Henkel - Company Background
1876 - 1920
Fritz Henkel founded the
company in 1876 to
manufacture laundry
detergent, and over time, it
grew into a leading German
detergent producer and
diversified into glues and
other products.
1965 - 1985
1945 - 1965 1985 - 2008
By 2008, Henkel reported
Henkel operated in three
comfortable growth and
major business units -
After World War II, Henkel profits, but there were
Henkel expanded its product Adhesive Technologies,
faced challenges due to the concerns about complacency
portfolio and geographic Laundry and Home Care, and
destruction of its and a lack of strong
footprint through numerous Cosmetics/Toiletries. While
infrastructure, but it competitive spirit. The
acquisitions. In 1985, the it was a leader in the
reopened plants and impact of the global financial
company raised capital by adhesives market, it faced
expanded into personal care crisis further affected the
offering non-voting shares to strong competition in the
products alongside company's key markets,
the public. laundry and personal care
detergents and adhesives. leading to falling demand
segments from larger global
and a need for
competitors.
transformation.
Problem Statement

Financial Crisis & Economic Slowdown Impact – The Product Volume was negatively
impacted as Raw Material Cost prices went up leading to Product Prices hike

Complacent Culture and Inadequate Competitive Spirit

Ineffective Vision & Values: Henkel's corporate tagline, "A Brand Like a Friend," did not align
with its target customer base as it didn't resonate with its largest business in industrial
adhesives
Context of Problem
Statement

By the second half of 2008, the global financial crisis and subsequent economic slowdown had a significant
impact on Henkel's key markets. The company experienced a decline in volume growth across its business
units due to reduced consumer spending, a shift towards lower-priced brands, and a focus on essential
products.

Some Henkel executives and analysts criticized the company for being complacent, often referring to it as a
"happy underperformer" since it consistently ranked as the number two or three player in the market. The
company's culture emphasized long employee tenure and a history of providing positive feedback, even to
underperforming employees. This lack of differentiation in performance evaluation and the absence of
challenging performance targets further reinforced the perception of complacency.

The organization's tagline, "Brand Like a Friend," does not align with the company's business goals and fails to
convey a competitive culture. It does not effectively communicate the drive for excellence and market
leadership that is necessary in the challenging business environment
Industry Analysis
Adhesive Technologies
Market Overview: The Adhesive Technologies
market is a highly competitive and diverse industry.
It serves various sectors, including electronics,
transportation, construction, and consumer goods.
Competitive Landscape: Henkel is a key player in
the adhesives industry and a leader in several
segments. The industry constitutes 48% of Henkel’s
total sales.
Major Competitor - 3M, operated in 60 countries
and had sales of 618.1 billion in 2008
Market Dynamics: The demand for adhesives is
influenced by economic conditions, construction
activities, and technological advancements. The
growth of electric vehicles and advancements in
lightweight materials have increased the demand
for specialized adhesives.
Products : Henkel sold sealants and surface
treatments to industrial customers in various
industries, including electronics, transportation and
construction, as well as to consumers
Laundry & Home Care
Market Overview: The Laundry and Home Care market
includes products like detergents, fabric softeners, and
household cleaning agents. It caters to both consumer and
industrial segments.
Competitive Landscape: Henkel competes with global
giants like Procter & Gamble, Unilever, and Reckitt
Benckiser in this market. The industry is highly competitive,
with players vying for market share through branding,
product differentiation, and pricing . The industry
constitutes 30% of Henkel’s total sales
Market Dynamics: The demand for laundry and home care
products is influenced by population growth, urbanization,
and disposable income levels. Consumers' preferences for
eco-friendly and sustainable products have driven product
innovation.
Products : Persil Laundry Detergent, Purex, Dixan universal
detergent
Cosmetics/Toiletries:
Market Overview: The Cosmetics/Toiletries
market includes personal care products such
as shampoos, hair care products, skin creams,
deodorants, and toothpaste.
Competitive Landscape: It competes with
industry giants like L'Oreal, Procter & Gamble,
and Unilever. The market is characterized by
intense competition and continuous product
innovation. The sector constitutes 22% of
Henkel’s total sales
Market Dynamics: Consumer preferences for
natural and organic products, as well as the
increasing focus on beauty and personal care,
drive the growth of this market.
Products: Henkel's major brands in this market
include Schwarzkopf and Dial.
Industry Analysis – Porter 5 Forces
Threat of New Entrants – Low
Established multinational giants have significant advantages in economies of
scale, brand recognition, and distribution networks. Nevertheless, there are
opportunities for new players to enter niche markets or introduce innovative
products

Competitive Rivalry – High

Bargaining Power of Suppliers – Low
Depending on the specific product.
Suppliers may hold some negotiating
power.
Fragmented industry and
presence of strong regional
players. Aggressive marketing,
differentiation, & promotion
used for competitive advantage
Bargaining Power of Buyers – High
Consumers have many choices and can
easily switch brands based on factors like
price, quality, and brand perception

Threat of Substitutes – High

There are numerous alternatives for most consumer products,
enabling customers to switch between brands or product categories
based on preferences, price changes, or emerging trends.
Additionally, technological advancements can lead to the
development of innovative products that disrupt traditional markets
Changes implemented by the new CEO: Kasper Rorsted
Performance Management:
Rorsted aimed to change complacency with a new performance system, signalling that underperformance is unacceptable, and striving for
excellence is vital.

Evaluation Grid:
The new system evaluated employees based on both their past performance and their future potential. Each employee was assigned a rating
on a four-by-four grid, within performance and potential criteria. Ratings ranged from "L“(low performance) to "T" (top performers) and from
"1“ (exceptional potential) to "4“ (limited advancement potential). It encouraged a shift towards a competitive & performance-driven culture.

Development Round Table:

The "Development Roundtable" (DRT) was a collaborative forum where managers, including group heads and their direct reports, met with a
HR moderator to evaluate & discuss employee performance. Each manager gave an overview & suggested grades for performance and
potential. Attendees could ask questions and offer perspectives, leading to consensus or lively debates. About 400 DRT sessions were held
yearly, covering 20 to 30 employees in each meeting. Following this, managers met employees to discuss ratings and development plans.

Frame of orientation:
DRT process at Henkel followed a bottom-up approach, starting at the country level and moving up to the region and global levels. To ensure
tough choices and differentiation, Henkel implemented the "frame of orientation" ranking system. This system set specific percentages for each
performance category, compelling managers to make fair and critical evaluations. The system also allowed the calibration of employee
performance across different regions and identified high-potential leaders. While the new evaluation system motivated some employees to
improve, others struggled with the sudden accountability and transparency, leading to tension and adjustments.

Bonus Payout:
Bonuses at Henkel were tied to specific performance metrics, such as key performance indicators (KPIs) measured on a scale of 0% to 200% at
both company and business unit levels. Group and Team Performance scores were averaged with weights of 30% and 70%, respectively.
Individual performance scores, combining KPIs and DRT ratings, were weighted equally. Managers' bonuses were calculated based on job
grade, and top managers had the opportunity to receive double bonuses if financial targets were met in 2012.
Additional Recommendations:

● Some employees may reach a saturation point where they cannot improve their performance further.
Introducing a new performance model puts a significant amount of stress on the employees, leading them
to feel under scrutiny and pressure to meet high expectations. In this new model, employees are expected
to perform at 150% capacity, which can be demotivational. We suggest implementing the model as a pilot
program and learning and development programs to improve the competitive spirit and align with new
goals and vision. Also, employee well-being programs can be added to keep them rejuvenated and
healthy with a competitive nature in mind.
● Top performers may feel discouraged from striving to improve further, as they believe they are already
giving their best effort. This can lead to a decline in their motivation and overall job satisfaction. Moreover,
the high-pressure environment and unrealistic expectations may push some employees to leave the
organization, seeking more sustainable and supportive work cultures elsewhere. So, additionally, Henkel
management shall create new positions and promote rotation of the best employees along verticals so
that the morale of the best employees' job satisfaction can be boosted, and they eventually advocate
and implement best practices across verticals.
A sustainable and thriving work culture should promote employee growth, recognize achievements, and align
performance expectations with employees' abilities, fostering a positive and motivated workforce.