Strategic focus areas
We have identified five areas that we will focus on in terms of strategy development across the company. The following provides a brief description of what we have been doing and what we plan to do in each of them.
Care for the customer
The starting point for market success has to be care for our customers. This incorporates understanding both the trends in the end-user segments that we serve and those in the needs-based customer segments, as well as developing appropriate product and service value propositions to serve these segments. All of this will help to ensure that we are able to develop and/or maintain our leading market positions.
However, if we are to achieve our vision of delivering leading performance from our leading market positions, we must go beyond value proposition development and create and utilize commercially excellent processes. For example, we have to manage our products and margins in a disciplined manner based on a deep understanding of the cost-to-serve our customers. We also need to develop and train our sales force to sell effectively and efficiently.
To ensure that our commercial excellence initiatives are fully attuned to our market sectors, we have decided to pursue these initiatives within each of our three Business Areas, based on an overarching company-wide framework. More information on specific implementation plans per Business Area can be found on the relevant pages within the Business performance section.
Reduction of product and process complexity
Achieving leading performance means that we will need to have an appropriate cost position in all aspects of our business. To deliver this, we need to simplify and standardize our product portfolio and our business processes. We will deliver the former by implementing the product and margin management approach that has already been described. We will achieve the latter by implementing company-wide processes and Business Area level capabilities.
A key area of focus in process complexity reduction at the AkzoNobel level is in global business services. For functional support activities such as human resources, finance and information management, we are in the process of putting a three-pronged approach in place, with centers of excellence, business partners and regional shared service centers. This has already been carried out with some functions in certain parts of the world, leading to meaningful improvements in terms of effectiveness and efficiency.
Reducing product and process complexity will yield required benefits in terms of costs. But it should also yield additional benefits in terms of carbon footprint reduction and the management of priority substances. Because taking a more proactive approach to product and process management will involve evaluating and selecting the best formulations and approaches in terms of performance, as well as robustness from a sustainability perspective.
Examples of this include: (a) the introduction of raw material slates to reduce and rationalize the procurement of existing – and the introduction of new – raw materials used in the production of performance coatings and (b) the development of continuous reactive distillation processes for the production of specialty chemicals and coatings intermediates at lower cost and with significantly reduced production of waste.
Cash and return on investment
In the past few years, we have not generated sufficient cash to fully fund our requirements and our return on investment has been too low given our cost of capital. Addressing this situation is fundamental to achieving our targets. In 2013, we significantly reduced our net debt by reducing our capital expenditures, lowering our operating working capital and through divestments. We also took a major step by successfully completing our performance improvement program a year ahead of schedule, but recognize that this is still not enough. We are in the process of creating a continuous improvement process for all parts of our company which will generate generate year-on-year cost savings to offset inflation and other increases.
A key contributor to a simultaneous improvement in costs, cash and return on investment will be taking a more differentiated and selective approach to investments. To facilitate this, we have thoroughly reviewed all our portfolios and carefully defined which market sectors we will be investing in, with a focus on organic growth, as well as defining where we need to focus more in terms of structural cost reductions.
We will also remain acutely aware of both the sustainability and financial consequences of our decisions. We are convinced that choosing sustainable solutions makes good business sense and that we can generate more value from fewer resources, whether these resources are monetary, people-based or raw material-based. Therefore, we will be even more rigorous in bringing sustainability into our investment decisions.
Embedded safety and sustainability
In 2013, for the second year in a row, we were ranked top of the Dow Jones Sustainability Indices for the Materials industry group. We have now been in the top three in our sector for eight consecutive years. This is a record we are very proud of, and which we have achieved by being committed to the concept that we shouldn’t make separate business and sustainability decisions. We also recognize that we cannot rest on our laurels, because we need to constantly look for the next level of development in our safety and sustainability agenda.
Building on our solid sustainability foundations, in 2013 we developed a new approach to sustainability based on input from all parts of the company, as well as from external stakeholders. We fundamentally believe that financial and sustainability performance are aligned and are therefore firmly committed to what we call Planet Possible. In the next generation of sustainability development, we believe that leadership will require a much stronger external focus. By tailoring solutions to customer and end-user needs, we will make sustainability profitable, both now and in the future.
There are four main components to this new sustainability strategy, which we refer to as our Planet Possible approach. They are:
Sustainable businessWe will create business value through products and solutions that provide both functionality and other sustainable benefits, as well as cost savings from operational efficiency. Overall, we will track our progress against this aspect of our strategy using a measure of ecopremium solutions with downstream benefits. These are solutions that generate direct resource, environmental and energy benefits for our customers, consumers and users
Resource efficiencyWe will accelerate resource efficiency improvements across the value chain. This includes yield improvements from manufacturing excellence and lowest imaginable cost formulations, as well as increased use of renewable materials and energy by our suppliers and in our own operations
Capable, engaged peopleWe will continue to train and develop our people to their maximum potential and work hard to ensure that they remain highly motivated and committed to our future success
Maintaining strong existing foundationsBased on a company-wide process, we will continue to improve in people, process and product safety. We will also maintain our integrity management processes (see Compliance and integrity management chapter) and our community involvement, facilitated by our AkzoNobel Community Program
Diverse and inclusive talent development
If we are to deliver on our vision and ambitions, we need to ensure the active participation of a strong and motivated workforce, which reflects the diversity of the end-user segments we serve.
Therefore, we have to continue to building our programs and processes in order to achieve substantially higher levels of employee engagement and diversity at various levels in the company. We will do this through focusing our resources on company-wide talent management that:
- Actively redresses the gender balance in our management layers and ensures that our management reflects our geographical presence
- Provides continuous learning and development opportunities at all levels of our organization
- Increases employee engagement
The new integrated Talent Management process, which was introduced in 2013, will bring increased objectivity to the identification of talent, a more targeted approach to the development of leadership potential and increased process transparency. This, when combined with the new skills-based curriculum offered to all employees via the AkzoNobel Academy, and the further alignment of learning and development with our strategy, will put us in a strong position to deliver leading performance over the coming years.