Case analysis of Henkel's new culture and the role of their CEO Rorsted.

1. Henkel: Building a Winning Culture

2. 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

3. Major Business Units

4. Revenue by Business Unit

9. 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”

10. 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

11. 4-year Financial Goals

12. 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.

13. 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”.

14. The strategy priority

15. 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.

16. (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.

17. 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.

18. 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

21. 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)

22. Evaluation Grid
L M S T
1
2
3
4

23. 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.

24. 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%

25. 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%

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

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

28. 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).

29. 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

30. 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.

32. 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.

33. 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.

34. 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%

35. 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 .

36. 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.

37. 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.

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

40. 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.

41. 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

42. How to sustain the culture
1. Perform a culture audit and set new
expectations
2. Align the team.
3. Focus on results and build accountability
4. Manage the drivers of culture (reward)
5. Communicate

43. What do you like about Rorsted’s approach?

44. • 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.

45. • 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.

46. 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 Survey
Daniel Denison and Rolf Schlue

47. What are the risks?

48. • 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.

49. • 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.

50. • 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.

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

52. • 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

53. • 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.

54. Financial Targets 2016