At a glance
- Carlsberg appointed a new CEO to improve revenues while cutting costs.
- The new CEO successfully engaged the top team to turn the company around by focusing on its financial, strategic and organizational health.
- At the same time, he had to balance the dichotomy between top-down strategic directions versus local culture.
- Carlsberg’s experience offers three key learnings for companies aiming to build a high performance culture.
In 2014 Carlsberg Brewery was the fourth largest global brewery by volume and a leader in the regions in which it operated. However, the company faced multiple challenges. First, it had heavily invested in the Russian market in 2008 and as a result one-third of its operating profit originated there. But by 2014 the Russian market was no longer as attractive: there were international sanctions against the country; its GDP was falling, as was consumer spending; the Ruble had been devalued; and the country had imposed both stricter regulations and taxes. Russia was not the only place with an uncertain environment. Carlsberg faced other regulatory changes in addition to digitization and the rise of mega cities and shifting attitudes toward alcohol. Debt was high and revenues were declining, forcing the company to issue a profit warning in August 2014. Finally, with a growing lack of credibility in the market, the supervisory board decided new blood was needed and appointed Cees ‘t Hart as CEO, effective June 2015. Even so, the company had to issue another profit warning two months later. However, the supervisory board was confident the new CEO, with his recent experience navigating a merger of equals between two dairy cooperatives, could lead the effort to improve the company’s cost effectiveness, while it continued to invest in both its long-term capabilities and brands.
The broader issue
Companies face increasingly changing and uncertain operating environments. These include, but are not limited to, shifting geopolitical alliances, regulations and taxes; the accelerating application of machine learning and artificial intelligence outside traditional IT fields; and demographic changes such as population shifts from rural to urban environments and more megacities. Leaders have to both adapt their strategies to these new realities and uncertain times and successfully execute them to return value to shareholders. In a turnaround situation, CEOs will also have to add an additional constraint: implementing the strategy using limited resources and possibly while cutting costs.
When adapting the corporate strategy to evolving realities, leaders must keep in mind that it is difficult to fully realize the financial advantages of the new strategy. A key reason for this is the absence of meaningful tracking of long-term performance against plans. And even when companies do track, it is difficult for them to identify whether the gap is due to poor strategy content, poor execution or a combination of both.1
A useful way for leaders to think about tracking strategy against performance is to systematically assess where the company stands on three related dimensions: its financial, strategic and organizational health (see Figure 1). Leaders are used to managing financial health and have well-known tools – ROI, EBIT, EBITDA, etc. – to do so. This is the base upon which they must build. CEOs regularly track financial performance and keep their boards and investors fully informed of the results. If successful, they continue to run the company; if not, in order to fulfill their fiduciary responsibilities and protect investors, boards will look for another CEO.