Strategic focus areas
We continue to pursue initiatives and actions in line with five clear areas of focus
During 2012-2013, we defined five focus areas in terms of strategic initiatives and actions. Our recent materiality analysis indicated that these five areas remain relevant and we will continue to focus on them. A brief summary of key activities in each of these five strategic focus areas follows.
We work hard to increase employee engagement and provide continuous learning and development opportunities
Care for the customer
In almost every market in which we compete, we have a leadership position. If we are to maintain these positions and deliver against our aim of growing in line with, or faster than, our relevant market segments, care for the customer remains fundamental.
In 2015, we continued to build the foundations for care for the customer via our three commercial excellence programs. These programs incorporate processes and tools designed to help us better understand customer and consumer segments, develop appropriate go-to-market value propositions and enhance salesforce efficiency and effectiveness, all tailored for the individual demands of our three Business Areas. More specific information about the various programs can be found in the Business performance section. Where it makes sense, we work across Business Areas, for example in the development and implementation of customer satisfaction metrics, an area in which we made substantial progress in 2015.
Reduction of product and process complexity
Although our performance levels have improved significantly since we began to implement our strategy during 2012-2013, we still have more to do to achieve our vision of leading performance. To deliver this, we will continue to standardize and simplify throughout the organization. This starts with products and supporting raw material slates, but also means standardization and continuous improvement in our manufacturing, selling and support processes.
For example, we are continuing to implement our AkzoNobel Leading Performance System (ALPS), a fundamental change to the way we work in our Integrated Supply Chain. ALPS incorporates standard and integrated work processes with clear goals and metrics, as well as enablers in terms of capability development, information technology (IT) systems, organization model, definition of roles and responsibilities and cultural change consistent with our AkzoNobel values.
We use a consistent approach to ALPS implementation. In all cases, ALPS programs support our core principles. ALPS also helps to improve people, product and process safety and energy/material efficiency across the value chain, and contributes to higher productivity levels. Additional objectives are adapted to the different strategic requirements of the relevant business. For example, in our Performance Coatings Business Area, customer service improvements through higher on-time in-full (OTIF) levels are a key priority and ALPS is helping to facilitate this.
In support functions – Human Resources (HR), Information Management (IM), Finance and non-product related Procurement – we continue to make progress towards a Global Business Services (GBS) approach. In all four functions, we are moving away from a decentralized approach to a more cohesive, centralized approach allowing far greater consistency and synergies across the company.
Cash and return on investment
Since we developed our strategy in 2012, we have improved in two areas that we had identified as issues – our return on investment and our free cash flow. We will continue 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 strong track record with regard to operating working capital management. We are also taking a disciplined approach to capital expenditure management. During 2015, we introduced a new approach to investment assessment and approval to help ensure this discipline. In line with our core principles, safety and sustainability implications are also evaluated, as well as financial consequences.
Embedded safety and sustainability
Our performance with regard to the core principles of Safety and Sustainability continues to improve. This is a challenging area which we will continue to prioritize for action going forward. Our efforts are widely recognized externally. In 2015, we were ranked number one in the Materials industry group on the Dow Jones Sustainability Index for the fourth year in a row. We have now been ranked in the top three in our sector for the last decade.
We also continue to implement our Planet Possible sustainability agenda, focusing on radical resource efficiency throughout our entire value chain. This strategy is based on three main pillars:
We work together with our value chain partners to develop leading solutions that create more value from fewer resources. In particular, we focus on developing and marketing solutions that deliver environmental or social benefits for our customers when compared with competitive products, as well as generating revenue for the business. We call these products eco-premium solutions with downstream benefits. During 2015, we again achieved 19 percent of our revenue from these products, up from 17 percent in 2012.
We continually strive to increase our resource efficiency and reduce carbon emissions in our own operations in order to deliver environmental benefits and generate cost improvements. During 2015, our carbon emissions fell to 3.8 million tons, down from 4.7 million tons in 2012. But we do not limit our philosophy of more value from fewer resources to our own operations. We also work with suppliers and customers to reduce carbon emissions throughout the value chain. This is a challenge which we will continue to prioritize for action going forward.
Capable, engaged people
We are focused on developing our employees and forming partnerships with key suppliers along the value chain to help create more value from fewer resources. In 2014, we made significant and visible steps in terms of forging external partnerships through our Human Cities initiative and our cooperation with The Rockefeller Foundation’s 100 Resilient Cities program. We further built on this in 2015 by setting up the Human Cities Coalition. More details about this can be found in earlier pages of this Report 2015.
The three pillars of our Planet Possible agenda build on our sustainability foundations. From a people safety perspective, we continue to implement our behavior-based safety (BBS) programs across the company. A key area of focus for 2015 was extending BBS beyond our manufacturing sites to offices and laboratories. Our efforts have resulted in a substantial improvement in the total reportable rate of injuries per million hours worked, which has decreased from 2.4 in 2012 to 1.6 in 2015. This exceeds the target of 2.0 which we set for 2015 a number of years ago. Continuing to drive this number down will always be a key priority for the company and we have set a new target of 1.0 for 2020. We also continue to deploy process and product safety procedures and are making good progress in these areas as well.
Diverse and inclusive talent development
If we are to deliver on our financial expectations and overall vision, we need to have a strong, motivated and diverse workforce. To help achieve this, we work hard to increase employee engagement and provide continuous learning and development opportunities. Our objective is to create a high performing culture where employees can contribute to the best of their ability, and where our management teams reflect the diversity of our overall workforce.
A valuable measure of our progress is the annual ViewPoint employee engagement survey. The latest results show further improvement and identify opportunities for making additional progress next year. In 2015, we focused on improving feedback throughout the organization while creating development plans for higher potential employees through a consistent, global approach to “assessment centers” as part of our Talent management process. This process is intended to bring increased objectivity to talent identification, as well as a more targeted approach to the development of leadership potential and increased process transparency.
We continue to make progress in terms of gender and geographic diversity in our executive workforce, working towards our 2015 ambition of 20 percent. We ended 2015 with 19 percent female executives (up from 15 percent in 2012) and 16 percent of executives from Asia Pacific, Latin America and emerging Europe (up from 13 percent in 2012).
AkzoNobel Leading Performance System.
On-time in-full, referring to customer service.
Global Business Services, which covers functional support activities such as Human Resources, Finance and Information Management, as well as non-product related Procurement.
Provide tangible material or energy efficiency benefits for our customers, compared with competitive products.
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.
Central and Eastern Europe (excluding Austria), Baltic States and Turkey.