“Dow CEO Must Foster a Spirit of Innovation”

Change is comingThe above titled article in today’s Wall Street Journal was prompted by Dow’s announcement that is purchasing Rohm & Hass for a 74% premium over yesterday’s closing price.  This brings me back to my last blog post on business transformation.  In it, I outlined two existing models for business innovation which are either a “primarily skill leveraging approach” or, a “primarily skill acquiring approach”.  (As a side note, it is interesting to note that Dow’s 2007 annual report had one word on the cover…”transforming”.)

The skill acquiring model is driven by a top down, management team and usually tied to a real sense of urgency for entering a completely new business and developing new core competencies quickly.  This strategic move by Dow is a good example of a skill acquiring model of innovation.  In this case, Dow needs to move rapidly from being primarily a provider of commodity chemicals, which is rapidly facing increasing competition from the Middle East, to higher margin, specialty chemicals.  Even Rolm & Hass itself evolved through both organic growth driven by a rich heritage of innovation (acrylic and small molecule chemistry for a wide variety of products) as well as through acquisitions and mergers.  Rolm & Hass decided to accelerate its own specialty chemical diversification into electronic chemicals by purchasing Shipley Co., Rodel and LeaRonal, Inc. during the 90’s.  In 1999, Rolm & Hass merged with Morton to once again expand its product and skill portfolio. 

Dow’s strategy is somewhat reminiscent of the evolution of another chemical company.  Monsanto had been primarily a chemicals company that moved into new markets such as plastics and textiles throughout its early years.  Then the oil embargo of 1973 created an incentive to move to businesses that was less of a commodity and less dependent on the price of oil.  This resulted in senior management establishing a corporate vision to build a new core competency in biotechnology.  Monsanto tried various organizational structures to facilitate this transition which eventually led to forming an executive management committee to lead its evolution from a top down approach.  The Monsanto of today has further refined its focus to where it is now strictly an agricultural company that helps farmers succeed “using the tools of modern biology”.

Innovation efforts that are variations or extensions of the current theme are best accomplished by current business units and, dedicated new business groups are often appropriate for related diversification.  But, a corporate vision that requires a complete restructuring of a business, that must be accomplished quickly and does not leverage internal competencies, can be more successful if driven a senior, corporate management team.  This brings up the need for a firm to develop a simple yet powerful vision for business innovation that is grounded in its core competencies, corporate strategy and its culture.  I will leave this discussion of the successful use of the “vision thing” in strategic business innovation for an upcoming blog post.

Comments

 

Ruth said:

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

Ruth

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April 9, 2009 10:34 PM
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About Mike Mata

Mike Mata serves on a number of advisory boards for growing businesses and non-profits. He brings 25 years of experience in the computer industry in executive roles for companies such as Hewlett-Packard Company, Compaq Computer Corp., BMC Software and IBM. Before retiring in 2003, Mike served as vice president of Global Accounts at Hewlett Packard. Prior to joining HP, Mike served as Compaq's vice president and general manager of Worldwide Market Development and Partnerships. After joining Compaq, he served in a number of managerial capacities, including vice president of the Enterprise Solutions Division. Mike also held management roles in business development, commercial marketing, business planning, distribution strategy and major account marketing. At Gateway, Mike served as the vice president of e-Commerce & Business Development and as vice president of Marketing.