Henkel: Building a Winning Culture

Turning Points in Henkel History

• 1876: Founded by Fritz Henkel in Germany as a Laundry Detergent Manufacturer

• 1923: Diversifying into Glues• 1930: Fritz Henkel Died and share distributed over his

3 children• 1949: Adding Personal Care Products• 1985: Raising Capital for Expansion by offering non-

voting shares• 2008: €14 Billion sales across 125 Countries

Major Business Units

Revenue by Business Unit

2008 Financial Results

€14 billions in sales with 8% increase over previous year

(€4 billions less than closest competitor 3M)

EBIT margin 10.3%

“ The Happy underperformer: always #2or#3”

The Move• After 58% drop in net profit in 2008 Q3, Rorsted

vowed to transfer Henkel into a leaner and more Performance driven company.

“Stay where we are is no longer an option we either move up or down”

• Rorsted Called for a press conference in November 2008 to announce 4-year financial Goals

4-year Financial Goals

Building a Winning Culture • Rorsted knew that the ambitious financial goals

which promised improving sales growth and profitability, this only can be achieved by transforming the complacent spirit within Henkel which required a cultural overhaul.

The cultural overhaul • He had established a clear focus by communicating clear

objectives which are long term. Added to that he framed the values which are the rules to accomplish the mission and guided employees to take every day decisions. He took time to communicate them to all the employees to make them understand that they are all part of it.

• Implementing a new performance management system which increased the potential and performance of every employee and as a whole the company. It has been instrumental in achieving his first strategic priority “to achieve full business potential”.

The strategy priority

Throughout 2008 and 2009 • Rorsted and his management team worked to

consistently communicate the new strategic priorities to Henkel’s employees and to translate them into action in each business unit, so he began

1-devoting extra resources to top brand. 2-made largest acquisition for adhesives materials. 3-invested heavily in its Dial brand. 4-searched for cost efficiencies, process standardization

and automation.

(2009 to 2012) from promise to reality

• Rorsted had intentionally undertaken the plant closings, divestitures and administrative consolidating before embarking on the more cultural transformation needed for Henkel to achieve its 2012 goals so;

1- They closed 60 plants worldwide. 2- Shifted purchasing, finance, and human resources into centralized services offices.

Vision & Values

Henkel vision and values guide the choices and decisions their employees make every day.

• Vision A global leader in brands and technologies.

Our vision gives us a sense of direction and destination. It captures our aspiration of being the best in everything we do. It is the basis for what we all stand as one company. And they epitomize Henkel, because they reflect our corporate culture.

Values

• Rorsted believed that core values should provide the foundation for tough decision.

• In January 2010 the Henkel board of director approved five new values

Performance Management System

• Kathrin was the newly promoted global head of human resources responsible for implementing Henkel new performance management system.

evaluation grid : In 2009, Henkel introduce a new performance

management system for its four layer of management (9000 employee). under the new system, each employee was assigned a rating representing about

1- Performance (a reflection of past work ) 2- Potential ( future advancement prospects)

Evaluation Grid

L M S T

1

2

3

4

Development roundtable:(DRT) meeting s of managers in which they evaluated their direct

reported, spending roughly five to ten minutes discussing each individual. the performance evaluation grid scores served as the basis for DRT discussions.

frame of orientation: the DRT process flowed bottom-up, beginning at the

country level, then to region and global level, Henkel created a ranking system known as the “frame of orientation"

to make tough choices and differentiate employee. the new evaluation system spurred many employee to

improve their performance, moving up in the ratings over time.

Bonus Compensation• Under the new system bonuses were linked to overall

company financial performance, team performance and individual performance.

1. GROUP PERFORMANCE:Henkel set two or three key performance indicators (KPIs) at the company level ( e.g., adjusted EBIT) which was measured on a scale of 0% to 200% .

2. TEAM PERFORMANCE:It based on specific business unit targets or local market targets, also measured against KPIs on a scale of 0% to 200%

Bonus Compensation

3. INDIVIDUAL PERFORMANCE:It was calculated using two inputs, each weighted 50%a- two equally weighted individual KPIs(successful new product, project progress) , measured scale of 0% to 150

b- performance rating from the DRT process ( T,S,M and L) with a score (150%, 100%, 75% and 25%

Photo by sjdunphy - Creative Commons Attribution-ShareAlike License http://www.flickr.com/photos/19888921@N00 Created with Haiku Deck

Photo by AhmadHashim - Creative Commons Attribution-NonCommercial-ShareAlike License http://www.flickr.com/photos/51052219@N00 Created with Haiku Deck

Stretching Goals Defined

An organizational goal with an objective probability of attainment that may be

unknown but is seemingly impossible given current capabilities (i.e., current practices,

skills, and knowledge).

Merits of Stretching Goals

• A mechanism for creating Performance Pressure

• Goals should be challenging and require a stretch but employees should be able to see the possibility of achieving them based on their efforts and performance.

• Applicable with employees at all levels, although stretch goals have the most powerful impact with top performers

Merits of Stretching Goals

• Pursuing goals that are seemingly impossible might stimulate exploratory learning specifically because radically new approaches are required.

• Organization capabilities can be reevaluated for their potential to be recombined in novel ways.

• The extreme difficulty of attaining stretch goals should also elevate aspirations which is critical for ensuring that organizations strive to increase performance.

What is Forced Ranking?

• Forced ranking is a controversial workforce management tool that uses intense yearly evaluations to identify a company's best and worst performing employees, using person-to-person comparisons. In theory, each ranking will improve the quality of the workforce.

Forced Ranking Undercover

• Most executives and human resources officials won't use the term "forced ranking" to refer to their own process because the phrase itself seems harsh. People refer to it as their "talent management process" or "leadership assessment procedure."

• In Henkel, it’s Frame of Orientation.

Forced Ranking @ Henkel

• Managers rank employees into 4 categories:1. The top 10percent

2. The strong 60 percent

3. The moderate10 percent

4. The clearly below 5%

Forced Ranking Advantages

• Managers can identify top performers, the people they least want to lose, and reward, keep, and train them to be future leaders of the business.

• Companies can jolt managers out of complacency, combat artificially inflated performance ratings, and reduce favoritism, nepotism, and promotions that may be based on factors other than performance.

• Forced ranking also provides a justifiable way to identify and get rid of workers who may be holding the business back.

• Forced ranking also provides a justifiable way to share the benefits between the employees according to thier performance .

Forced Ranking Disadvantages

• Critics claim the system creates a competitive environment that can result in cutthroat, unethical behavior. "It is zero - sum game, and so it tends to discourage cooperation" focus on competing with each other rather than collaborating.

• Limit risk-taking, creativity, and teamwork; and discourage workers from asking for help or extra training out of fear that they'll be identified as low performers.

• It kills morale.

• Replacing lower-rung employees each year can also be costly and can lower productivity in the early months of adoption.

Forced Ranking Disadvantages

• New data, including a study by Drake University professor Steve Scullen, shows that forced ranking loses its effectiveness after a several years.

• Companies can inevitably make mistakes using forced ranking, firing someone who might go on to be a super star elsewhere.

• It has resulted in legal troubles for such companies as Microsoft, Ford, Goodyear, 3M, and Capital One, which have fought discrimination lawsuits filed by former employees who claimed forced ranking was used to discriminate on the basis of race or age.

How can you define a winning culture? Be prepared to share your definition with the class?

A sustainable winning culture

is to establish a clear mission statement that tells employees how it intends to be successful and communicate the values that lay out the rules to accomplish the mission. It is characterized by creating entrepreneurial spirit across the company.

A sustainable winning culture

• A unique personality based on shared values

• It translates the organization’s to have a unique personality focused on customer needs and results

How to sustain the culture

1. Perform a culture audit and set new expectations

2. Align the team. 3. Focus on results and build accountability4. Manage the drivers of culture (reward)5. Communicate

What do you like about Rorsted’s approach?

• developing new corporate values and vision while at the same time focusing on steering the company through the crisis

.• invested a great deal of time and effort in

explaining to his people why they need to move ahead faster than before.

• Communication is everything, because without communication it all comes to nothing.

• depth benchmarking against his competitors and hold detailed discussions about their goals for the future. This allowed him to define his three strategic priorities: achieving their full business potential, focusing more on their customers, and strengthening their global team.

• The most important thing he has clearly map out his path for the long term.

• I believe that he put one of the best evaluation systems in the industry.

Creating and sustaining a winning culture (HBS) http://blogs.hbr.org/2008/02/creating-and-sustaining-a-winn-1/

http://www.henkel.com/index.htm Henkel strategy November 16, 2012

Managing Corporate Culture at Henkel Applying the Denison Organizational Culture SurveyDaniel Denison and Rolf Schlue

What are the risks?

• In my opinion this approach put a lot of pressures on employees specially top level managements.

.• Ex: Felix Werner; though he was a good caliber but he was not a

team player and he had been reluctant to participate in the new DRT performance management process and he was fired.

• This new approach enforces every one to change no matter his or her competencies and again the company was loosing some good elements just because they weren’t able to adapt quickly with the new policy

• Ex Hanna Hoffman who was technically competent and fully met the requirement with Job but she was ranked the lowest for future leadership potential.

• This new approach of evaluation was a time consuming with more than 400 DRT sessions were held during a year and the session covered from 20 to 30 employees and lasted up to a full day.

• The ranking system what so called ‘ frame of orientation” compel managers to make tough choices and differentiate employees

• Ex: if a DRT meeting ended with no employees in the “ L” category, the DRT participants would revisit moderate performers, compare them to each other and move the lowest to the “L” category.

• This new approach led to a lot of confrontation with employees who spent years and years in Henkel without any clear critiques and as a sudden a new appraisal system was implemented and some other employees resigned like Robert Wilson ; may this new system had to take a transition period before applying it.

• Linking the Bonus of the individual to overall company financial performance has its advantages (congruent goals ) but also has its risks; As an individual I can make a huge effort although I will not get a bonus because beside me some others were reluctant.

• The business must come first in a winning company, not everyone is willing to accept this reality.

Assuming that the 2012EBIT margin goal is achieved, how should Rorsted motivate high performance for the next five years?

• First this question will be exposed to the class to get their answers; then we can provide ours

• Rorsted must set new goals for example we saw from the statistics that the EMEA region has the largest distribution, why not to increase the distribution in other region.

• May be he should change or add to the values• He may put a higher bonus on the T and S levels to

encourage employees to get in these segments.• His new policy started to attract employees from other

top companies, he may continue with this policy to show his employees that their company are attracting top level management from their competitors

• He must keep working on keeping the new spirit of Henkel alive by introducing innovative ideas.

• He must improve the pressure to perform and motivate people to do more.

• He must work all the time on the clear definition of targets and responsibilities and define accountabilities to avoid fatigue.

Financial Targets 2016