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The Endless Incubator

How can an old joint venture, with joint ventures of its own, stay young? Dow Corning does it by using what it knows about partnering to link up with its own industrial customers.

4,200 products later, Dow Corning is still on the cutting edge of materials technology. New applications are constantly being bred out of new materials because the company exists to transfer technology. The company’s Silvue coating, an abrasive-resistant silicon film, glazes auto headlight covers, but it also protects the lenses in the sunglasses many people wear.

Formed in 1943 by Dow Chemical and Corning Glass Works, both of which are represented on the Dow Corning board, the firm also stays ahead by generating joint ventures of its own. Some of the many Silvue applications were developed by Anaheim, Cal.-based SDC Coatings, a joint venture between Swedlow, Inc. and Dow Corning.

Dow Corning doesn’t hesitate to go overseas for its partners. The company’s Japan Group includes Dow Corning Toray Silicone, a joint venture involving silicon research and development. Dow Corning Europe, with headquarters in Brussels, has research and development centers in the U.K., France, West Germany, and Belgium. Manufacturing operations are strung out across the continent because the company wants to be ‘globally aligned” to ‘focus on customer expectations.”

It is clear that one meaning of the alignment concept is sharing technology and working closely with customers worldwide in the earliest stages of product development. President and CEO Lawrence A. Reed emphasizes that Dow Corning has changed from an insular but respected technology developer to a marketer that uses shared research to get in earlier on customer product development. “We’re in the labs together, he proclaims. A University of Minnesota chemical engineering graduate, Larry Reed joined Dow Corning in 1964. At the end of 1984, he became the company’s sixth president. Reed has raised sales revenues to over $1 billion. Appointed president and CEO in 1988, he’s now setting these goals for the 1990s: (1) pushing new product sales to 25 percent of all sales by 1993, (2) raising overall sales to the $3 billion level, and (3) earning $300 million in profits “minimum.”

This won’t come cheap. Reed put $80 million more into capital expenditures in 1989-raising the total tab to $306 million. the key measure of innovative success, new product sales as a percentage of all sales, has been moving up from a low of 14.3 percent in 1984, when Reed was made president, to 19.8 percent in 1989. But that’s still below the 21.2 percent achieved in 1979. Net income was $162.8 million in 1989-so Reed’s $300 million minimum is a challenge. The alignment strategy that has helped Dow Corning stay young and made it an endless incubator should meet the test. But getting there isn’t easy, as Reed explained to Chief Executive ‘s J.P. Donlon.

People are treating joint ventures like they’re a brand new thing. But yours is probably one of the oldest and started with two U.S. firms in 1943. Does it really make sense to continue as a single-industry joint  venture for so long?

We’re not an industry. Organic silicon chemistry is a technology. We were set up commercially, in fact, by the same kind of industry groups that we now deal with. We’re more like semiconductors, where the technology is also thought of as an industry.

Can you go wherever technology takes you-even if it leaves, temporarily, silicon-based chemistry?

The answer is yes, our autonomy is certain if we in fact believe that through that technology we can somehow differentiate ourselves. We’re a technology-based company that really deals with the needs of customers in all industries. Our plan is to absolutely insure that we are at the places where technology is being invented and that we are working with the innovative companies of the world on new applications.

NEW MATERIALS BREED NEW PRODUCTS

What applications are on your mind currently?

There’s a whole raft of them. In order to get differentiation in the next generation of products, whether it’s automobiles or electronic equipment, choosing new materials is the first-level decision. It’s those materials which will then allow for new features that can be utilized.

In ceramics, we’re talking about materials that will last much longer under heavy-wear conditions; that can operate at higher temperatures; that have more structural integrity. They’re already being used on the hubs of a new generation of CDs.

In materials technology one of the things that is fascinating is that a compound, initially pointed at one kind of an application, can be used in something that appears to be extremely different. It may be surprising to some people that personal care is a high-tech industry. New shampoos use silicone technology today. Then there are the defoamers that go into everyday detergents-they’re related to the pulp defoamers used in paper mills-but people don’t think a detergent has anything to do with high technology.

Is there anything that’s in the development stage where you have a new technology or process with a product transfer?

We have a joint venture with Phillips Petroleum called AgriSense, which is experimenting with the controlled release of insect sex hormones as an attractant. This was spun out of developing technology in quite a different area. Our technology that’s involved with hairstyle came out of original applications in automobile polishes and now has applications in clothing too.

SPEEDING UP THE WORKPLACE

How does this breeding of new applications affect your own cycle time?

We have set for ourselves an internal objective to reduce our time to commercialize a product by 70 percent. That’s what our objective is. But your question is broader because it impacts on how we work with our customers. What we’re really trying to do is assist our customers in shortening their own cycle times.

Historically, within our company and between companies, we’ve had a “hands-off,” or keep-your-distance mentality: the research division did its thing, and then they passed it on to development, where something else got done. After going through manufacturing, somebody would decide they’d better talk to the customers and see if anybody wants what we’ve made. Usually we would have to make some modifications, and then repeat the process.

After struggling to shorten our own cycle time, we came up with a new idea: We decided to look ahead to where we think we ought to be five years or ten years  from now. We set in motion, several years ago, a process that we have come to call our “renewal process.” We have literally opened the books in all individual sectors to find ways that we can make step changes that are ultimately going to improve the way that we do business with our customers.

We set out to really define what happens all the way from the idea to when the product gets out the door. Instead of looking at this sequentially, as a process of independent steps, we have looked at this process as a continuum. And that continuum includes the customer.

Have you put the difference between what you were doing before you concentrated on how value is added and what you do now on paper?

The models that we originally had would encompass a whole wall. But we worked that down to two charts.

COMPETING BY COMMUNICATING

Has your new process brought you closer to your customers, or is it merely a matter of an executive proclaiming that his company is customer-driven?

We now conduct regular surveys of our customers. We did one three years ago, and parts of it weren’t that pretty. They talked about problems in dealing with us, using the kind of words you don’t like to see. We took them to heart. We were thought to be…

Arrogant?

Correct. Our customers respected our scientific capabilities, but were less than complimentary, in some cases, about how well we listened to them, and how well we really worked with them in solving problems as they perceived them.

How does this fit in with a networked approach to materials research? How does that work?

We’ve established a computer system that networks all of our people. All of our technology people are linked. As a new technology or a new application is being discovered, the information is made avail able for consideration for other kinds of customer needs. We have groups of people getting together at meetings around the world, sometimes three times a year, to talk about the advances in their respective fields and what the customer needs are.

Just how tightly do your customers let you embrace them?

What you have to do from both sides is develop a true partnership mentality. You have to have an extreme level of confidence in the other party, because both of you are giving away secrets. Historically that was never done. In our case, it’s secrets about our technology-and this very much requires CEO involvement. I really don’t want to discuss specifics because in all of these cases where we have very close relationships with customers, we treat their information as proprietary.

Is there an example you can talk about?

It’s fair to say that we’re in the labs together with Procter & Gamble. We’re sharing research information, we’re sharing marketing information, and we’re exchanging information on what the company is looking for in their end products that would differentiate them from the competition. We have seen this with Ford, another company that is changing rapidly. Now they’re relying on the testing we’re doing. They probably wouldn’t have done that in the past.

The front-end of exchange of ideas with customers is critical today. We sit down with marketing people and technical people, and brainstorm jointly. We ask what the customer needs to solve problems, to achieve product differentiation, and if what’s needed is worth it to both of us.

Today we’re working with Malco Products, a company that is very active in the pulp and paper industry. We’re jointly working on new defoamer technology that will allow much higher efficiencies and require less energy. We started out with one product concept, one issue; but their people are very active in the oil service industry, and they now see other kinds of applications that will require some other materials, and in turn those new materials will help in solving other problems in the paper industry.

This gets into the issue of global competitiveness. If people take customer satisfaction seriously, by definition that’s a step change requiring some substantial level of innovation. Our customers may see ways to extend the life of their products and give themselves a competitive advantage they need to compete with the Japanese.

A JAPANESE TARGET

Japan‘s Ministry of International Trade and Industry (MITI) has targeted high-performance materials as a growth technology of the 1990s. Can the U.S. meet this challenge?

The Japanese have targeted advanced materials as one of their areas for the ’90s. Typically they have evolved their technologies through what initially appeared to be relatively mundane consumer applications. For example, who would have thought of using a ceramic material in a tennis racket? In the U.S. our thinking would probably have been to put it into a new engine. In the process of developing the material and using new fabrication techniques, the Japanese gain experience. But in our case there’s a significant difference. We are participating with leading-edge Japanese companies.

Are you getting as much transferred to you as is being transferred from here to Japan?

The exterior climate is now more conducive to working together. And we have been working very, very hard on this whole idea of interdependency, and exchanging information; and, frankly, also taking a much more aggressive role to insure that technological information is being transferred in both directions.

ENVIRONMENT AND THE FUTURE

What is your greatest worry for the 1990s?

Regulation and the use of good science versus emotive reasoning in dealing with environmental problems is a major concern. Every responsible person who is involved in a major industrial company today recognizes that we must work towards an improved environment for our future. Nobody will deny that. The issue is how can we do it in the context of current scientific information. There’s a scientific illiteracy that exists in the country today in the general populace, in our legislators, and in many well-intentioned people in other kinds of groups.

The concept of “chemical phobia” is far too widespread. If we have a problem, everybody wants to solve the problem, but let’s do it in a way that makes some scientific sense. Too much “superfund” cleanup money is being spent on attorney fees. We’re working very hard to try to think about where we might have some potential exposure, even for the wrong reasons. But we have very clearly made the decision that we will provide all of the information that we know how to provide, and in a timely way, to the general public.

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