Case Taking Charge at Domtar: What It Takes for a Turnaround*
Domtar is the third largest producer of uncoated freesheet paper in North America. In
the decade prior to 1996, Domtar had one of the worst financial records in the pulp and
paper industry. At that time it was a bureaucratic and hierarchical organization with no
clear goals. Half of its business was in “trouble areas.” Moreover, the company did not
have the critical mass to compete with the larger names in the field. The balance sheet
was in bad shape, and the company did not have investment-grade status on its longterm debt.
In July of 1996, Raymond Royer was named president and chief executive officer
(CEO). This was quite a surprise because, although Royer had been successful at
Bombardier, he had no knowledge of the pulp and paper industry. Many believed that to
be successful at Domtar, you needed to know the industry.
Royer knew that to be effective in any competitive industry, an organization needed to
have a strategic direction and specific goals. He decided to focus on two goals: return
on investment and customer service. Royer told Domtar executives that to survive, they
needed to participate in the consolidation of the industry and increase its critical mass.
The goal was to become a preferred supplier. The competitive strategy had to focus on
being innovative in product design, high in product quality, and unique in customer
service. At the same time, however, it had to do everything to keep costs down.
When Royer took over at Domtar, he explained to the executive team that there were
three pillars to the company: customers, shareholders, and ourselves. He noted that it is
only “ourselves” who are able to have any impact on changing the company. He backed
up his words with action by hiring the Kaizen guru from Bombardier. Kaizen, a process
of getting employees involved by using their expertise in the development of new and
more effective ways of doing things, had been very effective at Bombardier. Royer saw
no reason why it would not be successful at Domtar. Royer also knew that for the new
strategic direction and focus to be successful, everyone needed to both understand the
changes being proposed and have the skills to achieve them. The success of any
change process requires extensive training; therefore, training became a key part of
Royer’s strategy for Domtar.
This last point reflects the belief that it is the employees’ competencies that make the
difference. The Domtar Difference, as it is called, is reflected in the statement, “tapping
the intelligence of the experts, our employees.” Employees must be motivated to
become involved in developing new ways of doing things. Thus, Domtar needed to
provide employees with incentives for change, new skills, and a different attitude toward
work. The introduction of Kaizen was one tactic used to achieve these goals.
Training at Domtar went beyond the traditional job training necessary to do the job
effectively and included training in customer service and Kaizen. This is reflected in
Domtar’s mission, which is to
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meet the ever-changing needs of our customers,
provide shareholders with attractive returns, and
create an environment in which shared human values and personal commitment prevail.
In this regard, a performance management system was put in place to provide a
mechanism for employees to receive feedback about their effectiveness. This process
laid the groundwork for successfully attaining such objectives as improving employee
performance, communicating the Domtar values, clarifying individual roles, and
fostering better communication between employees and managers. Tied to this were
performance incentives that rewarded employees with opportunities to share in the
profits of the company.
Has Royer been successful with his approach? First-quarter net earnings in 1998 were
$17 million, compared with a net loss of $12 million for the same time period in 1997,
his first year in office. In 2002, third-quarter earnings were $59 million and totaled $141
million for the year. That is not all. Recall his goal of return on equity for shareholders.
Domtar has once again been included on the Dow Jones sustainability index. Domtar
has been on this list since its inception in 1999 and is the only pulp and paper company
in North America to be part of this index. To be on the list, a company must demonstrate
an approach that “aims to create long-term shareholder value by embracing
opportunities and managing risks that arise from economic, environmental, and social
developments.” On the basis of this, it could be said that Royer has been successful. In
2003, Paperloop, the pulp and paper industry’s international research and information
service, named Royer Global CEO of the year.
It was Royer’s sound management policies and shrewd joint ventures and acquisitions
that helped Domtar become more competitive and return their long-term debt rating to
investment grade. However, joint ventures and acquisitions bring additional challenges
of integrating the new companies into the “Domtar way.” Again, this requires training.
For example, when Domtar purchased the Ashdown Mill in Arkansas, the management
team met with employees to set the climate for change. The plan was that within 14
months, all mill employees would complete a two-day training program designed to help
them understand the Domtar culture and how to service customers. A manager always
started the one-day customer focus training, thus emphasizing the importance of the
training. This manager returned again at lunch to answer any questions as the training
proceeded. In addition, for supervisor training, each supervisor received skill training on
how to effectively address employee issues. How successful has all this training been?
Employee Randy Gerber says the training “allows us to realize that to be successful, we
must share human values and integrate them into our daily activities.” The training
shows that “the company is committed to the program.” Tammy Waters, a
communications coordinator, said that the training impacted the mill in many ways and
for Ashdown employees it has become a way of life.
The same process takes place in Domtar’s joint ventures. In northern Ontario, Domtar
owns a 45 percent interest in a mill, with the Cree of James Bay owning the remaining
55 percent. Although Domtar has minority interest in the joint venture, training is an
important part of its involvement. Skills training still takes place on site, but all
management and teamwork training is done at Domtar’s headquarters in Montreal.
Royer’s ability to get employees to buy into this new way of doing business was
necessary for the organization to succeed. Paperloop’s editorial director for news
products, Will Mies, in describing why Royer was chosen for the award, indicated that
they polled a large number of respected security analysts, investment officers, and
portfolio managers as well as their own staff of editors, analysts, and economists to
determine a worthy winner this year. Raymond Royer emerged a clear favorite, with
voters citing, in particular, his talent for turnaround, outstanding financial management,
and consistently excellent merger, acquisition, and consolidation moves as well as his
ability to integrate acquired businesses through a management system that engages
employees. Of course, that last part, “a management system that engages employees,”
could be said to be the key without which most of the rest would not work very well.
That requires training.
Review the Domtar case and answer the following questions:
a. In the implementation of Kaizen, what groups of employees are likely to need training?
How should the trainees be organized? Think of this issue from a training design
perspective and from a training content perspective.
b. For the type of training envisioned, what are the learning objectives? Write these
objectives in complete form.
c. For each group of employees that will need training, what are the organizational
constraints that need to be addressed in the design of the training? What design
features should be used to address these constraints? Be sure to address both the
learning and transfer of training issues.
Case Analysis CASE: Strategic Planning at Multistate Health Corporation
As you read this case, think about the relationship among competitive strategy and both
the HR and HRD functions at Multistate Health Corporation (MHC). The case was
written in 1994 and is real, but the corporation asked that its name not be used. The
federal and insurance environment for health care has changed substantially since that
time; however, the strategic planning issues faced by MHC remain relevant today. The
information provided here reflects the organization in 1993 as it was completing its
strategic planning process.
The Organization
MHC is a health care provider owned and operated by a religious order. MHC owns 30
hospitals and four subsidiary corporations employing more than 10,000 people. Its
headquarters are in Michigan, with hospitals located in 17 states across the country.
The overall organizational structure and the corporate HR structure are depicted in
Exhibits 2-1 and 2-2.
Competitive Strategy
In line with its mission, which is rooted in the tenets of the order’s religion, MHC focused
on providing care to the indigent and less able members
Exhibit 2-1 MHC Organization
*Each hospital has a CEO reporting to the regional executive vice president (EVP). Hospital are referred to as divisions within MHC
and have a CEO as well as a functional staff (including HR) for conducting divisional operations.
Corporate HR is included as part of corporate staff, as desicribed in Exhibit 2-2.
Exhibit 2-2 MHC’s HR Organization
of the community. It was reasonably successful until 1989, when the health care
industry began to experience considerable change in governmental regulations and
insurance procedures. At the time of their strategic planning, hospitals were reimbursed
on the basis of a preset, standardized price for treatment rather than the “cost-plus”
method used previously. The federal and state governments were putting increasing
pressure on health care institutions to reduce costs. In addition, new medical
technologies and procedures being developed were expensive to acquire and
implement. MHC recently acquired subsidiary corporations to develop or acquire new
procedures and technologies. The subsidiaries were to work in partnership with the
regions to implement new procedures and technologies.
MHC has lost money every year since 1987. Currently, it is experiencing an oversupply
of bed space in most of the communities with MHC hospitals. Projections indicate that
the need for inpatient services will decline while the need for outpatient services will
increase. Nontraditional health-related services are also projected to increase (e.g.,
services in which patients and their relatives are trained in self-care or care of relatives).
In short, the market is becoming much more competitive while products and services
are rapidly changing.
MHC just finished its corporate strategic planning process and planned to develop a
two-pronged market strategy to deal with its changing business environment. One major
area of focus is technology. The strategic planners departed from the previous strategy,
opting to become a leader in the development of new health care technologies and
procedures. They felt that the new developments would allow quicker recovery times,
thus reducing the hospitals’ costs. In addition, the technology could be marketed to
other health care providers, generating more revenue. The drawback was that new
technologies and procedures were expensive to develop and were often subject to long
waiting periods before being approved by the insurers and government agencies.
The second prong of the strategy was directed toward the hospitals and was focused on
improving efficiencies in basic health care and outpatient services. This would allow
them to continue to provide for the basic health care needs of the less fortunate. The
substantial governmental fees, grants, and other revenues tied to this population would
provide a profit only if efficiencies could be developed throughout the corporation.
Review the Multistate Health Corporation case and answer the following questions:
d. In the implementation of the HRPS, what groups of employees are likely to need
training? Think of this from a training design perspective and from a training content
perspective.
e. For the type of training you envision for each group, what are the learning objectives?
Write these in complete form.
f. For each group of employees that will need training, what are the organizational
constraints you will need to address in the design of your training? What design features
will you use to address these constraints? Be sure to address both the learning and
transfer of training issues.
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