Henkel Case Study

Group 9
Problem Statement
Before Kasper Rorsted became the CEO in 2008, Henkel was reporting comfortable growth and profits. However, the company faced challenges
with complacency and the impact of the global financial crisis, which affected its key markets. The problem faced by Henkel prior to 2008 was
a perception of being a "happy underperformer" and lacking a strong competitive spirit. Despite reporting sales of €14 billion in 2008 and
holding a significant position in the consumer goods industry, there were concerns about the company's complacency and its ability to
achieve sustained growth and profitability.

Some key data and numbers from the case that highlight the problem are as follows:

● In 2008, Henkel reported sales of €14 billion, representing an increase of 8% over the previous year. While the sales growth was positive,
there were doubts about the company's ability to achieve faster and more robust growth compared to its competitors.
● The EBIT margin in 2008 was 10.3%. While this indicates profitability, it may have been perceived as relatively lower compared to
industry peers or market expectations.
● Henkel faced intense competition in the consumer goods industry, particularly in the laundry and personal care segments. Its major
brands, such as Dial soap, Schwarzkopf hair care products, and Persil laundry detergent, competed against global brands from much
larger competitors like Procter & Gamble, Unilever, and L'Oreal.
● By the second half of 2008, the global financial crisis and subsequent economic slowdown were affecting Henkel's key markets. The
crisis led to reduced consumer spending, trading down to lower-priced brands, and a focus on essential products, impacting volume
growth in all of Henkel's business units.
● Some Henkel executives and analysts perceived the company as a complacent player, often referred to as a "happy underperformer" that
consistently ranked as number two or three in the market.
● The company had a culture of long employee tenure and a history of delivering positive feedback, even to underperforming employees.
The lack of differentiation in performance evaluation and the absence of tough performance targets contributed to the perception of
complacency.
Industry Analysis
The consumer goods industry is a highly competitive sector that encompasses a wide Some features of the consumer goods industry
range of products used by individuals for daily living and personal care. Within this ● The consumer goods industry encompasses a wide range of products catering to everyday needs and personal
industry, Henkel focuses on manufacturing and selling products such as adhesives, care. This diversity offers companies the opportunity to operate in multiple segments, but it also demands a robust
product portfolio and marketing strategy to target various consumer preferences.
sealants, laundry detergents, home care products, shampoos, hair care products, skin
● The consumer goods industry is highly competitive, with numerous established multinational companies and
creams, deodorants, and toothpaste emerging regional players vying for market share. Companies need to differentiate their products, establish strong
Brief Porter's 5 forces analysis of the consumer goods industry| brands, and continuously innovate to stay ahead of the competition.
● Building strong brands and effective marketing campaigns are critical success factors in the consumer goods
1.Threat of new entrants - Moderate to high: While the industry has established industry. Brands play a crucial role in influencing consumer purchasing decisions and fostering brand loyalty.
multinational giants with significant economies of scale, brand recognition, and Successful companies invest heavily in marketing to create brand awareness and connect with consumers.
● Understanding consumer behavior, preferences, and emerging trends is essential for companies in the consumer
distribution networks, there are still opportunities for new players to enter niche
goods sector. Rapid changes in consumer preferences require agility and adaptability in product offerings and
segments or introduce innovative products. marketing strategies.
2.Bargaining Power of Buyers: Extremely High, Consumers have a wide range of ● Consumer goods companies need efficient supply chain management to ensure timely production, distribution,
choices and can easily switch brands based on factors like price, quality, and brand and availability of products in various markets. Inventory management and logistics are crucial to meet consumer
demands while minimizing costs.
perception.
● Establishing strong relationships with retailers and distributors is vital for consumer goods companies to ensure
3.Bargaining Power of Suppliers: Moderate to high, depends on the specific product product availability on store shelves and gain shelf space prominence. Collaborative partnerships with retailers
4.Threat of substitutes: High, There are typically numerous alternatives available for enhance market penetration and sales.
most consumer products, allowing customers to switch easily between brands or ● Consumers in the consumer goods industry are often price-sensitive, seeking value for money. Companies need to
strike a balance between offering competitive prices and maintaining profitability.
product categories based on preferences, price changes, or emerging trends.
● Continuous innovation is essential to stay relevant in the consumer goods industry. Companies invest in research
Moreover, technological advancements can lead to the development of innovative and development (R&D) to introduce new and improved products that meet changing consumer needs and
products that could disrupt traditional markets. preferences.
5.Competitive rivalry: High; The industry's fragmented nature and the presence of ● The industry is subject to various regulatory standards, especially concerning product safety, labeling, and
strong regional players contribute to fierce competition. Companies engage in environmental impact. Companies must ensure compliance with relevant regulations to maintain consumer trust
and avoid legal issues.
aggressive marketing, new product launches, and price competition to gain a ● The rise of e-commerce and digital channels has significantly impacted the consumer goods industry. Companies
competitive advantage. Differentiation through branding, product innovation, and need to adapt their distribution channels and marketing strategies to capitalize on the growing online consumer
customer experience is crucial for sustaining a competitive position base.
● Many consumer goods companies have a global market presence, necessitating an understanding of diverse
cultures, consumer preferences, and market dynamics across different regions.
Company Analysis
Henkels position in the industry
●Sales: In 2008, Henkel reported sales of €14 billion, operating across 125 countries. The majority of its sales (64%) came from the EMEA region, followed by North America (19%),
Asia-Pacific (11%), and Latin America (6%).
●Business Units: Henkel operates in three major business units. Adhesive Technologies accounts for 48% of overall sales and includes products like sealants and surface treatments for
industrial customers and consumers. Laundry and Home Care contribute 30% of sales with products like detergents and home care items. The Cosmetics/Toiletries unit contributes 22%
of sales with products such as shampoos, hair coloring, skin creams, deodorants, and toothpaste.
● Competitive Landscape: In the adhesives business, Henkel is the industry leader and competes with companies such as 3M, which is also a major player with significant global
operations and sales of €18.1 billion in 2008. However, in the laundry and personal care segments, Henkel faces competition from larger global brands like Procter & Gamble, Unilever,
and L'Oreal, which have more extensive product portfolios and a stronger global presence.
Henkels Strategy before Kasper Rorsted
Cost Leadership: Henkel had elements of a cost leadership strategy in its Adhesive Technologies business unit. It was the industry leader in adhesives, competing with companies like 3M.
Henkel's strong position in this segment can be attributed to its efficiency in production, supply chain, and cost management, allowing it to offer competitive prices to industrial customers
and consumers.

Differentiation: Henkel pursued a differentiation strategy in its Laundry and Home Care and Cosmetics/Toiletries business units. While Henkel faced strong competition from larger global
brands like Procter & Gamble, Unilever, and L'Oreal, it differentiated itself through unique product offerings and innovative personal care and home care solutions. For instance, it offered
a range of personal care products like shampoos, hair coloring, skin creams, deodorants, and toothpaste, which were tailored to meet specific consumer needs and preferences.

Structure and Culture

The data from the case suggests that the organizational structure was likely hierarchical, with multiple business units or divisions.

Before Kasper Rorsted became CEO of Henkel, the work culture at the company was described as complacent, and there were concerns about the lack of a strong competitive spirit. The
term "happy underperformer" was used to characterize the company's culture, indicating that despite its stability and positive aspects, there was a perception of contentment with the status
quo and a lack of a drive to excel. The company had a culture of long employee tenure and a history of delivering positive feedback, even to underperforming employees. The lack of
differentiation in performance evaluation and the absence of tough performance targets contributed to the perception of complacency.
Changes implemented by Kasper Rorsted
●Upon becoming CEO in 2008, Rorsted announced a set of ambitious four-year financial goals for sales growth and EBIT margin.
Although not mentioned in detail in the given text, these goals aimed to drive the company towards higher profitability and improved
competitiveness.
●Rorsted recognized the need to transform Henkel's culture from being perceived as a "happy underperformer" to a "winning culture."
He identified three strategic priorities: achieving the full business potential, focusing more on customers, and strengthening the global
team. While specific data on the success of these cultural changes were not provided in the text, the implementation of the new vision
and values aimed to create a more performance-driven and accountable culture.
●Rorsted focused on optimizing Henkel's portfolio by divesting underperforming or non-strategic businesses and brands, while
concentrating on top-performing brands and high-potential markets. This included the acquisition of the adhesives and electronic
materials businesses of the National Starch and Chemical Company to consolidate Henkel's leadership position in adhesives.
●Rorsted implemented a new performance management system that introduced a ranking system and differentiated performance
evaluations. The "Development Roundtable" (DRT) process was introduced to evaluate employees' performance and potential. The
distribution system compelled managers to make tough choices and differentiate employees, fostering a culture of transparency and
accountability.
●To promote the cultural change, Rorsted and his team communicated the new vision and values throughout the organization. Vision &
Values workshops were conducted globally to engage employees and align them with the new strategic priorities.
●Rorsted aligned the business strategies with the different business units. For example, the Adhesive Technologies unit focused on cost
leadership to lead the industry, while the Laundry and Home Care and Cosmetics/Toiletries units emphasized differentiation through
unique products and innovative solutions.
●Henkel continued its global expansion and focused on key operating markets, including the U.S. and Asia. Rorsted recognized the
importance of these markets and made six-week-long trips to them to strengthen Henkel's presence and market position.
How sustainable is the winning culture created by Rorsted

The top performers may get saturated with the performance.

The new model puts a lots of stress on the employees and they are always under
constant vigilance.

The top bracket you need to be in the 150 %. This can reduce their motivation to improve
their performance as it is against the Vroom’s expectancy theory..

This can lead to more people leaving the organization, which can lead to a collapse in the
model and doesn’t reflect a sustainable culture.