Henkel: building a winning culture

Introduction:

CEO in 2008: Kasper Rorsted, Studied Economics and has experience in technological companies. Management style was based on face-to-face conversations and pushing for more efficiency.

Henkel until 2008

Founded in 1876 as a producer of detergent, by 1920 it was a leading German detergent en glue producer. After WWII: company restarted as a producer of detergent, glues and personal care products. In 2008: 14 billion euros sales over 125 countries:

EMEA: 64%
North America: 19%
Asia-Pacific: 11%
Latin America: 6%
Executive team mainly Germans and members of the Henkel Family 3 major business units:
Adhesive Technologies (48%)
Laundry and Home care (30%)
Cosmetics/Toiletries (22%)
Competition: P&G, Unilever and L’Oreal
(See exhibit 1,2,3)
2012 Goals; 14% EBIT Margin

2008: 14 billion in sales (+8%) EBIT-margin (10,3%) => no competitive spirit?! (“The happy underperformer”) 2nd part of 2008: Financial crisis: Price increase by Henkel => growth in all the business units fell.

Reaction of Rorsted (CEO): transform the company into a leaner and more performance driven company by setting 4-year financial goals (2012) for Sales growth (3-5%)

EBIT-margin (14%)
EPS (Earnings per Share) (above 10%)
Reaction of the market: they will not make it.

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Building a winning culture
Rorsted knew that the targets were high, but he wanted to get there by installing “a winning culture” within the company. 3 main strategic priorities:
Achieve the full business potential
Focus more on the customers
Strengthen the global team
2008-2009: investments in top-performing brands and high potential markets: e.g.

- Biggest acquisition ever of 3,7 billion euros for the adhesives and electronic material businesses of the National Starch and Chemical Company. - Dial brand: high investments in North-America => top brand in body wash markets.

Selling underperforming brands.

Searching for cost-efficiencies.
2009-2012: from promise to reality
Rorsted: first do the hard things (close plants, lay off people) then the softer things. For the “softer things” everybody in the company needed to be on board = emotional buy-in. redefining Henkel’s vision and values implementing a new performance management system

Vision and Values

Focus on financial goals and priorities => becoming a winning competitor 10 values (see exhibit 5): but they had little meaning inside the company BUT: the CEO Thought they had..2010: Henkel: “ a global leader in brands and technologies” putting customers central

value, challenge and reward people
drive excellent sustainable financial performance
sustainabilitybuild the future on the family foundation
They organised workshops all over the company to introduce the employers to these new values. New tagline: “Excellence is our passion” in early 2011
performance management

A lot of employees have careers of over 20, 30 or even 40 years within the company. 2009: new performance management system for 4 layers of management. For each employee there was: 1) the current rating of his performance and 2) potential performance for the future. These were put in a grid (exhibit 7) with scores going from L (low), M (moderate) to T (Top) For potential performance numbers were used from 1 to 4 with 4 the limit of performance of someone. These rankings were set up during a Development Roundtable (DRT), a collaborative forum with a group head and his direct reports. Afterwards, the results were discussed during a one-to-one with the employee. DRT-processes were done bottom-up. Targets were set about how many employees should be fitted in a certain category. E.g; 5% had to be L => caused a new way of evaluation within the company. Bonus compensation

Bonusses were linked to the overall company financial performance, team performance and individual performance.

Group performance: KPI (e.g. EBIT,..): 3 per year
Team performance: idem
Individual performance:
Performance on 2 equally weighted individual KPIs
Performance from the DRT process.Each manager could get a target bonus as well. A round table discussion with Henkel Executives about the “Winning culture”.See case.