CASE STUDY

Adored No More

Hoechst was aGermanchemicalsthen life-sciences company that became Aventis Deutschland after its merger with France'sRhne-PoulencS.A. in 1999. With the new company's 2004 merger withSanofi-Synthlabo, it became a subsidiary of the resultingSanofi-Aventispharmaceuticals group. During its transition to a life sciences company, Hoechst its Harvard-educated CEO Jurgen Dormann was loudly preaching the value of American-style shareholder capitalism and promising to apply them to the 135-year-old chemical group after taking the helm in 1994, he announced a huge restructuring programme, selling poorly performing or marginal parts of the company, floating others on the stock market, adopting transparent accounting standards and even forcing managers to hold meetings and send memos in English. Hoechst, he used to say, needed "de-rusting and defrosting". Many Germans found this incendiary stuff. But investors loved it.

The shareholders later regretted that they were too quick to believe Mr. Dormann's sermons. The new CEO was formerly a Hoechst corporate finance manager, and the first non-chemist to run the company. He came to the top fizzing with bright ideas. Noting how inefficient it was to have one huge firm whose stronger divisions cross-subsidized the weaker ones, he vowed to split Hoechst into individual companies, each obliged to earn a return on its capital, and each answerable to a central holding company. He also promised to move out of unexciting commodity chemicals and into fashionable "life sciences" (drugs, agrichemicals, biotechnology and so on). These grand schemes have proved tricky to put into practice.

A lean, ascetic man, Mr. Dormann gives the impression of polite frustration with the irrationality of the world. Admittedly, his own experience outside Hoechst is limited: he joined the company at the age of 23. Unlike some of Germany's other industrial leaders, he has never been based abroad. Hoechst, he now concedes, has a corporate culture more entrenched than that of almost any other German firm. Its sprawling Frankfurt Headquarters resembles a small town, rather than the nerve center of a global corporation. Most of the 20,000 people who work there joined when Hoechst was somewhere between a university and a government department, very bureaucratic. Changing their ideas about costs, flexibility, performance and profits was always going to be hard.

The bubble burst, when Mr. Dormann abruptly discarded his original plan to turn Hoechst into a holding company. Citing lack of cash, he broke his promise to float its key pharmaceutical division, Hoechst Marion Roussel (HMR), on the stock market. Since then, Hoechst's profits have lagged dismally behind those of its German rivals, BASF and Bayer. Measured against the world's top ten pharmaceutical companies, its shares have been doing badly. Mr. Dormann's clumsiness in explaining what is going on made matters worse. "I simply don't trust that man anymore," says one German fund manager.

All this is a shame. Hoechst's initial sell-offs were spectacularly successful. But the momentum is fading. "The early divestures were the easy ones", admits Mr. Dormann. The Hoechst portfolio remains cluttered with sluggish subsidiaries, producing fibres and specialty plastics. Finding buyers for these may be tricky, although Mobil, an oil firm, announced plans for a plastic film joint venture with Hoechst.

Then there are worries about those exciting life sciences. In particular the expensive centerpiece of Mr. Dormann's plan - creating a world-class drug company out of French and American acquisitions, plus Germany's drug makers - is proving tough. Researchers in Frankfurt, fearing that their jobs might be lost to lower-cost laboratories in America, are not co-operating with their American colleagues. The announcement of 600 layoffs in Germany sparked the biggest workers' protest in the history of the company. Hoechst's agrichemical business, AgrEvo (a joint venture with Schering, a Berlin-based pharmaceutical company) looks more promising - but will probably have to make an acquisition to keep ahead in plant genetics.

Mr. Dormann faces a difficulty. Eager to soothe jittery German nerves, he rules out firing workers, insisting that Hoechst will honour its "social responsibilities". This is not enough to reassure trade unions, who still see him as a heartless apostle of alien ideas. But nor does it please investors, who worry that Hoechst still behaves like a German company, rather than an international company.

Mr. Dormann would probably be in less trouble with investors if he had not promised so much in the first place. "Our experience in managing expectations is pretty new," he concedes. This is a serious failing. Other German firms, such as Veba (an energy and chemical conglomerate) have maintained credibility with fund managers by promising less. Its senior managers emphasize that change will come gradually. Big transformations take time.

QUESTION ONE: Using the ADKAR change management model, discuss how Mr. Dorman could have introduced change successfully citing instances from the case study

QUESTION TWO: Identify at least four variables affecting human resource management that Mr. Dorman ignored and discuss how they affected his transformation of Hoechst into a life sciences company.

QUESTION THREE: How true the statement is "people are only motivated by money" in this case study?

QUESTION FOUR: In your view, was Mr. Dormann a leader or a manager?

QUESTION FIVE: Managers who take cognizance of their organizational environment have a better chance of success than those who don't. In your opinion, to what extent did Mr. Dormann take the operating environment of Hoescht into account?