Dow Corning's Extreme Makeover
At the turn of the millennium revenues at Dow Corning were, on average, as flat as the landscape surrounding its Midland, MI, headquarters. In fact, in 2000 sales sank by nearly 11 percent from the previous year, leading the company to initiate rounds of layoffs and other cost-saving moves.
The world's largest maker of silicone-based products had somehow lost a key formula--the one for making money. It was not the kind of signal the market leader ever expected to send to its then-anxious constituents. Those constituents are the company's two main shareholders, The Dow Chemical Company and Corning Inc., which expect reliable returns from their joint venture; its 25,000 worldwide customers, from auto manufacturers to paper producers, who expect leading-edge products without cutthroat price increases; and its 8,200 employees, who expect regular paychecks--not pink slips--as rewards for keeping Dow Corning in the vanguard of technical innovation.
Although Dow Corning remained the number one manufacturer of silicone products while this sales drop-off continued, such a ranking meant little if upper management and employees were too nervous to enjoy it. With sales stalled, "all of us felt that our jobs were at stake," says Marie Eckstein, a 24-year Dow Corning employee and its global industry executive director. She admits the word around the company was that "if this company is going to be in business in five years, we have to grow. You can't go five years without growth and survive. People knew that if [things] didn't change, then Dow Corning as it existed was not going to continue."
That's dire talk, especially when you're referring to a company that has been in business since 1943. But such frankness would not be enough to jump-start Dow Corning. Around the company, as pressure to build the bottom line grew and patience waned, the need to act--and fast--became apparent. So starting in 2000, Dow Corning's management assembled a group of small teams comprising key executives and managers to dissect the internal and external problems plaguing the company, debate opinions on where revenue could come from, and then put forth potential solutions to get the stalled $2.8 billion company moving.
During a three-month period, seven teams of Dow Corning managers, from different disciplines within the company and with different strategic outlooks, met regularly, according to Eckstein, who served on one team. Each team was given a specific mission. For instance, one team examined market trends and the competition, another examined international factors facing the company, another explored hypothetical issues (such as how the company would perform if it sold only its knowledge base, not its products). Essentially these teams were trying to uncover why the company had stalled. "It was teams of our best people that took a real structured approach, looking at where we are, where we have been, and what we could be," Eckstein says.
The result of Dow Corning's self-audit? Sales at Dow Corning have bounced back over the past two years at an impressive rate. For instance, revenue was up 10 percent last year, with profits jumping 25 percent. But more important than just the increased cash, company officials say, is that in the search for growing revenue the company learned new lessons on how to deal with customers, how to offer solutions instead of just products, and how to position Dow Corning for a long-term future instead of a dubious one.
Ragnar Avery has been selling Dow Corning products to customers both in the United States and abroad for 22 years. Over the past two years he's noticed a new vibe rushing through his old sales force. "It is more entrepreneurial. People are excited about the things we're doing," Avery says. "They feel that they all have a part in making it a success--not just for us, but the customer." That spirit is a by-product of the new sales initiative, dubbed the Solution Selling Evolution and launched in the aftermath of the company's self-examination.
The buzz phrase solution selling has been tossed around organizations for well over a decade. Essentially, it promotes salespeople probing customers to determine needs that may go beyond the off-the-shelf products reps are ready to book orders for. Among its benefits, solution selling can enhance a customer's reliance on a supplier that brings strategic insight--not just a bag of tricks--to the table. That, in turn, can lead to a longer-term, and more profitable, relationship.
Solution selling sounds simple, but until two years ago it made no sound at all at Dow Corning. Sales execs and reps were continuing to merely push products, thus failing to see that their customers' needs, in many cases, were changing. "Our products were, in fact, commodities and our competitors could make them with the same quality and reliability. They could replace us if all they needed to do was drop the price," Eckstein says. "There was a whole sector [of customers] that we were overserving and not getting growth from--and competitors were eating our lunch." That failure was one of several themes registered while the company went through its internal diagnostic in 2000.
Executives on the self-audit teams determined that Dow Corning, while still a market leader, was no longer seen as anything special, even though its products often cost considerably more than the competitions'. For all its resources, the company had neglected to see a shifting marketplace. "We had been trying to get premium prices for these products, because we felt we had premium service and we were a premium company," Eckstein says.
"The revelation was that some people didn't care about that. The value proposition didn't work any longer. We were losing share to our competition, because we were trying to provide value at a cost that the customer did not want. They wanted product on time with no service. 'Give us the lowest prices you got.' So that was a big revelation."
OK, so it's one thing to notice softness around the midsection; it's another thing to get on an exercise program to shape up. After more discussion Dow Corning officials determined a workout routine that they envisioned could firm up sales.
First, executives decided they would not abandon customers that wanted products at a reduced cost--they would just service them differently. In early 2002 the company introduced Xiameter, a new brand that would be a low-cost sales channel run over the Internet on an SAP platform. Customers would have little interaction with Dow Corning salespeople, which is what they seemed to want. These customers demanded products delivered to them cheaply and on time, and that the 45-minute sales call be saved for somebody else.
Is Xiameter working? In the two years it has been available, the Web-based sales solution has helped rebuild Dow Corning's market share, while reducing many customer-oriented costs.
But Dow Corning knew that there was still a large base of customers that wanted and needed interaction from its reps. These customers would be the ones the company targeted with what Eckstein likes to call the Solution Selling Evolution initiative. The only question, could it be profitable?
At first Dow Corning "took the usual approach of designing packages and took them out to sell, which didn't work," Eckstein says. "We went back and talked to customers about their needs. [We also] spoke to 500 sellers and key managers. With this information we asked, 'What can we bring to customers?'" The company is "now developing platforms based on market pull, not push," she says. It's also bringing them to customers through solution selling.
But transforming a sales culture from transactional to solution-based, something admittedly more nebulous, could not be done with the simplicity of a corporatewide email announcing a new sales approach. In fact, Eckstein says, the process continues two years after its inception. And along the way it required actions that challenged the culture and personality of Dow Corning. Whether on the frontline of sales or in the often faceless world of manufacturing, employees needed to adopt a more customer-focused approach. According to Eckstein, who is a champion of this CRM approach, the message sent to all employees was, "We have to be aggressive about changing. The status quo is our enemy."
To induce this change the company put salespeople through multiple training sessions, during which they role-played probing techniques to teach them to gain greater insight into the long-term strategies of customers. They could no longer just go to a purchasing manager and book products. They had to learn to investigate the deeper issues facing a customer, and gain influence in an organization so they could start meeting with executives higher in the decision-making process. Eckstein says, "We have to ask, What have we got, what does a customer want, and how can we put that together for a win-win situation that provides value to both organizations?"
Dow Corning uses Siebel Systems' Siebel 7 to support these efforts; to ensure user adoption the company created what it calls a Solutions Support Team: a specialist within each selling unit to help implement the Siebel CRM system. The company had a different strategy to encourage managers to adopt the system. "We put out a list of managers who didn't use CRM and quickly saw adoption," Eckstein says. "The reaction was, 'I didn't know they were tracking this.'"
That wasn't all. The company adopted new compensation plans, with traditional sales quotas now being supplemented with quotas for sales solutions. "You work the behavior you want to see into their goals and remuneration," Eckstein says. "I can't stress enough the importance of reward and recognition to drive behavior. You can train people, but you have to reinforce it."
Whether it's the training, the rewards, or both, the company is getting the results it sought: new business and new revenue from areas it once never imagined.
While reps continue to push the Dow Corning product line, they also now offer a variety of ancillary services one would hardly expect from a silicone company, including providing help with foreign regulatory issues, optimizing supply chains, and even translating customer product labels for international markets. For instance, Avery says he recently helped to develop a solution for a customer with inventory concerns. "They were facing corporate guidelines asking them to reduce inventories and reduce costs in general," he says. Avery only discovered this after meetings not just with the customer's purchasing and technical officials, but also with its president. After subsequent meetings with Dow Corning officials to determine potential solutions, Avery had a remedy to propose: "We were able to provide contract packaging to them in a customized form and that freed them up to not having inventory anymore--we would, basically, handle inventory. We took a transactional process out of their hands, saving them money and getting us better profitability as well."
Dow Corning also offered nontraditional help to a customer that had an eye on opening markets in Indonesia. The problem? Shipping product there from the U.S. would be excessively costly. According to Eckstein, "We set up supply chains so we could manufacture their product using our material and their formula and expertise in our plants in Thailand and get it shipped into Indonesia." There, the company would have its own salespeople on hand to distribute the product.
"If we hadn't asked, we would never have gotten that business," she says. Now "we're tied hand and glove to that customer and have built a competitive barrier."
Obviously, such solutions bring more complexity to the customer relationship. But with complexity comes the potential for added value--and dividends. In January, when announcing the company's 10 percent revenue increase over 2002, Dow Corning CFO J. Donald Sheets said, "Sales and profit increases were enhanced by a broad range of innovative technologies and solutions tailored to meet customers' exact needs."
Numbers aside, the new approach shook up a drowsy company, giving it a renewed spark and focus to face a more competitive landscape. "If anything, it was very energizing," Avery says. "As a seller you always want to develop the relationship further in the [customer] organization." Now Dow Corning employees have a mandate to do it.
"A good seller is already listening to the customer," he says. "But now he has more opportunity to say, 'Hey, we can do something for you. Give us a shot.'"
Snapshot: Dow Corning
Australia, Asia, Europe, South America
Joint venture of:
The Dow Chemical Company and Corning Inc.
$2.87 billion (2003); $2.61 billion (2002)
$177 million (2003); $141.6 million (2002)
7,000 (specialty: silicone-based)
CRM solutions in place:
Siebel Systems; SAP (for Xiameter)
Source: Dow Corning
Since introducing a new customer-oriented focus in 2002, Dow Corning has seen the following results:
Revenue rebound: In 2001 revenues were down 11 percent. But they grew 7 percent in 2002, and 10 percent in 2003.
Web success: Dow Corning's Web-based sales channel, called Xiameter, continues to be an efficient means to service customers looking for no-frills solutions.
Global entry: For customers looking to expand abroad, Dow Corning sales reps now provide the company's expertise in such areas as international regulatory issues, supply chain management, and manufacturing--and in the process are enhancing customer relationships and building revenue.
Rejuvenated corporate identity: There is a new excitement among Dow Corning's employees, especially its salespeople. "[In 2001] employees were ready to say, 'I am going to go where you lead me, because I see we need to travel in a new direction,'" says Marie Eckstein, global industry executive director, Dow Corning.
Lessons learned on the road to success
According to Marie Eckstein, Dow Corning's global industry executive director, these are among the lessons learned by the company and its employees since transforming from a company that was transaction-based to one that is solution-based:
A change in business strategy must be reflected in every aspect and every level of the company.
Success is no longer about technology leadership or cutting-edge products alone.
Success requires achieving a competitive advantage even if it disrupts the status quo.
Companies must redefine success and regularly reinvent the business--in good times and bad.
Charles Butler is an award-winning journalist based in New York