SITUATION: Slowing top line growth requires a value-focused approach
In the five years prior to new CEO Mr. Knauss’ appointment, Clorox had delivered above average shareholder returns versus its peers, driven by leading brand equities in profitable market niches, a disciplined approach to cost and capital management, and recent share repurchases at a discount.
However, the company’s top line growth had slowed, and senior management was not satisfied with the profit growth in their base case forecast in the existing management plan.
Mr. Knauss, who had recently reinvigorated the growth of Coca-Cola’s North American business began applying the same, value-focused approach to improving profitable growth and shareholder value at Clorox.
APPROACH: Rebuilding Business Unit capabilities to maximize shareholder value growth
Our Corporate Strategy and Transformation team helped senior management communicate to the organization an unwavering commitment to maximizing share owner returns; Clorox needed to change its measure of success to economic profit and push this down into the Business Units, given that years of SG&A centralization to improve scale economies had resulted in a misalignment of accountability and control.
We piloted a new, more granular approach to strategy development within select Business Units, which was then rolled out across the organization.
We conducted training sessions with senior management, line management, and key contributors in each business – focused on the requirements and necessary capabilities to successfully manage for maximizing shareholder value growth.
We also participated in performance management meetings to ensure the concepts were integrated with “the way we run the business” at Clorox.
THE SOLUTION: Granular identification of profitable growth potential delivers top quartile shareholder returns
We established the corporate goal of sustaining superior shareholder returns relative to peers and began measuring all brands and businesses on economic profit growth with line-of-sight between internal economic profit growth and investor expectations.
We identified where the profitable growth potential was concentrated across the Clorox portfolio, by brand, channel, geographic region and customer to maximize profitable organic growth.
We identified profitable adjacent markets where Clorox could leverage its competitive advantage to create profitable inorganic growth and improved commercial strategies and marketing investment, at a channel and sometimes individual customer level. Some profitable product lines were being “starved” for investment and there was a lack of breakthrough business models being investigated for some chronically unprofitable ones.
We also improved internal management decision processes and focused incentives on economic profit growth.
Results across a subsequent 5-year performance period delivered compounded annual economic profit growth of 13% per year and top quartile shareholder returns.