The Managing Director of Coca-Cola Amatil, Terry Davis, has put the bubbles in the CCA share price with a strategy that has delivered five consecutive half years of double-digit earnings. Richard Jones reports.
Terry Davis can pinpoint exactly the pivotal movements that turned around the soft drink behemoth CCA. The first and key defining moment was in December 2001. . .
Soon after I started, I set a range of clear financial targets that we had to achieve for the next three years. It was unequivocal; and I think this gave people a new direction. They could say, Okay, this is serious’. It allowed people to focus.
Davis, with a strong background in the wine business, says he set some ambitious targets; for instance, doubling the growth rates the soft drink company had previously achieved. As a result, this broadcast a new message through the Sydney Circular Quay-headquartered company.
It told our people that if you are a top performer you are going to do particularly well over the next three years, but if you are a bottom performer then you are really going to have to lift your game. If you can’t lift your game then we are going to find ways to get you into a job that is more suited to your talents.
He says that at the same time the company identified some talent shortfalls so people were brought in from outside at the most senior level.
I think it is very hard to generate change in organisations, such as Amatil, that are doing okay, but really aren’t making a satisfactory return on capital.
I couldn’t understand how you could be a brand leader and not make a satisfactory return; and that’s why we had to get some people from the outside to assist us in that cultural change. We had to grow the business faster than we had been growing it in the past and I believe that the middle and senior management welcomed it, they were looking for change.
Coca-Cola Amatil is the largest bottler of non-alcoholic beverages in the Asia Pacific region. It operates in six countries Australia, New Zealand, Papua New Guinea, Fiji, South Korea and Indonesia employing 16,054 people and has access to 283 million consumers. The Atlanta-based Coca-Cola Company (TCCC) has a 35 per cent shareholding in CCA and the companies work together to develop annual marketing plans. Under a series of bottling agreements, TCCC provides the concentrate and beverage base from which the finished products are manufactured by CCA.
In the two full years after Davis joined CCA the company’s ongoing businesses have delivered total profit growth of 39 per cent and a 34 per cent improvement in return on capital employed.
In the first half of 2004, CCA delivered its fifth consecutive half of double-digit earnings growth with net profit increasing by 16.6 per cent to $127.7 million.
Davis admits that it helped having some very talented people in the organisation: They just needed to be energised, he said.
We also pay in the top quartile and that by definition attracts good people. Also, once you work for a company that is number one in its field it’s hard for you to go somewhere else. Why would you want to go and work for the number two or number three company when number one is just so far ahead?
It is a little self-fulfilling, but I think the energy levels came from our success and our people could see it was acceptable to take some risks. It was okay to go and hire people but you had to make sure that those people were at the top of their class, he says.
Previously there was no long-term incentive plan and I couldn’t work out why. The company had targets that were difficult to quantify and option schemes that had no hurdle rates. We had a whole lot of things that weren’t linked to shareholder performance so we cancelled all the options programs and replaced them with a share scheme that judged us against our peers. If you did better than your peers then you were rewarded, if you didn’t do better then you didn’t get anything.
People saw that as an important step. They saw that they were being compared with other people in the market.
It’s when you create shareholder value that you should reward your executives accordingly so we changed a whole lot of remuneration policies. I think it is very difficult to say to people, I want you to work harder and I want you to work with more passion and commitment’ unless you are looking after them on the other side.
Another major company turning point was the launch in Australia of Vanilla Coke in 2002, the first new flavour introduced for 18 years.
According to Davis, this decision was one of the bravest the company had ever made. But, as is often the case with the hard decisions, once you start, it gets easier on subsequent occasions. And he believes this move further reinvigorated the staff and the company, and created an environment for change. It was, in his words, another critical turning point for the company.
I tasted Vanilla Coke in Atlanta in June 2002. It had just been launched in America and there were no plans to launch it anywhere else except Canada. And I said, This is for us’.
We made the decision on the spot and it was on the market in October, just three months later. Organisations have to have turning points and I think that was the turning point for the Australian business.
When we launched Vanilla Coke it got everybody motivated and people could see that, at last, Coke was being invigorated. Our customers could see that too: we did lots of customer and advertising programs and we had our best customers see the product first-hand. We used an integrated approach, not just at the consumer level but also the customer level, and we got them all motivated.
Davis says the launch had an enormous effect internally.
People could see there was a change happening in the business. A whole lot of other changes were occurring at the same time as we looked at becoming more relevant to our customer and not just our consumers.
We made sure there were more people meeting face-to-face with the customer and less people in the back office and we streamlined processes and facilities.
Regarding his personal management style, Davis believes it is important to have the best possible people, on the ground and in the field: The people who are making the daily decisions about how you are doing business with your customers, whether it is at district sales manager level or account manager level or even head of country level.
He sees the role of corporate headquarters to provide a value-adding service to the country heads, not as a policeman or a watchdog.
We halved the head office component of the business, as I would rather have those people out in the field with line responsibility. The people who are now in corporate are value-adding people, providing specialist resources such as tax or treasury. I think that has been an important component of my management style.
Davis also points out that CCA as a company focuses a lot of energy on the things that it doesn’t do well. We spend as much time on things that we don’t do well as we do on the things that we do well. It gives people a different outlook and it creates a healthy modesty about what we do.
As an example, he points to the previous state-based call centres.
We decided we didn’t have a central planning capability so we centralised the call centres and now we have a transparent view of how we manage our customers every minute and every hour of the day and night.
We can walk into that call centre and find out what is happening in Perth or Brisbane, and that has been a wonderful eye-opener for our managers. We had a lot of nervous state managers but it came down to a situation of what was best for the company.
The centralised call centre allows us to identify areas of weakness. As a result we can be very proactive with our demand planning and our forecasting and inventory levels. In the summertime we only carry two or three days of stock so you have to get the planning absolutely right.
Davis continues: Trust and team harmony, in my view, are very important components of successful businesses. It is very difficult to expect people to outperform if they don’t have trust or respect for the people they work with or for. Certainly, there is competition between the states but we try and make that competition relative to that state rather than in competition with another state operation.
He also stresses that there is no substitute for direct communication.
I have tried to create an environment where people have a very clear understanding of whether they are doing well or not so well. I sit down one-on-one with the top 50 people in the organisation each year and I outline my expectations. This gives them the opportunity to say to me, Hey, I don’t think we are doing as well here’. At country head level we do exactly the same and this provides lots of good feedback.
I hate inter-company politics and I think we avoid that, to the extent that you can, because I stress that we are all on the one team and we are only as good as the weakest link. So I stress that we focus on the right things rather than focus on the wrong things.
Davis adds that while CCA doesn’t have university linked training programs, such as Woolworths, he actively supports people pursuing further education.
The reason is that it takes all types to make up a business and we are not looking for clone development here.
We are looking for people who are capable of taking one discipline and applying it to another. For instance, a lot of our people who started in finance are now in sales . . . doesn’t seem to happen much the other way round, but we are looking for a multi-disciplined approach.
We also foster the view that people should have a point of view outside their area of expertise in a constructive way. I expect this of our people.
I recently asked one of our rising tax people how often they spent time in a supermarket and they said, As little as possible’. I said, How about thinking about it from a Coke point of view and go and have a look?’ All of a sudden you have created an opportunity for someone to think outside the square.
Davis has a clear view on the difference between management and leadership.
I am an optimist in that I always believe in taking people to another level. Leadership to me is about creating the passion, so that people can see that you are serious about what you are doing. You need to create a vision of where you would like the business to be.
Management is about administration, policy and process. Leadership is less tangible. It’s about achieving the vision and there is always a passion for finding a better way to do something.
Davis also has plenty of praise for Australian management.
I think that Australians have proved that they are hard workers and good at creating passion and commitment.
I find the Australian management style far more open and risk taking, compared with the American style, which is much more individualistic. One thing Australians do well is working in a team. I think it is part of the sport thing. It is rare that someone doesn’t come up through the management ranks without some involvement in a team.
I look at resumes and if I see something that indicates an involvement in team sport then that gets a big tick in my book . . .
What we are also good at is process management and an example is that most systems in Australia work well. You go overseas and you see phone systems that don’t work and trains that don’t work. But while we have a good bent for process management, that is also one of our weaknesses as we don’t think outside the square enough.
Davis says it also worries him that not enough Australian companies are operating overseas.
The only way we really get toughened in business is having a go overseas, he says. Only a handful of Australian companies operate in South-East Asia and he thinks this is a real weakness in the medium term.
It surprises me that more people haven’t taken the opportunity to move offshore, especially since Australian management is right up there and prepared to take risks and speak out.
Davis respects and admires a number of top managers in Australia. He mentioned just three.
Firstly, there is Roger Corbett at Woolworths because he took a business that was already going well and made it better, so he gets a big tick.
Secondly, I have a lot of respect for Foster’s CEO Ted Kunkel because he took a business that was nearly broke and turned it into one of the biggest businesses in Australia.
Third is Richard Pratt, who basically had no business and worked in a non-sexy area and has created incredible success with an incredible amount of lateral thinking.
A fourth person that came up in conversation was David Thomas who set up Cellarmasters where Davis once worked.
I have enormous respect for his intellect and he taught me about the passion of customer service. These days, unless you have a passion for customer service I am not sure you will be a success.
Once you get people convinced that customer service is not a cost but a profit then sometimes you have to take a leap of faith to put in the technology that is going to improve your customer service. Once it took us seven days to process a new customer’s credit application, now it’s instant.
Certainly, it’s just one small element of customer service but that’s what we ask for; lots of small steps. And we are constantly asking ourselves: What can we do as individuals to improve customer service?’.
Refreshing the brand
CCA MD Terry Davis believes that there is a strong need to refresh any popular brand.
Not only do you have to continually refresh the brand, you need to look at ways to become more relevant to the consumer. One way you can do that is with brand extension.
Consider the history of Coke and compare it with what has happened over the last few years. It was in 1983 that we first launched a new product and it was Diet Coke.
Then, in 2002 we launched Vanilla Coke. So, it took us some 18 years to launch the second flavour for Coke. Since Vanilla Coke, we have launched Diet Coke with Lime, Diet Coke with Lemon, Cherry Coke and Diet Coke with Vanilla. All these new beverages have been targeted at different kinds of consumers.
So, instead of looking at the consumer as just an amorphous mass we split them up by age, we split them up by personal preference and, increasingly in our business, what we look for is how we can make each beverage we sell relevant for each consumption occasion.
The way we keep relevant is to make sure that we have a range of products out on the table. Not just the Coke brand, but the family of brands.
Terry Davis CV
Born in Orange, NSW and the son of a steel worker, Terry Davis joined Coca-Cola Amatil in November, 2001. Prior to joining CCA, Davis had 14 years experience in the global wine industry, with the last four years in senior positions with the wine operation of Foster’s, culminating in the role of MD of Beringer Blass Wines, which became the largest (by profit) table wine company in the world under his stewardship. Earlier still, he worked for New Zealand Wire, a Fletcher Challenge subsidiary, at age 24.
Since joining CCA, Davis has encouraged a more innovative and performance-oriented approach in the company with a focus on relentlessly improving customer service.
Aggressive new product processes have seen the business launch 29 new products, complemented by CCA’s expansion in the non-carbonated beverage sector.
Davis established public financial targets to materially improve return on capital and has aligned senior employee remuneration with shareholder returns. Corporate governance processes have been upgraded.
Davis is on the Faculty Advisory Board of the Faculty of Commerce and Economics at the University of New South Wales. He has been invited to join the board of St.George Bank.