Dow Chemical is an iconic American manufacturing firm, having been in the industrial chemical business for almost 120 years (since 1897). Like most centenarian companies, Dow has seen a series of ups and downs in its corporate life, and the firm had become bloated and lacking in innovation in the early 21st century. Andrew Liveris, who became CEO in 2004 and executive chairman of the Dow board in 2006, was determined to change all that, and began to execute a plan to diversify the company and make it less prone to suffer in down economic cycles.
Liveris has enjoyed a great deal of success with his diversification plan for Dow. One of his major moves early on was the acquisition of rival chemical company Rohm & Haas.
Dow Chemical CEO Liveris recently sat down for an interview with McKinsey & Company’s Rik Kirkland. The interview covered a lot of ground, but mainly focused on the steps Liveris took to transform Dow and “de-risk” the business.
Dow Chemical’s growth through structural change
Liveris waxed eloquent about the importance of growth. He notes: “Growth is not even—it’s not peanut butter spread over a sandwich. You’ve got to be agile, go to growth areas, and then stick with them. That means different types of customer arrangements, different types of business models at the market face. And the sorts of things we used to do, you know, “If you build it, they will come,” are long gone.”
He continues, explaining what growth means in the 21st century. “It’s no longer just products. It’s no longer just applications. It’s actually market creation, value-chain creation… Chemical companies have not been great at doing that. Our transformation has moved us in that area. And I’m pretty proud to say the new Dow is a company that has a portfolio 70% of which is now anchored very much in value-add markets.”
Breakthrough innovations by Dow Chemical
Another theme Liveris focused on in the interview was Dow Chemical’s ability to deliver world-class breakthroughs to meet global challenges. He mentions food as an example. “We’ve really put good chemistry in place in terms of genetically modifying seeds to produce a type of canola oil that has maximum Omega-9s. And that actually has taken 1.5 billion pounds of fat out of the American diet. All sorts of fast-food companies are using it. All sorts of end users, including the consumer, now see Dow-brand Omega-9 oils as an example of a product where we went all the way to the consumer.”
He also pointed to the firm’s new BETAMATE structural adhesives, which can replace a great deal of expensive welding. The use of adhesives reduce 30 to 40 pounds out of every car manufactured, resulting in more energy-efficient vehicles. For its next breakthrough innovation, Dow is developing carbon fiber technology for various applications.
Leadership must also evolve
In the interview, Laveris also emphasized the importance of leadership also evolving. “I’m on my fourth reinvention of myself on the job: ten years ago, five years ago, three years ago, and today. That means almost certainly that three years from now, five years from now—it’s a continual evolution. It’s an evolution that follows the enterprise. I’ve had to change my priorities as the company has changed.”
Dow Chemical has also been a target of shareholder activists over the last couple of years. Since shareholder activists first showed up in 2013, the company has raised its dividend, increased share buybacks and just recently merged the firm’s chlor-alkali unit with Olin Corporation, in an attempt to appease those hedge funds.