The case study: Henkel’s culture shift

The story

In 2008, Henkel, the German group with well-known brands ranging from Persil to Loctite, had reported comfortable growth and earnings.

But its new chief executive, Kasper Rorsted, a Dane who had made his career in big IT companies, thought the 132-year-old, family-controlled company needed to shake off some of its complacency if it was to safeguard its success.

The challenge

Henkel faced several serious issues. For instance, while reporting solid sales, it was less profitable than its industry peers – by a margin of up to 10 percentage points.

But the majority of employees did not see any need for change. In fact, one analyst commented that it was characterised by “complacency and lack of competitive spirit”.

Mr Rorsted determined to change the way the company was run and to create “a winning culture”.

The strategy

Mr Rorsted and his new, young team set about introducing changes that would include both tangible financial and performance targets, and an overhaul of company culture.

● Ambitious targets

In November 2008, Henkel announced challenging targets for 2012 that would improve performance but would also energise the organisation by creating a sense of urgency.

Targets included an increase in pre-tax profit margins to 14 per cent; in earnings per share; and in sales, to above the market average. In addition, the share of sales in emerging countries would be required to rise from 33 per cent to 45 per cent by 2012.

● Efficiency and focus

With more than 1,000 brands, at least 200 production sites globally, and three separate business units, Henkel was ripe for proposed efficiency measures. These included cutting the number of brands in order to put more marketing resources behind its strongest labels; consolidating manufacturing sites; and shifting tasks to shared service centres.

● New vision and values

Henkel had a vision statement and a set of company values. But they were neither well-known nor relevant to either day-to-day decision-making or evaluation of employee performance.

In 2010, Henkel replaced the original list of 10 values with five new ones – such as: “We put our customers at the centre of what we do.” To make sure these were communicated to the 48,000 employees, more than 5,000 workshops were held in which managers and teams discussed how the new values could apply to their work and how they could build a more positive company culture.

● Performance management

Henkel introduced a process to evaluate consistently the performance and potential of all management-level employees. They would be ranked on relative performance, which significantly affected managers’ bonuses. Each individual is reviewed in “development roundtables”, interactive meetings where managers review and evaluate their direct reports across teams to create a broader perspective on their achievements, development needs and promotability.

What happened

For fiscal 2012, Henkel’s global sales are forecast to exceed €16bn ($20bn), a rise of more than €2bn since 2008, and reach its profit margin target of 14 per cent. Emerging markets now represent 43 per cent of global sales, and more than 50 per cent of employees work in those territories. The number of brands is less than 400 and manufacturing sites have been consolidated by around 25 per cent.

Key lessons

To boost performance across a company, communicate a clear strategy that is backed up by setting ambitious targets.

Simplify your vision and values, and take time to communicate them to all employees to ensure they provide practical guidance, especially when tough decisions may be needed.

To focus everyone on successful execution, use performance management systems that link the evaluation and compensation of key employees to achievement of the new strategy.

-Financial Times, 8 Oct. 2012