HENKEL: BUILDING A WINNING CULTURE

Group 09
About Henkel and the need for change…..
• German Family
• Competitors : 3M,P&G,Unilever and L'Oréal
• Need for change:
• “ The happy underperformer: always #2 or #3”
• 58% drop in net profit in 2008

Three major business units

Adhesive Technologies (48%)
Sealants and surface treatments
to industrial customers in
various industries
Laundry and Home Care
(30%)
Detergents and related home
care products
The Cosmetics/Toiletries (22%)
Personal care products such as
shampoos, hair coloring, skin
creams, deodorants, and toothpastes

Brands: Loctite and Pritt glue Brands: Dial soap, and Persil Brand :Schwarzkopf hair care
sticks laundry detergent products
First one invented glue sticks
As the leader of this business
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Problem Analysis
• Henkel lacked competitive spirit with a slow growth rate of 8%
• Faced immense competition in laundry and personal care market
• Global financial crisis and economic slowdown impacted business
• Shifted focus to basic products, cutting down costs, increasing prices
• Necessity to transform complacent nature of employees
• The overall performance of company declined though the individual performance
remained high
• Hence necessity of overhauling performance management system
• Focus towards entrepreneurship and accountability required

3
 Conceptualization of Change process

Before change Towards change….

• Corporate Tagline: “A Brand Like a Friend”

• Transformed Tagline:” Excellence is our
• Henkel regarded as underperformer with low passion”
competitive spirit
• 4 years financial goals Established
• Relatively low market shares and falling
growth of business units • Transform organization into learner and
performance driven
• Strong family-owned foundation is relatively
vulnerable

4
 Vision for Change
Vision A global leader in brands and technologies

Change objectives Financial objectives(4 years):

1. 14% EBIT margin
2. 3% to 5% sales growth
3. EPS- Growth (CGAR) of more than 10%
Business objectives: stability of leadership and outstanding performance of
employees
Roadmap ● Establish a winning culture for changing the mindset of organization
● Conduct initiatives of redefining the value, to change the mindset of
organization by communication system.
● Set out a new performance management system to improve managers
capability.
● Launch a bonus compensation system to encourage employees
performance.

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Henkel - Transition state of change

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 Cheerleading-Incentive plan

● Evaluated two criteria : Performance and potential

● Bonus linked to team, group and individual performance

● Group Performance
○ Measured on basis of predefined KPIs
○ Rated on scale of 200

● Team Performance
○ Based on KPIs designed with respect to business unit or local targets
○ Weightage- 30% on company scores + 70% on performance scores
○ Rated on scale of 200

● Individual Performance
○ Based on KPIs(50%) + Rating based on DRT Process(50%)

● Individual bonus payout =Performance( [group + team]) * Performance(individual)

● Additional payout = Payout delivered is doubled if Financial goals are achieved

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 Stretch Goals
• Required to transform the complacent culture towards a winning culture
• Objective probability of attainment unknown but is seemingly impossible given current capabilities
• Means of creating performance pressure to employees
• Necessary to achieve full business potential and focus on customers and strengthen the team
• Allows employees to understand negative consequences to company prestige
• Recognize the employee efforts and implement strategies to achieve better goals
• Bonuses linked to overall company performance pushed the employees to strive to improve performance

How does it Benefit?

• Makes the goals challenging and nurture entrepreneurship
• Employees would be able to see the possibility of achieving
• Applicable at all levels : More efficiency achieved with top performers

8
 Forced Distribution method
• Assigns employees to certain category based on their performance
• Managers rank employees into 4 categories:
• Top 10%
• Strong 60%
• Moderate 10%
• Below par 5%

Merits
• Increases productivity
• Increases competition and performance
• Easy to target people for L&D and appraisals
• Acts a rationale for benefits and layoffs
Demerits
• Quotas can pull down par performers
• Limits creativity and risk taking
• Impact on corporate culture
• Demoralize employees
• Unhealthy competition

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 Ways to improve the Change process
• Incentive system to everyone : Raising the bonus for topper levels to encourage employees to
raise their performance

• Identify and manage best practices and communicate to everyone with manuals

• Monitor change process in between to check the path travelling

• Create L&D programs for Poor performers

10
Thankyou

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