Published: March 01, 2010
AkzoNobel is one of the world’s leading industrial companies. Headquartered in Amsterdam, the Netherlands, the company is the largest paints and coatings company globally and a major producer of speciality chemicals. The company employs 58,000 staff based in more than 80 countries. In 2008, revenues totalled EUR15.4bn and in 2009, EUR13.9bn, signifying strong performance during difficult economic conditions.
Over recent years, the company has undergone considerable change and expansion. Although the different parts of the business have a long and distinguished history, AkzoNobel itself was formed from the merger of Akzo and Nobel Industries in 1994. Since then, the company has been engaged in a series of acquisitions, most notably Courtaulds in 1998 and Imperial Chemical Industries Plc (ICI) in 2008. Organon BioSciences NV was sold to Schering-Plough Corporation in 2007. The latter two portfolio changes resulted in a much wider geographical spread, with some 40% of earnings being realised in emerging markets.
In addition to M&A activity, the company has also been undergoing a major cultural and business organisation transformation. ‘Tomorrow’s Answers Today’ is the strapline underpinning the company’s values, motivation and strategy, and applies to treasury as with every other part of the business. As part of this change programme, treasury is in the process of transforming itself from an operational department conducting payments to a strategic partner of the business, providing the financial efficiency and risk mitigation that positions the company for the next stage in its development. This has been a revolutionary project, overseen by Peter van Rood, who joined the company as Group Treasurer in September 2007. Every aspect of treasury has seen radical change and enhancement, including banking infrastructure, policies and processes, treasury skills, IT and the relationship with the business. Over subsequent editions of TMI, Helen Sanders interviews Peter van Rood on each aspect of AkzoNobel’s treasury transformation. In the first interview in this series, Peter introduces some of the challenges and changes that treasury needed to address.
On joining AzkoNobel as Chief Executive Officer in 2003, Hans Wijers started on the pursuit of a stronger corporate centre and a higher degree of functional professionalism. This resulted in many new functional leaders being appointed, including Keith Nichols, the current CFO and in 2007, myself as Group Treasurer.[[[PAGE]]]
The opportunity to shape the treasury function of a large multinational like AkzoNobel is really a once in a lifetime opportunity. In the 1980s, AkzoNobel was at the forefront of treasury professionalism. It had, for instance, implemented a payment factory, something other large corporates only undertook some years later. However, during the 1990s, the function did not continue to develop at the same pace. Consequently, the treasury function ceased to invest in innovation and lost its status as a 1st quartile treasury function compared with peer organisations. In 2007, the board of AkzoNobel granted a mandate to redesign the treasury function so that its full operational and strategic potential would again become available to the company.
During the first few months, we evaluated the status quo and based on that understanding we defined a Treasury Mission, Vision and Strategy for how to return to the 1st quartile of treasury operational execution by the end of 2010. It was interesting to note that the transformation programme as laid down at that time has not changed fundamentally over recent years. One of my personal take away experiences has been not to underestimate how much a sound vision and strategy contributes to clarity of direction and the motivation of a team.
It was also during this period that AkzoNobel was in the midst of the ICI acquisition. One can look at an acquisition of such size either as a threat or an opportunity to the treasury department’s stated ambitions. We decided very much to embrace it as the latter. ICI had some good practices in place and excellent staff. As part of the treasury transformation, some of these staff members were retained and are now part of my management team. To use change that is imposed on you to the advantage of the team and leverage it in a positive way has been an important second take away. To retain good and professional staff was also supported by the clear board mandate in support of the ambitious plans for treasury transformation. The challenges posed by the transformation were something that true professionals were keen to participate in; the experience is both rewarding for them and will enrich their future career prospects.
We therefore made the decision to make a major strategic investment in our staff and infrastructure in treasury. This treasury transformation impacts every area of our activities and positions AkzoNobel’s treasury to return to 1st quartile operating performance.
An important element of our treasury transformation was to realise a culture change within treasury. The new culture would be aligned with the values of the AkzoNobel group, particularly embracing teamwork and a spirit of professionalism and continuous development. The department had worked in the same way for a number of years, and the skills and culture within the team needed to be refreshed. We saw the necessity for introducing new skills, developing existing team members and encouraging new attitudes to what treasury’s position in the company could be, and how individuals could contribute. Inevitably, not everyone welcomes change, and we had to focus on removing influences that posed obstacles to our transformation. This was realised whilst ensuring continuity and control in our daily activities.
The opportunity to shape the treasury function of a large multinational like AkzoNobel is really a once in a lifetime opportunity.
Inspiring the team with a common vision and motivation for success has been a top priority and has been rewarding for everyone in the department, as the working environment has become more dynamic and people started to work together more closely. This can be particularly difficult during a period of personnel changes as people are uncertain about how the department will look in the future and what their role will be. Anxiety in such an organisation will always be high but can be managed more effectively if staff can focus on clear objectives and short-term targets. A treasury transformation is not just about organisational strategy, it represents major change for every individual, and it was important for us to channel the energy that this releases in a positive way.
It is inspiring to see how much potential can be unlocked from staff once they are able to work in an environment that is inclusive, supportive and focused on continuous learning. All individuals who have been able to make that transformation came out stronger than they were before. This is a great tribute to all members of my team who contributed to this change in organisational culture.[[[PAGE]]]
The right treasury policy is a cornerstone to any change in the organisational fabric and a key to successful central control of treasury activities. With a refreshed strategy and approach, we needed to implement new treasury policies that satisfied our needs today and prepared the business for the changes in processes that were to come. In this respect, the treasury policies support the changes that are happening more widely in the group, towards more centralised design and execution of core processes. One of the main areas of focus was therefore to communicate how processes would be revised as a result of changes in treasury systems and bank account structures. The combination of the treasury policies, treasury systems and treasury bank account structures make up the bulk of the treasury infrastructure. Updating them in parallel therefore made a lot of sense to us.
Our revised set of treasury policies was approved in mid 2009. It covered policies on capital, liquidity, currency, interest rate and credit risks. The policies are brief, with guidance on each policy explaining its intended working in more detail.
A particular example of managing treasury risks came from the need to refinance over 60% of the AkzoNobel debt portfolio during the period November 2008 till May 2009. This refinancing during the period that the credit crisis was at its very peak required us to look at all the options and consider a range of scenarios and solutions that would not have been evaluated under normal circumstances. It also required us to deal with all of the financial risks as addressed in the policies.
Before the project, we used over 140 banks for cash management. This clearly created challenges in terms of visibility and access to cash, bank communications, and cash management efficiency. With the support of an excellent external consultant we are putting our cash management activities out for tender across four main regions. Two have been completed and the other two are expected to be realised later in 2010. Implementation is expected to be completed by 2011, which will then comprise a cash management banking group of fewer than 20 banks. We are also taking the opportunity to implement a combination of notional and physical pooling, and aligning our banking strategy with our IT systems and treasury policies.
Naturally such changes impact the banking group of AkzoNobel profoundly, so the way that AkzoNobel manages its bank relationships is also changing. Questions like: “Who will participate in the future long-term bank facility?”; “How do we balance our requests from banks with the fees they charge us?”; “What group of banks best positions AkzoNobel for its future, considering its banking needs, geographical presence and growth ambitions?” needed to be answered. All of these questions had to be addressed in the context of a rapidly changing external landscape during and in the aftermath of the financial crisis.
Inspiring the team with a common vision and motivation for success has been a top priority and has been rewarding for everyone in the department.
Creating an entirely new IT infrastructure was critical to the success of our transformation project given that treasury has been using a 1980s mainframe system for many years. We embarked on a project in early 2009 to implement SAP as the new treasury management system. This included the design and development of the various SAP Treasury modules such as in-house cash, payments factory, treasury risk management, bank communications manager and SAP XI, combined with the application of SWIFTNet through a service bureau. This aspect of the transformation has been a significant undertaking. We are on track for ‘go-live’ by April 2010, some 13 months after we started. The software that we will implement by that time withstands any peer comparison. Once in place, we will have a framework to support our ongoing purchase-to-pay and order-to-cash requirements, which will position the department well to further improve the level of support to the AkzoNobel businesses.
Not only has the scale of this project been particularly noteworthy, but the costs have been kept within budget. This was achieved by keeping our implementation simple, by using core functionality and limiting customisation, by choosing our consultancy partner carefully, and balancing internal and external resources throughout the project in order to reduce contractor spend whilst building skills within the department.[[[PAGE]]]
Transforming each of these areas has required considerable support from treasury staff, our key banks and other business partners. In addition, it has been an ongoing process to articulate our plans and the potential benefits to senior management. This is not always easy as these individuals do not have regular involvement with treasury. When we started our project, treasury had a formal mandate to act as a central treasury function on behalf of the group, but the reality was quite different. To bring treasury in line with its mandate takes time, effort and regular engagement with key stakeholders. Our aim has been to be as interactive as possible, to communicate fully our transformation and the benefits for the group as a whole, and to become a centre of professional expertise.
In the next interview in this series, Peter van Rood describes how AkzoNobel has addressed its refinancing needs, including how risk management policies needed to be defined.
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