Sir Denys Henderson, Chairman, Imperial Chemical Industries
PUSHING THE PERIMETERS--THE CHANGING INTERNATIONAL BUSINESS SCENE
Chairman: Harold Roberts President
Imperial Chemical Industries, headquartered in the United Kingdom, is the largest chemical company in that country and the fifth largest in the world. With 600 locations around the globe, the company sells its products in 150 countries in the areas of health care, food, home, clothing, packaging, transport and communication. Here in Canada I.C.I.--formerly C.I.L.--is the third largest supplier of chemicals with sales totalling $1.2 billion. As one who has great difficulty even remembering the chemical symbols from grade 12 science, there is mystery in the field of alchemy.
Looking at the biographical notes for our speaker today 1 find comfort in the hope that he too may not be an alchemist, but rather a businessman of the highest order. In fact Sir Denys Henderson is a solicitor by training.
The place of chemistry in modern life has been aptly described by Alexander Finlay, a former chairman of the British Chemical council, who said, "The enormous industrial development which has taken place during the past hundred years has, to a great extent, been based on and made possible by the work of chemists, by their ability to bring about and control the transformation of matter and to build up complex molecular structures of planned design."
Technology has simply added to the development of chemical and molecular inventiveness to the extent that huge industries have developed, whose diversification of interests boggle the mind.
Born in Colombo, Sri Lanka, he graduated from the University of Aberdeen with an M.A. and an LL. B. He practiced law for three years, served with the British Army for three years and then joined I.C.I. in 1957. In his 30 years with the company he served in many areas (perhaps making up for his lack of chemical knowledge) until in 1987 he was elected Chairman.
In recognition of his service to not only his business but his country, Her Majesty the Queen created Sir Denys a Knight Bachelor in 1989. In the light of the rapid change in global competition and political environments, Sir Denys has chosen to address The Empire Club on the implications of such changes to I.C.I.
Sir Denys Henderson:
Ladies and gentlemen, it is a great honour for me to be addressing this Club which has such a long and proud history. The invitation was one that I was delighted to accept.
To be addressing you today is, even so, a daunting prospect for a stranger like myself although, as a Scot, I would hope not to be regarded as a total outsider. My fellow countrymen have been good at implanting themselves in most quarters of the globe and with particular success in Canada It was a Canadian who said of us:
"They are the backbone of Canada They are all right in three vital parts--heads, hearts and haggis." (Sir William Osler)
In any case, familiar as you may be with my countrymen, I expect that the Company I am privileged to lead needs more introduction, perhaps. Its origins will, in one respect, strike a chord with members of this Club. It was formed some 20 or so years later than your Club but its founders, like yours, had a strong devotion to the imperial ideal. When, in 1926, Sir Alfred Mond and Sir Harry McGowan wrote to the President of the Board of Trade to explain and justify the name "Imperial Chemical Industries" for the new company, they did so in the following terms: "This name was chosen after most careful consideration and study and for very special reasons ... We are 'Imperial' in aspect and 'Imperial' in name. Dealing as we have to, with powerful and influential groups in foreign countries, we have in all our negotiations continually to fight for 'Imperial' rights and 'Imperial' markets, as contrasted merely with British rights and British markets."
Those were brave words--even if rather high-flown--but they only serve to show how much the world has changed; so, by way of introduction, let me give you a few facts about ICI today.
We are still a British-based company and proud to be so. Tradition should not lightly be discarded. (I am sure The Empire Club would accept that point). But our vision of the world is certainly not the 'Imperial' one we started out with. We are now one of the world's most international companies.
Our turnover last year was over $27 billion Canadian and profits were over $3 billion Canadian. As regards size, that puts us in the same league as Proctor & Gamble or Boeing. We employ 134,000 people, nearly 60 percent of whom work outside Great Britain. We manufacture in over 40 countries and sell in more than 150. Our products range from pharmaceuticals to fine chemicals, paints to plastics, man-made fibres, bulk petrochemicals, and many more.
About half our business is in Europe and that half is split again--about fifty-fifty--between the U.K and the rest of Europe. Canada, the U.S.A. and Latin America account for another 29 percent. It is a pattern that has changed and deliberately so. Ten years ago the U.K. was 42 percent of our business; continental Europe only 19 percent; and the "Americas"--defined as everything from Labrador to Tierra del Fuego--only 16 percent. It has been a matter of consistent policy to build up our business in continental Europe and, equally, on this huge continent.
As part of that policy, we recently acquired the minority shareholding in our Canadian subsidiary, C-I-L, with its familiar orange and white logo. It is now a fully-fledged member of the ICI family and, as from May first this year, it adopted our blue and white logo, with the name, ICI Canada. With sales totalling $1.2 billion Canadian, it ranks as Canada's third largest chemical company. It employs over 5,000 people and has 13 major manufacturing sites across the country.
As you will gather, the ICI Group is large. It is also complex One thing it is not, is a random conglomerate. It has a clear, corporate strategy and a unity of purpose which runs through the whole organisation. I would sum it up by saying that we are International, Competitive and Innovative--the ICI acronym will help you remember that part of it--and we are also focussed. By that I mean that we try to concentrate single-mindedly on the things that we do best.
I want to tell you something about how we are organized--and two aspects of it in particular--but I need first to put it in context. What are the main features of the business landscape worldwide? How is it changing? And what are the implications for companies like ICI?
The most significant change in the last year has been the ending of the Cold War. For years we had grown accustomed to a world divided into two hostile camps--one capitalist and one totalitarian. The division goes back at least to the Second World War and arguably even further to the establishment of the first totalitarian state in Russia 70 years ago. In a few short months it has been swept away.
Europe is in a ferment of change. Germany is being reunited. The countries of Eastern Europe are being transformed economically and, at the same time, are moving closer to the European Community. Meanwhile, the Community itself is rapidly integrating its internal market in fulfilment of the 1992 programme. And even before that is complete, economic and monetary union is high on the agenda, along with discussion of the first steps towards political union.
In this continent, too, the barriers are coming down. The U.S.-Canada Free Trade Agreement came into force at the beginning of last year. More recently, President Bush has spoken of his vision of all American states being "equal partners in a free trade zone stretching from the port of Anchorage to the Tierra del Fuego."
It is a third region, however, that is witnessing the most rapid economic change. It took Japan almost a century to catch up and later surpass the industrialised countries of the West. The newly industrialised countries of Asia--Korea, Taiwan, Hong Kong and Singapore--are accomplishing that feat twice as fast. In the ASEAN area too, dramatic growth is being led by Thailand and Malaysia, with Indonesia and the Philippines not far behind. In fact, Thailand and Malaysia are now the fastest growing countries in the world.
The polarised world of the Cold War has gone. Are we moving instead towards economic regionalism? Will three economic regions--Europe, the Americas and the Pacific basin--replace the two ideological ones? To some extent probably, but my perspective is, of course, a business one. From that viewpoint the dominant trend must be globalisation. It is certainly not new, but the ending of the Cold War will accelerate it. Furthermore, I believe the GATT and the open world trading system will survive the current strain. There is already too high a degree of interdependence between nation and nation and, equally, between region and region. Too many of the world's problems are incapable of solution except at the global level. Those of the environment are an obvious case in point.
The impetus towards globalisation is reinforced for science-based industries such as chemicals. We depend on innovation, which in turn depends on research. But the costs of scientific research are rocketing. To recover those costs, companies like ICI are forced to seek the widest possible market. Often the only market wide enough is global.
This is certainly not to say that the global market is, or can ever be, homogeneous. The three centres of economic power to which I have referred have their own different characters and their own dynamics, as indeed do the individual countries of which they are composed. However, despite those differences, I see them ultimately as parts of a global system, rather than completely separate entities.
I believe, in effect, that the world is increasingly becoming what your Marshall McLuhan termed a "global village." This has a very direct impact on how a major international group, such as ICI, structures itself. The new global setting, and the challenges and opportunities which it presents, have become the keystone of our organisation--and necessarily so. The changing world constantly imposes change on us. Nothing can ever be static.
There are two features of our organisation which illustrate very clearly our approach to the global marketplace. Let me outline them briefly. The first is strategy setting and the second is management succession.
First, then strategy setting.
Our Board is composed of both executive and non-executive directors. The executive directors--the permanent hired hands, if you like--are eight in number and make up what we call the Executive Team.
Our main job is to decide resource allocation--that is to say which businesses to promote and strengthen; which to support in difficulty, and which to divest. In other words, we concentrate on the long term shape of the Group as a whole. We have three other worry-beads as well--the Group's overall financial targets, the most senior staff appointments and external relations.
Responsibility for profit and cash, however, has been pinned firmly on the individual business units. Almost without exception, they are internationally organised and are judged on their global performance. There are, consequently, two parties involved in the strategy setting process--the Executive Team and the individual chief executives of the businesses. The key is to strike the right balance between the short and the long term. The long term is taken care of in a process known as 'strategy review,' whereby the Board examines each business from time to time and evaluates its long term potential for the Group. There is no fixed pattern, but each business unit has a strategy to which it must work, and typically this will be reviewed after three years. The period can be shorter, of course, if a crisis develops through, say, the unpredictability of fate--or of competitor's actions.
The strategies have a ten-year horizon. They contain broad directional targets, or milestones, against which success is measured. An add-up of all the business strategies at any one time gives us a picture of where the Group is going. And we monitor that very regularly, to make sure that plans are turning into action.
The shorter term, meanwhile, is taken care of in an annual process affectionately known as "hell fortnight," in which the Executive Team reviews budgets of all the business units.
The budget has a three-year horizon and is our key instrument of financial control. It includes financial targets--both profit and cash--spread over each of the three years, plus a projection of significant P and L items such as research expenditure and fixed costs. And once those targets are agreed, they become a strict contract between the business and the Board. At each of these annual budget reviews, the business must also show that it is on track in relation to its ten-year strategic path.
The system as a whole may sound complex. To some extent it is: but it has two merits. It does not blunt the cutting edge of the business units. It gives them the freedom of action they need in day-today operation. Secondly, however, it allows the Board to exert a firm discipline to ensure that the Group as whole has the right shape and is moving in the right direction and is actually performing year on year--or not, as the case may be! And right now, with the next eighteen months looking difficult because of lower economic growth in some key markets, we are instructing businesses to tighten their belts still further. I should add that just as we review the long term strategy business by business, so equally we review periodically each of the main regions geographically.
It will be clear, I hope, both from what I have said about strategy setting and what I said earlier about the world business scene, that we regard ICI above all else as being international.
But what does that mean in practice? It is really a question of attitude. It is a question of thinking and behaving internationally.
When you consider the imperial ambitions of our founding fathers, which I quoted to you earlier, you will appreciate that we had a long road to travel. And we had to change. To have stuck to the imperial mould would have locked us out of the world's fastest growing markets. Our problem, in short, was to raise a new generation of managers who were fully at home in a global organisation.
First of all, we had to get rid of any preconceptions about what nationality was right for any particularly job. And we have done that. A Greek runs ICI in Belgium, a Swiss in Italy, a German in Austria, a Frenchman in Hong Kong and an Englishman in Brazil. Here in North America, it is an Australian who chairs our two principal subsidiaries in Canada and the United States. Meanwhile, in London we have a Canadian, Chris Hampson, as a member of the Executive Team to which I referred earlier. Nationality, in short, is not important. What is important is ability and experience. Increasingly, it is international experience that is being seen as essential for anyone who seeks promotion in ICI.
For the 190 top jobs, we have a group of some 240 people already identified as corporate succession candidates. The importance we attach to giving them international experience is demonstrated by the proportion of this group who have held a job outside their country of origin. It has risen from 25 percent to 45 percent in the five years since 1985. Perhaps more important still, those with experience of more than one business have risen from 13 percent to 23 percent.
That, too, is a matter of deliberate policy. Multi-business experience is already accepted as a key to advancement in ICI. The international manager of the future, we believe, must be able to see across borders of every sort--territorial, functional, commercial--if he or she is going to contribute to our corporate thinking.
Management development and succession planning are a part our constant aim to achieve the best possible fit between our organisation and the demands of the global marketplace.
In this, as in all areas of management, there are no absolutely correct and immutable answers. We will always have to adapt. In fact, it is only through change that we can survive, and the pace of change is becoming ever more demanding. But before I close I would like to come back to ICI in Canada because it illustrates the application of a principle to which we will always hold and which will not, I firmly believe, change much if at all.
ICI Canada, through now being fully part of the ICI Group, has greater opportunities than before. Where ICI Canada has the right resources--whether in terms of raw materials, of technology or of people--those resources can be, and will be, developed not just to serve Canada but the wider world too.
One of our global businesses, Explosives, is already run from Canada and we recently strengthened it through the acquisition of a major U.S. based explosives company, the Atlas Powder Co. The worldwide headquarters for this business are here in Toronto. Another regional business, Forest Products--which manufactures processing materials for the paper and pulp industry--is also headquartered here. It is not yet global in its scope, but it is expanding and we intend to give it the elbow room to do so. It may in due course become the second international business to be run from here.
The principle we follow is simply this: the global marketplace demands that we make the best use of all the resources we have available, whether human or material, wherever they may be located. This means in turn that we can never afford any preconceptions or constraints which limit the development of any one part of the Group. For ICI Canada, the opportunities are there. I am sure they will be exploited.
It remains only for me to thank you, Chairman, for inviting me here today and to thank all the members of The Empire Club for the welcome they have given me. Before coming here, my confidence was to some extent boosted by the realisation that the name Henderson holds an affectionate place in the hearts of Canadians. After all, it was my namesake, Paul Henderson, who scored that dramatic winning goal in the 1972 Canada-Russia hockey series. I am told that it is a moment in Canadian sports history that will never be forgotten.
My aim today has been somewhat more modest. I have not set out to win a game, let alone a series. I am simply here to explain the strategy of ICI in a country which has always held a special place in our affections.
At ICI, our success does not depend on one isolated moment of spectacular individual achievement. Rather, it is an on-going process requiring the dedication, endurance and teamwork of many thousands of people. I am happy to conclude by saying that ICI Canada does indeed have the people, the expertise and the desire to be successful not only here in North America, but in the global arena as well.
The appreciation of the meeting was expressed by Peter Hermant, President, Imperial Optical Company Limited and a Past President of The Empire Club of Canada.