Bayer Aktiengesellschaft (BAYN) Earnings Call Transcript & Summary

Well, good afternoon, everyone, and thanks a lot for taking time out of your day to join this session. If you've been following Bayer for the past couple of months, you've likely heard us talk about our new operating model, Dynamic Shared Ownership. Now that's not a self-explanatory term, I know. As the person who coined it, I freely admit that. In fact, if any of you have a catchier term, feel free to reach out to me. But because it's not self-explanatory, we wanted to take some time to walk through exactly what Dynamic Shared Ownership or DSO is and what it yields. Over the next hour, you'll hear from Gary Hamel, a colleague and leading thinker in this space who authored the book Humanocracy. You'll hear from Kevin Nolan, the President and Chief Executive Officer of GE Appliances, which is a Haier company on how they've incorporated similar ideas at his company. And you'll hear how terms -- how teams across Bayer have started practicing Dynamic Shared Ownership and the great results they're seeing already. That's our focus today. So please don't expect an update on our strategic options or financial performance. We'll have plenty of time to cover those topics in a few weeks. Today, it's important because it's going to offer you a glimpse into a fundamental redesign of our company, a reimagination of the way a multinational company can operate. We're moving at unprecedented speed and scale with the goal of getting Bayer back to delivering more productive, mission-focused work, world-leading innovation and superior financial results. To start, I want to share a video that Gary Hamel was kind enough to record specifically for this event. Gary is a pioneer in rethinking work and the way companies operate in the 21st century. And he really believes in what we're doing here. He's an ideas guy and his ideas have real-world implications about the meaning of work, tapping into human potential and delivering great results. At least for me, it's hard to think of 3 more important goals for today's workplace. With that, let's play the video. [Presentation]

Well, hello, everyone. I'm going to offer a few remarks on what is one of the greatest challenges of our time. How do we build institutions that change as fast as the world around them; that are alive with the spirit of entrepreneurship; and that are both inspiring and principled that elicit and deserve the very best that human beings can give? In doing so, my goal is to lay out a bit of context for what Bill and his team are undertaking at Bayer. I have only a few minutes. So I apologize for some sins of omission. If you want to go deeper in theory and practice, you're welcome to look at my most recent book or just reach out to me to ask a question. Now with this as preamble, I'm going to lay out 7 propositions that I hope will be useful in framing some of the challenges and opportunities that face Bayer and most other large-scale institutions. Proposition #1. I believe we need organizations that are dramatically more capable than the ones we have right now. I believe we're reaching the performance limits of managerial bureaucracy or what might be called Management 1.0. Like the combustion engine, this technology has served us well for the past 150 years, but now we have to move on to a new S curve. Clearly, as human beings, we're facing an extraordinary array of challenges and the fate of our species depends on our ability to address these challenges. And that, in turn, depends on the courage, resilience and creativity of our institutions, both public and private. The reality is that no society is more capable than its institutions. It's a problem then that many of society's most important institutions are simply not up to the challenges that lie ahead. Bayer and other global institutions have many strengths, but they're also afflicted with systemic disabilities that are fast becoming competitively, economically and socially untenable. Many years ago, I wrote an article called The Core Competence of the Corporation. But if I was writing that today, I might call it The Core Incompetence of the Corporation. I've been inside of hundreds of large institutions around the world and irrespective of culture, geography, industry, all of them are struggling to adapt themselves to new realities. Of course, in many ways, our institutions exceed us. No single individual, for example, can bring a new drug to market. But in other ways, our organizations are less capable than we are. And I want to highlight 4 kind of endemic maladies that I think we can solve. We need to address, but we need to be honest, first of all, about the problems in front of us. First of all, in human beings are daring. Our organizations are not so much. We do all sorts of courageous things in our lives like skiing, scuba-diving, paragliding or just changing jobs, starting a family or launching a small business. Large organizations, by contrast, tend to be a bit timid and faint hearted. Managers are often reluctant to aim for goals that lie outside the range of planning. They want safe targets, not stretch goals. In a way, I would argue they suffer from ADD, not attention deficit disorder, but ambitious deficit disorder. Too often when I challenge leaders to do something truly new, the first question they will ask us, well, who's already done this? And as long as I have a lot of case studies and a clear road map, they're on board. But when I challenge them to do something that is truly new, to actually lead, they push back. And that's a problem because unprecedented challenges require unprecedented solutions. Now you may or may not be a fan of Elon Musk, but consider for a moment the case of SpaceX. SpaceX is driven by the goal of helping human beings escape their ancestral planet. And Elon Musk understands that without a bold aspiration, you don't get bold thinking, like the idea of reusable rockets. Last year, SpaceX launched a rocket every 4 days and has driven the price per kilo of space cargo down by 90%. The point here is very simple. No organization outperforms its aspirations. And when large organizations stall out, it's not because they were resource constrained, but it's because they ran out of ambition. Second, people are resilient. This was most notable during COVID when we had to radically rearrange our professional and personal lives, but we also change proactively for what we care about. I sometimes have heard leaders say that people are against change. But if that's true, how do you explain the unprecedented rate of change all around us? Who are the authors of all that change, if not us? But again, by contrast, large organizations tend to be rather plotting and inertial and often find themselves behind the change curve. On this point, I could offer dozens of examples, but let me just choose one. 20 years ago, Yoga started to go mainstream. And this trend reached scale first of -- in the first instance in places like California, as men and women sought new ways of achieving physical and mental well-being. And yet, most of the legacy sportswear makers missed the trend because it didn't fit their definition of athletics. It wasn't a sport and there was no ball. And that's why, for example, today, lululemon is worth twice as much as adidas. Now in a world accelerating change, the most important question for any institution is this: are we changing as fast as the world around us? And often, the answer is no. That's why the typical change program is a catch-up program. So why are large organizations so often caught out by the future? A lot of it you can trace back to this multilayer hierarchy with 8 or 9 layers of managers. In this kind of an organization, there are long lags between sense and respond. By the time an issue or an opportunity is big enough to capture the scarce attention of those at the top, it's already too late. While there might be exceptions, I believe that it's nearly impossible for an organization of 8 or 9 layers to outrun the future. As human beings, we're also immensely creative Consider that there are now 30 million channels on YouTube. This is what happens when you give people inexpensive tools to create digital content and platforms where they can share that. Why then do 94% of CEOs say their organizations aren't very good at innovation? Because large organizations value conformance, alignment and discipline above all else, and that creates a toxic environment for innovation. That's why game-changing innovation so often comes from the start-ups, the renegades. Now with deep pockets, incumbents should have an innovation advantage, but they don't. We need to change that. Finally, human beings are passionate. Our organizations, again, not so much. We're passionate about many things, our families, our hobbies, our communities, the environment, perhaps our faith. I have British friends who are passionate about cricket, if you can imagine that. And yet, work seldom elicits these emotions. As for Gallup, only 20% of employees around the world are fully engaged in their work. That means the other 80% are showing up physically or online, but they're leaving their initiative and ingenuity at home. This and similar data suggests that most organizations waste more human capacity than they use. So to build more capable organizations, we have to get at the root cause of these afflictions, which leaves me to proposition #2. Our organizations are crippled by bureaucracy. I live in Silicon Valley, where I get to work with a lot of young companies. And often, their real advantage is not a new business idea, but an organization that is fast and flat and fearless and free. And yet, when I come back a decade or 2 later, all that's changed. Instead, I find an organization that's portly, that's plotting and highly politicized. That's how a company like Meta, Facebook, can end up with 8 or 9 layers. And Mark Zuckerberg is not very happy with this reality. And recently, he said, "I don't think you want a structure that's just managers managing managers, managing managers, managing managers, managing the people who are doing the work." Now most CEOs would agree with this. But if I'm honest, most have not had the guts to tackle this problem at its roots. Bill Anderson is an exception. He understands that as bureaucracy per capita goes up, achievement per capita goes down. It's a problem then, that around the world, bureaucracy is growing, not shrinking. This is true in the U.K., in Germany and France, in the United States. Let me share a bit of data. In the U.S., over the last 40 years, the number of bureaucratic jobs, managers and administrative support staff, has grown 3x faster than all other job categories combined. And this is not the product of increased regulation. This is the product of internally generated rules, mandates, policies and processes. By the way, I don't think it's a coincidence that as bureaucracy has grown, productivity has declined. And this is deeply troubling. Declining productivity growth depresses wages and makes it more difficult for governments to fund critical priorities. And yet, as I argued a minute ago, most CEOs have not really faced up to this challenge. They've tried to find easier ways of boosting the share price. And yet, it's getting harder and harder to do that. Admittedly, debureaucratizing a large organization is difficult. So many CEOs have said, "Well, let's just buy back our shares, do another merger, use contract labor, outsource", whatever it may be." And while some of these strategies have merit, they don't do anything to make a company more daring, resilient or inventive. They're kind of like liposuction, not always a bad idea, but a very poor substitute for improving your diet and getting to the gym. Okay, let's get to the good news. Proposition #5. It turns out that bureaucracy is a choice, not a cosmological constant. And a growing number of pioneering of Vanguard organizations have proven that you can buy the benefits of bureaucracy, the control, the consistency and the coordination, without all the costs. Let me share very quickly a few kind of thumbnail sketches. Haier is the world's largest appliance company. And in its transformation, it took a 50,000-person organization in China and had divided it into more than 4,000 small entrepreneurial units. Today, Haier has only 3 layers. And when its U.S. subsidiary, GE Appliance, adapted Haier's management model, it quickly became the fastest-growing appliance business in the U.S. And in a few minutes, you're going to hear from Kevin Nolan, who leads GEA. NUCOR is the world's most innovative and consistently profitable steel company and yet, it operates with 1/3 the number of managers as its global peers. And by the way, achieves twice the ROI. The CEO of VINCI, the Giant French infrastructure company, long ago committed himself to inverting the pyramid. VINCI has more than 3,000 operating units, 270,000 employees, but only 250 individuals at head office. And over the past decade, VINCI has doubled the performance of the CAC 40. In recent years, Ingersoll Rand, the U.S. manufacturers, created billions of dollars in market value by ensuring that every employee has the autonomy, the incentives and the skills to think and act like an owner. And the world's most decentralized bank, Handelsbanken, has beaten its European peer group every year for 50 years. Their success proves that bureaucracy is a choice, not a law of physics. The challenge though is that most CEOs, most leaders have grown up in and around organizations that fit the bureaucratic template. So they struggle to imagine a radical alternative. But alternatives do exist. And although the Vanguard companies come from different industries and different countries, they broadly share similar kind of management principles. Most importantly, that everyone there thinks and acts like an owner. Now of course, not all of the features of what I would call Humanocracy, not all of those are fully developed in every Vanguard company. But this is what they all aspire to. And this is the recipe for building institutions that are fully capable and fully human as the times demand. By the way, the potential payoff here is staggering. By our calculations, reducing bureaucracy by 50% and doubling staff engagement would add $18 trillion to economic output in the OECD. That's just slightly less than the size of the EU economy. And when compared to any other kind of strategy, more R&D, more automation, more venture capital, more IT spending, nothing else would deliver the same economic upside. And Bayer is determined to claim its share of this prize. And for the sake of all of their shareholders and beyond, I hope they succeed. Proposition 6. In a post-bureaucratic organization, you're going to need many more leaders and many fewer managers. 150 years ago, industrial bureaucracy was young. And at the time, most employees were illiterate and they needed managers to tell them what to do. And at the time, information was expensive to acquire and move and the formal hierarchy was the means for doing that as each layer aggregated and escalated information. Today's realities are far different and yet, most large institutions still retain this big, expensive administrative aristocracy. And in a post-bureaucratic organization, most of this disappears as the work of managing is distributed to the periphery. In Haier's transformation, for example, 12,000 middle-management jobs went away. And those individuals were not fired, but they were reassigned to small entrepreneurial units, and most of them are having a lot more fun there than in their old administrative roles. There's also fundamental change in the work of executives as they move from command and control to enable and encouraged. And rather than being kind of administrators on steroids, the most senior leaders become accountable for building new capabilities, developing more leaders and catalyzing new opportunities. Finally, Proposition 7. In recent decades, companies have worked hard to optimize their operating models and digitize their business models. Now they're going to have to overhaul their management models. That means looking at every system, every structure how we allocate resources, how we plan, how we compensate, how we reward and rebuilding those processes around new principles, the principles in the bureaucratic model, our standardization, specialization, routinization and so on. Those are not necessarily bad principles, but they're not going to help us build organizations that are fit for the future. So instead, we need principles like ownership, resilience, meritocracy, openness, community and so on. This is a big challenge, retooling the managerial model inside large organizations. But we're at a point where we really have no choice. And I believe deeply and truly that the most successful organizations over the next decade and beyond are going to be the ones that move quicker to evolve their management systems and structures in ways that make them more resilient, more daring, more innovative and better places to work. So that's the challenge then that is facing Bayer. And it's already moving fast down this transformational route; to excise those old bureaucratic maladies and instead build an audacity advantage, an evolutionary advantage where we're changing as fast as the world around us, an innovation advantage and at the core of it all, a human advantage. I will be watching with great interest and help where I can as Bayer continues on this journey. And for the sake of all of their shareholders, I hope they succeed. And as they do, they're going to create a compelling role model for other institutions around the world. So good luck to Bill and his team, good luck to Bayer, and thank you for letting me share a few thoughts.

Well, that was a great primer to the world of new operating models and the energy that we want to unlock. In a few minutes, my colleagues are going to share more details of what we're up to at Bayer. But first, I'll start by sharing some of my journey with Dynamic Shared Ownership. Then I'll highlight what DSO is all about. And finally, I'll close with the impact that DSO creates. So for me, it started 7 years before that acronym even came into existence. I'd just taken over a CEO role. And I spent my first few months on the job talking to employees. What I heard really struck me. People love the company. They love the purpose. They believe we delivered good things for the world. People really love their colleagues. They felt supported and cared for. But one complaint kept coming up. People would say to me, "Bill, I can't get anything done. How can we fix this?" The first time I heard this, I thought, maybe we've got a few people in the wrong roles or maybe we need to restructure a few things, but then it kept coming up. And that's when I realized, wow, we have a problem. This is built into our system. This is going to require some sort of radical change. Well, as you heard from Gary, this problem is not unique to any one company. At Bayer, we want to fix it. And that's where DSO comes in. This isn't a theoretical management philosophy that only lives in textbooks. It's a tangible material overhaul of every way a company operates. This model has worked at other places. I've had that personal experience and seen it work. You're going to hear from Kevin about how it's worked. Gary's seen it in many places. I'm 100% convinced it's going to work at Bayer. This is a company that's been around for 160 years. We've had to reinvent ourselves a few times, and we're entering another phase of reinvention as we speak. This time, it's a fundamental redesign from management to mission, from alignment to action, from CEO to customer. Let me drill down what that means. Traditionally, decisions are made at the top of a big functional pyramid. We have about 10 levels. The Head of Marketing has a set of priorities and steers his organization according to them. The Head of Product Supply has her team working according to their priorities. And there are some projects where marketing and supply teams, they need to work together. But in cases where the priorities don't align, they fight about it and each side escalates up their side of the org chart 5, 6, 7 layers of hierarchy, to the Heads of Supply or the Head of Marketing. And then if you're lucky, they reach a compromise, but by then, months have passed, I mean, the competition has already taken off and done the deal and you're back at square 1. DSO turns that kind of thinking on its head. Instead of departmental pyramids, it starts with the customer. It's the team that actually works with the customer that makes 95% of the decisions. they decide the marketing strategy. They own product development. If those 2 areas have conflicting priorities, guess what? It's their responsibility, the team's, to make the trade-offs and work it out. It's not about making the boss happy, but to give the customer the best possible product. That's ownership. Can that work at Bayer? You all know we're a company that's based in Germany. You probably know there's an important concept here called mitbestimmung or codetermination. In a codetermination system, employees are entitled to representation in company governance. They have some ownership that way. Before I joined Bayer, I had a lot of people warning me about how difficult it is to make big changes in a company with codetermination. I was even given a book on the ins and outs of German corporate governance. By the way, it's about that thick. Well, here's the thing. I want more codetermination, not less. Employees should have as much ownership of the mission of a company as the CEO, not smothered under layers of management and governance. At Bayer, we had 1,362 pages of centralized internal regulations that are promulgated to the whole company. Think about that. 1,362 pages, that's actually longer than War and Peace and a lot less exciting. By the way, I think Tolstoy said, "It's easy to write laws. It's hard to govern." Well, more importantly, no one could possibly know all these rules. And that often led to rules paralysis. We'll be cutting those rules by about 99% and then turning people loose to pursue the mission. In DSO, things like regulations and quality and governance, they don't go away. Those are really important things. I would argue they become even better because instead of adding an extra layer of controls, they become part of a team's core responsibility. So that might sound nice and empowering for employees, but what does it actually yield? What will it mean for Bayer? You can expect faster innovation, better performance and more meaningful jobs at significantly less cost. Let me tell you about our consumer health team in Southeast Asia. This is an important growth market for the business. In less than 3 months of working in this new model, our team has been able to move launch dates forward for upcoming innovation by 5 to 9 months on different projects. This is going to deliver EUR 2 million of incremental value already this year, which is a 30% increase. They also tackled our lengthy time lines for transferring products from one manufacturing site to another. This is a really important process in a time when supply chains are under big pressure. The result, they were able to shorten our internal processes by 60% or over 1 full year, and this is going to unlock millions of euros in value for Southeast Asia and neighboring markets. These results came in 60 days. That's just 1 team. Right now, this effort already involves 170 teams and 4,000 people at Bayer. Imagine what it can deliver when scaled across all the people of Team Bayer. We're rolling DSO out at a speed and a scale that's never been done before, but we have the experience, the unity and the competence to get it right. But you don't have to just take my word for it. I'm excited to turn it over to my colleagues to tell you more, starting with a video from our Chief Catalyst, Michael Lurie. [Presentation]

Hello, everyone. I'm excited to be part of the incredible transformation taking place across Bayer. I joined Bayer as Chief Catalyst last year in October. And after only 3 months, I've been amazed by the energy and enthusiasm from the Bayer team as we set out to redesign the company. For over 20 years, I've helped more than 100 organizations accelerate growth and performance by applying innovative new operating models, new ways of working, new approaches to leadership, leveraging disciplines like agility, lean design thinking, systems thinking. All this experience has resulted in a simple and powerful body of knowledge and practice that can unleash a whole new level of performance and value in organizations. Here at Bayer, we already have thousands of colleagues working to co-create and implement Dynamic Shared Ownership across the divisions and enabling functions. And today, I'll share more detail on how we are going about doing that. At the core of our new operating model, we're building a network of hundreds of customer and product teams. Each of these cross-functional teams operates as a small, nimble micro business, focused on value creation and working in close collaboration with each other. Customer teams focus on building relationships with specific sets of customers and understanding their needs at each stage of the customer life cycle. For example, in Crop Science, a customer team may serve a set of farmers in a specific geographic area, together with dealers in that area. In Pharmaceuticals, a customer team may service several hospitals. And in Consumer Health, the customer team may serve a set of small pharmacies. Customer teams collaborate closely with product teams to provide tailored solutions. Product teams focus on the life cycle of a specific product or a product suite, from development to commercialization. And these customer and product teams are guided and supported by cross-functional portfolio teams who continually evolve the overall portfolio of markets and products. Collectively, these networks of customer product teams are the primary way in which we serve customers. They're becoming our entrepreneurial and dynamic engines of innovation, growth, speed and customer focus. In DSO, our technical functions, such as R&D and product supply, shift to support and enable customer product teams. The technical teams also operate as a network of autonomous micro businesses, focused on becoming leaner, faster and more service oriented. They concentrate on understanding the needs of the customer product teams, providing critical expertise and discontinuing activities that are not in demand or are required to ensure our license to operate. This will help us realize substantial efficiencies across our organization. And what about the enabling functions like finance, HR or procurement? Their primary role is to facilitate the flow of talent, funding, information and other resources across our customer, product and technical teams. They ensure we quickly and continuously shift resources away from less productive uses and towards markets and products with the best value-creation potential. They also focus on continually simplifying policies and processes while eliminating non-value creating bureaucratic work that has built up over the years. And of course, they will also work to ensure our license to operate around the world. Similar to the technical functions, the enabling functions continually strive to produce better, faster and more efficient solutions. Underpinning all of this is a shift in mindset and a fundamentally new approach to leadership. We're helping people learn simple practices to become more aware of the limiting mindsets and beliefs that cause us to defend and protect the status quo and to shift into more enabling mindsets that allow us to work together to seize new opportunities. We're moving from a strongly hierarchical approach of command-and-control management to embrace leadership practices that really empower our people and unleash their full potential. So how are we tracking so far in the rollout of DSO? Our objective is to scale DSO across the company so that almost every part of Bayer has started working in the new operating model by the end of this year. So far, we've already launched more than 100 customer and product teams, and we expect to reach over 1,000 by the end of the year. We've also launched more than 70 design teams who are working to rethink processes across the company, such as the way we undertake financial planning and reporting, employee performance management, internal audits and other areas that don't always serve customer needs. Across the organization, these teams are really reimagining how we operate. Working alongside these teams, we have a community of dedicated DSO practitioners who are actively supporting the development of DSO in the divisions of enabling functions to co-create the best Bayer we can be. More than 4,000 colleagues around the world have already begun the journey to reimagine how we operate. It's been really encouraging to see how the implementation of DSO is resonating so far across the organization. There's a real movement happening across Team Bayer to embrace DSO. One thing is for sure, we are moving fast and decisively. We know our employees, customers, investors deserve that from us. I've really never seen an organization where the conditions for success are as good as they are at Bayer. A combination of a clear case for change, where no one is defending the current way we do things and where there's a widespread deep conviction that we need to do something fundamentally different. I'm absolutely convinced that in a short time from now, Bayer will be a very different organization. It will be a great example of what's possible when a large established global organization reimagines itself to benefit the communities and stakeholders it serves. Thank you. It's been a delight to be with you. I would now like to turn it over to my colleagues, Sebastian Guth and Lisa Perez, who will share 2 examples of teams currently living DSO in the Pharmaceuticals and Consumer Health divisions.

Thank you, Michael. As you've heard from Bill, we're radically redesigning the way the company operates. Building on Michael's description of what we're doing, let me share a few tangible examples from our U.S. Pharmaceuticals business on the impact we're already seeing. First, we're becoming a significantly flatter organization. If you look at our industry, it's very common to see teams averaging 3 to 5 colleagues per manager. While we were already ahead of the industry with an average team size of 8 to 9 colleagues to each manager, we increased our span of control, or span of coaching as we call it, to an average of 15 to 20 colleagues today. It allowed us to reduce the number of managers in our U.S. Pharmaceuticals business by 40%. Second, we've broken down the silos in our structure and become laser-focused on customer needs. What does that look like? Rather than having 4 stand-alone franchises with responsibility for sales and marketing, we've set up 68 customer squads across the United States. These largely independent cross-functional entrepreneurial units of 15 to 20 people are designed to provide a unified customer experience in the geography they serve. They have ownership of their spend and can flex resources or evolve team composition to address unique market dynamics and opportunities. Now the benefit is truly significant. Think about a certain geography, which may have, for example, large academic centers that require a different approach, genogeography with many community-based physicians in clinics. Another area may have unique access challenges that require different expertise. Our teams are empowered to act with speed to address these differences without waiting for layers of approvals. And I see evidence of this already. Just last week, I was on customer visits in Pittsburgh, Pennsylvania and heard how quickly we're making decisions and moving forward on opportunities. What might have taken us 3 to 6 months is now being decided almost on this spot. Now in the home office, the customer squads are supported by product squads responsible for marketing strategies that drive competitive differentiations. These squads dynamically form to address the highest-priority work in 90-day cycles. In fact, just earlier this week, we had our first marketplace of opportunities. We shifted resources to our most essential work for the next 90 days and matched colleagues with the right skills to this work to accelerate our progress and to deliver on our aggressive outcomes. This is vastly different from having stand-alone marketing teams for each brand, teams that once developed annual plans and were focused exclusively on 1 product. Now to me, it's amazing to see, even in these initial days, how this is unleashing the organization and focusing us and our teams on what really matters, which is driving impact with customers. Lastly, our new operating model is accompanied by a significant reduction in our clunky and complex processes as the bureaucracy busting that Michael and Bill spoke about earlier. That's exactly what we're bringing to life at Bayer across the United States. Now let me give you 2 concrete examples. We've eliminated the need for manager review of an estimated 140,000 expense reports annually and stomped out the complexity in our approach to training. These 2 examples alone enable us to reclaim nearly 50,000 unproductive hours that can be redirected to the customer. I'm sure you can appreciate why this is so essential. As we build an organization that is flatter, nimbler, we need to liberate our managers so they can focus on the business and not the oversight of mundane tasks. In closing, let me leave you with 3 key points. First, we've successfully expanded our footprint in the United States, and we're driving to accelerate further as we build our U.S. business to scale. Second, Dynamic Shared Ownership is unleashing the power in our organization. We've made radical changes to break down silos, increase agility and enable faster decision-making and make no mistake, at the same time, we've become a flatter organization. Last but not least, we're moving fast and are seeing early evidence of impact. We set up the new model at scale at the end of last year. And when I look at where we are today, I see energy and excitement in our teams. I see teams driving their business at the regional levels with shared objectives and decision-making, and I see the organization transitioning into the beat of 90-day cycles. With that, let me hand it over to Lisa Perez, Head of our Nutritionals business in our U.S. Consumer Health business. Lisa, over to you.

[Presentation] Thanks, Sebastian. Hi, everyone. I'm excited to be here. I've had the privilege of leading our Nutritionals frontrunner team focused on One A Day, a key vitamin brand in the U.S. We are focused on driving One A Day to lead in the market, which is a key growth driver for retailers and Bayer and offers important health benefits for consumers. Bayer had been the market leader in multivitamins for years. However, recently, we started to see it slip. It was critical that we find new ways to reignite interest in the brand and return it to growth. So we set up our first frontrunner team to drive an innovative solution using DSO principles. Our team was one of the first at Bayer to embark on a DSO journey and operate in this totally new way. We had a framework and guiding principles as well as new expectations for how to lead and how to flow resources, including our people, to where they can add the most value for our consumers. But we had to dig in and figure out how to actually work in this new way, all while driving towards an ambitious outcome in 90 days. And the DSO principles truly unlock value and creativity along the way, in service of our mission to increase consumer love for One A Day. First, I needed to assemble the right people, a focused team that spanned across several functions stepping out of our silos to come together as one team working towards a common outcome. We first focused on a new brand identity. The overall look and feel of the brand that would differentiate One A Day and address consumer pain points at shelf. Operating in our traditional way, this would have normally taken over a year and our ambitious goal was to do it in just 90 days. In the past, our work process was very linear. We'd work with one team to hit a key milestone, then move to the next step, oftentimes with a different set of people, with lots of check-ins and approvals with senior leaders along the way. Working in the DSO model was collaborative and fast from day 1. We pulled in everyone needed across functions at the start, and decisions were made in the moment, accelerating decision-making and outcomes. And because we were able to move quickly, we also identified a new product opportunity, a preconception vitamin for people thinking about becoming pregnant. There is a real gap in the market. About 60% of women are not taking a prenatal vitamin before they get pregnant, which means they're not getting key nutrients needed to help reduce the incidence of birth defects. And that's a big deal. We were able to accelerate the launch of this important innovation by more than 1 whole year, launching on Amazon this month rather than over a year from now in 2025. So how did we do it? We operated as an empowered and autonomous team and it boiled down to a few key areas. First was focus and access. 8 of us focused on only one thing: our mission. Decisions were owned by the team. What we worked on rest exclusively with the team, and we worked through obstacles in the moment. We were able to check in immediately rather than wait for feedback because we were all together. While we all came in with our areas of expertise, everyone contributes equally and gets done what needs to get done regardless of level or function. The second, continuous learning and pulling the consumer feedback into the process much earlier. We take iterative steps versus the 1 big one. We start with the consumer and develop something that's good enough for now. We would test it with consumers, get their feedback, make edits and test again. We were able to pivot quickly based on consumer feedback. And lastly, check-ins versus permissions. We adjusted how we work with senior leaders, seeking their feedback versus seeking their approval. We would consider their feedback, but ultimately make decisions based on what we've learned from consumers, increasing our confidence to move in a direction, and this accelerated our decision-making. So we wrapped up our first 90 days, and we're really excited about what we've accomplished through this focused work and having the right people in the room. We're proud to have been able to advance the new brand identity and to bring an important new innovation to market faster than ever before, adding incremental sales and offering important consumer health benefits. That is what DSO is all about. But this is just the beginning. I'm now taking the learnings and applying it across my team, bringing DSO to my entire business unit, with self-managed teams organized around 5 key outcomes. We're a few weeks into working in this new way, and we've already seen the benefits. We're moving faster. We're making decisions in the room, and we're finding new ways to grow the business. So stay tuned for what's next. Now over to Heike.

Thank you, Lisa, and hello, everyone. I'm really pleased to be here today to share a bit more about what Dynamic Shared Ownership means for our people. I've been with the company for 37 years, and I've gotten to see Bayer from a number of different perspectives. I've worked in different roles and also in different countries. But I've never seen a movement of this scale touching every part of the organization and supported as the right thing to do by so many people. The aim of DSO is to allocate resources quickly and to put the people with the right skills in the right team, at the right time, to get done what needs to get done, all in the interest of creating value for our customers. We are moving towards a system that puts skills at the forefront to allow flexibility and team setups, ensuring our talents can move to the highest-priority work and the work that they are best suited for. That means moving away from rigid career ladders. We are moving to a platform, which we call talent marketplace, which creates transparency of the skills of employees in the organization, not just their formal education or past roles, as well as the skills needed to support the various customer and product teams that Michael described. Rather than being defined by their position, description or place on an org chart, employees can make use of all their skills and capabilities and contribute to work that matches their interests and the evolving business needs. Performance management will change too. We'll be relying much more heavily on peer accountability rather than accountability to the boss. As Bill likes to say, "You may be able to fool your boss, but you can't really fool your peers." Together with colleagues in the business, we have HR-driven so-called design teams working to co-create this new model of performance management. And rather than one rigid one-size-fits-all system, we are developing flexible solutions to roll out to teams across different functions, businesses and geographies. In parallel, the HR team is reducing complexity across all areas of people and talent. And thus, we are freeing up resources to focus on our mission-critical work. For example, at the end of last year, we streamlined our current performance, development and training processes. And thus, we reduced the administrative load for our people and leaders. We eliminated over 300,000 e-mails employees would typically receive from HR. Of course, fewer processes and less bureaucracy as well as fewer layers of hierarchy means a decrease in the number of leaders. You've already heard Sebastian's experience with the U.S. Pharma organization. It also means fundamentally different expectations for leadership. Rather than managing and directing teams, leaders will focus on setting direction, architecting the system and engaging and supporting the teams doing the work. That's why we are upscaling our leaders with the capabilities they'll need in this new open and empowered organization. We want to support leaders to become visionaries who shape a clear and compelling mission. We want them to become architects who build systems that focus, excite and motivate teams to create value in line with the mission. We support them becoming catalysts who unleash energy throughout the organization and facilitate a broader network of empower teams and encourage collaboration across the different teams. And lastly, we enable them to be coachers who foster an environment of constant learning and evolution in rapid 90-day cycles. I don't know about you, but I find this type of leadership to be far more fulfilling. It's important to note that these changes are being made with and not despite our works councils. They are convinced that this is the right operating model and they are actively contributing to the successful implementation of this transition. It's a radical shift, a shift that requires that we significantly flatten the organization to make it more nimble. And it requires a reduction in head count. That's a hard truth, but our employee representatives understand this need for change, and they are fully supportive. Just look at the joint declaration we announced last month. I really appreciate and I'm very grateful for our ongoing exchange and collaboration. Let me close by saying I firmly believe that our greatest asset is hugely our passionate and committed teams. Through DSO, not only will we be able to offer our people and new talents joining us, more fulfilling jobs and secure our standing as an employer of choice, we'll also unleash their potential so that they can make a bigger difference for our customers and our mission each and every day. With that, I'd like to hand it over to Kevin Nolan, CEO of GE Appliances to share how they have implemented DSO-like principles and become the market leader in their industry.

[Presentation] So 7 years ago, we were sold to Haier, but we were a company in trouble. We were a company that wasn't growing. We had frustrated employees. And we had new competitors coming into our market. So it was a time where we knew we needed dramatic change. And we needed -- we knew that what we were doing, it just was not working. It wasn't allowing us to win in the marketplace. This is the company I became CEO of 6 years ago. And 6 years ago, we focused on a new model that you'll see has many similarities to the transformation that Bayer is going through. And you talk about, well, what were the results? And I can sit here and testify that these results were incredible. We quickly became the fastest-growing appliance company in America. We've had continued years, every year now, double-digit growth. And with that, I'm proud to say that we are now the market leader in the United States when you look at the appliance market. And you say, well, how did we do it? What did we do? So I'd like to take you through the model that we have. We call our model RenDanHeYi. It's a model that Haier pioneered, but one that we adapted to fit our marketplace, to fit our culture and really it'll fit the way our employees wanted to work. These are the 4 elements that I'll quickly walk us through: the goal; the culture; the structure; and the rewards of how we reinforced this transformation. So the goal was simple for us. We wanted to be a company of winners. We wanted to no longer be fourth in the market, fifth in the market. We wanted to be the ones who are out there in front, they're innovating, they were leading. When I first launched this to our employees, there was a lot of disbelief. They said, "Hey, we've been here. I've been a long-term employee. I was here for over 30 years. You're saying that we're going to be #1, but we haven't grown in the last 20 years. Why should we believe this?" And all I said is, "Because we have great people. With our great people, we're going to be able to grow." So we had to focus then in on the culture. What was the culture that was -- we were going to build around? You can see on the right side of this is the way we were under General Electric. The corporate, it was the boss. We always looked to headquarters, what do they want us to do. We had played safe, much like you saw from Gary Hamel. We didn't want to take risks. We were watching the competitors. We were looking at how we optimized product and price and what we wanted to offer to our consumers. We were risk adverse. But what we transformed and changed is the first thing we said is "The boss here is not me as a CEO." That's not my role. The only boss we have is the consumer. We have to build this company around satisfying our consumers. If we do that, good things will follow. We told, let's take risk. Let's play to win. Let's get out there. Let's get out there and be aggressive. Let's lead the competition, stop looking at what they're doing. We don't want to be there. We want to be in front of them. We need to provide people with solutions experience that they want, not the products that we want to sell them, and we need to change this culture of bureaucracy to a culture of experimentation that really encourages our people not to be employees but to be entrepreneurial. So as a CEO, I need to just provide a platform for employees to grow, to flourish and to really live their dreams and be excited about what they want to accomplish and how they want to serve the users. So organizationally, we did not have a huge restructuring. We eliminated a few roles, but we redefined the organization around small microenterprises. Those microenterprises' sole goal was to serve the market. And then to support that, we had our functions, our distribution, our sales, our headquarters, CEO, all the leadership. Our role is to support the microenterprises. We're not here to tell them what to do, how to do things. We're here to find -- to give them the support so that they can go out there and satisfy the user, satisfy the customers. Once we did this, it was incredible the transformation that took place. Employees loved it. Employees embraced it. And quickly, first quarter we did this, we could feel the transformation start in the company, the results in the financials starting to flow through. But to reinforce this, we needed rewards. We needed to let the employees know that you need to be rewarded for the value that you create. So the fundamental of our model is what we say is paid by users. The corporation shouldn't pay the employees; the users fundamentally play the employees. They understand and should reward for the value that we create. So the compensation is now tied to the micro enterprises' results. We brought incentive compensation to every employee, every employee we have. And one of the main reasons we wanted to do that is we have just clear transparency. If we're struggling in the market, we need people to know. We need people to know quickly so that they can react, they can adjust because they're the ones that are making the decisions. So they need just the same dashboard as the CEO. They need to see the information. We needed the transparency to drive this culture we're trying to enforce. But to me, the real testament that this works is not the financials and they've been incredible. We have doubled the size of this business in the last 5 years to become #1. But the thing that I'm most proud of as a CEO is this is a better place to work. We've gotten more accolades, more studies coming from academics that see these results, but the employees here are happy. They feel it's a place where they can flourish, they can live their dreams. They're not told what to do every day. Unleashing the potential of our employees is the best thing any organization can do. You have to have a fundamental belief in the potential of humans because our potential is limitless. The only thing that limits our potential is bureaucracy and top-down management and not letting us really focus on what we're all here to do, satisfy the customer, satisfy the users. So it's a great journey that we're going on. We still feel that we're in this transformation. We can do more. We're out to double this business again in 5 years. And we've got an organization that's energized, it's activated and the customers, they're rewarding us for all this activity. So I'm just so proud and pleased to see what Bayer is doing. We're going to learn a lot from this. The scale and the scope of what Bill and team are doing right now is one that the whole world is going to watch. And it's one where I know from the success we've had, it's going to give results that no one could imagine that would come forward very quickly for Bayer. So it's great to be here, and thanks for the time and letting me tell the story of our employees.

Yes. Big thanks, everyone. Special thanks to Kevin for joining us and sharing your perspective from GE Appliance and thanks to all of you for your time and attention. I hope this session has been helpful in illustrating the magnitude of the change that we're pursuing at Bayer. It's been really rejuvenating to see this come to life over the past 7 months. And now, as we pick up speed in rolling out Dynamic Shared Ownership across the company, I'm really confident there are great things ahead, not only for Team Bayer but most importantly, for the people we serve. So thanks again, and have a great weekend.