Taking Charge at Domtar What it Takes for a Turnaround assignment help

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 “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 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 “ourselves” 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 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:

• 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 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 “aims to create long-term

shareholder value by embracing opportunities and managing risks that

arise from economic, environmental and social developments.” Based on

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 “the company is committed to the program.” 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 Domtar’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 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 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, “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.



1. How did Domtar’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 Domtar’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 Domtar’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.

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