CHH decides smaller works better

By PAULA OLIVER forestry writer

Appointing 32 new chief executives and splitting Carter Holt Harvey into small businesses will make the century-old giant stronger and more competitive, says chief executive Chris Liddell.

His innovative plan to split one of the country's largest employers into 32 smaller, more focused business units will take effect in early April. It raised eyebrows in some quarters when revealed last week, but the changes have gained a lot of support within the company.

By creating a smaller business unit and making a chief executive accountable for its profit, the unit will be able to get closer to its customers, decisions will be made more easily, and people will rise to the challenge of having more responsibility, Mr Liddell says.

Carter Holt's present structure includes six groups - Forests, Wood Products, Pulp Paper and Tissue, Packaging, Distribution, and associated companies.

A chief executive oversees each division, and Mr Liddell oversees the entire company.

The new, smaller business style has already been tried in the Forests group, where separate businesses were created for forest ownership, forest services, including contracting and management, harvesting and logistics, and genetic development and biosciences.

The idea came from a strategy process Mr Liddell put in place when he took over as chief executive in May 1999, and from a personal belief that New Zealanders and Australians are best at running small or medium-sized businesses.

"Out of that came a belief that we could change the structure to better match some of the strategies we were following," Mr Liddell says.

"We tried the concept in Forests last year, and now it's my belief that it's the right solution for Carter Holt Harvey in the long term. It will change the company for the better."

By local standards, each new business unit will not be small. They could be $100 million to $200 million businesses, although some smaller ones focusing on research and development will also be created, like one working on fibre composites.

It is likely that more time will be spent developing these smaller businesses than could previously be allowed. The company's new $130 million laminated veneer lumber (LVL) plant in Whangarei will be the major asset of a separate LVL business, pushing to develop new markets in Australasia and Asia.

Staff numbers in each small unit will range from just a dozen to 600 or 700.

Mr Liddell says being part of a company of 12,000 is hard to relate to. Being part of a much smaller one will let employees feel they can make a difference.

The 32 chief executives will eventually find themselves ranked against one another, in a clear attempt to gain higher performance and competition through greater transparency. Mr Liddell says it will allow people who perform to be put on pedestals.

"It's a fantastic opportunity for 32 people to be their own chief executive, but we're looking for people who see it as the best of both worlds," he says.

"There's the opportunity to run your own reasonably big business, but at the same time have the advantages of being in an even larger, multinational company."

Big companies can kid themselves about the advantages of being big.

What Carter Holt's chiefs have tried to do is siphon out the advantages - such as the cost of financing and purchasing power - and leave the disadvantages, like bureaucracy, behind.

Mr Liddell agrees that it is difficult to avoid a bureaucratic culture in a big company, because it happens naturally.

Getting rid of the processes that Carter Holt goes through because it is a large company, but which do not add any value, is one of his goals.

By the time the changes are under way, the ongoing costs of the structure are expected to be no more than at present.

A one-off hit of costs will be taken, but Mr Liddell says cost is not the focus of the project. Growth and revenue are.

Costs will be held steady by using technology more effectively, and by also establishing most of the corporate functions, such as human resources, as separate businesses.

"We are going to take the corporate functions from a cost-centre mentality to a commercial mentality, and when it's all finished the corporate centre will be about 10 or 12 people," he says.

The changes, which follow the aggressive Genesis cost-cutting exercise of recent years, will again change the face of one of the country's oldest companies.

While they may appear to be a reversal of the strategy many multinationals have followed in the past decade, Mr Liddell is adamant they will work.