A new generation emerges

Epilogue by Rune Stokke

My time at Stokke began when I first started working at Vatne Møbler AS as their General Manager in 1991. Back then, I had just spent two years studying for an MBA at the IESE in Barcelona, and prior to that I had spent 4 years working in the finance industry, so I was able to view Stokke's companies from this angle. After I completed my studies at the Norwegian School of Economics and Business Administration in 1985, I worked first for Nevi Finance and subsequently for Storebrand's Investment Department arranging loans for business customers all over Norway up until 1989.

My time at Vatne from 1991 to 1994 was challenging and marked by substantial losses, excess capacity and many problems. However, it was also an educational and interesting time. Kjell kept a close eye on me and taught me a lot. There was a great sense of friendship between everyone at Vatne, despite the hardships. I also had the opportunity to spend a lot of time working with high-quality upholstered furniture and I learnt a lot about this subject. I still feel that upholstered furniture is one of the most interesting areas of the trade – exciting products that have the potential to stand out from their competitors. This is where my grandfather and I share a common interest – and we often become carried away in our dreams about this subject, or we discuss new designs that we have come across. Yet the furniture upholstery business is also the toughest, with many international suppliers and relatively low margins. However, the most exciting businesses are not always the most profitable ones. We started to see Vatne turn around in 1994, and by then it was time for the company and myself to make the next move.

We merged with Møremøbler and I took over as the Head of Sales and Marketing. This was a larger, yet more limited field. I was still able to contribute to production and design, and this was important to me. Once again I was involved with a good, knowledgeable team, and we worked really well together. We restructured the company's sales and marketing operations and this, combined with an improved market, enabled us to experience good growth. In 1997, in cooperation with Arild Bakke and Steinar Gjertsen, we launched the company's new name, Fora Form, after having worked on this for a while with Anisdal, Sand & Partnere.

In 1997, the Stokke group experienced its best year ever with record-breaking profits, but there had also been many signs of hard times ahead and things that needed to be changed within the organisation. I am impatient by nature – mostly because I want to get started on jobs that I feel need to be done – I can live with problems and challenges as long as we are on top of them and are working on them. I was impatient to get going and I probably

Father and son on a sunny day at Tennfjorden.

hassled Kjell quite a bit before I was formally appointed as the main owner. I am sure that this was frustrating for both of us.

I came to a point during the spring of 1997 where I either wanted to become the owner or find something else to do. After discussing this with my father, we decided that I would buy him out of the company and take over the role of owner on behalf of the family with my siblings as minority shareholders. In return, they were given majority ownership of the company's operations at Moa. For Kjell, who had worked so closely with my father for almost 20 years, the fact that I became the majority owner was probably not the easiest thing to handle. I had been his subordinate for 6 years and I probably still had a lot to learn about the business. I was also different from my father, with different views and a stronger urge to become involved on Kjell's turf. However, I definitely had no designs on the position of Group Manager. It was my ambition to become an active owner.

There are many things I know nothing about and I am not someone who thinks that they can do everything on their own. But I am not bad at obtaining feedback and good advices from others – this is perhaps something I have got from my father. I realise that I need challenges – and I like to be challenged as an owner and as a person. I seek out people who tell me the truth – not what they think I want to hear. This is hopefully beneficial to both the development of the company and myself. It can be unpleasant (and this is often the case), but it is always educational. I have never been interested in personal prestige.

To avoid ending up with a double role, I left Fora Form during the autumn of 1997 to take over full-time as the Chairman of the Board. Kjell and I struggled to find a sensible way to job share and the following year was quite hard for both of us. We both wanted what was best for the company but it wasn't easy to divide our work so that we both had room to manoeuvre. After a Board meeting in June 1998 we agreed to reflect on the situation over the summer. When we met in August we were well rested and positive and we created a platform we could both accept with regards to strategy and division of work. Later on during the autumn, Even Wahr-Hansen was elected as the new Chairman of the Board, I became a Board member and at the same time I became the responsible manager of Stokke's Movement Division. At that time Stokke was possibly experiencing one of its greatest challenges as a result of the losses it had made and dissatisfied customers in Europe. A demanding job with an uncertain outcome – but at least it was an advantage to have the Stokke name …

Kjell continued as the Group CEO in a more operational role than previously. We now started working on the establishment of Stokke Gruppen AS. Kjell became the operational leader and started to work on the establishment of a professional organisation. We were also given the opportunity to establish functions which the companies had not had time to consider separately before. The establishment of Stokke Gruppen AS and the boost this gave to our individual business areas, helped considerably when Stokke AS subsequently sought to focus on children's furniture. In addition, our organisational collaboration with Åge Sørsveen and Ingeborg Baustad was important.

Movement's main problem was related to sales, and turning around a business to make it profitable is especially challenging. Movement's products had an advantage thanks to their unique design and functions, and they consequently acquired good margins in a global niche market. The challenge and the problem were more or less the same – the fact that these products were special also resulted in limited interest and sales. My aim was to try and preserve the special, first-rate aspects of these products, but also attempt to make their design more attractive to a wider audience. I feel we were largely successful with products like Peel, Date and Tok. Unfortunately, we underestimated the decline in sales of our old products, and the time it took to get the new distribution which we sorely needed up and running. Making Movement profitable was a slow process. Kjell and I sometimes discussed the possibility of selling Movement, but realistically we realised that we had no chance of doing so while it was struggling with such great challenges and low profits.

In the spring of 2002, I handed my job in Movement over to Wenche Kjerstad in order to take over the new position of Head of Business Development for the group. The plan was that I would contribute new ideas to all the different aspects of the business. The following year was interesting, and several specific ideas which emerged then were realised either at the time or at a later date, but I also spent a lot of time thinking about the future. We were struggling to increase our growth.

Kjell and I have always talked about the future, structures and strategies – often while hiking in the mountains. We had also discussed edging the business more towards Children, but we also considered this to be a risky strategy. It became increasingly obvious that the potential for growth was within the children's market, but I thought that it would be difficult to devote enough focus to this while we still, in practice, had four areas with separate products and distribution networks. There was little synergy to be gained on the sales and marketing side.

It was also becoming more obvious that structural changes were needed in the mattress market. The whole trade in the Nordic region was open and ready for this. We either had to get in the driving seat and take the initiative in Norway, or we had to work actively to become part of someone else's set up. With limited resources we tried to both sell to an international player and to initiate a major merger of Norwegian companies between 2001 and 2003. We almost succeeded in selling, but at the last minute the

Three generations of the Stokke family – in 1997 when Rune took over the company.

sale fell through. Looking back this may have been just as well, as the price we were discussing was not particularly high compared to what we achieved a few years later.

Personally, I was challenged to engage in a thought process concerning the future of the company and myself around the spring of 2003 and onwards. Chairman of the Board Even Wahr-Hansen and Board member Stein Verle contributed strongly to this process, and I spent a lot of time coming up with a sort of “10-year plan for myself and what I wanted to accomplish as owner”. I was left with a vision of a focused Stokke based on Children. This meant that Stokke Gruppen AS would have to be wound up and the business areas of Wonderland and Fora Form would have to find all-new or partly new ownership. Kjell made a definite contribution to this process and his ideas were important for the outcome. The excellent work that we had undertaken on making our business areas, systems and management more professional, placed us in a position whereby it became possible to implement this process, something that would not have been possible in 1998.

The idea was to create a focused company where knowledge about customers and users, product development, marketing and sales would serve as the main pillars for making Stokke a global brand. Movement was still making a loss, but I strongly believed in the concept following the changes over the recent years and I wanted us to follow up to see if we could get through this rough spot. Movement was also a large and important client for Tennfjord – which needed the work in order to be able to run properly.

By the summer of 2003 I suddenly felt I was very busy. Perhaps I had 10 years left with the energy it would take to reach these goals?

In the mutual process between Kjell and myself during the autumn of 2003, this was cultivated brilliantly. Kjell supported me and participated in developing thoughts and ideas, but he also realised that his time was coming to an end. Together we resolved our contractual relationships in a positive way and laid the foundations for a lasting friendship and collaboration in other areas. This constructive dialogue was confirmed partly by the fact that Kjell chose to continue his ownership role in Wonderland and Fora Form in order to find good solutions for Stokke and its companies. Kjell was actively involved in finding a new owner for Wonderland, which we succeeded in doing in the summer of 2004 when Foinco bought out Stokke. Kjell continued at Wonderland as Chairman of the Board and as a co-owner along with the management for some more years.

The solution for Fora Form AS was that the company's employees and management purchased a 31 % stake, Kjell increased his stake from 9 % to 17 % and at the same time took over as the Chairman of the Board, and the Stokke family took over a 52 % stake through Single Holding AS. In addition Stokke AS provided a subordinated loan of NOK 22.5 million. Fora Form was to be turned around from running at a loss to standing on its own two feet. Things were not looking good up until the summer holidays in 2005, but after intense work the results started to improve during the autumn. In 2006, for the first time in 10 years, Fora Form posted a profit! One important isolated incident in 2006 was the successful sale of our table factory at Stranda and the outsourcing of table production to another Norwegian supplier. For a long time we had struggled with low volumes and production that was too specialised to enable us to run the factory profitably.

The Board is important to me and in order to take the next few steps in developing Stokke AS, we required additional expertise. During the spring of 2005 Barbara Thoralfsson and Wilhelm Mohn joined the Board in addition to Even Wahr-Hansen and Stein Verle. Even has a broad background as a business lawyer and Stein is a highly experienced international COO. Barbara has been involved in marketing, brand-building and management at several large companies, all skills that are required by our Board in order to realise its goals. Wilhelm is the Manager of Credo Partners, a small consultancy and private equity firm. Prior to this he was the CEO of McKinsey & Co. in Norway and is among other things trained to diagnose, but also implement, processes of change. I will probably not be doing anyone any injustices when I say that the entire Board is focused on the proper implementation and prioritisation of our resources.

In 2004 we also succeeded in selling our old factory at Vatne and in 2005 we sold our old factory at Ørsta. These may not have represented major assets but both buildings required considerable maintenance and they also needed to be heated during the winter. This is very expensive and made huge demands on my time and that of our Administration Department.

From 2005 onwards it became obvious that Movement was too demanding on Stokke's resources and the Board was calling for the implementation of measures. Again, several solutions were tested. The final solution came during the spring of 2006 when a deal was struck with Credo Partners relating to the establishment of a new company, Variér, who purchased Movement from Stokke. Through Single Holding, the Stokke family still owns a 39 % stake in Variér, and considerable resources have been injected into the management side of this company. During the second half of 2006, Variér ran at a profit. There is still a lot to do with respect to sales and development, but when profits are being made, this is still doable if not necessarily easy.

In 2006, Tennfjord Laminering AS was also separated out as an independent limited liability company owned by Stokke AS. This company is now being developed into an independent subcontractor and Stokke only purchases part of its turnover.

Rune and his most important partner, Maria. They got married in 1990. Maria began working for Stokke in 1992 and was the Sales Manager for Stokke Norge from 1994 to 1997 – with very good results. The children (from the left) are Alejandra, Sara and Ole Igor.

In 2002, Stokke started producing the Tripp Trapp chair in Romania. Egil Hanken is depicted here checking the sides of a seat and foot plate as they are being cut.

The CEO of Stokke AS, Kristine Landmark, is just like Rune Stokke, i.e. a consumer-focused leader. Here she has found her balance in a Balans Variable.

Kjell Storeide was Rune Stokke's technical mentor. They have also worked closely together after he left Stokke in 2004. This picture shows Kjell Storeide at “The Award for Design Excellence” presentations during the autumn of 2003, with TV presenter Hilde Hummelvoll and designer Olav Eldøy. Stokke received four awards for design excellence at this event.

During the spring of 2007, Credo Partners purchased the majority of the shares in Fora Form AS, as they did in Movement. They saw the company's potential and the excellent collaboration we had enjoyed with regard to the challenges at Variér made them eager to expand our cooperation. 2007 looks set to become another successful year for Fora Form AS. During the spring of 2004, I took over as Chairman of the Board and left my job as the Head of Business Development.

Three years on, Stokke AS has now achieved its basic structure and is synonymous with Children. Profitability has suffered as a result of restructuring costs and it will improve in time. The long-awaited growth is now starting to materialise and in 2007, Stokke AS will have a turnover of NOK 550–600 million in children's products. The brand has been significantly strengthened globally over the past few years.

A few important change-makers

In many ways we have pursued a risky strategy and Stokke AS is obviously more vulnerable than before now that it just has one leg to stand on. We need to try to counteract this by having a solid parent company with available liquid assets – a healthy bank balance. Sometimes you wonder whether you did the right thing, but such is life. Being supported on all sides has helped the process. The positive attitude displayed by my father and siblings has been important, but the back-up and challenges provided by Maria have meant most to me.

Kjell has already been mentioned several times. He has been a co-owner for many years, and also my most important mentor on the business side during the 13 years we have worked together; he provided me with a sound further education. We have had and still have a very good relationship. He has been far more loyal towards the company and the family than is fair to expect, and can take a lot of credit for the fact that the company managed to get through the tough times in the 70s and 80s. In close collaboration with my father and myself he has also been the driving force behind the company for 20 years and has contributed much to its development and the fact that we can celebrate our 75th anniversary this year.

Many people from the management and the rest of company have also made extremely favourable contributions to the company's transformation processes. Kristine Landmark was responsible for developing the Children's Division which today constitutes Stokke AS. Kristine, in her capacity as CEO, and I in my role as Chairman of the Board, have shared our work well, and this has enabled fast-paced processes. She has taken care of Stokke AS and all of its operations; I have worked on restructuring. The Finance Manager Geir Løseth has undertaken the work of two people (Kristine and myself) each year over the last 3 years. He has been responsible for the practical implementation of many of the structural changes introduced. I would have been rather helpless without Geir. Production and Outsourcing Manager Ivar Sandnes has also contributed a lot – and so have many others. I have not done this on my own!

My grandfather probably had a few misgivings about my decisions. He collected and developed companies and factory buildings – I have spent a lot of time selling them to pave the way for the Stokke of the future. But we have always had and still have a close, strong and wonderful relationship. He might sometimes disagree but he always respects my choices. His mind is still young and at the age of 96 he is very switched on and he does not shy away from a real discussion. This still happens on a more or less weekly basis. He keeps well up to date by reading the newspapers – and has a passion for chairs – especially reclining chairs and upholstered furniture – just like me. But he worries less about profitability than I do – and focuses more on the vision. We are a good team – pretty dynamic (i.e. heated) at times.

The future – now what?

The family still has investments in Variér AS and Fora Form AS and I am a member of both boards and involved in their work, but in a different way than before. Despite the fact that we still carry children's furniture, Stokke AS is in many ways no longer involved in the furniture business. We are in the process of becoming a children's equipment brand, and we are portrayed as being focused and sophisticated. We need to “deliver the goods” if we are to achieve our new goals; strong growth and good profits! In 2006 we succeeded in achieving 18 % growth and so far this year (as of May) growth stands at 33 %. Our profitability is acceptable, but our ambitions are higher.

It is important to grow and maintain the dynamics. These are the conditions necessary for attracting the best people and moving on – in addition to developing our existing employees and giving them the freedom to have a go. Without growth, you eventually become uninteresting. One of Stokke's endearing features has been its considerable latitude and the fact that failure in order to find new good products and solutions can be permitted. This is important to explain why we are where we are today.

Being a furniture company is not a goal in itself, but one of our goals involves exploiting the opportunities we have secured in the best possible way. We are on schedule to reach the NOK 2 billion sales mark in 2015, – a good goal! However, satisfactory profits are a proviso for maintaining ownership in a family business. If the business is to continue as a family-owned business, it must make the profits needed in order to develop and grow. In this respect short-term profitability is the only viable strategy in the longer term. Markets are becoming increasingly advanced and the pace is much faster. In the past it was possible to focus on diversity and still

The oldest and the youngest; great-grandfather Georg with tiny Tiril on his arm in 2002. Tiril is Kristin's daughter.

succeed. I believe that those companies – or business areas in larger companies – that will be most successful in the future will be those which focus on a more limited area than previously. This is also important to maximise investments. Stokke distributes its products all over the world and has been very successful in gaining access to those shops in which it wants to sell its products. The challenge is to deliver products and innovations that will allow the company to retain and expand on the floor space allocated to its products. This is the critical factor and it is only possible to achieve this if customers like the merchandise, what they associate with the merchandise and what they want to buy both for themselves and their children. Achieving this on a global scale requires total focus. Creating jobs is obviously important and desirable but first and foremost this is a positive consequence of success in the marketplace. We used to have many employees in Norway and numbers will probably increase again but perhaps we will have more people working on development, marketing, procurement, logistics and sales. Stokke still employs several hundred people in production, but products that used to be manufactured in our factories are now being produced by subcontractors both at home and abroad. There is nothing wrong or bad about that. It enables us and our suppliers to enjoy a greater degree of flexibility and we can also utilise technology and materials that we would not be able to handle on our own. In addition, the jobs are still there at Wonderland, Fora Form and Variér, and I dare say they are safer today than they were in 2004.

The Stokke family is a long-term owner of Stokke AS although this has not been defined in terms of numbers of years. We have never defined it like that. Our thinking, investments and the way we run our businesses is long-term. Selling Stokke AS or finding a different ownership structure is not currently an issue. But basically I believe that if you yourself are unable to give the company what it needs quickly enough, you should evaluate whether or not you are still the right owner. You must not become a hindrance to the company, the employees and the potential that lies within the company. In this light, changes in the ownership structure are often the result of success – and a condition for further success. A company which becomes big and often complex may need injections of both capital and ideas in order to step up into the next division. Changes in ownership structure definitely do not have to be negative.

However, even though we have growth and development goals – and dare to adopt new solutions – we must not lose sight of the humbleness that has characterised the company and its management. There is a proverb that says: he who has served his apprenticeship is never fully qualified, but ready ... We can always do something better and there are many resourceful competitors around with ambitious goals. Many of these also work at a quicker

Geir, Knut, Kristin and Rune holding a speech for Kåre at his 70th birthday party in April 2007. Rune and his three siblings are joint owners of the main company Single Holding AS.

pace than what we are used to. We cannot afford to spend as much time on developing new solutions as we used to. We must work faster and test as we go along. There is less room for mistakes than before and there are fewer opportunities to correct errors in the market than before. If a product had a bad start it might already be too late. Previously, you could try and fail for years until you found the right solution for the market.

The future of Norwegian furniture

Where will the Norwegian furniture industry be in 10 years time? You should always be careful about predicting anything. I think it will be tougher and harder to earn money if you do not stand out in the crowd. The business consists of people who are used to competing and they do not give up easily, but generally speaking it looks like the trade is heading towards higher levels of concentration all over the world. The manufacturers are fewer and larger, and there are fewer and larger mergers taking place on the distribution/shop front. Perhaps the Norwegian furniture industry will look like this? ■ Only five brands/independent producers left that still have full or partial production taking place in Norway. ■ Those unable to create their own brands will have closed down, moved, or simply become subcontractors for the distribution chains' own brands. ■ Ekornes will probably be one of the five independent manufacturers left. ■ There will most likely be an increase in the number of companies focusing more on handicrafts, with a turnover of NOK 10–15 million in local or niche markets, but it will not be easy for any of them to achieve international success or to earn the money that are required for investment. They will be dependent on the enthusiasm of their owners! ■ There will possibly be a few companies who will manage to acquire reasonable distribution in a few market areas via the

Internet. ■ I still believe that good individual products (i.e. FORM) will continue to exist, and that these will determine whether or not small businesses manage to expand to a certain size. But copies are appearing faster than before and it is harder to be left alone with an idea long enough to succeed.

Rune