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
Chapter 1 Training in Organizations
was in â€œtrouble areas.â€ 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 long-term debt.
In July of 1996, Raymond Royer was named President and Chief
Executive Officer. 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 in order 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 â€œourselvesâ€ that 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 both to 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 Royerâ€™s strategy for Domtar.
This last point reflects the belief that it is the employeesâ€™ competencies
that make the difference. The â€œDomtar Difference,â€ as it is called, is
reflected in the statement, â€œtapping the intelligence of the experts, our
employees.â€ 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 Domtarâ€™s mission, which is to:
â€¢ meet the ever-changing needs of our customers,
â€¢ provide shareholders with attractive returns, and
â€¢ create an environment in which shared human values and personal
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 totalled $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 â€œaims to create long-term
shareholder value by embracing opportunities and managing risks that
arise from economic, environmental and social developments.â€ Based on
this, it could be said that Royer has been successful. In 2003, Paperloop,
the pulp and paper industryâ€™s international research and information
service, named Royer Global CEO of the year.
It was Royerâ€™s sound management policies and shrewd joint ventures
and acquisitions that helped Domtar become more competitive and return
their long-term debt rating to â€œinvestment grade.â€ However, joint ventures
and acquisitions bring additional challenges of integrating the new companies
into the â€œDomtar way.â€ 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
â€œone day customer focusâ€ 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 â€œallows us to realize that to be successful, we must
share human values and integrate them into our daily activities.â€ The training
shows â€œthe company is committed to the program.â€ Tammy Waters, a
Communications Coordinator, said 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 Domtarâ€™s joint ventures. In northern
Ontario, Domtar owns a 45 percent interest in a mill with the Cree of
James Bay, who own 55 percent. Despite its minority interest in the joint
venture, training is an important part of Domtar involvement. Skills training
still takes place on site, but all management and teamwork training is done
at Domtarâ€™s headquarters in Montreal.
Royerâ€™s ability to get employees to buy into this new way of doing
business was necessary for the organization to succeed. Paperloopâ€™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 favourite, 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, â€œa management system that engages employees,â€ could be said
to be the key without which most of the rest would not work very well.
That requires training.
1. How did Domtarâ€™s strategies align with its mission? Explain your answer.
2. Given the difficulty of organizational change, what factors contributed to the
success at Domtar? How did Domtarâ€™s management at all levels contribute to
reducing resistance to change? What else might they have done?
3. What were the major HRD challenges associated with Domtarâ€™s acquisitions and
joint partnerships? How were these challenges addressed and what were the
risks associated with these approaches?
4. Take the critical facts in the Domtar case and place them into the appropriate
phases of the training model presented in the chapter. Begin with the triggering
event and provide a rationale for why each fact belongs in the phase in which
you have placed it.