7.3 Key areas of change management
We shall now look more closely at the three core elements of the change process at Beiersdorf-Lechia: strategy changes, adjustment of the organizational structures, and the development of a new leadership style and corporate culture.
7.3.1 Strategy: relaunching Nivea in Poland
When the German management team arrived in Poznan in 1997 they did not have a fixed change management strategy in their pockets. Beiersdorf did not believe in a ˜one fits all recipe for turnaround management or in fully planned change processes. It did, however, believe in its managers ability to assess the situation in Poznan and to develop suitable courses of action to make the Polish venture a success. The high degree of decision-making autonomy granted to the team reflected this decentralized approach and allowed them to take advantage of the momentum of change that built up rapidly after the takeover.
While the team had no fixed master plan they did not arrive unprepared. In addition to extensive scope for local action and decision-making autonomy, they brought with them a well-established international brand strategy for Nivea . For the Polish subsidiary, this strategy had a single objective: to achieve the successful relaunch of Nivea in Poland and within five years make it the top cosmetics brand in this market of 38.7 million people (see Chapter 14 for the part played by ˜dominant logic in corporate success in transformation economies). This focused strategic approach functioned as an anchor for all activities at Beiersdorf-Lechia, or as the German general manager said at the time, it was the ˜spearhead to conquer the Polish market . From the beginning, therefore, the venture, had a clear objective and a ˜guiding star , and all activities and decisions were aimed at this single goal. The management team was therefore able to give the turbulent and sometimes chaotic change process an unmistakable direction.
The anchoring of all activities and decisions on the Nivea relaunch strategy served two other important functions. First, by acting as a focal point for both management and employees it helped to reduce the complexity of the change process, which naturally affected everybody in the company. For the German managers the strategic vision provided a framework for decision making. It helped them to cut through the jungle of Pollena-Lechi s manifold troubles, incomprehensible product mix, lack of comprehensive planning, confusing organizational structure and everyday communication problems.
Second, as with the domino effect, once the first domino was tipped (the Nivea strategy), others had to follow suit (Figure 7.2).
Figure 7.2: The Nivea relaunch strategy and its consequences
The Nivea relaunch first required the establishment of an effective marketing and sales organization (see Chapter 5 for the importance of a clear marketing orientation for successful corporate transformation). Immediately after the acquisition Beiersdorf personnel took control of all decisions on marketing and sales and channelled resources according to the new strategic direction. The marketing budget was immediately raised from almost nothing to the international industry standard of 20 “30 per cent of sales. The next step was to establish a strong marketing department and to enlarge and train the sales force, without which the distribution of the introduced products would be impossible . To this end Beiersdorf had already started negotiations with a logistics firm in November 1997.
The streamlining of production was also dominated by the decision to concentrate on the core Nivea lines. Large-scale product pruning led to termination of the traditional washing powder and soap production and the sale of the toothpaste line. While the latter was profitable and had been the top selling brand in Poland for decades, it did not fit the clearly focused Nivea strategy.
When Nivea had been successfully relaunched in summer 1998 the management turned its attention to the structural and cultural problems of the company (see Sections 7.3.2 and 7.3.3). All subsequent changes, however, were and still are tied to the Nivea anchor and the company s strong marketing orientation.
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Building brands is the core competence of Beiersdorf AG in Hamburg. A truly global brand, Nivea has worldwide sales of over C=2500 million and has been growing at double-digit rates for the last ten years, a unique performance in the world s branded consumer goods business. Beiersdorf s subsidiary in Poland became a member of the Beiersdorf family only in 1997 but today is one of the top ten affiliates worldwide. How was this done?
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First, by adopting the worldwide Nivea strategy. Nivea strives to establish market leadership primarily in the multipurpose cream market (Nivea cream and Nivea soft) followed by the body-care market (Nivea milk and lotion), the skin-care market (Nivea Visage and Nivea Vital ) and the markets for sun lotions, mens products, hair-care products and so on. Being number one in each segment is profitable and provides the funds and confidence to move into new fields. This model has been successfully used in many countries and it also worked in Poland.
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Second, by adapting this strategy to Polish needs. Poland was unique in that Nivea Krem had been part of Polish culture for over 50 years. On average almost every Polish person buys one unit per year, the highest unit consumption in the world. Beiersdorf-Lechia did not attempt to replace this unique brand but upgraded its quality and packaging and continued to sell it at a very popular price. It continues to provide the foundation for fundamental trust and a solid basis for future growth. This did not happen without challenge from the central marketing groups. It is to the credit of the Polish management that they persevered and convinced their colleagues to adapt the strategy to their needs.
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Third, by developing a strong performance. The success of any global company depends on its ability to successful marketing concepts or ideas and to exploit them quickly in other countries. Perfect implementation of these ideas is extremely important as the consumer sees, demands and buys performance “ not strategy. This involves the product itself, its packaging and shelf positioning, friendly and convincing advertising language and motivated sales people. For the consumer, all these are far more visible than strategy and therefore they are critical to success. The Beiersdorf-Lechia people understand this and they work extremely successfully in Poland. It is also important to note that we now have a very young and enthusiastic group of Polish employees “ training and learning with them is an exciting experience for the older Polish managers and for the international Beiersdorf management team. With the strategy at work and all Beiersdorf people learning together ˜on the job , motivation builds success and drives further success.
Dr Rolf Kunisch, CEO, Beiersdorf AG.
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7.3.1.1 Elements of the Nivea relaunch strategy
Products For the 1998 relaunch, Beiersdorf introduced 60 products from the global Nivea range into the Polish market (see Chapter 9 for the application of marketing and international brand strategies in CEE). The portfolio comprised most of the skin-care products at the core of the brand, plus key products in the personal-care range, including deodorant and bath products (Figure 7.3). All but the traditional Nivea multipurpose cream, which had always been produced in Poznan, were imported from Beiersdorf production sites in Europe. Many of the products had already been exported to Poland before the relaunch, but poor distribution, high licensing fees and low-key marketing had prevented large-scale success. The relaunch represented a new start for Nivea in Poland. Table 7.6 provides an overview over the development of the product programme since 1997.
Figure 7.3: Introducing Nivea skin care and personal care products in Poland
| 1997 | 1998 | 1999 | 2000 | 2001 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Creams | 45 903 | (87%) | 54 512 | (45%) | 79 497 | (39%) | 86 988 | (34%) | 93 931 | (31%) |
| Body care | “ | “ | 8020 | (7%) | 13 552 | (7%) | 13 386 | (5%) | 17 935 | (6%) |
| Sun care | “ | “ | “ | “ | “ | “ | 9417 | (4%) | 9 562 | (3%) |
| Baby products | “ | “ | “ | “ | “ | “ | “ | “ | 13 312 | (4%) |
| Hand care | “ | “ | “ | “ | “ | “ | “ | “ | 1498 | (0%) |
| Visage | “ | “ | 10 044 | (8%) | 14 160 | (7%) | 27 505 | (11%) | 32 010 | (11%) |
| Lip care | 1785 | (3%) | 1755 | (1%) | 4624 | (2%) | 6960 | (3%) | 9454 | (3%) |
| Nivea for Men | “ | “ | 6437 | (5%) | 18 080 | (9%) | 24 030 | (9%) | 29 287 | (10%) |
| Deodorants | “ | “ | 21 807 | (18%) | 47 105 | (23%) | 53 189 | (21%) | 51 924 | (17%) |
| Hair care | “ | “ | 5440 | (5%) | 6646 | (3%) | 8214 | (3%) | 13 765 | (5%) |
| Bath products | 4898 | (9%) | 12 343 | (10%) | 22 608 | (11%) | 28 248 | (11%) | 29 891 | (10%) |
| Total | 52 586 | (100%) | 120 358 | (100%) | 206 272 | (100%) | 257 936 | (100%) | 302 568 | (100%) |
Source : Beiersdorf-Lechia SA.
As stated earlier, the standard Nivea cream was already well established in Poland and had been sold without interruption since the 1920s. When Beiersdorf s Polish subsidiary was expropriated in 1945, Pollena-Lechia provided the market with a Polish version of the product called Nivea Krem. Due to the lack of technical innovation in the socialist countries the recipe increasingly deviated from that used in the West, and the product was sold in plastic containers rather than the familiar blue aluminum tin. Nonetheless Nivea Krem was highly successful in the Eastern bloc and Pollena-Lechia produced and sold up to 33 million units a year. This continuity of the brand name proved a huge advantage in the relaunch as the brand awareness of more than 90 per cent spilled over to the newly introduced products and helped to establish a market for body milk and deodorant, which had no tradition in the Polish market. The only problem was that with the launch of the international range Beiersdorf-Lechia now sold two versions of its main product category: the locally produced Nivea Krem in the plastic container and the international Nivea Creme in the blue tin. Beiersdorf decided to deviate from its international strategy and keep both products on the market. Surprisingly a negative effect on total multipurpose cream sales was avoided (Box 7.3). Since 2001 both versions of the product have been manufactured at the new plant in Poznan. While they are now based on the same formula they are still sold in different packages.
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Immediately after the acquisition of Pollena-Lechia in 1997 a serious marketing problem became apparent: there were two Nivea ranges on the Polish market “ the Pollena-Lechia Nivea range and Beiersdorf s global range, which had been exported to Poland under a licensing agreement with Pollena-Lechia. In March 1998 the new Beiersdorf-Lechia management withdrew the entire Pollena-Lechia range but Nivea Krem, which was comparatively low priced and the most popular cosmetic product in Poland. In April 1998, when the company relaunched its more expensive international range, Nivea Creme was sold at a price just below level 2 and the Polish Nivea Krem for nearly 50 per cent of the price at the lower nominal level of 1 (see graph). The need for price harmonization was obvious, so step by step, with three price adjustments per year, the gap was gradually closed.
Throughout this process the company was able to maintain total sales at a satisfactory level, with the sale of Nivea Krem falling and that of Nivea Creme and Nivea Soft rising (see table). While there was a minor decline in the volume sold after 1997, this can be explained by the fact that just before it was sold Pollena-Lechia had heavily pushed products into the market in order to improve its corporate profits for 1997. Thereafter consumers increasingly turned from multipurpose creams to body lotions, including Nivea body milk, which was launched on the Polish market in 1998.
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| 1997 | 1998 | 1999 | 2000 | 2001 | |
|---|---|---|---|---|---|
| Nivea Krem | 100 | 81.93 | 64.87 | 60.85 | 58.13 |
| Nivea Creme (Beiersdorf) |
| 5.79 | 10.61 | 13.55 | 14.98 |
| Nivea Soft (Beiersdorf) |
| 12.28 | 24.52 | 25.60 | 26.89 |
| Total sales volume (= 100%, in tons) | 2805 | 2313 | 2263 | 2184 | 2135 |
Heinz-J ¼rgen St ¼ting, General Manager, Beiersdorf-Lechia SA
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By 2002 most of Beiersdorf s international product categories had been introduced into Poland. The exceptions were Nivea Beaut (the colour cosmetics range) and Nivea hair styling. Once these two lines have been successfully launched, Beiersdorf-Lechia will be completely integrated into the international Beiersdorf network and its sales plans.
Price Before the acquisition prices in the centrally planned economy, and therefore at Pollena-Lechia, were generally based on volume and weight of the product concerned . This led to the situation where large-volume washing powder sold at a higher price than face cream, due to the latter s small packaging size and low weight. With the takeover by Beiersdorf this practice was changed immediately to conform to Beiersdorf s standard European pricing system and ensure comparability of prices across borders. Again the existence of two versions of Nivea cream posed an interesting challenge to this rule (Box 7.3).
Distribution At the time of acquisition Pollena-Lechia had around 400 customers, mainly medium- sized and small trading companies, many of which were hardly ever profitable for Pollena. Beiersdorf quickly decided to reduce this number to 100 profitable customers, all of which would have to generate a sales volume of 2.5 million zloty or more per year (see Chapter 10 for trade structure development in Poland). Area sales managers would take care of the needs of smaller customers. In 2002 international chains accounted for 40 per cent of Beiersdorf-Lechi s direct customers, with Polish trading partners accounting for the remaining 60 per cent. Compared to the situation in France (98 per cent international and 2 per cent local trade) the globalisation of Polish retail structures is still on a moderate level (30 per cent and 70 per cent).
The fragmented retail structure in Poland (120 hypermarkets and 120 000 small local shops at the time of acquisition) necessitated the establishment of a large and efficient salesforce at Beiersdorf-Lechia. The number of sales personnel was more than doubled within the first few months, from 41 to 108 employees. The company also introduced key accounting to cater to the large international trading firms. In addition it reduced the number of sales regions from 10 to four, invested heavily in staff training and introduced a variable pay system for sales personnel in early 1999 (see Box 7.4 for details of the reorientation of the salesforce).
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The Nivea relaunch in April 1998 clearly required a reorientation of the salesforce at Beiersdorf-Lechia if the company was to compete with other international companies in the region. The key areas of change are shown in the following table.
| Prior to 1998 | Reorientation | |
|---|---|---|
| Product portfolio | Polish brands, low price level | International Nivea lines and price bands |
| Sales orientation | Production-orientation, push strategy | Customer-orientation, pull strategy |
| Sales strategy | Non-existent | Clear strategic guidelines, adjusted yearly |
| Trade focus | Traditional local trade | International and local trade |
| Market coverage | About 3000 stores in major areas | About 5500 stores throughout Poland |
| Salesforce | 41 | 108 |
| Remuneration | Low wages , turnover -based premium system, no upper lower limit | Above Polish average, performance-based with upper and lower limits |
As part of the preparations for the Nivea relaunch in April 1998 several measures were taken to achieve a total reorientation of the salesforce at Beiersdorf-Lechia:
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Introduction of performance- related terms and conditions.
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Assessment of the potential of all customers and the elimination of non-profitable ones.
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Development of a sales concept for international trade in Poland.
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Introduction of sales guidelines conforming to Beiersdorf s international standards.
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Salesforce training for new products, pricing and terms and conditions.
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Development of special relaunch offers and distribution bonuses.
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The holding of a national sales conference.
The company regularly adjusts the pricing and terms and conditions systems, and prepares detailed sales plans on regional and customer bases. In 1999 it completely restructured the sales department, added core functions such as key accounting and trade marketing, and again increased the number of sales personnel.
Several factors were instrumental in the rapid and successful turnaround of the salesforce at Beiersdorf-Lechia:
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Thorough and early planning of all the measures involved.
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Clear and direct explanation of the reorientation to all those affected.
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Rapid and rigorous implementation of all measures.
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Close and continuous cooperation and coordination with the sales managers from the start (head of field organization, head of key accounts).
Only two major problems arose during the process. After the acquisition the Polish director of sales remained responsible for field organization and traditional trade while the German director of sales took responsibility for international trade and the reorientation of the salesforce. This separation of tasks and responsibilities between two sales directors with equal rights but fundamentally different working methods , training, languages and cultural backgrounds provoked a considerable amount of misunderstanding and disputes over competences and coordination. This considerably slowed the process of change in the sales department until the Polish director left the company.
The second problem arose from insufficient attention being paid to the different technical and cultural backgrounds of the Polish employees. Many of the standards transferred from the Beiersdorf group simply did not work in this context. The sales reporting system, for example, was initially rejected by the Polish salesforce, who were used to working independently and in the absence of integrated sales planning. It was quickly realized that the programme had to be partially adjusted to the local conditions and that a longer time was needed for its full implementation.
H. Freihorst, Director of Sales and Member of the Board of Management,
Beiersdorf-Lechia SA
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Distribution was taken over by a Dutch “Polish logistics firm in the Poznan area. The latter was made responsible for the handling of orders, warehousing and transportation, and since 2000 it has been connected to the Beiersdorf-Lechia SAP system to ensure close data integration. Pollena-Lechi s transportation department was closed down after the acquisition.
Communication Whereas distribution required a local approach, communication policy had to follow a standardized international strategy to ensure coherent global development of the Nivea brand. The marketing team in Poznan therefore drew on the experience of the corporate marketing department at the headquarters in Hamburg. A distinct advantage with Beiersdorf-Lechi s communication strategy was that it was able to capitalize on the long presence of the Nivea brand name in Poland. Brand recognition, when surveyed in 2000, was just below the 90 per cent mark.
Whenever necessary the standardized international campaigns were adjusted to the local conditions in Poland. While the images in printed and television advertisements were taken from the standard portfolio, localization of the copy went far beyond simple translation. Since many of the products to be introduced, such as body lotion and deodorants, were not in common use in Poland, explanations about their application and arguments for their use had to be incorporated into the advertisements when the products were launched. All adjustments to the Beiersdorf advertising campaigns were made by the Polish affiliate of the corporation s international advertising agency to ensure both the culturally localization of the material and coherent execution of the international standards. Media selection, the timing of the campaigns, promotional activities and sponsorships were also conducted by the local subsidiary.
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The Nivea marketing strategy in Poland has the clear objective of attaining the top market position for each product category, or at least second or third place. Of the five growth drivers identified in the figure below, Beiersdorf-Lechia is able to control four. Total market growth through increased consumer spending depends to a large extent on macroeconomic developments in Poland.
With regard to the four controllable growth drivers, the launch of new product categories has been addressed in one fell swoop by introducing the full international Nivea range. Product innovation is an ongoing process, and it is the intention of the Polish affiliate to be completely synchronized with the international launch plans for 2003. Increased distribution and improved distribution quality remain a key focus of the sales organization. This can be achieved by upgrading shelving space, increasing the number of facings, improving the quality of shelf placements, providing attractive point-of-sale and ensuring effective category management.
The main growth driver for Nivea, which is challenging but highly effective, is successful communication with the consumer via the right advertising mix and a balanced weighting of each media. At Beiersdorf-Lechia 65 per cent of the total marketing budget is invested in running advertisements on TV, in newspapers, magazines, advertising hoardings and occasionally the cinema. While television spots dominate, advertisements in the other media complement and support television campaigns for specific product categories. In addition, since more and more consumers do not decide what to purchase until something catches their eye, ˜below-the-line activities, sales promotions, consumer contests, attractive leaflets and in-store promotional staff are becoming increasingly important. In-store promotions have proved particularly successful when consumers need advice on product usage and performance.
In 2001 Beiersdorf-Lechia started to sponsor activities that fit the Nivea brand values. Modelled on a highly successful venture in Germany, Beiersdorf-Lechia became a sponsor of the Polish national life savers organization (WOPR), while its sponsorship of Polish school sports clubs under the ˜Nivea Blue Sails programme enabled the recovery of an underfunded Polish government project for young sailors.
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Table 7.7 summarizes the results of the relaunch and the marketing activities at Beiersdorf-Lechia. Based on the international brand strategy, a locally adapted marketing mix focusing on communication and an aggressive sales policy aimed at full market coverage, since 1998 Beiersdorf-Lechia has attained high market shares in all its core product categories. Multipurpose creams, including Nivea Creme and Nivea Krem (see Box 7.3), hold a nearly 80 per cent market share in Poland. Since the relaunch body milk, deodorants and the skin-care line Nivea Visage have more than doubled their shares. All Nivea product categories remain top ranking in their respective markets, true to Beiersdorf s aspiration to the top leadership position throughout the world.
| 1998 | 1999 | 2000 | 2001 | |||||
|---|---|---|---|---|---|---|---|---|
| Market share | Position | Market share | Position | Market share | Position | Market share | Position | |
| Multipurpose cream (Kreme, Creme, Soft) | 72.8 | 1 | 76.2 | 1 | 79.0 | 1 | 79.2 | 1 |
| Nivea body | 7.0 | 11.9 | 2 | 20.5 | 1 | 24.4 | 1 | |
| Nivea deodorant | “ | “ | 6.1 | 9 | 10.0 | 2 | 11.2 | 1 |
| Nivea Visage | “ | “ | 3.3 | 11 | 6.2 | 1 | 7.7 | 1 |
| Nivea for Men | “ | “ | 7.1 | 7 | 6.7 | 3 | 8.2 | 3 |
| Bambino baby care | 21.5 | 1 | 19.9 | 2 | 19.5 | 2 | 20.6 | 2 |
| Glycea handcream | 39.0 | 1 | 38.0 | 1 | 33.0 | 1 | 28.4 | 1 |
Source : Beiersdorf-Lechia SA.
The traditional Bambino baby range and Glycea hand cream are the only two non-Nivea brands that, because of their continuously strong market position, remain from the pre-1998 Pollena-Lechia product portfolio. In 2001, however, Beiersdorf-Lechia introduced the corresponding Nivea lines (Nivea Baby and Nivea hand cream) to ensure even execution of the international Beiersdorf brand strategy. With the help of strong advertising and promotional campaigns the company is trying to shift customers from the local to the international products, and in the process is also attracting additional customers for its baby and hand-care products.
Beiersdorf-Lechi s total sales (Figure 7.4), which also include non-cosmetic brands such as Hansaplast ( sticking plaster) and the tesa line (adhesives) rose continuously from C=49 million in 1997, just before the takeover by the Beiersdorf group, to more than C=90 million in 2001. Table 7.8 provides an overview of Beiersdorf-Lechi s position compared with its main international competitors .
Figure 7.4: Beiersdorf-Lechia SA, total sales, 1197 “2001 (C=million). Source: Beiersdorf-Lechai SA.
Even during the stagnation of the cosmetics market in 2001, Beiersdorf-Lechia and its leading brand Nivea continuously improved their overall competitive position. Besides Beiersdorf-Lechia, in 1999 “2001 only L Oreal increased its total market share “ by 0.96 per cent compared with Beiersdorf-Lechi s 4.73 per cent rise in just two years. All other international competitors, even leading global multinationals such as Procter & Gamble and Unilever, failed to maintain their sales volume at the 1999 level. Yet it is important to note that nearly 50 per cent of the total Polish cosmetics market is still held by a multitude of small local companies. This fragmentation of the market is also characteristic of the retail sector, where there is a large proportion of tiny local retailers (70 per cent local versus 30 per cent international). However, it is to be expected that international branded consumer goods companies will strengthen their market position in the future.
| 1999 | 2000 | 2001 | ||||
|---|---|---|---|---|---|---|
| Market share | Position | Market share | Position | Market share | Position | |
| Beiersdorf-Lechia of which | 263 834 | 8.99 | 338 810 | 11.60 | 398 938 | 13.72 |
| Nivea | 207 887 | 7.08 | 288 991 | 9.89 | 347 387 | 11.95 |
| Unilever | 286 972 | 9.78 | 216 708 | 7.42 | 205 662 | 7.07 |
| Coty | 217 774 | 7.42 | 213 244 | 7.30 | 175 314 | 6.03 |
| L Oreal | 145 075 | 4.94 | 161 421 | 5.53 | 171 612 | 5.90 |
| Cussons | 206 691 | 7.04 | 163 143 | 5.59 | 160 966 | 5.54 |
| Schwarzkpof | 201 202 | 6.85 | 157 768 | 5.40 | 147 511 | 5.07 |
| Procter & Gamble | 168 111 | 5.73 | 139 160 | 4.76 | 144 246 | 4.96 |
| Colgate-Palmolive | 131 426 | 4.48 | 141 836 | 4.86 | 137 908 | 4.74 |
| Others | 1 314 456 | 44.77 | 1 388 643 | 47.54 | 1 365 207 | 46.97 |
Please note : The total cosmetics market includes only the categories in which Beiersdorf-Lechia is present (aftershave, shaving products, bodycare, sun care, shampoo, bath products, lip care, face care and baby products).
Source : Beiersdorf-Lechia SA.
7.3.2 Structure, staff and systems at Beiersdorf-Lechia
At the time of acquisition the organizational structure and systems at Pollena-Lechia were utterly inappropriate for the marketing-oriented strategy of Beiersdorf-Lechia. The organizational structure was dominated by a production focus and non-core functions such as transportation, maintenance, administration and employee services (Figure 7.5).
Figure 7.5: Pollena-Lechia organizational structure, 1997
Communication and decision making were hampered by the numerous hierarchical levels and culture of re-delegation. All decisions “ even regarding the subsidized price of milk, which was available to employees in the company s shop “ had to be approved by the board of management. Each morning the latter held a telephone conference to discuss daily production volumes and operational problems. Communication technology was just as inefficient: where they were in place, personal computers were of little use to the management because the systems were not interlinked and data had to be manually processed from various PC print-outs to obtain the most simple sales statistic.
Like many other CEE conglomerates, the company was chronically overstaffed (1500 employees with an average age of 42 years “ see Table 7.9 for a detailed breakdown). Even worse , motivation was low and the crucial qualifications required for a modern consumer goods business “ such as marketing skills and managerial accounting “ were lacking. According to one Beiersdorf manager involved in the acquisition process, the ˜degree of incompetence was astonishing . Training was practically non-existent and the remuneration system, which was still geared to the planned-economy principle of preferential treatment for blue- collar workers, did not stimulate individual performance. The confusing variety of bonuses and rewards, also a legacy of the old days, did little to make the system any more transparent or fair.
In 1997 Pollena-Lechia was still a closed system. Despite the market pressures that emerged after 1990 it had largely ignored the country s rapid political, social and economic changes and had not moved an inch. As one Beiersdorf manager observed , ˜Pollena-Lechia was not a Polish company of the 1990s “ it was an island in the past . The management had simply disregarded any disruptive factors such as increased competition and the internationalization of trade, and had deliberately turned a blind eye to what was obvious to any outside observer: the urgent need for radical change.
Upon their arrival the two German managers immediately recognized this fact, but they realized that trying to turn around such an inflexible structure would consume all the time and energy needed to organize a successful Nivea relaunch in 1998 (see Section 7.3.1). Instead of attempting to restructure the various departments and entering into tedious negotiations with the Polish executives “ not to mention the unions and the nearly 1500 employees who seemed intent on maintaining the status quo “ they opted for an innovative way of dealing with the structural problem without the loss of precious energy. Contrary to the common recommendations of the change management literature, they decided to remain detached from the non-reformable system at Pollena-Lechia. As one of them put it, ˜In our view reform of the system was obviously impossible. So there was no need and no use in getting involved, in trying to understand the internal wiring of the system or conduct a detailed analysis from the inside. For the first two months the Polish chairman and the majority of the Polish board members were left in charge and reporting structures remained unaltered. The two Germans were hardly visible to the bulk of the employees and were often regarded as consultants working at the outer rim of the company.
Rather than interfere with the company s established processes and structures the Beiersdorf managers simply added a structure of their own (Figure 7.6), tailored to the new marketing-driven strategy and with all positions filled by qualified, highly motivated personnel who were either handpicked from the existing workforce or freshly recruited from leading Polish universities or international companies operating in the Poznan area. With these employees Beiersdorf established a completely new marketing department to handle the Nivea relaunch. A large number of salespeople were transferred to the new sales department and provided with flexible contracts. Leaving the existing personnel department in place, Beiersdorf established its own human resources project group to organize training for the handpicked former Pollena-Lechia workers and recruit new employees according to the expat managers marketing- and performance-oriented selection criteria. Often, as with the implementation of an innovative information and logistics system, the new structures were kept well hidden within project groups, but later they laid the foundation for the replacement of the old Pollena-Lechia organization. This shadow structure slowly but inexorably gained influence, mainly because all resources and crucial information from Beiersdorf International were channelled into it by the two German board members.
Figure 7.6: Tunnelling the structure
In the meantime Pollena-Lechia was doing business as usual. The Polish managers still held their daily telephone conferences to discuss production volumes, the administration was still crunching numbers with one of the 31 hopelessly outdated software programs, and the personnel department still occupied itself with a wage system that included several dozen types of bonuses that differed for each month and each worker. Production of the Polish Nivea Krem was also left untouched, thus providing the market with 33 million containers a year and free from the turmoil of readjustment and restructuring that usually occurs during a company s postacquisition turnaround. Hence radical changes were introduced without interrupting daily business, that is, without running a temporary loss or jeopardizing market share.
The double structure was kept in place until it became clear that the Nivea relaunch had been successful. Then the bubble of former Pollena-Lechia was allowed to burst. However, as discussed briefly in Section 7.2.4, the rapidity of this burst was not part of the plan which was slowly to deflate the now unnecessary and bloated bureaucracy at Pollena-Lechia. In early summer 1998 the German team designed a voluntary redundancy package for 350 employees. On average, depending on age and length of employment, workers who volunteered for redundancy would receive 40 000 zloty compensation, which was far above what the Polish state required in such a situation. According to Polish labour law workers were only entitled to one to three months severance pay irrespective of age or seniority . The package was especially attractive to older female workers because they would also be able to take advantage of the Polish early retirement programme for women.
The very generous redundancy pay also contributed to a generally positive response by the Polish press, which in cases of large-scale lay-offs was usually more critical. Beiersdorf also benefited from the stable conditions on the regional labour market at that time “ unemployment in the Poznan area was only 1.5 per cent, so many of the redundant employees could expect to find a new job easily. Some decided to use their redundancy pay to start their own business, and Beiersdorf supported these projects by offering tools, small machines and cars from the closed-down transportation department at very low cost.
The voluntary redundancy scheme unexpectedly turned out to be a key factor in the rapid turnaround of Beiersdorf-Lechia: on the last day for sign-up in late June 1998, instead of the 350 planned volunteers, more than a thousand “ attracted by the generous severance pay “ decided to leave the company. While this was equivalent to two thirds of the workforce the Beiersdorf team did not try to hold anybody back, apart from certain engineers who could not be replaced at short notice and were needed for the construction of a new production site. Instead the managers saw this unexpected development as a chance to speed up the process of change at Beiersdorf-Lechia and make the necessary structural changes earlier than planned. By the time the last volunteer left the company in January 1999 the new structure was fully in place “ far ahead of schedule.
The new organizational structure mirrored the marketing and sales orientation of Beiersdorf-Lechia (Figure 7.7). Compared with the structure of Pollena-Lechia prior to the acquisition (Figure 7.5), the Beiersdorf management considerably reduced the levels of hierarchy and eliminated non-core functions such as transportation, security services, logistics, maintenance, packaging production, research and development (which was centralized at the Hamburg headquarters) and the numerous social services provided in the socialist times (see Chapter 5 on the importance of shedding auxiliary functions in transformation processes).
Figure 7.7: Beiersdorf-Lechia organizational structure, 2001
7.3.2.1 Personnel selection, training and development
For the employees who had opted to remain with the company the new structure meant a total redefinition of their tasks, responsibilities, decision-making authority and communication and reporting procedures. The expatriate managers developed comprehensive human resource management procedures to support the structural and strategic changes and to facilitate the reorientation of the workforce.
Reorientation started with a thorough selection process for new employees. The selection criteria were and remain closely linked to Beiersdorf s corporate objectives and its organizational values: a strict emphasis on performance, individual responsibility and accountability, direct communication and teamwork. For the first two years the German general manager personally interviewed all applicants to ensure that their values and attitudes were in line with Beiersdorf s international corporate culture. ˜Change through exchange , guided by clear selection criteria, was in his opinion a crucial factor in the rapid and radical turnaround of the company.
With regard to the qualifications of the existing workforce, the technical know-how of those who remained with Beiersdorf-Lechia was generally high. Like many other CEE countries, Poland had always had a comparatively good technical education system. Therefore Beiersdorf was able to focus its training efforts on managerial skills such as project management, teamwork and communication, which had not been developed at Pollena-Lechia and were not part of the university curricula. In 1999 Beiersdorf ran a workshop for Polish managers, concentrating on leadership, motivation, communication with employees and other basic management skills. A formal training programme has been in place since summer 2000. It consists of a three-level management programme and a professional programme for all new employees. The latter, which focuses on subjects such as corporate citizenship, corporate culture, professional presentation and communication skills, and conflict and time management, is conducted by a local organization. The management training programme concentrates on continuous change and addresses issues such as how to initiate change, how to cope with change, change and conflict, and motivating for change. In addition, from the start intensive coaching by German managers has been provided to Polish employees with managerial potential. Management training is accompanied by a course in English, which is the official language of the Beiersdorf group and therefore vital to the integration of Beiersdorf-Lechia personnel into the international corporate network.
Through the careful selection of recruits and target-oriented training programmes, Beiersdorf-Lechia aims to ensure the internal development of managerial potential. Eager young graduates are able to rise to the rank of senior brand manager in less than two years, which would be inconceivable in most of Beiersdorfs West European affiliates. At the same time attractive career prospects, high wages and social benefits are prerequisites for retaining good managers. Experienced managers are still rare in Poland and the rate of fluctuation is comparatively high, especially when a promising employer happens to be located in Warsaw. This situation has led to the development of the Beiersdorf-Lechia Young Professional Programme, in which talented students at leading Polish business colleges enter the company part-time during their final year at university. Sophisticated training on and off the job as well as integration into the Beiersdorf internal international exchange programme makes the programme highly attractive to those with managerial potential. In this way Beiersdorf-Lechia is building up its own pool of managers in order to become independent of the volatile managerial job market in Poland.
7.3.2.2 Remuneration
At Pollena-Lechia the pay structure was determined by a collective agreement between the state, the unions, employees and the company. In addition, as a legacy of the socialist era a large array of social benefits were provided to the workers, including child care, in-house medical treatment, an annual sports festival and subsidized holiday accommodation “ most of which were discontinued upon the takeover by Beiersdorf. Nominal wages were still relatively low in 1997, even for management (Table 7.9), and eight years after the velvet revolution they were still dominated by socialist principles such as preferential payment for blue-collar workers. An engineer at Pollena-Lechia earned as much as 4875 zloty in 1997, whereas the manager of the toothpaste brand had to content himself with a mere 1000 zloty. Wage rises were rare even after privatization in 1995. Nonetheless the members of the board of management decided to boost their own salaries ˜considerably , as a German manager laconically observed later.
After the acquisition all wages were raised at once, often by more than double. The head of engineering now earned around 12 000 zloty, as did managers and chief accountants . At the same time Beiersdorf started to convert all labor accords which generally had been under collective agreement into individual, performance-related contracts (see Chapter 12 on remuneration and Chapter 6 on the abolition of collective labour agreements in Poland). New entrants received individual contracts upon entry. Then, the agreements with top-level managers were adjusted so that they would subsequently pass on their experience to their subordinates .
Beiersdorf-Lechia used the system by Hay (a leading provider of international remuneration data) to assess each position in the organization. The application of Hay s standardized method enables interfirm comparisons that help considerably when fixing wage levels in dynamic labour markets such as that of Poland. In Poland more than 150 mainly international private corporations take part in the system, so its database provides a good overview of the wage levels at comparable companies in Beiersdorf-Lechi s area. The new management of Beiersdorf-Lechia chose to take the entire Polish labour market as a benchmark, especially since young Polish high-fliers tended to be extremely mobile and would quickly switch jobs from Lodz to Krakow to Warsaw for marginally better pay. On the basis of the Hay database, Beiersdorf-Lechia decided to pay an average remuneration that lay above the amount paid by 75 per cent of all registered companies offering comparable positions.
With the introduction of the Hay system Beiersdorf-Lechia had to assess all the jobs in the company and prepare detailed job descriptions based on selected criteria, including level of know-how, problem-solving capabilities and the degree of responsibility required for the position in question (see Chapter 12 for a fuller discussion of job evaluation). This resulted in the assignment of a certain number of Hay points to each position, which in turn led to the classification of distinct job classes. The database now provides detailed, annually updated data on base salaries and the total amount paid for each job class, the so-called ˜market reference salary . The base salary at Beiersdorf-Lechia comprises the monthly fixed salary plus all fixed additional payments, such as the Christmas bonus. In addition, and depending on individual and company performance, Beiersdorf-Lechia adds a variable payment to the employees remuneration. EBIT (the company s earnings before interest and tax) and an assessment of individual performance ( ranging from below standard to excellent target achievement) form the basis of the calculation of this payment. Individual target setting and performance appraisal are conducted twice a year for each eligible employee. By the end of 2002 all management levels “ from the top level down to junior brand managers “ will be included in this remuneration system.
Since the details of the criteria used to evaluate the various positions are available to all, and because the German managers at the company have involved all management levels in the development of the remuneration system from the start, it is perceived as being both transparent and fair by those affected. It also clearly reflects the performance orientation and cultural values of the Beiersdorf group as a whole. Beiersdorf has also introduced a number of social benefits that are highly valued by the Polish employees. Since 2000 the company has provided a comprehensive medical care package for employees and their families, housing loans, an employees holiday fund, subsidized holiday homes and sporting facilities. Unlike the previous social provisions, however, these services are not company-owned but are procured on the open market to ensure efficiency and low costs.
7.3.2.3 Information and communication systems
The new employment and organizational structures at Beiersdorf-Lechia were complemented and reinforced by an up-to-date information and communication system. In 1997 Pollena-Lechia had been using as many as 31 non-integrated software programs which had allowed for no kind of systematic control or planning. What little rudimentary data had been available had to be gathered manually from numerous sources. Consequently when Beiersdorf had requested a due diligence report before the acquisition, Pollena-Lechia had been unable to supply even such basic data as sales per product, the profit contribution of each product category, or average salaries. Furthermore, due to this lack of data prices had been calculated on a cost and volume basis only. Planning and forecasting had been virtually nonexistent. A Beiersdorf manager later characterized this situation as ˜bizarre .
Immediately after the takeover Beiersdorf supplied state-of-the-art technology to employees who had only selectively had access to a personal computer or even a simple fax machine. Whereas at Pollena-Lechia communication had been slow and hierarchical, the introduction of modern tools such as e-mail supported Beiersdorf s culture of open, direct and fast communication across hierarchies and departmental boundaries. In 1999 the introduction of integrated ERP-software for all business processes facilitated not only control and planning procedures within the corporation, but also coordination with Beiersdorf-Lechi s external logistics associate, who was connected to the system.
Not only the results of the technological change but also the implementation process can be considered a success. The project team was selected from a pool of young graduates who had only recently entered the firm and were highly motivated and eager to learn. Together with their more experienced coaches from the Hamburg headquarters, these young professionals completed the task in just seven months (including two months of preparation) and at only 61.2 per cent of the allotted budget. This was 70 per cent cheaper than the first Beiersdorf SAP-ERP project in 1996 and faster than the introduction in any other company affiliate. The Poznan project became the model for many other Beiersdorf subsidiaries worldwide.
The results of the radical systemic, structural and human capital changes at Beiersdorf-Lechia are shown in Table 7.9. Compared with the situation at Pollena-Lechia in 1997, by 2001 the average age of employees had fallen considerably and the average salary of white-collar workers had nearly tripled. Furthermore, over 38 per cent of the “ predominantly young “ staff benefited from a higher education, thus providing invaluable new skills and know-how for the future development of the company. At Pollena-Lechia only 7.7 per cent of employees had graduated from university and on average were ten years older. The systematic restructuring of the organization led to a reduction of administrative personnel by 50 per cent and production workers by more than 83 per cent, although production volumes rose continually. At the same time the enlargement of the marketing and sales staff reflected the marketing orientation of the company s new strategy.
| 1997 | 2001 | |
|---|---|---|
| Number of employees | 1500 | 400 |
| Female “ male ratio | 70 “30 | 50 “50 |
| White “ blue collar ratio | 30 “70 | 50 “50 |
| Average age | 42 | 33 |
| Employees with higher education (per cent) | 7.7 | 38.8 |
| Average salary, white collar (zloty per month) | 1641.36 | 4868.37 |
| Average salary blue collar (zloty per month) | 1296.6 | 2428.61 |
| Share of contracts based on collective agreement (per cent) | 100 | 43.93 |
| Union membership | 840 | 120 |
| Average absenteeism (days per month) | 3.84 | 1.12 |
| Training | Only functional training | Training programmes at different levels, focus on managerial skills (749 hours per year in-house) |
| Number of employees in production | 646 | 108 |
| Number of employees in administration | 110 | 56 |
| Number of employees in marketing | 3 | 20 |
| Number of employees in sales | 40 sales employees, key account manager | 102 sales employees, 6 key account managers |
Source : Beiersdorf-Lechia SA.
The complete reorganization also produced impressive economic outcomes . It not only contributed to the success of the Nivea relaunch in 1998 (Section 7.3.1), but also raised labour productivity from C=33 000 of annual sales per head in 1997 to C=230 000 in 2001, better than the Beiersdorf group s international average.
7.3.3 Towards sustainable success: leadership, interaction and organizational culture
Sections 7.3.1 and 7.3.2 addressed the question of what the management of Beiersdorf-Lechia accomplished during the years of transformation. This section looks at how they did it. How did they manage to turn around the organization and lay the foundations for sustained success when the management of Pollena-Lechia had been unable even to initiate a change process? What were the characteristics of management style during this radical and rapid change process? What was the role of power and how was it used to achieve the rapid transformation of the company? What was the relationship between power, leadership style, organizational culture and change?
One of the key factors in successful change at Beiersdorf-Lechia was the fact that the expatriate managers had an intuitive sense of timing and sequencing. During the first two years after the takeover the managers concentrated on establishing a new framework for action (Figure 7.8). Only when this was in place did they address the problem of adjusting the culture of the organization (see Chapters 5 and 13 for more on organizational identity and cultural change in CEE companies). The entire change process was dominated by these two clear foci.
Figure 7.8: Phases of change at Beiersdorf-Lechia, 1998 “2002
The process of change consisted of three phases, each of which was characterized by a different set of instruments and a particular managerial style according to the focus “ changing the framework or changing the culture. As discussed earlier, these phases did not follow a fixed master plan but emerged during the course of the process as opportunities arose and events unfolded (see Chapter 14 on the need for such an approach during turbulent organizational changes). Due to the complexity and dynamics of the situation in Poland, and particularly at the Pollena-Lechia plant, detailed planning and adherence to the step-by-step change programme widely advocated in the management literature were considered infeasible. Management recognized the need to take all decisions on the spot and close to the problems at hand. It also encouraged experimentation, unorthodox approaches and even trial and error when the situation did not allow for tried and tested solutions. The following analysis of the two foci and the three stages of change “ the crucial how of successful change management at Beiersdorf-Lechia “ is based on the organizational politics model (Box 7.6), which enables a systematic description of the managerial instruments and political processes behind rapid and radical organizational transformation in a dynamic environment.
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The organizational politics approach links values, interests and power as central elements of organizational behaviour and organizational change. Stakeholders are modelled as exchange partners who, depending on their individual interests and access to power bases, offer pledges (performance, services) in exchange for certain rewards (nominal payment, social benefits). The perspective of organizational politics is, however, not limited to the internal dynamics of the organization. Via the concept of the scope for action (see figure below), exogenous factors (institutional, cultural, competitive) are introduced as constraints an individual behaviour.
The organizational politics framework
For analytical reasons we distinguish between two types of (bounded) rational decision making by individuals within the organization: (a) a goal-setting process (policy making) where, for example, the CEO or, through a process of joint decision making, the board of directors formulates the objectives of the firm, and (b) a process of safeguarding these objectives against collisions of interest. The safeguarding of interests requires (1) direct strategies of communication such as persuasion, manipulation and the pronouncement of positive or negative sanctions (goal delimitation), (2) limiting of the opponent s scope for action (environmental delimitation) by exercising legal rights and changing structural or physical constraints on the opponent, or indirect action through third parties able to stear the opponent s interests towards the top management s objectives. Both direct and indirect strategies require the possession and application of power means which can be either formal (reward, coercive, legitimate power) or personal ( referent or expert power).
Organizational politics and change
In this concept organizational change can only be put into effect when management successfully safeguards its interests by influencing the exchange partner s behaviour through goal delimitation or environmental delimitation (direct or third party). Goal delimitation may include persuasion, manipulation and the prospect of positive or negative sanctions to achieve a voluntary change in employees goal criteria or the value they attach, for example, to the maintenance of the status quo . One method of environmental delimitation is to alter employees contracts to include a new set of tasks and incentives that are consistent with the strategic objectives of the change process. In this core phase of the process top management tries to extend its own scope of action by putting pressure on exchange partners. As already stated, exchange partners can be internal actors (employees) or external actors (suppliers, government agencies) who may limit the organizational drive for change but may also be subject to the transformation efforts of the firm.
The model allows for the change process to be participative (for example involving employees in goal setting) or authoritative (exercising formal power to achieve compliance). The speed of change will depend on the instruments applied to limit the exchange partner s scope for action. Positive and negative sanctions, for example, may enable rapid transformation but they may be costly and ineffective in the long run. Persuasion may have positive long-term effects if individuals voluntarily change their goals, but it is tedious and slow and requires a personal power basis. Instruments for guiding behaviour, such as incentive schemes, must be ongoing so that the desired behaviour will continue routinely after the core phase of the change process. If, for example, incentives are only of a short- term nature (for example rewarding cooperation among change project groups only during the core phase), employees will eventually fall back on their prior positions and behave according to their original interests, thus negating the effects of the change process.
Further reading
Blau, P. M. (I964) Exchange and Power in Social Life , New York: Wiley.
Dlugos, G ¼nter, Dan Farrell and Wolfgang Dorow (eds) (1993) Organizational Politics , Wiesbaden: Gabler.
March, James G. and Herbert A. Simon (1958) Organizations , New York: Wiley.
Pettigrew, Andrew (1973) The Politics of Organizational Decision Making , London: Tavistock.
Pfeffer, Jeffrey (1992) Managing with Power: Politics and Influence In organizations , Boston: Harvard Business School Press.
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7.3.3.1 Changing the framework
Until late 1999 the process of organizational change at Beiersdorf-Lechia was clearly dominated by a strategy of direct environmental delimitation. All the initiatives and actions of the management team were directed at changing the employees behaviour and scope for action. A great advantage of environmental delimitation is that “ provided the necessary resources and power structures are in place “ it leads to rapid behavioural changes and thus promises speedy realization of strategic objectives. Changing the framework was a prerequisite for and the basis of the successful relaunch of Nivea in Poland in spring 1998. It was also a precondition for the sustainable long-term development of the company because only a new framework for action could provide the platform for the necessary change of values and norms, that is, for the emergence of a new organizational culture (phases II and III).
The new framework was also a prerequisite for the incorporation of Beiersdorf-Lechia into Beiersdorf s international network (Figure 7.9), but in the meantime the company was exempt from the demands made on other international affiliates. At the time of takeover Beiersdorf granted the German managers in Poland unlimited time to turn the Poznan operation into a fully fledged Beiersdorf subsidiary. They were also given a high degree of autonomy over decision making and interference by the Hamburg headquarters was kept to the minimum. Visits to the company by interested managers from Hamburg or the organization s international subsidiaries required the personal consent of the responsible Beiersdorf board member and the head of the expatriate team in Poznan. Only after the successful establishment of the new framework for action was Beiersdorf-Lechia accepted as a full member of the Beiersdorf international family.
Figure 7.9: Integration of Beiersdorf-Lechia into the international corporate network
A visit by Beiersdorf CEO Rolf Kunisch at the end of 1999, after the new IT system had been installed, marked the conclusion of the first phase of change management at Beiersdorf-Lechia. The management then turned its attention to making the company an exemplary, top-class subsidiary with above-average productivity, and perhaps even a regional centre of competence for the entire Beiersdorf network (see Chapter 15 for a discussion of the upgrading of MNC subsidiaries in CEE). In 2002 Beiersdorf-Lechia was in fact selected by headquarters as a full member of the Beiersdorf group s European production system in charge of coordinating international production volumes and programmes.
A variety of instruments were used to achieve the new action framework. First of all, the transformation of the organizational structure and the introduction of a new human resources management system (Section 7.3.2) involved the assignment of new functions and responsibilities to all members of the organization. All employees were regrouped into new departments and teams and received new working contracts with radically redefined tasks, competences and incentives, which effectively created new constraints on and challenges to individual action. The new corporate strategy (Section 7.3.1), which focused on the Nivea brand, defined a different direction for each employee and forced them to adapt their working routines accordingly . The new product portfolio, operational technologies, pricing system and quality requirements upset the usual working practices and set new constraints on the behaviour of employees.
Employees who were unwilling or unable to adjust to the new procedures chose to leave the company when the voluntary redundancy scheme was announced in spring 1998 (Section 7.3.2). New recruits to the company were personally selected by the head of the expatriate team. Most of them had just graduated from leading Polish universities, and because they had not been exposed to the old practices and routines of Pollena-Lechia they fitted easily into the new operational framework and adjusted quickly to the novel management style and working procedures.
The expatriate managers enhanced and strengthened the new framework by developing supportive symbols and percepta. Immediately after the acquisition the buildings and offices were redecorated in a light, friendly, harmonious style that corresponded to the core values and characteristics of Beiersdorf and its main brand. This visible change to the working environment immediately signalled to all members of the organization the scope and direction of the changes to come at the company. So not only strategy and structure but also the physical environment were altered and brought into line with each other. The equipping of employees with state-of-the-art office technology was perceived as a further sign of the commitment of the Beiersdorf group to its subsidiary in Poland.
The new treatment of employees as key assets of the company had already been made manifest in the substantial increase in nominal wages, but this was then complemented by various non-financial incentives: everybody at the company received the same high-class medical insurance package, sales people were provided with the same type of car as members of the board of management, and everybody who went on a business trip for the company was entitled to the same category of accommodation and travel standards. These seemingly minor elements of the new framework played an important part in the company s success as, together with the new organizational structure and employment contracts, they sent unambiguous signals about the company s norms and values.
The management style during the environmental delimitation phase was predominantly non-participative. Decisions about the organization s framework and the setting of new constraints for employee behaviour were taken by the Beiersdorf managers alone, and employees could either accept the new constraints and adapt their working behaviour accordingly, or take up the offer of voluntary redundancy. By opting for this leadership style and deliberately avoiding close involvement and difficult discussions with long-term managers and employees, the team from Beiersdorf was able to push through the first phase of the change process with speed and force. Despite this clear cut top-down approach the expatriate managers maintained a policy of constantly informing all those involved. They always announced their decisions early on and to all those affected, so that employees had the chance to prepare themselves for the changes and when necessary voice their own opinions on the topic. This open communication also helped employees to gain a sense of direction in the turbulent process of transformation, and to develop some trust in the words and deeds of the new management (see Chapter 11 on leadership styles in CEE and Chapter 13 on leaders role in changing the organizational identity).
Changing the framework required the German managers to have a large formal power base (Box 7.6). The acquisition of the majority of shares by the Beiersdorf group and the provision of 72 million zloty for investment at the site, as well as funds from the sale of the toothpaste operation in 1998, bestowed the expatriate team with considerable reward, legitimate and coercive power, which they used extensively to redraw the scope for action of the employees. Only when the financial means and the majority ownership of legal rights had been secured were they able to reformulate all contracts, redesign the incentive scheme and completely alter the working environment. It is important to note that these measures had been largely unavailable to the managers of Pollena-Lechia as they had been seriously inhibited by the heterogeneous share ownership structure and limited financial resources (Section 7.2.2).
7.3.3.2 Changing the culture
Changing the organizational framework through environmental delimitation was the first important step in the radical transformation of Beiersdorf-Lechia. However while this achieved a rapid adjustment of employees behaviour it barely touched their basic values, interests and attitudes. Yet genuine radical change required the transformation of core values and the underlying partly unconscious basic assumptions, that is of the organizational culture. With the new framework for action in place, these issues moved centre stage. In the view of the German managers, the new evolution of values required a platform, a supportive skeleton for their development, and this platform had to be built before turning to the question of corporate culture. Therefore, although cultural issues were implicitly present from the beginning of the transformation process because the acquisition had brought together not only people with German and Polish cultural backgrounds but also the organizational cultures of two fundamentally different companies, Pollena-Lechia and Beiersdorf, they were not on the expatriate management s agenda until 1999.
Managerial instruments applied in cultural change processes were fundamentally different from those used during the first phase of transformation, the phase of constructing a new framework for action. Whereas the phase of constructing a new framework was dominated by the coercive instruments of environmental delimination, the phases of cultural change necessitated instruments of goal delimitation such as persuasion and communication (see Box 7.6). Changes of values come about only through long-term cognitive processes of reflection and internalization, and require voluntary acceptance of the new norms. These communication processes, however, need to be effectively supported by the organizational framework. Incentive systems, structures, working procedures, the distribution of responsibilities and competences have to correspond to and sustain the cultural change process in order to attain routinization, internalization and a stable anchoring of the new set of values within the organizational system.
While changing the frame required a basis of formal power (see Section 7.3.3.1), changing the culture necessitated personal, expertise and referent power in order to effectively communicate the new set of organizational values. The Beiersdorf-Lechia management, besides controlling the financial means and property rights to pull off the environmental delimitation process, also had the communicative skills, charisma, personal authority and intercultural sensitivity to be credible and accepted as agents of cultural change.
The cultural transformation process at Beiersdorf-Lechia consisted of two interlocking phases with different foci and different sets of cultural change instruments (Figure 7.10).
Figure 7.10: Elements of cultural change at Beiersdorf-Lechia
In phase II, cultural change efforts were dominated by the expatriate management s personal ideas of an adequate system of mutual values. All instruments employed at that time were influenced by their own basic assumptions and their socialization as long-term employees of the Beiersdorf group. They included the expatriates attempt to change the organizational culture through selecting and supporting the ˜right employees according to their personal criteria, and through communicating and living their own set of core values and norms. This phase of cultural change was clearly dominated by the foreign managers and a one-way conveyance of values and norms from the top. Phase III, as the still ongoing second stage of cultural change at Beiersdorf-Lechia, evolved after the managers realization that their attempt at changing the company s values system from the top had led to only partial success. Cultural change needs bi-laterality, real dialogue, a mutual commitment to and development of a new, joint value system involving all members of the organization. This realization also necessitated an adjustment of management styles: while management in phase I of the transformation process had been predominantly autocratic, in phase II the general manager switched roles. Instead of acting as a ˜frontline executor , attacking all problems personally and head on, he limited himself to giving key directions and keeping control of the organization s course. Phase III required yet another redefinition of roles: the expat team had to learn to hold back and restrict themselves to the functions of coaching and sponsoring the mutual cultural development process at Beiersdorf-Lechia and concede the core responsibility for the cultural dialogue to other members of the organization. The following paragraphs discuss these changes of managerial roles over time and their consequences for the process of cultural change at the company.
Provide orientation Providing orientation was the first important step towards the cultural redirection of the company. In light of the dynamically changing environment in Poland as a whole and the turmoil within Beiersdorf-Lechia after the takeover, the clear and uncompromising strategic focus of the management team (Section 7.3.1) helped the Polish employees to gain a sense of direction, order and perspective. For both management and employees the single-minded concentration on the Nivea relaunch and its anchoring on the international brand strategy brought all the actions and thinking of the company s members onto the same track. This strategic focus laid the ground for the future development of a shared corporate vision, and immediately after the Nivea relaunch the expatriate managers initiated a mission development programme aimed at a similarly straightforward strategic vision for the long-term growth of the company. They conducted a series of workshops in the summer of 1998, concluding with the formulation of a mission statement that was to be disseminated and implemented throughout the company.
The expectations of the managers, however, were not realized. The messages in the mission statement failed to take roots, and follow-up efforts by the managers were limited to single departments, which operationalized the strategic vision only for their specific field. Hence there was no company-wide acceptance of or mutual commitment to the mission statement. As a consequence, during 1999 and 2000 orientation was mainly provided by the personal example of the German managers, who functioned as role models for the employees, especially the young, career-oriented recruits who had come straight from university, were responsive to Western lifestyles and ideas, and were unable to find suitable guidance in their personal environment.
The values perpetuated by the German managers were naturally dominated by their own cultural background. All of them already had had considerable work experience at other Beiersdorf affiliates or at the Hamburg headquarters and were firmly rooted in the international corporate culture. The core elements of the Beiersdorf culture imported by these managers included strong identification with the core brands of the company, which were seen as embodying a set of strong values, such as lifelong caring, harmony, honesty and mutual respect. These values were expected to be held by the people who worked with these products on a daily basis. The corporate culture also favoured deference and friendliness in all internal and external interactions, a long-term orientation and consideration towards fellow humans . Thus loyalty, trust and open communication were cornerstones of the value system and formed the basis of decentralization, individual accountability and the encouragement of personal initiative, innovation and experimentation among Beiersdorf employees.
The management at Beiersdorf-Lechia personally demonstrated open, non-manipulative communication, high motivation, commitment to the Polish company and the need to take ownership of one s projects. Their impact as role models was considerably increased by the fact that there were six of them “ the largest team ever sent abroad by Beiersdorf on a single project. The Beiersdorf Journal and the Beiersdorf Intranet were used as supplementary channels to disseminate information on Beiersdorf s norms, practices, objectives and values, and both media regularly carried stories of exemplary employee behaviour. This written material provided added support to the German managers effort to provide orientation for the Beiersdorf-Lechia employees during that difficult time of organizational upheaval and cultural transition, as did constant communication with other members of the Beiersdorf international network needed to ensure international coordination of the organization s brand strategies, production and marketing.
Create mutual trust The second important element of cultural readjustment at Beiersdorf-Lechia was the creation of mutual trust between the new management and the employees. Trust lies at the heart of Beiersdorf s corporate value system as it is firmly believed that trust creates reciprocal trust, thus fostering a culture of mutual dependability and accountability. Projects at Beiersdorf are not simply assigned, they are entrusted to a project team, just as the Poznan project was entrusted to the German management team, hence the absence of a prefixed master plan for the turnaround and minimal control of the local operations by headquarters. From the beginning the expatriate team strove to extend this notion of trust and mutual dependence to the employees at Beiersdorf-Lechia.
A key means of creating trust and reliability was and remains the management s open, direct, unambiguous way of communicating. Whereas at Pollena-Lechia hierarchical formality had dominated interactions between subordinates and superiors, the Beiersdorf managers avoided indirect communication and manipulation, and took steps to avoid misunderstandings from the start. For example they were quick to share precarious information with the Polish members of the board of management about the sale of the toothpaste operations to Colgate-Palmolive in 1998. This unexpected openness was perceived as critical in creating an air of predictability and confirming the new style of communication at Beiersdorf-Lechia. It was equally important that the German managers strove to match their words with their deeds at all times.
A further building block in the creation of trust was Beiersdorf s large financial commitment to the Poznan venture and the early announcement of a major investment in a new production plant, which provided a clear indication of the long-term orientation of the German shareholder. This commitment considerably reduced the employees sense of insecurity about the company s future and increased their confidence in the management team s course of action. The establishment of long-term relationships with local suppliers and the community, for example by sponsoring the Poznan marathon, also helped to inspire trust among the employees, as did the introduction of a new remuneration system which was perceived as being both fair and transparent. The company s caring attitude towards employees, as manifested in the provision of an all-inclusive medical package and the personal interest the general manager took when an employee was ill or had family problems were an additional sign of commitment.
Symbolic changes also served to reduce the distance between the new managers and the workforce: the members of the board introduced a first-name policy, top managers and sales agents were allotted the same high-quality make and model of car, and informal, out-of-office departmental meetings were organized to encourage informal dialogue across hierarchies. Several managers coached their direct reports to engage in open communication and provide direct feedback, and to challenge their superiors decisions when these were deemed questionable. At Pollena-Lechia employees had not been accustomed to questioning managers behaviour. Both sides had avoided conflict at all costs and regularly adopted circumvention strategies when a problem came up, rather than confronting it. At Beiersdorf-Lechia mutual trust and openness were seen as core elements of the future organizational culture and key factors in successful and sustainable change.
Strengthening local competences and ownership The third key element supporting the change of culture was strengthening local competences, accountability and sense of ownership among the members of the organization. A culture of trust, it was believed, could only lead to corporate success if it was coupled with suitable skills and the ability to handle responsibility. If they lacked confidence in their own competence employees would reject ownership and avoid risks which in turn negatively affected their ability to complete the projects entrusted to them. The development of employees skills and competences was therefore perceived as vital to cultural change at Beiersdorf-Lechia.
From the perspective of the Beiersdorf managers, even the experts coming from Pollena-Lechia were hopelessly incompetent when it came to basic managerial skills. For decades Pollena-Lechia had heeded only the technical qualifications of its staff, and the fact that even the most minor decisions were made by the board of directors had resulted in a serious lack of independent decision-making ability and accountability among employees. Hence the crucial managerial skills required by Beiersdorf were virtually non-existent at the company at the time of the takeover.
Furthermore, as discussed in Section 7.3.2.1, the young university graduates recruited after the acquisition had received no training in management skills such as communication, workforce motivation, conflict resolution, or general leadership. Accordingly in late 1998 the company established a training programme for management skills, and at the same time potential high-fliers were assigned their own teams and projects in order to gain practice in risk-taking, responsibility and leadership. Members of the German team were always available for coaching and advice. They encouraged experimentation and individual initiative and, in line with the corporated values, tolerated the unavoidable failures that resulted from the trainees lack of experience. The new incentive scheme supported the new practices through the provision of performance-related pay. Increasingly this was accompanied by a change of the expatriate team s leadership style towards management by objectives, although target setting remained informal and irregular until 2001 and was limited to handpicked individuals who had demonstrated a readiness for autonomy and personal responsibility.
Slowly but surely the growing competence of the local managers and employees reduced the distance between them and the German team, and power and expertise became more and more decentralized. Important projects such as the building of the new factory in Poznan and the introduction of key accounting in the sales department were characterized by real partnership and close teamwork between local, expatriate and headquarters managers. The installation of the integrated information system provides another good example. The team responsible for setting up the system predominantly consisted of young university graduates who on average had spent only five months at the company. They rightly interpreted the assignment as a clear sign of trust from the Beiersdorf management and their perception that they were taken seriously by the board managers boosted their self-confidence and motivation, resulting in the project being completed in just seven months. Supported by consultants from Beiersdorf Hamburg, the young and enthusiastic team members not only accomplished their task in less time and at lower cost than planned but also developed into real experts in this kind of project. They not only gained the approval of the Beiersdorf group but also served as role models for their colleagues in Poznan, coaching others in project management and promoting the new Beiersdorf-Lechia values in respect of teamwork and project ownership. As a sign of affirmation of Beiersdorf-Lechi s accession to the international Beiersdorf family, in 2002 one of the team members became the first employee of the Polish subsidiary to be sent out to work in the international corporate network.
Cultural dialogue Despite the successes described above, a number of problems arose in the course of phase II of the change process at Beiersdorf-Lechia. Management “employee discussions and an informal survey of local managers in May 2001 revealed the following. Employees and managers alike described the work processes at the company as too slow, inflexible and formal, and still dominated by hierarchical or status considerations. After the successful Nivea relaunch in 1998 and the tensions caused by the strategic and structural turnaround of Beiersdorf-Lechia, which had put a strain on all employees by demanding complete flexibility and willingness to change, there was now a growing tendency for rigidity. This was accompanied by increasing departmental egotism and isolationalism on the part of the recently consolidated working groups in sales, marketing and production. Hence there was an obvious need to promote interdepartmental cooperation and widespread acceptance of continuous change. In addition the survey confirmed the German managers suspicion that the vision and values they had incessantly espoused since the acquisition had not taken root. As noted earlier, the message of the mission statement formulated in 1998 had never really penetrated all levels of the organization. It was hardly known, let alone internalized, outside the circle of those who worked directly below and in close cooperation with the board. Beyond this level the old values “ formal communication, strong hierarchical orientation and patriarchic leadership “ still dominated. The core elements of the Beiersdorf corporate culture (direct and open communication, and individual accountability) that had been visible among employees during the IT project and the introduction of the key accounting system were limited to single individuals and had not reached the majority of the staff (see Chapter 5 on the problems of cultural change management and Chapter 11 on the difficulty of changing management styles in CEE).
Obviously the values lived and demonstrated by the German team had only resulted in superficial and partial changes to the organizational culture, and were mainly limited to those who had been in close contact with the role models on a daily basis. These young managers had apparently been unable to pass on the norms and values to their own teams, because while openness and accountability reigned in their relationship with their German managers, with their own subordinates they had not been able to overcome the formal, authoritative management style that had been prominent in socialist times and had been imprinted on them during their primary socialization, schooling and university education. What were the reasons for this?
First of all, in phases I and II of the cultural change process (changing the framework and role modelling new values) the initiative had been largely one-sided, that is, promulgated and dominated by the German management team. While the undisputed need for clear directions and rapid decisions had called for an autocratic leadership style during phase I, this had unintentionally been carried over into the second phase because those employees who had become accustomed to this style (which had appeared to differ little from the authoritative leadership that had prevailed before the takeover) had not followed the management s change of direction. From their perspective the managers espousal of openness and participation had amounted to words that had not been matched by deeds, and this had not been helped by the fact that at times some of the managers had indeed tended to slip back into their old (phase I) role of dominating agents of change, particularly in the event of difficult business situations.
The opportunity for sustained cultural change only came about when the management team recognized the necessity of turning their one-sided, top-down cultural transformation initiative into a mutual endeavour, which also forced them to reflect on and eventually readjust their own value system. Hence phase III of the transformation of Beiersdorf-Lechia differed from the two previous phases in that it involved a sincere willingness by the expatriates to relinquish some of their long-standing values and way of behaving in order to facilitate for the development of shared corporate values through a process that would involve all employees. This required not only reflection on and adaptation of their leadership style, but also the ability to handle and encourage challenges by subordinates, and to concede power to other levels of the organization.
In July 2001 the management duly initiated a project to formulate and develop a set of jointly shared key success factors (KSFs) for the company, which in contrast to the mission statement devised in 1998 would not be prescribed from the top but derived from open discussions involving all members of the organization. This forced everybody on the board of management and in the team set up to run the project to define and take on new roles for themselves. The general manager, who was accustomed to directing and dominating all processes at Beiersdorf-Lechia through force of personality and expertise, chose the role of project sponsor. That is, he would remain in the background, interfere only when asked to do so by the team members, and generally limit himself to providing advice and support. Responsibility for conducting the project was delegated to a cross-departmental team drawn from middle management and promising employees. An external consultant familiar with Beiersdorf would act as coach for the team members. He was also put in charge of mediating the conflicts that might arise between the project team and top management because of the unusual allocation of roles and competences. The entire process would be open and transparent, and no expected outcomes were defined as their absence would create a sense of ownership of the project by the team members and avoid the redelegation of responsibilities. The only boundaries were the definition of the task “ the formulation of key success factors for Beiersdorf-Lechia “ and rough deadlines to ensure a results-based orientation.
As was to be expected, the project was not without its problems. At times everybody slipped back into their old roles, and when the general manager, as the sponsor of the project, attended team meetings, the team members still treated him as the chief decision maker, withheld their own ideas or criticisms and tacitly conceded the ownership of the process to the board. In such situations the external coach was immensely helpful in rearranging roles and functions, and encouraging the project members to hold their ground against their superiors and to reclaim their assigned responsibilities. In addition, while the project had been designed to cross departmental boundaries and hierarchies, communication was sometimes dominated by considerations of status and position. A further issue was the continuing existence of the unsuccessful mission statement, which despite never having taken root was perceived as inhibiting the openness of the KSF process.
The eventual formulation of ten key success factors in April 2002 was seen as crucial for the future development of the company, but it turned out not to be the only important result of the project. For all those involved the learning process had been at least as important. The participants had learned to reflect on, define and eventually put into practice new roles and tasks within their organization, and they were now equipped to discuss their thoughts openly with their superiors, take responsibility for projects with company-wide relevance, bring together people from different departments and hierarchical levels and successfully steer them towards mutually agreed targets. All these competences were also in line with elements of the international Beiersdorf value system, therefore advancing the cultural integration of Beiersdorf-Lechia into the international corporate network.
The crucial learning process did not stop there. The KSF team has recently defined 30 related projects “ without intervention from the board “ that should help with the development and implementation of the key success factors throughout the organization. Employees from all levels and departments of the company can apply to participate in project groups, where they will be coached by members of the core KSF crew. Again, the objectives of such projects are not predefined. The goal is not only to operationalize the key success factors but also to cascade down to all levels of the organization the experience of ownership, teamwork and personal learning, which in the original project resulted in reflection on and adjustment of the team members attitudes, behaviour and basic assumptions. Contrary to phase II, where values were more or less prescribed from the top, employees now have the opportunity to experience the positive effects of open discussions, real participation and successful completion of a project that they themselves have planned and managed.
At the same time the change of attitude and managerial style among the German managers has become more and more visible. Employees at Beiersdorf-Lechia perceive it as a clear sign of the general manager s continuing commitment to change that he has started to conduct his presentations in Polish instead of English, the official language of the Beiersdorf group. He is constantly striving to alleviate the distance between expatriates and locals by developing a joint language that is not the one of the German board members. Another unmistakable sign of cultural change and clear commitment to a real dialogue between the German and Polish members of the organization was the replacement in summer 2002 of the German director of sales and director of operations by two Polish colleagues who share the new values of accountability, openness and partnership. The willingness to change and to accept changes on both sides can be seen as the first step towards the creation of a genuinely shared organizational culture that will complete the radical transformation of the Poznan subsidiary and ensure the sustainable development of the company.
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If the need for change is obvious, there is no reason not to initiate change immediately . It is important to be aware that hesitancy may develop among the team made responsible for leading the change, and even within yourself. Act at the first sign of resistance, for example when you hear questions such as ˜should we really do it now? ˜Why can t we wait? Is it really necessary?
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Once started the process must be driven at maximum speed to keep up the momentum . Never slow down the speed of change once the process is rolling, and focus on keeping in the right direction.
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It is absolutely vital to initiate and carry out the process in all areas of the company at the same time . Change cannot be conducted function by function or department by department. Today s business processes involve all functions simultaneously and change must have a positive effect on the management of all of them.
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Clear, crisp, straight and honest communication with the members of the organization is crucial to the success of change management as it creates trust and instils an air of predictability . Misunderstandings, misinterpretations and lack of communication are the biggest enemies of the change manager because they create unnecessary uncertainty and anxiety among those who will be affected by the change.
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Managing the human factor when interacting with those who are affected by change or have to support change can test your patience and tact to the limit . It may sometimes be difficult to communicate directly and honestly, but even in situations of stress and anger, fairness to fellow human beings is a must. So repeat, repeat and repeat until you are understood , but never cave in.
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Be aware of the fact that the unexpected can happen at any time and you must have some reserves to deal with it . Initiating and managing change tends to swallow all your resources, but if you do not keep reserves you are doomed to fail.
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Take time to change yourself! As a change manager you are ˜in the trenches . You have to decide and act fast, but make sure you allow time for reflection on a change of your role. You will have to let things go, delegate responsibilities and turn into a real leader.
Heinz-J ¼rgen St ¼ting, General Manager, Beiersdorf-Lechia SA Poznan.
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Box 7.7 summarizes the key lessons learned from the company s successful radical change process.
EAN: 2147483647
Pages: 121