New Bayer CEO Bill Anderson is promising a full-scale makeover of the 160-year-old German conglomerate, sharing his frustration with the company’s performance in a remarkable statement accompanying third quarter earnings Wednesday.
“We’re not happy with this year’s performance,” Anderson said in the statement. “Nearly 50 billion euros in revenue but zero cash flow is simply not acceptable.”
Anderson placed much of the blame for the sluggish results on the levels of bureaucracy that have built up since the company was founded in 1863. Despite several cost-cutting programs over the last six years, Bayer has failed to see sustained effects on its bottom line while the number of senior leaders has stayed the same, he said.
“There are still 12 layers between me and our customers,” Anderson said in prepared remarks. “That’s simply too much.”
Perhaps best known for its iconic aspirin brand, Bayer contains three businesses – pharmaceuticals, crop science and consumer health. In recent years, as companies including Merck & Co., Johnson & Johnson and Novartis have shed business units, some investors have called for a breakup of Bayer as well. The company’s shares have tumbled about 40% in the past five years.
Enter Anderson, announced as the new incoming CEO in February this year. An American, Anderson is a chemical engineer by training who studied at the Massachusetts Institute of Technology. He took his first pharmaceutical industry job at Biogen in 1997, later moving to Genentech and parent company Roche before joining Bayer.
Anderson said Wednesday he’s keeping open the possibility of structural changes for Bayer, including separating either the consumer health or crop science division. The management team has ruled out the idea of splitting up into three different businesses at once, he said.
In the meantime, Anderson promised a “radical realignment” of Bayer’s internal culture. He said the company will focus only on what’s needed to advance the mission of “Health for all, hunger for none” and eliminate everything else.
By the end of 2024, Bayer will have removed multiple layers of management and coordination, Anderson said. The result will be a significant reduction in the workforce, but Anderson stressed it’s not going to be a traditional round of layoffs simply to cut costs. Instead, he is aiming to boost the role of small, self-managed teams that are closer to the clients and patients.
“This is a profound shift,” Anderson said. “We are taking out a lot of work and that will include a significant reduction in the workforce.”
Bayer employed more than 100,000 staff globally at the end of September, according to the company’s quarterly report.
Anderson called out processes like budgeting and target setting that take layers of management months to produce. Despite all that, Bayer had to downgrade its original goals for 2023. His new plan is to move 95% of the decision-making in the company from managers to “the people doing the work” and measure progress in 90-day cycles.
“You simply don’t need a lot of the management and coordination work that large companies have fragmented into boxes on org charts over decades,” Anderson said. “I’ve seen it before, and this shift unleashes the full energy, speed, and commitment of our people in a really powerful way.”
Bayer reported 10.3 billion euros in revenue during the third quarter, which the company describes as typically its weakest. That was down 8.3% on a reported basis from the same period a year ago. Adjusting for currency and portfolio changes, revenue was down only 0.2%.
Pharmaceutical and crop science sales were flat, while consumer health sales rose slightly, Bayer said.