After more than two decades as an auto executive, Phil Martens learned what not to do when trying to manage change. Now, as CEO of the world’s largest producer of rolled aluminum, Atlanta-based Novelis, Martens is trying to avoid those mistakes as he reshapes the global manufacturer ($11 billion in sales and 11,000 employees).
Martens, 52, engineered a substantial structural change after he arrived three years ago, turning Novelis into a much more centralized operation run from its Buckhead headquarters. He’s also shedding a less profitable business to focus on more lucrative ones. He talks about what’s needed to develop a focused strategy, including how to get the right people in place to execute it.
Q: You spent 22 years in the auto industry, including as group vice president of worldwide product development for Ford. What did you learn?
A: Never think that the state of today is going to be that way in the future. Never lay out your strategic plans without working the “what if” scenarios. As predictable as today is, tomorrow is always far more unpredictable than you could have ever imagined.
What I found in the auto industry was that all of the factors were not looked at in the cold light of day. They were sometimes looked at with a set of rose-colored glasses. But when you looked at something realistically, it forced you to make a much more difficult or precise decision.
When you look over a long period of time, the shifts in a capital intensive business like the auto sector have been extensive. Nobody would have predicted the major manufacturers and suppliers that have risen and fallen.
Q: How do you prepare for the unpredictable nature of change?
A: You have to have a pro-active strategy and, within your strategy, you have to take risk to push your company forward. That could be developing a new technology or a strategic geographic presence or a focus on certain products worldwide.
You have to be willing to allocate capital and human resources to get your strategy moving. That also means that some things are made obsolete or “non-core.” You have to be willing to pro-actively cut them off — shut, sell, discontinue, de-emphasize, or all of the above.
A lot of companies tend to develop strategic plans that are too encompassing. The plans do not have enough focus and are not sharp enough to carry out the decisions that have been made. They, therefore, dilute their assets and their people’s time and attention.
Q: How does that relate to your current strategy at Novelis?
A: We decided to focus on three core market areas — the beverage can business, the auto sector and specialty products like consumer electronics. What we are de-emphasizing is foil products like household aluminum foil. That’s a commodity product that does generate positive cash and positive operating profit. But as we look at it on a relative comparison basis to the other areas, it’s a significantly smaller contributor.
You need an exit plan for non-core businesses. So over a period of two years, we separated those assets in our portfolio. We sold three plants in Europe to a private equity firm, and we’re using the cash we received to fund the growth in other parts of our business. We will continue with a slow exit over time. We will reallocate the operating capacity that used to go to that business to a higher profit business.
Q: You started to make major organizational changes shortly after arriving as president of Novelis. Why?
A: The best time to take a look at a business is when you’re first introduced to it, because then you don’t have any legacy issues clouding your views. When I walked into Novelis, it was very clear to me that this is a global business with a homogeneous manufacturing process and a set of global customers and suppliers that are consistent worldwide. But, the company at the time was operating as if it were five different companies around the world, so there was no ability to reap the synergies.
Having these independent regional fiefdoms provided an enormous complexity to running the business. That comes with a cost that drives profits down, increases internal friction and creates a set of misalignments at every level in the organization.
So we integrated the entire company under a “One Novelis” platform. We looked at six areas — sales and marketing, manufacturing, procurement, human resources, IT, and business development and strategy.
Q: How did you go about implementing your plan? How quickly did you move?
A: There was a pacing to how fast we could move, which is always a function of people. If you have the right people in the right areas, you have the capacity to internalize change and you can move quite rapidly. If you don’t have the right people in the right areas, you really can’t move forward.
So the first big challenge we took on was remapping where the skills were within the company and where they were needed. We found mismatches everywhere — at the top, middle and bottom. What we slowly realized over a six-month period is that we were going to have to change the culture of the company by bringing in new people at all levels and in all parts of the world.
Over about a year, we went through every functional department worldwide and probably made moves in about 80 percent of them. We looked at a person’s performance on the job and his or her displayed ability to adapt to different types of challenges.
The other key was — are you open to change or are you a blocker? A lot of people are blockers because they just can’t get over the fact that the way things were done are no longer the way we are going to run the business. The blockers are fairly easy to determine — they’re the ones who are silent at meetings and then go out and say things that make it more complicated to get things done.
At the same time, you don’t want to create a culture of fear, because then you get people who don’t bring their best thinking to the table. You have to have an open line of communication where opinions matter.
Each week, Sunday Business Editor Henry Unger has a candid conversation, called “5 Questions for the Boss,” with a top executive in Georgia. Some remarks are edited for length and style.