Andrew Liveris’s Winning Formula

TEXAS TECH: Dow’s chlor-alkali facility in Freeport
TEXAS TECH: Dow’s chlor-alkali facility in Freeport

Q: Considering that there are easily 4.7 million manufacturing jobs going unfilled, what steps should companies take to deal with the skills gap?

Create your own supply chains. We have these sites you talk about. A third of them are in the U.S., some of them [are] very large locations. We hub and speak to the community colleges. We work with them on curricula changing, if necessary, to suit the requirement for the modern worker. I use community colleges because that’s where most of the deficit is, in the trades. It’s in the highly skilled operator of complex chemistry. There’s such a shortage of skilled people, especially in the U.S. Gulf Coast for example, that companies are poaching each other.

Talk about wage inflation—go to the U.S. Gulf Coast, Houston and Louisiana. So we do our own training. At the President’s Advanced Manufacturing Partnership (AMP), which I co-chair, this was one of the three topics that received attention at the national level. Big companies are involved with AMP, but we will help small companies get into the mix. We’re going to hub-and-spoke this across the country to put in place national training centers where small companies can participate. Through this (concept) we can convince high school kids, and even middle school kids—that the trades are noble professions. Not everyone should be a double Ph.D. in economics. In fact, there’s not much demand for that, except maybe here at the New York Stock Exchange.

“In our industry, we’ve got to re-discover creativity. This is why we find partnerships very useful.”

Q: In 2013, Booz and Company, now Strategy&, conducted a study of R&D spending and found no discernible link between the amount of spending and financial performance of the spender. How do you measure outcomes against your R&D? And what advice would you give to CEOs for doing a better job at managing the relationship between R&D and outcomes?

It seems like you’re spending a lot of time inside our boardroom, J.P., because it is an incredibly difficult thing to achieve. I personally have spent a lot of time with some of the best innovators in the country and in the world. What I learned is that no one has the definitive answer. The common denominator, of course, is always the people quality. Google provides open areas for
rollerblading and cafeterias with free food. At Dow, we’ve replenished our facilities around the world, creating similar environments to encourage interaction and spontaneity.

In our industry, we’ve got to re-discover creativity. Call it serendipitous research if you like. This is why we find partnerships very useful. We made a big decision five years ago to cull down the number of universities we work with in terms of research partnerships. We found we were trying to be everything to everyone and it was not satisfactory.

We culled it down to 15 in this country but went deep with all of them. By deep, I mean a quarter of $1 billion for five years. We also helped them rebuild their research engine because many of their chemical-engineering facilities are not very good. Out of this change, we generated a whole new, lightweight materials platform.

We’ve introduced smart coatings. These are coatings that can literally absorb emissions in a room like this. For example, if the paint used on these walls were “smart” paint, it could absorb harmful emissions in the room so you wouldn’t have to breathe it. The next generation of smart coatings will reduce viruses transmitted in the air. Imagine this [technology] applied in hospitals of the future.

These research collaborations are generating patents through the roof, but that’s not how we measure it. It’s the percent of margin that comes from new product. This is an investment headwind very few companies can bear. We spend $1.8 billion a year, $200 million of that in serendipitous or creative areas. Then, we grab business ownership. Once it gets through that first part of the pipeline, individual businesses have to sponsor it.

So our business operates like a hub of startups. They have to make the case to us why that research is of value to them, but they don’t have to pay for it.