship store in New York sometime during the month of September 2001, right in Soho, the city’s trendy neighbourhood. But something else happened that month; something that would derail Victorinox from its successful course.
The world stage
The images of the September 11, 2001 attacks are still vivid in everybody’s mind. Beyond the obvious and immediate suffering of those who lost family or friends that day, the attacks sent shockwaves from New York directly through the global economy. The effects were short-lived in the end, but the airline industry took a severe and more lasting hit. After 9/11 airlines operated and people travelled differently.
The most obvious and visible consequence was a drastic change in air travel regulations to prevent that planes could ever be used as potential weapons again. Airlines’ bookings were directly affected, as were the travellers who kept on flying and now had to face long waiting queues. But 9/11 and the radical change of airlines regulations that followed also made collateral victims thousands of kilometres away from the US. As airlines forbade to carry knives on board, Victorinox, for which the US was the most important market, witnessed an almost overnight decline of 30 percent in its turnover. Business to business sales also decreased sharply, as Swiss Army knives were now perceived as an inappropriate gift in the US – the terrorists had used simple box cutters to hijack the planes. “Watches helped to compensate the drop a little bit, but it was indeed a very difficult time,” admits Carl Elsener in his usual even tone, which does not give away the number of sleepless nights one assumes the Elseners must have gone through trying to find ways of saving their business. This task was even made more complex by the Elseners’ resolute decision not to let one person working for their company go.
It is very telling that in a time when most company CEOs would decide that they have no choice but to fire employees in order to save the company – all the more so if the business is a family one you are strongly attached to and would save at any cost – the Elseners concluded that this was to be avoided. The explanation for this once again lies in the clear, unwavering attachment and respect the Elsener family displays for the values on which their business is built. Employment opportunities were after all what Karl Elsener had in mind when he founded the company, and it only seemed natural to the Elseners to respect this principle. Renouncing redundancies meant that to save the company they had to come up with a more savvy solution than cut, cut and cut more.
A little deeper and counterintuitive thinking goes a long way. Victorinox froze hiring, cancelled overtime and reduced shifts by 15 minutes. Employees were encouraged to take vacation, sometimes in advance of when it was due. Stocks, an issue that can end up being very costly to a business, especially one in a precarious situation, were easily managed, as Elsener notes with a wry smile: “Luckily, knives do not take a lot of space to stock up.” One of the most innovative measures saw the company’s senior managers approaching other companies in the Ibach region to ask if they needed highly qualified workers temporarily. Elsener estimates that 60 to 90 Victorinox employees were lent that way to other businesses in the region for periods ranging from three to six months. Thanks to these measures, Victorinox managed to keep all the employees on its payroll. Most of the anti-crisis measures were in place for about two years. But Victorinox did not just remain reactive during this period, it also managed to create new opportunities to accelerate its progress towards recovery. The company speeded up its investments in new products, such as watches to sell in airports instead of pocket knives, and towards new markets such as Russia, China and India to lessen its dependence on a particular product, the knife, and sales channel, the US.
Out of the maelstrom
So did it work? Victorinox did not simply survive the 2001 crisis, it actually – once again in the history of the company – turned it to its advantage by using it as a means to create new business opportunities. It kept on making profits and expanding, opening its first European flagship store on London’s New Bond Street in 2008 and its first Swiss flagship store in Geneva in 2010, always high-end retail locations.
The company is now venturing into new territories with the launch of a new luggage line, a new product that still embodies the values of the brand, “quality, innovation, functionality and iconic design”, Elsener proudly enumerates. The Elseners’s crisis management proved to be so successful that it actually became a case-study within business schools, with the Financial Times running a piece on it and remarking that the company had not only avoided bankruptcy, it had “also consolidated the loyalty of its workforce and diversified into various new product lines, including watches, travel gear, fragrances and fashion – many of which could still be sold in its traditional outlet of airports. These new product lines continued to carry the top quality image of the Victorinox brand and represented up to 60 per cent of company turnover composition in 2009”.
What Carl Elsener demonstrated was an unwavering belief in his brand, and that the almost platitudinous crisis- opportunity sequence was not just a tired buzzword. He used the hard economic times “to renew the company and to keep on being relevant in the market”; his wife remarks that a “new blood” was needed and that “new markets demanded changes in the management style”. Here again, their “power of the brand” credo was put to good use. The Financial Times notes that “having committed workers who understand and share the company mission is the goal of many businesses. But few achieve this. Victorinox is one of the exceptions. The secret lies in the consistency the company has always demonstrated. Victorinox has matched its words about cultural values with actions. It created some employee-oriented management systems, such as long-term employment, training and development opportunities, and an integration policy that aims to better incorporate young and older workers, immigrants and people with disabilities into its workforce. It maintains a 5:1 salary ratio between the highest-paid and average-paid workers. Most important, Victorinox stuck to its founder’s credo in bad times as well as good. This is how Victorinox wins commitment from its workers and was able to develop new top quality products, such as its new line of luggage, that achieved the same excellence”.
No small compliment coming from one of the most respected financial newspapers around. And it all goes back to those core family values that the Elseners staunchly defend. “We are a company of nine hundred people that actually feel like they are part of a family”, says Carl Elsener, “and this feeling actually became even stronger after the 9/11 events”. The Elseners even go as far as praising the “Christian values” passed within the family as a reason behind this resounding success, a speech that would normally raise eyebrows within the business community and beyond. But the Elseners are everything but conservative bigots. For them, Christian values on the contrary mean taking care of their employees and ensuring the future of the family business is secure, values often overlooked in modern management practices. “The future of the company is always paramount,” stresses Elsener, “and we do not consider ourselves owners of the brand, but rather responsible for it”. This is a rather striking thing to say, and something seldom heard within the business community. It is nonetheless a managerial attitude more and more people, among the general public but also in political circles, would like to see replicated. When the 2008 crisis broke, many expressed disgust at a financial system that seemed to be profoundly disconnected from reality or for that matter from any kind of positive values, and heads of government around the globe called for an overhaul of the system to finally achieve “responsible capitalism”.
The company is more than just another business selling Swiss-made items. The Victorinox story above all shakes any misconceptions one could have had about what seems at first a traditional family business centred around an almost folkloric product. It also ultimately pushes us to revise our misconceptions about Switzerland in general, a country generally thought of as somewhat quaint and stodgy, old-fashioned, even comical. In March last year, the renowned Economist issued a harsh piece on Switzerland, stating that “bored and frustrated financiers were homesick for grimy, high-tax London,” a nostalgia wave apparently entirely induced by the “oppressiveness” of Switzerland, perceived as boring and monotonous, to the point that even a lower tax bill could not console depressed foreign traders. One of them, moving his business back to London, assured that “the best training for young traders is on the dealing floor of one of the big London-based banks”, which prompted the magazine to conclude that “size, it seems, is still a big advantage”.
Yet the country has more to offer than what meets the eye of the dispirited expatriate. According to the European Innovation Scoreboard (EIS) in 2010, Switzerland was a leader amongst innovative countries in Europe. Its performance in innovation grew four percent above the average rate. The EIS explains that these results reflect “a balanced innovation system with a strong position to compete globally. Switzerland scored especially well in the field of registering international patents. Moreover, it also distinguished itself by a particularly high rate of employment in cognitive activities and the proportion above average of innovative SME and high-tech products exports”. Switzerland appears to be “an agile economy, standing out in European competition and which can rely on the expertise of top universities and research in Switzerland. It has clearly imposed itself as an economy of specialised knowledge and highly skilled professionals”.
The success story of Victorinox proves that in Switzerland business can be innovative and risk-taking while at the same time respectful of what people around the country regard as “Swiss” values: quality, client service and very good employment conditions, among others. Victorinox and other Swiss companies, be they well-known large multinationals or thriving SME, show that competitiveness and profitability can be sustained and even expanded without having to make sacrifices to the demands of harsh capitalism. A revolution might be taking place in Ibach, albeit a very Swiss revolution, quiet and civilised. Maybe some postcard pictures are not so far from the truth after all.
Could it be that Victorinox actually found the winning formula to save the system from its own egregious self? The concept of responsible capitalism is gaining ground and has been defended for quite some time by Professor Michael Porter from Harvard Business School, who developed the idea of “shared value” in the Harvard Business Review earlier this year. Porter’s notion of shared value embodies the connection that exists between societal and economic progress, a link that has not only been overlooked but also undermined by what Porter calls the “current capitalism outdated approach to creating value”. Porter sees a true “hunger for purpose” within the business community and beyond, that capitalism in its current, most usual incarnation does not seem to fulfil, as expressed by the general public outcry on the aftermath of the 2008 financial crisis. Because “business is profiting at the expense of society, consumers and employees,” argues Porter, “capitalism is being increasingly seen with suspicion and even hostility”. According to Michael Porter, most companies around the world keep on viewing value creation narrowly, optimising short-term financial performance in a bubble removed from societal needs, ignoring the broader influences that determine a company’s long-term success. “How else,” wonders Porter, “could companies think that simply shifting activities to locations with lower wages is a sustainable solution to competitive challenges?” A move, incidentally, that Victorinox never had to consider, and that has most probably never even entered the mind of the Elseners.
This “old, narrow” view of capitalism advocates that business contributes to society by simply making a profit, which in turn supports employment, wages, purchases, investments and taxes. This is the view defended by Milton Friedman and a line of argument Porter deems as completely disconnected from current society’s needs, as the logic behind Friedman’s thinking puts financial profit-making above anything else and prevents managers from understanding that a company can create economic value by creating societal value. It is actually what could guarantee its longevity and success in the long run, as a narrow conception of capitalism actually halts its course to achieving its full potential. According to Porter, the “socalled trade-off between economic efficiency and social progress” is what creates artificial limits to what capitalism could bring about to society as a whole. Even the “corporate social responsibility mindset,” as Porter puts it, fails to grasp the true possibilities of capitalism since it puts societal issues “at the periphery rather than at the core”.
When Porter calls for “a more sophisticated form of capitalism imbued with social purpose, one that should arise not from charity but rather out of a deeper understanding of competition and economic value creation,” those familiar with the Victorinox success story cannot help but see how the Swiss company embeds Porter’s notions of shared value and societal capitalism, and furthermore, how it actually contributed to the company’s success and general profit sustainability. Carl Elsener truly echoes the ideas of Michael Porter when he enthuses about the values of the family company, how relevant they still are to their today’s business and how central they are to the day-to-day management of the company: from the products’ high quality to human resources management, everything at Victorinox is a reflection of values the Elseners have identified as being in total harmony with their business environment and history.
It is a persuasive illustration of how the type of capitalism advocated by Michael Porter and others can actually be successful in pure economic terms but also in societal terms. A German journalist touring the Victorinox facilities in Ibach was amazed to hear employees saying that working at Victorinox was “quite close to paradise”. And it must be, since the company can pride itself in employing 43 people that have been with Victorinox for 50 years, and 101 that have been with the company for 40 years, nothing short of exceptional in today’s business environment. Furthermore, and as a perfect illustration of Porter’s argumentation, Elseners’ view on business conduct not only contributes to the company’s present success but also enables the family to secure its future. The eleven Elseners siblings have managed to agree on putting their company’s shares in a foundation to ensure that the family business will not be the victim of potential familial bickering. This guarantees not only that Victorinox can remain financially independent, but also that the brand or company does not disappear in the event of an inheritance dispute. And finally, 15 percent of the foundation finances are dedicated to the support of “qualitative projects all around the world,” as Carl Elsener discreetly calls them.
1884 — Karl Elsener opens his cutlery business in Ibach-Schwyz.
1891 — The Swiss Army is supplied with soldiers’ knives for the first time. 1
1909 — In order to distinguish it from copies, the company founder decides to use the cross and shield, the current Victorinox emblem, on all pocket knives
from then on.
1945 — After the Second World War, the PX stores of the U.S. Army, Marines and Air Force sell large numbers of the “Swiss Officer’s Knife” to their officers and soldiers. The Ameri cans call it “Swiss Army Knife” for short. This term is adopted in all English-speaking countries.
1989 — Expansion into timepieces
1999 — Victorinox strengthens the brand and broadens its appeal with the Travel Gear line.
2000 — Establishment of the Victorinox Foundation to provide job security in the long term and to ensure financial independence.
2001 — All five Victorinox product categories (pocket tools, household and professional knives, timepieces, travel gear and fashion) are presented for the first time together in a flagship store in Soho, New York.
2005 — Takeover of Wenger SA, Delémont (CH), a knife manufacturer since 1893 and also a supplier to the Swiss Army.
2008 — First European f lagship store in New Bond Street, London.
2009 — Victorinox has a global workforce of over 1,700 and generates sales of about CHF 500 million.
Article by Lauriane Zonco