Assignment 1: Strategy and Performance Management at DSMDue Week 3 and worth 150 pointsRead the case study titled “Strategy and Performance Management at DSM” located in the XanEdu case pack (Link Below)Write a four to five (4-5) page paper in which you:Using the stages from the performance management process, suggest the key processes that DSM needs to provide within its system in order to successfully link its key success factors (KSF). (Note: See Exhibit 4.) Provide a rationale for your suggestions.Select three (3) drivers, and examine the central manner in which DSM management has aligned its business strategies to performance measurement.Critique or defend DSM’s competitive advantage by using three (3) of the six (6) assessment points from the textbook. Justify your response.Use two (2) external sources to support your responses. Note: Wikipedia and other Websites do not qualify as academic resources.Your assignment must follow these formatting requirements:Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.The specific course learning outcomes associated with this assignment are:Summarize the components of performance management processes and systems.Evaluate how the performance management system aligns with organizational goals.Assess the effectiveness of performance management programs and policies.Use technology and information resources to research issues in performance management.Write clearly and concisely about performance management using proper writing mechanics.
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HRM 538: Performance Management − Spring 2017
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HRM 538: Performance Management − Spring 2017
Table of Contents
“Strategy and Performance Management at DSM” by Bloemhof, Marjolein;
Haspeslagh, Philippe; Slagmulder, Regine
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Strategy and Performance
Management at DSM
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This case was written by Marjolein Bloemhof, Research Associate at INSEAD, under the supervision of
Philippe Haspeslagh, Professor of Strategy and Management, and Regine Slagmulder, Associate Professor
of Accounting and Control, both at INSEAD. It is intended to be used as a basis for class discussion rather
than to illustrate either effective or ineffective handling of an administrative situation. Support from DSM
in assembling the information presented in the case is gratefully acknowledged. Some case facts have
been disguised for confidentiality reasons.
The authors gratefully acknowledge the financial support provided by the ABN AMRO Research Initiative in
Managing for Value.
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NOTE THAT DETAILS OF ORDERING
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It was April 2003, and Hans Dijkman, Business Group Director of DSM Melamine, had just
attended a Business Strategy Dialogue (BSD) meeting. DSM Melamine was the global leader
in the manufacture and marketing of melamine, a chemical compound used to make highly
resistant surfaces, supplying almost one third of world demand. However, Dijkman and his
team faced significant challenges in terms of cost competitiveness, aggressive competition,
market maturity in Europe and the US, and emerging growth, particularly in China.
Business Strategy Dialogues had been introduced at DSM in the mid-90s to help structure the
firm’s strategy development process. The BSD process consisted of five distinct phases
resulting in a thorough review of the industry, market trends, customer needs, competition and
the position of the relevant business group. In 2001, as part of its new Value Based Business
Steering (VBBS) system, DSM had also started to align its strategic planning and financial
management processes by introducing Strategic Value Contracts. These contracts contained
both performance indicators to monitor the implementation of strategy, and value drivers to
measure economic value-creation.
BSDs were initiated whenever either the business or corporate felt the need, on average every
three years. DSM Melamine was currently performing its fourth BSD at the request of
Dijkman who felt that the current ‘actively maintain’ strategy would soon fail to achieve the
financial performance targeted in his Strategic Value Contract.
Management of DSM Melamine had been discussing the possibility of pursuing a ‘grow and
build’ strategy. They felt that they had reached the limits of cost reduction and that the only
way to grow for DSM Melamine was by investing in new melamine plants. Dijkman,
however, doubted whether corporate management would agree with this change. Would they
emphasize the corporate strategy of becoming a specialties company and thus be reluctant to
invest heavily in a commodity such as melamine, or would they let VBBS principles prevail
and let themselves be swayed by Melamine’s financial track record?
From State Mines to Specialty Company
DSM origins go back to 1902 when the Dutch government founded Dutch State Mines (DSM)
as a state-owned coal-mining company. In the 100 years of its existence DSM reinvented
itself several times from what was originally a coal mining company, first, as a
petrochemicals business, then a commodity chemicals business, and more recently a
specialties company.
DSM became a public company in 1989. In 1993, Simon de Bree was appointed CEO and
under his leadership DSM continued working on a portfolio shift towards advanced chemical
and biotechnical products for the life sciences industry and performance materials. These
activities were characterized by good earnings, quality, and strong growth. When de Bree
stepped down in July 1999 he was hailed for having reduced the company’s exposure to
cyclicality and improved its structure by shifting towards a larger share of value-added
products. He left the company in good shape both financially and portfolio-wise. Peter
Elverding, the board member in charge of integrating Gist Brocades at that time, succeeded de
Bree as CEO. Under his guidance, DSM was able to complete its strategic transformation into
a specialty chemical company.
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By 2003, the company had more than 20,000 employees spread across 200 offices and
production sites in 40 countries. It was the leading producer of life science products,
performance materials and industrial chemicals, and had a turnover of €6 billion in 2002 (see
Exhibit 1 for key figures). Its headquarters were located in Heerlen, in the south of the
Netherlands, close to the site of the former coal-mines. In 2002, on the 100th anniversary of its
foundation, DSM was given royal status and re-named Royal DSM.
Vision 2005: “Focus and Value Strategy”
One year after his appointment, Elverding announced the outcome of the Corporate Strategy
Dialogue conducted in 2000 and labeled ‘Vision 2005: Focus and Value’. With the
implementation of Vision 2005, DSM would complete its strategic transformation into a
specialty chemicals company. Elverding announced that DSM was planning to spin off its
petrochemical business. This decision was not without emotion as the petrochemicals
business was regarded by many as the ‘roots’ of the chemical company.
In addition, Elverding announced ambitious targets of increasing annual sales by
approximately 60% to €10 billion by 2005, despite the planned withdrawal from the
petrochemicals business, which provided one-third of the company’s turnover in 2000. At
least 80% of sales would have to be generated by specialty products; the rest would come
from industrial chemicals, such as melamine and caprolactam, where DSM was already the
global leader. Acquisitions would account for half of the sales increase and the remainder
would be achieved through organic growth, roughly 6% per year.
Besides focusing on a global leadership position in the specialties business, Vision 2005 also
addressed DSM’s desire to increase its market capitalization as management felt that the
company’s stock was undervalued. There were several reasons for this underperformance,
including concerns about DSM’s portfolio breadth relative to the size of the company, but
management believed that the main reason was the market’s perception that DSM still was a
cyclical stock with predominantly a commodity profile. Management hoped that the
implementation of Vision 2005 would turn DSM into a real specialties company, leading to a
re-rating and appreciation of its market capitalization. A major part of the Vision 2005
strategy was accomplished when DSM successfully sold its petrochemicals business to Saudi
Arabian Basic Industry Corp (SABIC) in June 2002. With a total net consideration of €2.25
billion, this transaction was the largest single deal in DSM’s history. In a separate transaction,
DSM sold its entitlement to an annual portion of the net profits of EBN1 to the Dutch
government in December 2001. These transactions created a solid cash cushion of over €3
billion to fund the expansion of the specialty portfolio targeted in Vision 2005. To protect its
cash trove from unwanted parties, and to keep the funds and transformation process
transparent, DSM took the unusual step of placing the revenues from the disposals of EBN
and the petrochemicals business into a new subsidiary, DSM Vision 2005 BV. The use of
these resources required approval by the governing board of the foundation, which consisted
of three members of DSM’s managing board and three members of the supervisory board.
After the divestment of petrochemicals, DSM had become a substantially smaller company,
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EBN: Energie Beheer Nederland, the entity controlling the state participations in the exploration,
production and marketing of natural gas in the Netherlands, the management of which was entrusted by the
State to DSM.
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but with a portfolio that matched the desired profile. Specialties now represented well over
two-thirds of total sales, justifying a reclassification from ‘bulk commodity player’ to
‘specialty player’.
In February 2003, Elverding was able to announce the next step in implementing Vision 2005
as DSM signed a contract to acquire Hoffman-La Roche’s vitamins, carotenoids and fine
chemicals business for €1.75 billion, the largest acquisition it had ever made.2 The acquisition
would help restore its total sales, which had been reduced to less than €6 billion as a result of
the divestment of petrochemicals, to over €8 billion. More importantly, it would boost the
specialty part of DSM’s portfolio and help achieve the goal of 80% of sales in specialties two
years ahead of the scheduled date (2005). Various analysts were skeptical about the
acquisition, however, because of the price pressure and the low growth prospects of the
business.
The DSM Organization
DSM had a decentralized organizational structure built around 15 business groups (consisting
of various business units) that were empowered to execute all business functions. The
business groups were grouped into three strategic clusters, mainly for reporting purposes. (see
Exhibit 2). DSM believed that this structure ensured a flexible, efficient and fast response to
market changes. The business group directors reported directly to the managing board of
directors. Staff departments at corporate level supported the managing board and the business
groups. The business groups contracted the services of a number of shared service
departments, DSM Research, and intergroup product supplies at market prices.
The managing board of directors was a collegial board with five members. It was responsible
for making decisions about the company’s strategy, its portfolio policy, and the deployment of
resources. Most board members were ‘board delegates’ for various business groups. The top
management team consisted of the 15 business group directors and the corporate vicepresidents reporting to the board. The third layer of management consisted of 300 senior
executives. The top 300 were considered ‘corporate property’; they were on one central
payroll and Corporate had the authority to relocate these executives within DSM if they felt
the need to do so.
DSM’s corporate culture was traditionally informal and consensus-oriented, as is the case in
many Dutch companies. Long-standing careers at DSM were encouraged. However, because
DSM had been a cyclical company where 90% of the business results were the outcome of
external circumstances that could not be influenced, DSM historically did not have a strong
accountability culture.
The Strategic Planning Process at DSM
Until the early 1990s, DSM had operated a traditional strategic planning process with
planning and budget cycles taking place throughout the year However, DSM management
was no longer satisfied with this process. They felt that Corporate Planning owned the
2
The deal was closed in September 2003, after the final approval of the anti-trust authorities was obtained.
Roche’s Vitamins & Fine Chemicals business was renamed DSM Nutritional Products (DNP).
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strategic planning process and that it served too many different purposes (corporate,
divisional, business and functional strategy, internal and external). The process had become
routine over time and had degenerated into a ‘numbers exercise’. The link between strategy
and performance was not clear, but more importantly, top management felt that the quality of
strategy development was poor. Most of the strategies focused mainly on cost reduction. The
primary beneficiary of such strategies was not the company but its customers, since most of
the cost savings were typically passed on to them through price reductions. To enhance the
quality of the strategy development process, a new approach called the Business Strategy
Dialogue (BSD) was introduced in 1992. These BSDs led to Corporate Strategy Dialogues
(CSDs) which were intended to improve the corporate strategy development process.
Corporate Strategy Dialogue
DSM’s strategy development process started with an extensive study of the current situation
and the outlook for the company for the next few years. The Corporate Strategy Dialogue was
held every three years with a team of 40-50 company-wide executives. It was aimed at
developing a long-term corporate strategy, with evaluations and choices being made about
portfolio composition, investment priorities and geographical spread. The whole process took
six to nine months and was wide-ranging, involving intensive discussions in DSM Corporate
top meetings, with the supervisory board and the Central Works Council. The end product
was a shortlist of corporate top priorities.
The first CSD was performed in 1994, followed by another in 1997 and a third in 2000.
Besides new themes that were defined in each CSD, a number of common themes had
consistently been part of the CSD, such as profitable growth, leadership position, coherent
portfolio, reduction of cyclicality, growth markets, reduction of dollar-sensitivity,
geographical spread, and being an attractive employer.
Once the priorities were set, the corporate strategic plan was to be implemented over the next
two to three years. Focusing all energy on realizing its corporate priorities had allowed DSM
to achieve most of them before their target dates.
Business Strategy Dialogue
The businesses were responsible for developing and implementing their (approved) Business
Strategy Dialogues (BSDs). The purpose of a BSD was to provide a consistent method and
terminology to help structure the strategy development process and improve its quality. BSDs
were mostly initiated by the business groups themselves, but were sometimes requested by
corporate. They occurred at regular intervals of three years on average.
The BSD process consisted of five phases with several steps within each phase. The five
phases were: Characterizing the Business Situation; Analyzing the Business System at Macro
Level; Analyzing the Business System at Micro Level; Options and Strategic Choice and
Action Planning and Performance Measurement (see Exhibit 3). But before a BSD could be
started, some preparatory work had to be done.
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Starting up
One of the first things to be done was to identify a facilitator and a challenger. To facilitate
the implementation of the BSDs, Corporate had trained around 30 “facilitators” to support the
business teams in its creative thinking process. They were selected from the top 350
executives and asked by the Chairman of DSM to become a facilitator. The task of a
facilitator was to prepare the strategy development process with the business group director
by defining the scope of the exercise, discussing the composition of the core team, examining
the time schedule, drafting a list of important strategic issues, and appointing a project
manager who was responsible for the operational part of the strategy development process.
The most important role of the facilitator, however, was to make sure that the BSD led to real
strategic options and a real choice, as expressed by Marthijn Jansen, facilitator:
“The role of the facilitator is to make sure that the BSD focuses on the right
issues, that in the “options phase” the conversation diverges, and that in the
defining of the KPIs phase, everything converges to a clear path and a clear view
of the implications of the choices made.”
In addition to a facilitator, a ‘challenger’ was selected. The challenger had an important role
as he/she had to question the BSD team about the assumptions, analyses and conclusions it
made. Challengers were chosen from the top 100 managers within DSM. In addition to the
internal challenger, a business group could also ask ‘outsiders’ to challenge them on specific
issues. These outsiders – often (technology) specialists – also shared their knowledge.
The core team in the BSD typically consisted of the complete business management team
supported by specialists from further down the organization. They were advised not to have
more than 10 to 12 people as management felt that larger groups did not allow for effective
discussion and hampered the creativity of the process. In large or complicated businesses subgroups were formed to address specific questions. The BSD process consisted of workshops
and discussion sessions led by the facilitator. Input and participation by all concerned was
considered very important.
Characterizing the Business Situation
The objective of this phase was to collect and structure the necessary information to be used
as input to the BSD. The Group provided the businesses with a strategic data checklist of the
information that might be useful for the BSD such as environmental and market analysis,
competitor assessments and analysis of manufacturing, R&D, HRM, finance and processes.
Data were supplied by functional discipline. In addition to data gathering, the checklist
offered a useful format for summarizing and presenting the information. The data set was
structured in accordance with questions such as:

What business are you competing in?

Which other businesses and products are you competing with?

How attractive is the industry in terms of growth and profitability?

What is your competitive position (benchmarks)?

What are the dynamics? What trends can be expected in your business system?
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Practice showed that this phase could take two to four months. Corporate management
emphasized that the businesses should not view this information-gathering phase as a
checklist exercise but rather approach it from an ‘issue-driven’ angle.
Analyzing the Business System at Macro Level
In this phase, which took approximately two days, the industry in which the business unit
competed was analyzed from the outside in, based on Porter’s Five Forces model. The
discussion focused on the examination of the value added in the business chain, the
customers, the competitors, the business dynamics and the drivers of the industry. An
important step was the analysis of the different generic strategies followed by key
competitors. Unders …
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