Henkel Group: High-growth central17 May 2012
Finance Director Europe meets Henkel corporate senior vice-president of financial operations Joachim Jaeckle to talk about how the company’s shared-service centres are helping it make its mark in emerging countries – with finance, naturally, leading from the front.
Corporate SVP Joachim Jaeckle is responsible for all finance departments and organisations outside of Henkel's German headquarters, as well as its shared services. This latter role has evolved over the years and started when the company moved offshore into three shared-service centres in Manila, Bratislava and Mexico City.
When Henkel's finance function reached critical mass in their shared-service centres, it was clear that other support functions such as HR, procurement and IT also needed to migrate into those centres. Jaeckle is now running a transformation programme involving all the operating business divisions, each of which has been asked to examine its activity portfolio in order to establish which functions would be best moved offshore into the centres.
The shared-service centres began purely with finance and, having reached high visibility within Henkel, the decision was made that whenever someone in the company wanted to use shared services, it would be effective to use the company's existing infrastructure and centres, maximising cross-company synergies and operating under one management.
The company's three centres now take on specialised work from its business units, including market research and regulatory projects.
The centres themselves operate in regional markets: Bratislava handles European work in both mature and emerging countries, Manila serves North America and Asia, and the smaller Mexico City centre covers Latin America.
The company's shared services, according to Jaeckle, are evolving from just transactional processes. "Transactional work is always value adding, but I think we are now beyond the pure transactional activities," he says. "We are definitely going up the ladder and have migrated work that requires more competencies. There are synergies in having transactional and higher-value activities in the same shared-service centre in that we can offer inter-centre career development."
Migrating new processes offshore, however, isn't an easy task from a shared-services perspective. The timeline depends on how consistently harmonised and standardised the process is.
*** "You need to work closely with the [Chinese] authorities and you need physical contact, which is difficult when you do it from elsewhere."
"We do not normally just move processes from a country to a shared-service centre," explains Jaeckle. "We also first look, from a regional perspective, at the standardisation process.
"When you start with a mature level of standardisation, while it depends where you are in terms of your learning curve, migration can occur within six to nine months. When you have to undertake more standardisation work to stabilise processes, it can take up to two years, but it all depends on the maturity of the processes that are to be moved."
Henkel has a strong focus on high-growth markets and operates in over 40 countries. "Last year, we achieved 42% of our total net sales in emerging markets - up from 34% five years ago," says Jaeckle. "Our emerging-market turnover is now €6.5bn."
Integral to this growth is the company's diversity. Henkel can be divided into three fundamental divisions comprising industrial and consumer adhesives, which make up 50% of its business, and two FMCG divisions - laundry and homecare, and cosmetics and toiletries.
"With adhesives," he continues, "we benefit from industrial customer demand and cover many segments including automotive and packaging. In China and Russia, for instance, we have indirectly benefitted from the rise of the middle class on the industrial side, as has our FMCG business thanks to more people having enough money to afford branded goods."
Henkel tends to act as a business partner to its industrial clients, becoming globally present in line with their demands. Once such a presence is established, the company operates its business with the same infrastructure across all divisions.
Even though growth and revenue are impressive, Jaeckle says that competition in emerging markets is as intense as in mature markets. In emerging markets, many local competitors and companies spring up to build knowledge and work more domestically and internationally. Jaeckle cites China as a good example: many companies are relocating or setting up there in order to increase competition.
Henkel has undertaken very few acquisitions in the last four years, which, according to Jaeckle, has been good for the company. It has allowed Henkel to focus on process optimisation with a view to more easily integrating future acquisitions into its shared-service centres environment.
"Our last major acquisition was National Starch, the adhesives division of ICI, in 2008," recalls Jaeckle. "ICI had outsourced a couple of finance processes, so when our shared-services organisation took over these processes, we were able to deliver them at a better price and quality compared with the outsourcing arrangements that were in place. Shared services were extremely helpful and will be again when we buy another company, in the emerging markets or elsewhere."
In order to streamline while remaining competitive, Jaeckle believes that business functions should be as globally centralised as possible. Naturally, local sales and marketing expertise is essential to investigate local needs and anticipate demand, but production is different.
"It is not necessary to be in every country so long as the transportation costs are absorbed," he explains. "We centralise as many functions as we can and what's left on a country level is called business partnering."
But since that might not be cheaper in China or India compared with Germany or the UK due to difficulties finding educated, high-earning people, it's not without its risks. Economic, political or talent risks vary between regions, but Henkel tries to maximise its shared-service centre activities.
"We serve most parts of Asia, with the exception of China, from Manila," says Jaeckle. "The languages are available and we have local regulatory know-how, so we can do a lot of activities there. The same can be said for Bratislava in Eastern Europe and Mexico City in Latin America."
Henkel has centralised its Chinese business functions in Shanghai. But this is not a shared-service centre as much as an administrative hub solely for China, given the amount of regulatory red tape to contend with. "You need to work closely with the authorities to complete foreign payments and you need physical contact, which is difficult when you do it from elsewhere," he says.
Technology vs the human touch
The challenges don't stop there, as the key ingredient for success in any emerging market is developing key talent, which evolves from an excellent understanding of market needs. It's one of the biggest hurdles but, equally, one of the greatest opportunities.
"I believe the more successful a company is, the more attractive it is to talent," says Jaeckle. "We select our people carefully and try to get talented people on board very early, for example through internships."
From a technological perspective, Henkel doesn't have a single instance of ERP, but it does have regional finance systems that follow the same global template. It's more advanced than other areas of the business, harmonising processes across different systems.
The system question, however, is not the only one when it comes to process standardisation. "It's more important to get people trained in what you want, so that everybody understands the handling of a process," he continues, "and that is a task that involves continuous improvement."
Having more functions in one centre naturally offers increased visibility across the end-to-end process - and Henkel is in the process of combining procurement and purchase-to-pay tasks to optimise global operations, which wouldn't have happened without its shared-services initiatives.
Joachim Jaeckle's definition of 'emerging markets'
"The term 'emerging markets' can be a little bit misleading as it has the connotation of 'underdeveloped'. I think 'higher-growth countries' is more appropriate in this context.
"Countries such as Brazil and China are not underdeveloped. They have standards, infrastructure and much investment in place, and offer a lot of opportunities."