Forming for International Growth
In July 2008. Luis Morales. president of Kent Chemical International ( KCI ) . the international arm of Kent Chemical Products ( KCP ) . balanced a computing machine on his lap. seeking to unify the organisational charts of his KCI worldwide operations with KCP’s domestic concerns. After his 3rd effort. the two charts eventually shared the screen. He had achieved digital success. but as he looked at a chart that reminded him of a multiheaded Hydra. Morales was non convinced he had found a real-life solution. Over the past two old ages. the KCI president had been seeking for a manner to better organize his aggressive international operations with Kent’s domestic nucleus. Two old reorganisations had non achieved that aim. and now the planetary economic system looked as if it were headed for a recession. If he was to urge another restructuring. Morales knew it would hold to be successful.
Kent Chemical Merchandises: The Company and Its Businesss
Kent was established in 1917 as a gum elastic manufacturer. and its historical roots were still apparent. The establishing Fisher household owned 10 % of the stock and was still the largest shareholder. household members held a few cardinal places. and corporate central offices remained in Kent. Ohio. a town outside Akron. During the 1940s. Kent had diversified into plastics and. as that market soared. expanded through acquisitions to go one of the country’s largest manufacturers and sellers of plastic additives and other forte chemicals. Reacting to postwar chances. KCP opened a research research lab in 1953. tackling technology-based research to drive merchandise development.
By the 2000s. Kent had become a taking planetary specialty-chemical company. with 2007 grosss of $ 2. 2 billion. ( See Exhibit 1 for drumhead financials. ) It held minority and bulk bets in more than two twelve concerns in the U. S. and overseas. employed 4. 200 people including 1. 200 offshore. operated 30 fabrication installations in 13 states. and sold its merchandises in about 100 states. Kent offered a broad scope of merchandises from forte lubricators to polymer additives. concentrating on niche-market demands in the building. electronics. medical merchandises. and consumer industries. The scope was managed through six concern divisions. three of which had important international gross revenues.
HBS Professor Christopher A. Bartlett and author Laura Winig prepared this instance entirely as a footing for category treatment and non as a beginning of primary informations. an indorsement. or an illustration of effectual or uneffective direction. This instance. though based on existent events. is fictionalized. and any resemblance to existent individuals or entities is coinciding. There are occasional mentions to existent companies in the narrative. Copyright Â© 2012 President and Fellows of Harvard College. To order transcripts or bespeak permission to reproduce stuffs. name 1-800-545-7685. write Harvard Business Publishing. Boston. MA 02163. or travel to http: //www. hbsp. Harvard University. edu. This publication may non be digitized. photocopied. or otherwise reproduced. posted. or transmitted. without the permission of Harvard Business School.
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Grease-B-Gone. the company’s foremost major consumer merchandise. was introduced in 1966 and became the taking de-greaser in the U. S. First targeted at the car engine market. the trade name had expanded into a scope of specially formulated merchandises designed for high-margin niche family applications such as oven. barbecue. and unstained steel cleaners. KCP later introduced other forte family merchandises including drain openers. rust removers. and eco-friendly surface cleaners. In the U. S. . these merchandises were distributed chiefly through independent retail merchants and purchasing groups in the hardware and do-it-yourself sectors. Outside the U. S. . consumer gross revenues mercantile establishments and retail distribution channels varied by state. In Brazil. for illustration. Kent sold through distributers to little independent mercantile establishments ; in France a direct gross revenues force sold to national ironss.
And while consumer penchants in the U. S. were mostly homogenous. overseas the product’s packaging. container size. aesthetics ( aroma. colour. etc. ) . and even active ingredients could change from one state to the following. About tierce of this business’s $ 522 million worldwide gross revenues were outside the U. S. . with strong local and regional rivals in each offshore market. General family merchandises were produced in the company’s big. multiproduct commixture and wadding workss in markets from France to Brazil to New Zealand. However. the lone non-U. S. installation able to bring forth the specially formulated. aerosolpackaged Grease-B-Gone line was in France. in a single-product works built in 1990.
Fire Protection Merchandises
Kent entered the fire protection concern in the 1950s by geting a company that had developed fire retardent chemicals for the dress industry. Subsequently. Kent’s R & A ; D lab developed other fire retardents for the electronics. edifice. and conveyance industries. Then. following the 1967 fire that claimed the lives of three Apollo spacemans. government-funded research led Kent to develop a line of froths. chemicals. and gases. thereby leting it to come in the larger fire control market section. By 2008. fire retardents were mature trade goods. but the fire control section was a big. fastgrowing and progressively specialised field. necessitating large investings in R & A ; D to maintain gait.
The latter merchandise line was sold to both fire control systems companies and original equipment makers ( OEMs ) in the electronics. edifice. and oil refinement industries. Intense monetary value competition peculiarly in the retardent section. caused Kent to concentrate on cut downing production costs. Outside the U. S. . fire retardents were produced by former Kent licensees. FireGard plc in England and SicherFeuer AG in Germany. both with long histories in the industry. Fire protection ordinances varied by state. so the chemical agents Kent produced in its four workss around the universe frequently had to be adapted to local markets. A few transnational clients accounted for the bulk of Kent’s $ 210 million in world-wide gross revenues. 45 % of which came from international markets. As the number-three rival worldwide. Kent faced force per unit area from both local and planetary companies.
In the sixtiess. Kent collaborated with a major infirmary supply company to develop a non-leaching. sterilizable plastic that won the U. S. Food and Drug Administration blessing to keep endovenous solutions. That partnership created fictile IV bags that bit by bit replaced the omnipresent glass bottles hanging over hospital beds around the universe. Building on that repute. Kent became a taking provider of plastics for medical applications. Over subsequent decennaries it developed particular preparations for everything from surgical instruments to implantable devices to replacing articulations.
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Kent Chemical: Organizing for International Growth | 4409
Its clients were big planetary infirmary supply and medical device companies with which it worked in partnership to develop specialised plastics for targeted applications. In add-on to belongingss such as biocompatibility. self-lubrication. and non-toxicity. these plastics besides had to retain those features under sterilization-imposed conditions of utmost temperature and wet. The company’s turning line of medical merchandises all were developed in the company’s Ohio R & A ; D labs and manufactured in one of two specialised workss in California and the Netherlands. Overseas gross revenues accounted for about 35 % of the business’s $ 625 million planetary gross.
Kent Chemical International: Traveling Global for Growth
For many old ages. Kent’s abroad operations were seen as a beginning of incremental gross revenues through exports. licensing understandings. and minority joint ventures ( JVs ) . That position changed in 1998. when Ben Fisher. KCP’s freshly appointed CEO. announced that a more strategic attack to planetary enlargement would be his top precedence: “Our end is to refashion Kent from a U. S. company dabbling in international markets to one that develops. industries. and sells worldwide. “
Old Root Stock. New Growth
To implement his vision of a planetary incorporate company. Fisher named Luis Morales to head the revitalised international division. Morales was a 22-year Kent veteran who had joined its Mexican subordinate in gross revenues. risen to go state director. so moved to Ohio to run KCP’s Consumer Products division. He had a repute as a smart. hardworking squad participant who liked to win. Morales began implementing the planetary integrating scheme by taking bulk involvements in Kent’s 15 offshore JVs. geting other abroad companies. and by and large spread outing planetary presence. The subsequent rapid international gross revenues growth-from $ 139 million in 1999 ( 11 % of entire gross ) to $ 598 million in 2007 ( 27 % of gross ) -was managed through Kent’s International division. That division reported to Morales through three regional directors-for Europe. Middle East. and Africa ( EMEA ) ; Central and South America ; and Asia-Pacific-all located in Kent. Ohio. ( See Exhibit 2. )
Historically. regional managers had managed subordinate and JV directors in 22 states with a light touch promoting them to optimise their local places. Because Kent was a minority stockholder of many of these companies. its fiscal and runing control were frequently limited. But strong informal links ensured the necessary fiscal and technological support. “For decennaries we’d provided them support. and they had sent us dividends. ” Morales said. The entrepreneurial independency of seaward entities was frequently complicated by long competitory histories. Morales acknowledged that the regional directors’ post-acquisition undertaking of organizing activities and incorporating operations was highly hard. “For illustration. FireGard and SicherFeuer had been rivals for decennaries. ” he said. “Even after we took minority places. they refused to collaborate or even to organize activities. In fact. it’s merely in the last twosome of old ages that we’ve eventually begun to acquire many of our ain subordinates to halt exporting into each other’s markets. “
Even after Kent took bulk places. set uping control frequently proved to be hard. In 2000. the EMEA regional director relocated his staff to Hamburg. “We needed to work more closely with local companies to apologize overlapping activities and duplicative operations. ” he said. “But relocating didn’t solve the job. When my staff tried to consolidate excess European fabrication. for illustration. local directors with 20 or 30 years’ experience in their markets ran circles around them. It shortly became clear that most of the regional staff merely lacked the market cognition and elaborate proficient expertness to counter the state subsidiaries’ strong pushback. “
New Strategies. New Stresses
As abroad operations grew. Morales became concerned that his organisation was non accommodating good to altering force per unit areas and demands. His first concern was the impact of new systems. As Kent acquired bulk places. corporate coverage systems had been added to let operations to be controlled and fiscal studies consolidated. But these alterations had caused strains. “Having the information sometimes tempted my staff to second-guess local state directors. ” admitted Morales. “The subordinates felt that we set arbitrary fiscal marks that were out of touch with their market worlds. Despite our good purposes. I think the state directors were frequently right. ” Capital allotment had besides become more complex. Subordinates now had to finish capital petitions that were foremost reviewed by a regional director. so by Morales. and frequently at the corporate degree. In the procedure. dealingss between subordinates and their U. S. proficient contacts shifted. A state director explained: “Our U. S. co-workers used to confer with with us on our undertakings. but one time they were involved in the support determinations. they became more critical and less collaborative. “
Morales’s 2nd concern was that abroad subsidiaries’ long history of independency led directors to protect their opportunisms. “When the Korean subordinate wanted to fabricate fire retardents for its electronics clients. its programs challenged the German subordinate that had been exporting retardents to Korea for old ages. ” he said. “When we began seeking to incorporate the schemes of our abroad operations. struggles like this on a regular basis reached my desk for declaration. ” Parochial attitudes besides blocked engineering transportation when the informal relationships that had long linked offshore operations with U. S. proficient experts were replaced by the more-formal constructions that growing had required. Berthold Hugel. SicherFeuer’s general director. explained: As we grew. a U. S. -based proficient director was appointed to the regional director’s staff as our affair with domestic divisions. Possibly he merely lacked good contacts. but we were ne’er decently connected. So I sent an English-speaking SicherFeuer employee to Ohio to function as our proficient nexus.
But he had no clout. so that didn’t work either. Finally. I decided that the lone manner to acquire proficient aid and to larn what new merchandises were being developed was for me personally to go to Kent central office every 60 yearss. So that’s what I did. Frustration about links between geographic and merchandise organisations besides existed in the U. S. divisions. as reflected in the remarks of Jack Davies. the VP responsible for Fire Protection: We had developed this great new halogenated fire retardant merchandise that was selling great in the U. S. . but it was stalled in Europe. The U. K. subordinate told me that their projectappropriation petition had been blocked by corporate. I discovered that person in the controller’s office was keep backing blessing as a lever to coerce the U. K. to convey its receivables under control.
It wasn’t my duty. but I stepped in to set a halt to it. The 3rd job badgering Morales was that even within his international division. the regional organisation had trouble organizing issues with planetary deductions. In the Medical Plastics concern for illustration. most of KCP’s clients were transnational infirmary supply and medical device companies. So when the Brazilian subordinate one-sidedly reduced monetary values on its line of general intent polycarbonates as a loss leader to sell more of the expensive. proficient medical merchandises. the pricing impact was felt throughout Kent’s worldwide medical plastics concern. The issue highlighted the fact that cipher was organizing monetary value. merchandise. or sourcing determinations globally. “Worse still. because the international division had a regional instead than a product-based construction. our planetary product-development demands and precedences were rarely communicated to the
The 2006 Reorganization: Bridging Gaps with GBDs
In June 2006. when CEO Ben Fisher besides became Kent’s board president. he used the juncture to denote a major reorganisation. Angela Perri. who had joined KCP 20 old ages before as a PhD scientist in the R & A ; D lab. was named president of the U. S. concerns. Perri was a capable. harddriving. ambitious executive who most late had run the U. S. Medical Plastics division. Simultaneously. Peter Fisher. Ben’s 35-year-old boy was named frailty president with duty for all corporate staffs and the international operations. Peter had joined Kent in gross revenues before heading the Consumer Products division for the past four old ages. Under the new organisation. the International division became Kent Chemical International ( KCI ) . a separate legal entity structured as a subordinate of KCP.
Both Angela Perri and Peter Fisher reported to the president. ( See Exhibit 3. ) Morales hoped the reorganisation would better domestic/international dealingss. “Historically. all critical communicating between us occurred either at top degrees or on the forepart lines. ” he said. “At my degree. I’d negotiate support determinations. and in the trenches relationships between U. S. -based proficient experts and international works directors got things done. ” But as abroad operations grew. Morales had become stretched thin as KCI’s chief top-level contact. And the advice and support that had long flowed freely to the forepart lines was now provided easy. reluctantly. and frequently accompanied by an bill for intercompany charges. “The regional managers should hold provided the excess nexus with the domestic divisions. But they ne’er had the position or power of merchandise division directors. who were all KCP frailty presidents. ” said Morales.
To react to these jobs. Morales in 2006 appointed three planetary concern managers ( GBDs ) . each with a long. successful U. S. calling before traveling to KCI. The GBDs would be responsible for the three lines of concern within KCI. and although the new functions were non good defined. they were announced as VP-level places describing straight to Morales. Each GBD assembled a staff of 3 to 6 merchandise or undertaking directors and began specifying their functions and puting precedences. The consumer-products GBD was a 25-year Kent veteran of senior gross revenues direction in KCP’s Consumer Products division. Before this assignment. he had run a little domestic JV. He explained his apprehension of the new function: “I’m seeking to shoot consumer-oriented thought into our abroad subordinates. I don’t attention if they see my function as advisory or directive. every bit long as they do what needs to be done.
They have to recognize they’re portion of a planetary company now. ” Reacting to his authorization to “sort things out. ” peculiarly within EMEA. he saw his first precedence as finding why the GreaseB-Gone line had non sold every bit good in Europe as it had in the U. S. -and so to repair it. A 2nd GBD was given duty for fire protection merchandises. He had 10 old ages of international gross revenues experience and four as director of market planning in the Fire Protection division. “I’ll need to presume world-wide engineering control and selling duty. ” he said. “The manner I see it. regional directors should be chiefly responsible for production and authorities dealingss. “
The 3rd GBD. an applied scientist and 15-year KCP veteran. was assigned to medical plastics. She saw her function as a strategic contriver associating the U. S. . regional. and subordinate directors. “To be effectual. the regional directors will hold to keep authorization over their operations. ” she said. “I can be most utile by assisting to incorporate the international and domestic parts of our operation. ” After merely a few months. the GBDs were wavering. “The subordinates saw GBDs as intruders. but some more than others. ” said Morales. “The medical-plastics GBD was appreciated because she provided utile worldwide concern coordination. But the consumer-products GBD was a catastrophe. Subordinates felt he interfered in local issues where he had neither experience nor apprehension. ” Many grounds were offered for KCI’s post-reorganization jobs. The EMEA regional manager thought the new construction merely strained the bing organization’s clip and resources.
“We wanted to incorporate our concerns globally. but the GBDs didn’t know what their function was. and as regional managers. we weren’t clear about how to work with them. ” he said. “So we ended up in a batch of meetings that took us away from covering with of import daily affairs. ” Morales felt the chief job was the GBDs’ inability to supply a nexus to the domestic merchandise divisions and presume the conflict-resolution roles he had been playing. “Despite old ages of service. the GBDs lacked the credibleness and power to acquire things done. And some of the domestic directors didn’t aid. They merely seemed to desire control over the fast growing abroad concerns. ” he said. Jack Davies. the VP responsible for the Fire Protection division had a different position. He felt the job ballad in the people appointed as GBDs. “I don’t think there was a individual frailty president in the domestic corporation who saw them as peers. ” he said.
The 2007 Adaptation: Universe Boardss
By mid-2007. it was clear that the GBD construct was fighting. After long treatments with Morales about more-effective agencies to incorporate KCI with KCP. Peter Fisher developed the thought to back up GBDs with universe boards. They would be composed of directors from the domestic and international organisations. with geographic. merchandise. and functional expertness all represented. These boards would be responsible for developing schemes for the planetary concerns. In June 2007. Peter Fisher presented the construct to a meeting of the company’s top 150 directors: The GBDs are functioning an of import map associating our U. S. and international operations. But they can’t pull off this critical function by themselves. To supply support. we are presenting universe boards to assist each concern progress its planetary scheme and incorporate its world-wide operations. They are non meant to replace local direction. Their function will be as contrivers. referees. and communicators. non directors or accountants.
They offer us an chance to work together and portion duty for guaranting that our planetary concerns win. A universe board was formed for each of the company’s three major worldwide concerns. Each was instructed to supply worldwide selling and operations be aftering. optimise planetary sourcing. develop engineering on a planetary graduated table. do investing recommendations. and construct international direction capablenesss. Although they determined their ain rank. they typically included the caput of the U. S. merchandise division. the division’s proficient and marketing staff members. cardinal state general directors. and their appropriate merchandise directors. The GBD served as board chair. supplying him or her with a forum to affect the domestic division directors in the international concern. and to give regional and subordinate directors a nexus to the parent company.
The fire protection universe board got away to a strong start and by and large met the stated aims. “It plants because the concern has chances and jobs with world-wide deductions. ” said Berthold Hugel. the former German subordinate general director who was named Fire Protection GBD in 2007. “Also. before each board meeting. Jack Davies ( the domestic division VP ) and I sit down and work through all the issues so that the treatments ne’er become politicized. ” The other two universe boards did non menu every bit good. The medical plastics board became a platform for treatment but seldom reached understanding or decided on action. And despite Peter Fisher’s personal intercession. the consumer merchandises board met merely twice. so softly disbanded. “We couldn’t even hold on what issues needed to be managed locally or globally. ” said the new Consumer GBD. Reflecting on the experience. Morales felt that the negative reaction to the 2006 GBD construct had made directors waver to encompass the universe boards.
“Some of my state and regional directors felt threatened and thought this was the first measure in leveling the regional organisations. And many domestic directors thought it was merely a manner to give our fighting GBDs more power. ” he said. He besides noted that in order to win. all board members-GBDs. domestic division directors and state managers-had to be unfastened. concerted. rational squad participants. even when their involvements were non being served. “The theoretical account requires practically perfect directors. ” he said. Peter Fisher had a different position. “To accommodate all involvements. some universe boards had more than 20 members. They had merely become excessively big and unmanageable. There were excessively many viing precedences. so the large issues were ne’er addressed. And. honestly. many domestic division directors were barricading advancement and seeking to command the planetary concern straight. ” he said. From Perri’s point of position. the domestic organisation would hold been more supportive if cardinal directors had been consulted when the universe boards were formed. “Peter and Luis expected the division directors to be involved and supportive. But I was ne’er asked my sentiment about the universe boards’ construction or activities. and honestly I didn’t wholly agree with the construct. ” she said.
Back to the Drawing Board: Another Change?
In March 2008. with the universe boards concept fighting and strains in international/domestic relationships. Perri met with Morales and Peter Fisher to discourse possible solutions. Perri was blunt. “We’re a science-based company. ” she said. “Our competitory advantage is in utilizing our scientific expertness to develop merchandises. So it’s a existent job that we have barriers between the scientific resources that I manage and the international markets that you control. We truly necessitate to repair this. ” Peter Fisher responded. “I agree that our technological capableness is a immense plus. Angela. ” he said. “But let’s acknowledge that Kent’s domestic growing has plateaued. So the company’s future relies on our ability to spread out into international markets. We need an organisational solution that empowers instead than subjugates our international presence. “
The Consultants’ Proposal
Acknowledging the demand to happen a solution. the three senior executives contacted Greatest Partners. a well-thought-of international direction consulting house. to assist them screen through the issue. For a fee of $ 1. 8 million. a squad of four advisers worked with four Kent directors to garner information on the industry context. Kent’s competitory place. and the strategic aims of each of its planetary concerns. After analysing these informations. they prepared recommendations that they hoped would convert Kent president Ben Fisher. a longtime sceptic of both outside advisers and complex organisational constructions.
The advisers concluded that one of the company’s chief jobs was that it had been enforcing unvarying organisational solutions on a strategically diverse portfolio. Because each concern had a different mix of planetary jussive moods and local demands. they suggested taking a more trim attack. In drumhead. their elaborate study of analysis and decisions found: •
The consumer merchandise line’s cardinal strategic demand was for locally adapted selling plans to react to local consumer demands. distribution channel differences. and competition that varied by state. While the aerosol-based Grease-B-Gone line was sourced regionally. locally trim general family merchandises were normally produced in national commixture workss. The study suggested a concern that should be preponderantly managed locally and regionally.
The advisers placed the medical plastics concern at the other terminal of the local–global spectrum. Here the cardinal success factor was the cardinal R & A ; D input required to develop new merchandises and engineerings. Manufacturing occurred in two specialised globally scaled workss where quality was tightly controlled. Customers were chiefly transnational companies with world-wide operations. These factors indicated a concern that needed planetary control.
Fire control merchandises fell between these extremes. Because R & A ; D was of import for invention. planetary coordination was critical. But fire bar was a extremely regulated industry in which relationships with national regulative organic structures and control bureaus were critical. While some clients were transnational corporations. many smaller national and regional clients ( and rivals ) were besides important. Merchandise sourcing was mostly regional.
Under the Fisher family’s authorization that Kent non be broken up. the advisers recommended that the company evolve to a more differentiated organisation utilizing a tool they termed “decision matrix. ” The tool’s intent was to spread out on their analysis by specifying nucleus determinations concern by concern and so making a procedure to analyse how they should be decided. This procedure would affect piecing the cardinal concern. geographic. and functional directors from each concern and prosecuting them in treatments about the determinations. The treatments would be facilitated by a adviser. As a theoretical account. the advisers had prepared a set of clean fire protection decision-matrix signifiers. The one for resource-allocation determinations for the European fire protection concern is shown in Exhibit 4.
This completed signifier identifies that multiple participants would be responsible to supply input ( IP ) . offer concern or proficient concurrency ( BC or TC ) . and do recommendations ( R ) . But it clarifies that the concluding determination ( D ) on merchandise development would be made by the Fire Protection division VP. Ten similar sheets listed determinations associating to scheme development. budget readying. selling determinations. etc. In all. 62 European fire protection determinations were identified for reappraisal. As the following measure. the advisers proposed that the executive squad authorise a test tally of facilitated treatments with European fire protection directors to finish these signifiers.
A Brewing Storm. A Cardinal Decision
Although many senior Kent directors found the study converting. others were disquieted it was excessively complex. Some regional directors argued that the company should merely return to the geographic construction that had allowed it to turn. But several domestic directors felt the clip had come to simplify the construction by giving them world-wide concern duty. While digesting the Sterling study. top direction was besides focused on the planetary economic system. Its 2007 consequences had been down 30 % from the old twelvemonth. and 2008 was get downing to look worse. With an on-going subprime mortgage crisis in the U. S. . some felt a planetary economic downswing was brewing. Morales knew that the clip had come to do his recommendation. Conscious he had two work stoppages against him on organisational alteration. he knew that his proposal non merely had to decide the company’s organisational jobs. but it besides had to make so within a disbelieving organisation operating in a threatening planetary economic environment. It was likely the biggest determination of his calling.