The story of Elzab, a Polish IT company whose business model has undergone several successful transitions, offers lessons for how other Polish firms can meet future challenges
If you’re interested in Polish companies that have weathered transformation, look no further than Elzab, a maker of cash registers and retail sales supporting solutions. The company has survived three revolutions in its business model, all while dealing with such earth-shattering events as the fall of the Soviet Bloc and the global financial crisis. Poland Today sat down with Krzysztof Urbanowicz, the company’s CEO (who as of 28 April left that position to become vice president of Elzab’s parent company, Comp). We asked him about the company’s past, and what firms can learn from its experience as they look to meet the challenges of the future.
Elzab is the oldest company in Poland combining production with software development. Under communism, as many as 200 similar companies were established, but only Elzab managed to survive Poland’s transition after 1989. The company originated in 1969, when the Polish Communist Party’s politburo decided to create a Polish IT cluster in Silesia in order to add some white-collar jobs to the blue-collar mining region. The Elzab plant was established with 1,500 work places to produce electronic devices compatible with the Eastern Bloc’s mainframe. The company enjoyed a long, successful run, and in 1983 was even behind one of the first computers to be produced in Central and Eastern Europe.
However, 1991 brought with it the collapse of Comecon – a trade and economic cooperation organisation comprised of countries within the Soviet sphere. Overnight, Elzab was left with a warehouse full of products and no one to sell them to. “That’s when Elzab made its first successful shift,” said Urbanowicz. The company decided to focus on small monitors, particularly for the medical sector, as well as small computers.
But Poland’s transformation opened the country up to foreign competition, and Elzab’s products became obsolete. Elzab had to quickly change tack again. The country’s economic transition also brought with it modern taxation regimes: personal income tax, corporate income tax and value added tax (VAT). Suddenly, there was demand for devices that could calculate and record transactions involving VAT, and Elzab stepped in to fill the gap.
“Elzab got a model of a cash register developed for the UK market which very quickly it transformed into a fiscal device for the Polish market. At that time we were the only player in the market, but since then it has become very competitive. Currently we hold a market share of around 25%,” said Urbanowicz. “Throughout our transformations we have changed the product portfolio, the technology, the size of the company and the customers – but not the people. There are still families with three generations working at the same plant,” he added.
‘Customers are beginning to understand that paying a higher price for a quality product is better than buying a cheaper, low-quality product’
Nevertheless, history had placed a large burden on Elzab. When it was created, the company was expected to be completely self-sufficient. It had its own power plant, its own heating plant, its own telephone network and its own metallurgical units. It also had a huge factory, scaled for 1,500 people, and a large piece of land adjacent the plant. By the time private Polish IT company Comp took over Elzab in 2010, the company only employed 270 people. In the beginning of 2011, when the results were published “it was a shock to everybody,” said Urbanowicz. Elzab’s profit had turned to zero. That’s when Elzab made another important transition. Urbanowicz, who had been brought on with the Comp takeover, implemented a restructuring plan that saw the company completely revamp its product portfolio, as well as sell off or lease out all of the company’s fixed assets, reduce fixed costs and negotiate with suppliers. “At that time we received tremendous support from our supervisory board chairman, Jacek Papaj,” said Urbanowicz. “He believed in our factory when no one else did.”
The first results of the restructuring were visible by the end of 2012. Improvement in the bottom line continued in 2013, when Elzab made a record profit. By the time 2014 was half over, it had already beat the full-year figure from 2013. “Our success is also reflected in our share price,” said Urbanowicz. “Over the last 24 months, our share price has risen by over 1,000%. I would say that’s not exactly typical for a long-established company.”
Poland Today sits down with Krzysztof Urbanowicz, CEO of Elzab (now vice president of Comp)
What are some lessons that we can draw from Elzab’s most recent transition?
The main lesson is that you must be equipped from the very beginning with a very strong management team. Profit streams and cost drivers must be identified at the earliest stage. Proper due diligence, identifying problems from the past – this is a must.
Do you think that the ability of the company to manage change so well comes down to specific qualities of Elzab, or is it something in the Polish character?
It’s a combination of both. In Elzab we’ve made our transitions the most difficult way: without changing a lot of people. The easiest way to transform a company is to change top management and half of middle management. We made some changes, but the bulk of employees remained the same, which can make transition more difficult. It’s usually harder to change company culture without changing the people, too.
But indeed Polish people are very entrepreneurial. I’ve seen it in many different sectors, but I’ll give you one example from Elzab. We currently work with a German company. When we started working together, we could tell that they were highly sceptical of our abilities, just because we were Polish. Then, we found a lot of mistakes in a project they gave us. When we came back to them, not only did we point out the mistakes, but we also suggested solutions. Their eyes widened – it’s not what they were expecting. Since then we have been cooperating as equals.
How will Polish companies need to adapt for future challenges?
The first key to success is having a good R&D department. Second, have a good team. Flexibility will not guarantee success if you don’t combine it with high technical expertise. For example, Chinese companies are very flexible, but their level of technical expertise is too low. Their traditional strategy of creating a single product and coming in with below-market prices does not work here in our segment of the market. Customers want products that are reliable. Even if the price of the Chinese firm’s product is much lower, customers choose our product. Customers are beginning to understand that paying a higher price for a quality product is better than buying a cheaper, low-quality product.
Isn’t that a big change in the Polish mindset?
I believe people have gained enough experience with products that break and are then expensive to fix. When it comes to products like white goods and electronic consumer goods, people are more careful.
Elzab has a robust expansion strategy. How is that going?
We are present in over 20 markets worldwide. This year we achieved a tremendous success in the Hungarian market. Hungary implemented a so-called ‘central fiscal system’ whereby every cash register and fiscal device is connected online to the Hungarian Ministry of Finance’s central server. Every transaction is reported over the internet to that server. That created a huge demand and a huge challenge for manufacturers of fiscal devices, because Hungary chose a very technologically sophisticated solution. So we had to create a product for the Hungarian market from scratch. At the time, our company there had just a 3% share of the market. After introducing our advanced technological solution our market share rose to 40%, while at the same time we gained significant positive brand recognition in the Hungarian market.
What does the Polish market for fiscal devices look like at the moment?
The government is requiring the use of cash registers in more sectors. This year, doctors, veterinarians, beauty salons, tyre businesses, car garages and barbers all have to make that transition. However, we believe that the future of the fiscal market in Poland will be the implementation of a central system. We are the only company in Poland prepared for such a system – we have a developed product and we’ve tested it in the market very successfully.
Krzysztof Urbanowicz, formerly CEO of Elzab and now vice president of its parent company, Comp, led a remarkable turnaround of Elzab that in three years brought it from zero profit to record profit. The firm’s share price rose by over 1,000%. Elzab, a maker of cash registers and fiscal recording devices, believes the future of the Polish fiscal market lies in the implementation of a ‘central system’ such as that in Hungary, where the company’s innovative products found significant success.