How Erik Bouts led AkzoNobel Paints through its acquisition Featured

8:00pm EDT May 26, 2010

Change actually didn’t shock the system at ICI Paints.

The company, probably best known for its Glidden paints, had been through several changes in recent years. First, Erik Bouts came in as the new CEO in late 2007. Shortly after that, AkzoNobel bought ICI and created a new entity, AkzoNobel Paints LLC. For most people in the company, the changes were just the most recent ones in a long line of changing leadership and direction.

“If you go back 10, 20 years, I think there has been many changes here in leadership, in strategy, in direction, in what to do, what not to do, so I found an organization that was very skeptical of leadership in general — ‘This will pass by also. OK, new guy’s coming in, new owners, we have seen it, we have heard it, and we just keep doing what we always have been doing,’” Bouts says. “I think that was a big challenge we had in leadership to go through that attitude, and it’s a big organization, so it’s not the two-minute egg, as we say. It requires a lot of energy from everybody to get the ship sailing in the right direction.”

With several thousand U.S. employees who bring in a significant portion of the $1.35 billion in revenue generated by the North American decorative paints division of AkzoNobel, it would certainly be a challenge to get people on the ship, but it was far more complex than just getting people to trust a new direction.

“First of all, you have to understand what the strategy of the new owners is,” he says. “Yes, we run the Glidden business here in the United States, but at the same time, you’re part of a global company now, with global goals, global objectives and having to deliver the expectations of the shareholders, and that takes awhile to carve out all of those new objectives. It’s more than just putting two companies together one and one — you have to create synergies, and you have to set new goals for that combined company.”

But there was still another element to that challenge — at least within the country.

“The paint market has been in a strong decline since its peak in 2006, 2007,” Bouts says. “The market has come down about 30 percent, and Glidden was not the stronger player in the U.S. market. Especially for the smaller-tier players in this market, being faced with such a market decline, such an economic crisis, it puts an additional challenge on the company.”

With three big challenges facing him, Bouts knew that to get through the acquisition successfully, he needed to know where he was going, he needed to create a plan to get there, and he needed to effectively communicate during the various stages of the changes.

Know where you’re going

The first thing Bouts did was look toward the horizon to figure out where he wanted the company to go.

“It all starts, in my view, with envisioning the future,” he says. “What is it that you want to be? It sounds like an open door, but that’s not so easy to formulate. It’s back to the journey — you start somewhere, and you want to go to an endpoint, but you have to define the endpoint. If you don’t know where you want to go, you can’t map out what you have to do to get there.”

This was a little bit of a challenge for Bouts because he had to figure out how his division would fit into the overall global organization.

“I have my own ideas, and if you’re not careful, you start to believe your own BS, your own visions, and you think you know it all,” he says. “My experience is I don’t know anything. … The higher you get in the organization, the less you know, and you have to realize that. The true knowledge, the true know-how, the true capabilities in an organization are way deeper than in the boardroom.”

Instead of relying on his judgment, Bouts involves three key constituencies.

“Listen to your customers, to your employees, to your suppliers — it’s key,” he says.

With Glidden being one of the oldest paint companies in the country and with thousands of employees, there’s a ton of experience about how to make and sell paint. The same is true of the customer base. Through a variety of outlets — big box retailers, such as Home Depot, as well as company-owned stores and 4,000 independent retailers — they all have an opinion because their profits depend on the overall success of Glidden, as well. And the same goes for the suppliers.

But with all of these constituencies having their own interests, you have to be able to clearly listen to what they say.

“The ability to listen for what people really want to say is important,” he says. “You need to have the ability to read between the lines. It’s not always what people directly say to you — it’s what they intend to say. It’s a skill. It’s an art.”

For example, if someone comes to Bouts and says that Glidden is a great brand, but he or she doesn’t think it’s growing fast enough, what Bouts thinks that person is really saying is that the company needs to invest more in the brand and spend more money on advertising and product innovations and new pricing strategies.

“They will never come to me and say, ‘Well, I need you to up your advertising investment from X to three-X,’” he says. “No, they will say it in much more political, neutral terms that they’re looking for stronger growth or a more dominant brand.”

Or his suppliers may say that they have A, B, C and D as raw materials for the company, and what that really translates to is that Bouts could be innovating more than he currently is.

A final example is your employees, who may tell you that they’re not exactly sure what’s going on in the company.

“Basically they’re saying, ‘We have no clue what you’re talking about,’” he says. “Back to being humble and listening — people are not always upfront. … That’s why it’s so important that you have the ability to listen to what people are really trying to say because they’re always a little nervous talking to the leadership team or the CEO.”

Once you read between the lines of what people are saying from all sides, then you can put together a clear endpoint to help start your change.

“If you combine all of those insights from employees, suppliers and customers, certainly you get a lot of input in carving out that picture for the future,” Bouts says. “If you combine that with analytics — what is happening in the market, we have many statistics on demand, supply and competitor dynamics — and you put a little bit of fantasy and dreaming to that, suddenly, I think you get a few options of what that future could be, and that’s an interesting piece of change process, the envisioning part.”

Create a road map

Once Bouts knew where AkzoNobel was going, then he had to figure out that path to actually reach that point and where the stops along the way would be.

“Once you have that vision, that’s nice, but to make it simple in journey terms, [if] we’re (traveling) from Cleveland to New York and know we want to be in New York, there are many ways to get from Cleveland to New York,” he says. “…We know where we want to be, and you start to map out the road to that endpoint, and that road map is about new products, it’s about new customers, it’s about new market segments, and it’s about all the moving parts of the business that have a role to play to get to the endpoint.”

But doing this can’t be a solo project, so Bouts enlists the people he has to help him with this process.

“It’s deploying the vision and challenging people to come up with the necessary steps or stops to get there,” he says. “It’s almost a bottoms-up approach. … As the CEO, you’re more the director of the orchestra, but you’re not telling every player how to play his or her instrument. It’s making sure that it happens in a concerted way that companies are moving in the same direction, but I’m not going to tell the head of R&D what kinds of products need to be developed, or I’m not going to tell the manufacturing leader how to make products or telling the Depot leader how to sell products to Depot. You trust your teams. Trust is an important factor. Trust here goes hand in hand with competency in the change process.”

Another key to developing that road map is to combine the practical reality with a little fantastical dreaming.

“It’s how every human being should operate,” Bouts says. “It’s a little bit of yin and yang. You have the conceptual world, and you have an emotional side to it.”

Include the right people to make sure that this happens effectively.

“In every setting, some of your teammates tend to be more rational and some of your teammates tend to be more creative/emotional, and it’s the job of every leader to have a balance of both schools of thought be represented.”

But even with a road map established, you’re likely to stop along the way, and Bouts knew there were certain goals that would need to be met for AkzoNobel to change successfully.

“You don’t go from Cleveland to New York in one whole [trip],” Bouts says. “You have a few stops in between. Every company would call that milestones, which you have to define those milestones very clearly and put clear metrics around it and hold people accountable.”

Effectively doing that means being specific about what you want and what you expect of people.

“You have to hold people accountable,” he says. “If I’m not specific to [the communications director] about internal communications about what I want and when I want it, it remains open-ended and nothing gets done.”

To avoid that, Bouts has the whole strategy process divided into about 50 milestones, which is divided into six strategy pillars.

“We’re monitoring the progress in each of these six strategy pillars on a monthly basis,” he says. “On a weekly basis — almost — but the monthly basis is the more formal part of it where you have all the measurements being reported out.”

Figure out what’s most important for you to achieve in order to successfully move forward in your change.

“You set financial, market and process metrics,” Bouts says. “… The financial metrics, that’s easy. That’s definitely the key items of the P&L — it’s revenue, it’s EBITDA, it’s operating costs — depending on which part of the business we’re talking about, and typically those metrics are companywide. You have your market ambitions. By the end of the day, we survive as a company because customers buy our products, so you have to set market share goals, distribution goals, brand awareness goals, typically metrics that are associated with the demand side of the organization.

“To deliver on financial and market metrics, you need a competent organization. You need to know what you’re doing as an organization, and we call that process metrics.”

That comes down to striving for functional excellence in areas of the business and it’s what distinguishes a more primitive organization from an advanced, world-class one.

Then lastly, on top of all those metrics, you have to have people metrics, as well.

“It’s not robots doing the business,” Bouts says. “People design the processes, they work with processes, they make products, they sell products, so it’s important that you build that competent organization, and just saying that you want to have a competitive organization is not going to get you there, so you have to define people metrics.”

For something like training, you would need to determine metrics to measure against your goal.

“You have to make sure that everybody goes through that curriculum, so you have to set a goal there and say, ‘80 percent of your employees have to go through training curriculum A, B, C or D by the end of the year.’”

A lot of times leaders think that these people metrics are the responsibility of HR, but Bouts says you have to take responsibility for it yourself.

“HR is a facilitator of many of the people processes, but it’s the leadership team that owns the development of the organization and the development of people,” he says.

Communicate at every stage

Once you have a road map, share it with everyone.

“I can have in my mind how I get from Cleveland to New York, but we employ thousands and thousands of employees,” Bouts says. “If they don’t get it, if they don’t understand what we want to achieve, it’s all useless.”

This was quite the paradigm shift for the company.

“I think in the old day, strategy was done in boardrooms — it was secret, big binders about scenarios and [they] were all being put in a cupboard and nobody was reading it,” Bouts says.

Instead of taking this approach, he broke it all open and shared the strategy with all the key stakeholders — customers, employees and suppliers.

“There’s a certain risk to it, you know,” he says. “Of course, company strategy is confidential — there’s some competitor sensitivity in there, but by the end of the day, having a totally informed and engaged company understanding where it’s going is by far better than not sharing it all.”

One of the biggest keys to effectively communicating your new path is to be mindful of who you’re talking to.

“It’s telling the same story in 10 different ways actually,” Bouts says. “… It all depends on who you’re talking to and how much time you have. Typically, you don’t have hours to communicate — people have maybe an attention span of 10 minutes, so if you’re not able to explain your vision and strategy in 10 minutes, you have an issue.”

Tailor your message to the specific audience you’re facing.

“Typically, the groups you’re talking to, they’re seldomly mixed,” he says. “If you talk to analysts, you won’t have employees and customers. If you talk to customers, there won’t be an analyst in that meeting. If you talk to employees, there won’t be suppliers or customers in there. Your audience, in most cases, is pretty focused and pretty single-minded.”

And because you’ll know in advance who you’ll be speaking to, it’s crucial to actually take the time to make that message most relevant to that particular audience.

“Preparation is important,” Bouts says. “You have to understand who you’re talking to, what they want to hear and how you bring over that message.”

After Bouts communicates his message to any given group, he follows up with a closing-the-loop survey.

“How did you perceive the presentation?” he asks. “Did it convey the right message? Did you get the information you were looking for?”

And lastly, he says that during this process you have to communicate often.

“Keep it short,” he says. “Do it frequently. A one-off communication doesn’t make sense. It’s a journey. It has to build. Five minutes every month is more meaningful than an hour presentation once a year.”

While it’s important to communicate the initial journey, Bouts says it’s even more critical to maintain honesty with everyone as you move along that road.

“[Have] a brutally honest communication to the company — where do we stand?” he says. “It’s all great to have big strategy plans and visions about the future. Are we going there and milestones, but you have to be fair too. If you’re off track and behind, you need to share the two with employees because if you’re behind, it means you have to plan for corrective action and people have to understand that, and sometimes that’s difficult, especially in economic harsh times.

“It’s always easy to share success stories, and as we say in Europe, ‘With a tailwind, everybody is a good sailor.’ The fact of the matter is, the economy is still facing a lot of headwinds. Maybe it’s turning the corner a little bit, but in my view, the economy might be out of intensive care, but it’s still in the hospital. It’s not safe yet.”

But that’s not what people want to hear, and that’s why it becomes difficult to communicate as you move forward, but if you want to lead change successfully, it’s just part of the package.

“You have to be brutally honest and deliver both good news and bad news to the company, and that’s a challenge in and of itself,” Bouts says.

The key to overcoming that challenge is to not just look at the data that you’re monitoring.

“There is so much data available that you have to use it,” he says. “You have to absorb it. You have to digest it. There’s so much information, especially in this day and age, you know exactly how the company is performing. That’s not difficult. It’s more acknowledging what the real performance is.”

If you don’t do this, you’re going to have a hard time moving forward and improving the company as you try to change.

“You can’t move the company in a kind of dream world, where everybody thinks things are hunky dory,” Bouts says. “The truth is much less rosy. Otherwise you’re being dishonest with your people. You’re misleading them, you’re driving the wrong behavior, you’re driving the wrong actions. If you’re not performing as you should be, everybody has to understand where that performance lack is and what we have to do to close the gap. That’s, at the end of the day, what you want to achieve — that you perform as a company. It’s like in every sport, you have to know where you stand, otherwise there’s no improvement possible or no change possible.”

As Bouts went through this process over the last two years, he noticed AkzoNobel changing and overcoming its challenges.

“It’s a major change process,” he says. “This was not a simple change. I’m happy with the progress the company is making. I think there is a lot of appreciation of where we’re heading to. It is meaningful to most people I talk to. They support the direction. And as a result, I think we have a more positive climate here — a more engaged company.”

And as he moves forward, Bouts recognizes that no matter how much progress you make on your journey, you never really arrive.

“Are we there yet?” he says. “No. It’s a long, long journey, but the company is moving in the right direction. We’re moving all together, meeting many milestones. Again, it’s we’re moving toward the endpoint. I don’t take an endpoint too literally. Once we’re there, probably, we’ll define a new endpoint, and a new endpoint and a new endpoint. It’s an ongoing journey, but for the next two to three years, we have a clear endpoint in mind.”

How to reach: AkzoNobel Paints LLC, (440) 297-8000 or www.akzonobel.com