Henkel AG & Co. KGaA, founded in 1876 and headquartered in Dusseldorf, is a German company dealing with the production and sale of consumer goods and chemicals. Henkel was started as a laundry detergent manufacturer and has grown over the years to diversify its production unit (Simons & Kindred, 2012). The company has had a fair share of troubles, suffering from the death of the founder Fritz Henkel, the effects of the two world wars, and the 2008 economic recession. The company has continued to expand its portfolio of products amid the struggles and had covered 125 countries and grown to a net worth of 14 billion Euros. The company has also grown to have three different business units that include adhesive technologies, laundry and home care products, and cosmetics and toiletries. The three business units made Henkel fall in three different competitive business environments; the company competed with renowned brands in the three different markets.
In 2008 after the appointment of Kasper Rorsted as CEO of Henkel AG & Co KGaA, the company set a goal of achieving a 14% earnings before interest and taxes margin by 2012. This was apparently a goal too high to achieve. 2008 was characterized by an extensive economic recession that affected many business organizations. The 2008 financial crisis was followed by a slowdown in economic growth globally. Many people lost their jobs and resorted to cut spending on various households, some of which were sold by Henkel, such as beauty products (Simons & Kindred, 2012). More people became rice sensitive, and others turned to the purchase of cheaper products in the market. It is therefore apparent that the goal set by Henkel became quite over ambitious with the goal of 14% EBIT margin between 2008 and 2012. Moreover, Henkel, besides registering a drop in the 2008 third-quarter net profits, set a goal of achieving between 3% and 5% by the end of the year. The company had also reported a fall in its shares, making the goal an even more uphill goal for Henkel.
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Prior to the target set in 2008, Henkel had been perceived as less competitive by many business commentators and analysts. These perceptions were held by people outside and inside Henkel, including executive officers at Henkel. Therefore, there was a need for the new CEO to strike a change at the company. Such opinions and perceptions inspired Henkel to set a set of stretch goals of 14% EBIT margin by 2012, among others. The three different business units were doing differently in their respective markets. Although the company’s adhesive technologies business unit was doing pretty well, leading its market while competing with big multinational companies like 3M, the company’s other operational units, such as the laundry products, weren’t doing quite well. There was a need for Henkel to set such targets to disapprove its critics. The company needed to change its competitive culture, and therefore this target was meant to spur the company.
Achieving the set goals was not an easy task. Henkel was seeking to increase its profitability and increase sales at a time when the whole world was undergoing a decline. The new CEO set to introduce a build a winning culture by changing the spirit of complacency that existed at the company. The company set three specific strategies of achieving their full potential, focusing more on customers, and strengthening their global team (Simons & Kindred, 2012). Indeed, Henkel was not competitive because it was not working to its level. Apparently, the company, having existed for over a hundred years, had the capacity to produce more, sell more, and perform better than Henkel was doing. Additionally, setting a customer-oriented business was a good strategy to succeed during the financial recession. Henkel invested heavily in some of its brands to see them grow to the top. The company set out performance management strategies that set to introduce bonus compensations for a group and individual performance. The company also introduced bonus payouts for managers and other employees.
Seeking to achieve growth of sales and increased profitability came in handy with a series of motivational factors for their staff. Firstly, the company directors, in their decision to reward its employees was a great motivator that would inspire the organizational members to inspire the company to achieve the set goals within the set time (Simons & Kindred, 2012). Additionally, the period between 2008 and the subsequent years was characterized by slow economic growth, loss of employments through lay-offs, and hopelessness among many companies. Setting a goal for profitability and growth at such a time inspired the employees to work harder since it was a confirmation that their jobs were intact. The new visions set by the directors of Henkel in 2010 set to achieve a sustainable financial performance for Henkel. The motivation would inspire the employees to create a customer-oriented business.
The company used financial information to conduct a financial performance and review of whether or not the company was on the right track to achieving its goals. The company measured its performance with total revenues, growth of sales, EBIT margins, and sales of individual products ( Simons & Kindred, 2015) . The company strategized to focus on products that were less than five years old to evaluate how they performed in various markets. This performance measurement strategy was quite a good one because it evaluated the company’s financial growth. Nonetheless, the company lacked a strategy to evaluate its performance by focusing on customers. The company would have sought customer feedbacks to evaluate their performance as far as creating a customer-centered business was concerned.
Reference
Simons, R., & Kindred, N. (2012). Henkel: Building a Winning Culture. Harvard Business School Accounting & Management Unit Case , (112-060).
Simons, R., & Kindred, N. (2015). Henkel: Building a Winning Culture (B). Harvard Business School Accounting & Management Unit Case , (115-040).
