Transforming an organisation through a proven leadership model
AkzoNobel: Global Management Team
AkzoNobel Decorative Paints division, known as Deco, employs roughly 22,000 people on five continents and is the largest supplier of decorative paints in the world. Deco generated a turnover of €4.7 billion in 2009, down 7% from 2008.
Following the acquisition of a major competitor, the global economic crisis exposed structural issues at an organisational level that hindered Deco’s ability to respond to strategic priorities. A major liability was the fragmented, multi-local organisational structure that had developed over the years. In spite of its global scale, Deco was not living up to its global potential.
The company needed to leverage its worldwide reach to maintain its position in several new business areas and take advantage of its leadership within established markets. But how does an established corporation with nearly €5 billion in turnover and more than 20,000 employees across dozens of independent business units move from being a multi-local company to a single global entity? How can it act and behave as a truly global company to leverage its range of people, competencies, and capabilities? On top of that, how does a company that had not been growing for the past years spur growth in the context of a tight financial market, a collapsing housing market, and fierce competition?
Deco transformed its organisation from the inside out. But at the outset of the change, the participants leading the process did not anticipate the scope of the transformation they were about to undertake. The transformation at Deco began with a basic commitment to helping the leaders of the organisation to connect better with each other and with their teams. This initiative then helped to support a complete paradigm shift that saw the mission of the company change from selling paint to ‘adding colour to people’s lives.’ Once internal leadership was developed, the company was ready to commit to acting – and engaging its customers – as a truly global brand.
AkzoNobel is a Dutch multinational company based in Amsterdam, Netherlands. Its Decorative Paints division (Deco) accounts for approximately 34 percent of AkzoNobel’s total turnover. The parent company has been defined historically through a series of mergers and acquisitions from a diverse set of industries. Indeed, a reading of the company’s history provides an account of major technological and commercial developments right back to the earliest beginnings of the Industrial Revolution in Europe. The history of mergers and acquisitions is reflected in the Deco division as well, which now includes brands such as Dulux, Glidden, and Sikkens within its portfolio.
In early 2008, AkzoNobel acquired the large British chemical company, Imperial Chemical Industries (ICI), a company of 29,000 employees that had an annual turnover of £4.8 billion. ICI had a large decorative paints business that had to be merged into Deco’s operations. The CEO of Deco, Tex Gunning2, was faced with the challenge of bringing these two organisations together to unlock the value gained through the acquisition. But as he explains, “When we got into the thick of things, it was clear that this was not only an integration job, but in fact several big challenges had to be addressed.”
Gunning turned to members of his human resources team for solutions. The main drivers of the process included Silke Heitmann, Global HR Director for AkzoNobel Deco, and Josine Peters, Manager Organisational Development & Internal Communications Decorative Paints. While certain team members can be credited with leading the transformation at Deco, the approach chosen explicitly leveraged the leadership capacities that existed throughout the organisation. Once a strategy was set, a leadership development initiative was cascaded throughout the entire global corporate structure, reaching down to every functional unit and turning a multi-local portfolio of companies into a global brand.
A Portfolio of brands and local companies
The immediate business context for Deco in late 2008 was challenging, even when leaving aside the difficult task of managing the new acquisition. First of all, Deco wasoperating in a rapidly deteriorating market for decorative paint, a decline driven by the financial crisis that had accelerated to become a world-wide economic crisis. One of the first and hardest hit sectors of the economy was the housing market, which is inextricably tied to the market for decorative paint.
On top of that, the merger with ICI was conceived in late 2007, when stock prices and acquisition prices were at an historic high. The financial crisis hit right as the management team was tasked with integrating the two paint divisions in an uncertain business climate. The risk was that the merger would be unsuccessful and that the promised benefits of the acquisition could not be delivered, which would result in an even more severe punishment from financial markets.
To complicate the situation further, once the merger process was underway, the management team found that a large piece of their new portfolio was not generating the expected returns – in fact, €1.5 billion out of a €5 billion portfolio was underperforming, causing tension across the company. The strategy adopted by the leadership team was, “first we must bring our house in order, and then grow,” says Silke Heitmann, Global HR Director for AkzoNobel Deco.
Attention thus turned to initiating a turnaround while simultaneously aiming to integrate the new organisation. Reviewing its positioning to identify a competitive advantage, Deco recognised that the key to profitability was to leverage its global scale. Heitmann explains that the company was determined that it could only be competitive by leveraging its global scale by being fewer, better, bigger, faster – streamlining the brand and optimizing the new resources gained through the acquisition, while cutting out duplication and redundant processes…