Strategic focus areas
In 2012, we identified five strategic focus areas to significantly drive value and position the company for the future. They summarize what is important to our continued success. To drive this on an operational level, we work with six key processes, supported by a series of actions to help us continue on our strategic path and take performance to the next level. Our five focus areas are as follows:
Strategy framework: In the second phase of our strategy development we are focusing more on organic growth, innovation and pursuing value generating acquisitions.
Care for the customer
We aim to secure a leadership position in all the markets we serve. This is being achieved in nearly all our customer segments.
In 2016, we continued to implement our commercial excellence programs. These programs incorporate processes and tools to help us:
- Better understand all our customer segments
- Develop appropriate go-to-market models
- Enhance our sales force efficiency and effectiveness
We also concluded extensive customer surveys in all three Business Areas. These provided us with significant amounts of high quality data and enabled us to better understand customer needs, the performance areas they value and where we need to improve.
Reduction of product and process complexity
Continuous improvement continues to be embedded throughout our organization. To help us achieve this and simplify our operations, we leverage progress in technology and best practices across all three of our Business Areas. We have made progress in terms of reducing the number of manufacturing locations and optimizing our production footprint.
In support functions (Human Resources, Information Management (IM), Finance and non-product related Procurement), we are moving towards a more cohesive, centralized approach. Our central Global Business Services organization – which was set up to simplify the support functions by identifying common ways of working – is helping us to lower costs, improve quality and free up cash and critical resources to invest in growth and innovation.
Cash and return on investment
Since we developed our strategy in 2012, we have made progress in improving our return on investment and free cash flow. We are continuing to focus on these areas in order to meet our financial expectations. This will involve offsetting inflation and other cost increases through continuous improvement.
Careful capital allocation and management is a key strategic priority, so we aim to continue our good track record with regard to operating working capital management, and take a disciplined approach to capital expenditure management.
Embedded safety and sustainability
Safety and sustainability are fully integrated in our business strategy and all aspects of operational management. We continue to drive our behavior-based safety (BBS) programs and Life-Saving Rules across the company. Our safety programs have resulted in major improvement in the total reportable rate of injuries per million hours worked, which has decreased from 2.4 in 2012 to 1.4 in 2016 – in line with the ambition level of 1.4 set for 2016. Further work is needed to meet our target of 1.0 by 2020.
To help achieve sustained business success, we continue to create shared value in economic, environmental and social terms. This involves adapting to the evolving context in which we operate, including the COP21 Paris agreement and the UN Sustainable Development Goals (see Sustainable Development Goals).
Our efforts in this regard are recognized externally. In 2016, for example, we were included in the Dow Jones Sustainability World Index for the 11th year in a row (five of which saw us ranked as sector leader). Our Planet Possible 2020 sustainability agenda is also being updated with a view to 2025. This agenda is based on three main pillars (more details can be found in the Sustainability statements):
We work with value chain partners and customers to grow our business, based on innovative solutions that create more value from fewer resources. We focus in particular on developing and marketing eco-premium solutions – products and services that deliver environmental or social benefits for our customers when compared with competitive products. Our target of achieving 20 percent of revenue from eco-premium solutions by 2020 was reached in 2016.
We are committed to continually increasing our resource efficiency and reducing carbon emissions in our own operations and value chain. This will help de-risk our value chain, deliver environmental benefits and generate cost improvements. During 2016, our cradle-to-grave carbon footprint per ton of sold product was 6 percent lower than 2012, with absolute emissions falling 14 percent to 23.7 million tons (see Note 8 of the Sustainability statements). We do not limit our Planet Possible agenda to our own operations. We work with customers to drive a reduction in carbon emissions throughout the value chain and have organized dedicated sustainability meetings with suppliers. We have also laid solid foundations to potentially implement an advanced carbon pricing program in 2017.
Capable, engaged people
In order to contribute to economic development, health and well-being, we need to build the capability and engagement of our employees and partners to deliver performance and growth. Our sustainability agenda aims to improve the well-being of our employees, of others in the value chain and of wider society through our innovative products and processes. This is particularly evident in the external partnerships we continue to establish and our involvement in community activities through our global Human Cities initiative. Other examples include the newly established Human Cities Coalition and the many local activities to assist refugees. For more information, see Note 17 of the Sustainability statements.
Diverse and inclusive talent development
Our sustainability agenda has always been a key element in our employee value proposition and the introduction of our new purpose has further emphasized this. Our company purpose has been well received, with new employees in particular referring to it as an important attractor and differentiator. It is playing a key role in helping to create a common culture as employees take pride in how they contribute to making people’s lives more liveable and inspiring.
We aim to clearly link our employees’ daily activities to our strategy and purpose and provide continuous learning and development opportunities. Since 2013, we have followed a clear roadmap towards building a high performance culture. With all the foundational elements now in place, we will turn our focus to building the capability we need to further deliver on our strategic goals. Highlights from 2016 include:
- Developing a new functional capability framework which helps us define, measure and improve capability (such as commercial excellence). In addition, we have continued to extend the AkzoNobel Academy, a multi-lingual platform offering basic and advanced skills training
- Introducing our new Leadership Behaviors, which clearly set expectations for leaders. To support this, we launched Leadership Essentials, an onboarding program for all new people managers combining classroom training with practical application of their new skills
Our annual employee engagement survey provides a valuable measure of our progress. The 2016 results show an improvement in the number of employees agreeing they had the chance to learn and grow over the past year. Our overall engagement score improved for the sixth year in a row. More details can be found in Note 11 of the Sustainability statements.
We are a global company serving a large and diverse customer base through extensive international operations. We believe a diverse and inclusive workforce is essential to achieve our ambitions. We aim to actively embrace diversity of thought and empower people to challenge each other to be more innovative and deliver better results. Progress is being made in the diversity of our executive population in terms of gender and nationality. In 2016, we had 19 percent female executives (up from 15 percent in 2012) and set a new ambition level of 25 percent by 2020. At the end of 2016, 14 percent of our executives were from Asia Pacific and Latin America. Our 2020 ambition is to have at least 20 percent of our executives from these regions. More details can be found in Note 11 of the Sustainability statements.
Global Business Services, which covers functional support activities such as Human Resources, Finance and Information Management, as well as non-product related Procurement.
This is a key profitability measure and is calculated as EBIT as a percentage of average invested capital.
Behavior-based safety. A global program run at all AkzoNobel locations.
The number of injuries per million hours worked. Full definitions are in the Sustainability statements.
The carbon footprint of a product is the total amount of greenhouse gas (GHG) emissions caused during a defined period, of the product lifecycle. It is expressed in terms of the amount of carbon dioxide equivalents CO2(e) emitted.
Everything we do for and with society is channeled through our Human Cities initiative. This incorporates AkzoNobel’s Community Program, which encourages and gives financial support for employees to get involved, hands-on, in their local communities; and our “Let’s Colour” program, which uses the power of color to improve people’s lives.