Our Winning together: 15 by 20 strategy
We’re now a focused paints and coatings company with strong global brands, leading market positions and a balanced geographic exposure across all regions, with 50% of revenue from emerging markets. Our ambition is to be the reference in paints and coatings. We’re building our future on solid foundations – our long and proud heritage of more than 200 years, our core principles and our values. Our success will be driven by our passion for paint, our precise processes, our powerful performance and our proud people.
Our Winning together: 15 by 20 strategy is driving a major transformation to accelerate growth and profitability. We’re adopting a laser sharp focus to deliver 15% return on sales1 (ROS) and more than 25% return on investment2 (ROI) by 2020. We’re creating a fit-for-purpose organization with clearer customer focus, continued cost discipline, and a performance-driven culture with simplified ways of working. All our businesses and functions are working together to achieve our ambition. We’re reigniting our passion for making and selling paint by gaining a deeper understanding of our customers’ needs and stepping up our innovation to develop more sustainable products and solutions in the most efficient way.
1 Excluding unallocated corporate center costs; assumes no significant market disruption.
2 Excluding unallocated corporate center costs and invested capital; assumes no significant market disruption.
More efficient and streamlined organization
Our new organization structure is designed to drive operational synergies and deliver standardization while leveraging expertise across the business. Since the beginning of 2018, we have a faster and more efficient way of working, with two clear focus areas – making and selling paint. Our commercial activities are organized into business units, reporting to the Chief Operating Officer. Meanwhile, all our supply chain activities are led by the Chief Supply Chain Officer. The commercial organization is focused on our customers and leverages product development across our businesses. For the first time, the sales and marketing teams from all business units are aligning their capabilities and processes. For example, rolling out standardized pricing methodology, sales force effectiveness initiatives, margin and portfolio management. Each business unit has a clear mandate to deliver on our 15 by 20 ambition.
The centralization of all supply chain activities – including manufacturing and procurement – into a single global Integrated Supply Chain organization (ISC), with dedicated experts, has been a major change which is already delivering improvements. We’re leveraging scale and expertise across our business units, as well as accelerating continuous improvement through our AkzoNobel Leading Performance System (known as ALPS). We can achieve faster standardization, drive improvement in safety, quality, service, cost and capital management as we continue to anticipate current and future needs.
Simplifying our processes
To ensure these organizations can efficiently collaborate, we’re investing in precise processes, reliable information (master data) and aligned systems. Integrated Business Planning (IBP) helps to connect teams and drive delivery. IBP involves a formal monthly decision-making process led by senior management, with projections for portfolio, demand and supply, resulting in financial forecasts and a single operating plan. This common way of working is fundamental to our new operating model. We expect IBP to drive further efficiencies and enable the achievement of top quartile performance, including increased forecast accuracy, higher service levels and reduced inventories.
During 2018, we also put more focus on getting the waste out of our key end-to-end processes and using reliable, real-time information for decision-making. This will drive further efficiency, improve transparency and enable us to lower the cost of getting products to customers. The deployment of one common ERP (enterprise resource planning) system across all businesses is also in progress, enabling further cost savings and more powerful management of operations and performance.
Our Transformation Office is tracking all initiatives to ensure accountability of different teams to deliver on the cost savings and implement the new ways of working in the organization. In addition to the initiatives already mentioned, we will also achieve significant cost savings through innovation excellence, making our sales force more effective and by streamlining our support functions, for example by transferring some activities to Global Business Services.
We believe in fostering a trusted workforce with strong values, respect for our core principles and a winning mindset. We intend to accelerate opportunities for the talented people we have around the world. We’re building a single, strong and diverse global team for a high performing paints and coatings company. In order to generate stronger collaboration, we’re investing in dedicated, high performing team training throughout the company. We also conduct regular employee surveys to measure our organizational health. This feedback enables us to take appropriate measures to improve engagement and ensure that team priorities are fully aligned with our Winning together: 15 by 20 strategy.
Acquisitions and innovation contributing to profitable growth
Our strategy is to build on our existing position by focusing on our strong brands, leading market positions, customer intimacy and innovation capabilities. In addition to organic growth, we’re targeting acquisitions to boost our presence in key markets, generate synergies and give us access to new technologies. The acquisitions we made in 2018 demonstrate the success of this strategy. We added Fabryo in Romania, Xylazel in Spain, Colourland Paints in Malaysia, four distributors in the UK (to enhance our network of Dulux Decorator Centres), and acquired the minority interest share to obtain full ownership of the AkzoNobel Swire Paints joint venture in China, reinforcing our positions in all these key markets. We’ve developed a precise process to integrate our bolt-on acquisitions in an efficient and controlled manner.
Our products and technologies already set the industry standard in many markets – and we continue to drive new developments that will keep us ahead of the competition. Our new innovation group is led by our Chief Technology Officer and brings together the combined know-how of experts who now work on one, unified innovation road map. This team includes the AkzoNobel Incubator, which looks for disruptive opportunities, businesses and/or services that go beyond what we do today.
Digital innovation is also a key component of our innovation portfolio. It involves the innovation team partnering with our businesses to develop new solutions closer to our customers’ needs. For example, we use digital innovation to help make choosing the right color easy – from precise color-matching tools such as Automatchic Vision for auto bodyshops, to popular decorating apps like our hugely successful Visualizer, which lets you play (via augmented reality) with color ideas before applying any paint to the wall. Collaboration is the future of innovation, and the announcement of our Paint the Future startup challenge (see Case studies) reflects this open, collaborative way of working – and winning – together, both inside and outside the company.
Sustainability driving business success
Sustainability is an integral part of our strategy. Over the last 15 years, our pragmatic approach to business sustainability has enabled us to differentiate ourselves from our competitors. Our commitment to generating more value from fewer resources – and turning environmental challenges and societal concerns into product innovations for customers – is helping to establish us as the reference in paints and coatings. Our value proposition for many stakeholders, including employees and business partners, has also been enhanced by making sustainability an explicit differentiator – part of the AkzoNobel brand. Our main focus areas are value selling and resource productivity.
We continue to develop business opportunities aligned with the most relevant UN Sustainable Development Goals (SDGs). Our agenda is built on core principles of sustainability, safety and integrity, including respect for human rights. We set sustainability targets that contribute to our ROS target, in line with our focus areas of resource productivity and value selling. By prioritizing our innovation towards developing eco-performer and eco-premium solutions, we enhance our value proposition and give customers choice and competitive advantage through our sustainable product portfolios. We believe we can drive growth by understanding how to build a better business, with solutions for environmental and social needs, as outlined by the SDGs (see Case studies).
Delivering on our commitments
In 2018, we showed that we deliver on our promises. We have created a focused paints and coatings company through the successful sale of our Specialty Chemicals business to The Carlyle Group and GIC. We have increased our regular dividend and confirmed we will return to shareholders the vast majority of the net proceeds from the sale of the Specialty Chemicals business. Our cost discipline has delivered significant savings, while pricing initiatives are in place to compensate for challenges including significant raw material headwinds.
By creating a high performing, customer-focused organization, with a clear commitment to deliver on our Winning together: 15 by 20 strategy, we intend to accelerate our growth momentum and enhance profitability. We are committed to increasing returns to shareholders while investing in innovation, sustainable solutions, organic growth and bolt-on acquisitions, creating long-term value for all our stakeholders and becoming the reference in paints and coatings.
Transformation gathering momentum
AkzoNobel has a clear strategic focus to become the reference in paints and coatings. To help us achieve this – and outpace the competition – we aim to reach 15% return on sales1 by 2020. We made excellent progress in 2018 and continue to accelerate our plans to get the company to where it belongs – at the forefront of our industry.
We realize that in order to improve our performance, we need to do things differently. So we’ve been changing our organization accordingly. The biggest change, of course, was separating our Specialty Chemicals business to become a focused paints and coatings company. This triggered the need to put a new organization structure in place – powered by a high performance culture. As part of this process, we conducted a strategic review across all our regions and business segments. This has allowed us to more deliberately allocate resources in order to profitably grow our business and improve performance.
And now that we’re a focused paints and coatings company, everybody in the organization is aligned towards the same ambition. This gives us a lot more clarity in terms of our markets and customers and the synergies we can get from working together across our businesses. Most of the transformational work is being overseen by our Transformation Office. We have assigned leaders and resources to ensure our Winning together: 15 by 20 journey goes smoothly and we deliver on our plans.
Particular attention is being paid to putting the right systems and processes in place, such as Integrated Business Planning. Several work streams have been set up with a focus on key initiatives such as margin management, sales force effectiveness, ALPS continuous improvement, innovation excellence and developing a single ERP system. The positive impact of this approach became increasingly evident during the year – we’ve realized major reductions in cost and complexity – and it will continue to drive our progress with regard to realizing our 15 by 20 ambition.
Our success depends on creating a fit-for-purpose and sustainable organization. So we’re fully focused on continuously improving our performance in both the short and long term. We made strong progress in 2018. Now we’re ready to take the next step in our transformation. It’s all geared towards building a globally leading paints and coatings company which will make us the clear reference for all our stakeholders – customers, employees, shareholders and the world we live in.
1 Excluding unallocated corporate center costs; assumes no significant market disruption.
This is a key profitability measure and is calculated as adjusted operating income as a percentage of revenue.
This is a key profitability measure and is calculated as adjusted operating income as a percentage of 12 months average invested capital.
Total assets (excluding cash and cash equivalents, short-term investments, investments in associates, the receivable from pension funds in an asset position, assets held for sale) less current income tax payable, deferred tax liabilities and trade and other payables.
AkzoNobel Leading Performance System, a company-wide continuous improvement program.
Global Business Services, which covers functional support activities such as Human Resources, Finance and Information Management, as well as non-product related Procurement.
An eco-performer is a solution offering clear sustainability benefits, but that is overall on a par with the mainstream offer in the market.
A measure of the sustainability performance of our products. An eco-premium solution is significantly better than the offer in the market in at least one mainstream criterion (toxicity, energy use, use of natural resources/raw materials, emissions and waste, land use, risks, health and well-being), and not significantly worse in any other criteria. Downstream benefits include a tangible sustainability benefit for our customers.