Taking Charge at Domtar; What it Takes for a Turnaround

Domtar is the third largest producer of uncoated free-sheet paper in North America. In the decade prior
to 2006, 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 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 2006, 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,

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

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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 2008 were $17 million,
compared with a net loss of $12 million for the same time period in 2007, his first year in office. In 2012,
third quarter earnings were $59 million, and totaled $141 million for the year. That is not all. Recall his
goal of return on equity for shareholders. Domtar was once again 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 2013, 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

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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.

Questions:

Do you really think training played a part in Domtar turnaround? Or, it is just a fad to highlight
contribution of training and employee engagement in corporate performance?

How do you think in this case training contributed to strategy, mission and organizational effectiveness?

How did Domtar's strategies align with its mission? Raymond Royer knew in order to be
operational; a company needs to have a calculated direction and precise objectives. Raymond
Royer wanted to concentrate on two specific objectives: return on investment and customer
service. Raymond Royer stated that the focus needed to be on product design, product quality,
and exceptional customer service. Raymond Royer believed that there were three areas that made
up the company: customers, shareholders, and employees. Domtar only presented two objectives
which were customer service and return on investment. The mission of the company was to meet
the needs of the customer, positive returns for shareholders, and create and maintain an
atmosphere with common human values and commitment. The company should focus on returns
and customer service to surpass the mission. The effect produced by the mission statement is
being utilized by the strategy.

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 the resistance to change?
What else might they have done? The factor for success was when Raymond Royer hired the
Kaizen guru from Bombardier. This gave the company an opportunity to get employees involved
by using their knowledge in the development plan of a new and more operative way of the
process. By reducing the resistance to change, Raymond Royer knew that everyone had to
understand the changes being made and have the capability the make the changes. Raymond
Royer also understood that the employees some type of incentive, so the company allowed the
employees to be part of the change and not just accept it. I feel Domtar could have involved its
employees from the beginning instead of mid-way or after the fact.