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Formula for Efficiency

Formula for Efficiency

Low-margin industries — such as chemicals — usually don't invest heavily in IT. But Dow does. Its CEO tells us why

In 1996 the Dow Chemical Company, which at $US46 billion in annual revenue sits comfortably in the top half of the Fortune 100, set a series of ambitious environmental, health and safety goals — ranging from decreasing leaks and emissions to improving overall safety performance — that it hoped to attain by 2005. Dow claims that it reached slightly more than half its goals, and it credits a transformation brought about in large part through IT. Over that time, Dow spent about $US700 million on IT per year, leading to a $US2.3 billion increase in productivity.

Recently Dow CEO Andrew Liveris set a new round of goals, which he hopes the company can reach by 2015. The goals include reducing the company's energy consumption by 25 percent and achieving at least three breakthroughs in the areas of clean water, food and housing. Once again, Dow is depending on IT to lead the way.

Liveris, a native of Darwin, Australia, has been with the company for 30 years. A self-proclaimed Treo addict, Liveris talked to CIO about how his company has changed in the course of the past decade, how it will change during the next one, and his relationship with his CIO, Dave Kepler.

CIO: Ten years ago Dow decided to reinvent itself. Can you describe that transition and how IT enabled it?

Andrew Liveris: In the mid-1990s we changed the company's corporate model from [decentralized], where we ran as six geo-graphically dispersed units, to one centre that supported all the different lines of business. We wanted to create common work processes across the company, and that made us to look at our IT architecture for the first time. Up until that time, we were full of legacy systems. We were fragmented. Even basic communication between the geographic units was difficult.

It took us several years, but we redesigned our work processes and put in place a common platform — a single instance of SAP. During that transition IT went from something that was viewed as fairly broken to one of the strengths of our organization. Dow has now averaged 8 percent year on year productivity growth for 10 straight years. We've done that through automation, through greater efficiency of our human capital, better organizational design and improved tools in the IT space.

Companies in low-margin industries, such as chemicals, don't usually spend a lot on IT. That's not the case with Dow. Why not?

We view IT as an enabler of our strategic and global business model, and therefore we feel that investing in IT will increase productivity and lead to savings. In other words, we've recognized that IT is one of the ways to get out of the low-margin trap.

One of the things we've decided is that different lines of business need different business models. For example, we currently have 85 joint ventures. We're also launching new market-based businesses that focus on specific customers — Dow Water Solutions is an example — as well as growing through acquisition. All these business models have to have the same back end when it comes to IT but very different front ends. That's something we've embraced in our IT design. We need to leverage the back-end systems and functions across our joint ventures-in manufacturing plants, on the governance side-in order to keep our operational efficiency. Investing in IT allows us to have that while enabling these different business models.

Do you want your IT department to be cutting edge?

Absolutely. Twelve years ago, if you had asked me that question, I would have thrown up. But today we're cutting edge. We're a preferred customer with all the big name vendors, and we're seen as the quintessential client. We're at a point in the Dow world that if I get tripped out of my Treo port for two hours, I get bummed.

Have you ever vetoed one of CIO Dave Kepler's ideas?

No, not on my shift [as CEO]. I have a huge comfort level that all the right questions have been asked before they get to me. Having said that, I read every line and understand the parameters of every proposal, but in general Dave is so intimately involved in our corporate strategy that from my point of view he's completely free.

The best compliment I can give my IT department is what I've asked Dave to do above and beyond being CIO. He runs all the shared services in the company except human resources. He's added more things to his plate because those things are so complementary to the notion of IT being an enabler.

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