Posted: January 15th, 2015

Henkel, building a winning culture

Henkel, building a winning culture

ROBERT SIMONS
NATALIE KINDRED
Henkel: Building a Winning Culture
Development Roundtable. Düsseldorf, Germany, December 2011: a
“We have too many in the ‘T’
category. We can’t have more
than 10%.”
“What about Ashur Al Diri?”
“No. I would like to keep him
as a ‘T2.’ He’s our top sales
manager in the region. As you
know, Egypt is in turmoil—and
he’s managed to keep up both
volume and margins. He is a real
winner. I think he’ll be ready to
move up to the next management
level within a year.”
“What has he done that so impresses you . . . ?”
“Ashur has been very entrepreneurial in the face of unprecedented political turmoil. He’s changed
distribution routes, figured out new trade allowances to boost volume, and put more focus on highmargin brands. He’s been extremely fast in coming up with new

approaches as circumstances
change. The ideas are always there.”
“O.K. I think we can agree on ‘T2.’ What about Borzou Benzekri in Tunisia? Is he doing as well
with the instability there?”
“No. I could go along with rating him ‘M3.’ He’s solid, but his business is underperforming its
potential. I think there are other things he could have done to seize the initiative. In my opinion, he
focuses too much on effort and excuses. I keep telling him that excuses don’t count. Only results
matter when you’re in this kind of a competitive race.”
“I’m speaking to Kasper this afternoon. He knows him. Do you want me to get his input . . . ?”
a Names, functions, and countries in the examples throughout this case have been disguised to preserve anonymity.
________________________________________________________________________________________________________________
Professor Robert Simons and Research Associate Natalie Kindred, Global Research Group, prepared this case. HBS cases are developed solely as
the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective
management.
Copyright © 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized,
photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
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Henkel: Building a Winning Culture
Kasper Rorsted
In 2008, Kasper Rorsted was appointed CEO of Henkel AG & Co
KGaA (Henkel). The 46-year-old father of four was the company’s
youngest-ever CEO and the first born outside Germany or Austria. A
native of Denmark, Rorsted studied economics at the International
Business School in Copenhagen before beginning his career in U.S.based technology companies. In 1989, at age 27, he took his first sales
management position at Digital Equipment, where he was younger
than all but two of his 20 direct reports: “After about six months, I had
to lay somebody off. I remember I was sleeping very poorly for almost
a week. He had a family. But I had to start having honest conversations
with people about how they performed, and that taught me a lesson.
I’ve always been friendly, but never been friends anymore.”1
Source: Company documents.
In 1995, Rorsted joined computer company Compaq, where he rose to vice president and general
manager of its Europe, Middle East, and Africa (EMEA) business. Seven years later, when Hewlett
Packard (HP) acquired Compaq, Rorsted continued to lead HP’s EMEA division with responsibility
for 40,000 people and $30 billion in revenues. However, following a disappointing quarter in 2004,
HP CEO Carly Fiorina—who had championed the Compaq acquisition—fired several former
Compaq executives, including Rorsted. Within a month, Rorsted had a dozen job offers, but decided
to take the single offer that was not from a high-tech firm: “I decided I would take the job offer from
Henkel—a consumer goods and adhesives company—because there was a clear path I could see to
the CEO job.”2
As part of a three-year succession plan to replace retiring CEO Ulrich Lehner, Rorsted joined
Henkel in 2005 as executive vice president of human resources, purchasing, information technology,
and infrastructure services. As an industry outsider he faced a steep learning curve: “I had to start
from scratch again. . . . It was a reminder of just how important it is to ask questions and listen.” 3
From the start, Rorsted’s management style was distinct. He rarely used e-mail, preferring face-toface interaction. He took six-week-long trips to key operating

markets, including the U.S. and Asia.
He constantly pushed for efficiency and set ambitious targets, most notably a set of financial goals he
announced in 2008 upon becoming Henkel’s new CEO.
Henkel until 2008
Fritz Henkel founded what would become modern-day Henkel in 1876 to manufacture a new
laundry detergent. By the 1920s, Henkel, based in Düsseldorf, had grown into a leading German
detergent producer and had diversified into glues. Following Fritz Henkel’s death in 1930, shares of
the company were distributed to his three children. After World War II, which saw most of Henkel’s
infrastructure destroyed, the company—still privately held—reopened several plants and started
selling personal care products in addition to detergents and adhesives. In 1965, Henkel sponsored the
first-ever advertisement on German television with its Persil flagship detergent brand. In the
subsequent years, Henkel expanded its product portfolio and geographic footprint through
numerous acquisitions. In 1985, it raised capital to support continuing expansion by offering nonvoting shares to the public. By 2008, sales had grown to €14 billion

across 125 countries: the majority
from the EMEA region (64%), followed by North America (19%), Asia-Pacific (11%), and Latin
America (6%). Although only 20% of its 55,000 employees were based in Germany, the company
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preserved its German, family-owned roots: most members of the executive team were German and
the Henkel family retained an active role on the company’s shareholder committee.
Henkel was organized into three major business units. Adhesive Technologies (48% of overall
sales) sold sealants and surface treatments to industrial customers in various industries, including
electronics, transportation and construction, as well as to consumers. Laundry and Home Care (30%
of sales) sold detergents and related home care products. The Cosmetics/Toiletries unit (22% of sales)
produced and marketed personal care products such as shampoos, hair coloring, skin creams,
deodorants, and toothpastes. (See Exhibit 1 for a comparison of Henkel’s and selected competitors’
financial performance, Exhibit 2 for performance by Henkel business units, and Exhibit 3 for major
Henkel brands and products.)
Although all three businesses operated in highly competitive industries, the dynamics of each
business differed greatly. With brands such as Loctite and Pritt glue sticks (Henkel invented the
world’s first glue stick), Henkel was the industry leader in the adhesives business, competing with
companies such as 3M, which operated in 60 countries and had 2008 sales of €18.1 billion. But Henkel
was a relatively small player in the laundry and personal care markets where its major brands—Dial
soap, Schwarzkopf hair care products, and Persil laundry detergent—competed against global brands
from much larger competitors Procter & Gamble (operating in 180 countries with sales of €50.4
billion), Unilever (150 countries; €40.5 billion sales), and L’Oreal (130 countries; €17.5 billion sales).4
2012 Goal: 14% EBIT Margin
In 2008, when Rorsted took over as CEO, Henkel was reporting comfortable growth and profits:
€14 billion in sales, an increase of 8% over the previous year, and an EBIT margin of 10.3%. But many
analysts—and even some Henkel executives—perceived Henkel as a complacent player that lacked a
strong competitive spirit. One company official notoriously called Henkel, “the happy
underperformer: always #2 or #3.”
Moreover, by the second half of 2008, the impact of the global financial crisis and subsequent
economic slowdown was having an effect in Henkel’s key markets. In personal care and beauty
products, consumers cut back on spending, traded down to lower-priced brands and focused on
basic products, foregoing discretionary purchases. To offset rising raw material costs, Henkel
increased prices on many products. Such steps, combined with the slowing economy, caused volume
growth in all of Henkel’s business units to fall in the second half of 2008.
Faced with falling demand and corporate complacency, Rorsted vowed to transform Henkel into a
leaner, more performance-driven company. In his opinion, “staying where we are is no longer an
option. We either move up or move down: we either become relevant or we will be made irrelevant.”
To catalyze the organization and signal his commitment to change, Rorsted called a press
conference in November 2008 to announce a set of ambitious four-year financial goals for sales
growth, EBIT margin and EPS.
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Henkel: Building a Winning Culture
Nov. 6, 2008, 4:29 a.m. (Market Watch, The Wall Street Journal)
FRANKFURT — Burdened by integration and restructuring charges, consumer goods and adhesives
producer Henkel (HEN.XE) Thursday reported a 58% drop in third-quarter net profit and lowered its
2008 earnings guidance. The company, which has about 55,000 employees, confirmed it expects 2008
organic revenue growth of between 3% to 5% from EUR13 billion last year. At 0816 GMT, Henkel shares
traded down EUR0.59, or 2.5%. Henkel shares have fallen about 39% since the start of the year.
Henkel also defined financial targets for 2012 and said it expects average organic sales growth of 3% to
5%, an adjusted EBIT margin of 14% and average growth in adjusted earnings per preferred share of
above 10%.
An analyst said the reduced earnings outlook for 2008 isn’t good and while the financial targets for
2012 look encouraging, “we don’t have a clue on how they can be reached.” He adds it remains to be seen if
the targets are based on strategy or are simply wishful thinking.
Business reporters and analysts echoed the skepticism of The Wall Street Journal report. “The
listeners of the London analyst conference could not believe their ears,” said one report; “14 percent
seems too ambitious,” asserted another; “As for the recently announced 2012 margin target of 14%,
we frankly think it has little credibility,” stated a third.5
Building a Winning Culture
Rorsted knew that the ambitious financial goals—which promised improving sales growth and
profitability in declining markets—could only be achieved by transforming the complacent spirit
within Henkel into what he called a “winning culture.” This concept would underpin three new
strategic priorities: (1) achieve our full business potential, (2) focus more on our customers, and (3)
strengthen our global team. (See Exhibit 4.)
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 actions in
each business unit. To “achieve our full business potential,” Rorsted focused on optimizing Henkel’s
portfolio by devoting extra resources to top-performing brands and high-potential markets. In 2008,
Henkel made its largest-ever acquisition, paying €3.7 billion for the adhesives and electronic
materials businesses of the National Starch and Chemical Company, thereby consolidating its
worldwide leadership position in adhesives.
In North America, Henkel invested heavily in its Dial brand, moving it from fifth in its category to
one of the top brands in the body wash market. At the same time, the company divested
underperforming activities or non-strategic brands, including the Adhesive unit’s water-treatment
business and numerous consumer brands. Rorsted noted:
To be more competitive, you have to make tough decisions about every aspect of the
business. We are concentrating on brands and countries where we are in a leading
position or able to generate sustainable growth. If we lack the ability to win in a market or
can’t get there in a reasonable time, we leave. For example, we decided to exit our laundry
and home care business in China—where we could not see a growth strategy—and focus
on adhesives and cosmetics where we see strong potential. In total, we have gone from
900 brands to less than 500, and there’s still more work to do.
Henkel executives also searched for cost efficiencies in administration and procurement through
process standardization and automation, as well as improvements in capacity utilization at their
various production sites.
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2009 to 2012: From Promise to Reality
Rorsted had intentionally undertaken the plant closings, divestitures, and administrative
consolidation before embarking on the more sensitive cultural transformation needed for Henkel to
achieve its 2012 goals. “We tackled the ‘hard’ things before attempting the ‘soft’ ones,” he explained.
“For the first part, I expected that people in the organization would feel uncomfortable, but we had to
implement these changes to secure our future. We closed 60 plants worldwide and shifted functions
such as purchasing, finance, and human resources into centralized shared-services offices in Slovakia,
Mexico, and the Philippines. For the second part I needed to have everybody on board . . . I needed
emotional buy-in.”
The cultural overhaul—“building a winning culture”—comprised two major initiatives: (1)
redefining Henkel’s vision and values, and (2) implementing a new performance management
system to strengthen management capabilities and increase accountability.
Vision and Values
“A Brand Like a Friend” was Henkel’s corporate tagline. But this no longer seemed to fit Henkel’s
new strategy for two reasons. First, its consumer focus did not resonate with the industrial adhesives
business which had grown to be Henkel’s largest business. Second, the tagline did not, in Rorsted’s
view, communicate the new competitive culture he wanted to create. “It is not about being friendly,”
he stated. “We want to be winners in every market in which we compete.”
Rorsted realized that to sharpen Henkel’s focus on its financial goals and priorities, the company
required more clarity in the values that would guide the tough choices needed to transform it into a
winning competitor. Henkel had a longstanding list of 10 values that included goals (e.g., “we aspire
to excellence in quality”), work principles (“we communicate openly and actively”), and history (“we
preserve the tradition of an open family company”). (See Exhibit 5 for a list of these 10 values.)
Although these aspirations could be found in company reports, internal signage, and on the back of
business cards, few employees—even at the highest levels—could remember them. The values “were
everywhere but had little meaning,” one executive explained, adding that he could not think of a
single situation when they were a factor in key decisions.
Rorsted believed that core values should provide the foundation for tough decisions. To identify
potential themes for the new values, in June 2009 Henkel surveyed 134 executives in the top
executive team and the next management layer. Based on these results, Rorsted held workshops with
the Henkel management board to discuss what the new vision and values should be. Concurrently,
Simone Bagel-Trah, a fifth-generation member of the Henkel family who served as chairwoman of
both Henkel’s shareholders’ committee and supervisory board, worked with the Henkel family to get
their input on defining the new values. (In addition to her role at Henkel, Bagel-Trah, who held a
Ph.D. in microbiology, was partner and director of Antiinfectives Intelligence, a Bonn, Germanybased microbiological research company.)
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Henkel: Building a Winning Culture
In January 2010, the Henkel board of directors approved a new vision—“A global leader in brands
and technologies”—and five new values:
1. We put our CUSTOMERS at the center of what we do.
2. We value, challenge and reward our PEOPLE.
3. We drive excellent sustainable FINANCIAL performance.
4. We are committed to leadership in SUSTAINABILITY.
5. We build our future on our FAMILY business foundation.
To underscore the importance of customers in Henkel’s new values, Rorsted banned the use of the
word “customer” to describe any internal unit within Henkel.
Senior executives next endeavored to communicate the new vision and values to Henkel’s 48,000
employees. In July 2010, the company launched a “360-degree” communication campaign using
Henkel’s intranet, posters, employee magazine (Henkel Life) and town hall meetings in all major
countries. Starting September 24, 2010 (“Henkel Day,” marking the founding of the company), Vision
& Values workshops were facilitated by line-managers in over 60 countries. In these three- to fourhour sessions, managers used materials from a toolkit to discuss with

their teams how the new values
could be linked to their day-to-day work and to develop concrete action plans to build a winning
culture. Examples of actions from the workshops—with assigned accountability and due dates—
included designing new “meet-your-customer” programs, instituting new ROI measures to improve
resource allocation, increasing the visibility of sustainability targets, and recognizing entrepreneurial
behavior with a new “Entrepreneurial Award.” Over a period of six months, more than 5,000 of these
workshops took place.
To allow employees to visualize how the new values would affect the company’s success, the
toolkits included two imagined news-stories “from the future”—one celebrating Henkel’s realization
of its 2012 goals (see Exhibit 6 for an aspirational slide used in company presentations); the other
describing the company’s failure to meet them—allowing employees to understand the negative
consequences to the company’s competitiveness and prestige.
These and other internal communications efforts were managed by Henkel’s 120-strong corporate
communications team, led by Carsten Tilger. “It was extremely important that the workshops were
run by business managers, not human resources or communications,” said Tilger. “When we
launched a ‘soft’ initiative in the past, executives would ask HR to handle it for them. Leaders were
not used to discussing vision and values in terms of our competitive success. Our new approach
turned out to be very successful.”
Henkel’s new culture was also reflected in the new company tagline, “Excellence is our Passion,”
used in corporate branding for both internal and external audiences. The new slogan was launched in
early 2011 after the finalization of the Vision & Values workshops: “We wanted the employees to see
their own contribution, and be able to put action behind the words. The workshops were key to
achieving this goal,” stated Tilger.
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Felix Werner, a country manager in Henkel’s Adhesives business, was stunned when he was
fired. His financial performance had been predictably good, and he had successfully restructured
the business in a difficult market. But as his business had flourished, his senior colleagues had
become increasingly upset about his attitude. He was not a team player: he had been reluctant to
participate in the new DRT performance management process; he did not want his business
controllers reporting to group HQ; he resisted moving his support functions to the new sharedservices units; and he wanted his business to be a brand that was distinct

from Henkel. When
informed of the decision to terminate his employment, Felix was told that the executive board
members were not willing to work with someone who did not embrace Henkel’s new strategy
and values.
Performance Management
Kathrin Menges was the newly promoted global head of human resources responsible for
implementing Henkel’s new performance management system. Menges had started her career as a
high school teacher in East Germany. After the fall of the Berlin Wall in 1989, she moved to Berlin and
began a business career in banking and consumer products. She attended Harvard’s Advanced
Management Program in 2010 after taking the new role as head of human resources. In 2011, after 12
years with the company, Menges was appointed to the Henkel management board.
According to Menges, Henkel historically had a culture of long employee tenure: “Many
employees have been with Henkel for 20, 30, even 40 years,” she said. “The company has been able to
show stable performance over many years, so people were generally content with the way things
were.”
“We used to set rather easy individual targets,” added Rorsted. “From 2004 to 2008, 95% of
employees hit their earnings even though the company as a whole didn’t reach its goals even once. It
created a perception at the company that everyone is great, and yet the company as a whole was
losing.”
Rorsted sought to overturn this attitude of complacency through a new performance management
system. “Our new system signals that being a ‘happy underperformer’ isn’t good enough anymore,”
said Rorsted. “We are no longer striving for second place.”
Evaluation grid In 2009, Henkel introduced a new performance management system for its
four layers of management (approximately 9,000 employees). Under the new system, each employee
was assigned a rating representing (1) his or her performance (a reflection of past work) and (2)
potential (future advancement prospects). The ratings were summarized in a four-by-four grid, with
a vertical “potential” scale using numerical grades and a horizontal “performance” scale using letter
grades (see Exhibit 7 for the grid—also reproduced on p. 1 of this case). On the “performance” scale,
employees were graded as either “L” (low: consistently fails to meet minimum performance
requirements), “M” (moderate: meets many but not all performance requirements), “S” (strong: fully
meets all performance requirements), or “T” (top: exceeds performance requirements and achieves
exceptional results). For “potential,” employees received a grade of one through four: “1” signaled
significant advancement potential and “4” meant that the employee was already performing at the
limits of his or her ability and was unlikely to advance.
For example, a “T1” rating would be assigned to a top performer with significant advancement
potential. An “S3” rating would fall to an employee with strong performance who is most likely an
expert in his field, but has little advancement potential.
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Henkel: Building a Winning Culture
Hannah Hofmann, a quality engineer in Henkel’s laundry business, announced that she was
resigning. She would be taking a position with a government agency in Berlin. Hannah had been
rated “S4” in the most recent DRT performance evaluation. She had been classified as “S”
(strong) because she was considered technically competent and fully met the requirements of her
job. Hannah had trouble getting on with people and was considered difficult to work with. As a
result, she was rated a “4” (lowest) for future leadership potential in the company. Without
significant personal change, she was unlikely to advance further within Henkel.
Development Roundtable Rankings were assigned in a collaborative forum called the
“Development Roundtable” (DRT). DRTs were meetings of managers—usually a group head and his
or her direct reports, along with a moderator from the human resources department—in which they
evaluated their direct reports, spending roughly five to 10 minutes discussing each individual. The
performance evaluation grid scores served as the basis for DRT discussions.
In the typical DRT session (see the first page of this case), the moderator first announced the name
and position of the employee to be evaluated, and then the employee’s direct manager provided an
overview of the employee’s performance and suggested grades for performance and potential. Next,
other attendees could ask the manager questions about the employee and offer their perspective on
his or her performance and rating. While some evaluations ended in quick consensus, others led to
lively debate. At times of disagreement, the final decision rested with the most senior executive in
attendance. The typical DRT meeting covered roughly 20 to 30 employees and lasted up to a full day.
About 400 DRT sessions were held each year across the company. Once all DRT sessions concluded,
managers met with their reports one-on-one to discuss their rating and individual development
plans.
Frame of Orientation The DRT process flowed bottom-up, beginning at the country level,
then to region and global levels. Throughout the process, Henkel tracked the percentage of
employees in each performance category. To compel managers to make tough choices and
differentiate employees, Henkel created a ranking system—known as the “frame of orientation”—
along the performance scale. Annually, in each department and company-wide, 5% of employees had
to receive an “L” rating; 25% “M” ratings; 60% “S” ratings; and 10% “T” ratings.
As indicated in the dialogue at the beginning of this case, the grades awarded to employees “on
the fence” (e.g., between “strong” and “moderate” performance) had to be adjusted to meet this
distribution. For example, 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
performing of the group to the “L” category to properly reflect the difference in performance.
According to Menges, this system fundamentally changed the way feedback was given at Henkel:
“In the past nobody was low performing and managers were appreciative of everybody.” She
continued:
Managers often delivered very positive feedback face-to-face, saving their criticism for
confidential meetings when the employee was not present. We realized we needed to be fair
and objective, but more critical. It’s not that people were never let go in the past. But when
they were, they would be shocked because they had never received a bad review. We realized
it’s better to be honest with people, tell them how they are really doing, and give them a
chance to improve.
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The distribution system also created a way to calibrate the relative performance of employees in
comparable roles across different geographies and to identify high-potential leaders who might
otherwise be invisible to Henkel executives. For the bottom of the distribution, the ranking mandated
the delivery of negative reviews to low performers. This was especially important in countries where
delivering negative feedback to subordinates ran counter to cultural norms.
The new evaluation system spurred many employees to improve their performance, moving up in
the ratings over time. Other employees struggled to adjust to the sudden accountability and
transparency. “It creates tension because people who were told they were great throughout their
career are suddenly being told they’re not so great anymore,” said Rorsted.
Robert Wilson, a third-level manager in the purchasing department in the U.S., reluctantly
agreed to resign. Robert had worked for Henkel for six years and had, most recently, participated
in efforts to standardize purchasing solutions across Henkel’s various businesses. Robert was
passionate about hobbies outside of Henkel. However, as a Henkel employee, he showed little
enthusiasm and generally did the minimum amount of work required. Nevertheless, over the
years, his various supervisors have never given him clear critiques of his performance. Under the
new appraisal systems, Robert had been classified as an “M3” performer, meaning that he just
met expectations and had low prospects for advancement. In 2011, his performance was
downgraded to “L” (low), signaling that he was in the bottom 5% of the employee distribution in
his unit. Keeping his job would require a significant increase in commitment and effort.
Bonus Compensation
Under the new system, bonuses were linked to overall company financial performance, team
performance (e.g., a business unit), and individual performance.
Group Performance
Each year, Henkel set two or three key performance indicators (KPIs) at the
company level (e.g., adjusted EBIT margin, organic sales growth). Performance against each KPI was
measured on a scale of 0% to 200%, where 0% indicated no progress, 100% meant the targets were
achieved, and a maximum of 200% recognized that targets had been substantially surpassed. Scores
for each KPI were averaged to create an overall group score.
Team Performance
The process was similar at the team level where targets were based on
specific business unit targets or local market targets. Each business was measured against one to
three KPIs (e.g., EBIT margin, sales growth), again on a scale of 0% to 200%.
Company scores (30% weight) and team performance scores (70% weight) were then added
together. If both Henkel overall and the relevant business unit exactly met their KPIs, the resulting
combined score would be 100%.
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Individual Performance
Henkel: Building a Winning Culture
Individual performance was calculated using two inputs, each
weighted 50%:
(a) Performance on two equally weighted individual KPIs (e.g., successful new product launch,
project progress). Performance on each KPI was measured on a scale of 0% to 150%, with 0%
representing no progress, 100% (full achievement of targets), and 150% (substantially
surpassed targets).
(b) Performance rating from the DRT process: a “T” rating yielded a score of 150%, “S” (100%),
“M” (75%), and “L” (25%).
To illustrate, an employee who scored 100% on her two individual KPIs and earned a “T” (150%)
rating from the DRT process would have an overall individual score of 125% ([100 + 150] ÷ 2).
Bonus Payout
Each manager was eligible for a target bonus based on his or her job
grade/management level (e.g., 25% of base salary). To determine an individual’s bonus payout, the
[group + team] score was multiplied by the individual’s performance score. The product of this
calculation was then applied to the target bonus. For example, an employee who worked in a
business that scored 150% on [group + team] performance and scored 150% on individual
performance would receive 225% (150% x 150%) of her target bonus. An “L” ranked employee in the
same business might receive only 37.5% (150% x 25%) of his or her bonus potential.
Additional Payout Linked to 2012 Goals
As an added incentive, the bonuses awarded to
Henkel’s top managers—around 3,000 people—would be doubled in 2012 if the company met its
financial targets.
A Roundtable Discussion with Henkel Executives
The case writers met with Henkel executives to record their thoughts on Henkel’s journey to build
a “winning culture.” Present were:
Simone Bagel-Trah (age 42)
Kasper Rorsted (49)
Lothar Steinebach (63)
Hans Van Bylen (50)
Jan-Dirk Auris (43)
Bruno Piacenza (46)
Kathrin Menges (47)
Carsten Tilger (44)
Ashraf El Afifi (41)
Chairwoman, Supervisory Board and Shareholders’ Committee
Chief Executive Officer
EVP, Finance/Purchasing/IT/Legal
EVP, Cosmetics/Toiletries
EVP, Adhesive Technologies
EVP, Laundry & Home Care
EVP, Human Resources
SVP, Corporate Communications
SVP, Laundry & Home Care, President MEA
How important were the targets that Kasper announced in 2008 to building a winning culture?
[Jan-Dirk] “We always set long-term targets, but they never seemed to be our first priority. Some
teams would plan annual targets which they could achieve within 10 months. Because of this type of
behavior, we never achieved the full potential of the company. Now, the tension is unprecedented.
We have set what I call ‘vicious targets.’ The 14% EBIT margin is just a number, but this number will
transform the company in the way we set our ambitions and how we go after them.”
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[Kathrin] “Every year we raise the bar. A person who received an ‘S’ last year won’t necessarily
earn an ‘S’ next year for the same performance. They need to keep improving. This has really
changed behavior. There is more clarity about what good performance is and people are really
starting to pay attention.”
[Lothar] “I agree. With the new vision, values, and performance management system, we all
speak the same language.”
How do core values fit into your change agenda?
[Kasper] “The new values formed the foundation from which we could undertake other changes.
If you just focus on financial performance, you lose people. The cultural element provided signposts.
You can’t forge change without providing some stability.”
Were values developed bottom-up or top-down?
[Carsten] “The values were created during the management board workshops taking into account
input from the family shareholders. Then, we included everyone in the company in the roll-out. We
asked every employee to put the values into their own words and build personal action plans. This
way everyone felt invested in the changes. It was also critical that this happened in real teams, led by
operating managers.”
How easy is it for people to relate to the new values?
[Ashraf] “You have to translate the values in ways that people on the front lines can relate to. Take
our financial value. Some employees in the region—who may be earning €200 to €300 a month—say
to me, ‘What does this have to do with us?’ Then I explain how important their roles are to the
company and how they can contribute to Henkel’s results.”
“The customer value was the easiest to translate. In the Middle East, there are a lot of start-ups
which are often family run, and people understand the importance of customers. For example, Egypt
has 300,000 small retailers where laundry products are sold in single-use sachets. If you talk to a
worker on the line who is filling these sachets, you can talk in terms of quality. Workers understand
that better quality means customers will like the product more and buy more. Helping them and
helping us.”
What about the ‘family’ value? How do they relate to this?
[Simone] “As chairwoman of the supervisory board and shareholders’ committee, I also represent
the family—the majority of the voting shareholders. To us, the value ‘building on a family business
foundation’ implies entrepreneurship and accountability. My wish is that every employee should feel
like an entrepreneur—taking risks, making changes, and moving at a fast pace. The employee should
be able to decide and feel like we do as owners. In emerging markets, being owned by a family is a
plus—it builds trust. But it doesn’t mean that our business is a big family. It means accountability.”
[Bruno] “Let me echo that. A company is not a family. In a performance-oriented company, like in
sports, you select the best players, offer training and support to them, and then they need to be
accountable and perform. If you want to build the best team, you must have high expectations. You
cannot tolerate continued weak performance.”
11
112-060
Henkel: Building a Winning Culture
Have you changed what you measure?
[Kathrin] “Kasper loves to quote Steve Jobs: ‘simplicity is the highest form of sophistication.’ In
the past, performance awards were based on a multitude of objectives and projects. Bonus payouts
were linked to complex scorecards. We ended up with a very complex system of KPIs. We have really
tried to simplify things. Instead of 20 KPIs on a scorecard, we now have three measures. We had 10
values; now we have five. At the same time, we have also substantially widened the measures for
which we hold people accountable. For example, everyone now has some type of customer-focused
measure in their targets.”
“When it comes time for evaluation, we now focus on proof: the first thing we talk about is
quantity and quality of output. This is a big change from when we used to assess people on activities
and efforts, but not results. Next, we focus on the individual’s ability to be customer-oriented in their
work. Finally, we look at leadership qualities such as people management. All of this rolls up into our
assessment of their future potential.”
Has this changed behavior?
[Kasper] “The new performance management system has encouraged stronger teamwork, more
collaboration, and significantly more innovation as people respond to the need to deliver results. Let
me give you an example of the kind of innovation that arises from this heightened level of
accountability. In 2008, managers in our cosmetics business realized that our targets might be at risk
because our high-end hair products were under increasing price pressure. When these products are
sold in professional salons, consumers pay premium prices for the quality and service. So we
developed a new ‘professional performance’ brand offering the same quality that could previously
only be purchased at the hairdresser—but sold at the retail store. Today, a range of products under
this brand has been launched successfully in more than 30 countries and generates several hundred
million euros in sales. Without the new targets and performance pressures, I doubt this innovation
would have occurred.”
[Kathrin] “I also can give you any number of examples of people who have improved their
performance as a result of the new system. They are not only innovating more . . . in many cases,
individuals are now routinely seeking feedback from their peers to ensure that they are on track with
their improvement plans.”
[Ashraf] “Let me second that. When you attended our DRT meetings, you got some sense of the
type of entrepreneurial behavior we are looking to recognize and promote. Our new performance
orientation has had a huge payoff in terms of competitiveness, growth, and profitability. For
example, we were able to perform very strongly in the past years with a CAGR b for Henkel in MEA
of more than 12%, which is more than three times the average CAGR of the global laundry and home
care industry in the same period. This is why the role of emerging markets is so important.”
[Bruno] “Being part of a winning culture also brings psychological benefits. No one wants to be on
a losing team. We are now playing in the same league as our top international competitors in terms of
market share growth, revenue growth, and net profit growth. Winning is highly motivational and we
are starting to see the payoffs. We recently attracted a top person from P&G: with our new values,
people want to be part of the story. We are now an attractive place to be.”
b Compound Annual Growth Rate.
12
Henkel: Building a Winning Culture
112-060
Weren’t some people threatened by this approach?
[Kasper] “We are trying to transform the company. In 2008, we said that we would get EBIT
margins up to 14% by 2012. Not one analyst believed we could do it. By 2010 we had EBIT up from
10% to 12%, so people could see that it was possible. And we are now providing guidance for a 13%
margin target for 2011. We are not backing down, even with the current financial crisis. I keep
reminding everyone, ‘the target is the target.’”
“We are looking for people who are innovative and entrepreneurial. Our new culture does not
appeal to everyone, and a number of people have left. But the organization as a whole has accepted it
because we have made more cuts at the top than at the middle. Everyone who didn’t want to play
under the new rules was asked to leave. Around 50% of our top 180 executives, including the
management board, have changed in the past three years; the majority of the new people, more than
75%, were appointed from within. A lot of young people got promoted to take on new
responsibility—and this has injected new vitality into the organization.”
[Kathrin] “The people who parted ways shared two traits: they were not able or willing to adapt
to the speed of change, or they were not able to communicate to their teams and implement what we
are trying to do. The business controller who just wants to be a number cruncher cannot survive in
our new culture where they are expected to be an advisor and partner to the business.”
[Carsten] “Of course, some people did not want ‘to get it.’ Let me give you an example. To bring
the concept of a ‘winning culture’ to life for our employees and those whom we might like to hire, we
developed a series of ads showing Henkel employees who were excited by their work. We rolled
these out with our new tagline, ‘Excellence is our Passion.’ The ads were intended to be eye-catching
and humorous [see Exhibit 8 for examples]. In one, a smiling female executive says eagerly, ‘Yes! It’s
6 A.M.’ In another, a beaming manager sits outside during a coffee break under the caption, ‘Breaks
are Boring.’ We were a little surprised when some people called in to complain that, under German
law, breaks are a right, and these ads were improper. But let me add: our target group—ambitious
job-seekers—got the joke and really liked it.”
How do you identify the people who can thrive in this new environment?
[Kathrin] “We have defined clear criteria for performance and potential assessment. We consider
not only quantity and quality of results, but also if an employee is a good team player, acts in a
customer-oriented way, and is a good leader. Those in the ‘T’ category—the top 10%—have to clearly
exceed our requirements. These are our gold medal players. We limit the size of this category because
you don’t give two gold medals in sports. And if you earned the gold medal in one year, this doesn’t
mean you will receive it automatically the year after—next year it might go to somebody who tried
harder. This way you keep up the winning spirit.”
[Hans] “Also, our new processes have increased the visibility of people dramatically. Senior
managers now work hard to get to know top performers. When I am travelling abroad, I make it a
point to meet personally with the most talented managers independent of their seniority level. The
DRT meetings make these high performers clearly visible to me and other senior management. I
follow up regularly and build a relationship with these often-young managers through multiple
meetings. As board members, we act as role models. When we are seen reaching out to identify high
performers and getting to know them, managers at lower levels will follow in our footsteps.”
13
112-060
Henkel: Building a Winning Culture
What do you say to people who don’t want to work so hard?
[Lothar] “Anyone who aspires to a leadership position in a winning company needs to
understand that they have to work hard to achieve their goal. The business must come first. Not
everyone is willing to accept this reality. Before you appoint someone to a position of leadership, you
have to challenge them to see how they cope with the extra work, the stress, and the successes and
failures that accompany stretch goals and high performance expectations.”
[Hans] “At the same time, we are responsible for ensuring business processes that foster
motivation without fatigue. The foundation of such a process is the balance of creativity and
discipline. Creativity provides freedom to blossom; accountability provides the discipline to ensure
effectiveness and efficiency. With a fast and transparent decision process, we clearly define
accountability and responsibility, so that we avoid fatigue and stimulate motivation.”
Do you believe that these changes have indeed created a winning culture?
[Kasper] “The first step was restructuring and establishing the right mindset. Keeping our
financial targets stable when the financial crisis happened—and actually achieving them—has hugely
added to our credibility, both internally and externally. We have been consistent, clear, and credible.”
“And a huge piece of this transformation effort has been reducing and eliminating—from
lowering the number of KPIs and values to cutting underperforming products, businesses, and
people. But we must continue communicating the idea that the need to constantly improve—the
pressure to perform and adapt—isn’t going to stop. Leaders of winning businesses must constantly
inspire and motivate people to do more.”
[Simone] “This is something I pay a lot of attention to . . . getting the pulse of the organization. I
travel a lot speaking with different employee groups: I have recently been to the Global Finance
conference and to our new Middle East headquarters in Dubai. I know nearly all of the top 180
leaders in the company. When I see them, alone or in small groups, I often ask, ‘What is the difference
between Henkel and other companies?’ I have received very positive feedback on our vision and
values in these discussions. That makes me proud and shows me that the Henkel spirit is alive and
well.”
Postscript:
March 8, 2012. Düsseldorf. Henkel Press Release:
Henkel delivers sales and earnings at record levels
14
?
Sales increase of 3.4 percent to 15,605 million euros
?
Adjusted operating profit: plus 9.0 percent to 2,029 million euros
?
Adjusted EBIT margin: plus 0.7 percentage points to 13.0 percent
?
CEO Kasper Rorsted stated, “For 2012, the economic environment remains challenging. . . .
However, we consider Henkel to be well-positioned. . . . We expect to increase our adjusted
EBIT margin to 14 percent and improve adjusted earnings per preferred share by at least 10
percent.”
Henkel: Building a Winning Culture
Exhibit 1
112-060
Key Financials of Henkel and Selected Competitors, 2000-2010
2000
2001
Total Revenue (€ millions)
P&G
41,733 46,312
Unilever
47,582 51,514
3M
17,778 18,027
L’Oreal
12,671 13,740
Henkel
12,779 9,410a
2002
2003
2004
2005
2006
2007
2008
2009
2010
40,749
48,270
15,573
14,288
9,656
37,764
42,693
14,465
14,029
9,436
42,215
38,566
14,780
13,641
10,592
46,845
38,401
17,869
14,533
11,974
53,650
39,642
17,372
15,790
12,740
55,387
40,187
16,751
17,063
13,074
50,364
40,523
18,084
17,542
14,131
54,710
39,823
16,134
17,473
13,573
64,283
44,262
19,883
19,496
15,092
10.4
-0.4
5.8
6.5
13.0
20.2c
3.2
8.3
8.7
6.4
12.1
1.4
6.7
8.1
2.6
6.9
0.8
3.3
2.8
8.1
-6.2
-1.7
-8.5
-0.4
-3.9
2.9
11.1
15.3
11.6
11.2
19.4
13.6
20.2
16.1
10.2
20.2
14.5
21.8
16.5
10.3
20.4
14.3
20.7
15.5
10.3
20.0
14.7
20.8
14.8
10.0
20.3
15.0
22.2
15.7
12.3
Sales Growth (%)
P&G
4.8
Unilever
16.1
3M
6.2
L’Oreal
17.9
Henkel
12.5
-1.8
8.3
-4.0
8.4
2.2
2.5
-6.3
1.7
4.0
2.6a
7.8
-11.6
11.6
-1.8
-2.3
18.5
-9.7
9.8
-2.8
12.3b
EBIT Margin (%)
P&G
14.9
Unilever
11.1
3M
17.2
L’Oreal
12.0
Henkeld
7.4
12.1
11.2
13.6
11.5
6.4
16.6
11.8
18.7
12.1
6.9
18.1
13.1
20.9
12.6
7.5
19.1
14.9
22.9
15.0
9.4
18.5
13.2
22.9
15.9
9.7
Source: Compiled from Capital IQ and company documents, citing Bloomberg.
Note: Data are year-end December 31 except P&G (year-end June 30). Revenues for 3M and P&G were converted from USD to
Euros via Capital IQ using fiscal year-end rates. Sales growth for 3M and P&G was calculated using reporting currency (USD),
and may not match sales growth as calculated from the Euro-denominated revenue figures given in the table.
a Including the divestment of chemicals business Cognis, 2001 revenues were €13,060 and 2002 sales growth was -26.06%.
b Reflects the acquisition of Dial in 2004.
c Reflects the acquisition of Gillette in late 2005.
d Henkel’s EBIT margin (2008-2010) is adjusted for one-time charges/gains and restructuring charges.
Exhibit 2
Henkel Financials by Business Line, 2010 (€ millions unless otherwise noted)
Sales
Sales growth 2006-2010
Proportion of Henkel sales
Operating profit (EBIT)
Adj’d return on sales (EBIT margin)b
Return on capital employed (%)
Laundry &
Home Care
4,319
4.9%
29%
542
13.0%
21.2%
Cosmetics/
Toiletries
3,269
14.1%
22%
411
13.3%
20.1%
Adhesive
Technologies
7,306
32.6%
48%
878
12.8%
12.5%
94,000
135,000
47,000
Size of world market
Corporate
199
1%
-108a
–
Henkel
Group
15,092
18.5%
100%
1,723
12.3%
14.9%
Source: Compiled from company documents.
a Including restructuring charges of €14 million disclosed for the last time under Corporate, arising from integration of the
National Starch businesses.
b EBIT margins for the individual business units were greater than the Group margin because of the effect of costs in the
corporate sector (e.g., human resources, information technology, corporate communications, and finance).
15
112-060
Exhibit 3
Henkel: Building a Winning Culture
Selected Henkel Products and Brands by Business Segment
Laundry and Home Care
Beauty and Personal Care
Adhesive Technologies
Source: Company documents.
16
Henkel: Building a Winning Culture
Exhibit 4
112-060
Henkel’s “Winning Culture” Concept and Financial Targets for 2012
Source: Company documents.
Exhibit 5
Henkel’s Pre-2010 Values
?
We are customer driven
?
We develop superior brands and technologies
?
We aspire to excellence in quality
?
We strive for innovation
?
We embrace change
?
We are successful because of our people
?
We are committed to shareholder value
?
We are dedicated to sustainability and corporate social responsibility
?
We communicate openly and actively
?
We preserve the tradition of an open family company
Source: Company documents.
17
112-060
Henkel: Building a Winning Culture
Exhibit 6
Henkel Poster Promoting 2012 Goals
Source: Company documents.
DRT:
of Orientation
Exhibit
7 Frame
Henkel Employee
Evaluation(FoO)
Grid and Frame of Orientation
1
M1
S1
T1
Next level
2
M2
S2
T2
Enrichment/
Enlargement
3
M3
S3
T3
Right level
4
M4
S4
T4
POTENTIAL
Clearly above
L4
PERFORMANCE
Clearly beLow
Frame of
Orientation
Distribution
5%
DRT KM/KR/LS
7
December 22,
2011 company
Source:
Adapted
from
documents.
18
Moderate
25%
Strong
60%
Top
10%
Henkel: Building a Winning Culture
Exhibit 8
112-060
Henkel Employer Branding Posters
Source: Company documents.
Endnotes
1
Adam Bryant, “No Need to Hit the ‘Send’ Key. Just Talk to Me,” New York Times, August 28, 2010, accessed
December 2011.
2 Ibid.
3 Ibid.
4 Compiled via Capital IQ and Procter & Gamble, 2008 Annual Report (Cincinnati, Procter & Gamble, 2008),
pp. ii, 39; Unilever, 2008 Annual Report (Rotterdam, Unilever, 2008), pp. 22, 81; L’Oreal, 2008 Annual Report
(Paris, L’Oreal, 2008), p. 1; 3M, 2008 Annual Report (St. Paul, 3M, 2008), pp. 4, 8, accessed January 2012. Procter
& Gamble and 3M sales converted from USD to Euros via Capital IQ, using fiscal year-end exchange rates.
5 Reported in company documents.
19
Structure of integrated case study report.
.
Contents
Word count
Executive summary    Background, brief statement of the problem, aim of the analysis, approach adopted for analysis, findings.
200 words
Chapter    Acknowledgement

1     Introduction to the case study     Statement of the problem.
Research aims and objectives
Structure of the rest of the report
400 words
2     Case brief     Is the situation described and background of the study define the problem/ issues to be addressed precisely and relevantly?
400 words
3        Problem statement, plan of analysis    Statement of the problem  in the case
Relevant literature review, identify resources/ techniques helpful for analysing the case study.
The concept, theories, models, research relevant to the case.
Statement:
Marketing management:
Kotler’s 4Ps of marketing.
SWOT analysis.
Strategic management:
Blue Ocean strategic.
Mintzberg’s configuration.
Human resource management:
Benchmarking.
Strategic HRM model.

Proposed plan of analysis
Source of data
1000 words
4     Analysis & findings     An assessment of the current position follows derived from  the concepts, theories models, referred and discussed in chapter 3
1000 words
5    Proposed solution to problem     Integrated assessment of the analysis generate ideas or alternative solutions.

Choose a ‘’best fit’’ solution from the options
Recommendations

Decide on an action plan of limitations of the study, scope for the further research     1000 words
References
Appendices     This section will contain all the documentation, data, financial report use in the case study .

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