starvapoulus on structure and decision making

8/8/2019 Starvapoulus on Structure and Decision Making

http://slidepdf.com/reader/full/starvapoulus-on-structure-and-decision-making 1/8

Academy ol Management Exec utive, 1999. Vol. 13, No 4

Dow Chemical's CEO WilliamStavropoulos on structure and

decis ion making

Interview by Richard M. Hodgetts

Executive Overview

Dow Chemical Corporation Is the fifth largest chemical company in the world, withannual sales of more than $20 billion. The firm provides more than 2.400 product familiesan d services, including chemicals, plastics, energy, argricultural products, and

environmental services. Headquartered in Midland. M ichigan. Dow operates 115manufacturing sites in 37 countries, and employs 43,000 people. Throughout its 100-yearhistory, the company has focused heavily on research and development and has createdsuch well-known products as Saran W rap, ziploc plastic bags, and Spray'n Wash stainstick, and G lass Plus multisurface cleaner, as well as m a n y industrial products. Thecompany has won a host of awards, including the National Safety Council award for 'Distinguished Achievemenf in Occupafiona/ Safety and Health and has been nam ed byFortune magazine as one of the country's top 10 environmental champions. Dow has beenrestructuring its product lines and focusing o n chem istry-related businesses in order (oachieve its mission for the 21st century: to be the most productive, best value growthchemical company in the world. In pursui t of this mission^ (he company is in (he processof acquiring the Union Carbide Com pany.

William S. Stravopoulos is the president and chief executive officer of Dow Chemical.He holds a bachelor's degree in pharmaceutical chemistry from Fordham University and adoctorate in medicinal chemistry from the U niversity of Washington. H is career with Dowbegan in Indianapolis in 1967 when he joined the firm as a research chemist. He becamedirector of marketing for the Dow U.S.A. Plastics Department in 1979, and was namedcommercial vice president for Dow Latin America in 1980. He became president a nd chiefoperating officer in April 1993. and was appointed CEO on November 1. 1995. H e is a boardmember of the American Plastics Council. Bell South Corporation, and C hemical Bank.

The following interview conveys his views on decision making and structuring in thecompany and concludes w ith an update on the acquisition of Union Carbide.

When people hear the name Dow Chemical, they

typically think of consumer products. What industrial

products does Dow m ake that m any of us might buy?

Actually, unless you go to a lumber yard and pur-

chase things such as insulat ion panel ing or

Styrofoam, we don't manufacture many things you

would buy. Most of our output goes into someone

else's finished product. For example, we don't sell

fiber optics wire, but we cover it; we don't make

integrated circuits, but our plastics go into the

product ; we don' t make computers , but we manu-facture the plastic for the housings. Our products

are crit ical to many industries—but the key thingis to remain inn ovat ive. We can h ave p roducts thatone day are very specialized and soon thereafterare commodit ies . So we have to constant ly renewour products and our business l ines .

I

What decis ions have you made in this regard inrecent years?

About five years ago we began looking crit ically atour business l ines. In some of them we were very

strong and in some we were not . And because ofglobalization, technology, and deregulation, if



30 Academy oi Management Executive November

William S. Stavropoulos

you're not world-competitive in everything you do,you're going to lose in the long term. So we exam-ined al l of our products and our bus ines ses an d w easked: Where are our inherent s t rengths? Wherecan we be world leaders, either today or two orthree years from now? And we looked at thesethings very cr i t ical ly because products and busi-nesses are like children^—you love them all anddon't want to get rid of them.

But you've got to be pretty tough. As a result, werealized that in some areas we were never going to

be world-class. So over the last four years we havedivested over $10 billion of business assets. Todaywe hav e 14 bu sin ess es an d all of them ar e worldleaders. And I should note that we adde d $5 billion innew business assets and $5 billion in acquisitions.So today our asse t b as e is still $24 billion. As a re sult,we now feel that we can compete with anyone in theworld in the areas where we do business. And thatwas the first aspect of looking at our portfolio.

So you had a game plan to restructure the

company?

Right . When w e star ted t ransforming the compa nywe had three things in mind. Phase one was our

posi t ioning phase and i t had three object ives. Thefirst objective was to become more competitive ineverything we do—to reengineer our businesses.The second was to get more consistent earningsbecause they were too cyclical. The third was toget our ba lan ce sh eet in order so we could invest inthe long term.

What was your strategy?

We actually had four strategic themes. The firstwa s to set s tand ard s for each bus iness . The secondwas to increase productivity, which led to our cut-ting $2.7 billion in costs. The third was to changethe culture so that it supported our strategy. Inpart icular , we wanted to make more demands onperformance and to create more accountabi l i ty inthe system. Previously we were an organizat ion

that was matr ixed and depended on teamwork—but there was no one in charge. When things wentwell , we didn' t know whom to reward; and whenthings went poorly, we didn't know whom toblame. So we created a global business s t ructureand cut out layers of management . There used tobe 11 layers betw een me and the lowest- level em-ployees; now there are five.

There used to be 11 layers between meand the lowest-level employees; now

there are five.

The fourth strategy was growth. Our ultimateobjective was to grow our company, but before wedid this we had to get better. We did this by re-engineering the company, cut t ing costs , and in-vesting for the future. In particular, we spent anawful lot of money on technology. At the same timewe put the ent i re company on a one-enterprisesystem. So today all of our employees are hookedup. We have purchased over 38,000 personal com-

puters , we have our own Intranet , we hav e our owntraining on the computer , we communicatethrough the computer , and we even have meet ingson the computer .

Our whole thought process was that the moreinformation people have, the less bureaucracythere will be in the company, the better the deci-s ions that people wil l be abl e to mak e— and they' llbe able to make them on the spot. Speed is criticalin a globalized world. Now this whole informationtechnology approach is enabl ing us to go to thenext step in productivity and growth. So it was awise investment for us. So this was the first phaseof our strategy.



1999 Stavropoulos 31

What was the second phase of your strategy?

The growth phas e. Now that we a re better, we w antto get bigger, to grow. And the wh ole idea here is thatwe have to still think of ourselves as a manufactur-ing company, but we also w ant to move the center ofthe company so that we become a science, technol-ogy, and solutions company. We want to use thetremendous body of science that we have built up

through the years to create value in new and differ-ent ways. We're rethinking the way we interact withour customers an d their customers. And through theeffective use of our manufacturing and technologybases we intend to become a more comprehensivesupplier and have a more intimate relationship withour customers and their customers. So ph ase two willhelp us create more value and grow faster.

Was it a difficult decision to sell your consumerproduct lines?

It sure wa s. But we found that we couldn't com petewith the Procter & Ga mb les, C loroxes, an d LeverBrothe rs of the world. And why be a third- or fourth-rate player if you can take the billions of dollars forthese product l ines and be a leader somewhereelse? So we began changing our company andinvest ing these funds in new ventures.

How much have you reconfigured your productofferings?

Qu ite a bit . And you can s ee this in our product mixshift. Looking at it broad ly, 10 year s ago, 25 percentof our earnings came from special ized productsthat we re faster growin g and less cyclical, wh ile 75percent came from commodity products. Todaythose percentages have been drast ical ly reversedwith 60 percen t coming from spec ialized prod uctsand 40 percent from commodity products.

Has this product mix change helped your bottom

line?

Absolutely. We've grown our operating incomeand our earnings before interest and taxes byabo ut 17 percen t an nu ally ov er the last three tofour years . So our earnings are now more consis-tent. We stil l have a big comm odity compon ent, butthe company is shifting and that 's one of our long-term objectives. We wan t to get to a point w here 75percent of our business is in specialized productsand 25 percent is in commodities. This will be amajor shift in our product line.

It soun ds a s if you're working on repositioning

the company.

That's correct. And the whole idea is to repositionourselves in the minds of our customers and ouremployees as a diversified, global, science companycreatin g solution s for our customers a nd society. Andin accomplishing this, we're spending almost $900million a year on research and development.

Are you also changing your approach to research

and development?

Yes. We're going about research entirely differ-ently than we did in the past. You see, with veryfew except ions the chemical industry h as not bee nsuccessful in the last decade in developing newproducts. And of course, new products are the life-blood of a company. Well, we think we can change

all of this. We've made a major commitment tobiotechnology. And we're doing basic resea rch be-caus e, in the final ana lysis , chem icals and plast icscome from hydrocarbons—from oil.

And in the future much of this will come fromcarbohydrates in the oi ls that are derived from

plants . We have a process for developing a newplastic, called PLA, that is made from corn. It hasfantastic properties, a wonderful product. We haveto get the costs right, but i t 's from a renewableresource. So the world is changing—and we wantto be there . Th at 's the type of thinking w e're d oing.

Acquisitions are a key part of this, but most impor-tant is internal development .

In doing all of this restructuring, you must have

had to change the Dow culture.

Yes. We did have to cha nge the culture. And cha ngeis difficult for all of us, especially if you're beingchanged and you're not in charge of the change. Ofcourse, if you're standing on a burning platform orperched on the edge of a cliff, you can changequickly becau se you hav e to . But if you're d oin g well,it 's hard to change. There's that old cliche that says,"If it's not broken, don't fix it." Well, now the sayingis, "If it isn't broken, break it and fix it." You have toconstantly regenerate yourself.

What steps did you take to change Dow's culture?

There were three things that had to be done. Thefirst was to get people to embrace the change. Andas I noted a mom ent ago , wh en pe op le aren't incharge of the change, they often tend to resist . So

the first step in affecting cultural change is gettingpeople to embrace i t . The second step was to



32 Academy oi Management Executive November

downsize the organization. This can be difficult todo because you're directly affecting people'slives—and we ended up cutting the work force by30 percen t. In the process, collea gu es, friends, a ndassociates—<i\\ of these people were affected. Butit had to be done because the world continuallychanges and everyone has to adapt to i t . Now our

people have come to understand why what we didwas necessary and they are s tar t ing to see a muchimproved company, which is very crit ical. But get-ting through this period was tough.

The third step was to communicate with peopleand educate them regarding the change. Of course,there's emotional attachm ent to certain business es—and the divestment and acquisit ion decisions arealso part of dealing with this cultural change. Butthese are comparatively easy to address. The realchallenge is the people aspect and getting peoplealigned. And w hen you really get into a ch ang e pro-cess, you have to spend an awful lot of time commu-nicating w ith peo ple. You also hav e to be concernedwith educating them as to what is going on. Thisinvolves new learning techniques that we offer to allof our people, describing what is happening in theoutside world, how we are responding, wh at our newstrategy is, what their roles will be, and what theirrewards will be. The implementation part of changeis a very difficult challenge because it consumes somuch time addressing what is happening. And thepeople want to hear it from the top down, not just

from their immediate supervisor.

Did any of the downsizing you just talked abouttake place by simply selling some of thebus iness es , or did the 30 percent tak e placeamong the businesses that you held on to?

We cut about 30 percent of the work force thatremained. A mass ive change .

You talked earlier about core competencies forthe firm—the things that you do well . What doyou see as the core competencies of Dow?

I think our core competencies, in broad categories,are manufacturing excellence, environmental health

and safety, product development, and globality. Now

we h ave technology excellence, but I think these first

four bases makes us world competit ive.

When you sell your high tech products, is i teasier for Dow to do business worldwide becausei t can t ranscend some of the cul tural chal lengesthat might be faced by bu sines ses that areselling only commodity products?

That 's a very insightful question and the answer isyes, because our products are necessary for an

advanced s tandard of l iving in a modern economy.Now if you go to Thailand, for example, they needless sophist icated products than in the UnitedStates, so the objective is to get in there and growwith them. The nature of our products does make ita l i t t le easier to do business global ly.

What is Dow's implement ing blueprint ini t iat iveand how wel l has i t been working?

It 's been working extremely wel l because we'vethought things through very carefully. In all , theblueprint h as the four s t rategie s that I ta lked aboutearlier, as well as a whole series of programs tosupport them. And we have what we call an ISB,which s tands for implement ing the s t rategic blue-print. We train people in how to use this blueprint,so that they play an active role in transforming the

compa ny. Now we're taking this to ano ther level aswe move into phase two of our implementat ion. Inthe process , we are going to emphasize two keystrategies: growth and product ivi ty/qual i ty— theSix Sigma approach. We're going all out on this.And this wil l make us both a bet ter suppl ier and abetter competitor.

In your Six Sigma program, where are you now?

We are just get t ing s tar ted. We have just named asenior vice-president to head the overall effort .

Then we'l l set our goals and get going. We aregoing to be looking for cost savings of five to sixpercent from this program.

How important is measurement going to be in

th es e efforts? . • ,I ,

Cri t ical ly important . We want to measure every-thing so we know exact ly where we stand.

In implement ing your s t rategy at Dow, how do

people learn about things such as the values ofthe company and how they are going to be

eva l ua t ed?

Well , we explain our values to everyone and showthem how they're going to be used in the imple-mentation process. It 's part of the leadership train-ing we provide to all our employees. Additionally,everyone learns what the competencies are fortheir jobs and how they are going to be evaluated.Moreover, if people feel that they want to move toother jobs, there are jobs continually posted

throug hou t the com pan y. If you get the job, great. Ifnot, you can find out which competencies you lack



1999 StavTopoulos 33

and how you can get them. And when you put the

implem entation process in the han ds of the people,

there is no limit tohow far they can go.

What are some of the things that Dow has done in

the last five years to increase diversity, and whatdo you see on the horizon over the next five years?

I think diversity first ad dre sse d color an d gender—particular ly in the United States . But we've now

gone beyond that to encompass divers ity of ideas .If everyone thinks the same way, tha t ' s not diver-s ity , regardless of gender , race and ethnicity . Ourvision today is to embrace divers ity—and this ap-proach is powerful in terms of helping us be all wecan be. We now h a v e a senior-level person in

cha rge of our diversity effort. A nd the wh ole i dea is

to drive diversity through all of our bus inesses . Infact, each business has itsown p lan for diversity.

At the same t ime we have taken this idea andm a d e it a cr it ical e lement inour new hires .

On e a r e a of divers ity where we are very good is

multicultural divers ity—globality . I am the firstAmerican-born CEO of this company in 25 years .Moreover, the top 30 peo ple com e from som ethin glike 15 different nati on s. So we h av e a lot of diver-sity at the upper levels of management . Our exec-utive committee, which consis ts of four people, hastwo non-U.S. members . Now we are trying to

broaden our diversity efforts, and I am convincedthat this will be one of the keys toour success .

Do you measure divers ity , for e x a mp le , byhow

well the bus inesses implement p rograms such as

hir ing people of color and women?

Yes, our people are measured this way. And the

better people do in reaching their objectives, the

more rewards they eam. Every person has base payand var iable pay. Variable pay is tied to certainyearly or multiyear objectives. Diversity is one of

these objectives. So when we sit down and set objec-tives w ith our people, one of thes e is economic profit.

We have adopted va lue-based m anage men t .Then we might say, "Okay, what do we need to doover the next co uple of ye ars to drive growth for ournew products?" Other objectives include workingcapi ta l goa ls and, as I just mentioned, diversitygoa ls . So we h a v e the ability to tie diversity to a

very specific program.

You once said, "Everything we do must beconsistent with our values and our emphasis ondoing the right things." Could you comment onthat?

Wh e n we s tar ted rethinking our s trategy, we be-

g a n by rev iewing our core values . We h a v e our

environmenta l hea l th and safety considerationsthat say noharm will come topeople or the envi-ronment. And we have values that discuss how weinteract with each other. So we said that we

wa n te d tomaintain our values but would be will-ing to change everything else . Nothing is off the

table . This was very important because values

were the rudder that would guide our downsizing.We would use v alue s to ensu re that w e were fair indownsizing, treated people well , helped them get

repositioned.

So we said that we wanted to maintain

our values hut would be willing to

change everything else.

In this downsizing effort, could anyone whowa n te d to l e a v e do so?

No, only those whom we felt wen e e d e d to let go.We didn't want to face a brain d rain. So if you werenot on our list of people we needed to downs ize ,you could leave but you wouldn't get the termina-t ion package . So by a d h e r in g to our core values ,we were able to down size the comp any and main-tain our quality and competit iveness . Today the

Dow brand s tands for ethics, quality, good peo-

ple—and that 's the sor t of thing you can't buy. Youh a v e tobuild it. So that 's why it was impor tan t to

em phas ize up front that w e were going to m aintainour value system.

What type of incentive pay can a Dow employeeearn in a given year?

It varies throughout the structure. In my case, I havemore money at risk than someone in middle man-agement. My variable pay would be in the neighbor-hood of 99 percent, while a secretary's variable paymight besix to 10 percent. There are grada tions.

So a typical Dow employee in a good year couldearn 25-percent var iable pay?

Oh, yes .

You used the term "at risk." Does that mean ifsomeone doesn ' t make their goals , they losethis opportunity?

Well, not just their failure to m a k e the goa ls , but

the company's fa ilure as well. For example , las tyear we had a good year , but I only made 30 per-



1999 Stavropoulos 35

Let me also emphasize that Carbide is not theend of our growth story. It is only a chapter. We willmake further acquisit ions. But more importantly,we will continue our internal efforts toward newsolut ions-or iented business models and R&D-based growth. These are extremely important toour future plans.

This merger jump-star ts phase two—the growthphase of our s t rategy. Remember that phase onewas about get t ing bet ter , wi th emphasis on pro-ductivity and a more balanced portfolio. Phase twois about get t ing bigger .

The Carbide decis ion wil l a lso make our com-modity businesses more compet i t ive and wil l gen-erate more cash, which we, in turn, will use toinvest further in our higher-margin, higher-growthperformance businesses . The decis ion also pro-vides new platforms for growth in other perfor-

mance sectors , par t icular ly in the areas of adhe-sives, sealants and coat ings, special ty chemicals ,and l icensing.

Do you have any plans for more acquisitions andif so, what will you be looking for when decidingon those firms that you will acquire?

One of the advantages of the Carbide decis ion is

that we will be able to retain our financial fire-

power. But whether i t 's an acquisit ion or all iance,

we will keep our strict discipline. Among our deci-

sion criteria for acquisit ions will be: synergies,low-cost entry to market, accelerating commercial-ization of products, the addition of new technologyplatforms, and the abili ty to increase our hitt ingpower in the marketplace. And of course, we willlook particularly in the area of performance busi-ness es . Our ul t ima te goal is to make these typ es ofbu sine sses the core of our company, accoun t ing forup to 70 percent of our earnings at the peak of theindustry cycle.

When people hear the name Dow Chemical,what would you like them to think about?

I 'd l ike them to think about a company that standsfor high ethics and valu es. A compa ny that theylike to do bus ine ss w ith. A firm that is dev elop ingnew products and new solut ions that help custom-

ers succeed and improve their quality of life. I 'dlike them to think about Dow as a firm that isleaving the environment a heal thy place. I f peoplecan associate us with these things, I ' l l be pleased

About the Author

Richard M. Hodgetts is a professor of strategic ma nage me nt

and international business at Florida International University.

He is coauthor ol /nfernationaJ ManagemenI (Irwin/McGraw,

2000) and /n(erna(ionaJ Business, 2nd edition (Pearson Educa-

tion, 2000). His research interests are in the area of internaliona

s t ra tegic management . Confacf; [email protected].

starvapoulus on structure and decision making

Documents